May 19, 2008 | posted by Michael Baxter in New Media | comments (0) |

Microsoft has got its fair share of problems, but right now it must be nice to be Steve Ballmer, the company’s CEO.     He made his offer, played true to his reputation of adopting a somewhat confrontational approach to business, and then just sat on the wings while Yahoo’s shareholders seemed to collapse into a kind of corporate equivalent of civil war.

On the one hand you have Jerry Yang, Yahoo’s boss, not to mention co-founder.    Yahoo is his baby, and it does appear, at least from the sidelines, that he is having that age old problem which afflicts all parents, he is not good at letting go.

Then again, when Microsoft turned away from their negotiations with Yahoo, after Yahoo asked for more money than its suitor had offered, Yang said, “We did not say it was a take-it-or-leave-it number in the sense that we would never negotiate any more… We were totally willing to do a transaction, and they walked away.”

On the other hand we have the rebels.    Just under two weeks ago, when the negotiations between the two companies broke down, some shareholders in Yahoo were furious.

The problem was this.  Microsoft offered $33 a share for Yahoo, and after the deal collapsed so did the share price.  Legg Mason, the second biggest shareholder in Yahoo, said that the company should now compensate shareholders for the fall in share price. It wants to see the company buy back shares. “It would be almost incoherent not to do so,” or so the Guardian quoted a spokesmen for Legg Mason. “You can’t maintain that $33 undervalues your company, have your stock trade below that and not buy back stock.”

But Ballmer said that it was all over, Microsoft had no more interesting in buying Yahoo – it was curtains for the deal.

And it was in this environment of shareholder discontent, and Ballmer’s apparent loss of interest – or perhaps feigned lack of interest, that Carl Icahn stepped into the breach.

Mr Icahn is one of those men who seems to have a permanent prefix to his name – in his case, it’s “notorious.”  He is notorious for his corporate raiding, and former bosses at Marvel Comics, Motorola and Time Warner will all testify to that.   With a personal fortune of around $14bn, he has got deep pockets too, and he clearly smelt money at Yahoo.

So he barged in on the dispute, bought himself a stake in the company worth around 2.5 per cent of the business and revealed plans to put his own board in charge. 

His management team would have, it appears, one brief – sell the company.

But who would want to own Yahoo?  Surely, this is not the kind of company private equity would want – so that leaves a business operating in a similar field – so that’s ah, Google, Microsoft or perhaps News Corp.

A merger with Google really would get the anti trust regulator’s goat, and News Corp has apparently nailed its colours to the mast in the Microsoft camp.

So if Icahn is successful, it will presumably be tantamount to lying back and saying to Microsoft, “Take me, darling.”

And throughout it all, Microsoft’s boss has maintained his poker face.

But then yesterday, Ballmer gave some ground.  “Microsoft is considering and has raised with Yahoo an alternative that would involve a transaction with Yahoo but not an acquisition of all of Yahoo.”  The official comment goes on, “Microsoft is not proposing to make a new bid to acquire all of Yahoo at this time, but reserves the right to reconsider that alternative depending on future developments and discussions that may take place with Yahoo or discussions with shareholders of Yahoo or Microsoft or with other third parties.”

The whisper says Microsoft is interested in buying Yahooo’s search engine.  Strange, because not so long ago Steve Ballmer said Yahoo had limited value without its search engine – so why Yahoo would agree to that latest offer is unclear.

What is not unclear is this.  Ballmer, by adopintg his take it or leave it approach, is winning this batttle.

Microsoft needs Yahoo; in combination with Yahoo, and perhaps with News Corp’s My Space thrown in, it may even be able to take on Google.      And Microsoft has got the cash too.

But right now, Ballmer must be watching the conflict at Yahoo with a kind of wry satisfaction.  

PS on May 6 we said “There is only one company in the world that can compete with Google and that company is called Microsoft. Only as a part of Microsoft, can Yahoo hope to have a viable model in the long-term. Microsoft surely knows this, and will surely be back – but when it does return, it will be laying a lot less money on the table.”  We don’t want to say told you so, but…

May 6, 2008 | posted by Michael Baxter in New Media | comments (2) |

And the man from Microsoft, he said “no.” And so that’s it, at the end of last week Microsoft walked away from the deal with Yahoo. Silly old Yahoo, it stuck out for too high a price. Microsoft had warned it was getting impatient, and so it was.

In the end it came down to just a few dollars. Microsoft upped its offer to $33 a share, from $31, Yahoo said it wanted $37, and the giant software company walked. Okay, the difference between $33 and $37 dollars might come down to around $5bn or so, but the two companies were in the same ballpark.

Yahoo’s shareholders are furious. Shares in Yahoo went crashing, falling back to $24, or so, and some are talking about suing the company. Legg Mason, the second biggest shareholder in Yahoo said that the company should now compensate shareholders for the fall in share price. It wants to see the company buy back shares. “It would be almost incoherent not to do so,” or so the Guardian quoted a spokesmen for Legg Mason. “You can’t maintain that $33 undervalues your company, have your stock trade below that and not buy back stock.”

And yet, look a little deeper, and a somewhat different picture emerges. This is what Yahoo CEO Jerry Yang said, “We did not say it was a take-it-or-leave-it number in the sense that we would never negotiate any more,” said the yang to Microsoft’s yin, and added, “We were totally willing to do a transaction, and they walked away.”

Analysts voiced surprise that the two companies were unable to do a deal, when they were so close. And yet, from another point of view, you can argue that Microsoft’s strategy has been totally predictable – and they are in fact playing their cards like a master poker player.

Microsoft’s Chief executive Steve Ballmer is known for his somewhat …, how can we put it, somewhat confrontational approach. Earlier last week he had warned that if Yahoo didn’t accept the offer, he might lower the price. Rumours suggested he was trying to elicit support from Yahoo shareholders. The truth is, Yahoo had been losing its battle. Google seems to be trouncing it at every stage. And then it resorted to canoodling with Google, getting its arch rival to sell some of its advertising. In the long-term, this is a risky strategy. Yahoo was an early investor in Google – and helped the company grow. In the end it turns out that Google was like a cuckoo in the nest, proving far too much of a handful for its earlier mentor.

But Yahoo has not learned from that lesson. Yet antitrust regulators will almost certainly stop the two companies ever coming together. A merger with AOL is on the cards – but, frankly, so what?

There is only one company in the world that can compete with Google and that company is called Microsoft. Only as a part of Microsoft, can Yahoo hope to have a viable model in the long-term. Microsoft surely knows this, and will surely be back – but when it does return, it will be laying a lot less money on the table.

April 23, 2008 | posted by Michael Baxter in New Media | comments (0) |

“Well, if a picture can paint a thousand words then why can’t it paint you?” said Microsoft when it was trying to woo Yahoo, and spoke sweet nothings in its ears.   Then this morning, Yahoo could respond by saying, “Look at this picture, and you can see why.”

Yahoo’s profits have soared – trebling to $542 million in the quarter just gone. If you want me, it can now say, well, you are going to have to up the price.

Yet, not so fast.  The profits were lifted by a $401m gain from the sale of its stake in Alibaba.com, the Chinese dotcom star.

And once you take that into account, Microsoft’s offer looks like it could be on, after all.

The yang to Yahoo’s yin, is its chief executive Jerry Yang, who said, “Our board and management team continue to be open to any and all alternatives, including a Microsoft deal.”

Microsoft had previously given Yahoo until this Saturday to make up its mind – after that point, warned the Microsoft boss, Steve Ballmer, the offer may be decreased in value.

The latest results are good enough for Yahoo to feel it may be able to call Ballmer’s bluff, but not good enough to put the potential deal off altogether.

Talk is that Microsoft may be teaming up with News Corp in the purchase of Yahoo – so with My Space thrown into the pot, that will make a mighty Internet empire indeed.

Yahoo’s other option seems to sit with a takeover of AOL, in combination with some kind of advertising tie-in with Google.

April 11, 2008 | posted by Michael Baxter in New Media | comments (0) |

Time waits for no man.  It does, however, wait for regulators.

There has never been an industry that can change so fast.  In any other industry, Yahoo would be seen as an up and coming and dynamic business.    But in the industry it operates in, it is positively old in the tooth, it bestrides the Internet landscape like the ruins of a once-impressive Roman temple.   

And now, for Yahoo, it is decision time.    The next few weeks could determine the power structure for the Internet for the foreseeable future – which in Internet terms, is about 12 months.

The trouble is this.     Anti-trust considerations, regulators, and the complexities of company law could delay things until next year.  And who knows what 2009 will bring.

It is beginning to look like a two-way battle.  On one hand you have Microsoft, and apparently News Corp.    Microsoft with its deep pockets, wants Yahoo.  Frankly, it needs Yahoo.    But it is getting frustrated.  It has even threatened to lower its offer if it doesn’t get a positive response from Yahoo by April 26. 

Yahoo CEO, Jerry Yang says he is prepared to do a deal with Microsoft, but his actions belie his words.  The talk is that Microsoft may go direct to the company’s shareholders – if you like, it is hoping to find the yin amongst these people, to Jerry’s Yang. 

Trouble is, the best time to elicit shareholder support will be at the AGM, not due until July 12.  Once all the complexities are then sorted out, the deal might not be completed until next year. 

Then, curiously, News Corp steps into the midst.  It is all a little ironic.    According to Californian mythology, Rupert Murdoch and Bill Gates used to do lunch, but such was their mistrust for each other, that they used to stare at each other, with long silences the order of the unhappy meal.

But now, apparently, News Corp may throw in its subsidiary My Space, and some cash, in return for a big slice of the action.     And what a threesome that will be.  Not since Caesar, Pompey and Crassus, will the world have seen such a triumvirate.

But on the other side of the mix, is the possibility of a merger with AOL, and a tie up with, the company that should not be named – so we will say it quietly, Google.

Now, a tie up with AOL does not inspire confidence.  The idea of these two companies working together reminds one of the former mighty Western Roman empire trying to stop Attila’s Huns.     But then, AOL’s parent company, Time Warner, will throw in some wodge – although, apparently, Yahoo will use this to buy stock, thus effectively offering shareholders an incentive to say ‘no’ to Microsoft .   So while such a deal may fend off Microsoft, it doesn’t bode well for the future.

The involvement of Google, however, gives the whole saga a new twist.  The idea is to let Google sell the advertising.  Something similar is already being tested, with Yahoo agreeing a two-week experiment with Google, in which the two companies share advertising space.

Mind you, inviting Google to join the party does smack a little of ancient Rome inviting the Goths in, to fight its battles for her.     That policy came unstuck; we are not so sure that Yahoo will retain any kind of hegemony in the longer-term.  Besides, regulators are not likely to be thrilled by the idea of the world’s two leading search engine companies working so closely together.

And therein lies the greatest irony of the whole thing.    Messrs Murdoch and Gates seem to be the Davids in this saga – Google, which has the motto: ‘never do evil’, the Goliath.   Regulators are more likely to side with little old Microsoft and News Corp.

But it does seem that whatever Yahoo does, it is unlikely that the once-mighty empire – which by the way was once offered the chance to buy Google for $3bn, will ever regain its former crown. 

In the battle between Microsoft, Google and News Corp, chances are, Yahoo will eventually be fed to the lions.

February 12, 2008 | posted by Michael Baxter in New Media | comments (1) |

And from things that lurk in the dark places of the earth, to evil empires.

As you know, Google has this motto, “Don’t do evil” – and yet in this era of Google-dominated search engine advertising, an era in which the advertising bucks sit with the companies which know the most about us – Mountain View California seems to be taking on the air of Mordor.

The likes of Microsoft and Yahoo, on the other hand, are increasingly looking as if they are a forlorn force of lightness, if you like, a fellowship, desperately trying to break the ring of Google’s domination.

But when forces come together to take on a common enemy, the union is not always so sweet.

A year ago, Microsoft and Yahoo had flirted with the idea of a merger. In fact, back during the latter days of 2006 and early 2007, the bosses of the two companies put their heads together – but at the time Yahoo said, “Now is not the right time from the perspective of our shareholders to enter into discussions regarding an acquisition transaction.”

At least that’s what Microsoft claimed when it made its offer to Yahoo last week. In its letter to Yahoo detailing its offer, Microsoft referred to this previous rejection. Yet once again, yesterday, Yahoo rejected its suitor.

Yahoo said the Microsoft bid “substantially undervalues Yahoo! including our global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential as well as our substantial unconsolidated investments”. And it said it “carefully reviewed Microsoft’s unsolicited proposal . . . and has unanimously concluded that the proposal is not in the best interests of Yahoo! and our stockholders”.

If these two companies were to come together, there is little doubt who the yang would be to Microsoft’s yin. For Yahoo boss, not to mention co-founder, is Jerry Yang, and yesterday he told staff at the company he heads, “The global online advertising market is projected to grow from $45bn in 2007 to $75bn in 2010, and our more-focused strategies position us to capture an even larger share of this market…Our global brand is a tremendous base from which to build leadership as the starting point for Internet use: Yahoo is one of the most recognisable brands in the world. We have some 500 million users (one out of every two Internet users worldwide). In the US we are number one in personalised home pages, mail, music, news, sports, shopping and travel.”

And yet, robust though this defence was, the fact is, Microsoft’s $40bn offer valued Yahoo shares at $31 a share, that is 62 per cent up on the share price before Microsoft’s overtures were first made.

Yahoo’s performance has not been so good of late – during the last eight quarters, year-on-year profits fell no less than seven times. In the last quarter, profits at $206m were not only lower than in the same period the year before, they were lower than the year before that, too.

Shareholders in the company must find this a tad frustrating – and while Mr Yang is making lots of noises about big plans, the company seems stuck in the slow lane of growth – at least in comparison with other dotcom firms.

It seems that a merger with Microsoft will at least create a company with a good chance of taking on Google.

In this case, however, neither the eyes of Google, Yahoo or Microsoft can see that far.

Google’s rise to power has been extraordinary – but it can reverse – who knows what other companies are out there sitting on new ideas which will enable them to jump in. And let’s face it, as Google, MySpace and Facebook have all shown, this is an industry that, for companies with the right product, has very low barriers to entry.

Mount Doom exists in all companies. According to a study carried out by the economist L Hannah in 1999, of the 100 largest US firms in 1912, 29 had by then gone bankrupt, 48 had disappeared, and just 19 of them were still in the US top 100. And that was over a relatively short time frame.

History appears to tell us that most of the world’s firms fail eventually – but for companies operating in the field that Yahoo, Google and Microsoft call their own, failure is likely to be more-rapid.

February 4, 2008 | posted by Michael Baxter in New Media | comments (0) |

Do you mind if we pucker up and blow our own trumpet for a second? Last May, we reported talk that Microsoft may be working on a bid for Yahoo. Microsoft, we said, seems to have no answer to Google, which was why a purchase of Yahoo could be just the company’s panacea.

Well, last Friday it was official. For that was the day when the world’s largest software company put its hands in its pockets, pulled out $44bn, and left it there on the table as an offer to buy the company with the world’s most popular web site.

It’s quite surprising, but Yahoo is still the most visited site on the Internet. The snag, though, is that Yahoo’s area of strength is not in the area where the money is. Instead, the bucks are with search. And you can see why. The strength of the Internet is that it allows advertisers to target their ads in a way that wouldn’t have been possible before. You sponsor a key word on Google, and you know that the people who click on your ad will already have typed a word into Google that you consider to be relevant to you.

This idea is not new to Yahoo. In fact it was offering customers the opportunity to sponsor searches even before Google, It’s just that in the battle to dominate search, Google has been walking all over Yahoo.

It’s shown up in the bottom line. Last week, Yahoo announced its latest quarterly results. Profits in its fourth quarter were not merely lower than its profits in the same quarter a year ago, but actually it even raked in more bucks in the fourth quarter two years ago too.

In fact Yahoo has now announced four successive falls in year-on-year quarterly profits.

Back in the fourth quarter of 2003, Yahoo’s profits were 2.7 times greater than Google’s. But within a year, Google had caught up. But, in the latest round of quarterly profits, Google’s profits came in at $1.2bn – no less than 5.8 times greater than Yahoo’s.

No wonder, then, that Yahoo is looking anxious. Its CEO, Jerry Yang, was appointed last year, but really, in making Yang the boss, the company was doing little more than an attempting to recapture past glories. For Yang also happened to be one of the company’s founders.

Then, there’s Microsoft. Sure, its latest profits came in at $4.71bn, dwarfing even Google’s profits, but then this does not quite tell the tale of the dominance it is used to. Three years ago, for example, Microsoft was making ten times more money than Google, Yahoo and Apple combined. Now, the ratio is more like two to one.

But what is really quite interesting about the whole saga, is the way many people seem to be portraying Microsoft and Yahoo as little more than two Davids coming together to take on the mighty Google.

Blog entries across the Internet are full of comments such as “down with Google”, while Google is seen by many as the home of the new evil empire.

Microsoft, for so long the whipping boy, for so long on the losing side of antitrust cases, and for so long seen as the evil empire, to be jeered at with every opportunity, is now the hero of the piece.

And even if Microsoft was to buy Yahoo, the new company’s share of the search engine market would still be around half of Google’s share. (And by the way, there would hardly be any pickings left over for anyone else – at least that would be the case in the US.)

But not everyone sees it in those terms. Not everyone sees Google, the company whose motto is “Don’t do evil”, as the bully.

Here is one argument put forward against the Microsoft–Yahoo coming together. One industry expert said the merger “raises troubling questions” and asked “could the acquisition of Yahoo allow Microsoft – despite its legacy of serious legal and regulatory offences – to extend unfair practices from browsers and operating systems to the Internet?”

So at last, Google has an ally. Well, alas not so. For the person who made those comments was David Drummond, Google’s senior vice-president for corporate development and chief legal officer.

It seems, though, this battle will come down to who the authorities are most worried about. Are they most worried about Microsoft’s strength, or do they see it as essential that Google is given tougher opposition?

The truth is, in the battle for Internet dominance, it is essential that there is no clear winner. And in choosing whether to allow the Microsoft–Yahoo merger, the authorities will really be looking at which company they consider to be the lesser of two evils.