Soon, visitors to Yahoo's home page will be able to see a full "news feed" of the activity of their Facebook friends, as well as use their Facebook name and password to leave comments on news stories at sites like Yahoo! Sports and Yahoo! Finance. The planned changes will also allow content created on Yahoo sites, such as Flickr photos, to be sent to Facebook with the click of a button.

Yahoo hopes to achieve two goals with the partnership, says Cody Simms, senior director of product management: "Making Yahoo stickier and helping syndicate content." More than half (52%) of U.S. visitors to Yahoo sites also use Facebook, according to comScore, and the hours they spend flirting and fraternizing with buddies on the social network is time they could be perusing Yahoo's pages, which are supported by ads. Subsequently, Yahoo hopes each time users send photos, comments, and other content back to their Facebook feed, it will entice onlookers to click through to Yahoo sites.

It's a win for Facebook and a setback for Google, Microsoft, Twitter, and other companies with ambitions on becoming the standard identity manager for users all over the Web. "You’re seeing the beginning of a move toward that consolidation," says Josh Bernoff, who follows social media in his role as senior vice president of idea development at Forrester Research. "Strategically, Yahoo understands that allying itself with the most powerful social network is going to be more successful than trying to win with an ID of its own," he says.

The Yahoo-Facebook tie-up may deal the strongest blow to OpenID, a movement to create a non-proprietary standard for identity and authentication on the Web. Some advocates for OpenID contend that the use of Facebook as an ID by millions of Internet users consolidates too much power in the hands of one company.

Why's he leaving? Icahn says he has other companies to worry about, and it's not hard to take him at face value on that. And when Yahoo CEO Carol Bartz finally signed a deal for Microsoft to handle its search operations a few months ago, his reason being a Yahoo director pretty much vanished. "Carol is doing a great job and I believe the Microsoft transaction will provide great long term benefits, the potential of which many still do not understand," Icahn wrote in his resignation letter.

But I can just see him dusting his hands off, happy to rid himself of a misadventure that by all accounts lost him a lot of money. By threatening a proxy fight, Icahn won board seats for himself and two allies last August after Yahoo repeatedly declined Microsoft's unsolicited, $47 billion takeover bid. But once Bartz took over as CEO in January, he went quiet.

Most of all, though, it's apparent that Bartz had little use for him and wasn't afraid to say so. It's now up to Bartz, not the board, to turn things around at Yahoo. With Yahoo's upside earnings surprise on Tuesday, she clearly has gotten started by making Yahoo more profitable. What she really needs to show, however, is how Yahoo will start growing again.

Yahoo said it earned 13 cents a share on gross revenues of $1.58 billion, down 12% from a year ago, and net revenues of $1.13 billion. However, 5 cents of that profit came from the sale of Yahoo's stake in China's Alibaba.

That's still slightly ahead of forecasts. The company was expected to earn 7 cents a share on gross revenues of $1.52 billion, or $1.12 billion after payments to advertising partners. A year ago, Yahoo earned 4 cents a share on $1.33 billion in net revenues.

"With revenue coming in above our guidance and flat sequentially, we had a solid third quarter that signals our major businesses have stabilized," Yahoo! Chief Executive Carol Bartz said in a statement. "With new products like Yahoo! homepage, our brand revitalization campaign and expansion in the Middle East through Maktoob.com, our execution is improving and we’re focused on what we do best — being the center of people’s online lives."

Yahoo also said it expects gross revenues of $1.6 billion to $1.7 billion in the fourth quarter. Operating income before depreciation, amortization, and stock option costs is expected to be between $400 million and $450 million. Both of those are somewhat higher than Wall Street forecasts. Operating income after those costs is forecast at $135 million to $155 million.

Expectations were muted before the announcement. That was not only because the Internet portal was expected to report a drop in profits and sales. By now, everyone's also expecting online ad revenues, especially from the display ads that are Yahoo's mainstay revenue source, will fall for the first time since 2002.

Once the analyst call starts at 2 p.m. Pacific, I'll liveblog the highlights below. You also can view a Webcast of the call yourself and read the press release and earnings slides.

On the call, investors will be looking to see if Yahoo is seeing any signs of a turnaround in ad spending. Google reported a strong third quarter last week, spurring hopes that a rebound in search ads would lead to an uptick in display ads as well.

Investors also will be listening for insight on the impact of recent cost-cutting under Bartz. And they'll be looking for news on the status of the search deal with Microsoft, though given that it's unlikely to pass regulatory muster until well into next year, Yahoo probably won't have much to say.

And the call begins (SeekingAlpha has a more complete first-draft transcript):

Having sat through a day of interviews yesterday with the media (including myself and Rob Hof) and investors to explain the deal, Ballmer insists that "nobody gets it...We can create economic value, that’s going to benefit Yahoo's shareholders and Microsoft shareholders."

In fact, he says Bartz brought home a rare freebie, where Yahoo gets to keep 88% of the revenue from its search advertising business for the next few years, with no associated R&D or capital expense. That's why Yahoo believes it can increase its annual operating income by $500 million over time--a 70% increase for a company that typically makes around $700 million. "It’s kind of unbelievable, really....I’d like to tell you we kept most of the economic value [created by the deal]. But that's not not what happened. Well over 50% of the economic value goes to Yahoo."

Of course, he also notes that Yahoo's benefits from the partnership are front-loaded for the next few years. And while Yahoo may get a financial benefit, Microsoft gets the longer-term, strategic advantage. It's now the clear No. 2 in the most lucrative, strategic market to come around in decades. That leaves Microsoft with the scale not only to succeed in search, but on the Net generally. Without search-related profits, how is Yahoo going to keep up in the arms race among the big boys to build billion dollar data centers? This is a big deal, that's gotten lost in the analysis of the last few days.

So try as he might to come to his new partners' defense, I still think Wall Street got it right. And judging from the continued drop in Yahoo shares today, Ballmer's arguments aren't resonating.

In a short conversation with me and my colleague Peter Burrows, the two CEOs displayed an easy rapport (and shared love of expletives) that was remarkable given the more than 18-month battle between the two companies. It's a rapport, staged as it might have been, that they said would be key to carrying out the deal over the next two years of integration.

Here's the full interview, after the jump: