Oh dear, poor Yahoo.

If you are a Yahoo shareholder, then brace yourself to lose quite a
hefty chunk of your investment when US stock markets open on Monday. If
you work for Yahoo and have stock options, you will be smarting as well.

And if you work for Yahoo's legal team, you may want to get ready for a
deluge of lawsuits from enraged shareholders, who have seen a 70% boost
to their investment evaporate. There are not many companies in the world
who can both afford to buy Yahoo and possibly get the approval of
competition watchdogs to do so.

Yahoo's top managers, however, will try to fight back, striking a series
of alliances - including with Google, especially on advertising - to
find new revenue streams.

Software giant Microsoft has dropped itsthree-month-old bid to buyinternet firm Yahoo because the two sides cannot agree on an acceptablesale price.

Microsoft chief executive Steve Ballmer formally withdrew the offerin a letter to Yahoo chief executive Jerry Yang.

Mr Ballmer said Microsoft had raised its original offer from $44.6bnto $47.5bn (£24.1bn) - $33 per share.

But he added that Yahoo had insisted on at least $53bn, or $37 ashare - more than Microsoft was prepared to pay.

The software giant had wanted to do a deal to be able to competewithGoogle, which dominates the lucrative market for internet advertising.

This market was worth $40bn in 2007 and is predicted to double to$80bn by 2010.

'Distraction'

In his letter to Mr Yang, which has been posted on the Microsoftwebsite, Mr Ballmer said: "We continue to believe that our proposedacquisition made sense for Microsoft, Yahoo and the market as a whole.

"Despite our best efforts, including raising our bid by roughly$5bn, Yahoo has not moved toward accepting our offer.

"After careful consideration, we believe the economics demandedby Yahoo do not make sense for us, and it is in the best interests ofMicrosoft stockholders, employees and other stakeholders to withdrawour proposal."

Mr Ballmer also told Yahoo's boss that he would not pursue hisoriginal plan B of launching a hostile takeover battle, because Mr Yangwould "take steps that would make Yahoo undesirable as an acquisitionfor Microsoft".

Mr Ballmer told his own employees that Microsoft could achieve itsgoals without Yahoo, albeit at a slower pace.

Yahoo maintained that Microsoft had offered too little to buy thecompany.

In a statement issued after Microsoft's withdrawal, Yahoochairman Roy Bostock dismissed the unsolicited bid as a "distraction".

Microsoft's shares closed on Friday virtually unchanged at $29.24.Yahoo's shares were $1.85 higher at $28.67 amid expectations of ahigher Microsoft offer.

The BBC's Peter Bowes says analysts believe the breakdown intalks may have an adverse affect on Yahoo shares and generateuncertainty among investors about the company's management.

By Jane Wakefield
Technology reporter, BBC News

The UK government has committed to endingdigital exclusion

Microsoft UK is developing a "senior PC", whichwill have a simple interface and be aimed at older users.

The PC will come with software that allows users to manageprescriptions as well as simplified tools for everyday use, such asmanaging photos.

The machine, which it is developing in partnership withcharities Age Concern and Help the Aged, is one of several projects thefirm is working on.

The plans were unveiled at a Digital Inclusion conference in London.

Social software

In the UK alone, some 17 million citizens are described as"digitally excluded".

In the United States, Microsoft already offers a number ofso-called senior PCs, in conjunction with HP computers. It is not clearif the UK project is identical to the one in the US.

Other projects Microsoft is working on include an ad-funded PCand one that uses what it describes as a "social software licensingmodel".

In partnership with Milton Keynes council, this machine willcome preloaded with a "digital literacy curriculum" - a step by stepguide to how to get online, be safe and perform simple computer tasks.

Initially it will be given to a thousand households and this will begradually scaled up to 10,000.

Speaking at the National Digital Inclusion Conference in London,Microsoft's head of skills and economic affairs Stephen Uden laid outthe firm's vision for closing the digital divide.

"Reaching most of the final third will mean that we have tothrow out the rule book. We will only solve these issues by takingrisks and trying new things," he said.

"Some of the projects we are working on will work. Others willfail," he said.

No further details were available on the senior PC at this stagealthough it will be ready within a year, said Mr Uden.

Mobile phones

He also said that the problem will not be solved by PC access alone.

"We have to get away form the idea that everyone is going to geta PC. It is simply not easy enough to use or cheap enough foreveryone."

Digital inclusion translates tosocial inclusion

Instead many of the digitally excluded with be reached via mobilephones, digital TV and gaming consoles, he predicted.

Mike Hughes, head of BT's Inclusion Programme, said the firm hadprojects in London, Andover and Dorset where it aims to join together150 community centres.

It too will be handing out internet-ready PCs - 4,500 of them - tospecific community groups.

"Working with the government, local authorities and volunteergroups we aim to reduce the digital divide figure by 10% of the current34%," said Mr Hughes.

Delegates at the Digital Inclusion conference were angry at theslow pace of broadband upgrade and also the fact that, in some cases,BT charges business rates to community-based projects.

Mr Hughes promised to investigate the matter.

Creativity

The government is giving new impetus to the issue of digitalexclusion, recently appointing a Minister for Digital Inclusion andcreating the Home Access taskforce, which will see free PCs given tothe most needy.

Jim Knight, minister for Schools and Learners, said it should be apriority for government.

"Digital inclusion translates to social inclusion," he tolddelegates.

But some delegates urged more creative thinking from government onthe issue.

"There is a perception that if you nail someone... to the chairand teach them world processing the world will be a better place. Itwon't," said Kevin Carey, vice chair of the Royal National Institute ofBlind People.