The press is full of speculation that Microsoft and Yahoo are trying to strike a deal. The New York Post and the Wall Street Journal have both reported that discussions are going forward, assisted by investment bank Goldman Sachs, about some kind of link – perhaps a merger, perhaps Microsoft buys Yahoo, perhaps just some big cooperative venture. Yahoo’s stock is up.

There has been speculation about such a deal in the past but it never seemed very likely – both Microsoft and Yahoo have strong reasons to remain independent. Today it seems more plausible after Google demonstrated its unstoppability last month with unbelievable earnings reports and a deal to buy DoubleClick, a big player in the world of online graphic ads. Here’s a brief analysis of the pros and cons.

It’s worth noting that Microsoft’s earnings are none too shabby, but the perception is that the future belongs to the online market for ads and hosted services, where Google reigns supreme.

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