We are now entering the next stage of interesting events in the ongoing Microsoft/Yahoo! saga.

Steve Ballmer has formally withdrawn the offer to acquire Yahoo! in a letter to Yahoo!’s C.E.O. Jerry Yang. The letter was so interesting that I felt it was necessary to include it for you.

Dear Jerry:

After over three months, we have reached the conclusion of the process regarding a possible combination of Microsoft and Yahoo!.

I first want to convey my personal thanks to you, your management team, and Yahoo!’s Board of Directors for your consideration of our proposal. I appreciate the time and attention all of you have given to this matter, and I especially appreciate the time that you have invested personally. I feel that our discussions this week have been particularly useful, providing me for the first time with real clarity on what is and is not possible.

I am disappointed that Yahoo! has not moved towards accepting our offer. I first called you with our offer on January 31 because I believed that a combination of our two companies would have created real value for our respective shareholders and would have provided consumers, publishers, and advertisers with greater innovation and choice in the marketplace. Our decision to offer a 62 percent premium at that time reflected the strength of these convictions.

In our conversations this week, we conveyed our willingness to raise our offer to $33.00 per share, reflecting again our belief in this collective opportunity. This increase would have added approximately another $5 billion of value to your shareholders, compared to the current value of our initial offer. It also would have reflected a premium of over 70 percent compared to the price at which your stock closed on January 31. Yet it has proven insufficient, as your final position insisted on Microsoft paying yet another $5 billion or more, or at least another $4 per share above our $33.00 offer.

Also, after giving this week’s conversations further thought, it is clear to me that it is not sensible for Microsoft to take our offer directly to your shareholders. This approach would necessarily involve a protracted proxy contest and eventually an exchange offer. Our discussions with you have led us to conclude that, in the interim, you would take steps that would make Yahoo! undesirable as an acquisition for Microsoft.

We regard with particular concern your apparent planning to respond to a “hostile” bid by pursuing a new arrangement that would involve or lead to the outsourcing to Google of key paid Internet search terms offered by Yahoo! today. In our view, such an arrangement with the dominant search provider would make an acquisition of Yahoo! undesirable to us for a number of reasons:

•First, it would fundamentally undermine Yahoo!’s own strategy and long-term viability by encouraging advertisers to use Google as opposed to your Panama paid search system. This would also fragment your search advertising and display advertising strategies and the ecosystem surrounding them. This would undermine the reliance on your display advertising business to fuel future growth.
•Given this, it would impair Yahoo’s ability to retain the talented engineers working on advertising systems that are important to our interest in a combination of our companies.
•In addition, it would raise a host of regulatory and legal problems that no acquirer, including Microsoft, would want to inherit. Among other things, this would consolidate market share with the already-dominant paid search provider in a manner that would reduce competition and choice in the marketplace.
•This would also effectively enable Google to set the prices for key search terms on both their and your search platforms and, in the process, raise prices charged to advertisers on Yahoo. In addition to whatever resulting legal problems, this seems unwise from a business perspective unless in fact one simply wishes to use this as a vehicle to exit the paid search business in favor of Google.

•It could foreclose any chance of a combination with any other search provider that is not already relying on Google’s search services.

Accordingly, your apparent plan to pursue such an arrangement in the event of a proxy contest or exchange offer leads me to the firm decision not to pursue such a path. Instead, I hereby formally withdraw Microsoft’s proposal to acquire Yahoo!.

We will move forward and will continue to innovate and grow our business at Microsoft with the talented team we have in place and potentially through strategic transactions with other business partners.

I still believe even today that our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares. By failing to reach an agreement with us, you and your stockholders have left significant value on the table.

But clearly a deal is not to be.

Thank you again for the time we have spent together discussing this.

Sincerely yours,

Steven A. Ballmer
Chief Executive Officer
Microsoft Corporation

(source: http://www.microsoft.com/presspass/press/2008/may08/05-03letter.mspx)

No one really knows where this will go from here, but I am sure there are many people interested to see how this will affect YHOO stock on Monday morning. I would love to hear comments on this topic, so please feel free to speak your mind.

Kind Regards,

Dennis Kittrell

So you’ve got a website, you’ve got ads, but no traffic…What’s Next?

If you are a website owner, I am sure you are experiencing (or have previously experienced) the all too familiar dilemma we will discuss today; Monetization. Anyone can build a website these days, but to truly profit from it is the question weighing on our minds.

Whether it be through e-commerce, pay-per-click (PPC) advertising, or even direct advertising, the dilemma still rings true. The bottom line is that TRAFFIC=MONEY. And without traffic, there is no money, period.

The answer is actually a lot simpler than you might think.

The answer can be expressed in two words: Valuable Content

It really is that simple. If you can create quality content that your readers enjoy, they will at least come back. In some cases, they will even shoot a link to your page over to their friend. If you are really lucky, that friend will have a website of his own and will post a link back to your site. This is the core concept of viral marketing.

The way I see it, there are 6 levels of content quality:

• Fake
• Stolen
• Genuine
• Interesting
• Catchy
• Viral

Obviously the goal here is to break the ‘Viral’ barrier. You want to consistently aim to create content that spreads like wildfire. This will be the primary internet marketing technique for many years to come.

To clarify, this does not mean that you need to direct your content to the masses. You simply need to hit a nerve with your audience. You have to create something that shocks them, mystifies them, disturbs them, excites them, entertains them, inspires them, educates them, impresses them, or even angers them. These are the techniques being used all across the web to create an exponential increase in traffic and user base.

So now that we have answered the question of ‘What to do’ the next step is to figure out ‘How to do it’. So you need to ask yourself, “What is the best source for content that will hit one or more of the nerves listed above?” If you are confident in your ability to provide that content, great!! You are one step closer. If you are not, you may have to rely on other experts or even your users to provide the content. The best solution is to create content that YOU are highly familiar with, and that you can take in many different directions. Relying on your community is great, but you need a community first.

Happy Marketing!!

Dennis Kittrell