Microsoft News Tracker

Yesterday Microsoft held their annual Financial Analyst Meeting for 2008 and while you can view the full video and (nearly unreadable) transcripts of the presentations, it was mostly predictable fare. However, there were a few newsworthy nuggets::

Steve Ballmer (Chief Executive Officer) 

• Yahoo: "it didn’t work out. Fine, we’re done. We can move on. Does that mean that nobody will ever talk to anybody again? I suspect the answer to that question is also no. It’s a long time in a big world, but we’re comfortable proceeding as we are on our own with our people, with our strategy, independent innovation and I think what we really still have in search and advertising is a two-horse race [Google and Microsoft - ed.]."
• Facebook: Satya Nadella who helped Ballmer handle the online business (since Kevin Johnson was missing) revealed an extension of the Facebook advertising relationship:

  "One last thing I wanted to also talk about is an extension of our Facebook relationship where we are extending it to Search and Page Search. We will be providing an API to Facebook where they will create a rich search experience, including a Web search for the Facebook users. And that’s something that they will launch in the fall, working with us, and it’ll carry both our Web results as well as our Page Search advertising."

Bill Veghte (SVP, Online Services)

• Windows Live: Windows Live Wave 3 will ship this year
• Internet Explorer 8: IE8 will arrive in 2008 with a beta in "a month or so."

Chris Liddell (CFO)

• Yahoo again: "I think the chances of us buying Yahoo! on a full acquisition basis are so small that they are essentially negligible. I never say never. Who knows in years to come. But a full acquisition certainly in the timeframe and sort of economics that we had previously thought essentially makes no sense.

  We still have the possibility of doing a search transaction, which we think makes some economic sense. If I had a worry it’s the parallel paths continue, and about the time Yahoo decides that search deal makes sense for them is probably about the time that we have committed to our own plan so much that it may no longer make sense for us."

Microsoft apparently wants to try its hand at enterprise hardware since today it announced the acquisition of data warehousing appliance vendor DATAllegro for an undisclosed sum:

Microsoft Corp. today announced that it intends to acquire DATAllegro Inc., a provider of breakthrough data warehouse appliances. The acquisition will extend the capabilities of Microsoft’s mission-critical data platform, making it easier and more cost-effective for customers of all sizes to manage and glean insight from the ever-expanding amount of data generated by and for businesses, employees and consumers.
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“Integrating DATAllegro’s nonproprietary hardware platform and flexible software architecture into Microsoft SQL Server will provide customers with the strongest offering in the market,” said Stuart Frost, CEO of DATAllegro. “We are excited to join forces with Microsoft and continue the innovation this company was founded on.”

Unlike most data warehouse appliance vendors targeting the 1–25 terabyte range, DATAllegro has specialized in large-volume, high-performance data warehouses. DATAllegro’s data warehouse appliance installations boast some of the largest data volume capacities in the industry — up to hundreds of terabytes on a single system. DATAllegro clients span such markets as retail, telecommunications and manufacturing.

DATAllegro’s boxes are lash-ups of Dell server hardware running Linux, EMC storage, and Cisco switches providing a customized version of the Ingres open source database which isn’t a bad way to go if you are going to do hardware. However, Microsoft intends to put their own stamp on things:

As soon as the acquisition closes, we’ll start the work of moving our technology from Ingres & Linux to SQL Server and Windows. Our feasibility studies over the last few months indicate that SQL Server is a significant improvement in terms of performance - especially in key areas such as star joins, I/O throughput and in-memory operations. The engineering team here at DATAllegro is VERY excited about the next version of the product.

Current customers will be supported, but I wonder whether the sales team will have anything to sell before the Microsoft version is done.

In any case, the big picture is that Microsoft feels that commoditization in the data warehousing business is such that they have to have their own proprietary data warehousing hardware even if they have some work ahead to make it fit.

Up until today Kevin John was the president of Microsoft’s Platforms & Services Division (PSD) which develops Windows and Microsoft’s online properties including Windows Live and MSN. Now Kevin Johnson is out and PSD has been split into two pieces reporting directly to Microsoft CEO Steve Ballmer:

Microsoft Corp. today announced that the Platforms & Services Division (PSD) will be split into two groups: Windows/Windows Live and Online Services, with both groups reporting directly to CEO Steve Ballmer. Microsoft also announced that PSD President Kevin Johnson will be leaving the company. Johnson will work to ensure a smooth transition.
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Effective immediately, senior vice presidents Steven Sinofsky, Jon DeVaan and Bill Veghte will report directly to Ballmer to lead Windows/Windows Live.
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In the Online Services Business, Microsoft will create a new senior lead position and will conduct a search that will span internal and external candidates. In the meantime, Senior Vice President Satya Nadella will continue to lead Microsoft’s search, MSN and ad platform engineering efforts.
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In addition, Senior Vice President Brian McAndrews will continue to lead the Advertiser & Publisher Solutions Group (APS).

So was Johnson pushed or did he jump? The rumor is that Johnson is now going to run Juniper Networks, which while nice enough, doesn’t seem like a sufficient opportunity to justify a voluntary departure so the smart money is on pushed.

One problem could have been Vista’s lackluster reputation, but Microsoft is still printing money with Windows so a more likely cause is the continuing disappointment from Microsoft’s online efforts. I’m sure it also didn’t help that Johnson was the point man on Microsoft’s attempt to buy Yahoo (or pieces thereof) which appears to have finally come to naught.

As for what it all means, I see no reason to expect significant changes in either products or financial performance - it was merely a rearrangement of the deck chairs which won’t be complete until new executives heading the two groups are named (assuming that Steve Ballmer doesn’t really want to run Windows/Windows Live himself). Any expectations of radical alterations are clearly premature.

After all of the mudslinging of recent weeks, the Yahoo board of directors and corporate raider Carl Icahn have reached a compromise and are now the best of pals:

Under the terms of the settlement agreement, eight members of Yahoo!’s current Board of Directors will stand for re-election at the 2008 annual meeting: Roy Bostock, Ronald Burkle, Eric Hippeau, Vyomesh Joshi, Arthur Kern, Mary Agnes Wilderotter, Gary Wilson and Jerry Yang. In view of the settlement agreement with Mr. Icahn, and the termination of the proxy contest, Robert Kotick has decided not to stand for re-election to the Board at the 2008 annual meeting.

Following the 2008 annual meeting, the Yahoo! Board will be expanded to 11 members. Carl Icahn will be appointed to the Board and the remaining two seats will be filled by the Board upon the recommendation of the Board’s Nominating and Governance Committee from a list of nine candidates recommended by Mr. Icahn, which includes the eight remaining members of the Icahn slate of nominees and Jonathan Miller, currently a partner in Velocity Interactive Group and former Chairman and CEO of AOL.

As part of the settlement agreement, Mr. Icahn, who owns an aggregate of 68,786,320 shares, or 4.98% of Yahoo! common stock, has agreed to withdraw his nominees for consideration at the annual meeting and to vote his Yahoo! shares in support of the Board’s nominees.

But what about a sale of part or all of Yahoo to Microsoft?

Mr. Icahn said, “I am very pleased that this settlement will allow me to work in partnership with Yahoo!’s Board and management team to help the Company achieve its full potential. While I continue to believe that the sale of the whole Company or the sale of its Search business in the right transaction must be given full consideration, I share the view that Yahoo!’s valuable collection of assets positions it well to continue expanding its online leadership and enhancing returns to stockholders. I believe this is a good outcome and that we will have a strong working relationship going forward. Additionally, I am happy that the board has agreed in the settlement agreement that any meaningful transaction, including the strategy in dealing with that transaction, will be fully discussed with the entire board before any final decision is made.”

The more things change, the more they stay the same. I expect that Mr. Icahn decided that his slate was going down to defeat in the proxy battle and settled for part of the loaf, while the board merely placed an insurance bet. Click through to the full statement for Yahoo CEO Jerry Yang’s warm welcome to the "new colleagues" if you appreciate the ironic.

As if all the squabbling over a Yahoo acquisition weren’t enough, today there were rumors that both Microsoft and Yahoo were in urgent talks to acquire AOL from Time Warner:

Time Warner Inc’s (NYSE:TWX) discussions to merge or sell its AOL Internet division with Microsoft Corp (NasdaqGS:MSFT) or Yahoo Inc. NasdaqGS:YHOO) have taken on new urgency ahead of Yahoo’s Aug 1 shareholders meeting, a source familiar with the discussions told Reuters on Tuesday.

The structure of any deal is not immediately clear, though a combination of any of the parties is expected to redraw the landscape for advertising on the Internet.

Sources had said earlier that a deal with Yahoo would likely involve merging AOL with the Web pioneer, with Time Warner taking a minority stake in the combined company. A deal with Microsoft would likely be a sale of AOL, the sources said.

Time Warner and Microsoft declined comment. A representatives of Yahoo was not immediately available.

An AOL purchase would represent traffic acquisition and added display advertising strength for either party which would presumably help keep Carl Icahn off Yahoo’s back or further Steve Ballmer’s “big bet” on the consumer side of the Web. The last time the Yahoo part of this particular rumor cropped up, I observed that

You may recall that Google owns 5% of AOL and handles their search ad business so Yahoo acquiring AOL and running Google ads would create a surprisingly homogeneous “content” and search company although not obviously a wildly profitable one.

and nothing has changed since then except the amazing possibility of a bidding war.