The bid for Yahoo will see Microsoft betting the future of the company on the Internet.
Microsoft's software is getting better and that means it is harder for users to justify upgrading to the latest version. At the same time, Google is provided a basic suite of office productivity software for free.
Now Google's software is basic, but good enough for most tasks, especially given that people generally spend 80% of their time using just 20% of the functionality in packages like Microsoft Office.
I'd argue that Google probably gives you that 20%.
Microsoft may well fear that users will realise they are only ever going to need that 20% of functionality. Why upgrade? Why buy Microsoft Office at all?
Microsoft is looking for a new revenue stream - as the traditional software market it has dominated to date, changes to reflect a different approach to buying software: a change from software as a valuable differentiator in business to one where software is simply considered a utility for the business paid through per use licensing.
The Internet is not a Windows platform and for Microsoft to succeed, it will need to embrace open Internet standards. At the same time, it will need to support existing users, who are increasingly choosing to run older and older versions of Microsoft products.