Coop's Corner

At a memorable point in the first Godfather movie, Clemenza inadvertently demonstrated his talent for Wall Street deal-making when he offered this sage advice to Michael Corleone:

"You know you got to stop them at the beginning, like they should have stopped Hitler at Munich. They should never've let him get away with that. They were just asking for big trouble."

In the Yahoo drama, the stand-ins for Clemenza, Tessio, Sonny, Michael, and Tom Hagen feature Jerry Yang, Steve Ballmer, Rupert Murdoch, and Eric Schmidt. The common motive in both? How to screw the other guy before he screws you.

This is wallpaper available for download on Electronic Arts' Web site for 'The Godfather' The Game. But where are Yang, Ballmer, Murdoch, and Schmidt?

(Credit: Electronic Arts)

The latest twist--but hey, it's only mid-morning on the West Coast so who knows where we'll be by lunch hour?--has AOL and Yahoo discussing a hookup where they would merge their respective Internet operations. At the same time, Microsoft is said to be talking with Murdoch about making a joint bid. The upshot: Microsoft's MSN and News Corp.'s Fox Interactive Media unit, which oversees MySpace, would wind up under the same roof as Yahoo. Don't forget Google's Schmidt, sending a steady stream of "we've got your back" e-mails to Yang. On Tuesday, the companies announced a limited test of Google advertisements on some Yahoo search pages.

If you understood all that, you're doing better than most.

What should we make of all of these hyperventilating suits running around as if their pants were on fire? In a way, I'm impressed by their energy. It's been a while since Yahoo's brass appeared so engaged. And now we know how much Schmidt resents Microsoft for making his life miserable at Sun and Novell.

Fred Wilson had an interesting piece up earlier in the day where he offers the delish observation that "all these machinations" are making him ill. But Wilson is coming at this novella from the perspective of a venture capitalist, arguing that the tech industry needs "a new path for liquidity."

Maybe he's right about that, though I'm more interested in a different question. While Yahoo's hire-wire drama plays out to its final end, what's in it for the user? Nobody seems ready to seriously talk about that one. Nobody in a position of management authority at any of the companies figuring in the Yahoo sweepstakes has fully articulated why any of the proposed (or rumored) combinations will enrich our computing lives.

Will this improve the user experience on Flickr, MSN, or any of the various e-mail clients operated by the respective companies? The same question applies to any of the me-too services that attract millions of people to the respective Web portals each day. Could be there are solid benefits but I still don't have a clue how the user is going to make out. And that leaves me suspicious about how this all is going to end up.

In the end, it may turn out that it was Barzini all along.

Just when I thought it was safe to head for the bar comes news, courtesy of our colleagues over at the Wall Street Journal, that Yahoo and AOL are working on a deal to combine the two companies' Internet operations.

"The possible Yahoo-AOL tie-up is part of a threefold plan by Yahoo to present shareholders with an alternative to Microsoft's unsolicited offer. Yahoo would also propose repurchasing billions of dollars of its own shares and is negotiating with Google Inc. about an advertising tie-up, people familiar with the matter said."

Say this much for Yahoo CEO Jerry Yang: He's giving it the old college try--anything to make sure he doesn't wind up reporting to Steve Ballmer. Earlier in the day, Yahoo said it was testing the use of Google advertisements on some of its search pages.

The WSJ story correctly raises the possibility that this may all be a negotiating ploy to squeeze a higher price out of Microsoft. If that is the case, Microsoft isn't letting on just yet--at least not publicly.

Reached for comment, a spokesman repeated Microsoft's earlier statement by the company's general counsel, Brad Smith. "Our proposal remains the only alternative put forward that offers Yahoo! 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."

Why does AOL have a thing for acquiring companies with silly names? (Last month, it bought widget maker Goowy.

My colleague Dan Farber weighed in earlier Thursday on whether Bebo can "save" AOL, a question that remains impossible to answer in the near term.

Truth be told, I've compiled a stack of old magazine articles since the turn of the century (I love saying that phrase) detailing the "challenge at hand" for, first, the merged AOL Time Warner and then Time Warner, which dropped AOL from its moniker in 2003. At a certain point, however, you have to wonder: why bother?

After the merger with Time Warner, Steve Case and his henchmen at AOL made out quite nicely. But nearly everybody else, including millions of investors, got screwed in what subsequently became reviled as the most idiotic dot-com deal in history.

And so with the Bebo news, we're once again back to asking whether AOL can be fixed. It's sort of like putting lipstick on a sow's head, at this point.

CEO Jeff Bewkes may be an accomplished executive--as was his predecessor, Dick Parsons--but he'd have better luck cleaning up the Augean stables. AOL has been a huge stinker, and nothing management comes up with has stopped its slow state of decay. Too many opportunities have been squandered, too many shifts in technology missed.

Don't look to the corporate M&A types for a way out. These guys always come up with the same tired prescriptions, but they can't buy their way to success. Before today's announcement, management had spent more than $1 billion on acquisitions to revive AOL.

There isn't much, so far, to show for their labors. The New York Times recently described the dysfunctional corporate culture at AOL, where shouting matches regularly break out. If that's not a telling harbinger, what is?

At a certain point, you have to ask whether throwing good money after bad is really the best idea. It's time for Time Warner to give up a failed experiment.

Update at 10:37: Over at All Things Digital, Kara Swisher has a insightful take on what AOL actually is getting for all those shekels:

According to the several sources who were privy to Bebo's financials, for example, Bebo's revenues for 2006 were only $7 million with $3 million in EBITDA (earnings before interest, taxes, depreciation, and amortization). In 2007, the results are still small, with $20 million in revenues and $5 million in EBITDA.

Using 2007 results, that means AOL paid a handsome 42.5 times revenues and an incredible 160 times EBITDA. AOL might assert that it makes Bebo a bargain, given (that) Facebook got valued at 50 times revenue when it got that $15 billion valuation from the $240 million investment from Microsoft last year. Still, Facebook has a huge presence in the U.S. and is growing strongly in Europe, including being just ahead in Bebo's strongest territory in the U.K.

Projecting outward, the company estimated--remember, these are not actual numbers, but a best guess by Bebo execs--it would have $50 million in revenue and $10 million in EBITDA in 2008; $117 million in revenue and $48 million in revenue in 2009; and $193 million in revenue and $92 million in EBITDA in 2010.

If Kara's guesstimate is close--and she's a reliable reporter--then AOL is paying through the nose for another Web 2.0 property that has a way to go before ever justifying the original purchase price. Assuming it ever does.

Read more of News.com's coverage: "What Bebo means to AOL"