Ballmer Plays Defense

Sam Gustin thinks if Steve Ballmer can't have Yahoo, the last thing he wants is for Yahoo to get AOL.

This could explain why AOL executives are in Seattle today, discussing a possible deal with the software giant, even as Yahoo has ramps up its own talks with AOL.

Shares of Time Warner, AOL's parent company, rose more than 4 percent Wednesday on news of the intensified talks.

From Microsoft's point of view, the talks appear to be a strategic hedge, designed to protect against the possibility of Yahoo snapping up AOL.

For Microsoft, acquiring AOL would give a boost to its display advertising efforts. On the other hand, it wouldn't really help Microsoft much in search, which is the primary reason it wanted Yahoo in the first place.

That leaves the most rational rationale for Microsoft's pursuit of AOL simply keeping it out of Yahoo's clutches, instead of acquiring the company for what it has to offer.

For Yahoo, a deal with AOL would allow Jerry Yang to (somewhat) plausibly say he had come up with a (somewhat) viable alternative to Microsoft. At a minimum, it would show he is moving aggressively to take the company forward.

A deal with AOL, then, could be the silver bullet Yang needs to ward off financier Carl Icahn, who has launched a proxy war to replace the company's board.

One way or another, it's looking increasingly likely that Time Warner will spin off AOL within the next two weeks, ahead of Yahoo's all important Aug. 1 shareholder meeting when Jerry Yang goes mano e mano with Icahn for control of the board.

Of course, if it came down to a bidding war, Microsoft could easily thwart Yahoo.

And given the sore feelings all around, I certainly wouldn't put it past Microsoft chieftain Steve Ballmer to snap up AOL, just to spite Yang.