The deal would mean that MySpace, which has more than 75m registered users worldwide, would let either Microsoft or Google supply internet searches on its homepages, along with tie-in ads.
MySpace was bought by Rupert Murdoch's News Corp last year for $580m, and similar deals in the past have seen companies splitting ad revenue, with the majority going to the website that provides the audience.
The Financial Times today reported that Microsoft and Google are each in talks with MySpace regarding the venture.
Eric Schmidt, chief executive of Google, told the FT: "We've looked at this carefully, these online communities will evolve and search will be part of it. There's not going to be a single winner."
The potential for MySpace to increase its stronghold on the market through either Microsoft or Google, will significantly heat up competition in the sector for overall dominance.
Yesterday, rival portal Bebo said it had struck an 拢8m deal with Benchmark Capital, owners of Irish pay-TV group Setanta, to invest in the website's blogging, home video and user-generated content technology.
MySpace is currently the most popular networking site on the internet, garnering 12.2% of visitors, with Bebo in second place on 10.3%. Benchmark Capital is confident that gap can be significantly reduced once Bebo's website technology is upgraded in the autumn.
In other developments, Google's Schmidt has warned that the company needs to reintegrate its growing list of products back under the Google umbrella.
At yesterday's Zeitgeist conference in Hertfordshire, Schmidt said: "Innovation is best delivered by small teams, but there is a penalty for that. We are changing our strategy to ensure that products are not developed in isolation."
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