The 10-year search partnership, crafted by former Microsoft CEO Steve Ballmer and former Yahoo CEO Carol Bartz, allowed the companies to amend or terminate it after five years.
Last month, the companies extended by 30 days the deadline to renegotiate the deal.
Earlier, Microsoft controlled how Bing displayed search results on Yahoo websites accessed on PCs.
Microsoft will now own the ads delivered from its own Bing Ads platform.
Yahoo was responsible for sales for Bing search ads.
Microsoft and Yahoo plan to transition sales responsibilities starting this summer.
Originally, the deal also included a revenue-sharing agreement where Microsoft paid Yahoo a percentage of Bing ads revenue delivered from Yahoo searches. This structure would remain intact, the companies said.
Yahoo and Microsoft shares were down marginally in late-morning trading-Reuters