mathewingram.com/work

I think Marc Andreessen — as usual — puts his finger on something important in his post on how the Microsoft-Yahoo merger (assuming it actually goes through) will affect the startup climate in Silicon Valley or elsewhere in the technosphere. Among other things, he points out that Microsoft, Yahoo and even Google don’t really account for a huge number of takeovers of Web startups anyway, once you get past del.icio.us and Flickr and a few others. But that’s not the big point.

I think the killer point is that while the elephants are mating (as I think my friend Paul Kedrosky described it), the field will be more or less completely open for Web companies to do whatever they can to develop a killer service or own a particular segment of the market, without having to worry about a gigantic beast lumbering into their business sector and squashing everything in sight. As Marc describes it:

In practice, that will be two years in which both Microsoft and Yahoo will most likely be considerably less aggressive on rolling out new products and new initiatives — because the key people at both companies will be consumed with the merger.

And, just think, if they are buying fewer companies as a consequence, that also means they’re less likely to buy one of your competitors and come after you while you are building your thing of value.

Marc has some other great points as well, including the fact that building a company just to get acquired is a dumb thing to do anyway, and rarely works out the way you want. In fact, building a company because you sense an opportunity or a need or a hole in the market — without focusing on getting acquired — is a far better way to actually ensure that you get acquired. Take your eye off the destination and focus on the journey, and pretty soon you will find that you’ve arrived.

Everyone has probably seen this video already, but for those who haven’t it’s a really nice introduction to a group I’ve been following for awhile called Improv Anywhere, which sets up elaborate events that fall somewhere between performance art, pranks and general public hilarity. In this one, over 200 completely normal-looking people walked into Grand Central Station and then froze in place at the same split second, and remained that way for five minutes — at which point they all continued on their way as though nothing had happened. It’s quite fun to watch. Some are in mid-step, one is tying his shoe and another has just dropped an armful of papers.

[youtube https://www.youtube.com/watch?v=jwMj3PJDxuo&rel=1&w=425&h=355]

There’s a somewhat similar group based in Toronto and New York called Newmindspace.com, which has occasional events including a pillow fight in Nathan Phillips Square, and a light-sabre battle. In their most recent, the group pulled together a group snowball fight in Trinity Bellwoods park, which Torontoist captured on film (or data card, or whatever).

There’s lots of chit-chat this morning about The Industry Standard — one of the leading lights of the tech publishing business during the first bubble — relaunching as a Web-only publication, something that was expected to happen in December, according to a report from the always reliable Rex Hammock, but didn’t wind up taking place until now. The site will be using outside contributors such as Matt Marshall of Venturebeat and Fred Wilson of A VC, and it also has an interesting “prediction market” feature that should be fun to watch as it develops.

The thing that really struck me about the new Industry Standard, however, is how much it is a metaphor for the evolution of the magazine industry itself. During the boom times, magazines like The Standard and Wired were the size of a phone book — despite the fact that most of the stuff they wrote about was on the Web. I remember bringing the magazines to my desk and painstakingly typing in Web addresses. Now, whatever I read about tech comes from Wired’s website, but also TechCrunch and Mashable and GigaOm (welcome back, Om) and Techmeme.

It may seem as though the new Industry Standard is deliberately setting their sights low, as Peter Kafka describes it at Silicon Alley Insider, with just one full-time employee and a lot of outside contributors. But in many ways, I think the new Standard (and Silicon Alley Insider itself, for that matter) is a lot closer to what “magazine” publishing should be like — and is like — now than the old one. I wish them luck.

Yahoo has been saying for some time that it was planning to euthanize its music subscription service, but it wasn’t clear what it would replace the service with. Now it has become clear: Yahoo has sold the operation to Real Networks and will be migrating users to the Rhapsody service — although they will apparently get a couple of months worth of the lower Yahoo price before they have to cough up the $12.99 a month for Rhapsody. I’m sure that will make them all feel much better. Ian Rogers of Yahoo Music has more on the move here.

Although Rhapsody has a free, ad-supported version of its subscription service, the main offering is a paid streaming model, and both the free and paid services are of course all wrapped up in some tasty DRM. But the biggest problem with Rhapsody — and with Yahoo Music — is simple: Most people don’t want to stream their music like a radio station. They want to download it and do whatever they want to with it. Period.

That’s why Yahoo is dumping its subscription service in the first place, because it wasn’t working (Yahoo is doing some other interesting things with music, which I wrote about here). And Rhapsody only has about 1.5 million users of its music service after four years of operation, which isn’t much to write home about. Of course, the Yahoo Music switcheroo is in question — along with virtually every other aspect of Yahoo’s business — because of that takeover offer from Microbeast.

Having just watched New York Giants quarterback Eli Manning defy the overwhelming odds against him and evade a quarterback sack to make a 32-year pass that helped swing the tide of the game in his favour, I can’t help but think that Yahoo is looking for exactly the same kind of Hail Mary pass to get out of the embrace of Microsoft. In this scenario, Steve Ballmer is the gigantic defensive lineman who is bearing down on Yahoo like a freight train with legs, and he already has a grip on Yahoo’s jersey.

But does it make any sense for Yahoo to cut some kind of search-related deal with Google, or use Google to help finance a News Corp.-led deal to try and foil Microsoft’s dastardly plan? I’m not sure it does. Being absorbed by the Borg may not be the kind of thing anyone wants, but management by a private equity fund is no picnic either, and contracting its search division out to Google isn’t going to solve anything. Yahoo is still going to be stuck with a pile of lame assets and no strategy.

Meanwhile, Henry “I used to be a famous Wall Street analyst” Blodget over at Silicon Alley Insider says that he thinks Yahoo should avoid a takeover by Microsoft, and instead convince Ballmer to cut a deal in which they combine their Internet assets and Microsoft takes 51 per cent of the combined company. There are only two things wrong with that idea: 1) It’s dumb, since it would mean that Yahoo would be controlled by Microsoft anyway, and 2) Ballmer would never agree to it.

Former Wired editor Kevin Kelly has a very perceptive essay up that is apparently part of a book he’s working on called Technium, and in it he describes the Internet as a giant copying machine — a network that distributes information far and wide, and in the process of doing so copies it over and over, creating an almost endless supply of identical copies, all of which effectively cost nothing to produce.

Our digital communication network has been engineered so that copies flow with as little friction as possible. Indeed, copies flow so freely we could think of the internet as a super-distribution system, where once a copy is introduced it will continue to flow through the network forever, much like electricity in a superconductive wire.

The problem, of course, is that giant industries — music, movies, media and entertainment in general — have been created based on the idea that copies are scarce, and that control over the methods of distribution of those copies is the key to wealth. What happens to those models when copies are readily available and free? This is something Mike Masnick at Techdirt has also written about — the economics of abundance. How does that work?

Kelly argues that when copies are free, you have to focus on what can’t be copied. Trust, for example, which has to be earned over time. He has a list of eight qualities, or elements of intangible value that he calls “generatives” — things that have to grow over time and can’t be copied, and therefore should (theoretically) be worth something. They are:

— Immediacy
— Personalization
— Interpretation
— Authenticity
— Accessibility
— Embodiment
— Patronage
— Findability

I think Kelly has put his finger on something important. Each of these qualities is going to be worth different amounts to different people at different times, depending on their needs, or wants, or moods. It makes things somewhat more complicated than just charging people when they go through the turnstile at the movie theatre, or when they buy a physical product, but in the long run I think they could actually create more value. It’s worth reading the whole essay.

Alexander Rose at The Long Now blog has a post about how the foundation has determined a winner in the 2002 wager between Dave “I invented blogs” Winer and Martin Niezenholtz of the New York Times. The bet was whether a search of the top news stories from 2007 would produce more results from blogs or more from The New York Times. According to Rose, blogs won — although he also notes that the bet was poorly worded, and therefore ambiguous in many ways.

I think the bet was more than just poorly worded, however. The whole idea behind was flawed to begin with, and is even more flawed now. The wager pits blogs against the New York Times as though one is somehow a replacement for the other. That may have made some sense in 2002 but makes very little sense now — especially since the NYT and plenty of other mainstream media have blogs of their own.

Let’s recap: Blogs and media are not opposing forces. Blogs aren’t replacing “mainstream media,” they’re enhancing it and expanding it — connecting it to the conversations that are going on around it and through it and with it. Blogs take stories and commentary from the traditional media and extend them out into the world. Arguing that blogs will replace the traditional media is like saying forks are going to replace spoons.

Henry Blodget of Silicon Alley Insider says that he has heard rumours of at least one and possibly two other bidders who had offers all ready to go for Yahoo before Microsoft jumped in and spoiled the party, and Paul Kedrosky says he has also heard such talk — supposedly private equity groups, likely out of New York, looking to take advantage of Yahoo’s depressed stock price to launch a takeover and then pay for it by selling off bits and pieces.

Update: News Corp. may also be considering a bid of some kind, Mike Arrington reports.

Regardless of whether there are other bidders or not, I don’t see how they can afford to top Microsoft’s offer. Sure, they could probably raise the money to boost their bid, but would it be worth it? The fact is that Yahoo is worth more to Microsoft than it is to anyone else — Microsoft can justify paying a much higher price because it will (theoretically at least) get enough in the way of synergies out of the deal to make it worthwhile.

How is a private equity bidder going to justify a 62-per-cent premium? There just isn’t that much value in Yahoo for anyone else, IMHO.

At Rob’s urging, I’ve put together some of the Twitter posts (no, I will not call them “tweets”) that came through my Twitter client this morning related to the Microsoft-Yahoo deal. Got any others? Email me.

@stuartma: Studebaker buys Edsel.

@rhh: if anything, we’re going to get an object lesson now in the true cost of strategic intransigence.

@pkedrosky: @kteare “if msft were to succeed”? if this deal doesn’t happen both company’s shareholders will beat them with sticks until it does.

@ev: My answer to reporter: Has putting two behemoths together ever, in the history of corporations, resulted in greatness?

@pkedrosky: @ev well, don’t forget The Traveling Wilburys. They merged and did some good stuff. Oooh, you mean public companies. Nevermind 😉

@davemc500hats: @ev: how about ebay+paypal. or Yahoo+Overture/Inktomi?

@ev: @davemc500hats good point. but both companies were way more focused than YHOO or MSN. also, not quite “behemoths” — although, perhaps YHOO doesn’t qualify either.

@rhh: By the time MSFT swallows YHOO, GOOG will not be the company it was trying to compete with. It’s going to spend too much time chewing.

@waxpancake: It’s like tying the Titanic to the iceberg. It’d keep you from sinking just long enough to freeze to death.

— and from the rest of the Twitterverse (via Terraminds):

@pandapoo: OMG! Microsoft Just Bought Yahoo! which bought Flickr which now makes me a Microsoft user!? YUCK! I feel dirty.

@spdemac: If MS and Yahoo merge, their search will be know as “Microwho?”. Small, forgettable and unused.

@andymelton: Well, maybe Yahoo can teach Microsoft a thing or two. I just hope Flickr doesn’t get destroyed. I love Flickr.

@cageyjames: As long as Microsoft doesn’t touch Flickr, Yahoo! Sports and Yahoo! Finance, I have no problems with them ripping Yahoo! apart.

@nep: I felt good about Flickr having my photos, OK about Yahoo having my photos, but bad about Microsoft having my photos.

@retrophisch: Microsoft acquiring Yahoo…this is a joke, right? RIGHT?!!?!?

@lgpiper: I bet Bill Gates uses Google. Can’t find crap with MS search. Yahoo isn’t much better. Suck + suck = Suck^2

@jimlindley: Microsoft and Yahoo, sitting in a tree – F A I L I N G. Microsoft is going to choke on Yahoo and die. I hope.

@quackking: highly skeptical of M$ being able to ‘get it’ via a Yahoo buy. @ev has it right.

@midasjohn: WARNING EVERYONE: Microsoft taking over Yahoo marks DOOMSDAY in many respects. You remember Dick Jones @ OCP ? [ed: RoboCop reference]

@zacechola: Yahoo accepts Microsoft offer, joins forces with Time Warner and entire recording industry: Forms League of Evil. Google readies laser guns.

@twoluvcats: true: “If Yahoo agrees to the deal with Microsoft, it will be a shotgun marriage, but it will be Google holding the shotgun.”

With the Microsoft-Yahoo related links on Techmeme now stretching to more than seven full screens as I type this — possibly the largest single thread ever in Techmeme history — I thought I would pare it down a little and focus on what in my opinion are some of the key posts when it comes to understanding and appreciating this deal (Note: I also did an audio slideshow for the Globe, in case anyone wants to take a listen). This selection is purely personal:

— Paul Kedrosky: the former analyst turned venture capitalist has posted multiple reactions to the deal, including an overview and some quick thoughts, as well as a primer for Jerry Yang on what to do if he doesn’t want to get bought. Also just posted a breakdown of traffic and market share for Yahoo and Microsoft vs. Google.

— All Things D: Kara Swisher of the Wall Street Journal says in her Boomtown blog that a Microsoft offer was inevitable, and that Yahoo made it inevitable by its continuing inability to focus and turn the ship around. Key quote:

“With it’s I-shall-have-it bid for the troubled Internet giant, Microsoft has made a bold, slightly insane lunge to ensure that it is not sidelined in war with Google to control the Internet.”

— Search Engine Land: Editor Danny Sullivan, a search industry veteran, has some analysis of the deal and also has live-blogging notes from the conference call, and comparison of search engine market share. Key quote:

“The short story is this. Search is important, and Microsoft has failed to build much less maintain search share while Yahoo has held steady against Google.”

— Centernetworks: Allen Stern also live-blogged the news conference.

— TechCrunch: The tech blog has <a href="http://www.techcrunch.com/2008/02/01/what-would-a-combined-microsoft-yahoo-look-like/ a look at what a combined Yahoo and Microsoft would look like, as well as the internal email from Steve Ballmer to employees at Microsoft justifying the acquisition. Key quote:

“This is an advertising play for Microsoft. It wants to combine the scale of its recently acquired advertising networks with that of Yahoo’s, along with Yahoo’s vast consumer reach (which is appealing to advertisers, who see all those eyeballs as valuable inventory).”

— New York Times’s blog: Technology editor and blogger Saul Hansell says that it’s a deal Yahoo can’t refuse.

— IPDemocracy: Editor Cynthia Brumfield says the deal is big, but boring. Key quote:

“Yes, Yahoo! shareholders will get a hefty premium for their tanking shares. Yes, a bunch of people will get laid off if Microsoft achieves its “synergies” and “economies of scale.” Yes, a lot of investment bankers will walk away with enough funds to buy their second or third vacation homes.

Aside from that, a merger between Microsoft and Yahoo! is just boring. Neither company has done much that is terribly innovative or interesting for years. What, precisely, will merging these two lumbering, bureaucratic giants achieve that is even remotely interesting?”

— Silicon Alley Insider: Henry Blodgethas posted multiple looks at the deal, including one based on talks with a senior executive at Microsoft, who said Jerry Yang’s reaction was “polite.” There’s also a look at whether there will be other bids (doubtful, says Henry) and a rundown of the conference call as well as a look at the combined company’s financials and the views of some Wall Street analysts.

— Fred Wilson: Fred says a deal was almost inevitable. Key quote:

“We all knew this was coming. Yahoo! was cheap. Too cheap. And a mess. Rats were leaving the sinking ship en masse. It was not sustainable. Something had to happen. And so the most logical thing has now happened.”

— Forrester Research: Analyst Charlene Li has posted her thoughts on the deal. She says it’s going to be messy, and that it’s about more than just search.

— Search Engine Journal: Loren Baker says that Microsoft needs Yahoo’s strengths.

— Virtual Economics: Seamus McCauley, an analyst with Northcliffe Digital in London, says on his blog that even Microsoft and Yahoo combined might not be enough to take on Google.

— Scott Rosenberg: The co-founder of Salon.com also sees the sum as being worth less than the parts, and says if the deal closes a lot of smart people will likely leave Yahoo.

— ZDNet: Larry Dignan says that Google could play spoiler and bid for Yahoo too.

The bottom line: This is a move of desperation for both companies — a kind of shotgun wedding, with both sides holding a gun. Microsoft needs to buy Yahoo (or thinks it does) just as much as Yahoo needs to be bought by Microsoft. The happiest player in this particular game has to be Google: This deal means that it is dominating the market to the point where the world’s biggest personal software company and one of the founding fathers of the Web have been virtually compelled to join forces.

But can two sick dogs roped together beat one healthy dog?
Note: I did an audio slideshow for the Globe looking at Microsoft and its attempts to catch up with Google in the ad market. Here’s the link if you’re interested in listening to it.

Original post:

And then there were two. If Microsoft’s $44.6-billion (U.S.) bid for struggling Web giant Yahoo Inc. is successful — which it almost certainly will be — then there will be only two Web titans where once there was a triumvirate. Google and Microsoft will finally be going head-to-head for supremacy in the online advertising market, a game that Google has more or less controlled ever since it arrived on the scene several years ago, despite Microsoft and Yahoo’s best efforts.

Microsoft is rumoured to have made several advances to Yahoo over the past year and a half, and has been turned down each time. But now, the software behemoth is going directly to shareholders with an offer that has to look awfully good after the year Yahoo just had. Shares of the Web company have plummeted by more than 45 per cent in just the last three months, as investors have soured on the company’s chances of a rebound. Terry Semel was ousted as CEO because of a failure to deliver, and replaced by Yahoo co-founder Jerry Yang — a sentimental favourite with Yahoo fans, but a relatively unknown quantity from a management point of view.

The big question, of course, is whether this deal makes any sense or not. It clearly makes sense for Yahoo, since the company effectively gets a bye on having to come up with any kind of brilliant turnaround strategy — and shareholders, including co-founders Jerry Yang and David Filo, get a nice multibillion-dollar payday. Yahoo’s online advertising efforts haven’t had much success in growing the company’s market share, despite the fact that the company bought Overture, the firm that invented the keyword-ad market that Google later perfected. So why not sell?

For Microsoft, the question is a little murkier. Buying Yahoo has to look like a pretty sweet deal on the surface at least. Not only is the stock 60 per cent off what it was the last time Microsoft looked at buying it, but acquiring Yahoo gives the software company instant heft in its own online advertising business — a business that has continued to be a distant third in the market, despite Microsoft spending billions of dollars in an attempt to improve its position. Yahoo also has a number of attractive media properties and relationships such as Yahoo Music that Microsoft could fold into its own MSN assets.

At the same time, however, buying a company like Yahoo and trying to merge it with a gargantuan company like Microsoft is a time-consuming and expensive task — not to mention the difficulty of blending those two corporate cultures. Microsoft is a packaged software distributor at heart, while Yahoo is a Web company, and mixing those two approaches isn’t going to be easy. When Hewlett-Packard bought Compaq, it took several years for HP to actually digest the company. HP was lucky that by the time it was done, its main competitor had weakened to the point where it could get back in the game relatively easily. Google isn’t likely to give Microsoft that option.

My friend Kara Swisher at All Things D has some juicy details from a recent all-hands meeting at a theatre near Facebook headquarters in Palo Alto. Apparently the shyness that Scoble remarked on when he met Mark Zuckerberg in Davos must have been a temporary thing, because it sounds like Marky Mark was more than happy to chatter about the dollars flowing through Facebook’s bank account.

Apparently the site is expecting to have revenue of about $150-million for last year, which was widely expected. But Mark said Facebook is looking for twice that this year, if not more. And he’s going to need all that revenue, because he also said capital expenditures are going to be about $200-million. For what? Maybe some more telephone operators to handle all the switchboard calls when they unveil the next Beacon. In any case, as Kara notes that will leave the site in the hole cash-flow wise.

But what does Mark care? He got $300-million or so from Microsoft and Li Ka-shing and people like that, and his company is valued at %15-billion, which means he’s worth a few billion at least. Good times.

One interesting point from Google’s much-discussed quarterly results: Eric Savitz of Barron’s Tech Trader Daily blog notes that the company’s CFO said Google’s “social networking inventory is not monetizing as well as expected.” In other words, the social ads they’ve been running through MySpace and elsewhere? Not so much. That’s apparently why the company’s TAC or “traffic acquisition” costs (otherwise known as marketing) were higher than expected.

As Eric notes, this could make a lot of businesses that are counting on some form of social advertising quite nervous — including Facebook, presumably. I have to say, I don’t think that “social ads” are quite as simple a beast as some companies and marketers are thinking (or hoping) they are. In fact, I’m starting to think that there might even be an inverse relationship: to the extent that they are social, they’re not really ads, and to the extent that they’re ads, they’re not really social.

It must be tough when you just keep beating estimates quarter after quarter, like Google has done ever since it became a public company — until now. Revenues and profits have continued to rise by the mid-double digits pretty much every time the company reports, and along the way plenty of people have become accustomed to the idea that it will continue more or less forever. And most of those people have been selling in the wake of the company’s much-ballyhooed “miss.”

A couple of things: 1) This is partly Google’s own fault for not providing “guidance” to analysts about how its business is doing, the way most companies do (that is, if Larry and Sergey and Eric even care, since they focus on the long-term and aren’t concerned with quarterly results, as they told us in the prospectus). 2) Describing financial results that came in a penny lower than estimates as a “material miss” is overstating things more than a little, I think — and revenues were only 1.7 per cent lower than estimates, which were likely jacked up anyway.

As my friend Paul Kedrosky pointed out to me, the reaction of Google’s stock — which was down by as much as 9 per cent in after-hours trading — is likely as strong as it is because a) this is the first miss in Google’s history and b) it makes people nervous about how much of an effect the weak U.S. economy and advertising market are going to have on the company in the future. Perhaps some of those who said Google was immune to downturns might be regretting their sanguine comments.

At the same time, however, I think calmer heads should remember that Google’s stock has already dropped by about 20 per cent from its recent high, and that after-hours trading is often the province of nervous Nellies who sell at the first whiff of trouble. It sure doesn’t look to me as though Google’s business is coming apart at the seams.

In one of the least-surprising legal moves in recent memory, Swedish authorities have laid charges against The Pirate Bay, one of the largest trackers of BitTorrent downloads in the world (it recently passed the 10 million peers mark), on behalf of several movie studios and record labels. This isn’t surprising for a number of reasons. For one thing, the Swedish authorities have said several times over the past few months that they were going to file charges; and for another thing, the site’s name is The Pirate Bay — I mean, come on 🙂

At first glance, it seems obvious why Swedish prosecutors are suing the company. After all, by going through The Pirate Bay, people can get access to millions of movies, songs, software programs and other digital files, and download them freely without paying for them. The sticky part, however, is that The Pirate Bay doesn’t host any of those files — like Google, the site is nothing but an index of where those files are located. The actual files are hosted on millions of computers around the world, some of which may only have a small part of the original file, thanks to the magic of BitTorrent.

In other words, The Pirate Bay is only pointing Internet users to those files, in the same way that Google and Yahoo and MSN point users to webpages. Is that — or should that be — a crime? In a similar vein, a music search engine called Seeqpod is being sued by the record label EMI because it makes it easy for people to find public mp3 files on the Web (there are half a dozen other services that do the same thing, including Songza and g2p.org). Should that be illegal? G2P.org actually just does a search through Google. If that’s illegal, does that make Google responsible?

Even if The Pirate Bay is successfully sued, it isn’t likely to affect downloading much. The site may have the largest torrent “tracker” in the world, but it isn’t the only one — there are thousands of them. Even if The Pirate Bay is found guilty and goes out of business, the servers that run the site aren’t actually located in Sweden and will likely continue functioning (The Pirate Bay claims to not even know where the servers are). The founders of the service say their tracker will remain operating even if they are found guilty.