Keith Watanabe * NET 2.0

The market is going to be really interesting this Monday (well, my Tuesday) for Americans as the fallout from the initial failed attempt of Microsoft's coup de gras over Yahoo (and Google indirectly) reveals itself.  TechCrunch, as always, has been doing one of the best jobs of covering the situation (although at times seemingly losing it's objective reporting and moving towards some hidden, inexplicable bias, but that's their right) and trying to get the story right is critical in figuring out what's going on and whether the right decisions were made.  First let's examine the potential fall out coming in the next few months.

First, obviously there's going to be some nasty shareholder backlash.  Well, I think Yahoo's stock will trickle down but those who sell off their shares aren't true investors in my book (and my book is more on the Warren Buffet/Benjamin Graham side).  Probably the worst thing that will happen initially is a series of lawsuits against the company.  I doubt that these lawsuits will permanently cripple the company, but the next few months Yahoo (in America) will be severely hurting from the inside (and hopefully, Yahoo can buy back shares from those disloyal shareholders and have people like myself figure that it's going to be a GREAT buy once Yahoo's stock tanks).

Jerry Yang is going to have a lot of pressure on his head.  More than that though, people are going to probably call for his head.  However, I don't think he'll step down and the company (and shareholders) should at the very least give him a 2-3 year trial period for which he and the others at Yahoo can repair the company.  So hopefully rather than going golfing with his Republican buddies, he'll concentrate on the technical side in terms of creating a vision for his company.  But personally I see it as a few billion dollars of disillusion too late.

Next, we turn to Microsoft.  Honestly, I think it was better for Microsoft to call off the deal.  This was one of the better moves they've made recently.  No joke.  The whole thing was a damn poker game and Microsoft folded this round.  But they'll be back.

One of the things mentioned in the memos from Steve Ballmer to the troops was increasing competition in social, advertisement, search and web cloud computing spaces.  My opinion has been that Microsoft is trying to fill a void that has long been filled by people who better understand what the web is about.  Microsoft has been trying to catch up by either buying or copying what exist, but their tag has been branded as being poor in the web space.  Also, they just don't get social and probably never will (when have engineers/geeks really understood what social means anyway!?!?!?!!!!?!?).  Trying to compete in those areas is really a bad form of investment for them as the social and advertisement areas have limited lifespans (the only people who seem to NOT believe in this are investors; guess we should continue to hide the truth from them!!!!)

Microsoft is really better off spending money in areas where there's hardly any competition or innovation.  Like internet appliances, robotics, space exploration and biotech.  No stupid kid off the street can build an internet appliance that easily.  It takes large amounts of resources, a real engineering background and the facilities to do such a thing.  Someone who just knows a little bit of PHP won't be able to do this.  However, university electrical/computer engineering students with a good deal of training can, in my belief, pull this type of stuff off.  And it'll take a company with a lot of money to be able to fund such an operation.

That said, Steve Ballmer too will have to face some sort of consequence by backing up his words.  I don't think he's really the person to be able to pull off helping Microsoft regain their former glory.  You need a visionary and someone hungry.  Ballmer made a huge mistake in my estimate in this whole situation; he made a business situation personal by making his hatred for Google public.  Mistake number one.  It's the same mistake that WCW made back in the day when they were trying to put WWE out of business.  But look what happened; things backfired, WWE purchased WCW and WCW is just a page in history with the WWE's fingerprints re-writing the tales.  My interpretation of Microsoft is that you need to go back to the game of appealing to geeks and do geeky things.  That's the driving force behind the culture of Microsoft, so get back to technology and innovation (but asking Microsoft to innovate is like asking Hillary Clinton to provide concrete examples on "her" energy plan).   In short, Ballmer has to go as the CEO.  Let him play the pointy haired Operations Manager guy, but he can't be the face of Microsoft any longer.  Microsoft needs a technical visionary who understands what society needs from technology.

Then there's Google in the corner just watching these companies duke it out.  Hey, they've always been the clear winners in this.  As long as Google maintains an agile company culture with the ability to adapt and innovate in environments, they will clearly stay several steps ahead of whatever behemoth monstrosity would come out of Microhoo. 

Despite all this, it boils back down to Yahoo and what will go on from here.  There was a lot of promises put on the table with deals with Google, the Open Platform as being their savior, the purchase of AOL, etc.  But what will the reality be?

The Open Platform is a cool idea, but there is no concrete examples of what developers can do.  More importantly, I fail to see how Yahoo can monetize these efforts.  Amazon has been smart all along by asking for (relatively reasonable) payments for utilizing their services.  Yahoo wants to open their service up.  So either they have a few choices here:

• Monetize their platform a la Amazon, putting a charge per usage or some hosting plan.
• Purely absorb the initial cost of their services by providing unlimited queries and exposing more of their data and services, thus driving a huge stake against Google's platform (which is limited) and making Amazon's service less valuable on paper.  Also, this will allow quick adoption of these services compared with Google.
  
• Do what I proposed before in absorbing the cost of rights for copyrighted material in giving developers and content developers the ability to use their platform without the horrible royalty charges from groups like the music industry, movie industry, etc.
• Go after enterprise level customers to helping them to migrate their existing infrastructure onto Yahoo, thereby getting Yahoo to help them implement best practices and assured 100% uptime (or something close to that level)
• Providing the incubation service for businesses as I mentioned (my personal favorite and something I think that would be a killer idea for Yahoo).

The Google deal obviously was a time buying trick, which would serve in both of their interest until Yahoo could somehow heal itself up a bit.  Obviously, it was done to fend off Microsoft from both their backs (in other words, your enemy is my enemy too).  However, the deal reeked so much of desperation that it sounds more like shooting themselves in the foot.  Might as well have Google just buyout or merge with Yahoo at that point.  Either way, I think all three of their ad services suck and that they simply need to improve how to cater to the individual viewer to finally get real click throughs and actions with their advertisement platforms.

Purchasing AOL is something someone should do to put the AOL brandname out of its misery, move the poor subscribers away from dial up, install high speed internet access, but manage it through a stronger, centralized access point.   It makes sense for Yahoo or Google to do at this stage.  It'll help boost Yahoo's revenue a little bit and give them more business on that line up, but they need to improve the infrastructure for paid AOL subscribers fast.   I mean, thanks AOL for helping to get people onto the net, but you're days of usefulness have LONG left.

Overall, I don't really expect much to happen.  It's going to be exciting for a few days watching Yahoo get nailed, more news pour through, and people play fantasy booker.  Truthfully though, I think this is a big nothing because the follow ups won't be fantastic, everything is going to be underdelivered and overpromised and nothing in the industry will really change in a good manner (unless they follow my advice since I'm always right about things like this :p).  But I have to admit that it was a lot of fun, got me excited and motivated me to write a few thought provoking articles.  However, experience has taught me that a lot of this is over-the-top hype, with some short term invested interest, and really not doing anything for the industry at large in a positive manner.  Thanks for the memories.  Hope to see you all again soon.