It's Friday night and still no word from the Microsoft or Yahoo bunkers. The headlines for today tell the story (see Techmeme).
The Wall Street Journal, which appears to be a conduit for the negotiations, has a story, "Microsoft, Yahoo Talks Intensify In Push to Reach a Friendly Deal," and another one, "Yahoo-Google Pact May Be Close." It doesn't seem that a Yahoo-Google mating on advertising would lead to a friendly Microsoft-Yahoo discussion this weekend. It's an interesting game of chicken, with many issues, such as regulatory approval, up in the air for any permutation of a deal with the triangle.
It's clear that Yahoo and Google are trying to check Microsoft by hooking up, but it would only be strategic for Yahoo if Microsoft ends up paying a higher price, meaning it has to motivate Steve Ballmer into coming up with more cash.
Of course, Ballmer has other options. He could take the hostile takeover route, or walk away for now and perhaps come back later if Yahoo goes into freefall, even with Google filling its coffers.
Whatever the outcome, it doesn't alter the reality that Microsoft senior management strongly believes that it has to do something dramatic to compete with Google. The fact that Google has inserted itself into the process has to be galling to Microsoft, which could lead to the hostile route.
For a reminder, here is the cast of characters and social graph.