In an audacious move at the end of last week, Microsoft has made an offer to buy Yahoo! for $US45 billion. This comes days after Yahoo! announced that they would be cutting around 1,000 jobs and reported a 23% drop in profits, so clearly Microsoft see this as a good time to make a move on a key competitor and to help them gain some additional share against Google. This story is likely to run for some time and much speculation is sure to be made about what Microsoft will do if they succeed with this acquisition.

At the same time Google was reporting fourth quarter figures that fell short of analysts' expectations, despite income still rising by 17% to $US1.2 billion for the period. Combined with the poor figures from Yahoo!, this may show signs of the Internet advertising market starting to slow down, particularly in light of the problems in the US economy and talk of a possible recession. Online search volumes in December were down and rising energy costs and a slump in the housing market may be starting to affect consumer confidence.