Outside the Lines

I never thought that Microsoft's unsolicited bid for Yahoo could get so interesting. It's taking on Shakespearian dimensions, with various factions lobbying, forming alliances, and establishing dowries for Yahoo's favor. In addition, News Corp. may be lending aid to Microsoft in its quest to acquire Yahoo.

Over the weekend, Steve Ballmer gave Jerry Yang three weeks to capitulate, or Microsoft would take its case directly to Yahoo shareholders. Today, 69 days into the negotiations and posturing, with Microsoft seemingly in the driver's seat, prognosticators are scratching their heads.

Yahoo and AOL are reportedly in deep talks to join forces. Also note that the Time Warner unit recently acquired the social-networking site Bebo.

According to The Wall Street Journal:

Under the terms being discussed between Yahoo and Time Warner, the latter would fold its AOL unit into Yahoo and make a cash investment in return for about 20 percent of the combined entity, people familiar with the situation said.

The deal, which wouldn't include AOL's dial-up access business, would value AOL at about $10 billion. As part of the deal, Yahoo would use the Time Warner cash and additional funds to buy back several billion dollars worth of its own stock at a price somewhere in the middle of the range, between $30 and $40 a share, the people said.

Yahoo is also testing the use of Google ads on a small percentage of its search pages. This could lead Yahoo to outsource its core ad search business to Google. As you might recall, Google and AOL have a connection. Google invested $1 billion in AOL in 2005 for a 5 percent stake, and it powers AOL search.

Rafat Ali of PaidContent said AOL and Google working together could help Yahoo stay independent:

If Yahoo can logically show that it gets a 30 percent to 40 percent revenue lift on the test, then they have a story to tell--that, if combined with AOL, they have enough scale, cut down costs by outsourcing search and search ads to Google, and add to that a possible share buyback with Time Warner supplying the extra cash, the combination has earned the right to stay independent.

At the same time, The New York Times is reporting that News Corp. (and its MySpace.com) may be considering throwing in with Microsoft to help acquire Yahoo.

The question for Yahoo shareholders will be which deal is best. AOL needs to find a home, and the combined AOL-Yahoo user base would be large. Getting leverage from the two audiences presents similar problems and overlapping to that of an MSN-Yahoo combination.

(Credit: comScore)

Google would benefit by the Microsoft block, its AOL relationship, and potentially a partnership with Yahoo, which would mean that Google is the big winner. Microsoft would be the big loser, if it doesn't succeed in acquiring Yahoo. Of course, the antitrust regulators might have a say in the matter.

In some ways, Yahoo could be a loser as well, in that Microsoft would technically and financially be a stronger mate than AOL, especially in battling Google over the long-term.

Given all the recent activity, Yahoo's fate is less clear than when Microsoft was the only option. Perhaps, Yahoo has created an elaborate illusion to convince Microsoft to increase its bid.

We may find out soon whether AOL is really an alternative to Microsoft for Yahoo, and salvation for Time Warner, and whether Rupert Murdoch wants to get in bed with Microsoft. What we know, at this point, is that Jerry Yang is not saying, "Alas, poor Yorick."

Now that Yahoo has finally and officially signed on to the OpenSocial API bandwagon (see Techmeme), the company that Microsoft might buy has joined with MySpace.com and Google to create the OpenSocial Foundation. Facebook is still missing in action, considering whether joining the OpenSocial Foundation is in the best interests of its membership--or its own platform.

OpenSocial provides a useful piece of functionality, solving a developer problem by allowing applications developed with the APIs to run on different services without modification--write once, play many. A photo-sharing application could tap into the social graphs of Orkut, Bebo, MySpace, Ning, or other services without any code changes.

Google is making Facebook's choice regarding OpenSocial more difficult by granting the OpenSocial code to the nonprofit foundation, which will be "independent of any undue influence by any one party," according to the opensocial.org Web site. In fact, Google is giving up its trademark to "OpenSocial" and its ownership in the Web site in the name of community-driven specifications, according to Joe Kraus, director of product management at Google.

In other words, it's more difficult now to categorize OpenSocial as a Google-inspired approach created in part to break the growing dominance of the Facebook platform.

On another front in the search for data portability, Facebook has signed up to partner with Microsoft on address book portability. Along with LinkedIn, Tagged, Hi5, and Bebo, Facebook is endorsing the Windows Live Contacts API, which allows contact info portability.

For example, Facebook or Bebo users can find friends on Windows Live and vice versa. The API also includes provisions for privacy management. The relationship data is not automatically stored, and must be reestablished with permission from the contact on each interaction.

However, adoption of the Windows Live Contacts API won't let you exchange contact info between Facebook and Bebo or Bebo and Hi5. It's only two-way with Windows Live as a node.

"At this point our agreements are between Microsoft and the individual social networks. We have nothing else to announce at this time," John Richards, director of the Windows Live Platform, said in an email response to my query about going further with the API. At least it's a start at breaking down data portability barriers.

(Credit: Microsoft)

(Credit: Microsoft)

They're sure saying the right things

and they appear to be putting resources behind it - and putting (in) writing what needs to be said. And exerting leadership I may add. You don't see Google saying those sorts of thing. Apparently Yahoo made some open announcements today - too. Haven't seen them yet.

The MS machine is gearing up to "crush" the competition - only problem is that this time - the competition is Google. And we're (the users) all pawns in this game. Who can be more open is the sort of battle we want fought!

So despite MS's best efforts - the tactics of old will not work.

And we (the people) shouldn't care - as long as they continue to open up - that's a good thing.

I predicted that this would happen. Old agenda gets corrupted with the mesh.

There is only one way to go - once Pandora's box is open = and that's more open.

The only variables that remain are:

- how can small guys benefit from an open environment

- how do the big guys protect their family jewels while starting to monetize openness

When the media talks about the Web giants these days, it's Google, Yahoo, Microsoft, MySpace.com, and Facebook, with AOL as an afterthought.

Since its merger with Time Warner in 2001, AOL has been an odd duck among the swans, trumped by competitors despite its more than 100 million U.S. users, according to ComScore (below).

(Credit: ComScore Media Metrix)

Speaking at a Bear Stearns Media Conference on Monday, Time Warner CEO Jeff Bewkes said AOL's ad revenue is flat, advertising has slowed, and the shift from paid subscriptions to free membership has cut into search ad revenue.

Bewkes also he would consider making an acquisition to strengthen AOL's market position.

"Would something added to AOL, or AOL added to something else, make it stronger and more valuable? We can't rule it out, and we wouldn't," Bewkes said at the event. "It's our obligation to make sure AOL gets into whatever configuration that makes it the strongest and most valuable."

I guess he knew something we didn't. The company on Thursday announced its acquisition of social network Bebo, which has 40 million members (mostly in the United Kingdom, Ireland, New Zealand, and the United States) for $850 million in cash.

AOL can now claim to have 80 million "socially networked" members by adding its AIM and ICQ instant-messaging users. AOL's spin is that Bebo helps the company in growing internationally and among a younger demographic.

Bebo does give AOL a credible social network, which already has some integration with AIM and ICQ, and lots of ad inventory. In the U.K., Bebo and AOL rank about the same in unique users, according to ComScore.

(Credit: ComScore)

The combination of AOL and Bebo, which has adopted both Google's OpenSocial and the Facebook platform for its application developers, will be a much stronger competitor versus the other major players in the social-networking arena. At this point, Google and Microsoft lack a strong social network, though Microsoft is in bed with Facebook, and Google is expected to bring its Orkut social network, which rules in Brazil, to OpenSocial.

AOL has been investing heavily to go more international and revive its brand, which has struggled to move from Web 1.0 to 2.0.

The big question is whether the addition of Bebo to AOL will equal 2 or 3. If AOL can manage to integrate Bebo into the fabric of the AOL portal experience, such as with AIM and what's left of AOL mail users, it could be a 3. But it won't do much to slow down MySpace and Facebook.

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