Largest cleantech capital raise in 2007 was Israeli venture

"The largest cleantech financing round in 2007 was the $200 million first financing round by Shai Agassi's electric car venture Project Better Place, according to Dow Jones VentureSource.
Dow Jones VentureSource said that $3 billion was invested in 221 cleantech deals in 2007, 43% more than the $2.1 billion invested in 173 deals in 2006. The US accounted for 83% of the capital raised, at $2.52 billion, 79% more than in the preceding year. Cleantech accounted for 8% of total venture capital investment in the US in 2007.
"

TechCrunch Rumor: Google To Buy Big Chunk of Yahoo Stock

"by Michael Arrington
Google is continuing to try to disrupt Microsoft’s bid for Yahoo, and, we’ve heard, may even be considering a bid to acquire a significant chunk of Yahoo’s stock (keep reading though - we’re calling this a long shot at best).
Google clearly wants to see the status quo continue in the search space, and would rather fight a fragmented market than a single, stronger, Microsoft/Yahoo. That’s why they weighed in shortly after the initial Microsoft bid, saying “Microsoft’s hostile bid for Yahoo! raises troubling questions.”
Sources with knowledge of the deal are saying that Google also hired veteran M&A expert George Boutros as Credit Suisse the day after the Microsoft bid was made, to advise them on how to respond to the deal. That advice, one source says, may be leading Google to place an unsolicited bid to acquire just under 20% of Yahoo’s stock at an inflated price.
The goal isn’t so much to close the deal, which would almost certainly be opposed by U.S. regulatory agencies. But rather to throw another curve ball at the Yahoo Board, which is already dealing with the Microsoft bid and a likely challenge to their board seats this June. If the Yahoo Board, particularly the outside board members, were preparing to fold to Microsoft, a Google bid might give them pause. And any delay buys Google time - during which other factors can come into play to stop the deal.

“It’s a relatively cheap way for Google to confuse the situation further, and, potentially delay or disrupt a Microsoft acquisition” said one advisor to the deal, requesting to remain anonymous.
While multiple sources have confirmed that Google is being advised by Boutros, only one is saying that Google might be preparing to place a bid in the next couple of weeks. Credit Suisse analyst Heath Terry said last November “Over time, Google will continue to gain share until they have effectively reached 100 percent.”
Arbitrageurs, who today hold as much as 20% of Yahoo’s stock during this risky period, have not heard this rumor, either, according to another source. These are the guys that hire private investigators to track executives and known advisors, monitor private jet traffic and otherwise gather information about possible M&A deals through any legal (and sometimes not so legal) means at their disposal. Generally they hear rumors first, and trade on the information before the press gets their hands on it. For example, some arbitrageurs say they had already factored in News Corp.’s possible Yahoo bid days before we broke the news. The fact that the arbitrageurs holding yahoo stock haven’t heard anything about this makes the rumor significantly less likely to be accurate.
Assuming Microsoft does not back away from its bid, look for them to nominate their own slate of directors for the Yahoo board a few days in advance of the March 13 deadline. Google, or anyone else who might try to disrupt this deal, will likely make their move before then.
Thanks to Nathan Lipson at
TheMarker (he’s currently shaking down sources in New York) for comparing notes with us on the rumor mongering."

MSFT acquires YaData

"The Israeli exit list for 2008 continues to grow. Microsoft (MFST) announced yesterday the acquisition of YaData (literally means “you knew” in Hebrew), a provider of advanced tools for the discovery of unique customer segments. Exact deal terms were undisclosed, but the deal is estimated to be in the $20-$30 million range according to estimates from Globes.



YaData’s technology will add advanced behavioral targeting tools and richer targeting capabilities to Microsoft’s Advertiser and Publisher Solutions group, allowing the software giant to deliver better targeted ads and connect with their advertisers in better, more engaging ways. Logistically, YaData’s technology and team will be folded into Microsoft’s R&D center in Herzliya, Israel.

In the official press release, Moshe Lichtman, President of the Microsoft Israel R&D Center, said:

The purchase of YaData brings the Israeli R&D center into the field of online advertising, which is undoubtedly one of Microsoft’s most strategic fields. This is a great example of how Israeli technology has considerable value that is contributing to our most important areas of development. In recent months, I have become familiar with YaData’s top quality personnel, and I am convinced that their contribution to the Israeli R&D center and to Microsoft globally will be significant.

Amir Peleg, CEO of YaData, added:

YaData fully believes in the potential of behavioral targeting to enhance the value of online advertising for publishers, advertisers and users. Microsoft has the resources to unlock the potential in YaData’s technology and create a truly innovative online advertising solution. We’re excited to see what the future holds.



While improving the ad targeting and ROI of the advertiser, Microsoft also addressed the consumer privacy concerns associated with the acquisition and mentioned that it will “remain committed to providing best-in-class audience segmentation and targeting without using personally identifiable information”.

Headquartered in Tel Aviv in an office of 18 people, YaData was founded in 2005 with seed investment from Oracle (ORCL) and Tnufa, Israel’s grant program. (As first reported by TechCrunch). In January 2007, it raised a series A of $4.4 million led by Giza Venture Capital and Ofer Hi-tech.

According to TheMarker, a few people achieved the Israeli version of the American Dream with this acquisition. The new millionaires are Amir Peleg, Prof. Rann Smorodinsky, formerly the co-founder of Unipier/Cash-U and Dr. Ishai Oren, who is curiously the author of two novels and a screen play. If you can read Hebrew, you’ll enjoy the profiles on the founders in TheMarker’s article."

TheLadders.com and WSJ partnership

"TheLadders.com, the world’s leading online marketplace for $100k+ jobs, announced a partnership with The Wall Street Journal to serve as a sponsor in the print edition of the newspaper and on its website, WSJ.com. To expand upon its previous two-year relationship with The Wall Street Journal, TheLadders.com has also signed on as the launch sponsor of the newly-enhanced CareerJournal section of the WSJ.com website.
The newly designed CareerJournal section of WSJ.com is free of charge and features expanded career content, including videos, slideshows, top-tier job listings, and tools for recruiters and employers. TheLadders.com partnership will include a mix of static placements in the print and online versions of The Wall Street Journal, in addition to static, rich text and video content on CareerJournal.
“The Wall Street Journal is such an esteemed brand and they are an absolute must-read for business leaders worldwide,” said Robert Turtledove, Chief Marketing Officer, TheLadders.com. “We like to think that in addition to sharing the same audience as The Wall Street Journal, TheLadders.com’s brand holds similar attributes of exclusivity and must-have content. We are honored to reaffirm our commitment to the publication and we congratulate them on the launch of the new CareerJournal; it is sure to be a major success.” "

NewVeeTV: TidalTV Raises $15M to Bring TV to Web

"
Advertising.com alums have raised $15 million from New Enterprise Associates and Valhalla Partners to launch an online video platform using premium television content called TidalTV (just a landing site for now, supposed to go into beta next month).
The company is to run traditional channels as well as specialized channels, such as a CSI-only offering, according to the Baltimore Business Journal. It hasn’t announced any content deals yet.
The service will be web-based but also controlled by a remote. TidalTV is saying it is more similar to Hulu than Joost. But since it’s using the language of traditional linear channels, instead of on-demand, it seems more like Zattoo in Europe. Once we talk to TidalTV hopefully we can sort that out.
With its heritage, TidalTV is especially focused on advertising, and promises targeted and interactive ads. Scott Ferber, co-founder of Advertising.com, founded the company, and Mollie Spilman, a former Advertising.com executive, is CEO. Bob Quicksilver, former president of network distribution at FOX, will serves as chief content officer."

Fundability raises capital and bridges the gap

"Start-Up TV Network Inc. today announced Fundability as its new company brand and the launch of www.fundability.com, a new web-based marketplace where investors and entrepreneurs make serious investment connections.

With angel investors and venture capital firms investing more than $50 billion every year in seed- to mid-stage companies, Fundability's online marketplace helps venture capitalists and angel investors find quality deal flow and accelerate the early stage funding process.

Fundability uses web video and rich media to showcase companies combined with due diligence tools that simplify investors' research and communications.

"We built Fundability with a hands-on understanding of early stage investing from both perspectives - the entrepreneur's and the investor's," said Steve Nilan, Fundability's CEO and co-founder. "We start with quality deal flow and qualified investors in a friction free environment where interaction is easy and painless. It's all about accelerating time to funding through better communications, VC-caliber diligence and syndication tools in a secure environment. It's just a better way to get deals done."

Fundability bridges the gap between the fast pace of entrepreneurial startups and the slow and inefficient fundraising process."

Motricity May Slash As Many As 200 Employees; May Move To Bellevue: Report

"Motricity, one of the biggest mobile content and applications firm in U.S. now after the buyout of Infospace’s mobile division last year, may now slash as many as 200 jobs out of its workforce of 650, reports WRAL, citing sources. Motricity is also considering moving its headquarters out of Durham, NC to Bellevue, Wash, where Infospace’s mobile unit was based.
This comes after a big round of funding as well, where it raised $185 million, out of which $135 million was used to finance the acquisition. The round was led by Advanced Equities, Carl Icahn and New Enterprise Associates. Steve Elfman, former EVP of InfoSpace’s mobile services business unit, and now the president and COO of Motricity, is based in Bellevue as well.
The combination of the two companies has resulted in significant duplication, the story says, and rumors have been going on for weeks internally, though no action has been taken yet. "

NYTimes: Trying to Put New Zip Into Moore’s Law

"Mr. Edelstein is leading a team of researchers from inside and outside I.B.M. in developing a new way to solve the problem: using “self assembling” nanotechnology to make better insulators, raising performance. In this case, self-assembly involves creating so-called airgaps, vacuums a few nanometers wide that keep the billions of tiny copper wires in a chip from touching one another, instead of putting down a layer of insulating material and trying to align it effectively at the nanoscale. It’s more efficient, and it means that I.B.M. won’t need to spend $50 million on photolithographic equipment.
A few weeks ago, Mr. Edelstein took me on a tour of the fab in East Fishkill, N.Y., that will be the first to use the self-assembly technique. While the technique is not quite done being tested, John E. Kelly III, I.B.M.’s senior vice president for research, says that “there is no question in our minds this is going to work,” and that I.B.M. will move to it by 2009, first for an existing high-end processor or a next-generation chip, then across its fabs.
Mr. Kelly says Mr. Edelstein has a “unique” ability to solve problems and work across the company to commercialize new technologies. In the last decade, he has led two other important breakthroughs, most notably the use of copper for the wires inside chips, replacing aluminum.
Each time, Mr. Edelstein has done it by working with a small group of two or three scientists to explore out-of-the-mainstream approaches to problems. He also goes beyond research, getting to know the manufacturing team to help him understand what it takes to get a novel technique into I.B.M.’s existing manufacturing process. (Becoming acquainted with the team is no small feat at a plant like the one in East Fishkill, which was designed to resemble an integrated circuit, creating an erratic hall structure that still befuddles Mr. Edelstein, even though he generally visits it once a week. ) "

NYTimes: Researchers Find Way to Steal Encrypted Data

"A group led by a Princeton University computer security researcher has developed a simple method to steal encrypted information stored on computer hard disks.

The technique, which could undermine security software protecting critical data on computers, is as easy as chilling a computer memory chip with a blast of frigid air from a can of dust remover. Encryption software is widely used by companies and government agencies, notably in portable computers that are especially susceptible to theft.

The development, which was described on the group’s Web site Thursday, could also have implications for the protection of encrypted personal data from prosecutors.

The move, which cannot be carried out remotely, exploits a little-known vulnerability of the dynamic random access, or DRAM, chip. Those chips temporarily hold data, including the keys to modern data-scrambling algorithms. When the computer’s electrical power is shut off, the data, including the keys, is supposed to disappear. "

News.cn: China venture capital favors outdoor media

"Almost one third of the venture capital (VC) investment in January, both domestic and foreign, went into outdoor media, according to China Venture, a financial consulting company.

There were three such investment contracts involving 63 million U.S. dollars, it said.

The investment, all of which funded outdoor advertising in areas such as residential and office buildings, rose from the fourth quarter last year when it stood at 43 million U.S. dollars over four contracts.

Venture capital, also known as risk capital, refers to investments in start-ups and small businesses.

Given the rapid development of China's outdoor digital media, there was still room to grow for outdoor advertising activities, such as posting billboards and television screens in buildings, airports, hospitals and hotels, said Liu Liang, a senior analyst with China Venture and one of the authors of the firm's report.

The report showed that total VC investments reached 235 million U.S. dollars in January, up from 190 million U.S. dollars in December. "

Venture Capital Investment in India Reaches a Record $928 Million in 2007

"Venture capitalists invested some $928 million in 80 deals for entrepreneurial companies in India during 2007, according to the Quarterly India Venture Capital Report published today by Dow Jones VentureSource. This was a whopping 166% increase over the $349 million invested in 36 deals in 2006 and easily the highest total on record for the region.

The report found nearly 48% of all venture financing deals in India were for Information Technology (IT) companies, as 38 rounds were completed, accounting for $384 million, more than India's entire 2006 venture investment total. The most popular recipients of venture capital in the IT industry were companies in the Web-heavy "information services" sector, which accounted for 22 deals and nearly $141 million in investment. Among the deals in this area was the $10 million second round for Bangalore-based Four Interactive, an online provider of local information on food, events, lifestyle, shopping and more.

"Service-oriented companies in India -- both in the technology fields and the non-technology areas of hotels, taxis and similar services -- continue to attract investment and this is likely due to their low capital requirements as well as to the rapidly emerging nature of the broader Indian economy," said Jessica Canning, Director of Global Research for Dow Jones VentureSource, "It takes relatively little money and little time for these kinds of companies to begin generating revenues and, because of this, Web-related and consumer and business services companies accounted for more than half of all the venture capital deals done in India in 2007."

Blu Ray Wins over HD DVD

"Toshiba Corp (Tokyo:6502.T - News) is planning to give up on its HD DVD format for high definition DVDs, conceding defeat to the competing Blu-Ray technology backed by Sony Corp (Tokyo:6758.T - News), a company source said on Saturday."

"The move will likely put an end to a battle that has gone on for several years between consortiums led by Toshiba and Sony vying to set the standard for the next-generation DVD and compatible video equipment.
The format war, often compared to the Betamax-VHS battle in the 1980s, has confused consumers unsure of which DVD or player to buy, slowing the development what is expected to be a multibillion dollar high definition DVD industry.
Toshiba's cause has suffered several setbacks in recent weeks including Friday's announcement by U.S. retailing giant Wal-Mart Stores Inc (NYSE:WMT - News) that it would abandon the HD DVD format and only stock its shelves with Blu-ray movies.
A source at Toshiba confirmed an earlier report by public broadcaster NHK that it was getting ready to pull the plug."

Bragster.com

"Bragster, a London-based site "for dares and social bets," announced Wednesday that it has secured $3.5 million in Series A venture cash. The funding round was led by none other than Intel Capital, the investment branch of the famed chipmaker.
The premise of the Digg-meets-Jackass-esque site is that members dare one another (or place open dares) to perform ridiculous feats, then insist on video evidence that they were completed. Bragster, co-founded by a former Morgan Stanley employee and an Amazon.com alum, provides prizes to some of the most over-the-top stunts and also sponsors contests like the "Undies at Uni Challenge," which appears to encourage college students to take their clothes off.
So what are some of the top bets and challenges on Bragster? One member has dared another to "slap someone around the face with a fish in a supermarket." O.K., I'd like to see that, however inappropriate it may be. Same thing with "dress like a Spartan and run around in the street shouting lines from the movie 300." Others, like "pour 2 mugs of boiling hot coffee on my laptop," start to make me uneasy. Call me old-fashioned, but somebody could get hurt. At least Johnny Knoxville occasionally informed his viewers that they shouldn't imitate him at home.
Then there's "I bet I can do 15 shots of tequila in 60 minutes." Um, that's called "really dangerous." I hope Bragster has good lawyers."

The Technology Chronicles : Founders sell HotOrNot $20M

"UC Berkeley grads James Hong and Jim Young have sold HotOrNot for a reported $20 million.
Hong confirmed TechCrunch's report report but not the $20 million figure. The buddies created HotOrNot, which allows users to rate people on a scale of 1 to 10, during the first dotcom wave in 2000, creating a social phenomenon. It reportedly inspired future Web sites, such as YouTube.
Since then, the San Francisco site has added other elements, including turning the site into an online dating service and, more recently, developing applications on Facebook.
HotOrNot was acquired by the same investors as Avid Life Media, who will create Hot Or Not Media and grow the company. Hong and Young will not be part regular contributors to new company. 'Next is just to hang out and help companies I've invested in for a while, then figure things out after a nice long summer vacation,' Hong said in an instant messaging conversation.
In his blog, he added, 'But all good things must come to an end. Eight years is a long time, and both Jim and I were mentally prepared to move on years ago.'"

VentureBeat: Top VC Trends 2008 IBM Venture Capital

"Throughout the course of the year, IBM’s Venture Capital Group meets with hundreds of VCs and portfolio companies here in the United States and around the world. Our ongoing conversations with all of these groups has given us quite a bit of insight into what the VCs see as attracting more attention in 2008. This time of year, there are as many predictions lists as there are VCs, nevertheless, here are the top technology trends (not in any particular order) we believe you’ll be hearing more about in 2008.

Green Datacenter. The “greening” of the datacenter will continue to be a top priority for corporations as the cost of simply powering the center begins to exceed the cost of the servers and devices in it. Key drivers to help reduce the overall carbon footprint and run more efficient centers will include intelligent sensors and advanced analytics to monitor and improve equipment utilization to reduce downtime and provide comprehensive operational visibility. Green datacenters are also increasingly becoming part of corporate social responsibility campaigns, so expect increased focus here.
Alternative Energy/Cleantech. In 2008, global interest in cleantech will continue to grow as competitive players emerge in unexpected geographies outside the United States. Beyond investment in alternative energy, there will be a great demand for technologies that allow energy consumers (businesses and homeowners) and producers (utilities) to monitor, manage, distribute and use energy more efficiently. Look for more investment in companies in the areas of energy efficiency, advanced water management, intelligent utility networks, energy caching and storage, and demand-side conservation and smart metering tools.
Digital Convergence/Communications. Expect to see more investment in wireless services that exploit emerging 4G capabilities such as smartphones with broadband data coupled with embedded GPS, as well as technologies like VoIP, WiMAX, and SIP. The next three years will be the tipping point at which a large number of enterprises move beyond proof-of-concept and begin to deploy these kinds of technologies.
The Mobile, Wireless (and Social) Web. Industry analysts are predicting that by 2010 there will be 1 billion people (almost a third of the world’s population) accessing the Web via a mobile screen. This is obviously game-changing. The social-community-based approach of Web 2.0 will increasingly become part of this mobile landscape in 2008. Ultimately, mobile communities can be connected with location-based services. You’ll not only be able to access a person’s MySpace or Facebook entry, but you’ll also be able to find out where they are–if they want to be found.
SaaS, Web as Platform & Cloud Computing. Software as a service (SaaS) is fast becoming a viable option in more markets, and larger enterprises are now evaluating where service-based delivery may provide value. Meanwhile, leading-edge companies are evaluating Web-based platforms that provide service-based access to a range of infrastructure services, information, applications, and business processes. As these Google-like “clouds” evolve and mature over the next 2-3 years, we’ll begin to see them strongly influence the next phase in enterprise datacenter architecture.
Web 2.0 Mashups & Composite Apps. Web mashups are fast becoming the dominant model for the creation not just of so-called “situational apps” but of full-blown composite enterprise applications built on leading-edge SOA (service-oriented architecture) foundations. Small and medium businesses, as well as enterprise customers are now formulating enterprise mashups. Widgets, small reusable programs based on Web 2.0 techniques, are rapidly emerging as the reusable, loosely-coupled components of the programmable Web. 2008 will be the year when we begin to see SOA join forces with increasingly popular Web 2.0 standards and technologies in the enterprise. Combining Web 2.0 for the agility and ease-of-use it brings to applications and services, and SOA for the rigor and governance it instills across the enterprise, is surely the best of all worlds."

Tech Trader: MSFT paid $500m for Danger --- watch yourself!

February 12, 2008, 5:26 pm
Update: Report MSFT Paid $500 Million For Danger
Posted by Eric Savitz
FWIW: GigaOm is reporting that Microsoft (MSFT) paid $500 million in its deal to buy Danger Inc., which makes the software for the T-Mobile Sidekick.
By the way, you know who started Danger, don’t you? It’s Andy Rubin, who went on to found Android, a startup which Google acquired; GOOG adopted the Android name for its own mobile phone platform. GigaOm speculates that Microsoft could open up the Danger platform to third party developers, and attempt to accomplish in mobile phones what it has in video games with the Xbox.

Analysts: 3G iPhone may reach users by midyear

"Users may see an iPhone with 3G technology in the next six months, a financial analyst said Monday, citing waning inventory of Apple's current iPhone and the increasing demand in Europe for 3G products."

"The iPhone shipments are likely to be weak during the March quarter, and inclusion of 3G technology in the phone could ensure that Apple meets its target of shipping 10 million iPhones in 2008, analyst Richard Gardner of Citigroup said in a research note on Monday. 3G is a high-speed wireless communications standard that provides broadband Internet capabilities to cell phones and mobile devices.

An iPhone upgrade to include 3G technology could help the company forge more relationships with carriers as it builds a European presence. "We believe that lack of 3G has been a significant headwind for iPhone in Europe where 3G is already pervasive," Gardner said.

During meetings with Citigroup, Apple reiterated its plan to introduce the iPhone into additional European countries and Asia by the end of 2008, Gardner said."

LATimes: Bid for Yahoo may spur deals for start-ups

"If Microsoft Corp. gobbles up Yahoo Inc., it would leave one fewer Internet giant to ignite a bidding war for young companies such as Meebo Inc.

But if Meebo's Seth Sternberg is worried, he isn't acting like it. "Freakin' awesome," was how he described his reaction to the potential merger."

"More churn in the market opens the door for a lot of innovation," said Sternberg, who helped start the 30-employee instant messaging company three years ago.

Silicon Valley is buzzing with debate over how such a blockbuster merger would affect the high-tech landscape.

Yahoo plans to reject Microsoft's $44.6-billion offer today, saying it undervalues the Internet company, a person close to Yahoo's management said Saturday. But many analysts believe Microsoft will sweeten its offer and close the deal, which would be the biggest acquisition in the software giant's 33-year history.

Start-ups play a key role in the ecosystem here. They are de facto research and development labs for bigger companies, which often capture innovations by acquiring small firms, said Jonathan Miller, a former AOL chief executive who is now founding partner of Velocity Investment Group.

"As they get bigger," he said, "they need to buy more."

There's no superstition that prevents people from talking about when and how a young company can cash in its chips. Buyout? Initial public offering? These ideas are woven into decisions about how much financing to take and from whom."

EETimes: VC trends in semis seen as 'troubling'

"Dwindling interest for venture capital funding in semiconductors could cause engineers and other talent to migrate and seek careers outside the industry, warned an expert in the field.
Shahin Farshchi, an associate partner with VC firm Lux Capital Management (New York), described the overall trends in venture capital for semiconductors as "troubling."

In fact, total venture capital funding for the semiconductor industry has been flat and hovered around the $2 billion level per year for the last several years, Farshchi said.


But in 2007, venture capital funding for the semiconductor industry is projected to fall by 10 percent over 2006, he said during a panel discussion at the International Solid-State Circuits Conference (ISSCC) here.

The problems are twofold. First, the investments are high--and continue to grow--for a new semiconductor startup, due in part to design costs and other factors, he said. Second, there is an increasing pressure among startups to "turn a concept into a product," he said.

What is the impact on flat-to-down VC funding for semiconductors? First, there are signs that more and more VC funds are moving from the U.S. to nations like China, India and others.

Second, and perhaps the biggest problem, is clear: lackluster VC funding could possibly cause "a migration of talent" to move out of the semiconductor industry and look for careers elsewhere, such as clean technology, he added"

MSFT and YHOO

Microsoft Corp. made an unsolicited $44.6 billion cash and stock bid for Yahoo on Friday, a deal that could shake up the competitive and lucrative market for Internet search.

The deal would pay Yahoo shareholders $31 a share, which represents a 62% premium from where Yahoo stock closed on Thursday.

Steve Ballmer, Microsoft's chief executive, called the move the "next major milestone" for the software giant.

"We are very, very confident this is the right path for Microsoft and for Yahoo," he said.

Ballmer, saying that Microsoft has been in "off and on" talks with Yahoo for 18 months, said he called Yahoo CEO Jerry Yang Thursday night to tell him about the bid.

Microsoft made the bid early Friday. In a statement, the company said the offer allows Yahoo shareholders to elect to receive cash or a fixed number of shares of Microsoft common stock, with the software giant's offer consisting of one-half cash and one-half Microsoft common stock.

Shares of Yahoo (YHOO, Fortune 500) shot up nearly 60% in pre-market trading on the news, while shares of Dow component Microsoft (MSFT, Fortune 500) tumbled 5%.

In a statement, Yahoo acknowledged receipt of the offer and said its board would evaluate the proposal "carefully and promptly."

Both Microsoft and Yahoo have fallen far behind rival Google (GOOG, Fortune 500) in the lucrative field of Internet search. Yahoo's earnings and share of the online search market have badly trailed Google.

In a letter it sent to Yahoo's board of directors, Microsoft disclosed it had explored a Microsoft-Yahoo deal a year earlier, only to be rebuffed by Yahoo, which said at that time it was confident of the "potential upside" for Yahoo from operational changes it planned.

"A year has gone by, and the competitive situation has not improved," Ballmer.

On Thursday, former Yahoo Chief Terry Semel, who opposed an earlier approach Microsoft made last year, resigned from the Yahoo board.

Yahoo announced Tuesday it would lay off 1,000 employees by mid-February, citing what CEO Yang described as "headwinds" facing the company. It also reported lower fourth-quarter earnings that still beat Wall Street's now modest expectations for the firm, but it gave a 2008 revenue forecast that disappointed analysts.

Talkback: Is it time for Yahoo to sell-out?
But even Google has run into recent problems. After the bell Thursday it reported earnings that fell a penny a share short of forecasts. The company reported a slowdown in its fourth-quarter revenue growth, attributed partly to difficulty selling ads on social networking sites.

Google shares have fallen 24% since hitting a record high $747.24 in early November. But Yahoo shares have lost more than a third of their value over the same period.

Still, online advertising, particularly ads tied to Internet search, is by far the fastest growing part of ad spending. That's caused problems for traditional media, which have seen ad spending fall.

Microsoft said it projects the online advertising market to grow from over $40 billion in 2007 to nearly $80 billion by 2010.

In the letter to Yahoo's board, Microsoft said a tie-up would achieve economics of scale while allowing combined research and development efforts to achieve breakthrough products, particularly in the growing areas of online video and mobile Internet connections.

Microsoft said it intends to offer significant retention packages to Yahoo engineers, key leaders and employees across the firm. It said it believes the proposed combination would receive all necessary regulatory approvals and expects that the proposed transaction would be completed in the second half of calendar year 2008.

"We have great respect for Yahoo, and together we can offer an increasingly exciting set of solutions for consumers, publishers and advertisers while becoming better positioned to compete in the online services market," Ballmer said in the company's statement.