Recently, BoomTown reported that talks between Microsoft and Yahoo had gotten “hot and heavy.”

That mood seems to be continuing, as many sources close to the situation on both sides said that the pair are coming ever closer to a search and advertising partnership deal.

Said one source: “It’s closer than it has ever been…we’re finally talking about the how rather than the if.”

“It’s meaningful,” added another source. “The fact that there is even progress and engagement, after so many failed attempts between us, says a lot.”

Indeed, it remains a good sign that there seems to be a lot of engagement between the two sides of late, and some sources think a deal could even be struck within the next few weeks.

As I also reported last week, the latest idea is one in which Yahoo (YHOO) would take over both search and display advertising sales and Microsoft (MSFT) would run the tech for both behind the scenes.

It’s not clear if trading other assets–such as content–or an investment in Yahoo by Microsoft are being considered too.

In any case, any such deal would be a major shift for both companies in their business focus and would also tether them tightly together.

Many think they need to be tethered, given that Google (GOOG) overwhelmingly dominates the lucrative search market. Yahoo is strong in display, although that market has been harder hit in the recent economic downturn.

But whether or not Yahoo and Microsoft can come to a partnership agreement–given the deep complexities of the situation, the wariness over controlling key technologies and tense history between them–is a big if, of course.

Still, sources on both sides seem more positive than ever before.

Microsoft execs, for their part, report that new Yahoo CEO Carol Bartz is much more straightforward to work with than former CEO Jerry Yang.

And Yahoo’s side seems convinced that Microsoft appears more willing to make a deal happen and is more flexible on terms than in previous encounters.

Both sides are using very small teams to discuss the possible partnership, mostly in Silicon Valley. Some of the Redmond, Wash.-based Microsoft team, in fact, are in the Bay area now.

Sources said those involved on the Microsoft side include: Digital head Qi Lu, a former Yahoo tech star; top M&A and strategy exec Charles Songhurst; Online Audience Business SVP Yusuf Mehdi; and several others.

On the Yahoo side: North America EVP Hilary Schneider, who leads the efforts; General Counsel Michael Callahan; top Yahoo ad operations techie Mark Morrissey, who was key to its revival of the Panama ad system and has recently been leading product development on its new ad platform; finance SVP and Chief Treasury Officer Mike Gupta; and Products EVP and CTO Ari Balogh, although he is more in the background.

Of course, the only two execs who will matter, if these teams finally manage to hash out details, are Yahoo’s Bartz and Microsoft CEO Steve Ballmer, as well the both companies’ boards.

Interestingly, Ballmer is slated to be at Stanford University’s Memorial Auditorium to give a lecture on innovation and entrepreneurship as part of the Entrepreneurial Thought Leaders Seminar on Wednesday afternoon.

Whether Ballmer is seeing Bartz on this trip or not is not clear.

But he has to at some point. The approval of a deal–which could be struck soon, if terms can be reached–will be entirely their call.

[Postcard image courtesy of CarbonClothing on Zazzle.com.]

It’s pretty much what BoomTown has been reporting all week about the reorg.

Top-down simplification, which is another word for: Carol rules over Yahoo (YHOO).

CTO Ari Balogh gets a lot of stuff as new head of products, and so does U.S. head Hilary Schneider, including mobile, as EVP of North American Region. Both report to Bartz.

Unmentioned, but Audience Products head Ash Patel is still in. So is General Counsel Michael Callahan.

New chief marketing officer is Elisa Steele, who come from NetApps (NTAP). Bartz happens to be on the board of NetApps, by the way.

New International head TBD.

Bartz also sent an email to employees about the changes.

Here is the entire memo:

New Yahoo! Management Structure Overview

February 26, 2009

· Our goal as a company is simple: to consistently deliver awesome consumer and advertiser experiences everywhere in the world we do business. So we’re creating an organization to enable improvements in our product quality and operational efficiency, as well as clear decision making and accountability.

· Tech and Product groups will be combined to create a single organization called Products. Products will be led by Ari Balogh as EVP of Products and CTO, reporting to Carol Bartz, with the goal of enabling extraordinary consumer experiences tied to compelling advertiser and publisher offerings. This organization is responsible for the vision, strategy, and quality of every product we create–regardless of region, device format or category.

· There are now two regions–North America and International. The regions are responsible for delivering Yahoo!’s products, programming and services to consumers, partners and advertisers in local markets. North America will be led by Hilary Schneider, EVP, North American Region, reporting to Carol Bartz. International’s leader will be hired soon.

. Mobile will continue to be a key priority for Yahoo!. Going forward, David Ko will lead the mobile business, strategy and monetization teams for Yahoo! (Head of Global Mobile Business, reporting to Hilary Schneider). All of our product teams will be responsible for incorporating mobile innovations into their products.

· A Chief Marketing Officer (CMO) role has been created to oversee our global marketing strategy and provide direction for our marketing function. Today, we named our new CMO, Elisa Steele. Elisa starts on March 23. She will bring together the various marketing teams that have been spread across the company.

· A new Customer Advocacy group will help us to better hear the voice of the customer (consumers/advertisers) across the company and incorporate what we hear into all our work throughout Yahoo!. We will hire a new leader for this team.

· The newly created Service Engineering & Operations (SE&O) team will be chartered with delivering common technology services at scale, including application management and infrastructure. The team will be led by David Dibble, SVP of SE&O. We’re bringing Service Engineering together as one group because these engineers bring expertise that is best applied horizontally.

· Our corporate functions will consist of HR led by David Windley, Legal led by Michael Callahan, and our CFO is to be hired, with Blake Jorgensen remaining through the transition. Joel Jones will serve as Carol Bartz’s chief of staff.

· This structure is designed to last two to four years; however, we’ll continue to make adjustments as needed. But we expect this core structure will stay in place.

· These changes become effective immediately.

On Friday, BoomTown first reported that new Yahoo CEO Carol Bartz is likely to be announcing a sweeping new management structure soon, which can only mean the possibility that some existing top execs are likely to be broomed out, even as some new ones are ushered in.

“This is going to be a full-scale peanut butter recall,” joked one exec, referring to the infamous “Peanut Butter Manifesto,” which was sent around the company several years ago by former exec Brad Garlinghouse. It laid bare the problems at Yahoo (YHOO), most especially a decided lack of decision-making and lugubrious levels of managers.

But the reorganization of Yahoo’s top-heavy management structures–I once dubbed it the “attack of the Yahoo vice presidents”–will be a bit sticky, given all the (slow-)moving parts at Yahoo (YHOO).

Nonetheless, Bartz signaled a “big week” ahead in one internal memo I obtained, which was sent out Friday.

So what’s to come?

Here’s a rough primer, based on talking to numerous sources inside and outside of Yahoo:

The Basics:

In order to start to revive Yahoo, Bartz is likely to impose a more top-down management style on the hopelessly confusing “matrix” organization now in place at the company.

She has spent the last six weeks touring Yahoo, getting to see a lot of presentations on its many, many products and conducting a whirlwind of meetings with execs.

Broadly, most expect Bartz to severely roll back a variety of previous reorganizations done by former CEO Jerry Yang and outgoing President Sue Decker, in order to impose more centralized control over the place and focus it more narrowly.

Presumably, lattes–paid for by Yang and co-founder David Filo–will remain free.

Out With the Old:

There’s no question that Yahoo is going to see the departure of several top execs, along with the elevation of others.

Among those who are more likely to be definitely in, though, is CTO Ari Balogh (pictured here), a relatively recent hire who has been a popular exec within Yahoo.

The Wall Street Journal first noted the possible rise of Balogh in a follow-up piece to this column’s story on the overall reorg over the weekend, noting that he would become head of product.

Presumably, Balogh will be one of the point men on what to do about search, in the should-I-stay-or-should-I-sell-now debate that never seems to end at Yahoo.

One interesting idea floating around Yahoo is that he becomes head of all its products, as well as continuing to run its tech arm.

That’s a good idea, since Yahoo has desperately needed an empowered leader under Bartz, who focuses like a laser beam on products.

“It all starts with that,” said one former exec. “One single person has to be the champion of what Yahoo makes.”

But what does that mean for Ash Patel, EVP of Yahoo’s Audience Product Division? Well, the longtime Yahoo veteran could now report to Balogh (he had previously reported to Decker directly) or, presumably, leave.

Patel’s fate, of course, impacts that of many others, such as Front Doors head Tapan Bhat, who is in charge of a major homepage redesign that Bartz just delayed the launch of to make it better.

Venkat Panchapakesan, EVP of the Audience Technology Group, seems safer, given that he reports to Balogh already and is responsible for the company’s overall product technology and platform strategy, such as its open efforts.

Also safer than not is General Counsel Michael Callahan, as well as U.S. EVP Hilary Schneider.

But Schneider’s purview might change a bit if U.S. advertising sales head Joanne Bradford–who now reports to her–is elevated to a higher position or if sales is taken out from under Schneider.

It’s not a stretch to imagine Bartz wanting more control of the part of Yahoo that brings in the bucks.

The fate of Connected Life Division EVP Marco Boerries is dicier–think Yahoo mobile and other devices–as it is for CFO Blake Jorgensen and David Windley, who heads human resources.

Both Jorgensen and Windley were favored by Decker, which does not necessarily make them goners. But both are in jobs on which Bartz will have to rely much more, so she might want her own choices in place.

Boerries (pictured here), a talented but more freewheeling exec under Yang, is another question all together. Already wealthy from selling several companies, the entrepreneurial exec is most often mentioned by sources as someone unlikely to stick around, especially if Bartz tries to rein him in more. (In addition, Boerries has family issues requiring that he spend a lot of time in his native Germany.)

As to the many Yahoo SVPs and VPs? Let’s just say it is likely there will be many fewer of them, as Bartz cuts, consolidates, simplifies and centralizes divisions more.

In With the New:

One hire that is definitely coming is a new chief of marketing to take over Yahoo’s brand, as well as its PR function. Yahoo has not had that kind of powerful exec in a long time, and it is more likely Bartz will go for an outside star here.

One outside name skittering around Yahoo for the role is John Vail (pictured here), director of interactive marketing for Pepsi-Cola North America, who knows Yahoo well.

(An obvious internal candidate for the job would be Yahoo’s Global Brand Marketing SVP, Allen Olivo, who could hit the road if not selected.)

Also a possibility is adding a COO with more Web experience to come in to help Bartz. There are plenty of candidates for that job all over the Internet sector.

But Bartz seems to be the kind of exec who favors flying solo and having key execs report to her to keep a finger on the pulse of a company. She is most definitely not going to have an entourage around her.

In fact, said one person familiar with the situation: “It’s long past time for new plumbing, and [Bartz] seems ready to flush a lot out that has long needed to go.”

Yesterday, BoomTown went to Washington, D.C. to see lawyers from Microsoft (MSFT), Yahoo and Google face off in Senate hearings about the controversial search advertising outsourcing deal recently struck between Yahoo (YHOO) and Google (GOOG).

Titled “The Google-Yahoo Agreement and the Future of Internet Advertising,” the hearings were called by the Judiciary Committee’s Subcommittee on Antitrust, Competition Policy and Consumer Rights and chaired by Sen. Herb Kohl (D., Wis.).

As I expected, the hearings on the Yahoo agreement with Google (transcripts of testimonies here) to outsource some of its ad search business were a lot of show and not so much content.

There was also a hearing for the House’s Task Force on Competition Policy and Antitrust Laws, called “Competition on the Internet,” which featured the same trio of execs.

And here’s a video of BoomTown chatting up Google’s Chief Legal Officer David Drummond, Microsoft’s General Counsel Brad Smith and Michael Callahan, general counsel for Yahoo, right after the Senate hearings were over.

Please see this disclosure related to me and Google.

Sitting at the Senate hearings about the Yahoo-Google ad search deal this morning in Washington, D.C., let it be said that BoomTown is deeply dubious about whether it is a good thing for consumers and advertisers, as both Internet companies have asserted.

But this was my most certain conclusion:

The worst-case scenario is actually for politicians to meddle in the Internet space with their largely Web-ignorant mitts.

But that’s just me!

Titled “The Google-Yahoo Agreement and the Future of Internet Advertising,” the hearings were called by the Judiciary Committee’s Subcommittee on Antitrust, Competition Policy and Consumer Rights, chaired by Sen. Herb Kohl (D., Wis.).

In any case and as usual, the hearings on the Yahoo agreement with Google (transcripts of testimonies here) to outsource some of its ad search business were a lot of show and not so much content.

There was an interesting little testy back-and-forth between Sen. Arlen Specter (R., Pa.) over remarks that Yahoo (YHOO) CEO Jerry Yang might have made in a previous meeting with Microsoft (MSFT) that was recounted by Microsoft General Counsel Brad Smith.

The gist of it was that Yang sketched out a world of two “poles”–Google (GOOG) on one side and Microsoft and Yahoo on the other. And if Yahoo moved over to the Google side, the World Wide Web would be terribly askew!

Yahoo General Counsel Michael Callahan said that was not his recollection of the meeting, in which he also participated.

Specter wondered who was telling the truth, which only made me want to yell out: Welcome to the MicroHoo Hall of Crazy Mirrors, Senator!

Mostly, Google and Yahoo argued that by doing an ad-search partnership they would stay aggressively competitive with each other.

Microsoft, of course, argued that the end was nigh.

“Never before in the history of advertising has one company been in the position to control prices on up to 90 percent of advertising in a single medium,” said Microsoft’s Smith. “Not in television, not in radio, not in publishing. It should not happen on the Internet.”

Countered Yahoo’s Callahan: “The purpose of this commercial arrangement, the intent of Yahoo moving forward, is to make our company an even stronger competitor to Google, to Microsoft and to others in the dynamic and rapidly growing online advertising world.”

Of course, Google chimed in, via Google Chief Legal Officer David Drummond: “Google and Yahoo will remain vigorous competitors, and that competition will help fuel innovation that is good for users and the economy.”

Yes, concentration of power is always good for the world! I mean, Microsoft’s Windows monopoly turned out so well for the industry for so long!

Wait, that’s not a very political thing to say. (Then again, I completely forgot just how stuffy D.C. was and wore Silicon Valley garb–jeans and a T-shirt–to the hearing.)

In any case, the sideshow to the MicroHoo drama moves to the House side of Capitol Hill this afternoon.

There the Task Force on Competition Policy and Antitrust Laws held the less dramatically named hearing “Competition on the Internet.”

It was the same trio of Yahoo, Microsoft and Google lawyers, of course, and more of the same.

Which is to say–a lot of hot air, little movement, but much more evidence of the next phase of the Internet and the two true poles: The Web World War of Microsoft versus Google.

In any case and speaking of hot air, here’s my video interview with the lawyers from Google, Yahoo and Microsoft, which is also posted here:

Today, BoomTown boards the Acela Express from New York’s Penn Station to D.C.’s Union Station to attend the Senate hearing on the Yahoo agreement with Google to outsource some of its ad search business.

Titled rather ominously, “The Google-Yahoo Agreement and the Future of Internet Advertising,” the Judiciary Committee’s Subcommittee on Antitrust, Competition Policy and Consumer Rights (eek!) will hear testimony at 10:30 a.m. at the Dirksen Senate Office Building from a passel of Internet reps, including those from Yahoo, Microsoft and Google.

It is chaired by Sen. Herbert Kohl (D., Wis.).

Will there be a lovely video of event? Indeed, there will be!

Added plus: I went to college and even worked on Capitol Hill, all before toiling at the Washington Post (Hey, Marcus!) for a dog’s age, so I know my way around the place.

And, as BoomTown readers might recall, I am not for the deal, mostly because it gives Google even more market power, even though the partnership is limited.

As I wrote:

As someone who has been a longtime critic of Microsoft’s (MSFT) historically thuggish tendencies, BoomTown finds it a little hard to believe that Yahoo and Google think that they can get away with any kind of significant search-ad outsourcing deal that would move the needle at Yahoo … .

And while it might be a long-cherished dream of Google’s to take over Yahoo search–and also get the chance to return to the scene of the crime, since Google got its first big push from doing Yahoo search, before Yahoo (YHOO) wised up too late–there is simply no way this will be allowed by regulators. Nor should it.

Still, you have to almost admire the chutzpah of the search giant in making this move, if the sheer and unadulterated arrogance of it wasn’t so distracting.

Because, while Google (GOOG) has almost none of the obvious menacing aggression that characterized Microsoft when it thoroughly dominated tech (although all those beach bikes on its campus inexplicably creep me out a little bit), the company still cannot be allowed to have a monopolistic share of the market.

It is bad for advertisers, it is bad for consumers, it is bad for innovation, no matter how well-intentioned Google is.”

So, you might imagine, I am looking forward to biting into this tasty piece of political theater!

Here is the list of speakers:

David Drummond
Senior Vice President
Corporate Development and Chief Legal Officer
Google
Mountain View, Calif.

Michael Callahan
General Counsel
Yahoo!
Sunnyvale, Calif.

Brad Smith
Senior Vice President and General Counsel
Microsoft
Redmond, Wash.

Matthew Crowley
Chief Marketing Officer
Yellowpages.com
Glendale, Calif.

Tim Carter
President and CEO
Askthebuilder.com
Cincinnati, Ohio

Please see this disclosure related to me and Google.