Microhoo update: Culture clash, Alibaba and board room politics

With the tech world on holiday in the U.S. for President's Day, the fate of Yahoo still hangs in the balance. That's doesn't mean the blogosphere has been taking a vacation from the topic.

In the NYT, John Markoff and Matt Richtel write about the culture clash on technology that would ensue if the Yahoo fell to Microsoft:

When it comes to technology, Microsoft and Yahoo “are completely at odds with one another,” said Rob Solomon, chief executive of SideStep, a travel-related search engine. He was a Yahoo executive in charge of shopping, auctions, travel and real estate before leaving the company in 2006.

Microsoft must figure out how to integrate the two complex and almost entirely incompatible software systems that the companies use to run their vast Internet data centers.

The article cites past integration problems, such as with moving its Hotmail email acquisition from non-Microsoft systems to a proper Microsoft platform. Microsoft prefers its own proprietary software stack, whereas Yahoo is build primarily on open source software, such FreeBSD Unix and Java.

I would like to think that Microsoft has learned a few lessons on the technology religion front. It's not as if allowing Yahoo to maintains its non-Microsoft stack would negatively impact the Windows business. Shifting Yahoo to a Windows-centric platform would be a huge undertaking. If that is the plan, shareholders should be apprised of the risks and estimated costs in the regulatory filings.

The battleground is shifting from client/server solutions where Windows ruled as a brand and underlying technology to the Internet. Users don't care what runs in the background as long as it is reliable, fast and doesn't result in higher cost. The big winners in the future will run giant, super efficient data centers and serve up applications via the cloud to billions of users. Microsoft needs to think more like a utility provider and giant portal than just a Windows software company.

The future for Microsoft is "Live" and Yahoo "Live" wouldn't need to be saturated with Windows.

In other Microhoo news, Kara Swisher lays out how she thinks the Yahoo board members are leaning on a union with Microsoft and lays blame for the current situation at the feet of the board. The board is not unified in how to move forward, but a sweetened offer from Microsoft would allow them at least to save face.

So, rather than some mano-a-mano between CEO and Co-Founder Jerry Yang and newly installed Chairman Roy Bostock, getting ready to rumble like this is the Sharks and the Jets, try to remember that these are the exact same cast of characters–now simply minus former CEO and Chairman Terry Semel–that has been too sanguine as the situation at Yahoo has deteriorated.

In fact, one of the more consistent characteristics of Yahoo over the past few years has been its dithering nature and its not-so-engaged board has been a prime locus of that.

Reuters and the WSJ report that the China-based Alibaba Group, of which Yahoo owns 39 percent, wants to have a say in the matter. The Reuters report states:

The problem is a perception by Beijing authorities that an important Chinese firm could come under the control of Microsoft Corp (NasdaqGS:MSFT - News), which has a reputation of using monopolistic tactics, said the source, who is familiar with a team of bankers and lawyers assembled by Alibaba to review its options.

Larry addressed Alibaba's injection into the deal in an earlier post:

This is bad news for Yahoo. Really bad. Why? If Yahoo wants Microsoft to raise its bid, say to $34 a share or even $40 a share, the company has to argue that its core business and holdings in Alibaba are worth more. That case gets a lot harder if Alibaba further distances itself from Yahoo and ensures its independence. Alibaba is prime real estate that Yahoo could even have to divest if Microsoft acquired the company. Yahoo owns about 39 percent of Alibaba.

Good luck getting to $40 a share from Microsoft with those moving parts.

Yahoo CEO Jerry Yang made it clear in his recent shareholder letter that the company views its holdings abroad as one of the reasons it is worth more. In the letter, Yang said:

We have the added value of our substantial, unconsolidated investments in Japan and China. We have substantial positions in Yahoo! Japan, the leader in its market, and Alibaba, which is strongly positioned in China, a market with enormous growth potential.

If Alibaba arranges more independence from Yahoo in the event of a Microsoft merger a nice chunk of that added value goes kaput. And along with it goes the argument that Yahoo is worth more than $31 a share.