“The iPhone is the most widely distributed phone with a (graphics processing unit),” Daley explained. “Most phones out today don’t have accelerated graphics in them The iPhone does and so it enabled us to do something that has been previously difficult to do. I couldn’t just pick up a Blackberry or a Nokia off the shelf and build Seadragon for it.”

For me, this is one of the biggest differences between the iPhone and any other mobile device (with the possible exception of the Sony PlayStation Portable). Yes, the apps are fun and the GUI is cool and the accelerometer and auto screen rotation and all of that are great, but the way it handles images — including photos, Web browsing and even games — is just light-years ahead of anything else. And Seadragon, for all the crap that Microsoft gets from a lot of people, including me, is pretty damn cool (although the name seems a little too consciously imitative of Firefox, Thunderbird, etc.).

I downloaded the app and in about two minutes I was zooming in on ancient maps from the Library of Congress and then satellite imagery of Toronto, which it picked up as my current location using the GPS in the iPhone. The speed with which it managed to do all of that, and on a mobile device, is pretty amazing — it was even faster than Google Maps on my desktop. And I can’t imagine doing it on any other device than the iPhone.

As John Paczkowski notes at All Things D, this deal was supposed to generate as much as half a billion dollars worth of additional cash flow in its first year, money Yahoo could definitely use. But more than that, this deal was a way of trying to stand on its own two feet (albeit while leaning on Google for support), and that is now gone. Microsoft, which had its takeover bid for Yahoo derailed by the Google arrangement — among other things — is no doubt doing the math on another bid.

The only problem for Yahoo is that instead of a $45-billion deal at $31 a share, Microsoft is more likely to bid about half that, and that’s if it even makes another bid for Yahoo at all. Nice job, Jerry. How many failed Hail Mary passes can one CEO throw?

Update:

VentureBeat’s Matt Marshall is reporting that an internal Yahoo memo says to expect “a major historical announcement” later today, and the rumour is that Jerry Yang will step down as CEO. Kara Swisher at All Things D says that is dead wrong, and so does the New York Times DealBook blog. VentureBeat has now updated its post and quotes a Yahoo source as saying there is no truth to the rumours.

I don’t know the answer to that question, but I still think it’s worth asking. No doubt many users of Google Docs will shift to Microsoft’s version, in part because it will make integration with their existing corporate systems easier, or because their employers will make its use mandatory. Others may find that Microsoft’s Web apps offer better compatibility with regular Office programs (something that Google Docs still isn’t that good at, at least when it comes to advanced page layout and that sort of thing). But what about the competition between Microsoft’s Web Office and the real Office?

I would imagine that Microsoft is going to try its best to make Web Office just useful enough to entice people away from Google, but not nearly nice enough to tempt them to drop the regular installed version of Office. But no matter how hard it tries, there are likely to be small or medium-sized companies that decide it’s just as good to use the Web version as it is to pay $300 or whatever per seat to get an authorized copy of the desktop software. That’s going to be money right out of Microsoft’s pocket, since Office generates truckloads of cash for the software behemoth.

Maybe Microsoft will be able to manage the process so that it doesn’t cannibalize its Office franchise too much, or maybe it will err on the side of crippling the Web Office so that it doesn’t harm the installed software versions. But either way, that’s a tricky balance to strike.

I made a marketing expert friend of mine mad recently when she said that the marketing professionals she knew didn’t like the original ad — and thought Microsoft was getting taken to the cleaners by its ad agency, Crispin Porter + Bogusky — because it was a dumb idea, or at least not a smart one. I tried to make the point that I don’t think Microsoft cares whether she and her marketing colleagues think the campaign is “smart” or not. They aren’t the target market any more than Mike Arrington is. I think whoever put these together is really just trying to humanize a giant company, and that’s a tough assignment.

Seinfeld may not be all that funny in these ads, but then it’s tough to do his shtick without some energetic foils like George Costanza or Kosmo Kramer — and let’s face it, Bill Gates is no George Costanza. He has zero energy onscreen (hey, if he needs energy, he pays people to generate energy for him). But still, the idea as I see it is just to make fun of the fact that Bill is a billionaire and he’s kind of clueless and out of touch (and to get some buzz as well, do doubt), and Seinfeld is a great choice for that kind of ad. He’s filthy rich, and yet many people still see him as the sneaker-wearing funny guy and they love him.

When it comes right down to it, I like these ads better than Apple’s celebrated ads with the Mac guy and the PC guy. They may radiate “cool” and “hip,” but the fact is that the Mac guy comes off as a snotty, arrogant little twerp. Most people I know — even those who adore Apple products — seem to sympathize with the PC character, who by contrast is genuinely likable. To me, the Apple ads are a total failure, and yet I don’t think anyone really cares, because Apple’s products are so great that they effectively market themselves.