Yahoo!'s future: MicroNewshoo! or YahAOL!?

The Yahoo! takeover story has shifted up a gear with reports that the company is trying to negotiate a tie-up with AOL, while Microsoft may bring News Corp in on its increasingly hostile bid for Yahoo!.

According to various reports, The Yahoo!-AOL proposal involves Time Warner merging AOL with Yahoo! and injecting a substantial amount of cash in return for a 20 percent share in the enlarged Yahoo!.

The merger would be followed by the purchase of billions of dollars of the company's own shares in an attempt to drive the price above that originally offered by Microsoft.

The merger of AOL and Time Warner was one of the biggest deals during the dot-com boom, but very little of the perceived value remains. Suggestions that Time Warner wants to offload the AOL operation have been circulating for several years. At one stage, Microsoft was tipped as a possible buyer.

Details of the rumoured Microsoft-News Corp alliance are sparse, almost to the point of non-existence. Presumably a joint bid by the potential partners would be at a sufficiently high price to attract existing Yahoo! shareholders (even if it wasn't high enough to gain board support), with News Corp able to extract some value from the deal in ways that Microsoft can't.

Previous reports had Yahoo! investigating a merger with News Corp's Myspace as an alternative to Microsoft's bid.

In related news, Yahoo! has made several announcements this week that seem to be intended to show the company is moving ahead in the face of Microsoft's acquisition attempt.

• Yahoo will begin a limited test of Google's AdSense for Search service. The two-week trial will see AdSense ads appearing alongside the results of up to three percent of Yahoo! searches originating in the US. Microsoft general counsel Brad Smith responded "“Any definitive agreement between Yahoo! and Google would consolidate over 90 percent of the search advertising market in Google’s hands. This would make the market far less competitive, in sharp contrast to our own proposal to acquire Yahoo!"

• The Flickr photo-sharing site now allows paying customers to share video clips as well as stills. Clips can be up to 90 seconds long and must be no larger that 150M.

• Yahoo! has a definitive agreement to acquire Tensa's IndexTools web analytics business and technology. The acquisition is expected to be completed by June 2008.

• Major League Baseball's MLB.TV coverage will be available live or on-demand via Yahoo! Sports for the next three years. The deal covers 11 countries, including the United States, Canada, Mexico, the UK, the Philippines and Germany. The second and third years of the agreement will see Yahoo! take sole responsibility for selling video advertising on MLB.TV.