All Things Digital

You almost have to admire the shape-shifting–if not a wee bit slippery–stylings of Slide CEO Max Levchin.

The serial entrepreneur– whose current start-up has made him the massively-funded widget-king of Web 2.0–has signed distribution deals with Time Warner’s Warner Bros. unit, CBS and Comcast’s E! Entertainment channel to allow users of its new FunSpace Channels video service to look at clips from shows.

Slide’s other media partners in the new deal include Current Media, Hulu, Universal Music Group, as well as 236.com, Break Media, CollegeHumor, FUEL TV, Howcast Media, Video Detective and YouTube.

The FunSpace video service will recommend content based on how much users forward clips to others.

To make money, Slide will get a cut of ads sold by its media partners, according to a report in The Wall Street Journal.

Oh my, how incredibly traditional of Levchin (pictured below on a wacky magazine cover).

But it should probably come as no surprise that Levchin is singing a bit of a different tune these days, as the daunting task of actually building a sustainable business model and attracting long-term advertisers has dawned on him–and probably many other Web 2.0 wunderkinds.

“Television is a world advertisers love,” said Levchin in The Journal article–a quote in which you can almost hear the quarter drop and the connection made that trying to earn real money from sheep-throwing and SuperPoking is perhaps not the most stable of business plans.

Of course, it was only a year ago that the business model for the high-profile social-networking applications maker–loudly touted by him and others at the company–was centered around “user-initiated” ads and in consumers becoming “brand ambassadors” for products.

These kinds of unproven ad schemes seemed fanciful to me when I first heard about them, although they doubtless sounded great to the many investors who ponied up tens of millions of dollars in funding to give Slide an eye-popping and still-undeserved $550 million valuation.

At the time, I wrote:

Ah, brand ambassadors! Like perhaps being dispatched to a posting in the tenth ring of hell.

It seems, though, that the old canard about getting audiences to carry water for brands and loving it has found new life, as social networks and the widgets that live off them search for business models.

Now I am not against widgets, those small third-party applications that people can put on their Web pages on social networks like Facebook and MySpace, in general.

While there are now many too many, and most are simply features and not companies, some are actually helpful and substantive and introduce a plethora of innovation and features into a service like MySpace that the service itself would or could never have offered.

And I also think that these widget-makers need to find a way to make money, especially the very popular ones like Slide, if they are to stay around.”

That’s more true than ever before as the economy tightens and kooky experimentation is no longer tolerated.

In fact, Levchin noted in the article that Slide had dumped one of its typically fun but profitless widgets–a digital fortune cookie service.

Said Levchin to The Journal: “We asked ourselves, can they generate cash and are they going to be engaging to users a year from now?”

Um … no and no, which should have been obvious from the get-go about a lot of social-networking apps, which I had labeled juvenile and ultimately ephemeral.

While such goofy stuff has given Slide a lot of traffic–it attracts more than 160 million viewers a month–that has not necessarily translated into big revenues since much of the traffic is pretty low-rent and because the ads are limited by the big social-networking sites where Slide apps are popular.

One of the most striking things in the article was the contention that Slide expected $30 to $50 million in 2009 revenue, which is probably on the low side. To be fair, Levchin always told me he was not as focused on revenue generation as on growth.

But with this move, Levchin is now clearly focusing on revenue, and it’s long past time to do so.

Of course, with nuclear winter in advertising of all kinds approaching fast, let’s hope Slide still has a sheepskin or two around to keep warm until the thaw.

As an added plus, here is one of three interviews I did with Levchin last year, giving him somewhat of a hard time about revenue issues (and he gave back as good as he got):

We’re posting all the interviews from the sixth D: All Things Digital conference that took place in late May.

But–as many readers have requested–they will all be available in their entirety in this column.

Here’s an interview I did with TiVo President and CEO Tom Rogers about the iconic but often-struggling pioneer and leader in the digital video recorder market.

The video of the interview is in four parts, which will all be posted this week.

In this third part, Rogers talks about how TiVo (TIVO) is trying to become the “one-stop” interface for cable companies, such as Comcast, and the troubled state of the broadcast television industry.

It is absolutely worrisome that Yahoo’s share price continued its downward swirl today, closing at a five-year low today at $17.75.

The downward drift far from the it-can’t-drop-below-$20 barrier makes it clear that Wall Street is valuing the company at close to what it could sell its assets off for and not much more.

This obviously puts additional pressure on the already squashed-down Yahoo (YHOO) management to perform.

In fact, with all this pressure, you’d think Yahoo CEO Jerry Yang would have turned into a twin of the cursed Hope Diamond by now.

But Yahoo is not the only Web company getting bashed by the weak economy and continuing mortgage crisis. In a bruising market, shares of eBay (EBAY), Microsoft (MSFT), Amazon (AMZN) and Google (GOOG) have also been down about four to five percent this week in an already lackluster period this year.

In fact, on a year-to-date basis, it is Google that is off the most on a percentage basis (see chart below; click on the image to make it larger), with Amazon being the most hardy performer.

Nonetheless, it is not a particularly good situation for the whole sector or the smaller Web 2.0 players that have banked their futures on having an IPO or being slurped up by the bigger players.

Of course, Yahoo is the most vulnerable to attack because of the last year of turmoil, especially Yang, but also longtime board members, who are perhaps even more at risk.

As BoomTown wrote earlier this week, Yahoo execs must find a way to turn around its business and fast, clarifying its focus and streamlining its units, before someone does it for them.

That does not mean anything will happen though, because newly minted board member Carl Icahn can no longer be an activist as an insider and he only has two other possible allies on the board, who also recently joined as part of his cabal.

Thus, it is highly unlikely Icahn could force Yang to resign at this point, unless it was on Yang’s own steam.

While a lot of names for possible replacements have been bandied about and laughably unsubstantiated reports of a secret deal with Icahn for Yang to resign are floated, this is just wishful thinking for some unhappy investors.

Nonetheless, a change could be forced via yet another agitated outside investor, one smart observer noted to me, who could start another noisy circus and demand a split of the company (search to Microsoft, the content and communications assets to one of many companies like News Corp., Disney, Comcast).

Such a move would require a lot of energy, which is lacking in the market overall right now. In addition, tangling with Yahoo has already ground up Microsoft and Icahn, as well as disgruntled major investors like Gordon Crawford.

So, even in its decidedly prone state, taking on Yahoo once again is probably not for the faint of heart.

Oh, there had to be much, much gnashing of teeth in the corporate offices of the Time Warner Center in New York yesterday with news of the sale of DailyCandy to Comcast for $125 million.

Why?

Maybe because that tasty payment is going right into the hands of Bob Pittman’s Pilot Group Ventures, which bought the fashion and shopping newsletter business for $3 million in 2003.

Longtime media exec Pittman was the former star AOLer, whose nickname was Bob “Pitchman” for his smooth-as-silk selling and even more marked spinning skills.

But the Web 1.0 supernova fell quickly to earth, after the online service merged with Time Warner (TWX) in early 2001, in what is now considered one of the more significant world-class corporate disasters.

After being tossed out of AOL Time Warner in mid-2002, Pittman (pictured here), along with AOL head Steve Case, was blamed for the stock decline and other woes at the media giant by the Time Warner side, whose deep bitterness toward him has never really faded away.

Now, with Time Warner trying to make a deal to sell the AOL unit for up to $10 billion to Yahoo or Microsoft–despite it being valued at $20 billion only a few years ago–Pittman’s small but impressive score has got to grate.

“I have been associated with the start-up, turnaround or acceleration of many companies and major brands, and rarely have I seen the kind of creativity, commitment and passion I’ve seen day in and day out at DailyCandy,” said Pittman in a letter to DailyCandy staff yesterday about the sale. “And the results speak for themselves: Since we made our investment in 2003, subscriptions have grown from just over 200,000 to over 2.5 million.”

In the letter, Pittman said the company’s EBITDA was over $10 million this year on revenues of $25 million.

This is certainly different from the situation almost exactly six years ago when Pittman was driven out of the then-named AOL Time Warner on the proverbial rail.

If you want a taste of those once-grim times for Pittman, here is an excerpt from my book, “There Must Be a Pony in Here Somewhere: The AOL Time Warner Debacle and the Quest for a Digital Future,” which was published in 2003.

The section comes from Chapter Six, “Way, Way After the Goldrush,” as the deal imploded:

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On one of my many trips to Los Angeles (what can I say? I like to hang where LoRo* hangs), I dropped in to see Nick Grouf of Spot Runner.

As many might know, Spot Runner is an online-offline ad agency play that has gotten big funding and even bigger hype of late.

We’ll see how that goes. But Spot Runner actually seems to be tackling an underserved (and unexciting) market of local and national clients in need of cheap online ad solutions married to more traditional marketing venues to boost revenue.

Here’s my video interview with Grouf at Spot Runner’s offices on Wilshire Boulevard:

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Could Ross Levinsohn and Jon Miller reinvent Yahoo (YHOO)? What about OpenTable’s Jeff Jordan? Or various and sundry Google (GOOG) or Microsoft (MSFT) execs?

It could happen.

That specific scenario of putting someone like the two former Internet execs (they ran Fox Interactive Media and AOL, respectively) in charge of the troubled Web giant is one of the many being bandied about, as Yahoo shares tumble and the company heads toward a potentially ugly annual meeting everyone involved desperately wants to avoid.

In fact, Yahoo’s board and major investors are talking today about various options for the company, including Yahoo’s receptivity to a sweetened deal with Microsoft and also other ways to pull the asset-rich company out of its stock doldrums.

It is not likely to be a very chummy meeting, of course, considering Yahoo’s stock (see this depressing chart to the right) has been drifting inexorably downward with nary a lifesaver in sight.

Yahoo shares sunk ever closer to $20 (it closed today at $20.66, down more than three percent)–a worrisome crossing of the digital Rubicon for the company, given that it makes Yahoo more vulnerable to all sorts of Wall Street machinations.

Besides allowing other large companies like News Corp. (NWS) and Comcast (CMCSA) to consider bids for Yahoo–both have been watching the situation very carefully, sources said–it also opens Yahoo up to attacks from more rapacious private equity investors.

And there is a lot of machinating already, of course, as I have found poking around, with more to come.

Like what?

Like Yahoo back in discussions with AOL once again. Sources close to the situation said that the idea of hooking the pair up have been revived, as Yahoo looks to strengthen itself and Time Warner (TWX) searches for any way to spin off a division it has never been able to juice up.

Of course, Microsoft has also been sniffing around the property too–and almost bought AOL several years ago–and would be unlikely to sit still and let Yahoo grab AOL’s most attractive asset, its Platform A online advertising unit.

(Memo to Time Warner CEO Jeff Bewkes: You’re known as a smooth deal-maker, so paste on that million-dollar smile and get dealing!)

And, more interestingly, are the moves to try to find another CEO and top leadership to come in and run the company instead of Yahoo CEO Jerry Yang and President Sue Decker.

(I had previously posted on possible picks for that job here.)

That could come in either a friendly or non-friendly approach, according to several people close to the situation.

Under the friendly scenario, Yang would voluntarily step aside–and even be upped to non-executive chairman status–while a new CEO and team would be put in place.

A less dulcet approach, which would require an aggressive move by Yahoo’s board–who make head-in-the-sand ostriches seem active–against Yang directly is less likely.

Still, many investors, increasing numbers of employees and even some Yahoo board members have lost confidence in Yang and Decker, who have been trying to set a new course for the company.

But does a new course require new leaders?

Levinsohn and Miller (pictured here, left to right), who now run an online-focused investment fund called Velocity Interactive, are two high-profile former Web execs mentioned most frequently by major Yahoo investors as candidates for that idea.

Sources said could either come in as board members or actually run the company for a time period, while searching for a new CEO, like OpenTable’s Jeff Jordan, Google’s Tim Armstrong or even Microsoft’s Kevin Johnson.

Such as plan could include additional investments by new investors and critical buy-in by current investors–including billionaire activist Carl Icahn, who is waging a proxy fight against Yahoo that is set to come to a head at the Aug. 1 annual meeting.

Most important would likely be cooperation from Microsoft too, which could offer to also buy some of Yahoo and also sweeten its search-ad deal.

It would also require a new plan for Yahoo, which will likely include job cuts and a more drastic refocusing of its business that perhaps only outsiders can do.

As its founder, not surprisingly, Yang has been slow to make the kinds of deep changes many think Yahoo requires to reinvent itself, and Decker has been part of the team that has gotten the company mired in its current state.

While this all sounds incredibly complex, all scenarios point in one inevitable direction: Massive change is coming to Yahoo in the next 30 days, one way or another.

Yesterday, BoomTown wrote a piece about Yahoo’s worries about the scrutiny that the monopolistic combination of Yahoo Mail and Microsoft’s Hotmail would get if it merged with the software giant.

The issue–which has not gotten a lot of attention–is actually a major sticking point in the price negotiations going on this weekend between the companies, as Yahoo (YHOO) seeks solid downside protection, if the deal becomes mired in approval issues by governmental authorities due to email and instant messaging dominance on the Web.

But Microsoft (MSFT) does not want to pay more, of course. And so the legions of minions under increasingly-under-pressure–translation: more yelling than ever this week–CEO Steve Ballmer are hard at work this weekend on all-nighters to solve the problem, said several sources.

One solution is to spin off all the communications assets, said sources, into a separate company. In that case, the two brands would remain, so as not to inconvenience consumers, although all the back-end technologies to run the services would be merged.

The more drastic step is for Microsoft sell Hotmail to a third party, especially given that Yahoo Mail is considered a stronger brand. Hotmail has already been in the midst of a transition, including a recent name change to Windows Live Hotmail.

Microsoft’s mail offerings now include Hotmail and also Windows Live Mail. The latter offering would presumably remain at the merged company with its @live.com address.

But Hotmail is the candidate to be sold off (with the requisite marketing to try to port its users over to @live.com first).

And potential buyers? Well, not Google (GOOG), but there are many, including AOL (TWX), Comcast (CMCSA) and AT&T (T), as well as IAC/InterActiveCorp (IACI). As to price, that’s unclear, but it could be in the billions of dollars.

That’s another plus for Microsoft, which will obviously have to fork over more money if it wants to acquire Yahoo.

And, it is also priceless if Microsoft can minimize government interference in the deal, most especially any antitrust investigations related to its powerful email assets.

That must be a worry, since Microsoft and Yahoo completely dominate all email on the Internet. According to the most recent comScore (SCOR) figures, for example, Yahoo has 256 million users, while Microsoft has 255 million.

Google’s Gmail is a distant third with about 92 million users and AOL has about half that at 49 million.

The same domination is true in the instant messaging market, with Microsoft and Yahoo holding an 80% to 90% market share together.

Please see this disclosure related to me and Google.

Of course, finally.

Sure, there might be a giant scramble among media and tech giants over the next few weeks to grab Yahoo, now that Microsoft has finally pulled the trigger on its longtime desire to buy the troubled Internet company.

But, as BoomTown and everyone else has written, another weak quarter, a continued muddled outlook, perpetually confused management goals and the dipping of Yahoo stock below $20 a share have finally added up to the tipping point that Microsoft had long been waiting for.

To say this could have been prevented is moot now–Yahoo CEO Jerry Yang and his execs have managed the company right into the arms of the software giant.

In other words, they have been just lackluster enough over the last six months of managing Yahoo’s “revival” to push the company into a now-uncontrollable situation it finds itself in.

And with it’s I-shall-have-it bid for the troubled Internet giant, Microsoft has made a bold, slightly insane lunge to ensure that it is not sidelined in war with Google to control the Internet.

You have to guess the phones were ringing at Google HQ this morning, as other companies–from News Corp. to eBay to Comcast–are trying to figure out how to make a competing bid to the $31-per-share offer Microsoft lobbed today.

The obvious scenario: That Google would guarantee billions of dollars of revenues from search monetization for another company, so it could enter the race to grab one of the most trafficked sites on the Web.

Ironically, Google is the obvious company capable of bidding against Microsoft in this war and the only one which cannot, because of their dominant share of the search market and the justified concerns of monopoly.

And Microsoft, proving its ability to make dramatic moves in its own efforts to remain relevant on the Web by overpaying for a stake in Facebook, has stepped right into the fray by trying to take control of one of the Web’s once mighty and most important independent companies.

And while it’s never over until it’s over, let me just say, for Yahoo, it’s over.

Please see this disclosure related to me and Google.

Look, I love a good takeover rumor as much as the next gossipy reporter.

But all the incessant rumblings of Microsoft sniffing around to buy Yahoo or Yahoo merging with eBay are getting a tad ridiculous.

So, Deal or No Deal? Um, no deal, Howie! Really, no deal at all.

What it feels like to me is a bunch of bored and jobless investment bankers getting together for lunch at the Grill Room at the Four Seasons in Manhattan, cooking up the idea of such mergers and acquisitions and then speed-dialing gullible reporters.

While Yahoo stock was up yesterday on talk of Microsoft’s interest in it via a story in the New York Post–interest that has been written about at least 43 times over the past year–I am here to say that there is nothing new here.

Here’s what is going on and has long been going on: Microsoft continues to cast about for a viable Internet strategy, as it always does, and Yahoo is probably the numero-uno solution on its business development fix-it list.

Why? Well, the software behemoth just can’t catch Google in the lucrative search-ad market no matter how hard it tries and how much money it spends.

If it presumably put together it and No. 2 Yahoo, then presto chango, a real horse race.

But that’s kind of like stitching together Bill Richardson and Dennis Kucinich and getting a potential front-runner for the Democratic presidential nomination.

And, in fact, such a union has been raised in the past, by former Yahoo CEO Terry Semel in a trip he made to see Microsoft CEO Steve Ballmer several years ago.

It never happened then and will not now.

While Microsoft might indeed have renewed interest in such a pairing, I am here to tell you Yahoo execs do not seem to share that enthusiasm, except perhaps as a last resort or if the company’s stock price dips precipitously low.

But anyone who attended Jerry Yang’s speech at the Consumer Electronics Show in Las Vegas could see that the Yahoo co-founder and CEO has no intention of throwing in the towel quite yet.

While he might be thinking of outsourcing its search-ad business–and he should–or focusing more heavily on opening up Yahoo’s platform, a sale is like the red button of bye-bye to him.

Plus, if Yahoo were in play, there would be a feeding frenzy for the still-strong Web property–including obvious interest from Comcast, AT&T and even Google (which would never ever happen because of antitrust issues).

More intriguing is the idea of Yahoo and eBay linking up, which makes a lot more sense, but it also is not in the works.

Interestingly, Yahoo and the dominant auction site almost did merge back in the first dot-com bubble, a deal that was scuttled at the last minute over whether eBay CEO Meg Whitman would be in charge or not.

Now, such a deal seems more of a desperation play rather than a smart move–although the pair together would be serving an awful lot of customers worldwide and have some of the strongest Web brands around.

More likely is even closer ties between Yahoo and eBay, which is–sources told me–in the midst of a top-executive reorganization right now, as it looks toward the day Whitman is not in charge.

So, sorry to burst a bubble–actually, I am not sorry at all–but it is more no deal than deal here.

In fact, here is a piece I did back in late November, when Silicon Alley Insider’s Henry Blodget raised the same Yahoo-Microsoft rumors.

Please see this disclosure related to me and Google.

One step forward, several leaps back–at least for consumers when it comes to big entertainment conglomerates.

At the cable show in Las Vegas last week, I was actually somewhat surprised when Comcast COO Stephen Burke said the cable giant was talking to interested studios with the aim of showing movies on cable premium-priced ($30 to $50), on-demand service on the same day as they were released in theaters.

Oh joyous day–a nod to the changing trends related to audience viewing habits, which include the hypergrowth of big home-theater setups, part of a general desire to consume their entertainment any way they like.

A few big theater chains freaked, naturally, saying they would not play films that appeared at the same time as they were released to homes. An empty threat, of course, because like everyone, they need a flow of product to their theaters and would fold at the first blockbuster they did not feature.

In any case, I don’t pay that much attention to the complaints of companies that have for years abused their customers with sticky and filthy theaters, surly staff, increasingly poor viewing experiences and ever higher prices.

So it was hard not to be disheartened when Viacom CEO Philippe Dauman agreed with this antiquated practice yesterday, declaring at the Reuters Global Technology, Media and Telecoms Summit in New York that such an offering was a long time coming.

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Speaking of experiments, posted below is my first crude video, shot on the floor of the Cable Show yesterday. I used the inexpensive Flip camcorder I wrote about last week in this post and just meandered around and recorded some observations. As you will see, the cable industry can rest easy in their worries about Web broadcasting for now.

But just for now.