Ménage a Yahoo

Will it be Google or AOL? Yahoo executives are willing to team up with competitors to craft a new future for their company—provided those competitors don't include Microsoft. But Microsoft CEO Steve Ballmer still has a card to play: He's enlisted the support of Rupert Murdoch to create a partnership that would involve combining Yahoo, Microsoft's MSN and News Corp. social-networking site MySpace.

The news marks a surprising twist in the 2-month-old acquisition saga. What's clear: Yahoo will soon be a different company. But precisely which industry leaders will become its partners is still very much up for debate.

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On Wednesday afternoon, Yahoo issued a terse announcement that it was launching a two-week "trial advertising" partnership with Google. The arrangement is a clever way of testing two separate ideas: the financial implications of letting Google's powerful ad-serving engine take over Yahoo's search ads, and just how politically explosive a deal between Yahoo and Google might be. That news was followed by reports that Yahoo may also be close to striking an arrangement that would combine the search engine company with AOL, the struggling Internet division of Time Warner.

Industry pundits believe Yahoo's latest moves will help preserve—and even increase—its perceived share value in the face of bluster from Microsoft that it could lower its bid from the $31 per share it offered for the company Feb. 1.

In after-hours trading, shares in Yahoo and Microsoft moved a few pennies: Yahoo edged down by 3 cents to $27.77; Microsoft fell 18 cents to $28.71. Google rose $1.81 to $464.19.

Since Microsoft made its bid, Yahoo executives have been considering a dizzying array of relationships with a slew of potential alternative partners to avoid a takeover: News Corp., Time Warner, AOL, Google.