The hostile takeover bid by Microsoft to buy Yahoo! is a clear sign that Microsoft is now ready to take Google’s place in the internet advertising and search race. With this offer, Microsoft is clearly saying, “times have changed”. Microsoft has been the undisputed leader in the PC business and, like IBM before it, has found itself competing with a once unknown, but now a dominant player in Google. Although Microsoft’s operating principle was never to buy its way into a market, the 62 percent premium it is willing to pay for Yahoo's shares clearly signals it means business.

The question is of course--will a combined Yahoo/Microsoft make a difference? And, more importantly, who will it make a difference for? For Microsoft? For large advertisers? For small advertisers?

Imran Khan of J.P. Morgan Securities said in a research note that "Yahoo is better off inside a larger company with (a) strong balance sheet and technology", noting that a merger of Microsoft and Yahoo could give them the scale, in terms of search traffic, that they need to compete against Google and provide a boost on the ad side. "A combination of Yahoo's relationships and Microsoft's applications and devices could create a very well-positioned competitor" for Google, he added.

Right now there are three search giants, and very soon, there will be two. One less competitor.

Large advertisers tend to be bulletproof to these kinds of seismic shifts and consolidations. Paid search advertisers have always been reliant on Google, Yahoo and MSN (the second and third tier blind ad networks never had chance), and once this acquisition is complete, they still will be, but they can afford it.

The constituency I really wonder about is the small advertiser:

More consolidation means more bidding, which means more pressure on pricing, which might drive advertising costs to where they could become cost prohibitive for small and mid-size businesses. I expect smaller advertisers and publishers who rely on the Internet as a cost effective medium to promote and sustain their business, could be the first to feel the effect of a Microsoft-Yahoo deal, should costs increase as often happens when buyers suddenly have fewer choices in the market.

This move holds many clear benefits for Microsoft. The acquisition will most certainly extend Microsoft’s consumer audience. Yahoo offers great brand value and good paid search with Panama. And the combination with MSN’s algorithmic search can translate into a very strong total package.

One more area I see this acquisition affecting is the role display advertising will now play, in the online marketing mix.

Display advertising requires transparency, predictability, and no black boxes. At TRAFFIQ we expect that smart advertisers and publishers will seek to join an advertising exchange, selecting a partner that is transparent, supports desirable media, and offers a platform that is fair to both the advertisers and the publishers. Regardless of media consolidation and M&A activities, online businesses will always look for the most efficient ways to build their business online. I believe that ad exchanges like TRAFFIQ have what publishers and advertisers alike need to prosper.