Microsoft Talk Trips Up Yahoo!

Old news was bad news for Yahoo! (YHOO Quote) Monday.

Shares in the Internet bellwether slid after getting hit by a snowballing news report to the effect that Microsoft (MSFT Quote) is developing its own search technology.

Because Microsoft is the biggest third-party distributor of the paid search engine developed by Yahoo!'s recently acquired Overture Services unit, the implication that Microsoft would be dumping Overture sent Yahoo's shares tumbling in the afternoon.

But since Microsoft's eventual independence was already widely expected, and since Monday's reports didn't appear to indicate a quicker-than-expected timetable for Microsoft's home-grown search technology, the market's reaction to Monday's news seemed overblown.

Shares in Yahoo! -- possibly weakened, like other net stocks, by a sectorwide downgrade from Merrill Lynch -- closed at $40.36 Monday, down $1.27, or 3%. Shares traded as low as $38.68 in the afternoon, dropping more than $1.50 in a half hour.

At the center of the whole episode was a CNBC report Monday in which Microsoft Chief Technology Officer Craig Mundie spoke about the software giant's efforts to develop its own search technology. "We made the decision about a year ago that we had too much dependency on external parties for the search technology we use in our Web service and MSN-related things," Mundie said, according to Bloomberg's quote from the report. "We made a commitment to increase our investment in our own search technologies to use in the future."

That interview was distilled into a 1:22 p.m. Bloomberg headline that read, "Microsoft Leaving Yahoo!, Search Engine Partnerships, CNBC Says."

Despite the urgent-sounding nature of that headline, the CNBC report didn't appear to put a timetable on Microsoft's departure. And without such a deadline, that news is pretty much old news, as far as the market is concerned.