Microsoft--Facebook Connection Gets Closer and Deeper (?)

I have always felt that Microsoft was seeking the wrong partner in wooing Yahoo. After all, Yahoo had failed to capitalize on the potential and was losing ground fast to Google. The new kid on the block is Facebook--which is winning handsomely against MySpace. And, Microsoft essentially provided a public valuation for the privately-held Facebook when it invested $240 Million in October 2007. Essentially that investment valued Facebook then at $15 Billion. At that time, Kevin Johnson--who has since left Microsoft--made the following comments:

“Making this investment and expanding this partnership will position Microsoft and Facebook to better take advantage of advertising opportunities around the world, and is a great win for not only for our two companies, but also our collective users and advertisers,” said Kevin Johnson, president of the Platforms & Services Division at Microsoft. “We have partnered well over the past year and look forward to doing some exciting things together in the future. The opportunity to further collaborate as advertising partners is a big reason we have decided to take an equity stake, and is a strong statement of our confidence in the long-term economics of this partnership.”

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On the day after Kevin Johnson's departure, Microsoft announced that it is deepening the relationship with Facebook. Satya Nadella made the following comment as part of Steve Ballmer's segment at the 2008 Financial Analyst Meeting today.

One last thing I wanted to also talk about is an extension of our Facebook relationship where we are extending it to Search and Page Search. We will be providing an API to Facebook where they will create a rich search experience, including a Web search for the Facebook users. And that's something that they will launch in the fall, working with us, and it'll carry both our Web results as well as our Page Search advertising. So we're excited about even using that as an opportunity to further extend the Live Search reach.

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To me, this is an important relationship that Microsoft should nurture and grow. It is potentially as important as the relationship that Microsoft had with Intel during the heydays of the Wintel architecture dominating the PC sector. Microsoft-Facebook could evolve to be a powerful social network advertising platform that could potentially attract Yahoo, AOL and others to be part of the ecosystem that might one day be a dominant credible competitor to Google. I think Microsoft can do without the distractions of Yahoo for now. This cooperation is worth watching and tracking.

Kevin Leaves and Ballmer Refocues

Kevin Johnson is leaving Microsoft to run Juniper. This is big news... A game-shifting news, I think. Fortune recently profiled him as the Man Who Would Run Yahoo. His departure signals a shift in strategy and tactics at Microsoft.

This also means that Carl Icahn will have a relatively uninterested lukewarm Ballmer when it comes to any discussions post August 1. It also means that Kevin Johnson calculated the odds of a credible alternative that Microsoft and Yahoo will combine in any meaningful way to achieve the requisite scale to be rather slim. he is moving to the infrastructure part of the network business--far away from the content and online advertising--possibly because of the complex non-compete clauses in his employment contract.
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What does this mean? I think finally, Microsoft will focus on its core and not on its periphery. The memo from Ballmer (reproduced below) seems to indicate that rather clearly.
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From: Steve Ballmer
Sent: Wednesday, July 23, 2008 4:30 PM
To: Microsoft–All Employees
Subject: FY09 Strategic Update

With FY08 complete, I want to discuss my priorities for the year ahead and share my thoughts about the key strategic topics that are on everybody’s mind, including Windows, competition with Apple and Google, our software plus services strategy, and Yahoo.

I also have news about an organizational change and a transition in our Senior Leadership Team.

First, I want to thank you for your hard work and the dedication you showed during the past 12 months. FY08 was a milestone year. Our revenue jumped $9.3 billion to more than $60 billion. Operating profit grew 21 percent to $22.5 billion.

These outstanding numbers are the direct result of your commitment to the priorities I outlined last July. A lot has happened since then, but our fundamental strengths, challenges, and strategic goals remain largely the same. Therefore, my priorities are consistent with last year. In FY09 we must continue to:

1. Invest in the right opportunities;

2. Expand our presence with Windows, Office, and developers;

3. Drive end user excitement for our products;

4. Embrace software plus services; and

5. Focus on employee excellence.

By focusing on these five areas, we can continue to grow revenue, increase profit, and expand our market share. These priorities are also critical as we work to address key issues surrounding our business in the coming year:

· Windows: The success of Windows is our number one job. With SP1 and the work we’ve done with PC manufacturers and our software ecosystem, we’ve addressed device and application compatibility issues in Windows Vista. Now it’s time to tell our story. In the weeks ahead, we’ll launch a campaign to address any lingering doubts our customers may have about Windows Vista. And later this year, you’ll see a more comprehensive effort to redefine the meaning and value of Windows for our customers.

We also have to drive developers to create rich applications for Windows. With Internet Explorer and Silverlight, we have great tools for creating applications that run everywhere. But we also need to make sure developers have the .NET skills to write unique Windows applications using Windows Presentation Foundation. To keep today’s Windows applications alive, vibrant, and exciting, we need both—applications that run everywhere and rich client applications.

· Apple: In the competition between PCs and Macs, we outsell Apple 30-to-1. But there is no doubt that Apple is thriving. Why? Because they are good at providing an experience that is narrow but complete, while our commitment to choice often comes with some compromises to the end-to-end experience. Today, we’re changing the way we work with hardware vendors to ensure that we can provide complete experiences with absolutely no compromises. We’ll do the same with phones–providing choice as we work to create great end-to-end experiences.

· Business and enterprise: Our enterprise and server business has never been stronger–today we are on the verge of becoming the number one enterprise software company. We need to continue to push on all fronts–mail with Exchange, business intelligence with PerformancePoint, virtualization with Hyper-V, and databases with SQL Server. We have to drive our enterprise search capabilities, our unified communications solutions, and our collaboration technologies. And we must continue to compete against Linux in key workloads such as Web servers and high performance computing.

· Software plus services: Some people think software plus services is all about search. But it’s really about changing the way software is written and deployed. The future is about having a platform in the cloud and delivering applications across PCs, phones, TVs, and other devices, at work and in the home. It’s also about driving change in business models through advertising, subscriptions, and online transactions. Software plus services is a huge opportunity for us to deliver new value on the desktop and the server to all of our customers. This year at PDC, you’ll hear more about our cloud platform initiatives and the next versions of our Live and Online technologies.

· Google: We continue to compete with Google on two fronts–in the enterprise, where we lead; and in search, where we trail. In search, our technology has come a long way in a very short time and it’s an area where we’ll continue to invest to be a market leader. Why? Because search is the key to unlocking the enormous market opportunities in advertising, and it is an area that is ripe for innovation. In the coming years, we’ll make progress against Google in search first by upping the ante in R&D through organic innovation and strategic acquisitions. Second, we will out-innovate Google in key areas–we’re already seeing this in our maps and news search. Third, we are going to reinvent the search category through user experience and business model innovation. We’ll introduce new approaches that move beyond a white page with 10 blue links to provide customers with a customized view of their world. This is a long-term battle for our company–and it’s one we’ll continue to fight with persistence and tenacity.

· Yahoo: Related to Google and our search strategy are the discussions we had with Yahoo. I want to emphasize the point I’ve been making all along–Yahoo was a tactic, not a strategy. We want to accelerate our share of search queries and create a bigger pool of advertisers, and Yahoo would have helped us get there faster. But we will get there with or without Yahoo. We have the right people, we’ve made incredible progress in our technology, and we’ll continue to make smart investments that will enable us to build an industry-leading business.

As I mentioned earlier, I have important organizational news. Today we are announcing that the Platforms and Services Division will be split into two businesses: Windows/Windows Live and Online Services. We are also announcing that Kevin Johnson will leave the company. He will work to ensure a smooth transition.

Since 1992, Kevin has been a key contributor to many of this company’s most important achievements. As president of the Platforms and Services Division, Kevin has built an incredibly talented organization and laid the foundation for the future success of Windows and our Online Services Business. Over the last 16 years, through everything from his work as head of the company’s worldwide sales, marketing, and services efforts, to his leadership in transforming our field operations and repositioning the company to focus on opportunities in emerging markets, Kevin has played a vital role in this company’s success. There is no doubt that his passion and dedication will be missed.

Effective immediately, Steven Sinofsky, Jon DeVaan, and Bill Veghte will report directly to me to lead Windows/Windows Live. In the Online Services Business, we will create a new senior leadership position and conduct a search that will span internal and external candidates. In the meantime, Satya Nadella will continue to lead Microsoft’s search, ad platform, and MSN engineering efforts, and Brian McAndrews will continue to lead the Advertiser and Publisher Solutions Group. Both Windows/Windows Live and the Online Services Business are led by a strong group of executives on the technical and business side who have the talent and experience to address the challenges we face and drive the next generation of growth and success.

Looking ahead, I see an incredibly bright future for our company. As I said at the June 27th Town Hall for Bill, we are the best in the world at doing software and nobody should be confused about this. It doesn’t mean that we can’t improve, but nobody is better than we are. Nobody works harder than we do. Nobody is more tenacious than we are. We’re investing more broadly and more seriously than anybody else. Our opportunities to change the world have never been greater.

I look forward to working with all of you as we focus on our five priorities in FY09.

Steve

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His memo is worth reading in detail. The five points are right dead-on for Microsoft to be taken seriously as a global technology leader and more importantly, if Microsoft is to be a true innovator in the network-era. Job#1 is Windows and if Microsoft loses that game, they will be marginalized for sure. What is also interesting in dissecting the memo is that he places Google as #5 (last on his list). Gaining a credible traction against Apple in the mobile phone arena is higher. And Enterprise is #3, ahead of Google. I have always maintained in my previous blog post that Microsoft should focus on Windows and use that dominance to win in the mobile space with Windows Mobile and then go deeper within enterprises. (may be rekindle a deal with SAP perhaps?).
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I was baffled by Ballmer lending support to Icahn in his proxy fight few weeks back. Now that issue is settled with Kevin's departure. This memo is one of the clearest and compelling strategic logic that I have seen from Microsoft in totality in a longtime. It recognizes their strengths (software) and the need to refine and adapt their business practices including how they work with their partners to improve and enhance the end-user experience (#3 and #4). I also agree with the point that Yahoo is a tactic and not a strategy. I look forward to seeing this strategic vision expanded and refined over the next few months.
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Score: Advantage Ballmer.!

Countdown to August 1 (Yahoo's D-Day): What's Microsoft Seeking Now?

We are on the homestretch towards Aug 1 shareholder meeting at Yahoo. Yahoo is fighting Carl Icahn and that seems to be intensifying on a daily basis. Now, WSJ has written a detailed article on the moves, counter-moves and gamesmanship in the Microsoft-Yahoo takeover saga. As I blogged earlier, Microsoft's interest in Yahoo is far from over. Why?
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Microsoft's obsession with Google is strong and deep. WSJ reports that:

Yahoo executives were unimpressed with Mr. Ballmer's vision. If anything, they regarded the Yahoo pursuit as a crude solution to quell his obsession with Google. They would later refer to Mr. Ballmer's plan as "filling his Internet hole." Indeed, Mr. Ballmer spent much of the meeting discussing the threat Google posed to the two companies.

So, the end game is not about walking away from Yahoo but also figuring out how Google may gain or lose with (or without) Yahoo.
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The interesting part of the WSJ article beyond illuminating some of the inner workings of the deal is about what Microsoft is pursuing now. Not happy to be a passive participant, Microsoft is pursuing to put together an ecosystem involving Time Warner, News Corp and others. It appears that Microsoft is not responding to overtures from others but is taking the role of the orchestrator of such an ecosystem. Why? Again, to ensure that if it cannot beat Google by acquiring Yahoo, it can at least create a credible alternative by pooling together online advertising strengths (and weaknesses) of second-tier competitors.
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Yahoo has about four weeks to show its shareholders that its current management team is capable to lead the company and has a credible and compelling vision. What Yang & Co. need is cold, hard facts (financial and operating numbers) that support the clear vision. What Microsoft is trying to do is to make sure that it scores a minor victory. Will that minor victory come at the expense of Yahoo's market value? Or will it be a central part of Yang and Decker's compelling vision? I doubt that July will be dull and boring--at least from Yahoo and Microsoft vantage points.

And the Rumor is: Microsoft and Yahoo are Back Talking!

I am not surprised because there is no reason to not think that Yahoo will still explore every option before the upcoming Annual Shareholders meeting. TechCrunch reports that the talks are back on but no clear details are forthcoming. So, what can we expect?

I do not see a full-fledged merger unless Microsoft can get Yahoo close to current price [without paying a premium anywhere close to what it offered in 2007 or even a few weeks back]. If Ballmer gets Yahoo at around $21, he will declare that it is a win for MSFT shareholders and reiterate that Yahoo fits in with Microsoft's long-term vision because it can help Microsoft achieve the requite scale quickly (and underplay any post-merger integration problems). I doubt that Microsoft will get such a bargain because that price is even lower than what Carl Icahn paid to accumulate his near 5% stake. He may not be willing to sell his stake for such a short-term loss unless he is prepared to accept MSFT shares under the belief that they are under-valued and may go back up at a faster rate!

If the discussions are about selling or combining on-line advertising business to create a separate entity with some sort of notional value, then Yang may be able to go in front of his shareholders and claim that he has salvaged a bad situation but without selling away the crown-jewels.
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This story is far from over. Microsoft said: 'No Comment." For Yahoo, I believe that every option is on the table till Aug 1.

Microsoft's Final (?) Answer to Yahoo--No, Not Interested. Thanks!

So, it appears that Ballmer gave Yahoo a final answer and it is "NO, Not Interested. Thanks." The announcement was made by Yahoo (and not Microsoft):

The conclusion of discussions follows numerous meetings and conversations with Microsoft regarding a number of transaction alternatives, including a meeting between Yahoo! and Microsoft on June 8th in which Chairman Roy Bostock and other independent Board members from Yahoo! participated. At that meeting, Microsoft representatives stated unequivocally that Microsoft is not interested in pursuing an acquisition of all of Yahoo!, even at the price range it had previously suggested.

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It appears that Microsoft realized that it was paying a premium for second-rate competencies that were further protected (diluted) by expensive poison pills. So, Microsoft wanted to cherry pick what it wanted most--Yahoo's search business but not all other unrelated weaker assets. That would have made Microsoft a winner in the deal. Yahoo rightly said No. So, the deal is off. The discussions are off. Yahoo loses in the short-term (shared dropped by 11%--so we know where the market sentiment is). Microsoft's shared were up about 4% (the market clearly happy that MSFT was not blindly and foolishly pursuing YHOO and overpaying for it!). --
So, what next for Yahoo. In the same press release, Yahoo said the following:

Yahoo! remains focused on maximizing value for stockholders by continuing to execute on its strategy of being the "starting point" for the most consumers on the Internet and a "must buy" for advertisers. The online advertising industry is projected to grow from $40 billion in 2007 to approximately $75 billion in 2010 and the company believes it has the right assets, strategic plan, Board of Directors and management team to capitalize on this growth opportunity.

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As I parse this statement, what I see is (1) we (Yahoo) are in the right industry at the right time because the industry is poised for growth; and because we are in a growth industry, we will also grow--trust us! and (2) We (the current Board and management team) want to execute on the strategy for being the 'starting point' for consumers to search; and hence a 'must buy' for advertisers. Both these are not strategies but business directions and aspirations. Yahoo hopes and aspires that advertisers will consider Yahoo as a must buy and the consumers will continue to spend sufficient time on Yahoo properties.

Carl Icahn believes that the current management team has been soundly beaten by Google. And, Yahoo seems to be now wanting to enter into some business arrangement with Google (assuming that FTC will look the other way and that Microsoft will somehow keep quiet there).
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As I blogged earlier, we know what Icahn wanted Yahoo to do. But, now Microsoft is not interested. My guess is that even he cannot persuade Ballmer to reconsider. They have been at it for a while and they have made their final decision. Now Yang & Co. have the clock ticking as we approach the upcoming annual shareholders meeting and proxy fight is looming. Carl Icahn's Yahoo shares are in the red as of today. We can bet that he is not a happy camper today.

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If Icahn's slate of directors were to get elected, he needs a strategy different from 'Let's sell to Microsoft for a premium and go home.' His team will have to develop winning value propositions for consumers, advertisers and shareholders.

I say: Good Luck to Yahoo's current Board and Icahn's alternative Board.

Microsoft--while walking away from Yahoo--has kept its cash in the bank. But, it needs a compelling strategy for its future with its core business appearing to be weakened by lukewarm reception to Vista by enterprise customers.

Is Eric Schmidt having the final laugh (smirk, perhaps)?

We Know What Icahn Will do with Yahoo; But Do We Know What Jerry Yang Has in Mind for his Yahoo?

It's tough leading the company you start once it reaches a critical threshold as a public company. That's what Jerry Yang must be feeling in the weeks coming up to the Annual Meeting.
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First, there is public disclosure that he and his Board rejected a Microsoft offer of $40-a-share in 2007--which represented about 60% premium over the closing price when Ballmer made the offer. Terry Semel rejected it.
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Second, Yahoo rejected a $31-a-share in February. Apparently, Microsoft may have paid up to $34 late April but again, Yahoo leadership--this time, Jerry Yang--said No. The official Press Release at that time commented:

Jerry Yang, co-founder and chief executive officer, Yahoo! Inc. added, "I am incredibly proud of the way our team has come together over the last three months. This process has underscored our unique and valuable strategic position. With the distraction of Microsoft's unsolicited proposal now behind us, we will be able to focus all of our energies on executing the most important transition in our history so that we can maximize our potential to the benefit of our shareholders, employees, partners and users."

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Third, Carl Icahn starts acquiring Yahoo shares and there is proxy battle underway. Yahoo responds angrily to the first letter from Icahn. Then, he send further letters--all focused on getting Yahoo and Microsoft to enter into discussions of merger. Yahoo again responds angrily to Carl Icahn--essentially indicating that he has no vision for Yahoo. The following is from their June 6 statement:

Leaving aside Mr. Icahn's inaccurate interpretation of our retention plan, we again note that he has no credible plan to operate Yahoo!. We believe that Mr. Icahn's suggestion that we cancel our retention plan would have a destabilizing impact on Yahoo! and would clearly not be in the best interests of our shareholders. Furthermore, his suggestion that we put out a price publicly to see if Microsoft will alter its stated position is ill-advised. As we have stated numerous times publicly and privately, we are open to any transaction including a sale to Microsoft if it is in the best interests of shareholders.

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Carl Icahn's vision for Yahoo is clear: Yahoo has failed in its competitive quest against Google; Yahoo does not seem to have a credible vision to organically grow and innovate to be a leader and that it should sell itself to Microsoft. His vision is right from the point of view of shareholders who have seen their intrinsic value in Yahoo plummet. Semel rejected $40-a-share offer from Microsoft in Feb 2007 but Yahoo did not subsequently offer any new compelling vision or avenues for growth. Semel was ousted but the Board seems preoccupied with defending itself against takeovers rather than crafting a winning strategy on its own.

Indeed, my analysis of the initiatives pursued by them (a much publicized trial with Google and discussions with AOL, NewsCorp and others) leads me to conclude that they were looking at strategic linkages to have a credible basis to negotiate a higher price with Microsoft. Unless Yang & Co come up with a credible vision (supported by a workable execution plan), they have no basis to say that Carl Icahn has no 'credible plan to operate Yahoo.' Icahn may not have a plan to operate Yahoo--he never claimed that he has one. He is simply claiming that there is a better way to maximize shareholder value that what the current team is pursuing. He has even given a public figure for Microsoft to consider.

Instead of accusing Carl Icahn of not having a credible plan to operate Yahoo, Yang & Co. should lay out the vision and plans that the shareholders and employees can rally behind. If they do, they even Icahn may support the current management team.

It's time to go beyond letter and press releases; it's time for laying out compelling visions and detailing credible operating plans. Will Yang & Co. deliver that before the upcoming Annual Meeting? It's a do-or-die situation for sure--even for the ones that founded the company.

Microsoft's Plan [C]: Cash for Consumer Search and Loyalty

Microsoft's Plan (A) was to buy Yahoo. They could not agree on a price. That is shelved--at least for now.

Microsoft's Plan (B) is to get a part of Yahoo. They seem to be in discussions and Carl Icahn may provide support if the price is right from his point of view.
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Now we see Microsoft's next move--Plan[C]--give consumers cold, cash incentives to search through Microsoft Live. Moreover, it gives the advertisers an opportunity to improve the return on their advertising with charges based on cost-per-acquisition. At one level, Microsoft's approach builds off its core strengths and experience--orchestrate two complementary networks. Windows and Office succeeded because they both created two interconnected networks of application developers and consumers (users). Microsoft advertising also seeks to interconnect two complementary networks--advertisers (sellers) and consumers (buyers).

At another level, there is a big difference. Windows and Office created huge stickiness and consumers were locked-in to these platforms with successive versions of Wintel architecture roadmap. It is not the case with search. There is little lock-in unless the cash incentives are so vastly different from what they may get from other sources (why would not Google respond to match this offer with their superior algorithms and insights>). Even, Google seems to have only a small percentage of its users who search when logged with their unique ids. Can Microsoft succeed in this area based on cash-back incentives?

By wanting to play with cash rebates based on transactions, they are signaling an ambition to be a major player in the cut-throat world of ecommerce and compete more directly against Google (which has its Checkout service). . And, they may need strong partnerships with eBay and Amazon if they are to reduce the friction in commerce and still make a decent return to their hungry shareholders.

Plan[C] may well succeed if they can build off successful loyalty programs (Airline and Credit-card companies are best-in-class examples now). If Microsoft creates a new currency that can be used to buy products and go on vacations, they may succeed but again, they need to link up with those credit card companies that have already created stickiness with the consumers. Will a major relationship with Visa/MasterCard be in the works? or possible link with eBay?
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What will Google's next move be?
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I find these moves interesting because they illuminate the complex challenges of crafting winning strategies in a network-era.

Microsoft's Overture to Facebook?

The news on the wires is that Zuckerberg refused to comment:"Asked specifically about the prospect of a sale, Zuckerberg declined to comment." No comment is news when there is so so much speculation about what Microsoft may do next. If Microsoft indeed enters into a 'transaction' with Yahoo, it may not need all of $40 plus Billions. So, given Steve Ballmer's need for ;building scale' quickly, it will not surprise me if Microsoft also explores either a 'transaction' with Facebook. For Microsoft to create a credible alternative to Google, it needs to shore up not only the advertising platform (Pandora from Yahoo helps here) but also recognize the emerging role of social networks (Facebook's Beacon platform helps here). Microsoft can then use these pieces to create a compelling and credible alternative and hope that the Street will give them a boost and not the boot.

Microsoft-Yahoo: The Next Chapter

Over the week-end, a new chapter in the Microsoft-Yahoo combination began. Microsoft Corp. issued the following statement:

“In light of developments since the withdrawal of the Microsoft proposal to acquire Yahoo! Inc., Microsoft announced that it is continuing to explore and pursue its alternatives to improve and expand its online services and advertising business. 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! 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.
“There of course can be no assurance that any transaction will result from these discussions.”

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I see it as Microsoft wanting its make and eating it too. It may have a chance to acquire Yahoo through Carl Icahn's proxy battle while seeking to create a friendly 'transaction' so that they can explore other options at the same time. Such a transaction clearly involves Yahoo's search-linked-advertising platform (Panama). It is brilliant because I am sure that Yahoo Board is now not interested to antagonize either Icahn or Ballmer by pursuing any discussions or explorations with Google. At minimum, this move forestalls Yahoo's any desire to examine links with Google or others. It also allows Yang, Icahn and Ballmer to discuss behind-the-scenes strategy for a possible corporate combination (read: acquisition) at a price that may be acceptable to all. If Ballmer gets Yahoo at the price that e offered ($34, I believe), he will declare victory. If Yahoo & Co. sell at $34, they can still declare victory since the official position seems to be that Ballmer never gave that offer formally in writing. At that price, Carl Icahn is a big winner (with may be $9/share gain in about a month or so--assuming that some deal will happen before the July Shareholders Meeting).
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Ballmer gets the options to still play with Yahoo till early July without much cost. And he may be able to use Carl Icahn to do the fighting while he has his managers work out ways to figure out the best way to combine the complementary capabilities of Microsoft and Yahoo to establish a dominant #2 position against Google.
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The story is far from being finished.

Yahoo's Q1 Results: Where's the New Value?

Those of us who waited anxiously to see if Yahoo would reveal extraordinary shifts in its performance trajectory, we must be disappointed for sure. As Reuters reported:

Despite beating expectations of earnings before special items, the results did not immediately convince the market that Microsoft's unsolicited $43 billion offer undervalues the beleaguered Internet company.

For several weeks, Yahoo has been claiming both directly (through Press Releases) and indirectly (pursuing possible corporate combinations with AOL or exploring business relationships with Google) that Microsoft's generous offer in the vicinity of $41 Billion is somehow low.
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Now that Google and Yahoo have both released their Q1 results, we know that there is no new information that alters the parameters of Microsoft's offer. If anything, I may be tempted to revise the offer downward due to the inordinate delay-tactics exhibited by Yahoo board. I am not sure what Microsoft may do short of taking the fight to the shareholders and gain control of the Board.

Yahoo's results today vindicate Microsoft's offer (very generous, as I said before!). It's time for both companies to put animosity behind and work towards creating a credible advertising platform to compete against Google. Even a delay of few months can prove costly for both companies.

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.


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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 Battle--It's all about the money!

Yahoo's counter offer of $40 is a smart move. Microsoft needs Yahoo. From Yahoo's perspective, this is the best of the strategic options available to them. They are simply trying to find an acceptable price.


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It will be interesting to watch how high will Ballmer go to get Yahoo?

Microsoft's $6 billion Move into Online Advertising

I had blogged earlier today about WPP buying 24/7 Real Media. But, this announcement is a watershed event in the shift to a network-era in advertising. Microsoft today announced that is is buying aQuantive for about $6 billion (representing a premium of about 85% over yesterday's closing price). The $6 billion purchase price is about 2% of Microsoft's market capitalization and is the largest acquisition till date by Microsoft. Steve Ballmer said that:

"Today's announcement represents the next step in the evolution of our ad network from our initial investment in MSN, to the broader Microsoft network including Xbox Live, Windows Live and Office Live, and now to the full capacity of the Internet."

If history is any indication, companies have more often not been successful in adapting their business models through acquisitions. While horizontal corporate combinations for scale-based advantage have been relatively successful (DaimlerChrysler notwithstanding), many firms have struggled to acquire and assimilate new competencies to get into new areas of operations or radically adapt their business models. Recall Time-Warner and AOL? It will be very interesting and illustrative to see how (and if) Microsoft becomes a dominant force in network-era advertising.