All Things Digital

Microsoft does not have a secret plot to buy Yahoo.

Maybe Microsoft CEO Steve Ballmer should be hovering in the wings, like a digital Simon Legree ready to pounce again on poor Yahoo CEO Jerry Yang.

But he’s not.

And still the hopeful, the suspicious and, most of all, the beaten-down Yahoo shareholders continue to jump on any utterance from the software giant, even woefully mistranslating interviews with its top execs, to make it so.

Yesterday, it was some apparently mistranslated words from a German story coming from Microsoft’s Kevin Johnson–the head of its Platforms & Services unit who has been one of the main execs driving the Yahoo bid–about the company ready to make a new one if management changes.

This kind of thing has happened a lot since Microsoft (MSFT) walked away from its takeover bid for Yahoo (YHOO) in May, put off by months of rejection from the Internet portal and smarting from Yahoo’s flirtation with archrival Google (GOOG)–worries that turned out to be totally worth the worry, in fact.

Thus, the feeling persists that Microsoft is still hovering in the wings with some fabulously clever ploy to grab Yahoo once the time is right, once Yahoo’s current bumbling management is swept aside, once Yahoo’s stock once again falls below the $20-per-share mark that prompted its last foray.

But, even though Yahoo’s stock price is nearing that scary mark, as near as BoomTown can tell and let me repeat again, Microsoft does not have a plan to buy Yahoo at the ready.

That is not to say that they should not, as I have written again and again, given Microsoft’s definitely stated goal to compete aggressively in the online ad business, both in the search and display arena.

To do that and fast–because there needs to be some urgency here as Google is now sprinting away in the search sector and has some traction in the display area–Microsoft needs to be considering buying up, if not Yahoo, then the third-ranked business in the space, which would be Time Warner’s (TWX) AOL.

As I wrote before, in a move that seems increasingly sensible and easy (plus Time Warner CEO Jeff Bewkes is someone clearly ready, willing and able to deal):

As for AOL–it’s a more likely scenario, given it would allow Microsoft to double down in the display space with the Time Warner division’s Platform A ad unit and also gain some other strong properties (such as in video search with Truveo, with widgetmaker Userplane, as well as in instant messaging).

It would also probably like to give the boot to Google, which now serves up AOL search ads (and which also holds a 5% stake in AOL).

Microsoft has been very close to buying AOL before, once even considering spinning its Internet properties and AOL into a newco, so it does know the lay of the land there.”

While I realize a purchase of AOL, which Microsoft has noodled on before and is clearly noodling on now, seems like a band-aid approach to the situation and does not up its search share, the company probably needs to make a very bold and definitive move to begin its long slog to becoming the No. 2 player in the online ad market.

Because as Yahoo dithers its way and tries to recover from the management crisis it is in, Microsoft does, in fact, have the clear opportunity to become the second most important player in online advertising.

And given the attractive and obvious growth rate in the market over the next decade, is it such a bad thing to come in second?

In fact, when asked in a recent interview in the Financial Times, Microsoft’s Ballmer said as much:

At the end of the day, this is about the ad platform. This is not about just any one of the applications. The most important application for the foreseeable future is search. It’s where you start things. It’s where you express intent. It is important.

I don’t think we can say, OK, well, we’re going to be in the ad platform business, and we’re going to do it just on the strength of non-search based assets. We have to be in the ad business, and we’ve got to have a good chunk. We don’t have to dominate, but we’d better have a darn good chunk of the search market over time, and we’re working away at it.”

But, Microsoft clearly needs to work harder and quicker.

Or as Ballmer also said in the FT interview:

We’re small; the other guys are big. There’s a market out there. We have only one way to go, and it’s up, baby, up, up, up, up, up!”

Sounds like a plan to me.

Everybody remain calm.

While it might have looked like it was the rapture for major Internet players yesterday–what with everyone and his mother getting sucked up into the Yahoo-Microsoft takeover tussle and disappearing into the ether of confusion that now reigns over the situation–it is best to keep moving toward the light of harsh reality for illumination.

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Gone, Tim Tuttle of Truveo. Gone, the Birches of Bebo. Gone, Dave Morgan of Tacoda. Gone, many Quigos.

One of the more interesting little problems that AOL has had over the last few years, in regards to its acquisition of hot Internet companies, has been that it is situated deep in the bowels of the Time Warner (TWX) behemoth.

So, one wonders, will a possible hook-up with Yahoo (YHOO) change that, giving the also-ran Internet outfit potentially valuable stock in Yahoo to better entice valued employees to stay?

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Yesterday, newly minted Time Warner CEO Jeff Bewkes (pictured here) finally acknowledged the Web equivalent of the grass is green and the sky is blue related to its AOL unit.

His move–separating the dying Internet-access business from its much more robust online ad business–was long in coming, and it has been perplexing as to why it took so long for the media giant to declare this publicly.

The bold tone is certainly nice to hear at Time Warner, which has been cautious in the Web game over the past few years, ever since it got snookered in the mega-deal merger to AOL at the peak of the last Internet bubble.

Once burned, twice shy, one might say. But, in the case of the AOL-Time Warner merger, it was scorched earth for the company and the recovery has been long and painful.

Since then, the AOL unit has chugged along slowly, with its parts glommed together in an increasingly uncomfortable way, a vestige of an era when AOL ruled the soup-to-nuts online services business. It was once a very lucrative arrangement, with fat monthly fees rolling in, along with an ad business based on 1999 bubble economics.

No longer, as the way people access the Web was separated from a now largely disintermediated Internet.

Thus, the logical move has been to split the parts apart, giving Time Warner and Bewkes more options, including selling off either or both.

That issue is sure to come into sharp relief with Microsoft’s recent $44.6 billion bid to buy Yahoo, which most are saying is a dire problem for Time Warner, given they both were the prime candidates to buy AOL’s assets.

Well, maybe, but maybe not.

AOL still has one of the stronger ad networks out there, because of its prescient purchase of Advertising.com in mid-2004 for about $435 million. While there are way too many ad networks out there now, it is still an under-leveraged asset within the company, which could be sold, but does not need to be. After all, Time Warner is in the ad business overall and owning an online network is not such a stretch for it.

Plus, it will now be freed from the yoke of the access business, which will eventually decline to almost nothing. But that does not mean zero and its millions of customers might be worth something to someone. In any case, Time Warner can milk that part of the business–as it has been doing–until it eventually falls over dead.

The most interesting part of Bewkes’s figuring will have to center around its content and portal property, as well several interesting Web efforts.

While it is not known for original content, for example, AOL’s recently redone finance page is really quite excellent and useful, giving a dominant site like Yahoo Finance a credible competitor.

In addition, AOL owns pieces of the also terrific TMZ.com celebrity news site, and cool services like its very-early-to-widgets Userplane and the well-done Truveo online video service.

How Time Warner handles these kind of assets, to my mind, will be the most interesting indication of what it intends its digital future to be.

(By the way, Bewkes will be interviewed on stage at our sixth D: All Things Digital conference in late May, so it will be interesting to hear what he has to say then about AOL and Time Warner’s digital strategy.)

AOL’s video search engine Truveo (which we posted on here–see the video with CEO Tim Tuttle below) made a list of the top 10 viral videos for 2007.

Of course, the inane answers of Miss Teen South Carolina made the top of the list.

And, however did we miss this gem at No. 4?–the “Paris in Jail” music video parody, sung to Hilton’s non-hit “Stars Are Blind” (which BoomTown actually paid for and downloaded):

Under the top television moments was, no surprise, the last scene of HBO’s “Sopranos,” with its “Don’t Stop…” stop.

And here’s BoomTown’s interview with Truveo’s Tim Tuttle in August:

As expected, from a story we broke in BoomTown more than a week ago, AOL confirmed it has bought the Israeli content-targeting ad network Quigo.

The sale price, said sources, was a lofty $300 million, around what Yahoo paid for data analytics ad network BlueLithium in September.

Well, it’s probably a good thing for AOL as it tries to turn itself from the onetime online digital home for consumers to what amounts to a glorified ad network.

That’s probably a good idea, given that the service has lost about one-third of its paying subscribers this year, which is no surprise after it went free. AOL now has just over 10 million, but is banking less on them than on selling ads all over the Web for its future.

Still, as sites like Facebook and others add users to their services, it is also more than a little depressing to me, given AOL’s history of pioneering the idea of a robust Internet community, where users created what former AOL top exec Ted Leonsis used to call a “permanent online presence.”

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Yesterday I posted a short piece on the debut of AOL’s Truveo video-search site, which I like a lot.

It is a new consumer destination site, which is aiming to go head-to-head with other video-search sites, like Google’s, Yahoo’s and Blinkx’s. Until now, Truveo has been providing white-label video search to big sites like those of AOL and also Microsoft’s MSN, CNET and other Web destinations. AOL acquired the company in 2006.

I had an interesting talk with Truveo CEO and Co-Founder Tim Tuttle about the debut of the new version of the service and the state of video on the Web, including the need for content owners to be more flexible and advertising to improve.

In other words: Death to the preroll!

It’s not often that AOL can actually be called innovative these days, but perusing its Truveo video-search site, which will roll out a new consumer destination site today, I might have to reconsider.

I will post a video later today on my visit to the San Francisco-based company, where I talked to its CEO and Co-Founder Tim Tuttle about the debut of the new version of the service and the state of video on the Web.

Truveo has been providing white-label video search to big sites like those of AOL and also Microsoft’s MSN, CNET and other Web destinations. AOL acquired Truveo in 2006.

I will leave the reviewing to Walt Mossberg, but from what I have seen using it so far, it is a really strong entrant into the market, with a well-organized site that feels more useful and better designed than any other player, including powerhouses Google and Yahoo.

Given that most feel that video is going to be the gold mine of the Web going forward, if someone can find a great way to monetize it all, the company that allows people to search well is likely to be in a catbird seat.