Yahoo talks to Microsoft, gets stock boost

Shortly after the news broke that Yahoo CEO Carol Bartz and Microsoft chief exec Steve Ballmer were having "discussions," Yahoo's stock price shot up 7.05%, to $14.42. Seems Wall St. likes the idea of Yahoo and Microsoft partnering up against Google on some kind of online ad deal.

According to AllThingsD's Kara Swisher, the talks are fairly wide ranging and could include some kind of services swap plan whereby Yahoo would take over Microsoft’s display and premium advertising business to sell along with its own, while Microsoft would handle the search advertising business for both firms.

Such a deal would be a boon for both Yahoo and Microsoft, especially as they look to compete with Google. While Google practically owns the online search advertising business, with 76% market share according to recent numbers released by Efficient Frontier, a Yahoo-Microsoft partnership could put a significant dent in its efforts. For example, Stifel Nicolaus analyst George Askew said in a note that Yahoo and Microsoft together reach 86% of unique onine users via display ads, while Google in comparison reaches 78%, mostly via YouTube.

Beyond the market synergies of a Microsoft-Yahoo ad deal, however, is the fact that Microsoft seems to have abandoned its original plan to acquire Yahoo--or at least its search engine business. As Market Watch notes:

Gartner Inc. analyst Andrew Frank said much of the positive sentiment around the possible partnership with Microsoft is due to relief that Yahoo isn't considering selling off its search service all together."There's a sense there's more flexibility around figuring out a partnership, as opposed to something that people think might hobble Yahoo in the long run," Frank said.

Still all that good news for Yahoo didn't rub off much on Microsoft, whose stock actually lost about 8 cents a share, to close at $19.59. And as for Google? Investors don't seem to be taking the new competitive threat too much to heart. Its share price has been rising steadily, from $290 on March 9 to a high of $378 yesterday.

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