Steamd

Microsoft Sends Letter to Yahoo! Board of Directors

Microsoft CEO Steve Ballmer recently sent a letter to the members of Yahoo!’s board of directors basically telling them they have three weeks to make up their mind or Microsoft is going to get nasty. Here’s a play-by-play of the letter:

Dear Members of the Board:

It has now been more than two months since we made our proposal to acquire Yahoo! at a 62% premium to its closing price on January 31, 2008, the day prior to our announcement. Our goal in making such a generous offer was to create the basis for a speedy and ultimately friendly transaction. Despite this, the pace of the last two months has been anything but speedy.

That’s probably because your offer sucked, Steve. Not to mention that even at a 62% premium the offer is still undervalued. Price alone isn’t a valid measure of the value of this company.

While there has been some limited interaction between management of our two companies, there has been no meaningful negotiation to conclude an agreement. We understand that you have been meeting to consider and assess your alternatives, including alternative transactions with others in the industry, but we’ve seen no indication that you have authorized Yahoo! management to negotiate with Microsoft. This is despite the fact that our proposal is the only alternative put forward that offers your shareholders full and fair value for their shares, gives every shareholder a vote on the future of the company, and enhances choice for content creators, advertisers, and consumers.

So it’s all about the shareholders again? Where does my voice come into this? Do consumers have a choice in this? Didn’t think so.

During these two months of inactivity, the Internet has continued to march on, while the public equity markets and overall economic conditions have weakened considerably, both in general and for other Internet-focused companies in particular. At the same time, public indicators suggest that Yahoo!’s search and page view shares have declined. Finally, you have adopted new plans at the company that have made any change of control more costly.

The whole industry has declined. And the publicity surrounding your bully tactics and possible hostile takeover of Yahoo! hasn’t helped either. Yahoo! is doing what it can to be creative and branch out into other areas in an effort to expand their business and offer their customers more choice. Hmm…seems like a contradiction of that last sentence. In other words, only Microsoft can make the right choices and adopt new plans that give consumers better choices.

By any fair measure, the large premium we offered in January is even more significant today. We believe that the majority of your shareholders share this assessment, even after reviewing your public disclosures relating to your future prospects.

Again with the whole “It’s all about the shareholders” talk. This sort of corporate bullshit and old-school management style is what’s stifling competition, bub. Google is running off of a different mindset and different style of management and Yahoo! is doing it’s best to play catch-up. Best get with the program.

Given these developments, we believe now is the time for our respective companies to authorize teams to sit down and negotiate a definitive agreement on a combination of our companies that will deliver superior value to our respective shareholders, creating a more efficient and competitive company that will provide greater value and service to our customers. If we have not concluded an agreement within the next three weeks, we will be compelled to take our case directly to your shareholders, including the initiation of a proxy contest to elect an alternative slate of directors for the Yahoo! board. The substantial premium reflected in our initial proposal anticipated a friendly transaction with you. If we are forced to take an offer directly to your shareholders, that action will have an undesirable impact on the value of your company from our perspective which will be reflected in the terms of our proposal.

Your arrogance is overwhelming.

As I’ve said on my blog regarding this very thing, Yahoo! and Microsoft are two different companies with drastically different philosophies using completely different technologies. How these two companies can offer such superior value after the fact is likely to be an impossible task. If the Yahoo! board doesn’t see that then the company is surely sunk and they might as well let you gut it like a fish, Steve.

It is unfortunate that by choosing not to enter into substantive negotiations with us, you have failed to give due consideration to a transaction that has tremendous benefits for Yahoo!’s shareholders and employees. We think it is critically important not to let this window of opportunity pass.

Sincerely,

Steven A. Ballmer

Man, talk about a contradiction. Steve, you used to scream that it’s all about “Developers! Developers! Developers!”. Now, with this whole Yahoo! mess, it’s very clear that it’s all about “Shareholders! Shareholders! Shareholders!”. Makes me sick.

Article: Gates explains why Microsoft needs Yahoo

I think what Gates says in this interview pretty much tells it all:

“We have a strategy for competing in the search space that Google dominates today, that we’ll pursue that we had before we made the Yahoo offer, and that we can pursue without that. It involves breakthrough engineering.”

I’ve heard this before from MIcrosoft for a few years now. Question is: Where is this breakthrough engineering? Oh yeah…you haven’t developed it yet.

“We think that the combination with Yahoo would accelerate things in a very exciting way, because they do have great engineers, they have done a lot of great work. So, if you combine their work and our work, the speed at which you can innovate and get things done is just dramatically more rapid.”

What if their work is dramatically different from your own? How do you combine two thing together that follow completely different philosophies? It’s like trying to convince a vegan to eat a steak. Getting Yahoo! engineers to do things the Microsoft way isn’t innovation…it’s torture!

“So, it’s really about the people there that want to join in and create a better search, better portal for a very broad set of customers. That’s the vision that’s behind saying, hey, wouldn’t this be a great combination.”

Great…but what if the people at Yahoo! don’t give a shit about your vision. Chances are that if the merger goes through, a lot of the engineers that make Yahoo! great might very well go bye-bye. So much for that great combination.

Regarding culture differences:

“Yahoo wants to do breakthrough software. The engineers there want to compete very effectively against Google or any other thing that comes along. So, I don’t think there’s really a different culture.”

But the engineers there also want to compete by offering a great degree of openness, something Microsoft has had a problem with in the past. Yahoo! also has embraced the open-source community which, again, is something Microsoft has had a problem with in the past. How is the culture between these companies not different?

Gates still didn’t talk about the one thing that separates Google from the rest of the crowd, which is just straight-up great online applications. The search and advertising part is important, but those two things are just piggy-backing on the success of Google’s repertoire of online apps like Gmail, Calendar, Docs, and others. For Microsoft and Yahoo! to compete, they need to embrace this and come up with their own solutions that follow this train of thought. Yahoo! has a shot at doing this…but not if it means altering their philosophy to match Microsoft’s. Till Microsoft, Gates & Co. get their head out of their ass, I just don’t see it happening for Microsoft anytime soon.

Didn’t take long for Microsoft to respond to Yahoo!’s rejection:

It is unfortunate that Yahoo! has not embraced our full and fair proposal to combine our companies. Based on conversations with stakeholders of both companies, we are confident that moving forward promptly to consummate a transaction is in the best interests of all parties.

No, it’s not. It’s in Microsoft’s best interests; not Yahoo!’s. If Yahoo! was a lot like Microsoft, I could see it being a fair proposal…but it’s not.

We are offering shareholders superior value and the opportunity to participate in the upside of the combined company. The combination also offers an increasingly exciting set of solutions for consumers, publishers and advertisers while becoming better positioned to compete in the online services market.

So…it’s all about the shareholders. Umm…what about the consumer? Ever thought about asking them how they feel about it? You assume that the consumer is going to be as increasingly excited as you are. You’re damn straight they will…especially after you pull the rug out from under them!

A Microsoft-Yahoo! combination will create a more effective company that would provide greater value and service to our customers. Furthermore, the combination will create a more competitive marketplace by establishing a compelling number two competitor for Internet search and online advertising.

Again, more effective and greater value to Microsoft; not Yahoo! Sure, a Microsoft-Yahoo!-Taco Bueno combo Chilada platter will most certainly put Microsoft instantly into the number two spot for search and advertising. However, the notion that this will create more competition is a highly flawed point of view because it will do nothing of the sort. Just because you own a jigsaw doesn’t mean you’re a good carpenter and are able to make a bitchin’ chair.

The Yahoo! response does not change our belief in the strategic and financial merits of our proposal. As we have said previously, Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo!’s shareholders are provided with the opportunity to realize the value inherent in our proposal.

What merits? Does the strategic merits include giving Zimbra a drop-kick into the gutter? And does the financial merits include trying to buy your way out instead of simply being innovative and creating something truly different for a change? Microsoft certainly can reserve the right…but that doesn’t mean that they are right.

Yahoo!’s CEO made it pretty clear that he believes that Microsoft’s proposal substantially undervalues Yahoo! on a whole. Microsoft clearly doesn’t get it. They just don’t see the writing on the wall. Can they not see how different Microsoft and Yahoo! really are? Can they not understand that such a merger is not good for either company? What are they doing over there? Writing proposals with Crayons?

When I heard about the whole Microsoft/Yahoo! situation, I immediately reacted in a very negative manner. But, rather than immediately flying off the handle, I decided to hold back a bit, let it play out a bit, and see how everyone else responds. Now that both Google and Microsoft have made their statements, the picture is getting clearer and the impact of a Microsoft/Yahoo! merger couldn’t be any clearer: It’s bad news!

I’ve been using open-source software for the better part of two years. My job depends on them. I use the typical LAMP setup (LInux, Apache web servers, MySQL, and PHP) and use other open-source tools like Eclipse and Aptana to get the job done. All of these tools help in contributing to another open-source software project, a PHP-based content management framework called MODx. The level of innovation that is born out of all of these tools is absolutely amazing.

Now, let’s look at a statement by Brad Smith, General Councel at Microsoft:

The combination of Microsoft and Yahoo! will create a more competitive marketplace by establishing a compelling number two competitor for Internet search and online advertising. The alternative scenarios only lead to less competition on the Internet.

Today, Google is the dominant search engine and advertising company on the Web. Google has amassed about 75 percent of paid search revenues worldwide and its share continues to grow. According to published reports, Google currently has more than 65 percent search query share in the U.S. and more than 85 percent in Europe. Microsoft and Yahoo! on the other hand have roughly 30 percent combined in the U.S. and approximately 10 percent combined in Europe.

Microsoft is committed to openness, innovation, and the protection of privacy on the Internet. We believe that the combination of Microsoft and Yahoo! will advance these goals.

The interesting thing is that Microsoft is only focusing on the search engine and advertising part of the deal in their statement. Problem is that search and advertising are just one part of the equation. Granted, Google is the big dog when it comes to search and advertising, but Google didn’t get that way with just their search services alone. It took other services to do that. Google created some very well thought-out, well designed online apps and made search and advertising an integral part of some of these services. They made it where these services end up being a big part of your life because you can get to them from practically anywhere. I’m not sure if Microsoft understands this.

Just like Google, Yahoo! is more than just a search and advertising company. Granted, they’re not as successful as Google, but given time they potentially could be. You see, just like Google, Yahoo! has done a lot to contribute to the open-source community. Contributions like the Yahoo! User Interface Library encourage innovation and show that open-source isn’t as evil as Microsoft would have you believe. And, just like Google, the majority of Yahoo!’s services are built off of open-source software.

If the merger happens, it’s almost a given that Yahoo! will essentially be gobbled up and spit back out. The problem is that since most of Yahoo!’s services are not built off of the Windows platform I just don’t see how Microsoft will be able to merge Yahoo!’s infrastructure with their own. Do they seriously thing they’ll be able to reverse engineer any of this stuff? Doubtful.

The thing Microsoft isn’t telling you is that there is perhaps a bit of a ulterior motive to this merger. Microsoft clearly wants to knock out the competition Yahoo! poses in search and advertising, that much is clear. But I think Microsoft also wants to give a direct hit to the open-source community by also knocking out a few services that pose as big of a threat…services like Del.icio.us, Flickr, Upcoming.org, and Zimbra. With the exception of Zimbra, the other services aren’t much of a threat. But, because their built off of open-source, they’ll probably be dumped or reverse engineered into a nightmare. Given Microsoft’s history, the chances of Microsoft allowing any of these services to continue to exist on their own for long is slim to none.

The bigger threat is Zimbra, an open-source messaging and collaboration suite that is in direct competition with Microsoft Exchange. Killing this means killing the one thing that would allow companies to successfully migrate their existing Exchange servers on over the Linux. Steve Ballmer has made it clear that he’s not a fan of open-source so killing Zimbra would be a clear blow to the bow of the open-source community and Linux.

As the Wall Street Journal has reported, Yahoo! is set to reject Microsoft’s bid. Let’s hope that Microsoft doesn’t have a leg to stand on with this. If Microsoft was smart they would back off and perhaps learn to do the one thing they should have been doing all along: Make better software!