Microsoft seems resigned to the fact that Microhoo (the potential Microsoft-Yahoo! merger) is not going to be an easy deal, and accordingly are moving on with Plan B.

The Wall Street Journal reported that AOL and Microsoft executives were in discussions over a possible merger between the two companies.

The idea of Microsoft merging with AOL has been circulating for a couple of months, but given Yahoo!’s shareholder meeting is due for August 1st - the software giant could be using the potential of an AOL deal to sweeten the merger prospects for Yahoo!

Let’s put the AOL merger into perspective.

• AOL represented about 11% of US online revenue in 2007,
• It’s valued at over US$8.3 billion.
• comScore ranked AOL’s Platform-A as the top advertiser network in terms of unique visitors
• AOL sites set new traffic records this year with over 56.5 million uniques per month.

If Microsoft and AOL were to merge, that would create a formidable online force, and represent some serious competition for Yahoo! beyond just search marketing.

Shareholders “might” see it as better for Yahoo! to merge with Microsoft, than face more competition and see their holdings diminish in value.

The only thing that would throw a spanner in the works (other than Merger Price Tags that Microsoft aren’t willing to pay) is approval of such a three way merger. The competition watchdogs will be on to this like a hawk to prey!

Stay tuned, as August should see this merger triangle really heat up.