Keith Watanabe * NET 2.0

The other day I was explaining to a few coworkers the significance and lead ups to the various situations of Yahoo.  I realized that the scenario is far more complicated than people realize and that there hasn't been a well written summary of the whole situation at hand.

Probably, we need to start with the deal on M$ and Yahoo that never went through.  For a few months, I remember reading more than one site discussing the possible buyout of Yahoo by MSN.  I believe even I suggested something like that with the threat of Google looming in the background.  Despite the actual move, I never actually thought MSN would make the move so soon, but that move had triggered a chain of events that are historical and political in nature.

The natural reason for the buyout from M$'s point of view was to thwart Google.  Steve Ballmer has been notorious for his outburst, directing his rage against Google.  Rather than utilizing the situation as a real business opportunity, Steve Ballmer turned this situation into what seemed (to me at least) like a personal crusade to bury Google and Eric Schmidt in particular.

Ballmer ought to watch the Godfather (kinda like Bill Gates' character in Pirates of Silicon Valley) in emulating Vito Corleone in never showing his true intentions and feelings.  If anything his outburst aided in the perception that M$ was purely going to do this deal to hurt Google, much in the same way Sonny Corleone would tip off Solozzo "the Turk" in being interested in Solozzo's drug deal, something Vito Corleone wanted no part of. 

My interpretation of Ballmer's choice of Yahoo in particular was to get that final feather in his cap he desperately needs in his tenure as a CEO.  Thus far, Ballmer's reign as CEO has been plagued by highly publicized disasters.  The XBox money losing fiasco, Vista's lack of acceptance by the public, M$'s failure to capitalize on new grounds on the internet market (particularly social networking), the massive loss of ground of the server side to Linux, and Google's slow but imminent penetration in the enterprise through their free apps.  Thus far, we have yet to see M$ come out on top as they had conquered the 80's and early to mid 90's.

The deal in itself is nothing new to M$.  In fact, M$'s typical business practices historically have been to buy or copy, never innovate.  In relation to the internet, M$ has no clue.  Without monopolistic practices like bundling Internet Explorer with the operating system, M$ would have a difficult time catching up to some of the mega internet crazes such as social networking, blogging and open APIs.  With Yahoo having a huge percentage of the internet in their pocket due to their longevity and brand name recognition, Yahoo would fit nicely in M$'s scheme of things.

That aside, another well known fact about M$ is their anti-competitive practices.  For some reason, it seems that many of the internet writers had suddenly favored the deal, rather than remembering M$'s infamous past cases of monopolistic practices (and I for one believe that these writers probably had some stock in either M$ or Yahoo).  Still, many of us remember the pre-internet days where we were enslaved to the M$ OS.  With M$ potentially acquiring Yahoo, the outcome would be a monstrous capitalization on the internet ad market, something that M$ wants dearly as everyone knows for a fact how Google uses that market as their primary course of survival.

Fortunately, for whatever reason, M$/Ballmer did not go through in the end.  Of course, Jerry Yang and other Yahoo executives had staved off the invasion temporarily through attempting to raise the price (although Yang himself doesn't really need the money), provide excellent severance packages for their employees and just delaying.  Threats of proxy fights would be imminent as would shareholder lawsuits.  But truthfully, there is far more at stake than money on the table.

From there until now, Yahoo itself would go through a new barrage of assaults.  Although Yahoo and Google would ink a deal (which I will discuss hereafter), that would not halt the acid rain coming from the murky clouds of disgruntled employees and the wrath of their shareholders.  The shareholders, in their infinite myopic perception, only care about immediate return, especially in this downturn economy.  In some ways, Yang and company are now finding out the hard way why having a public company isn't always about just making money from stock options and that those years of loyalty were non-existent and that these people were waiting just for a moment like this to cash in their checks. 

Worse yet, Yahoo, kinda like a whore spreading her legs and awaiting an infection, would receive a truly menacing threat from Carl Icahn when he would purchase up a good number of their shares on the market.  I can't say anything good about this guy.  I don't even know if he understands the implication of what he's doing in his proxy fight.  But it's obvious how some investors had managed to manipulate him into going into this fight as a cause. 

Then you have the mass exodus leaving Yahoo.  As I mentioned the other day, this doesn't necessary imply a bad thing.  But I'll get on to that later.

But let's step back to my previous point about the Google-Yahoo deal.  I think this latest and known development is pretty blatant and really is where you have to read carefully between the lines.  The deal in a nutshell is Google giving Yahoo some bribery money to appease their shareholders.  It's not the level of money that the shareholders want, but it's meant to prevent them from bitching too much.  It's also a (begrudging) thank you to Yahoo for helping them out before, back when they were starting out.  Most importantly, it's a way to keep Yahoo in Google's pocket (which is the irony of ironies) and for M$ to stay away.

Now, one may ask, "Is that really such a great thing?  Isn't that collusion?"  YUP!!!  It's collusion kinda like George Bush and Cheney getting hidden handshakes from the oil companies in supporting their campaigns while the administration goes through great lengths in protecting these industries.  Well, if that's the case, why isn't that considered monopolistic or why would I slam M$ for only doing what Google ended up getting?

It's simple.  From my point of view, I really don't fear and mind Google as much as other people.  Do I trust them?  No, I don't trust anyone (for that matter).  But I know for a fact based on history, based on Ballmer's rants against Google, that the deal was basically the lesser of two evils.  The main thing is to continue allowing a company like Yahoo to remain independent.

At this point, both Yahoo and Google are propping up a lot of smaller companies through their ad networks.  Eliminating one or both would stifle competition potentially.  Back in the day when I was attending UC Irvine, the "in-thing" (prior to the IPO dot com craze of the late 90's) was the MBA guys hooking up with the computer science undergraduates, building an application and hoping to get the company sold to M$ so that the founders could make out like bandits.  These days, we have a lot more players that can provide that assistance in the form of eBay, Google, Yahoo, Amazon (though not as a common), etc.  Eliminating those companies would mean that a more limited selection of companies and people could make it, rather than having an increasing number of competitors on the market.  Just common business sense for anyone who isn't a shareholder of M$ or Yahoo.

The other thing is that when I look at Sergie Brin and Larry Page, I don't perceive the same obsessed nuttiness of Ballmer nor the domineering, business savvy of Bill Gates.  I see two guys who are very smart scientists/engineers working with someone who has a good sense of business in Eric Schmidt.  Maybe 10 years from now, that might all change, but seeing their interviews and such, I just don't get the same vibe as I do with Ballmer.  And that to me means a lot in this episode.

Circling back to Yahoo, I have to say that when I saw the so-called mass exodus of executives or managers, I thought it was a great thing.  I believe the count of people leaving was somewhere in the neighborhood of 140.  Well, if you read/worship Dilbert like I do, you'll realize that having that many executives is probably what's killing the company in the first place.  Sometimes, you'll get these mid-level managers who attach themselves to companies like parasites until the rum runs out.  It looks like the rum is running dry at Yahoo quite quickly.  But again, I feel this is a great thing because potentially, younger, hungrier people can move up the chain faster.

The other thing is that you have to realize 140 executives/managers means that you had that many more competing viewpoints to deal with.  Now, with 140 less people, you can try focusing the business more.  Forget trying to hire from the outside (unless it's me).  Go internal and get some of those kids who are itching to climb the ladder faster and move them into more strategic positions.  If anything, those people are the ones that ought to be able to re-vitalize Yahoo.  You don't want to insult the employees' intelligence by hiring more external help (except me) when you have all the talent within the organization.  I'm certain there's more than one person who has the energy and vision to help drive a component or two in the company back to success.

Then you have Jerry Yang and the remaining top people.  Let me advise something to Yang: maybe let the people below do the driving.  In situations like these, you really need someone like a Steve Jobs to rally the troops.  You need visionaries who understand what people and/or need.  I don't know if Yang has that vision nor passion.  I think when you make as much money as someone like him at his age, it's easy to become complacent.  Rather than being on the streets, hungry, yearning for that first taste of success, you're hanging out with celebrities and living a glamorous life.  You need to be street to execute something like this because it's the common person that's going to be using these things.

I already know where Yahoo ought to be taking itself.  I know where M$ should go too.  And I leave Google alone because they've got enough vision and talent to do without me.  Nonetheless, this whole year is going to continue to be interesting.  Good thing for me I'm back with the net!