ft.com/techblog

Yahoo paid $350m for Zimbra, the web email and collaboration software company, last September, but one wonders how much of that perceived value could be destroyed by Microsoft’s bid for the Sunnyvale company.

Zimbra today released version 5 of its collaboration suite. It adds synchronisation with Microsoft’s Outlook 2007, Blackberry email support, a version for mobile web browsers, instant messaging and an offline capability, among hundreds of enhancements.

Zimbra already resembled a browser-based version of Outlook with added bells and whistles. Hovering over Inbox names reveals contact information, mousing over an address in an email triggers a Yahoo map.

Yahoo plans to incorporate many of Zimbra’s features in an update of its Yahoo Mail service later this year, but Zimbra’s main focus has been on business, making it a direct competitor of Microsoft in the enterprise.

Its software is open source and it says it received passionate feedback from 13,500 open-source community members and customers on it latest version.

But one wonders what those passionate customers would do if Microsoft took over. Many will have chosen Zimbra precisely because they have rejected Microsoft solutions such as Outlook, Exchange and its “Live” services.

Microsoft could seek to replace Zimbra’s open-source software stack with its .Net framework, a move that would definitely turn off the faithful.

And while the latest version has plenty of appeal, the threat of a Microsoft acquisition must be giving many potential new Zimbra customers pause for thought.

The Yahoo subsidiary is just one of many services competing with Microsoft that face some kind of rationalisation in the event of its bid succeeding.

One man clearly immune to Steve Jobs’ famed "reality distortion field" is Ad Scheepbouwer, straight-talking CEO of KPN, the Dutch telecoms company. He decided that his iPhone was "pretty useless" so he gave it to his 20-year-old daughter. She didn’t rate it either. "She’s given it to her boyfriend," Mr Scheepbouwer told the FT. "He’s very happy with it, but it’s been three days so we’ll see how it ends."

Given that the iPhone isn’t yet officially available in the Netherlands (or any other country besides the US, UK, France and Germany) that’s surprisingly candid. KPN would like to sell the phone on the Dutch market and Apple has so far chosen to sell the iPhone tied to just one mobile operator in each country. But it probably also reflects what some pundits have said all along: Europeans generally expect to pay less and get more from their phones. There is some evidence for that with the news last month that the iPhone missed its sales target in the UK, where 02 has responded with better value calling plans.

Bring on the iPhone 2.0?

The Microsoft-Yahoo-Google tangle might end up making more money for the lawyers than it does for the investment bankers. It’s difficult to see any White Knights riding to Yahoo’s rescue, despite the rumours that have been swirling (As one tech banker says: "There’s one buyer, one target, and 300 investment bankers here all spinning their wheels.") But the regulatory morass should at least be good for the lawyers, and might well end up putting European competition commissioner Neelie Kroes in the hot seat.

Google and Microsoft have both started levelling anti-trust accusations, but what does all the mud-slinging add up to? These are the main issues at stake:

Microsoft eliminates a competitor in search advertising. Combining the number two and number three suppliers in any market tends to produce a knee-jerk reaction from regulators. It led the Department of Justice to try to block Oracle’s bid for PeopleSoft, though that software deal finally got done. In this case, the market is so heavily tilted towards Google that Microsoft’s argument for the competitive benefits of creating a stronger number two may well win the day, and advertisers and publishers are certainly not lining up to complain about the idea.

Microsoft becomes too powerful in Web email, IM and portal services. Google’s claim that a "horizontal" merger of Microsoft and Yahoo’s services in these areas would threaten the Web is "comical", says another veteran Valley deal-maker. Steve Ballmer claims that Microsoft’s share of consumer email is less than 20 per cent even in the US, where the two companies are strongest, and the Web 2.0 and mobile worlds have brought many new methods of communication, from social networks to texting. Hotmail and the Yahoo home page still draw a big audience, but search is the new entry-point to the Web.

Microsoft uses its desktop monopoly to dominate Web services. This is Google’s other complaint: that Microsoft could use Windows or its IE browser to steer users to its own Web services. That may be theoretically possible - but it has been possible for years, even without a Yahoo acquisition, and Microsoft’s potential abuse of its PC monopoly in this way is something that has been under the scrutiny of regulators for years.

Google monopolises search advertising. This was Microsoft’s counter-claim today: that allowing Google to take over the running of Yahoo’s search advertising would leave it with a virtual monopoly over the fastest-growing and most important part of the online ad business. Does Google really want to risk raising that particular question just as Ms Kroes closes in on a decision about its acquisition of DoubleClick?

Jerry Yang must be starting to understand how Alfred Chuang of BEA Systems felt when Larry Ellison of Oracle came calling last year. Like Chuang, the Yahoo boss has just been landed with a takeover offer at such a big premium that he can’t possibly just ignore it. Also like Chuang, the options for other deals - or for staying independent - are shrinking fast. Here are the other partnerships or alliances that Yang could have grabbed at in the last year or so, and the chances that he can turn to them again now as he looks for an alternative to Microsoft:

News Corp, sensing the chance to consolidate its position on the internet, at one stage proposed combining MySpace with Yahoo in return for a large stake in the internet portal. For Rupert Murdoch, the opportunistic move would have meant trading the hot social networking site for a slower growing but far more stable property, but Yahoo saw less value in the idea. To judge from the noises emanating from around News Corp today, there’s little interest in trying to revive the idea.

Time Warner has also at times considered something similar for its AOL unit, merging it into Yahoo and keeping a piece of the action. If Yahoo falls to Microsoft, Time Warner will be robbed of its two most obvious partners as the online advertising market consolidates, so Jeff Bewkes might be expected to try to intervene. However, people close to Time Warner seemed distinctly underwhelmed by the thought of wading into the fray against Microsoft.

This has been one of the more intriguing options. Yang is said last year to have considered out-sourcing Yahoo’s search advertising to Google. Project Panama, the overhaul that was meant improve the efficiency of Yahoo’s search advertising system, has been only a qualified success: Yahoo could boost its earning per share by 25 per cent by partnering with Google instead, according to Mark Mahaney at Citigroup. As Yahoo searches for ideas to boost shareholder value while staying independent, this looms as the most likely alternative. Much will depend on whether Google wants to go head-to-head with Microsoft in such a direct way.

  A higher offer from Microsoft to win over Yahoo’s board seems the most likely outcome. A year ago, before Yahoo’s shares hit the skids, Microsoft was willing to pay $60bn, according to one well-placed source. Times have changed and there’s no way Yang can hope for that kind of happy ending any more, but holding out for a bigger pay-day still seems his best option.