Google withdraws from Yahoo ad partnership. Will Microsoft rebid?

Google announced on November 5 that it has decided to back out of its proposed ad partnership with Yahoo rather than defend it in court.

Yahoo acknowledged the end of the deal in a press release:

Yahoo "today announced that Google has terminated the advertising services agreement the companies announced in June. Yahoo! continues to believe in the benefits of the agreement and is disappointed that Google has elected to withdraw from the agreement rather than defend it in court. Google notified Yahoo! of its refusal to move forward with implementation of the agreement following indication from the Department of Justice that it would seek to block it, despite Yahoo!'s proposed revisions to address the DOJ's concerns."

So much for the deal that Yahoo characterized as offering the company far more opportunities than any kind of a search buyout by Microsoft....

(I'm not pretending Microsoft didn't work behind the scenes to get the Google-Yahoo deal tangled up in antitrust-colored bureaucratic knots. As Google has done to Microsoft, so Microsoft does back to Google.)

One new question on Microsoft watchers' minds will likely be whether the dissolution of the Google-Yahoo ad partnership means Yahoo management might rethink selling its search business to Microsoft. Yahoo rejected Microsoft's proposal to buy its search business in July, 2008.

Microsoft officials have said repeatedly throughout the summer that they are still open to talking to Yahoo about buying its search unit (though not about buying all of Yahoo).

Do you think Yahoo is finally desperate enough to sell its search business to Microsoft?

Update: Here is more from Google as to why it backed off the Yahoo deal. From the Official Google Blog:

"We feel that the agreement would have been good for publishers, advertisers, and users -- as well, of course, for Yahoo! and Google. Why? Because it would have allowed Yahoo! (and its existing publisher partners) to show more relevant ads for queries that currently generate few or no advertisements. Better ads are more useful for users, more efficient for advertisers, and more valuable for publishers.

"However, after four months of review, including discussions of various possible changes to the agreement, it's clear that government regulators and some advertisers continue to have concerns about the agreement. Pressing ahead risked not only a protracted legal battle but also damage to relationships with valued partners. That wouldn't have been in the long-term interests of Google or our users, so we have decided to end the agreement. "