As big shareholders flee AOL and Yahoo’s board flounders, consolidation is “definitely” in the air, a source close to Microsoft’s portal, MSN, tells us.

“Definitely, people are talking about it.”

This source – who asked to remain anonymous because getting fired sucks – says Yahoo is more attractive to Microsoft than AOL.

“People generally expect AOL to come apart one way or another. I don’t think that’s an interesting asset. It’s just been so beaten down.”

“Yahoo is a lot more interesting. If it comes into play, then at least their U.S. media business is a pretty interesting asset. It’s complicated because of those Asian assets.”

In the years after Microsoft made a run at Yahoo, senior leadership at the company grew cold to the prospects of the portal business, focusing most of its online efforts on Bing.

But lately, says our source, there has been a realization from management that “MSN is a critical component of helping Bing win.”

Our source says it has helped that ex-AOLer Ted Cahall has come to the business and really helped turn it around.

Our source says this has people at MSN “enjoying a little schadenfreude.”

“It’s not every day that you watch both of your competitors blow themselves up. It’s like watching a train wreck.”

“The portal space is challenged. Facebook is just absorbing more and more minutes – usage. That’s having an effect on portals. The time shifting toward mobile is another factor weighing on portals. The problems AOL and Yahoo have are exacerbated by management.”

Source: SAI