It’s been 13.5 Years, Microsoft!

Henry Blodget over at the newly rebranded “Business Insider – Silicon Alley Insider” (a hint of “Microsoft branding mess” in that one, no?), this morning wrote an excellent post on how the balance of power may have just shifted back to Yahoo in the long-running Micro-Hoo buy-out saga (of Yahoo search only, or otherwise).

I consider this a must-read to get yourself back up-to-date on everything that has transpired over the past 3+ months behind the scenes, while we were all busy watching something else, the global financial melt-down, say.

It is almost precisely 1 year and 1 month to the day that Microsoft first launched its unsolicited buy-out bid, and you know the endless back-and-forth that ensued. What stands out is that as of today, while Yahoo’s stock has fallen from its pre-offer price of about $19 on 2/1/2008 to about $12 (and Jerry Yang was so maligned for not taking Ballmer’s offer that he ultimately resigned a few months ago), Microsoft’s stock has gone from $32 to now around $17 during that time!

If you do the math, that’s worse than Yahoo’s stock has done. So who still wants to argue that Ballmer would have really been much better at steering Yahoo (or really worse: the combined Micro-hoo “Franken-carrier”)? Which brings me back to the headline, and this quote from Blodget’s post that sums it all up very neatly:

Another six months of Microsoft Internet futility.  Last summer, Microsoft had been struggling to succeed online for 13 years, and it had only managed to run a distant third.  Now it has been struggling for 13 and a half years.  The company’s Internet branding, strategy, and organization is in its usual chaotic disarray.  Perhaps the new search head, stolen from Yahoo, can cut through the bureaucracy and fix everything.  After 13.5 years of a lot of talent and money being thrown at this problem, however, we wouldn’t hold our breath.

So the saga continues. The patient (Micro-hoo) indeed isn’t completely dead yet… but Yahoo’s new CEO Carol Bartz now appears to have the upper hand in any negotiations from here on…

Note: In case you don’t recall how badly Microsoft’s branding in particular has been going, refresh your memory here. Branding is where it all begins, after all, how can you know what you should be doing if you don’t know who you are?! And hoping that an engineer like Lu, however talented, is going to fix branding and related woes is simply delusional.

You might also enjoy this post on complexity, and why even the 800 Pound Gorilla such as Microsoft cannot avoid it’s pernicious effects.

Yahoo Sliding Into Deeper Trouble, Should Microsoft Pounce?

In the midst of all the hemming and hawing over the potential meltdown of the financial system, and the pitched discussions about the "bailout-rescue" and other schemes to avert it, it is easy for other significant news to barely get noticed. (I am working on a major post on many of the psychological aspects of the entire debacle, look for it soon.)

Such as the fact that Yahoo’s stock has been declining dramatically over the last few weeks, falling through a relatively steady support level around the $19 mark that it had stood at on January 31 of this year before the beginning of the "Micro-hoo" attempted hostile take-over saga.

Having already slid a few more dollars from a range around $21 after the regulatory headwinds to the Yahoo-Google search ad serve outsourcing deal started picking up, it then fell through various support levels all the way down to as low as $15.50 (settling at $16 for the week). I don’t mean to bore you with stock market speak, this is only to get across the increasingly precarious situation that Yahoo finds itself in:

1) I have argued repeatedly that the entire Micro-hoo saga would take a severe toll on the productivity at both Yahoo AND Microsoft, and judging from the dearth of useful roll-outs and even mere announcements (and I doesn’t take much to keep Wall Street happy with announcements) from either company, I was right.

Steve Ballmer has claimed that the Yahoo purchase attempt had been just a tactic, and that Microsoft could go it alone, but since then he really hasn’t said much of substance that could be construed to be a credible Internet strategy for Microsoft.

UPDATE: Incidentally, I just looked up the beginning of year prices pre-bid (1/31/08) again:

As of 10/8, YHOO has lost 26% from $19 to $14, but MSFT has lost almost as much: 25% from $32 to $24! Sign of superior management skills and credibility at MSFT?

Check out what David Einhorn said today in his letter to his hedge fund clients (via AlleyInsider):

… Since then, management has acted in an overaggressive and almost panicky fashion regarding its online offering. First, it sought to acquire Yahoo! and then after that failed, it announced extremely high internal investment requirements to pursue this “huge” opportunity (read: “Google-envy”). We doubt the opportunity is what they say it is and wish MSFT focused on its core strength: software.

The CEO is a very smart and very wealthy man. Perhaps, he is so wealthy that he has bigger ideas and aspirations than making MSFT’s shareholders wealthier. We’ve given up on MSFT for now…

2) I said it would take a massive effort by Yahoo’s Jerry Yang and Co. to get the ship righted at Yahoo after all of the distractions, and the deteriorating economic conditions haven’t helped. I guess I had really been hoping for Jerry to jump into full-scale survival mode and ride on a wave of adrenalin from the Micro-hoo negotiations.

But it now looks as if Yahoo is drifting helplessly, with consulting firm Bain apparently hired to set up major lay-offs in the coming weeks.

3) The stock price mentioned above is almost exactly half the offer of $31 per share that Microsoft had launched (though that number was partially in non-price-guaranteed Microsoft stock, which was already moving down after the announcement).

So that puts the speculation of Microsoft buying all or part of Yahoo back on the table. (Not to speak of the continued rage that most Yahoo shareholders have been venting toward the board over the failed/prevented deal for months.)

I have written several posts worth of arguments on the lack of soundness of a simple buy-out plan, and could write several more, but thankfully I don’t have to:

Henry Blodget of the Silicon Alley Insider has written a very concise, yet thorough post this week on why the original plan was never a good idea, and why an alternative proposal, a spin-out of Microsoft’s own foundering Internet division into Yahoo plus cash, would be a much better idea.

I have participated in the discussions on his blog for months, and so feel that at least in some small measure I have contributed to various points made in the post. Here a quote that rings of my repeated arguments about the Internet going against Microsoft’s corporate DNA:

At Microsoft, the Internet will always play second fiddle to the Windows and Office cash cows. At Google, every idea that will disrupt Microsoft is rushed into production. At Microsoft, every such idea will be buried in politics and bureaucracy. This will make it very hard for Microsoft to attract and retain the best talent… 

If you have any interest in the future of either of those two companies, the competition against Google for domination of the Internet, or simply the business strategy examples inherent therein, the post is absolutely worth a read. Here the link again:

"Microsoft Smart Not To Buy Yahoo… But Now’s The Time To Do The Better Deal"

Best wishes during "interesting times"

– Alex Schleber

Microhoo “Post-Mortem Post” – Part 3: Delusions of Scale

The ups and downs of the Micro-hoo saga continue unabated, with renewed Carl Icahn intrigue being the flavor of the week. The noose that irate shareholders have been verbally tying around Jerry Yang’s neck seems to be getting tighter all the time.

But this time even usually stalwart Micro-hoo cheerleader Michael Arrington of TechCrunch is saying that Microsoft may be going too far in its Machiavellian machinations to want to feast on Yahoo’s carcass.

Meanwhile David Kirkpatrick, senior editor of Fortune Magazine, argues that Microsoft will inevitably buy Yahoo, making the case that it has gotten personal for Redmond ever since Google wrested the crown of perceived "greatest and most powerful tech company" away from them.

But in arguing that Microsoft desperately needs Yahoo’s scale, Kirkpatrick falls into the same "scale will solve things" thought trap that is deluding Microsoft, and plenty of commentators throughout the blogosphere in both posts and comments as well.

Currently Google’s monetization advantage vs. Yahoo (confirmed, and likely similar vs. MSN/Live Search), that comes from their focused execution is somewhere around 50-100%. And it has NOTHING to do with "scale".

It has everything to do with the advertisers being able to afford higher average bids due to higher average conversions. Period.

Conversion is the only thing that ultimately matters to an advertiser. Scale is a straw-man. If YHOO or MSFT had equal or better conversion numbers for the same keywords, then advertisers would jump on that. The individual advertiser could care less about the total query share numbers, or total number of clicks, they only care about their ads converting when they are being shown and clicked on.

If you mail a direct response ad, do you care what total percentage of the region or nation that mailing list reaches? No way. You care about the conversion numbers, because if an ad doesn’t convert you can’t long afford to mail/run it. In search ads, if you fail to convert the clicks you get, as a small business you can be bankrupt before you know it. It’s that simple.

The total volume of searches or even clicks for a keyword on Google, Yahoo, or MSN/Live has little or nothing to do with it. It’s simply that at lower conversion rates on Yahoo or MSN/Live, advertisers have a harder time making the economics work for them.

Steve Ballmer should change his tune at the next Microsoft company meeting:

Conversion, conversion, conversion…

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