Microsoft to expand its Web services for businesses

Microsoft Corp, faced with Web rivals looking to poach its business customers, said on Sunday it plans to broaden the availability of its online services for e-mail and collaboration software.

Last year, Microsoft started subscription-based online services to run its Exchange corporate e-mail program and SharePoint collaboration software on Microsoft's own computer systems as an alternative to customers buying their own hardware to run licensed software.

Microsoft initially limited those services to companies with more than 5,000 workers, but the company said it will now offer the service to businesses of all sizes in the second half of 2008, after a testing period. The company did not disclose how much it will charge customers for the services.

It will also begin to offer a free download of a software called Search Server 2008 Express that allows companies to search files and documents inside their network. The product will rival Google Inc's Search Appliance.

Microsoft plans to unveil the news during a speech on Monday by Chairman Bill Gates at a conference for SharePoint, one of its fastest-growing applications, which allows workers to share documents and plan projects on secure Web sites.

Hosted Web services are gaining popularity among business customers, because companies do not need to spend a lot of money upfront to buy and maintain powerful computer servers.

Instead, companies can rent space on a computer server from a service provider for a monthly fee and avoid being locked into multiyear corporate agreements that are used by Microsoft for many of its core software offerings.

It also lets smaller companies get applications normally reserved for large organizations.

"This is a market that is really starting to pick up. I believe it is going to going to get very large," said Karen Hobert, an analyst at Burton Group.

Google, Salesforce.com Inc and a host of start-ups are aggressively targeting Microsoft's traditional business customers with Web applications that can be less expensive and easier to install on computers and run.

Last week, Google announced that it is offering a simple Web site publishing tool for office workers to set up and run their team collaboration sites.

Google Sites, as the new publishing service is known, is a stripped-down version of SharePoint that is free to users of Google Apps, a set of business applications that Google offers at a fraction of the cost of Microsoft's comparable products.

SOFTWARE PLUS SERVICES

Some companies such as Salesforce see Web services eventually replacing traditional packaged software, but Microsoft is pushing a "software plus services" strategy with the promise that this option combines the best of both worlds.

"Microsoft is starting to feel the pressures of the Googles of this world," Hobert said.

Microsoft's rivals have begun making inroads into the corporate market. Google says it has signed up more than 500,000 businesses over the past year to use Google Apps. One appeal is the ease with which office workers can get started and run their own team Web sites, without technical support.

But Microsoft said technology administrators in large organizations are concerned about losing control over access and usage of the software.

Redmond, Washington-based Microsoft said the products will work the same as existing offerings, but the software will run on Microsoft's computer servers. Administrators, according to Microsoft, will maintain nearly the same level of control as if the software was on their own computers, but have fewer headaches managing related hardware, storage and software.

Microsoft has invested billions of dollars to build enormous data centers packed with thousands of powerful computer servers and storage systems to offer services to both regular consumers and customers in large organizations.

In order not to jeopardize corporate agreements that underpin many of its businesses, Microsoft said any company who wants to switch over to its services will be credited for the remaining portion of an existing contract, which can be applied toward monthly subscriptions.

Customers such as Autodesk Inc, Blockbuster Inc and Ingersoll-Rand have signed up for Microsoft's services, according to the company.

Yahoo Rejects Microsoft Bid

Yahoo's rejection of Microsoft's unsolicited takeover bid left investors guessing the next move in a tense mating dance that may hatch a more imposing challenger to Google or disintegrate into a bruising brawl.

The rebuff, formally announced early Monday, wasn't a surprise because Yahoo had leaked its intention over the weekend.

As expected, Yahoo's board unanimously decided to spurn Microsoft after concluding the offer — originally worth $44.6 billion or $31 per share — "substantially undervalues" one of the Internet's prized franchises. The cash-and stock deal is now valued at about $40 billion, or $28.91 per share, because of a drop in Microsoft's market value.

But Yahoo didn't raise antitrust concerns about the proposed deal and included language that seemed to invite a higher offer from Microsoft, the world's largest software maker.

"The board of directors is continually evaluating all of its strategic options in the context of the rapidly evolving industry environment and we remain committed to pursuing initiatives that maximize value for all stockholders," Yahoo said in a statement.

Microsoft, though, didn't seem inclined to raise the bid Monday, releasing a statement describing its current bid as "full and fair."

Calling Yahoo's decision "unfortunate," Microsoft didn't back off from its quest either. "Based on conversations with stakeholders of both companies, we are confident that moving forward promptly to consummate a transaction is in the best interests of all parties," the Redmond,wash-based company said.

Microsoft also emphasized it's prepared to "pursue all necessary steps" to get the deal done, raising the prospect that it could take the bid directly to Yahoo shareholders with a so-called "exchange offer" or escalate the acrimony even further by trying to oust Yahoo's 10-member board later this year.

While assessing its response to Microsoft, Yahoo's board also examined a wide range of alternatives that included forging an ad partnership with Google, which paid nearly $5 billion in marketing commissions to thousands of Web sites last year.

Without identifying its sources, the Times of London also reported Yahoo is exploring a merger with Time warner's AOL, another popular Internet property that has been struggling in recent years. A Yahoo spokesman declined to comment on the report.

Investors appear convinced Microsoft's bid remains Yahoo's best bet, given the Sunnyvale-based company's profits have been steadily declining despite a management shake up eight months ago and repeated promises of a turnaround extending back to 2006.

Reflecting Wall Street's belief that Microsoft will raise its bid, Yahoo shares climbed 67 cents Monday to close at $29.87. On the flip side, Microsoft's shares dropped 35 cents to finish at $28.21 as its shareholders continued to fret that a Yahoo acquisition could turn into more trouble than its worth.

Microsoft's advisers are believed to be working behind the scenes to rally support among Yahoo shareholders and determine how much more the bid needs to be increased to force Yahoo's board to negotiate a friendly deal.

"You would assume that their first offer isn't the best and final offer," said Morton Pierce, an attorney who advises on mergers and acquisitions for the law firm Dewey & LeBouef. "The question now is how do you get to the end game?"

To further complicate matters, some of Yahoo's major shareholders might not want Microsoft to bid much more because they also own large stakes in Microsoft. The overlapping holdings mean any gain that these big shareholders might realize from a sweetened Microsoft offer might be erased if a higher bid diminishes Microsoft's market value, which has already slid about $40 billion, or 13 percent, since the takeover saga began.

Capital Research and Management Company., Barclays Global investors, Vanguard Group Inc. and State Street Global Advisers rank among the five largest shareholders for both Yahoo and Microsoft, according to Factset Research System Inc.

Most analysts still seem to think Microsoft will raise its bid because it needs to buy Yahoo quickly to close Google's widening lead in the lucrative online search and advertising markets that are rapidly reshaping the technology and media industries.

Meanwhile, Yahoo finds itself in a bind because its stock was near a four-year low before the Microsoft bid surfaced and its management already has said things are unlikely to get significantly better until 2009.

"Both companies seem to have limited options to achieve their goals, so it appears they really do need each other," said Standford Group Campany. analyst Clayton Moran.

Although its profits have been dwindling during the past two years, Yahoo still possesses one of the Internet's biggest audiences and largest ad networks.

Still, those assets haven't been compelling enough to persuade other potential suits to counter Microsoft's bid, despite Yahoo's best efforts to drum up interest in the past week.

That could lessen the incentive for Microsoft to raise its bid. But Yahoo wouldn't have had any chance of extracting more money unless its board spurned the initial offer.

"This was a logical move by Yahoo's board, but I still think this deal is going to get done," said Ryan Jacob, a money manager who owns Yahoo shares in an Internet investment fund bearing his name. "I think most shareholders will be ready to accept if the bid is raised to the mid-$30 (per share)."

Yahoo's stock price had dropped by more than 40 percent in the three months leading up to Microsoft's bid, which was announced Feb. 1. The offer was 62 percent above Yahoo's market value at the time.

Microsoft was prepared to pay at least $40 per share for Yahoo a year ago, according to a person familiar with the earlier talks between the two companies. Yahoo wasn't interested then because it was confident in its own strategy, said the person, who didn't want to be identified because Microsoft's 2007 offer was never publicly disclosed.

If Microsoft doesn't want to pay more money, it will probably have to assume a more hostile stance that risks creating hard feelings at Yahoo and making it more difficult to cobble the two businesses together if a deal is consummated.

Analysts doubt either side wants to become locked into a divisive struggle that could distract both management teams for months while Google tried to capitalize on the impasse.

If Yahoo isn't sold, Chief Executive Jerry Yang assured employees in a Monday e-mail that the company is poised to rebound on its own and become a "must buy" in the $45 billion online advertising market.

"We have accomplished a great deal in a very short time," wrote Yang, a company co-founder and board member who promised better times after he became CEO eight months ago. "Yahoo is a faster-moving, better organized, more nimble company well on its way to transforming the experiences of its users, advertisers, publishers and developers."

Just two days before Microsoft made its bid, Yang warned Yahoo faced "headwinds" in 2008 and laid out plans to eliminate 1,000 jobs, or about 7 percent of the company's work force, to boost profits.

Why MSN Wants Yahoo!!!

Internet Giant Yahoo has just triggered war in the tech world by hinting at a tie-up with Google, to resist Microsoft's hostile take over bid.

Yahoo management is considering revisiting talks it held with Google several months ago on an alliance as an alternative to Microsoft's bid, a source told a news agency.

Combined, Microsoft and Yahoo will together control just 16 per cent of the world's online search market, far less than Google's 62 per cent share. However, they would own a lion's share of the world's email and instant messaging market, which is Google’s main concern

While Microsoft claims that with Yahoo, they can break Google's stranglehold and serve consumers better, Google warns Microsoft could unfairly use its Windows OS, that runs most computers worldwide, to automatically divert users to its new search engine.

At $31 a share, Yahoo believes the bid undervalues the company, two sources said. A second source close to Yahoo said it had received a procession of preliminary contacts by media, technology, telephone and financial companies. But the source said they were unaware whether any alternative bid was in the offing.

In a memo to Yahoo employees on Friday, which was obtained by Reuters on Sunday, Yahoo leaders wrote: "We want to emphasize that absolutely no decisions have been made -- and, despite what some people have tried to suggest, there's certainly no integration process underway." Few natural bidders exist besides Google that could engage in a bidding war, and Google would be unlikely to win approval from antitrust regulators, some Wall Street analysts said on Friday.

The Wall Street Journal reported on its Web site on Sunday that Google's chief executive Eric Schmidt called Yahoo's chief executive Jerry Yang to offer his company's help in any effort to thwart Microsoft's bid. Spokesmen for Yahoo and Google declined comment. Google was not immediately available for comment on the WSJ story. Yahoo's efforts to find an alternative bidder could simply be a measure to pressure Microsoft to boost its bid, which valued Yahoo at $44.6 billion when first announced on Friday.

Microsoft Acquisition of Yahoo - Latest News

The Microsoft is evil meme is alive and well this week as many digest Microsoft’s $44.6 billion takeover offer for Yahoo. There’s Flickr users Protesting talk of Yahoo teaming up with Google to block Microsoft’s bid, and general Microsoft is bad sentiment everywhere, even from Google itself. While Microsoft acquiring Yahoo may not provide the ultimate in happy endings to many, it’s really not as bad as some would have you believe.

Google is Afraid.

Google’s response to the acquisition over the weekend was amazing in its veracity. Google and Microsoft have never been friends, but for Google to come out and attack the acquisition as it did can only mean one thing: Google is afraid, and that’s a very good thing. Internally Google believes that a combined Microsoft/ Yahoo will provide real competition to its dominant market position in search and text advertising, the very same position it has depended on to build its until recently huge share price and market cap. Google can preach about open access and open markets all it wants, but Google’s idea of open is only where users access it from one of its many web properties.

More Competition

One argument against the acquisition is that it lessens competition. While in terms of major players it does, a combined Microsoft/ Yahoo will actually increase competition in spaces where Google is dominant, and in some countries all but a monopolist provider. Scale is the key here: Google has it, and Yahoo and Microsoft need more of it. The combined Microsoft/ Yahoo would still have less than half of Google’s market share in text ads for example, but the combined companies would be able to provide a much more appealing product in terms of reach when competing against Google, ie: the increased reach would become more appealing to ad buyers looking to maximize their exposure.

A Stronger Tail

One argument against the deal is that there will be less opportunities for startups to be bought out with Yahoo out of the picture. That is true, but only in the short term. There always has to be a Number 3 player and positions below that, and with Microsoft/ Yahoo coming in at second, the space is now there for smaller players to step into this place. Ask comes to mind, but there’s no reason why we couldn’t see newer players step up. Essentially there will be now one less big player to compete with. The strengthening of smaller players who want to break into the top tier may well see increased flows and acquisitions. In lessening numerical competition at the top, it creates further opportunities below. This naturally rests on the presumption that there won’t be a duopoly in areas such as search, but this is unlikely: there has always been smaller players, always has been, always will be, and the dream of being the next Google will continue to live on.

Yahoo Lives On

Microsoft will actually be a great boost for the Yahoo brand and its many services. The alternatives are nearly bleak in comparison: a hedge fund or similar investment would gut Yahoo to a core rump of (hopefully profitable) services, and sell off areas such as Yahoo News. Google as a partner (either in ads or the unlikely scenario as an investor) would leave Yahoo doomed to be forever a second class player to Google. One of Yahoo’s biggest strengths is still its brand, and Microsoft will work tirelessly towards building that Yahoo brand back to its glory days as the front page of the internet. That goes for the sub-brands as well: Flickr will likely replace Microsoft’s photo sharing suite for example.

Better Service

Someone wrote in the last couple of days the days of building the best product and expecting people to use it has passed, and that’s the problem with Microsoft’s online endeavors today in the age of Google dominance. Microsoft has some great internet products; from Popfly and Silverlight, through to a solid ad platform (that is powering Digg and Facebook) and decent search. A combined Microsoft/ Yahoo would offer the best from both companies in what in theory would be a better all over package. Some may argue that getting to this stage might be difficult, but even wired notes that merging the two corporate cultures wouldn’t be that hard. Ultimately to compete with Google you must have a strong across the board multi-faceted package, and Microsoft/ Yahoo would have just that.

Conclusion

None of this is meant as Google bashing. Google has done much good and as Google loves to argue, people choose to use Google, nobody is forced to use their services. However markets where one company dominates usually end up seeing stagnation and/ or inefficient pricing and service in the long term. We need a combined Microsoft/ Yahoo if only to keep Google on its toes, to keep Google innovating and providing the best service that it can, to keep Google honest.