Microsoft's ( MSFT) links with Time Warner ( TWX) may give it an edge in the rapidly shifting battle for America Online, analysts say.

On Thursday, it emerged that Yahoo! ( YHOO) had dropped out of the bidding for a partnership with AOL, citing the high price tag being sought for the Dulles, Va., Internet property. That potentially slims the race for AOL allies to Microsoft and Google ( GOOG), which may be bidding along with media giant Comcast ( CMCSA).

But some investors believe Google could end up being an also-ran. Microsoft, the world's largest software company, and Time Warner, the world's biggest media company, share a strong emphasis on intellectual property, says Rob Enderle, a principal analyst with Enderle Group in San Jose, Calif. He notes that Microsoft is fighting against the spread of the Linux free operating system, while Time Warner is battling against Internet pirates.

"The marriage between Microsoft and Time Warner makes a lot more sense based on the history of the business than a Google-Time Warner combination," adds Mark Stahlman, an analyst with New York-based Caris & Co. who rates Microsoft and Yahoo! buy and Google above average.

Still, beating Google won't be an easy feat for Redmond, Wash.-based Microsoft. As with all deals, the final issue will come down to price.

Time Warner is looking for a partner for America Online, which continues to hemorrhage dial-up subscribers while boosting advertising revenue. Time Warner is looking to boost its moribund share price, which has prompted complaints from dissident shareholder Carl Icahn.

"I am not sure everything else combined can trump that," Tony Ursillo, an analyst with Loomis Sayles in Boston who follows the software industry, says of the price issue. "It's a financial transaction first and foremost."

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