All Things Digital

Earlier this week, BoomTown posted our speaker list for the sixth edition of D: All Things Digital, which will take place in a few weeks–May 27 to 29, to be exact–in Carlsbad, Calif.

The annual gathering of tech and media luminaries was created and is run by my partner Walt Mossberg and me.

D6 tech and media speakers include: Microsoft Bill Gates and Steve Ballmer of Microsoft (MSFT); News Corp.’s (NWS) Rupert Murdoch; Jeff Bewkes of Time Warner (TWX); Mark Zuckerberg and Sheryl Sandberg of Facebook; Michael Dell of Dell Computer (DELL); IAC’s (IACI) Barry Diller; Amazon’s (AMZN) Jeff Bezos; Howard Stringer of Sony (SNE); and TiVo’s (TIVO) Tom Rogers.

Also: Tom Glocer of Thomson Reuters (TRI); Melinda Gates of the Gates Foundation; FCC Chairman Kevin Martin; Lowell McAdam of Verizon Wireless (VZ); Activision’s (ATVI) Robert Kotick; and former Microsoft tech guru Nathan Myhrvold of Intellectual Ventures.

Just recently, we added Jerry Yang, CEO and co-founder of Yahoo (YHOO), and now he is being joined onstage at the conference by Yahoo President Sue Decker (pictured here in a lovely Wall Street Journal dot-drawing).

The pairing should make for a lively session, given all the heat around Yahoo of late, largely related to the scuttled attempt by Microsoft to buy the company.

What would you like to know about that and anything else about Yahoo?

As it so happens, you can ask!

While the conference is sold out, you can submit questions that you would like answered to Yang and Decker or any of the speakers via text or video. Walt and I will pick the best ones and let loose.

Ask early and often here!

In addition, the whole conference will be online at AllThingsD during the conference, via live blogs and reports of breaking news (and there will be breaking news, as there always is), along with video highlights.

And videos of all the interviews will be posted soon after it is over.

Project Granola?

Apparently, that’s the jokey nickname that’s been given by some in the company to Microsoft’s (MSFT) new online strategy, in the wake of its failed efforts to acquire Yahoo (YHOO) that ended in a big heap of mess this past weekend.

Now, sources tell BoomTown, it is all about “organic”–hence the image of a healthy handful of granola (except for the fact that, in my experience, nobody really likes granola after eating it as much as they think will before).

In any case, it is a word Microsoft folks have been slipping into the conversations with BoomTown over the past few days, so much so that I have started to feel like I was talking to execs from Whole Foods.

Now Microsoft’s greenness has gone public.

Case in point: Brian Hall, Windows Live General Manager, who trotted out the organic word in front of Merrill Lynch analysts yesterday, as reported by CNET’s Ina Fried, saying: “We’ve withdrawn the offer and moved on, and now are focused on how we grow as fast as possible organically.”

But what does organic mean exactly?

Two things, it seems.

First, stepping up spending on marketing, technology and research to try to find ways to differentiate from Google (GOOG) and get into the No. 2 spot now held by Yahoo.

Of course, that plan has not worked out so well as yet for the software giant, with Microsoft spending billions of dollars with no profits and little gain in online search or ad market share, while its archrival Google keeps growing stronger.

Even so, while in Korea today, Microsoft Chairman Bill Gates backed Microsoft CEO Steve Ballmer’s do-it-yourself path and his move to walk away from Yahoo.

“The key decisions on that will be made by Microsoft CEO Steve Ballmer, who took a look at Yahoo and decided that, on our own, he likes the stuff that we’re doing,” said Gates.

Gates also added what amounts to the second option for Microsoft. “I wouldn’t rule out some partnerships, but we don’t have anything imminent there,” he said.

While a return to Yahoo is a possibility, in fact, buying up Web 2.0 stars is likely to be a bigger focus of the company.

“Yahoo can twist,” said one source. “Microsoft has lots and lots of other options.”

According to sources close to the company, for example, Microsoft’s bankers had been putting out subtle signals to Facebook to see if it would be open to a full buyout.

Microsoft already invested $240 million in the hot social-networking site, an investment that gave Facebook its kooky $15 billion valuation.

And its execs have long told Facebook execs they wouldn’t mind a bigger bite–um, like all of it.

“We just wanted to gauge their interest, more than any real effort,” said another source, who expects Facebook to stick to its longish path to an eventual IPO.

But, as is no secret, Microsoft has selections all over Silicon Valley to help it improve its Internet chances.

Those would include buying bigger vertical sites in strong categories like autos or jobs or finance, and also scooping up smaller but fast-growing socially oriented sites like Digg, Meebo, Yelp or focusing on ad plays like Spot Runner (which just got another big dollop of funding).

There might even be some sense in spinning some of these and all Microsoft Web units off into a separate Internet company, which would be another way of integrating even bigger deals for properties like Time Warner’s (TWX) AOL or News Corp.’s (NWS) MySpace (which are longer shots, I think).

In a post I did in February right after Yahoo rebuffed Microsoft for the first time, I suggested such a course for the company.

As I wrote:

Here’s a list: LinkedIn. Digg. Flixster. Slide or RockYou. Veoh. WordPress. Sphere. Sugar. Some international stuff. And more.

Then, some noted, Microsoft would have to give massive financial incentives to those entrepreneurs to stay and thrive. Most importantly, it would have to keep its Redmond hands from interfering.

Now that would send shivers up the spine of Larry and Sergey.”

And that, most of all, would be more like icing on the cake for Microsoft and be much more tasty than a bowl full of granola.

And, as Martha Stewart says: It’s a good thing.

Bill Gates and Steve Ballmer of Microsoft (MSFT). News Corp.’s (NWS) Rupert Murdoch. Jeff Bewkes of Time Warner (TWX). Yahoo’s (YHOO) Jerry Yang.

All of them engaged in roiling Internet deal-making of late and all of them in just three weeks on the same stage–but not, thankfully, at the same time, or we’d need a professional negotiator–at the 6th D: All Things Digital conference in Carlsbad, Calif.

The annual gathering of tech and media luminaries was created and is run by my amazing partner Walt Mossberg and me (see us here at D5) and will take place May 27 to 29.

The conference, as we describe it on our Web site, is “unlike any other executive conference.” What we mean by that is that we try to determine the next direction of the digital revolution via unscripted and informal, but pointed, conversations about the impact of digital technology with industry leaders.

In other words, Walt and I needling at the major players of the digital sector, until they give up the good stuff.

The other digital and media leaders coming? That would be: Mark Zuckerberg and Sheryl Sandberg of Facebook; Michael Dell of Dell Computer (DELL); IAC’s (IACI) Barry Diller; Amazon’s (AMZN) Jeff Bezos; Howard Stringer of Sony (SNE); and TiVo’s (TIVO) Tom Rogers.

Also: Tom Glocer of Thomson Reuters (TRI); Melinda Gates of the Gates Foundation; FCC Chairman Kevin Martin; Lowell McAdam of Verizon Wireless (VZ); Activision’s (ATVI) Robert Kotick; and former Microsoft tech guru and Nathan Myhrvold of Intellectual Ventures.

To say our timing is impeccably planned would be undeserved–we had no idea so much news related to all these companies and their leaders would break out, from the tough economy to takeover battles to court face-offs to mergers to trying to create a whole new way of reading.

Also, there will be some–as yet under wraps–amazing demos onstage too.

While the analog conference has been sold out for many months, the action will be on the AllThingsD.com site throughout the conference with round-the-clock live blogging by Digital Daily’s John Paczkowski, as well as video highlights from stage.

In addition, we’ll be pointing all over the Web to important tech and media news that breaks at D6.

And we will also stream the entire conference in the weeks after the conference takes place, so ATD’s audience can experience the whole thing, even if they cannot all attend.

But anyone’s questions can be there, though–this year, you can submit questions to any of the speakers via text or video that you would like answered. Walt and I will pick the best ones and let loose. Ask early and often here!

Walt and I are very excited for D6, even after last year, when we brought together industry legends Bill Gates and Apple’s Steve Jobs, for an historic joint interview.

At the time, Walt and I joked that we would not be able to top that amazing event (the video of the entire interview is below).

That interview was nearly unbeatable, but we also think that with the top-level interviewees we have assembled for D6, that it is game on.

Until then, here’s the Gates/Jobs video from D5:

BoomTown gets a lot of emails from Web players, big and small, commenting or, more typically, griping on whatever tech topic is hot that day.

And yesterday, after Microsoft (MSFT) abandoned its takeover bid for Yahoo (YHOO), it was like Christmas in July–our mailbox was packed.

But one stood out above all, from a person who shall remain nameless. This person has been around the block so much, he/she could be an Internet beat cop.

Like some Web 2.0 haiku combined with David Mamet-like dialogue, it encapsulates the situation going forward better than I ever could.

(By the way, for those needing a key: YHOO and Y is Yahoo; NWS is News Corp.; FIM is Fox Interactive Media, a division of News Corp.; GOOG is Google; MSFT is Microsoft; Jerry is Yahoo CEO Jerry Yang.)

Here’s the note:

Big drop in stock Monday (yhoo)
Simultaneous negotiations between y+nws, y+aol, y+goog
NWS+MSFT (nws trying to punt FIM to someone)
MSFT+Facebook

Then:
Y gets deal w/someone and msft comes back with an alternative.
That’s if Jerry survives the onslaught.”

After a months-long standoff, Microsoft (MSFT) has abandoned its bid for Yahoo (YHOO), people involved in the discussions said today.

Microsoft confirmed to BoomTown that talks between the two companies, which have been taking place all week, collapsed Saturday when they could not agree on a price.

According to sources close to Microsoft, the talks broke down this afternoon after a face-to-face meeting in the Seattle area that included Microsoft CEO Steve Ballmer, Kevin Johnson, president of Microsoft’s Platforms & Services Division and Yahoo Co-Founders Jerry Yang and David Filo.

According to sources, Microsoft offered $33 a share, and Yahoo countered with $37 a share. The talks went nowhere from there.

Microsoft was also concerned with the lack of friendly integration and other major strategic problems, including the email monopoly that would arise from the merger of the two companies, as well as any outsourcing ad deal Yahoo might sign with Microsoft archrival Google (GOOG) before Microsoft completed an acquisition.

In addition, Microsoft sources said, Yahoo requested other unspecified costs that Microsoft was unwilling to accept.

As BoomTown has written recently, there have been ongoing meetings between the two companies recently in a bid to avoid a nasty takeover battle.

According to sources close to Microsoft, they include a meeting on April 15 in Portland, Ore. (as BoomTown said here), another by phone on April 18 and a meeting that included Ballmer and Yang in California on April 30.

At several points during the last few weeks, Yahoo execs had asked for over $40 a share to consummate the deal, a price Microsoft rejected. Yahoo’s Yang subsequently called Ballmer with the lower $37 price, which was discussed today.

In a letter to Jerry Yang, Steve Ballmer said that Microsoft will not move forward with a proxy fight and will instead pursue a more “organic” strategy in the online advertising market.

…It is clear to me that it is not sensible for Microsoft to take our offer directly to your shareholders. This approach would necessarily involve a protracted proxy contest and eventually an exchange offer. Our discussions with you have led us to conclude that, in the interim, you would take steps that would make Yahoo undesirable as an acquisition for Microsoft.”

A deal with Google is what Ballmer is specifically referring to in his last sentence.

That is not to say that Microsoft might not circle back and again attempt to acquire Yahoo at some point in the future, especially if the company’s stock tanks on Monday, as many expect it will.

That could be a problem for Yahoo in its quest to remain independent.

The options for Yahoo include a partnership with AOL (TWX) or News Corp. (NWS), an outsourcing deal with Google–which may present other antitrust problems–or actually improving its business.

That’s the one thing, of course, that’s been a problem for Yahoo managers and what landed them in this mess in the first place.

Who in the Internet sector hasn’t enjoyed the always amusing stylings of Mr. Ross Levinsohn, the high-profile former head of Fox Interactive Media a.k.a. “The Guy Who Bought MySpace for News Corp.”?

Today, he added another song to his silky smooth repertoire as the “Internet guy who dissed Yahoo.”

In a nice scoop, TechCrunch reported that Levinsohn was going to be a nominee to the board that Microsoft (MSFT) has been forming as part its potential proxy fight to take over Yahoo (YHOO).

That’s true, several sources have told me. Levinsohn, who was recruited by Microsoft’s Yusuf Mehdi, has even filled out paperwork as part of the process.

And once the i’s are dotted and the t’s crossed, that makes him the highest profile Internet figure on the board, which is made up of–let’s just say it, shall we?–pretty unimpressive former execs, none of whom has had any substantial Internet experience.

While many well-known Web figures were approached by Microsoft, few in Silicon Valley have been willing to be part of an effort to snuff out an independent Yahoo, one of its most important and iconic brands.

Not so the entrepreneurially inclined Levinsohn, apparently, who has a maverick nature.

He left FIM in 2006, for example, after deciding he wanted to be more than an overpaid employee of Rupert Murdoch and Peter Chernin.

Now, the Los Angeles-based Levinsohn runs an investment fund called Velocity Interactive Group with former AOL (TWX) head Jon Miller. Armed with $1.5 billion, the investment focus of the new enterprise will be on digital media and communications.

Given possible News Corp. (NWS) involvement as a possible partner in the Microsoft deal (more on that later), including a desire by Murdoch to spin MySpace into Yahoo, it’ll be interesting that Levinsohn might now have some power over his former bosses.

Or not. Most expect the board to be a rubber stamp for Microsoft, although several sources say those asked have been told that they can vote in the way they think is best for Yahoo.

Kind of like superdelegates! Except geekier!

Here is a video interview I did with Levinsohn in December of 2007, where he talks about the future of digital media on the Web, as the tech and entertainment industries and its many players seek to figure out how to make the painful digital shift and find new monetization plans that will replace crumbling old-media businesses.

At the end, months before Microsoft’s unsolicited bid for Yahoo was launched, after I asked him what will be coming, the psychic Levinsohn eerily predicted: “Something happening with Yahoo, I think, this year.”

Something indeed.

Here is the video:

Who’ll get Digg? (Odds-on favorite and sources tell me much sooner than later: Google.)

And who might make a bid for Slide, RockYou, LinkedIn, Meebo or imeem? (It might be smart for News Corp. [NWS] to double down in the social- networking space, if it can’t trade MySpace for a piece of Yahoo.)

And what about a plethora of really useful and interesting small start-ups all over Silicon Valley and elsewhere that are going to have to eventually find safe harbors when this Web 2.0 thing cools off, as it inevitably will. (AOL [TWX], Amazon [AMZN], eBay [EBAY] and, again, Google [GOOG], are natural choices.)

But not Microsoft (MSFT) or Yahoo (YHOO) if they persist in competing in this endless geek cage-match for too long.

Yesterday, more blustering bluster from Microsoft when it said, during its quarterly conference call, that it would not pay more to acquire Yahoo and might very well walk away from the deal.

My advice: Microsoft CEO Steve Ballmer should stop talking and start walking. If not, pay up and finish the deal.

And Yahoo’s CEO Jerry Yang should cooperate and stop its now-tiresome posturing (we get it, it’s worth more!).

Why?

Well, while the pair remained locked in mortal combat, a status that will continue if they actually do manage to unite and have to then conduct a doubtlessly slow-moving merger, their main rival Google and others are the likeliest to benefit every day this drags on.

Right after Microsoft made its unsolicited for Yahoo in February and it was quickly rebuffed, BoomTown suggested in a post that the software giant move on quickly and use its tens of billions to buy up the choicest and most innovative companies in the digital space.

What I wrote then bears repeating:

And what are the other options Microsoft might have that are actually better than scooping up Yahoo, especially to serve its Captain-Ahab obsession with harpooning the Great White Whale of Google?

If that is the actual goal, then many point out that a Yahoo win does not really frighten Google all that much, since the search giant has done just fine competing against both already.

In addition, many noted that a union of the pair, which would distract both Yahoo and Microsoft, might not be the magic bullet needed to fell Google from its high perch. And then what?

One idea I have heard, for example, was that Microsoft take its $44.6 billion in cash and stock it plans on spending on Yahoo and go on a shopping spree of the Web 2.0 companies all around Silicon Valley and all over.

And not just a few–lots and lots of them. And, more than one person suggested, it should start with Facebook, even at that wacky $15 billion valuation that Microsoft itself validated when it invested $240 million in the social-networking site recently.

“So what if it is only worth $10 billion or even less,” said one person. “They could lose a lot more on the risk of buying Yahoo.”

With the $30 billion left over, it could be like Christmas in July for the geeks and venture firms of Silicon Valley. But Microsoft could scoop up a lot of good stuff, even if prices are high.

Here’s a list: LinkedIn. Digg. Flixster. Slide or RockYou. Veoh. WordPress. Sphere. Sugar. Some international stuff. And more.

Then, some noted, Microsoft would have to give massive financial incentives to those entrepreneurs to stay and thrive. Most importantly, it would have to keep its Redmond hands from interfering.

Now that would send shivers up the spine of [Google’s] Larry and Sergey.”

It still would. So maybe, as it has threatened yesterday, Microsoft should run and not walk.

Please see this disclosure related to me and Google.

Yes, the board of Yahoo is meeting today to try to devise new and more dastardly ways of wringing more money out of Microsoft.

For viewers just tuning in, so far this week on “As the Tiny-Incestuous-Petty-Juvenile-Digital World Turns,” Yahoo (YHOO) has been plenty busy:

An AOL (TWX) mashup deal!

A Google (GOOG) search-ad partnership!

Even–cue the trumpets!!!–the late entrance of that man-about-Silicon-Valley from Web 1.0, Frank Quattrone, working for Google, which is helping Yahoo on AOL (and, fun, snake-eating-itself fact: as a banker, Quattrone worked for Yahoo when it was contemplating buying eBay).

This is so deliciously sweet, in terms of geek soap opera, that I fear I may get a major cavity soon.

But like any hungry viewer, I want more! What, what, what could be the next twist and turn?

Here are three of my more creative brainstorms:

1. Reunite the dream team in United States v. Microsoft to scare the living daylights out of Steve Ballmer.

It will be like an antitrust version of “I Know What You Did Last Summer.” I am almost certain that Joel Klein, Janet Reno, David Boies and the ever-irascible Judge Thomas Penfield Jackson (the latter two pictured here) still are capable of giving Microsoft (MSFT) the willies.

2. If you want make former Yahoo merger partner and now Microsoft merger parter News Corp.’s (NWS) Rupert Murdoch squirm, there’s nothing like adding yet another wizened media mogul to the mix. My No. 1 choice would be some kind of hopelessly complex mashup with the properties of Sumner Redstone (pictured here), who controls both CBS (CBS) and Viacom (VIA). I am thinking something that includes SpongeBob SquarePants and those irksome girls from “The Hills” (also pictured here) and, say, Katie Couric.

3. Of course, the most surefire way to get more money from Microsoft: Hire Mark Zuckerberg (pictured here). So far, the 23-year-old wunderkind and his team at Facebook (well played, Owen Van Natta, well played!) have been the only ones able to get Microsoft to fork over an ungodly amount of money for a chance to own a small part of a hope and a dream and not-a-very-impressive bottom line.

If Zuckerberg can get a $15 billion valuation by putting up only SuperPokes and news feeds as collateral, I would find what he is drinking and get me some for myself.

Please see this disclosure related to me and Google.

While in Los Angeles, BoomTown visited the offices of Hulu, the online video service that has been an unexpected bright spot for two Hollywood behemoths--NBC Universal (GE) and News Corp. (NWS) (owner of this site)--who launched the premium online video service as a joint venture last year.

Helmed by former Amazon exec Jason Kilar, not much was expected of Hulu, given that traditional entertainment companies have been slower than slow in embracing the digitization of their businesses.

But, armed with the clout of its partners, along with $100 million in private equity from Providence Equity Partners, as I wrote back in late October, Hulu has been a pretty decent effort and has gained surprising traction, both in its distributed content and also on its site.

Yet despite its clean look, easy-to-use tools, relative openness and also addition of more and more premium content, it will still be a long slog for Hulu, as it tries to make a big business out of all of it and battle the increasing power of bigger sites like Google’s YouTube.

Nonetheless, so far, so good. And, so we visited its HQ in Santa Monica, Calif., with our No. 1 son, Louie Swisher (Hulu’s true audience) in tow to see how the service is put together and meet some of its employees.

Thus, this fine video, in which Louie does a very good dance interpretation of the service at the start–although what else would a mother say?

(Also, here is a longer interview with Kilar about Hulu and its future.)

Here’s BoomTown’s longer interview with the deceptively sharp Hulu CEO Jason Kilar, which I did while I was visiting the start-up recently.

In it, we discuss a wide range of topics about the premium online video service, which is a joint venture of NBC Universal (GE) and News Corp. (NWS) (owner of this site).

In it, he talks about everything from the reasons for the early success of Hulu to the state of content online in Hollywood to where it is all going to the sticky question of monetization (or lack thereof).

Also, when the heck is “Law & Order” going to be on Hulu? And “Seinfeld,” please.

(In addition, here is a video and post of my tour of Hulu HQ in Santa Monica, Calif., with Louie Swisher, who gives a very fine dance interpretation of the service at the start, I think you will agree.)

Could we resist? No, we could not.

Thus, BoomTown’s translation of Saturday’s letter from Microsoft (MSFT) CEO Steve Ballmer to the Yahoo (YHOO) Board of Directors, which has been resisting the software giant’s efforts to buy the troubled Internet portal for $31 a share in an unsolicited takeover.

The well-written letter was surprising in its clarity, but it still masked several secret messages.

Ballmer wrote: April 5, 2008
Board of Directors
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089

Dear Members of the Board:

Translation: Dear Members of the Board, whom I will be replacing very soon with my own slate, which includes the three judges from “American Idol” (Simon promises to behave and Paula promises not to), as well as the sock puppet from Pets.com, the PC Guy in those #@#*! Apple commercials and also Microsoft Bob.

Ballmer wrote: It has now been more than two months since we made our proposal to acquire Yahoo at a 62% premium to its closing price on Jan. 31, 2008, the day prior to our announcement. Our goal in making such a generous offer was to create the basis for a speedy and ultimately friendly transaction. Despite this, the pace of the last two months has been anything but speedy.

Translation: What? A middle of the night crank call from me, yelling and screaming and threatening “Terminator”-like destruction if you did not acquiesce was too much?

Didn’t you get the flowers I sent the next day?

Ballmer wrote: While there has been some limited interaction between management of our two companies, there has been no meaningful negotiation to conclude an agreement. We understand that you have been meeting to consider and assess your alternatives, including alternative transactions with others in the industry, but we’ve seen no indication that you have authorized Yahoo management to negotiate with Microsoft. This is despite the fact that our proposal is 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.

Translation: I tried not to be annoyed when you had dinner with News Corp.’s (NWS) deal-loving Rupert Murdoch, or when you flirted with those we-gotta-make-some-move-any-move execs at AOL (TWX) (Bebo for $850 million in cash=Microsoft’s $240 million investment in Facebook).

But dithering around with Google (GOOG), whose secret corporate motto is “Poke Microsoft With a Stick Often,” even after it has been slapping you around Silicon Valley for years?

Ballmer wrote: During these two months of inactivity, the Internet has continued to march on, while the public equity markets and overall economic conditions have weakened considerably, both in general and for other Internet-focused companies in particular. At the same time, public indicators suggest that Yahoo’s search and page view shares have declined. Finally, you have adopted new plans at the company that have made any change of control more costly.

Translation: Google keeps slapping you silly in search, then you slap us with a costly severance plan. It’s like we’re Curly in a Web-version of “The Three Stooges.”

Why I oughta….

Ballmer wrote: By any fair measure, the large premium we offered in January is even more significant today. We believe that the majority of your shareholders share this assessment, even after reviewing your public disclosures relating to your future prospects.

Translation: Legg Mason and Cap Re and Citi and the rest of them are with us and not with you. Why? They like us, they really like us. Also, we are much scarier.

Ballmer wrote: Given these developments, we believe now is the time for our respective companies to authorize teams to sit down and negotiate a definitive agreement on a combination of our companies that will deliver superior value to our respective shareholders, creating a more efficient and competitive company that will provide greater value and service to our customers. If we have not concluded an agreement within the next three weeks, we will be compelled to take our case directly to your shareholders, including the initiation of a proxy contest to elect an alternative slate of directors for the Yahoo board. The substantial premium reflected in our initial proposal anticipated a friendly transaction with you. 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.

Translation: We can do this the easy way or the hard way. The easy way includes tasty breakfast pastries and yummy hot cocoa (unlimited marshmallows, of course!) and lots and lots of hugging.

The hard way? Tepid lattes in the Silicon Valley soup kitchen lines for you, after your stock drops to the bottom of a bottomless well when we pull out!

Ballmer wrote: It is unfortunate that by choosing not to enter into substantive negotiations with us, you have failed to give due consideration to a transaction that has tremendous benefits for Yahoo’s shareholders and employees. We think it is critically important not to let this window of opportunity pass.

Translation: Like I said before, I won’t be ignored, Jerry! I have a very sharp proxy firm and I am not afraid to use it!

Also, I am not above boiling your annoying exclamation point.

Ballmer wrote: Sincerely,

Steven A. Ballmer
Chief Executive Office
Microsoft Corp.

Translation: If you’ll be my bodyguard,/I can be your long lost pal!/I can call you Jerry,/And Jerry, when you call me,/You can call me Steve!

What’s AOL getting for its $850 million in cash to purchase of social-networking site, Bebo?

A very attractive social-networking service and a very experienced exec who has been running it.

But, perhaps more importantly for those who focus on pesky numbers, not a whole lot of revenue and negligible profits, judging financial information I got a gander at, courtesy of sources at several companies that looked at funding or buying Bebo.

And the rest of the overall outlook for Bebo? A small but growing business, with nice user engagement with strong page views and minutes spent per session, but little traction beyond Britain and Ireland, and too small a presence in the critical U.S. market.

(Bebo is also strong in New Zealand, but BoomTown does not have to point out that that country is not exactly the kind of game-changer that AOL CEO Randy Falco mentioned in his email to the troops about the purchase.)

According to the several sources who were privy to Bebo’s financials, for example, Bebo’s revenues for 2006 were only $7 million with $3 million in EBITDA (earnings before interest, taxes, depreciation and amortization). In 2007, the results are still small, with $20 million in revenues and $5 million in EBITDA.

Using 2007 results, that means Time Warner’s (TWZ) AOL paid a handsome 42.5 times revenues and an incredible 160 times EBITDA.

AOL might assert that it makes Bebo a bargain, given that Facebook got valued at 50 times revenue when it got that $15 billion valuation from the $240 million investment from Microsoft (MSFT) last year. Still, Facebook has a huge presence in the U.S. and is growing strongly in Europe, including being just ahead in Bebo’s strongest territory in the U.K.

Projecting outward, the company estimated–remember, these are not actual numbers, but a best guess by Bebo execs–it would have $50 million in revenue and $10 million in EBITDA in 2008; $117 million in revenue and $48 million in revenue in 2009 and $193 million in revenue and $92 million in EBITDA in 2010.

While potential is important, the high price (which was still lower than the $1 billion and above that Bebo might have fetched even six months ago) and its small presence in the U.S. were the reasons several companies passed on acquiring Bebo–including News Corp. (NWS), Google (GOOG), Yahoo (YHOO) and CBS (CBS), said sources close to each of these companies.

On the plus side, users do spend a lot of time on Bebo, engaged by its more robust content offerings, such as its “KateModern” series (which I wrote about here), and its elegant and content-rich offering, which has some of the cleanness of a Facebook and some of the flash of MySpace.

In addition, in Bebo’s president Joanna Shields (pictured here somewhat awkwardly shaking AOL CEO Falco’s hand and with AOL President and COO Ron Grant), AOL gets an experienced and savvy Web exec, which it desperately needs these days, given the flux there.

Shields has worked at RealNetworks and Google and she will continue to run Bebo and report to Grant. In fact, Shields has effectively been running Bebo for a while now, and its founders Michael Birch and Xochi Birch will be leaving the company.

You can see Shields in action in this video, which I did while visiting London last summer:

Here’s what many people within Yahoo (YHOO), who are not CEO Jerry Yang and the board of directors, are chattering about these days: That the Internet portal will not make a deal, any kind of deal, related to the outstanding unsolicited acquisition offer by Microsoft (MSFT), before it has to report its first quarter in late April.

Given worries about an online ad recession–worries that have, for example, sent industry leader Google’s share price hurtling downward of late–some at the company are concerned about possible weak results and what it might do to the company’s negotiating power.

If Google (GOOG) has a cold, the thinking goes, everyone else might suffer from a more serious flu.

“Yahoo’s core business can’t show signs of weakness the way it has in previous quarters,” said one person close to the company. “And since the landscape is certainly uncertain for everyone, Yahoo has to have a definitive plan of what it is going to do.”

Yahoo will soon be certain of those results, since it closes its first quarter at the end of the month and its earnings call with investors and analysts will be on April 22.

If its results are disappointing, it will have a big impact on the current takeover bid by Microsoft, launched at the beginning of February.

Since then, Yahoo has rejected the Microsoft bid and has been searching for alternatives.

One of these options–a deal with News Corp. (NWS) and its MySpace social-networking site–seems to have dried up, after its CEO and Chairman Rupert Murdoch indicated at the Bear Stearns conference earlier this week that it was unlikely.

Yahoo is still pursuing a possible deal with Time Warner (TWX) and its AOL unit, according to sources at both companies, even as AOL has seen tumult in the executive ranks and especially in its Advertising.com unit recently.

In fact, Time Warner CEO Jeff Bewkes noted yesterday at the same Bear Stearns conference that AOL was open to being combined with another company, “whatever configuration makes it the strongest and the most valuable.”

I am not clear what the benefit of uniting two troubled Internet companies is, but I am sure AOL and Yahoo investment bankers can explain it all away (taking tips, presumably, from the advisers who cooked up the first disastrous AOL merger with Time Warner).

Most think the more likely scenario will be that Yahoo will eventually have to pursue talks with Microsoft.

If so, there are hopes by some shareholders that Yahoo can extract a higher price from the software giant, which has so far seemed unwilling to budge on its initial offer of $31 a share in stock and cash.

But weak quarterly earnings could solidify that position.

After a few months of private beta, Hulu will open itself to the public tomorrow with a full-court press of publicity.

Hulu kind of deserves at least a little more attention, despite efforts by some to look for warts in the online video service, which is a joint venture between NBC Universal (GE) and News Corp. (NWS)–owner of Dow Jones, which owns this site–with $100 million in private equity from Providence Equity Partners.

But, as I wrote back in late October, Hulu has been a pretty decent effort on the part of slow-moving media companies, despite some problems here and there that I noted.

Still, I wrote: “Hulu’s willingness to send its content far and wide from the get-go, with very little friction and using easy tools to do so, is perhaps the most compelling aspect of its debut.

Finally, someone in Hollywood has realized that ubiquitous distribution, which is being driven by consumers’ desire to move their media anywhere they want, whenever they want, is the future.

To shine itself up for new U.S.-only users, Hulu is adding more premium content, including about 100 full-length movies and also upping its television offerings to 250 full-length episodes.

The new licensing deals include Warner Bros. Television Group, Lionsgate, NBA and the NHL, and the movies include cult hits like “The Big Lebowski.”

In addition, Hulu is launching a new ad offering that lets users pick their own products to learn about and linking full movie trailer ads with content it relates to, which would then be streamed without interruption. For example, a trailer for the movie “Juno” might be seen before the television series “Arrested Development,” since both star actors Jason Bateman and Michael Cera.

Hulu CEO Jason Kilar said he knows there needs to be a lot more professionally produced content on online video sites like Hulu from a wider range of content creators.

Hulu, for example, doe not have popular NBC shows like the “Law and Order” franchise, since it still has not reached an agreement with its powerful producer, Dick Wolf.

“We are trying to build the kind of audiences where we can monetize it well for all content creators,” Kilar said in an interview, noting the site had attracted five million users over the last 30 days. “When we have that economic power and an even larger audience, I think level heads will prevail in getting more and more content to consumers.”

And when that happens, as I wrote back in the fall, Hulu has done a nice job so far in designing the easy-to-use service, including allowing users to grab their own clips, although there are some small quibbles with its player (it can be slow, for example, but–to be fair–every Internet video site is slow).

In addition, Hulu’s business model, in which it shares ad revenues with content creators (for content that comes mostly from its owners), is still nascent and potentially problematic (see this interesting analysis from Silicon Alley Insider, for example).

But I do love those movable clips and I think the public will too, ads and all.

For example, here is a recent entire episode of my new favorite show, “Terminator: The Sarah Connor Chronicles” (How much do we love Summer Glau’s flat affect as a teenage cybernetic organism? So much), which I easily embedded here: