The deal between Microsoft and Yahoo is very good for the paid search community. It creates a viable #2 competitor with enough market share to matter and a single API for developers to exploit. And Yahoo gets a few dollars for their retirement fund.

Some quick initial thoughts on the impact to each player in the game:

Search Advertisers

Advertisers get a single channel with 20-35% of the search traffic (depending on what and how you measure, and who you believe) which is *nearly* enough critical mass to actually spend time on. The core economic problem that Microsoft, and to a lessor degree Yahoo had before was that they didn't offer enough inventory to justify the effort of managing let alone aggresively managing large keyword accounts on their platforms. Many advertisers have 20% of their keywords or less running on these engines, and spend 10% or less of their management time on them. Bing and Yahoo still need to attract users or advertisers won't care. But at their current market share, or better yet if they can pickup 5 or 10%, there's enough there to be worth the effort to equalize campaign sizes and spend perhaps 30% of campaign management time on them.

Microsoft
Proof that being dumb and rich is a far better strategy than just being dumb. Nothing except their money has justified Microsoft's existence in this market until recently. Bing seems a reasonable search engine, but the AdCenter platform is pure Microsoft, meaning anything-but-cutting-edge and won't really offer even the baseline of what the market really needs until version 3.0. They seem to be trying, but in management tools, software and API features, and overall 'state of the art-ness' the teams over there need to re-triple efforts to deliver a platform and API set as rich as Google's. If they don't, users and developers who now have a large enough market share to bother, won't have enough patience to work around the limitations it takes to do so.

Yahoo
Yahoo can now spend their time and energy on being second or fourth best at a wide variety of internet content and web-app plays, perhaps to eventually sell each of those to richer and dumber rivals. Or maybe the idea was to get out of search so Google would want to buy all their other assets. This is the Sarah Palin move of search - quit and declare victory.

Paid Search Platforms and Tools
For purely selfish reasons, we're glad to see the Yahoo and Microsoft platforms consolidate. Every feature we add to ClickEquations that had to touch 3 different APIs took two or three times more time (at least) than if it only had to touch one. We can build more cool features to help advertisers faster now. As mentioned above, the AdCenter platform has plenty of Microsoft quirkiness to it, but we'll hope and assume they listen to the market and evolve. But in the case of API vendors we can do more with less.

Searchers
I believe that search result quality has a long way to go, that the loyalty Google has is to the brand and therefore ultimately could erode quickly. The Bing/Yahoo platform will likely very slowly pick up steam, but MS has to go do some HUGE bus dev deals to buy more distribution (AOL?) and continue to innovate on the results. Over time, they could substantially erode Google share, but the road will be hard and long. In this case, a perfect fit for Microsoft BUT they need to earn it they're not just going to be able to out-last the competition or wait for them to commit suicide this time.

Google
Enabling very weak competition to become marginally viable doesn't hurt Google in the short run. The fear of actual competition and even market share loss could very well spur the very smart folks at Google on to deliver even better stuff faster, as competition always does. So in the short and medium terms I'd say this is good for Google (and helps get the Gov't monkey off their back for a while). In the long run, I'd still bet on Google but Microsoft does have a lot of money and know how to compete.

But mostly, I'm just really happy we have one less API to support.