Gates on Yahoo: “It’s the People” | Yahoo on Gates “OMG! He’s making Soylent Green!”

As Microsoft prepares for a proxy fight that will pit them agains the Yahoo board in the fight over control of Yahoo, Bill Gates is talking up the deal as a way for Microsoft to access the great talent pool of Yahoo.    Although he’s certainly right that Yahoo’s got a lot of great talent, it is not at all clear that most of them will stay and work for Microsoft.   I think a lot of the Yahoo staff will see MS as trying to consume them into the Micro Borg mother ship, rather than work with them to make a better Yahoo/MS to fight the Google wars.

I suspect they will if MS treats them right, and I think MS would treat them right, but it would not take an extraordinary poaching effort from Google to effectively dismantle the really great parts of Yahoo.   Oh, yes, and this Google poaching has already begun. 

A couple years ago – at the Google Party no less – I was involved in a fascinating conversation with one of the key search guys from Microsoft’s search engineering team and another top engineer from Google.  One of the most interesting topics was how MS felt that Google had very selectively poached a key Microsoft search insider.    The MS guy said until that point he felt Google had been basically playing fair, but that he knew from that episode that Google was strategically picking off people not so much because they wanted them but because Microsoft *needed* them.      He felt this defied the “don’t be evil” Google mantra and had soured him on Google’s honesty in these matters.    Suffice it to say that as much as I think Google *usually* does follow the “don’t be evil” mantra there was some pretty interesting clandestine activity going on at that party to record the MS guy as several beers got him to spill more beans about the MS algorithm.    In fact it was then I realized how weak the MS search effort was with what he said were only 300 engineers working in search, while Google had *thousands*.

Gates is certainly wrong that the cultures are the same.   Based on my experiences with people from these three companies I’d suggest the cultures are pretty clear:   MS culture is a massive corporate empire with lots of heirarchies, corporate bloat, somewhat overbearing, and diminishes the role of the individual as a key part of the big team.  People are not proud to be with MS – they are often almost apologetic.

Google is flexible with lots of lateral motion in terms of project and ideas.   Ideas and cleverness will trump formal designations which are few anyway.   You can stand next to a top engineer worth tens of millions and a new hire and you can’t tell which is which – not even from the way they treat each other and certainly not from the casual dress or styles.    Google people are smart and confident, and generally very helpful and well-informed with the notable exception of questions about ranking quirks where transparency goes pretty much out the window.

Yahoo?   I think they *used to be* just like Google, but managed to mov in the direction of managerial bloat and questionable treatment of engineers several years ago.  They paid people well, but I think the focus moved away from search and engineering and towards a content and entertainment empire.  This was a mistake, and Yahoo’s about to to pay the price – they are about to get absorbed into the MS empire.    But don’t worry Yahoo engineers – they are not making much Soylent Green over there anymore.  Right Bill?

Ina on Gates

Disclosure:  Long on YHOO 

Yang to Yahoos: Keep the Faith

Blodget has a good summary of Jerry Yang’s Yahoo note to the troops articulating the reasons for the rejection of Microsoft’s offer and the company’s future plans.    He gives Yang an A- but I think this might be generous.  

I’m wondering if Yahoo didn’t fail recently, rather years ago when many lines of separation were drawn between technologists and most of the company management.  I assume there were official lines drawn, but I’m talking more in terms of culture here.     My bullishness about Yahoo has rested on the assumption that the technologists would eventually have their day and as with Google would create the tools necessary to keep Yahoo competitive and interface with the broader developer community as Google has done so effectively to bring more awareness and use of Yahoo tools, effectively widening their footprint over the internet landscape.  

I no longer thing there is enough technological empowerment at Yahoo to make this likely anytime soon.   It will take a LOT more than peppy emails and a combative stance here.  Recent defections from Yahoo suggest that even internally Yahoos are more bullish on Google than their own company.   

So, if we assume Yahoo’s got to do something really big is Microsoft or News Corp the best fit.    From Yahoo’s perspective clearly they’d love it if News Corp was willing to pony up as much as MS, and frankly this seems like a more likely winning combination than MS and Yahoo which would have a lot of initial, and perhaps long term, contentiousness.   Fox Interactive is run brilliantly, and applying these management principles to Yahoo could do a world of good to the bottom line of the combined company.    As a Yahoo shareholder I’m rooting for that option though I’d predict MS will win this battle because of the difficulties News Corp will have showing how valuing Yahoo at 50 billion+  is justified given how difficult it may be to make a lot more money from the combined company in anything short of many years.

disclosure:  Long on Yahoo

Yahoo Tech Ticker – Arrington on Yahoo

Yahoo’s got an interview with Mike Arrington who provides some excellent and concise commentary on Yahoo’s demise, including at the end of the interview his prediction that the interviewer will be …. out of a job soon.

I think the *key* point Mike makes is that where Google gets about .09 per search on average, Yahoo gets about .04.   He notes this is partly demographic and partly due to Yahoo’s search monetizing deficiencies that were supposed to be rescued by project “Panama” but were not.  I think this is per search query rather than per click on a search ad, but the point is the same – Google makes more than twice as much per search action, and this is a crushing advantage to have over Yahoo.

So, what is the endgame for Yahoo in the Microsoft deal?   We should know soon if the rumors of a News Corp deal are well founded or hyped up.   Some are suggesting that it’ll be very hard to fend off Microsoft in any case as they are likely to bid $35 per share soon which will about equal the rumored News Corp deal of about a 50 billion valuation for Yahoo.  

Disclosureizing:  Long on Yahoo

YaFoxHoo? Now that makes some sense…

The rumors of a potential offer from News Corp for Yahoo are interesting and CNBC claims they’ll have some new news from news corp in a few minutes, though I’ll be surprised if this is more than rehasing the rumors swirling around that appear more as linkbait for blogs than substantial information.    

CNBC is referencing Jessica Vascellaro’s story at WSJ:

The deal would allow Yahoo to remain independent while giving News Corp. substantial control over a huge array of Internet properties and advertising opportunities.

News Corp, already a key internet player because they own Myspace and many Fox properties that have huge online visitation, could leverage the Yahoo aquisition to some advantage, perhaps through monetization optimizing, cross promotion, and such.    However I would not want to try to make the case to Murdoch that Yahoo is worth *more* than MS already generous offer.   As employees run for the door and the board is more interested in fighting than switching, I’m not clear Yahoo should be playing hard to get right now with anybody.

Disclosure:   Long on Yahoo

The Price of Danger: $500,000,000

Microsoft just picked up Danger, inventor of the Sidekick mobile device and overall very clever mobile company founded by Andy Rubin who is now working for Google on Android and Open Handset Alliance stuff.

Om Malik is quoting the price as 500MM after what his reasearch showed was 225MM in past injections of capital.   

Although at first glance everybody thinks these deals make huge money for everybody associated with them, this is not the case.   As we’ve noted before average VC deals  *lose money*, and more importantly you always need to factor time into these equations to make sense of the profitability of a deal.

In this Danger sale people made out well, but depending on when the big money was invested it’s not clear anybody had a spectacular return here unless the big money came in very recently (I don’t know if it did or not).

Why would MS want this company?   As with the Yahoo aquistion and as MS has done for so long, they are trying to gain a huge foothold in key markets by buying up a key company in the space.    I’m expecting some competition for the Google/Dell phone to be announced soon.


Yahoo Executives – kudos for true believing, but sell the place anyway!

A lot of folks have been very hard on the Yahoo board and Jerry Yang in particular for fighting the Microsoft takeover bid, but it should be noted that almost more than anybody these folks are playing with their own money, and the stakes are huge.

As Fortune reports Jerry Yang’s got more than a few Yahoo shares, and this he’s effectively “gambling” with his own money as he powerfully resists the fat Microsoft offer.    If Yahoo stock tanks – as it certainly will if Microsoft backs out – I won’t be all that much worse for the wear but Jerry would be taking something like a *half billion* hit to his net worth.   That’s real money, and you’ve got to admire Jerry and the board for believing so strongly in their “new” vision for the company that they are willing to bet they can regain their former glory.  

Of course, maybe they *can* regain their former glory, but that’s a bird in the wild and wooly internet bush and Microsoft’s offer is *billions of birds* in the greedy little hands of investors.    This is not a tech issue – billions of Microsoft birds in hands are better than a few Yahoo birds in the bushes.   

Disclosure:  I have some YHOO, though fewer than Jerry Yang.

Yahoo + Microsoft? Heck yes says Legg Mason, with 6% of Yahoo

Larry Dignan is reporting that major Yahoo Shareholder Legg Mason is insisting that Yahoo make a Microsoft deal, though they hope and may expect MS to up the offer past 31 and up to 40, which Fund manager Miller stated appears to have been MS’s highest previous offer over the past year of flirting with Yahoo about a merger.

Miller says about Legg Mason’s position:

 We think this deal is a strategic imperative for MSFT, and that YHOO is in a tough spot if it wishes to remain independent.

Strategic imperative or not, Yahoo can’t expect investors to sit back and wait for something to happen when this much money is on the table.   In fact I think investors are already upset that Yahoo is basically suggesting this is their course of action – waiting for prosperity to fall upon them but not in the form of Microsoft.

I should say that given the market’s horrible reaction to the aquisition I’m not at all clear this is good for *Microsoft*.  If they screw up managing Yahoo and/or Yahoo can’t revived it’s sagging profitability fast this could go down as a Time Warner AOL fiasco kind of move for Microsoft.  However, if they want Yahoo I think Microsoft’s strategy from this point on can be very simple:

1.  Offer $34 per share publicly and loudly.
2. Call Legg Mason and other big holders, and tell them this is *OFF* if Yahoo keeps waffling.
3. Bring in fat lady to sing       ….         it’s over.

 Disclosed:  Long on Yahoo. 

Hostilities erupt between Yahoo and Microsoft

Hey, looks like now it’s an official *hostile takeover* attempt from Microsoft in the battle for the internet giant Yahoo.

Yahoo declined Microsoft’s offer of last week and in this press release Microsoft basically declares their intention to duke it out.    I’m surprised they have not upped the ante yet, but perhaps they are waiting for more drama and information before making a “final” offer to the Yahoo board before taking this directly to Yahoo shareholders.    Although I think most shareholders would take the MS offer it’s clear the *big* shareholders like Jerry Yang don’t want to, so perhaps Yahoo can win a proxy battle for the company.    I have a hunch however that the institutional investors, and the legions of small time folks like me, would jump at a 34+ offer and probably even take the current one unless Yahoo shows a lot more signs of life than screaming out the current rallying cry “We are fighting Microsoft!”

Microsoft PE=16, forward PE=13!

Wow.    As Yahoo rebuffs them and Microsoft shares continue to take a beating from  what appears to be Yahoo aquisition unhappiness, the PE of this mega company is looking nothing short of spectacular.    Some would argue that Microsoft is slowly dying due to the massive changes in the way people and businesses use software, but it’s foolish to think Microsoft’s prospects are dim under the current conditions.   In my view they are simply making too much money, and remain a key player in a key industry, to deserve this low market valuation.  

If the Yahoo merger happens the PE at MSFT will take a hit, but it would clearly remain well under 20, a very modest PE for a company that still has significant growth potential.

But, I guess like other investors I’m a herd animal and fearful, so I won’t be buying MSFT….quite yet.

Disclosure:  Long on Yahoo, no Microsoft position.

Microsoft v. Yahoo. They can’t seem to make an offer Yahoo can’t refuse.

The big tech story remains the Microsoft offer to buy Yahoo, and on Wednesday a meeting at the Yahoo’s HQ in Sunnyvale, CA may seal the deal, though it’s more likely that negotiations will continue for some time after that meeting.

Microsoft may be wondering about the wisdom of the aquisition given how hard the market appears to have punished them for the offer.   Although other tech stocks were down last week, Microsoft’s 13% drop amounted to a loss in capitalization equal to almost the entire value of the Yahoo deal.   ie you could argue that even if Yahoo sold themselves to Microsoft for $1 on Wednesday, the boost in the merged company value would not make the two any more valuable than *Microsoft along* was worth before all this began.     That’s a lot of financial simplification but Microsoft must have at least somewhat more skepticism about all this than they did as they made this offer.

So, what are the likely strategies here?     It is clear Yahoo will reject the current Microsoft Offer which amounts to about $30 per share, and they are strongly rumored to be asking Microsoft for $40 per share.   I’ll eat my keyboard if Microsoft agrees to $40, but I do think they may immediately counter offer at about $34 per share.     Of course unless the inclinations of the Yahoo board change they’ll reject this as well.    I’m growing somewhat suspicous that the unreasonable $40 amount is not really an attempt to boost the sales price – it may be the best way for the Yahoo board to send negative signals, try to wait things out, and give Microsoft more chances to back out.   If Microsoft gets cold feet from the share price drops or Yahoo’s chilly reception of the merger idea, and then backs out of the deal, shareholder lawsuits against the Yahoo board are less likely and weaker.  The Yahoo board will simply say the $40 was a negotiating tactic that went wrong rather than a tactic to kill a good deal.

However I don’t think Microsoft is going to go softly into the night on this, and that will make all this very interesting.    They’ll offer more, and at even $34 per share Yahoo would be getting an amount approaching a 100% premium over their recent 52 week low of about $18 per share.  This is the price YHOO traded at following the bad guidance from the recent earnings call.  

It strains the credulity of this shareholder to see how the Yahoo board can argue that Yahoo has a realistic shot at being “twice as valuable” as they were last week in a reasonable time frame.   In short, we all know they can’t.    This may be a defect of market forces or employee attrition or lazy management or low morale or Google defections or whatever, but left to her own devices Yahoo is pretty much going nowhere fast.   I’ve been bullish on Yahoo for several years now and remain convinced that the company can eventually turn things around.  However I think this aquisition may be 1) part of that turnaround process and  2) presents an offer far too good to refuse without risking a share price meltdown.

So, looks to me that on Wednesday the Yahoo board will turn down the current offer, Microsoft will up the offer to about $34, and Yahoo board will turn that down too (probably the following week).  This will lead to nothing short of a Yahoo shareholder revolt as anxious investors watch a company throw away tens of billions of birds in the hand arguing they are seeking a few more birds in the internet bush.

Ha – even Mini Microsoft hates the deal.   An interesting salary debate over there along with the normal absurd whining from developers over their already very large salaries. 

Disclosure:  Long on Yahoo (but not for long!?)