Vinton Cerf, vice president and chief Internet evangelist at Google, also said the ongoing energy price surge and economic slowdown may have a positive impact on the Internet business as people try to cut fuel use and improve efficiency.

"In the case of Yahoo, the company believes that it will be beneficial to assist Yahoo with its experiment," Cerf told a press event on the sidelines of the OECD Ministerial Meeting on the Future of the Internet Economy.

"That's all this is: a non-exclusive arrangement to allow Yahoo to use at their discretion some of our advertising capability."

Archrivals Google and Yahoo Inc agreed last week on an advertising partnership under which Yahoo let Google put search ads on its site in a deal Yahoo called an $800 million annual revenue opportunity.

At the same time, Yahoo ended months of on-again, off-again merger talks with Microsoft Corp <MSFT.O>, a big blow to Microsoft's plan to build a strong footing in online advertising.

Billionaire financier Carl Icahn, who launched a proxy battle in May to replace the board of Yahoo in the wake of its failed deal to be acquired by Microsoft, said on Sunday Yahoo's deal with Google "might have some merit."

Google and Yahoo are ranked No. 1 and No. 2 in search, respectively.

Asked about Microsoft's move to enlist support against the Google-Yahoo collaboration, Cerf said: "We simply say we're trying to encourage competition in the environment and we'll take steps to assist where that seems to be possible."

Sources have told Reuters that Microsoft contacted advocacy groups, saying the Google-Yahoo agreement would "limit choices for advertisers and publishers" and "destroy a competitive alternative."

Cerf also expressed optimism for the industry amid the global economic slowdown.

"In a very peculiar way it may have a positive impact on the Internet," he said.

"Information technology can sometimes substitute for transportation...information technology can also be used to more efficiently use scarce resources, so as an example we may increasingly turn to video conferencing or other kinds of electronic media in order to avoid having to travel."

Microsoft had hoped a Yahoo deal would accelerate its ability to capitalize on Web advertising growth and compete with Google.

(Reporting by Rhee So-eui and Marie-France Han, editing by Keiron Henderson)