Analysts value Yahoo! at $50 billion and estimate the deal would give Microsoft just over a quarter of the search advertising market, with Google-DoubleClick controlling two thirds.

Acquiring Yahoo! would significantly boost Microsoft's capabilities to tackle the growing mobile market, but integration of operations could potentially present thorny cultural and technological challenges, says Datamonitor analyst Ri Pierce-Grove.

"Both Microsoft and Yahoo are strongly motivated to find ways to dethrone Google, the current market leader, and the combined mass of the two companies’ client and consumer bases could generate a viable competitor to Google on both the desktop and the mobile device," Pierce-Grove says.

"Microsoft, which has not historically emphasised acquisition as a growth strategy, made headlines with a recent acquisition of TellMe which made the company's intentions clear with regard to mobile search. In this context, acquiring Yahoo would significantly build out Microsoft's capacities, and allow it to move more aggressively into an expanding new market."

UPDATE: Microsoft offers $44 billion for Yahoo!

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