Microsoft makes bid for Yahoo!

In by far the most significant move that Microsoft has made to gain a foothold in the search and advertising market, the company has bid $44.6 billion for the number 2 search giant, Yahoo! Inc.

Offering $31 per share, a full 62% over and above yesterday’s closing price, Microsoft is attempting to make it very difficult for Yahoo! to ignore the bid, presumably in the hopes that the combined forces of Yahoo! and Microsoft in the search arena can be a viable threat to Google, the company that currently controls ~60% of the extremely profitable market.

Yahoo! has struggled in recent quarters, both in financial terms and in a declining market share, and Microsoft’s MSN / Live search as of last quarter held a meager 3.55% of the market as reported by ComScore.

Advertising is the name of the game in terms of revenue generation for the search giants, and Microsoft has much to gain from Yahoo!’s Search Marketing solution. A solid rival of Google’s Adwords, Yahoo! Search Marketing provides many of the same features and has come a long way over the past year to make advertising easier and more effective. Microsoft’s adCenter has been easily recognized as the inferior of the three advertising systems, presenting difficulties primarily in usability and reach.

While Yahoo! evaluates and decides what course of action to take with respect to the bid, the rest of us will be waiting to see what implications the potential takeover would have in the search landscape.