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why hasn't MSFT or YHOO done this yet?

As other people have pointed out, they might have. I imagine the reason it isn't successful is the same reason government sponsorship of startups isn't successful - bureaucracies tend to not work very well when it comes to having to often admit mistakes and changing course - sunk costs bias and all that.

In 2000, I briefly worked for a start up that was funded by a Lycos incubator. I'm almost positive that most big tech companies have similar programs. here's an old article about it - http://hbswk.hbs.edu/item/1380.html

Yahoo has the brickhouse, but its not external though. Employees could come up with start ideas, take "time off" from their project for say 6months and build it. But ofcourse its a Yahoo property, but not really yours.

I'm pretty sure MSFT has a venture wing. So is Intel

Nokia has huge interests in VCs.