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If you’re Yahoo and you have to respond to billionaire investor Carl Icahn’s letter telling the company he was launching a proxy takeover, you don’t have too many options — you’re going to look weak no matter what you say. The way I saw it there were two options: First, don’t respond. Maybe just pretend you didn’t get the letter and didn’t check the Internet today. Or second, come back with a response so long that it will bore Icahn out of wanting to acquire you. Yahoo chose the latter.

The response, by Yahoo chairman Roy Bostock is really quite incredible when compared to the letter Carl Icahn sent. Icahn wrote four paragraphs to Bostock. Bostock wrote thirteen in response.

So what does it say? Well, I think everyone knew what it would say before reading it. Yahoo disagrees with Icahn’s assessment that Yahoo is better off in Microsoft’s hands. It claims to have been very open to a deal with Microsoft and in fact met with them seven times to try and make something work that would be beneficials to both sides.

Unfortunately, according to Bostock, it was Microsoft, and not Yahoo in the end who was unwilling to compromise. As such, Microsoft walked away. Bostock contends what while Icahn asserts Yahoo’s board is incompetent, the board was very much involved in all stages of negotiations and is still actively looking at ways maximize shareholder value.

This “maximizing shareholder value” has been a running theme played by Yahoo throughout this ordeal. Unfortunately for Yahoo, Icahn is now one of its largest shareholders and he clearly doesn’t feel that his investment has been maximized.

This is really all just back and forth and spin at this point. It’s two sides who have completely opposite viewpoints. It could get interesting again if Google re-enters this picture — perhaps this will push them back into a full pursuit of the search advertising deal with Yahoo that it may have been cooling on.

One thing is for certain: Yahoo is in trouble.

Note: I just had to give Bostock the same LOLcat treatment I gave to Icahn.

April is the coolest month for video game sales.

Sales of the U.S. video game industry grew at a red hot 47 percent in April to $1.23 billion, up from $839 million a year earlier. Brisk sales of “Grand Theft Auto IV” at the very end of the month helped drive sales upward despite a recession that has hurt consumer spending in other areas, according to market researcher NPD Group.

Year-to-date sales are up 31 percent over a year ago at $5.47 billion. During the month, hardware sales grew 26 percent to $426.2 million, software grew 68 percent to $654.7 million, and accessories grew 39 percent to $154 million.

The console war saw little change. The Nintendo Wii sold 714,200 units, more than its rivals combined. The Microsoft Xbox 360 edged out the PlayStation 3, selling 188,000 consoles compared to the PS 3’s 187,100. The PlayStation 2 sold 124,400. In portables, Nintendo dominated with the DS selling 414,800 units versus Sony’s 192,700 for the PlayStation Portable.

Microsoft announced yesterday that it was the first console to hit 10 million consoles sold in the U.S., but analysts shook it off as an irrelevant number, since unit sales of the Nintendo Wii have dominated worldwide sales. More significant, however, is that Microsoft says Xbox Live membership has now topped 12 million worldwide. And to date, consumers have spent $9.7 billion on Xbox 360 overall to date.

Anita Frazier, an analyst at NPD, said that normally at this stage in the hardware cycle, more sales should be coming from hardware. But software sales were hot thanks to GTA IV and other big games. The pipeline of content continues to look good, with big games coming on all the consoles. Read the rest of this entry »

Microsoft bit off Yahoo’s arm. It was messy, but Yahoo was able to kick Microsoft in the nose and swim away. However, now there is blood in the water — a lot of it. And here comes a more aggressive shark: Carl Icahn.

Icahn, a billionaire financier, sent an open letter to Yahoo Chairman Roy Bostock today. In it, he very matter-of-factly states exactly how the Yahoo shareholders, led by him, intend to take over the company by way of a proxy battle to replace Yahoo’s board of directors. This letter was everything that Microsoft’s letters to Yahoo during the “formal letter wars” weren’t: short, sweet and very clear.

Icahn says he and his fellow shareholders feel that Yahoo was simply wrong to reject Microsoft’s initial offer of $31-a-share at a time when the company was trading in the $19-a-share range. A Microsoft/Yahoo partnership is the only logical combination to challenge industry leader Google, he says.

This letter is almost like a tutorial for Microsoft on how it should have gone about taking over Yahoo rather than continually threatening to do so. Icahn’s three main steps for how to take over Yahoo:

1. During the last 10 days, I have purchased approximately 59 million shares and share-equivalents of Yahoo

2. I have formed a 10-person slate which will stand for election against the current board

3. I have sought antitrust clearance from the Federal Trade Commission to acquire up to approximately $2.5 billion worth of Yahoo stock

Icahn also includes the biographies of all the members of the board he is putting forward. There are some good names on the list including: Dallas Mavericks owner Mark Cuban (who sold Broadcast.com to Yahoo in 1999), venture capitalist Adam Dell, two Hollywood heavyweights (former Universal chairman and CEO Frank Biondi and New Lines Cinemas co-chairman and CEO Robert Shaye) and, of course, none other that Carl Icahn himself.

Icahn closes by imploring Yahoo to listen to its shareholders and re-enter negotiations with Microsoft. He lets it be known that he’ll call off the dogs if that happens. Otherwise, this proxy fight, unlike Microsoft’s threat of a proxy fight, is going to happen.

Note: The title of this piece (see: here) was just too good to pass up on — after we wrote the piece, we found a couple others who thought so as well.

[Photo by Sarah A. Friedman/Fortune]

Sony, once the undisputed leader in game consoles, has suffered several billion dollars in losses in recent years.

But Sony predicted the game group would be profitable in the fiscal year that ends March 31, 2009.

Overall, the electronics company is healthy. Sony released its overall earnings today for its fiscal year ended March 31, showing a 192 percent increase in earnings and a 6 percent increase in revenue.

The game division, however, is still losing money. The division saw its sales grow 26 percent to 1.284 trillion yen, or $12.3 billion, but its operating loss was 124.5 billion yen, or about $1.2 billion. The loss was down from 232.3 billion yen, or about $2.2 billion, a year earlier. The improvement is due to smaller production costs for the PS 3.

It’s about time for Sony to recover. Microsoft, after seven years of game-related losses, is expected to turn a profit in the Entertainment & Devices group that includes the Xbox 360 and PC game business in the year that ends June 30. It’s almost as if the two have traded places, with Sony bleeding as Microsoft gains. But it could be a very powerful thing if Sony’s movie, game, electronics and other businesses all kick into high gear at the same time.

Things are looking better for Sony’s upcoming games. I’ll see Konami’s “Metal Gear Solid 4,” the big exclusive for the PS 3, tonight in a preview. And Sony reported it got a boost in console sales (as did Microsoft) from the release of Grand Theft Auto IV. Other big titles include “LittleBigPlanet,” “Resistance 2,” and “Gran Turismo 5 Prologue.” The last game is already out and Sony said sales of that franchise have topped 50 million.

Sony sold 9.24 million PS 3s during the fiscal year, up from 3.61 million a year earlier. PS3 software sales leapt were 57.9 million units, up four-fold from 13.3 million a year earlier. The company expects PS3 sales to top 10 million units this fiscal year.

PlayStation Portable sales were 13.4 million units, up from 9.5 million a year earlier. PSP software sales were up 1 percent to 55.5 million units. The company expects to ship 15 million PSPs during the year ending March 2009.

PlayStation 2 hardware sales fell 7 percent to 13.7 million. PS 2 software was down 20 percent to 154 million units, from 193.5 million a year earlier. Sony expects to sell 9 million PS 2s this year.

The video game console business is a three-party war, between Microsoft, Sony and Nintendo.

If you’re not winning the console war, it’s good to say that the war isn’t over yet.

In fact, it may not be over for years. That’s what Shane Kim, head of Microsoft Game Studios, told me yesterday at the company’s game showcase event in San Francisco. I sat down with Kim with a group of game journalists to discuss what it’s like in the trenches, with Nintendo at No. 1 and Microsoft and Sony battling it out for No. 2.

Q: How are you juggling the release schedules for the big titles coming for the Xbox 360?

A: We don’t want to release titles on top of each other. Especially similar titles. “Too Human” is coming out in the near future (August). We’re not worried about that running into other titles, knock on wood. The two big titles we have to keep apart are “Fable II” and “Gears of War 2.” You want them separated by a few weeks. Gears of War 2 is coming out in November. Peter Molyneux (developer of Fable II) knows that and has that in mind.

Q: You have a lot of big games. Are there any smaller titles that aren’t here?

A: The only two titles that we have announced but aren’t here are “Alan Wake” and “Halo Wars.” Those aren’t smaller titles. I’d rather not show you since, ultimately, you guys might be disappointed. And you guys would write that. It’s software.

Q: Is Alan Wake scheduled for 2008?

A: We haven’t announced a firm date for Alan Wake or Halo Wars. The stock answer is that they will ship when they are ready.

Q: Are you going to acquire some third-party titles as exclusives, like last year’s BioShock?

A: I wouldn’t say we acquired those. The publishers chose to make them exclusive on the Xbox 360.

Those deals aren’t always business arrangements. It can be very expensive to make a third party title exclusive to one platform when it could be on three or four platforms. You just don’t see it very often. It’s more likely you see things like our exclusive on downloadable content for “Grand Theft Auto IV.” That’s different from the game being exclusive.

Q: Where would you say we are in the console war?

A: Too early to call. Some say Nintendo will win the generation. Really? We’re only in our third year with the Xbox 360. You can’t deny Nintendo their success and their momentum. But I think the generation will go on for quite some time. There is a lot of competing to be done. Read the rest of this entry »

Here’s the latest action:

Icahn considers his own proxy war for Yahoo — Billionaire investor Carl Icahn began buying massive amounts of Yahoo stock last week — up to 50 million shares — and now is thinking about using that influence. He is considering replacing some of Yahoo’s board members (not quite the full replacement Microsoft was considering) with those of his own choosing, according to CNBC. Such a move could potentially force Yahoo to sell to Microsoft. The problem? The Microsoft offer is no longer on the table, and there is still no indication that it would come back even if Icahn is successful — though something tells me it would.

Craigslist countersues eBay – Just two weeks ago, online auction site eBay filed a lawsuit against online listing site Craigslist for taking unspecific actions to lessen eBay’s economic interest in the company (eBay owns a minority interest of Craigslist). Now Craigslist is returning the favor, charging eBay with unlawful and unfair competition, misappropriation of proprietary information, deceptive passing-off, business interference, false advertising, phishing attacks, free-riding, trademark infringement, trademark dilution, and breaches of fiduciary duty, according to its blog. With minority partners like these, who need enemies?

Google Search to be bigger than Windows next year — Some people still look at Google and wonder what exactly it does to make so much money? Next year, those people will be even more confused as Google’s search business is on track to surpass the size and profitability of Microsoft’s Windows business, according to Silicon Alley Insider. As SAI notes, this is just Google’s search business, this doesn’t even include its advertising wing, AdSense. Now perhaps you see why Microsoft so badly wants to becomes a legitimate online player.

Fisker Auto seeking a large round of funding — Fisker Automotive is seeking more funding to produce a $40K sedan in a few years, according to CNET. It is currently working on an $80K sports car. The back story here is that Fisker is competing with Tesla, which has the $100K Roadster (which was at the VentureBeat SF Green event) and is planning a $60K sedan. Tesla has sued Fisker, which Ray Lane (who was at SF Green) has called “ridiculous”. The Fisker founder helped design the Tesla. Fisker plans a counter-suit, according to Earth2Tech.

Electronic Arts continues to lose money — The world’s largest video game company, also know as EA, lost $94 million in the fourth quarter of last year as it spent a lot of money developing new titles. The loss was worse than Wall Street had been expecting, and significantly worse than the same time period last year, according to Bloomberg. EA is trying to take over game developer Take Two, and it could sure use the $500 million Take Two’s Grand Theft Auto IV made in its first week of sales.

Mayor wants electric cars for San Francisco — San Francisco’s mayor, Gavin Newsom, may want to help Project Better Place move to his city, according to Earth2Tech. Better Place is an electric car startup that wants to build recharging stations all over Israel and Denmark, and has $200 million towards that plan. We’ve covered the startup extensively (see the links), and would love to see it in SF. However, considering Newsom’s failure to even get extra solar subsidies passed — we’ve heard further rumors today that the measure will die — it seems highly unlikely that electric car charging stations will fly, unless the money is all private.

It’s not TV, it’s iTunes — and HBO is on it — Following up on yesterday’s rumors of HBO coming to Apple’s iTunes store, several shows were in fact launched today. These include The Sopranos, The Wire, Sex in the City and others.

Here’s the latest action:
Hewlett-Packard confirmed today that it is in advanced talks to buy EDS — It wants to acquire the data center outsourcing service company for $12 billion to $13 billion, well above the company’s current value of $9.5 billion, according to the Wall Street Journal, which first reported the story. If the deal is consummated, HP would have a lot more legs to compete with IBM’s global services division. HP’s services division brought in $16. 6 billion of the company’s $104 billion in revenue last year. EDS had revenue of $22 billion last year, so don’t expect the new company to be call HPEDS. The big fish can swallow this one whole.

Google extends its lead in online video in March, according to new figures from comScore — People watched about 11.5 billion videos in March, with Google accounting for 38 percent of the entire tally. YouTube, in turn, accounted for 98 percent of Google’s results.

Jeff Raikes has been named CEO of the Bill & Melinda Gates Foundation, which is committed to improving health in the developing world –Raikes is retiring as the president of Microsoft’s business division and will work as a full-time philanthropist along side Bill Gates, who is also joining the foundation full-time in June. Raikes will start in September. Reporters asked on a phone call if the foundation will take on the same culture as Microsoft as a result. Will we see the Gates Foundation, which has an endowment of $37.3 billion, make a hostile takeover bid for the Ford Foundation — and then give up?

XM Satellite Radio posted a wider loss than Wall Street estimated, as Silicon Alley Insider reports. But the CEO Nate Davis said he expected that the merger with Sirius Satellite Radio will be approved in the second quarter. Clearly, running a business on its own isn’t going so well, with a loss of $129.3 million and rising costs for acquiring new subscribers.

Apple is reportedly in talks with Time Warner’s HBO division to sell popular HBO programs — Update: The deal’s just been announced. Programs will include “Entourage,” for Apple’s iTunes service. Apple may charge a higher price of $1.99 for HBO videos. This may be the first time that Apple has created a separate price structure with a content provider, signaling the importance of the HBO content. I guess it shows there is life after the Bada bing.

Knowledge Adventure, the maker of kids’ educational-game software JumpStart, will begin selling virtual-world software aimed at three-year-olds to five-year-olds. The JumpStart Advanced Preschool World will encourage kids to learn their ABCs by playing games in a 3-D version of a beach or a jungle.

Hackers managed to steal the identities of six million Chileans — This included the daughter of the country’s president. The data included identity cards numbers, addressses, phone numbers, e-mails and academic backgrounds. The data was taken early Friday from servers at the Education Ministry, as first reported by the daily newspaper El Mercurio. You can read more about it CNN.com.

Picitup launches a test version of its search engine for finding matching images — It can be used for celebrity face matching and a variety of other image related functions. It reminds me of the combination image-text search engine under research at the Palo Alto Research Center.

Advanced Micro Devices shuffles management — Randy Allen, former head of the company’s server chip business, will be the senior vice president of the computing solutions group. He replaces Mario Rivas, an apparent victim of Intel’s spectacular success against AMD. AMD has had a tough time competing because of delays in launching its Barcelona products. AMD has more details on the reshuffle on its web site.

Updated with more info about the BlackBerry Bold

Microsoft and Research in Motion are partnering to bring Windows Live services to RIM’s BlackBerry smartphone. In addition to coming right after RIM’s announcement of the new BlackBerry Bold (implying, I guess, that the old BlackBerry was meek; it’s pictured to the left), this news seems to be RIM’s latest move to keep the BlackBerry competitive with Apple’s iPhone.

Basically, the deal means that BlackBerry customers will be able to user Windows Live Hotmail and Windows Live Messenger to send emails and instant messages, respectively, on their smartphones. Users will just need to enter their Windows Live email addresses and passwords once, and can then access their accounts with just the push of a button.

Microsoft says the services will be available on BlackBerrys sometime this summer, and will support multiple languages.

In pretty much any context, this would seem like a smart move, allowing both companies to offer more services (in RIM’s case) on more platforms (in Microsoft’s case). But RIM’s addition of htese applications is particularly worth noting since RIM is rumored to be worried about the iPhone’s business-friendly functionality, including the iPhone’s compatibility with Microsoft Exchange, as announced in March. That compatibility will include features like “push” email, which is also a big feature in the Windows Live/BlackBerry partnership.

RIM also just announced a $150 million fund for developers creating applications for the BlackBerry, following on the heels of Kleiner Perkins’ $100 million iFund for the iPhone. Rick Segal, a partner at JLA Ventures (an investor in the BlackBerry fund), told us that talks about the fund took place over the past year and that the fund’s emphasis will be on maximizing profits rather than boosting BlackBerry’s developer ecosystem.

Update: Because I focused on the Windows Live announcement, my initial post gave the BlackBerry Bold short shrift. Despite my kneejerk skepticism due to the grandiose name, it looks like the Bold will indeed be a step forward, if not exactly an iPhone-killer. The BlackBerry traditionally been marketed and used as a business device, but with the iPhone’s popularity, RIM seems to have realized it needs to offer consumer features too. The most important additions are greater multimedia support and connection to the faster 3G network. The first addition helps bring the BlackBerry up-to-speed with the iPhone, while the later actually moves the RIM device ahead, since there are plenty of rumors but no official launch date for the 3G iPhone.

It has been known for a while that Microsoft’s Zune is the number two or number three digital music player (depending on the market) in the United States. However, just how far behind the number one device, Apple iPod, has not always clear since Microsoft has been slow to release its sales numbers. Now we have some.

Since its launch in November 2006, the Zune has sold 2 million units. For comparison, Apple sold 10.6 million iPods last quarter. That equates to right around 3.53 million iPods sold a month. Since its launch in 2001, the iPod has sold, get ready: 140 million units. For the Zune, the phrase “distant second” comes to mind.

Yet there is hope for Microsoft. iPod sales really didn’t start taking off for Apple until 2004 — almost three years into its lifespan. It took a full two years for sales to surpass 2 million, Microsoft beat that time, but the portable music world is quite a different place nowadays. When the iPod launched, most people were still listening to portable CD players.

The Zune also now has J Allard, Microsoft’s Corporate Vice President of Design and Development, Entertainment and Devices Division (how’s that for a mouthful?), overseeing the strategy for the device. Allard is one of the key figures behind Microsoft’s successful Xbox gaming console.

Microsoft also recently revealed that popular hobbyist games will be coming to the Zune soon.

[photo: flickr/raybdbomb]

Microsoft is apparently serious about this whole “not buying Yahoo” thing. Today the software giant’s law firm sent out letters to each of the proxy board members it had lined up, releasing them from their obligation, according to The Wall Street Journal. The proxy board is the group of executives and industry leaders that Microsoft had lined up to nominate to replace Yahoo’s current board of directors had Microsoft decided to go hostile in its bid to takeover Yahoo.

What this means is that Microsoft will not be attempting a hostile takeover of Yahoo again anytime soon. This is a strong gesture to refute speculation by just about everyone since Microsoft pulled its bid five days ago that it could turn right back around with another offer — especially considering that many prominent Yahoo shareholders are said to want such a move, and with some potential new trouble brewing with Yahoo given the news that Google is wavering on a long term search advertising deal with the company.

Interestingly enough, The Wall Street Journal is also reporting that members of this proxy board have already been approached by some Yahoo shareholders, who themselves are thinking about nominating their own alternative board. They only have until May 15th to do so for the shareholder meeting which will take place in July.

While Microsoft is moving on for now, it’s probably still foolish to believe it is moving on for good. We’ll see how several factors, namely Yahoo’s financial situation and Microsoft Internet market share, play out over the next several months. At that point we may hear the talk start about getting the old band (the proxy board members) back together.

[photo: Universal Pictures]

Dressing up as a person of the opposite sex and casting magic spells in a fantasy world has become a popular American pastime. U.S. online video game subscriptions are generating $1 billion a year in subscription revenue, according to market researcher NPD Group.

Those numbers include revenue from massively multiplayer online games (virtual worlds such as World of Warcraft), casual games such as card games on Pogo.com, and online games on consoles such as the Sony PlayStation Network and Microsoft’s Xbox Live online gaming services.

The numbers are important because sales of retail PC games have been declining or have been flat, prompting many to conclude that consumers are turning to console video games such as Wii Sports on the Nintendo Wii. But the subscription data, which NPD only began collecting in October, shows that PC games are still a vibrant market, said Anita Frazier, an analyst at NPD.

On a monthly basis, more than 11 million gamers are subscribing to online games in the U.S. Console subscription revenues grew 9 percent from the fourth quarter of 2007 to the first quarter of 2008.

The top five games in the first quarter of 2008 were “World of Warcraft,” “RuneScape,” “Lord of the Rings Online,” “Final Fantasy XI,” and “City of Heroes.” The top casual sites in subscribers were Electronic Arts’ Pogo.com, Real Networks’ RealArcade.com, Bigfishgames.com, Gametap.com, and Disney.com.

And yes, this commercial message has been brought to you by sponsors Microsoft and Intel. Just kidding.

[photo: flickr/flawedartist]

In confirming earlier reports of Microsoft approaching Facebook about a potential sale following the Yahoo fall out, The Wall Street Journal has a very interesting tidbit: Google is now divided over whether or not to go forward with the search advertising deal it is trying out with Yahoo. Ouch, that knife in Yahoo’s back must hurt.

While it was trying to convince everyone that it was a viable company without selling to Microsoft, Yahoo made no secret that its trial search advertising deal with Google could bring in significant money to the company. Some had pegged this number to be as high as an additional billion dollars plus in cash flow. Under the agreement, Google was in charge of placing some advertisements on Yahoo search result pages.

The promise of this deal was also thought to be one of the reasons why the bottom didn’t completely fall out of Yahoo’s stock after Microsoft pulled its bid, and in fact, why it may have rallied a little bit after hitting a low of around $22-a-share (the stock is right now in the mid $25-a-share region).

Google and Yahoo were previously discussing extending the trial while Microsoft was still in hot pursuit of Yahoo. We called it a “charade” at the time, as it seemed clear what Google was doing: anything it could to stop Microsoft from acquiring Yahoo. That certainly rings true today if Google does in fact now walk away from the deal with the Microsoft threat gone (at least for now).

One question that will undoubtedly come up if Google walks away is if this will hasten Microsoft’s return with another bid? A decision by Google not to help Yahoo with its search advertising will leave Yahoo looking very vulnerable once again, even if such a deal was probably not in Yahoo’s best interest in the long term.

The Wall Street Journal report also says that talks between Yahoo and Time Warner continue about a possible AOL/Yahoo merger. However, these talks also have less urgency now that Microsoft has back away.

[photo: flickr/yashima]

Having just moved into a new place, I have no television yet. Normally I’d turn to iTunes to catch my favorites, but the problem is that many of those shows are on NBC — the same NBC that famously cut ties with iTunes six months ago. Instead, I visit the NBC and Fox’s free video streaming site Hulu, which is exactly what NBC wants. So why does the company keep teasing us with the possibility of a return to Apple?

For example, NBC is now offering iPhone users the ability to stream select shows for free to their devices, Silicon Alley Insider has uncovered. When it actually works, the quality is awful, but still, why the olive branch to Apple supporters?

Another example: Yesterday, it was revealed that NBC was offering several of its shows on the UK version of iTunes. If you’re attempting to take a stance against iTunes, does it really make sense to partner up with the service again, even if it is in another country?

Back in January, when the writer’s strike was still going on, NBC chief executive Jeff Zucker told the Financial Times that NBC wants to be back in business with Apple. Everyone assumed that comment meant it was a forgone conclusion that the two would get back together, yet all we get are teases.

To add insult to injury, NBC also announced yesterday that it was teaming up with Microsoft to bring its content to the Zune portable media player. The per-episode price? $1.99, the same as iTunes. (Though, unlike Apple, Microsoft is reportedly open to shifting the price based on varying content.)

I fully expect to see NBC content back on iTunes at some point this year, but I have to wonder why the two are dancing around it. You can have NBC content on iTunes, but not in the United States. You can have NBC content on your iPhone, but not on iTunes. NBC doesn’t like Apple’s pricing structure, but then sets the same exact price with Microsoft for the Zune store.

Perhaps NBC is waiting to see how successful the Apple TV device will be with Apple’s new movie studio deals in place. Or perhaps Zucker just wants to make Apple chief executive Steve Jobs squirm a little more as the Hulu’s positive reviews keep coming in.

[photo: NBC]

With Yahoo in Microsoft’s rearview (for at least a couple months until it doubles back), the acquisition gaze shifts forward. We laid out a few names over the weekend. One of them: Facebook. Now word is already coming in that the social networking site may be bubbling to the top of Microsoft’s list, according to BoomTown’s Kara Swisher.

There isn’t too much to go on yet. In fact, Swisher only mentions this possibility briefly in her larger post about Microsoft’s “Project Granola” (the nickname for Microsoft’s online strategy post-Yahoo), which may be the most bland nickname ever (both in name and in taste). Swisher reports that Microsoft’s bankers are putting out subtle signals at this point that the software giant would perhaps like to buy a larger stake in the company (Microsoft already owns 1.6 percent) — like all of it.

Some Microsoft execs are also said to be tossing out the idea to Facebook execs. “We just want to gauge their interest, more than any real effort,” a source tells Swisher. This sounds a lot like, “we don’t want to get publicly burned again if we’re barking up the wrong tree.”

Rumors swirled last year about Microsoft buying Facebook prior to what ended up being a $240 million investment. Naturally, Google was said to be the other party in pursuit of a stake in the social networking company, but lost out when Microsoft’s deal put Facebook’s total value at $15 billion. Microsoft does have significantly more than that laying around now thanks to the failed Yahoo bid. It would probably use it, but Facebook is still thought to have its loftier IPO goals. As such, these rumors are likely to stay rumors, but don’t expect them to go away until Microsoft makes that next big purchase we all know is coming.

[photo: flickr/Zesmerelda]

Here’s the latest action:

Sprint and Clearwire to join forces for WiMax venture – The telecom companies, along with Comcast, Time Warner, Google and Intel, are about to announce a $3.2 billion investment in a new wireless Internet company using WiMax technology, according to the Wall Street Journal. The Journal reports that the new company, which will also be called Clearwire, is valued at more than $12 billion. It will launch two years ahead of competing offerings from AT&T and Verizon. The combination of that head start and the formidable lineup of backers should make this quite a coup for Sprint, which is the driving force behind the partnership.

The result: Everyone wins. The Wimax camp needed some help to counter a competing technology LTE, Clearwire needed some money and the carriers get to split up the financing burden among themselves. Google’s role, though, is new. It’s just the latest move by the Internet search giant to push into the wireless communications arena, and comes as it is pushing it new mobile platform, Android.

USA Today reports that Trilogy Equity Partners also put $10 million towards the venture. Trilogy is a VC firm started by John Stanton, who helped found McCaw’s first wireless venture.

Sun previews app platform JavaFX – Sun’s software chief Rich Green gave a demonstration of JavaFX, which should compete with platforms like Adobe AIR for developers of hybrid web-desktop applications, at the JavaOne conference today. Green showed off a JavaFX application that runs Flickr and Twitter feeds in Facebook, then dragged the app onto the desktop. The same application ran on a Java-enabled phone. Rather inauspiciously, CNET reports that the application kept breaking, although the problems were blamed on the venue. The platform is set to launch this fall; I’m hoping more details will emerge about how it’s going to stand out against AIR.

Rocker Neil Young makes collected works available for download — Speaking of Sun, famed musician Neil Young is partnering with the company in an ambitious project to make all of his work available for purchase. Apparently, the content will be delivered on Blu-ray discs that check for and download new content as it becomes available. Young says the Playstation 3 is the best device for downloading all that music. This sounds very cool, although I’m not sure that it’ll lead to quite as many PS3 sales as the new Grand Theft Auto game.

Microsoft’s media player Zune gets TV shows – For all you Zune owners who have been jealously eyeing those with iPods and wondering, “When will I be able to watch Battlestar Galactica on a tiny, portable screen?” the long nightmare is over.

Cisco revenue up 10 percent in Q3 – That’s an increase from $8.9 billion to $9.8 billion. Since the company, which is the largest maker of networking equipment, is seen as a bellwether for the larger tech industry, that’s a bit of a relief, and particularly impressive after Sun recently reported a loss during the same period and blamed the weakening economy. Cisco’s profit, on the other hand, fell due to acquisition-related charges, and sales are expected to grow more slowly than previously anticipated.

Stephen Colbert is the Person of the Year (on the Internet) — The political comedian will be recognized as part of the 12th Annual Webby Awards next month. Colbert’s mockery of Internet trends has led to everything from Wikipedia vandalism to possibly the largest Facebook group in history. Which is enough to make him an online pioneer, at least in the eyes of the International Academy of Digital Arts and Sciences.

Remember Lycos? Of course you do. Remember when you last used the site? Of course you don’t. Perhaps that’s exactly why the company’s taking the site in a new direction: video on demand (VOD) rentals.

Started as a Carnegie Mellon University research project in 1994, Lycos was one of the first web search engines. By 1999 it was one of the most visited sites in the world, then Yahoo and Google happened. While it still maintains respectable traffic worldwide, Lycos, now owned by Daum Communications Corp. (the second largest portal in Korea), is more than an after-thought in the web 2.0 world.

In 2005 the company decided to shift its strategy away from search to online communities and broadband entertainment. That transition continues today with the launch of Lycos Cinema.

An online video on demand service, Lycos offers both free and premium content. The free content is ad-supported, while the premium content takes a new approach: fees based on the number of “seats” — that is, how many people you want to watch the film with.

That’s the key component Lycos Cinema feels will set itself apart from the competition: social interaction. When you load up a movie, a chat room appears on the left hand side. Here, you can invite and interact with friends about the content you’re all watching. It’s a cute idea — in theory at least.

In reality there are problems. First, the content. To be frank, it’s awful. It’s not that I haven’t heard of all of the films (only most I hadn’t heard of…), it’s that there’s no way I would pay to watch most of them.

The second problem Lycos Cinema has is the competition it faces. In the growing field of VOD you have Apple’s iTunes movie rentals, Amazon’s Unbox rentals and Netflix’s Watch-It-Now, among others. All of them offer much better content at similar prices with a much better experience. Even the free stuff on Lycos can’t begin to compare with what the NBC and Fox-backed online video site Hulu offers.

The third problem, unfortunately, is that the site throws errors left and right. About half of the time most pages don’t load at all and instead spit out a code error. Even if I wanted to rent a movie, I might not be able to — it’s a total crap shoot.

If you are able to get to the featured rentals promo page, you’ll notice a top section that looks quite a bit like iTunes movie rentals’ CoverFlow view. It’s really kind of pathetic.

Lycos sold to Spain’s Terra Networks in 2000 for $5.4 billion. It was resold in 2004 to the aforementioned Daum Communications Corp. for $95.4 million. At that rate it’s due for another sale this year, priced to own.

As was universally expected, Yahoo’s stock price took a huge hit when trading resumed on Monday following Microsoft pulling its bid for the company over the weekend. The stock, which had ended the after-hours session on Friday (when it was meeting with Microsoft and a deal seemed possible) at $29.70-a-share, opened in pre-session trading today at $22.67.

The stock had sunk as low as $21.95, a drop of just over 26 percent from its after-hours high, and near its $19 level when Microsoft made its bid in the beginning of February. Worse, this represents a decrease of over 33 percent from Microsoft’s final offer of $33-per-share.

But now the stock is rallying.

Since opening the trading session around $23-a-share, the stock has steadily climbed back up and now finds itself in the upper $24-a-share range. Why? Well, the initial sell-off was no doubt thanks to many who assumed a Microsoft takeover would help the company and bought the stock for short-term gain, Now a new group of investors may be buying up the stock assuming the companies will go back to the table at some point. Some may also like the prospects of Yahoo continuing its search advertising deal with Google.

It’s certainly not a pretty day for Yahoo, but the company is still significantly better off than where it was when Microsoft made its initial bid in February. This, of course, could change, depending on how the company actually performs without the Microsoft offer to fall back on.