Shortly after Microsoft announced its hostile bid for Yahoo, Google objected and raised the prospect that it would take its opposition to the merger to U.S. government regulators.

As it turned out, Google was very much the spoiler in the deal, which fell through when Microsoft withdrew its offer, worth $47.5 billion, that weekend. But Google’s most effective weapon was not coercion or threats, but the very effective, and unconventional, use of its own checkbook.

Google and Yahoo recently conducted a two-week tryout in which Google delivered ads on a small portion of Yahoo searches. The pop quiz, which both companies described as successful, was intended to show how much more Yahoo could earn by outsourcing some of its search ads to Google, whose technology and large base of advertisers allow it to extract more revenue on average for every search.

Microsoft’s chief executive, Steven Ballmer, said that the prospect of such a deal, which would deprive

Microsoft of the ability of selling all the search ads on Yahoo, made proceeding with a hostile takeover less appealing. For Yahoo, the promise of a big check each quarter from Google could placate decent shareholders to head off a revolt by its decision to turn down Microsoft’s offer, worth $33 a share.

On Monday, investors sent Yahoo shares tumbling by as much as 20 percent in early trading before they recovered somewhat. In afternoon trading Monday, shares of Yahoo were down $4.47, or 15.6 percent, to $24.20. Microsoft’s shares were up 0.5 percent while Google’s rose 1.7 percent.

Even though Google is far and away the leader in search advertising, it is rare for a company to help its biggest rival that way. Google’s offer is all the more strange considering it does not neutralize Yahoo as a potential future competitor.

Yahoo’s stated plan is to take that…

Orginal post by Top Tech News