Microsoft-Yahoo! Is Only Mostly Dead

That alternative -- buying Yahoo!'s search business -- was more than just a way for Microsoft to boost its own online search-advertising market share. The company dreaded the prospect that Yahoo! would turn to Google to help it monetize its search share, as it has now done.

And that deal could be the impetus that would bring Microsoft back to the table, should Yahoo! shareholder Carl Icahn succeed in his bid to replace Yahoo!'s board this summer. The Yahoo!-Google arrangement contains a cancellation fee of up to $250 million -- probably insufficient to stop Microsoft from buying Yahoo! outright if it meant putting an end to the Google relationship.

"A deal is less likely than it was a few weeks ago, but not impossible," Cowen analyst Jim Friedland wrote in a note Friday. "Microsoft holds most of the cards and could hold out for a lower price."

But Forrester analyst Ray Wang disagrees. "I think the deal should be dead on the Microsoft side. The search business is still very important to Microsoft." But, he adds, the company will have to look for other partnerships or strategies to make a go of its online search-advertising aspirations.

Microsoft and Yahoo! combined have an eroding search market share of 27.2% to Google's 62%, according to Nielsen Online.

Yahoo! elaborated Thursday on Microsoft's determination not to buy Yahoo!, saying that at a meeting between Microsoft and Yahoo!'s chairman and independent board members on June 8, Microsoft representatives "stated unequivocally that Microsoft is not interested in pursuing an acquisition of all of Yahoo!, even at the price range it had previously suggested" of $33 a share.