When I fired up my laptop on Friday, I was surprised by the first tweet that caught my attention in the Twitter - stream. "Microsoft and Yahoo...wow!". Wow was the right sentiment, IMHO... this is BIG news. So I surfed on over to the NY Times to figure our what was behind the headline. The letter sent by Microsoft to Yahoo is great read to get a sense of the tone set by Microsoft. Everything you need to know to get started is right there.

Thinking about this over the weekend, it became clear to me that this takeover attempt by Microsoft is ultimately their recognition that the search wars are over (note: they lost). Google is firmly in the lead and continues to create more real estate for their core ad business, with a mobile phone platform on the horizon.

In the meantime, Microsoft builds out content to support their core software business. So where does Yahoo fit? It seems to me they would firmly place Microsoft in a power position when it comes to community. Just look at Yahoo's purpose, "Powering communities to create indispensable experiences, built on trust." Then take a look at the community properties under the Yahoo umbrella (Flickr, del.icio.us, Upcoming and more) and it starts to make sense.

This acquisition also gives Microsoft access to Yahoo's over 500 million global users for their launch of Windows Office Live, giving them a strong position in the face of Google's (and others) online office-like apps. This is starting to look more like a showdown than a hoedown.

It's no surprise that Google is looking into how they can block this deal. The combined companies pose a great threat in advertising, online office apps and ultimately, search.

Interestingly, I think that last one (search) is the secret sauce of this deal. Microsoft picks up one the market leaders in social bookmarking (del.icio.us), which is where I think search is ultimately headed. Playing with a relatively new social bookmarking service this weekend (Mahalo), I was struck by how compelling it is to build a community of like-minded members and stockpile their favorite bookmarks. Now, I've been doing this for several years on del.icio.us, but the experience on Mahalo is far superior. Ultimately, Microsoft could give del.icio.us a facelift and, combined with the existing critical mass of users, quickly become the market leader in social bookmarking. Now that's something to get excited about!

What do you think? Is the Microsoft/Yahoo good for you?