Report: Microsoft-Yahoo deal may go hostile Friday

Citing unnamed people familiar with the matter, the Wall Street Journal reported early Friday that the world’s largest software maker may be preparing to go straight to Internet pioneer Yahoo’s shareholders. An announcement was “likely” to come Friday, according to the report, though the newspaper said its sources cautioned that Microsoft may delay.

Chief Executive Steve Ballmer told employees in a company assembly Thursday that he knows how much he’d spend to buy Yahoo and accelerate his company’s Internet play.

“We’re willing to pay for that at some level, and beyond that level we’re not willing to pay for it. I know exactly what I think Yahoo is worth to me,” the executive said. “I won’t go a dime above, and I will go to what I think it’s worth if that gets the deal done.”

But he didn’t offer a figure, and he didn’t say whether Microsoft is considering raising its unsolicited bid, worth $44.6 billion at the time it was made in early February.

The offer is currently worth about $42.4 billion, or $29.48 per share, based on Microsoft Corp.’s closing stock price Thursday. Yahoo Inc. has rejected the offer, saying it undervalues the company. Microsoft’s board has been considering whether to raise the bid to as much as $33 per share, according to The Wall Street Journal.

Ballmer didn’t provide any new insight into the company’s efforts to buy the Silicon Valley pioneer during the meeting at Microsoft’s Redmond, Wash., headquarters, but he did indicate that an end to months of speculation was near.

“We ought to announce something in relatively short order,” Ballmer told employees.

His comments were first reported by Silicon Alley Insider, an online technology news site, and confirmed by a Microsoft spokesman.

Ballmer added that buying Yahoo is just one of many moving parts in the software maker’s strategy to compete with Google Inc. in search and Web advertising, and that if neither a friendly nor a hostile deal “look good,” he’s willing to walk away.

Microsoft’s board met Wednesday but reached no decision on a next step, the Journal reported. The software maker had given Yahoo until last weekend to agree to a deal or face the prospect of an ugly proxy fight.

Meanwhile, Yahoo is exploring a possible advertising partnership with Internet search leader Google Inc. or a merger with the online operations of Time Warner Inc.’s AOL as possible defenses if Microsoft tries a hostile takeover.

Impressed by a two-week test completed last month, Yahoo could firm up a long-term deal within a week, according to the Journal. Any alliance between Yahoo and Google would face intense antitrust scrutiny, however, because the two companies control more than 80 percent of the U.S. market for search advertising.

Yahoo and Google hope to allay those concerns by structuring their deal so their rivals, including Microsoft, could participate in an auction-based system, the Journal said.

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Microsoft-bashing was in vogue the last century!!!

My partner asked me recently why people hate Microsoft so much and it’s a question I’ve been pondering for a while, as well as thinking about my own attitudes towards the world’s largest software company. I consider myself to be in an unusual position in that I’m a Java developer who does actually like Microsoft. This is considered heresy by many in the Java world where the assumption made is that you can’t like both. I may just have lost some readers who visit this site for the occasional Java content, but I don’t take such a binary view of the world. I think that Microsoft is just about the best place to work if you’re passionate about developing software and even those who work for competitors grudgingly agree. I should love to work as a developer at Microsoft if I were a lot cleverer and if I could stomach living in America (no offense intended if you do).

It’s not accidental that a large proportion of the brightest people in the business work for Microsoft. Some would claim that this is down to the lure of MS cash. I don’t buy that argument because for people this smart remuneration would be generous at any company, besides which the acquisition of wealth is not their prime motivation. It’s the opportunity to do great stuff and reach a large number of people. As I’m writing this I’m deliberately trying to be as objective as I can and I’m trying not to just come across as an MS fanboy because I don’t think I am. I’m certainly not reticent about criticising Microsoft when I think they need to do better; indeed you can find several examples on this site.

I welcome diversity in the computing arena and I actively take opportunities to learn about non-Microsoft technology. For example, today whilst I should have been working I read quite a lot about Apple OS X—which I think is a great OS—and I also burnt a CD with Knoppix Linux on it (more about that another time).

What really annoys me is when people are so blinded by their hatred of Microsoft that they lose all objectivity and go about spouting drivel to others, when they haven’t even thought about what it is they’re actually saying and why they’re saying it. Often they’re just repeating the anti-MS mantra because that’s what you do. When so-called IT professionals display this prejudice in an official capacity in meetings, I’m afraid I lose all respect I may have had for them. I flip the bozo bit. The same goes for those who refer to M$ or Micro$oft.

I believe that competition is healthy and improves the breed. I’m glad that Linux exists and continues to improve because it keeps Microsoft focused on improving the Windows operating system that I choose to use. Witness Windows Longhorn, which is shaping up to be the most exciting and interesting realise of Windows for a decade. I may not always choose to use Windows (or whatever its successors are called) but it serves my present needs well. Similarly, Java and J2EE forced Microsoft to do something about its mediocre developer tools offering at the time of Visual Studio 6, which led to the creation of .NET. This in turn has forced Sun to wake up and improve its technology. It’s no co-incidence that Java 1.5 is the most interesting version of Java in years and features language improvements—such as generics—that are also debuting in C# soon.

Talking of Java, it’s often claimed that Microsoft tried to destroy Java because they added Windows-specific extensions to their J++ variant. It’s easy to see how Microsoft would feel threatened by Java, which is after all a platform in its own right that to an extent makes the underlying operating system irrelevant, no matter what it happens to be. There were/are undoubtedly executives within Microsoft who made or make it their top priority to neutralise the Java threat. However, people don’t generally see the other side of the coin, which is that there are developers within Microsoft who are Java enthusiasts and who wanted to make it a great platform for developing Windows applications. And to do that, they had to add in some platform-specific features which you could take advantage of if you knew you were writing for Windows only and if you wanted to. It’s also worth remembering that for a time the Microsoft JVM that shipped with Internet Explorer was the fastest one around that actually ended up on user’s machines. Of course it’s hopelessly out of date now, which benefits no one.

Anders Hejlsberg, the powerhouse behind Borland Turbo Pascal and one of the brains behind Borland Delphi, was involved with the creation of J++, which in many ways laid the groundwork for what was to follow with .NET. C# is often called a rip-off of Java, but it’s not a shameless clone because it added some neat new tricks of its own. And Sun Microsystems aren’t the origin of everything original within language and framework design any more than Microsoft or any other single company are; Borland helped Sun design their JavaBeans component architecture because Sun were impressed by Borland’s VCL created by…Anders Hejlserg et al.

I don’t view Microsoft as some monolithic entity, with 50,000 employees focused on the one aim of destroying their closest rivals. It’s hard enough trying to get tens of people pulling together in the same direction—believe me I know—let alone tens of thousands! Time and time again the accounts coming out of Microsoft from insiders are of a company that in many ways is run along Darwinian lines, with different groups competing against each other and not co-operating. Hardly an environment conducive to nurturing grand conspiracies.

I think that the two biggest threats to Microsoft right now are previous versions of its own software and its reputation. The two are closely linked because Microsoft’s current reputation is largely formed from what it’s done in the past and not what it’s doing today. I’m thinking in particular about Windows and its reputation for being insecure and unstable. I’m not saying that reputation is undeserved because both of those things have been true about Windows for a long time, but I genuinely believe that the situation is getting better and that’s happening because Microsoft’s customers are demanding it. Windows XP Service Pack 2 does a lot of right things in the area of security and Windows has been a stable operating system for years now. I haven’t seen a blue screen of death on either my home or work PC for at least three years. Really.

Windows has got such a bad reputation that there are those within Microsoft who are even suggesting the unthinkable: that Microsoft throw away the Windows brand name plus all that’s invested in it, and call the next version something else. I don’t think it will happen but it’s an intriguing idea. It’s very easy to criticise Windows over security and stability without really thinking about why it’s the way it is. What many of the naysayers don’t consider is the fact that the direction of Windows is driven by consumer demand. The top priority at Microsoft when developing software has almost always been to preserve backwards compatibility, because Microsoft knows full well that customers won’t tolerate not being able to run their existing software using a new version of the OS. This has informed the design direction of Windows and has led to many complex trade-offs involving compatibility, security and stability. If you don’t believe me then go and read Raymond Chen’s blog—it’s a real eye-opener. This stuff is damn hard to get right. Don’t forget that Apple have completely broken backwards-compatibility more than once and a fraction of the software that Windows has to support runs on the Macintosh.

It’s amazing how many jokes Windows has become the butt of, particularly when it comes to stability. It’s even entered mainstream culture. We’ve all heard those jokes, some of us have probably made them too. I regularly get exposed to them at work. There’s a Java related website I visit that features a different programming question every day in the style of the Sun Certified Java Programmer exam. I came across this question recently:

“Your chief Software designer has shown you a sketch of the new Computer parts system she is about to create. At the top of the hierarchy is a Class called Computer and under this are two child classes. One is called LinuxPC and one is called WindowsPC. The main difference between the two is that one runs the Linux operating System and the other runs the Windows System (of course another difference is that one needs constant re-booting and the other runs reliably). Under the WindowsPC are two Sub classes one called Server and one Called Workstation. How might you appraise your designers work?”

—Amongst the possible multiple choice answers were:

“3. Ask for the option of WindowsPC to be removed as it will soon be obsolete.”

These aren’t official questions from Sun and I didn’t dignify this one with an answer. Yes, Windows 9x wasn’t a paragon of stability but then it was never designed to be. It was designed to be as stable as possible within the constraints of the other requirements that it had to meet. The top requirement was that it had to run all your old 16-bit Windows and MS-DOS software as well as the new 32-bit applications. Of course, no customer actually asked for instability in Windows 9x, but they ended up with some because it’s a trade-off. The vastly superior Windows NT was always planned to replace it, it’s just taking years for that to happen.

In terms of security, of course Microsoft have to do a lot better and I believe that they will. Their biggest headache is the masses of machines out there connected to the Internet that are running a legacy version of Windows that was developed when the explosion of the Web caught Microsoft by surprise. Consumers weren’t demanding security then. I draw parallels with the automotive industry, which is also driven by consumer demand. In Europe, for years only the luxury car manufacturers offered safety features over and above the basic. I’m thinking of technologies such as airbags, side impact protection and anti-lock brakes. Now safety has become a major selling point and differentiator that can make the difference between the car buyer closing the deal or walking away. It’s the same with computer security, which is now Microsoft’s stated top priority.

There’s no denying that things that used to be turned on by default in previous versions of Windows are turned off by default in Windows Server 2003. The focus has shifted 180 degrees from ease of use with positive action required to make things secure, to secure by default with positive action required to make things less secure. Interestingly, I was in a meeting last week where someone pointed out that the Oracle 9iAS J2EE application server comes with a lot of features turned on by default post-installation, some of which could be exploited and used to compromise the system. I know it’s a different order of magnitude from millions of computers running Windows but I don’t hear Oracle getting it in the neck even slightly over that.

Windows is often mindlessly criticised for being bloated, as if its EXEs and DLLs are somehow padded out with zeroes in a grand conspiracy to use more disk space and sell more hard drives. The code taking up the space does actually do something you know! The people who whinge that Windows is a bloated behemoth would be the first to complain if they couldn’t run all their software under a Diet Windows or if using it was unfathomable to them.

Over the years I’ve noticed that those who hate Microsoft often fit into one or more of the following categories:

• People who hate Microsoft because of their size. Microsoft is a high visibility target. There’s a nice quote I like by Windows spelunker Andrew Schulman that says that Microsoft aren’t the biggest fish in the ocean, they are the ocean. It wasn’t always thus. Lots of people hated Apple Computer in the 1980s at the time when Apple was the giant ruling the computer industry with an iron fist and bullying the lesser players with endless lawsuits.
• People who hate Microsoft because it’s the thing to do. In other words, lots of other people do it. Microsoft bashing has become a popular pastime. Just as no one ever got fired for buying Microsoft, so no one ever got beaten up for hating Microsoft. Well, maybe in Redmond.
• People who hate Microsoft because they think the software is rubbish. I’m sure if you asked the Windows developers at Microsoft if there were things they’d have done differently given the opportunity to start afresh with no backwards compatibility constraints, they’d have been giving you suggestions all week. In fact, that’s what happened with the Windows NT architecture. And it worked, because it’s been with us eleven years now (sixteen years if you include development time).
• People who hate Microsoft because of the antitrust actions. You can tell these people because they take great delight in using the terms “Microsoft” and “convicted monopolist” together whenever they refer to the company. Did the antitrust actions really achieve anything apart from make some lawyers richer and produce a funny video clip of BillG looking awkward whilst testifying?
• People who hate Microsoft because they’re just whingers. After all, complaining is far easier than actually taking positive steps to improve their own software. This is also known as The Larry Ellison Syndrome. Scott McNealy was also a sufferer of this but has recently been cured by a large injection.
• People who hate Microsoft because of Bill Gates. Everything I’ve read about Bill Gates indicates that money is not his prime motivator. That doesn’t mean that he doesn’t care about it and he certainly doesn’t appear to squander it! It would seem that Bill’s passion is improving people’s lives through software. Microsoft software, yes but then what do you expect? That’s his company! It’s called c-a-p-i-t-a-l-i-s-m, get over it. Someone has to be the richest man in the world and I’d rather it was someone like Bill Gates who gives an awful lot of his money to charity. It’s easy to be cynical about these things but I’d rather live in a world where philanphropists pour huge sums of cash into AIDS research (for example) than not.
• People who hate Microsoft because Microsoft are phenomenally successful. I’ve never understood the notion of excessive profits or the idea that businesses should somehow be penalised for being too successful. Who sets the bar on these things? Great fortunes can be built in business and great fortunes can quickly be lost by businesses when they take their eye off the ball. IBM ruled the roost for years. I genuinely believe that you can be successful if you build a better mousetrap and persevere.

And me? As I stated at the beginning, I like Microsoft and its software. I don’t think Microsoft are perfect and I know that their software isn’t, but I think that they get more things right, more of the time than most of their competitors do. The important point is that I make up my own mind about things and try to keep it open.

Source: John Topley

An overwhelming majority of Wall Street analysts see Microsoft Corp preparing shortly to launch a hostile bid at its current price of $31 per share in cash and stock, a Reuters poll found.

Most Wall Street analysts believe Microsoft now faces a drawn-out proxy campaign to win its unsolicited takeover of Yahoo!, according to the poll.

By contrast, the general view in February when Microsoft announced its offer was that Yahoo! would agree to a friendly merger if Microsoft only sweetened its bid. By mid-March a Reuters poll showed that Wall Street expected Microsoft to buy Yahoo! without raising its price.

Microsoft last week repeated chief executive Steve Ballmer’s three-week-old threat that his company will go hostile, or even call off its bid, if Yahoo! did not agree to a deal before this weekend. Microsoft executives said they will reveal their next move this week.

“I’m betting that Ballmer is bluffing with his ‘walk away’ comments and that he’s going hostile,” said Jefferies & Co analyst Youssef Squali, who believes Microsoft will stick with its current $31-per-share offer.

Nineteen brokerages now say they expect Microsoft in coming days to move forward with a hostile bid after being frustrated in a three-month effort to entice Yahoo! to reach a negotiated deal, the survey reveals.

Due to a drop in Microsoft stock, it is now worth $42.7 billion.

Another three Wall Street houses see Microsoft walking away rather than raising its offer. Many Microsoft shareholders fear a higher-priced deal would dilute the value of their shares and have an uncertain payback. Were Microsoft to walk away, Garrity estimates Yahoo!’s stock could drop around 14 per cent to $23 a share, while Microsoft’s stock might jump about 17 per cent to $35 a share.

Fourteen brokerages say they expect Microsoft to begin a campaign to unseat Yahoo!’s board and encourage the company’s shareholders to accept its current $31 bid. Another five brokerages expect Microsoft going hostile at a lower price.

To counter Microsoft, Yahoo! has held talks with Time Warner Inc on a deal to merge Yahoo! with Time Warner’s AOL unit in return for Time Warner taking a stake in Yahoo!, several sources familiar with the negotiations said earlier this month.

A Yahoo!-AOL tie-up would be part of a three-way deal in which Yahoo! may partner with rival Google Inc. to use Google’s advertising system to sell ads alongside Web search results Yahoo! serves up to its users, these sources said.

Yahoo! executives told investors on a quarterly conference call last week it was “premature” to discuss whether a trial run of the Google ad partnership will lead to a deal between the two companies, but declined to comment on progress Yahoo! is making on a deal with AOL or other alternatives to Microsoft.

AOL’s Internet media and advertising assets represent the closest thing to Yahoo! and would significantly enhance Microsoft’s Web audience, he said. Microsoft has reportedly talked with News Corp, owners of the MySpace social network, about a joint bid for Yahoo!, but Moran believes MySpace is less promising than Facebook, albeit one that is unlikely to sell at a price Microsoft would be ready to pay.

The Reuters poll drew responses from 17 Microsoft analysts and 15 Yahoo! analysts from 25 different Wall Street brokerages. It was conducted on Friday, a day before Microsoft’s three-week-old deadline expired for Yahoo! to reach a deal.

What will happen if Microsoft adopts a full hostile takeover strategy. There is a superb analysis done at pmrca.

The possible scenarios from here, in roughly decreasing order of probability, include:

• Hostile Takeover: Microsoft moves forward with a full-fledged hostile takeover — trying to replace Yahoo’s board and/or taking its offer directly to Yahoo’s shareholders.
• Higher Offer: Microsoft raises its offer or otherwise modifies its offer terms to make them more attractive — for example, Microsoft could shift to an all-cash offer — in an attempt to make the deal happen without going fully hostile.
• Walk Away: Microsoft drops its offer and walks away; Yahoo’s stock drops to its pre-offer level of $19.18, give or take. Lots of moves and countermoves could follow: Microsoft could come back later with a lower or higher offer; Yahoo could cut a Google advertising deal to boost its revenue and margins and make itself harder to buy; Microsoft could take its $44 billion and go buy virtually every new Internet company of any consequence founded in the last 10 years; etc.
• Yahoo Caves: Yahoo’s board caves and accepts the current Microsoft offer.
• White Knight: Another bidder enters and offers Yahoo a higher price.

Let’s assume the Hostile Takeover scenario, which seems to me to be the most likely given Microsoft’s strategy and explicit public statements. What happens then?

There are two primary hostile takeover tactics:

• A tender offer, which we can equivalently call an exchange offer since the offer includes Microsoft stock that would be exchanged for Yahoo stock. This would be an offer by Microsoft to acquire Yahoo shares from existing Yahoo shareholders directly. Note that this hasn’t happened yet; Microsoft’s offer up until now has been made to Yahoo the company — in a tender offer, the offer would be made directly to Yahoo’s shareholders.
• A proxy fight by Microsoft to take control of Yahoo’s board of directors — to put in place a new Yahoo board that would accept Microsoft’s current offer.

These two tactics could be used alone or in tandem.

In the case of a tender offer: if shareholders owning more than 50% of Yahoo’s shares agree to the offer, Microsoft gains control of Yahoo directly.

(Actually, Microsoft probably wouldn’t need to own a full 50% of Yahoo’s shares — it could own, say, 40% and then have effective control, because only one-sixth of Yahoo’s remaining shareholders would have to vote with Microsoft on any issue in order for Microsoft to exercise control.)

Yahoo’s best defense against a tender offer is its poison pill. The poison pill works like this: if Microsoft acquires more than 15% of Yahoo without Yahoo board approval, the poison pill kicks in and issues a flood of new Yahoo stock into the market in such a way that Yahoo becomes much more difficult and expensive to buy. Poison pills have been used as defensive mechanisms by public companies against hostile takeovers for years, and the dilution they cause is so huge that no poison pill of this type has ever been triggered.

Rather than trigger the poison pill, Microsoft would most likely condition its tender offer on Yahoo’s board cancelling its poison pill. If the Yahoo board refused to cancel the poison pill, Microsoft could sue in a Delaware court to force a cancellation of the pill. (Any and all litigation to force Yahoo to come to terms will be in Delaware, since that is where Yahoo is incorporated.)

Delaware courts give some deference to target boards in resisting hostile takeovers, especially in the early stages of a takeover fight, but in many cases the courts have been unwilling to allow targets to “just say no” in the face of a well-financed offer at a significant premium — which is the situation Yahoo is facing. It’s impossible to predict what a court will do, but Delaware courts are more likely to force a poison pill to be cancelled when a target board has had plenty of time to drum up alternatives to the hostile offer, and where the hostile offer is well-financed and represents a significant premium to the company. This gets even more likely if the bidder has raised its price during the process, which hasn’t happened here — yet.

In the case of a proxy fight, which Microsoft has overtly threatened: Microsoft would nominate an alternate slate of directors for election to the Yahoo board in place of the current directors. If Yahoo shareholders favor the Microsoft bid, they can vote for Microsoft’s alternate directors, who — if elected to Yahoo’s board — would approve the Microsoft bid.

A proxy fight may have special appeal for Microsoft for a couple of reasons.

First, it could work in one fell swoop.

Many public companies have a “staggered” board, where some directors are up for election or reelection each year, but the entire board is never up for reelection in a single year.

Yahoo, however, has its entire board standing for reelection each year.

In retrospect, this was not a good idea — whoever set this up at Yahoo made a serious mistake. In a proxy fight with a staggered board, target management can lose a proxy fight and still control two-thirds of the board. In Yahoo’s case, if Microsoft wins one proxy fight, it takes out the entire Yahoo board.

It would be practically impossible for Yahoo to change to a staggered board now — in fact, trying to do so would immediately give Microsoft its opportunity to nominate its slate of directors.

Second, Yahoo can’t block a proxy fight via a poison pill or any other mechanism. They can delay it — a bit — but they cannot block it.

Microsoft gets control of Yahoo if it puts up a slate of directors for election and they win at Yahoo’s 2008 annual meeting. All that is needed for Microsoft’s slate to win is to get more votes at the meeting than Yahoo’s incumbent directors. Since not all Yahoo shareholders will bother to vote, Microsoft doesn’t need a majority of all shares to win — it just needs more votes.

As it turns out, Microsoft has leaked to the press the fact that it has already assembled a slate of directors who have agreed to run against Yahoo’s board in the event Microsoft moves forward with a proxy fight. The Microsoft slate includes several former CEO’s, COO’s, and CFO’s — individuals certainly qualified to sit on a corporate board.

If Microsoft wins the proxy fight, then its acquisition of Yahoo is probably a foregone conclusion. Microsoft’s slate of directors would be expected to vote to cancel the Yahoo poison pill, allowing Microsoft to make its tender offer for Yahoo’s shares. However, the new Microsoft-installed board would still have to exercise its fiduciary duties and carefully assess whether the Microsoft offer is in the best interests of Yahoo shareholders — if the new board acted rashly to rubber-stamp the Microsoft takeover, it could theoretically be sued by pro-Yahoo shareholders, although that lawsuit would be an uphill battle. Further, Yahoo’s poison pill would throw some procedural hurdles Microsoft’s way: the pill says that for a 180-day period following a successful hostile proxy fight, the new board can only cancel the pill if it follows certain procedures, including getting an independent financial advisor to opine that cancelling the pill is in the shareholder’s best interests. All this would do is slow down Microsoft’s takeover — it would still happen.

Yahoo has taken other steps to respond to Microsoft’s unwanted advances.

In February, Yahoo adopted a takeover-related compensation plan covering every full-time employee. The plan would issue large cash payments and 100% accelerated stock option vesting to Yahoo employees who are terminated “without cause” or who quit “for good reason” in the two years following a takeover. The devil is in the details — if the definitions of “cause” and “good reason” are broad enough, the plan could give Yahoo’s entire employee base easy access to 100% option acceleration and large severance cash payments after a takeover. The plan has the effect of making a takeover of Yahoo more expensive — and Microsoft has responded by saying it might lower its offer price as a result.

Yahoo has also bought time by amending its bylaws to delay the deadline for making board nominations for this year’s board election, and could buy additional time by delaying the date of its 2008 annual shareholder meeting.

Previously, Yahoo board nominations had to be made by March 14. While searching for an alternate bidder, Yahoo did not want to face a proxy fight starting in March, so it amended its bylaws to require board nominations to be made within a 10 day window after Yahoo announces the date for its 2008 annual shareholder meeting.

Yahoo has not yet announced the date for its 2008 annual meeting. However, under Delaware law, Yahoo has to have its annual meeting by July 12 — the 13-month anniversary of its last annual meeting — or Microsoft can sue to force a prompt annual meeting. Microsoft would almost certainly win that lawsuit, and the court would probably force a meeting within 60 to 90 days. So Yahoo can at least delay its annual meeting and therefore the board election process until July, and perhaps as late as October if it is willing to force Microsoft to sue to schedule a meeting.

So this may yet come to remind you of the Democratic presidential primary season — it may last a while.

You should read the full story at pmrca.

This is also being discussed here: Microsoft Watch, Financial Times, Between the Lines, Scobleizer, TechCrunch, Tech Check with Jim Goldman, TECH.BLORGE.com, Tech Trader Daily, GMSV, Hacking Cough, Valleywag, mathewingram.com/work, rexblog.com, Marc’s Voice, franticindustries, Search Engine Land, Tech Ticker, MediaFile, WebProNews, Digital Daily, WebProBlog, Mashable!

Speaking at the Web 2.0 Expo here Thursday, Yahoo CTO Ari Balogh revealed how the company is transforming itself into an open and social platform from the ground up. It is opening its Web platform to developers and moving closer to a Facebook-style social networking concept. Ari Balogh also said that while Yahoo already has open APIs for some services, it will expand the open API concept to other areas and make it more consistent for developers, while boosting the ’social’ aspect of its services for its members.

“We are taking open to a whole other place,” Balogh said. “We are rewiring Yahoo from the inside out with a developer platform that will open up the assets of Yahoo in a way never done before, making the consumer experience social throughout and provide hooks to developers.” He noted that Yahoo has 10 billion latent connections across its properties, such as mail, messenger and fantasy sports.

Balogh discussed the technical architecture–known as YOS, or Yahoo Open Strategy–including an application platform that will allow developers to create apps for consumers to keep their data protected and to chose what data to share and with whom. In addition, Yahoo will unify all profiles for users and developers, which will allow the company to leverage the 10 billion relations and 500 million users to create the social graph of relationships and to manage the event stream.

“We are not creating another social network. We will rewire the entire experience to make it social. We don’t think of social as a destination but as a dimension,” Balogh said. Along with Google and MySpace, Yahoo is a member of the OpenSocial Foundation, which is developing a specification for building social applications.

The underpinnings of Yahoo’s effort include development tools, an application platform, a social platform that unifies all profiles throughout Yahoo (again, like Facebook or MySpace, this is a social graph that lets users make connections and view events) and the total rewiring of properties to make all this possible.

Yahoo’s new architecture, called YOS (Yahoo Open Strategy) proves that the Internet is made of tubes (Source: Yahoo)

The heady plans are smart but, quite likely, come too late.

The Linux world was almost shell-shocked last week over Red Hat’s announcement that the company won’t be focusing on the desktop market.

Here’s the meat of the announcement:

It’s worth pointing out what’s missing in the list above: we have no plans to create a traditional desktop product for the consumer market in the foreseeable future.

An explanation: as a public, for-profit company, Red Hat must create products and technologies with an eye on the bottom line, and with desktops this is much harder to do than with servers. The desktop market suffers from having one dominant vendor, and some people still perceive that today’s Linux desktops simply don’t provide a practical alternative. Of course, a growing number of technically savvy users and companies have discovered that today’s Linux desktop is indeed a practical alternative. Nevertheless, building a sustainable business around the Linux desktop is tough, and history is littered with example efforts that have either failed outright, are stalled or are run as charities. But there’s good news too. Technical developments that have become available over the past year or two are accelerating the spread of the Linux Desktop.

But I have been thinking, why would RH want to do this? Over the years, RedHat was *the* brand that was almost synonymous with Linux which has support. Corporates and businesses when asked the techies “who will support open source” almost always got some pointers in RedHat’s direction. And then this!

What is Red Hat really scared of - Microsoft? But this exit of RedHat will announce in no uncertain terms the victory of Ubuntu too! Today, if XP etc rule the desktop market, Ubuntu has slowly got the mindshare of the Linux users and is the most dominant Linux distribution today.

Does Red Hat’s exit now leave the desktop Linux field open to Ubuntu? I would say, yes!

Microsoft has “dramatically” changed because of open-source software, the company’s Chief Software Architect Ray Ozzie said Thursday as part of a wide-ranging discussion during the annual Most Valuable Professional summit in Seattle. He also talked about Microsoft’s mesh concept and the importance of virtualization.

“Microsoft fundamentally, as a whole, has changed dramatically as a result of open source,” Ozzie said. “As people have been using it more and more, the nature of interoperability between our systems and others has increased.” That means that from the very start when Microsoft begins developing new products, it considers what components it will want to open up to outside developers, he said.

Still, that doesn’t mean that Microsoft is changing its approach to business. “We have a software business that is based on proprietary software. We tactically or strategically will take certain aspects of what we do and open source them where we believe there will be a real benefit to the community,” he said. The open sourcing of the .Net framework is an example of that, he said.

Ozzie also spoke a bit about Microsoft’s vision for using the Web to connect devices and content, in what may foreshadow an announcement the company plans for next week. “The Web really is a hub. It can be viewed conceptually as a hub for a social mesh and device mesh,” he said. Using the Internet as a hub for a social mesh means people can connect a wide range of online content like information they tag and rank, content they publish and information they subscribe to, he said.

Ozzie’s vision could hint at a service, Live Mesh, that Microsoft plans to unveil on Tuesday. The company has not revealed any details about the offering except to say it will be unveiled next week during the Web 2.0 Expo in San Francisco. Ozzie briefly described a similar mesh vision earlier this year at the Mix 08 conference.

Microsoft already offers an online sharing service, SkyDrive, which is still in beta. SkyDrive is an online storage system that users can access from their PCs and from any other device with a browser, like a smartphone.

Beyond content, the Internet can also serve as a hub for devices, Ozzie said. “From a device standpoint, the Web can be a hub in terms of bringing devices we have together,” he said. While enterprises often connect and manage thousands of computers in a business, individuals have a variety of devices such as phones, PCs, media centers and music players that are mostly unconnected, he said.

Microsoft has already done some connecting of devices, including a service that lets Xbox and Zune users share media between the devices via the Web.

That model can also be extended to broaden the way that enterprises connect devices, he said. For example, a mobile user could take a photograph and use the picture in a project the user is working on via a PC and the Web, he said.

Ozzie also touched on two other principles guiding the work at Microsoft, including getting the mix of software and services right and moving away from “monolithic” programs to fragmented pieces of software that end-users can choose to use as appropriate.

Virtualization is another area that Microsoft thinks will be increasingly important. “Within the enterprise, virtualization is the simplest and most straightforward way to make the best use of data center resources,” he said.

Ozzie also praised the work the MVPs do in providing feedback to Microsoft. The software industry “used to be so supply constrained,” he said. “You could build almost anything and there’d be an audience waiting for it.” Today, however, there’s an abundance of software and services that users can choose from. That means Microsoft’s challenge is to better understand what users want in order to best target their needs, he said.

About 4,000 technology experts make up Microsoft’s MVP program. Nearly 1,800 of them met this week in Seattle at an annual summit.

Source: PCW

As Google, Microsoft, and Yahoo all wrestle with Microsoft ’s attempt to buy Yahoo , Google decided it needed some outside counsel. Google CEO Eric Schmidt chose none other than Frank Quattrone, who was cleared of obstruction of justice charges last year, to whisper sweet hostile take-over nothings into his ear.

For the last two-plus months, Google, Microsoft, Yahoo, and others have been in a slow dance as everyone tries to get what they want out of the MicroHoo deal. Google wants to keep the two firms apart. Microsoft wants to acquire Yahoo. Poor Yahoo just wants to be left alone, it likes dancing by itself. In the last few days, things have become more interesting, with AOL, and News Corp. joining the dance. Fivesomes rarely work out, though. Someone is going to come away from this dance empty-handed and disappointed.

If Eric Schmidt has anything to do with it, it ain’t gonna be Google.

The New York Times is reporting that Schmidt has turned to his old crony, Quattrone, for help. He has hired Quattrone’s new law firm, the Qatalyst Group, to provide legal counsel and help it strategize the movements of this dance. Schmidt and Quattrone have worked together in the past. Quattrone was one of the first investment bankers to consult with Google when it was but a lowly startup in the late 1990s. Further, Schmidt was party to the creation of Quattrone’s new firm.

Quattrone, of course, was beset by the U.S. legal system for years on obstruction of justice charges. After two trials, Uncle Sam gave up on one of the charges, and he was cleared of another conviction when the presiding judge misinformed the jury about how to interpret the law. Technically, he’s not a criminal. Are his hands clean? Who is to say.

Whatever happened in Quattrone’s past, he’s obviously looking to recapture the former glory of a life lived in the business spotlight. As the impact of this acquisition will reverberate around the Internet for years to come, any role he might play is sure to affect us all.

Microsoft Pressures Yahoo To Make Decision Regarding Takeover Bid. Microsoft’s ultimatum to Yahoo regarding its proposed takeover bid sparked heavy coverage in the print and online news sources. Writers seemed confident that Yahoo has little choice but to accept Microsoft’s offer if it wants to avoid a hostile takeover attempt after the three-week deadline is over.

The Wall Street Journal (4/7, Delaney, Guth, Karnitschnig, B1, 2.06M) reports, “Microsoft Corp. is turning the screws to try to force Yahoo Inc. to agree to a takeover, but Yahoo remains focused on finding an alternative.” The Journal continues, “Microsoft Chief Executive Steve Ballmer in a letter sent to Yahoo directors Saturday threatened a hostile takeover of the company if they don’t agree to a merger within the next three weeks. Yahoo planned to issue a rebuttal to Mr. Ballmer’s letter early on Monday in which it is expected to reject his suggestion that Yahoo’s business is deteriorating, according to people familiar with the matter. The letter is also expected to say that the board isn’t opposed to doing a deal with Microsoft per se but thinks the software company should pay more.” Some in Yahoo’s camp “view Mr. Ballmer’s latest move as a negotiating strategy, and they believe there is still time for Yahoo to pursue alternatives to an acquisition by the software giant, say people familiar with the matter. One of the people says some members of Yahoo’s management would prefer not to sell to Microsoft and are still looking for another deal that would allow Yahoo to avoid that. The company’s directors were scheduled to discuss the matter Sunday, but it wasn’t clear whether they came to any new conclusions.”

The New York Times (4/6, Helft, 1.18M) reported, “Microsoft warned the board of Yahoo on Saturday that if a merger agreement was not completed in the next three weeks, Microsoft would make its offer directly to Yahoo shareholders, probably at a lower price.” Mr. Ballmer “also noted that in the two months since the company made its offer, the overall stock market has deteriorated and Yahoo’s business has appeared to weaken.” He “acknowledged that Yahoo has been exploring alternatives to Microsoft’s offer,” such as AOL, Google, and News Corp, but said that Microsoft’s offer “was the ‘only alternative put forward that offers your shareholders full and fair value for their shares, gives every shareholder a vote on the future of the company, and enhances choice for content creators, advertisers and consumers.’”

The Los Angeles Times (4/6, Menn, 881K) reported, “Microsoft vowed to nominate a slate of Yahoo directors who support a takeover if the deadline isn’t met.” The Times continued, “Although managers from the two companies have met twice since Microsoft announced its offer in early February, Ballmer complained in his letter that the Yahoo side hadn’t been authorized to negotiate.” Microsoft “could launch a tender offer to buy shares directly from investors, but Yahoo has a ‘poison pill’ takeover defense that empowers the board to make such a campaign prohibitively expensive. For that reason, executives involved in the fight have pointed to a proxy battle to elect directors as the most likely escalation if Yahoo doesn’t accept Microsoft’s bid or secure a comparable offer from another party.”

The Financial Times (4/7, Waters) reports, “Mr Ballmer promised an all-out hostile takeover battle before the end of the month and hinted that Microsoft would cut the value of its offer if negotiations do not start soon. ‘If we are forced to take an offer directly to your shareholders, that action will have an undesirable impact on the value of your company from our perspective, which will be reflected in the terms of our proposal,’ he wrote.” A person close to Microsoft “refused to confirm this meant it would cut the value of its original offer but called Mr Ballmer’s letter ’self-explanatory’.”

The AP (4/6, Mintz) reported, “In the letter, Ballmer said Yahoo’s search share and page views, two measures of the strength of the Web portal company’s business, appear to have fallen since the offer was made at the end of January.” Yahoo’s board “formally rejected Microsoft Corp.’s bid in February, saying it undervalues the company. Since then, the Silicon Valley company has explored alliances with Google Inc., News Corp.’s MySpace.com and Time Warner Inc.’s AOL, but no alternative to Microsoft’s offer has surfaced.” Ballmer “acknowledged the alternative negotiations and questioned why, in the absence of another offer, Yahoo was still dragging its heels.”

Bloomberg News (4/7, Kercheval) reports, “Yahoo! Inc., the Internet company that snubbed a $44.6 billion takeover bid from Microsoft Corp., fell in Europe after the software maker threatened to cut its bid if directors fail to give in soon.” The ultimatum “may send Yahoo Chief Executive Officer Jerry Yang scrambling to find an appealing alternative for investors to avoid succumbing to Microsoft, whose bid was a 62 percent premium to Yahoo’s stock price at the time. The deadline shows Microsoft is in a hurry to take on Google Inc., which dominates in Internet search, said analysts including Canaccord Adams’s Colin Gillis. ‘Microsoft doesn’t want to spend a year negotiating, playing cat and mouse with the Yahoo board and another year to close this transaction to get all the regulatory approvals,’ said New York-based Gillis, who advises investors to buy Yahoo stock. ‘The Yahoo board should come to the table a little more forthrightly.’” The piece notes, “Google’s purchase of DoubleClick Inc., whose software helps create and measure the effectiveness of Internet ads, also may have forced Microsoft to accelerate its plans since the deal gave its rival a bigger share of the display ad market, Gillis said. Microsoft and Yahoo both trail the Mountain View, California- based company in Internet advertising sales.”

Rafat Ali wrote at paidContent.org (4/5), “Microsoft (NSDQ: MSFT) and Yahoo (NSDQ: YHOO) continue to play the cat-and-mouse game out in the open, even on the weekend.” This “comes after meetings late this week between the two didn’t yield anything, and then a press war ensued.”

Commentary . Dawn Kawamoto wrote on the NewsBlog at CNET (4/5), “Ballmer’s letter is no slam dunk in driving Yahoo to formal talks. Yahoo, which already rejected Microsoft’s initial offer as too low and one that undervalues the company, is leery of entering fo
rmal talks without assurances Microsoft’s bid will be higher.” Yahoo, meanwhile, “is cognizant that Microsoft wants to get the deal done and past federal antitrust regulators, otherwise called the Department of Justice (DOJ), while President Bush is still in office, the source said.” Kawamoto continued, “Yahoo should brace itself for an onslaught of investor wrath come Monday. One large institutional investor is planning to call Yahoo’s independent directors and management on Monday. ‘I’m not happy with how Yahoo has handled it. I think they’ve bungled it while Microsoft has played it pretty well,’ the investor said. ‘I like that (Microsoft) has put a clock on this. I previously told Yahoo’s independent directors that if they didn’t move forward with this, I might support a new board.’ And while this investor had a brief thought of banning together a group of major Yahoo investors to make a public statement in support of Microsoft’s bid, the institutional investor noted that there would be a number of filing hoops to go through with the Securities and Exchange Commission. He noted a more likely scenario will be for institutional investors to make individual statements. … The investor added: ‘Microsoft has to do this deal. The paradigm is shifting away from their core business to the Internet. They’ve already spent billions of dollars but haven’t gotten it right. This is such a logical deal for them to do.’”

Harrison Hoffman wrote on the “Web Services Report” blog at CNET (4/5), “This certainly is sending a strong message to Yahoo that almost nothing can be done to derail Microsoft’s acquisition of the company.” He commented, “Since everything has been laid out and is now on the table, we are in for a very interesting three weeks. A hostile takeover of Yahoo would be really ugly and you can bet that Microsoft does not want to take that route, but it appears that they will if they have to.”

Michael Arrington wrote at TechCrunch (4/5), “Enough with subtle messages delivered through the press: Microsoft goes on the record with their threat to bail on Yahoo.” He continued, “This is really just a sign by Microsoft that they really, really still want this deal. The fact is they still haven’t announced their proposed Yahoo board slate, are still radio silent with those board members, and, most notably, haven’t pulled their offer.” Arrington commented, “This is saber rattling, and a signal that they aren’t ready to increase their offer yet. Nothing more. I stand by my prediction of a negotiated deal in the next twelve days, before Yahoo announces their Q1 earnings. Yahoo has no real alternatives, and Microsoft clearly still wants this deal.”

Blogger Says Microsoft Should Pursue Salesforce.com. Charles Cooper wrote on the “Coop’s Corner” blog at CNET (4/5), “Give Steve Ballmer credit for trying to bail Jerry Yang out of an impossible position. But he’d do better teaming up with Marc Benioff and Salesforce.com.” He continued, “If you’re a Microsoft shareholder, the good news is that Saturday’s love letter to Yahoo’s board finally starts the clock ticking. Yahoo’s got three weeks to come up with a final yes or no answer–and no, Microsoft says, this is its best and final offer. Hopefully, Yahoo’s incredibly deluded board will continue to fancy its prospects and tell Microsoft’s negotiators to take a hike. At that point, Microsoft can do much, much better for itself by taking a run at Salesforce.com.” The Salesforce.com scenario’s “a lot cleaner. Benioff’s company is developing a next-generation platform, similar in some ways to what Microsoft did with Windows except in the cloud. The similarity is in bringing thousands or millions of developers into the tent to build applications that require a subscription or license to the platform. It prints money, and in the case of Salesforce.com takes a lot of the 20th century drudgery out of the development process. Salesforce.com is based on Java and Oracle, but customers don’t care whether its .NET or Java as long as it works.” Cooper concluded, “In addition, Microsoft would still have money left over to invest in beefing up its search business. Microsoft’s Google obsession shouldn’t obscure the fact that there’s huge potential revenue within grasp if management can turn its software services into a success. If Jerry Yang & Co. want to screw this one up, Microsoft should avoid future headaches and simply wish them well.”

Over the past two years, Lynda Clarizio has helped build Advertising.com, AOL’s ad network, into one of the hottest properties in online advertising. Her reward: She gets to try to clean up one of the Internet company’s messiest divisions.

Time Warner’s AOL unit is aiming to transform itself from an Internet service provider into a full-service digital-advertising business. To that end, it has spent about $1 billion to buy seven ad-technology firms with different areas of expertise, from behavioral targeting to video ads. The next step is to knit them together with Advertising.com — an entity AOL has dubbed Platform A, but has yet to take to market.

AOL’s future largely hinges on the success of that transformation, which involves aggressively slashing costs, forsaking billions of dollars in overall subscription revenue, and laying off thousands of employees. Time Warner Chief Executive Jeff Bewkes has said that mission is key to plotting a new course for a company whose stock price has stagnated in recent years.

But Platform A is off to a rocky start. In its first six months, it has been marked by failed sales targets, tensions among its different business groups, and, most recently, the dismissal of its president, Curt Viebranz. A number of marketers say they are ready to spend their ad dollars with Platform A, but can’t because the disparate units still operate independently.

The idea behind Platform A is that AOL can be a one-stop shop for placing ads both on AOL’s own Web sites and on the broader Web, through its ad networks like Advertising.com, which sell ads on thousands of Web sites. So far, though, the company is a long way from that reality. AOL is fourth among the major Web portals — behind Google, Microsoft’s MSN and Yahoo — in ad revenue, and the pace of its ad-revenue growth has also dropped off. AOL’s ad revenue grew 12% in 2007, compared with 37% in 2006 and 38% in 2005, according to research firm eMarketer.

Even Advertising.com, a rare bright spot in AOL’s business recently, is facing new pressures. A major part of a two-year deal with its biggest advertiser, Apollo Group’s University of Phoenix, ended in January. Advertising.com was University of Phoenix’s exclusive online marketing partner, managing its ad buys both on its network of sites and on other ad networks. The deal generated $215 million for AOL in 2007, up $58 million from $157 million in 2006, and accounted for 17% of AOL’s ad-revenue growth last year. (University of Phoenix will continue to buy ads on the Advertising.com network, but decided to take its ad buying in-house.)

AOL’s biggest competitors are developing their own ad networks, which will make life tougher for Advertising.com. “If I get the inkling they are not innovating, I’m going to look elsewhere and talk to Yahoo or any of the other Web giants,” says Tom Hespos, president of Underscore Marketing, a closely held digital agency in New York.

AOL executives have picked Ms. Clarizio, 47 years old, to rescue Platform A, which has the widest reach of any ad network in the country — reaching 90% of the U.S. online audience, according to comScore — but isn’t able to effectively sell across that spectrum yet. A nine-year veteran of AOL, Ms. Clarizio led the deal team that acquired Advertising.com in 2004 for $435 million. That unit has accounted for nearly a quarter of AOL’s revenue and is one of the fastest-growing parts of the company.

Trained as a lawyer, Ms. Clarizio is known internally for an analytical mind and an ability to delegate. A graduate of Princeton University and Harvard Law School, she came to AOL from Washington law firm Arnold & Porter, where she was a partner for seven years and also worked as an AOL outside counsel.

While AOL is known as a relatively slow-moving, bureaucratic company, Advertising.com has developed a different reputation. “AOL has reinvented itself so many times. It is hard to keep track,” says Adam Schlachter, senior partner and group director at Mediaedge:cia, a media-planning firm that is a part of WPP Group’s Group M. “(Advertising.com) has been able to grow steadily, consistently and innovate.”

Ad.com grew from a cramped townhouse on the outskirts of Baltimore, where brothers Scott and John Ferber opened a digital advertising company called TeknoSurf in 1998. Their idea was to piece together a network of Web sites where they would buy ad space, then resell it to advertisers at a premium. It changed its name to Advertising.com in 2000.

Ms. Clarizio tried to embrace Ad.com’s start-up spirit. The company remained at its Baltimore headquarters, instead of relocating to AOL’s Dulles, Va., base, 60 miles away. She dressed up for Halloween and competed in relay races.

She also has tried to get the company’s various sales teams and engineers working on common goals. During daily 9 a.m. meetings in Ad.com’s “War Room,” midlevel executives discuss the previous day’s results and chart the next day’s goals.

Ms. Clarizio wants to replicate that culture at Platform A, which suffers from duplication among its sales, tech and other groups. Different ad units, for instance, call on the same clients — in essence competing for the business. One of Ms. Clarizio’s first moves in her new post was to announce a “leadership team” for Platform A. The new structure puts in place one sales team, one technology team, one
product and operations team, one marketing team and one publisher-services team to cut across all the company’s different ad units.

Some digital-advertising executives question whether combining sales teams is the right strategy. They fear Ad.com’s emphasis on data-driven results will come to dominate Platform A, frustrating bigger-brand marketers used to the tailored campaigns they have gotten from some of AOL’s ad-sales teams.

But Ms. Clarizio is moving full speed ahead with the integration. AOL also announced last week that it has integrated two of the companies that provided separate search-engine-marketing services — Advertising.com and Quigo, a contextual targeting ad firm AOL acquired last fall. “It’s an example of what we need to do across the board. It’s definitely an iterative process and takes a lot of work to do that,” Ms. Clarizio says.