All Things Digital

Microsoft (MSFT) and Time Warner (TWX) are finally getting around to finishing up the joint venture talks they began back in … oh, September of 2005. While no transaction is imminent, the two companies are said to be “casually” discussing a possible combination of Microsoft’s online operations and AOL–perhaps even at this very moment. Silicon Alley Insider reports that executives from both companies were scheduled to meet in Seattle sometime today.

Meanwhile, Yahoo (YHOO) continues to pursue its own discussions with AOL. With its annual shareholder meeting fast approaching, the struggling Internet company is scrambling for something, anything, with which to distract shareholders from the travesty of the past few months.

News of developing talks between Microsoft and AOL, and AOL and Yahoo, was first reported in BoomTown on Monday.

Apparently, Yahoo’s merger discussions with AOL can be reheated two, sometimes even three times–just like leftover pizza. According to Britain’s Times newspaper, Yahoo (YHOO) and Time Warner (TWX) spent the past weekend discussing a deal to combine the Internet operations of the declining Web giant with Time Warner’s AOL–the same deal the two mulled over back in June and a few months before that, as well. As I said back in April, “Yahoo will no doubt spin such a combination as one that would bolster its domestic market position. But rather than a synergistic powerhouse, a merger of these companies is more like two louts coming together to make one cretin. Not exactly a proven formula considering recent history. AOL+Compuserve = FAIL. AOL+Netscape = FAIL. AOL+Time Warner = FAIL. AOL+Yahoo?”

Anything to keep that share price above $20, eh Yahoo?

Coming as it does after news of Microsoft’s plan to bribe consumers to use its search engine, reports of Google’s (GOOG) continued dominance in search aren’t all that surprising. Google’s share of the U.S. search market in April grew to 61.6%, up from 59.8% in March, comScore announced today. And it grew at the expense of rivals Yahoo (YHOO), Microsoft (MSFT), AOL (TWX) and Ask.com (IACI). Yahoo’s share dropped 0.9 percentage points to 20.4%, Microsoft dropped 0.3 to 9.1%, AOL dropped 0.2 to 4.6% and Ask dropped 0.4 to 4.3%.

A pretty dismal showing for the other four “major” search engines, which apparently bleed and sweat search market share. As noted here last week, the IT industry used to say that IBM (IBM) wasn’t the competition; it was the environment in which you compete. Today the adage seems equally applicable to Google, which dominates the search market just as IBM once dominated the computer industry.

Seems AOL and Yahoo were a bit off on their estimates of the back royalties they owe music composers, writers and publishers for streaming their work over the Internet. The two companies had proposed paying just $632,879 and $889,402, respectively, in 2006 royalites to the American Society of Composers, Authors and Publishers. Yesterday, a federal court ruled that what the two really should pay is $5.95 million and $6.76 million, respectively.

Under the terms of the court’s order (PDF), AOL (TWX), Yahoo (YHOO) and RealNetworks (RNWK) as well must pay ASCAP
2.5% of their streamed-music revenues between 2002 and 2009. That could amount to as much as $100 million for ASCAP and its membership.

Quite a windfall and one that ASCAP was quick to ballyhoo. “The Court’s finding represents a major step toward proper valuation of the music contributions of songwriters, composers and publishers to these types of online businesses–many of which have built much of their success on the foundation of the creative works of others,” said Marilyn Bergman, president of ASCAP. “It is critical that these organizations share a reasonable portion of their sizable revenues with those of us whose content attracts audiences and, ultimately, helps to make their businesses viable. This decision will go a long way toward protecting the ability of songwriters and composers to be compensated fairly as the use of musical works online continues to grow.”

Time Warner’s AOL division posted financial results today, and while its revenue did not, as some investors worried, “fall off a cliff,” it’s clearly hanging on to one for dear life.

Revenue at the AOL unit slid 23% to $1.1 billion, with much of that decline stemming from a steep 28% drop-off in dial-up subscribers. Ad-revenue growth slowed markedly, rising just 1%. Disappointing news for Time Warner (TWX), which has been mulling the possible sale of AOL. With the MicroHoo merger on the horizon, the field of suitors for the division could narrow by two very quickly.

That said, today brought with it good news for Time Warner as well. The company reported first-quarter earnings that were largely in line with analyst expectations and announced plans to spin off its cable operation. “We’ve decided that a complete structural separation of Time Warner Cable, under the right circumstances, is in the best interests of both companies’ shareholders,” Time Warner CEO Jeff Bewkes said today in a statement. “We’re working hard on an agreement with Time Warner Cable, which we expect to finalize soon.”

Well, if this rumor proves true, Canada really will have to declare a national day of mourning for the BlackBerry (RIMM). When Apple (AAPL) CEO Steve Jobs uncrates the 3G iPhone a few months from now, presumably at the company’s WWDC conference in June, the device’s price may draw more oohs and ahs than its feature set.

Fortune claims AT&T (T) plans to knock $200 off the cost of a new iPhone for customers who sign two-year contracts. If that is indeed AT&T’s intention, the 8-gigabyte version of the device would likely price out at $199, the 16-gigabyte model at $399. Which is a pretty compelling value proposition given that the device will soon support Microsoft (MSFT) Exchange and run Spore, Salesforce (CRM), AIM from AOL (TWX) and a host of other third-party apps.

No wonder Apple execs seemed so comfortable reiterating the company’s goal of selling 10 million iPhones in 2008. At $199, they might be able to hit that number without the Asian markets.

AOL’s ad revenue may be “falling off a cliff,” according to CNBC’s David Faber, but its traffic’s not half bad. AOL (TWX) said today that page views to its Web sites hit an all-time high in March, according to comScore (SCOR) Media Metrix. Page views grew 28% during the month, and are up 35% year-over-year. Unique visitors rose 11% year-over-year to 56.5 million.

AOL attributes the double-digit growth to a year-long redesign and rebranding effort, which ironically included a de-emphasizing of the AOL brand. “If I call a hip-hop site AOL Hip Hop,” said Bill Wilson, executive vice president of AOL Vertical Programming, “that just won’t resonate with consumers.”

News that Yahoo’s (YHOO) board of directors failed to reach any decisions after meeting Friday to discuss the company’s response to Microsoft’s (MSFT) bid has some folks wondering if Yahoo’s directors are, you know, … understandably … er … hesitant about merging with AOL (TWX).

And it has others suggesting that Microsoft and the Internet search pioneer may announce a deal as early as this week. Predicting that Yahoo is unlikely to post stronger-than-expected first-quarter earnings next week, UBS Securities (UBS) analysts Benjamin Schachter and Heather Bellini say they wouldn’t be surprised if in the next few days the company agreed to be acquired by Microsoft. “We still think Microsoft will prevail,” Bellini said in the note. “We would not be surprised to see a deal struck sometime this week, and think it will end up being for a higher price than the original $31 per share offer.”

And who knows, it could happen. A merger of the two companies has seemed a foregone conclusion for quite a while now. As Tech Trader Daily’s Eric Savitz aptly notes, “… in the end, it’s simply obvious. Microsoft needs to buy. Yahoo needs to sell. The rest is a sideshow.” Mafioso Torch Yo, anyone?

Salesforce.com will be acquired in 2007. We believe the growing importance of online delivery of software and business services will make Salesforce.com (and particularly its AppExchange hub) a very tempting target to both large players (like IBM, SAP, Oracle, Microsoft) still struggling to scale down and move online, and consumer-heavy players (like Google, Yahoo, AOL) trying to ’scale up’ to the business market as a way to further monetize their online presence.”

–IDC Predictions 2007

Salesforce.com CEO Marc Benioff (photo, right) wasn’t kidding when he said in May of 2007, “We’re the Google of business.” The customer-relationship software pioneer this morning announced an alliance with Google (GOOG) that will see it integrating Google’s online services into the Salesforce.com (CRM) platform.

Christened Salesforce for Google Apps, the offering embeds Gmail, Google Calendar, Google Talk and Google Docs directly into Salesforce.com’s core sales force automation, marketing and customer-service applications.

The partnership is quite an endorsement of business-workspace applications delivered from the cloud. It’s also an aggressive move against Microsoft’s (MSFT) Dynamics Live CRM, Redmond’s customer relationship management software, which is integrated with its Office suite.

Together Google and Salesforce.com are clearly seeking to challenge Microsoft’s multibillion-dollar Office franchise. As Marc Benioff, CEO of Salesforce.com, told the New York Times, “The enemy of my enemy is my friend, so that makes Google my best friend.” And perhaps even a potential acquirer.