The Three Caballeros?–Bostock, Ballmer and…Bewkes?

It wasn’t just Yahoo Chairman Roy Bostock and Microsoft CEO Steve Ballmer meeting in New York last week.

According to several sources close to the situation, Time Warner CEO Jeff Bewkes rounded out the trio of chit-chatting execs, presumably gathered to discuss possible partnerships and other deals between and amongst the companies whose digital assets are among the largest on the Web.

Although the possibilities are numerous, exactly what Bostock, Ballmer and Bewkes–let’s call them the Busy B’s from here on out–were cooking up is unclear.

But for Yahoo (YHOO), Microsoft (MSFT) and Time Warner (TWX), which owns the AOL online service, it is a meal that is probably long past due.

That’s especially true given the struggles each has had with his online assets of late.

Some sort of alliance between the threesome could be a way each could solve those problems and more importantly, create a Web counterweight to the growing power of Google (GOOG).

Last week, on the heels of Carol Bartz’s appointment as new Yahoo CEO, BoomTown wrote a post noting that Microsoft was ready to deal in its long-sought-after effort to strike a search deal with Yahoo.

Last year, the software giant launched a takeover battle for Yahoo, which was resisted and ultimately abandoned. But Microsoft never lost interest in doing an outright deal to buy Yahoo’s search assets or create a significant partnership around search.

Yahoo has been long been lukewarm to such an idea, first rejecting Microsoft outright in favor of a deal with Google.

Since its Google deal collapsed over regulatory concerns, Yahoo has still dragged its feet about the notion, with its board divided over the right course of action.

And, while Bartz told Yahoo employees last week that her “gut” did not favor the deal, most saw that more as a negotiating ploy than a signal that Yahoo was not at least somewhat interested.

It has to be, given that many of its investors and also Wall Street have been eager for Yahoo to make such an alliance.

Therefore, the sighting of Ballmer and Bostock at the Time Warner Center in Manhattan together, first reported by Valleywag late last week, was a sign that relations between Yahoo and Microsoft were improving.

(The Ballmer/Bostock confab was also later confirmed by the New York Times.)

But sources at all the companies have said Bewkes was also meeting with the pair, which makes it clearer than ever that a much bigger and more complex game might be afoot.

It’s kind of inevitable too, given that this group has done more back and forth blabbing and bickering than Paula Abdul, Simon Cowell and Randy Jackson on “American Idol.”

That’s because Yahoo and AOL have also been involved in serious, but painfully prolonged, discussions to merge, talks that were tabled once Yahoo CEO Jerry Yang said in November that he was stepping down.

In addition, Microsoft has been interested in eventually renewing its bid for AOL’s search business, which is now run by Google. Microsoft lost out to Google the last time the contract was up.

It recently paid a small king’s ransom to become the key search partner of both Dell (DELL) and Verizon Wireless (VZ), distribution deals that have become one of Microsoft’s favored tactics to take some market share away from Google.

Microsoft even hired a well-known Yahoo search techie, Qi Lu, to head its digital efforts, mostly to turbocharge its search business.

But given that Google’s search share is over 70 percent now, which yields it a lion’s share of the search ad dollars, none of this has been enough for Microsoft to get true traction in the search game.

That’s why some sort of union with Yahoo is probably critical for Microsoft, since this would get it past the 20 percent share mark.

As for Bewkes, he has been mightily trying to unload AOL, which has had a long and painful history with Time Warner.

So it’s clear the trio had a lot to talk about.

And I hope they get creative this time, rather than just rehashing the same old ideas that have still not been consummated.

Here’s my suggestion, which is a bit nuts, to be sure, although variations of it have previously been considered by all the companies:

Instead of Yahoo doing the acquisition, which it can ill afford with its depressed stock price, Microsoft buys AOL for $4 billion to $5 billion.

It then quickly spins AOL’s content, advertising and communication assets into Yahoo, nabbing the search business, throws in some cash as an investment and perhaps even its MSN assets. Microsoft gets a large stake in the newco.

Time Warner gets the cash from the AOL sale and perhaps even a stake in the newco, along with perhaps striking some kind of interesting online deal for the rest of its copious media assets.

And Yahoo gets to own massive assets in content, communications and premium advertising on the Web. While it would lose search, Yahoo would also get a pile of money, along with enough key search data from Microsoft that it would drown in it.

And, most importantly, Yahoo could focus on what it does best rather than get squeezed in a search arms race between Google and Microsoft.

And if the meeting among Bostock, Ballmer and Bewkes was only another chapter of the endless and unsuccessful talks that have so far lead exactly nowhere?

Well then, the three will eventually look more like the Three Stooges than anything else.

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