When a competitor denigrates something you are doing, then you must be doing something right.

This wise saying, which also holds true in the Web 2.0 market, came to mind when I first heard reports of Google co-founder Sergey Brin allegedly lamenting the online search deal between Yahoo and Microsoft.

Brin also reportedly said that he thinks Yahoo had some innovations. The manner he said it, or at least, as he was reported as saying, implied that the Microsoft deal could only hamper Yahoo’s ability to innovate.

In a way, Brin would be one of those people who can never use the words innovation and Microsoft in one sentence.

Yahoo Gets Better

A few months ago, activist investor Carl Icahn was busy contesting then Yahoo co-founder and CEO Jerry Yang’s rejection of Microsoft’s generous offer to buy Yahoo.

Yang’s decision to turn down Microsoft’s offer, which valued the second largest online search company at $33 per share, has so far proved to be a rather expensive mistake.

Last week, Yahoo’s shares closed at $17.22. That was one costly mistake indeed.

Anyway, Icahn must have decided his work is done at Yahoo. After working for the ouster of Yang as CEO and chairman, and after seeing Yahoo’s current management entering into a partnership deal with Microsoft, Icahn resigned from Yahoo’s board of directors.

Icahn, who remains one of Yahoo’s biggest stockholders with his 4.5% stake, said he plans to spend more time with his other investments.

While this development means a vote of confidence for Yahoo’s present management, it sounds ominous for senior executives at those companies where Icahn holds some stakes.

Meanwhile, Yahoo has had its share of misfortunes brought about by the overall economic climate and by Google’s grabbing of a bigger share of the online search market.

Also, people spend more time at the popular social networking Web sites, such as Facebook and Twitter.

In the third quarter of its present fiscal year, Yahoo suffered a 12 percent drop in revenue. It is a good thing that cost cutting measures that the company has been implementing helped offset the losses.

This also means that the company might be poised to benefit from better economic times, which some analysts say are just around the corner.

Deal with Microsoft

Yahoo is hoping that its partnership deal with software giant Microsoft will help it enhance its bottom line, as well as close the gap with online search market leader Google.

Once approved by regulators, the deal will allow Yahoo to transfer hundreds of its employees to Microsoft and lay off more employees. This, in turn, would help Yahoo save more than $400 million in payroll expenses each year.

An economic recovery, meanwhile, will enable Microsoft and Yahoo to establish long-term deals with online advertisers, which in the long term will further help Yahoo improve its financial performance. Then, it could think of ways to catch up with Google.