Yahoo and Microsoft face off, but both bolster mobile software armories
Microsoft CEO Steve Ballmer delivered an ultimatum to Yahoo, whose board has twice rejected a bid that, after trading on Tuesday, was worth $29.17 a share. He demanded that Yahoo accept the offer, or Microsoft would initiate a hostile takeover, going direct to shareholders and seeking to replace the board. He also threatened to lower the price. Yahoo's CEO Jerry Yang and chairman Roy Bostock responded at the weekend with a letter that said the Microsoft offer "substantially undervalues" the company, but said they remained open to a deal if it "is superior to our other alternatives." However, despite the management team keeping its options open - while hoping for a white knight that has not yet materialized, despite earlier hints from Google that it would support a counter-bidder - as far as shareholders were concerned, Ballmer's aggressiveness may have backfired. Yahoo's second largest shareholder, Legg Mason, said Microsoft had made a "tactical blunder" with the letter and said it would vote for independence if the current offer was lowered in any way. This came after a week when informal surveys of large Yahoo investors suggested that the climate of opinion favoured a deal.
Yang and Bostock rejected Ballmer's claims that Yahoo would have trouble weathering the current economic downturn, claiming in their reply that "business forecasts are consistent with what we outlined" early this year. On January 31, Microsoft offered to acquire Yahoo for $44.6bn, or $31 a share, in cash and stock, an offer that has since declined in value to $29.17 a share, or just over $42bn, because of a drop in Microsoft's share price.
Throughout the stand-off with Microsoft, Yahoo has actually been shining in terms of new launches for the mobile world where both companies see such growth opportunities, and last week it added voice-enabled search to its mobile platform. The new service is available on an initial trial basis as a download for the RIM BlackBerry but will become a general feature of version 2.0 of OneSearch, which will be available to phonemakers this summer and should represent a major challenge to Google, which Yahoo is consistently outclassing, in product functionality terms, in the mobile world.
OneSearch was launched in the first quarter of 2007 and the new release, unveiled at last week's CTIA show, improves on the original with voice enabled searches, as well as features that deliver more information to queries than just links. To use the voice feature in OneSearch 2.0, a customer pushes the call button on the handset and says a word or phrase to gain search results - during the CTIA demonstration, saying 'British Airways 287' got arrival times, and '3600 Las Vegas Boulevard' got a street map and directions. Yahoo also claims to give fuller answers than just web links - asking the question 'where's the best place to play craps in Vegas?', the service offered postings on the topic from the Yahoo Answers forum. Other results included news stories, graphics, and other content, and for searches on people's names, their listings in social networking sites.
As well as deals with phonemakers and carriers, which should put OneSearch on the front screen of various handsets, the new service can be accessed via Yahoo's or third party portals, and as a web download. It will generate revenue via advertising, and last August Yahoo bought German advertising specialist Actionality, which has software that inserts ads in content for mobile devices.
Nokia, which is also working hard to introduce advanced features, such as sophisticated location tie-ins, to its mobile search engine, was nevertheless the first major to commit to support OneSearch 2.0, which will run on its Series 60 smartphones. This highlights the fact that there is more synergy than rivalry between Yahoo and Nokia, as the latter ramps up its plan to become an internet services company. If it were not for Nokia's cultural aversion to major takeovers, and the impact an acquisition would have on its financials and the balance of its business, the Finn would be a logical white knight for Yahoo. It would achieve its aims of releasing a full spectrum of web services and functions far more rapidly with Yahoo's products and brand on board, and Yahoo has some advanced technology in the mobile market, including in areas like widgets that are dear to Nokia's heart. It has also made more progress than Google in signing strong carrier relationships, especially in Asia, and these could also be of high value to the handset maker. For all its plans to increase its direct-to-consumer presence via its Ovi portal, it knows that, for many years to come, the carriers will remain its bread and butter, and it needs to persuade them to adopt its web services, interfaces and devices - and its revenue sharing model - rather than create their own and relegate the Nokia phones to being mere devices to run operator controlled applications. The existing revenue and brand sharing deals created by Yahoo would set useful precedents.
However, such a marriage is unlikely, though we believe Nokia and Yahoo will become closer partners - something not even precluded any more by a Microsoft acquisition, since Nokia and the Windows giant are far more prepared these days to work together against Google rather than regarding each other as arch-enemies.
For its part, Microsoft used CTIA to unveil release 6.1 of its Windows Mobile operating system, which in the last couple of iterations has finally looked like a first class mobile OS to rival Symbian OS, after years of appearing to be a version of Windows uneasily squeezed into a small device, and relevant mainly for the enterprise and for consistency with the PC. Key updates in 6.1 include making the most critical information readily available at a glance, something much demanded by customers, according to Microsoft.
A system of information 'panels', which scroll in all directions, allow users to stay up to date and share information from a single location, by glancing at and responding to notifications such as missed calls, upcoming appointments and new messages from the home screen as well as playing music and sharing photos. This is a more intuitive interface than Windows Mobile has sported before, and shows Microsoft finally and belatedly getting the message - that the Windows interface has been superseded, especially among younger users, by a new generation of more interactive UIs that reflect user behaviour, and nowhere is this more clear than on the handset. Here, Nokia, Apple and others have long known that the UI is the key to power, and have delivered popular and ground breaking user experiences like that on the iPhone, while Microsoft has clung to the belief that the familiarity of the Windows interface will see it through, even on devices for which this is largely unsuitable.
In the past year, the software giant has shown increasingly powerful signs that it will cut the umbilical cord with traditional Windows where necessary to gain new markets, especially in mobile - creating products for other operating systems, and now being prepared to adopt new conventions even within Windows Mobile itself. Version 6.1 gets running more quickly than previous iterations, with rapid setting up of Wi-Fi connections, email login and attachment to peripherals like Bluetooth headsets. It also uses the small screen more effectively, allowing messages to be flagged and moved more easily and for users to keep track of conversations through threaded text messaging.
The OS includes an updated version of Internet Explorer Mobile with iPhone-like pan and zoom features, but this is due to be reworked more significantly by year end, with Microsoft promising some of the capabilities of desktop IE6, including Flash, Silverlight and Ajax support. For enterprise users, support for System Center Mobile Device Manager 2008 will also help administrators manage phones in the same way as PCs; while support for Exchange Server 2007 SP1 advanced mobile policies helps manage and administer security. Handset partners will start to include 6.1 from this quarter, and they choose whether to offer it as a free upgrade to existing Windows smartphone users. Microsoft expects all five major US cellcos to offer Windows 6.1 devices later this year.
