• D: All Things Digital, Tuesday, April 21, 2009 12 PM

Talks between Microsoft and Yahoo about search and advertising possibilities are getting "hot and heavy," sources tell Kara Swisher, even though "exactly how hot and how heavy does depend on which side you are talking to." She says Yahoo is playing it quite a bit cooler than Microsoft, which is "aggressively interested in striking a deal." All in all, Swisher says, a deal could come sooner than some expect.

According to several sources, Charles Songhurst, a Microsoft M&A strategy exec, and digital head Qi Lu were spotted in Silicon Valley talking with Yahoo execs. Swisher has also reported that CEO Steve Ballmer of Microsoft and CEO Carol Bartz of Yahoo had recently met in person in the Valley. "That meeting went well, said many, and several Yahoo sources said a deal could come, especially if Microsoft and Yahoo can settle disputes over a number of issues," Swisher said.

One issue is the size of the payment and revenue guarantee Microsoft would make in exchange for being able to sell Yahoo's search ads; Yahoo, in turn, might take over display ad sales for both companies. Yahoo also wants to retain the rights to its search data while being able to marry that data to display. It will be difficult to do this while outsourcing some of its search business to Microsoft, Swisher said.

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