• by Wendy Davis , Staff Writer @wendyndavis, May 4, 2007

Rumors are swirling this morning that Microsoft and Yahoo are again contemplating a merger.

The Wall Street Journal and New York Post both reported that executives at the two companies are talking about Microsoft acquiring Yahoo; the Post pegged the price at around $50 billion.

It's not surprising that talks have started again, given the recent moves by Google to increase its share of both eyeballs and ad dollars. In addition to acquiring the largest video-sharing site last year for $1.65 billion, Google also just agreed to pay $3.1 billion for DoubleClick, outbidding Microsoft in the process.

Yahoo, also, has lost ground to Google, which has far surpassed everyone else in search revenue. Consider, Google currently accounts for about 65% of the paid search market, while Microsoft and Yahoo together draw only 27% of search ad dollars, according to the Post.

The Journal, which collected the data on the companies' online ad revenue, reported that the 9-year-old Google took $7.3 billion, while 13-year-old Yahoo garnered $4.56 billion and Microsoft, founded in 1975, drew just $2.29 billion in Web ad dollars last year.

But even a combination of Yahoo and Microsoft isn't likely to knock Google off its perch. Weighing the pros and cons of a merger this morning, Forrester Research analyst Charlene Li concluded that a Microsoft/Yahoo merger is unlikely to seriously challenge Google in the near future. "In the very long term (3 years+), there's a chance that a revitalized company would be in a better position to compete, but this assumes that Google stands still for them to catch up," Li blogs.

Li adds that Yahoo's strength is in social properties like Flick'r and del.icio.us, and in "Web 2.0 smarts." "Yahoo's executives -- with their strong media roots -- truly understand what it means to build and maintain an audience," Li writes.

But that proposition is debatable, given the meteoric rise of user-generated sites like Facebook and collaborative sites like Digg -- both of which Yahoo reportedly wanted to acquire.

What's more, Yahoo has famously had trouble integrating its acquisitions --as pointed out last year by senior vice president Brad Garlinghouse in his famous "peanut-butter manifesto," which criticized the company for maintaining duplicative businesses. (Since Garlinghouse wrote the memo in late 2006, Yahoo reorganized and also started combining properties; for instance, just this week Garlinghouse reportedly said that Yahoo was closing Yahoo Photos in favor of Flick'r.)

Microsoft, meanwhile, has steadily lost ground in search, without appearing to gain much traction on content plays.

All in all, it's hard to imagine that even companies as big as Yahoo and Microsoft will slow down Google's remarkable growth.