Monday, March 31, 2008

Microsoft-Yahoo: Closer or Still Far Apart?

This is still the $41 billion question, I say.

Here's a video that provides some speculative insights on where the deal may stand.

I still think that this deal is good from Yahoo's point of view. Are they simply working out the finer details??

Friday, March 28, 2008

Third International Case Competition at Boston University

This year, we are hosting the Third Annual International Tech Strategy Business Case Competition based on a real live case from Ericsson. I briefed the teams this morning. We are so thrilled to host 16 teams (including Boston University). The case copetition blog is located here.
Presentations from the last two years have been first-rate and I am looking forward to seeing what the teams come up in terms of insights for the evolving multi-media marketplace.

Wednesday, March 26, 2008

Motorola's Governance Move--For Icahn's Sake?

Why did Motorola now decide to split itself into two parts--spinning off the unprofitable mobile phone (handset) business to investors (hopefully on a non-tax basis)? Well, there could be several reasons why Greg Brown, Motorola's CEO might have done this now.
One: To boost up Motorola's sagging share price but the market reacted very lightly boosting the stock by 27 cents to little over $10. That's hardly a ringing endorsement.
Two: To attract top leadership talent to the mobile phone unit so that it can strive to be #2 in a brutally competitive business. Samsung is the present #2 and it is unlikely that Motorola can regain the lost #2 spot anytime soon. If someone actually gets Motorola to be #2 by 2009, it will indeed be a great achievement! It does not look like Motorola has found such a person because the market would have reacted far more positively if the two announcements were made together.
Three: TO eventually sell the unit to Samsung or LG Electronics or some other Asian companies that may be hungry to use such an acquisition to enter USA (think Lenovo in the PC business!). US$ is weak and some companies may see this as a good reason to acquire US companies.
Four: To pacify Carl Icahn--who has sued Motorola to obtain internal documents and has insisted on such a split for sometime now. CEO Brown insists that this decision was independent of the pressures put on by Carl Icahn but that seems to ring somewhat hollow.
Motorola is in the midst of transformation.

Motorola needs more than a governance shift. The industry--including Nokia-Siemens, Alcatel-Lucent, Ericsson, Nortel and others--is in the midst of profound strategic shifts. Successful transformation calls for more than governance shifts--which may be necessary given Carl Icahn's moves but are not sufficient to develop a clear vision of the future.
Update: Carl Icahn's response is a further support to my argument that the move is reall for Icahn's Sake..

Microsoft-Yahoo Battle--It's still all about the money!

So, as we come to the end of March 2008, where are we on the proposed acquisition of Yahoo by Microsoft? As I noted in an earlier blog, it is (still) all about money. Reuters reported that Citigroup analyst believes that Microsoft will raise the bid.
The brokerage also raised its price target on Yahoo's stock to $34 from $31, saying it believed Microsoft remained committed to its offer and "is capable of and willing to" increase that bid to conclude the deal.

I am not sure whether the Citigroup analyst is right or not about the $34 price target (I am loathe to accept any analyst predictions on target price after Bear Stearns collapse!). We will know in due course at what price the deal is finally struck. I still strongly believe that Microsoft's original offer is fair and that Yahoo really does not any convincing alternative bids that can be shown to the shareholders to woo them away from Microsoft's bid. Microsoft may propose a different financial structure that more accurately reflects the stock prices of the two companies and also takes into account Yahoo's latest performance results. But, in the end, it will be in the same ballpark--not significantly higher!
From my point of view, as I wrote earlier, Yahoo should refrain from any more delay tactics. A combined Microsoft-Yahoo entity still faces regulatory challenges and post-merger integration hurdles. Time's of the essence!

Friday, March 14, 2008

Bebo for $850M: Reshaping the Social Networking Space

The news this morning is that AOL (Time Warner) has acquired Bebo for $850 Million. WSJ reported that:
The transaction is rooted in the belief that social networking is becoming a major gateway for how people use media and services on the Web, including email, search and video. "People are using social networks as their prism to the online world," said Bebo President Joanna Shields, a former Google Inc. executive who joined Bebo last year and is expected to remain at the helm.
AOL's business model is under transformation. Their revenue-mix is shifting away from subscriptions to advertising. This bet is a further signal that they have to have global scale to compete against first-tier companies.

This announcement further means that Yahoo-AOL deal is unlikely. Rupert Murdoch appears to have walked away. Will Yahoo finally realize that it has few options left? When will the deal be consummated?

Microsoft--Yahoo Link: What's Next?

Wall Street Journal reported that Microsoft made another presentation of its vision for the combined entity to Yahoo executives on March 10. It is over a month now that Microsoft made its unsolicited bid to acquire Yahoo. Since then, the price has dropped (since Microsoft shares have been trading mostly lower); Yahoo has postponed the date to nominate Board members; and more importantly, no other plausible suitors have emerged. Rupert Murdoch said: “We’re not going to get into a fight with Microsoft, which has a lot more money than us.” So, there goes one serious alternative that Yahoo might have possessed.
Market Watch reported that: Unless Yahoo management has an alternative plan or is expecting stellar results, either of which we see as a remote possibility, this strategy opens up a risk that Microsoft could withdraw its bid and reinstate it later at a lower price," analyst Jeffrey Lindsay of Bernstein Research.... Bernstein added, however, that he expects Yahoo to report "another mediocre quarter."
If Yahoo played its cards wrong, it could end up getting a lower value. Then, Yahoo shareholders will be really displeased. Yahoo managers may get de-motivated and the combined entity (which relies mostly on the creative ability of its people--whose compensation may be tied to the upside of Microsoft stock!) may not have the collective capability to develop a coordinated strategy to fight Google (which incidentally is a step closer to acquiring DoubleClick).
One month may not be a longtime for negotiations to combine physical assets but is an eternity when striving to pool knowledge assets to compete against a formidable leader such as Google. Yahoo may lose talent and so could Microsoft.
Yahoo should now declare that Microsoft's offer is fair, open its books in good faith. Then, explore if it can get a higher price by showing Microsoft its hidden jewels. I believe that if Microsoft were to up-end its offer, it will be because Yahoo has under-leveraged hidden assets that it could not value from the outside and not because there are competitive offers that top Microsoft's offer of about $41 Billion.

Yahoo--Make up your mind. Delay only weakens you and the combined entity.

How strong will Yang & Co. be after the results of Q1 2008 are declared? Will they still claim that Microsoft undervalued its assets? I doubt it.

Tuesday, March 11, 2008

Facebook--How far can it go?

Here's an interesting video about why Mark Z. turned down the $1 Billion from Yahoo.

Friday, March 7, 2008

Steve Jobs, John Doerr and the iPhone Ecosystem

I have always maintained that Apple's future success depends on its ability to orchestrate the iPhone business ecosystem if it is to become more than a niche player. With iTunes and iPod, Apple evolved from being a niche player to be a mainstream player in the music sector. The critical decision was to make iPod and iTunes compatible with Windows. In doing so, Apple could potentially include and involve the multiple millions of Windows users--without such a large network to tap into, Apple would have been a marginal player in music.
Now it is trying to be a rule-maker in the smart phone sector using a different approach: It is linking with John Doerr of Kleiner Perkins (the company that funded Amazon, Netscape and Google). The VC firm has established a $100 million fund (dubbed the iFund) to spearhead software development. This fund will prime the network in terms of motivating the developers to write applications for iPhone.
Steve Jobs laid out the iPhone Software Roadmap on March 6. Time will tell if Apple succeeds with iPhone and be a viable competitor to RIM (Blackberry) and Microsoft (Windows Mobile), not to mention Symbian and Palm.

Apple's move shows the importance of priming the network through investment dollars to gain preferential attention from third-party developers. The incentive has been announced. We will wait and see how the developer community responds.

Update: March 13, 2008
Here's a good video

Thursday, March 6, 2008

Yahoo's Delay Tactics is Simply Wrong

Yahoo is floundering in the face of getting what I think is more-than-fair price to be acquired.

First, it says the price is too low and floats an 'acceptable' price. Microsoft does not counter offer.

Second, it tries to explore other possible avenues to see if it can get a reasonably competitive offer. It does not get anyone to make an offer anywhere close to the Microsoft offer.

Third, it tries to find creative ways to combine pieces of TimeWarner (AOL), NewsCorp (MySpace) and perhaps others that may not be publicly disclosed to show its shareholders that its value is much more than what Microsoft offered. Nothing remotely close in terms of a viable business model.
And Now...
Fourth, Yahoo has mended its bylaws to extend the deadline for nominating new board members. It is afraid that the shareholder--who have already started filing law suits--may accept Microsoft's point of view.

I--for one--believes that Microsoft offered a fair (may be bordering on excessive) price to acquire Yahoo. In this industry--more that anywhere else--timing is critical. If Microsoft-Yahoo as a combined entity is to be competitive against Google, it must act fast. Real fast. Post-merger integration will not be easy--it is not about combining factories and supply chains to gain economies of scale in production. It is about combining smart talent and R&D proficiency to reap economies-of-expertise in delivering software-enabled services in a new marketplace. Protracted delays will diminish the potential synergies of the combined entity and dilute the value to yahoo shareholders--who will receive part of the purchase price in Microsoft stock. So, it is better to figure a way to make it happen or both should walk away from the deal. Nuanced boardroom games will hurt both and only help Google to march ahead.

So Yahoo--Why are you kicking the gift horse in its mouth? I am not saying that this is best for Microsoft but for Yahoo shareholders, this is a sweet, sweet offer.