Yahoo’s stock had been declining steadily for almost two years before Microsoft showed up with Mad Money, yet the Internet portal thinks it’s worth $40 a share. Fact, or a case of corporate delusion? I think it’s the latter. Why is it worth $40 a share? (Is it because Microsoft offered $40 a share for Yahoo earlier, and Yahoo never took the offer and now are banging their head against the wall?)

Last time Yahoo traded at over $40 a share was back in January 2006. Now I am not against the idea of Yahoo squeezing more money out of Microsoft, as long as Yahoo can make a good case for it. Still, a 60 percent premium isn’t enough for Yahoo’s investors such as Bill Miller of Legg Mason, a mutual fund company. In a letter to investors in his fund, he writes:

Our own valuation work puts the value of YHOO in the range of those reported numbers, though, and we think MSFT will need to enhance its offer if it wants to complete a deal. YHOO shares were recently trading at a four-year low, and the stock averaged above the current offer price for all of 2004. YHOO is a uniquely valuable asset, and we expect MSFT will do what it takes to acquire it.

I would love to see Miller’s valuation work on Yahoo. Call me cynical, but there is a reason the stock is trading at a four-year low. Of course, this is the same fund that has big positions in stellar performers like Countrywide Financial, eBay and Sprint Nextel.

Many Wall Street analysts think Yahoo is worth between $34 and $35 a share. And that is the best case scenario, and assumes that everything will go right for the company in the display advertising business. Gee, I wonder why Google is spending over $3.1 billion trying to buy DoubleClick?

I think Yahoo is suffering from a case of corporate delusion. The company’s litany of woes is so long that it’s going to take some time before the proverbial sun will shine on Yahoo’s cow patch in Sunnyvale again. People seem to have already forgotten some of the problems that showed up in the fourth quarter of 2007 (not that they’ve been resolved), such as:

• Yahoo’s search revenues slowed down after growing for four straight quarters.
• Yahoo used to get paid by the broadband providers, but now it will have to pay them a piece of the advertising action. That will result in between $150 million and $200 million in lost fees in 2008. This was presented as a positive, but getting paid isn’t the same as paying. (AT&T and BT are offering between $300 million and $400 million as upfront payments, while Rogers will pay $50 million.)

And look at yesterday’s layoffs. After sending out an email thanking the troops for sticking by the company, Jerry & Co. cut about 1,000 jobs. Nice morale-boosting move. Memo to Yahoos: Jerry-atrics are as likely to shank you as the Barons of Redmond.

There will be some of you who might accuse me of being too hard on Yahoo, and perhaps I am. But it is hard to have empathy for a company that has consistently managed to underperform. It has been losing the talent that made it great. More importantly, there seem to be very few reasons to catalyze growth and a better future at Yahoo.

And if Microsoft wants to pay a 60 percent premium for this kind of a future, that’s a pretty good deal.

By the way, if you want to catch up with the roller coaster of the Yahoo-Microsoft showdown, Kara Swisher has a nice wrap-up today, while Michael Arrington is reporting of talks between Yahoo and News Corp.

Mark Zuckerberg & Co. stood up in front of the advertising community in New York today and unveiled Facebook Ads, an ad system that allows companies to use the Facebook social graph and to develop highly targeted ads. Large brands such as Coca-Cola (KO), Sony Pictures (SNE) and Verizon (VZ) have signed on for this effort. Part of the engine powering this new ad system is called Beacon, which takes data from 44 web destinations and mashes it up with Facebook’s internal information to help build more focused advertising messages.

While it seems to be a clever idea, a quick review reveals that Beacon might turn out to be a privacy hairball for the company.

The 44 sites that have partnered with Facebook include everyone from Kongregate, LiveJournal, NYTimes (NYT), Sony Online, Blockbuster (BBI), Bluefly.com, STA Travel, The Knot, TripAdvisor, Travel Ticker, TypePad, viagogo, Vox, Yelp, WeddingChannel.com and Zappos.com.

These partner sites put a little a piece of Facebook javascript on their web site and certain information, cleverly (and innocuously) labeled as a user alert, is sent to Facebook. For instance, Fandago users can publish information about the movies they saw. It all seems like a clever idea because it lets Facebook triangulate your likes and dislikes even more, and deliver more focused ads.

Facebook Beacon provides advanced privacy controls so Facebook users can decide whether to distribute specific actions from participating sites with their friends.

Reading that line prompted the following questions, which I put to Facebook:

1. Can consumers opt out of this?
2. If yes, does their data get erased?
3. Will the sites for example, Fandango, stop sending all personal and any kind of information to Facebook once the user opts out?
4. Why didn’t they make this an opt-in feature, instead of being an opt-out feature?

Their PR spokesperson emailed me this response:

Users can opt-out of Beacon on a per-site basis. They can opt-out for each action, or they can opt-out to never have an affiliated site send stories to Facebook. For instance, a user that buys The Notebook from Blockbuster can stop a story from being published about it, or she can opt-out of having Blockbuster publish any actions she takes on the Blockbuster site.

The response doesn’t seem to answer my questions and basically makes it seem like users have control over this data, when in reality, this is a privacy disaster waiting to happen. The javascript on the Fandango site pops up a little screen which asks if you want to publish the information on Facebook. If you say no, your friends won’t see the information, but apparently Facebook still receives it. This means that if you are a Facebook member, Facebook will know what you are doing on each of their partner sites. And there is no way for you to opt out of that. Or is there? I asked Facebook to clarify and I am still waiting for them to write back.

As for the rest of their announcement, while long and elaborate, it doesn’t contain any information we haven’t already seen. MySpace (NWS) has been doing brand specific-pages for a while now, in addition to using other targeting techniques.

Maybe Google should have doodled a vampire on their home page today, in honor of Halloween and their announcement of OpenSocial, a set of APIs that allows web developers to write applications once, then deploy them on a variety of different social networking platforms.

This could be a direct attack by Google (GOOG) on Facebook’s F8 platform — an attempt to combat a giant among social networks by bulking up potential competitors like its own Orkut or, more likely, by building a super-network composed of multiple competitors. That’s what it tastes like on first bite.

Perhaps Google’s longer-term strategy, though, is to weaken dedicated social networks like MySpace (NWS) and Facebook not by animating a Frankenstein-style competitor but by spreading social features everywhere, sucking out the social life in drips and drops. If every application and web site is social, Facebook becomes just another place to socialize online, not the one that rules them all.

According to the New York Times, Google does plan to work social features into the entire web:

[Google director of product management Joe Kraus] said that over time Google hoped to bring other social elements to Web applications, whether or not they run inside social networks. Analysts expect other Google services, including iGoogle, to be equipped with social features eventually.

OpenSocial, as announced, is fairly modest: It makes it possible for application developers to write an embeddable application, then plug it into a variety of different platforms, including Ning, Orkut, Xing, and LinkedIn. The profile, activity, and relationship data of each platform doesn’t therefore become available externally or portable across platforms. No universally accessible online social graph comes out of this, not yet.

It’s a little hard to see how this could lead to a dethroning of Facebook (or MySpace either) given that the big benefit from social networking doesn’t lie in tossing hot potatoes or playing online word games — in other words, not in the embedded applications, though those applications add some value. The basic value for users lies rather in what the social network itself does, such as allowing people to share things about themselves, track their relationships, and interact with each other.

Social interactions and social information don’t have to be centralized onto one site though; they can be spread across the web (as they already are, of course, with tools like email, instant messaging, topic-oriented discussion forums, blogging, and so forth). OpenSocial could be the language that the web-as-social-network speaks — and if that happens, Facebook might look a bit anemic.

Also read: Dave Winer on Open Social: Standards devised by one tech company whose main purpose is to undermine another tech company, usually don’t work.

Are you sick and tired of phishing attacks, those fraudulent emails designed to look like trusted corporations but aimed at stealing your personal account information? Today Yahoo (YHOO), together with eBay (EBAY) and its PayPal unit, started to roll out an authentication technology called DomainKeys that supposedly blocks malicious, fake eBay and PayPal messages from being delivered into the inboxes of Yahoo Mail users by allowing Internet Service Providers to automatically decide if messages should be delivered.

Speaking of PayPal, the company has teamed up with News Corp.’s (NWS) MySpace to “virally fundraise” for nonprofits and politicians on the social networking site. PayPal has developed “fundraising badges,” which are basically widgets that are a bit fancier than the typical PayPal “donate” button that could be copied onto any site to inspire philantrophy via the Internet.

The widget, which can be found on over 20 charity and politician profiles on MySpace, makes it easy for site visitors to donate money to their chosen cause. Once users donate funds, their name is added to a scrolling list that includes the names of other supporters of the particular campaign. Since each of these widgets can be copied and pasted into any user profile, web site or blog, the idea is that the badges will spread virally and subsequently increase the amount of funds raised. To encourage the viral effect to take place, the widget also displays a “supporter tree” that tracks the users who have added the tools to their profiles, and how much each person has raised.

The fundraising widget was created in “PayPal Labs,” a new division of the company designed to look for innovative and creative ways to leverage the online payment service. Launched today, the PayPal Labs site (which can be found at x.com) also describes a Facebook app that can be used to send and get money from friends.

All these rumors about Facebook getting a massive investment from one corporate behemoth or another have got to make you wonder: Why would a company that is expecting revenues of $150 million, and profits to boot, need fresh capital? Why would a company whose dominance of the social networking space is being touted as some sort of manifest destiny possibly need this sudden influx of cash?

That is the real $300 million to $500 million dollar question. The Wall Street Journal thinks it’s to build an advertising platform to cash in on its fast growth. And while that might be so, there are other, more pressing needs for all that money. The biggest one: Andrew Cuomo.

The New York attorney general has started investigating the safety measures Facebook has put in place, and based on his preliminary investigations, he is not happy. His staff has found sexual predators and a wide variety of pornographic material, including images and videos, prompting him to issue a subpoena.

“My office is concerned that Facebook’s promise of a safe website is not consistent with its performance in policing its site and responding to complaints,” Cuomo said in a press release.

“Parents have a right to know what their children will encounter on a website that is aggressively marketed as safe.” Cuomo is angered by the fact that Facebook has “ignored several — and repeated — complaints from our undercover investigators concerning persons who made inappropriate sexual advances to underage users.”

Call me a conspiracy theorist, but the way it looks to me, Facebook needs money for what is clearly a big crisis facing the company. MySpace, the company the FB-crew used to mock, has already had to deal with a similar mess, both legal and image-wise, which not only proved to be a major disruption to their business but cost a ton of money. And that was without a subpoena.

Facebook’s subpoena is going to require some serious legal resources and even more serious dough. Today it’s New York, tomorrow it could be attorney generals from any of the other 49 states. What if the European Union gets on board? Who’s going to foot the bill then? Who is going to make up for the loss of advertising revenues if the brand advertisers deem Facebook unacceptable? Ergo, time to find an outside funder.

MySpace had already found its corporate sugar daddy, News Corp. (NWS), when its mess started to unfold. In its case, sporadic articles in local media became a national story that led to Fox Interactive hiring a safety czar and implementing a plan that costs the company tens of millions of dollars every year.

A similar scenario might be awaiting the Z-meister and his crew. And the fact that it would involve a flip-flop wearing, young Harvard dropout running the hottest web site on the planet? That would be just too good of a story for the mainstream media to resist.

Facebook will have to do some nimble dancing here and come up with technologies/methods that add layers of safety to their network. Scanning for pornographic images and videos, developing technologies that prevent predators and other such issues are something Facebook will have to deal with — they cannot be wished away.

Never mind that the not-for-profit groups (and there are many) would want them to undertake educational programs and what not — just like in the case of MySpace. To do so, the company will have to boost its headcount, which already stands at 250. And more staff means more real estate for which it’s going to have to pay. As a comparison, MySpace has over 1,000 people working for them.

Do the math: it all adds up. No wonder Facebook needs money… fast.

Sun Microsystems is changing its ticker symbol from SUNW to JAVA in order to better reflect the company’s role in new network infrastructure, and maybe — just maybe — to give its shares some added juice. (CEO Jonathan Schwartz gives his reasons on his blog.) Here’s 10 companies that we think could use an extreme ticker makeover.

1. Apple (AAPL) to (JOBS) in homage to their feared and revered leader, Steve Jobs.

2. Sprint Nextel (FON) (S) to (XHM) since they are betting the farm on their WiMAX networks.

3. Qualcomm (QCOM) to (MMOB) since almost everyone is suing them, just like the mob back in the 1980s.

4. AT&T (T) to (IFON) because we all know what is juicing their market share and revenues.

5. Yahoo (YHOO) to (NOGO), which is short for Not Google. You could also take it literally.

6. News Corp (NWS) to (TOM) — after all, who doesn’t want to be MySpace Tom’s friend?

7. Motorola (MOT) to (RZR), because they’re hoping for lightning to strike twice.

8. Vonage (VON) to (GON). Yup, the VoIP service providers are falling like flies.

9. Microsoft (MSFT) to (LIVE) on Nasdaq and (WIN) on NYSE. It’s in keeping with their brilliant branding strateg(ies).

10. Viacom (VIA) to (SUX). No commentary needed.

GigaTeam had a fun time brainstorming these, but we’d love your suggestions. Help us out in the comments.

It’s a testament to both the madness in the private equity markets and the hype around online video taking place right now that a company without a name, a website or even a clear exit strategy has been able to raise $100 million dollars at a market valuation of $1 billion. Yes, that’s right, we are talking about NewCo, a joint venture between NBC (GE) and News Corp. (NWS), and their partners that was unveiled back in March. Continue Reading

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