Yahoo told Microsoft to pony up a few more bucks if they really want the deal to go through. I hope for both Yahoo and MS that MS gets a clue. Microsoft has been hit hard in the market since the Yahoo bid with it’s stock down from $32 to $28 which is about a $30 Billion drop. The street is smart enough to know this deal is a bad deal, I hope MS gets the message. Although if I was some big fund with a bunch of Yahoo stock I’d be pushing hard for a sale, so Yahoo better get a clue about what it needs to do to stay independent. If these guys don’t get a clue Google will clean up big time.

If Yahoo wants to survive here are five things that would make some sense:

1) Either announce some grand social strategy that takes advantage of things like flickr or announce that that all these money losers are up for sale/spin off/close down.

2) Start thinking of advertisers as customers and make employees understand they are at Yahoo to make $$ for shareholders.

3) Hire someone who knows how to manage a sales force for sell through. Yahoo has way too much remnant inventory and sell through will all drop to the bottom line and be good.

4) Decide it’s ok to be a really successful media company and get rid of the Google envy.

5) Fire the Panama team and announce that they will partner with best bidder.

[tags]Yahoo, Microsoft[/tags]

The folks at Google must be smiling tonight. Microsoft has been lured into putting a bid in for Yahoo. This is a waste of time, money and energy by Microsoft and that should make the Google folks more confident that they are on their way to overtaking Microsoft in the battle for leading technology company on the planet.

Combining two companies that DO NOT GET IT is NOT a recipe for competing with one that does. So let me get specific about what I mean by NOT GETTING IT as it relates to Microsoft and Yahoo. Anyone who has used Google Adwords as an advertiser and Google Adsense as a publisher and done the tests on the competitive products from Microsoft and Yahoo knows what I’m about to describe.

When I set up a campaign at Google Adwords, it is an automated process that is rich with interaction and feedback. I can test a campaign, keywords and ads in a very responsive manner that allows me to set it up, test it and optimize it quickly. Yahoo’s equivalent service was a captive to the belief that permeated Overture/Goto that only human editors could screen ads to make sure that they were relevant. It would take days under that process to do what Google did in minutes As a result, I advertise at Google and do so with Yahoo when I get around to it, if ever. (BTW I told this to the senior team at Yahoo’s search marketing group, but they either didn’t want to hear it or could not change the business process that had been set in place 4-5 years before) Since then, Yahoo has tried to reinvent its ad platform and Microsoft has launched their own version, but both still lag way, way behind Google.

How will Microsoft be able to merge two hugely expensive computer platforms when neither is yet good enough to compete with Google’s ad platform? And the same problem exists when you look at it from the publisher side. Google’s Adsense delivers better ads than does the equivalent Yahoo product despite huge investment by Yahoo. What will Microsoft do, scrap one deficient set of systems for another or try to make both work? Either way, the path leads to doom and gloom for both Microsoft and Yahoo.

There is obviously much more to both Microsoft and Yahoo than search and search advertising, but let’s be clear. Search based advertising is the engine that powers Google and everything it does. Social networking/media, a la MySpace and Facebook, has huge potential and Yahoo should have been the king of that domain given all their acquisitions in that arena over the years, but if Yahoo can’t turn My Yahoo, Flickr, GeoCities, De.licio.us etc. into a Social Media powerhouse how can we expect Microsoft to do so.

I can only hope Yahoo turns down Microsoft and they come to their senses. Yahoo can still do great things with the audience and assets it owns by changing its focus to become the queen of social, instead of the king of search. Microsoft should stop listening to bankers and get back to making products that work well and can out perform the competition.

[tags]Yahoo, Microsoft, Google, social networking, social media, search[/tags]

The New York Times is reporting that:

The two companies said on Wednesday that Microsoft would invest $240 million for a 1.6 percent stake in Facebook. The investment values the three-year-old Facebook, which will bring in about $150 million in revenue this year, at $15 billion.

While I’m happy for the Facebook and Accel folks(Jim Breyer of Accel Partners bought into the promise of Facebook early on with a $12.7 million investment, now worth $1.65 billion on paper – Way to go, Jim!), it seems like an incredibly high valuation for a company with $150 million in revenue.

It goes to show the power of greed, liquidity and fear in driving up the value of a term sheet. Microsoft, Google and Yahoo all saw huge dollar signs available to whoever gets to serve ads on Facebook(the greed factor). Facebook has done an excellent job playing them off against each other to get some competing offers from Microsoft and Yahoo (the liquidity part) and to drive it home, Microsoft is desperate to stop the Google train somewhere(the fear part).

To put the valuation in perspective, Yahoo is worth $41.6 billion on almost $7 billion in revenue, so to me it’s hard to see how a $15 billion valuation makes sense on $150 million in revenue even if Facebook is on a revenue rocket.

So now that I have put my two cents into the discussion, I wanted to know what other folks think so I reviewed the Techmeme links to see what leading bloggers think about the deal. Here’s a few llinks that seem to round up the opinions

Don Dodge – This isn’t about valuation

Terrence Russell at Wired : Three Reasons Microsoft Underpaid For Facebook

Web Strategy – Why this deal makes sense

TechCrunch – Face Book is Now the 5th Most Valuable US Internet Company

TechDirt – The Difference Between Sense and Non-sense

And while they all seem to know that the valuation is wacky they do point out that Microsoft only put $240 million at risk, got a strategic foothold and perhaps blocked Google. Although Google has it’s own Facebook like site, Orkut which is on it’s own high growth path.

It will be interesting to see how the rest the social networking war plays itself out.

UPDATE: Apparently, the dumb money is flowing behind Microsoft’s strategic investment with two PE funds putting in another $500 Million.

[tags]Facebook, Microsoft, Yahoo, Google[/tags]