Power of Thought

Microsoft has offered to buy the search engine company Yahoo for $44.6bn (£22.4bn) in cash and shares.

The offer, contained in a letter to Yahoo’s board, is 62% above Yahoo’s closing share price on Thursday.

Yahoo cut its revenue forecasts earlier this week and said it would have to spend an additional $300m this year trying to revive the company.

It has been struggling in recent years to compete with Google, which has also been a competitor to Microsoft.

“We have great respect for Yahoo, and together we can offer an increasingly exciting set of solutions for consumers, publishers and advertisers while becoming better positioned to compete in the online services market,” Microsoft chief executive Steve Ballmer said.

Chairman quit
There has not yet been any comment from Yahoo.

Its chief executive, Jerry Yang, announced on Tuesday that he intended to lay off 1,000 staff as part of a restructuring plan.

Terry Semel, who stepped down as chief executive last June, also quit as non-executive chairman on Thursday.

Microsoft said that Yahoo shareholders could choose to receive either cash or shares.

Yahoo shares have fallen 46% since reaching a year-high of $34.08 in October. They rose 54% in pre-market trading.

“Ultimately this corporate marriage was forced by the rise of Google, which has grown into a serious competitor for both Microsoft as a software company and Yahoo as an internet portal,” said Tim Weber, business editor of the BBC News website.

“It is a shotgun marriage, but the person holding the shotgun is Google.”

‘Exorbitant premium’
According to its letter to Yahoo, Microsoft attempted to enter talks about a deal a year ago, but was rebuffed because Yahoo was confident about the “potential upside” presented by the reorganisation and operational activities that were being put in place at the time.

“A year has gone by, and the competitive situation has not improved,” Microsoft’s letter said.

But there has been some concern about the price that Microsoft is offering.

“To me, the premium seems exorbitant, for what is a dwindling business,” said Tim Smalls from the brokerage firm Execution LLC.

“I personally don’t see how the synergies of Microsoft-Yahoo is going to take on Google.”

Other analysts were more enthusiastic about the offer.

“It is a fantastic offer. It is game on,” said Colin Gillis from Canaccord Adams.

“This consolidates the marketplace down to Google versus Microsoft. These two companies will be going head to head.”

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AOL said on Wednesday it would buy Internet advertising technology company Quigo to bolster its ad force and make it more competitive with Google Inc and Yahoo Inc.

A source familiar with the matter said the purchase price was about $340 million. AOL, a unit of Time Warner Inc, did not disclose financial terms.

The deal, which adds 100 employees, marks the last big acquisition AOL plans as part of a restructuring to transform itself into a one-stop online advertising shop, AOL Chief Executive Randy Falco told Reuters in an interview.

“I expect it to begin to add to growth in 2008,” he said, referring to AOL’s online advertising growth, which is a big concern among investors. Ad growth slipped to 16 percent in the second quarter and 13 percent in the third quarter, from 40 percent levels earlier.

Quigo, which signed a deal with Time Inc in June and has more than 500 publisher relationships, is an Internet ad-targeting company that lets advertisers buy sponsored listings, much like Google’s AdSense, based on keywords or subjects.

Advertisers have little say on where Google places their ads, but Quigo’s AdSonar product lets advertisers place their ads on specific Web pages, including pages featuring topics or keywords such as “mutual funds” or “health and science.”

The Quigo system also lets publishers control their relationship with advertisers, rather than surrender control to a middleman like Google.

Quigo gives AOL “access to a ton of relationships with a ton of premium publishers, thousands of advertisers and unique technologies,” Quigo CEO Michael Yavonditte told Reuters. Quigo has deals with TheStreet.com, News Corp’s FoxNews.com, and Walt Disney Co’s ESPN.com, among others.

SPIN-OFF?
The deal will add to Time Warner’s growing roster of online ad technology firms.

AOL restructured its advertising business in September, consolidating into one division ad network Advertising.com; Tacoda, which targets users based on their habits; wireless ad network Third Screen Media; video ads company Lightningcast; and ADTECH, a global ad-serving company.

Some investors have called on Time Warner to spin off all or part of AOL, with expectations growing after Jeffrey Bewkes was named earlier this week to succeed Time Warner Chief Executive Richard Parsons on January 1.

Asked what he thought Time Warner’s view on AOL was, Falco said, “They just showed how they feel about our potential by supporting another big acquisition for us.”

The success of AOL is seen as critical to Time Warner’s sluggish stock price. The stock rose 1 percent to $18.54 following its third-quarter earnings report on Wednesday, which largely met Wall Street expectations.

“AOL is picking up leading technologies — the premier names and smart people,” said Stan Sandberg, principal at boutique investment bank Gridley & Co LLC, which specializes in interactive marketing and digital media. Sandberg spoke on Tuesday ahead of the announcement on Quigo.

Sandberg added, “Now that it will be consolidated under Platform A, they really are positioned beautifully to being the leading advertising technology company.”

The deal for Quigo comes amid a buying frenzy in the interactive advertising market and follows Google’s $3.1 billion pact to buy DoubleClick and Microsoft Corp’s $6 billion agreement to buy aQuantive Inc.

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McAfee announced plans on Tuesday to acquire ScanAlert in deal worth approximately $51 million in cash.

And what is McAfee looking to get for its money? For starters, it’ll snap up ScanAlert’s Hacker Safe Web site security certification service, bolster its own SiteAdvisor security-rating system, and become the keeper of ScanAlert’s proverbial “good housekeeping” seal for sites seeking to reassure customers that they are conducting safe online transactions.

The acquisition, expected to close in the first quarter, calls for integrating ScanAlert’s e-commerce security certification service into McAfee’s SiteAdvisor system. McAfee last year acquired SiteAdvisor, which informs users about the safety of their returned search results, estimating the likelihood that a site could potentially infect their computer with spyware, spam, or a browser attack.

ScanAlert issues a Hacker Safe certification to Web sites that have undergone its scanning service for vulnerabilities, as well as demonstrating that they have been fixed. The sites also need to undergo daily scans by ScanAlert, in order to maintain their Hacker Safe stamp of approval.

The Hacker Safe certification will be visible through SiteAdvisor, once the acquisition is completed, and the technologies are integrated.

Security fears have resulted in consumers delaying their online-shopping decisions and transactions by more than half a day, according to ScanAlert’s own research.

Those concerns are nothing new. Two years ago, a fourth of online shoppers reduced their purchases, as fear over identity theft soared, according to a report by RSA Security.

E-commerce site operators, as a result, have been particularly interested in trying various techniques to boost the security of their sites.

As part of the McAfee deal, ScanAlert may see its overall acquisition price jump by another $24 million, should it hit certain performance targets.

The company has 8,000 customers, who represent more than 75,000 Web sites. Those customers include Toshiba, Warner Bros., and the American Red Cross.

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Microsoft Corp is in talks to buy up to 5 percent of Facebook in a deal that could value the fast-growing online social network company at $10 billion or more, the Wall Street Journal reported on Monday.

The move could give maturing Microsoft more access to young users and let Facebook get closer to a major software maker at a time when its growth is increasingly tied to a proliferation of small applications from independent developers on its site.

Citing people familiar with the matter, the Journal said the world’s largest software company sought to buy a stake of up to 5 percent in Facebook for $300 million to $500 million.

Facebook, led by its 23-year-old founder and Chief Executive Mark Zuckerberg, may insist on a valuation as high as $15 billion and is considering raising up to $500 million in cash to expand its operations, according to the Journal.

Such a deal could help Microsoft better compete against Web search leader Google Inc for a growing base of online advertising and put one of the Internet’s hottest names in Microsoft’s camp.

Facebook, which already has an advertising deal with Microsoft, would benefit from closer ties with developers as it seeks to turn its site into a full-fledged Web platform where users can play games, interact and read news about each other, said Forrester analyst Charlene Li.

“If you are building a business around building a platform there is one company that has done it better than anybody else — and that is Microsoft,” she said. “People have been just assuming that Google would be the best partner and that is not necessarily the case.”

Google has also expressed an interest in investing in Facebook, the Journal report said.

“It would probably be pretty good for Microsoft since it has not had the best success in creating really hip, young-people-grabbing stuff on the Web,” said Kim Caughey, a senior analyst at Fort Pitt Capital Group, which oversees more than $1 billion, including Microsoft shares, for clients.

Representatives for Microsoft and Facebook declined to comment.

Zuckerberg has repeatedly said his company wants to remain independent and is seen as preparing to float itself on the stock market eventually.

Facebook has grown to 39 million members, up nearly 63 percent from 24 million in late May, and is quickly gaining ground on larger rival MySpace, which was taken over by News Corp in 2005 for what is now seen as a bargain price of $580 million. MySpace has more than 200 million users.

Facebook’s explosion popularity has also drawn increased scrutiny, including a 50-state investigation into the company by attorneys general concerned about Web sexual predators.

New York Attorney General Andrew Cuomo said on Monday his office had subpoenaed Facebook and accused it of not keeping young users safe. Facebook said it was preparing a statement about the issue.

Redmond, Washington-based Microsoft already has an exclusive agreement until 2011 to broker display advertisements for Facebook. The Journal said Microsoft and Facebook are discussing expanding that agreement beyond the United States.

After relinquishing an early advantage in the lucrative paid search market to Google and Yahoo Inc, Microsoft is trying to catch up by clinching deals to broker display advertising to some of the leading names in “Web 2.0.”

Yahoo and Google are also maneuvering. Earlier this year, for instance, News Corp chief Rupert Murdoch said he had discussed swapping MySpace for a 25 percent stake in Yahoo.

Web 2.0 is a catch-phrase for a new generation of Internet services that run on interactive software and typically rely on content generated by users to attract more visitors. Microsoft also has an agreement with popular news site Digg.com.

Microsoft shares rose 1.5 percent to $29.08 on Nasdaq.

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Club Penguin, an online hangout that has quickly become a rage among preteens despite limited marketing and advertising efforts, has been purchased by the Walt Disney Co. for at least $350 million, the companies announced Wednesday.

Payments could double to as much as $700 million if profits grow, Disney Chief Financial Officer Thomas O. Staggs said.

The acquisition by Disney gives Club Penguin more resources with which to grow. According to comScore Media Metrix, the site nearly tripled in usage over the past year to 4.7 million unique U.S. visitors in June. Executives hope to expand to additional markets abroad and gain even more customers through promotions on Disney-branded sites.

“We have been actively searching for an organization that not only shares our values and concerns for children, but also has the ability and desire to help us bring Club Penguin to more children throughout the world,” said Club Penguin co-founder Lane Merrifield said in a statement. “We’ve found that partner in Disney.”

Club Penguin, from Canada’s New Horizon Interactive Ltd., offers a mix of games and chatting tools targeting the kids ages 6-14, who appear onscreen as plump cartoon penguins.

Kids win gold coins by playing games such as sled racing and, with a paid membership costing about $5 a month, buy virtual items like clothing for their penguins and furniture for their online persona’s igloos. Kids can attend parties and make friends by adding other penguins to their buddy lists.

Although sites like Club Penguin and its rival, Webkinz, are forcing parents to grapple with how young kids should be roaming about and chatting with friends online, many Internet safety experts believe these social-networking precursors are far safer than News Corp.’s MySpace, Facebook and other hangouts for older users.

Parents, for instance, can choose an “ultimate safe” mode, meaning chat messages sent and received are limited to prewritten phrases, such as “How are you today?”

In the standard mode, kids can type messages freely, but filters look for foul language and even innocent-sounding words such as “mom” — to prevent someone from asking, “Is your mom home?”

“Club Penguin embodies principles that are of the utmost importance to Disney — providing high-quality family entertainment and fostering parental trust,” Bob Iger, Disney’s president and chief executive, said in a statement. “The founders have woven together new technologies and creativity to build an incredibly compelling, immersive entertainment experience for kids and families.”

Other than renaming the service “Disney’s Club Penguin,” Disney said it has no immediate plans to change Club Penguin’s operations, which will continue to run from Kelowna, Canada.

“Club Penguin is going to continue to exist as is,” Iger said during the company’s conference call to report quarterly earnings. “The experience will not change at all. We don’t intend to get in the way of that or do anything that would in any way have a negative impact on their business.”

Iger said Disney planned to integrate Club Penguin into other Disney businesses, promoting it on the Disney.com site and the Disney Channel, Radio Disney and the company’s theme parks.

Disney already operates the virtual game “Toontown” and is developing a similar virtual world around its “Pirates of the Caribbean” characters. Iger hinted that Disney also was working on a virtual world based on “Cars,” an animated movie created by Disney-owned Pixar.

Iger said the acquisition of Club Penguin would give Disney the expertise to grow those properties more quickly.

Club Penguin says it has more than 700,000 paying subscribers and 12 million registered users, mostly in the United States and Canada.

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