EightBlack.

If you are a parent with young children, you will understand where I’m coming from with this.

Sometimes I walk around the house in my underwear, yelling loudly “It’s good to be the King, It’s good to be the King”.

I want my kids to know who’s in charge.

However, not long after this act of bravery started on my count, my 5-year old daughter came up to me and said in a stern voice, “Daddy, you may be the King, but you’re not the boss”. I looked at her in disdain and gruffly demanded just who is then, if it’s not me.

She says matter of factly,  “Mummy is”.

Sort of a bit like Jerry Yang. He used to be the King at Yahoo!. But he’s no longer the boss.

I wrote a while ago that I honestly thought “the deal” would get done (between Microsoft and Yahoo!). I’d seen Steve Ballmer talk at last years Web 2.0 Expo and as soon as Battelle mentioned the word Google and Search in the one sentence, he started jumping up and down like a 9 year old boy who swallowed 4 and half litres of Ritalin.

Or something like that.

Microsoft desparately wants to win at the search game and thought Yahoo! would have at last, let them get closer to their arch rival, Google.

Anyway, I’ve never been a huge fan of Yahoo! so I sort of really didn’t care either way. I’ve never had a Yahoo email address, rarely use Flickr,  wouldn’t know what Yahoo Groups is/does, and never use Yahoo as my search engine.

And I think Yahoo! are so far behind in the whole area of search marketing, it’s not funny. The only people who have less market share than Yahoo in this space in Australia at least, is Sensis. And they would have better luck selling an STD to someone before they sold a search marketing solution.

But I digress.

I think Jerry Yang’s days are numbered. Carl Icahn is not the sort of person you need circling above and as the Yahoo! stock price heads south, the Board and their major shareholders just might ask Jerry to step aside. He may be the founder, but he may not have a choice.

One thing is clear. Yang hates Microsoft. I don’t reckon he wanted a deal done with the devil at any price.

And Ballmer for once played a game of patience, made his offer, didn’t budge and waited Yahoo! out.

The biggest sign of trouble though has nothing to do with the share price. Nothing to do with Google and Yahoo! getting into bed. And nothing to do with Microsoft.

It’s got to do with the mass exodus of talent leaving Yahoo’s gates. Look, the really smart bastards had already left, and the next calibre of people probably had already been trawling through the Google jobs board.

But when these guys leave, the crack becomes a gaping hole and pretty soon the proverbial damn will burst and there will be no stopping the thing. According to one source, over 50 top executives have left since January 2008, 9 of them since the Microsoft bid collapsed just over a month ago.

You can’t innovate without talent, doesn’t matter how much money the company has. Yang is in it deep now and if there is any hope for Yahoo!, he needs to step aside and take drastic measures to stop the brain drain. Before its too late. And it might already be…

However, if he wants to be like me, and continue to walk around in his underwear in a state of delusion, yelling out “It’s good to be the King” he can go right ahead. It’s just that pretty soon, there’ll be no one left in his Kingdom to preach to.

Which reminds me, I need to ask my wife if I can stay out late tomorrow night…

This story hit the wires Monday US time.

I actually don’t think anyone deserves this. While I am not the biggest fan of Ballmer, my opinion changed significantly of the man after I saw him speak at last year’s Web 2.0 Summit.

People who see this might argue that this sort of treatment comes with the territory of running the largest software company on the planet.

And anyone who has followed Ballmer long enough knows that he has a short fuse and throws the odd chair now and then. But no one would ever question his loyalty and commitment to USS Microsoft.

You can be sure that if this happened in the US, the assailant would have been charged with assault.

But in Europe (Budapest to be exact), the officials didn’t know what the hell to do with the guy. He sort of just leaves on his own accord (the fact that he ran out of eggs probably had something to do with it).

Ballmer recovered somewhat. To his credit.

But you can be sure that when he next speaks, there might be 2 guys with no necks and large bulges in their jackets, wearing designer sunglasses. As there should be.

I would have beaten the crap out of the guy. But that’s just me. The fact that I’ve won every fight I’ve ever been in by 500 yards helps no end.

I honestly didn’t think this would happen. Maybe Ballmer is getting far less impatient in his old age. This from the Microsoft website. I still don’t think this is over by a long shot. Because one thing all the pundits have forgotten in the coverage of this news story, is there’s still the issue of a little search company in Mountain View to deal with.

How Yahoo! and Microsoft intend to deal with “search” in the bigger context is still a massive undertaking.

Be interesting to see what happens when the market opens on Monday in the US and what value it places on Yahoo! then. My guess is that after a week of “blood on their hands”, the Yahoo! directors will want to do a deal with just about anyone.

May 3, 2008

Mr. Jerry Yang
CEO and Chief Yahoo
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089

Dear Jerry:
After over three months, we have reached the conclusion of the process regarding a possible combination of Microsoft and Yahoo!.

I first want to convey my personal thanks to you, your management team, and Yahoo!’s Board of Directors for your consideration of our proposal. I appreciate the time and attention all of you have given to this matter, and I especially appreciate the time that you have invested personally. I feel that our discussions this week have been particularly useful, providing me for the first time with real clarity on what is and is not possible.

I am disappointed that Yahoo! has not moved towards accepting our offer. I first called you with our offer on January 31 because I believed that a combination of our two companies would have created real value for our respective shareholders and would have provided consumers, publishers, and advertisers with greater innovation and choice in the marketplace. Our decision to offer a 62 percent premium at that time reflected the strength of these convictions.

In our conversations this week, we conveyed our willingness to raise our offer to $33.00 per share, reflecting again our belief in this collective opportunity. This increase would have added approximately another $5 billion of value to your shareholders, compared to the current value of our initial offer. It also would have reflected a premium of over 70 percent compared to the price at which your stock closed on January 31. Yet it has proven insufficient, as your final position insisted on Microsoft paying yet another $5 billion or more, or at least another $4 per share above our $33.00 offer.

Also, after giving this week’s conversations further thought, it is clear to me that it is not sensible for Microsoft to take our offer directly to your shareholders. This approach would necessarily involve a protracted proxy contest and eventually an exchange offer. Our discussions with you have led us to conclude that, in the interim, you would take steps that would make Yahoo! undesirable as an acquisition for Microsoft.

We regard with particular concern your apparent planning to respond to a “hostile” bid by pursuing a new arrangement that would involve or lead to the outsourcing to Google of key paid Internet search terms offered by Yahoo! today. In our view, such an arrangement with the dominant search provider would make an acquisition of Yahoo! undesirable to us for a number of reasons:

•	First, it would fundamentally undermine Yahoo!’s own strategy and long-term viability by encouraging advertisers to use Google as opposed to your Panama paid search system. This would also fragment your search advertising and display advertising strategies and the ecosystem surrounding them. This would undermine the reliance on your display advertising business to fuel future growth.
•	Given this, it would impair Yahoo’s ability to retain the talented engineers working on advertising systems that are important to our interest in a combination of our companies.
•	In addition, it would raise a host of regulatory and legal problems that no acquirer, including Microsoft, would want to inherit. Among other things, this would consolidate market share with the already-dominant paid search provider in a manner that would reduce competition and choice in the marketplace.
•	This would also effectively enable Google to set the prices for key search terms on both their and your search platforms and, in the process, raise prices charged to advertisers on Yahoo. In addition to whatever resulting legal problems, this seems unwise from a business perspective unless in fact one simply wishes to use this as a vehicle to exit the paid search business in favor of Google.
•	It could foreclose any chance of a combination with any other search provider that is not already relying on Google’s search services.

Accordingly, your apparent plan to pursue such an arrangement in the event of a proxy contest or exchange offer leads me to the firm decision not to pursue such a path. Instead, I hereby formally withdraw Microsoft’s proposal to acquire Yahoo!.

We will move forward and will continue to innovate and grow our business at Microsoft with the talented team we have in place and potentially through strategic transactions with other business partners.

I still believe even today that our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares. By failing to reach an agreement with us, you and your stockholders have left significant value on the table.

But clearly a deal is not to be.

Thank you again for the time we have spent together discussing this.

Sincerely yours,
Steven A. Ballmer
Chief Executive Officer
Microsoft Corporation

This is clearly one of the best observations on the potential Microsoft/Yahoo! tie-up. And much, much clearer now. For me at least.

If I was Yahoo!, I’d engage Marc Andreessen pronto.

Although, the feeling on the West Coast is that the deal will get done regardless.

I always reckon when you are presented with the opportunity to listen to a billionaire talk, you should take it.

I can’t have been the only one to think this - as there were about 5,000 other people sitting beside me during the keynote at Web 2.0 with Marc Andreessen.

Marc has been instrumental in driving the internet and came to fame with the sale of Netscape (the company he co-founded) to AOL for the princely sum of $4.2 billion dollars back in 1999. That was when the US dollar actually meant something.

Many observers of the net were puzzled that someone of Andreessen’s intelligence, insight and ruthless conviction didn’t jump into the blogosphere sooner than he did. His blog launched in July 2007, not even a year ago.

But already it is one of the most read blogs in the industry and has a huge following. As it should.

Marc is an exceptional writer. I wish I could write with that level of clarity and consistency. And amazing attention to detail. Some of his posts are more like a thesis. You should just read what he thinks of the US financial sector.

Marc is one of those guys you just pray would be sitting beside you on a flight from Australia to London. Except for the fact that mortals like you and me probably don’t travel too often in a Gulfstream. Anyway.

John Battelle did a cool job of the interview (as usual). It would be good to be that well connected.

You should watch this session from start to finish. And be ready for “the nuclear winter…” You’ll understand after you’ve seen the video.

I wonder why? Interesting. This is one of those deals that simply goes virtually un-noticed in the 20 or so deals Redmond does every year. And for the owners of Farecast, $115 million for 2-years work ain’t bad.

Nope. Nope. And Nope.

I’m no expert but I do think good leadership is knowing when to hold and when to fold. Jerry Yang won’t win this battle. He doesn’t strike me as the type of guy who could pick up a chair and throw it half way across the room like Steve Ballmer could (and does).

I’d even bet that Steve B threw something when Yahoo! rejected their first bid. But probably not very hard.

The whole “hostile” offer isn’t really hostile at all. It was deemed a friendly bid by Microsoft sources. But that’s sort of like asking Osama Bin Whats-his-face to join the UN and take care of the peace process in the Middle East. You just know shit is going to get broken in the process.

Whatever happens during the tit-for-tat, one thing is for sure. Microsoft want this deal. And they’ll stop at nothing to get it done. They have very strong stomachs for this sort of thing - so whether it turns out to be a semi-polite negotiating process between the lawyers, or a full on street brawl, Microsoft will have a well thought out plan for any option presented to them.

I think maybe Steve and Bill got sick of this sticker and decided to do something about it. They may very well just Change The World (at least the online one).

The thought of “going home” doesn’t have a place in their vocabulary.

One thing is for sure. Expect much furniture throwing. I’m off to buy shares in Aeron.

More later. If I can bothered. The whole thing is a little boring if you ask me.

The games are about to begin. David Drummond, Google’s most respected legal eagle, fired the first shot across the bow regarding the hostile takeover offer for Yahoo! by the software giant, Microsoft.

Microsoft are well versed in anti-trust laws. They’ve been battling it out in Europe and the US for years now. And they are hardly to be intimidated by momentum in the blogosphere or mainstream press. Nor will they care what Drummond has to say.

The lawyers and Public Relations folks must be salivating like Pavlovs dog right about now. They will be the clear winners. The consumer - well, I’m not too sure.

I still think the deal will get done, if and its a big if, the regulators allow it.

About 5 years ago, we discovered Google AdWords. More importantly, we met Perry Marshall, a guy who I still regard as the world’s leading authority in the pay per click space. He’s got an interesting take on the Yahoo! and Microsoft gig. There’s a link at the very bottom of this post to a 60 minute interview with another highly respected web authority - Ken McCarthy. And I’ve copied an extract of an email Perry sent to his list over the weekend. The email is worth a read. And the audio is true content. Have a listen. All the details are right below.

Unless you’ve been hiding in a cave, you know that Microsoft now intends to acquire Yahoo so together they can make up the ground they’ve lost against Google.

Let me be very clear that even though my books, coaching programs, etc. are about Google AdWords, nobody would be happier than me for the world to have a really good alternative to Google AdWords for buying clicks. I’m ALL for competition. I would LOVE for Yahoo Search Marketing to be a formidable opponent to Google. (It’s useful, but I sure wouldn’t pretend it’s formidable at this point.)

I would LOVE for MSN AdCenter to be super-cool and powerful, but… alas, it’s not. It’s anemic. And I’m being kind.

Yes, I would love for Microsoft and Yahoo together to be able to kick Google’s butt. Nothing is better for you and me than serious competition for our ad dollars.

Unfortunately…. In My Humble Opinion, expecting Microsoft and Yahoo to be better than Google by getting together is like pairing up two people each with an IQ of 75 and putting them in a spelling bee and hoping that together they’re a 150 genius.

NOT. They’ll just argue with each other about how to mis-spell everything.

For the record, I do hope I’m wrong.

So anyway… how did Google beat Yahoo at its own game? After all, Overture (the former company that was acquired by Yahoo) had a 3-4 year start on Google. At one time they were king. Now they’re scrambling to hang onto a distant 2nd place.

Ken McCarthy and I talk about that very question on this MP3. I describe what it was that pulled Google into the lead, and more importantly, how YOU use exactly the same principles to dominate in YOUR market:

Perry Marshall Interview

The notion that Microsoft and Yahoo! should combine to tackle Google is nothing new. Industry pundits have been speculating around this very subject for the last 2 years.

Except for one thing.

Now the deal is in play. For real.

Redmond have really pulled out all the stops now and offered $31 bucks a share - thats $41 billion. Quite a sum even for Bill and Steve to swallow. Easily their biggest deal yet.
I actually hope the regulators let the deal through. You can bet your sweet Aunt Fannie that Dr. Schmidt et al will be protesting like a Greenpeace activist or Lindsay Lohan at an AA meeting.

Jerry Yang will have a fight on his hands. Yahoo! face some serious soul searching. The market isn’t happy with their performance (despite a revenue lift this last quarter), Panama hasn’t done what it was supposed to (and that was stem the AdWords tide), morale is low, the company faces a round of layoffs and wherever they look, another search company called Google beats them to punch. Deals have been scarce. And Yang hasn’t revitalised the once dominant web goliath since he took over from Terry Semel just over 6 months ago.

More importantly, Yang will have a hard time convincing long suffering Yahoo! shareholders to hold onto his stock, given that Microsoft is offering a 60% plus premium to the closing price of Yahoo! (currently trading at just over $19). Don’t expect Steve to play nice with the offer either - this is a hostile takeover bid. Nothing less.

But put Yahoo!’s assets together with Microsoft and now you’re talking. Combine this with the intellectual horsepower from FAST, the search company recently acquired by Microsoft, and Google suddenly has something to be concerned about.

Good. Innovation is likely to prevail. And Google needs to be put under the pump.

Just let us pray for commonsense on behalf of the ant-trust folks…

Fast is one of those companies that a lot of us probably have never heard of.

One, they’re based in Oslo, Norway. And second, they’re essentially in the “enterprise search” space, meaning they want customers who are big public companies with big budgets and who won’t collapse when they receive their first bill for services rendered.

Ok, I’m being harsh. By all accounts, Fast are a very slick outfit.

And as of yesterday, the founders and shareholders are now US$1.2 billion better off. Because that’s the amount they just accepted from Microsoft.

For some strange reason, I would have thought they were worth more. Their intellectual capital, human capital, sheer focus and global coverage is extremely impressive. Maybe there’s not much to spend $1.2 billion on in Norway…

Anyway.

Fast is the same company who built the search engine technology for Sensis.com.au.

Good on Microsoft for getting this deal done. It’s a perfect fit given Microsoft’s firm grip on the corporate and enterprise market and it’s probably Redmond’s most important search related acquisition to date.

And shame on Google for not getting in there first.