Full Disclosure: I work for Microsoft and enjoy my job. And this blog post is my opinion, not Microsoft’s.

This past week ended up being one of the most intense, yet rewarding, weeks of my career. For the past three weeks, I put my day job mostly on hold and took on the challenge of leading a team to put together a free virtual training event for Windows Phone 7 developers. We had developers in the thousands participating in four 3-hour sessions that covered the ins and outs of developing applications and games for Windows Phone 7.

(FYI- If you’re a developer and missed it, don’t worry, the class resource page with all course materials and demos is open to all, plus recordings of the event are coming soon. Also, see below for some behind-the-scenes pictures from the studio we used to broadcast/film.)

For better or for worse, it seems that tech blogs, Wall Street, and much of my family are using the success of the “smartphone” as the current most important defining characteristic of how a given tech company is doing. Sure, Microsoft had record earnings and sold 175 million copies of Windows 7 in nine months. And sure, Xbox 360 + Xbox Live + the upcoming Kinect is the best thing to have happened to gaming in the past 10 years (speaking as a die-hard PC gamer turned console convert).

I could go on and mention several other billion dollar businesses Microsoft has built over the years, but they’re the unsexy, enterprise type that tend to bore blog readers. The real question on everyone’s mind: how will Microsoft play in the smartphone market? Well now that there’s tons of coverage on that, we’re all in wait-and-see mode. I, for one, have loved what I’ve played with and am also very encouraged by the overwhelmingly positive response we’ve gotten from developers who took our training.

So while Wall Street yawns, I continue to use a more holistic approach to measuring the success of a tech company. Not least of which starts with it being a great place to work!

Thanks to Rob Miles and Elese Moran for the pictures.

Microsoft’s new search engine (or “decision engine” as the Bing team calls it via their Twitter profile) is now live at Bing.com. Early adopters already had a chance to preview/review Bing last week. So this launch has left bloggers coming up with more creative ways of covering the release.

Loic Le Meur (of Seesmic fame) thought the best test would be to search for himself followed by a search for sex. TechCrunch, in their infinite wisdom, followed Loic’s lead and pointed out just how cool the video preview feature of Bing is when it comes to searching/watching porn.

You see, Bing presents search results for videos as thumbnails that auto-play when you hover over them. So you can watch lots of videos (of any kind) without ever leaving Bing. Unique coverage of a great feature.

Whatever the case, it’s nice to see Microsoft getting some good press (such as this endorsement) not only with Bing but also with a half a dozen other recent releases.

*Update* Michael Arrington has a good run down of user first impressions in his post titled “Apparently Bing Is Something Of A Hit.” Also, see below for a short video introduction which covers most of Bing’s best features.

Check out the email (below) I got from the Hotmail team. Much has changed in the last 10 years, but somehow I’ve managed to hang on to my original Hotmail email address. (I opened my account the end of 1998.)

Of course, the Hotmail team may or may not like the fact that I use this email address primarily as my spam location. Most everyone has an email address like this, right? I know I do, and I actually need it at this point. Anytime anyone who is not a real, distinct person wants my email (think of most forms/companies asking), this is the address they get.

Leaving aside whether or not the potential Microsoft takeover of Yahoo is a good idea (strategically), I’m surprised the whole idea hasn’t caused more analysis on how Wall Street works (or doesn’t). The fact is, Microsoft’s first offer back in January was a 62% premium on the market valuation of Yahoo. It only went up from there, but Yahoo never took the offer.

Juxtapose that fact with another fact that according to Wall Street / business schools / the financial system, corporations are expected to maximize shareholder value, and we have a problem with the current example. Even if Yahoo is able to create enough value at some point in the future to meet the value offered by Microsoft in January, it would not be enough. This is because of the “time value of money” concept that Wall Street loves. Without diving into detailed examples, let’s just say that one dollar today is worth more than one dollar at some point in the future.

So this means that the longer it takes Yahoo is come up with the $20 billion it effectively owes its shareholders (the amout shareholders would have gained if Yahoo took the Microsoft offer), the more that $20 billion expectation will grow. It is not a static number.

But that’s not to say Yahoo making up that $20+ billion is impossible, though I personally think it’s improbable. Think of an example were you would not take a $20 billion premium for a sale of something you own a piece of. Does Yahoo come to mind? Not for me, nor does anything else, for that matter. But that may be because I’m not a billionaire. Let me explain.

My current theory is that billionaires running companies have their own agendas. And these agendas generally are in sync with maximizing shareholder value. If they weren’t, then shareholders would get pretty upset. But even if the billionaire CEOs are shareholders themselves, if they’re still likely to be billionaires when following an agenda outside of maximizing shareholder value… (oh, say, an agenda of retaining or gaining power) where’s the disincentive not to follow their own agendas?

I’m not sure, but I’m pegging the “I don’t care as much about more money when compared to more power” at around a billion dollars. I mean, generally speaking, what is there in life that you can do (and want to do) with two billion dollars but not one?

All this leads me to believe that, simply put, Jerry Yang cares more about power than money. In one sense, there’s nothing wrong with that. But I think there’s nothing wrong with that only if we all admit that’s what’s going on. But therein lies the catch-22. Admitting that would be admitting that he isn’t maximizing shareholder value, which would be another route to him potentially losing his power.

But as it stands, if billionaire CEOs can evaporate $20 billion of shareholder value while claiming that they are, in fact, maximizing shareholder value… I feel like they can basically say or do whatever they want and claim that it’s “maximizing shareholder value.” In other words, if not maximizing shareholder value is another way of maximizing shareholder value, then what isn’t? (Do you follow?)

And that seems like a broken system to me.

I don’t know what the solution is, but I think different, non-monetary incentives or consequences need to be in place for people who effectively have enough money that more is inconsequential (my one billion threshold). If the money involved is unlikely to affect their (billionaire CEOs) way of life as they make decisions that could affect the way of life of non-billionaire shareholders… that seems like a big problem (to me).

The title of this post was originally going to be “Delicious: A Review from a Late Adopter.” But that was four months ago and only a few days after I started using social bookmarking site Delicious. At the time, I found it useful even if lacking in a few areas.

But it only took a week before I went back to my old bookmarking habits with Firefox. And now I’m more excited about the latest bookmarking features in Firefox 3 (due out later this month) than the next version of Delicious, which is taking its sweet time.

The problem with Delicious (for me, at least) is that it required too much of me as a bookmarking service and didn’t provide me much as a place to find new content. The first problem could be with how I browse the web. I often find myself reading/browsing a dozen or so stories/websites at the same time. For the most part, it’s not a problem to have tons of tabs open in Firefox.

But I often get interrupted in my daily perusing and need to bookmark all the stories I’m half way through or haven’t started reading (the “Bookmark All Tabs” feature in Firefox). Although I’ve found a Firefox plugin that expedites the process of saving sites to Delicious, it’s still one site/story at a time. If I want to save a dozen at a time, I’m obviously going to revert back to Firefox rather than complete twelve separate tasks.

As for using Delicious as a way to discover new content, well, I’ve found it hard to filter out the noise and am generally uninterested in the majority of what the world is bookmarking (apparently).

What about Digg? Even if Delicious came before Digg and is popular in its own right, Digg took the Delicious concept and made it really work as a more social way to find and share new content online. But that was the Digg of what feels like a long time ago (Digg is running on its third major revision while the second version of Digg was arguably the best).

We have covered Digg issues plenty before. The site’s problems are easy to sum up in one sentence: It’s slow, bloated, outdated, gamed, policed, etc. As a result, the front page content is pretty lacking to say the least.

Now on to Reddit. While Reddit has been around for a while, I never took it seriously, always thinking of it as “Digg Light.” But it turns out that it does what Digg does but better and faster. The latest version was released recently and makes it even more accessible to the masses. I could go through all the reasons individually in detail, but I’ll just summarize: fairly interesting content, intuitive interface, and very fast response.

So there you have it. For my needs, I find bookmarking is still best handled by my browser of choice while social news and content discovery is best handled by Reddit. What do you use for bookmarking and content discovery?

TechConsumer has had its fair share of Digg coverage lately. But for those of us who remember what Digg was back in the glory days, we can’t help but draw attention to its flaws in the here and now.

First, we had our April 1st interview with Digg’s founders discussing priorities and progress and how Digg is just a game. Second, we discussed the Digg paradox and how getting rid of the editor/gatekeeper just creates new gatekeepers.

But today’s topic, for me at least, feels like the most interesting twist on the story of where Digg started as compared to what Digg has become:

Digg is based on an algorithm that makes sure a certain “diversity of diggers” threshhold is met before a story makes it to the front page. So even though Digg has a friend system with “shouts” for sharing stories, if used, it doesn’t necessarily help any story you’re sharing get to the front page. What you really need are diggs from users you don’t know (if your goal is to bring maximum awareness to a story or submission).

So how do you get people you don’t know to be interested in what you are interested in? Well, what Digg hopes is that this is intrinsic to your submission. Meaning, if what you are submitting to Digg is really interesting, lots of people you don’t know will be interested and push it to the front page.

But Digg is so huge now with ten thousand submissions every day. As a result, Digg’s upcoming queue–where all new stories sit for up to 24 hours–moves quickly and is difficult to sift through. This means that even if your submission is interesting, you can’t rely on the Digg site itself as a mechanism for other diggers you don’t know to find the story you submitted.

So now we’re back to the same question: How do you get people you don’t know to digg your [assumed to be interesting] submissions? The easiest way, I’ve found, is to submit only content from sites that have a) a huge audience and b) Digg tools integrated (buttons on the story itself that show if it’s been dugg and how many diggs).

These sites are generally so well known that they have plenty of readers that make for the perfect storm for getting content to the Digg front page. That is, readers that are Digg users but aren’t friends with each other. Let’s take a look at an example that illustrates how this works:

Yesterday, TechConsumer had an article in the upcoming queue with over 100 diggs (see image below):

Right around the same time the above screenshot was taken, this story from Gizmodo (image below) hit the front page with 33 diggs:

About a half hour later, I noticed something even more interesting and decided to take a screenshot (see below). I was browsing the front page of Digg and realized that the top six stories on the page all had less diggs than the TechConsumer story that never made it. All these submissions were from major websites (BBC, Yahoo News, Gizmodo, New York Times).

In fact, you’ll notice that it took the previously mentioned Gizmodo story 30 minutes of being on the front page to accrue the same number of diggs as the TechConsumer story that never made it.

So what does this mean? For one, I can tell you that the TechConsumer readership doesn’t even come close to any of these sites. And, as a result, any readership and Digg user overlap is much more likely to be by Digg users who know each other (i.e., are friends on Digg). This is likely to be the case for any smaller site.

More importantly, though, this means that Digg favors traffic heavy sites. The irony being that Digg’s “diversity” algorithm does exactly the opposite of diversifying: It keeps the majority of front page stories coming from a small group of traffic heavy sites.

And for your double dose of irony today, this makes Digg closer to Yahoo Buzz. Yahoo Buzz is described as “a Digg-like site that takes stories from pre-approved news publishers (100 to start) and let’s users vote on stories and push them up to the top of the page.”

It should be noted that how Digg works currently isn’t necessarily a bad thing. It’s just no longer a model that follows what Digg itself claims to be. In fact, Digg should really update its “About Us” page. Here is what the first two sentences say:

“Digg is a place for people to discover and share content from anywhere on the web. From the biggest online destinations to the most obscure blog, Digg surfaces the best stuff as voted on by our users.”

It’s obviously not that simple.

From my experience, Digg is turning more into a place to see what is popular in the mainstream yesterday (since it takes nearly a day for many stories to hit the front page). Again, not necessarily a bad thing, but that kind of information (i.e., “mainstream yesterday”) seems to be available all over the place nowadays…

The Wall Street Journal (subscription required) just broke the story that Yahoo’s board plans to reject Microsoft $44.6 billion offer, citing our favorite source: “a person familiar with the situation.” Apparently, $31 per share “massively undervalues” Yahoo, according to the same source. The logic is that the offer doesn’t take into account risks Yahoo would go through (that is, if regulators overturned the deal) by entering into an agreement with Microsoft.

Accordingly, Yahoo’s board will send a letter to Microsoft on Monday explaining the situation. This article comes just hours after another WSJ article quotes several investment bankers who basically say that “investors have lost confidence in Yahoo management’s ability to reverse the company’s fortunes on its own.” Nevertheless, here’s Yahoo’s reasoning for rejecting the offer:

1. Yahoo thinks Microsoft is trying to take advantage of Yahoo’s weak stock price and is saying that Microsoft wants to “steal” the company.
2. Yahoo board members won’t consider offers below $40 a share, an extra $12 billion (quite the premium, considering the first offer was a 62% premium over Yahoo’s market value).
3. Yahoo is effectively stalling while it considers an alternative of partnering with Google (ironically, a point that nullifies the original point of Microsoft’s offer not taking into consideration “risks” of regulation, considering the risks of regulation are higher with Google).
4. Yahoo is hoping that Microsoft will not follow through with a hostile take over (even if Steve Ballmer said as much in his original letter). The reasoning here is that important engineers would not be willing to cooperate in a hostile take over, and regulators may be more easily convinced that this deal is anticompetitive if hostile.

Yahoo seems to be grasping at straws with this, what with all the contradictions in the logic above. We shall see how this plays out…

*Update* TechCrunch points out how this could turn into an $80 billion headache for Microsoft (though the logic used is based on short term stock market fluctuations). More coverage and opinions via Techmeme.

*Update 2* What the? Yahoo looking to AOL for help now? I agree that this not a great solution.

Given the rumor that today is the day for Yahoo to speak on the pending Microsoft take over, I thought I’d revisit the question I originally asked a year ago. Of the big three, what services do you use from each?

But first, I feel compelled to point out that at this same time last year, Google was being cited as Yahoo’s major obstacle. Now, of course, a partnership with Google is Yahoo’s theoretical last chance at avoiding Microsoft as its new owner.

For whatever reason, my own usage breakdown doesn’t include much of Yahoo. I still don’t use any of Yahoo’s major offerings (meaning: search, email, or advertising). I don’t do this on purpose; it’s just the way my online habits have evolved. I use Google for email (with Microsoft’s Hotmail as my spam account), Google for search (occasionally MSN/Live as my second source, though Ask has been taking that spot lately), and Google for advertising (I’ve played around with Microsoft here too).

But what about all the “web 2.0 / social networking” available from these companies? Well, I use Google’s Picasa over Yahoo’s Flick’r, though I did just start using Yahoo’s del.icio.us. And MyBlogLog (implemented on this site) is a service of Yahoo’s that I use as well. But that’s it: I pretty much use next to nothing from Yahoo other than del.icio.us and MyBlogLog.

I do use a dozen or so of Google’s free online toys and frequently switch between the Google versions of maps, desktop search, and earth and the Microsoft equivalents. For all the supposed “catch up” Microsoft has been doing, its offerings of maps, virtual earth, and desktop search are fairly comparable to those offered by Google (and Microsoft is the only company of the three that knows how to diversify: It’s still busy milking its cash cows of operating system and office suites while making a major move into the gaming / gadget industry with the Xbox, Zune, etc.).

In any event, I’ve never been thrilled by Yahoo. Google and Microsoft, on the other hand, are responsible for a big chunk of my online/tech experience. But, who knows, maybe that will change post Microsoft acquisition of Yahoo.

So what’s your Google / Microsoft / Yahoo usage breakdown?

I have a sister who, over the weekend, pointed out a major shortcoming of search engines. It’s so obvious that I’m not sure why I didn’t think of it first. And keep in mind that this is my sister, which arguably boosts the creditability of this anecdotal story. That is, this isn’t some nerd’s dream come true; rather, she’s fairly representative of “regular” people trying to utilize the Internet practically. So here it is:

Why can’t you organize your results by date? And why don’t the search results themselves include the date each entry was published/updated?

For all I know, there is some search engine somewhere that might be working on this very problem. But for now, the four biggest (Google, Microsoft Live/MSN, Yahoo, and Ask) give us little to nothing. And this is for a feature that would be fairly simple to just turn on. All of them (except Microsoft) will let you enable a related feature in their “Advanced Search” options so that only search results from the past X amount of time show up as part of your query.

But for being an “advanced” feature, it’s extremely simplistic. In every case, you pick a preset amount of time (one month, three months, one year, etc.). How hard would it be to have a little calendar pop up for you to choose: “I want my search results to be limited to content published/updated from X date to Y date.” This feature exists when you search your computer for files or emails, why not for the Internet?

And of the four search engines mentioned, Google is the only one that comes close to showing you date information in the search results themselves, but only if you’re searching for results in the past 24 hours. Otherwise, it’s just like the others: you don’t know anything about the date of any of the results on the page until you click through each of them one by one.

Each of these search engines boasts some sort of secret sauce that theoretically gives you the most “relevant” results first. But how are they to know how sensitive your query might be to the date? And let’s face it, for the millions of results that come back for any almost any term you put into a search engine, you rarely go past the first page of 10.

So why not have an “advanced” feature that lets you sort your results page by page (to keep the magic relevancy)? Depending on your search, Google may think result #5 deserves to be result #5, but any results (out of millions) that land on the same page of 10 are likely to be very close in relevancy. So why not let me sort the page I’m viewing?

The more I think about this topic, the more I find it disappointing just how limiting online search can be. Think of anything else in your life that utilizes some form of organization. Now remove specific dates as part of that organization and add a magic wizard that convinces you that it just know what you need; dates have limited relevancy. You might be convinced, that is, until the first time you need to search for something where the date is relevant.

The rumors of this kind of deal have been around for a while but never seemed to materialize. Microsoft will hold a conference call to discuss the details of the proposal, though CEO Steve Ballmer has already laid it out pretty clearly in his public letter to Yahoo (see below for full text). One aspect of the letter to note:

“Depending on the nature of your response, Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo!’s shareholders are provided with the opportunity to realize the value inherent in our proposal.”

In other words, Microsoft is not interested in taking no for an answer. At the same time, though, some wonder if Yahoo could draw this out and get other bids. But it’s hard to think of another company/offer than can compare. Microsoft is actually being fairly generous with its offer valuing Yahoo at a 62% premium. And not many companies have these kind of resources or interests. In short, one way or another, look for Yahoo to be a part of Microsoft this year.

For more sources and coverage, see Techmeme.

*Update* Rumors/reports are coming in of other companies (such as MySpace parent News Corp.) scrambling to make a bid for Yahoo. But again, the likelihood of another company outbidding Microsoft (and having their shareholders agree to it) is fairly low.

January 31, 2008

Board of Directors
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089
Attention: Roy Bostock, Chairman
Attention: Jerry Yang, Chief Executive Officer

Dear Members of the Board:

I am writing on behalf of the Board of Directors of Microsoft to make a proposal for a business combination of Microsoft and Yahoo!. Under our proposal, Microsoft would acquire all of the outstanding shares of Yahoo! common stock for per share consideration of $31 based on Microsoft’s closing share price on January 31, 2008, payable in the form of $31 in cash or 0.9509 of a share of Microsoft common stock. Microsoft would provide each Yahoo! shareholder with the ability to choose whether to receive the consideration in cash or Microsoft common stock, subject to pro-ration so that in the aggregate one-half of the Yahoo! common shares will be exchanged for shares of Microsoft common stock and one-half of the Yahoo! common shares will be converted into the right to receive cash. Our proposal is not subject to any financing condition.

Our proposal represents a 62% premium above the closing price of Yahoo! common stock of $19.18 on January 31, 2008. The implied premium for the operating assets of the company clearly is considerably greater when adjusted for the minority, non-controlled assets and cash. By whatever financial measure you use – EBITDA, free cash flow, operating cash flow, net income, or analyst target prices – this proposal represents a compelling value realization event for your shareholders.

We believe that Microsoft common stock represents a very attractive investment opportunity for Yahoo!’s shareholders. Microsoft has generated revenue growth of 15%, earnings growth of 26%, and a return on equity of 35% on average for the last three years. Microsoft’s share price has generated shareholder returns of 8% during the last one year period and 28% during the last three year period, significantly outperforming the S&P 500. It is our view that Microsoft has significant potential upside given the continued solid growth in our core businesses, the recent launch of Windows Vista, and other strategic initiatives.

Microsoft’s consistent belief has been that the combination of Microsoft and Yahoo! clearly represents the best way to deliver maximum value to our respective shareholders, as well as create a more efficient and competitive company that would provide greater value and service to our customers. In late 2006 and early 2007, we jointly explored a broad range of ways in which our two companies might work together. These discussions were based on a vision that the online businesses of Microsoft and Yahoo! should be aligned in some way to create a more effective competitor in the online marketplace. We discussed a number of alternatives ranging from commercial partnerships to a merger proposal, which you rejected. While a commercial partnership may have made sense at one time, Microsoft believes that the only alternative now is the combination of Microsoft and Yahoo! that we are proposing.

In February 2007, I received a letter from your Chairman indicating the view of the Yahoo! Board that “now is not the right time from the perspective of our shareholders to enter into discussions regarding an acquisition transaction.” According to that letter, the principal reason for this view was the Yahoo! Board’s confidence in the “potential upside” if management successfully executed on a reformulated strategy based on certain operational initiatives, such as Project Panama, and a significant organizational realignment. A year has gone by, and the competitive situation has not improved.

While online advertising growth continues, there are significant benefits of scale in advertising platform economics, in capital costs for search index build-out, and in research and development, making this a time of industry consolidation and convergence. Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition. Together, Microsoft and Yahoo! can offer a credible alternative for consumers, advertisers, and publishers. Synergies of this combination fall into four areas:

Scale economics: This combination enables synergies related to scale economics of the advertising platform where today there is only one competitor at scale. This includes synergies across both search and non-search related advertising that will strengthen the value proposition to both advertisers and publishers. Additionally, the combination allows us to consolidate capital spending.

Expanded R&D capacity: The combined talent of our engineering resources can be focused on R&D priorities such as a single search index and single advertising platform. Together we can unleash new levels of innovation, delivering enhanced user experiences, breakthroughs in search, and new advertising platform capabilities. Many of these breakthroughs are a function of an engineering scale that today neither of our companies has on its own.

Operational efficiencies: Eliminating redundant infrastructure and duplicative operating costs will improve the financial performance of the combined entity.

Emerging user experiences: Our combined ability to focus engineering resources that drive innovation in emerging scenarios such as video, mobile services, online commerce, social media, and social platforms is greatly enhanced.

We would value the opportunity to further discuss with you how to optimize the integration of our respective businesses to create a leading global technology company with exceptional display and search advertising capabilities. You should also be aware that we intend to offer significant retention packages to your engineers, key leaders and employees across all disciplines.

We have dedicated considerable time and resources to an analysis of a potential transaction and are confident that the combination will receive all necessary regulatory approvals. We look forward to discussing this with you, and both our internal legal team and outside counsel are available to meet with your counsel at their earliest convenience.

Our proposal is subject to the negotiation of a definitive merger agreement and our having the opportunity to conduct certain limited and confirmatory due diligence. In addition, because a portion of the aggregate merger consideration would consist of Microsoft common stock, we would provide Yahoo! the opportunity to conduct appropriate limited due diligence with respect to Microsoft. We are prepared to deliver a draft merger agreement to you and begin discussions immediately.

In light of the significance of this proposal to your shareholders and ours, as well as the potential for selective disclosures, our intention is to publicly release the text of this letter tomorrow morning.

Due to the importance of these discussions and the value represented by our proposal, we expect the Yahoo! Board to engage in a full review of our proposal. My leadership team and I would be happy to make ourselves available to meet with you and your Board at your earliest convenience. Depending on the nature of your response, Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo!’s shareholders are provided with the opportunity to realize the value inherent in our proposal.

We believe this proposal represents a unique opportunity to create significant value for Yahoo!’s shareholders and employees, and the combined company will be better positioned to provide an enhanced value proposition to users and advertisers. We hope that you and your Board share our enthusiasm, and we look forward to a prompt and favorable reply.

Sincerely yours,

/s/ Steven A. Ballmer

Steven A. Ballmer

Chief Executive Officer

Microsoft Corporation