The prospect of Michael Dell remaining CEO of the company he founded 29 years ago has gone from bad to worse. All because of Carl Icahn and his little stub.

The saga of Dell, which has been playing out for years, has been gathering steam in recent months. Several years ago, Michael Dell took back the reins of the company he founded and built into a PC giant. The market for desktops and laptops was slowing, so he made a bold push into IT services and enterprise software. It sort of worked, but PCs remained a heavy albatross around Dell’s neck.

After Dell moved to take his company private, activist investor Carl Icahn saw an opportunity. After a few dramatic if complicated turns of events and a good deal of activist-investor kabuki on Icahn’s part, it became clear that Icahn was staging a shrewd coup to take Dell out of its founder’s control. Any doubts that that was the inevitable outcome vanished this morning when Icahn filed a letter to Dell shareholders with the SEC.

Icahn called Dell’s leveraged buyout bid of $13.65 a share in cash “the great giveaway.” Instead, Icahn would join with Southeastern Asset Management – which together with Icahn owns 13 percent of Dell – to raise $5.2 billion in debt, add it to cash on hand and let shareholders keep shares in the company worth $1.65 – what Icahn called a “stub” share – plus $12 a share in either cash or shares in the new Dell.

Icahn then took to the airwaves to try and throw Michael Dell under the bus. And he did it with typical Icahn panache, praising Michael Dell and the company’s current board even as he tried to bury them. He told Bloomberg television,

We think it’s very important you have a new CEO there. We would want a new CEO, who the board would select… We don’t micromanage, but we need a bit of a cultural change at Dell. Michael Dell, I just think he’s not the guy for that at this point. And I”m not saying this alone. I have nothing against Michael Dell, I have respect for him. I respect how he’s got the board to give him this bargain! I’ve never met him. I certainly think he’s a smart guy. I don’t think he’d be the one to run the company. I’m sure of that. The board would be completely out. I have nothing against the board.

Even though Icahn’s deal is valued at the same $13.65 a share as Dell’s proposed buyout, may appeal to investors because it offers the flexibility to maintain shares in the company. If Dell went private and turned things around, he could take the company public again at a profit. Some investors were concerned that Dell’s offer was too low and wanted to hold some of the stock if the company turned around. Icahn’s offer gives them that option.

But nobody understands Dell, its problems and prospects better than its founder. Much like many startup founders, Dell is succumbing to investor pressure to pack his bags and go home. He never wanted it this way, but Michael Dell is suffering from founder’s syndrome, writ large. Instead of VC investors elbowing him out, it’s activist investors. But it’s a lesson for all founders: Even after three decades, you’re never safe from being ousted from the company you built and still love.

Kevin Kelleher

Kevin Kelleher is a writer living in the San Francisco Bay Area. He has worked at Bloomberg, Wired News and The Industry Standard magazine and has written for Wired magazine, Reuters, Fortune, GigaOm, Popular Science, Salon, Portfolio as well as many others.

In the world of e-commerce, Groupon is a shark: It must constantly move forward to survive.

The company started out as a business offering local daily deals through email. It was briefly one of the fastest growing companies on record, but as the daily-deal market soured Groupon moved away from email and daily deals. Last quarter, less than half of the company’s North American transactions came from emails, and more than half weren’t daily deals but longer-term deals in Groupon’s searchable Deal Bank.

Similarly, when its business of offering deals with third-party merchants began to slow, Groupon moved into direct sales, which now account for 27 percent of its revenue. When consumers grew comfortable buying on the mobile Web, Groupon followed them. It now sees 45 percent of its transactions from mobile devices. When competitors emerged, Groupon began offering a complex software platform aimed at helping merchants engage with new customers.

By some measures, this strategy is working well enough for the company for now. The company reported revenue of $601 million, up 8 percent from the same quarter a year ago. Analysts, mindful of the disastrous results only one quarter ago (which prompted the firing of its founding CEO), had set the bar low with forecasts of $591 million.

Groupon’s stock shot up 11 percent on those numbers, which might appear to be a triumph for the hedge funds that have been buying the stock. On the other hand, the rally puts Groupon’s stock back where it was only a week ago. And some of the buying may be spurred by bearish investors buying back short positions on a report that, as one analyst bluntly put it, “wasn’t a debacle.”

Groupon isn’t out of the woods, however. The company needs a new permanent CEO and Ted Leonsis, one of the two people handling the job now, said the company isn’t in a hurry to find one. What the company is in a rush to do is to scale up its aggressive company vision.

When Groupon filed to go public it’s vision was a comparatively modest one: “bringing the brick and mortar world of local commerce onto the Internet.” The company’s prospectus talked about reshaping local commerce. Today, Groupon prefaced its earnings-call presentation with this mission: “To be the world’s commerce operating system.” In the way Facebook wants to connect the world and Google wants to organize all its information, Groupon wants to be Windows for its commerce.

This is pure Groupon. When the going gets tough, make the goal that much more audacious. Much like prolonging a CEO search, it lets you go to investors and ask for more time to turn things around. In the earnings call today, chief operating officer Kal Raman said, “It’s not even day one, it’s hour one of day one in revolutionizing global commerce.” Eric Lefkofsky, the other CEO in Groupon’s two-man horse costume, talked about Groupon’s “growing pains.” Together, the two quotes conjure an image of Groupon as a teething infant.

Groupon’s pains have always come from its hypergrowth, its relentless drive to always be moving somewhere new. The company’s push into international markets continues to weigh on its financials: 56 percent of Groupon’s active customers are in international markets, but the segment’s revenue fell 18 percent. Spending per customer has held steady in North America over the past year, but it’s fallen 35 percent abroad.

Similarly, Groupon’s expansion into Goods, its direct sales business, has kept revenue growing 42 percent in North America, but it’s crushing profit margins. Operating profit fell to $21 million from $40 million over the past year, while operating margins were halved to 3.5 percent from 7 percent.

Groupon’s invest-today-for-growth-tomorrow strategy has its costs, and the toll it’s taking on the company can be most clearly seen in its free cash flow. Free cash flow shows how much cash the core business is generating beyond the spending needed to keep growing.

Measured over the trailing 12 months, Groupon’s free cash flow last quarter fell to $95 million. A year ago, it stood at $310 million. It’s fallen every quarter for the past three quarters as expansions into goods, new software platforms and new international markets have demanded more spending.

Groupon may have posted a decent quarter, its strongest in a while. But make no mistake, the more this shark moves forward, the more it looks emaciated.

Kevin Kelleher

Kevin Kelleher is a writer living in the San Francisco Bay Area. He has worked at Bloomberg, Wired News and The Industry Standard magazine and has written for Wired magazine, Reuters, Fortune, GigaOm, Popular Science, Salon, Portfolio as well as many others.

When cable TV began to appear inside millions of homes, it seemed liked a blessing – dozens of new channels beyond the old broadcast standbys, promising that there would always be something to watch. And there was, but it came with the tradeoff of quantity for quality. Soon enough, we came to accept cable TV as a mixed blessing, an endless quest for something watchable if we just channel surfed a little bit longer.

The rise of on-demand streaming television on the Web was supposed to change that. You could line up your favorite movies in your Netflix queue, or skim through the site’s recommendations. No more desperate thumbing on the channel-forward button. For a while, Netflix seemed like the TV we always wanted cable and satellite to be – an ocean of programs, and an easy way to navigate to the islands of quality we were looking for.

But increasingly, Netflix is looking like another mixed blessing. The costs of licensing movies and TV shows is forcing the company to make hard decisions on which programs to offer its subscribers. Two years ago, the shift first became evident to cinephiles who were disappointed when much of Criterion’s collection of classic films began migrating over to Hulu.

A year later, Starz pulled its catalog of hundreds of movies from Netflix, including hits like “Toy Story 3.” Independent distributors complained that Netflix wasn’t interested in their movies. Recently Netflix said it’s scaling down its content deal with Viacom for programs on channels like MTV, Nickelodeon, and Comedy Central. And this week, 1,794 titles from MGM, Universal, and Warner Bros. vanished from Netflix’s library.

That shift was part of a broader strategy by Netflix to focus less on movies and more on TV shows, in particular its own original programming. Last quarter, on the heels of the launch of “House of Cards,” Netflix said its subscriber base grew by about 2 million to 29.2 million – giving it more subscribers than HBO. It’s since released a horror series “Hemlock Grove,” and will later this month revive “Arrested Development.”

The shift is working well for Netflix. The unexpected rise in subscriber growth helped push the company’s stock up 18 percent in the past three weeks. One bullish analyst said Netflix could still rise more than 50 percent to $325 a share, arguing that Netflix is now more like HBO and Starz. And that as TV network companies go, it’s cheap. Not long ago, a Netflix executive said the company’s goal was to become like HBO faster than HBO became like Netflix, and it seems his wish has come true.

While Netflix’s bold entry into original programming appears to be working for the company, it’s hard not to lament the company’s move toward the cable-TV business model it set out to disrupt. It’s not quite a capitulation since the two models are moving toward each other. But it feels small in comparison to the potential Netflix had of being the go-to place for watching quality video programs online.

Instead, the world of online TV is growing just as splintered as cable TV seemed after the initial thrill of installation wore off. Instead of surfing channels, I find myself surfing video platforms that each offer a smattering of movies and shows I enjoy. I watch Netflix less than I used to, and I hear from my friends that they are as watching less often well. I’m glad Netflix is doing well, and I liked well enough the seven chapters of “House of Cards” I saw before relegating it back to my queue, but I kind of miss the old Netflix, which used to surprise me with interesting recommendations than it does now.

Content owners like TV to be fragmented into different channels or providers because it serves them well. In an 11-page essay released after the company’s strong financial report, CEO Reed Hastings painted the online TV industry as a long-term work in progress. In time, apps would replace channels, leaving a lot of companies offering video content. But Hastings also noted that “content owners always want another bidder, and never want one bidder to become too strong.”

After trying to changes the rules of the digital-TV game, Netflix seems to have settled on a less ambitious approach: In order to stay in that game, Netflix has chosen to play by those rules. It’s the same old fragmented TV landscape we’ve had for decades, only instead of channel surfing we’ll be app surfing. But that model remains waiting for someone to come along and reinvent it. Perhaps Hastings has some secret plan up his sleeve, but right now Netflix is not looking like it’s ready to reinvent online TV.

Kevin Kelleher

Kevin Kelleher is a writer living in the San Francisco Bay Area. He has worked at Bloomberg, Wired News and The Industry Standard magazine and has written for Wired magazine, Reuters, Fortune, GigaOm, Popular Science, Salon, Portfolio as well as many others.

A few short years ago, Facebook was on track for world domination. The social network was building an open graph that would create and then dominate a new Internet structured around social relationships. Google and others would be sidelined. Mark Zuckerberg was annointed “our new Caesar” (without our consent – typical for dictatorships).

As everyone knows, the Facebook IPO reversed all that. And after the inevitable backlash, it became clear Facebook would end up somewhere between the fearsome juggernaut it once threatened to become and the hapless goat it became in the months after it went public. Its earnings became one of the most closely scrutinized in the Valley, because they yielded the best data on how Facebook would fare in the long run.

After nearly a year as a public company, Facebook is emerging as a successful Internet company. It’s not the elaborate joke worth $15 a share, nor is it the once-in-a-generation success valued at $45 a share. It’s right in between, trading around $27.50 in the wake of its first-quarter earnings report today. (When Facebook reported its earnings in afterhours trading, Facebook’s stock popped 3 percent, then fell 2 percent then, settled near its closing price of $27.43 – all in the space of an hour.)

Facebook is a Goldilocks company – not great, not terrible. It’s pretty good – an ordinary, successful Web company. But is pretty good good enough for Facebook? The company was founded less than a decade ago, but already it’s showing the signs of a middle-aged tech company – slowing revenue growth and declining profit margins, new areas of business eating into old areas, pleas to investors to be patient as it invests heavily to generate future growth.

There’s nothing inherently wrong with this. It happens to Google. And Microsoft. And Amazon, and Netflix, and Yahoo. But all of those companies were formed during or before the dot-com years, the earliest days of the Internet. This is not what you’d expect from a young company with a good share of the industry’s top engineering talent, 1.1 billion active users, and an early lead in one of the hottest areas of growth in tech.

Facebook’s revenue is growing at a healthy rate: 38 percent this quarter from the same quarter a year earlier. By contrast, Google’s revenue is growing 31 percent, and Amazon’s is growing 22 percent. But the rate of growth is slowing. Last quarter, Facebook’s revenue grew 40 percent, and a year ago the growth rate was 45 percent.

Declining growth is inevitable for companies and not necessarily a warning sign. What’s more worrisome is that growth is slowing while margins are also dropping. Facebook’s gross margin fell to 72 percent this quarter from 74 percent a year ago, while operating margins fell to 26 percent from 36 percent a year ago.

This is troublesome because it suggests Facebook is spending heavily without seeing a subsequent rise in either revenue or profitability. And the company warned on a conference call that it would continue to invest heavily this year for future growth.

In other words, even as past investments are having a limited effect on increasing revenue and profits, the company is plowing into new unproven business models. Facebook has shown it’s serious about being a force that shapes the mobile Web, but so much remains uncertain from a financial standpoint: How will Instagram users react when ads appear? Will Facebook Home resonate with more than core users?

And then then there’s mobile. Much was made of Facebook’s rapid growth in mobile ads, and rightly so: Mobile ad revenue has gone from zero to 30 percent of total revenue in less than a year. But that growth also raises some unhappier questions: Just how much of mobile growth is coming at the expense of growth on desktop ads?

Non-mobile ads brought in $875 million in revenue last quarter, down 15 percent from the previous quarter and down 7 percent from two quarters ago, when Facebook began breaking out mobile and desktop ad revenue. So while Facebook may be delivering on its promise to monetize its mobile app, it may be doing so at the expense of what has always been its core market: ads on desktops.

When Facebook went public, 82 percent of its revenue came from desktop ads. In less than a year, that number has fallen to 60 percent. And as soon as Facebook introduced mobile ads, its average revenue per user began to flatten, dipping to $2.85 per user in North America last quarter from $2.87 two quarters earlier. Like many newspapers, Facebook may be cannibalizing its older, higher-margin business as it pushes into a new area.

In short, Facebook is doing a decent job making money in a thriving market. But it’s showing signs of aging prematurely, and given its early promise it’s hard not to look at the company today and feel it’s fallen short. It has access to an unprecedented gold mine of personal data, but it still can’t offer ads that resonate with many users. And while daily users continue to climb each quarter, Facebook can’t shake the image that it’s not as necessary as it seemed a few years ago.

After an analyst asked Facebook executives on today’s earnings call about the perception that people under 25 “are disengaging from Facebook,” CFO David Ebersman offered this hardly spirited defense:

You asked about people under 25, we continue to have really high penetration rates among that age group, both in the U.S. and globally. And the younger users remain among the most active and engaged users that we have on Facebook. And then in addition, younger users are extremely active users of Instagram as well. So that’s great and makes our position even stronger. I think, from our standpoint, the urban legend you referenced, sort of flows more often than not from surveys people have done of younger users that indicate that they’re using other social services. And we take this feedback seriously but our sense is that much of the concern stems from the assumption that this is a zero-sum game and that’s not how we see it. We think the overall amount of time spent on services that enable you to connect and share is growing and will continue to grow, because these kinds of services are really engaging and good. And it’s great for us to be the leader in a market that’s expanding rapidly.

This is a case where a little hard data could have dispelled the “urban legend” that Facebook’s core audience is drifting away. (The survey referenced showed that, among US teenagers, 33 percent cited Facebook as the most important social network, down from 42- percent several months earlier.) Instead, Ebersman offered a vague counterargument and the company’s view that social media isn’t a zero-sum game.

Ebersman is right. The attention economy in social media may not be a zero-sum game. But the competition for ad dollars is. Facebook always used to play rough in the online-ad market, so it could win that zero-sum game. To see it accept that it must now share much of the market it created shows how far the company has drifted from its early promise.

Kevin Kelleher

Kevin Kelleher is a writer living in the San Francisco Bay Area. He has worked at Bloomberg, Wired News and The Industry Standard magazine and has written for Wired magazine, Reuters, Fortune, GigaOm, Popular Science, Salon, Portfolio as well as many others.

The debate surrounding Apple’s earnings in the March quarter had been as divisive as it’s been in years: What would happen to the company that, only one year ago, was on track to become the world’s first trillion-dollar company? Would it appease angry investors with increased dividends and buybacks? Or would it insist on investing in future growth as it as always done?

Today, Apple delivered its answer: It will do both. That’s one of the perks of having $145 billion in cash.

The news may not quiet the debate over whether Apple is in a period of decline or simply catching its breath for a new wave of growth. But it should silence for some time gadfly investors who wanted the company to return more cash directly to them. Apple is returning an extra $55 billion to shareholders in dividends and buybacks. All told, by the end of 2015 the company will have returned $100 billion to investors.

Apple said it will increase its dividend yield to 3 percent (higher than yields on 30-year US Treasuries and comparable to Microsoft’s yield of 3.1 percent). Because so much of its cash is tied up in overseas accounts, Apple said will borrow money to avoid paying U.S. taxes on repatriated earnings. No sooner did Apple speak of the debt than ratings agencies stepped forward with debt ratings: AA+ S&P and AA1 from Moody’s. (Microsoft, by comparison, has higher ratings of AAA from both agencies).

To some, the increased payouts may be a sign of capitulation to investors, who have seen the stock fall from $705 a share last September to $385 a share last week – a loss of nearly $300 billion in market value in seven months. It may even be read as by bears a sign that Apple is throwing in the towel on innovation since, as the meme goes, Apple’s best days are behind it.

I’m not so sure that’s the case. For years, Steve Jobs refused to pay a dividend, saying the money is better spent reinvesting in future products. But the future products Apple invested in left it with a massive cash balance that can be directed to present shareholders and future growth.

In recent years, publicly traded tech comanies have fallen into two camps. The early tech giants like Microsoft and Intel who have seen slower growth and compensated with dividends and buybacks for investors. That practice added to the image of dividends as the corporate equivalent of liver spots – emblems of middle age. Other companies, like Amazon and Google, see their stocks rise without dividends because they’ve persuaded investors they can productively invest in future profits.

Apple likes to do things its own way, however, so it’s planted itself in both camps – a company that pays handsome dividends but that is also hell bent on laying the foundation of years of strong growth with new products. That was the message Tim Cook kept returning to during the conference call with analysts to discuss today’s earnings.

Apple has created or redefined several product categories over the past decade – the mp3 player, the smartphone, the tablet. In time, shifting consumer tastes and new competition has eroded its early market lead. Consumers in emerging markets like bigger smartphone screens and smaller tablets. And everyone likes lower-prices, so the biggest growth in both smartphones and tablets is at the low-end of the market.

Cook explained that Apple is responding to changes in the markets it helped to established. The iPad Mini is appealing to many first-time tablet buyers overseas, he said, which is helping Apple’s market share but weighing on gross margins. He suggested a larger-screen iPhone may be coming by the end of the year, but only when its graphics are up to the standards of current iPhones.

More importantly, he mentioned “the potential of exciting new product categories.” That caught the attention of Pipar Jaffray analyst Gene Munster, who noticed that Cook didn’t say new products – which might mean, say, a bigger iPhone. He said, new product categories, which in Apple’s language means something cut from whole cloth. Like the TV product Apple has been working for years. Or a wearable computer like Google Glass (only one that wouldn’t spawn pejoratives like “glasshole.”) Or a payments product drawing on iTunes accounts that could disrupt the credit-card industry.

Of course, no one outside Apple can do anything but speculate on what these new product categories might be, or what kind of success they might see when launched. That’s because Apple’s approach is to be stealthy about new product categories, so that when they finally launch the company has a head start over competitors.

The flip side of that stealth, however, is that it casts a pall of uncertainty over Apple’s longer-term future. Google talks openly about products in early development – such as Fiber, Glass and self-driving cars – and because the company is so good at selling ads on what it develops, investors have come to trust its long-term vision. Apple is so secretive about its next act it creates a void of expectations. And staring into that void, investors see despair.

It doesn’t help either that, in contrast to Steve Jobs’ speaking style, Cook comes across as comparatively diffident. In contrast to Jobs’ memorable rants during conference calls, Cook relies on the anodyne jargon that most CEOs use. At times, he seems to be reading from statements even when he’s answering spontaneous questions. Asked by Munster about the timing of new product categories, Cook cut himself off in mid-sentence.

Under Cook, Apple’s tone may have changed, but its DNA hasn’t. News coverage of the stock suggests the company that once could do no wrong can now do nothing right – adding to the impression that Apple’s best days are behind it. Instead, the company likely has a few rough quarters ahead of it before it launches products that could create new markets for itself. Until then, investors can solace themselves with the $30 billion Apple will be shelling out to them each year.

Kevin Kelleher

Kevin Kelleher is a writer living in the San Francisco Bay Area. He has worked at Bloomberg, Wired News and The Industry Standard magazine and has written for Wired magazine, Reuters, Fortune, GigaOm, Popular Science, Salon, Portfolio as well as many others.

Every week, a little more incremental evidence emerges that Yahoo is pushing to turn itself around. In the past week, Yahoo reported a profit that was significantly higher than analysts had been expecting and released new apps that showed it’s serious about being a player on the mobile Web.

And on Friday, Marissa Mayer finally addressed the brouhaha over Yahoo’s telecommuting policy, noting that ending the work-from-home policy affected only 200 of Yahoo’s 12,000 employees. She seemed perplexed that a policy intended to address a single company at one point in its history had been blown up into a debate over telecommuting – a false debate, since no one credibly argues that flexible work hours won’t remain commonplace in the tech industry.

Mayer’s silence on the subject until now is consistent with a characteristic of CEOs who successfully turn around companies: the ability to hew to unpopular decisions even if they generate broad criticism and bad press. Knowing when to explain yourself is a tricky lesson, one that many CEOs stumble over. So while Mayer’s comments may not have been terribly meaningful in themselves, they add to the evidence that she is making a lot of necessary moves at Yahoo.

Early on in her tenure, Mayer sold off half of Yahoo’s stake in Alibaba and gave most of the proceeds to shareholders. While that move limited Yahoo’s ability to make strategic acquisitions, it’s had the short-term benefit of lifting the stock 48 percent since then, increasing the paper value of stock held by Yahoo employees and making its future appear more attractive to potential hires.

Yahoo’s focus on improving its mobile offerings is beginning to bear fruit. The company pushed out its revamped flagship Yahoo app today with seemingly endless scrolling of news stories and algorithms from its high-profile purchase of Summly. Mayer deserves points integrating Summly’s technology in its new app less than a month after the purchase, yet the app doesn’t feel fully baked: Many Summly summaries read as random edits and some video clips I played didn’t have any audio.

Much more polished was the new weather app Yahoo unvieled last Thursday. Yahoo’s data is used in the spartan weather app Apple installs in all iPhones (as evidenced by the Yahoo nano-logo in the lower left-hand corner). Yahoo cleverly drew on Flickr to improve the look of the app, while presenting other data like sunrise and sunset times in original, intuitive design.

With its weather app, Yahoo seems to be waking up to one of the biggest opportunities in the mobile Web: improving on the aging design of Apple’s native, undeletable apps. Google Maps on iOS is the classic example, but other apps like Fantastical for calendars, Clear for checklists and KitCam for cameras have found niches by innovating where Apple is sleeping. Now Yahoo offers what may be the best-designed weather app for iPhones.

At the same time, Yahoo proclaimed it has “sharpened its focus” – which is apparently purplespeak for shuttering several sites and features that weren’t popular enough to maintain. Along with Yahoo Mail Classic, which is still more intuitive and less frustrating to use than the current version, Yahoo Deals and Yahoo Kids will be dragged to the delete file.

While Mayer is making a lot of the right moves, it’s not clear they will have the right results because the problems inside Yahoo have been a decade in the making. Smart moves that might quickly take root at another company may well end up dormant in the arid soil of Yahoo’s long-dysfunctional culture.

For example, many of the actions Yahoo is taking under Mayer are reminiscent of ones Larry Page made when he became CEO of Google: making, and holding to, unpopular decisions (Google: Search Plus Your World, Yahoo: work minus your home); redesigning sites or apps to appeal to more users; and axing older businesses in the name of focusing corporate resources. That’s not surprising, since both CEOs came up through Google’s culture.

The difference, however, is that when it comes to eliminating old businesses, Google seems dedicated to preserving the Web’s past while Yahoo comes across as hell bent on deleting it. Andy Baio, the founder of events community Upcoming.org, lamented the loss of ten years of the site’s history. Yahoo controversially tried to close del.icio.us and deleted all GeoCities sites. Yahoo’s GeoCitification of the Web may make for a more focused business, but it also turns the Web itself into an ephemeral historical document.

I suspect Yahoo’s turnaround will show similarly mixed results in coming quarters. We’re already seeing something along those lines this week. Yes, Yahoo’s earnings of 38 cents a share “crushed” estimates of 25 cents. But revenue was slightly below analyst forecasts, and guidance for revenue in the current quarter is also below what Wall Street has been expecting.

Then there’s Alibaba, which Yahoo still holds a 24-percent stake in. As one analyst said to the AP, Yahoo had strong earnings because it’s doing better as an investment house than as a Web business. Yahoo can point to its rallying stock, but the rally is largely due to a shrewd investment made back in 2005. The financial performance of the core company is still muddling along.

Yahoo’s revenue last quarter fell 7 percent from the same quarter a year ago. Paid clicks on search ads rose by 16 percent, which was below the 20-percent figure Google reported. In display ads, the number of ads sold and the price per ad both fell, resulting in an 11-percent decline in display revenue to $402 million. Yahoo remains a company dependent on online ads that is losing ad revenue to Mayer’s alma mater, among others.

Yahoo faces a choice with its remaining stake in Alibaba. It can hold onto it, allowing the Chinese e-commerce phenomenon to buoy its EPS in future quarters. Or it can sell more of the stake, returning cash to shareholders in dividends and buybacks. Both will keep Yahoo’s share price aloft. Neither will turn around Yahoo’s underlying business.

Alibaba is Yahoo’s lifeline into an overseas market enjoying a burgeoning online population as well as an expanding middle class. In that sense, Alibaba is something else for Yahoo: A mirror that reflects back its youthful face 15 years ago. Wall Street cares less about what Yahoo can do with a weather app than what it will do with its Alibaba stake. Merrill Lynch raised its rating on Yahoo to buy from neutral, but it also added, “Alibaba’s potential valuation is fundamental to Yahoo’s stock price.”

Mayer has been at the helm of Yahoo for less than a year, and most turnarounds require several years to complete. She deserves much more time. But one thing is becoming clear: Yahoo is nowhere near becoming a company that will influence the Web the way Google or Facebook will. It’s still playing catch-up in a market that is plunging recklessly into the future.

In fact, Yahoo still looks a lot like the company it was back in 2005 or 2006, when it was investing in startups like Flickr, del.icio.us and Upcoming.org. And most importantly, Alibaba.

Mayer is making a lot of the right moves to turn Yahoo around. But I still wonder whether it will be enough. The company can afford to buy more time thanks to its stake in Alibaba. But the problems facing Yahoo are so entrenched that week after week of smart moves won’t be enough. For this company, it’s more like year after year.

[Image courtesy of LeWeb on Flickr]

Kevin Kelleher

Kevin Kelleher is a writer living in the San Francisco Bay Area. He has worked at Bloomberg, Wired News and The Industry Standard magazine and has written for Wired magazine, Reuters, Fortune, GigaOm, Popular Science, Salon, Portfolio as well as many others.

Investors often grow uneasy when companies invite them to consider the long term. Anything beyond the next three or four quarters can quickly stray into the speculative. In the tech industry, where large companies often need to plan and invest in projects that may not reach market for years, the tension between long-term strategies and short-term profits can often make for an uncomfortable tug-of-war.

Some big tech companies have started winning the good faith of investors when it comes to supporting their long-term plans. There’s Amazon, which has seen its stock rise despite razor thin profits or even occasional losses because of its steady track record of investing successfully in strong revenue growth. And now Google seems to be drawing support on Wall Street for its future plans.

Google announced its first quarter earnings this afternoon. The company’s revenue of $11 billion in the quarter was in line with analyst estimates of $11.1 billion. And its earnings of $11.58 a share exceeded forecasts of $10.65 a share. There were few surprises in the report: The core ad business is healthy as paid clicks rose 20 percent from the year-ago quarter while cost per click fell 4 percent. The stock was up 1.5 percent in afterhours trading on the numbers.

Like Amazon, Google is showing it can dedicate talent and capital onto unproven projects without interfering too much with its current financial performance. During the conference call to discuss earnings, many of the questions turned to products and features that are generating little if any money so far.

A transcript of the call shows that Google Glass, the wearable computers that Google is rolling out slowly, was referenced 12 times, usually at the prompting of an analyst question. Larry Page mused about the future of Glass, how in addition to core functions such as taking photos and videos, making calls and getting directions developers will build new apps to add new features. “Some day we’ll all be amazed that computing involved fishing around in pockets and purses,” he said.

For all the gee-whiz aspect of the discussion, the subtext was this: At the end of the day, Google Glass is just another piece of digital real estate for Google to sell ads – the key difference is that the ads will be placed about an inch from the consumer’s eye. Ubiquitous computing, for Google, translates into ubiquitous ads. And Google is positioning itself to be the biggest seller of online ads not just this year, but for years to come.

That has been Google’s pattern all along: Build a better search engine, sell ads on it. Organize the world’s information, and sell ads alongside it. Don’t do evil, but do sell ads. As Page said on the call, Gmail was released when Google was a search company. He might have added that YouTube was bought when it was a search company too. Now Google is a leader in online apps and Web video – both popular services where its ads can be found.

The focus on Google’s longer-term future is significant considering that only a couple of years ago, many investors were concerned about how its search-dependent business model would thrive amid the rise of Facebook. The answer, for now, is that revenue is growing by 23 percent a year and profit is growing by 16 percent.

Under Page, rather than being sidelined, Google has become a more central force in the development of the web. This is especially true in mobile, where Facebook has struggled but Google has leveraged its Android platform into ad-serving apps like Maps and Google Now.

And so many of today’s questions from analysts were directed to other areas of future growth. Scott Devitt of Morgan Stanley asked Nikesh Arora, Google’s chief business officer, about the possibility of online advertising becoming more than half of total advertising in the next five years. Arora said that TV’s migration to IP would allow for a personalized ads on displays that Google is already positioned to offer.

Other analysts asked about Google Fiber, launched in Kansas City and expanding to Austin, Texas and Provo, Utah. Both Page and CFO Patrick Pichette answered that it’s “early days,” although Pichette later mentioned that Fiber “is not only about the future but it’s really a lot about today” before taking a dig at current ISPs that require several seconds to load a YouTube video.

The risk in focusing too much on the financial prospects of a company more than a year or so into the future is that there are just too many unforeseen events – economic slowdowns, competing products by rivals and the question of how consumers are going to take to untested products. Glass could be the next big thing, or it could become an early footnote in the history of wearable computers.

Google has done a consistently good job of moving into new areas and finding ways to sell ads on them. It has its share of failures as well. But in contrast to a couple of years ago, investors seem to be interested in hearing about Google’s future with a sense of anticipation, rather than concern.

Kevin Kelleher

Kevin Kelleher is a writer living in the San Francisco Bay Area. He has worked at Bloomberg, Wired News and The Industry Standard magazine and has written for Wired magazine, Reuters, Fortune, GigaOm, Popular Science, Salon, Portfolio as well as many others.

Of all the things in Jeff Bezos’ most recent annual letter to shareholders, the words that caught my eye were these: “I frequently quote famed investor Benjamin Graham.”

Graham, of course, is the father of value investing, buying stocks that look underpriced by some measure of fundamental stock analysis: book value, dividend yield and, most famously, the price-earnings ratio. In recent decades – especially in tech industries, where companies paid little or no dividends – earnings per share and PE ratios have taken on a disproportionate, even distorted importance in valuing stocks.

Net earnings per share is the bottom line, the headline number in quarterly earnings reports, the one wire services usually send out first to investors. Divide the share price by the EPS and you have a ballpark idea of whether a company is cheap or expensive. It’s a handy rule of thumb. But it is not the only rule, although sometimes in stock market coverage it almost seems it is.

There are notable exceptions to the PE rule, and Amazon is one of the most notable. For years, the stock’s PE traded near 100 until Amazon began devoting even more spending to R&D, making Kindles and selling them at low prices, and adding more benefits to Prime subscribers.

All of that pushed Amazon into a net loss in 2012 of $39 million, or nine cents a share. Right now, analysts are expecting the company to earn $1.48 a share this year, valuing the stock at 184 times forecast 2013 earnings. By the primary measuring tool of value investing, Amazon looks like the opposite of a bargain.

To anyone familiar with Amazon’s history in the stock market, this is nothing new. The stock has defied short sellers waiting for a correction in the stock price that never came. In 1999, Barrons magazine ran a cover story famously called “Amazon.bomb” but a decade later was calling the company the world’s best retailer.

In recent years, Bezos’ shareholder letter has turned into something of an annual victory lap in his decade-long competition with Amazon stock bears. Namechecking Ben Graham may be a way of tweaking critics who chided him for poorly serving shareholders by delivering so few retained earnings over the years.

But it’s also notable that the Graham quote Bezos used – “In the short run, the market is a voting machine but in the long run, it is a weighing machine” – has appeared in shareholder letters before. Back in 2000, Bezos began his letter with a one-word sentence: “Ouch.” After noting that Amazon’s shares had fallen 80 percent since his last letter, Bezos invoked the same quote by Graham. It bookends Amazon’s 1999 net loss with the modest 2012 loss. Amazon is much healthier today, but as Bezos points out in both letters, the company’s long-term focus on customer experience is a constant core element.

Stocks like Amazon and Netflix that are able to maintain a high price-earnings ratio year after year are sometimes used to knock fundamental analysis in general. In a market where high-frequency trading accounts for more than half of U.S stock volume and where the traditional buy-and-hold investor becoming more and more marginal, fundamental investing is considered by some to be an anachronism, if not a joke.

But Amazon defies fundamentals only if one is obsessed with the bottom line. Graham’s approach to value investing saw fundamental analysis as a toolbox for finding undervalued stocks. As Jason Zweig pointed out recently in the Wall Street Journal, Amazon’s spending on R&D and marketing (through discounts like Prime) account for a good chunk of its operating costs. As long as that spending is investing in Amazon’s future, they aren’t a long-term concern for investors.

In that case, Zweig argued, looking at Amazon’s gross profits ($16.8 billion on revenue of $61.1 billion over the past four quarters) may offer a better insight into how successfully the company is managing its growth. Unlike Groupon, which tried to offer a similar metric in its IPO prospectus before the SEC nixed it, Amazon has a steady track record of turning that investment into strong revenue growth. Amazon’s controversial discounts and spending of years past is driving more and more business today.

Charting Amazon’s five-year stock performance against its revenue and net income shows that the investors are confident enough in Amazon’s future revenue growth that they are consistently willing to tolerate slim profits and the occassional slip into red ink. In a market dominated by program trading and daytrades, Graham’s weighing machine still seems to be working just fine.

Amazon’s stock performance isn’t at odds with the tenets of value investing. Despite an absurdly high PE ratio, the company Jeff Bezos built would fit right into the market Ben Graham imagined it.

[Image courtesy jurvetson]

Kevin Kelleher

Kevin Kelleher is a writer living in the San Francisco Bay Area. He has worked at Bloomberg, Wired News and The Industry Standard magazine and has written for Wired magazine, Reuters, Fortune, GigaOm, Popular Science, Salon, Portfolio as well as many others.

It’s not a pretty sight, watching an industry in freefall. But 35 years after companies began mass producing what came to be called the personal computer, the decline of the PC industry, which began with the introduction of the iPad three years ago, is accelerating faster than even many pessimists had expected.

Yesterday, two research firms that have long tracked the health of the PC industry offered snapshots of the latest damage. IDC said only 76 million units shipped in the first quarter of 2013, a decline of 13.9 percent from the same quarter a year earlier. IDC may have thought it was being bearish by forecasting a 7.7-percent drop, but the actual decline was twice as severe. Gartner, meanwhile, reckoned shipments in the quarter fell 11.2 percent to 79 million units. When an 11-percent drop becomes the optimistic view, you know things are getting bad.

Looking at those numbers, it’s easy to overstate how bad things are for PCs. There were still somewhere between 76 million and 79 million PCs shipped in the first quarter, a seasonally slow one. Companies and consumers alike are still using them, although many are waiting longer to replace aging machines. This is still a big business, even if it’s getting less big by the quarter.

More importantly, if you consider that the term “personal computer” has evolved to embrace tablets as well as smartphones, then the PC industry is thriving. IDC and Gartner’s PC figures have always focused on desktops and notebooks and more recently netbooks. But viewed from the vantage point of users, the personal computer is a bigger part of our everyday lives than ever before.

What’s really in freefall is the Wintel PC, typically machines powered by an x86 processor and running Microsoft Windows. (As for Apple’s desktops and notebooks, IDC said their shipments fell 7.5 percent, while Gartner saw them rising 8.6 percent). Intel is responding by trying to push into data centers and taking on ARM processors. Microsoft’s response was Windows 8 – the dramatic, built-from-scratch upgrade that was supposed to make Microsoft relevant again.

Instead, we have comments like this from IDC analyst Bob O’Donnell.

At this point, unfortunately, it seems clear that the Windows 8 launch not only failed to provide a positive boost to the PC market, but appears to have slowed the market. While some consumers appreciate the new form factors and touch capabilities of Windows 8, the radical changes to the UI, removal of the familiar Start button, and the costs associated with touch have made PCs a less attractive alternative to dedicated tablets and other competitive devices. Microsoft will have to make some very tough decisions moving forward if it wants to help reinvigorate the PC market.

This is a frank enough assessment of what’s happening with Windows 8, but what is striking about it is that it is a carefully composed and vetted statement in a PR release from a research firm that is typically restrained about dishing out criticism. By the genteel terminology of a tech-research shop like IDC, this is a suckerpunch to the nose. In plain language, O’Donnell is saying what critics have been thinking about Microsoft for some time: Steve Ballmer appears to be screwing things up royally.

No one ever expected Windows 8 to make Microsoft a dominant force in the post-PC market. Still, early reviews of Windows 8 were positive enough to lead Microsoft bulls to believe the company could hold its own in a world where tablets and traditional PCs were converging. At this point, unfortunately, it seems clear that Windows 8 is doing the opposite. It is “slowing the market.” It is a sleek, radically designed handgun that Microsoft pointed straight at its foot. And then pulled the trigger.

Microsoft began selling Windows 8 last October 26. After a month, the company said it had sold 40 million licenses, and by early January the figure had risen to 60 million. Microsoft will likely update that figure when it reports its financial earnings next week. For now the quarter is looking like a disaster: During the first full quarter when Windows 8 was on the market, PC shipments saw their worst three months since IDC began tracking data in 1994. Gartner said the quarter was the slowest since early 2009. In other words, the economy may have pulled out of a recession, but thanks to Windows 8, PCs might as well still be in one.

Microsoft took the unprecedented step of making its own tablet, the Surface – a move that seemed bold because it risked alienating Windows-PC manufacturers like Dell and HP. Instead, it’s looking like the real risk to Dell and HP was Windows 8 itself. Last quarter, Dell’s PC shipments fell 11 percent and HP’s dropped 24 percent.

Microsoft’s stock is down 5 percent today, worth $13 billion less than it was before the PC-shipment numbers came out. Its bulls remain faithful to the stock, with some arguing that Windows 8 needs more time to gain traction with businesses and consumers. Raymond James issued a note this morning arguing that lower-cost touch devices later this year would boost Windows 8 sales. Earlier this week, Citigroup reminded investors that Microsoft’s non-PC areas like Xbox and enterprise tools were still strong.

Over at Goldman Sachs, analyst Heather Bellini imagined a more dire future for Microsoft, including longer-term options like cost-cutting, going private and breaking up the company. A contributor to Seeking Alpha revived an old idea: firing Ballmer, the way JC Penney fired Ron Johnson after an ambitious plan to turn around the retailer backfired.

In the short term, the best option for Microsoft is the one it’s most likely to choose: Wait. And pray. Hope that longtime Windows users will climb the learning curve necessary to upgrade to Windows 8, that cheaper touch screens will boost new sales, and that in pushing to remain relevant in computing Microsoft didn’t try to accomplish too much too late in the game.

The personal computer is far from dying. The more it evolves, the more important it seems. It’s Windows that’s withering. Microsoft’s best option is to hope that Windows 8 catches on in time. Hope is a good, even necessary thing for a company to have. It just doesn’t make for a very good business plan.

[Image in reference to Wired]

Kevin Kelleher

Kevin Kelleher is a writer living in the San Francisco Bay Area. He has worked at Bloomberg, Wired News and The Industry Standard magazine and has written for Wired magazine, Reuters, Fortune, GigaOm, Popular Science, Salon, Portfolio as well as many others.

Reading about how complex the Dell situation has become this week, I keep hearing that refrain from The Streets in my head: It was supposed to be so easy.

Two months ago today, Michael Dell embarked on a plan that was as simple in idea as it was ambitious in scope. Dell’s stock price had fallen so low – to below $9 a share late last year from a high of $41 a share in 2005 – so why not buy back shares, take the company private and rebuild it according to Dell’s vision? Michael Dell put in his own money and raised more through Silver Lake Management to cobble together a bid worth $24.4 billion.

With a leveraged buyout, Dell had a chance to do what few founders can pull off: return the company that bore his name to greatness, pulling it out of the hospice ward where big bloated tech companies go to die, and giving it a second act as a cloud-based IT services company. It seemed unlikely but it was a ballsy gambit, and I was among those rooting for him to pull it off.

It didn’t take long for the plan to start spinning out of control. Dell’s offer to pay shareholders $13.65 a share may have seemed like a generous premium at first glance, but many investors grumbled the price was too cheap. Among investors agitating for a better price if not a different bidder entirely was Carl Icahn, activist investor at large. Icahn’s first salvo was an SEC filing demanding that Dell borrow $8.25 billion to help finance a special dividend of $9 a share.

Dell responded by conducting what it termed a “robust ‘go-shop’” process to see if any third parties would make a better bid, inviting Icahn to participate in that process. Icahn tipped his trump card: “years of litigation” that would weigh down the already formidable costs of taking Dell private – a grim threat that could easily make a $9 special dividend look cheap in retrospect.

The consortium favoring a Dell leveraged buyout stood its ground, not offering shareholders more money. Then another bidder emerged, Blackstone – a private-equity giant with $4 billion in revenue last year. If that wasn’t bad enough, two chief Dell rivals – Hewlett-Packard and Lenovo – got a chance to study Dell’s books as part of the “go-shop” process, even though neither of them seemed serious about making a bid.

Blackstone later emerged with a bid to pay $14.25 a share to Dell shareholders willing to part with their stakes, and Icahn prepared his own bid before signaling he was willing to join Blackstone’s. But for Michael Dell, the stakes were only getting higher. Blackstone’s bid didn’t require Dell’s 16% stake in the company. In fact, he might not even stay on as CEO.

That raised the prospect of Blackstone keeping Dell a publicly traded company but essentially stripping down and selling off the bits and pieces that make up Dell, including a patent portfolio that many tech giants would covert in the age of the patent troll.

Michael Dell countered with a pitch that Dell is better off fixing its problems as a private concern, given that profit and revenue are on track to decline if the company remains on its current path. He also laid out his plan to employees – including ramping up in emerging markets, hiring more sales and investing in tablets and PCs – perhaps hoping to stave off an exodus of talent.

Things could come to a head as early as next week. Blackstone and Michael Dell are talking about what his future role could be with the company. A Bloomberg report Friday suggested he could be sidelined, while one from Reuters suggested there may be a desk in the CEO suite for him after all. Either way, a Blackstone deal is looking more likely than the Dell’s dream of taking his company private.

As usually happens whenever things get complicated and messy on Wall Street, the most likely winners will be the firms advising the different sides in the Dell talks – an estimated $400 million in advisory fees to make happen a deal valued at $24.4 billion.

It wasn’t supposed to be like this. Michael Dell was supposed to walk away with control over his baby again, remaking it into something new. It was supposed to be so easy. But the messy fight over who will control Dell is only going to make the actual task of turning Dell around that much harder. Regardless of who wins this epic Wall Street battle, the loser is likely to be Dell itself.

Kevin Kelleher

Kevin Kelleher is a writer living in the San Francisco Bay Area. He has worked at Bloomberg, Wired News and The Industry Standard magazine and has written for Wired magazine, Reuters, Fortune, GigaOm, Popular Science, Salon, Portfolio as well as many others.