The Gang XIV
The Gang - Dan Farber, Robert W. Anderson, and Doc Searls - debate whether Yahoo and/or Microsoft can go open. Recorded Friday, February 8, 2008.
Steve Gilmor : Hello.
Dan Farber : Hello .
SG : Hey, how are you?
DF : I’m well, thank you.
SG : So this may be a short show. Who’s there?
Robert W. Anderson : Robert Anderson.
SG : Hey Robert, how are you?
RA : I’m ok Steve, how are you?
SG : Ok. So as I was just saying this may be a short show.
DF : Well I think for many people, its between 1045 and 11 is the time to show up correct so its early.
SG : Yeah but I know a lot of people who aren’t gonna be on the show today.
RA : So what’s with the five minutes early today, maybe that’s ruining it.
SG : No I think its a circus right now, there’s a whole bunch of reasons why I don’t think anybody’s gonna show up. I don’t mean anybody I mean a quorum. So what’s going on Dan?
DF : Well I think there’s obviously the MicroHoo Microsoft-Yahoo dance thats going on. And I think the latest news that our friend Mike Arrington broke was there’s a board meeting today where they’re weighing the options and trying to figure out what to do and there not being many alternatives that have surfaced to Microsoft’s offer. Then there’s this question will Microsoft sweeten the offer given the offer’s gone down based on stock prices. Right now I’m working on a piece, trying to think about ok from an engineering and infrastructure standpoint there are lots of ways to save costs and get some leverage but what about the brands? I think thats more of a complicated issue, and I’m trying to work through it. I’m not fully worked through it yet, but my thinking at this point is that the web is becoming much more social and personal, so outside of search or lets say coincident with search, becoming the home page for billions and billions of people is an endgame. So Microsoft and I would assume in this case also Yahoo has to be thinking about if thats where the puck is going and you want to get there when the puck gets there, then thinking about that as a strategy going forward is a very positive way to think about this union.
SG : Erick Schonfeld has a surprisingly good article, and I don’t mean he’s not a great journalist, but if I see Arrington’s byline I read it if I see Schonfeld’s…
DF : I don’t think that’s fair.
SG : It’s not a question of whether its fair or not…
DF : I think he does good work.
SG : Yeah, he’s a good journalist, but as to the takeaway Arrington provides I always read Arrington’s stuff, I read about half of Schonfeld’s. In any case, today he came up with a very aggressive suggestion for Yahoo to essentially roll open the black box of search and make it all open as a way of competing against Google and their search and advertising algorithm. At the end of it he went further and suggested Microsoft would do very well, if they succeed in buying yahoo, that they would do very well to do the same thing. As the larger company, in spite of their difficulties in doing that kind of a thing, and I think he’s exactly right.
DF : Yeah, I’m just reading it, yeah thats a good item.
SG : I think that Microsoft is the white hat today and as such, not only can they pull this off but its in their best economic interest to pull it off. Essentially what they need to do to Google is what Google did to them with Office. They need to give away the crown jewels of the other guy.
DF : Yeah, I think it’s just a question of if you do open up search and allow other people to create their own search engines and monetize it themselves or go to Yahoo! to monetize it that there’s some opportunity but I think its still hard to stop Google on search.
SG : I don’t think you have to stop them you just need to make it painful for them.
DF : How would that be painful?
RA : It’s not about search its about the ads that are put on the search pages right?
DF : Right but people want ads and google does a good job of serving them up so even if you do open it up you have to provide something thats incrementally better than what google can provide.
SG : Look at what Twitter has done. Twitter is completely open for all intensive purposes.
DF : Yes its completely open, of course there’s no money in it..
SG : I disagree that there’s no money in it…
DF : I think the idea is more like this which is the API’s allow you to have a platform which allows developers to come up with all kinds of applications including those that you had never thought of before. And then if it is open, why couldn’t you just go to Google to monetize it? You could go to Google Yahoo Microsoft Microhoo or whatever company to monetize it…
SG : Right but this is the classic problem that Microsoft has had with Office which is if they come back and compete directly by essentially opening up they reduce their ownership of the marketplace so its very difficult for them to do that. Look how long its taking MySpace to come up with a competitor to Facebook. I mean I don’t think they’ll ever get there, I think Myspace is going to continue to talk the talk but I think Facebook is so far ahead of them…
DF : I don’t know how you can say that. There is a trend where Facebook is growing so much faster than MySpace, but MySpace is trying to make a comeback and not face the great erosion of their user base.
SG : Exactly, and that’s my point. It is very difficult to innovate against yourselves, and to be able to progress without carving away some of your assets. Its the classic problem that Microsoft has been facing and at this point I think they’ve finally gotten to the point where they from a financial perspective they’ve realized that they need to start immediately the task of moving to an online model and they have the ability to do that if they have some way of making it more painful for other clouds to provide 80% of their services for free.
RA : Steve you say that now they’re ready to do that but they made this offer a year ago right?
SG : Oh this was an offer, this was a negotiation a year ago. This isn’t an offer today this is a takeover. They’re landing on the beaches of Normandy here, this is the horse’s head. So what’s your point?
RA : Just that they thought they were ready to do this a year ago. Whether they’ve changed their tactics or not…
SG : Well, Ray Ozzie was there a year ago, Charles Fitzgerald was there a year ago. There was a different team in place, and the psychology of the marketplace, Yahoo rolling over on there back and exposing there neck to whoever, that wasn’t what was happening a year ago. They needed a year, they were given one more shot, they said they were gonna improve, they didn’t, and now they’re done. And that’s why this is happening now. Ray Ozzie is consolidating his position there, and I don’t mean in terms of technology. There’s nobody at Microsoft who can argue with the concept, if you want to call it software plus services thats fine, but its really not, its software on demand, and they’re about to move to it, fast…
DF : Well its software on demand but you also recognize that everyone’s moving to have offline capabilities. So therefore its software on demand but offline when you need it, so its hybrid which is as it should be.
SG : My point would be that it may appear to the enterprise as being offline when you need it, but to the larger market if they come out with a completely competitive product that matches gmail point for point and dollar for dollar or lack of dollar for dollar there will be people who like myself who have up until recently trusted google with my data and also with the algorithms that surround my attention data and recently have exposed several holes in the argument that they have a credible and legitimate understanding of what the contract is with users. I no longer feel as comfortable about using Google products as I used to because they don’t seem to be responding to legitimate concerns that various people have expressed. I mean I was at a party, as you were Dan, although we were at other ends of the room, the redmond party a couple days ago, there were a bunch of people there, some of whom will come on the show and on the news gang as well over the next few weeks, who I have always kept at a certain distance because I felt that they were to be blunt about in bed with people who I think have tried to keep an elitist hammerlock on these issues around open standards. (12:32) And I was amazed yo find out first of all they were coming up to talk to me, which is interesting in and of itself, and secondly they were expressing the same kind of concerns that I was expressing. They may be concerned about exposing it publicly in the same way I’ve been willing to do but nonetheless there’s a definite growth on the part of some people who are quite influential I think on these open standards of mistrust or at a minimum a sense of arrogance on the part of Google and that is something that Microsoft can really take advantage of right now.
RA : So Steve do you have any indication thats waht Microsoft wants to do, I mean certainly Microsoft wants to out Google Google but is that what they plan to do and also deal with these contract issues.
SG : They don’t have to out Google Google, they just have to match them.
RA : So set that aside. Do you have any indiciation or feeling that the user contract issues which you have raised, which are quite significant, are of any interest to Microsoft people?
SG : A couple months ago I had a conversation with John Udell, and I’ve seen it referenced several times since, that Microsoft’s infrastructure in terms of its access to open API’s is actually much further along, particularly in the identity space, than pretty much everybody else. I mean Cameron is incredibly credible and he’s running that show and there aren’t a bunch of black knights in Microsoft anymore, at lest if they are they’re really keeping their heads down, they’re basically undermining the engineering and development aspects of people inside the company that are moving in a forward looking direction. So I think they’re already there in terms of the technology and the infrastructure, the question is whether or not there’s running room or if there’s someone that’s gonna come in and block it from the office group. I just don’t think that’s gonna happen.
RA : Exactly. Because on one side there’s the openness issue that we talked about and I agree with you that Microsoft has done a great deal of work on that point especially with identity but in other ways as well. But when it comes to the software as services vs. software on demand story that’s still a big question, and I think that they’re gonna get there.
SG : Where is the big question? Explain the question.
RA : The question is how quickly. You just said, is the office team gonna get in the way…
SG : And then I said I don’t think so…
RA : I know you did.
SG : Why would they get in the way? Their revenue for the next 4 or 5 years is certain, its extremely strong, its not gonna be distrubed by the undermining of the Office model, software as software model, it’s not gonna be disturbed in terms of revenue. Now I’m sure that they show in the beginning of 2 or 3 years a drop off and the only way that they can finance this type of transition is to do it now. They’ve got to start now and honestly how difficult is it for Microsoft to produce a Gmail clone? I don’t think it’s very difficult. They’ve got the server farms, they’ve got the infrastructure. They’re buying the user base with Yahoo’s Mail audience.
RA : Right I think that if Microsoft can plan for software as services not meaning Office but an internet cloud.
SG : Say again?
RA : I think if they can stop defining software as services as basically meaning Office that can talk to the internet I think that that will get them along way.
SG : Yeah that’s what I’m saying. What I’m saying is that they can do that as an across the company mantra and talk to the office people and say this is about software plus services, but its really services plus software, this is where they’re gonna go. Is that Doc?
Doc : Yeah it is. Hey. How y’all doing, who’s here?
SG : Dan Farber, Robert Anderson and myself. It’s a sleepy Friday, all the big heavy makkas are off exercising their brand.
D : You know you got to take those out. It’s like having a big dog in the house, if you don’t take them out and exercise them…That’s good.
SG : The other advantage of having some dogs come together is it turns into a pack and so we can have a nice quiet conversation and actually get something done today.
D : I hate to say it I can’t stay too long but I hope to at least participate some.
SG : OK so what do you have to say for yourself. We’re talking about Microsoft and Yahoo! and I was just telling Dan and Robert about a series of conversations I had at the Redmond birthday party a couple of nights ago. I was surprised at how friendly and engaged people were and how much they were in agreement about Google’s lack of credibility. And of course this is one of those parties in Washington, I’m carefully not saying who these people are unless they want to come on the show and risk
D : Well let me ask you Google’s lack of credibility in what respect?
SG : Specifically what I was talking to them about was there damaging there integrity around the user contract through the mining of contact information that they create algorithmically and then using it as a Social Graph and reverse engineering it into Google Reader shared items which I think is an invasion of privacy and makes a very bad case for them being credible in the so-called open space which is what they’re trying to do as another way to get into another dominant position, the social networks.
D : My feeling about that is that it is impossible for Google, or any of the other large companies like them, that are hosting piles of stuff and monetizing it, to step on to some sort of privacy toes, not to step on some sort of permission toes, and the only way to control that thing, the only way to fix that is if we leave control in the hands of the user. I don’t know who that is…
SG : That’s the fundamental of DRM that you’ve been proselytizing.
D : It’s really user pursuit of control, it’s a conversation that’s been around longer than DRM. We have to fix that and Google’s not gonna fix it..
SG : No, and the point is the way you fix that, or at least the way you begin to fix it is by having a credible alternative so that the market can make up their own mind.
D : Right.
SG : And the question is whether Microsoft is that credible…
D: Well if you Tim Cameron’s 7 laws of identity, and take away the fact that tim works for microsoft, minimal disclosure, user consent, all of that stuff is in there, and if you have something to make you obey those laws you’re ok, but users are at the middle of all of those things. The problem we’ve had so far is all we’ve worked on is the identity part, its the first handshake that gets you in the door, so having single sign on whether its by cardspace or open id or inames only gets you so far. The relationship comes next, and the relationship has to be built around user consent and minimal disclosure and the rest of it. So what needs to happen is Google needs to become the reliable party and they aren’t yet. They have like every other large company a take it or leave it deal and at a certain point your bargain with them becomes faustian and you can’t help it and we have to fix that.
SG : Alright but I’m talking about moving beyond the binary choice here.
D : What is the binary choice?
SG : Well the binary choice is take it or leave it. Now there are some developments that are starting to take place, the people I was talking to at this party the other night are in a position to foster either a “well we’re gonna pull this together through a consensus of micro-communities that add up to this wave of optimism that’s gonna take over the country aka the obama platform. Or the other end of it is we’re going to shame the vendors and that’s why I was going south on Marc Cantor on the uselessness of that, they continue to stonewall these issues as a group.
D : Who are they, the big vendors?
SG : Google. Google won’t discuss this issue in anyway. You know they just keep trying to throw more API’s at us under the banner of openness while at the same time having this hemorrhage in the middle of the pile. I had a conversation on this gang last week with Joseph Smarr on Plaxo and our friend Mr. Arrington was suggesting I believe in the last couple of days that Google’s buying Plaxo. It was interesting that of all the people on that particular show Joseph was the least willing or at least stay comfortably away from allowing the insinuation that he believed Google was anything less than credible in this area. I was surprised.
D : Well given Plaxo’s history are they gonna say that they are credible and have been credible in the oast?
SG : Well I don’t know, I don’t want to demonize Joseph Smarr, it was a very cool conversation and he was willing to come on the show and talk about this stuff which is great. Google, however, is not willing to respond in any public manner.
D : Well, here’s a question. Who at Google would be the right person? Do you know?
SG : Well, Marc Cantor suggested someone, he sent an email and said they’d be in touch and I said at the time I didn’t think that was going to happen. I mean shaming companies into doing anything is ridiculous.
D : Well sure it’s ridiculous. Maybe Marc will succeed there I hope he does, literally there’s not a conversational API there yet you know the inflow of API’s is what engineers are paid to do and they do…
SG : Look, the only thing that made Microsoft come off of the Passport/Hailstorm model was a saint on the part of Sun to start the Liberty alliance. It was a campaign issue, if you want to stick with that concept there’s gonna be the people like Dave Weiner who’re just gonna bang you over the head about how everyday you’re forcing the web into this locked box and that by itself doesn’t scare them, what does scare them is somebody coming along with a credible alternative. And I love Gmail, I wrote about this a couple of days ago under the rubric of platform relationship management, you and I had talked about that. The idea that, if you look at what is going on with Twitter, Twitter is I think the most open, most aggressive platform that’s out there right now because it’s not yet controlled by anybody and it allows you to set up these controlled moving microcommunities that you can use to get some scale and if they federate together this is what Microsoft was trying to do or at least MArk Lukofsky was trying to do with Hailstorm before he got in a buzzsaw around passport. That is a very powerful model and very much akin to what you’re talking about with DRM.
D : Well you know we talked about privately with respect to DRM, it’s really RM, it’s platform relationship management, its organziation relationship management, its government for this party relationship management. In the long run what happens is the voter’s have more pull in the Democratic and Republican parties than do the backroom dealers.
SG : We’ll see whether that happens or not, we;re betting on, and we had a news gang conversation on the political campaign and I think you finally came down on Obama’s side even though it was mostly that you hoped it was gonna be true and not that…
D: Yeah, I came down on his side because I wanted it to be true. I’m amazed at how partisan I am for the guy.
SG : Let me loop back to the pragmatic side. When I was talking about platform relationship management, whether you want to make it RM that’s fine, but what I was really saying is Twitter’s model of here it is, use it, build up a community or a namespace if you will, and then if you’ve got something to leverage, then go after the next larger group that you’re trying to consolidate with as a method of doing this, so right now the lock-in that Google has with me with Gmail is 3 or 4 years of everything that I’ve written and thought about is in Gmail. And thats a real barrier for me to leave, thats the real nature of their lockin with me,
D : Well Michael A. from Google told me that the big lock-in in China for Google is that the whole government runs on Gmail.
SG : Exactly, and for all intensive purposes the government of the technology industry runs on Gmail as well, when people say that they they only have6-7% of the IM traffic I say, yeah, but who are those people.
D : And I never go on to Gmail, I just use it to launder spam out of my mailstream.
SG : It’s like when we went to conferences starting 3 years ago the number of Macs in the room, they may have had 2% of the market share worldwide but they had 100% of the market share or at least mind share in that community. So the question is how do you change that equation is what I’m really interested in right now, and there is a method that I can see represented in how Twitter works. I mean for example I have two sign-ons for Twitter, I have the news gang sign on that emits information to the group news gang and says whats interesting and puts that out on a fairly regular basis and then we put announcements about Newsgang live on that feed as well and sometimes we throw personal observations in there and in my Steve Gillmor account. But you can’t sign on to accounts simultaneously in the web interface of Twitter and there are all sorts of arguments why that might not be a good idea but this is what I want to do. Of course I could use two machines.
D : No, just use two different browsers.
SG : But I want my cake and to eat it to. Just follow the logic for a second. So there’s this really neat thing that went down for 5 days last week and drove me absolutely insane. And I complained about it to Evan Williams through Twitter and through direct messages and eventually public messages and he responded very quickly saying yes we’re gonna fix it. There’s a pipe scenario where you can push the twitter messages of your friends or the people you’re following, you can push them into the Gchat window inside Gmail and as such I’m signed on as Steve Gillmor within there while I’m on my web interface signed on as Newsgang, so I’m having my cake and eating it too. Think about what that means in terms of this pipe going between these two applications, and it’s going in both directions, when I post and type something into Gtalk as Steve Gilmor on Twitter and it also appears on Facebook as well. Why not, and at some point there will be the ability to do this, and even if its a 3rd party piece of software, that’s gonna pipe all of this information to one cloud so the way to break the back of the Gmail monopoly is to set up one way as soon as possible a credible alternative and just post there automatically and just archive it you don’t even need to use the servers, that can be done through POP3 and IMAP right now, so potentially if there was such a service from a Microsoft or a Microsoft-Yahoo! I would use it in a heart beat for just that purpose.
D : So you’re suggesting that back to the Yahoo! deal or is this just an independent point?
SG : Well I feel that the Yahoo! deal with Microsoft is a moot point. If Yahoo! accepts, which I think they will, then it’s Microsoft. If Yahoo! doesn’t accept then Yahoo! is essentially dead meat.
D: Yeah I agree actually.
SG : So the question is whether Microsoft is going to adopt an open strategy or not, and it may very well be in their best interest in order to catch up in this attention space. They have a lot of attention data through Office but they can’t use any of it, because there’s no contract with users.
D : Do you think, that in order to get along in the world as it’s becoming, Microsoft will, whether or not they buy Yahoo!, start behaving in an open way and more or less adopt the open strategies that by not using them have caused them to fall behind?
SG : Farber, what do you think?
DF : Well a couple of things, 1, let’s go back to Yahoo! being dead, it will be a slow death. And I think if Microsoft doesn’t get the deal done and I think they will, this might charge Yahoo! to get it back together much more quickly.
SG : Now we’re really not kidding.
DF : But Yahoo! is a company that generated I don’t know something like $650 million in profits last year, it’s a company that captured something like 13.2% of all internet visits in the US so its broken but its not just a heap of shit.
SG : From the perspective of what we’re talking about here which is finding a credible alternative to Google which would be strategic for a company…
DF : Let me just finish this. So I think what Yahoo! needs to do if this deal doesn’t get done is bring in a real CEO who can come in and just kick some ass and who will go out and instead of going and getting something that is on the acquisition block will acquire a bunch of stuff and grow faster because if you look at how Yahoo! has grown or its best products, they’ve come through acquisition. Overture, Flickr, Delicious, or even its Mail.
SG : But Flickr was a rounding error.
DF : On the Microsoft side I think there are two parts to it. One part is it’s gonna be hard to do anything to beat Google on search. It’s almost like were happy to be #2 and by combining together we’ll be a strong #2 and Ask will disappear.
SG : Right, just like it’s hard to beat Microsoft on Office so why cry?
Df : Well, at least in this case if Google has 60-70% of it, 30% is still a good number. Secondly, I think that there is a longer play here. The longer play here is the web 2.0 era. And if you define web 3.0 or 2.5 or 4.0 or whatever as personalization and social, then the game changes, it becomes who can accumulate the most amount of users who are members and are loyal and spend time and think of Yahoo! or whatever as their home base.
SG : So far I’m disagreeing with this.
DF : Well I’m thinking that what Microsoft should be thinking about and what Yahoo! should be thinking about is ok search we’ll work on that and try to make it better, but can we make the 3.0 portal that attracts billions of people and if you look at the landscape there’s iGoogle which isn’t that great, there’s the NetVibes/PageFlakes thing which is so great in this widgetized world, and then there’s Yahoo! and Windows Live and there’s also Facebook and MySpace, so there’s something in all of that where just looking at search isn’t enough, you really have to look at who’s going to be the home base for billions of people.
SG : OK, great, so you’re saying this is not so much about search as it is about finding a credible entry point for Web 3.0 or whatever that is. I mean I hate to use the word web 3.0 because Tim O’Reilly has probably copyrighted it but if you look at that a little more carefully then what we’ve talked about is Gmail’s leverage extends far beyond the raw numbers, it doesn’t have to be billions of users in order to have a powerful effect if the millions of users that are using that service are in charge, if they’re in charge of the government of getting things done in the technology space which is what I think they are.
DF : I don’t buy that.
SG : Well then Doc you argue with him because you made the point about China…
DF : That’s like saying that Silicon Valley is the center of the universe.
SG : No I’m not saying that I’m saying that if you had access to and I don’t think anybody does, if you could calibrate the number of dollars and buying decisions and strategies around corporate takeovers that float through the Gmail core as opposed to the next highest cloud would be Outlook, but I’ll bet you that the numbers of people who are using Gmail in that sense are a significant percentage of the dollars that are actually flowing in this system right now.
DF : Well I don’t follow the logic, you’re saying that influential people use blackberries and they use gmail.
SG : I’m not talking about influentials, I’m talking about decision makers, trigger pullers. I think they’re 70% outlook right now, and 30% Gmail, and there’s a lot of money flowing through that transport.
D : There’s enormous leverage around exchange and especially around outlook, which may be one of the few products from microsoft that people not only depend on but like, that could be leveraged in the web space and beat the crap out of Gmail I think but I want to chat on something Dan said about search. I actually think that Google is vulnerable in search. Google hasn’t changed search in 7 or 8 years, they’re fat and happy. there are so many ways that search can be improved. Their are so many ways that Google are locked into Larry and Sergey’s vision which has hardly changed at all. There are so many ways to granulate search and condition it and do a much better job, Google’s search is lame and its minimal and it has just become common. But that doesn’t mean its perfect, it’s become the Windows of search but that doesn’t mean it’s the only way, there’s a huge vulnerability there.
DF : But it’s not like Google isn’t doing any research and development on search.
D : OK so I was talking to someone at Google who was saying that the reason Google Blog Search has become moribund for years, could’ve totally kicked Technorati’s ass, could’ve been a great thing, is because Larry thinks Google ought to have one search engine, one search experience, and that experience should never ever change and LArry wants it that way and Google Blog Search is just sitting there and may just go away. Now whether or not that’s true it’s a claim that’s true with one’s experience with Google Blog Search that has not changed a freaking bit since they put it on the air in 2004-2005. I mean it’s in excusable, I don’t care how much research they are doing they are blowing smoke up their own ass if they think the experience we are having with search right now is the only good and correct experience we can have with search. It is not enough. There is enormous room for people to compete with that. And I was just saying that Microsoft with some of the stuff they’ve done with Maps, with Virtual Earth, with Bird’s Eye View, is great stuff, when I show Bird’s Eye view to people there minds are blown at how cool it is, but the UI sucks and its too tied into Windows and too tied into Vista and a bunch of other ways that it doesn’t work on many ohter platforms in a typical Microsoft way makes it almost unusable to people who are at the leading edge and are using platforms other than windows. That needs to be corrected. And when I look at both Microsoft and Yahoo! I see enormous failure of leadership on both sides to do some really cool, creative stuff that makes them hot companies in the web space. The fact that Yahoo! is considered dead if Microsoft doesn’t buy them and yet they’re making $750 million in profits? That’s insane. Yes they may be porrly managed in some ways but because their buzz is down or because they’re a bit goofy as a company doesn’t mean they have to be dead. I’m just concerned that the real issue is we’ve had a failure of leadership on both sides and we’ve got a desperate move by Microsoft to buy another company that’s afraid of the big bad wolf that is Google that is in fact vulnerable to both of them, and lots of other people. Get out of your shell where you think the whole world is these companies and what they bring to the table now. It’s silly.
SG : Well at the risk of continuing to talk about vendor sports, I’ll quote a guy named Doc Searls and say I want to go back and talk some more vendor sports here.
D : Well, there’s a time for that but at some point the Super Bowl ends and you’ve got to get back to that .
SG : You’ve made the points that Google is perhaps more vulnerable in search. The other point you made is that you think there is a failure of leadership at Microsoft. I don’t agree with you. I don’t think it’s a failure when you’re locked in an economic vortex which makes it incredibly difficult to move. That’s where they’ve been for a long time.
D : Detail that vortex I’m not sure what you mean.
SG : What’s the revenue associated with Windows and Office at Microsoft, it’s what, 80%. Well it’s 20% for enterprise servers, 40% for office, and the rest for windows. So they cannot kill Office immediately. They can’t do it. It would kill the company. So that creates an executive decision model that makes it very difficult for them to move to this new paradigm.
D : You’re challenging my supposition and my claim that there is a failure of leadership.
SG : I don’t see the failure of leadership.
D : The failure of leadership is what sanctions originality and execution in the web space which means it has to work for everybody. Somebody high up in that company needs to say you know what we’re working in the web now, we need to stop making stuff that only works with Windows.
SG : I think that’s what Ballmer said in his announcement about Yahoo!. I also think that in your characterization of the use “desperate” on Microsoft’s part I don’t agree with that either. Microsoft classically waits for a tipping point. The tipping point for this deal, and its not a deal its a takeover, was that Yahoo! had a terrible quarter and they’d been talking about it for six months and increasing measure the last six weeks about layoffs they come out with a pathetic board meeting and analyst call. Microsoft comes in the next day with the hammer. That’s not desperate.
D ; You think a company with the size and the history and the market heft and the rest of it that Microsoft has offering $44 billion for something where they have failed obviously to perform is not, maybe its necessary, but I don’t think I’m way out of line…
SG : Well, the leadership failure, if you want to call it that and obviously you do, is with Bill Gates. Bill Gates is retiring in 3 months. So its basically his attitude which he stated over and over again, is these search bunnies, we’re gonna come along and eat them alive, and that didn’t happen. Some of us have been saying for a long time that its not about search.
D : Yeah, well I don’t think it’s about search, but to the degree that they’re making a shitload of money off of search and they’re envious of that money and they want to make money in advertising, and a lot of what Ballmer said is about advertising, they’re looking enviously and needfully at the amount of money that’s flowing from traditional media and onto online and being routed through Google and they want to get in on that, and that’s a legitimate thing to want to do, I’m not sure it’s worth $44 billion dollars and I have a feeling that’s what they’re mostly buying. It’s an opportunity buy for that and could be that the Yahoo! Groups and the Yahoo! Mail and a lot of the stuff that comprises, I don’t know what you said Dan (DF : 13.2% of US visits), obviously they’re looking at that too, obviously they have to look at what’s valuable at Yahoo!, but thing is I don’t see any sign of an understanding on the part of Microsoft except a few glimmers from a few people I happen to know inside the company, of an understanding that one of the reasons Google has succeeded is because they’ve embraced the open world fundamentally. They may not execute perfectly all the time, they may want to lock down a few things, and they may want to tether their users but for the most part they’re coming from open. They want open code, they want open standards, they’re looking for commonalities, they’re working across multiple platforms, they’ll come out with Google Maps and Google Earth and make it work with Linux as well as Mac and PC…
SG : Well what’s Silverlight?
D : Well they’re trying to be open and that is a big reason why Google has been so successful and its cultural and its deep and that’s at Yahoo! It may not be as obvious as at Google but if you go and look up open code at Yahoo! there’s a lot of that stuff going on there and the culture is there whereas with Microsoft it’s all about we’re all about intellectual property and we’re all about controlling the experience and having everything run through the Windows.
SG : Ok. All I’m saying is you can take search and replace and say all of that about Google as well if you were talking about their black box around advertising which is running the company. We’ve got two black boxes. We’ve got the Windows and Office black box fortress on one hill, and you’ve got the Google advertising fortress on the other hill. Where Yahoo! stands in the middle of that, yes Yahoo! has that culture of openness but they’re also in desperate shape right now. They are so vulnerable that they will probably be bought by Microsoft.
D : So what I’m saying here is what is the chance that Microsoft will aboslutely blow it after this deal is done? That they will absorb Yahoo!, Yahoo! will lose lots of goodwill, lots of customers, lots of users, lots of people who’ve been involved, especially if Microsoft tries to close it down in any way and sees it valuable only for eyeballs and advertising opportunity. If that’s what it’s about, and if that’s what Microsoft is going after, it will fail, it will be a huge disaster.
SG : I think that’s absolutely correct. And that’s why I don’t think it’s gonna happen that way. I think it makes more economic sense for Microsoft to use the search model against Google not to try to beat them but to take them down and make it more painful, so they can get users to their technologies which must remain as open, and I’ll underline that as open, as Google is right now.
D : Well that would be very cool if it happened. I hope it does. I think the fact that Microsoft employs John Udell and Ray Ozzie and Kim Camron is a good thing, and there are a lot of good people there. And again, I hope for the sake of them and for the sake of Yahoo! that it works.
SG : Well I find it interesting that you say Ray Ozzie is one of those people. I think we all like Ray, but Ray has been the champion above all so far of the big hairball mixed with the services model.
D : In all of the dealings I’ve had with him, and there haven’t been that many, I believe that Ray gets it. I don’t believe that Ballmer gets it, but I believe that Ray gets it. There’s been an aspect of Microsoft that for years has been a legal company travelling as a software company and that’s slowed them down in a bazillion ways, and I don’t know whether that’s gonna make a difference. I think that the IP regime with Microsoft’s strong legal department is going to do damage to Yahoo’s infrastructure and atmosphere as a place to work.
DF : I’m trying to be optimistic about that. I think as you said Doc Microsoft likes lawyers, I think they have 801 lawyers. I’ve talked to Ray a number of times over the last few years he’s been at Microsoft and he’s a pragmatist, he knows he works inside of that large company. All he talks about lately are user scenarios, it’s not open or close, or cloud or apps, he just says what are the user scenarios, and if we can establish those scenarios and build products around them we’ll continue to win. So if you can’t please the users, you can’t deliver those products then you’re out of the game. With that said there’s all the baggage to carry around, but as Steve said with things like Silverlight, and we’ll see a lot at the MIXX conference they’ll hold next month. And if they were to get Yahoo! into the fold I think it could have a big influence on helping Microsoft to change. You know there’s the old Microsoft of 35 years of trying to beat the shit out of everybody with proprietary software and only lately, gradually build a bridge to the cloud, build a bridge to the more open software but its really really hard. This is a case where they have two businesses, they have their old business and they have their new business, and there will be a fight for resources.
SG : Do you think the Yahoo! name will persist?
DF : I do, I think both of the services will continue to coexist. On the backend, they can get a lot of efficiencies and get some engineering culture from both. But whether its Hotmail, or Yahoo! Mail they can have the same backend.
D : I mean look at MGM. They haven’t made a film in 45 years and the brand still survives.
DF : Yeah, the idea is about taking up more shelf space, so if you were a magazine publisher, and you go to a newsstand and there’s say 50 slots, you might have some overlapping publications but that’s ok if you’re taking the spot away from someone else, the cost justifies it. So I think this is a case where if there’s enough of a user base you can keep the brands going and I think over time they’ll differentiate themselves just as neighborhoods differentiate themselves. The trick is now to say you have email, photos, feeds, social connections, and I think if were gonna look out 5-10 years people are gonna have these home bases where all that stuff is integrated through widgets or whatever. There might still be a Facebook, but Facebook has two choices, they can either become a big portal and crank up their email and other services like Yahoo!, or they just become a big social network and then allow people to bring themselves into an iGoogle page or into an MSN Live page or into a My Yahoo! page.
SG : Well I disagree with some of what you just said. I think that Facebook is, I think there were two factors that led to this deal, one is Yahoo’s performance, and second and equally important is that Facebook essentially became an entity that is competing directly against Yahoo! Facebook is really Yahoo!’s most direct competitor right now and given Microsoft’s investment for infrastructure and setting a price of a $15 billion valuation for Facebook has frozen the market, kept people out, and given Facebook enough time to not have to learn what their business model is but just aggregate users. I think combining the Yahoo! resources and its users and flowing them into the Facebook environment is what Microsoft’s strategy is and I think it’s going to happen. I think Facebook is really acquiring Yahoo! is really what’s happening.
DF : So you’re take is Facebook is acquiring Yahoo!?
SG : Dan, you’re a little bit blinded about the fact that you’ve been a Yahoo! user for 100 years. I’ve never used Yahoo!, I actually tried to sign in yesterday to try to sign into this Live TV thing they’re doing…
D : But Dan’s point wasn’t about that.
DF : My point was Microsoft’s influence over Facebook is not that great.
SG : You know, when Microsoft bought, I think they spent $3-5 million to invest in Comcast, they did it to jumpstart the DSL market. They didn’t have a controlling interest or a remotely controlling interest in Comcast, What they did was say if the Baby Bells don’t get it together we’re gonna keep pumping money into these other guys and you’re gonna have a real problem. So the Facebook investment is the same thing. It’s not a question of whether there’s anybody else, the longer they stay independent, thats why I think the same thing is going on with Twitter, it may not be stated by any of its principals, but with the instability of Twitter’s infrastructure, as it proved around the Super Bowl and Super Tuesday, they are a utility, and as such, they don’t need money, what they need is an infrastructure with a guarantee that they’re a left alone. A guarantee that they will have the autonomy to outgrow and outstrip a large portal, which is what Facebook will do, is tantamount to owning the company. It doesn’t matter whether there is a tie between the two of them.
D : I have to tell you guys, I gotta bail. It’s been real.
SG : Dan, last thoughts?
DF: Well, tell me again about Facebook buying Yahoo!
RA : The statement that here’s a couple of examples where Microsoft influenced another company…
SG : Robert, press star 4.
RA : Alright. You’ve just given us examples of where Microsoft has influenced a company with its investment. But you haven’t shown how they own, operate, or influence Facebook in any way.
SG : If there’s anybody else who owns or operates or influences them, I’ll eat my hat. I don’t see it. I mean, all the advertising that flows into Facebook is served by Microsoft. That’s an interesting fact. It may or may not have any kind of economic signifcance but it certainly has significance in them giving Facebook another 6 months-year to putter along, make mistakes with Beacon and every goddamn thing, and still maintain uptime. They haven’t gone down once in my recollection since the early days just before that investment. It’s a driver for Facebook to continue to exist while it adds users, there’s been all this up and down about people getting disenchanted with Facebook, TechCrunch and all the other news sites use it as a pageview mill, and something else goes on and Google OpenSocial comes out, and they’re not really talking about the same problems with privacy that Google is having with some of the exploits we talked about in the beginning of the show, but the fact is the heat is off of Facebook now. They made their mistakes, people forgot about it, time went on, and I go to parties now, I’m invited on Facebook, I show or I don’t show up, whatever. It’s part of the infrastructure now. The next thing that’s come along is Twitter and I see the same dynamics there.
DF : OK, well that’s something to chew on, to think about, to examine, to walk around before I compose something.
SG : Excellent, I’m looking forward to your…
DF : composition.
SG : and your debunking of my frenetic bullshit.
DF : Well I think I also have a conversation with you to get you on the record.
SG : OK. Not that this wasn’t, but I will agree to that interrogation. OK, good, excellent, looking forward to it. Robert, any last thoughts?
RA : Not, it’s been a pleasure.
SG : Yeah it actually has. I was gonna kill the show after this episode, but I think I’ll keep it around. This is Steve Gilmor for the gang. Thanks for those of you who showed up, if anyone did show up. See you next time if there is a next time.
