Kara Swisher

Recent Posts by Kara Swisher

Yahoo and Microsoft: Breaking (And Making) Up Is Hard to Do

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Oh, they’re still talking. Except when they’re not. And, then, they are.

Such has been the course of discussions Yahoo and Microsoft continue to be engaged in about a possible partnership deal around search and online advertising.

“It runs hot, then cold, then hot, then who knows,” said one person close to the situation.

It’s kind of like a digital version of the romantic travails of Lindsay Lohan and Samantha Ronson, minus the paparazzi and screaming matches in trendy clubs.

(Spokespeople for both companies declined to comment on any talks. Curiously, both joked separately that they would prefer to be the Lohan character in my sick metaphor because she was so “unpredictable,” which is good in business–until I pointed out that was just another word for an addiction-challenged lunatic.)

But I digress!

The temperature now, after talking to a dozen sources with knowledge of the situation?

Warmer than two weeks ago–with one of Microsoft’s principal dealmakers on the case–Charlie Songhurst–down in Silicon Valley where Yahoo is located, focused solely on the talks and making progress with them.

When last we checked in, Yahoo CEO Carol Bartz and Microsoft CEO Steve Ballmer had a little private tete-a-tete about the deal, when both were attending the seventh D: All Things Digital conference in Southern California in late May.

That meeting, as well as meetings between other top Microsoft (MSFT) and Yahoo (YHOO) execs in attendance, went well enough.

Bartz and Ballmer also both acknowledged discussions in onstage interviews at D7, with Bartz even boldly stating that she was open to the deal if good and reliable data and “big boatloads of money” were forthcoming from Ballmer.

(You can see the video of her saying that here, while Ballmer is less colorful here.)

Well, that ship has not yet sailed, with the two sides–whose history together is tumultuous–still niggling over price and control issues.

Thus, talks in the weeks after languished, especially in the wake of Microsoft’s launch of its new Bing search service and Bartz’s focus on beefing up Yahoo management and marketing.

And while Ballmer has consistently said that Microsoft was open to a deal, Bartz has since made a variety of public statements related to it, many in conflict with previous statements.

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It is an indication of the push-me-pull-you tone of the talks, which began in March.

When last asked about Microsoft by a stockholder at the Yahoo annual meeting in late June, Bartz said she had nothing to say about any deal and said it would be said publicly only after any such deal was struck.

Setting expectations is probably a good idea, since all the back and forth underscores a very real debate by both sides about whether joining together will benefit them both or not.

The possible pluses are clear: Huge technology cost-savings and cash for Yahoo and another weapon to fight archrival Google (GOOG) for Microsoft.

Sources said Bartz had been getting a lot of pressure to do a deal from Yahoo board member Carl Icahn, whom she has managed to isolate, even as she has gained total control over the company.

She is also under less immediate scrutiny, sources said, since the cost-savings related to a series of layoffs at the company have given Yahoo some financial breathing room. Still, it can ill-afford a search arms war.

Yahoo, as well as Microsoft, will report its quarterly earnings next week and both are expected to show continued weakness, due to the economy.

Still, the stock of both companies has also improved a lot since the beginning of the year, with Yahoo shares up 23 percent and Microsoft’s up 19.5 percent.

As for Microsoft, the company has also become more confident with the early success of Bing, which has garnered good reviews and improvements in market share in surveys.

Sources at the company maintain that the improvement–via innovation and a huge marketing spend–has given Microsoft a bit of leverage against Yahoo, although the bets are still out on exactly how much sustained share Bing can garner.

In a blog post today, for example, Yusuf Mehdi, Microsoft SVP of the Online Audience Business Group (really, that is his actual title), touted Bing’s success after just a month:

“We saw 8 percent growth in unique users to Bing.com in June, which is an important indicator that you are trying Bing and the word is spreading….We have a long term view, and we are committed to steady progress over the years to come.”

Does that mean these two crazy kids will probably not get together in the end? Well, like LiLo and Sam, they seem to be trying, but striking a lasting partnership is not as easy as it looks.

And, until the companies decide to unite or part for sure, please enjoy this delightful video trailer for “The Parent Trap,” a time when Lohan was adorable and much, much less–like a possible Yahoo-Microsoft deal–complicated:


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