Microsoft, Icahn Align Interests on Yahoo

We haven’t been posting every twist and turn in the seemingly eternal on-again, off-again Microsoft-Yahoo takeover saga. But this morning’s developments are significant. Microsoft now says that efforts by dissident Yahoo shareholder Carl Icahn to replace the Yahoo board could accelerate a Microhoo merger. In throwing its weight behind Icahn’s proxy battle for control of the Yahoo board, Microsoft is taking its case to Yahoo’s shareholders, who may soon have the chance to cast the deciding vote in whether the company will continue on its own or be bought by Microsoft.

Check out the full statements from Microsoft and Icahn for more details. Meanwhile, the UK’s Times Online reports that Yahoo spent the July 4 holiday weekend in discussions with Goldman Sachs and Time Warner about defensive partnerships.

Yahoo’s Future and Data Center Demand

In the last week there’s been lots of analysis about the future of Yahoo (YHOO) now that the company has spurned Microsoft (MSFT) and begun using ads from Google (GOOG) to monetize some of its inventory. Most of the punditry has focused on the battle between those three companies, handicapping winners and losers. Some of it has been interesting reading.

But here at Data Center Knowledge we are all about the data centers. For us, the bottom line is that the collapse of negotiations between Yahoo and Microsoft will result in a net gain in demand for data centers. Here are the factors supporting our belief:

• No Data Center Consolidation: It’s difficult to say whether the inevitable consolidation of Microsoft and Yahoo’s data centers would have led to the shuttering of any facilities. But the companies have many of their data centers in the same places, including Silicon Valley, northern Virginia and Quincy, Washington. Then there are the platform issues: Microsoft has standardized on its own operating systems and servers, while Yahoo has optimized its operations on open source software, especially FreeBSD, PHP and Hadoop. Microsoft CEO Steve Ballmer said all the right things about a merged Microhoo “being a PHP shop for the foreseeable future.” But it’s reasonable to expect that Microsoft’s platform would eventually have become the standard.

Yahoo Buzz Traffic: The Slashdot Effect Squared?

The new Yahoo Buzz feature is quickly becoming the new test of web site scalability, generating massive waves of visitors that can dwarf the volume of traffic produced by a link on the front pages of Slashdot or Digg. Those two sites have been the historic benchmarks for sudden waves of traffic that can overwhelm web servers (see Slashdot Effect for background).

But Yahoo Buzz, a Digg-style social news site, has added a new wrinkle that cranks the traffic volume up to 11: the top Buzz stories are linked from the Yahoo home page, creating a traffic tsunami. News sites that have participated in the Yahoo Buzz beta are reporting unprecedented traffic spikes. Most of these early recipients of these “Buzz Effect” surges have been established sites that have managed the sudden traffic hit. This week we’ve started to see examples of the way a Buzz link on the Yahoo front page can crush a smaller site. As Buzz begins to include more news sources, it seems likely to raise the bar for web scalability for many blogs and news sites.

Yahoo Steps Up Its Data Center Investment

Yahoo (YHOO) is continuing to expand its data center network, investing in infrastructure even as the company reportedly continues to talk with Microsoft about resurrecting the deal between the two tech titans. The acceleration of Yahoo’s data center build-out suggests the company is determined not to let the discussions about its future cause it to fall behind Microsoft and Google in the Internet infrastructure arms race.

Last week Yahoo signed a lease for a major new data center in Santa Clara, Calif. Data center developer Digital Realty Trust (DLR) will build the new facility for Yahoo under its Turn-Key Datacenter program, in which space is finished by Digital Realty and delivered “move-in ready.” The program allows companies to deploy data center infrastructure more quickly than if they built new facilities themselves.

Yahoo has also accelerated the deployment of its data center infrastructure in Ashburn, Virginia, where the company is leasing space in a large facility that was recently completed by Dupont Fabros Technology (DFT). Yahoo is leasing about two-thirds of the 170,000 square foot second phase of the ACC4 data center in Ashburn, where Facebook and MySpace are also tenants.

Yahoo to Lease Digital Realty Data Center

Yahoo (YHOO) has signed a lease agreement with Digital Realty Trust, Inc. (DLR) for a Turn-Key Datacenter, and intends the new facility to qualify for LEED Gold certification as a “green” data center. The two companies did not announce the exact location of the new facility, but said it would be in a Digital Realty facility in California.

Digital Realty recently purchased 50 percent ownership of a Santa Clara data center that is intended to qualify for LEED status, and also has turn-key space available in carrier hotels it owns in Los Angeles (600 W. 7th) and San Francisco (200 Paul Avenue).

“Yahoo is committed to being an environmentally responsible business,” said Kevin Timmons, Vice President of Operations at Yahoo. “We build our datacenters based on a rigorous analysis of key components such as geographical location, climates, building materials, cost performance, and use of alternative-energy systems.”

Microsoft May Seek New Yahoo Combination

Microsoft (MSFT) said tonight it is continuing to explore alternatives to a full acquisition of Yahoo (YHOO). The company provided few details on the possible form and focus of any deal, but emphasized that Microsoft is not making a new bid to acquire all of Yahoo. Speculation about a renewed Microsoft bid has increased since investor Carl Icahn announced last week that he had amassed a large stake in Yahoo and would seek to oust its entire board of directors in an upcoming vote. Here’s the full text of Microsoft’s statement:

In light of developments since the withdrawal of the Microsoft proposal to acquire Yahoo! Inc., Microsoft announced that it is continuing to explore and pursue its alternatives to improve and expand its online services and advertising business. Microsoft is considering and has raised with Yahoo! an alternative that would involve a transaction with Yahoo! but not an acquisition of all of Yahoo! Microsoft is not proposing to make a new bid to acquire all of Yahoo! at this time, but reserves the right to reconsider that alternative depending on future developments and discussions that may take place with Yahoo! or discussions with shareholders of Yahoo! or Microsoft or with other third parties.

Kara Swisher of Boom Town reported that “sources at both companies said it involved Microsoft buying Yahoo’s search business and the ad business related to text-based ads.” Such a structure would allow Microsoft to increase its share of the Internet search business, while allowing Yahoo to retain its large display advertising business.

Yahoo has now issued a response, which appears to leave the door open:

Icahn Moves to Unseat Yahoo’s Board

The drama surrounding the future of Yahoo continues. Billionaire investor Carl Icahn is launching a proxy contest to unseat Yahoo Inc.’s board of directors, the Wall Street Journal reported late Wednesday, citing “a person close to the matter.” The move is aimed at pressuring Yahoo (YHOO) to reach out to Microsoft Corp. (MSFT) to re-start sale discussions. Icahn plans to nominate 10 directors to replace Yahoo’s board before a deadline Thursday, the Journal said. Icahn’s nominees will reportedly include former Viacom Inc. Chief Executive Frank Biondi, who has worked with Icahn on other proxy fights.

See additional analysis at Reuters and Silicon Alley Insider.

Yahoo Eyes AOL Deal, Microsoft Courts Murdoch

There is a furious crescendo of deal-making activity among the Internet’s largest players tonight, as both Yahoo and Microsoft seek allies to strengthen their hand in the prolonged takeover battle. Here’s the latest:

• The Wall Street Journal and Paid Content are both reporting that
  Yahoo (YHOO) is close to a deal with AOL (TWX) that would combine the Internet titans’ operations as part of a broader strategy to rebuff a takeover bid by Microsoft (MSFT).
• The New York Times and the Journal are reporting that News Corp. (NWS) is in serious talks with Microsoft about a joint bid for Yahoo Inc. “The combination, which would join Yahoo, Microsoft’s MSN and News Corporation’s MySpace, would create a behemoth that would upend the Internet landscape,” The Times writes.
• Earlier Wednesday, Yahoo announced that it would begin a limited test of Google Inc.’s AdSense for Search service, which will deliver relevant Google (GOOG) ads alongside Yahoo’s own search results. Many analysts believe Yahoo can instantly increase its ad reveneue by using Google’s ads, which typically monetize search results more effectively than Yahoo’s own technology. The announcement was seen as a clear sign that Yahoo was serious about pursuing alternatives to a Microsoft deal.

Stay tuned. The twists and turns are coming quickly, with each scenario offering potentially dramatic shifts in power, partners and page views.