Yahoo Trouble Could Damage Microsoft Bing in Google War

Microsoft's Bing could suffer if Yahoo becomes unstable, since Yahoo gives the search engine scale in its battle against Google.

Microsoft is apparently "very worried about making sure there is a stable Yahoo," according to anonymous sources speaking to AllThingsD's Kara Swisher. If true, those comments would highlight the interdependency between the two companies' search and advertising businesses, where there is a considerable amount of overlap.

According to Swisher, "a number of private equity firms and other investors" have been feeling out former News Corp. President and COO Peter Chernin about his interest in possibly assuming a leadership role at Yahoo. She also insists, however, that "there is no active plan for Chernin to join Yahoo or its board, nor is he currently part of any possible takeover plan."

Yahoo CEO Carol Bartz appeared upbeat at this year's Web 2.0 Summit, downplaying the company's former aspirations in the search arena. Microsoft's Bing now powers Yahoo's back-end search, something she described as a "win." She also referred to Facebook as "competition."

Yahoo has unveiled a variety of new features designed to compete directly against similar offerings from the likes of Google and Facebook. Its Yahoo Local Offers, which involves partnerships with companies such as Groupon and LivingSocial, will try to leverage those users seeking local businesses from their mobile devices; that service is currently in the bucket-testing stage.

Meanwhile, the new Yahoo Messenger beta offers users the ability to share their status across networks and "like" Facebook, Flickr and Twitter updates. Its extensive interoperability with Facebook suggests that, Bartz's comments aside, Yahoo recognizes the borderline-ubiquitous nature of the social network.

But rumors abound that Yahoo is also in serious trouble, with anonymously sourced reports from both TechCrunch and AllThingsDigital suggesting that anywhere from 10 to 20 percent of its consumer products division could be cut. Meanwhile, the company has broadened its pipeline of crowd-sourced content, the rest of its $100 million purchase of Associated Content, in a bid to remake itself as a media portal.

"Yahoo is always evaluating expenses to align with the company's financial goals,"a Yahoo spokesperson said in a statement. "However, a 20 percent reduction in Yahoo's workforce across the board is misleading and inaccurate."

Should Yahoo find itself in serious trouble, the effects would ripple to Microsoft, most immediately in its attempts to carve search market share away from Google. Bing depends on Yahoo's search engine market share for scale as it seeks to compete against Google's dominance, and Microsoft depends on Bing in a number of ways-not only for the online ad revenue the service generates, but also for its accumulated data, which helps inform other Microsoft initiatives such as cloud computing.