Two of the top tech observers are drumming a death march for Yahoo in the wake of yesterday’s big announcement that the company had struck a search advertising deal with arch-enemy Google. Michael Arrington of TechCrunch and Om Malik of GigaOm both think the company has shot itself in the foot (or worse). Arrington:

The deal terms announced with Google appear to be fairly innocent - a non-exclusive arrangement that let’s Yahoo take Google’s ads if and when they choose to, and put them alongside their own ads, and/or other third party ads. But the truth is that this will cause even more advertisers to flee Yahoo’s platform. Which will drive auction-determined ad rates down. Which will drive Yahoo to take more Google ads. Which will…

It’s a vicious cycle and they will have no choice, as a public company, but to rely more and more on Google as time goes on.

Malik echoes Arrington’s feelings in his typically colorful way:

I think this is yet another critical blunder by a company that lost its way back three years ago when then CEO Terry Semel lost interest in the company, putting it on a path of mediocrity. Of course, as one of my gurus once said, in hindsight, everyone is an idiot (or a genius).

And while that might assuage the short term concerns Wall Streeters have, the company is shooting itself in the face with deal. It is a almost like knowing your spouse is going to divorce while standing in the aisle, waiting for the priest.

Arrington went on to argue that this deal hurts more than just Yahoo; it hurts everybody in Silicon Valley, because competition in the search space means better value for publishers. It’s hard to argue with that, but his blind spot — and frankly that of all Valleyites — is their failure to understand the potential for competing with Google at the local level. And to that, I’ll say, “We’ll see.”

For members of the Yahoo newspaper (and TV) consortium, this deal is likely creating some serious stomach churn. The long-term value prop for local media is Yahoo’s reach, which is a tricky beast that has a lot to do with brand and the fickle happiness of users. It’s hard to believe the company can keep up with the relentless pace of web development when it’s struggling with revenue problems downstream. As I have said all along, Yahoo needs the local media companies a whole lot more than the local companies need Yahoo, and this deal makes that even clearer.

So what the deal with Google means is uncertainty but probably not enough to disrupt the relationship at this point.

But the one certainty that the Web brings is change, and I’d be a fool to predict where this is all headed. I will repeat, however, that online revenue growth is guaranteed at the local level, and that the real competitor of all local media companies is Google, the company that Yahoo just snuggled up against.

Stay with me here.

Carl Icahn has done his hostile deed in an attempt to take over Yahoo at its annual meeting next month, offering up a slate of directors for shareholder consideration. Michael Arrington at TechCrunch has the details, including the letter from Icahn to Yahoo Chairman Roy Bostock. Icahn personifies the word “colorful” in his thoughts about the “botched” Microsoft-Yahoo merger.

I am perplexed by the board’s actions. It is irresponsible to hide behind management’s more than overly optimistic financial forecasts. It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72% premium over Yahoo’s closing price of $19.18 on the day before the initial Microsoft offer. I and many of your shareholders strongly believe that a combination between Yahoo and Microsoft would form a dynamic company and more importantly would be a force strong enough to compete with Google on the Internet.

That last thought is significant, especially because Mark Cuban is one of the directors that Icahn wants on the Yahoo board. The always outspoken — and often controversial — Cuban is no friend of Google and is thinking out loud about how to beat them (with his Mahalo, Cuban has a considerable dog in the fight), prompting John Battelle to note that Cuban “is clearly drinking and blogging again.” That’s because Cuban’s Microhoo strategy is a doozie: “What would happen,” Cuban asks, “if MicroSoft or Yahoo or a MicroHoo went to the 5 top results for the top 25k searches and paid them to leave the Google Index?” He reasons that at $1,000 a site and 100,000 sites, “thats only $ 1 Billion Dollars.” (sic)

Battelle rolls his eyes and invites Cuban to try:

One big problem: No one would do it. Well, some would, but assuming that folks would be willing to be paid to screw over Google assumes folks 1. have no soul and/or 2. hate Google. I pray that for most folks, #1 is not true, and Google prays that for most folks, #2 is not true. So far, I think we’re both right.

But hey, Mark, you have the money! Why not find out?!

Carl Icahn is a smart and colorful fellow who’s making a hard run at this (and getting a ton of attention for it), but by putting Mark Cuban on his Yahoo wonder board at the precise moment Cuban is talking about paying people to leave Google’s index boggles the mind.