In early discussions that began in the last several weeks that apparently included a face-to-face meeting last week, Yahoo CEO Carol Bartz and Microsoft CEO Steve Ballmer are finally talking about search and also advertising partnerships the companies could possibly strike, said several sources with knowledge of the situation.

According to a variety of sources, the talks between the pair (pictured here) and other execs at both companies are preliminary and wide-ranging, focused on what kind of commercial relationship Yahoo and Microsoft could have in the future.

But, cautioned sources close to Yahoo, the discussions are not about a renewed acquisition attempt by Microsoft and also might not result in any deal.

In any case, investors will likely cheer any kind of productive re-engagement between Yahoo (YHOO) and Microsoft (MSFT), which has been lacking since a tense takeover effort by the software giant went south last year after an ugly battle that soured relations between the two companies.

“It’s long past time,” said one outsider who had been told of the discussions. “With Google’s huge market share, these two need to work together and the problems they had should be put in the past.”

Both Yahoo and Microsoft declined to comment about the talks.

The change in leadership at Yahoo has helped, especially since Bartz–a Silicon Valley veteran with much deal experience–has none of the baggage from the takeover battle that previous management was carrying.

Microsoft seems to have also moved on, working on a massive redesign and relaunch of its search brand, under the internal name Kumo, an effort that has included the hiring a whole lot of talent in the arena, mainly from Yahoo, in fact.

That includes Qi Lu, a former Yahoo tech star, who is leading all of Microsoft’s online efforts.

All of this means that a relatively green-field approach is now possible.

Thus, sources said, the talks include many scenarios, such as one in which the companies swap online advertising assets and deliver services to each other.

In that interesting plan, Yahoo might take over all of Microsoft’s display and premium advertising business to sell along with its own, while Microsoft would run the search advertising business for the pair.

Such a deal, which plays to each company’s strengths, would bind the two closely together, even though they still compete on many other fronts in the Internet space.

It also joins their forces, creating a sale that is much more attractive to advertisers and allows for better competition against search powerhouse Google (GOOG).

And while Ballmer has publicly said repeatedly that Microsoft is interested in buying either Yahoo’s search advertising business or search outright, sources close to Yahoo said the company is still determined to maintain control of the important search business and the massive traffic and critical data it provides.

That is especially true, given that Yahoo is the No. 2 player, with a much larger share than third-place Microsoft. According to recent surveys, for example, Google has a 63 percent share, while Yahoo has 20.6 percent and Microsoft eight percent.

But it is also in Yahoo’s interest to move fast, since its search traffic could be declining soon.

According to a story by Dow Jones yesterday, citing a comScore (SCOR) report, recent toolbar distribution deals with computer makers Hewlett-Packard (HPQ) and Acer by Microsoft and Google respectively, will have a negative impact on Yahoo.

The story said that Yahoo “could lose up to 15% of its search traffic over the next 12-to-18 months after failing to renew deals with two computer makers, blows likely to hamper the Internet giant’s efforts to remain a viable competitor in search advertising.”

But even as he directs aggressive moves to put even more competitive pressure on Yahoo, Ballmer has been unusually deferential in giving Bartz a lot of time to come to the table.

Nonetheless, he cannot seem to stop talking about it either.

At a recent conference in mid-March, for example, Ballmer said:

“It’s really about getting the pooled volume, because you actually can improve your product faster if you have more users….If you have more advertisers, you can improve the product as well….There are returns to scale. And putting the scale together is valuable.”

But, in that interview, Ballmer also said that he had only talked to Bartz briefly since she was hired in January–congratulating her on the new job and mentioning that he’d love to talk about a deal.

And, at another meeting with Wall Street analysts earlier, he went even further:

“You all know that I would like to figure out how to pool somehow Microsoft and Yahoo. I’m not talking about doing an acquisition, blah, blah, blah, back to search deals, blah, blah, blah, I don’t know if anything is going to happen. I’ll short-circuit the whole conversation, but the fact of the matter is, these two guys [Microsoft and Yahoo] should somehow figure out how to get together and create more competition for this guy [Google]. And I’m hoping perhaps that that’s a reasonable conversation to have with new management at Yahoo as Carol comes onboard.”

In contrast, Bartz has played her hand very close to the vest so far, at least publicly, often discounting any effort to split up Yahoo.

In fact, at a Morgan Stanley (MS) tech conference in early March, she said:

“I am not going to negotiate with my 55,000 favorite friends….We’re going to negotiate as companies negotiate–and that’s privately. If something happens, you’ll know it then. Until then, there is no comment.”

(By the way, both Ballmer and Bartz have agreed to be interviewed onstage–separately, of course–at the D: All Things Digital conference in late May that Walt Mossberg and I run–so we will be sure to try to get one–not that they would give one!)

BoomTown has been an unabashed fan of Pure Digital’s Flip digital video cameras since we debuted them at the D: All Things Digital conference in 2005.

And I have used the nifty device on this site since for my shaky-tastic video extravaganzas.

Yes, Pure Digital’s CEO Jonathan Kaplan (pictured above) is to blame!

Now, Kaplan has gone and sold Flip off to Cisco (CSCO) for $590 million in stock.

Sources said that Pure Digital–this corporate name will go by the wayside, by the way–had also chittered-chatted with Sony (SNE) and Hewlett-Packard (HPQ) about such a possibility.

That’s pretty good company for Pure Digital, considering it started as a white-label product, shrink-wrapped for theme parks and drugstores.

But the simplicity of its line of relatively inexpensive cameras, including the recently released Mino (seen below, and also sold in a high-definition version), has made it a huge consumer success, which is no easy task in the devices arena.

With Flip software, a user can plug the unit into a USB port of a computer to upload digital video easily. Flip models cost anywhere from $100 to $299.

Spot-on simplicity and a no-brainer feel have made them into the most popular such devices around, and in a very short time.

But, although it got $68.2 million in funding since its founding in 2001, taking all that innovation and success and truly turning it into a global brand was a much longer and more expensive slog for the San Francisco start-up.

Hence, a sale to the bigs.

Pure Digital is probably a good fit for Cisco, which has been trying to turbocharge its consumer-focused business, especially in home networking, and the move is a clear step in that direction.

In the integration, Cisco has made the Flip team part of ypuCisco’s Consumer Business group, and Kaplan will become general manager of the combined organization.

What comes next for Flip could be interesting, including the addition of social-networking and streaming features, which would dovetail well with Cisco’s other investments in consumer networking.

But most of all, it’s a nice ending to a very sharp company that makes a great product. Introducing a new consumer electronics device into the world is no small task and, clearly, Flip deserves the much bigger stage it is set to get.

Here’s my video interview with Kaplan, about Flip’s history and future:

At least he’s not going to Microsoft (MSFT)!

But nonetheless, sources said another major Yahoo tech exec and a longtime company veteran, Venkat Panchapakesan (pictured here), EVP of the Audience Technology Group, is readying his departure from the company.

This time, it’s to return to India, where he has long told colleagues he wanted to return.

Sources said Panchapakesan will not be leaving until the end of the summer, but “his departure is well along the road.”

At Yahoo (YHOO), Panchapakesan has most recently been responsible for the company’s overall product technology and platform strategy, such as its open efforts.

He’s an old-timer at Yahoo, having arrived in 1998, and has been involved in the development and execution of technologies for lots of Yahoo products, such as Mail, Flickr, Answers, Groups, Messenger and its content properties.

But recent reorganization of the tech unit, along with Panchapakesan’s interest in working in India, hurried along his leaving.

According to his profile on LinkedIn, Panchapakesan moved to Bangalore, India, to become the CEO of the Yahoo India R&D in 2003, returning in 2006.

Previous to Yahoo, he worked at Hewlett-Packard (HPQ).

About three weeks ago, BoomTown surmised that the they’re-practically-giving-them-away prices for some prime but distressed tech companies–combined with cash hordes by stronger players–would eventually result in some acquisition activity sooner than later.

One combination I flagged most prominently, based on several sources, was that IBM would try to grab Sun Microsystems.

And today, The Wall Street Journal reported that that was indeed the case. Talks, the story said, were talking place, with a price of about $6.5 billion as a possibility, a 100 percent premium to Sun’s current market valuation.

We’re not so sure IBM will pay that much in this market, but it’s a good idea for the pair.

Such a deal has been long rumored in Silicon Valley, so I wasn’t the first to suggest such an obvious move, and these talks come as a surprise to very few, which would rescue the long-declining Sun and give heft to IBM’s Internet aims.

In fact, on Feb. 26, I wrote:

“IBM Buys Sun:

I mean someone has to buy Sun Microsystems (JAVA)–now hovering in the $5 a share range with a market valuation of just $3.62 billon–right?

But it’s not going to be Hewlett-Packard (HPQ), despite a deal announced just yesterday in which HP will distribute and provide support for Sun’s Solaris operating system on a line of HP servers.

Analysts dismissed the deal as meaningless in terms of true revenue, with one noting that it did not mean HP would buy Sun either, especially for its server business, because of redundant hardware products.

That leaves, according to many observers I spoke to: IBM (IBM), which competes with Sun in the server business too. Many think the products fit better together and IBM has a $115.3 billion valuation, so the purchase would be doable.

The server business is sucking wind, according to a report earlier this week, due to the global economy, so finding safe harbor for Sun is something Wall Street seems to be looking for.

Of course, Sun CEO Jonathan Schwartz curiously did use the term ‘Live Free or Die’ in his blog post about the HP deal yesterday–although he was not referring to Sun’s independence, but noting the phrase was ’synonymous with software independence, innovation and intellectual property freedom.’”

I guess for Sun, freedom’s just another word for something left to sell.

The other deal I mentioned as a major possibility is also commonly bandied about in Silicon Valley and is considered to be just a matter of time and price: Google (GOOG) buying hot microblogging service Twitter.

Let the let’s-make-a-deal activity begin!

About 10 days ago, BoomTown posted a piece titled, “With a King’s Ransom in Cash, Why Is There Still No Buying Spree in the Tech Space Yet?”

Noting the big cash hordes being held by a plethora of giant tech and Internet companies and their strong cash flows too, even in the midst of the economic meltdown–I wondered when the mergers and acquisitions would ever begin.

The answer is two-fold: No one wants to buy when prices could just keep going down. And no one wants to sell at all-time lows.

Another issue? While public companies have a market value, as low as they might be, noted a prominent Internet player, the bulk of tasty private ones no longer have a set price, since there have been no sales of late.

Well, that just won’t do! So, in the interest of jump-starting the economy–I mean, there are investment bankers out there running low on caviar and Dom, folks!–here are three suggestions for interesting deals.

IBM Buys Sun:

I mean someone has to buy Sun Microsystems (JAVA)–now hovering in the $5-a-share range with a market valuation of just $3.62 billon–right?

But it’s not going to be Hewlett-Packard (HPQ), despite a deal announced just yesterday in which HP will distribute and provide support for Sun’s Solaris operating system on a line of HP servers.

Analysts dismissed the deal as meaningless in terms of true revenue, with one noting that it did not mean HP would buy Sun either, especially for its server business, because of redundant hardware products.

That leaves, according to many observers I spoke to: IBM (IBM), which competes with Sun in the server business too. Many think the products fit better together, and IBM has a $115.3 billion valuation, so the purchase would be doable.

The server business is sucking wind, according to a report earlier this week, due to the global economy, so finding safe harbor for Sun is something Wall Street seems to be looking for.

Of course, Sun CEO Jonathan Schwartz curiously did use the term “Live Free or Die” in his blog post about the HP deal yesterday–although he was not referring to Sun’s independence, but noting that the phrase was “synonymous with software independence, innovation and intellectual property freedom.”

Google Buys Twitter:

A lot has been written about the supposed “threat” of Twitter to all Web, media and communication companies in the known universe. (How we are all scared by a start-up whose name is so flighty is a question for another day.)

I am not so much convinced, although Twitter certainly is on a roll from a hype and growth perspective.

And I do understand why Twitter–flush with venture funding and an allegedly low burn rate–might want to bide its time to see what happens and not sell out too early.

But while the hot microblogging service declined to sell to Facebook, it might want to reconsider if Google (GOOG) or Microsoft (MSFT) or a big telecom company comes calling with, say, a $1 billion check.

Why? Simply because Twitter–while it says it is poised on the verge of announcing its grand plan to make money–is operating in an arena I have seen many other shooting stars in, traversing a very dangerous crevasse of hype and expectation.

Due to that, it has a very big red target on its back, one that a competitor in the status space–such as the spurned Facebook, whose update business is much bigger–will not ignore.

Right now, Twitter could ask for a lot, as one of the only Web 2.0 companies that everyone is uniformly excited about.

It might want to think about how such excitement can turn rather quickly. Digg–which was almost bought by Google–might give them some advice on how quickly the winds change, for example, as can many too many others.

Microsoft Buys Anyone:

With its $20.7 billion in cash and still casting about for a really bold Internet strategy–sources tell me that newly installed digital head Qi Lu just wrapped up a meeting-rich look-see at the path ahead, including a day-long session on Super Bowl Sunday–Microsoft really should stop futzing around with the PowerPoints and jump right in.

It already has an investment in Facebook. While the social-networking phenom might not be for sale, one wonders if a $10 billion offer and a promise of autonomy might not be well-considered at Facebook’s Palo Alto HQ.

Or what about the social-networking/communication assets of AOL and its low-margin advertising business, with owner Time Warner (TWX) keeping the media part of the unit? Rival Google actually wants to keep that AOL search business, so sticking it to that company would be an added bonus.

As to the continual flirting with Yahoo (YHOO), it is getting to be as annoying as Chuck Bass and Blair Waldorf’s persistently unconsummated roundelay on “Gossip Girl.”

But, of course, once again this week, Microsoft CEO Steve Ballmer said he was interested (sort of, but not), while Yahoo’s CFO Blake Jorgensen said Yahoo was too (sort of, but not).

Said Ballmer at a strategy gathering: “They have share. We don’t have share. They have a huge team. We’ve got a much smaller team….I’m hoping that’s a reasonable conversation to have with new management at Yahoo.”

Said Jorgensen at an investor’s conference: “We’re not opposed to doing a deal…[but] it’s extremely difficult to draw a line down the middle of the organization and split it into two pieces.”

Aaaaaagghhhh!

Dear Steve: Yahoo is the only way Microsoft is ever going to gain the share it so covets, and it looks like new CEO Carol Bartz is at least showing that Yahoo does not have to be roadkill.

Dear Carol: Get while the getting is good because 20 percent is still pretty weak, compared to Google’s 70 percent, and competition is only going to get pricier.

And even though Ballmer could not resist and made a jibe at former CEO Jerry Yang–with whom he famously tangled in the botched acquisition attempts–noting “I don’t want to be known as the Jerry Yang of this market,” everyone knows these two crazy kids belong together.

So kiss, please, declare your undying affection and intent to stick it to Google, and pronto, so we can all move onto the next episode.

Even in the midst of the economic meltdown, consider these mega-billion-dollar cash hoards of big tech companies:

Microsoft (MSFT): $20.7 billion

Cisco (CSCO): $29.5 billion

Apple (AAPL): $25.6 billion

Intel (INTC): $11.8 billion

Oracle (ORCL): $10.6 billion

Hewlett-Packard (HPQ): $10.2 billion

Google (GOOG): $15.9 billion

Yahoo (YHOO): $3.5 billion

Of this moneybags list, Apple and Google have zero debt, with the others not having much at all to speak of. Better still, all typically generate a whole lot of cash flow quarterly, even in the downturn.

And since very few tech companies like to hand over dividends or buy back much stock–kind of a minor sacrilege in the space since it means they have no innovative new ideas to fund–BoomTown asked a big exec at one of these companies when the buying spree of both public and private companies might begin.

“Like everyone else, we are waiting for the bottom,” said the exec. “So who knows?”

Said another: “No one wants to buy when prices could just keep going down. The trick is to buy before the really great deals out there collapse.”

And, even as some tasty targets are suffering and might need a lifeline, none of them want to necessarily sell out at all-time lows either.

“We will start eating our toner and paper first,” joked one start-up exec, whose company is increasingly strapped for cash, even after a number of cost-cutting moves.

Interestingly, the only standout in the buying game has been Oracle, which has been in bargain-hunting mode, making 10 acquisitions for about $750 million in the last year, according to an article in The Wall Street Journal today.

While this amount is small potatoes to Oracle, which has typically been known for doing huge merger and acquisition deals, it is still some activity in a decidedly inactive space.

Oracle has especially focused on private firms, as the private-equity investing and venture capital has dried up and IPOs are an impossible dream.

And while another well-known M&A addict, Cisco, has recently issued $4 billion in debt to fund more purchases, and Microsoft execs have noted recently that it is a buyer’s market, it seems Oracle CEO Larry Ellison is the only one currently putting his big money where his big mouth is.

So, when do you think tech companies should commence to gobbling too?

When attending the Consumer Electronics Show in Las Vegas last week, BoomTown moderated what turned out to be a fascinating panel discourse of what was to come in the tech sector.

No, it was not a gathering of Trekkies.

The CES SuperSession panel, titled “What Will They Think of Next? Consumer Technology in 2025,” was less Jules Verne than a logical analysis of where gadgetry is headed by looking at both the past and the present.

Overall consensus: Touch screens everywhere, 3-D imaging in wide use, no device wires, ubiquitous high-speed wireless networks and more.

Of course, there were some edgier ideas, like being able to tell exactly when it is going to rain to the minute, via massive computing of weather patterns.

In addition, one of the panelists, Greg Harper, brought back what was popular in 1994, the same number of years back that 2025 is forward. Yep, he dragged out for display the Apple (AAPL) Newton and brick-sized cellphones.

The panelists were: Stephen DiFranco, VP and GM, Americas Consumer Group, Lenovo; Gregory Harper, co-founder, Gadgetoff and president, Cerberus; Len J. Lauer, EVP and COO, Qualcomm (QCOM); Sean Maloney, EVP and GM, Sales and Marketing, Intel (INTC); and Phil McKinney, VP and CTO, Personal Systems Group, Hewlett-Packward (HPQ).

Here’s the video with interviews about 2025 with all of them–and don’t miss the very funny poster at the end from Microsoft (MSFT) about its vision of the future:

BoomTown’s got nothing, which is not something I like to say very much.

I am talking about the Yahoo CEO search, which is either being done by the Internet giant’s board in such elegant secrecy and with such amazing stealth that it is getting by everyone.

That or it’s business as usual for the Yahoo (YHOO) board, which so far has never met a challenge for the company it could not drag out painfully and with great public dithering.

I am hoping, of course, it is the former–that my crack sleuthing skills have been frozen solid here in Buffalo–and the choice will be announced to great fanfare by year’s end (which is, er, tomorrow).

But from reporting I have done over the last several days, the latter seems to be the case and Yahoo might not have a new leader in place for a few weeks at least.

Still, I vote for tomorrow!

But, if I had to make a prediction, Yahoo will pick an external candidate among the several candidates it is vetting now, given the time this has taken and also the need to show Wall Street, investors, their employees and the rest of us it intends to change.

In any case, if Yahoo cannot land someone by the end of January, many sources I spoke to expect the board to pick one of its own–most likely, former Nextel head John Chapple, a new director.

I have also heard that longtime Hewlett-Packard (HPQ) exec, Vyomesh (VJ) Joshi, who runs its massive imaging and printing group, is also a possibility, as well as others on the board.

When Yahoo CEO Jerry Yang announced he was stepping down in mid-November, sources I spoke to said the board was ready to act with urgency and boldness to get a leader in place to drag the company out of the doldrums.

It even made a little list, as I wrote in a post:

The board, though, has apparently made a list of six–I have no idea why that is the number chosen–clear criteria for the new leader of Yahoo.

The first is that the candidate have ‘extensive’ experience as the CEO of a public company. Another calls for media and advertising expertise. And mergers and acquisitions experience. Also strategic skills.”

While sources inside and outside the company say several candidates were considered and contacted, thus far there is no clear front-runner, as some–such as News Corp. (NWS) COO Peter Chernin and former Vodafone (VOD) CEO Arun Sarin–have discounted their interest so far. (News Corp. is the owner of this Web site.)

One response to my progress of the Yahoo CEO search from an insider was typical: “Not a peep. Oddly quiet.”

A major reason for the lack of swiftness might be Yang, who is very involved in the search along with Yahoo Chairman Roy Bostock (who might think twice about parking his chauffeured car with his name splashed on it somewhere else than in front of Yahoo, for all the emails I get about sightings of it).

Many sources said Yang is intent on getting the CEO choice just right, given so many other missteps made under his management.

“This is his last act and he is really serious about not making a bad choice,” said one exec who has talked to Yang.

That kind of consideration takes time, of course, even though many think that a bit of decisive speed might be a good thing to see from Yahoo right about now.

Still, with the holidays, as well as the weak economy, Yahoo is no Shangri-La for potential candidates.

In addition, Yahoo will wrap up a quarter this week that is sure to be especially weak, given all the internal and external turmoil.

“It is a very tough job and anyone worthwhile has to think long and hard before taking it,” said one person who has been contacted by Yahoo’s headhunter, Heidrick & Struggles, about interest in the No. 2 job at Yahoo, once a CEO is found.

This concept being bandied about is to put a new top team in place to replace Yang, and possibly President Sue Decker, who is the leading internal candidate for CEO.

Interestingly, a COO/President choice is perhaps the more interesting choice for Yahoo, since the field of candidates here widens considerably and has a lot more digital experience.

But first, of course, the CEO needs to be picked, and that’s still to come, delaying everything from doing a deal with Microsoft (MSFT) over search to buying Time Warner (TWX) online unit AOL, all of which are being pushed into 2009.

Well, only the Yahoo board knows for sure who that will be, although I am still digging away like a rabid gopher to find out more.

But here is a great music video of Val Emmich singing “(C’mon), Get On With It,” to spur the Yahoo board on:

I wrote:

Many would not be surprised if one of these current directors is named to lead Yahoo, even temporarily, and to get a new CEO in place by the New Year (a board priority): John Chapple, Maggie Wilderotter or Frank Biondi Jr.

But a dark horse outside CEO–with the public company experience the board of Yahoo is looking for as its top priority–could emerge.”

The Wall Street Journal raised such a name in a piece today–former Vodafone Group (VOD) CEO Arun Sarin (pictured here).

It’s an intriguing idea, to be sure, and the mobile phone experience is important going forward. (Also interesting is the one-time idea floated of merging Yahoo and Vodafone.)

More to the point, Sarin meets the list of key criteria the board has created, as noted in a previous post I did here:

The board, though, has apparently made a list of six–I have no idea why that is the number chosen–clear criteria for the new leader of Yahoo.

The first is that the candidate have ‘extensive’ experience as the CEO of a public company. Another calls for media and advertising expertise. And mergers and acquisitions experience. Also strategic skills.”

The 54-year-old Sarin fits all that, according to the Journal story; plus he also served on the Cisco (CSCO) board with Yang. He is also quite friendly with the Yahoo (YHOO) co-founder (another important thing, since Yang is sticking around as Chief Yahoo).

While his Vodaphone tenure was not without controversy–apparently, some thought he was too slow to diversify, a major uh-oh for the glacial Yahoo, and a less-than-firm central leader–Sarin did do a lot of turnaround work and has been involved in big acquisitions and cost-cutting.

Sarin also has lots of Silicon Valley experience–he ran InfoSpace (INSP) during the Web 1.0 bubble and was also involved in the troubled joint-investment venture between Accel Partners and Kohlberg Kravis Roberts.

Two more clear uh-ohs to me. But nobody’s perfect, I guess, and stumbles are not necessarily negatives in Silicon Valley–they’re called experience!

In that dark horse vein, sources mention several names like Sarin, who also fit the Yahoo board’s list. One I have mentioned before–Hewlett-Packard (HPQ) exec Todd Bradley–has a similar background at palmOne as CEO, for example.

And here’s another idea (all mine!) for the still-mulling Yahoo board: former Adobe CEO Bruce Chizen (pictured here), who left the media software company after many years, in November, quite abruptly, despite a very good reputation as a leader.

I have no idea why Chizen left Adobe (ADBE). But he is only 52 years old and has lots of acquisition, strategy and cost-cutting and tech experience.

Whatever names are funneling into the final pool, the Journal story noted the selection could be weeks away, although sources I have spoken to close to the situation said Yahoo was trying to move much faster and by year’s end.

That’s a better plan, since Yahoo needs clarity, and soon, in order to decide quickly what to do about both its potential search deal with Microsoft (MSFT) and its merger talks with Time Warner (TWX) online unit AOL.

While the board of directors should spend as much time as it needs to pick the right person, the fact that it has wasted so much time on not doing something about long-term and obvious leadership problems at Yahoo is the clearest sign of its true failure.

When everyone else has been selling, it seems Carl Icahn has decided to throw good money after bad–as in nearly $1 billion bad–by buying almost seven million more Yahoo shares, according to a regulatory filing.

Why is he doing it? BoomTown is guessing that the billionaire investor thinks he can recoup some of his massive losses in Yahoo, as Jerry Yang prepares to step down, and the board, on which Icahn sits, names a new leader.

That’s why my guess is that the choice of a new CEO is likely to be sooner than later and much more Icahn-friendly.

That could point more clearly to perhaps one of two execs whom Icahn brought with him to the Yahoo (YHOO) board–either former media exec Frank Biondi Jr. or, more likely, former Nextel exec John Chapple.

Another theory is that Yahoo will pick a more low-key, tech-oriented outsider, an operational star who can get things turned around at Yahoo without a lot of fuss, similar to choices made for eBay (EBAY) in its pick of John Donahoe, and Mark Hurd at Hewlett-Packard (HPQ) recently.

One of the names being bandied about in that regard is HP exec Todd Bradley (pictured here).

Bradley is in charge of its massive Personal Systems group, a $28 billion annual business, which includes personal computers, mobile devices, technical workstations, digital televisions, personal storage solutions and Internet services.

Interestingly, another top HP exec, Vyomesh (VJ) Yoshi, who runs its Imaging and Printing group, is currently a director on the Yahoo board.

In any case, the purchase of 6.7 million more Yahoo shares for about $65 million by Icahn over the last several days is definitely a move to watch.

Icahn, who waged a proxy fight against the Internet giant, owns stock that has lost about $900 million in value since he bought about five percent of Yahoo earlier in the year.

That loss comes from his purchase of about 70 million shares in the spring, at about $25 a share, of Yahoo stock, right in the midst of its takeover battle with Microsoft.

Yahoo shares closed Friday at $10.58, up 33 cents.

With the new purchase, Icahn now owns about 5.4 percent of Yahoo, which–combined with three board seats–gives him a lot more clout over decision-making and in forcing the current board to make a CEO pick who will be more interested in doing some sort of deal with Microsoft (MSFT) quickly.

Icahn has long agitated for Yahoo to sell all or part of itself off to the software giant, a move that has been resisted by Yahoo leadership. Instead, Yang tried to pull off a deal with Google (GOOG), which failed.

But that leadership is about to change, as the board searches for a new CEO to replace Yang, who said he was ready to step down a few weeks ago.

Lots of names have been floated for the job–from News Corp. (NWS) COO Peter Chernin to DoubleClick head David Rosenblatt to Google exec Tim Armstrong, as well as former Yahoo COO Dan Rosensweig.

Most sources inside and outside the company do not expect its current president, Sue Decker, who is also up for the job, to be selected.

But many point to a current Yahoo board member as a quick choice, in order to get some key initiatives moving, such as a Microsoft deal or a merger with Time Warner (TWX) online unit, AOL.

That points to someone like Chapple (pictured here), who has been querying a range of midlevel Yahoo execs of late, presumably to get a lay of the land at the company for the board.

He or perhaps even board member Maggie Wilderotter could be picked as an interim CEO, in order to signal to investors that true change is on the way at Yahoo.

Whoever is chosen needs to move quickly said many I spoke to about the Yahoo CEO job.

Wrote one experienced Internet exec in an email to me, reflecting a very common sentiment:

“Whoever comes in is going to have one shot to define the product to the consumer in a way that differentiates it from the rest of the market and provides unique value. Their brand is fuzzy right now. And they’ll have to find a uniqueness in their ad sales so they are not relegated to being the also-ran.”

Well, with all the money riding on it, Carl Icahn certainly has to hope that does not become the case.