Microsoft Preparing “Another Run” At Yahoo As Justice Dept. Begins Formal Investigation Of Google-Yahoo Search Deal

Yesterday, after Microsoft announced it was buying semantic (or “natural language”) search engine Powerset, reporters asked the question: was this deal motivated by Redmond’s failed run at Yahoo? The two deals are and aren’t related. If the Yahoo acquisition had happened Powerset might not have, but Microsoft didn’t buy Powerset because it failed to buy Yahoo.

Wait a minute. The Wall Street Journal reports this morning that Microsoft is about make “another run” at Yahoo and is rounding up partners to help.

According to the WSJ:

Microsoft has held discussions with Time Warner Inc. and News Corp., among others, say people involved in the talks. In the past, Microsoft has floated an arrangement under which it would acquire Yahoo’s search business and another partner, such as News Corp.’s MySpace or Time Warner’s AOL, would combine forces with what remained of Yahoo. News Corp. is the owner of Dow Jones & Co., publisher of The Wall Street Journal.

Indeed, this plan seems like a return to previous acts in the MicroHoo drama when News Corp. and AOL were part of various, hypothetical deal scenarios. However, this time there are some additional twists.

Yesterday, Silicon Alley Insider speculated, based on some hearsay information, that AOL was essentially for sale. The stars — and the pressure — appear to be aligning for some sort of deal among these various companies. It’s not clear however who, when, or for how much. But given Microsoft’s cash and persistence, I would imagine a deal of some type will eventually come about.

One deal that now enters a period of formal scrutiny is the Google-Yahoo paid search agreement, which is being examined for anti-trust implications by the US Justice Department. Recall that both Google and Yahoo said that they didn’t believe the deal legally triggered regulatory review (it’s not an acquisition or a merger), but that they were voluntarily going to submit it for review. Be careful what you ask for.

As with the Google acquisition of DoubleClick, which took a long time to approve, there is probably no anti-trust basis (other than speculation about long-term consequences) to block the Yahoo-Google search agreement. But some regulators and Congressional Representatives are concerned that Google is just too powerful now. This investigation will be used to air those general concerns. And as privacy advocates did with the DoubleClick hearings, other interest groups will probably voice their issues as well.

In the end, there’s probably no legal basis for blocking the arrangement. It’s not enough to say that Yahoo might have diminishing “incentives” to compete in search going forward. The company will strongly represent that it does and that it will vigorously compete. There’s also no proof that bid prices will rise, there’s just some speculation to that effect.

Microsoft will probably publicly and privately make the case against Google to regulators even as it makes another attempt to acquire the Yahoo search business. Meanwhile, internally, rogue shareholder Carl Icahn is still leading a fight to take control of Yahoo’s board. The facts presented in the WSJ story give him some new ammunition in his argument to shareholders that improving their position means selling some or all of Yahoo to Microsoft and/or some group of buyer-partners that Redmond has put together.