All Things Digital

As BoomTown reported on Tuesday, The Wall Street Journal is now reporting that Microsoft (MSFT) and Yahoo (YHOO) have been chatting away informally, after a week of faux-wrestling.

It’s been like WrestleMania, except without the excitement and anticipation. Also, no cool names or outfits.

As I posted on Tuesday:

While it is true, as we and everyone else have posted, that Yahoo and Microsoft still have not entered into or even scheduled any formal talks, even after the software giant’s threat to launch a hostile bid came and went over the weekend without action, it is also not true that there are no talks going on.

According to sources close to both companies, there are informal discussions now taking place between Yahoo and Microsoft–via bankers, board members, shareholders and others close to both companies–to try to prevent a hostile takeover scenario or the sudden withdrawal of Microsoft’s offer.

Both options are unattractive for a number of reasons to pretty much everyone and, in BoomTown’s opinion, an excellent example of how juvenile this takeover battle has become (or “amateur hour,” as one source close to both companies described it to me).

A hostile bid by Microsoft, for example, is profoundly distracting to both parties and could result in an exodus of Yahoo staff, along with being risky in terms of certain success for Microsoft.”

And from the Journal this afternoon:

The two sides and their advisers have had informal discussions over the past week, but have been stymied by a divide on the price Microsoft should pay to acquire Yahoo, say the people. Microsoft has been weighing whether to drop its bid or go hostile, and has promised to announce its decision this week. As of Thursday night, Microsoft was leaning toward going hostile, but the situation remained fluid, according to people familiar with the matter.

Now, people close to the two sides are attempting to avert that prospect with discussions they hope could lead to a negotiated outcome, say the people. Microsoft has wanted to avoid a hostile takeover battle, which could drag out and result in distraction and the loss of key Yahoo employees.”

The lack of announcement by Microsoft this morning, as expected, has Silicon Alley Insider speculating that Microsoft (MSFT) and Yahoo (YHOO) are finally engaged in serious, behind-the-scenes discussions about finally coming to the table and making a deal in the long-running takeover battle.

From Henry Blodget’s blog to Steve Ballmer’s brain…

But it’s not a bad theory, especially given the eerie quiet after the spate of very public Hamlet act by the Microsoft CEO yesterday. After telling The Wall Street Journal, “With the right circumstances it’ll happen. Without the right circumstances it won’t happen” today, this is how the New York Post characterized it:

“The frequently shouting, often sweaty Ballmer gave no indication as to the direction he was leaning, saying only that there were three paths the company could pursue: a friendly deal, an unfriendly deal or walking away.”

Well, that clears it up! (Not even one little bit.)

Actually, BoomTown posted earlier this week about informal talks already taking place:

According to sources close to both companies, there are informal discussions now taking place between Yahoo and Microsoft–via bankers, board members, shareholders and others close to both companies–to try to prevent a hostile takeover scenario or the sudden withdrawal of Microsoft’s offer.

So given Ballmer’s range of options this week seem wide enough to drive a semi through, perhaps that’s precisely what Yahoo is finally doing today, as its board meets, sources tell me, to discuss options.

Having successfully gotten the price talk up around the mid-$30s, after it was heading downward only last week and ladling on more Google (GOOG) scariness aimed at Microsoft yesterday–Fabulous online ad outsourcing deal coming! We swear! Google has magic powers to put a spell on you! Boooooo!–the bluffing by Yahoo CEO Jerry Yang would make the famous poker player Jerry Yang proud. (Both pictured here.)

So now, we wait and watch to see who wins this seemingly endless game of Silicon Valley Hold ‘Em.

So, reportedly Microsoft (MSFT) will have a town hall meeting for its employees today, in which execs will undoubtedly face questions about the still-unresolved Yahoo (YHOO) takeover battle.

They probably don’t need a meeting to know what’s up, because tensions and disgruntlement within the company are rising even more about the issue, especially in the wake of news this week that Microsoft has also prepared a generous $1.5 billion retention package to hold onto Yahoos in the event of a takeover.

Of increasing concern at Microsoft: Would the companies blend like the Brady Bunch? Or, as many worry, perhaps not so much.

Microsoft has about 79,000 employees, while Yahoo has just under 14,000.

“Reasons just keep piling on as to why we should not buy Yahoo,” said one mid-level Microsoft employee I spoke to. “It’s a bet a lot of people are getting more nervous about.”

And it is in that bet by Microsoft CEO Steve Ballmer–that it is in the fast-growing online ad industry rather than in the software business–that Microsoft’s future lies.

But, given it is the software business that has been the engine of all of Microsoft’s amazing growth over the years, it is obvious that many are dubious about such a dramatic shift.

Earlier this week, The Wall Street Journal reported on these tensions, which have been growing deeper as the deal drags on.

“We need to focus on Vista and its problems and making sure we continue to innovate in what we do best,” said another employee, talking about Microsoft’s powerful Windows franchise.

Much of the ire, which has been expressed vocally in a number of divisional meetings of late, seems to come most strongly from Microsoft’s powerful corps of software engineers and programmers.

They are more concerned with inroads companies like Google (GOOG) might make in the Web-based apps business, efforts aimed directly at the heart of Windows.

If resources are diverted to Yahoo, many think it will take the focus from Microsoft’s key businesses.

In addition, many employees outside the online services parts of Microsoft are unhappy that the one part of the company that has not gotten much traction against rivals is being rewarded by getting to make such an enormous bid.

The common sentiment: That online efforts, such as MSN, have been decidedly lackluster, but its execs are now rewarded with an even larger playground in Yahoo.

The biggest worry? That even more online resources will be squandered by the longtime execs who have been in charge of Microsoft’s online efforts.

“Yahoo’s leadership is obviously not going to stay and they have had trouble managing its business anyway and so has Microsoft,” said another employee. “So who is really able to lead something this big?”

With all the noise around this deal, it is perhaps the most important question of all.

Today, as The Wall Street Journal reports, the Microsoft (MSFT) board, which met to consider its next move in the Yahoo (YHOO) takeover battle yesterday afternoon, didn’t decide anything.

And here we thought Yahoo was the champ at dithering.

Not so, it seems, as Microsoft CEO Steve Ballmer mulls over the many options, each of which the software giant’s execs have cavalierly raised and dismissed publicly in the last weeks.

We know it is a big deal, but Ballmer’s ruminating is starting to make Hamlet seem decisive.

To be fair, none of the choices are winners–at this point, it’s more like a digital version of Scylla and Charybdis.

For those who have not cracked Homer’s “Odyssey” since high school, it’s one of the more vexing challenges that Odysseus faced on his long trip home.

The basics: A narrow strait. On one side a sailor-eating monster called Scylla and on the other a sailor-sucking whirlpool. Thus, a need to maneuver away from the death-to-all whirlpool means you have to sacrifice a sailor or two to Scylla.

In other words, you have to lose something no matter what.

And that is exactly Ballmer’s dilemma in regards to Yahoo.

If he pays more, it adds billions of dollars to the cost and kind of makes him seem silly for saying he would lower the price.

It also begs the question of why Ballmer did not do this sooner to get this deal done more cleanly. And now its $32 to $33 rise, which would have been welcome even a week ago, seems too cheap, with Yahoo shareholders now wanting over $35.

If Ballmer offers less, goodbye big shareholders like Legg Mason, who will likely become recalcitrant to hand over the company after a financial hair cut.

If he walks away, Ballmer risks losing momentum in his quest to win in the online advertising game versus archrival Google (GOOG).

In addition, if Yahoo stock drops enough, other players will enter the picture. Also, the Google threat to be Yahoo’s ad partner–which is in the works, whether illegal or not–has become inevitable and has been ironically finally consummated because of Microsoft’s unsolicited bid.

And, finally, if he stays in it without resolution for much longer, Ballmer risks declining morale of his own employees. Make no mistake–especially Microsoft’s important software engineers–increasing numbers of the company’s employees do not support this deal now.

So to avoid the dreaded whirlpool and geek-eating monster, Ballmer seems to have one option now–pay up if he really wants the company and thinks online advertising is a mission-critical aim of Microsoft.

And, if not, walk away and keep on walking.

If we were an actual baby, AllThingsD.com would be just about to walk by now.

Hopefully, we have done better than that over the past year and we hope to do even more in the year ahead, attempting to give readers the very best tech news and analysis married with the high standards The Wall Street Journal is known for.

At the same time, we have also tried to capture the excitement and energy of the blogosphere, in what has been an entrepreneurial effort within a major media company.

The site officially launched on April 26, 2007, one year and two days ago.

No presents, but your presence over the next year, as we make even more improvements to our work-in-progress site.

Thanks, of course, go first to my amazing partner, Walt Mossberg, as well as our crack staff (click here to see them in all their glory), partners, designers and all the many Wall Street Journal and Dow Jones folks involved.

To mark the past year, BoomTown could spend a lot of time deeply ruminating on how blogging is so very different than mainstream journalism (much more fun, much less sleep).

Or I could ponder the agonizing quest to improve standards and accuracy in the blogosphere (”I am I, Don Quixote, the lord of La Mancha/Destroyer of evil am I/I will march to the sound of the trumpets of glory/Forever to conquer or die.”)

Or I could discuss widgets and how they have changed my life (I don’t know what I would have done had Scramble not inspired my empty soul!).

But, no!

Instead, I will just re-post here one of the very first posts I had up on that first day, about…drum roll, please…my worries about the situation at Yahoo (YHOO).

I don’t want to say I am a psychic or anything, but in this piece, called “Terry in Turnaround,” I begin my obsessive coverage of the Internet portal, which I thought a year ago could be headed for trouble.

(Interestingly, my other post that day was about Facebook trying to become more mature.)

Read more »

Should they stay or should they go now?

If they go there will be trouble. And if they stay it will be double.

In other words, BoomTown’s got nothing!

I am traveling this morning to Los Angeles for paidContent’s Economics of Social Media conference, where I will interview Walt Disney Internet Group President Steve Wadsworth onstage tomorrow.

But I will be sure to update after I arrive, as I have a new theory on the takeover I am noodling on.

Until then, here’s a nice summation from The Wall Street Journal here, saying absolutely nothing new too, but nicely hashing over the details thus far.

Money quote: “There was no direct contact between the two sides this past weekend and people close to both camps said they were preparing for the next stage of battle.”

Thus, while loins are apparently being girded, here is a very nice video of the Clash, singing their hit song (and how much do I love this song? Much!):

In the interests of getting Yahoo and Microsoft to make nice before all hell breaks loose on Monday, BoomTown is here to help.

Sources tell me Yahoo’s (YHOO) board might gather Sunday to consider their options, although plans are still in flux.

Microsoft (MSFT) sources indicate that it will decide on its move–fight or flight–by Monday or Tuesday of next week, even though the company set today as a deadline for initiating a proxy fight.

As The Wall Street Journal reported today, both sides were waiting for the other to make a move on starting negotiations–Yahoo for a higher price from Microsoft and Microsoft for a meeting with Yahoo to talk about price.

This is worse behavior than my two sons locked in a staring contest over who gets to be the one to hold the plastic dinosaur first.

Just in case Microsoft’s CEO Steve Ballmer has lost the information: Yahoo’s address is 701 First Avenue, Sunnyvale, Calif., and its phone number is 408-349-3300. If Jerry is not available, ask for Sue or Blake or Roy.

And, for Yahoo CEO Jerry Yang, if he wants to make nice, he can reach Microsoft at 1 Microsoft Way, Redmond, Wash., or call 425-882-8080 and ask for Steve or Bill or Chris.

Until then, as I tell my kids, try to behave or no TV.

As someone who has been a longtime critic of Microsoft’s (MSFT) historically thuggish tendencies, BoomTown finds it a little hard to believe that Yahoo (YHOO) and Google (GOOG) think that they can get away with any kind of significant search-ad outsourcing deal that would move the needle at Yahoo and, I guess, pressgang the software giant into making a higher bid in its quest to acquire it.

But, as reported in The Wall Street Journal today, the pair are serious about an outsourcing deal in which Google would take over its search-ad business, since Google is able to monetize that traffic with such superiority to Yahoo’s efforts.

Sources at Yahoo tell me that the tests the pair has been conducting recently went much better than expected, with Google’s ad search engine turbocharging Yahoo’s traffic dramatically.

Hello. Of course it did.

In fact, such a deal if struck would add more than $1 billion a year to Yahoo’s cash flow, said the Journal report, which would presumably give Yahoo the argument it needs to prove it is worth more than the $31-per-share unsolicited offer from Microsoft.

Setting aside the point that if this was such a great idea, why didn’t Yahoo do this six months ago (its execs considered and reconsidered it, many sources have told me, but dithered about doing it until this crisis hit), concerning critical issues related to Google’s domination of the important online search arena, The Journal noted:

“The overlap between Google and Yahoo could make it hard to get a deal past regulators, analysts say. But the two are exploring ways to address potential regulatory problems, people familiar with their discussions say. Possibilities include limiting the partnership to specific groups of search queries or regions, for example.”

Specific groups of search queries? Of regions? What is that exactly?

Yahoo’s Sri Lankan users can only ask about cupcake recipes? Or perhaps Yahoo can answer the query, “What is love?,” while Google lets us know who wrote the book of it.

To my mind, this is an example of juvenile game-playing that has seemed to have plagued this deal, which ignores Yahoo shareholders by upping the risk of value destruction significantly.

Although it is good to see such activity and ideas coming out of Yahoo with such force finally, it seems too much, too late.

And while it might be a long-cherished dream of Google’s to take over Yahoo search–and also get the chance to return to the scene of the crime, since Google got its first big push from doing Yahoo search, before Yahoo wised up too late–there is simply no way this will be allowed by regulators nor should it.

Still, you have to almost admire the chutzpah of the search giant in making this move, if the sheer and unadulterated arrogance of it wasn’t so distracting.

Because, while Google has almost none of the obvious menacing aggression that characterized Microsoft when it thoroughly dominated tech (although all those beach bikes on its campus inexplicably creep me out a little bit), the company still cannot be allowed to have a monopolistic share of the market.

It is bad for advertisers, it is bad for consumers, it is bad for innovation, no matter how well-intentioned Google is.

And no matter how many flashy moves Google and Yahoo make, it is flat-out wrong for one player to so dominate such an important sector (and I hope regulators look at the email domination in the case of a Yahoo-Microsoft union with a similar gimlet eye).

As I noted in a post last week about Yahoo and Google doing a search outsourcing deal:

So, any further hook-up between the two seems sure to become the Justice Department Lawyer Employment Act of 2008, the likes of which we have not seen since Microsoft got its turn at being deservedly whacked for being a monopolist back in the last century.

Let’s face it, outside of those who cannot seem to shake the annoying Kumbaya mentality over at Google, a Yahoo-Google partnership is simply fantastical, like some out-of-control Dr. Seuss ditty.

They could not, would not with a goat. They would not, could not on a boat. They will not share an algorithm, they will not, will not, Jerry-I-Am.“

Please see this disclosure related to me and Google.

Mark Zuckerberg? Who’s that? Now, at Facebook, it’s apparently the Season of Sandberg!

Ah, the appeal of a fresh face is just irresistible to the press–OK, including BoomTown, except we posted more than a month ago!–with two major pieces, in Fortune and The Wall Street Journal, rolling out this week alone, with everything you wanted to know about the new COO of the social-networking site, former Google (GOOG) exec Sheryl Sandberg (pictured here).

But if you don’t have time to read them, here’s a quick synopsis of both:

Fortune: “Meet Facebook’s New Number Two” by Jessi Hempel

Details: Just 14 days into new job; Leg-tucking white Eames chair (pictured here); as Google’s VP global online sales and ops, ran everything!; she and Zuckerberg met cute at holiday party; aced Larry Summers’s midterm and final at Harvard public economics course, much to his shock, since he implies she was kind of chatty in class with friends.

Also Harvard MBA; obligatory McKinsey stint; Treasury Department in Clinton administration; picked 300-person Google over investment banking; always 10 steps ahead; Google.org mover and shaker.

Facebook aims: A need for corporate structure pronto; also time for the bigger picture; no more one-off decisions; more international growth; hiring senior managers; oh, yes, also must invent a new ad model for social networks.

But no silver bullets!; kicks ass, talks tough, then hugs all around (we did not make this up!); take out trash from Mark’s all-night Pizza-My-Heart-and-Red-Bull party (OK, we made that one up!).

Money quote: “This feels like Google when I started.”

The Wall Street Journal: “New Face at Facebook Hopes to Map Out a Road to Growth” by Carol Hymowitz

Details: Two weeks into new job; Biz dev guy Dan Rose is already sick of her (”It feels like she’s been here six months already.”); flip-flops endangered?; is able to argue why she is right by arguing how she is wrong; dangles data before engineers like fish before seals; easygoing but intense (when will these opposing dichotomies end?); crashed Harvard computers, but it was worth it.

Taught aerobics and was a stretching fascist; more cute dinner chatter with Zuckerberg before hiring; grew Google team from four to 4,000; a feminist and hangs with Gloria Steinem and Jane Fonda (see aerobics!) too!; Facebook pix of Argentine waterfall-leaning; went to high school in Miami; small kids, hubby; more 10 steps ahead and shoving people out of comfort zone.

Facebook aims: Employee performance reviews; processes for identifying and recruiting new employees; management-training programs; rally troops; stop the cash burn and up ad sales; close-knit culture must go, but you get hundreds of millions of new friends!

Also must figure out how to save Beacon’s bacon; earn trust of users, while frantically searching for a business model; wants frank feedback from staff and will publicly thank such person who gives it.

Money quote: “Facebook is a different space than Google, with tremendous potential to connect people, but it needs scale, it needs systems and processes to have impact, and I can do that.”