Why Microsoft made a move on Yahoo!

News that Microsoft has launched a $44.6bn bid for internet media player Yahoo! is the latest in a series of signals that the software giant has no intention of forfeiting the future of information technology to Google.

The rules of engagement are clear. If Microsoft, ­ a company built by Bill Gates on the decidedly old-tech business model of licensed office software, ­ can't compete in the Web 2.0 world of online lifestyle applications, social media and advertising, they'll buy companies that can.

The bid for Yahoo! Inc comes hard on the heels of a series of technology acquisitions by Microsoft. In December, the company picked up British internet mapping company Multimap for an undisclosed sum and spent $6bn on web advertising company aQuantive, in an effort to further boost an advertising presence already on the rise after high-profile advertising deals with Facebook and Viacom.

The aQuantive acquisition was Microsoft's largest to date, but it pales next to the $31 a share (a 62 per cent premium on the previous day's closing price) offer to Yahoo. Mapping and advertising are both areas in which Google dominate, and Microsoft is desperate to recover ground.

Yahoo! has been suffering in recent years at the hands of Google's seemingly unfaltering spending power and innovation. Microsoft's offer comes after news that Yahoo! is about to shed 1,000 jobs.

So what can Yahoo! offer Microsoft? Although Yahoo! is a distant second to Google in the competitive search sector, it's still second. Its main portal is the world's most visited website, the Yahoo! webmail service is slick and popular, and a series of innovative Web properties, including photo-sharing site Flickr, keep Yahoo! relevant.

If Microsoft can deal intelligently with the overlap, a Microsoft-Yahoo! deal is perhaps the nearest thing to competition Google's likely to encounter in 2008.