Google CEO Eric Schmidt gave what he just had to know would be a much quoted comment to the Nikkei today, explicitly saying that the company had “begun seriously looking into acquisitions again.”

Music to the beleaguered mergers and acquisitions market, to be sure, especially after a recent uptick from other big companies pulling out their wallets again as the impact of the econalypse subsides.

According to sources, Google (GOOG) is working on at least a half-dozen acquisition deals, most of which are small start-ups in the online advertising and cloud computing arenas.

That would be welcome news for many.

That’s because, as The Wall Street Journal noted in a piece today, “August was shaping up to be the worst month for deal making since 1995, according to data provider Dealogic” (see the chart).

That was, until Disney (DIS) bought Marvel for $4 billion, in a deal announced Monday.

Then yesterday, eBay (EBAY) traded 65 percent of its Skype Internet telephony unit to a group of free-spending private investors, led by Silver Lake Partners, for $1.9 billion.

While eye-popping numbers like that make dealmakers smile, most think it is in the spate of smaller venture-backed companies that more of the action will happen, with big companies like Google, Microsoft (MSFT), Apple (AAPL) and even Yahoo (YHOO) as predators.

Many of these were funded in the Web 2.0 boom and have done well enough, but are figuring out that a link with a larger fish will likely make for a better outcome, along with filling in tech and product gaps at the giants.

Think about Facebook’s $50 million acquisition of social networking site FriendFeed recently and you have the right idea.

According to more than a half-dozen Silicon Valley VCs I have spoken to this week, this is the likeliest kind of exit for a large group of their portfolio companies.

Thus, they are putting on their finest and placing themselves on display in the store window, offering talent and innovation.

“We all realize that a lot of these companies are not going to be independent, so we’re all trying to figure out where they best fit in,” said one VC. “We essentially did business development for a lot of the large companies.”

Thus, here are some companies whose names have been bandied about of late by M&A types who say they are more likely candidates for sale:

Veoh, the Web video portal that MediaMemo wrote about in July, has reportedly been searching for a home for a while now as it struggles in a costly space dominated by giants like YouTube and Hulu.

That goes for many other similar video efforts, such as Joost, Metacafe and Dailymotion, all of which have been trying to gain traction.

There is also likely to be a shakeout in the gaming and “guy” content space, which has also seen a lot of funding in the last several years and less monetary success.

Some possible names here include: Xfire, a gaming instant-messaging company Viacom (VIA) bought a couple years ago for $100 million; Giant Realm, a 20-something guy site funded by Comcast (CMCSA) and others; and UGO, Hearst’s version of a 20-something guy site.

Probably, given the need to focus on monetization, the most active M&A space will be in online advertising.

Sources said Google, for example, has been interested in companies such as Teracent, a dynamic ad-serving and optimization start-up in San Mateo.

There are lots of names in this general arena to pick from, from Tumri to Quantcast to AdMob to the Rubicon Project, not all of which are for sale, but might be for the right price.

Lastly, there is the smart phone and telecom space, where there might be some of the bigger deals.

While Palm (PALM) has been trying mightily to gain traction with its Pre offering, many think that if it does not go as well as hoped, the company will be an acquisition target eventually for giant companies like Nokia (NOK).

While many think Microsoft could also be a buyer of Palm, given the lackluster performance of its Windows Mobile devices, it might be more attuned to a much bigger catch: Research in Motion (RIMM) and its business-oriented BlackBerry empire.

Such a massive acquisition–most of those I bounced that idea off agreed–would be an uphill battle, but it would be perhaps the best fish story ever.

Please see this disclosure related to me and Google.

With the spate of recent rants about all that’s wrong with Apple–although I will admit it is mildly amusing to read all the labored recountings of the longtime devotion from ex-fanboys, followed by the scales falling off the eyes to be quickly replaced by crocodile tears–BoomTown wonders exactly when the bizarre emotional connection some have with the computer company is going to end.

Well, never, I guess, because then it wouldn’t be the cult it is, would it?

And anyway, the pendulum will swing once again, and soon, to favor Apple (AAPL) once the drumbeat gets even louder on the wildly different rumors about the new tablet device that many are predicting will be delivered from on high sometime by–in the most likely and juicily dramatic scenario–CEO Steve Jobs.

Since it is Apple, who knows what they are up to and when?

But, in the interests of relieving boredom, I suggest we move on from the dead-horse issue of the Google (GOOG) Voice app–including the breathless anticipation of a new “war” between Jobs and Google CEO Eric Schmidt, a relationship that moved from bromance to frenemies to one of those lady-fights from “Dynasty” pretty quickly–to more enjoyable late-August frivolities.

Like trying to guess the name that Jobs will ultimately bestow on the tablet.

Here are my thoughts on the various possibilities:

iTablet: This seems the most likely name since it is simple, descriptive and sounds kind of catchy.

Apple always seems to go for the most obvious names and this is certainly it.

The downside is that it also sounds a little medical, like something you might take for indigestion.

But, I am sure some cute commercials will solve that acid reflux pronto.

iPad: Maybe it’s just me, but this sounds like some sort of feminine product.

Except in a scary way.

And iPad Touch, as some have suggested, is much, much worse.

I know the idea is that it is a pad-like device, but it also calls to mind a pad of paper, which feels really old too.

iBooklet: Don’t laugh. Okay, do.

But, it is not the worst idea to take an existing successful product and extend from it.

While the iBook is aimed at the less expensive computer buyers, the new tablet device seems to be a less expensive product for those who spend a mint on other Apple offerings.

iAmnotanetbook: Too long?

iAmakindlekiller: Too obvious?

iWillcallitwhateverthe#@*&ilike: Too much Jobs-channeling?

Whatever Apple does end up calling the innovative new product–which I am already in line to buy–it’s certain to be covered more than, say, critically important national and international issues, such as the health care debate.

So, until this one more thing debuts, perhaps the best name for it will be the most obvious of all: iHype.

It’s hard to know what to think of the economy’s direction, even if you are trying to glean some knowledge from those whom you imagine might know a thing or two about it.

Indeed, if you listened to a variety of tech and media execs talk about what its status is of late, it’s a wonder we can get out of the woods, since no one knows exactly where we are in them.

According to CIsco (CSCO) CEO John Chambers, for example, in reporting estimate-beating-though-still-lackluster fourth-quarter earnings yesterday, we might be at a “tipping point.”

Said Chambers in a statement: “If we continue to see these positive order trends for the next one to two quarters, we believe there is a good chance we will look back and see that the tipping point occurred in our business in Q4.”

Would that be tipping or teetering?

In reporting dismal-ish fourth-quarter earnings also yesterday, News Corp. (NWS) CEO Rupert Murdoch seemed positive, except not.

“I think the worst may be behind us,” said Murdoch during a conference call with analysts. “But there are no clear signs yet of a fast economic recovery.”

Microsoft (MSFT) CFO Chris Liddell turned that on-one-hand-on-the-other-hand around when speaking at the software giant’s recent Financial Analyst Meeting.

“I can’t say this is good that we’re still down relative to where we were a year ago,” he said. “But, on a relative basis, it was a reasonable year from a shareholder value point of view, given the context of the environment that we had.”

So, essentially, Liddell was saying things were bad, except it was good, given how bad it was.

Well, at least it was not Google (GOOG) CEO Eric Schmidt, who repeatedly discounted the economic downturn as it developed in 2008, with quotes like “What recession?”

While he did reluctantly go negative, after it became clear things were really bad, Schmidt was back to being positive about the economy soon enough.

While at an advertising event in Europe in June, using U.S. jobless claims as a reference, Schmidt noted that the business cycle was at the “beginning of the bottom.”

Which, I guess, means what goes down must come up. Mustn’t it?

Was it more than a month ago that Google was rumored to be in “late-stage negotiations to acquire Twitter”?

Not so much late-stage, I guess, with a gestation period that seems interminable (and BoomTown has been there, so can speak from experience about interminable pregnancies).

In fact, I’m still waiting for the Google (GOOG) takeover news floated inaccurately back then to cross our desk at All Things Digital HQ, although it’s more likely Godot will show up first.

So I guess it should come as no surprise that it was time to fob yet another rumor that yet another moneybags of a company–this time, Apple (AAPL)–is in “late-stage negotiations to buy Twitter.”

You could set your broken-but-right-twice-a-day clock by it, in fact.

But despite very serious interest in Twitter by every company that can afford considering such a thing, getting across that late-stage line would require major investors in the microblogging service to be involved, and they are not as yet.

In fact, both Twitter co-founders, Evan Williams and Biz Stone, are in New York today to attend the 2009 “Time 100″ dinner, which fetes this year’s influential people honorees selected by the magazine. Which they are.

So, if they are in serious talks with Apple, they better grab that award and head on home tout de suite.

In point of fact, talks with Facebook last year were actually the only truly deep sale discussions that Twitter has been involved in, and those went south.

Oh, the very notion of Apple and Twitter is a Techmeme dream-ticket, sure to be chewed over for days on end. (I once considered doing a post that just said “AppleTwitterAppleTwitterAppleTwitter…” for 1,000 words to see how much idiotic traffic I would get.)

But given that it is too good to be true for now, rather than be on the edge of your seat about all these endless, alleged late-stage high jinks, here is a five-step list to cut out and keep when the rumors of “late-stage negotiations” with Microsoft (MSFT), News Corp. (NWS), Verizon (VZ), Yahoo (YHOO), Time Warner (TWX) online unit AOL, Comcast (CMCSA), Cisco (CSCO) and more inevitably show up.

1.) Belle of the Geek Ball

Everyone is indeed actually interested in buying Twitter and each has expressed a proper level of interest to the company’s execs–especially to over-contacted CEO Williams–about said interest.

And, because this is America, a bid for Twitter could come at any time and in any amount.

That’s why Apple has indeed said hello. Why Microsoft’s business development team has been busy formulating a valuation. Why Google’s M&A guy, David Lawee, has called into Twitter’s HQ many times with kind expressions of desire. And why News Corp. execs, including Rupert Murdoch himself, have murmured tweet nothings to the Twitter team.

Please note: This is not the same thing as “late-stage negotiations.” Not at all; so don’t believe such things, as you will see this one coming down the pike for miles (see Step #4 below).

If there ever were an Apple deal to be done, it would not be living in some tidy vacuum.

For example, does one imagine Google CEO Eric Schmidt–who is on the Apple board, much to the FTC’s chagrin, it seems–would decline to enter the fray? Oh, he’d be up to his conflicted eyebrows in it at this point.

(Full disclosure: ATD is also considering making a bid for Twitter, but only if I get to name who is called Chief Twit.)

2.) We Feel Pretty, Oh So Pretty

Twitter’s Williams, as well as Stone, do not really want to sell just yet, given the huge traffic over the last year, goosed even further by the whole Oprah-Ashton Kutcher axis of Tweetvil.

Twitter is growing and growing and growing. Does that mean it has peaked or is just crossing over into the mainstream?

I would say the latter and so would its investors and execs.

I have done a lot of reporting and have found that most of them would like a chance to ride this rocket ship and see if they can prevent it from being a shooting star by figuring out some viable, innovative and lucrative business plan.

“Twitter really could make a lot of money,” said one investor. “And we are not just making that up either.”

Well, phew, because I have been a little worried about that.

3.) We’re Living in a Material World, and I Am a Material Girl

That said, as Madonna sings, a pile of cash is a pile of cash and if one of the suitors makes a big move with $600 million or more in cash, it would be hard for Twitter to completely ignore such an offering.

But, in any case, there will be no late-stage negotiations with one player.

Instead, an epic free-for-all wrestling match to the death would break out among all of them, especially Google and Microsoft.

This will be great for me and all the other tech writers as it will be ugly, competitive and tailor-made for breathless reporting.

Google is the likely winner here, although Microsoft is quite intent on the possibilities of integrating Twitter technology with its business offerings.

Someone will, I can predict with certainty, lose an eye.

4.) All the Single Ladies…Cuz if You Liked It, Then You Should Have Put a Ring on It

And, even with that kind of offer–which I would take in a New York minute, as would some Twitter investors–there is a sense when you talk to Twitter’s founders and investors that they truly believe they are onto some very important interactive communications paradigm shift in the Internet arena with their start-up.

I would have to agree given that the real-time and status-update concepts that Twitter has perfectly touched on are a very important one.

Thus, Twitter would prefer to remain independent for now.

Whether Twitter will prevail or not is never assured, but it would be really a shame if it gave up before the story was over.

5.) And They Lived Happily Ever After

Let’s be honest: There is no real downside here for Twitter.

If the service turns out to be be a flash in the pan and it is not sold for big bucks, Twitter still has heralded a very important new era in the digital industry.

And, if it grows like crazy even more, better still.

Also, Stone got to go on “The Colbert Report” and Williams on “Oprah.”

Best of all, in a shameless plug, they will both be captive on stage with Walt Mossberg and me at the seventh D: All Things Digital conference exactly three weeks from today, where we can ask them about all this and more.

So, I am thrilled too.

Who says there are no happy endings?

Until that D7 interview, here is my recent video with Williams and Stone at Twitter’s funky San Francisco HQ:

This weekend on Twitter, someone paid BoomTown a compliment of a sort: “I read you because you are a solid fact-based reporter with a Miss Cleo intuition “

Yipes, because of being fact-based, I had to point out that the well-known-via-infomercials Psychic Friends Network shaman turned out to be a bit of a fraud, although she’s always entertaining, with her jaunty Jamaican accent (she was not, of course, from there).

Nonetheless, it got me thinking about how I would predict what would result from all the deal-making that is suddenly in the air, after six months of ennui from the current economic downturn.

While Silicon Valley has been less impacted than, say, New York, things have certainly been tightening up here, with layoffs at big companies and small ones and less frenetic activity than one had come to expect from Web 2.0.

But last week, the pulse seemed to quicken a little with the various rumors that have swirled around Twitter, the variety of controversies around Facebook and the nascent chit-chatting now taking place between Yahoo (YHOO) and Microsoft (MSFT).

Thus, with a third eye to the future, here’s my take on what could happen. Big caveat, though: Much of what follows is all my speculation and analysis and not based on any psychic feelings.

TWITTER TWADDLE

Last week, I did a rather long reported post on what was going on after rumors broke out that Twitter was in “late-stage” acquisition negotiations with Google (GOOG).

While an imminent deal was not pending two weeks ago, I wrote that Twitter was indeed the apple of Google’s eye at the moment–specifically and now more so than ever, many sources tell me, of its Search Product VP Marissa Mayer–for some kind of search deal that could eventually lead to an acquisition.

But I also noted that Microsoft was also in the picture, vying for Twitter’s affections, and I doubted that Microsoft and Google would be the only ones interested in the hot-as-July-in-Alabama microblogging start-up.

Here’s the plus for Twitter: It’s on a hype rocket ship, its growth is also accelerating and it does not need money, since it just got a big slug of venture funding.

And that’s also a minus and why I also predict that there are only two outcomes: a sale very soon or a major investment by one of its suitors.

While I would love for its founders, including Biz Stone and CEO Evan Williams, to stick to their claims of remaining a “strong, profitable, independent company,” a cash offer of over $500 million or a cash-and-stock offer of slightly more will probably be enough to take them off the table, mostly because the getting might never get this good again.

That offer is most likely to come from Google, if I had to make a bet, which is well known for moving quickly when it sees a tasty treat it desires.

That’s a shame, since once the start-up actually does enter these kinds of “late-stage” talks for real, some deserved shine will come right off Twitter’s cute little MINI convertible of a company.

Instead, Twitter might want to take a page from Facebook and let itself grow its own as it explores revenue options, while perhaps taking a large investment and striking a significant commercial deal with a strategic partner like Google or Microsoft.

Then, with a modicum of independence and the possibility of acquisition if it turned out it needed help, Twitter could forge its own destiny.

And wouldn’t that be nice if Google or Microsoft didn’t just gobble up every innovative thing they cannot seem to think of on their own?

FACEBOOK FOLLIES

I will be reporting more very soon on what’s been going on as the powerful social-networking site deals with its fast-growing pains–up to 200 million users now, which is about as impressive at it gets in the Internet space.

Not so impressive is the variety of high-profile management mishaps that have plagued the company of late–from its Terms of Service debacle to its redesign rough road to the way Facebook recently parted with CFO GIdeon Yu.

To say Facebook treated Yu–a well-regarded figure in the tech sector, who had also raised an awful lot of funding for the start-up–with very little of the kind of grace he deserved and that it should have displayed is an understatement.

In the creation of a significant start-up, tensions inevitably flare and there is typically a lot of management turnover, which is natural, for a variety of reasons on all sides.

Why Facebook had to insecurely tout its stable financial state while backhandedly slapping Yu by saying it was in a search for a CFO with “public company experience”–Yu had enough public company experience to make that deeply insulting–was unclear, when it simply could have said he was moving on in the way most such partings are done.

The conflict between its public statement and an internal memo I obtained on Yu’s departure underscored the problem.

Insecure and way too focused on optics is probably an issue Facebook will have to deal with as it moves toward what the company hopes will be in IPO in 2010 or 2011. Rather than all the noise, its only goal should be shaping up its revenue and profit performance and, hopefully, building a cohesive management.

But does that mean current CEO and founder Mark Zuckerberg will have to eventually step aside before a public offering and make way for a more experienced CEO type, as Google co-founders Sergey Brin and Larry Page did for Eric Schmidt, as some have suggested?

I predict not. Because, for all his careening from crisis to crisis of late, I have no question that Zuckerberg–who has fended off big-money acquisition attempts by big players with a cool-cucumberness that Twitter’s execs should study carefully–has every intention of riding Facebook to the very top–or even bottom.

Clearly modeling himself as a modern-day Steve Jobs (who was fired before triumphantly returning) or Bill Gates (a better comparison), Zuckerberg is a visionary techie who wants to style himself as a crack businessman too.

And with a lot of control over the fate of Facebook, he’s going to see his vision of Facebook and himself out.

THE ODD COUPLE

Can two divorced men share an apartment without driving each other crazy?

Oops, I mean can two once-bickering-over-a-hostile-takeover companies start talking without driving each other crazy?

Last week, the news, first reported here Friday, that Yahoo was involved in preliminary talks with Microsoft about an extensive commercial advertising and search partnership–should have come as no surprise.

After all, Yahoo and Microsoft are laggards in the lucrative search space, especially compared to the dominant Google, and they must somehow find a way to get along to get some traction in the marketplace.

But will they or will it be all Felix Unger and Oscar Madison battling until the end of time? While I loved that television show, and movie too, the Yahoo-Microsoft version is not riveting anymore to some.

“I am so bored with their not-coming-to-a-deal,” said one prominent exec, who was involved in the first go-round between the companies. “They need to make a deal, and if they don’t make a deal now, I will be both bored and in shock.”

That made me laugh out loud when I heard it. But it’s not funny, I know, because this is serious stuff!

Okay, then, seriously, this pair needs to come to some sort of partnership agreement like Miss Cleo needs a new reputation.

And, because I am a hopeful psychic, I predict they finally will, dropping all the emotion and history and realizing that they are wasting time and opportunity.

After all, while the future isn’t written, it can–a lot of the time–be both inevitable and utterly obvious.

Speaking of obviously (bogus), here is a video of Miss Cleo’s famous commercial:

Please see this disclosure related to me and Google.

That was fast.

Longtime–well, five years, which is a dog’s age at the search giant–Google sales exec Dennis Woodside (pictured here) will become VP, Americas Operations, replacing outgoing exec Tim Armstrong, who was named chairman and CEO of Time Warner (TWX) online unit AOL last week.

Woodside, 40, will start in the next few weeks, said Google (GOOG) in an internal communication about the appointment, as Armstrong transitions from Google to AOL. It is the key advertising sales job at Google.

Armstrong has already been hard at work at AOL, in fact, leading an employee rally today at its former HQ in Dulles, Viriginia, which included former AOL execs Steve Case and Ted Leonsis.

(And he will hold a similar meeting at AOL’s New York office tomorrow, BoomTown has been told. But let’s hope he does not roll out, say, former Time Warner CEO Jerry Levin, which would be taking this old-home-week stuff too far!)

While Woodside is a well-known exec within Google, his name was not as prominent in the speculation about which internal Googler would be named by CEO Eric Schmidt to replace the well-known Armstrong.

Wrote MediaMemo’s Peter Kafka last week, for example, when the Armstrong departure was announced:

“According to a (very informal) flash poll of Googlers, ex-Googlers and Google competitors I conducted last night, the answer should be obvious: David Rosenblatt, the former Doubleclick CEO, who now runs Google’s display business.”

Woodside will also have a slightly lesser title than Armstrong, who was a corporate SVP, was president of the America Operations and was also on Google’s powerful operating committee.

But that’s part of the changes, mentioned in a long statement by even bigger sales boss Omid Kordestani, SVP, Global Sales & Business Development, to whom Woodside will report (the key graph is the last one, although the golf dig is funny):

In the five and a half years that Dennis has been at Google (that’s over half our company’s lifetime) he’s brought incredible integrity and entrepreneurialism to everything he’s done. I remember Dennis setting off from Mountain View in 2005, a year and a half after he joined, to start our direct sales operations in Eastern Europe, which he quickly transformed into a substantial part of our business. He also set up our Inside Sales Operations in Dublin – again building it from scratch. In September 2006, he became our Vice President for the UK, Ireland and Benelux where he’s helped to create a first class team as well as establish very positive relationships with our big partners on both the advertiser and agency side, including 02, Marks & Spencer, Amazon and Omnicom.

Ever since I met Dennis in 2003, I have been impressed by his combination of entrepreneurialism and operational excellence. He’s never afraid to try new things and always ready to roll up his sleeves and pitch in–whether it means moving his desk to sit with the UK DSO team to see the operations first hand, or being the customers’ advocate internally to help product and engineering better understand market trends. Outside work he loves to do triathlons–though I would only recommend training with him if you don’t mind being out-run (if you are looking to beat him, try golf).

While we are all sorry to see Tim move on, change always brings new opportunities. We believe it’s now time not just to roll-out globally the best practices from the different regional sales teams–the Americas, EMEA and Asia Pacific–but also to tailor our business strategies more closely to the different situations we face in different countries (more mature versus less mature markets).

For a tall man, Tim Armstrong has been on an awful lot of online companies’ short lists.

For a big Web exec job, that is. Indeed, whenever one opens up in the Internet space, the 6-foot 3-inch Google ad sales exec always pops up on it as a possible candidate to lead a variety of digital companies and start-ups.

Finally today–after longtime speculation that Armstrong had long wanted and would eventually leave his post at Google (GOOG) in order to try his hand at being top dog–he took over as chairman and CEO of the once-mighty, but now-not-so-much, AOL.

Armstrong, 38, will start at AOL on April 7.

“For me, it is a great opportunity to go to what I consider a top-five Internet brand,” said Armstrong, in an interview with BoomTown this afternoon, with a whole lot of the diplomacy and nice-guyness he is well known for at Google and in the online advertising industry. “I am looking forward to taking what I have learned at Google and seeing what I can bring to really help AOL.”

Noting that for all its decline–pointed out by me–AOL was still one of the few “global Internet brands,” Armstrong said he thought there was still a lot of juice in the consumer appeal of AOL.

So much so, he added, that AOL owner Time Warner (TWX) has given him a lot of options for its future, from keeping it inside the larger media conglomerate (unlikely) to partnering with another company (less unlikely) to spinning it out (likely!).

“One of the things we discussed was making sure we were able to have the best outcome for AOL,” said Armstrong. “That could take the form of a lot of different paths.”

(Translation: As soon as the economy brightens, I am going to become a public company CEO, just like my soon-to-be-ex-boss Eric Schmidt!)

The move to put Armstrong in at AOL was sudden and swift, and also more than a little cutthroat on the part of his new employer, which bounced current Chairman and CEO Randy Falco and President and COO Ron Grant without a lot of warning to them or any top exec at AOL.

While there has been much talk about when Time Warner would become weary of the pair’s management of AOL–which has been rocky (most especially their overpaying for the Bebo social-networking site, which others at Time Warner never got over)–their defenestration and Armstrong’s installation happened rather quickly.

And, indeed, Armstrong confirmed that the talks to take over at AOL had only started a few weeks ago, increasing in “intensity over the last week.”

So intense, for example, that Grant only found out he was being replaced this afternoon after a personal visit from Time Warner CEO Jeff Bewkes, who made a rare appearance at AOL’s downtown Manhattan HQ to deliver the bad news.

(One AOLer’s funny, but entirely imaginary, vision: Bewkes signed up Armstrong, whose Google office is right nearby AOL in New York, and then hightailed it over to AOL to drop the hammer before the ink was dry on the contract.)

Via a coup or not, nabbing Armstrong is indeed a coup–at least from a shiny resume point of view–for Bewkes, who has been struggling with what to do with AOL for a while.

While he often affably jokes about its many problems–from declining ad sales to management turmoil to, it must be said, increasing irrelevance–Bewkes has been trying to sell off AOL or turn the asset into something more valuable for far too long.

Bewkes knows Armstrong well, as Google is a major partner of AOL in search advertising, and Google also owns five percent of AOL, in a deal in which Armstrong was involved (and whose value the search giant recently marked down).

Armstrong said he was also close to Time Warner General Counsel Paul Cappuccio.

“It was a natural fit with AOL, since I know the company so well,” Armstrong said, adding he would spend his first weeks getting to know AOL’s employees and its products better, before making more concrete strategic decisions or changing any course setting of Falco’s.

Under Falco’s plan, AOL was focusing on a three-pronged strategy: social networking and communications (People Networks), content (MediaGlow) and advertising (Platform-A).

“In general, I do want to spend time with the staff,” he said. “Some of the stuff I have seen so far has actually paid off…and a lot of the new products show a lot of passion.”

Whether he can turn passion into blockbuster products is another story, and some are worried that Armstrong’s experience is too heavily weighted in ad sales rather than in development of killer services, which is what AOL might need to recover.

But Armstrong said he had a lot of other operational duties at that search giant, noting that “Google is a very complex business.”

And both current and former AOLers hope his ad experience will allow AOL to return to its strong premium advertising roots that were less focused on of late. In fact, Falco recently hired former Yahoo (YHOO) sales head Greg Coleman to do just that.

And Armstrong has a lot of support from unusual sectors too. Wrote former AOL head Jon Miller, who was, ironically, forced out by Bewkes in favor of Falco and Grant, to me in an unsolicited email: “Count me amongst the Armstrong fan club.”

And, many staff at AOL I spoke to today–whose morale has been buffeted by layoffs and ongoing bad news–seem genuinely thrilled to score such a prominent exec.

“I am so thrilled. We couldn’t change the DNA with Rondy on top,” said one exec, referring to the derisive nickname that Falco and Grant had within AOL, which combined their two first names. “I feel really positive.”

So does Armstrong. “I am really looking forward to running AOL,” he said.

And personally, as a longtime and clearly obsessive watcher of AOL, I am looking forward to seeing him try.

Is it just me or does the fact that President-Elect Barack Obama is broadcasting his weekly address on YouTube not seem like it should be the very biggest deal in the world?

Still, when an article in the Washington Post reported late last week that he would put his weekly Democratic address online in video–on YouTube and his own transition site, Change.gov–as well as the regular radio, the squeals from tech were louder than at a mall appearance by the Zac Efron of “High School Musical.”

While it is a first for the Commander-in-Chief, I am more depressed that it is a first–after all, skateboarding cats made it to YouTube eons ago–than utterly thrilled that he is doing it.

But, when it come to the glacial movement related to politicians and tech issues, disappointment seems to be a better stance than hope.

I could begin with the fact that the U.S. has poor broadband and wireless coverage compared with most comparable nations (Softbank’s Masa Son once told me in an interview that this country was the “third world of broadband”).

Ironically, the price of high-speed access ranks at the top, by really gross margins.

Or that the federal government remains unfocused on a number of important digital issues, from immigration to privacy to net neutrality.

Perhaps because of his more obvious use of Internet tools, from communicating to supporters to raising money to targeting voters, Obama has felt like the first true Internet candidate, well beyond the ultimately unsuccessful inroads made by Howard Dean in 2004.

And now with even more YouTube videos, the Twitters, a much more interactive Web site at Change.gov and, best of all, the possible appointment of a CTO for America, it has been a general lovefest that the Obama presidency has engendered from the Internet community, simply for the focus the sector is now getting.

And more interactive communications are promised, such as regular video interviews with senior members of the Obama administration.

“This is just one of many ways that he will communicate directly with the American people and make the White House and the political process more transparent,” spokeswoman Jen Psaki said to the Washington Post.

It’s not that BoomTown does not think this is a great thing, but to me, this kind of transparent communication should be as normal as it has become throughout the rest of society as a matter of course.

Also, it would be nice if the Obama videos were also distributed on many other video services besides YouTube, which is the largest, but owned by Google (GOOG), whose CEO Eric Schmidt is a prominent supporter of the new administration.

Still, the four-minute video that Obama released yesterday is a good first step, along with a previous one from transition Co-Chairman Valerie Jarrett, who recorded a two-minute video earlier in the week.

Both are below:

President-Elect Barack Obama

Transition Co-Chairman Valerie Jarrett

When reports came out last week that Google and Yahoo were downsizing their controversial search advertising deal, I told a Yahoo exec I happened to be having dinner with that that it was the surest sign that the search giant was about to dump the long-suffering Internet portal.

The exec, who made the case that the deal was always tactical, and not strategic, laughed. For all its problems, Yahoo (YHOO) has always been a straight-up player and such sneaky machinations are not its strong suit.

Google, not so much.

After all, Google (GOOG) had already tried using The Wall Street Journal the week before to try out an our-way-or-the-highway tactic to play chicken with the Justice Department, to no avail.

As I wrote:

And, while it might be testing the Justice Department in hopes of salvaging the deal, I suspect Google–as much as its founders want to help out Yahoo CEO Jerry Yang and block Microsoft at the same time–is just now figuring out that walking might actually be the best move.”

Then in a sudden switcheroo just days later, Google was doing the docile-dog play, using the Journal again to signal that it was willing to compromise drastically to do a deal and trying more to look cooperative with the Justice Department.

Now, Google is not some Internet Sybil–way out of the deal one week and in another. Instead, it was creating what one might call “plausible deniability,” a Washington, D.C. term that essentially means covering your own petard.

Despite Google’s last-minute theatrics of cooperation, I am sure the decision had long been made at its California Googleplex lair that it would bow out.

After all, many top execs at the company were dead set against it from the start, mostly due to the undue scrutiny it would bring to Google. Those execs now had plenty of ammo to mercilessly strafe the deal from behind.

Early on, that was also a big worry of Google’s own operatives in D.C., who expressed concern–largely ignored at HQ, where execs really do see themselves as not even slightly evil–about its growing image as a scary behemoth.

Well, that picture is now most definitely solidified in the minds of regulators, helped along by the dangerous pontificating by CEO Eric Schmidt a little while back, who haughtily declared that Google would move forward with or without government approval.

“Time is money in our business,” said Schmidt, in a quote that I am sure he would like to take back now.

It was just the arrogant kind of attitude that Microsoft (MSFT) lobbyists, who have been hitting this deal hard like an old bass drum, needed in order to paint an ugly picture of Google in D.C.

And–more troublesome for Google–it gave advertisers and publishers, many of whom have long harbored fear of the company’s growing power, the courage to speak out, which they did in droves, along with many public interest groups.

But, as has been clear for a while, the Justice Department–after making its own big and noisy deal in its veiled public leaks of outside litigators and such–had to move forward with a lawsuit, and before the election was over.

And, indeed, as I have long maintained, stopping the deal was the right move all along, because a partnership between the No. 1 and No. 2 players just never should be allowed, however slight in its configuration.

As I wrote in April:

So, any further hook-up between the two seems sure to become the Justice Department Lawyer Employment Act of 2008, the likes of which we have not seen since Microsoft got its turn at being deservedly whacked for being a monopolist back in the last century.

Let’s face it, outside of those who cannot seem to shake the annoying Kumbaya mentality over at Google, a Yahoo-Google partnership is simply fantastical, like some out-of-control Dr. Seuss ditty.

They could not, would not with a goat. They would not, could not on a boat. They will not share an algorithm, they will not, will not, Jerry-I-Am.”

Because, although Google has almost none of the obvious menacing aggression that characterized Microsoft when it thoroughly dominated tech, the government was never going to allow such a clearly dominant company in search to strike such a deal, given the obvious antitrust implications.

As I also said then: “It is bad for advertisers, it is bad for consumers, it is bad for innovation, no matter how well-intentioned Google is.”

Thus, the die was cast for the inevitable dumping of Yahoo, in a hasta-la-vista-baby letter this morning terminating the partnership, which Yahoo should have seen coming many miles away.

Sources close to the company, which has been justifiably irked about how Google has handled itself with the Justice Department, said execs at Yahoo might have expected the move, but were deeply disappointed too.

(Here is Yahoo President Sue Decker’s memo on the collapse of the partnership.)

At least the very least, Yahoo did use the deal to escape the clutches of Microsoft in the midst of an ugly takeover battle, which investors now wish it had not, given its stock price is now half of what it was then.

And, indeed, it was perfectly tactical in that regard, using the software giant’s archrival, Google, to poke Microsoft relentlessly.

But Google would only prod so much, until it adversely impacted its own main goal of quiet but inevitable domination over search and, in fact, all online advertising.

When it did just that, dragging Google into a thorny briar patch, the company inevitably resorted to one of its internal mantras, “Feed the winners, starve the losers.”

Time will tell just how much a loser Yahoo will be from this latest bump in its current pothole-filled journey.

As to the candy-colored Google image? Well, it’s definitely not as sweet as it used to be.

Please see this disclosure related to me and Google.

In advance of tomorrow’s elections, here’s a pair of videos of the two presidential candidates, Republican Sen. John McCain and Democratic Sen. Barack Obama, talking about tech.

While Obama has many more supporters in the tech and Internet sectors in terms of numbers, including Google (GOOG) CEO Eric Schmidt, McCain’s include Cisco (CSCO) CEO John Chambers, former eBay (EBAY) CEO Meg Whitman and former Hewlett-Packard (HP) head Carly Fiorina.

And while tech is not exactly issue No. 1 with either of them, here is McCain talking about it in the entire interview he did at the fifth D: All Things Digital conference in 2007 (he also discusses Iraq and other topics in the interview) and a new, much shorter three-minute video just posted by Obama on tech policy:

Today, a panoply of prominent tech and Internet leaders is taking a very public stand against a controversial initiative before California voters, which would eliminate the current legal right of same-sex couples to marry.

Forming a group and taking out a full-page ad in the San Jose Mercury News tomorrow, the execs hope to convince voters to reject Proposition 8, which is titled “Eliminates Right of Same-Sex Couples to Marry.”

Silicon Valley has had a long history of supporting gay rights. And recently, Google (GOOG) Co-Founder Sergey Brin has made a strong statement opposing Proposition 8, while Apple (AAPL) gave $100,000 to help defeat it.

The honorary co-chairs of “Silicon Valley Leaders Say NO on Proposition 8″ include: Brin; Bill Campbell, Chairman, Intuit; David Filo, Founder, Yahoo; Chuck Geschke, Founder and Chairman, Adobe Systems; John Morgridge, Former CEO and Chairman, Cisco Systems; Pierre Omidyar, Founder and Chairman, eBay; Sheryl Sandberg, COO, Facebook; Eric Schmidt, CEO, Google; and Jerry Yang, Founder, Yahoo.

In a statement in a press release set to go out this morning, Yang said: “Silicon Valley has always been an example for the rest of the country of how diversity and openness help to drive innovation and value creation. This divisive measure is the antithesis of those values that make Silicon Valley so unique.”

An ad the group–which also includes star venture capitalist Mike Moritz of Sequoia Capital, as well as Palm Founders Donna Dubinsky and Jeff Hawkins, and many others–is putting out tomorrow in the Mercury News reads:

Silicon Valley Leaders Urge You to Stand for Equality.
Vote No on Proposition 8.

As Silicon Valley leaders, we are committed to equality and fairness. We are opposed to Proposition 8 because it would change our state constitution to take away rights from one group of people. It would set our state, and our country, back in the fight for fundamental fairness and equal rights.

Please join us by reaching out to friends and neighbors and asking them to stand for fairness: Vote No on Proposition 8 on November 4th.”

(The ad and a longer list of tech leaders opposing Proposition 8 is below.)

If passed by a majority of voters, the California Constitution would be amended to include a new section stating “only marriage between a man and a woman is valid or recognized in California.”

Earlier this year, the California Supreme Court held that same-sex couples have a constitutional right to marry under the state’s constitution.

Former California State Controller and former exec at eBay Steve Westly noted that his own interracial marriage was once illegal, which is one of the reasons he was opposing Propostition 8.

“It really is the civil rights issue of the day … people stood up and fought for people like me and now it is time to stand up for others,” said Westly, who was an early supporter of gay marriage and is said to be eyeing a run for governor of the state. “While this is a polarizing issue, it is mind-boggling to me not to support the right of any two adults who love each other to marry.”

One thing is certain–the issue is indeed polarizing. Currently, the vote on Proposition 8 is very close, and a huge amount of money–more than $60 million–has been spent by both sides in the battle, which is considered one of the most contentious and high-profile in the nation.

Here is the ad (click on the image to make it larger):

LEADERS (partial list):
Deborah Barber, Principal, Jackson Hole Group
John Battelle, Chairman and CEO, Federated Media
Larry Birenbaum, Former Senior Vice President, Cisco Systems
Lorna Borenstein, President, Move
Larry Brilliant, Executive Director, Google.org
Owen Byrd, President, Byrd Development
John Chisholm, Chairman and CEO, CustomerSat
Barry Cinnamon, CEO, Akeena Solar
Tod Cohen, Director of Government Affairs, eBay
LaDoris Cordell, Administrator, Stanford University
Sue Decker, President, Yahoo!
Jack Dorsey, Chairman, Twitter
David Drummond, SVP, Corporate Development & Chief Legal Officer, Google
Donna Dubinsky, CEO, Numenta
Alan Eustace, SVP, Engineering and Research, Google
Naomi Fine, President & CEO, Pro-Tec Data
Rachel Glaser COO/CFO, Reunion.com
Carl Guardino, President and CEO, Silicon Valley Leadership Group
Andre Haddad, CEO, Shopping.com
Jeff Hawkins, co-Founder Palm, Handspring, and Numenta
David Karnstedt, Investor
Scott Kaspick, Managing Director, Kaspick & Co.
Steve Kirsch, Serial Entrepreneur
John Koza, CEO, Third Millennium
Ross LaJeunesse, Head of State Policy Western US, Google
Gary Lauder, Managing Partner, Lauder Partners Venture Capital
Laura Lauder, General Partner, Lauder Partners Venture Capital
Len Lehman, Investor
John Luongo, Former CEO, Vantive Corporation
Roger McNamee, Managing Director & co-Founder, Elevation Partners
Ken McNeely, President, AT&T California
Michael Moritz, Partner, Sequoia Capital
Susan Packard Orr, CEO, Telosa Software
Randy Pond, Executive Vice President, Cisco Systems
Amy Rao, Founder & CEO, Integrated Archive Systems
Jana Rich, Managing Director, Russell Reynolds
Miriam Rivera, Former Vice President and Deputy General Counsel, Google
Dan Rosensweig, Investor
Dan Rubin, Partner, Alloy Ventures
Hilary Schneider, Executive Vice President US Region, Yahoo
Len Shustek, Chairman, Computer History Museum
Jeff Skoll, Former President, eBay Inc.
Stephanie Tilenius, SVP, eBay North America
Joy Weiss, President and CEO, Dust Networks
Steve Westly, former California State Controller & former SVP eBay
Evan Williams, CEO, Twitter

[UPDATED on 11/05/08] In the interest of full disclosure, I am obviously not a supporter of Proposition 8. And, after I wrote this piece and hours before it passed last night, I got married in California under its recent same-sex marriage law, which the initiative has now overturned. It is still legally unclear what that will mean for people like me who married before Proposition 8 was passed, as it is not retroactive; as of now, the marriages remain valid. In any case, please see this disclosure related to me here.

The election is not the only event with only days to go–a move in face-off Yahoo and Google are in with the Justice Department over their controversial search advertising partnership will have an outcome, sources close to all sides said, before the next President is chosen.

Thus, I predict news either tomorrow or Monday.

Why? Well, campaign news will surely drown out any attention any development might get, of course.

But, actually, for more obvious reasons: Whoever is elected, the Assistant Attorney General for Antitrust, Thomas Barnett, will be leaving that post sometime after the Nov. 4 election.

Thus, Barnett and his team are likely–after all this noise–to want to take action of some sort before he becomes, in essence, a lame duck.

Of course, it is ironic that, as the clock counts down the last minutes, a regulator not regarded as a very effective trustbuster and who has taken a mostly hands-off attitude toward meddling with businesses, could launch a lawsuit against the most powerful Internet company in the world.

Or not.

Yahoo (YHOO), Google (GOOG) and the Justice Department are still talking, sources said, trying to come to some accommodation.

So, as we wait for the verdict, here’s a short handicap of options:

1. Google and/or Yahoo walk:

It seems far more likely that Google would do this than Yahoo, given its corporate culture is impatient with moving forward illogically (think Spock and you have the right picture of Google’s mindset).

I would imagine Google execs do not want to accept any caps or changes to the deal at all, and might conclude such restrictions make it not as worthwhile.

Yahoo, of course, cannot walk as easily, depending on the deal for revenue and because it must avoid having to then turn to Microsoft (MSFT) to strike a search ad deal from a very prone position.

Thus, Yahoo has to be pulling out all the stops to make something work.

Then again, if a Justice Department lawsuit is the alternative, walking would be the best option.

Prediction: Even odds.

2. Google and Yahoo accept changes:

Whether it be caps or monitoring or forcing Yahoo to strike a similar deal with Microsoft, this option seems like a bad one for the pair, as it hobbles the deal before it even has a chance to be tested.

Plus, the joy of government regulators breathing down your neck 24/7 is, well, priceless, especially after Google CEO Eric Schmidt told regulators he would move forward with or without them.

While Google has now perhaps permanently put the government on notice that is must be more scrutinized than ever going forward with that unfortunate statement, I would be surprised if Google accepted any substantial changes to the deal.

Prediction: If small adjustments, likely. If more, it would be hard to imagine.

3. The Justice Department files a lawsuit:

Ouch. Bad all around.

First, the Justice Department will have a hard time proving this partnership–which has not launched–is damaging. While it is good to have all those nervous advertisers to point to, it will be an uphill slog of a case.

Second, another lawsuit or fight for slap-happy Google? Oh, dear. It just settled the book scanning lawsuit and is still embroiled in a bigger lawsuit with Viacom (VIA) over YouTube copyright infringement. Enough.

Third, a Justice Department lawsuit for Yahoo should be the proverbial straw that breaks Yahoo CEO Jerry Yang’s rule of the company and would get Yahoo stock to the penny-stock level.

Prediction: I witnessed the Microsoft antitrust trial, while working at the Washington Post and I am here to say to all parties involved: Do not go there.

4. Justice waves the deal on through as is:

Wake up, Eric and Jerry, you’ve been dreaming! Also, in this event, the head of Microsoft CEO Steve Ballmer would explode.

Prediction: Well, it could happen. Also Ralph Nader could get elected.

Please see this disclosure related to me and Google.

Here’s an interesting video from The Vote Hour, which is trying to get CEOs to let employees take off an hour from work to vote in the upcoming elections.

But while the group is independent and bipartisan, it is also an effort that started at Google (GOOG).

From the About Us section of the Vote Hour site:

The Vote Hour sprung (as many things do at Google) from some very interesting research. After reading a report from the U.S. Census Bureau, a Googler noticed that in the 2004 Presidential election, the NUMBER ONE reason that registered voters didn’t make it out to the polls to vote was because they were ‘too busy’ or had conflicting work schedules.

So this person asked himself, ‘What if bosses around the country encouraged their employees to take an hour off to go vote? Would employees feel relaxed enough, even in this down economy, to leave work behind and go vote?’

It seemed logical that if nothing else, getting ‘permission’ from your boss to take an hour off would take one more excuse off the table. So this Googler sent an email to Eric Schmidt, CEO of Google Inc., who volunteered to record a message of support and encouraged some fellow CEOs to join him … and The Vote Hour was born.”

Schmidt, who recently went on the trail for Democratic Presidential candidate Sen. Barack Obama, is the first CEO featured in the video, along with a panoply of well-known execs, including a lot from tech (including eBay, Cisco, Symantec and Intel).

Also roped in, apparently for comic relief, is real estate mogul Donald Trump.

He is, as usual, quite funny in ordering his employees to take off “only one hour.”

Here’s the video:

(And here is a post about the effort on Google’s blog, posted by Andy Berndt, Managing Director of Google Creative Lab, and Katie Jacobs Stanton of its Elections team.)

Please see this disclosure related to me and Google.

Wrote The Deal’s Cecile Kohrs: “A proposed joint venture between rival Internet companies Google Inc. and Yahoo! Inc. appears headed for the trash bin, just ahead of an expected U.S. Department of Justice challenge to the agreement, lawyers close to the deal said.”

Well, maybe it will die at some point. But, in the words of Juba in the last line of the greatest movie ever (“Gladiator,” of course!): Not yet.

Said Google spokesman Adam Kovacevich: “We are continuing to have cooperative discussions with the Department of Justice about this arrangement and agreed to a brief delay in implementing the agreement while those discussions continue. We are confident that the arrangement is beneficial to competition, but we are not going to discuss the details of the process.”

It was a sentiment underscored by Google CEO Eric Schmidt, who was doing an economic summit with Democratic Presidential candidate Sen. Barack Obama today in Florida and told reporters there when asked about the deal: “We agreed to extend our discussions … with the DOJ.”

Yahoo’s CEO Jerry Yang also said the same during Yahoo’s third-quarter earnings call this afternoon.

In fact, that Google (GOOG) and Yahoo (YHOO) lawyers, along with the Justice Department, are still talking is the strongest indication that there might be some middle ground to be found in the fight over the future of the search advertising business.

After all, Google is not shy about going to court. Among many others, it took on media giant Viacom over YouTube’s copyright issues with all the relish of a lipstick-wearing pit bull.

In fact, I am convinced that the search giant’s corporate mantra is from Travis Bickle in “Taxi Driver”: You talkin’ to me? You talkin’ to me? You talkin’ to me? Then who the hell else are you talking … you talking to me? Well, I’m the only one here.

And Yahoo? Well, Yahoo can never stop talking, as evidenced recently by its never-ending discussions to merge with the Time Warner (TWX) online unit, AOL.

This is an overall corporate characteristic–Yahoo often has the tone of a 1970s encounter group.

Plus, the deal to put some Google search ads on its site is an important fountain of revenue Yahoo desperately needs. For its part, Google wants the deal, mostly to keep Microsoft (MSFT) at bay.

As for the Justice Department, it has one big problem if it does go hot and files a lawsuit against the Yahoogle twins: A little thing I like to call “proof.”

Now I am no legal eagle, but I am told by experts that it is a little hard to prove damage that has not occurred yet if it is seeking an injunction to stop implementation of the partnership.

It’s like the big question in that dumb but watchable Tom Cruise movie, “Minority Report”: Can you arrest someone for a murder they might commit?

Google, with its dominant market share that grows daily, may very well be the scariest company on the planet.

(I think it might indeed be and have written in opposition many times to this partnership of the No. 1 and No. 2 players in the search space, but who am I to say?)

But making a case that it will turn Yahoo into a satellite, raise ad prices and turn into Godzilla, all before it actually happens, is tough.

More to the point, with all the pressure from public interest groups and advertisers who oppose the deal without some checks and balances, along with Microsoft’s relentless lobbying, some accommodation obviously must be made.

Thus, that is going to take more days of jabbering, probably into next week (although it all does have to be settled before the election, when the regulators pressing the case might be out of a job).

After those blabby avenues are exhausted, of course, we might very well see the digital gladiators go at it. Or abandon the field.

But not yet.

Please see this disclosure related to me and Google.

You have to admire the sledgehammer stylings of Google CEO Eric Schmidt, who loves to accuse Microsoft (justifiably, I might add) of bullying lobbying tactics in our nation’s capital, in the latest moves in the regulatory fight over the controversial search advertising outsourcing partnership that Yahoo and Google have struck.

Today, just days before the Justice Department will decide whether to move ahead with a lawsuit to stop the Yahoogle deal from proceeding or let it move forward with some other remedy or tweaking, Schmidt announced that he would be campaigning for Democratic presidential candidate Sen. Barack Obama in the last two weeks of the election.

Schmidt said in an interview that it was a personal endorsement and not from the company, even though many of its top execs are longtime supporters of Obama.

“I’m doing this personally,” he said. “Google is officially neutral.”

Well maybe so, and Schmidt has long been politically active himself.

But I cannot help but be struck by the perfect timing of the announcement, right as government officials under the Bush administration must make a move before the election makes them unable to do so.

(Then again, if Schmidt had endorsed Obama after any move by the government, it probably would have looked worse.)

In any case, it now makes any action by Washington policymakers even more complex.

To begin, Assistant Attorney General for Antitrust Thomas Barnett (pictured here), who will be leaving that post after the November election, has not been much of a trustbuster, to say the least, taking a mostly hands-off attitude toward business regulation.

But, in taking a long look at the deal in the first place, a partnership that does not actually need Justice Department approval to move forward, and hiring an outside counsel too, Barnett has also put himself out on a limb.

Thus, he is likely not to pat Yahoo (YHOO) and Google (GOOG) on the back and wish them good luck in their exciting endeavor.

That’s especially true given that a wide range of advertisers has expressed worries about the deal, which they say will lift online search ad prices and create a dangerous duopoly, along with public interest groups that have called the deal dangerous. Plus, there are also the many other special interest groups, all jacked up by Microsoft’s lobbying.

(It still surprises me up that some reports find it shocking that Microsoft is being aggressive here–helloooooo–Google would do exactly the same if the tables were turned.)

Google and Yahoo are arguing that the deal is nonexclusive, does not violate antitrust laws and that prices will not rise since they are determined by auction.

Still, sources close to all parties–Yahoo, Google and Microsoft (MSFT)–said the decision from government regulators, expected as early as this Wednesday, could still go a number of ways.

Under one scenario, the government could file a lawsuit and ask for an injunction to stop the deal from starting at all.

This move would be the most drastic of all. And, more to the point, it is hardest to prove, because there is no actual damage yet to point to as a result of the deal, even if the pair do control upward of 80 percent of the search market.

Under a second, the Justice Department could file a lawsuit opposing the deal, but not ask that it be stopped.

That means that the Yahoo and Google deal could go forward with implementation, even with the suit hanging over its head. It is a move that would provide a lot of data to determine the true impact of the No. 1 and No. 2 search players being in business together.

Under a third scenario, regulators could give Google and Yahoo tacit approval for the deal, with certain new rules about caps or monitoring that are agreed to in advance.

This option is the most complicated, since it is hard to determine what is dangerous and what is not in the fast-moving world of search. Will the Justice Department have a monitor sitting cluelessly next to Yahoo and Google engineers as they fiddle with the algorithm?

Still some sort of new rules to the deal are expected, if Justice takes a pass on a lawsuit.

“They are not going to hold a parade for us, and it is obvious they are interested in putting appropriate guardrails in place,” said one source close to Yahoo and Google. “But they might just say, ‘Go ahead, but we are watching you very carefully.’”

Under a fourth scenario, which Google is pushing for strongly, the Justice Department could simply pass on taking any action at all.

In that case, which seems unlikely, it is not without possibility that some advertisers or even Microsoft could go to court to seek their own injunctions, although that would be extreme.

Microsoft could also ask, given that the Yahoogle deal is nonexclusive, to make a similar deal with Yahoo. If it is rejected, the software giant could use that as proof that it is not.

But what is perhaps most interesting is that Yahoo and Google have not completely agreed as to how to handle this difficult process.

Yahoo, which has only recently become more active in lobbying for the deal, has been more willing to allow the government to set parameters in order to get regulatory blessing.

The company has also been quietly telling advertisers worried about it there are moves to come–Yahoo execs are obviously referring to a possible merger deal with Time Warner over its AOL unit–that mean that advertisers should be less scared of Yahoo becoming a satellite of Google.

Google, as is typical for it, has been more aggressive in its stance, holding out for less–if any–tweaking of the original Yahoogle deal.

Even its partner Yahoo thinks the powerful Internet giant has had a tin ear in this regard so far, with Yahoo execs cringing when Schmidt was widely quoted as saying that the deal would move forward with or without Justice Department approval.

The statement by Schmidt, in which he also added, “time is money in our business,” made him seem a bit arrogant about the role policymakers have.

Obviously, Schmidt misspoke, which all neophyte politicians tend to do now and again.

Today, he was much more circumspect, although he still managed to get a dig–or was it a warning?–in.

“My sense is, the Justice Department makes judgments on these issues independent of politics,” Schmidt said, priming the pump perfectly. “It would be unfair to Justice to imply [that supporting Sen. Obama] would make a difference.”

Yes, that would be completely unfair.

Please see this disclosure related to me and Google.