Microsoft Offers to Buy Yahoo for $44.6 Billion

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Watch for Windows Live

He also pointed out that gaining Yahoo's experience and staff in Internet research and development will help Microsoft advance its push to Web-enable its core products like Windows and Office.

"The Windows user wants to be live, the Windows experience needs to increasingly embrace the Internet. There will be a Windows Live, there will be an Office Live, as we continue to bring out innovations in which Office transforms and is transformed by the Internet," Ballmer said, in a clear reference to the rising popularity of Web-hosted productivity software like Google Apps, Zoho and Yahoo's Zimbra.

Microsoft has often been criticized for how slow it's moved to shed its legacy of desktop software to keep up with the innovations of Web 2.0. The addition of Yahoo could indeed help the company do that, if Microsoft takes full advantage of the deal and uses it to alter its current course, said Ron Schmelzer, analyst and managing partner at Zapthink.

"This has to be transformative across all areas of Microsoft," he said.

Ray Ozzie, Microsoft's chief software architect, said Yahoo will help the company fortify its search engine technology and advertising business, an area that he said is ripe for innovation, implying that Microsoft hasn't conceded defeat to Google in search.

"Search now plays a pivotal role in how we find information, how we research, how we shop. For the most part, search is still 10 blue links, but innovations will transform the search user experience and the way ads are delivered," he said.

Yahoo's Help Online

With Yahoo, Microsoft will also become a stronger player in the so-called social Web and will be able to innovate and develop better social applications and platforms not only in the consumer space but also in the workplace, Ozzie said, referring to the popularity of social networks and blogs.

"This social platform will progressively become a new entry point to all that the Web can offer. Before long, these same technologies will even transform the productivity side of our lives as the social platform enters the workplace," he said.

Chris Liddell, Microsoft's chief financial officer, said the offer translates into a premium of more than 100 percent if one takes into consideration that a large part of Yahoo's value lies in non-operating business, meaning essentially, in external investments. "When you look at our offer relative to operating assets it's greater than a hundred percent premium," Liddell said.

Johnson highlighted the importance for Microsoft of achieving scale in online advertising.

"In the online advertising industry, scale matters. Scale economics come into play in driving yield of ad serving whether it's search or non-search related ads. By aggregating a critical mass of inventory on a single ad platform it enables that ad platform to drive higher yields for the publishers," Johnson said.

Peter Sayer of the IDG News Service contributed to this report.

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