Microsoft: New talks for alternative Yahoo deal

Although it still ranks as technology's richest company, Microsoft's Internet expansion efforts have been largely ineffectual. Since the end of the company's fiscal 2005, Microsoft's online operations have lost $1.5 billion.

"The fact is that we are not where we want to be in this business yet and we've been in this position longer than we'd all like," Kevin Johnson, the head of Microsoft's online division, wrote in a Sunday e-mail to employees. Even if Microsoft can't work out a deal with Yahoo, Johnson assured "we will be accelerating elements of our core strategy, and breaking ground in new areas."

Microsoft's latest advances in Internet advertising and search will be outlined in a conference this week, Johnson said.

Once the Internet's kingpin, Yahoo was overtaken by the more nimble and innovative Google several years ago. With Yahoo's profits shrinking and revenue growth decelerating, Yahoo lost about half its market value -more than $25 billion -in the two-year period leading up to Microsoft's initial bid.

Yang, a Yahoo founder who became CEO 11 months ago, maintains the company is on the cusp of a turnaround that will boost net revenue by at least 25 percent in 2009 and 2010. That would be a dramatic improvement from the company's recent net revenue gains of about 12 percent.

Microsoft first broached the possibility of forming a business alliance with Yahoo in late 2006, according to a letter that Ballmer released in February. In early 2007, Microsoft offered to buy Yahoo for about $40 per share, according to a person familiar with those discussions. The person didn't want to be identified because that bid was never publicly disclosed.

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AP Technology Writer Jessica Mintz reported from Seattle.