Yahoo traffic in a skid
With Yahoo's Google partnership in doubt and its search business shrinking, will Microsoft take a second look at the struggling Internet company?
NEW YORK (Fortune) -- Yahoo's woes continue as August web search numbers show its traffic fell 10% from year-ago levels.
The drop for Yahoo (YHOO, Fortune 500) comes as overall Internet traffic remains stable with 4% year-over-year growth. Meanwhile, rival search shop Google (GOOG, Fortune 500) saw a 13% gain in its search page views, according to comScore Media Metrix numbers made available in a Merrill Lynch report.
For Yahoo, the latest big dip in its search business underscores the difficult position it has now found itself in: namely a weakening and still independent player in the Internet advertising market.
Yahoo shares hit a new four-year low Wednesday as the embattled web giant now faces the possibility that Google may walk away from a proposed advertising partnership.
Yahoo declined to comment and a call to Microsoft was not immediately returned.
In June as part of an effort fend off Microsoft's (MSFT, Fortune 500) takeover bid, Google and Yahoo planned an advertising revenue sharing pact that called for Google to run ads with Yahoo search results. The plan triggered a Justice Department investigation that as of Tuesday looked to be shifting toward a antitrust action to block the deal.
Analysts say Google may not have the stomach for a big legal fight with regulators and decide to abandon the ad plan with Yahoo.
From that standpoint, some spy a new opportunity for Microsoft.
"A potential block by the Department of Justice can revive the spirit of a Microsoft/Yahoo search deal or even full acquisition," Collins Stewart analyst Sandeep Aggarwal wrote in a research note Wednesday. That is particularly the case "given that Yahoo is expected to be hurt most, and many of its investors are still upset about the failed first attempt to team up with Microsoft," Aggarwal wrote.
After a rejection by Yahoo, Microsoft came back in June with a $33 a share merger offer. The two companies failed to strike a deal. Then in July, with the urging of Yahoo investor Carl Icahn, Microsoft proposed a deal to acquire Yahoo's search business with the guarantee of a minimum annual payment of $1.6 billion for five years.
Icahn was not immediately available for comment.
But in a sign that Yahoo hasn't exactly given up on the advertising business, the company on Tuesday hired former Microsoft MSN executive Joanne Bradford to run its advertising unit. 
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