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No victory: Yahoo feels the heat after Microsoft walks away

Everyone's searching for YHOO, waiting to see how low the stock can go.

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No victory: Yahoo feels the heat after Microsoft walks away

Basictheory

Yahoo CEO Jerry Yang in a sumo outfit.

Even more so than usual, the tech world is glued to the market today, waiting to see how low Yahoo can go. Indeed, Google Trends says that YHOO, Yahoo’s stock symbol, is, so far, the 28th fastest-rising search term today.

But that’s the only thing about Yahoo rising today. Its stock opened at $23.02 this morning, about 20 percent down from Friday’s closing price of $28.67.

Friday was, of course, a universe away: That was before Saturday’s final meeting between Jerry Yang and Steve Ballmer, Yahoo and Microsoft’s CEOs, at which Ballmer refused to pay a penny over $33 per share for his takeover of Yahoo.

Yang stuck to his price, $37, and Ballmer flew back to Redmond. Ballmer could always come back — but for now, Yahoo’s got to face the consequences of its strategy.

Yang himself may be pleased with it. Citing “people close to” Yahoo, the New York Times on Sunday reported that Yang considered the outcome a “personal victory,” and added that “high-fives were exchanged” among Yahoo execs when they learned of Ballmer’s decision.

Yahoo employees — whose wealth is tied up in the stock — are surely less excited. On Jan. 31, the day before Microsoft made public its takeover offer, Yahoo’s stock was trading at $19. Microsoft’s first offer — of $31 — caused the shares to surge to $28. But now that a deal’s off the table, folks at Yahoo once again face the prospect of sub-$20 shares.

Aware that he wouldn’t win any support from his employees if he were seen as happy about standing in the way of a huge Microsoft-stock payday, Yang, in a post on Yahoo’s company blog, denied any glee:

Frankly, there’s a lot of nonsense and misinformation in what’s being reported. Just so we are all clear, here’s what happened. The board took its mission very seriously. We clearly indicated to Microsoft that we were open to a transaction but only if it were on terms that fully recognized the value of Yahoo! and was in the best interests of our stockholders.

No one is celebrating about the outcome of these past three months … and no one should.

As Kara Swisher reports, though, many at Yahoo aren’t buying it. Here are some quotes she pulled from distraught employees:

“I am in shock.”

“I don’t know if we won or we lost. I think we lost.”

“I don’t love that it was Microsoft, but I think everyone thought $33 was a pretty good offer from a pretty good tech company.”

“Having to face my staff tomorrow will not be so much fun and I need some Prozac, since I don’t know what I can say to them about how our leadership is going to get our company going again.”

“Where’s the Jelly memo when you need it?”

“I can’t really talk to Jerry, since it is difficult to tell a founder tough things he probably needs to hear.”

“Do you think we need to do an intervention with Jerry and the board?”

What should Yahoo do now? Many are pushing it to make permanent a search deal with Google, one that it first initiated as a way to avert the Microsoft offer.

As part of the deal Yahoo would outsource its search operations to Google — it would get increased revenue in return for what would likely be the end of search-engine innovation at the company.

Henry Blodget argues that this is a fine trade, because Yahoo was never going to beat Google in search anyway. Why continue to invest resources in a game that’s already over? Better to spend the money in new markets that Yahoo could potentially lead.

But even a Google deal may not pacify investors. If Yahoo’s stock continues to slide, Microsoft could always return with another proposal — and this time, Ballmer wouldn’t have to offer anywhere near $33.

Latest WikiLeaks: Microsoft aided dictator

Bill Gates' deal with the government of Tunisia, and other instances of officials and corporations behaving badly

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Latest WikiLeaks: Microsoft aided dictatorBill Gates and former Tunisian President Zine el Abidine Ben Ali.

(UPDATED BELOW)

Politicians and corporations behaving badly: that’s one theme that emerges from the latest secret State Department cables released by WikiLeaks.

The new revelations don’t measure up to the seriousness of the alleged massacre of civilians by U.S. troops in Iraq that I delved into over the weekend. But they are still very much worth noting.

A cable from 2008 titled “Mayawati: Portrait of a Lady” reports that the chief minister of India’s Uttar Pradesh state (the country’s most populous) once dispatched an empty private jet to Mumbai to procure her favorite brand of sandals:

Mayawati’s full majority victory in May 2007 UP State Assembly elections left her beholden to no one and has allowed her to act on her eccentricities, whims and insecurities. When she needed new sandals, her private jet flew empty to Mumbai to retrieve her preferred brand. According to Lucknow journalists, she employs nine cooks (two to cook, the others to watch over them) and two food tasters.

At a press conference today, Mayawati called the report “wrong, baseless, and disgusting.” She also asked that Julian Assange be put “into a mental asylum.”

Read the original cable here.

Jumping over to the Middle East and North Africa, two more revelations of interest: First, it appears that U.S. diplomats were skeptical of a deal between Microsoft and the now-deposed dictator of Tunisia, Zine al-Abidine Ben Ali.

In a September 2006 cable flagged by ZDNet, an official at the embassy in Tunis expressed reservations about a deal that provided “for Microsoft investment in training, research, and development, but also commits the GOT [Government of Tunisia] to using licensed Microsoft software.” The basic concern was that the software giant would be helping Ben Ali’s regime oppress Tunisians more effectively.

Wrote the author of the cable:

Microsoft’s reticence to fully disclose the details of the agreement further highlights the GOT emphasis on secrecy over transparency. In theory, increasing GOT law enforcement capability through IT training is positive, but given heavy-handed GOT interference in the internet, Post questions whether this will expand GOT capacity to monitor its own citizens. Ultimately, for Microsoft the benefits outweigh the costs.

The company did not comment to ZDNet. I’ve asked Microsoft for comment and will update this post if I hear back.

Finally, a cable from Iraq flagged by AFP provides a snapshot of the ever-increasing reliance on private military contractors by the United States. The basic concern was that Iraq, which had already banned Blackwater from the country after the notorious 2007 Nisour Square shooting, would also ban all former Blackwater employees. And the U.S. still relied on the same corps of former Blackwater employees who had joined other firms like Triple Canopy and DynCorps.

From a January 4, 2010 cable:

[A government spokesman] also indicated that the GOI [Government of Iraq] might expel former Blackwater employees out of Iraq, potentially complicating security services for the Embassy. …

[T]here are many former Blackwater employees at other private security companies in Iraq, most notably Triple Canopy and DynCorps providing security services to us.

Another cable written a week later reported that, “The Embassy understands that Triple Canopy currently employs several hundred former Blackwater employees.”

UPDATE: A Microsoft spokesperson sends along this statement:

Microsoft partners with countries around the world to help spur local IT innovation and job creation, help broaden access to IT, and to enable governments to adopt IT in the delivery of services to citizens. This has been the focus of our work in Tunisia.

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Justin Elliott

Justin Elliott is a reporter for ProPublica. You can follow him on Twitter @ElliottJustin

Microsoft to buy Skype for $8.5 billion

Purchase will mark largest acquisition in the software maker's 36-year history

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Microsoft to buy Skype for $8.5 billion

Microsoft Corp. said Tuesday that it has agreed to buy the popular Internet telephone service Skype SA for $8.5 billion in the biggest deal in the software maker’s 36-year history.

Buying Skype would give Microsoft a potentially valuable communications tool as it tries to become a bigger force on the Internet and in the increasingly important smartphone market.

Microsoft said it will marry Skype’s functions to its Xbox game console, Outlook email program and Windows smartphones. The company said it will continue to support Skype on other software platforms.

The sellers include eBay Inc. and private equity firms Silver Lake and Andreessen Horowitz.

About 170 million people log in to Skype’s services every month, though not all of them make calls. Skype users made 207 billion minutes of voice and video calls last year.

Most people use Skype’s free calling services, which has made it difficult for the service to make money since entrepreneurs Niklas Zennstrom and Janus Friis started the company in 2003. An average of about 8.8 million customers per month, or just over 1 percent of the user base, pay to use Skype services.

Skype lost $7 million on revenue of $860 million last year, according to papers that the company has filed since announcing its intentions last summer to launch an initial public offering of stock. The IPO was later put on hold. Skype’s long-term debt, net of cash, was $543,883 at the end of 2010.

The Skype takeover tops Microsoft’s biggest previous acquisition — a $6 billion purchase of the online ad service aQuantive in 2007.

Microsoft said Skype will become a new business division headed by Skype CEO Tony Bates, who will report directly to Ballmer.

Although it makes billions from its computer software, Microsoft has been accustomed to losing money on the Internet in a mostly futile attempt to catch up to Google Inc. in the lucrative online search market. Microsoft got so desperate that it made a $47.5 billion bid to buy Yahoo Inc. three years ago, but withdrew the offer after Yahoo balked. Yahoo is now worth about half of what Microsoft offered.

Microsoft would be Skype’s second large-company owner. EBay bought Skype for $2.6 billion in 2005, but its attempt to unite the phone service with its online shopping bazaar never worked out. It wound up selling a 70 percent stake in Skype to a group of investors led by private equity firms Silver Lake and Andreessen Horowitz for $2 billion 18 months ago.

Besides eBay, Silver Lake and Andreessen Horowitz, Skype’s other major shareholders are Joltid and Canada Pension Plan Investment Board.

 

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Steve Jobs beats Microsoft with an iPad club

The last time life was this good for Apple, the PowerBook was new and Windows 3.1 had yet to launch

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Steve Jobs beats Microsoft with an iPad clubThe Mac Classic II

The news that for the first time in 20 years, Apple’s quarterly net profit — $5.99 billion — has exceeded Microsoft’s — $5.23 billion — is remarkable for a couple of reasons. First, there’s the fact that the massive success of the iPad has pounded the market for consumer laptops and notebooks running Windows.

From Bloomberg:

Consumer PC shipments dropped 8 percent in the quarter, Microsoft Chief Financial Officer Peter Klein said. Netbooks — the cheap laptops that became popular during the recession — plunged 40 percent, partially because of defections to tablet computers, he said.

When Steve Jobs debuted the iPad 15 months ago, critical appraisals were all over the map, from effusive to dismissive, but I don’t think even the most gaga fanboy predicted that in little more than year the tablet would have meaningfully reshaped the entire personal computing industry.

But the symbolism here is even more powerful. In 1991, Apple was still pumping out popular products — that year the company introduced its first serious laptop, the PowerBook 100, along with its high-end Quadra and the iconic-looking Mac Classic II.

Then, in April 1992, Microsoft released Windows 3.1 and brought the mouse and multitasking to the PC masses. And that was that. Apple’s attempt to sue Microsoft for coopting the “look and feel” of the Macintosh in earlier iterations of the Windows operating system failed miserably, and for most of the 1990s, the company was an also-ran. Die-hard Apple lovers still claimed aesthetic superiority over the commodified Windows-Intel nexus, but they were like yapping Chihuahuas — indefatigable and noisy but hardly dangerous. Microsoft proceeded to throw its weight across the entire industry, crushing its competitors and even shrugging off the best antitrust efforts of Bill Clinton’s Department of Justice.

And yet now the iPad and the iPhone rule supreme — where litigation failed, a superior design philosophy has triumphed, at least for now. It’s one of the most extraordinary stories in the history of personal computing.

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Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

Nokia, Microsoft in pact to take on Apple, Google

World's largest mobile maker will use Window's software as the main platform for its smartphones

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Nokia, Microsoft in pact to take on Apple, GoogleSmartphones like the Nokia 5800 will now be programed with Microsoft Window's Phone software in a partnership aimed at taking consumers away from iPhones and Androids.

Technology titans Nokia and Microsoft are combining forces to make smart phones that might challenge rivals like Apple and Google and revive their own fortunes in a market they have struggled to keep up with.

Nokia Corp., the world’s largest maker of mobile phones, said Friday it plans to use Microsoft Corp.’s Windows Phone software as the main platform for its smart phones in an effort to pull market share away from Apple’s iPhone and Android, Google’s software for phones and tablets.

The move marks a major strategy shift for Nokia, which has previously equipped devices with its own software. Analysts said the deal was a bigger win for Microsoft than Nokia, whose CEO Stephen Elop in a leaked memo this week compared his company to a burning oil platform with “more than one explosion … fueling a blazing fire around us.”

Nokia said the partnership would “deliver an ecosystem with unrivaled global reach and scale.” However, it warned that the new strategy would also bring “significant uncertainties,” and said it expects profit margins to be hit by strong competition from rivals.

Nokia’s share price plunged 9 percent to euro7.43 ($10.11) in afternoon trading in Helsinki.

Elop, a Canadian national, joined Nokia from a senior executive position at Microsoft last year. The first non-Finn to lead Nokia, he is under intense pressure to reverse the company’s market share losses to North American and Asian competitors.

“Nokia is at a critical juncture, where significant change is necessary and inevitable in our journey forward,” Elop said. He added the company was aiming at “regaining our smart phone leadership, reinforcing our mobile device platform and realizing our investments in the future.”

Speaking later to analysts in London, he declined to say when Nokia would introduce a new device running on Windows Phone. But he said Nokia won’t bury its own Symbian operating system or the new Meego platform that it is currently developing.

The Symbian technology is being used in 200 million phones with 150 million more expected on the market, Elop said.

Android surpassed Symbian to become the world’s No. 1 smart phone software in the fourth quarter of last year, according to the Canalys research firm.

Microsoft CEO Steven Ballmer said the partnership would give the team “more innovation, greater global reach and scale.”

“We need to, and we will, collaborate closely on development … so we can really align and drive the future revolution of the mobile phone,” he said.

The key challenge will be to come up with devices of a quality level and hip factor that helps position Windows Phone as an attractive alternative to iPhone or Android.

Windows Phone 7, which was launched last year, still has a lot of catching up to do in terms of both the number of users and the number of “apps” available for the phones.

Nokia said its expertise in developing new software with Microsoft will be “on top of the platform in areas such as imaging, where Nokia is a market leader.” Its map services will be a core part of the new device as will Microsoft’s Bing search engine, Nokia said.

Neil Mawston of London-based Strategy Analytics said Microsoft was the big winner in the partnership, by teaming up with the biggest mobile hardware vendor in the world.

“In terms of expanding their distribution reach, this is a huge win for Microsoft,” he said.

For Nokia the deal leaves uncertainty about what will happen to its current Symbian operating platform. Mawston said he expects it to be phased out within two years and “completely, or at least mostly, replaced by Windows Phone.”

Although Nokia still is the mobile industry’s biggest handset maker, its market share has plummeted from a high of 41 percent in 2008 to 31 percent in the last quarter of 2010.

It has also lost its innovative edge in the fiercely competitive top-end sector and is virtually invisible — with a 3 percent share — in the world’s largest smart phone market, North America.

Apples’ iPhone has set the standard for today’s smart phones and Research In Motion Ltd.’s BlackBerrys have become the favorite of the corporate set. More recently, Google Inc.’s Android software has emerged as the choice for phone makers that want to challenge the iPhone.

“Today, developers, operators and consumers want compelling mobile products, which include not only the device, but the software, services, applications and customer support that make a great experience,” Elop said.

He warned of further layoffs and restructuring, saying Nokia must “improve the speed and nimbleness and agility of the organization … by taking significant steps in how we operate.” He gave no details.

The company said it will announce a new leadership team and organizational structure “with a clear focus on speed, results and accountability.”

Nokia, which claims 1.3 billion daily users of its devices, said it hopes the “broad, strategic partnership” with Microsoft will lead to capturing the next billion users to join the Internet in developing growth markets.

Jyrki Ali-Yrkko, from the Research Institute of the Finnish Economy, described Nokia’s cooperation with Microsoft as “surprising.”

“The strengths will be in Microsoft’s strong position in various corporate solutions and server solutions, but its weakness is that Microsoft perhaps doesn’t have a broad, user-oriented group of developers like those around Android or Apple,” Ali-Yrkko said.

——

Online:

Nokia: http://www.nokia.com

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Ray Ozzie leaves Microsoft

He was considered a possible heir apparent; his departure is bad news for the software giant

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Ray Ozzie leaves MicrosoftRay Ozzie

Ray Ozzie gave me hope for Microsoft. When he joined the software behemoth after it bought his collaboration-software company, Groove Networks, he brought qualities to the executive suite that Microsoft sorely needed. The most notable was an appreciation that the software world was moving toward models of cooperation with others as much as plotting their ruination. He was considered a potential, even likely, successor to Steve Ballmer, the only other CEO Microsoft has had besides Bill Gates.

So much for that idea. Ozzie’s departure, announced today in a weirdly low-key manner, shows that Microsoft is still struggling to define itself for the Internet era.

Ozzie was the company’s Chief Software Architect, a position held previously by Bill Gates after he stepped down as CEO. It was an ideal fit: Ozzie’s technical talent and vision for what we could do with technology were extraordinary. At Microsoft he headed up an effort to move the company toward the era when software was more online than not, a sea change for a company that had for its entire existence been all about what amounted to packaged goods.

I’ve been an Ozzie fan for years. To journalists who covered his doings, he was patient in helping us understand what he was doing. Just what that was could be hard to grasp, given how far ahead of his time he proved to be on project after project at several companies including Groove and, before that, Lotus Notes.

For all his qualities, Ozzie didn’t push Microsoft fast enough toward the future, or else his pushing was resisted. Microsoft dallied way too long to get into the “cloud” where software becomes as much as service as a product you buy. The competition — Google, Amazon and others — is more entrenched now, and for all the formidable technical talent at Microsoft, the company hasn’t caught up in key areas. Keep in mind, however, that Microsoft’s bread and butter (and gold and diamonds) remains in the licensed-software market, where it’s still an absolutely huge and immensely profitable enterprise.

It’ll be fascinating to see what Ozzie does next. I find myself hoping he’ll try something in the social-entrepreneurship arena. Certainly he can live with a lower paycheck than most of us.

As for Microsoft, which keeps losing (or expelling) top executives, the questions grow more urgent. Ballmer has been a better CEO than his critics say, but if the board isn’t pushing him to line up a solid successor, and soon, the directors are falling down on the job.

 

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A longtime participant in the tech and media worlds, Dan Gillmor is director of the Knight Center for Digital Media Entrepreneurship at Arizona State University's Walter Cronkite School of Journalism & Mass Communication. Follow Dan on Twitter: @dangillmor. More about Dan here.

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