Fox Interactive and Google: Is breaking up hard to do?

Fox is reportedly thinking about terminating its deal with Google for search advertising and getting in bed with Microsoft.

TechCrunch's Michael Arrington is reporting the news based on what appears to be one source, but a potential Google-Fox breakup is plausible. It's also possible that this rumor was floated to scare the hell out of Yahoo, which is hoping News Corp./Fox becomes a white knight to fend off Microsoft. Update: News Corp. has shot down this rumor, according to Silicon Alley Insider.

Here's the verbal joust that got us to this point. Google whined about its inability to monetize social networking traffic on its earnings conference call. A few days later News Corp. fired back noting that the $900 million in guaranteed ad revenue was the company's to keep Google ROI be damned. The back and forth was a hoot.

Arrington notes that News Corp. execs were miffed by Google's comments. That's obvious from the News Corp. conference call. But this potential Google-Fox breakup isn't really about Sergey Brin's whining. It's about Yahoo.

Let's add up the moving parts.

1. Microsoft wants Yahoo.
2. Yahoo wants News Corp. to concoct some deal to fend off Microsoft.
3. Microsoft would love to screw Google--even at a loss--to provide ads for Facebook and MySpace.
4. Microsoft does an ad deal, Rupert Murdoch gets more guaranteed ad revenue and Yahoo's white knight quietly goes away.
5. Microsoft gets Yahoo for real, gets distracted and Google screws Redmond.
6. Google stops losing money on the News Corp. deal.

Simply put, a Fox-Google breakup could be a win-win-win depending on your time frame. Yahoo appears to be the odd Web giant out though.