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Yahoo cozying up to Google; Microsoft cries "monopoly"

UPDATED: This just keeps getting better and better. Microsoft lost no time in issuing a statement regarding Yahoo's

ad outsourcing deal with Google, originally reported by the Wall Street Journal, and confirmed by Yahoo, on Wednesday. Microsoft says Yahoo and Google can't link up because they would create a monopoly. Microsoft ought to know a monopoly when it sees one.

The Microsoft press release says:

REDMOND, Wash. — April 9, 2008 — Microsoft Corp. (NASDAQ: MSFT) today issued the following statement from Brad Smith, Microsoft’s General Counsel, related to an announcement today by Yahoo! Inc. (NASDAQ: YHOO):

“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.”

Specifically, in yet another effort to make itself unpalatable to Microsoft, Yahoo is planning on entering an outsourcing agreement with Google for online advertising. A Wall Street Journal story says:

The short-term test, involving a very limited percentage of Yahoo's Web search queries, is designed for the two sides to evaluate the revenue potential of a broader search ad outsourcing arrangement. They have been discussing such an arrangement as part of Yahoo's pursuit of alternatives to Microsoft Corp.'s unsolicited acquisition offer, according to people familiar with the matter.

Yahoo confirmed the deal with this announcement.

[Yahoo] announced today that it will begin a limited test of Google Inc.'s AdSense for Search service, which will deliver relevant Google ads alongside Yahoo!'s own search results. The test will apply only to traffic from yahoo.com in the U.S. and will not include Yahoo!'s extended network of affiliate or premium publisher partners. The test is expected to last up to two weeks and will be limited to no more than 3% of Yahoo! search queries.

The test itself clearly doesn't constitute a monopoly. A more widespread agreement, now that's a different story. How likely is it that Google will want to buy Yahoo? Google could have made a counter offer for Yahoo at any time. In the meantime, Yahoo has engaged in a long list of activities to make its shareholders believe they would be better off rejecting Microsoft's offer. In Feb. it offered golden parachutes to employees, In March its leadership forecasted a 73% increase in revenues in a three-year plan. Also in March, Yahoo helped Google form a data portability consortium that competes with Microsoft's data portability efforts. In the meantime, Microsoft has supposedly put together an alternative board, in preparation for a proxy-fight hostile takeover.

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