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Microsoft's Latest Yahoo Gambit: Why This, Why Now?

Make no mistake, Microsoft's newest grab for a piece of Yahoo is all about Google, and little else. And it may be a coincidence, but its announcement seems perfectly timed with Microsoft's annual ad conference, advance08, this week.

Microsoft desperately needs a bump in scale as it continues to invest in search and advertising, and Yahoo's the easiest way to get it. Doing so with an ad deal is a either a good way to avoid Google entering the picture as it would have during a protracted hostile takeover bid for Yahoo, or a way to stave off Google just to buy some time in order to eventually make such a bid without Google's interference. And pushing for Yahoo again now, as opposed to last week or next, is an easy way to drum up interest in and create discussion for the conference this week.

Yahoo might not be able to turn Microsoft down. While Microsoft made unrequited partnership overtures last year before it made its multibillion bid for Yahoo, that was before Yahoo's shareholders started filing suits and proxy bids for control of the company.

The deal with Microsoft seems to be a better fit than a similar deal with Google, which would likely raise antitrust concerns because of Google's already dominant search and Web advertising market shares.

The wild card: the thinking of Carl Icahn, who's launched a proxy bid for control of Yahoo's board of directors. A one-off ad deal still takes Yahoo out of a search and ad game in which it's tried hard recently to compete, spending millions on an ad systems, cutting side deals and buying related companies.

If Icahn doesn't go along, this months-long saga might just get messier. He may even be able to force the two companies back to the negotiating table for a full-on acquisition. After all, an acquisition is a tack Kevin Johnson, president of Microsoft's platforms and services division, reserved the right to take in an e-mail to employees just this weekend.

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