Roundtable part 2: Will Microsoft + Yahoo give everyone what he wants?

Of black, white, and "grey" knights

Last Thursday evening's resignation of Yahoo chairman Terry Semel may have brought the whole issue to a head. The new board under non-executive chairman Roy Bostock has just now begun to solidify. So it may be easier now for Yahoo's shareholders to stand against the board if it stands firm against Microsoft, especially if it accepts any offer of an investment alliance from potential "white knight" Google, if shareholders believe the board stands in the way of their being able to realize their stock's inherent value.

"Whatever color the knight is, at the end of the day, shareholders don't care," Levy remarked. "They want differential creation of value. So if shareholders believe that this will, in fact, lead to that, then they'll reward Microsoft for doing so; if they don't believe so, then Microsoft's going to get spanked in the markets over the next few weeks."

The backdrop for all of this, as we were reminded by Matt Rosoff, analyst for independent firm Directions on Microsoft, is the sharp downturn in the US and global economies. It's the existence of economic downturns that typically turns advertisers' moods sour.

"There's a lot of uncertainty with Internet advertising in general," noted Rosoff. "We might be entering a recession, and in that case, Internet ad revenues in general might drop off a cliff. Both Yahoo and Google showed pretty bad Q4s, or worse than expected. So there's a lot of uncertainty there."

Yahoo isn't exactly hemorrhaging, Rosoff mentioned, but it hasn't stopped bailing water, either. At some point the company had hopes to pare itself back to what its core business was. But even with its co-founder having taken over the CEO helm, Rosoff said, it sent out the message last Tuesday that it might not be so certain what or where that core resides any more.

"It's possible," he said, "that they were planning on making some necessary cuts and getting back to some kind of core business, but it's hard to know what that core business is supposed to be. Search was part of it, and Google kind of swept in and took that business away. But maybe if they had gotten back to some of these core Internet services -- mail and messaging and the old portal method -- and really concentrated on building out a few of their properties, that could've been better for them."

Yahoo can't quite answer the basic question, "What am I?" contends Rosoff. By contrast, Microsoft -- which is primarily a big software firm that sells Windows and Office to enterprise clients, and does quite a few other things on the side -- at least has a message, compatible or not.

"I don't feel that Yahoo has had a consistent corporate message, and I think that's maybe part of their problem. They're all things to everybody. They're starting to build out some developer tools and that kind of thing, but...Microsoft is a completely different animal. It still, for most intents and purposes, sells software to very large organizations. That's where most of its money comes from."

Because Microsoft is such a different animal, Rosoff believes, not many Yahoo employees will actually take Microsoft's offer. In fact, one of Yahoo's higher profile advertising platform product managers jumped ship just this morning: Dr. Kiumarse Zamanian has left his Yahoo position to join startup firm Glam Online, with the objective of developing tools to help its advertising clients better target female audiences.

But Microsoft may not actually care all that much about what Yahoo loses, or what it does not stand to gain, by way of humanpower. What may matter most is the statement it makes for itself.

"This is Microsoft saying we're absolutely going to be here, and we're going to run so fast," he remarked. "The other option is monopoly, and Microsoft didn't want Google to get to that point."

Carmi Levy agreed: "Microsoft's on a roll now, and this is yet another sign that it's very much alive and very much willing to continue to take chances... It's a shot across Google's bow, letting Google know that Microsoft will not cede what it perceives as its fair share of Internet advertising revenue today, tomorrow, and in the years ahead. Microsoft wants to let both Google and the rest of the market know that it has no intention of playing second fiddle to anyone, much less Google."