WSJ (Subscribe) just reported -  "Microsoft said that it is considering an agreement with Yahoo and  opened up the possibility that it would consider buying part of the Internet company".   It was pretty ironic that I was just having a cup of tea with one of the Microsoft employees and we were discussing how Microsoft can gain market share in online search market and since Yahoo is not agreeing to a merger they should look for some other alternative.  Ballmer must have overheard us (just kidding). 

But this new announcement from Microsoft definitely shows that the popular Game Theory is at work and Microsoft is really facing the Prisoner's dilemma in order to make any progress in their search business.  I think it is a good strategy.  They should definitely pursue it and with Icahn's proxy threat, Yahoo would be willing to give in while still allowing its founder keep his pride.  And it would be cheaper for Microsoft too.  Compared to hassles of integrating an entire enterprise, they will have to simply work together on one common goal, "Taking Google Out".  The only risk to Yahoo.  Microsoft may get the know how and eventually ditch them by leaving them no good.  But that can happen anyways if Yahoo is not into any kind of deal with anyone.