Yahoo Falls, Microsoft Gains and You're Angry


Barely two hours into trading and Yahoo shares were on the decline in a big way, off about $4.50 a share, or almost 20 percent; while Microsoft shares were on the increase. Both stocks are well off their lows and highs of the morning, however, as investors try to figure out what they'll both do next. If anything.

They will do something. It's just that whatever it is likely won't be "together," even though Piper Jaffray is putting a 30 percent chance that these two will come back to the bargaining table to resume talks. I'm not sure that's in the cards.

Instead, it's probably time to broaden the cast of players and talk about what Microsoft can do.

Seems clear that the company will have to do something, seeing as its online business saw a nice jump in revenue for its Online Services Business, but at the same time, the unit racked up another $220 million in red ink. That's ugly, but uglier still when you consider Microsoft has been fumbling about trying to figure out a way to make money online for the better part of a decade.

Microsoft's acquisition of Yahoo was as much about Internet advertising as it was about software distribution. A half-billion users globally is the kind of audience worth everything Microsoft was offering, especially if it could reach that audience as potential Microsoft software and hardware customers.

It gets even more important when you grasp the concept of so-called "Cloud Computing," one of the key buzzwords in the business nowadays. Software hosted on Web sites instead of loaded onto your PC. Software downloaded from Web sites instead of purchased in a store. It's a concept put forth by with a high degree of success. It's a concept embraced and espoused by Google . It's something Time Warner has talked about. Something important to Oracle. Microsoft needs a strategy here. Yahoo was almost like picking the low fruit.

But now Microsoft will be forced to get a little more creative. Could a Microsoft play for salesforce be in the cards? There had been a lot of discussion that salesforce would be a compelling deal for Google as the search giant seeks to do for corporate clients what it's already doing for consumers. Microsoft could use the algorithms and do much the same thing across enterprise and consumer customers.

And what about News Corp.? Seems Microsoft cozied up to Rupert Murdoch during the Yahoo negotiations; speculation is that News Corp. isn't interested in Yahoo, or can't come up with enough cash on its own to offer a competing bid to what Microsoft already put forth.

So maybe News Corp. and Microsoft re-think their partnership and work together not just to take on Google, but Yahoo as well. MySpace doesn't seem to be the property it once was, when you see what other social networking sites like Facebook have become. But Yahoo today certainly isn't the property it once was either. And Microsoft already owns a small chunk of Facebook. Maybe it partners with News Corp. in some new, creative alliance that could be far cheaper than buying Yahoo, but could be far more effective at taking on Google?

More voices to the debate today:

JChang is ready to give Yahoo two years to get its shares up to the $37 that Yahoo CEO Jerry Yang thinks his company is worth. And if it doesn't happen, "then he should buy all the stock holders out at $37." My question: Why give Yahoo two years when you had a deal just a little below that right now, on the table, from Microsoft? Why wait?

Trientimp takes issue with Mary Ellen's quote in the last post: "She had a 50 percent premium when the stock ran up -- failed to sell it and now says 'Microsoft and Yahoo both screwed the Yahoo shareholders.' Greed -- it's the American weakness...unbelievable logic."

Pat wants to know, "How is it possible that the future of a giant public co. be decided by only two company officers?" And, "It's not fair that it only took two idiots to have the final say whether to accept the offer or not. Don't the millions of share holders have voting rights?" Well, actually, it was the entire board, but still!

Sinardy Xing suggests that "Yahoo should outsource the entire management team to Google, not only the Search department. Will Jerry (Yang) end up like Craig Conway from PeopleSoft?"

Also, to Yahoo's credit, the comments posted to Jerry Yang's blog this morning included some stinging criticism of Yang and the company's board. And Yahoo is posting all of them. Some do support the company, but by and large, the rebukes are biting. And certainly worth a read.

Questions? Comments?