Week in review: Yahoo merges with...Icahn

Once adversaries, Yahoo and activist investor Carl Icahn are buddying up after the two reached a settlement that puts Icahn on the Internet company's board.

Icahn, who had proposed his own slate of board members, was agitating for the company to reach a deal to sell all or part of the company to Microsoft. Icahn and Microsoft officials had previously stated that they could not work with the existing Yahoo board.

As part of the settlement, Icahn, who owns about 68.7 million shares, or 4.98 percent of Yahoo common stock, has agreed to withdraw his nominees for consideration at the annual meeting and to vote his Yahoo shares in support of the board's nominees.

After months of exchanging barbs with Icahn, Yahoo CEO Jerry Yang has told employees in a memo that he's looking forward to the "fresh perspective" Icahn will bring as a board member.

Monday's note contrasts with an e-mail Yang penned last week that warned employees to brace for an especially contentious period leading up to the August 1 shareholders meeting. The latest missive, posted Monday evening in a corporate blog and noted in a Securities and Exchange Commission filing, not surprisingly, is all peaches and cream.

However, Microsoft may be the biggest winner in the proxy fight settlement. With its ally Icahn and two members of Icahn's former dissident proxy slate getting three seats on Yahoo's expanded 11-member board as part of the settlement, Microsoft may find a sympathetic ear on any future buyout or asset acquisition proposals for Yahoo's search business, said sources. That, as a result, could push Microsoft to make another bid sooner rather than later, sources said.

Microsoft moves on
Following the Yahoo-Icahn settlement, CEO Steve Ballmer said Microsoft's on-again, off-again talks with Yahoo are firmly in the "off-again" phase. The talks had focused first on a purchase and then on a search deal.

"Now we aren't (talking) and that's where things are," Ballmer said, speaking at Microsoft's financial analyst meeting. "There is nothing under discussion between the two of us."

At this point, it appears that Icahn won't be helping Microsoft take over Yahoo any time soon. And Microsoft has some issues of its own to address. One of those tasks will be replacing Kevin Johnson, Microsoft's online and Windows chief and a key figure in the company's failed Yahoo takeover effort, who is leaving the company to become chief executive officer at Juniper Networks. No immediate successor has been named for Johnson.

As chief of Windows and Windows Live, Johnson spearheaded Microsoft's revamped online search and advertising strategy, which is considered key if Microsoft is to catch Google in the online search arena. He outlined the new strategy in a memo to his team in May while Microsoft was actively pursuing Yahoo. The takeover of Yahoo was expected to be a big boost to that effort.

Vista viewpoints
There was some good news for Microsoft in another arena: Vista usage among businesses is up by more than 40 percent since January, according to a new study by Forrester Research. But even the good news comes with a twist: less than 10 percent of the 2,300 companies surveyed use Vista.

More troubling for Microsoft may be the fact that most of those Vista installs are replacing versions of Windows other than Windows XP, which remains popular with both businesses and consumers. Forrester says 87.1 percent of companies surveyed continue to use Windows XP.

Microsoft has been touting the fact that Vista adoption is actually on par with past releases, pointing to some new customers, such as the U.S. Air Force. But even some of the company's showcase early adopter customers are moving more slowly to Vista than originally planned.

However, after months of searching for ways to defend its oft-maligned Windows operating system, Microsoft may just have found its best weapon: Vista's skeptics.

Spurred by an e-mail from someone deep in the marketing ranks, Microsoft rounded up Windows XP users who had negative impressions of Vista. The subjects were put on video, asked about their impressions about Vista, and then shown a "new" operating system, code-named Mojave. More than 90 percent gave positive feedback on what they saw. Then they were told that "Mojave" was actually Windows Vista.

To be sure, the focus groups didn't have to install Vista or hook it up to their existing home network. But the emotional appeal of the "everyman" trying Vista and liking it clearly packs an emotional punch, something the company has desperately needed. Microsoft is still trying to figure out just how it will use the Mojave footage in its marketing, though it will clearly have a place.

Meanwhile, Windows unit head Bill Veghte said Windows 7 development remains on track. The company has officially said it would ship by January 2010, but top executives have also said from time to time that it would be done before the end of 2009.

"The product is tracking very, very well," Veghte said. "We are committed and looking good, relative to our commitment--(shipping Windows 7) three years from general availability of Windows Vista."

An Apple a day
Apple is still shining, reporting record Mac sales and one of its best third quarters ever. For the company's third fiscal quarter, Apple reported revenue and net profit that far exceeded the company's own guidance for the quarter and also handily beat Wall Street's expectations.

Mac sales were about in line with expectations, at 2.5 million units shipped during the quarter, and iPod shipments were actually a little higher than expected, at 11 million units. Mac shipments grew 41 percent, while iPod shipments grew 12 percent.

However, Apple continued to have problems with its new MobileMe service, with some users unable to access their e-mail. The e-mail accounts were once known as .Mac and now fall into the MobileMe service. Apple's discussion boards have been filled with angry MobileMe customers who hadn't been able to access their e-mail.

Apple's MobileMe support page has a note, even as of Friday morning, that says "1 percent of MobileMe members cannot access MobileMe Mail. Service will be restored ASAP. We apologize for this service interruption and are working hard to resolve the problem."

It's just the latest in a series of problems that has plagued the launch of MobileMe, a $99-a-year service that lets you access contacts, calendars, and other files from one computer on other Macs or PCs, as well as your iPhone.

Apple was also forced this week to address the issue of Steve Jobs' health, with a statement during a conference call that will do little to dampen the speculation. CFO Peter Oppenheimer read this statement during the call: "Steve loves Apple. He serves as CEO at the pleasure of the board, and he has no plans to leave Apple. Steve's health is a private matter."

Some have suggested--without a shred of evidence--that the launch issues with MobileMe and the iPhone 3G might be the result of poor oversight from Jobs due to his health. However, CNET News' Tom Krazit argues, the only responsibility that Apple's board of directors has to its shareholders is to make sure that Steve Jobs' health is not a liability, and disclosing anything beyond that would be a mistake.

Also of note
Google's Wikipedia competitor, Knol, which features articles about specific topics written by experts on that subject, was released to the public...Social-news site Digg.com, a perpetual target of acquisition rumors, is reportedly in "final negotiations" to sell itself to Google for $200 million...A network administrator for the city of San Francisco, in custody since July 13 on four felony charges of taking control of the city's computer network and locking out administrators, apparently gave the codes to the city mayor during a secret jailhouse visit.