In the ongoing game of musical chairs among top managers at Internet companies, former Yahoo exec Brad Garlinghouse–famous for his controversial “Peanut Butter Manifesto,” which correctly chided the Internet giant for becoming so lugubrious several years ago–is taking a job at AOL very similar to the one he left at Yahoo last year.

Garlinghouse, 38, has been named president of Internet and mobile communications at AOL, putting him in charge of the New York-based Time Warner (TWX) online unit’s powerful email and instant-messaging properties, including ICQ and AIM.

He has only been in talks with AOL–which used Spencer Stuart’s Internet-top-exec-finder-in-chief Jim Citrin–for a few weeks, in a deal that came together quickly, he and the company said.

Garlinghouse, a longtime Web entrepreneur and exec, had reportedly been considering a number of start-up and venture-related jobs since he left Yahoo last summer after six years there.

Sources said he was seriously considering becoming the CEO of a mobile firm.

He was most recently at Silver Lake Partners, as an “in-house senior advisor,” the private equity firm that recently bought the Skype Internet telephony firm for $1.9 billion. Garlinghouse also reportedly helped work on that deal.

“It’s really exciting to be to able to rebuild and revitalize an industry giant,” said Garlinghouse in an interview with BoomTown earlier today. “I make no bones that these [properties] are in need of that…but there is also a huge opportunity to do something cool.”

Garlinghouse has to hurry. Despite being among the top communications players online–a group that also includes Yahoo (YHOO) and Microsoft (MSFT) and, more recently, Google (GOOG)–AOL has lost relevance with key audiences, even as social networking properties like Facebook and the microblogging service, Twitter, have innovated in the communications space.

The hiring of Garlinghouse, well known in Silicon Valley circles, is meant to counter that.

He will head up AOL’s operations from its Mountain View, Calif., campus–which is also the former HQ of AOL-acquired Netscape Communications–where, said AOL CEO Tim Armstrong, Garlinghouse will “be CEO of Silicon Valley for us.”

Between all its various properties, AOL has several hundred employees in the Northern California area.

Armstrong said AOL–which was founded 25 years ago on the East Coast and has tried and failed many times to get a true foothold in the West–thinks having an important player at the center of the tech industry is critical as it moves to spin off as an independent company by the end of the year.

“We have a triple play in getting a great executive, who is a master in the communications on the Web and who is well known out there,” said Armstrong. “Brad is our senior AOL manager there.”

Along with running all of AOL’s communications properties, Garlinghouse will inherit some of its community properties, although AOL’s Bebo social networking unit–now considered to be an overpriced acquisition error–now resides in its ventures unit, headed by Jon Brod.

Garlinghouse will also be aiding Brod, said Armstrong, with AOL on the lookout for acquisition opportunities in communications and other arenas.

While Garlinghouse declined to be specific about what would pique his buying interest, he was responsible for such big Yahoo deals as its $350 million purchase of Zimbra in the fall of 2007.

He was also key to bringing both Oddpost, which is at the heart of Yahoo’s email offering, and the popular Flickr photosharing service to Yahoo.

Garlinghouse said he has admired what Twitter and Facebook have done, but that they were not destroying traditional online communications, pioneered by AOL, as some assert.

“It’s a vibrant segment and this just means there are a lot of opportunities to enable integration,” he said. “I think of it as an expansion of online communications and I hope AOL can do more collaboration and partnerships.”

Garlinghouse also has to watch AOL’s basic products like email, which was recently passed by Google’s Gmail as the No. 3 email service in the U.S. Yahoo Mail is the top email, while Microsoft’s Hotmail is second.

How much Garlinghouse can do will depend on the future financial strength of AOL. Its advertising business has been hit hard in the econalpyse, with hopes it will return before its money-generating access business continues its slow decline.

Armstrong is now in the midst of looking over AOL’s cost structure and employee base, which most expect will eventually result in another round of layoffs and cuts.

He has been busy creating a different strategy for the company since he arrived earlier this year, as well as hiring (and firing) top execs to create a new management structure.

Now, that includes Garlinghouse.

So, for a look-see at AOL’s latest talent acquisition, here’s a video interview I did with him, just after Yahoo bought Zimbra:

And here’s the full press release from AOL about the hiring of Garlinghouse:

AOL NAMES BRAD GARLINGHOUSE AS PRESIDENT, INTERNET AND MOBILE COMMUNICATIONS

NEW YORK, N.Y.–September 8, 2009–AOL today named Brad Garlinghouse as President of Internet and Mobile Communications, spearheading AOL’s global efforts to expand the reach of its e-mail and instant messaging. Garlinghouse will also take on an expanded leadership position for the company, heading up AOL’s Silicon Valley operations from its Mountain View campus and serving as the West Coast lead for AOL Ventures, the company’s venture capital arm headed globally by Jon Brod. Garlinghouse was most recently at Silver Lake Partners as an in-house Senior Advisor.

Prior to Silver Lake, Garlinghouse spent nearly six years at Yahoo!, where he led that company’s communications and community products. Garlinghouse will report directly to AOL’s Chairman and CEO Tim Armstrong.

” Brad Garlinghouse is an all-star in the Internet industry with an unparalleled background and proven track record, having led Yahoo’s communications products to unprecedented growth,” said Armstrong. “In addition to leading our efforts to grow our communications products, Brad will be bringing his global leadership and business experience as a key member of our company’s executive leadership team. He will also be a major force for AOL in Silicon Valley, working to expand our presence there and in the tech community in general. We’re delighted to have Brad on board and know he’ll do great things for AOL.”

“It’s a tremendous opportunity to join AOL at this pivotal moment in its history,” Garlinghouse said. “Tim has set out a clear strategy and vision for where he is taking this company as it becomes independent again. I’m looking forward to working with him and the rest of the team to realize that vision.”

Armstrong, who joined AOL in April, identified Communications as one of the five key areas of strategic focus for AOL after an extensive 100-day review of the company’s business. Other focus areas include Content, Advertising, Local & Mapping and AOL Ventures.

Garlinghouse spent nearly six years at Yahoo! where he most recently served as SVP of Communications and Communities. Prior to that he served as SVP of Communications, Communities and Front Doors, which included the Yahoo! home page. He came to Yahoo in 2003 as VP, Communication Products. During his time there, Yahoo! Mail went from No. 3 to leading all competitors by a wide margin, and the company’s instant messaging service rose to become the leader in that market as well. Garlinghouse also oversaw the company’s Flickr photo-sharing service and Yahoo! Groups.

Prior to Yahoo!, Garlinghouse was CEO of Dialpad.com Inc., responsible for all aspects of the company’s operations, finance, sales and marketing. He was also General Partner at @Ventures, Category Manager of Media Development for the @Home Network, Inc., and Manager at SBC Communications.

Garlinghouse, 38, received his BA in economics from the University of Kansas and his MBA from Harvard Business School.

Yahoo confirmed the news–first reported by BoomTown and in The Wall Street Journal last night–that it was buying Xoopit, the San Francisco-based social email company.

And it did so in both a blog post and on Twitter, as you can see here:

@karaswisher @jvascellaro Your scoops confirmed http://bit.ly/gpOT2

Well, thanks! But we are already onto new scoops, so try to keep up!

The price for the acquisition, which Yahoo (YHOO) did not reveal, was about $20 million, according to sources.

In its blog post, titled “Xoopit + Yahoo! Mail = Moving beyond that massive digital shoebox,” Yahoo’s SVP of Application Products Bryan Lamkin wrote, in part:

With the integration of Xoopit’s platform technology and capabilities, the task of sending photos via email will be as easy as it should be and sharing photo albums with friends and family members will also be a cinch. You’ll be able to share your pictures among a group of friends or family like never before–combining pictures from numerous sources into a single album for a private group to view. And soon your inbox will become an organized photo index as well. Just imagine having a tool that collects all the photos you’ve sent and received over the years into that scrapbook you’ve never had time to assemble.

In short, Xoopit will bring phenomenal photo organization, improved photo sharing, and the serendipity of discovering forgotten photos to Yahoo! Mail.

Why is this such a big deal? Yahoo! Mail is actually home to one of the largest online photo repositories in the world. And every day, millions of you use Yahoo! Mail as your primary way to share the photos of important moments in your lives. While social networks and community sites are great for sharing photos with everyone you know, we realize it’s not for everyone or every occasion. For many, email is still best for sharing photos among a more select group of friends or family. And now we’re making it all that much easier for you.

Xoopit finds photos, videos, links and other files in email so that users can surface and then share them on many sites, such as social networking giant Facebook. It also has other products that essentially enliven email.

Xoopit’s investors–Accel Partners and Foundation Capital, along with several angel investors–have pumped about $6.5 million into the company since 2006.

As I previously reported, sources said Yahoo was first impressed with its innovative plug-in that works with Gmail from Google (GOOG), and has been looking at the company for a while, previously offering about $10 million for it.

Xoopit also makes a similar photo-sharing application for Yahoo Mail, which it launched late last year.

The opening up of its popular email product to a variety of third-party applications in order to make it more robust has been a goal of Yahoo recently as it seeks to socialize one of its most popular products.

Interestingly, in the Yahoo blog, Lamkin said Xoopit was Yahoo Mail’s most popular third-party app.

Here is a screen shot of Xoopit in action in Yahoo’s email offering (click on the image to make it larger):

Yahoo plans on announcing Thursday that it has bought Xoopit for a price in the $20 million range, according to several sources, one of its first acquisitions in a long while.

Reached late this afternoon by BoomTown, a Yahoo (YHOO) spokeswoman declined to comment about the acquisition. Xoopit did not respond to emails earlier today.

But sources said it was a done deal to buy the San Francisco-based social email start-up that finds photos, video, links and other files in email so that users can surface and then share them on many sites. It also has other products that essentially enliven email.

Xoopit’s investors–Accel Partners and Foundation Capital, along with several angel investors–have pumped about $6.5 million into the company since 2006.

According to sources, Yahoo was first impressed with its innovative plug-in that works with Gmail from Google (GOOG), and has been looking at the company for a while, previously offering about $10 million for it.

Xoopit also makes a similar photo-sharing application for Yahoo! Mail, which it launched late last year.

The opening up of its popular email product to a variety of third-party applications, in order to make it more robust, has been a goal of Yahoo recently, as it seeks to socialize one of its most popular products.

One source said Xoopit was a good fit for Yahoo because it allowed the company’s email to be the platform that could knit together other social networking services, such as Facebook. This is seen as a core feature, although the Silicon Valley-based company is also opening its email products up to outside developers.

Yahoo has been planning on announcing the acquisition on Thursday at Fortune magazine’s Brainstorm Tech conference, where SVP of Applications Products Bryan Lamkin is appearing on a panel titled, “Dollars & Demographics: Capitalizing on Demographic Trends.”

Lamkin, a former Adobe Systems (ADBE) exec, now runs the Yahoo unit that includes email and other communications and communities products. He was hired in April by CEO Carol Bartz.

That panel topic is a little ironic, several sources joked, since Xoopit is not profitable and has very small revenues thus far.

The Wall Street Journal also reported on the deal, although it said Yahoo and Xoopit were still in late-stage talks and the deal was not complete yet.

But, according to my sources, it is done.

All the news is already out about the new Yahoo homepage, which was launched today and which you can try here.

It features customizable applications, from Yahoo and third-party developers like Facebook, as well as a cleaner look.

But, just in case you are not satisfied yet, here is the full press release on the new front page for Yahoo (YHOO):

New Yahoo! Homepage Lets People Make the Web Their Own

Consumers can now personalize their Yahoo! experience with the best of the Web; Customizable apps stay with you when you’re mobile

Sunnyvale, Calif.–July 21, 2009–Yahoo!® Inc. (Nasdaq: YHOO) is launching a new homepage that brings together the best of the Web with the best of Yahoo! in a single destination across both PC and mobile screens. With the new Yahoo! homepage, people can easily add apps–from Yahoo! or virtually any other site on the Web–and access them from their computer or mobile devices so that their favorite content, services and experiences are always at their fingertips. The new Yahoo! homepage is available today in the U.S. at http://yahoo.com/try new and will roll-out in France, India, the UK, and on mobile devices over the coming week.

Today’s launch represents the most significant change to the Yahoo! homepage since the company’s inception. By enabling this level of personalization, Yahoo! allows people to get more done, faster, all in a single place. This launch is a major milestone in the Yahoo! Open Strategy, which seeks to mesh the Yahoo! experience with the best online content and services.

“People are living more of their lives online–in the U.S., the average person visits a staggering 85 sites a month*. Whether for the PC or a mobile device, Yahoo! is bringing greater simplicity and relevance to the way people experience the Web,” said Ari Balogh, executive vice president of products & chief technology officer. “By focusing on what people have told us they want, our new homepage is designed to help them stay on top of what is going on in their world, and in the rest of the world.”

The new Yahoo! homepage brings together the best tools and content from across the Web, combined with leading content and services from Yahoo! properties, to give people one place to access the people and things that matter to them most.

New features of the Yahoo! homepage include:

• My Favorites–People can easily choose from a dashboard of more than 65 apps to add directly to their homepage, including different email providers (AOL®, Gmail®, Yahoo! Mail), best of breed content sites (Barron’s®, NPR®, omg!, USA Today), popular social networking sites (Facebook® and MySpace®), and dozens of others. These apps give people the ability to preview, interact with, or navigate to their favorite sites from one easy check-in point.

• App Maker–Using technology developed by Yahoo!, people can easily create their own app on the fly by adding virtually any URL of their choice.

• Trend Setter–A new snapshot of trends, including the most popular searches, insights from Yahoo! Buzz, and fun facts from around the Web.

• PC to Mobile Sync (coming soon)–People will be able to continue their Yahoo! experience on the go with a more seamless PC to mobile integration. New apps added to the Yahoo! homepage on the PC can be added to the mobile homepage.

• More Personal News–Hyper-local news and the ability to toggle the news module to the top of the page offer easier ways to access the news that matters most.

• Social Updates–People can now share their current “status” with friends directly from the homepage, get visibility into what their friends are doing across the Web, and integrate with leading social networks, such as Facebook and MySpace.

“At Facebook, we’re focused on giving people more powerful ways to connect–whether that is on Facebook or other popular Web destinations,” said Ethan Beard, director of Platform Marketing, Facebook. “With the ability to now check your Facebook activity or update your status directly on the Yahoo! homepage, we’re making it easier for people to share with their friends as they explore their favorite places on the Web.”

All users in the United States can opt-in to experience the new Yahoo! homepage at http://yahoo.com/trynew, with local versions rolling-out in France, India, the UK and on mobile devices over the coming week. Additional global rollouts are planned, beginning in the next month. More enhancements to the Yahoo! homepage, including additional apps, will be added in the coming months.

This morning, AOL will launch an updated look for its Bebo social-networking property, with a new “social inbox” profile for its users.

The inbox, which you can see below in the old and new versions, essentially gives its users a one-stop destination, with aggregated social feeds from across the Web, multiple email accounts and media recommendations.

But, according to sources with knowledge of AOL’s plans, the online service is preparing a more radical series of announcements after the new year, well beyond its release today.

Interestingly, the changes to its social-networking and communications properties yet to be announced have been among the things that have impressed Yahoo (YHOO), whose execs have been briefed on the changes, as part of the never-ending talks with the Time Warner (TWX) about buying its AOL asset.

That includes offering AOL’s various social-networking tools–such as chat rooms, news feeds and instant messaging–to be easily embedded by any Web site. The service will be called “Site Social,” with plans to use AOL’s advertising platform to help monetize the offering.

In addition, the renovation of the Bebo profile pages will continue, with more innovative features, including the introduction of an interactive “timeline” that shows a person’s online “lifestream” in a scrolling fashion.

BoomTown has seen the timeline–in which events of any kind can be depicted, from your book club schedule to a trip to Hawaii.

While it looks like eye candy at first, it is also pretty useful–especially a mobile version. And it is definitely the most visually striking version of a news feed that is offered by competitors.

“It is part of a left brain/right brain strategy to improve our services, distinguishing them from the pack,” said one person familiar with the upcoming changes at AOL. “But we also have all these tools and want to reach out to publishers who need to socialize their sites and find it hard to do so.”

The move today to update Bebo, though, is strikingly similar to redesigns that have been recently rolled out by large Web players like Microsoft (MSFT) and Yahoo.

All are attempts to offer a competing product to popular social-networking sites like Facebook and News Corp. (NWS) unit MySpace, where users have flocked. (News Corp. is the owner of this Web site.)

Those two companies have also been making moves of late to allow consumers to aggregate their disparate piles of online information in through connective offerings that allow them to pool all kinds of Web content and communications in one place.

AOL is hoping its efforts will focus users more on Bebo, which it bought for $850 million in March. Bebo is one of the larger social networks, although it is not popular in the U.S. and lags behind the leaders like Facebook.

AOL execs are hoping to change that by changing the game, focusing on Bebo’s strong media offerings and making it the centerpiece of its social-networking and communications unit, run by former Bebo head Joanna Shields.

AOL’s People Networks unit, which includes Bebo, AIM and ICQ, has an overall audience of 92 million unduplicated users worldwide, said AOL, referencing a recent comScore (SCOR) survey.

“The current fragmented social networking environment makes keeping up-to-date with others increasingly difficult,” said Shields, who is now president of People Networks, in a press release statement. “By opening up our network to the most popular sites and allowing our users to pull in the best of the Internet, we are creating an environment where everyone can easily and effectively manage their online lives, no matter where the individual pieces reside.”

The launch companies for the new inbox include: Twitter, Flickr, Del.icio.us, YouTube, Gmail, Yahoo! Mail, as well as AOL-owned AIM and AOL Mail. In addition, all AOL and AIM users now can now log into Bebo using their credentials and create a profile.

Here’s more specific info, from the AOL press release:

Today’s enhancements to Bebo.com, the first in a series of scheduled releases for early 2009, include:

• Media Favorites: A new recommendations engine built on the foundations of Bebo’s Open Media Platform delivers the most relevant online entertainment (including video, music, groups and games) into one place. Media Favorites are based on users’ stated preferences and aggregated data such as: what their friends are watching and listening to and what people like them like, subject to appropriate privacy settings. This feed pulls in current Bebo content and group subscriptions, making it easy to get a quick snapshot of all personalized content. Bebo already boasts one of the most extensive online media offerings available, with programming from over 500 media companies including MTV, ESPN, CBS and the BBC.

And here are the before and after Bebo profiles (click on the images to make them larger and keep clicking to make them clearer):

OLD BEBO

NEW BEBO

Although about one-third of its user base–30 million people–has already switched over to its new design, which has been opt-in since July, Facebook will now officially start to move the entire site and the other 70 million Facebookers.

The changeover–which is not optional–will be complete in a few weeks, Facebook said.

I do like the new look, which is definitely cleaner and simpler, although it makes the experience a little more disjointed, since everyone’s profile is now cut up into tabs.

But it is nice to be able to better customize your information via those tabs, and it is easier to navigate (although search on Facebook still stinks, and BoomTown actually looks forward to Microsoft’s attempt to tame this savage beast).

Of course, there have been a lot of complaints from users, and there is even a popular “I Hate the New Facebook” group on the site (natch!).

And not all third-party application developers like it either, including new navigational changes that limit instant user access to as many applications as before.

But that’s life in Zucker-berg!

Over at AOL, a division of Time Warner (TWX), there has also been some primping going on, which includes an interesting integration of popular third-party emails.

Now it is easy to add access to non-AOL email accounts, such as GMail and Yahoo! Mail, which sit right next to AOL Mail at the top of its main AOL home page. (See the image above and click on it to make it larger.)

Other changes are coming soon, all part of AOL’s laudable attempt at openness, to keep its Web site as relevant as possible.

Not that it has a choice. Back in its glory days, AOL was the emperor of the walled garden strategy, which kept users inside well-tended online paths and out of the wilds of the Internet at large.

Which, if you think about it, seems as quaint as the faux political nostalgia around small-town life these days.

But, since you apparently can’t put lipstick on a pig (or a pit bull either!), Green Acres is no longer the place to be in real life or on the Web.

My special BoomTown Yahoo (YHOO) tip inbox is filling up fast this week from Yahoo employees–who, by the way, seem to like to use Gmail as their secret one–all buzzing about the next shoe to drop.

That clodhopper would be, of course, which major exec will leave the troubled Internet company, all due to a major reorg that is about the hit the company within the next weeks.

After the recent departure of Network division EVP Jeff Weiner and Chief Data Officer Usama Fayyad–along with the flashier exit of Flickr’s Co-Founders Stewart Butterfield and Caterina Fake (who, it should be said, have been easing quietly out the door for a while now)–several sources tell BoomTown that Search and Advertising Technology group EVP Qi Lu is the next on his way out.

Dr. Lu (pictured here), holder of 20 patents, leads development efforts around Yahoo’s Web search and monetization platforms.

But Yahoo CEO Jerry Yang and President Sue Decker should be worried about just about everyone at this point, from Connected Life EVP Marco Boerries to Platforms and Infrastructure division EVP Ash Patel to the quartet of execs under Weiner.

Any insecurity in that group—Front Door and Network Services’ Tapan Bhat, Brad Garlinghouse, who heads Yahoo’s communications and communities arenas, Media Group head Scott Moore and Yahoo Search’s Vish Makhijani–and other SVPs on that level really, are especially worrisome, as the voids above and below them become larger and offers from the outside more enticing.

So, combined with the levels of tension rising at the company dramatically with the continued external turmoil, the looming reorg has got to have them plenty worried.

Worse, Yahoos are bracing for a big one this time–sources all talk about a much more deep and profound managerial shift–rather than the deck-chair-arranging that has been typical of most Yahoo reorgs.

For those just checking into this drama, reorganizations are to Yahoo as floods are to Venice–inevitable, annoying and very unpleasant.

Still, CEO Jerry Yang and President Sue Decker–who appears to be the main architect of the changes–do have to try to give the company’s management structure a new shape for the challenges ahead and before the Aug. 1 annual meeting.

This is critical, given everyone and anyone will want to see a clear and well-articulated strategy for Yahoo’s future from the pair by then.

(See them trying to do that at our D: All Things Digital conference last month, in a pair of videos below, when pressed on the subject by Walt Mossberg and me.)

More importantly, it has to be a plan for making the company as valuable as the $33-a-share offer from Microsoft (MSFT) that went poof after the software giant walked away from its takeover attempt in early May.

While Wall Street and major shareholders have been insisting (and hoping fervently) that Microsoft will return to buy all of Yahoo again, BoomTown is here to tell them it’s kind of like waiting for Godot.

Which has made them very frustrated. Very, very. A lot. Tons. Much.

“Jerry and Sue have no more chances to get this right,” said one major shareholder. “This is it.”

Translation: As tired as they must be by now, Yang and Decker have to pull the biggest rabbit ever out of the hat in this reorg and resetting at Yahoo.

Sources say the reorg will focus on creating more of a global product organization, because too much development of common products (like email) is being done all over the company worldwide.

In addition, many have suggested creating a more integrated relationship between products and their revenue sources.

Not having those responsible for selling ads in close sync with, for example, new content or software initiatives has produced a level of frustration within executive ranks at Yahoo.

Right now, for example, Global Partners Solutions EVP Hilary Schneider (pictured here) is in charge of all ad sales, although many other parts of Weiner’s former group rely on her efforts without reporting to her.

Many sources expect that Schneider is likely to amass more power in the new structure–she is close to Decker, who must dramatically rejigger Yahoo’s top echelons to better focus the company on its stated objectives of becoming the premier ad network and a consumer “starting point.”

Smack dab in the middle of a storm where it’s raining shoes, shoes and more shoes, of course.

Here are the two videos of Yang and Decker at D6:

Part 1

Part 2

Let’s move this back-and-forth- wrangling aspect of the story forward and get to the real issues in the Yahoo-Microsoft takeover battle, shall we?

So why is Yahoo’s board holding out for a higher price than Microsoft wants to offer to raise it?

From numerous reports, Microsoft (MSFT) seems willing to go to $33 a share, up from its original $31, while Yahoo (YHOO) and its shareholders are looking for from $35 to $37.

Are they simply looking for a bigger payday? Do they believe it is worth more, in spite of recent mismanagement? Do they want to save face, given the Internet company once had a $41 offer from the software giant? Is this just a big game of digital chicken?

Yes. Yes. Yes. And definitely.

But, according to sources close to Yahoo, one of the more important reasons Yahoo wants a higher price has a lot to do with worries about the domination of the email and communications market if a merger with Microsoft took place and the threat of regulatory action that would force the companies to divest those assets.

Sources said that Yahoo wants a large cushion in case the government finds the combination of Yahoo Mail and Hotmail too much.

It is.

That’s because Microsoft and Yahoo completely dominate all mail on the Internet. According to the most recent comScore (SCOR) figures, for example, Yahoo has 256 million users, while Microsoft has 255 million.

Google’s (GOOG) Gmail is a distant third with about 92 million users and AOL (TWX)–which kind of started off the whole email craze among consumers–has about half that at 49 million.

The same is true in the instant messaging market, with Microsoft and Yahoo holding an 80% to 90% market share together.

Calling David Boies! It all smells like antitrust investigation to me!

A high-ranking Yahoo source agrees. “We need a lot of reason to do the deal, because it could be very bumpy once we agree,” said the source. “How damaged would Yahoo be if it did not go through, or if important pieces of Yahoo had to be separated from the company?”

Some close to the company, though, would prefer a spinoff of its powerful communications products and services, in the case of a Yahoo-Microsoft union. “We could be the Google of communications,” said one source.

Of course, Google does not want this to happen. In a recent CNBC interview, Google CEO Eric Schmidt signaled the search giant’s intentions related to this thorny communications domination with a loaded quote:

“If they go ahead and the merger’s ultimately successful, it would be possible for Microsoft to integrate some of the properties and essentially eliminate consumer choice, particularly in electronic mail, instant messaging, the things where they have 80% or 90% market share, and that’s a sweet spot for Microsoft in its ability to eliminate choice.”

And, in fact, Yahoo CEO Jerry Yang and Chairman Roy Bostock raised the issue in a letter on April 7 to Microsoft, rejecting Microsoft CEO Steve Ballmer’s letter threatening to go hostile if talks did not proceed.

The Yahoo leaders wrote:

“As to antitrust, we have discussed with you our concerns. Any transaction between us would result in a thorough regulatory review in multiple jurisdictions. As a follow-up to a recent meeting among our respective legal advisers we had on this topic, and at your request, we provided to you on March 28 a list of additional information we would need to further our understanding of the regulatory issues associated with any transaction. To date, you have still not provided any of the requested information.”

According to one source, the antitrust concern that was not named was related entirely to email and instant messaging.

“Bring together our content and search is not an issue,” said the source. “But mail is a real problem.”

Please see this disclosure related to me and Google.

In fact, the innovative Zimbra and employees, like its lively CEO and founder Satish Dharmaraj, are just the kind of new blood Yahoo needs as it tries to reinvigorate itself.

With the purchase, which was a bit pricey (but well worth it), Yahoo finally got the weapons it needed to go head-to-head with Google in the battle to offer fast-forward kinds of Web-based mail services to a wider range of customers from big ISPs to small businesses to universities.

Let’s be clear, Yahoo Mail has remained the bigger provider of Web email to general consumers. But most agree that it allowed Google’s Gmail to suck up all the oxygen in the room with more flashy features like threading of conversations, while not serving up a strong response in an arena Yahoo has pioneered quickly enough.

While its latest version of Yahoo Mail got strong reviews, such as this one from Walt Mossberg, Zimbra vaunts its effort at differentiation from the hyped Google offering forward more quickly.

More importantly, it has really strengthened Yahoo’s ability to make online email act more like a computer program than a Web page, which has been the main focus of late of Yahoo, Google and Microsoft’s Windows Live Hotmail.

The Zimbra acquisition takes it up a notch with a plethora of potential new features, such as easier-to-use calendaring and all sorts of nifty features via a widgety “Zimlet” system.

In addition, since Zimbra is designed with flexible and open Ajax programming tools, it makes it easy for third-party developers to make many other applications that jack innovation from the outside, making the communications platform the center of the Web experience with video, search and other tools.

Making online email sexy was not the greatest thing to have to sell to investors, but Zimbra did get backing from high-profile VCs like Benchmark Partners, Redpoint Ventures and Accel Partners. The start-up’s clients include Comcast, many ISPs and a number of colleges. The Wall Street Journal’s Robert A. Guth wrote about the company last year.

Now that the acquisition by Yahoo has taken place, Zimbra will continue to operate somewhat independently, although moving operations to Yahoo this month under the communications unit headed by Yahoo Senior Vice President Brad “Peanut Butter Manifesto” Garlinghouse.

Here’s my video interview with Zimbra’s Dharmaraj, which took place yesterday at its soon to be abandoned HQ in San Mateo:

And here is my video interview with Garlinghouse back when news of the acquisition broke: