Speaking to a crowd of nearly 2,000 at a technology conference in Seattle yesterday, Steve Ballmer asked how many in the audience used Yahoo search. "Only a handful of hands went up," reports Reuters. Fewer, in fact than went up when he asked who used Microsoft Live. Taken aback, Ballmer responded: "Wow! We offered 31 bucks a share." In March, 59.8 percent of all U.S. searches went through Google, 21.3 percent through Yahoo, and 9.4 percent through Microsoft, according to ComScore.

Microsoft has purchased Seattle-based travel search engine Farecast, known for its alogrithm that predicts the best time to purchase airline tickets, for $115 million. Tom Romary, chief executive of Yapta, told the Seattle Post-Intelligencer he heard Microsoft outbid Google and Expedia for the privilege. Before its acquisition, Farecast raised three rounds of venture capital totaling $21 million from investors. One of them, Madrona Venture Group's Matt McIlwain, said the deal returned more then five times they firm's early investment. "If deals like Amazon are home runs, this is more in the double or triple range," McIlwain told the paper. The Motley Fool wonders if Microsoft will use Farecast's algorithm to decide when to raise its bid for Yahoo.

High-Def Digest, a video enthusiast site with more traffic than Boing Boing, has been sold to Internet Brands, a domain-name speculator turned online-advertising network. That's bad news for John Battelle's Federated Media network, which up until now has repped the site; with Sphere's sale to AOL, it's the second acquisition this month to thin Federated's client list.

AOL has purchased Sphere, a San Francisco-based startup whose service places links to related stories and context-sensitive ads on article pages, for an undisclosed amount. The advertising part is likely the draw; Sphere's clients include magazine publisher Time Inc. The new inventory should lengthen AOL's already impressive reach. In March, 170.5 million unique visitors, or 91 percent of U.S. Internet users, took in an AOL ad. Before selling, Sphere raised $4 million in venture capital from Hearst Publishing, Trident Capital, True Ventures and About.com founder Scott Kurnit. [PaidContent]

Chairman Roy Bostock agreed to a merger yesterday, but not in his capacity as Yahoo's board leader. Bostock is also Northwest Airline's chairman. Yesterday, he signed off on its $3.1 billion deal to merge with Delta. Let's see if the Yahoo-Microsoft merger suddenly lurches forward, now that Bostock can give it his exclusive attention. We're bullish on more meetings.

A Microsoft buyout of Yahoo will close yet another exit for venture-backed startups, but another buyer just opened shop in town. CBS Interactive plans to open a new office in Menlo Park. And frenetic dealmaker Quincy Smith is here to buy. CBS CEO Leslie Moonves recently told conference attendees that "online revenues are north of $200 million, growing 30 to 40 percent," but Merrill Lynch analyst Jessica Reif Cohen said the company needs to make an acquisition soon to keep pace. Smith agrees. Last year, he promised to buy the next YouTube, "only a year earlier, when they were 1/32nd of their size." Tiny companies with zero revenues but excruciatingly high burn rates? Quincy, we'll keep you posted.

Yahoo CEO Jerry Yang, chairman Roy Bostock, and the rest of the Yahoo's board met on Friday. After reviewing the company's options — begin negotiations with Microsoft, merge Web properties with AOL, or outsource search advertising to Google — the board went with a perhaps underhyped fourth option. It postponed any decision and decided to meet again, the New York Times reports. Maybe with AOL, Microsoft, or Google representatives at the table. We'll see. Meanwhile, Yahoo executives want reporters to know that Yang should just hurry up and sell to Microsoft. Overlord-welcoming readers, by a margin of 2-to-1, agree.

The video-rental store is doomed, and even Blockbuster has figured that much out. That's why CEO Jim Keyes is trying to buy Circuit City for more than $1 billion? Blockbuster has become the RadioShack of its time, saddled with too many stores which are too small, selling the wrong thing. It jumped on the business of selling DVDs, instead of renting them, right as disc sales peaked and started to drop. Now, it hopes to sell, via Circuit City's larger outlets, subscriptions to its online video services alongside the devices used to play them. The vision is inspired by Apple, which sells iPods, Apple TV set-tops, and music and video through iTunes. Apple's iTunes movie rentals are a direct threat to Blockbuster's remaining rental business, and Apple is rumored, too, to be getting into the business of music subscriptions. One small problem: It's not clear how Circuit City helps Blockbuster.

At Capital Research & Management, an investment management firm and longtime Yahoo shareholder, media-savvy stockpicker Gordon Crawford has raised its stake in the company to more than 16 percent, from $4 billion to $6 billion at current prices, some time in the past three months. The stock's chart strongly suggests that his buy came after Microsoft's bid sent Yahoo shares soaring. What that means: Crawford believes Microsoft will succeed in its bid for Yahoo, but only after raising its price. That's a fair turnabout from his earlier concerns that a higher price for Yahoo would mean losses from his firm's stake in Microsoft that outweighed gains from its Yahoo position. Capital's huge bet on Yahoo means that CEO Steve Ballmer's hand is weakened in resisting calls to up Microsoft's offer.

Yesterday, at a luncheon with several dozen VP-level minions Yahoo CEO Jerry Yang hosted tried to explain the reasoning behind a potential deal with AOL and Time Warner. Didn't go over so well. But while many of these invitees were happy to later share their horror at the idea of merging AOL and Yahoo Web properties, none managed to grow a pair and tell Yang. Now is your chance people. Should Yahoo merge with Microsoft or take Time Warner's money? Tell us in our latest Valleywag poll.

Radio One, Inc. has acquired Community Connect (CCI) and its subsidiary social network BlackPlanet.com for $38 million. That's about $812 million less than Time Warner paid to acquire Bebo, which, according to a January report from metrics firm Hitwise, is the US's next most popular social network. Bebo claims 1.09 percent of all US traffic to BlackPlanet's 1.04 percent. ComScore reports that Bebo has a much stronger international audience than BlackPlanet (chart below), but it's not 22-times stronger. Like a Craigslist casual encounter, this smells like a screwing. So who got the shaft — Time Warner or Community Connect?

Yahoo CEO Jerry Yang hosted a lunch for top management yesterday and tried to sell the company's overstuffed ranks of EVPs and SVPs on a mashup with AOL. No one bought it, reports BoomTown's Kara Swisher. "Look, Microsoft would not be my first choice either," one exec told Swisher. "But AOL is not even my third." Another exec said: "I cannot believe they would put our amazing assets with those who we don't really respect, for the most part, and think that's OK." Reportedly, none of the VPs at Yang's luncheon bothered speak up — the cardinal rule at Yahoo these days being not to offend Yahoo's oversensitive founder. But most want him to hurry up and close what's seen as an inevitable deal with Microsoft.

Can Microsoft's army of programmers write software for the Web? Judging by a spate of recent outages, no. Hotmail, Messenger, and other services targeted at developers and partners have broken down recently. Which is bizarre: Writing an operating system is a vastly more complex affair than coding a website. "Like war versus paintball," says Ted Dziuba, the programmer and former editor of startup-debunker blog Uncov. Therein lies Microsoft's problem. Once you've trained to fight a real war, you can forget about winning at paintball.

Google's best hope in the Yahoo takeover battle is to have nothing happen. A Yahoo, weak but independent, providing just enough competition to keep antitrust cops off Google's back, is the best outcome. To assure that, CEO Eric Schmidt has turned to the unlikeliest of layabouts: investment banker Frank Quattrone, who's trying to make a comeback after having an obstruction-of-justice conviction overturned. How frustrating for the hard-charging Quattrone: In this assignment, he'll only succeed by assuring that a deal doesn't come to fruition.

While Microsoft's Steve Ballmer and Yahoo's Jerry Yang exchange angry letters over the fate of their companies, AOL CEO Randy Falco has this for his legions:

At MySpace headquarters in Beverly Hills, playbooks are stacked on desks as Rupert Murdoch's minions desperately try to make the numbers on a Yahoo deal work. Murdoch's News Corp. has joined forces with Microsoft in an effort to counter a deal with the mogul's old enemy, Time Warner. Google, which all old-line media companies fear, is approaching a bid with languorous rigor, running a small test of placing its ads on some Yahoo pages. It's all rather depressing.

As Microsoft, Yahoo, Google, AOL and News Corp. go at it tag team-style, PaidContent rounded up Wall Street's opinion on the proceedings. The bullet-list version, below.

News Corp. is now discussing a possible joint takeover bid for Yahoo with Microsoft, according to unnamed sources cited by the Wall Street Journal. Meanwhile, Yahoo is now discussing combining Internet operations with Time Warner-owned America Online as part of a three-fold move to stave off the takeover bid that includes teaming up with AOL, buying back much of the company's stock and running search ads from Google. Analysts quoted in the Journal still suggest the sale to Microsoft is a fait accompli, and that Yahoo is just trying to get CEO Steve Ballmer and company to cough up a higher bid for shares.

Word that Yahoo plans to test Google search ads has Microsoft General Counsel Brad Smith and Microsoft PR all fired up. "Any definitive agreement between Yahoo! and Google would consolidate over 90 percent of the search advertising market in Google's hands," Smith said in a statement.

Yahoo CEO Jerry Yang refuses to negotiate with Microsoft, but Yahoo's largest shareholders aren't so coy. Take Legg Mason portfolio manager Bill Miller's posturing in today's Wall Street Journal, for example. Miller, responsible for the second largest stake in Yahoo, today called Microsoft CEO Steve Ballmer's weekend ultimatum to the Yahoo board a "blunder."