Sources tell Valleywag that lifecasting startup Ustream.tv is in advanced discussions with Microsoft to acquire the lifecasting service for more than $50 million, but there are other companies in the bidding as well. Ustream is currently raising a very large initial round of VC financing, and Microsoft is attempting to grab them prefunding for a cheap price. Our tipster also mentions that Microsoft would use Ustream as a way to promote its Adobe Flash competitor, Silverlight. Ustream has raised around $2 million from angel investors, and seems to have hit the market at just the right time.

Shpigler the Shark has some excellent advice for Yahoo CEO Jerry Yang on negotiating with Steve Ballmer. Remind him that he has other options. "He can go buy a country. Take $44 billion and buy a country. Go buy Liberia. Try and monetize Liberia! ... Be cool when you talk about numbers. You are bigger than $44 billion dollars. $98 billion in cash. If not, I will go to Google." Catch the full video after the jump.

Forgive DoubleClick CEO David Rosenblatt. As his company's merger with Google drags on, he must not have gotten a chance to attend new-Googler orientation yet. Some day he'll learn to toe the company line. Google has forbidden employees to speak on the Microsoft-Yahoo deal, but today AlleyInsider caught Rosenblatt telling the crowd at the DeSilva+Phillips conference in New York that the Microsoft-Yahoo merger makes sense. At least for Microsoft.

In November, First Round Capital VC and blogger Josh Kopelman bought a pair of ads on Facebook targeted to the Yahoo and Microsoft networks, asking "Leaving Yahoo?" and "Leaving Microsoft?" Clickthrough rates were low. Only 0.3 percent clicked on the Yahoo ads, and the Microsoft ads drew no clicks at all. But after Microsoft's recent $44.6 billion offer to buy Yahoo, the companies' employees seem more eager to leave. Now, 0.86 percent of Facebook users who saw the Yahoo version of the ad clicked, and 1.19 percent of Microsoft employees targeted clicked on their ad.

Bebo had found potential buyers in Microsoft and Yahoo, sources told BoomTown's Kara Swisher, not Google or News Corp. as TechCrunch reported. These facts were "easy to find out about by anyone who can pick up a phone and ask around like a reporter is supposed to," WSJ vet Swisher writes on her blog. Then she goes on to slam Michael Arrington's TechCrunch some more.

Microsoft is trying to buy Yahoo because it believes online advertising will be a much bigger business than it is today, and it wants to have a piece of the pie. Yahoo has a massive number of users, and the second-largest share of Internet searches. But usage, by itself, just means you have to open up pricey datacenters and hire expensive engineers. What matters is revenues. And on that score, Google utterly rules the lucrative search-advertising market.

In his latest companywide memo, copied below, Yahoo CEO Jerry Yang wants to "make sure you all realize how essential you are to yahoo!s success." And by "you all" he means all but the 1,000 or so he planned to "reallocate" in the next few months. But maybe it would have been awkward to take those slotted for firing off the email list?

Netscape cofounder Marc Andreessen, who now runs social networks for porn sites, doesn't think that the Microsoft-Yahoo deal bodes ill for startups. True, there will be one less buyer out there if the deal goes through — but, he argues, neither Microsoft nor Yahoo has been a particularly active acquirer of small startups. He provides a long list of companies, from Akamai to WPP, which have bought startups. If anything, facing Google and a beefed-up Microsoft will prompt media companies to go on a spending spree.

Maybe the news got lost in the hubbub surrounding Microsoft's offer to buy Yahoo, but last week Microsoft CEO Steve Ballmer finally admitted the company needs to do a better job marketing Windows Vista. To demonstrate Microsoft's new marketing plan with a visual metaphor, Ballmer and Co. hired circus performers to dress as sperm, wriggling their way into a giant blue egg, which could stand for the earth — the world of IT. At least, that's what this photo, taken by CNET's Caroline McCarthy during the event in which Ballmer revealed his plans, seems to convey. Why couldn't they just hire away John Hodgman? He may complain about typecasting, but he's perfect for the role.

Why are Yahoo executives looking for an alternative to Microsoft? Ask Jim Cramer: "The outside of Yahoo is very good. The inside? They haven't been able to figure out how to monetize these pageviews. So basically, [Microsoft] can take their pageviews [and] fire everyone. Maybe there's some sales people you keep."

Posts on Yahoo's corporate blog and its internal Backyard website seem to be written in a parallel, purple-tinted universe, one where everything is "Great! Just great!" The company's stock tumbles, pending layoffs, and hostile takeovers are nowhere to be seen. Why? Well, all that's just not nice. And nice is what has been killing Yahoo, an ex-Yahoo who's now at Microsoft tells Valleywag.

VC blogger Fred Wilson argues that a Microsoft-Yahoo merger will be bad for users and for the Internet as a whole. "If you think about the Internet, it's a huge distributed network of loosely connected services owned and operated by literally millions. We don't need or want consolidation of services on the Internet," Wilson writes. But you know who the Microsoft-Yahoo deal is even worse news for? The incompetent executives who landed Yahoo in this pickle in the first place. They're ferociously spinning gullible reporters with rescue fantasies. Here are the five most widespread rumors — and why they're unlikely to happen.

AOL has acquired widgetmaker Goowy for an undisclosed amount. AOL claims it will roll out new widgets on its sites and integrate Goowy's technology into its advertising network. That's all very exciting, but when has AOL ever bought a company that changed the course of its business? Whatever That's for another post.

If Microsoft's $44.6 billion Yahoo bid tells us anything, it's that Vista doesn't matter. But some in Redmond have not gotten the memo: "New customers should feel great about buying Windows Vista today," blogs Microsoft executive Mike Nash. The source of his optimism? Windows Vista Service Pack 1 has been released to manufacturing, beginning Microsoft's arduous, 20th-century industrial process of a software rollout. Nash's main concern is that the news might stop users from buying Vista. He shouldn't be worried.

In Japan, Microsoft has dropped the price of its entry-level Xbox 360 to around $260 — less than it costs in America. The software giant hopes to gain some traction in the tough Japanese market. Microsoft has had tremendous difficulties selling the Xbox in Japan, moving only 257,800 consoles last year, compared to Sony's 1.2 million PlayStation 3s and 3.6 million Nintendo Wiis. Somehow, we suspect just dropping the price won't get the job done.

Pundits talk about the value of Yahoo's Asian investments — $12 a share and rising, given this morning's runup in the value of Yahoo Japan and Alibaba — as if they were pork-belly commodities. And yet it's hard to imagine Yahoo thriving when divorced from the vast markets of China and Japan. Yahoo owns 31 percent of Yahoo Japan and 40 percent of Alibaba, the operator of Yahoo China. To have a compelling worldwide growth story that matches Google's, Yahoo — under anyone's ownership — will need to win back those properties someday. Of all Yahoo's potential buyers, only Microsoft has the capital to acquire those stakes with comfort, and reunite them with their troubled American parent.

Union Square Ventures VC and blogger Fred Wilson doesn't think Yahoo would survive a Microsoft acquisition. "I suspect that many of Yahoo!'s best services will languish under Microsoft's ownership and that users will leave," Wilson writes on his blog. "It's happening already under Yahoo's ownership to services like Flickr and Del.icio.us and MyBlogLog. It will be worse under Microsoft's ownership." Here's how he thinks Yang and Yahoo can wriggle out of Big Daddy Ballmer's bear hug.

Before Friday, recently coronated Time Warner CEO Jeff Bewkes had planned to get Time Warner out of the Internet access business entirely, lowering its stake in Time Warner Cable and somehow disposing of AOL's dialup business. He could then, at his leisure, consider an ad partnership between Time Warner's AOL and Microsoft or Yahoo, the Wall Street Journal speculates. But Friday saw Microsoft offer $44.6 billion to buy Yahoo. An analyst at T. Rowe Price said that news leaves Bewkes with one place to turn: Google.

The weekend saw the long-rumored sale of Yahoo's paid music service go through. Rhapsody America, a RealNetworks and MTV joint venture, purchased Yahoo Music Unlimited for an undisclosed fee, paidContent.org reports. Word has it Yahoo plans to supplant the service with a free, ad-supported service. To that end, it has purchased the maker of FoxyTunes, a plugin for the Firefox browser which searches for music online.

That just about sums up Microsoft's response after Google's top lawyer laid the smack down on the Microsofties. In a short missive, Microsoft general counsel Brad Smith says roughly " You're kicking our ass in search and advertising, so who are you to talk about monopolies on the Internet?" Read the full release after the jump.