Below is the text of the letter that Microsoft sent to Yahoo's Board of Directors:

January 31, 2008

Board of Directors

Yahoo! Inc.

701 First Avenue

Sunnyvale, CA 94089

Attention: Roy Bostock, Chairman

Attention: Jerry Yang, Chief Executive Officer

Dear Members of the Board:

I am writing on behalf of the Board of Directors of Microsoft to make a proposal
for a business combination of Microsoft and Yahoo!. Under our proposal, Microsoft
would acquire all of the outstanding shares of Yahoo! common stock for per share
consideration of $31 based on Microsoft's closing share price on January 31,
2008, payable in the form of $31 in cash or 0.9509 of a share of Microsoft common
stock. Microsoft would provide each Yahoo! shareholder with the ability to choose
whether to receive the consideration in cash or Microsoft common stock, subject
to pro-ration so that in the aggregate one-half of the Yahoo! common shares
will be exchanged for shares of Microsoft common stock and one-half of the Yahoo!
common shares will be converted into the right to receive cash. Our proposal
is not subject to any financing condition.

Our proposal represents a 62% premium above the closing price of Yahoo! common
stock of $19.18 on January 31, 2008. The implied premium for the operating assets
of the company clearly is considerably greater when adjusted for the minority,
non-controlled assets and cash. By whatever financial measure you use - EBITDA,
free cash flow, operating cash flow, net income, or analyst target prices -
this proposal represents a compelling value realization event for your shareholders.

We believe that Microsoft common stock represents a very attractive investment
opportunity for Yahoo!'s shareholders. Microsoft has generated revenue growth
of 15%, earnings growth of 26%, and a return on equity of 35% on average for
the last three years. Microsoft's share price has generated shareholder returns
of 8% during the last one year period and 28% during the last three year period,
significantly outperforming the S&P 500. It is our view that Microsoft has
significant potential upside given the continued solid growth in our core businesses,
the recent launch of Windows Vista, and other strategic initiatives.

Microsoft's consistent belief has been that the combination of Microsoft and
Yahoo! clearly represents the best way to deliver maximum value to our respective
shareholders, as well as create a more efficient and competitive company that
would provide greater value and service to our customers. In late 2006 and early
2007, we jointly explored a broad range of ways in which our two companies might
work together. These discussions were based on a vision that the online businesses
of Microsoft and Yahoo! should be aligned in some way

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