The longer Microsoft's bid for Yahoo drags on, the more annoying it gets. Jerry Yang was surely hoping that today's financials would settle the matter, as were many inside and outside his company. Wall Street hates uncertainty, and so does Silicon Valley's careerist corps of engineers. No such luck. Yahoo's earnings were good, but not good enough to be decisive and prompt Microsoft to bid more. But really, why would it? Microsoft's $31 a share offer wasn't predicated on Yahoo's current performance, but what Microsoft managers thought they could do with Yahoo if they got their hands on it. If Steve Ballmer wanted this to be over with quickly, he'd simply offer more than $31 a share; that he hasn't is the best indicator of his low opinion of Yang and his crew.

What's Yahoo CFO Blake Jorgensen so happy about? Try Yahoo's first quarter earnings on for size. Widely expected to surpass Wall Street expectations, Yahoo did not disappoint, reporting $1.35 billion in first quarter revenues after traffic acquisition costs, a 14 percent percent increase over the first quarter 2007. Still, Microsoft CEO Steve Ballmer said earlier today that positive earnings would not cause him to raise Microsoft's $31 per share offer for Yahoo. Yahoo CEO Jerry Yang, president Sue Decker and Jorgensen respond in our live coverage of Yahoo's analyst conference call, below.

Microsoft CEO Steve Ballmer is well aware of the whispered expectations that Yahoo will beat the street with its first-quarter results this afternoon. In fact, Ballmer already has Microsoft PR pouring cold water on calls for Microsoft to respond with a higher bid. "We think we can accelerate our strategy by buying Yahoo and will pay what makes sense for our shareholders," Ballmer said in a statement. "I wish Yahoo all the success with its results, but it doesn't affect the value of Yahoo to Microsoft." Which is a remarkable display of logic from Ballmer: After all, Yahoo's current stock price doesn't reflect its underlying business performance, good, bad, or indifferent; it's a reflection of Wall Street oddsmaking on whether a Microsoft buy will go through, and at what price.

Former Yahoo Kevin Cheng notes that Yahoo has introduced a feature called "radial search," which allows users to search for businesses within a specified area. Wholly unremarkable, except for this: Cheng says he designed the feature in early 2006, and it's taken two years to come to fruition. Google would simply launch the feature; Microsoft would throw programmers at it until it got done. No wonder why Microsoft wants to buy Yahoo, and Jerry Yang wants it to pay a higher price for his creation. Who knows how much buried treasure lies within Yahoo, waiting for competent technical management to dig it up and bring it to market? (Screenshot by kev/null)

In 2001, Brian Valentine, then a top Microsoft executive, was pumped about Windows XP, as a spoof infomercial shows. By the time Vista was getting ready for release, his enthusiasm had waned. The reason? Some believe he was pining for Gianna Puerini, a sales manager who had left Microsoft for Amazon.com in 2003. In July 2006, Valentine secretly signed an employment contract with Amazon.com. Microsoft did not reveal that he was leaving for Amazon.com until September 5, less than a week before he started his new job. The business rationale for hiding his departure was obvious: Valentine ran the team that was shipping its Windows Vista operating system. Losing their leader would have killed morale.

Whether or not Yahoo decides to begin merger negotiations before Microsoft CEO Steve Ballmer's Saturday deadline will depend on how Yahoo shareholders react to the company's first-quarter earnings report today. If Yahoo beats Wall Street expectations, there's a chance shareholders could drive its share price past Microsoft's $31 per share offer. Essentially, Yahoo shareholders have turned the fate of the company over to Wall Street analysts.

Yahoo reports first-quarter earnings later today. Everyone agrees CEO Jerry Yang has to report better-than-expected numbers if Yahoo hopes to continue fighting for its independence from Microsoft. So guess what? Yahoo is going to report better-than-expected numbers. "In any Internet business, you can pull the stops out in any one or two quarters," Jeffrey Lindsay, an Internet analyst at Sanford C. Bernstein, told the WSJ. "They'd be very crazy not to." If he's getting pressure from Yang, here are three ways for CFO Blake Jorgensen could cook the books for today's report and keep his sanity:

We've boiled Citi analyst Mark Mahaney's expectations for Yahoo's earnings report later today down to three bullet points:

Cat-loving software developer Brent Simmons parses a lot of error logs maintaining NetNewsWire, an application for reading RSS feeds, and it's a fine perch on which to spot trends online. Lately he's been seeing more and more browsers borked by Microsoft plugin Silverlight, the software giant's tragically late multimedia competitor to Adobe's Flash. This could be a good sign for Microsoft in terms of a growing user base, but personally I've yet to see an installation of Silverlight in the wild, even on regular trips to Microsoft Country. I'm guessing the problems are more likely due to bloated code, a monopolist's tendency to ignore industry standards, or both. Simmons, for what it's worth, wishes a pox upon both houses because users blame his product when the big-shots' bugs cause problems with his product. (Photo from Brent Simmons)

Yahoo will report its first-quarter results tomorrow. CEO Jerry Yang's last message to shareholders, a March presentation in which he promised shareholders a 72 percent revenue increase by 2010, indicates the company will do everything it can to report only good news — even, as BoomTown's Kara Swisher writes, if that means "selling everything not nailed down at Sunnyvale HQ."

Microsoft has acquired Xobni, likely for more than its original $20 million offer to buy the company, TechCrunch's Michael Arrington reports. Xobni — "inbox" spelled backward — adds features to Outlook, Microsoft's desktop email application. As VC blogger Fred Wilson notes, the acquisition is "sort of proof that Microsoft doesn't know how to improve its own software. So they buy those that do." If Arrington's report proves more accurate than previous rumors of a sale, Xobni CEO Jeff Bonforte would join Microsoft well before his former colleagues at Yahoo, where Bonforte worked just long enough to be paid to leave.

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.

Bill Gates has long dreamed of getting his customers to pay by the month, not by the shrinkwrapped box, for his software. As the Microsoft founder gets ready to depart, his company is just barely realizing his vision. But this is Microsoft, so they're doing it in the most asinine manner imaginable. Mary Jo Foley reports that Microsoft is testing a package of software and services, codenamed "Albany," for which consumers will pay a monthly fee. Sounds promising, until you dig into what Microsoft is actually offering.

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.

There you have it: Microsoft gets to produce an awesomely cheesy video to pump up the sales troops — but in a way that lets them pretend to be air-quotes cool, resistant to such straightforward come-ons. PR then strategically leaks it, lets the blogosphere react predictably, and finds a gullible square of a tech reporter to declare victory on Microsoft's behalf.

The industry has long known that Google's search ads are more profitable than Yahoo's. Yahoo put a team of rocket scientists on the problem, only to discover that it's actually harder than rocket science. Now, in extremis, Yahoo is hoping to evade Microsoft by replacing its own ads with Google's. A test has proved successful; analysts say Yahoo could boost its cash flow by $1 billion a year. Now, the problem becomes how to sneak a Yahoo-Google ad deal past antitrust regulators.

Microsoft has long had a donation matching program to encourage employees to give to charity, which also provides the PR team with good material for buffing the corporate image. But the rules specifically state that the money can only go to secular organizations, or religious organizations with ongoing secular programs. Yet in a Seattle Times weekend feature about immigrants in the local tech sector, it seems to be breaking those rules to keep Hindu employees happy:

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.

The list of computer companies with failed retail initiatives includes a lot of big names: Sony, Dell, and Gateway, for starters. Only one company, Apple, has beaten the odds. Now Microsoft, which tried and failed with one retail store in San Francisco a decade ago, is rumored to be tiptoeing into the retail waters again. Fudzilla, a rumor site, claims Microsoft will open "many" retail shops dedicated to Microsoft products. The aim of the stores would be to show the "true Microsoft experience." What, random crashes of the cash register during checkout and multiple identity checks before being allowed into the store? This can't end well. A Microsoft spokesperson offered the standard noncomment, which may be wise; if the retail push is for real, I wouldn't want to try and pitch it to the press, either.

To fend off Microsoft, Yahoo is conducting a test with Google to have the latter broker ads for Yahoo's search results. The notion: Google will be so much more effective at selling ads than Yahoo that it will raise Yahoo's revenues, and therefore boost its value well beyond Microsoft's $44.6 billion offer. The test is supposedly "limited," covering only 3 percent of Yahoo's search traffic. But Mike Stoppelman, a former Google engineer, thinks that the deal may be more far-reaching than Yahoo or Google would like you to think.