Though the information has not been confirmed by Google itself, TechCrunch claims to have checked with several sources that Google has indeed invested between $100 – 200 million in Zynga.

The deal which is believed to have gone through about a month ago, is likely to be followed by a strategic partnership between the two companies.

The investment has been made by Google as they are believed to be in the process of launching Google Games by the end of the year.

The partnership with Zynga will not only allow Google to have a good support for building up their social games, but will also indirectly help to attract more users to their social site through the games. If available statistics are to be believed, about 155 of Facebook users play FarmVille daily.

Zynga is known to have played a similar role, to establish Facebook as a leading social network in the past.

If Google is able to replace PayPal, with Google Checkout as the main mode of payment for Zynga games, that will be an additional benefit to them.

In the mean time, Zynga has been doing pretty well for itself. They have raised $500 million in the last year, and their revenue for the first half of this year is $350 million.

Facebook on their part will have to remain on their toes, if they do not wish to lose their top ranking in the social network market. They have also recently signed a 5 year distribution deal with Zynga, which may not seem very prudent now.

According, to the Business Insider, inside sources reveal that AOL is actually looking for a buyer in Microsoft. Even if these rumours prove to be false, anyone who gets the search deal would have an edge for an eventual takeover of the company.

The rumours could be based on the fact that Microsoft has for long been on the lookout for a company that can help boost their share in the search market.

Microsoft can certainly afford to buy over AOL. They would be able to merge several of their features, such as mail, search and maps. They would also acquire a lot of man power, which would help in future projects and ideas. Most importantly, though, they would manage to cut off a major source of revenue for Google and secure another small chunk of the search market.

Google currently has a search deal with AOL. The search giant is not likely to be interested in a buy out of the company. Their interest would only be in renewing the search deal. However, if push came to shove, they might buy AOL just to prevent Microsoft from getting it.

According to experts, Microsoft may wait for AOL’s quarterly results before finalising such a deal.

The search company has now started its own trading floor, to manage their internal cash reserve of around $26.5 billion.

Considering the size of the cash reserve, it seems like a very prudent decision, as they are now likely to earn higher and faster returns.

Initially, Google will use part of this money to buy back shares which they had surrendered to acquire AdMob. This transaction has already been given the green signal by the concerned U.S. authorities. However, Google has not yet specified what else they intend to do with the money.

The trading floor which was started in January 2010, and the investment team which had only 6 members 3 years ago, now has over 30 members. Some members in this team have had experience in such financial institutions as J P Morgan Chase and Goldman Sachs etc.

The head of the team Brent Callinicos has been with Google since 2007, when he left Microsoft. Since then Google’s cash reserves have steadily risen from $11 billion to the present level.

The trading floor is located in the company head quarters itself. It is a very well equipped state-of-the-art set up from which the staff can operate in comfort.

Brent Callinicos has made good use of the software engineers available at Google to build special software through which their complex operations can be monitored and easily accessed.
This software allows them to monitor 98% of their holdings in real-time, while most institutions can monitor only 60 to 70% of their positions in real-time.

Callinicos has now decided to go in for a high risk, high return style of investment. The corporate debt securities have gone up from $695 million a year ago to $4.9 billion on March 31. Agency residential mortgage backed securities have also risen from $60 million to $3.3 billion in the same period.

Google is still in the process of adding specially qualified members tot heir team, and though it is believed that the search specialist does not pay as well as some other financial institutions, the stability that the company offers can be a big incentive in turbulent economic times.

CEO, Eric Schmidt, has said that Google is not giving out dividends in the near future as they will hold on to their reserves for mergers and acquisitions at the opportune moment.

AdMob founder and CEO, Omar Hamoui, says, “We are extremely pleased with today’s decision from the Federal Trade Commission to clear Google’s acquisition of AdMob”

The FTC had to seriously consider the impact of this deal on competition. The search leader’s biggest potential competitor, Apple, unwittingly helped Google by announcing plans to start their own mobile ad network.

Google advertising already includes industry-leading platforms including DoubleClick, AdWords, AdSense and Analytics. AdMob adds to Google’s product offering and will solidify their position in the mobile industry, irrespective of Apple’s attempts to break into the mobile ad industry.

Wasting no time over the question of whether or not the deal would be approved, Google has already been developing a number of new mobile ad formats, which were announced during I/O.

One of the new formats will be expandable ads for mobiles. Google will also enable click-to-call ads for mobile content and apps in the next few weeks. Click-to-call ads will work for ads on the mobile content network and on mobile apps. Advertisers can enable them by enabling phone extensions in an AdWords campaign that targets mobile handsets with full Internet browsers. The ads will appear as animated banner text ads with a call button. Advertisers can enable the click-to-call service by first ensure that their campaign is set to show on “All Available Sites”, setting up phone extensions, providing the business phone number and then choosing to show ads on “Mobile devices with full Internet browser”.

Executive Vice President, Jon Broad, stated in a memo to employees, “Bebo, unfortunately is a business that has been declining and as a result would require significant investment in order to compete in the competitive social networking space. AOL is not in a position at this time to further fund and support Bebo in pursuing a turnaround in social networking.”

AOL has recently separated from its parent company, Time Warner, and is itself struggling to compete against other dial up services.

A strategic evaluation of Bebo is underway, and the results are expected to be out by the end of next month. It is  reasonable to expect that the estimated selling price will be much lower than what AOL paid for it.

According to comScore, Bebo had 5.8 million users at this time last year, but has only 5.1 million users at present, which itself is a bad sign. Compare this with the hundreds of millions of users that other sites like Facebook and Twitter have gained, and Bebo’s figures seem miniscule. It is highly likely that Bebo has been a casualty of the growing popularity of Facebook and Twitter.

It is also possible that AOL may eventually decide to abandon Bebo, instead of selling it. This would allow AOL to avail of certain tax incentives, rather than selling Bebo at a very low price and showing a capital loss on their accounts.

Picnik allows users to edit and share their photos like several other sites, but what is especially significant about them is the fact that unlike the other sites, users of Picnik do not need to download any special software to edit the photos. They can do so directly in the cloud.

At present, Google will not make any changes to Picnik. The entire team of 20 employees will continue to work for Picnik. They will introduce some new features and integrate the service with Google’s existing products in future. Google may incorporate Picnik’s technology into Picasa Albums, which they also own. Google will also continue to support all existing partners of Picnik.

Details regarding the terms of the deal between Google and Picnik are not available at present.  Picnik is currently among the fastest growing photo editing sites and is already integrated with Flickr, SmugMug and some other sites.

Flickr, which is owned by Google’s competitor Yahoo! will most likely discontinue using Picnik as its default photo editor. Why Yahoo! hadn’t acquired Picnik in the first place is not quite known.

Jonathan Sposato, CEO of Picnik has already worked with Google in the past, when he sold PhatBits to them in 2005. He will now be back with Google.

In the recent past, Google has bought over reMail, the email app for iPhone, and a social search startup, Aardvark, in addition to some smaller companies. Maybe, they have decided that the global recession is over and have started spending again.

Yelp, which was founded in 2004 by two former employees of PayPal, is a local review website that allows users to read or write reviews about various businesses. Their revenues in 2009 will be around $30 million and are expected to touch $50 million in 2010.

comScore has estimated that Yelp receive nearly 9 million unique monthly visitors, though the company claims that they get close to 25 million unique visitors per month.

Google has been developing its own local business directory, with Place Pages and Google Maps, wanted to have Yelp on their side, and were believed to have offered them around $550 million plus earnouts to do so.

Talks were believed to be at a very advanced stage and the deal looked almost certain to go through. But, almost at the last minute, something made CEO Jeremy Stoppleman change his mind, and he has turned down Google’s offer.

It is not yet known what influenced this turn around, but speculations are rife that some other big company, possibly Apple or Microsoft, made a counter offer or a strategic deal with Yelp, which has caused this sudden change of heart.

The latest rumour making the rounds is that Microsoft may buy Ask.com, which has been up for sale for a long time now. Barry Diller, the Chairman of InterActive Corp, the parent company of Ask.com, has said that the search market is challenging, and he would be quite willing to part with his search engine (In exchange, for appropriate remuneration, of course.)

Under the circumstances, Microsoft would seem to be the most likely to buy over the company.

Although Microsoft’s new search engine, Bing, is doing quite well for itself, especially after announcing various deals with Twitter, Facebook and Yahoo!, it is still a distant third in the search engine market, with only about 9.4% market share in the USA.

Ask.com, which is ranked 4th in the search market, holds about 4% of the market share, which would help Bing gain a better foothold in the market. Also, this deal could interest Microsoft, as Ask.com earns most of its revenue from an advertising deal they have with Google.

Microsoft would also not have to deal with any regulatory concerns, as they still have a very small percent of the total market share even after their deal with Yahoo! is factored in.

Lastly, Microsoft would certainly have the resources to takeover Ask.com if they are so inclined.

With 64.9% of the U.S. market share and over 85% of the European search market still securely tucked under its belt, Google can still rest easy.

Through FriendFeed, it is possible for users to share all sorts of social media updates, such as those on Facebook, Twitter and blogs from one site itself. It will now be easier for Facebook users to access updates from other platforms. Users won’t need different applications or APIs to access updates, as they had to do earlier.

Facebook has already started rolling out FriendFeed features to users and it should be available to all Facebook users within the next few days. Then, users will be able to see live activity feeds from all their friends who allow their updates to be publicly accessed.

Facebook has been trying to compete with Twitter as far as real-time indexing of search results is concerned, but have not yet been very effective there. FriendFeed has already incorporated this feature in their site, so it is now readily available to Facebook users.

Now Facebook can use this feature to serve ads for various brands while giving its 250 million users access to a very vast amount of data.

Many have argued that Facebook probably bought a much better deal than Twitter, as the latter is currently riding high on a surge of popularity and would probably command much more than its true worth from any prospective buyer – possibly the reason why merger talks failed back in March.

Twitter-esque feeds and functionality are already available on Facebook and their new iPhone app. They need not acquire Twitter to mimic that functionality. Facebook’s user base is also much larger – 250 million and counting!

The speed with which Facebook has rolled out the real-time search functionality, though, indicates that rather than combat Twitter’s micro-blogging dominance, their main objective is dominance of the real-time search space, which could then turn into yet another giant’s battleground, this time between Google, Microsoft and Facebook.

It seems likely that Google would be interested in buying Twitter, as Twitter is a very valuable asset in the emeerging field of real-time search. It can provide a great real-time database of information, as reported by over 7 million potential sources – the current estimated number of Twitter users.

Several users are now making use of Twitter to discuss various issues like brands, customer care, feedback and the news. This database of information can easily be mined to pull current news and can be monetised with ads.

While there is no official word on the price being discussed between the two companies, it is certainly expected to be well over $250 million, which was the figure arrived at during the latest valuation of Twitter.

Twitter had recently turned down an offer of half a billion dollars from Facebook. That amount was to have been paid mainly in Facebook stock, which is not publicly listed, and was deemd to be overvalued. Google, on the other hand, would pay in cash or its publicly listed stock, which is certainly a better option.

Founders, Biz Stone and Evan Williams have also dealt with Google earlier, when they sold Blogger to the search engine.

It is also possible that Google may receive some competition from Microsoft, who may also show an interest in the acquisition.

According to reports from All Things Digital, however, the two companies are merely discussing potential product tie-ups, such as Google building a real-time search engine, and not a possible takeover.

The possibility of a potential acquisition is exciting, but most Twitter users might not be thrilled about Google acquiring the service, especially given Google’s recent spate of failures with services such as Dodgeball and Jaiku.

Facebook plans to grow as much as possible, in spite of the financial crisis. While most companies are cutting costs and laying off staff, Facebook has increased its employee headcount from 800 to almost 1,000 since the beginning of 2009. They are also not desperate to raise capital as they have about $500 million in reserve, which is quite enough for now. Hence they can afford not to be too focused on monetisation through ads.

Twitter has also grown significantly – from 800,000 unique users last year to over 6 million at present. The micro-blogging platform, though, does not generate any revenue, making it difficult to peg a real, meaningful value on it.

The plans to acquire Twitter fit in well with Facebook’s strategy of laying more stress on user growth and product innovation over profits.

When Facebook suggested a sum of $500 million to buy Twitter, it was obvious that they would have to pay in Facebook stock. The point in question was how much Facebook stock was worth. Since Facebook is a private company, its shares are not listed on the stock market.

In 2007, values ranged between $3.7 billion to $15 billion. With the current financial meltdown, though, the stocks of several companies have fallen.

According to sources, while Facebook claimed that their stock was worth between $8 billion and $9 billion, Twitter claimed that Facebook was worth only $2-4 billion. This was the main reason why the discussions fell apart.

Peter Thiel maintains that Facebook stock “is worth more than people think it is”. They also remain open to the possibility of acquiring other companies.

Facebook and Twitter still continue to have talks with each other but there are no serious acquisition considerations at present.

The rumors began after eBay CEO, John Donahue, said that Skype was a great stand-alone business, indicating that though the VoIP service is doing well, (its fourth quarter revenue increased by 26% over the third quarter, and it has over 405 million users worldwide with 30 million users being added every quarter) it was still not integrated into their core business, 4 years after they bought it for an astounding $2.6 billion.

eBay, on the other hand, is not doing too well during the current economic crisis. Their net profits fell to $367 million in the last quarter of 2008, compared to $531 million during the same period in 2007.

Jack Murphy an analyst for investment bank William Blair says “It’s important that eBay has opened the door to a buyer by talking about Skype as a stand-alone business. It would be best for eBay to get whatever cash they could for it and focus on their struggling core market business.”

According to Jim Friedland, senior Internet equity analyst at Cowen and Company, the highest offer eBay can expect for Skype is $1.6 billion.

According to industry sources companies such as Google, Yahoo!, AT&T and Verizon could all be potential buyers as they can easily integrate the VoIP service with their core business.

It is especially believed by some that buying Skype could be the logical next step for Google, as it already has various communication facilities such as Gmail, Google Chat and the Android mobile platform. Owning Skype could enable Google to offer a cheap VoIP-based mobile solution.

There are others who feel that Microsoft may be more likely to buy Skype as they are looking to increase their user base to boost search.

eBay, however, has neither confirmed nor denied any of the rumors.

A recent story run on TechCrunch says that according to trusted but anonymous sources, AOL is planning to sell Bebo as its performance has been far below expectations.

Both AOL and Bebo have denied this, saying “there is no truth to this rumor”.

According to sources, when AOL bought Bebo last March, Bebo was marketed as a clever startup that was able to win over ad agencies and clients by presenting itself very well. Ad agencies convinced their clients that they must get on to Bebo, which was growing more popular by the day in the relatively new social network market.

When AOL saw this, they obviously felt that it would be a wise move to buy Bebo, and accordingly they did so on March 13 2008 for $850 million.

Time, however, proved that Bebo did not perform as well as expected. While Bebo is popular in the U.K. with 10.5 million users, its worldwide user base is just 22.6 million.

Facebook’s meteoric rise in popularity is the biggest factor contributing to Bebo’s failure. That, and the fact that singular social networks are no longer as popular as they were, due to the growing popularity of the open social platforms is partly responsible for this. The current economic climate makes the performance of the company look even poorer. While Facebook is believed to have earned $250 million last year, and MySpace much more than that, Bebo has managed only $20 million.

A spokesperson at Bebo, however, rubbishes the rumors of a possible sell off by AOL, saying that Bebo has launched a new tool, Social Inbox, just last month. It is doing very well and will allow users to read emails from various sites and also access other social services like Twitter and Flickr. It will also integrate AOL’s instant messaging service. AOL is also reportedly planning further expansion with Bebo.

Only time will tell whether the rumors turn out to be true or not.

In the last few days there have been some stories doing the rounds that this deal would be revived in a round about manner. It was suggested that Microsoft would lend money to some executives and investment bankers, who would then buy out Yahoo! at the price of about $13 per share, which is just a little over the current market price, and then sell it back to Microsoft. Sources at both the companies have rubbished these stories for now.

Acquisition rumours may have been fuelled by a comment by Steve Ballmer, in an interview with the Financial Times, where he said, “now is a good time for the software company to buy.”

However, in an interview with the Fox Business Network last week, Steve Ballmer told Brian Sullivan that the attempt to acquire Yahoo! was “a thing of the past”. He made it very clear that the deal would not be revived, while still keeping his options open about a partnership in any other form.

During the unveiling of the next Windows operating system, Windows 7, Steve Ballmer also admitted that the current financial crisis had affected the IT industry adversely, and it was realistic to expect that fewer people would be buying technology at the moment. While he sidestepped questions about the possibility of layoffs at Microsoft, he did acknowledge that it was important to conserve cash resources and be prudent about expenditure.

In the meantime, Yahoo! has just named Carol Bartz, who was the chairman of Autodesk, as its new CEO. This announcement has once again raised speculations that the Microsoft-Yahoo! deal may go through under her leadership.

Mark Zuckerberg, CEO of Facebook, was quite impressed by Twitter’s speed of status updates and its growth rate since 2006, when it was launched. Thwitter currently has about 6 million registered users.

Had the deal actually taken off, it would have been a marriage between one of the most popular social networks and the fastest growing and most popular micro-blogging site.

Facebook had reportedly offered Twitter $500 million, mainly in stocks and a certain cash component. While this might seem like a very good offer for Twitter, which is currently valued at around $98 million, what the actual value of Facebook stocks would be in today’s market remains debatable.

The price offered is surprisingly one of the reasons for the failure of the deal.

Although Twitter has no source of revenue at present, its team of executives and investors felt that they must try to build up their own revenue sources, as they had done with the network of users. They also believe that in spite of the economic downturn, they stand a good chance of being able to generate revenue.

Twitter has placed a senior executive in charge of trying to find potential sources of revenue, such as introducing ads into the service and levying fees on business customers.

Another reason the deal may have failed to materialise, could be concerns regarding additional costs, which Facebook would have to incur, in order to pay for SMS messages sent through Twitter. It has been estimated that if all of Facebook’s 120 million users were given access to Twitter, the SMS costs would be in the range of $75 million annually.

While the deal has been called off, for now, Facebook might make another attempt to acquire Twitter, at some time in the future, and other websites or even major mobile networks may now show an interest in Twitter.

When the newly constituted Yahoo! board met for the first time, one of the major points on their agenda was to settle the matter of whether or not to proceed with discussions with Time Warner, for the possible purchase of their Internet arm, AOL, which Time Warner has wanted to get rid of for a while now.

The board has been given the go ahead to pursue the matter with Time Warner, but no negotiations have taken place yet according to sources.

The two companies had been in discussions with each other over this matter earlier, but failed to reach a settlement then.

If Yahoo! And AOL can reach an understanding, it might help to improve their position in the Internet advertising and content market, but more importantly, such a deal is likely to dissuade any future takeover attempt by Microsoft, who have also shown an interest in AOL. As things stand,

Microsoft is certainly in a better position to pay a much higher amount than Yahoo!, which would be the bottom line for Time Warner. However, a Microsoft-AOL merger would do absolutely nothing for the software giant’s search marketing business, and such a move would be nothing but a petty attempt to get back at Yahoo!
Interestingly, in an interview with CNBC last Friday, Mr. Icahn still felt that eventually Yahoo! would have to “do something” with Microsoft or Google Inc. would “kill” the company.

Speculation, however, continues to persist about Time Warner washing their hands off AOL, by selling it to some big player in the online advertising market.

The second quarter results show that it was not a very lucrative season for AOL. Revenue has fallen to $1.1 billion, which is a drop of 16 percent. Only their advertising revenues have gone up by 2 percent (i.e. $8 million), but that gain is certainly not sufficient to make up for the losses suffered by the Internet access division.

The once popular internet service provider has lost 2.8 million customers since last year, bringing down their subscriber base to just 8.1 million users. They have lost 604,000 subscribers in the second quarter itself. In monetary terms, that is a loss of $200 million. Ironically, the company had increased its charges for the dial-up services in late June.

The operating income of AOL has dropped by a steep 36 percent and is now pegged at $230 million. Unconfirmed reports state that AOL’s access business may find a buyer in EarthLink.

In the meantime, CEO of Time Warner Cable, Glenn Britt, says that revenues are up 7 percent, seeing a decline only in television pay-per-view. An additional 214,000 people have subscribed to the ‘triple play’ offering of cable TV, broadband Internet and telephone service.

The two firms were in an advanced stage of negotiations, and the price being quoted was in the range of $200 million.

Google was looking into the technical and financial aspects of Digg. Michael Arrington from TechCrunch explains that usually, by this stage the buyer knows pretty well what they are getting into, but since there is no firm commitment even at the term sheet stage, it is always possible to walk out for any reason.

No official reason has been given for calling off the deal at this late stage of discussions, but one undisclosed source says that it was due to some technical glitch, that the deal did not materialize, while another source reports that there were differences of perspective and ideology between the two companies, that led to the break down of talks.

It is possible, according to Arnold Zafra at Search Engine Journal, that Google just realised that this deal may not really help them to generate more revenue, which would obviously be their bottom line.

Whatever the reason may be, it looks as though Digg has been ditched at the last minute, yet again, and this might make it difficult for them to find a new buyer, as most companies would wonder what the problem was. Digg are supposedly looking to Allen & Co. to help them get some new financing for now.

In what seems like more than just a coincidence, Google started testing a Digg-like voting system for its own organic search results just last week. One might almost wonder – even though it obviously would not be the case – could Google have just freely borrowed ideas from Digg and then walked away once they got what they needed?

It is well known that Yahoo! ran tests with arch rivals Google, to show AdWords advertising on Yahoo! Search. What is not so well known, however, is their opinion on the same subject.

On 30 January 2008, just a day prior to Microsoft’s announcement that they intentended to acquire Yahoo!, the board of executives, led by Jerry Yang had dismissed the suggestion of a tie up with Google, stating that although such a tie up may result in short term gains, it would not be a good idea in the long run, as it would reduce Yahoo!’s chances of becoming a “must-buy” for advertisers.

This fact was revealed following a complaint, filed by lawyers representing shareholders of Yahoo!, alleging that the board of directors at Yahoo! purposefully acted to discourage the Microsoft offer. In fact, the papers reveal that even as far back as January 2007, the then CEO, Terry Semel, had rejected Microsoft’s offer of $40 per share!

The complaint further alleges that CEO, Jerry Yang, has not acted in the best interests of the company, or the shareholders, but rather out of personal hatred against Microsoft. The plaintiffs go on to say, that the tie-up with Google was only a means to deter Microsoft, as the situation would lead to a lot of legal complications that would deter Microsoft.

According to Eric Auchard at Reuters, Yahoo!’s sudden change of heart following Microsoft’s takeover bid seems to prove that the partnership with Google is just a desperate bid to keep Microsoft away at any cost.

Mr. Carl Icahn, who has already received permission to buy more shares of Yahoo!, just had his position strengthened by these revelations, as he tries to oust the current board of directors, including CEO Jerry Yang, through a proxy contest.

The big question at Yahoo!, however, is that even if Mr. Icahn is successful in replacing the board, will Microsoft still be interested in the deal, and if so at what rate?

In a brief formal announcement Microsoft said have resumed talks with Yahoo! The talks are not about acquiring Yahoo! but rather to find an alternative transaction that would help Microsoft to improve its services, and also help Yahoo! in the bargain.

However, Microsoft have also mentioned that the company reserves the right to reconsider the original option of buying over Yahoo! entirely, depending on the circumstances that may arise in the near future, following talks with Yahoo! or the shareholders of Yahoo! or Microsoft or any other concerned party.

This change of sentiment, following the statements issued earlier by Microsoft on withdrawal of their original offer, may very likely have something to do with the ongoing shareholder unrest following the failure of the original deal, especially the threats issued by Carl Icahn to have the entire board of directors of Yahoo! replaced during the next shareholder meeting.

According to the Financial Times, Steve Ballmer, Microsoft’s chief executive, had highlighted Microsoft’s interest in the Yahoo! search business when he abandoned his pursuit of a full acquisition. In a letter to Yahoo at the time, he said Microsoft had dropped its offer partly because of a potential search advertising alliance between Yahoo and Google, which had been under discussion for some weeks.

Yahoo! has also issued statements to the effect that they are willing to consider any option that will maximise their strategic value. As of now nothing has been finalised.

The merger with CNet Networks will put CBS in the top 10 list of web publishers, with 54 million visitors per month, and it will reach 82% of web users in the U.S.A. All the sites run by CNET, including News.com, GameSpot, MP3.com, MySimon, and ZDNet. will be integrated with CBS’s interactive brand operations on completion of the deal.

President of CBS Quincy Smith says, “together we will have a terrific opportunity to grow our established businesses and build new attractive verticals of content. This is the beginning of an era for CBS and CNET networks.” It is very likely, however, that there may be some hiccups during the integration process, as CBS is known to be lavish in its spending habits while CNET is known to be rather thrifty.

In the second big merger, InterActive Corp (IAC), owner of Ask.com, plans to buy Lexico, which owns Dictionary.com, Thesaurus.com, and Reference.com, for $100 million in cash. This move is expected to improve the position of Ask.com in the search engine market, as the new sites will drive 145 million additional users per month.

The merger with Lexicon will also enable Ask.com to earn more revenue through display advertisements shown to people asking basic questions, as most searches on Ask are for reference material.

Finally, media company Comcast plans to buy Plaxo, which is a social networking site. Plaxo CEO Ben Golub says, Comcast plans to “bring the Social Media experience to mainstream consumers.” The financial details of this deal have not been disclosed yet.

The idea is that Comcast could be Plaxo’s launching pad, helping the company grow its user base beyond its current 50 million users. Plaxo will remain an independent operation in Silicon Valley, providing the universal address book for Comcast’s SmartZone communications center, slated to launch this year. Plaxo will also work on socially enabling the Comcast.net portal and Comcast Interactive Media’s Fancast and Fandango properties.

Yahoo! stuck to its demand of $37 per share. The option of a hostile takeover bid does not seem desirable at this point as it would clearly involve a long drawn out proxy war between the parties.

Also, in view of Yahoo!’s imminent deal with Google, Microsoft feel that the acquisition of Yahoo! would involve tremendous headaches with anti-trust laws – a combined Google and Yahoo! ad platform would control over 80% of the U.S. search market – which would bring hassles that are quite clearly unwanted by any purchaser, including Microsoft.

In his letter to Jerry Yang, CEO and founder of Yahoo!, Steve Ballmer, CEO of Microsoft, clearly mentions that Yaho!’s deal with Google would mean harming the effectiveness of Yahoo! Search Marketing’s paid search platform, Panama. It would make it difficult to retain Yahoo!’s talented engineers, and also give complete dominance to Google, with regard to search advertising rates.

Steve Ballmer’s letter to Yahoo! CEO, Jerry Yang

Yahoo! shares fell only 15% on Monday, to $24.37 per share, from Friday’s close of $28.67 per share. This is still higher than the stock price before Microsoft announced their acquisition bid, largely due to the market’s expectation that Microsoft may still come back and buy Yahoo! at their weakened share price.

Jerry Yang will undoubtedly have to shoulder the responsibility of proving, to his shareholders, that he has acted in their best interests and done the right thing by not accepting Microsoft’s offer. If he is unable to raise the stock prices within a few months, he may find himself compelled to accept a lower offer or find a new job.

At present however, Yang remains convinced that the company is on the right track and share prices will improve shortly with the new strategies they have put in place. In the meantime Microsoft shares fell by $0.16, While Google shares rose by $13.61. As of now, it would seem that Google is having the last laugh, especially if their new ad deal with Yahoo! comes through.

Net revenue for the quarter came in at $1.35 billion (compared to a consensus of $1.32 billion). The overall revenue growth has gone up from 8% to 9%, which can be referred to as marginal at best. However, the revenue and cash position have both been boosted by one-time payments from AT&T ($350 million) and a non-cash gain of $401 million related to Alibaba Group’s initial public offering of Alibaba.com. The actual adjusted cash flow is about 20% less than that of last year.

Yahoo! President Sue Decker and others in the company seem to be quite satisfied with the results and tend to blame the economy for the weakness in finance and retail. The net earnings, however, are 11% below those of the first quarter of last year, and the stock price fell by 8% ($0.15), during after-hours trading on Tuesday, just after the results were declared.

The advertising system, Panama, is yet to start showing positive results. In the meantime, the higher operating cost incurred means the overall revenue gains have come down from $160 million to $142 million. Terry Samuel, CEO and Chairman of Yahoo! feels they have made good progress with their outlined goals, and are set to capture major growth opportunities in the future.

Analysts’ Opinions

Wall Street does not seem to be blinded by the superficial increases in revenue or cash. The underlying truth is quite plainly visible for all analysts to see – Yahoo! cannot continue to grow on its own.

Jim Friedland analyst at Cowen &Co. said, “Microsoft is breathing a sigh of relief. Even though these are solid results, given long and short term challenges, there’s been no overall shift in Yahoo!’s business. Microsoft’s offer is still the best offer on the table.”Mike Binger, fund manager at Thrivent Financial says, “I would say at this point, Microsoft would stay their bid.” Susquehanna Financial Group analyst, Marianne Wolk, also shares that opinion. She says “This doesn’t change the picture much at all.”

Blake Jorgensen, CFO of Yahoo! says the results are “right on track”, despite the distraction of Microsoft’s offer. He adds that they are not opposed to a deal with Microsoft, but only to a value which discounts the underlying value of the company.

Yahoo! has declared their first strong quarter in a while. Microsoft could wait to let their steam drop, rather than raise their bid price. Yahoo! could pull out all the stops in one quarter or two, but they just aren’t good enough to keep the results up, and when they fall, Microsoft will swoop in for the kill.

However timing is of the essence, and if shareholders see through the overall revenue increases and realise that Yahoo!’s core business is not improving, the sale could be imminent. Microsoft CEO, Steve Ballmer had said before the results were declared that their resolve would remain unchanged, irrespective of the results. Sources at Microsoft said there was no reason to revalue their offer of $43 billion.

Will They Act Or Will They Go?

Bloomberg News speculates that Microsoft’s bid to take control of the Yahoo! board may start as early as this weekend. Meanwhile, PC World reported that Steve Ballmer threatened to walk away from the deal, when speaking at a conference in Milan on Wednesday.

Is this just acquisition politics? Will the board of directors at Yahoo! be ousted? Or will Microsoft give them the cold shoulder and just move on?

Needless to say, if this deal does go through, it would help Yahoo! avoid Microsoft’s bid to buy them over. The benefits of such a deal for Yahoo! in the long run, though, are extremely limited. Yahoo! would be handing over control of its most important asset – Yahoo! Search Marketing – to Google and would turn into a sitting duck in the future.

Shareholders should be worried about the competency of Yahoo!’s board of directors if this information is true. They are either taking desperate measures to avoid being acquired by Microsoft at all costs or are trying some really poor tactics to get Microsoft to raise their bid. Either way, their actions seem puerile and selfish with little or no thought to raising shareholder value.

Analysts have reported that a Google-Yahoo! deal would increase Yahoo!’s revenues by about 33% and Yahoo! shares would likely gain $5. Such a deal could raise an additional $1 billion for Yahoo! annually, according to Citigroup Global markets analyst Mark Mahaney. However Microsoft’s offer of $45 billion might seem far more enticing to shareholders.

It is almost certain that if such a deal were to take place, Microsoft would make its displeasure known by invoking antitrust laws. Microsoft’s top lawyer Brad Smith has said, “Any definitive agreement between Yahoo! and Google would consolidate over 90 percent of the search advertising market, in Google’s hands. This would make the market far less competitive, in contrast to our own proposal to Yahoo.” Smith further mentioned that Microsoft would closely assess all its options.

ValleyWag suggests that in order to avoid antitrust issues, Yahoo could set up an ‘open market place’ and invite both Google and Microsoft to make bids for advertising there. This system could work well if Google were really interested in keeping Yahoo! out of Microsoft’s clutches which seems like a reasonable belief.

Several moves and counter moves are working simultaneously in the Microsoft-Yahoo! battle. The Wall Street Journal reported last week that Yahoo! is negotiating with Time Warner and seems to be very close to concluding a deal whereby Time Warner would amalgamate AOL into Yahoo! and make a cash investment in return for a 20 percent stake in the newly formed alliance. The deal reportedly values AOL at $10 billion, excluding their dial-up business. Yahoo! could then use the cash to buy over large amounts of its own stock, for somewhere between $30-40 per share.

Concurrently, it appears that News Corp, who was wooing Yahoo! a while ago, has turned the tables and is believed to be trying to cut a deal with Microsoft. If this deal goes through, the AOL-Yahoo! deal would not take place and Yahoo! would instead have to settle for a Microsoft-MySpace-Yahoo! deal.

Yahoo! also announced last week that that they will conduct a limited 2-week trial run featuring Google AdSense ads in Yahoo! search results. Google will place its ads in about 3% of Yahoo! search results (instead of Yahoo!’s own ads.) The AdSense ads will be limited to the U.S. only and will not be featured on the Yahoo! Content Network.

While all of the above mentioned deals would throw up practical difficulties during the integration phase, a 3-way deal between Microsoft, MySpace and Yahoo! could be especially big and would attract enormous amounts of traffic and advertising revenues.

According to Yahoo! all of this is being done with a view to improve its stock holder value. However, the deal with Google reeks of their top executives’ stubborn dislike of Microsoft, regardless of what would actually benefit shareholders. They are clearly indicating that they would prefer to let go of their biggest asset (Yahoo! Search) rather than let Microsoft buy them over.

The New York Times reported that Yahoo!’s board met on Friday to discuss their options and have decided to continue talks with Microsoft and Time Warner this week. No decisions have been reached, though.

In fact, a deal between Microsoft and Yahoo!, with or without AOL or MySpace, appears to be the only possible way to check the growth of Google. Yahoo!’s quarterly income results are due to be announced shortly, and a lot will depend on them. If the results are bad, Yahoo! may want to grab Microsoft’s offer, but if the results are good they may give Microsoft the cold shoulder and keep them waiting in the wings.

This acquisition will enable AOL to secure a prominent place in the ever-expanding world of social media. Bebo is believed to have a membership of over 40 million users and about 100 employees. According to Falco, “Bebo is the perfect complement to AOL’s personal communications network and puts us in a leading position in social media.”

Last year Bebo was the 2nd most popular social network in the UK, behind MySpace. This year, though, it has been overtaken by Facebook, but continues to be favoured by teens and young adults.

Joanna Shields President of Bebo will continue to head the organization, and will report to Ron Grant, President and COO at AOL. Market analyst eMarketer estimates that $4.1 billion will be spent on social network advertising by 2011, compared to $480 million in 2006.

AOL official press release

AOL is expected to further benefit from this latest move, as today brands like Apple and Nike are using Bebo as a platform to develop and maintain interaction with their target customers. AOL has plans to coordinate the services of their products AIM and ICQ with Bebo, thus allowing users to express themselves freely, while at the same time extending their existing relationships. AOL’s advertising service Platform A will also be very attractive to brands advertising through Bebo as it will allow them to keep track of the performance of their ads.

TechCrunch reports that AOL and Bebo had been negotiating this deal since September 2007, but the merger is yet to clear the U.S. and E.U. antitrust regulators before it can be finalized.

Jerry Yang, co-founder of Yahoo! stated in an official letter that Microsoft’s offer of $31 per share “massively undervalues” Yahoo! and they will not consider any negotiations unless the price goes up to at least $40 per share, or an additional $12 billion.

Yahoo! will however have to reassure its share holders, that they can bring the stock prices back up, which will not be easy to do by themselves, given that their balance sheet has shown a fall in profits over the last two years and they continue to lose market share to Google.

In the past AOL and Yahoo! have failed to reach a mutually acceptable deal. However, given the crises both companies are facing (Time Warner are rumoured to be on the lookout for a buyer for AOL), one might think they may be able to settle their differences and work together amicably. However, the reality of the situation is plainly obvious to most – Yahoo! is desperate and trying everything possible to avoid a takeover or get Microsoft to bump up their offer.

A Yahoo! – AOL merger seems highly unlikely. Both the companies are struggling, they do not supplement each others’ shortcomings, and bringing them together will most probably accelerate their decline. Among other reasons, Yahoo! does not have sufficient cash to entice already debt-ridden Time Warner. Also, Google, which has a 5% stake in AOL would resist such a deal, as Yahoo! would then replace Google’s paid search partnership with AOL. And most importantly, Yahoo! would still have to compete with Google, with no additional armour to arrest its fall.

Most analysts believe that with time the Yahoo! Microsoft deal will eventually happen. Talking to AOL is probably just Yahoo!’s way of making execs at Microsoft envious and get them to raise their bid. Microsoft would be wise to just wait this out, allow shareholders to voice their opinions, and when the stocks fall back down, buy Yahoo! in a hostile take over. Others believe that Microsoft should actually pay up right now, in order to make some quick and decisive moves to stem Google’s growth.

The Wall Street Journal reports, “Microsoft’s management is conscious of the risk that a hostile bid could spark resentment among Yahoo’s rank-and-file engineers and other employees whose cooperation is crucial to the company’s success.” However, in his original letter to Yahoo!, Microsoft CEO Steve Ballmer had clearly stated, “Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo’s shareholders are provided with the opportunity to realize the value inherent in our proposal.”

Update:

Since the time this post was authored, Microsoft have responded to Yahoo!’s rejection of their bid, calling it “unfortunate” and clearly indicated that they will not back down and are ready to take more drastic steps to acquire the company.

Official Press Release

In a letter to the board of directors at Yahoo!, Microsoft CEO Steve Ballmer says, “Microsoft’s consistent belief has been that the combination of Microsoft and Yahoo! clearly represents the best way to deliver maximum value to our respective shareholders, as well as create a more efficient and competitive company that would provide greater value and service to our customers. In late 2006 and early 2007, we jointly explored a broad range of ways in which our two companies might work together. These discussions were based on a vision that the online businesses of Microsoft and Yahoo! should be aligned in some way to create a more effective competitor in the online marketplace. We discussed a number of alternatives ranging from commercial partnerships to a merger proposal, which you rejected. While a commercial partnership may have made sense at one time, Microsoft believes that the only alternative now is the combination of Microsoft and Yahoo! that we are proposing.”

The first thing that springs to mind when reading this is that the rumours were true – in 2007 and even back in 2006 the two companies were considering ways to partner or join forces!

Another post on TechCrunch UK discusses the regulatory implications of such a merger. Microsoft is no stranger to regulatory scrutiny. The new merger will just add to the heap of inquiries already underway in the EU. The dynamics of this merger will be quite interesting, though…

Yahoo! Search Marketing is the most desirable asset that Microsoft will obtain as a result of this merger. The combined popularity of Microsoft Live Search and Yahoo! Search in the UK and Europe will still amount to less than 20% (even less than 10% in many countries) of the total search market. So by no means could this be considered anti-competitive.

Email and instant messaging, however, are a different story. The combined popularity of Yahoo! Messenger and MSN Messenger as well as Hotmail and Yahoo! Mail would dwarf all the competition. While the services are free, they do represent significant ad inventory, which could irk Google greatly.

Kelkoo and MSN Shopping are both extremely popular shopping portals that were once competitors, but will now join forces. This could create minor issues from a regulatory stand point, but the greater likelihood is the eventual absorption of the Kelkoo brand in the larger MSN portal.

Microsoft’s offer could not have been better timed. Yahoo! recently announced poor results and a bleak outlook, causing their stocks to fall (NSDQ: YHOO). The news has been received well by Wall Street, with shares of both Yahoo! and Microsoft (NSDQ: MSFT) rising in early hours trading and the overall market receiving a much-needed boost of enthusiasm.

If the two Internet giants do merge, it is not clear what will happen to the workforce. Yahoo! will most likely go ahead with the layoffs announced earlier this week. And as the two companies align departments, more downsizing is likely to occur in order to minimize overlap in job functions.

An interesting question stemming from this latest piece of news is ‘what will this merger mean for the search and search marketing industry’?

Update:

An official press release from Yahoo! states that the board have confirmed receipt of the offer from Microsoft and are considering the offer.

Fast Search and Transfer has made minor headlines in the past year with its mobile search product and deals forged with Virgin Mobile and Infospace. The company offers a range of services including enterprise search, eCommerce solutions, information management, mobile and online media to about 3500 companies, some of which fall in the Fortune 500.

As per the public declaration, Microsoft has offered Fast Search and Transfer US $3.56 per share, which is a 42 percent premium on its share price of Jan 4 2008. The total value of the deal is estimated to be US $1.2 billion or £600 million. The board of directors at Fast Search obviously consider this an excellent offer as they have unanimously recommended that its shareholders should accept it. Over 35% of the shareholders have already agreed to accept the offer.

As in all business deals there are observers and analysts who approve of the deal and those who do not. There are many who feel that $1.2 billion is too much money for a company like Fast, and that Microsoft should have waited a while and acquired the company at a lower price, once the recession, which the U.S. economy seems to be heading towards, had struck. Others believe that this is a smart move by Microsoft, and will help them further consolidate their position in the long run.

In all likelihood, the deal will have little impact on the overall search market, but will provide Microsoft access to a more robust mobile search offering and a new distribution network.

Henry Blodget, a former Wall Street analyst and blogger on The Huffington Post sparked off a rumour based on Kevin Johnson’s speech. According to Blodget, the only way Microsoft can achieve this ambitious market share growth is by buying some other company that already has a 20 percent share of the online search market – Yahoo!

Fuelled by the rumour of an impending acquisition shares of Yahoo! (YHOO) closed up nearly 6 percent on Friday. While the reality of a Microsoft acquisition might spell disaster for some at Yahoo! Wall Street seems to look at the prospect very favourably.