Microsoft, Yahoo Talk Search

Although the pair deny acquisition rumors, they are in discussions on the research level, as they combat common rival Google.

Despite Microsoft Corp.s denial of rumors that the software giant may have interest in Yahoo Inc., the companies have been talking—at least on a research level.

Harry Shum, the Beijing-based managing director of Microsoft Research Asia, said he has recently spoken with the head of Yahoo Research about the issue of enhancing search capabilities and competing with Google.

At the start of the year, there were rumors that Microsoft had made a bid to buy Sunnyvale, Calif.-based Yahoo. The Los Angeles Times, citing anonymous sources, said Microsoft allegedly had offered $80 billion for the company, an amount Yahoo rebuffed as too low.

A week later, Microsoft CEO Steve Ballmer flat-out denied in a published interview that Microsoft had made an offer to buy Yahoo but did not discount talk that the two companies were discussing possible, deeper partnerships. Last October, MSN and Yahoo announced a pact to streamline instant-messaging interoperability between the two companies.

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"I just talked to the head of Yahoo research in California," Shum told eWEEK in an interview. "He was saying he can really appreciate how difficult it is to do technology transfers, and especially this large number of technology transfers that we have done."

Moreover, despite competing, the two companies realize they have a common enemy.

"There is something called search relevance that Google has been ahead of most competitors in," Shum said. "But the gap is closing. And Yahoo claims statistically that this difference does not even exist anymore between Google and Yahoo. MSN, with a lot of help from MSR [Microsoft Research] is closing the gap like crazy. We will be catching up with them in a matter of months. And something will be there. But that is only one problem—one very tough problem, however."

Whether or not Microsoft and Yahoo team or somehow partner, Shum knows the value of having a foothold in the search arena, he said.

Said Shum: "Its so important from a business point of view. Whoever controls search today drives a lot of Web traffic."

Indeed, "Microsoft realizes we cannot lose the battle," he said. "We have to fight back, at least to get one-third of the pie."

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