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In another effort to boost its shrinking shares of the online search market, Microsoft Corp. (NASDAQ:MSFT) announced Monday a search distribution deal with its old rival Sun Microsystems (JAVA).

Under the terms of the agreement Sun will promote the MSN Toolbar to U.S.-based Internet Explorer users as they download Sun’s Java Runtime Environment [JRE] software platform. The toolbar has a built-in box for queries to Microsoft’s Live Search and buttons that give users access to Live Search features such as news, entertainment, sports and additional content from the MSN network.

The deal for Microsoft is an imitation of the high-profile partnership agreement Sun Microsystems struck with Google (NASDAQ:GOOG) in 2005 where the Google Toolbar was bundled into downloads of the Java Runtime Environment. Java was then used to power new software developed and released by Google. (According to vice president of Java marketing, Eric Klein, the Google deal is ending)

Sun and Microsoft are now partners but they have been bitter enemies and competed fiercely in the past on several fronts. In particular, Sun was one of the most prominent antagonists in Microsoft’s long antitrust fights. In 2004, the Redmond-based Microsoft was ordered to pay $1.6 billion to Sun Microsystems to settle anti-trust issues and resolve patent litigations. Microsoft was also ordered by the courts to make an up-front payment of $350 million to Sun to cover patent royalties for server products.

Sun and Microsoft did not disclose the financial terms of their latest agreement, as well as the duration of the partnership. However, the agreement between them shows how far their business relationship has evolved.

Yusuf Mehdi, senior vice president of the Online Audience Business at Microsoft said:

This agreement with Sun Microsystems is another important milestone in our strategy to secure broad-scale distribution for our search offering, enabling millions more people to experience the benefits of Live Search.

While the Java deal only applies to Internet Explorer users, it should provide a boost for Microsoft because the Java Runtime Environment is one of the highest-volume consumer downloads on the Web, with tens of millions of downloads each month. According to Sun, the Java Runtime Environment is found on over 800 million PCs. The software platforms is already present on 91 percent of Internet-connected PCs worldwide.

Microsoft has also reached a deal with Hewlett-Packard (NYSE:HPQ) to install a Live Search-enabled toolbar on all HP consumer PCs planned to ship in the United States and Canada, beginning in January 2009.

Source: Sun and Microsoft: Markets Make for Strange Bedfellows