DealBook: Michael Dell Is Said to Be Encouraged by Board to Raise Offer

Kimihiro Hoshino/Agence France-Presse — Getty ImagesMichael S. Dell, founder of the computer company that bears his name.

Michael S. Dell may have to dig deeper into his pockets if he wants his $24.4 billion bid for the computer company he founded to succeed.

A special committee of Dell’s directors encouraged him over the weekend to raise the offer price of $13.65 a share, a person briefed on the matter said on Tuesday.

Yet while Mr. Dell listened to the suggestion, he did not commit to a course of action. Furthermore, Mr. Dell and his private equity partner in the deal, Silver Lake, have not had any discussions about raising the current price, according to a person close to the firm.

Yet pressure is building on the buyout as two big Dell shareholders — Carl C. Icahn and the asset manager Southeastern Asset Management — continue to attack the deal with a shareholder vote drawing rapidly near.

The special committee is growing worried that the buyout offer will fail to win a majority of Dell shares that excludes Mr. Dell’s 16 percent stake at the vote on July 18, the person briefed on the matter said. Some 43 percent of the Dell shares need to be voted in favor of the offer. The directors have already taken a number of meetings with major investors that have left them pessimistic about the bid’s prospects, and now believe that a major shareholder advisory firm is poised to recommend a rejection of the takeover.

Mr. Dell’s offer, made in partnership with Silver Lake, has been criticized for months by a number of big outside investors. But any bump in price would most likely come from the company founder, who already made concessions to reach the current price.

Silver Lake, which had refused to raise the bid beyond $13.60 at one point, has become increasingly worried about the deterioration of Dell’s business, a person close to the firm said. At the moment, it would not be devastated if the deal fell apart.

That has left Mr. Dell — who agreed to contribute his 16 percent stake in the company at a price of $13.36 to leave more money for other shareholders — the most likely source of additional money.

Yet any bump in price from Mr. Dell would still need the assent of Silver Lake, since that would affect the returns on its investment.

A representative for Mr. Dell was not immediately available for comment.

The pressure on the current offer stems from the billionaire Mr. Icahn and Southeastern Asset Management. They are campaigning for an alternative plan: a huge stock buyback that would pay investors $14 a share and leave the company publicly traded.

Mr. Icahn pressed his attack in recent days, outlining the $5.2 billion in debt financing he has arranged with the investment bank Jefferies to support his proposal.

Other shareholders appear to have been little moved by Mr. Icahn’s announcements: Dell’s stock has risen 0.2 percent over the last five days, ending on Tuesday at $13.38.

The special board committee has heard from a number of investors that the current offer price was insufficient. And a tough meeting with Institutional Shareholder Services, the most influential proxy advisory firm, left directors with the impression that it would urge shareholders to vote down the transaction.

I.S.S. is expected to release its recommendation next week, and could still recommend that shareholders adopt Mr. Dell’s offer. It has told Dell’s committee that it is weighing the merits of the management buyout against inaction, and would not factor in an alternative plan like Mr. Icahn’s.

Traditionally, I.S.S.’s recommendations have held enormous sway over institutional investors, though in recent years the firm’s influence appears to have waned somewhat. Still, Dell’s special committee believes that a recommendation for the buyout would ensure its passage.

The special committee’s approach was reported earlier by CNBC.

Self-Finance or Raise Money? A Quandary for Start-Ups

But while Mr. Stanek and Mr. Moore went after roughly the same market at roughly the same time, they differed in one critical aspect: how they financed their dreams. One quickly raised more than $50 million, while the other mostly self-financed, thus creating a rare opportunity to assess the difference venture capital can make and bring new perspective to an age-old debate.

When Mr. Stanek, a Czech entrepreneur, founded GoodData in San Francisco in 2007, he already had plenty of experience with venture capital. He had sold a venture-backed software development tools company, NetBeans, to Sun Microsystems in 1999 for a little more than $10 million. And in 2006, he sold Systinet, a Web-service company, to Mercury Interactive for $105 million.

After financing the first year of GoodData’s software development with several hundred thousand dollars from his Systinet sale, Mr. Stanek began to seek investors. Eventually, he brought in $53.5 million from the likes of O’Reilly AlphaTech Ventures and Andreessen Horowitz. “We spent three years building a product and we are still building big pieces. That was funded by the V.C.’s and myself,” said Mr. Stanek, 47. “It’s like the printing business. I have to spend money on my printing machine. There’s an initial large investment, and then once you have the printing press running, it’s very predictable. So if we wanted to create a dominant large company, we didn’t have a choice.”

By contrast, before starting RJMetrics, the co-founders, Robert Moore and Jake Stein, worked as junior analysts at a New York venture capital firm, Insight Venture Partners, where they came across entrepreneurs who had built profitable businesses without a lot of capital and put off fund-raising as long as possible. “What happens in those situations is those entrepreneurs do extremely well personally,” said Mr. Moore, 29.

When they started RJMetrics in late 2008, Mr. Moore and Mr. Stein invested $10,000 of their own money. Mr. Moore wrote the first version of the company’s software in his attic in Collingswood, N.J. They did not hire their first employee until 2010, and they moved to an office in Philadelphia, where costs are far less than in New York or San Francisco.

By the time they did raise some money, in early 2012, they had 100 customers and annual revenue of about $1 million. “That put us in excellent negotiating position, because we had a proof point that other companies at our stage didn’t have,” Mr. Moore said. The owners raised $1.2 million, almost all from RJMetrics customers.

The two approaches have created very different companies. RJMetrics signed its first paying customer to a rudimentary prototype just three months after it started. To build revenue, it had to hope for good word of mouth (which it got) because it did not have a sales staff. But bootstrapping, or self-financing, did allow the founders to keep a large percentage of the company’s equity and to avoid the distortion that can come from having money and the demanding investors who supply it.

The venture capital industry views bootstrapping in the face of a big market opportunity as false economy. John O’Farrell, a partner at Andreessen Horowitz, said that it generally took an investment of $75 million to take a software company from start-up to initial public offering. “If you want to capture a big open market, you want to bring in money to grab land,” he said. “If you bootstrap, the tendency is to try to get profitable early so you don’t need to put in more money, but you end up missing a big opportunity.”

GoodData’s war chest allowed Mr. Stanek to staff up for the land grab. The company now has about 250 employees, half dedicated to the product and half charged with sales and marketing. RJMetrics, on the other hand, has 26 employees, more than half of them working in product development and only four on sales and marketing. The company’s first director of marketing started in February.

Inevitably, the companies have gravitated toward different markets. While RJMetrics has gone after small and midsize companies, GoodData has pursued Fortune 2000 clients that demand robust products and have the money to pay for them. RJMetrics had about $1 million in revenue in 2011 and about $2 million in 2012, according to Mr. Moore. Mr. Stanek declined to specify his company’s revenue, but he noted that last year GoodData signed 42 contracts that were each worth more than $100,000 a year, which would suggest an annual run rate of at least $4 million.

Yahoo Says New Policy Is Meant to Raise Morale

Parking lots and entire floors of cubicles were nearly empty because some employees were working as little as possible and leaving early.

Then there were the 200 or so people who had work-at-home arrangements. Although they collected Yahoo paychecks, some did little work for the company and a few had even begun their own start-ups on the side.

These were among the factors that led Ms. Mayer to announce last week that she was abolishing Yahoo’s work-from-home policy, saying that to create a new culture of innovation and collaboration at the company, employees had to report to work.

The announcement ignited a national debate over workplace flexibility — and within Yahoo has inspired much water cooler conversation and some concern.

But former and current Yahoo employees said that Ms. Mayer made the decision not as a referendum on working remotely, but to address problems particular to Yahoo. They painted a picture of a company where employees were aimless and morale was low, and a bloated bureaucracy had taken Yahoo out of competition with its more nimble rivals.

“In the tech world it was such a bummer to say you worked for Yahoo,” said a former senior employee who, like many Yahoo insiders, would speak only anonymously to preserve professional relationships. The employee added, “I’ve heard she wants to make Yahoo young and cool.”

Restoring Yahoo’s cool — from revitalizing behind-the-times products to reversing deteriorating morale and culture — is hard to do if people are not there, Ms. Mayer concluded. That view was reflected in Yahoo’s only statement on the work-at-home policy change: “This isn’t a broad industry view on working from home. This is about what is right for Yahoo, right now.”

Yahoo declined to comment further.

On Monday, another ailing company, Best Buy, announced that it, too, would no longer permit employees to work remotely, reversing one of the most permissive flexible workplace policies in the business world.

Inside Yahoo, there has been mixed reaction to the policy change. Some employees said that they were able to be highly productive by working remotely, and that it helped them concentrate on work instead of the chaos inside Yahoo.

Brandon Holley, former editor of Shine, Yahoo’s women’s site, said she built the site and signed on big-name advertisers while she and most of her team worked from homes across the country.

“It grew very rapidly,” said Ms. Holley, who is now editor of Lucky, Condé Nast’s shopping magazine. “A lot of that had to do with the lack of distraction in a very distracted company.”

The change to the work-at-home policy initially angered some employees who had such arrangements, and worried others who occasionally stayed home to care for a sick child or receive a delivery. Reports that Ms. Mayer built a nursery for her young son next to her office made parents working at Yahoo even angrier.

This week, the policy continued to be the topic of much discussion at the company, as people wondered aloud whether they would lose that flexibility, said employees who spoke anonymously because they were not authorized to speak to the media.

But for the most part, those employees said, those concerns have been eased by managers who assured them that the real targets of Yahoo’s memo were the approximately 200 employees who work from home full time.

One manager said he told his employees, “Be here when you can. Use your best judgment. But if you have to stay home for the cable guy or because your kid is sick, do it.”

Many of Yahoo’s problems are visible to people outside the company. It missed the two biggest trends on the Internet — social networking and mobile. Its home page and e-mail services had become relics used by people who had never bothered to change their habits. It ceded its crown as the biggest seller of display ads to Facebook and Google. Its stock price was plummeting.

Common Sense: Apple’s Map App Could Raise Antitrust Concerns

These milestones were reached with the steady hand of Timothy D. Cook at Apple’s helm, but they seem inseparable from Mr. Jobs. They are the result of initiatives begun during his tenure and, in many ways, reflect his personality — one that was perfectionist, competitive, driven and controlling.

Those qualities have remained on display at Apple in the year since his death, most recently in the decision to substitute Apple mapping software for rival Google’s in the iPhone 5 and the new iOS 6 operating system, as well as allegations that Apple and book producers conspired to control the price of e-books.

Apple hasn’t fully explained its decision to replace Google’s maps, but it probably reflects the evolution of the Apple-Google relationship from close allies to fierce competitors, a process that began well before Mr. Jobs’s death. Apple also hasn’t indicated whether it was carrying out Mr. Jobs’s wishes, but the decision seems consistent with his “compulsion for Apple to have end-to-end control of every product that it made,” as Walter Isaacson put it in his book “Steve Jobs.”

Apple’s use of its own mapping technology in the iPhone appears to be a textbook case of what’s known as a tying arrangement, sometimes referred to as “bundling.” In a tying arrangement, the purchase of one good or service (in this case the iPhone) is conditioned on the purchase or use of a second (Apple maps).

To the degree that tying arrangements extend the control of a dominant producer, they may violate antitrust laws. Probably the best-known example was Microsoft’s attempt to bundle its Internet Explorer browser on Windows software, to the disadvantage of Netscape, a rival browser, despite complaints that Explorer was initially an inferior product. This was the linchpin of the government’s 1998 antitrust case against Microsoft. E-mails were introduced as evidence in which Microsoft executives indiscreetly stated their intentions to “smother,” “extinguish” and “cut off Netscape’s air supply” by bundling Explorer with Windows.

Among other findings, the judge ruled that Microsoft had engaged in an illegal tying arrangement. The outcome of the case kept the door open to competition in the browser market. Today, the once-dominant Internet Explorer faces stiff competition from rivals like Mozilla Firefox and Google Chrome. Microsoft’s settlement came too late for Netscape’s browser, which was no longer being developed or supported after 2007. But Firefox traces its lineage to Netscape’s source code.

Could Apple’s map suffer a similar fate?

Early users searched for locations and got nonsensical results. Mad magazine ran a parody of the famous Saul Steinberg New Yorker cover of the world seen from Ninth Avenue “now using Apple Maps,” in which the Hudson was the Sea of Galilee and other landmarks were ludicrously misidentified.

Mr. Cook swiftly tried to contain the damage. “Everything we do at Apple is aimed at making our products the best in the world. We know that you expect that from us, and we will keep working nonstop until Maps lives up to the same incredibly high standard,” he said a week ago.

Would Mr. Jobs have been so quick to apologize? Perhaps not. He was famously resistant to the idea after complaints about the iPhone 4’s antenna, and the Apple “genius” manual instructs employees never to apologize for the quality of Apple technology.

Bundling its maps with the iPhone 5 may yet prove to be a strategic blunder for Apple, but it may nonetheless skirt the boundaries of the antitrust laws that tripped up Microsoft. “There’s no antitrust theory under which vertically integrating into an inferior component is considered anticompetitive,” Herbert Hovenkamp, an antitrust professor at the University of Iowa College of Law, told me. That’s because the problem is considered self-correcting by market forces. “There have been lots of complaints about tying arrangements involving inferior products. But ordinarily, incorporating an inferior product doesn’t increase your market share, because consumers leave for a better product. It’s not a promising strategy,” Professor Hovenkamp said. The danger for Apple is that customers will choose an Android phone with a superior Google Maps application rather than an iPhone.

An exception is when a monopolist does it, which is what happened with Microsoft. If a consumer used Microsoft Windows, the dominant software, Explorer was installed by default. “This arose with Microsoft because back then Explorer was considered inferior and quirky,” Professor Hovenkamp said. “But that wasn’t why it was a violation. It’s because consumers had no choice.” By contrast, Apple’s iOS isn’t the dominant smartphone operating system. Apple’s software has captured 17 percent of the global smartphone market, compared with 68 percent for Google’s Android. Apple users who want Google maps can readily switch to an Android phone. “Most tying arrangement cases have involved firms with close to 100 percent market shares,” Professor Hovenkamp noted.

The real test will be whether Apple makes rival mapping apps readily available for downloading on its iPhones. In his apology, Mr. Cook suggested that iPhone users try alternatives, and even suggested using Google maps by going to Google’s Web site. Google said it was working on a map application for the iPhone.

From an antitrust perspective, the e-books controversy is more serious. United States antitrust authorities have accused Apple of conspiring with major book publishers to raise e-book prices, and Apple offered to settle a European investigation into the same practices. The Justice Department cited a passage in Mr. Isaacson’s book in which Mr. Jobs called the strategy an “aikido move,” referring to the Japanese martial art, and said, “We’ll go to the agency model, where you set the price, and we get our 30 percent, and yes, the customer pays a little more, but that’s what you want anyway.”

The charges describe a classic price-fixing arrangement, “which is presumptively illegal,” Professor Hovenkamp said. “Everybody wants market dominance, not just Apple. But it’s how you go about it. You can’t go out and fix prices.” Apple has denied the charges, and a trial has been set for next year.

Mr. Cook’s challenge has always been to guide Apple out of the shadow of its visionary and charismatic founder. Can he encourage Mr. Jobs’s competitive zeal and drive for perfection while distancing Apple from Mr. Jobs’s potentially damaging — even unlawful — need to dominate and control? “Historically, Apple hasn’t been very sensitive to antitrust issues,” Professor Hovenkamp said.

There’s no quarreling with Apple’s extraordinary success, and Mr. Jobs’s obsession with controlling all aspects of Apple’s products clearly paid off for its customers and shareholders. It proved to be the right strategy for the time. But competition in smartphones and Apple’s other efforts has intensified in the year since Mr. Jobs died, and Apple may not be able to continue blindly down that path. With his swift apology for the imperfections of Apple’s maps, Mr. Cook seems to have taken a step in the right direction. If he also settles the e-books case and makes Google’s and other map applications readily available to iPhone users, he’d be signaling a clear break from the past and encouraging Apple to embrace, rather than stifle, competition.

This article has been revised to reflect the following correction:

Correction: October 5, 2012

An earlier version of this column referred incorrectly to a case in which Microsoft resolved anticompetitive concerns by agreeing to offer users a choice of browser. The agreement was part of a 2009 settlement of a European antitrust case, not the United States government's 1998 antitrust case.

Bits Blog: Bots Raise Their Heads Again on Facebook

Kimihiro Hoshino/Agence France-Presse — Getty Images

Any business that advertises on Facebook wants eyes looking at its ads and then fingers clicking on them. Facebook gets paid based on how many clicks that ad receives – effectively, on how many users it can send to a particular brand.

On Monday came an explosive claim that could give pause to brands trying to figure out if advertising works on Facebook. A Long Island start-up company said it was pulling its ads from the social network because it discovered that its ad clicks were far more likely to be coming from Web robots – or bots, as they are known — than human Facebook users.

The company, called Limited Run, helps bands and record labels sell music and merchandise online. It bought advertisements for itself on Facebook this spring. It wanted to know who was clicking, so it built its own analytics tool. It discovered that only one in five clicks seemed to be from human beings. The rest, it said, came from bots, which, in essence, are bits of software performing automated tasks.

The claim resurrects an issue that the social network has faced before – the scourge of bot farms – but it comes at a particularly inopportune time, when Facebook, now that it is a public company, is trying to increase advertising revenue to assuage shareholders. One of its nagging challenges is to prove to advertisers, big and small, that Facebook advertising yields results. News of robots doesn’t help.

Facebook has said that it scours the site regularly to detect and filter out bots. The company said in an email statement that it was “currently investigating” the claims of Limited Run.

Debra Williamson, an analyst with the market research firm eMarketer, says bots and spammers are an unfortunate byproduct of Web advertising. “Most advertisers should use additional analytics to determine more information about who is actually responding to their ads,” she said. “Many advertising technology companies that place ads on Facebook offer these kinds of services. As businesses get smarter about targeting and bidding on ads on Facebook, the likelihood that they will get bogus ad clicks will diminish.”

Dennis Yu, chief executive of BlitzMetrics, which develops and crunches the numbers for Facebook advertisers, says he often sees less than a 10 percentage point difference between the clicks that an ad actually gets and what Facebook reports.

Tom Mango, a co-founder of Limited Run, said Monday that he had devoted his modest advertising budget to Facebook and that the revelation of bogus ad clicks were enough to get him to suspend it for now.

“If we’re going to spend money on advertising, we want to make sure people are looking at us,” he said. “If a bot visits us through a Facebook ad, that costs us money. That ends up being not worth it to us.”

He said he had no idea who had created the bots, and he took pains to say he wasn’t blaming Facebook.

“Do we know who the bots belong too? No,” the company wrote on its blog. “Are we accusing Facebook of using bots to drive up advertising revenue. No. Is it strange? Yes.”

Limited Run seems to have had another gripe with Facebook. It changed its company name – it called itself Limited Pressing in the past – but faced difficulties in changing the name on its Facebook brand page. The one big upside for the company was this: Since Monday’s blog post, its followers on Facebook have doubled to 800 people.

Mr. Mango is now weighing whether the company should spend its advertising budget on Twitter.