The three companies are going to start selling ad inventory on each others' sites, in a plan they hope will make them more competitive with Google.
The strategy is also designed to help them claw back some ad spending that has ended up in the hands of ad networks in recent years.
Executives from all three companies briefed a group of top web publishers and ad buyers about the plan at a dinner presentation Tuesday night in Manhattan. AOL, Yahoo and Microsoft hope to convince big web properties to share some of their ad inventory as well, and to get big ad holding companies to funnel some of their purchases through the consortium.
According to people who attended the meeting, Microsoft, Yahoo and AOL have agreed to sell each other's "Class 2 display" inventory -- graphic ads the companies cannot sell on their own and would normally hand over to ad networks.
The theory is that if, say, AOL has a big order for a certain kind of ad impressions, it will fill it with its own inventory as well as what is available from Microsoft and Yahoo.
The three companies will share revenue on the ads, and if all goes according to plan, they will pocket more than they would have if a third-party ad network sold their stuff. It is up to each of the three companies to figure out how to convince their own sales teams to sell their competitors' inventory.
The plan, which is supposed to start up by the end of this year, does not require exclusivity from any of the players. And it does not prevent any consortium member from working any ad network, ad tech company or even Google.
But it's clearly targeted at all of those groups, and Google in particular. Google has made almost all of its money in search ads but has been moving aggressively into display ads in the last few years, and recently unseated Yahoo as the biggest display ad player in the US.