Microsoft to Yahoo: I just can’t quit you

Well, looky what we’ve got here: multiple rumours that the Microsoft and Yahoo talks are back on, although whether Microsoft is interested in an all-out acquisition again or just a search deal depends on whose sources you believe: Mike Arrington says the former and Silicon Alley Insider says the latter. I hate to say that I told you so, but… oh, who am I kidding — I love to say I told you so. Well, I told you so (Note: Kara Swisher of All Things D says that the latest rumours appear not to be true).

In any case, whatever the truth of these specific rumours, I — like Kara — continue to believe that a Yahoo purchase makes sense for Microsoft, and that the two should talk. And I think that the longer Yahoo’s stock price remains under pressure (which it seems likely to do, given all the executive departures and general deck-chair rearranging that is going on) the more the software behemoth will want to own it and the more likely a deal becomes.

Yahoo: Deadwood or deck chairs?

The trickle of Yahoo executive departures has turned into an all-out flood, it seems, with at least two more senior VP types headed for the escape pods, and another — Brad “Peanut Butter” Garlinghouse — widely expected to join the exodus. But is this a much-needed clearing of the decks in order to put the good ship Yahoo on the right course, or is it rearranging the deck chairs on the Titanic? In other words, is Sue Decker clearing out the deadwood, or setting fire to the furniture? There seem to be plenty of opinions on both sides.

According to commenters at Silicon Alley Insider (who appear to be Yahoo insiders) Qi Lu — who was executive VP in charge of search and ad technology — is either a genius (with 20 patents to his name, according to Kara Swisher) and the guy whose talents helped get Yahoo’s fancy new Panama engine up and running, or he’s the guy who is most to blame for the lateness of Panama in the first place and the lacklustre performance of it after it finally launched. Or maybe Yahoo doesn’t need any more search geniuses now it has gotten in bed with Google?

As for Garlinghouse, he’s the guy who diagnosed Yahoo’s problems as “spreading the peanut butter too thin” in an infamous memo that got widely leaked in 2006. Was that just a play for power within the Yahoo executive suite, or was Brad really sincere about the company’s need to change? Whatever his motivation, it appears that Yahoo will be changing without him, according to TechCrunch and PaidContent (Kara says he hasn’t quite decided yet). Given that he’s in charge of Yahoo Mail, Messenger, Groups and Flickr, his departure would leave a pretty large hole. Does Yahoo have the bench strength to fill it?

One commenter at Silicon Alley Insider makes an interesting point: everyone says that Yahoo is too bloated with executives and top-heavy and management-centric and so on, but then when the company shoves some people out the door (or fails to respond when they decide to leave) everyone says the rats are fleeing the sinking ship. The big question is: do Sue Decker and Jerry Yang have a vision for whatever’s left once all the departures are done with?

Yahoo’s Ymail: Don’t really get it

I was talking with someone at work about Yahoo’s much-heralded launch of two new email domains, Rocketmail (which is actually an old domain resurrected) and Ymail, and despite much back-and-forth about it, I still couldn’t really see the point, and in fact still don’t. I mean, I’m familiar with the rationale given by Yahoo, which is that there are lots of people out there who haven’t signed up for email because they can’t get their name, or their favourite nickname, or whatever. And maybe there’s some truth to that. But how many of those people could there possibly be? Is this really a market segment that is crying out for Yahoo’s help?

A couple of other things that struck me: 1) Are people really going to switch that easily from or whatever (or to a new Ymail or Rocketmail address? Every time I’ve switched from one email to another it’s been a gigantic pain in the ass, and I have vowed to never do it again — there are all those people you have to spam with your new mail. It’s a nightmare. That’s why I got a Gmail address in the first place, so that when I changed Internet providers I could just redirect my mail to that address. I personally know of several people who pay two ISPs, simply because they don’t want to give up their old email address.

And those are the old folks. Point number 2) Anyone younger than about 30 doesn’t seem interested in having an email address period, let alone caring whether it’s or whatever. My teenaged daughters and their friends never use email anyway — they text message (in which case all you need is a phone number) or they use Facebook messages as a way of communicating. I send them email and they never get it. Do they have email addresses? Yes, and they are a combination of their names, underscores, numbers and nicknames, and so on — and they couldn’t care less. Not exactly a huge market opportunity there either, I wouldn’t say.

In a lot of ways, Yahoo seems to be fighting a war that has already been won — which, given some of the other things that have been going on at the company over the past couple of years, probably isn’t all that surprising. I was trying to think of an analogy for this latest campaign, and it’s a little like the company has decided to announce a new kind of typewriter where the keys don’t stick as much, or a better version of the pay phone, or a new video-tape recorder. In other words, WTF?

Hey Jerry: Welcome to the big-time

“Smokey, my friend, you are entering a world of pain.” — John Goodman as Walter Sobchak, in The Big Lebowski

Yahoo CEO Jerry Yang might be feeling pretty good about winning Round One with Microsoft CEO Steve Ballmer, the former basketball coach with the Young Frankenstein-style features and the pit-bull reputation. Unfortunately for Jerry, however, this appears to be a tag-team match, and Steve may have unwittingly tagged in The Terminator, otherwise known as Carl Icahn — a guy who was waging all-out proxy wars when Jerry Yang and David Filo were still shoving quarters into the Space Invaders machine down at the local video-game parlor.

According to several reports, including one in the Wall Street Journal, Carl has acquired about 50 million shares or so of the Internet giant, and may be planning to start a proxy battle so that he can shove Yahoo into the arms of Microsoft and get a nice pop for his trouble. That kind of thing is like falling off a log for Carl, a guy who helped define the term “corporate raider” and has gone after companies like RJR Nabisco, Texaco, Time Warner and Motorola. Carl has taken over companies — or been bought out by companies — in between lunch and dinner.

Ballmer apparently gave up on Yahoo in part because he was afraid of a proxy war, and/or was concerned that the company might do a deal with Google or otherwise muddy the waters and make it harder to establish a value for the company that Microsoft could live with. For Icahn, that kind of thing is like chum in the water — it means that there is something bleeding nearby, something vulnerable, something worth taking a run at. In other words, just the kind of scenario that my friend Kara Swisher describes so vividly in her post. If Jerry thought that Microsoft was his biggest problem, he may have another think coming.

Steve Ballmer doesn’t need to go

In the wake of the Microsoft-Yahoo merger collapse, there has been a lot of commentary about how Steve Ballmer’s job as CEO of Microbeast is in danger because the deal didn’t go through. Erick Schonfeld has a post up at TechCrunch that quotes an anonymous source at the software behemoth as saying Ballmer is uneasy — hint: he’s yelling even more now! — and the board is considering pitching him overboard. I’m going to side with my friend Kara Swisher on this one; I think much of that is probably wishful thinking by Microsoft insiders. I don’t think Ballmer is going anywhere — or at least not because of this.

So why did I say that Jerry Yang should be fired? Completely different story, IMO. Microsoft made a gamble that it could bag Yahoo, and that there would be enough synergies to justify the deal (adding Yahoo’s media properties, the ad-keyword business, etc.). You can debate whether that’s true or not, but in my opinion it was a fair bet to make. And when it looked like it was going to get too expensive or go needlessly hostile, Ballmer walked. No harm, no foul. Not to mention, of course, that this still isn’t over yet. The fat lady is just warming up.

Yang, on the other hand — either on his own, or aided and abetted by the Yahoo board — waffled and whiffed and came up with lame proposals for boosting the company’s value, and never produced anything that justified either a much higher share value or a dismissal of the Microsoft deal in favour of something better. There is nothing better, and Yang knows it — and most Yahoo shareholders likely know it too. That’s why he deserves to leave, and Ballmer deserves to stay.