There are two very different battles going on between Microsoft and Yahoo. The more interesting side is the behind the scenes attempts to influence press and key shareholders. But this is also playing out publicly. Yahoo leaked this weekend that they were going to turn down the Microsoft offer, and today they came through with the formal rejection.

Microsoft responded quickly via a press release:

MICROSOFT RESPONDS TO YAHOO! ANNOUNCEMENT

Reiterates Full and Fair Proposal for Microsoft-Yahoo! Combination

REDMOND, Wash. — Feb. 11, 2008 — Microsoft Corp. (NASDAQ:MSFT) today issued the following statement in response to the announcement by Yahoo! Inc. (NASDAQ:YHOO) that its Board of Directors has rejected Microsoft’s previously announced proposal to acquire Yahoo!:

It is unfortunate that Yahoo! has not embraced our full and fair proposal to combine our companies. Based on conversations with stakeholders of both companies, we are confident that moving forward promptly to consummate a transaction is in the best interests of all parties.

We are offering shareholders superior value and the opportunity to participate in the upside of the combined company. The combination also offers an increasingly exciting set of solutions for consumers, publishers and advertisers while becoming better positioned to compete in the online services market.

A Microsoft-Yahoo! combination will create a more effective company that would provide greater value and service to our customers. Furthermore, the combination will create a more competitive marketplace by establishing a compelling number two competitor for Internet search and online advertising.

The Yahoo! response does not change our belief in the strategic and financial merits of our proposal. As we have said previously, Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo!’s shareholders are provided with the opportunity to realize the value inherent in our proposal.

On February 1, 2008, Microsoft announced a proposal to acquire all the outstanding shares of Yahoo! common stock for per share consideration of $31 representing a total equity value of approximately $44.6 billion and a 62 percent premium above the closing price of Yahoo! common stock based on the closing prices of the stocks of both companies on Jan. 31, 2008, the last day of trading prior to Microsoft’s announcement. Microsoft’s proposal would allow the Yahoo! shareholders to elect to receive cash or a fixed number of shares of Microsoft common stock, with the total consideration payable to Yahoo! shareholders consisting of one-half cash and one-half Microsoft common stock.

About Microsoft

Founded in 1975, Microsoft (NASDAQ: MSFT) is the worldwide leader in software, services and solutions that help people and businesses realize their full potential.

Yahoo says the offer is “massively undervalued.” Microsoft counters that it is a “full and fair proposal” and makes it clear that they won’t back down. Who wins? I still think Microsoft. But I love that Yahoo’s putting up a fight. And I love the ping-pong back and forth public statements, too.

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A forthcoming report by IDC estimates that online advertising in the U.S. reached $25.5 billion in 2007, and $7.3 billion in the fourth quarter.

It also puts Google’s market share of Internet advertising in the U.S. during the fourth quarter of 2007 at 23.7 percent, down half a percentage point from the third quarter. That is Google’s first slip in market share in two years. While Google’s overall U.S. sales (net of traffic acquisition costs that goes to pay partner sites) still went up 40 percent last quarter, it was not enough to keep its market share position compared to the overall industry. Damn those non-performing MySpace ads!

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Venture focused blog VentureBeat has taken a seed round of $320,000. Investors include Georges Harik and Aydin Senkut (both ex-Google); Mike Brown, Philippe Cases, MHS Capital, Amidzad and White Sand Group among others. VentureBeat joins GigaOm, who’ve raised two rounds, in the “funded blog network” category.

VentureBeat was founded in 2006 by ex-San Jose Mercury News writer Matt Marshall and has as its goal “to provide insider news and data about the entrepreneurial and venture community that is useful to decision makers.”

Marshall said that the money would be used to take the site to the next stage, and will also presumably be used to pay Dean Takahashi’s salary, a new high profile signing for VentureBeat announced last week.

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San Francisco based HotOrNot, founded by James Hong and Jim Young in October 2000, has been acquired, we’ve heard from multiple sources.

The buyers are investors connected with Avid Life Media, and paid somewhere around $20 million for the site. Hong and and Young have been taking money out of the very profitable business all along the way - which we reported was another $20 million or in May 2007. HotOrNot never raised outside funding.

The investors are creating a new company, called HotOrNot Media (new site coming soon), and they may be acquiring more properties as well.

I spoke with Hong a few moments ago, who confirmed the acquisition, which closed on Friday, but not the price. He says he and Jim will not be affiliated with the business on a day to day basis going forward. “We’ve been working on HotOrNot for seven years now,” said Hong, adding “It’s time to break up with this girlfriend.”

HotOrNot makes money from advertising, virtual flowers and a premium fee when users want to connect. They experimented briefly with a free model, but abandoned it last September in the face of overwhelming spam. Their annual revenue is estimated to be around $5 million, with $2 million in profit. According to Comscore, the site has around 5 million monthly unique visitors and 200 million page views.

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Still number one social networking destination MySpace has entered the casual flash games market with games.myspace.com.

The new site won’t win any awards for innovation, indeed it looks like a < $100 template buy from Digitalpoint, but ultimately that doesn't make a difference. Casual flash gaming combined with a youngish user base in the millions makes this a no-brainer in terms of going to be a success for MySpace. The only question is whether it will cut into similar sites that also offer flash gaming. It's certainly not in Kongregate territory yet, but there are plenty of smaller players with very similar looking sites and games. (Having said that, the first game offered on the site is Desktop Tower Defense, so maybe it is slightly higher up the tree).

Games.myspace.com offers a variety of multiplayer and single player games. A link can be found to the service from the front page of MySpace.

(thanks to Daniel for the tip.)

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RocketOn is a San Francisco based startup is making a 2D virtual world you can access across any site through an embeddable widget. They also just raised $5 million from the D. E. Shaw group’s venture capital unit, bringing total investment up to $5.8 million.

In its alpha state, this virtual world is simply a chat widget with some avatars you can walk around the screen with the click of a mouse. You can chat in real time with other people on the network and walk into a variety of themed worlds (chat rooms) with different features. It’s also obviously targeted toward kids, with its fuzzy-looking avatars and chat profanity blocker.

The more complex functionality includes friending, profiles, fame, and items. Each world has an object or character you can interact with (dancing stones, little monster, arcade games). Although, you can unlock more worlds and features by inviting more users.

However, their widget strategy strikes me as odd because it flies in the face of the safety centered walled gardens other kid oriented sites have built to keep kids safe (Club Penguin, Webkinz, and others).

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On the evening of March 6, 2008 I’ll be moderating a Churchill Club panel discussion in San Francisco on “Bootstrapping As A Start-Up.” Participants include Sean Byrnes (CEO Flurry), Craig Newmark (Founder Craigslist), Gabe Rivera (Founder TechMeme), and Stephen Weir (CEO MadeIt). The discussion will be around starting and growing a startup without outside funding.

This is a very small event - just 30 attendees total (hopefully they’ll video so that more people can watch it afterwards). The tickets are now gone - but the last five have been reserved for TechCrunch readers (and are free). If you want to go, please leave a comment below telling us why you think you would benefit from the event or have something interesting to contribute. Also, given that there are so few seats available, please don’t ask for a ticket unless you are sure you can attend. I’ll choose five in 24 hours.

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A “draft consultation Green Paper” to be released by the UK Government proposes a three strikes and you’re out law to combat illegal downloads.

Under the proposal, UK internet users will be monitored by their ISP’s for illegal downloads, and those caught will receive an e-mail warning in the first instance, internet suspension the second time, and then termination of their contract on the third strike. A similar law was proposed in France back in November 2007.

According to the BBC quoting The Times, broadband firms which failed to enforce the rules could be prosecuted, and the details of customers suspected of making illegal downloads would be made available to the courts.

The proposal faces several serious hurdles, such as attributing blame where internet access is shared, and then determining what is illegal content. Although BitTorrent traffic is primarily pirated material, there is also increasing amounts of legal material as well. Even this week a German record company offered its entire music catalog via Pirate Bay, so even using and accessing material from the most famed pirate site of them all may not actually constitute downloading illegal material.

The proposal unsurprisingly comes from the Music and Record industry, and although not yet law is being promoted by the UK Government as part of a “comprehensive plan to bolster the UK’s creative industries,” so looks like it will be implemented at some time in the future. [Techcrunch UK has more].

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We will hold tomorrow’s TC/CG/MC meet-up at the Cafe del Sol, Av Paral.lel 182, right down the street from the Fira. I’ve received quite a few emails already but RSVP with the subject line “BCN MEET-UP” to john @ crunchgear.com so I can put together a head count. Apparently a bunch of strangers in a law office wasn’t quite a good idea so I moved it to a hole-in-the-wall paella place with an upstairs. See you there at 6pm tomorrow, February 13.

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