According to reports, Google has abandoned the proposed advertising deal with Yahoo that has been in review by the Department of Justice since June of this year. Apparently, Google doesn’t want to get into a long drawn-out fight with the Justice Department now that regulators have come out and said they will file suit to stop the deal.

This is a massive blow to Yahoo who was really looking to this deal to bring in some much needed revenue. Now that the Microsoft deal is dead, I’m not sure what Yahoo is going to do.

Yahoo’s management has been under pressure since rejecting the $33 a share offer from Microsoft, which valued the company at $47.5bn (£29.4bn).

Yahoo shares were trading at $14 each on Wednesday.

Now that the Google deal has fallen through, Yahoo may find itself having to try to do another deal with Microsoft, although Microsoft has publicly said it is no longer interested.

Carl Icahn, a Yahoo investor who now sits on its board, went as far as to try to sack the entire Yahoo board to try to resurrect the Microsoft deal.

Of course, the other option is for Yahoo to find some way to salvage their ad program and not rely on a competitor to power its advertising. I remember seeing the grand unveiling of their new ad platform and it actually caused their stock price to drop further. Seems like nothing but bad news for Yahoo today.

CNN Money has a great article on Yahoo’s continuing woes. The credit crisis seems to be hitting Yahoo really hard at a time when they’re needing growth more than anything. Years have gone by while Yahoo struggles to turn around the company. It doesn’t help any that the deal between Google and Yahoo still has not been approved by the Justice Department. On top of that, Google is projected to take an even larger market share.

Yahoo is steadily losing market share to Google (GOOG, Fortune 500), the leader in paid search. Google will score 73.5% of the $10.4 billion that advertisers will spend on search in the U.S. this year, according to eMarketer. Yahoo has a 13.3% share. (In 2007, Yahoo had a 15% share and a 20% share in 2006.)

The continued decline of Yahoo makes me wonder how much longer they’ll be doing what they’re doing. They still have a very large number of users and I know that some other company would love to have them.

Yahoo has introduced two major programs to increase profits in both search and display. The company struck an advertising deal with Google in June to outsource a portion of search ads. Yahoo hopes to generate as much as $800 million from the partnership next year. However, the Justice Department has delayed the deal while it conducts an antitrust review. Yahoo also introduced a new service last month to make selling display ads easier for marketers. Yahoo CEO Jerry Yang called the APT platform a “game changer.”

Yahoo seriously needs to consider diversifying a little bit like Google has been (gmail, google checkout, android, etc..). Their biggest deal is outsourcing a portion of their ads to their biggest competitor. I don’t know what they can do to turn the whole thing around outside of developing some new products or purchasing some existing popular sites/applications such as digg.

Today, Yahoo hit a five year low for their stock price.