Yahoo! Caught in Net Crossfire

But while Google has every intention of getting into the display advertisement business, that arena is clearly Yahoo!'s crown jewel -- for the time being. "For the quarter and for the year, we believe that we once again outperformed the marketplace, notwithstanding that we already have the largest display advertising business," Yahoo! CEO Terry Semel told investors in the company's latest conference call. "Because we are well-positioned to develop greater context and relevance for consumers and advertisers, our aim is to outpace the industry again in 2007."

At a technology conference in February, Google Vice President of Advertising Sales Tim Armstrong said the search giant was taking its usual deliberate approach to push into the display ad market. "We could have easily just plastered graphic ads all over YouTube," Armstrong said, referring to the popular online video-sharing site that Google acquired in 2006. "But we wanted to see if there might be a way to do it that better serves the user."

But Microsoft staking out territory in the lucrative market may be exactly the type of motivation Google needs to quicken its pace. And while intensified competition would be an obvious consequence for Yahoo!, cash-laden competitors launching a price war would be an even uglier scenario.

Reports of Microsoft mulling a DoubleClick acquisition come at a precarious time for Yahoo!. The Internet giant has rallied sharply since the beginning of the year -- the stock gained 21% to close at $31.34 on Thursday -- as its highly anticipated Panama ad-ranking system has met with rave reviews. But while Panama's success is undoubtedly a feather in Yahoo!'s cap, the company is still heavily dependent on display advertising.