Yahoo Still Sitting on the Fence

The chatter about what the heck Yahoo is going to do about its future as an independent company isn't quieting down. In fact, it's growing louder -- although not necessarily any more articulate -- about what path it might pursue. A number of rumors have popped up in the aftermath of its outright rejection of Microsoft's $44.6 billion takeover bid earlier this week, including one that suggests the on-again, off-again talks between Jerry Yang & Co. and Rupert Murdoch at News Corp. were on again.

On the table is a deal to spin off News Corp.'s Fox Interactive Media unit (caretakers of MySpace) and meld it with Yahoo. The proposed deal would also see News Corp. gaining a 20 percent stake in Yahoo. Besides Murdoch this week saying flat-out he wasn't going to make a play for Yahoo, this proposed deal wouldn't put Yahoo on an equal plane with Google -- but it does somewhat improve its competitive stance against Google.

Next was another rumor that over the last day or two Google has been losing interest in reaching an accord with Yahoo that would have Yahoo outsourcing a large chunk of its search-related advertising to Google, as a way to fend off Microsoft's invasion. Google, according to unnamed sources in various reports, is growing increasingly wary of regulatory concerns of such a deal. Perhaps also, Yahoo may not find such a pride-swallowing deal all that appetizing.

Following this were reports, fully expected, that Microsoft is stepping up its hostile takeover efforts of Yahoo. Redmond seems fully committed to this effort, but some are questioning whether it's worth it, given how long and disruptive this tactic could be. Microsoft could end up damaging Yahoo's market value of Yahoo by the time it completed the takeover.

So, what's Yahoo to do? Well, for one, all these developments haven't stopped it from conducting business. The company went out and purchased Maven Networks, an Internet-based company that has a system for managing ads in online videos, for $160 million. Seems like the right thing to do, given the company's direction, and it's something Microsoft wouldn't be against.

It would be nice, in this day and age of large companies swallowing smaller competitors with good technology whole, to see Yahoo survive as an independent company. The more vibrant independent companies survive means speedier delivery of more innovation to users, thereby pushing larger companies like Microsoft to be as innovative. And it would be nice for a nurturing sugar daddy with Yahoo's best interests at heart to step forward and rescue the company, allowing it to be that vibrant and independent competitor. We can always pray for a miracle. But it doesn't seem like this will be a prayer that's answered.

It's a Family Affair
Microsoft wasn't the only company with the urge to merge this week. A couple of days ago, Dell announced its intention to continue its recent acquisition streak by sucking up e-mail service provider MessageOne.

In November, Dell laid out some $1.4 billion to acquire EqualLogic, a provider of network storage -- the largest dollar amount the company has ever spent on an acquisition, by the by. Ever since Michael Dell took over the top spot over a year ago, the company has been on a buying spree.

What makes this latest buy from Dell a little interesting is that MessageOne was co-founded by Michael Dell's brother, Adam. I guess Big Brother was watching. The $155 million acquisition gives Dell a competitor to services -- including managing e-mail and preventing data loss and outages -- that are similar to what's being offered by both Google (through its acquisition of Postini) and Microsoft. It's not clear how Dell will leverage this new asset to sell more systems against archrival HP, but Dell could whip up a nice enticement for those users trying to decide between the two.

In the spirit of full disclosure, a Dell spokesman said that Michael Dell and his family will receive $12 million from the deal with Adam getting about $970,000. Michael Dell said in a prepared statement that he will donate his share to charity. Good for you, Michael.

Sun Continues Its Open Source Push
Continuing with our acquisitions theme, Sun Microsystems continued its push into the open source market by buying the German-based Innotek, makers of virtualization software. This goes along with its recent $1 billion acquisition of the Sweden-based MySQL, one of the more prominent vendors of open source over the past decade.

Innotek has an interesting product by the name of VirtualBox, which allows both desktops and laptops to run a number of different operating systems side by side. Smoothly integrating laptops into virtual environments is one of the next big challenges for virtualization vendors to conquer.

In a recent conversation we had with Peter Levine, former XenSource CEO and current Citrix senior vice president and general manager of the Citrix Virtualization and Management Division, the challenges of incorporating laptops into virtualized environments are more a use case or business issue than a technical one.

"We need to understand what the appropriate use cases are for those types of environments. We must figure out what the customer absolutely wants," Levine said.

Anyway, it seems like action in the open source-based virtualization markets is heating up, and creeping closer to offering some solutions the proprietary world is lagging behind.

Mailbag: More on Microsoft-Yahoo, Divorce Courts Get Electronic, More
There's no shortage of reader reactions to Microsoft's proposed buyout of Yahoo -- and Yahoo's subsequent rejection. Here are some more:

Having met my wife through Yahoo Personals, I would hate to see the the organization that led me to the love of my life become just another minion to the Evil Empire. Free Yahoo now!

Obviously, being an outsider, I have little to back my case, but from what I know, I think Yahoo really messed up. What I would like to know is, what makes Yahoo think this was a bad deal? As you and others have mentioned, Yahoo doesn't really bring anything new to Microsoft except competition within and/or elimination of competition. But if it really is going after Google, then additional pressure from other sides could only prove helpful to Microsoft's efforts.

The only justification I can imagine is if MS truly believes that Yahoo and MS Live are competing for the same customers, while Google is competing for different ones. How it can believe that, though, I can't imagine.

I find it intriguing that Microsoft can't seem to get a focus long enough to make a smart move. It would seem to me that it could invest the same amount of money in its own company and simply out-compete Yahoo. And there would be no open source baggage for them to explain to pundits and customers. It is as if all Microsoft said about open source being an anti-American attack on the free enterprise system was just a lot of marketing crap. Even Microsoft should recognize that buying everyone they can find for sale is not competition; it's simply wasting money.

If Yahoo doesn't want to be bought by Microsoft and thinks its stock is undervalued, if I remember my MBA classes correctly, this is the time for Yahoo to start buying back its own stock -- to defend itself by going private, if necessary, with the help of some smart VCs.

I think the Yahoo acquisition is a bad idea for the following reasons: One, the price is way over what Yahoo is worth and the ROI is going to be very long and drawn-out, if it even does pay enough to get MS it's original money back. Two, MS has worked on a cash-only basis for a long time, and if this deal goes through, they will have to borrow money for the first time in a long time. Going into debt at any time is a bad idea, but going into debt to pay for an above-premium price for a dying company is totally stupid. Three, the Yahoo board has run it into the ground by not having any real focus, and then they turn down a more-than-generous offer. Either they are a greedy bunch of idiots who obviously cannot make money the old-fashioned way (earn it) or a bunch of businessmen who have lost their edge and have not any idea how to run a technology company in today's market. Based on all the poor decisions they have made in the past (including recent decisions), my vote is for the latter.

If I was a Yahoo shareholder, I would have sold my stock as soon as the news hit that Yahoo had rejected the offer and get as much for my investment as possible. In my opinion, Microsoft should just let Yahoo go (let it die a slow painful death), and focus on acquiring other companies that will cost less and give them the better ROI while at the same time increasing their Web presence. Trying to acquire Yahoo is a waste of time and money and MS really needs take a step back and see that there are better options than buying Yahoo to increase its Web development presence and SaaS initiative.

On Monday, Doug suggested that Microsoft's monthly patch process of announcing where its faults lie is pretty gutsy. One reader disagrees:

Not really. There are so many holes (147 bulletins for 2006/2007) that they're simply hard to hide.

And in the spirit of Valentine's Day, Lafe reported on the findings of a recent survey that showed an increase in the number of divorce cases that use electronic evidence. Readers share their experiences:

I'm going through a divorce and two things have come up. One, she's either "appropriated" or destroyed any digital evidence I had collected prior to us trying to reconcile. Including audio tape. Two, she tried to claim that I would neglect our son if I were granted overnight stays, due to Facebook and Twitter status updates. My updates talked about me having insomnia, a problem with not being able to sleep, not a problem of being unable to wake up. I've since completely restricted my Tweets to work-related-only updates.

You can count me as part of the 5 percent of men who bring electronic evidence into divorce proceedings. And let's just say it allowed me to keep the house. I plead the Fifth on the details.

Got something to share or add? Let us know! Leave a comment below or send an e-mail to [email protected].

About the Author

Ed Scannell is the editor of Redmond magazine.


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