Microsoft today withdrew its bid to acquire Yahoo, opting against raising its offer $5 billion more or pursuing a hostile takeover. Microsoft CEO Steven Ballmer, in a letter to Yahoo CEO Jerry Yang, said he was concerned that Yahoo would take actions that would make the company undesirable to Microsoft. Of particular concern: Yahoo's decision to test Google's search ads on its own results pages, and the possibility that Yahoo would work more closely with Google on paid search.

Microsoft and Yahoo continue to negotiate heavily through the medium of the Wall Street Journal, forcing reporters Kevin Delaney, Matthew Karnitschnig, and Robert Guth into spastic repetition of the word "could." Microsoft could announce it's backing out of the deal, we heard yesterday. The word this morning is it's leaning toward going hostile as early as today, but "could change tack." Meanwhile, Yahoo could announce an expansion of its Google search ad trial by next week .

To help monetize its substantial U.S. readership, Times Online has set up an ad-sales office in New York, reports NMA.co.uk. The office will work closely with News Corps's recently acquired Wall Street Journal, and offer cross-selling advertising opportunities across both publications in recognition of the demographic overlap of their readerships.

Small and mid-tier businesses have long gravitated towards direct response marketing like yellow pages ads and dedicated phone numbers on late night cable ads. Startup Mixpo hopes they'll want the same action-oriented approach when it comes to Web video. Online video advertising "is going to start going in that direction," suggested MixPo President and CEO Anupam Gupta.

Google lined up nearly 70 artists, fashion designers, and other creative types to contribute art work for iGoogle pages. The move appears to be just another sign that Google is working to make its site a destination. Marissa Mayer, Google VP, search products, unveiled iGoogle Artist Themes at a reception Thursday night in Manhattan's Meatpacking District, a few blocks away from Google's NY headquarters. Notable contributors include artist Dale Chihuly, U.K. rock band Coldplay,

Media executives at "The New Kings of Media" breakfast in NYC debated the future of user-generated content, including who will pay for the stuff. John Rose, managing director of the Boston Consulting Group, had an interesting theory. He sees UCG heading into two directions: public and private content. In most cases, content developed and viewed by the public will have to be ad supported, he said,

As expected , Google has begun offering TV ad production and placement services to all AdWords advertisers. The public launch indicates the company has partially resolved the inventory problems that plagued the program in its early months, though it's still only pushing ads to customers of its DISH and Astound cable partners. Google's demo, viewable here , shows how advertisers can choose programs and networks, fix day parts, secure production services, and schedule campaigns.

A day after Senator Barack Obama denounced his former pastor and his statements, a search for "rev. wright" brought up these sponsored results: The first to appear comes from PreachingSermonsToday.com. The site says it has over 300 sermons for sale, including the Rev. Jeremiah A. Wright Jr.'s " The Audacity to Hope " speech. It's available as a Word file for $4.95. Another paid link, labeled " The Audacity of Hate ,

IAC's media and advertising revenues enjoyed a Q1 boost thanks to the company's renewed ad partnership with Google. Ask.com improved both its revenue per query and overall revenues during the period, "even excluding the benefits of the renewed contract." However it's clear from IAC's statement that the company's buddy up in Mountain View deserves much credit for its solid search performance, especially considering total queries were down.

Curbed Network, an urban real estate blog, takes possession of Gawker Media's Gridskipper travel blog tomorrow. On the phone with Curbed president Lockhart Steele today, he mentioned Gridskipper will go into "quasi-hibernation" until it relaunches before Memorial Day. )Steele is Gawker's former managing editor, while Gawker's Nick Denton has a stake in Curbed.( Count on Gridskipper, billed as "the urban travel guide," to pare back its coverage of smaller cities such as Austin,

The MET in NY has a special exhibit right now Jeff Koons on the Roof , which possibly I can see a glimmer of from the roof of my building. Possibly that's why Google's doodle of the day is inspired by the work of the same artist. Google has collaborated with almost 70 artists to create iGoogle art themes. Artists, designers, rock stars, pop stars, dancers, and athletes are involved: Jeff Koons, Dale Chihuly, Coldplay, Diane von Furstenberg, Dolce & Gabbana,

Shouldn't marketing be more than just going through the motions? Over coffee the other day, one of the top e-mail consultants in the country told me about a surprise revelation from a client, one of the major broadband providers in the country. She's charged with an e-mail retention program aimed at the telco's broadband subscribers. So naturally you'd think that the more subscribers who re-upped their annual contracts, the better the program was performing, right?

This in from Hitwise: Twitter, a social network/micro-blog, has seen traffic climb 60 percent over the past month. Hitwise puts Twitter's size into perspective. Even with all its growth and buzz, Twitter's still tiny. Hitwise stats show Twitter is No. 439 among all social networks and forums, and No. 4309 among all categories of Web sites. Still, Twitter's potential impact on brands should not be overlooked as Pete Blackshaw points out in his ClickZ column,

Except when they are. Planned Parenthood nails the sex ed instructor shtick with a new video site at TakeCareDownThere.org . It's funny and filthy stuff, just the way teenagers like it. Bonus points for use of "blow-jays.

Rockstar Games released the fourth installation in its Grand Theft Auto franchise today, an d the game's soft porn Web ads are popping up in some odd places. See exhibit above. Two ClickZ reporters spotted this one on the Times home page just now, suggesting its not targeted on behavior.

Its acquisitions of Digitas and Business Interactif last year helped boost Publicis' digital revenues to 18 percent of the total pie in Q1 as the holding company continues to expand online and in emerging markets. The strongest growth rates were in its digital businesses, which soared over 20 percent, followed by media activities. That said, the quarter just ended was a fairly quiet one for Publicis on the digital front,

Advertising network Adify is being acquired by Cox Enterprises for $300 million, the Associated Press is reporting. The deal is said to be announced today. "We're absolutely convinced at Cox that online revenue is continuing to grow," John Dyer, Cox executive vice president for finance, told The Associated Press. Adify is one of many ad networks that have emerged over the past year.

Retailers promoting Earth Day in their e-mail messages this year increased to 16 percent, up from a measly 4 percent in 2007. That trend was noted by RetailEmail.Blogspot , which tracks the e-mail marketing campaigns of more than 100 large online retailers. Tactics varied among retailers. Some such as Banana Republic donated a slice of sales to green charities; others such as OfficeMax promoted energy-efficient products, said Chad White,

"The next great network will not be televised." With this, and other grandiose pronouncements, Warner Bros. Television Group unveiled two major new broadband sites, a couple of virtual worlds, and named some of the advertisers that will support the launch. The WB.com , which comes out of beta in August, will be an online video-on-demand network featuring both library content and original Web productions. "We're in the digital storytelling business," noted Warner Bros.

Barack Obama's campaign paid over $145,000 to local media buying firm Centro in February and March, according to FEC filings. The Illinois Senator's camp paid the Chicago-based company $138,000 in February. My guess is that money went towards a pre-primary effort aimed at Texas and Ohio voters in February. The campaign went through Centro to buy homepage placements on Texas and Ohio newspaper and TV sites. In addition to purchasing media for the effort,