In a flash of defiance, Yahoo has rejected Microsoft’s hefty $44.6 billion offer for the company, testing the ground for an even bigger bid.

It appears that Microsoft may be prepared to sweeten its offer, but not by enough to satisfy the Yahoo board, which the software giant may want to retain.

From Yahoo’s point of view, a further rejection could lead to a hostile takeover battle which it may be ill prepared to fight.

Microsoft is gambling that buying Yahoo would transform both companies’ attempts to overhaul Google in search and advertising.

The unsolicited offer represents a 62pc premium over the internet company’s recent share price.

However, in a Friday counter-attack, Google’s Chief Executive Eric Schmidt called Yahoo CEO Jerry Yang to offer help to stall Microsoft’s bid.

Yahoo is believed to be looking at other ways to survive this “unsolicited bear-hug”, including the emergence of a rival bidder or a business tie-up with Google that will allow it to remain independent.

The Wall Street Journal reports, “No serious alternative bids have emerged, and antitrust experts say Google’s latitude to do even a business deal with Yahoo is minimal because of likely regulatory concerns. At Microsoft, optimism is growing that the $31-a-share offer for Yahoo that it made public Friday will go through in the absence of rival bids …”

This could be a long war of attrition.

Speaking at the Web 2.0 conference in San Francisco, Microsoft chief executive Steve Ballmer claimed that the software company will acquire 20 companies a year for the next five years, in the range of $50 million to $1 billion.

Google has also acquired many technology companies over recent years — at least 10 companies in the past year, compared with Microsoft’s four. Yahoo has also acquired four. The stage seems set for an open season on new and exciting start-ups.

Unfortunately, Microsoft made a reputation during the 1990s for negotiating with start-up outfits only to pull back and launch its own competitor. Now, it’s said, with less time on its hands to keep abreast of nimble competitors like Google, developers may believe the software giant has changed its spots and needs them more than they need Microsoft.

We shall see.

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Microsoft has announced changes to Windows Live software, which you can see at Get Live.

Windows Live makes it easy to store and manage your communications and information, and share what’s going on in your life with the people who mean the most to you. Many of you have already tried out new versions of our web services – Windows Live Hotmail, Windows Live Spaces, Windows Live SkyDrive beta, and the new Windows Live Home page beta. These have been designed to work together with a common navigation, so it is easy to switch between your e-mail, your space, your files, and your photos—from any browser.

The company is releasing beta versions of “a new generation of Windows Live software designed for your Windows PC that makes it easier than ever to get connected to Windows Live or other services”.

This suite includes Windows Live Mail (Hotmail); Windows Live Photo Gallery, for photo sharing; Windows Live Writer, which allows you to publish to a blog; Windows Live OneCare Family Safety, parental controls; and a new version of Windows Live Messenger (8.5).

The company says, you’ll be able to install the entire suite of these downloadable Windows Live services at one time, from one place, “instead of going through separate installations for each service. Of course, if you don’t want the entire suite, you can still get each application individually”.

Can’t wait.

Windows Live is Microsoft’s big new idea for challenging the likes of Google in online software services.

Microsoft will now allow you to test out the new suite of Windows Live software at http://get.live.com/wl/all.

Windows Live makes it easy to store and manage your communications and information, and share what’s going on in your life with the people who mean the most to you. Many of you have already tried out new versions of our web services – Windows Live Hotmail, Windows Live Spaces, Windows Live SkyDrive beta, and the new Windows Live Home page beta.

[Now] we’re releasing beta versions of a new generation of Windows Live software designed for your Windows PC that makes it easier than ever to get connected to Windows Live or other services. This suite of software includes e-mail (Windows Live Mail), photo sharing (Windows Live Photo Gallery), a great publishing tool that lets you post directly to your blog (Windows Live Writer), parental controls (Windows Live OneCare Family Safety), a new version of Windows Live Messenger (8.5), and more.