All Things Digital

Was he inebriated? Do you even know anyone who owns a Zune?”

–-Apple CEO Steve Jobs on Microsoft’s claim that the Zune is now a worthy alternative to the iPod.

Despite its feature differentiations and, er, “distinctive” color palette, Microsoft’s (MSFT) Zune has yet to prove itself the iPod killer it was once touted as. Since its launch in November of 2006, the Zune has sold 2 million units. In comparison, Apple (AAPL) in its last quarter sold 10.6 million iPods–quintuple Microsoft’s cumulative sales to date. Zune’s market share in this space during the first quarter: 4%. Apple’s share: 71%.

Clearly, the only thing being killed by Microsoft’s iPod killer are Microsoft’s chances for unseating Apple in a market that would seem–according to relatively flat year-over-year iPod sales–to have peaked without it.

Microsoft (MSFT) is appealing the $1.38 billion fine given it by the European Commission for failing to comply with a landmark antitrust ruling in what it describes as a “constructive effort to seek clarity from the court.”

By “clarity,” Microsoft means an annulment of the EC’s February decision imposing the fine–the highest ever meted out in an antitrust case. But it’s not likely to get it. At least according to the EC. Said an EC spokesperson: “The commission is confident that its decision to impose the fine is legally sound.”

Translation: No. How’s that for “clarity”?

Microsoft (MSFT) has withdrawn its bid for Yahoo (YHOO), spanked its CEO in a stink-bomb of a public letter, disavowed plansfor any future acquisitions, and disbanded the slate of dissident directors it had lined up should it have decided to go forward with a hostile proxy bid for the company.

But if Yahoo, beaten into submission by irate investors, should suddenly come crawling back to the now empty negotiating table, Microsoft might indulge it, if only for a moment. For now, it’s busy with what Microsoft’s Chief Research and Strategy Officer Craig Mundie refers to as “Plan B.”

“The market may wish that the Yahoo deal may come back together, but Microsoft at least at this point assumes it’s over,” Mundie told Reuters. “Yahoo could always come back again and say, Please buy us for $33 (a share), and I’m sure we might reconsider it, but we’re not assuming that’s going to happen.”

Seems Microsoft, like Yahoo CEO Jerry Yang, is more than willing to listen if the company has anything new to say. And it’s not even facing any shareholder lawsuits …

You wouldn’t know it from the protests over Microsoft’s decision to retire Windows XP at the end of June or the PC users exercising their Windows Vista downgrade rights, but Vista is actually selling quite well. Microsoft (MSFT) Chairman Bill Gates said today that sales of Windows Vista have reached 140 million copies worldwide. “That’s a very rapid sales rate,” Gates explained.

Sure is. Especially for an operating system that’s met with such a middling reception. That said, you’ve got to wonder if the 140 million copies to which Gates refers are deployed copies or licenses sold. Because if it’s the latter, the number would be decidedly less impressive. It wouldn’t really account for volume licenses sold to corporate customers, copies pre-installed on OEM computers, and copies downgraded to Windows XP. And Gates has made exactly this type of oblique statement before, the last time Microsoft announced Vista sales figures.

July 3 will be “Independence Day” for Yahoo (YHOO) shareholders (”Independence day. Heh. “Enjoy The Shareholder Meeting. It May Be Your Last …“). So says Eric Jackson, president of Ironfire Capital, who is doing his damnedest to recruit an alternate slate of directors to present at Yahoo’s annual meeting on that day.

“It’s hard to believe the board could let this happen,” Jackson told the Associated Press. “I think they completely misconstrued the situation and thought, ‘Microsoft is rich, so let’s soak them.’ They were bluffing all the way and got caught.”

If Jackson hopes to make good on his threat, he’d best get cracking. Shareholders have only 10 days from the announcement of Yahoo’s annual meeting to nominate directors and Yahoo did just that this past Monday. That means Jackson has until May 15 to pull his slate together. Perhaps he can just borrow Microsoft’s (MSFT) …

Good thing so rarely a correlation exists between a company’s public announcements and its corporate actions. Otherwise, it might be tough to parse Microsoft’s recent comments about future acquisitions in light of some rumors floating around Silicon Valley today.

While touring Japan this week, company Chairman Bill Gates told a news conference that Microsoft (MSFT) isn’t likely to pursue other deals following its withdrawal of its ill-starred takeover bid for Yahoo (YHOO). Said Gates, “Now at this point Microsoft is focused on its independent strategy.”

Windows Live General Manager Brian Hall echoed that sentiment at an analyst meeting yesterday: “We’ve withdrawn the offer and moved on, and now are focused on how we grow as fast as possible organically.”

Seems this whole Yahoo debacle has put Microsoft off acquisitions entirely. Or has it? As first reported by BoomTown’s Kara Swisher, Microsoft recently contacted Facebook to gauge the Internet company’s willingness to sell it the 98.4% of the company that it doesn’t yet own. No word on what Facebook’s reply was, although CEO Mark Zuckerberg has long said he’s not interested in selling the company. And even if he were, Facebook doesn’t exactly solve the problems that Yahoo would have. It’s hardly a viable source of online advertising …

If this Yahoo-Microsoft deal debacle becomes any more ludicrous, NBC will be able to use it as a plot line in the next season of “The Office.”

First Yahoo (YHOO) insiders claim that the company didn’t know Microsoft had raised its bid for the company to $33-per-share. And now Yahoo CEO Jerry Yang is telling anyone who will listen that Yahoo remains open to a deal with Microsoft. “If they have anything new to say, we would be open,” Yang told Reuters. “I am more than willing to listen. There are some that are disappointed that a deal was not reached and there are others that are probably pleased we didn’t do the deal at $33. The bottom line is we went in there to have honest and good-faith negotiations and they walked away. We didn’t walk away.”

Yang gave a similar story to the New York Times, again blaming Microsoft (MSFT) for the failed negotiations. “They chose to walk away after we put a price on the table, and they didn’t want to negotiate,” he said of Microsoft. “From my perspective, we were open all along to selling to Microsoft. We just feel Yahoo, either standalone or with Microsoft, is worth more than what they put on the table.”

Yang’s account, of course, conflicts with that of Microsoft and its CEO Steve Ballmer, who insist the software giant attempted to negotiate in good faith and Yahoo settled on a price of $37 a share and ultimately refused to budge.

Get this. Yahoo (YHOO) didn’t accept Microsoft’s (MSFT) offer of $33-per-share, because it didn’t know Microsoft had offered $33-per-share. This according to people close to Yahoo, who claim that Yahoo only learned Microsoft was willing to raise its bid in Microsoft CEO Steve Ballmer’s kiss-off letter to Yahoo CEO Jerry Yang. “We did not know what the offer was,” said one.

Meanwhile, another source close to Yahoo claims Microsoft has mischaracterized the negotiations between the two companies. “It is simply factually incorrect to make it seem as though we weren’t actively engaged in robust negotiations,” he told CNBC, stressing that Yahoo had embraced its fiduciary responsibilities, not shirked them as Microsoft would suggest. “Microsoft is lying,” he said. “How much communication do they want? They were upset because we wouldn’t accept a low-ball bid.”

But perhaps not as upset as Yahoo shareholders may be having just watched $14 billion evaporate into thin air because the company’s board suddenly claims not to have known what Microsoft’s offer was. You can almost hear the shareholder lawsuits being written. Said Stuart Grant, managing director at Grant & Eisenhofer, a law firm that specializes in bringing investor lawsuits: “I think it’s pretty hard for the Yahoo board to turn down $33 when they’ve shown no ability to turn around their stock price. There’s going to be breach-of-fiduciary-duty lawsuits, and I must tell you they are looking pretty good right now.”

“There’s a reason why we’re the only fortune 500 company with an exclamation point at the end of our name,” Yahoo CEO Jerry Yang said yesterday. “And now is the time to demonstrate what that exclamation point stands for.”

Today investors are doing just that. Sadly for Yang, it’s with criticisms and epithets, not calls to arms. Seems Yahoo (YHOO) investors’ view of what that exclamation point stands for post-Microsoft (MSFT) differ just a wee bit from Yang’s. What follows is a selection of reader comments on Yahoo CEO Jerry Yang’s “OK, So Now What?” blog post:

• Dear Mr. Yang, You had the opportunity to provide your shareholders and dying company with a somewhat respectable exit. A 70% premium sat in your lap and you had the ARROGANCE to ask for more.

• I don’t doubt that the pro-Microsoft crowd is celebrating right now. I’ll bet no one in Redmond wants to go through the pain of integrating with a company that has undergone an engineering talent-exodus and is becoming irrelevant in its core technologies. So as a Microsoft shareholder, thank you for acting in my best interests. Had you accepted Microsoft’s offer it would most certainly have crippled Ballmer and company.
• Hi Jerry, Nice job. … Now will you please buy my 500 shares at $31. I mean it’s a great deal for you since your stock is worth $37 as you say.
• How are you going to turn this aging hippy around? How about coming out and announcing Yahoo’s new strategy. You can start by appointing Sue Decker CEO.

Yahoo (YHOO) investors aren’t the only ones suffering from the company’s non-deal with Microsoft (MSFT). Shareholders of Alibaba (1688.HK), the Chinese e-commerce firm in which Yahoo holds a 39% stake, are having a rough morning as well. Shares in Alibaba slipped nearly 6% to $15.24 in trading today. Bet Alibaba founder Jack Ma has some choice words for Jerry Yang right about now …