Last gasp? Yahoo and Google talking search ad deal

When Microsoft’s offer to acquire Yahoo was made public, Google stated it would be willing to help Yahoo fend off the acquisition in anyway it could. It’s now or never.

Yahoo is talking with Google about having them handle some of the advertisements on its search pages, The Wall Street Journal reports. This partnership is said to be a test for what could become a larger one — which reads a lot like: A test, small enough to make sure the government doesn’t get involved with its antitrust hounds, but with enough promise to allow Yahoo to fend off Microsoft.

Yahoo has been in talks with several other companies about potential partnerships that would allow it to placate the shareholders clamoring for the company to accept Microsoft’s bid, but none of those discussion have proven fruitful. Yahoo has also stated that its financial outlook for the future is good even without any partnerships (our coverage), but that future seems cloudy at best.

While a Google ad partnership may make sense on paper to save Yahoo, one can’t help but wonder if giving away valuable search advertisements is a “cutting off the nose to spite the face” situation, as Allen Stern of CenterNetworks notes.

Microsoft has stepped up its effort in recent days to put pressure on Yahoo to accept its offer. Yahoo has been given three weeks to come to the table and formally talk about a deal before Microsoft will take a less valuable offer directly to the shareholders and seek to put new board members of its choosing in place (our coverage).

Yahoo responded to Microsoft’s threat by basically calling its chief executive, Steve Ballmer, a liar and a cheapskate (our coverage).

The countdown to a nasty public letter from Microsoft about any Yahoo/Google deal, begins now.

update: As we expected, it only took Microsoft a matter of hours to shoot back with a release about the Google/Yahoo deal. It’s only three sentences but emphasizes the point that Google and Yahoo combined control over 90 percent of the search advertising market.

The full statement by Microsoft general counsel Brad Smtih:

“Any definitive agreement between Yahoo! and Google would consolidate over 90% of the search advertising market in Google’s hands. This would make the market far less competitive, in sharp contrast to our own proposal to acquire Yahoo! We will assess closely all of our options. Our proposal remains the only alternative put forward that offers Yahoo! shareholders full and fair value for their shares, gives every shareholder a vote on the future of the company, and enhances choice for content creators, advertisers, and consumers.”

[photo: flickr/jesse2284]