Microsoft Corp. (NASDAQ: MSFT) bid $44.6 billion in cash and stock for Yahoo (NASDAQ: YHOO). This bid is 62% above Yahoo's closing price on Thursday.

This is great news for Yahoo shareholders since its new CEO is clearly in over his head -- flailing around with mediocre performance and an ineffectual combination of headcount reductions and investments in long-term goals that have little chance of actually being achieved. Like Rupert Murdoch's bid for Dow Jones, Microsoft's price is so high that it is hard to imagine another bidder topping it.

For Microsoft, the Yahoo bid is clearly focused on counteracting Google Inc. (NASDAQ: GOOG)'s dominance of online advertising. When combined with Microsoft's online properties -- which had about 8% share of total online spending -- with Yahoo, which had about 19% share, the two companies will have a combined market share of about 27%. This is much closer to Google's 32%.

But it's possible that Microsoft's move to consolidate its position is coming at a time when online advertising sales are slowing down as Google's results reported yesterday were disappointing. And the number of U.S. Internet queries dropped 3.9% last month. Nevertheless, Google dominates this slowing market -- accounting for 75% of U.S. search advertising in 2007, up from 60% in 2006.

The market likes the deal with Yahoo up 58% in premarket (getting close to the proposed bid), Google down 9.6% and Microsoft down 2.3%. It should be interesting to see whether any other bidders emerge for Yahoo.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.