According to sources close to the situation, Facebook is anticipating getting approval from government regulators to officially distribute its S-1 public offering prospectus to investors within days, which would mean its road show could begin as early as next week.

As I reported back in January, the social networking giant is expected to go public in the second or third week of May, a timeline (get it?) which currently appears to be on track.

In addition — although some have speculated that its famous CEO and co-founder Mark Zuckerberg might not take a “hands-on” role in the high-profile process, having missed one pre-IPO meeting with Wall Street analysts and bankers (can you blame him?) — sources said he would be appearing before potential shareholders, and would be present at key meetings to help sell the company to them.

Of course, he will — although there was much speculation that the Silicon Valley superstar would bow out of any of the hubbub around the huge IPO, and that bankers were practically begging him to appear, sources said Zuckerberg is too key to all aspects of its business not to appear.

(No word as yet on whether he will don a tie, as he sometimes does, or if his usual hoodie will be Zuckerberg’s outfit of choice — although his sartorial choices on the road show are sure to get excessive media scrutiny.)

“Facebook is Mark Zuckerberg and Mark Zuckerberg is Facebook,” said one person with knowledge of the situation. “He’ll do his job as CEO, as he always does.”

Indeed, although he is often portrayed as shy and not a fan of the limelight, Zuckerberg has always stepped up — and rather enthusiastically — when a public appearance is needed, whether in times of trouble or touting for the eight-year-old company.

This is a touting-Facebook moment, of course, as it seeks to raise up to $10 billion in a blockbuster offering that could value the company at $75 billion or more. Filed in February, that will make it the biggest Internet IPO ever.

Also expected to play key roles in the road show are CFO David Ebersman and COO Sheryl Sandberg, as well as other top Facebook execs.

Whether they all can rev up the jets and get going on the road show depends on the Securities and Exchange Commission finally declaring Facebook’s preliminary prospectus of its business and finances “effective” or in legal compliance.

Facebook has updated the initial filing several times, with new financials as well as information about its purchase of photo-sharing site Instagram and its ever-nasty patent battle with Yahoo.

But, overall, the SEC process has been rather smooth for the company, and sources said it appears it will continue that way.

After the road show: A sales process in which investors ask their questions of management and then officially begin to place orders for Facebook stock.

Among the areas of likely concern are that Yahoo patent lawsuit and, most importantly, how Zuckerberg and others characterize the slowing of its explosive revenue growth in its most recent filing update.

Last week, Facebook said its revenue was $1.058 billion, up 46 percent for the year, but down 6 percent from the previous quarter. In the first quarter of 2012, its net income was $205 million, which was down from $233 million a year ago. The company attributed the decline to rising costs, including in marketing and in research.

After the road show, Facebook’s bankers will price the offering — which is widely expected to be massively oversubscribed — and then it will go public on the Nasdaq market, under the “FB” ticker.

The rest, as they say, will presumably be history — or, in fact, the future for Facebook in the public eye.

In an effort to minimize the impact of massive layoffs that Yahoo’s top management has been planning, according to sources close to the situation, one of the latest ideas to save costs and presumably jobs by new CEO Scott Thompson is to sell off much of its advertising technology platform, including Right Media.

And among the possible buyers Thompson has been targeting in recent visits: Google and Microsoft, as well as Silver Lake, the private equity firm that had once been talking to the Silicon Valley Internet giant about making a large investment in the company.

(That particular deal has gone south, but there is always yet another scheme on the horizon at Yahoo!)

The concept behind such a sale, according to several sources inside and outside the company, is to turn a cost center into a revenue source, with Yahoo essentially outsourcing a business that was a cornerstone of its strategy. A negotiable number of employees affiliated with those units would then move over to the new owner.

The most ideal plan, said sources, would be to sell Yahoo’s whole advertising technology “stack,” including the Right Media Exchange, a marketplace for advertisers, publishers and ad networks to trade online ads. Yahoo bought it for $700 million in 2007.

According to info on the company’s site, it has “300,000 active global buyers and sellers and more than 11 billion daily transactions.”

Also part of the possible package is APT, a system Yahoo has built to make buying and selling online advertising easier. In addition, Yahoo’s technologies for display-ad serving have been mentioned as a possibility for sale.

It’s unclear what the potential sale means for the new ad strategy that U.S. boss Ross Levinsohn and his lieutenant Jim Heckman have been pursuing since last summer. That plan included its own acquisition of ad network Interclick and an attempt to sync up with rivals AOL and Microsoft in an effort to fend off Google and some third-party players, like ad networks.

But the reason for contemplating much a major move — which has been considered before, but never has been seriously offered — are obvious: While Yahoo once dominated this arena, it has steadily lost ground, especially to Google. The search giant has made almost all of its money in search-related ads, but has been moving aggressively via its DoubleClick and other ad-serving entities into higher-level ads.

Microsoft has also been trying to compete, as has AOL, but it’s getting to be an expensive race, and one where Yahoo would have to make major investments to once again gain momentum. Building up this business again had been the aim of co-founder Jerry Yang, who wanted to go big in the arena in a number of ways before he left the company earlier this year.

But those days seem to be over at Yahoo.

“A lot of what has happened so far under Scott [Thompson] has been trying to find more revenue anywhere it can be generated, and get out of businesses that are not growing,” said one person. “Right now, it’s a lot about what we shouldn’t do rather than what we should.”

That has meant visits to see both Google and Microsoft about possible deals by Thompson, with the involvement of CFO Tim Morse and Chief Product Officer Blake Irving.

Thompson (pictured here) has also recently been talking to Silver Lake about the ad-platform sale, in a deal that might include the Andreessen Horowitz venture fund. This would be a different kind of transaction, said sources, in which a separate company would be formed, with Yahoo owning a piece and contracting with the new entity to provide ad technology.

All this activity is related to the layoffs in the works of perhaps thousands of employees, which were to have been communicated to the company this week.

Sources said those have been delayed for some weeks for several reasons, including whether to consider more deeply if certain larger business units can be spun off, sold or somehow transformed. (To be clear: Major layoffs are still being planned, but now might take place in two parts, said sources, in what is a quickly changing and volatile atmosphere at Yahoo.)

Another area being looked at, said sources, is Yahoo’s search advertising partnership with Microsoft, which has not been as successful as had been expected. While Yahoo has been working with the software giant about improving the results, Thompson has apparently been contemplating other possibilities, including working with Google (calling all regulators!) and/or laying off up to 900 employees who work on the company’s search offering.

Any of these moves could, of course, cause a firestorm of controversy, which Thompson appears to not worry much about. He was the driving force in Yahoo’s patent lawsuit against Facebook earlier this week, which is largely attracting a negative reaction across the tech landscape.

A number of prominent voices have spoken out against the legal action, including well-known VC Fred Wilson, who yesterday penned a poisonous blog post, titled “Yahoo Crosses the Line.”

It ends thusly: “I am not writing this in defense of Facebook. They can and will defend themselves. I am writing this in outrage at Yahoo! I used to care about that company for some reason. No more. They are dead to me. Dead and gone. I hate them now.”

Ouch!

Also weighing in publicly via Twitter was former Yahoo director Eric Hippeau, who was one of the company’s first investors, which is embedded below:

Pathetic and heartbreaking last stand for Yahoo bit.ly/yirCcj It’s all over. I loved you very much.

— Eric Hippeau (@erichippeau) March 13, 2012

Double ouch!

All I can say is that Thompson certainly has a lot of gumption. That has actually been his M.O. from the start, said several sources, with the former president of eBay’s PayPal payments unit and dark horse cold-emailing his way into the Yahoo CEO job.

True story: He had not been among its list of possible candidates — largely because he had been placed in his job at eBay many moons ago by Heidrick & Struggles, which was conducting the Yahoo CEO search, and that’s a talent acquisition no-no to poach someone you placed.

That did not stop Thompson, who thought he might be good for the job and reached out directly to board members at the end of the selection effort, which then led to the search committee and soon enough to the job in what was a very quick vetting and secretive (although not secretive enough!) hiring process.

Since then, Thompson has been on a tear, from working on a restructuring to trying to assuage activist shareholder Dan Loeb to helping put the kibosh on its Asian stake sale talks to suing Facebook. And now this sale effort, too.

If the peripatetic Thompson — who might need a dose of Ritalin before this thing is over — wanted to get noticed by the tech powers that be: Mission accomplished!

“He’s definitely someone who appears to have decided on shooting the moon with a lot of these actions,” said one person close to the situation, referring to the move in the card game of Hearts, which is a risky gambit to capture every penalty card worth 26 points in order to win. “I just hope no one loses an eye in the process.”

(That would be triple ouch, by the way.)

No comments all around, but everyone was certainly cordial on this rainy morning.

According to multiple sources, the long-anticipated public offering of Facebook is now likely to come in the second or third week of May.

That means that the company must file its IPO documents within the next month, given that the review by the Securities and Exchange Commission usually takes about three to four months.

That’s if there are no issues, of course, such as a turbulent market or thornier-than-usual questions from regulators that require amending the filing.

Groupon, for example, filed for its IPO in early June, but did not go public until five months later in November.

The usual caveat on the late-May timing (even though I called 143 people on this one): This IPO planning could all change, in a New York minute, to another month.

In any case, the Facebook IPO is expected to be one of the largest Web offerings ever — with some reports saying the company will be raising $10 billion on a $100 billion valuation. (The valuation and raise, sources tell me, will be much lower.)

That amount is presumably to match its huge consumer growth and revenue explosion. Users now number 800 million — a figure that is likely to hit one billion this year. And revenue, which was reportedly close to $4 billion in 2011, is expected to be higher by another third in 2012.

Facebook will need such oomph if it is to impress investors, although the social networking site’s leadership is still warning that its focus is products over dollars.

In an interview with The Wall Street Journal last week, for example, co-founder and CEO Mark Zuckerberg hedged the point, even as he sang his same familiar strategic tune of the last few years.

“The thing to take away isn’t that we don’t care [about business]. People for years were asking me why aren’t we trying to make more money,” he said. “I would say I’m trying to build a business for the long term and it was clearly the right strategy.”

While admirably I’ll-row-my-way in tone, Zuckerberg needs a public offering heft more than ever, as Facebook’s battles with rivals — most especially Google — escalate.

Just last week, the monocratically-inclined search giant ham-handedly shoved its own social networking service, Google+, into its results, in a move that could severely disadvantage Facebook.

Thus, into the Wall Street breach, to get a giant pile of dough to fight back!

But, unlike Google’s more kookified 2004 IPO, sources said Facebook’s is probably going to hew to a more traditional offering script.

That is likely to include a hefty consortium of irksome investment bankers — think firms like Goldman Sachs and Morgan Stanley on top of the filings, and a spate of smaller ones (Allen & Co.) below, and you have the approximately accurate idea.

And, while shot-caller-in-chief Zuckerberg will be the one key voice in the IPO, the man to watch has been and will be CFO David Ebersman.

The longtime Genentech exec, who came to Facebook in 2009, has been doing all the heavy lifting in preparation for the IPO, said sources, and will continue to do so.

Facebook declined to comment (but I would too, if I were them).

It’s 2012 and it’s time for a brand news obsession for me besides the mishegas of Yahoo — and the winner is: Facebook’s upcoming IPO.

Thus, I shall endeavor to scoop all deets great and small about the social networking site’s moving on up to a deluxe public company in the Wall Street sky, which is expected in the spring of this year.

From bankers battling for purchase to who’s selling what to the delightful back and forth with regulators to Google’s lobbing the inevitable screaming meanies at its rival during Facebook’s quiet period, this is going to be a good one.

And CEO and Co-founder Mark Zuckerberg — and his hoodie — are back in the brightest of spotlights!

Speaking of the need for PR, one of the unsung but critical parts of any company’s public offering process is the hiring of an outside communications firm to handle the deluge of media, rumors and other breathless attention Facebook is sure to get.

It’s a highly specific job, given the reporters a company will be dealing with — in this case, sharp-elbowed Wall Street reporters — are usually different than the ones the Silicon Valley start-up has mostly dealt with (the geeks!).

And the expected winner of that thankless job is likely to go to the Brunswick Group, which describes itself as an “international corporate communications partnership that helps businesses and other organizations address critical communications challenges.”

In other words: Will be putting out the endless wildfires sure to rage around tech’s hottest IPO since Google.

Brunswick is among a small group of high-powered strategic communications firms that compete for such high-profile IPO jobs, as well as mergers and acquisitions and other corporate battling.

Others include Sard Verbinnen & Co. (it has worked for Groupon board and Alibaba Group); Joele Frank, Wilkinson Brimmer Katcher (it has toiled for Hewlett-Packard) and Kekst and Company (now cat-wrangling the Yahoo drama).

It’s probably not a surprise that Brunswick won the deal, since it has worked with Facebook in the past, including on its controversial private offering with Goldman Sachs a year ago.

No surprise, everyone declined comment.

Thus, let the Hunger, oops, PR games begin!

You gotta hand it to those geniuses over at the Googleplex, thinking up adorkable names for all their various plots and schemes.

And for its latest look-see of the Yahoo situation, it has revived an old one: “Project Porcupine,” presumably from the old joke about how you hug a porcupine.

Very carefully.

Or maybe you don’t hug it at all, which is why all the rumors about the search giant hooking up with some unnamed private equity firms have been so unclear and, well, hard to grab ahold of.

According to sources, there are three clear aspects of what is actually going on:

1. Interest in using Google’s vast cash hoard as part of an investment it would make in a deal — meaning the company was approached, which it is, often.

2. Desire of Google’s crafty Chief Business Officer Nikesh Arora to perhaps find a clever way to get ahold of Yahoo’s display inventory to add to Google’s own fast-growing DoubleClick display advertising subsidiary — meaning Arora has been making the rounds at Yahoo to gauge interest.

3. Pure enjoyment in messing with Microsoft execs — who are now allied with Yahoo via its Bing search technology — as well as getting up any price the software giant would have to fork over to be part of any consortium that will be cobbled together in what is sure to be a hopelessly complex deal.

Whether incoming or outgoing or just an early version of Mischief Night, any one of these options — while interesting to contemplate — is certainly fraught for Google.

Remember the trouble three years ago when Google tried to do a simple search-advertising partnership with Yahoo, in order to pull it out of the clutches of Microsoft?

That effort ended with a resounding oh-no-you-don’t by the Justice Department, which promised an antitrust lawsuit was awaiting such a move to bring together the No. 1 and No. 2 search services.

And if it was a no-no then, any formal relationship or even arm’s-length investment in Yahoo by Google would inevitably be more closely scrutinized this time around.

In fact, what I wrote in 2008 applies a dozen times more emphatically today:

“It is bad for advertisers, it is bad for consumers, it is bad for innovation, no matter how well-intentioned Google is.”

Fast forward to today, after Google has already played a worrisome game of chicken with regulators over a number of acquisition deals — which makes trying to bring back Yahoogle akin to reaching for the third rail.

But that’s not what it’s going to do, in truth, because — even though Yahoo is still a tempting target — there is usually only one outcome to hugging a porcupine.

Ouch.

As expected, the European Commission approved Microsoft’s $8.5 billion acquisition of Skype late last week.

Next, the deal for the popular Internet communications company — which had previously been cleared by U.S. regulators — is likely to officially close later this week (paperwork!), said several sources close to the situation.

Now, of course, comes the hard part — which is whether Microsoft can successfully integrate the more nimble Skype into the belly of the software beast and allow it to thrive.

Some key questions:

How smoothly can Microsoft integrate Skype into its existing products, such as its unified communications platform, Outlook mail and Hotmail, Office, Messenger and Xbox Live? And, perhaps most of all, Windows Phone devices?

That said, will Skype also get to do what it needs for its own success beyond Microsoft? That includes working with mobile rivals Apple and Google, who now dominate the smartphone market, as well as many others. It has already managed to buy GroupMe group messaging start-up for $85 million, just months after its own acquisition in May.

And can the division — which will be led by Tony Bates, Skype’s CEO and now a Microsoft president — operate successfully located mostly away from the power center of Redmond, Wash.? Skype has a substantial office in Silicon Valley, as well as key engineering units in Estonia and Stockholm.

In that vein, will Microsoft be able to hold on to new talent like Bates and Skype’s geek squad, all of whom have substantial choices elsewhere? Like a lot of large tech companies, Microsoft is not known for being able to hold on to those who come in from the outside, in large part due to its insular culture of longtime execs.

In other words, how big a welcome will Microsoft’s other powerful presidents — such as Windows division head Steven Sinofsky — give Bates and company?

While they are usually much less voluble than the chatty Web execs of Silicon Valley, the execs who run China’s fast-growing Internet companies seem to be keeping up just fine of late.

On Friday, for example, the Alibaba Group’s Jack Ma was positively effusive about wanting to buy all of Yahoo, a company which actually owns 40 percent of Alibaba. “We are very, very interested,” said Ma at an event at Stanford University.

Now, in an interview with Bloomberg, Renren CEO Joe Chen decided to take a smack at Ma over his disputed spinoff of its Alipay payments unit, which caused a high-profile ruckus with Yahoo earlier this year.

“It’s quite unfortunate,” Chen said to Bloomberg about disagreement, which has since been settled. “It caused a lot of uncertainty about Chinese Internet companies.”

Them’s fightin’ words, and a source close to Alibaba reacted with, well, reaction.

“Yeah, it shook confidence so badly that Silver Lake and DST [Global] just decided to put in billions to back Jack Ma,” referring to a recent funding deal by the large investors. “People shouldn’t try to blame their own lack of performance on others.”

Ouch!

Actually, Renren has bigger problems than Alibaba.

According to a substantive report in The Wall Street Journal yesterday, what’s really hurting Chinese Internet companies is the declining stocks caused by recent accounting scandals there, which may have attracted scrutiny from U.S. regulators.

Wrote the Journal: “A series of alleged accounting frauds this year at little-known Chinese companies listed in the U.S. has triggered a sharp shift in sentiment among investors, who are now worried about hidden business risks or financial problems.”

Hence possible investigations by the Securities and Exchange Commission that will surely drag Chinese stocks on U.S. exchanges down more.

And indeed, the stock of Renren — which had its own controversial issue with accurate data reporting at the time of the IPO of the social networking site earlier this year — declined 13 percent Friday, along with other Chinese companies listed here.

Think about the federal government’s blocking of the $39 billion AT&T and T-Mobile merger and you might want to reread Google’s blog today, penned in reaction to the news that the Justice Department is making a second request for information about its $12.5 billion acquisition of Motorola Mobility.

“This is pretty routine,” wrote Google’s Motorola integration exec Dennis Woodside. “We’ve gotten these kind of requests before.”

Maybe Google has (and it has with other purchases) — but in actuality, only four percent of transactions got such a follow-up request from regulators.

To be fair, it is much more common in high-profile, big-money deals like this one, but it means a longer closing period and more uncertainty around the Android mobile ecosystem until it’s done.

Still, Google has good reason to be patient. Despite tough criticism and brutal lobbying, it won approval from Justice for its $700 million deal to buy flight data service ITA Software in April, after nine months of scrutiny and a number of conditions imposed.

And the search giant waited out an intense six-month Federal Trade Commission approval process last year for its $750 million acquisition of mobile advertising start-up AdMob. It had an even harder time with the FTC’s nod of its 2007 DoubleClick purchase for $3.1 billion.

One that it lost — an obvious bridge too far that I dubbed Yahoogle — was Google’s 2008 effort to meld a troubling partnership with Yahoo in search advertising.

So, we’ll see soon enough which way D.C. — which just had Google Executive Chairman Eric Schmidt up to the Senate for an antitrust hearing chit-chat — will go.

Until then, here’s Woodside’s whole blog:

An update on our Motorola acquisition

Wednesday, September 28, 2011 at 5:30 PM ET

Posted by Dennis Woodside, SVP Google

Since we announced our plans to acquire Motorola Mobility, we’ve been excited about the positive reaction to the proposed deal — particularly from our partners who have told us that they’re enthusiastic about our defense of the Android ecosystem.

And as David Drummond said when we announced our plans in August, we’re confident that this deal will be approved. We believe very strongly this is a pro-competitive transaction that is good for Motorola Mobility, good for consumers, and good for our partners.

That said, we know that close scrutiny is part of the process and we’ve been talking to the U.S. Department of Justice over the past few weeks. Today we received what is called a “second request,” which means that the DOJ is asking for more information so that they can continue to review the deal. (This is pretty routine; we’ve gotten these kind of requests before.)

While this means we won’t be closing right away, we’re confident that the DOJ will conclude that the rapidly growing mobile ecosystem will remain highly competitive after this deal closes. We’ll be working closely and cooperatively with them as they continue their review.

And you thought former Yahoo CEO Carol Bartz could lay into the Yahoo board with some zingers, including the not-used-enough “doofuses” insult.

Time to meet Third Point’s Daniel Loeb, the smack-tastic hedge fund manager who has bought up a 5.1 percent stake in the Silicon Valley Internet giant and has been hitting the company upside the head with those shares since last week, on a seemingly daily basis.

Actually, twice yesterday — in a morning letter he filed with regulators, and then at an afternoon investor conference.

After trying to entice Yahoo co-founder Jerry Yang into throwing Chairman Roy Bostock under the bus, and noting in the letter that Bostock hung up on him in a recent phone call, Loeb told the attendees at the Delivering Alpha conference in New York that “no one wants to work with these clowns on the [Yahoo] board.”

Also that “Yahoo had one of the most horrendous management teams” that Loeb had “seen in 16 years.”

Also that Yahoo “has the same crappy interface and the same stupid logo” since 2004.

Other than that, Mr. Loeb, how is the Internet site?

Here is Loeb’s latest filing to see for yourself:

loebsec

With the $12.5 billion purchase of Motorola Mobility, the iconic but struggling maker of mobile devices, Google has put a huge stake in the ground in this highly competitive market and thereby shaken up the entire ecosystem.

A lot of this is about patents, as Google CEO Larry Page said in his blog post about the megadeal this morning, and about acquiring a bigger portfolio that Google has long sought for its Android mobile operating system and has been unsuccessful at getting for itself, despite onerous efforts. Since Motorola has been in the mobile arena for so long, it has a large trove of important ones.

But the dramatic acquisition by Google is also a declaration that mobile is more important to it than the skein of alliances it has built for Android with phone makers worldwide, as part of its objective of making it the dominant mobile platform for smartphones and tablets globally.

While Google has been reaching out to other hardware partners to assure them, and has said they all will remain the same in Android-land, the large mobile manufacturers who have placed their trust in Google — especially Samsung or HTC — have to be wondering what to do now.

Make no mistake — they already resent Google from time to time, the way Compaq or Dell has resented Microsoft in the PC business.

But, since Google already showed favoritism to Motorola by letting them do the first Honeycomb tablet, the Xoom (although it didn’t do any good), that discomfort will only increase now.

While Google managed to get them into lockstep on today’s announcement, with a whole Web page titled “Quotes From Android Partners,” each of them using the exact same phrase “defending Android” in their quotes feels a little like they are victims of Stockholm syndrome.

Yes, we concur with everything the Borg tells us to! Defending! Android! We’re Droids too! (Calling Patty Hearst, stat!)

The impact on everyone — from Microsoft and its partner Nokia to Apple to Research In Motion and, also, to all the wireless carriers — will be felt immediately.

And, of course, by government regulators, who have watched warily as Google has marched into business after adjacent business to its core search one.

This deal — which will require approval — is sure to even further put all of Google’s businesses in the crosshairs of rivals, who will agitate for fervent investigations.

While Android has been conceived at Google and has an “autonomous unit” with the company — run by longtime mobile vet Andy Rubin — it has now entered a new and perhaps dangerous phase for all involved, including Google.

Because while such a union is not uncommon in the mobile business — Apple and RIM do software and hardware together and Google has released its own Nexus phone (made by others) — no one has done it via acquisition and in such a definitive way.

And what an acquisition it is. Or, perhaps more accurately, could be.

Please see this disclosure related to me and Google.

Related posts

• Google: We’re Spending $12.5 Billion on Motorola to ‘Protect’ Android
• Motoogle: BOOM! The Mobile Business Just Got Completely Blown Up
• Google’s Motorola Deal Will Spur Antitrust Regulators to Action
• Watch Google Android Kingpin — and Motorola Acquirer — Andy Rubin Unplugged (Video)
• Defense Spending: Google Arms Itself With Moto Patents
• Is Google’s Motorola Deal the Break That Windows Phone Needed?
• Should Google Keep Motorola’s Patents and Sell Off the Hardware Business?
• Motorola Could Get Google Closer to Your Living Room — If the Cable Guys Play Along
• U.S. Carriers Silent on Motoroogle, but France Telecom Gives It a Thumbs Up
• Google-Motorola Deal Includes $2.5 Billion Reverse Termination Fee
• Google Can’t Say Hello To Hulu Now. (Can It?)
• More Google news
• More Android news
• More Motorola Mobility news

(Image courtesy of the United States Department of Energy)

According to numerous sources close to the situation and after regulatory pressure, Groupon will amend its S-1 public offering filing to remove references to an unusual accounting treatment that has attracted controversy.

Sources said the new filing by the social buying company, which is helmed by CEO and co-founder Andrew Mason (pictured above), will likely occur as early as Monday.

It can’t come a minute too soon regarding a metric called ACSOI, or adjusted consolidated segment operating income, which the Chicago-based Groupon used when it filed its S-1 documents in June.

As I wrote at the time about the odd use of ACSOI:

Let’s be clear, this is a number that does not include important costs, such as critical online marketing expenses to attract new customers to Groupon.

Such accounting is called non-GAAP (generally accepted accounting principles).

In 2010 and the first quarter of 2011, Groupon said its Adjusted CSOI was $60.6 million and $81.6 million, respectively.

On a GAAP basis, Groupon lost $413.4 million for 2010 and $113.9 million in the first three months of 2011.

And, indeed, questions from the media, investors and, most importantly, the Securities and Exchange Commission about how Groupon accounts for its revenue and profits using ACSOI were swift and decidedly negative.

Hence, a furious debate — along with much internal tension — within Groupon about what to do. At first, in another S-1 amendment, the company backed away from using ACSOI as a “valuation metric.”

But that was apparently not enough for the SEC or anyone else, so Groupon’s top managers finally thought it best to rid itself of the term entirely. That will happen next week, sources said.

And, in coming weeks, sources added, the company will be filing additional financial information about both its growth and costs, which will undoubtedly also be put under a microscope by the media, investors and regulators.

A Groupon spokesman declined to comment when asked about the removal of ACSOI from its public offering documents.

Earlier today, CNBC reported that the regulatory review of Groupon’s questionable use of certain accounting metrics in its IPO filing was delaying its offering until later in September.

While more questions from the Securities and Exchange Commission about how it accounts for its revenue and profits might indeed eventually push the IPO debut out, according to sources I have interviewed for months now, an offering in mid to late September was actually when the social buying company was planning to take its company public.

It makes sense, since August is seldom used for road shows for companies headed for an IPO — think Wall Street in the Hamptons and you’ll get why.

That said, the continued scrutiny by the SEC is not a welcome development for Chicago-based Groupon, which filed its S-1 documents in June.

In coming weeks, sources said, the company will be filing new financial information about both its growth and costs, which will undoubtedly be put under a microscope by investors and regulators.

That’s no surprise since the contents of the original filing immediately caused controversy, especially over the amount of its venture funding paid out to insiders and also over an unusual accounting treatment called adjusted consolidated segment operating income, or Adjusted CSOI.

As I wrote at the time:

Let’s be clear, this is a number that does not include important costs, such as critical online marketing expenses to attract new customers to Groupon.
Such accounting is called non-GAAP (generally accepted accounting principles).

In 2010 and the first quarter of 2011, Groupon said its Adjusted CSOI was $60.6 million and $81.6 million, respectively.

On a GAAP basis, Groupon lost $413.4 million million for 2010 and $113.9 million in the first three months of 2011.

Said Groupon about its accounting in its S-1 filing: “We believe Adjusted CSOI is an important measure of the performance of our business as it excludes expenses that are non-cash or otherwise not indicative of future operating expenses.”

Definitely sketchy enough to attract an SEC look-see, which caused Groupon to back away from Adjusted CSOI as a “valuation metric” in a recently amended S-1 filing. Groupon also stepped back a sloppy comment made after the filing by its Chairman Eric Lefkofsky — in a interview he apparently thought was off the record — that the company would be “wildly profitable.”

One thing is certain: There will surely be more amending of the Groupon S-1 in the weeks ahead as it stumbles toward its IPO, which will be one of the most prominent of the Web 2.0 era.

Groupon’s S-1 filing for an IPO last month certainly got a lot of ink.

Unfortunately, much of it was negative, focused on several controversial parts of the document. Most scrutinized were large slugs of money taken out of the social buying site by its founders, as well as aggressive accounting terminology to make large losses look less, well, large.

Rattled by the intense media and analyst reaction to the filing, sources said the Chicago-based company commissioned a poll of its consumers and merchants to gauge the impact.

One source familiar with the survey said that top execs and its board wanted concrete reaction from key constituencies, instead of relying on “noise from the echo chamber” of Wall Street and Silicon Valley.

And, said several people who had seen the poll, it should probably come as no surprise that the impact of the drumbeat of Groupon-is-doomed news on merchants and consumers was low, with only one percent saying that they had formed a negative opinion of the company from the filing.

That, of course, does not mean that those important groups for Groupon aren’t disgruntled about a whole laundry list of other issues.

But — for now, at least — an S-1 with some warts isn’t one of them.

Whatever the case, Groupon will continue to face scrutiny as it moves to amend the filing after comments from government regulators, and also when it reports its latest financial results soon for the three months ended June 30, 2011.

And those are numbers that everyone will surely be paying attention to.

Mr. Powell is joining the cable industry’s trade association from Providence Equity Partners, where he was a senior advisor, and Broadband for America, an industry group which pressed for less regulation on Internet lines. He was chairman of the Federal Communications Commission until January 2005.

He replaces former National Cable & Telecommunications Association president Kyle McSlarrow, who said last week that he’ll be joining Comcast Corp.

Read the rest of this post on the original site »

Yesterday, the Obama administration dribbled out the news that it was going to nominate current Commerce Secretary Gary Locke as the next ambassador to China.

If approved, Locke will surely have his hands full on a wide range of issues, many of them impacting the tech sector, including piracy, privacy and government-sponsored censorship.

Perhaps more interestingly, the move leaves open a post–which the Obama administration actually had a hard time filling initially–that could get a true turbocharge if it were filled by an exec from the fast-growing digital arena.

It’s not a bad idea, since tech is probably now the most critical business arena in the U.S. and one of the only markets in which this country innovates and excels at.

While the Commerce Department has a huge and disparate domain, from international trade to the census to promoting American businesses, its digital footprint has been much less profound than the industry’s increasing importance to the U.S. economy.

After all, despite some interesting international efforts, most of the current crop of tech stars are U.S. born and bred and leading the way in digital innovation.

In fact, every big trend right now in value creation are all coming out of tech.

Gaming? Zynga.

Social networking? Facebook and Twitter.

Retail? Groupon.

Mobile? Google and Apple.

So, why not pick a business person from the area to lead the government agency dedicated to business?

But that’s where it gets dicey.

One more obvious candidate would be outgoing Google CEO–and Obama favorite–Eric Schmidt.

I would assume he might welcome such a prominent post, although putting him in place at Commerce would be a tough road.

Issue one and only: The investigations of Google’s aggressive business practices by federal regulators make this an awkward decision for Obama, given Schmidt would be open to a lot of scrutiny going through confirmation.

But there is a long list of others who could be considered to serve, especially if you think well outside the box.

What about former Xerox CEO Anne Mulcahy, who certainly has the management cred?

Or mega-VC John Doerr, who–despite his recent social fever–might finally get to push his beloved clean-tech agenda onto a larger stage?

What about Facebook COO Sheryl Sandberg, who recently showed she could deliver a boffo speech and who might lend some Silicon Valley magic to her former Washington, D.C. rep?

And while Amazon’s Jeff Bezos’ laugh would have a hard time getting Congressional approval, why not consider someone who has profoundly changed the way an entire business sector does business?

In that vein, Reed Hastings of Netflix also fits the bill.

Except these three execs are pretty busy these days. So, what about former eBay CEO Meg Whitman, whose failed bid to be California’s governor as the Republican candidate leaves her without a post.

President Barack Obama had picked a GOP pol as his second choice for Commerce head, in fact, so Whitman or even Cisco CEO John Chambers are not out of the question.

The point is to perhaps move outside the Beltway’s comfort zone and pick a Commerce Secretary who represents the future rather than the past.

Here’s the tastiest part of an article in the New York Times yesterday about how Goldman Sachs essentially borked a deal to offer its rich clients in the U.S. private Facebook shares:

“However, over the last two weeks, the companies’ [Goldman and Facebook] relationship has grown increasingly tense, people involved in the offering said. Accusations about the news leak have flown back and forth, these people said.”

You can say that again, but –as leaky as the social networking giant has been over these many years in Silicon Valley–it seemed obvious that most of the intricate financial details about the offering were hand-delivered right from some of Wall Street’s hired guns to the DealBook scribes at the Times.

(Memo to myself: Start kissing up to those bankers, however appalling!)

Unfortunately for Facebook, it was those massive news leaks that drew the attention of government regulators to the deal. And with worries that it veered too close to the edge of violating securities regulations, the U.S. part of the offering had to be pulled.

Despite this particular mess, this kind of mishegas is only going to increase now that the banker bloviating is getting fired up a notch in 2011, as a spate of Web 2.0 Internet companies moves to public offerings.

Along with Facebook, that includes Zynga, LinkedIn and Groupon, as well as several others, all of which are just starting the banker bake-offs that used to be common in the Web space.

And that’s going to mean plenty of information to be found as some of those bankers inevitably drop a dime on the companies they are hired by.

Translated into more modern social terminology that these companies better understand: Bankers are really good at oversharing.

How do I know this? Because that is exactly what happened when the Web 1.0 bubble was in full froth.

Like Christmas in July, as bankers arrived to compete to win IPOs, the information flow suddenly became huge for reporters like me–I was at The Wall Street Journal at the time–covering it all.

It looks like more of the same for this round of stock sales likely to come. Already we know more about Facebook’s financials than we ever did.

And to that, I say: Loose lips may sink ships, but it will make for an awesome amount of news to come in 2011 about the Internet’s starring players.

Demand Media is set to go public, according to an amended filing with the Securities and Exchange Commission, with shares priced from $14 to $16 each.

The online publisher could sell up to 8.625 million shares and, if it prices at the top of the range, it could be worth about $1.3 billion and raise $138 million.

That includes 4.5 million shares from the company, three million shares from existing shareholders and another 1.125 shares that its underwriters have an option to sell.

Demand will net $58.1 million, if the IPO price is $15.00 per share, which it said it will use for “investments in content, international expansion, working capital, product development, sales and marketing activities, general and administrative matters and capital expenditures.”

The company added that “we currently anticipate that our aggregate investments in content during the year ending December 31, 2011 will range from $50 million to $75 million.”

Demand’s ticker symbol will be DMD on the New York Stock Exchange.

In its amended prospectus, Demand said:

This is an initial public offering of shares of common stock of Demand Media, Inc.

Demand Media is offering 4,500,000 of the shares to be sold in the offering. The selling stockholders identified in this prospectus are offering an additional 3,000,000 shares. Demand Media will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders.

Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between $14.00 and $16.00.

The common stock of Demand Media has been approved for listing on the New York Stock Exchange under the symbol “DMD.”

Demand’s road to an IPO has been relatively quick.

One bump came last month, as BoomTown reported after the Santa Monica, Calif. company had to satisfy government regulatory questions over the way it recognizes costs of creating content.

Currently, using a concept of “long-lived” content, Demand has been amortizing those expenses over five years, since it says it continues to generate revenue on that material over that much time. Most publisher recognize costs immediately.

That’s different from many companies in the publishing business, which typically account for costs of creating content immediately as they are incurred or over a much shorter time period.

Demand has determined that its content has a more evergreen nature, compared to more topical–and perishable, from a revenue point of view–material produced by others.

Obviously, since this accounting treatment results in more attractive financial results, the longer expense period is of great interest to many other online content creators–such as AOL and Yahoo–which are watching the Demand IPO closely.

While the SEC did not ask Demand to make changes to its accounting practices, the amended S-1 is more detailed about them.

To be allowed to expense over five years, Demand said, the company has to use a sophisticated algorithmic platform–which other content creators do not have–to provide proof of “probable economic benefits” from that content over that time.

Since Demand has long claimed that it has a new and innovative approach to content creation, it is making the case to investors that it needs to have the correct accounting for that approach.

Said Demand in its amended filing:

“In determining whether content embodies probable future economic benefit required for asset capitalization, management has reviewed, and intends to regularly review the operating performance of content published.”

But, it warned:

“Changes from the five year useful life we currently use to amortize our capitalized content would have a significant impact on our financial statements. For example, if underlying assumptions were to change such that our estimate of the weighted average useful life of our media content was higher by one year from January 1, 2010, our net loss would decrease by approximately $1.6 million for the nine months ended September 30, 2010, and would increase by approximately $2.4 million should the weighted average useful life be reduced by one year.”

The practice has passed government scrutiny and now investors will decide what they think of this and the entire business of Demand.

Demand execs will now go on a road show for the offering, which is being led by Goldman Sachs and Morgan Stanley.

For all those in a tizzy–including BoomTown–about Facebook’s deal with Goldman Sachs, which some think is designed to circumvent securities rules related to shareholder numbers and financial disclosure, meet Section 12(g)(1) of the Securities Exchange Act of 1934.

Because if anyone cared to read the actual text of the law in question (as I did, after it was pointed out to me), even if it was determined that Facebook had 500 shareholders at this very moment, it is technically not required to disclose any of its financial details until May of 2012.

As in next spring, which is exactly when its execs have told many sources it will finally have its much anticipated IPO. Thus, look Facebook to finally go public in the second quarter of 2012.

As far as government literature goes, 12(g)(1) is pretty clear, noting that any company of Facebook’s size, after it reaches 500 shareholders, must make financial and other disclosures “within one hundred and twenty days after the last day of its…fiscal year.”

For Facebook, its current fiscal year ends December 31, 2011, making its disclosure deadline April 29, 2012.

As the New York Times noted today:

“Section 12 (g) of the Securities Exchange Act of 1934 came about in the 1960s as over-the-counter trading in shares of privately held companies began to heat up and regulators worried that investors were not getting enough information.”

The huge amount of time Facebook has to adhere to the private company disclosure law has not been noted in copious coverage of the deal, in which Goldman Sachs clients would be able to invest up to $1.5 billion in the Silicon Valley company, as part of a single entity “special purpose vehicle.”

But it brings into focus–given its long lead time–whether Facebook would go to such lengths to keep its shareholder size small at this point.

Nonetheless, from a perceptual viewpoint, the Goldman investment has brought unneeded scrutiny to Facebook, from both the public and also government regulators.

It has also painted the company–which has an everyman, mainstream image, in general–as elitist and consorting with rich Wall Street bankers.

In any case, with the Goldman deal, a lot of financial information about Facebook is now seeping out anyway, as part of the investment bank’s offering documents to the clients it is presenting the Facebook opportunity to.

As The Wall Street Journal reported yesterday:

“According to people familiar with the document, Facebook had net income of $200 million in 2009 on revenue of $777 million. Figures for 2010 weren’t disclosed, but analysts have said the company’s revenue last year could be as much as $2 billion, fueled by advertising growth.”

Whether that smallish net income and revenue deserves a $50 billion valuation or not will be up to investors to decide. But, as the Journal also pointed out, the Facebook offering is oversubscribed already, even without any significant information about the company’s finances.

Which Facebook can keep from us all for a while–although I urge CEO Mark Zuckerberg, Google-style, to FREE THE DATA!

And if you don’t believe me, please enjoy the 12(g)(1) below:

Every issuer which is engaged in interstate commerce, or in a business affecting interstate commerce, or whose securities are traded by use of the mails or any means or instrumentality of interstate commerce shall—(a) within one hundred and twenty days after the last day of its first fiscal year ended after July 1, 1964, on which the issuer has total assets exceeding $10,000,000 and a class of equity security (other than an exempted security) held of record by seven hundred and fifty or more persons; and (b) within one hundred and twenty days after the last day of its first fiscal year ended after two years from July 1, 1964, on which the issuer has total assets exceeding $10,000,000 and a class of equity security (other than an exempted security) held of record by five hundred or more but less than seven hundred and fifty persons, register such security by filing with the Commission a registration statement (and such copies thereof as the Commission may require) with respect to such security containing such information and documents as the Commission may specify comparable to that which is required in an application to register a security pursuant to subsection (b) of this section. Each such registration statement shall become effective sixty days after filing with the Commission or within such shorter period as the Commission may direct. Until such registration statement becomes effective it shall not be deemed filed for the purposes of section 18. Any issuer may register any class of equity security not required to be registered by filing a registration statement pursuant to the provisions of this paragraph. The Commission is authorized to extend the date upon which any issuer or class of issuers is required to register a security pursuant to the provisions of this paragraph.

Yesterday, Demand Media submitted another amended S-1 to the Securities and Exchange Commission, part of its march to an initial public offering many had expected to take place sooner rather than later.

What’s taken so long, said multiple sources familiar with the situation, has been discussions between government regulators and the Santa Monica, Calif., online content company about how to more fully explain to investors–which it did so in the new S-1–how it expenses the costs of making its content.

Currently, using a concept of “long-lived” content, Demand has been amortizing those expenses over five years, since it says it continues to generate revenue on that material over that much time.

As the company noted in its S-1 filing:

“Capitalized media content is amortized on a straight-line basis over five years, representing the Company’s estimate of the pattern that the underlying economic benefits are expected to be realized and based on its estimates of the projected cash flows from advertising revenues expected to be generated by the deployment of its content. These estimates are based on the Company’s plans and projections, comparison of the economic returns generated by its content of comparable quality and an analysis of historical cash flows generated by that content to date.”

That’s different from many companies in the publishing business, which typically account for costs of creating content immediately as they are incurred or over a much shorter time period.

Demand has determined that its content has a more evergreen nature, compared to more topical–and perishable, from a revenue point of view–material produced by others.

Obviously, since this accounting treatment results in more attractive financial results, the longer expense period is of great interest to many other online content creators–such as AOL and Yahoo–which are watching the Demand IPO closely.

While the SEC has not asked Demand to make changes to its accounting practices, the amended S-1 is more detailed about them.

To be allowed to expense over five years, Demand said, the company has to use a sophisticated algorithmic platform–which other content creators do not have–to provide proof of “probable economic benefits” from that content over that time.

Since Demand has long claimed that it has a new and innovative approach to content creation, it is making the case to investors that it needs to have the correct accounting for that approach.

Said Demand in its amended filing:

“In determining whether content embodies probable future economic benefit required for asset capitalization, management has reviewed, and intends to regularly review the operating performance of content published.”

But, it warned:

“Changes from the five year useful life we currently use to amortize our capitalized content would have a significant impact on our financial statements. For example, if underlying assumptions were to change such that our estimate of the weighted average useful life of our media content was higher by one year from January 1, 2010, our net loss would decrease by approximately $1.6 million for the nine months ended September 30, 2010, and would increase by approximately $2.4 million should the weighted average useful life be reduced by one year.”

Sources said Demand’s road show for investors will not start until the SEC gives its final approval, pushing its IPO into next year.

Demand’s initial filing was to raise $125 million at a reported $1.5 billion valuation. It had said it hoped to have DMD as its ticker symbol on the New York Stock Exchange.

There is no price range yet for the offering, which is being led by Goldman Sachs and Morgan Stanley.

Until it all happens, here’s one key section on these issues in the latest S-1 to peruse:

Capitalization and Useful Lives Associated with our Intangible Assets, including Content and Internal Software and Website Development Costs

We publish long-lived media content generated by our content studio which we commission and acquire from third party freelance content creators. Direct costs incurred for each individual content unit that we determine embodies a probable future economic benefit are capitalized. The vast majority of direct content costs represent amounts paid to freelance content creators to acquire content units and, to a lesser extent, specifically identifiable internal direct labor costs incurred to enhance the value of acquired content units prior to their publication. Internal costs not directly attributable to the enhancement of content units acquired prior to publication are expensed as incurred. All costs incurred to deploy and publish content are expensed as incurred, including the costs incurred for the ongoing maintenance of websites on which our content resides. We acquire content when our internal systems and processes, including an analysis of millions of historical Internet search queries, advertising marketing terms, or keywords, and other data provide reasonable assurance that, given predicted consumer and advertiser demand relative to our predetermined cost to acquire the content, the content unit will generate revenues over its useful life that exceed the cost of acquisition. In determining whether content embodies probable future economic benefit required for asset capitalization, management has reviewed, and intends to regularly review the operating performance of content published.

We also capitalize initial registration and acquisition costs of our undeveloped websites and our internally developed software and website development costs during their development phase.

In addition we have also capitalized certain identifiable intangible assets acquired in connection with business combinations and we use valuation techniques to value these intangibles assets, with the primary technique being a discounted cash flow analysis. A discounted cash flow analysis requires us to make various judgmental assumptions and estimates including projected revenues, operating costs, growth rates, useful lives and discount rates.

Our finite lived intangible assets are amortized over their estimated useful lives using the straight-line method, which approximates the estimated pattern in which the underlying economic benefits are consumed. Capitalized website registration costs for undeveloped websites are amortized on a straight-line basis over their estimated useful lives of one to seven years. Internally developed software and website development costs are depreciated on a straight-line basis over their estimated three -year useful life. We amortize our intangible assets acquired through business combinations on a straight-line basis over the period in which the underlying economic benefits are expected to be consumed.

Capitalized content is amortized on a straight-line basis over five years, representing our estimate of the pattern that the underlying economic benefits are expected to be realized and based on our estimates of the projected cash flows from advertising revenues expected to be generated by the deployment of our content. These estimates are based on our current plans and projections for our content, our comparison of the economic returns generated by content of comparable quality and an analysis of historical cash flows generated by that content to date which, particularly for more recent content cohorts, is somewhat limited. To date, certain content that we acquired in business combinations has generated cash flows from advertisements beyond a five year useful life. The acquisition of content, at scale, however, is a new and rapidly evolving model, and therefore we closely monitor its performance and, periodically, assess its estimated useful life.

Advertising revenue generated from the deployment of our media content makes up a significant element of our business such that amounts we record in our financial statements related to our content are material. Significant judgment is required in estimating the useful life of our content. Changes from the five year useful life we currently use to amortize our capitalized content would have a significant impact on our financial statements. For example, if underlying assumptions were to change such that our estimate of the weighted average useful life of our media content was higher by one year from January 1, 2010, our net loss would decrease by approximately $1.6 million for the nine months ended September 30, 2010, and would increase by approximately $2.4 million should the weighted average useful life be reduced by one year. We periodically assess the useful life of our content, and when adjustments in our estimate of the useful life of content are required, any changes from prior estimates are accounted for prospectively.

According to sources close to the situation, Google has offered $5.3 billion for Groupon, in what would be its largest acquisition yet, if completed.

Sources said the deal for the Chicago-based social buying site seems likely to be struck, even as early as tomorrow, although it certainly could fall apart right up to the end.

But, if done, it will move the search giant instantly to the top spot in local commerce online and give it huge troves of data about consumer buying habits and merchant information across the globe.

Combined with its pending $700 million acquisition of ITA Software, the travel data firm, that should freak out regulators worldwide and could be considered Google’s own version of a jobs plan for antitrust lawyers.

That said, it is a killer move for Google–despite the high price–given it has long tried to enter the local advertising space, with decidedly mixed results.

With its more than $33 billion in cash and strong stock, it had previously tried to buy local reviews site Yelp, in a deal that fell apart for reasons that are still unclear.

In contrast, Groupon, founded in 2008, has taken off like a Roman candle and dominates the huge market for social shopping and discounting.

While the $6 billion Google is considering paying seems high, Groupon’s fast-growing revenue and profitability make its multiples less daunting, said those familiar with the matter.

It will certainly be a big payoff for Groupon’s investors, including Silicon Valley’s Accel Partners, as well as Battery Ventures, New Enterprise Associates and Russia’s DST Global.

Groupon has gleaned about $170 million in venture funding from them, most of which it has not needed.

That’s because it has reportedly attracted upward of $50 million in monthly revenue.

It has done this by offering “daily deals”–getting a massive discount from local retailers in return for delivering customers via marketing via email and on social networks, especially Facebook and Twitter.

Typically, local merchants rely on less effective newspaper circulars or paper couponing.

In what will certainly be one of the deal’s ironies, Google could own a start-up that is largely powered by rival Facebook’s massive skein of social networking connections.

Facebook, of course, recently introduced its own Facebook Deals offering.

BoomTown first wrote about the deal discussions between Groupon and Google two weeks ago, noting the price would be well above the $2 billion to $3 billion offered by Yahoo.

That interest from Yahoo, which was first to sniff around the fast-growing social buying site, was first reported here too–mostly because I apparently like to stalk Groupon CEO and Justin Bieber lookalike Andrew Mason.

(And I will personally be fascinated to see how he’ll mesh with Marissa Mayer, the former search experience head who is now leading local for Google.)

The New York Times–which does not ever seem able to give credit, as All Things Digital and other blogs always do happily and without fuss–is also reporting a $6 billion price tag for Groupon.

While we all await the outcome of this potential blockbuster of a deal, here is a video interview I did with Mason this summer in Vancouver, where I asked him specifically about Google’s interest (actually, I suggested he mug Google co-founder Larry Page for dough).

Note the Bieber haircut:

Please see this disclosure related to me and Google.

]]> http://allthingsd.com/20101129/googles-groupon-offer-5-3-billion-with-700-million-earnout/feed/ 30 http://allthingsd.com/20101129/if-google-buys-groupon-itll-be-a-windfall-for-investors-bankers-and-regulators/ http://allthingsd.com/20101129/if-google-buys-groupon-itll-be-a-windfall-for-investors-bankers-and-regulators/#comments Mon, 29 Nov 2010 13:33:39 +0000 Kara Swisher http://kara.allthingsd.com/?p=37734

If Google does manage to close the deal to buy Groupon–acquisition discussions flagged by BoomTown 10 days ago–it will be at a cost that is likely to be much more than the $2.5 billion price tag being floated in the latest batch of rumors.

It’s not just that the deal will likely come in at a higher number–upwards of $3 billion, according to sources I have spoken to–which will mean a big payoff for Silicon Valley’s Accel Partners, Boston’s Battery Ventures and Russia’s DST Global.

Or that this deal will net New York bankers used on each side–Allen & Co. for Groupon and Morgan Stanley for Google–sizable fees.

It’s because as soon as it purchases the social group buying phenom, the search giant will be buying a whole lot of pricey regulatory scrutiny too.

That cost will be, many think, much deserved and will definitely not come at any discount, given the rising worries in Washington about the swaggering power of Google.

After ever-testier brushes with federal regulators–including over an overreaching attempt to join with Yahoo in search and online access to copyrighted books–Google narrowly missed getting approval for its $750 million purchase of mobile advertising start-up AdMob.

That deal was only saved after Apple made enough noise in the same space to take the focus off the controversy.

And let’s not forget Google suing the feds earlier this month over being excluded from competitive bidding to provide email and collaboration technology to the Interior Department’s 88,000 employees.

More seriously, Google has come under fire recently from numerous critics for its proposed purchase of huge flight data firm ITA Software for $700 million.

Those opposed to the acquisition, on antitrust grounds, contend that Google would control travel search in a way that would inevitably invite abuse.

The government, of course, is looking over the whole deal now.

Having Groupon in its arsenal would garner Google even more powerful pricing information from both customers and merchants across the globe.

That would in the lucrative local commerce arena. Currently, despite a plethora of clones, Groupon dominates socially fueled couponing across cities worldwide.

Owning the hot space around local purchasing and consumer information, combined with the social element, would be a tasty treat for Google.

The Silicon Valley search giant has struggled to deliver social tools to users, even as Facebook has morphed into a potent rival.

Google had looked at social reviews site Yelp for purchase previously, but that deal fell apart.

It has been introducing its own various local advertising and commerce efforts, which would be instantly turbocharged given Groupon’s much quicker progress.

In April, Groupon garnered a valuation of well above $1 billion in a massive venture funding.

It has used that money to buy up companies in the U.S. and internationally, trying to solidify itself as the major player in the marketplace.

If Google were to complete a deal to buy Groupon, it would have echoes of its purchase of YouTube in 2006 for $1.6 billion.

Many felt it a high price at the time, but it looks cheap now given how the site almost completely dominates Web video.

If that deal were to be struck today, of course, it is unlikely regulators would allow such a purchase to sail through the approval process so easily.

Thus, it will be interesting to see how they will react to a possible hook-up with Groupon, which–in many ways–is perhaps the most aggressive of Google’s moves to date to own valuable data up and down the food chain.

And, like I said, this particular move to buy discounting online could be one of its costliest too, in more ways than one.

Please see this disclosure related to me and Google.

]]> http://allthingsd.com/20101129/if-google-buys-groupon-itll-be-a-windfall-for-investors-bankers-and-regulators/feed/ 6 http://allthingsd.com/20101007/adobsoft-nonsense-on-the-microsoft-adobe-rumor-in-any-case-itd-more-likely-be-goodobe/ http://allthingsd.com/20101007/adobsoft-nonsense-on-the-microsoft-adobe-rumor-in-any-case-itd-more-likely-be-goodobe/#comments Fri, 08 Oct 2010 05:01:48 +0000 Kara Swisher http://kara.allthingsd.com/?p=35123

Investment bankers and stock markets can calm down–Microsoft and Adobe are not in talks about an acquisition.

Spurred by a story in the New York Times that Microsoft was eyeing the software company for purchase, Adobe (ADBE) stock went wild today, up 11.5 percent to $28.69.

Except, according to numerous sources at both companies with whom I talked today, it’s “nonsense.”

Sure, it might be an interesting idea–kind of like AOL (AOL) and Yahoo (YHOO) merging–but that’s not the case at this point either.

Chalk this one up to blabby bankers and stock speculators–this might be a good rumor for regulators to look into.

Of course, as is typical, the execs at both companies talk a lot–you might have noticed that Adobe has a lot of software that is popular on the Windows operating system.

So, they had a meeting!

But it is kind of hard to do an acquisition when “Steven A. Ballmer, Microsoft’s chief executive, recently showed up with a small entourage of deputies at Adobe’s offices to hold a secret meeting with Adobe’s chief executive, Shantanu Narayen.”

Memo to the Times: When there is an acquisition afoot–in my experience–it’s all private airplanes and law offices and not a company HQ visit by the very loud and very noticeable Ballmer, the exact polar opposite of a shrinking violet.

In any case, it is not a big surprise at this point if longtime rivals like Adobe and Microsoft (MSFT)–which makes a competing video technology called Silverlight to Adobe’s Flash–talk about trying to stop the explosive growth of Apple, especially in the mobile space.

Microsoft is about to launch its Windows Phone 7, after many cloddish efforts in the arena have failed, and Adobe has been subject to a withering attack from Apple (AAPL) and its CEO Steve Jobs.

Jobs, in no uncertain terms, has dissed Flash relentlessly as a technology.

Others have not, such as Google (GOOG), which recently showed strong support for Adobe’s Flash in its recent launch of Google TV.

In fact, it is Google that is more mentioned in Silicon Valley as the logical acquirer of Adobe, if there were to be a sale.

Along with all its various assets, such as the Photoshop and Acrobat software that dominates online publishing, Adobe’s Omniture unit is one of the more powerful and popular analytics companies on the Web, which is right in Google’s wheelhouse.

Personally, that’s the one I would bet on, although that’s entirely me speaking.

Until that happens, here is a video interview of Jobs smacking around Adobe and Flash at the eighth D: All Things Digital conference in June:

Please see this disclosure related to me and Google.

]]> http://allthingsd.com/20101007/adobsoft-nonsense-on-the-microsoft-adobe-rumor-in-any-case-itd-more-likely-be-goodobe/feed/ 13 http://allthingsd.com/20100903/happy-labor-day-now-chillax-with-chad-vader-mud-bogging-and-cherry-cheese-cake/ http://allthingsd.com/20100903/happy-labor-day-now-chillax-with-chad-vader-mud-bogging-and-cherry-cheese-cake/#comments Sat, 04 Sep 2010 03:19:38 +0000 Kara Swisher http://kara.allthingsd.com/?p=33393

It’s Labor Day weekend, so let’s stop zinging Apple’s (AAPL) Ping, wondering how many regulators are eyeballing Google (GOOG) and trying to grok incessant exec departures at Yahoo (YHOO).

Instead, it’s time to chillax.

(The picture of me here with that very motto was sent to me by Chris Carmichael, who liked my tweet using the word, and made a lovely presentation–which you can see here.)

So, sit back and enjoy these Labor Day-related videos:

Chad Vader

Mud Bogging

Betty’s Labor Day Cheesecake with Cherry Pie Topping Recipe

]]> http://allthingsd.com/20100903/happy-labor-day-now-chillax-with-chad-vader-mud-bogging-and-cherry-cheese-cake/feed/ 1 http://allthingsd.com/20100727/will-googles-pending-search-dominance-in-japan-rile-regulators-there-too-maybe-it-should/ http://allthingsd.com/20100727/will-googles-pending-search-dominance-in-japan-rile-regulators-there-too-maybe-it-should/#comments Tue, 27 Jul 2010 15:50:10 +0000 Kara Swisher http://kara.allthingsd.com/?p=31296 Please see this disclosure related to me and Google.

If at first you don’t succeed, at least according to Google…try Japan.

In what amounts to an even more aggressive move than it made in trying–and failing due to regulatory objection–to strike a search partnership deal with Yahoo in the U.S. in 2008, Google and Yahoo Japan announced yesterday that the search giant will take over both the algorithmic and paid search businesses from, well, Yahoo.

If that sound confusing, it is because the Silicon Valley-based Yahoo owns only 35 percent of Yahoo Japan, which is an independent and separately traded company.

In fact, early Yahoo investor and Japanese telecommunications giant SoftBank Corp. has a larger stake and essentially controls Yahoo Japan.

Which is now free to leave Yahoo (YHOO) and to do a deal with Google (GOOG), it seems, after Yahoo struck a wide-ranging search technology and online deal of its own with Microsoft (MSFT) last year.

Under the terms of the deal, Yahoo outsourced its search technology to Microsoft’s Bing service.

Both Yahoo and Microsoft had hoped to keep Yahoo Japan in the fold, using Bing too, but it’s clear Google decided to get very competitive in a market where it has been the No. 2 player since it debuted its Japanese-language service in 2000.

Interestingly, Google was Yahoo Japan’s search technology provider for several years soon after it arrived, but that job then went to Yahoo.

In order to compete better with Yahoo Japan, which has a 53 percent market share compared to Google’s 38 percent, Google has tried a range of efforts unusual to its standard modus operandi

Those include PR stunts, brand advertising and even mucking up its pristine white main page with text and other noisy visual elements.

Because of that, Google has made market inroads, to be sure, cutting Yahoo Japan’s share slowly.

It’s an accomplishment that might have prompted Yahoo Japan to make a lucrative deal with the search giant, while the getting was good and before it lost more share.

As for Google, it stopped playing around and went for the actual business itself by effectively hip-checking Yahoo out of its spot.

And, at least in Japan, Google said regulators have already decided that its ambitious reach was not too much, even given the overwhelming share that will result with the Google-Yahoo Japan union.

Said a Google spokesman: “The companies have consulted with the Japan Fair Trade Commission, and confirmed that the JFTC has no objection to the proposed transaction.”

Incredible. And not in a good way.

That’s because a monopoly is a monopoly is a monopoly, no matter which language you say it in.

Even with apparent Japanese government approval, Microsoft is sure to try to scotch the deal, making hay with the fact that practically all the paid and algorithmic search in Japan would be under the control of one entity, especially so if it also includes mobile elements.

A lot is at stake for Microsoft, which is now in much bigger trouble in its quest to increase global market share for Bing.

That’s because Japan has close to 100 million active and wired consumers, many of whom are on the cutting edge of digital innovation. Japan is also a huge advertising market, second only to the U.S.

Given how important global growth is, it’s a market too juicy for growth-craving Google to pass up.

It is striking then that regulators will let the company enmesh its search service as deeply as it will with the Yahoo Japan move.

As with its scotched deal with Yahoo here–which Google abandoned after it was clear the U.S. government was not going to tolerate such market power in the hands of one player. At the time, Google said there would be plenty of competition, which it is now saying again.

In an email to me, Google PR dude Adam Kovacevich made the following salient points that I render here in their entirety:

It’s actually a different situation from the 2008 deal. To wit:

* Google will only be licensing its advertising platform services to YJC, and will not be providing its ads to appear on YJC. YJC will continue to manage their own advertising system and advertiser relationships, and both companies’ advertisers and advertising data will remain entirely separate.

* YJC will continue to compete as an independent online search and advertising company, and will be able to customize Google’s search service for their users–including how they see and experience search on YJC. Users should continue to expect to have very different experiences on YJC–whose portal approach to search is very popular in Japan–versus when they are on Google.

* This kind of arrangement is commonplace in the business world, and it doesn’t foreclose robust competition. Toyota sells its hybrid technology to Ford, even though they compete against one another in selling cars. Canon provides laser printer engines for HP, despite also competing in the broader laser printer market. And this is not the first time we’ve licensed our search technology to another portal site.

* The companies have consulted with the Japan Fair Trade Commission, and confirmed that the JFTC has no objection to the proposed transaction. We believe this is the correct outcome for a number of reasons, including the fact that the license will be non-exclusive, and both parties will be free to explore better products and services and work with third parties as they see fit. Competition between Google and YJC, as well as others in the online advertising market, will remain vigorous because their advertising operations will stay independent of one another, and there is competition with other online advertising service providers. In addition, from an advertiser perspective, online advertising is just one of many options available to them—including placing advertisements in traditional media.

Yes, the thriving newspaper business is a option! Wait a minute…

In any case, you might imagine the Japanese government would be a little more concerned.

It should be.

Regarding the Yahoogle attempt, as I also noted then:

“It is bad for advertisers, it is bad for consumers, it is bad for innovation, no matter how well-intentioned Google is.”

But Japanese regulators don’t have to take my word for it–they can listen to a 2008 quote by SoftBank head Masayoshi Son, who plays a critical role on the board of Yahoo Japan and presumably blessed this new deal:

“Google is a worthy competitor. The common threat is Google. I say that with respect.”

And, with respect, perhaps Japanese regulators need to take a little bit more time in waving any such deal on through so quickly and without public comment.

]]> http://allthingsd.com/20100727/will-googles-pending-search-dominance-in-japan-rile-regulators-there-too-maybe-it-should/feed/ 3 http://allthingsd.com/20100701/digitals-deadliest-catch-part-1-the-microhoo-search-integration-teams-nelson-and-morrissey-speak/ http://allthingsd.com/20100701/digitals-deadliest-catch-part-1-the-microhoo-search-integration-teams-nelson-and-morrissey-speak/#comments Thu, 01 Jul 2010 12:30:22 +0000 Kara Swisher http://kara.allthingsd.com/?p=30006

After months of trying, BoomTown was finally granted an audience with the two key execs who are now responsible for one of the diciest digital jobs going right now: Microsoft’s Greg Nelson and Yahoo’s Mark Morrissey.

The pair’s two-year task is to coordinate the massive search and online advertising partnership the companies struck last year, a job that is perhaps one of the more complex and critical to their businesses going forward.

The deal was finally approved by government regulators in February, and that started the clock for Nelson and Morrissey to get it cooking with gas.

Although it is not as if either Microsoft (MSFT) or Yahoo (YHOO) had a choice but to join together in order to make a dent in the dominant market position of Google (GOOG) in search, the companies are hoping their combined share of close to 30 percent will make a difference to both advertisers and consumers.

The integration will be ongoing, with hopes that the U.S. market will see a unified backend for search technology by the end of the year. Paid search will follow, as will the rest of the global markets.

As part of the shift, some staff from the Yahoo search technology group have either left, been laid off or have been moving over to Microsoft in the transition.

That has meant a Silicon Valley-to-Seattle area back and forth commute for Nelson and Morrissey, both longtime employees who have worked on a variety of other jobs at both companies, including heading MSN and major advertising platform initiatives, respectively.

But this effort is bigger than any of that, since it essentially is the search equivalent of herding cats–by creating a seamless search and online advertising product that works quickly and well across two major Web properties.

Thus, here is the first of two parts of an edited transcript of much of my hour-long interview with both, in which we talked about a range of issues from operations to culture to codependency.

Part Two of of the interview is posted here.

GREG NELSON: So, you want to hear how I got into this thing?

BOOMTOWN: Yeah…explain it to me.

GREG NELSON: So, you know me from the MSN days. And [Microsoft search head Qi Lu] said, “I like what you’re doing with your team, but I have this assignment. And I said, “Qi, I really respect what you’re trying to do. I don’t know if I’m the right guy for you, but go ahead and talk to everybody you want to talk to. And if you come back and ask me to do it, I’ll say yes.”

So, he went out and interviewed a bunch of people and then came back and said, I want you to do it. That was hard, because I loved my MSN team, and I loved what I was doing. But, you know, when Qi asks, you say yes.

BOOMTOWN: Had you been doing any search business?

GREG NELSON: Well, only through the MSN lens. I was a publisher in a way, because I had the responsibility to drive search volume through MSN as a publisher. So, I would work with our editorial staff in all these different markets to think about search experiences in the context of a portal or a media property, and how you turn search into content or how you drive premium content experiences that add value to search, whatever it might be.

So, I thought about it only from that point of view. The algorithmic part of search, like the way that you generate relevance in search, the way that you attach it to advertising in search, that’s sort of my…that’s what I get to learn out of this job, which is great.

MARK MORRISSEY: When he started, both of our executives got our top level teams together. We wanted to be really on the ground running by the time they got regulatory approval.

GREG NELSON: Just to give you a sense of what I walked into, there were hundreds…I don’t remember exactly how many, probably 200 people that had expressed interest in working on that Yahoo partnership by the time that I was asked to take it on. And they were people from all different parts of the company and division; not necessarily all at senior levels, but people that had said, “Wow, I think that’s really interesting, I’d like to come work on it.”

So, I went through a review of all those resumes and all that talent, and then also did additional sort of looking around and picking people one at a time to build what we thought we would be a great team.

BOOMTOWN: And how many people are working on it from Microsoft?

GREG NELSON: All up?

BOOMTOWN: Yes.

GREG NELSON: Thousands.

BOOMTOWN: No, of course, but…

GREG NELSON: Yeah, I mean, there’s about 25 on my team, 25, 30, something like that.

MARK MORRISSEY: But even after you got your team together, one of the things that we’ve continued to do is find some key talent at Yahoo that has moved over to also be part of the Microsoft team.

GREG NELSON: That’s been really key.

MARK MORRISSEY: Yeah. So, we want people that really understand the search business and have extensive experience at Yahoo and can really help bridge not only the cultural differences, but the technical differences and the way we’ve approached the market.

BOOMTOWN: You’ve done a lot of these.

MARK MORRISSEY: So, yeah, about five years ago, they brought me into the product portion of Panama….And then that’s probably the closest comparable effort in the industry, because we did have to move our 400,000, plus or minus, global advertisers over from the platform over to Panama.

When [Yahoo CEO Carol Bartz] came on board, she asked me to be part of a small team that worked directly with Microsoft from the very beginning to figure out what the right thing was for us to do at the company, and obviously then to do…figure out what the right aligned incentives and the right structure would be for a long term, 10-year, global agreement between the two companies.

So, I did that, and that was a big portion of my responsibility last year. And then similar to Greg, as soon as it became clear that we were going to get an agreement signed sort of in the October timeframe, maybe a little bit sooner than that, Carol sat me down. I had another position in the company, and she said, it’s the right thing for you to do, and she asked me to do it.

So, she asked me to take on this role, and I just have had a long term affinity for search and search advertising. I wanted to make sure with all the work that we did on Panama and all the investments we made in search that we really ended up with the right future. Search is critical to Yahoo’s future, and yet we’ve got to make sure that we do this transition in a way that really puts us forward of all of our different customers.

BOOMTOWN: When you say Yahoo’s future, how do you look at it in search?

MARK MORRISSEY: It’s a critical part of our business today, and a critical part of our consumer experience, and it always will be. What the market deserves is it really needs a true alternative to Google. And the best way for us to achieve that is to acknowledge things that we do well, and the things that Microsoft does well, and to leverage those things together, as opposed to us trying to do everything ourselves, particularly in the areas that we’re maybe not so good at.

So, between Microsoft’s experience and focus on delivering great global platforms with true scale, Yahoo’s strength in terms of working with advertisers and understanding of the market, I really believe that in the mechanics we set up from the very beginning of this that by leveraging both of our strengths, that we can really deliver a true competitor to Google.

Not only does our scale combine to really give them much better liquidity that is huge, right, getting up close to 30 percent in the U.S., big, but then the focus that we have really helps out.

[We're not going to be in] the search platform business, the crawling, the ranking and the indexing of the Web. There is a lot of search-related technology that we’re still going to do, because we believe that the search experience…where the market needs to go for search, it’s still a relatively young market, at least from my perspective. But the search experience really needs to evolve significantly.

So, rather than us with less resources than what Google or Microsoft have had in the past trying to do all the back-end platforms and do search experience, now we’re going to take our best talent and focus on search experience and the overall consumer experience.

And then some of our talent is moving over to Microsoft. There’s about 400 people in the products organization between the search technology and paid search that are moving between Yahoo and Microsoft.

BOOMTOWN: And how successful have you been recruiting those [to Microsoft]?

GREG NELSON: Oh, really. Yeah, very successful.

BOOMTOWN: And they’re staying down there [in Silicon Valley]?

GREG NELSON: Yeah, most of them are in India. Some of them are in Silicon Valley, and other places. We’ve had a super-high acceptance rate.

So, we’ve made that quite a big priority, including a lot of executive visits, and a lot of kind of, “Hey, welcome to Microsoft, we’re excited to have you.”

BOOMTOWN: So, then you brought up over about 400, is that right?

GREG NELSON: They come in waves actually, because Mark had talked about Panama, if you want, but they still have to continue to run Panama over a period of time, across all these different markets.

So, as they are closing down Panama in various places, then we’re bringing waves of employees over and training them on adCenter.

MARK MORRISSEY: And that was one of the things that really started to demonstrate and build a lot of confidence in the execution portion of the partnership. There’s two very competing objectives: Get the employees over as fast as you possibly can, because getting that talent into Microsoft not only puts more key talent on developing the things that we need to have done for the future of the platform, but also helps in just the transition itself.

And yet we don’t want to move the talent so quickly that we’re not able to continue to the platform all the way through.

So, we went through a very rigorous…I think it took about five or six weeks with the senior leadership at Microsoft on what employees can go in what locations with what skill sets to allow us to balance between the two, and I thought it went fantastic.

Employees are engaged; the Microsoft team did an excellent job of helping to explain their level of investment and give those employees…because employees, they want to beat Google, and knowing that they have a future at a company that is going to invest significantly to make that happen was a big deal.

BOOMTOWN: And, Greg, when you’re saying, when they move over, there’s not a flipped switch, I understand that, but what’s the time line at this point?

GREG NELSON: I think we’ve brought over 100 or so.

MARK MORRISSEY: A big chunk went last week.

BOOMTOWN: When does it switch over?

MARK MORRISSEY: Beginning of next year.

BOOMTOWN: The U.S. moves first and then…

GREG NELSON: Yeah. Well, U.S. and Canada, North America.

BOOMTOWN: Right, and then? Then the rest of the world?

GREG NELSON: You can kind of do it by size of market. So, Europe next.

MARK MORRISSEY: Basically, there’s 59 total countries and the objective is to get all countries done by Q2 of 2012, the first few markets being U.S. and Canada.

GREG NELSON: It’s 24 months after commencement, which is February 18th.

BOOMTOWN: Right, but it begins next January, correct?

MARK MORRISSEY: The principle is to transition with quality. That’s the overriding factor. And that’s based on the consumer experience and the yield and performance of advertisers and publishers in our owned-and-operated properties, right, because the intent here is make sure that, as we make the transition to going forward, we want the business results to get nothing but better and better.

We set a goal for both of our teams, if we can possibly move U.S. and Canada over before the holiday season, with quality, this year–this year, we want to do so.

BOOMTOWN: Quality, what does that mean?

MARK MORRISSEY: The first one is the experience. For consumers we want to deliver the same quality experience–basically the look and feel before and after the transition.

And the results will get nothing but more and more relevant over time. But the overall experience, the speed, the performance need to be as good or better going forward. For advertisers, there are capabilities that they’ve really enjoyed in Panama that are not in adCenter today. We’re not promising them one-for-one capabilities, but there are investments that we’re making together with Microsoft to bring adCenter up for advertisers and publishers.

In terms of the first one is experience–experience for consumers, advertisers, publishers, and we want the capabilities to be what they expect or better.

Then secondly, it’s around the business metrics….We want to make sure that again for not every single advertiser, not every single publisher, but if you look at in aggregate the groups of major marketplaces, we want the overall performance and business metrics, particularly going into the holiday season, it needs to be as good or better going forward.

So, quality is about the experience itself, measured probably in terms of capabilities, and then there’s the business metrics, and we need to make sure that their yield is as good.

GREG NELSON: And there’s great alignment on that. It’s a 10-year partnership at minimum, hopefully longer, and you want to get off on the right foot with everybody: Consumers, advertisers, publishers. You want them to feel like this is a strong launch, it’s a credible alternative, and we’re in.

So, we’re not going to rush it. If the companies don’t feel ready, like we can really achieve that, then, of course, we’re better to wait.

BOOMTOWN: Well, there is some pressure.

GREG NELSON: The time line that we started to communicate to–publicly, specifically–our advertisers and publishers, is our goal is to have, you know, as pretty confident, algo transition, U.S. and Canada, will happen this year.

We want the paid transition to happen this year, if we can do so with quality, before the holiday season. We’ve got to protect the holiday season at all costs here. And then the next big part of the goal is we have to have it all done by Q2 of 2012.

So, right now we’re finalizing with each of our markets what that sequence will be in terms of the countries, starting in the first quarter of next year, and then we just roll all the way through to that last year.

BOOMTOWN: And how have the cultural changes [been managed]?

GREG NELSON: It’s interesting, because, of course, walking into this I had sort of a point of view and some apprehension, like “Wow, is this going to be really hard.”

It’s been far easier than I had expected, and I think part of that is just that Mark and I get along very well. We’re both kind of pragmatic and it takes a lot to kind of get us ruffled. So, I think we have similar styles. And the people that we’ve hired, we’ve really focused on finding people that are resilient and emotionally mature, and it will sort of steer something of this complexity over a long period of time.

So, I think you often read about, oh, Microsoft has this one culture, Yahoo has another. In practice, at least between these teams, I haven’t found that to be true.

MARK MORRISSEY: Well, right, and the interests here and the incentives that sort of reinforce those interests are very aligned. The way that the partnership was put together, we all have this one big goal, and we’ve hired people that are just really strongly committed to getting that done, and you have support from both companies at the CEO level down. It’s the top priority for both companies. It’s been far easier than I thought.

BOOMTOWN: But in terms of disgruntlement at Yahoo over not being in search technology anymore, how did you cope with that?

MARK MORRISSEY: So, first, we are in search, we’re always going to be in search. There’s an element of that particular part of the search technology that we’re not going to be in. Yeah, there were some disgruntled employees, there always will be when you make a hard decision.

But, in general, employees have responded very well, and the level of commitment that we’ve seen from the Yahoo end, work that we have to do, because this is an extraordinarily complex transition process where we have to connect our front-end to Microsoft’s back-end, and it’s got to work at tremendous scale.

I don’t know if you had a chance to see my presentation from investor day, but one of the things that I showed was some of the screenshots of what we already have in test. February wasn’t that long ago. To have gotten regulatory approval for us, to get through the mountain of requirements and use cases that we had to figure out, to have gotten the API, agreement on the APIs, and to get the coding behind those APIs and get into test by June is phenomenal.

It’s really just a long way of saying that doesn’t happen unless the Yahoos that are working on this are incredibly committed to the future of where Yahoo is going, and the future of working together with Microsoft to achieve this objective.

So, while there will always be disgruntled employees, if you look at the larger population, I mean, we have people that are not just working, they’re working unbelievably hard to make this happen.

BOOMTOWN: Now, the search experience teams are competitive teams.

MARK MORRISSEY: Some are competitive and there are some places that we’re working together. It’s a mix of both.

BOOMTOWN: Such as? Bing has been very impressive in terms of their innovation.

MARK MORRISSEY: Absolutely.

GREG NELSON: Right, and then there’s a separate conversation which is longer term, and, you know, it’s the sort of thing that would feel great to work on if we could do it right now, but right now we’re sort of just trying to ship.

But, both companies have unique assets that we’d love to put into the search alliance, and we want to drive that conversation. And right now we just want to make sure that we get Yahoo to parity of their existing experience, and then we also want to have that conversation about how do we build strength.

MARK MORRISSEY: Another way of looking at it is this is the first agreement in the industry where we have full parity in the platform.

So, as Microsoft invests in innovation around the experience, that’s going to require changes in the platform. As Yahoo invests in things that we want to do in the search experience, that will require changes in the platform. So, we’re always going to meet in the middle at the platform anyway.

Now, that’s not to say that every single thing that we decide to do around entertainment will be the same things that Microsoft decides to do. Some of the things we want to innovate independently, because we’ll discover more things and really move the ball forward. But we already have established a very strong working relationship around how we make those platform decisions, because there are things that Yahoo does today that are quite different than the way Microsoft does them today.

In order for us to get to that comparable experience, this could have been a fight to the death, right? Why would we want to do that in the Microsoft platform? And they’d say, well, “No, we don’t want to do it.”

What we did–and again I think it speaks to the maturity of both of our teams–is we just worked through use cases. Well, what are consumers really trying to do here, how has Microsoft been approaching solving that problem, how is Yahoo doing that. I thought we worked not just agreeable solutions, but ones that moved the ball forward for both of us.

But I’m anxious to get into those future conversations much more. But right now we’ve got to ship.

GREG NELSON: That’s the next chapter. The chapter right now is everybody’s head is down trying to just land Yahoo properly on the platform, and with the great equivalent searching experience.

BOOMTOWN: And when you have complaints? [Microsoft is the] vendor essentially and [Yahoo] the customer.

MARK MORRISSEY: The structure of the agreement, we really worked hard. This goes way back to the very first discussions that we had. We wanted to have aligned incentives where we set up this codependence that kept us really working well together through each of our respective roles. So, by and large, the issues or concerns, why isn’t this working, why don’t I have this capability, you know, it’s Google does it this way…we are going to be a major voice of the customer to the Microsoft teams.

In the structure of the agreement we have both this operational rigor of how do we bring those things in, how do we make marketplace decisions, which are really important. They have the technology, we have the customer-facing piece–and then how do we make road map decisions.

So, throughout transition I have approval authority in Microsoft’s platform road maps, and then going forward then we have a way of we keep providing that type of input.

It’s not a typical vendor-customer complaint process, it’s much more of a partnership, but we each have respective roles where one of us is more the vendor and one of us is more the customer.

So, for the platform they’re more the vendor, we’re more the customer. For sales we’re the vendor, they’re the customer.

And that keeps us again this kind of healthy codependence. And again to leverage–that aligns with each of our strengths.

BOOMTOWN: Is there such a thing as a healthy codependence?

GREG NELSON: Just watch.

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