At first glance it would seem to be out of character for Microsoft to spend many billions of dollars to buy out a company like Yahoo rather than continue with its dogged strategy of building up its MSN search portal to challenge the dominance of Google.
But that doesnt mean that it wont happen, and that is exactly what the latest industry rumors claim.
So far, there isnt much solid evidence that the two companies are talking. Investors have been snapping up call options for Yahoo stock, which means they are betting that Yahoo stock is going to rise during the next month.
It could be because rumors are percolating that Microsoft want to at least buy a piece of Yahoo or perhaps buy the entire company.
But investors could also be buying options just because they expect Yahoo to report strong quarterly sales and earnings this month.
The Los Angeles Times on Jan. 1 went as far as to write that the flurry of speculation was because Yahoo had already refused a Microsoft buyout offer of $80 billion because it was too low.
Neither company will comment. But if Microsoft had a formal unsolicited offer, Yahoos board would have had to make a formal reply, and government regulators as well the media would have gotten the word.
Its more likely that that Microsoft has put out unofficial feelers to find out whether Yahoo would be amenable to a friendly partnership or merger.
In that case, the two companies wouldnt be obligated to disclose their talks unless they reached an agreement.
The working theory is that Microsoft is still determined to acquire at least a piece of a major Internet portal company, since Google outbid Microsoft to acquire a 5 percent share of America Online.
Buying Yahoo would provide a quick way for Microsoft to increase its share of the rich Internet advertising market rather than to keep building up the audience share and advertising revenue of its MSN Web portal.
Microsoft and Yahoo already have a relationship in place. In October, the two companies agreed to link their instant message systems to create what they say is the worlds largest IM community.
That Microsoft might be willing to pay billions buy rather than build up its Web presence is more evidence of the maturation of the technology industry.
Microsoft cant expect that it can sustain double-digit revenue growth based on the sale of operating systems and applications alone.
It is a sign that Microsoft is prepared to become more of a media company and less of a technology company because that is where the growth and the competition are.
Microsoft faces the challenge of either buying a Yahoo or conceding dominance of the Web advertising-search market to Google, and that is a condition its constitutionally unable to accept.
It doesnt appear likely after years of trying that MSN will overtake Google or Yahoo as the top search portal on the Internet through organic growth.
Thus, if it cant buy Google, buying Yahoo would be the next best thing, even if it costs Microsoft $100 billion to do it.
A Yahoo buyout would be the biggest in Microsofts history as well one of the biggest in the history of the computer industry.
All of Microsofts previous acquisitions have been companies much smaller than itself and were aimed at extending its product line or to add strategic new technology.
In 2004, Microsoft disclosed that it had opened talks with SAP about a possible merger in mid-2003 after Oracle announced that it was launching a hostile buyout bid for PeopleSoft.
The two companies broke off their talks, Microsoft officials said, because they agreed that the effort to integrate the two companies management would be too complicated.
Microsoft didnt disclose the talks until it faced the possibility of having to testify about them in federal court during the U.S. Justice Departments unsuccessful lawsuit to block Oracles buyout of PeopleSoft.
But its likely that Microsoft also determined that that the Oracle-PeopleSoft merger wasnt as much of a competitive threat at it seemed when the news first broke.
Microsoft realized that it could gain similar market benefits in partnering with SAP on its NetWeaver application architecture rather than going to the trouble of buying the company outright.
But a Yahoo deal might prove to be irresistible to a Microsoft that covets Googles dominance in the search field.
But no matter how much it might be willing to spend for the likes of Yahoo, Microsoft wont be able to make a move without reckoning with government regulators.
Even if Microsoft manages to strike a deal with Yahoo, government approval of the merger wouldnt be a shoo-in.
Microsoft has spent much of the past decade in U.S. and European courts fighting charges that it wields monopolistic power in global PC markets with its Windows operating system and other products.
Regulators are likely to think long and hard before they grant Microsoft the chance to become a dominant force in yet another market.
Microsoft might find it would have to wage a court battle that eclipses the months of legal wrangling that held up Oracle before it won legal clearance to acquire PeopleSoft.
That battle might even be more protracted if regulators in the EU and in individual Asian nations such as China or South Korea raise objections.
But if Microsoft has decided that it cant survive without Yahoo in its stable, it will be prepared to spend any amount of money or overcome any legal hurdle to close the deal.
John Pallatto is a veteran journalist in the field of enterprise software and Internet technology. He can be reached at firstname.lastname@example.org.