Report: Microsoft, Yahoo talking again

Microsoft and Yahoo have begun talking again and this time the focus is on search and advertising deals and not acquisition, according to a report in The Wall Street Journal.  

The talks come as little surprise becauase Microsoft CEO Steve Ballmer has said repeatedly as of late that he thinks a deal with Yahoo makes sense. His stance, however, is a 180-degree turn from November when he declared "acquisition discussions are finished."

But last month, Ballmer said he had talked with new Yahoo CEO Carol Bartz once and his expectation was that there was a good opportunity for a partnership. He said the scale that Yahoo operates on is compelling to Microsoft.

In February, he told financial analysts, "You all know that I would like to figure out how to pool somehow Microsoft and Yahoo. I'm not talking about doing an acquisition, blah, blah, blah, back to search deals, blah, blah, blah, I don't know if anything is going to happen…but the fact of the matter is, these two [Microsoft, Yahoo] should somehow figure out how to get together and create more competition for [Google]."

Ballmer admitted that Google has roughly three times as many advertisers on its platform, and those advertisers are bidding on a "far broader" set of keywords, and that Google has a better database of ad listings.

"What's our strategy?" he asked in February. "We've got to make fast releases quickly."

Since the failed bid for Yahoo last year, Microsoft has hired noted search expert Dr. Qi Lu, who was executive vice president in Yahoo's search and advertising technology group, and 10 other key technologists from Yahoo, according to Ballmer.

Those ties between Microsoft and Yahoo could make for a quick integration of operations and technology.

Last month, Microsoft began testing a search engine, code named Kumo, that it says will offer a smaller but more relevant pool of search results as a way to differentiate it from Google. The company also plans in June to begin a nearly $100 million ad campaign around the new search engine.

Yahoo's Bartz said recently that if the two companies did talk it would happen privately. When she took over in January, she said all of Yahoo would be under review.

Microsoft made a $44.6 billion unsolicited offer for Yahoo last year that became a public lightning rod, eventually broke down, angered Yahoo shareholders and ultimately cost then-Yahoo CEO Jerry Yang his job.

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