Niche Info Online Business

SAN FRANCISCO - It's hard to believe Google Inc. actually looked vulnerable just two months ago. The Internet search leader's stock had plummeted 45 percent from its peak. And its two biggest rivals, Microsoft Corp. and Yahoo Inc., appeared poised to combine forces and launch a double-barreled attack.

But on the eve of Google's annual shareholders meeting Thursday, the company looks stronger than ever. Its stock is hot again and Microsoft has scrapped its plans to buy Yahoo, with Google playing the spoiler's role.

"Google is winning again. What a surprise," said Canaccord Adams analyst Colin Gillis. "If you want to invest in the Internet space, where else do you want to be but Google?"

More investors have been coming to that conclusion since last month, when Google's stellar first-quarter results cast aside concerns that the drooping U.S. economy would depress the online advertising spending that generates most of the company's profit.

Google shares have surged 29 percent since the first-quarter report, regaining a little more than half of the $100 billion in shareholder wealth that evaporated as the stock plunged from an all-time high of $747 last November to a 52-week low of $412 in mid-March. The shares finished Wednesday at $579, down $7.36.

Meanwhile, Microsoft and Yahoo are again trying to figure out how to lessen Google's dominance of Internet search and advertising.

Microsoft hoped to throw Google for a loop by buying Yahoo for $47.5 billion. Unnerved by the threat, Google worked behind the scenes with Yahoo to thwart Microsoft's unsolicited takeover attempt.

The counterattack now has Yahoo considering a deal that would allow Google to sell some of the ads displayed alongside the search results on Yahoo's Web site. The alliance, which has already been tested in a two-week trial, will likely hinge on whether the two companies can persuade antitrust regulators the partnership wouldn't undermine competition in the ad market.

Even if a Google-Yahoo pact isn't consummated, the threat of it helped drive Microsoft away from Yahoo for now. Microsoft Chief Executive Steve Ballmer cited Yahoo's negotiations with Google as one of the major reasons why the Redmond, Wash.-based company decided to abandon its takeover attempt.

Yahoo is considering the Google deal because it believes its rival's superior ad-serving technology will boost its profits. But by acknowledging the shortcomings of its own ad system, Yahoo could end up driving even more business to Google even if their partnership doesn't pan out.

"Google is still in the driver's seat either way," said analyst Martin Pyykkonen of Global Crown Capital.

Perhaps Google's only glaring weakness is its dependence on those ubiquitous ad links that appear alongside search results and other content on thousands of Web sites. They have generated virtually all of the $42 billion in revenue that has poured into the company's coffers since 2003, even though Google has invested billions to build software applications for businesses and an array of other products.

Google wants to sell more visual advertising through its two biggest acquisitions — video-sharing site YouTube and DoubleClick, which specializes in the Internet's equivalent of billboards.

The DoubleClick deal, completed for $3.2 billion in March, represents the first time that Google will have to absorb hundreds of new employees into its work force. The acquisition also prompted Google to make the first mass layoffs in its nearly 10-year history. At least 300 of DoubleClick's 1,500 workers are expected to lose their jobs, and the number could rise in the months ahead.

Google also has been losing some of its top talent to rising Internet star Facebook Inc., which runs an online hangout with about 70 million users worldwide.

Sheryl Sandberg, formerly Google's vice president of global online sales, became Facebook's chief operating officer in March. This week Elliot Schrage, Google's head of communications, announced he is taking a similar job at Facebook. Google also has seen a couple of top engineers move to Facebook.

But Google's challenges are outweighed by its opportunities.

Besides developing more ad avenues on the Internet, Google is extending its reach into television, radio and mobile phones. In its latest push into the mobile market, Google on Wednesday disclosed a $400 million investment into a new high-speed network being developed by Clearwire and Sprint Nextel.

Google's success and bold ambitions figure to make its shareholder event a congenial affair, much like the three previous meetings that the Mountain View-based company has held since going public in August 2004.

Meanwhile, Yahoo is girding for what's likely to be the most contentious meeting in its 12-year history as public company. The meeting, scheduled July 3, will provide a forum for Yahoo's angry shareholders to excoriate — and possibly oust — the company's board for its handling of the Microsoft bid.

"If I were an executive," Pyykkonen said, "I would much rather be presenting at Google's annual meeting than Yahoo's meeting."