There is strong rumor that Microsoft and Yahoo are talking on a deal – they did engage in talks a year back but nothing came out. But in the same one last one year, Google has made a few big moves, which can easily make these two ‘other giants’ rethink their original positions. Yahoo has continued to struggle while Microsoft has seen an increasing threat in the form of Google and both companies have seen major reorganizations in their top management.

So some form of teaming might make more sense now and The Wall Street Journal is reporting that “executives at Microsoft and Yahoo are taking a fresh look at a merger of the two companies or some kind of match-up that would pair their companies’ respective strengths.” While talks are reputedly in the early stages, Microsoft is certainly feeling a sense of urgency due to the Google threat. “Short of a wholesale merger, Microsoft could spin its online group into a separately-run Yahoo, in return for a Yahoo stake.

Though a person familiar with the matter says Microsoft would likely want to acquire Yahoo,” the WSJ reports. While a buyout would certainly make sense for both companies on some level, the differing corporate cultures could pose a significant hurdle to a merger. “Co-founder Jerry Yang, for one, has a reputation for disliking Microsoft and avoids using Microsoft products,” the WSJ reports.

But Jerry Yang is also a savvy businessman, and we will see if he can get a good deal from cash-rich Microsoft. Folks are Google are smiling at this huge compliment to their strenght, and one wonders whether Yahoo + MSN can still cut it.

If the rumour turns out to be true, it would be the Internet deal of this decade…unless Google teams with Amazon in some way in the next couple of years!