(see The net of life: Reconstructing the microbial phylogenetic networkV. Kunin, L. Goldovsky, N. Darzentas, and C. A. OuzounisGenome Res. 1 July 2005. pdf)
Three mechanisms of horizontal (lateral) gene transfer are recognized: direct bacterial conjugation, bacteriophage mediated transduction between bacteria, and bacterial transformation by uptake of DNA fragments.
A major form of vertical gene transfer followed serial endosymbiotic events, in which ingested purple bacteria and Cyanobacteria became eukaryotic mitochondria and chloroplasts respectively. The ingested prokaryotes are believed to have relinquished certain genes to the nuclei of their host cells, a process known as endosymbiotic gene transfer.
The Woodstock of Evolution -- The World Summit on Evolution (ScientificAmerican.com): Margaret Riley is a colleague of Lynn Margulis at the University of Massachusetts-Amherst. She provided the commentary on Gogarten's presentation (Tree of Life or Fuzzy Bush of Life), suggesting that we need a modification of Ernst Mayr's definition of a species to accommodate microbes. Ernst Mayr defined a species as: 'A group of actually or potentially interbreeding natural populations reproductively isolated from other such populations.'
The problem with applying this definition to microbes is that separate species are not truly reproductively isolated, and yet they still retain distinct features that keep them phenotypically apart. 'Although horizontal gene transfer can and does occur, it does not obliterate the phenotypic groupings of organisms,' Riley concluded."