Yahooglesoft

Microsoft to acquire Yahoo! for about $45bn. Wow indeed. So that is how Steve Ballmer expected to get Microsoft generating 25% of its revenues from ads after all. It immediately gives Microsoft and Yahoo! pre-eminence in online display (in the UK, at least, I don't have US or global figures), especially when you factor in a combination of the Blue Lithium and DrivePM ad networks as well as whatever you think Yahoo!'s ad exchange RightMedia might be worth.

Which might be interesting, but then again Microsoft and Yahoo! were already pre-eminent in the display market. Combining the number one and two players doesn't get them much ahead of where they were: automatically on most buying rosters to reach what is still one of only a handful of genuinely "mass" online audiences. When the dust settles the only substantial change they capture in display might well be a cost saving from merging teams plus a marginally weaker negotiating position with buyers as the two leading mass networks become just one and buyers inevitably look harder for alternatives.

As for search - as Paidcontent reports, Google has the market sewn up with 74% of UK search traffic against a combined 8.4% from a combined MSN/Yahoo!. More to the point, as search advertising grows Google continues to pick up effectively all of the growth - Efficient Frontier reported earlier in the week that in Dec07 97% of incremental search spend went to Mountain View. Neither AdCenter nor Panama have, in the event, made any dent in Google's lead.

Before the Microsoft offer there were calls for Yahoo! to turn over the task of monetising its search to Google, who could simply do it better. Being bought by Microsoft changes nothing about that calculation. Individually, neither of the players holds a candle to Google in search, and there is nothing in the deal to suppose that they will fare any better in combination.

Update: Paul K says that if its management doesn't want to do the dealcutting a deal with Google is all that will save Yahoo!. And why not. Yahoo! cutting a Google search deal now will probably create more value for Yahoo! as a business than letting itself be taken over by Microsoft and then having to cut a deal with Google anyway as part of the combined entity a couple of years down the road.