Microsoft Holders Moody After Yahoo! Reprise

But such a deal wouldn't be a panacea. Buttigieg doesn't view an alliance as having an acquisition's ability to boost the two companies' search-advertising capabilities. "I don't see it as being the solution to both companies' Internet problems," Buttigieg says.

A Microsoft-Yahoo! agreement would have broader scope than what Yahoo! is planning with Google -- "more than just outsourcing search," says Matt Rosoff, analyst with Directions on Microsoft. A Microsoft-Yahoo! deal would likely involve a transfer of technologies and Internet properties and a partnership agreement.

From Microsoft's perspective, creating a business partnership makes more sense than an acquisition because it strengthens Microsoft's search and advertising business while possibly transferring older, non-strategic businesses, such as MSN and its Internet service provider properties, to Yahoo!. Some Microsoft executives have said they aren't interested in being a media or Internet content company, Rosoff adds. MSN sites get a lot of traffic, but they aren't critical to Microsoft's current business strategy, whereas they could boost Yahoo!

When Microsoft bought aQuantive, an advertising platform, software and services property, in 2007, it was an indication that the company would focus more on managing platforms and move away from providing Internet content, Rosoff says. Anything Microsoft can do to increase its search and advertising share would be positive, "if they could prove that what they're keeping has a good avenue for growth."

"My speculation is that this is what they wanted to do when they were talking to Yahoo! more than a year ago," Rosoff says.