An options trade involving 21 million Yahoo shares yesterday signaled that at least one major Yahoo investor no longer expects Microsoft to buy the whole company for $31 per share. More like $25 to $27.50, analysts told Reuters, which also reports all the details of the trade with lots of jargon. But for the rest of us, very basically what happened is that an investor bought a whole bunch of options contracts that estimated Yahoo shares would trade at $25 in October and resold them as options contracts estimating shares would trade at $27.50 in October. If Yahoo shares close at $27.50 in October, the investor's profit will be $18.2 million.

Yahoo's board has called Microsoft's on-and-off pursuit of their company "erratic." Not that their behavior's been that straightforward, either. But could there be more to the imbroglio than Jerry Yang's founder ego and Steve Ballmer's desperate grasping at relevance on the Web? Blogger Usman Latif has a theory: It's all about "'361," a patent Yahoo obtained when it bought paid-search pioneer Overture in July 2003. The patent covers the basic business model of letting advertisers bid to place ads against keywords — the heart of Google's multibillion-dollar revenue engine. Latif's thesis: Microsoft doesn't want Yahoo's people, products, or market share; it just wants to get its hands on this patent, so it can use it to knife Google.

Why so gloomy, VMware investors? The company's stock drop, while likely driven more by the virtualization software maker's newly slenderized forecasts and the resignation of its founder, seems like a slap in the face to incoming CEO Paul Maritz. And that would be a shame, since VMware is now getting one of the princes of the software world as its boss — and just in time, as it's facing tough competition from Microsoft, where Maritz used to work.

Palo Alto server virtualization software maker VMware'scofounder Diane Greene resigned today, effective immediately. Virtualization is technology that allows one server to operate like its two or more, and it was thought to be a hot growth sector. Key word being "was." The company, which EMC spun off in an IPO only last August, also lowered its revenue growth expectations for the quarter below 50 percent.

The AOL-Yahoo deal Yahoo CEO Jerry Yang spent the Fourth of July weekend trying to cobble together won't happen. At least, not in time for Yang to present it on August 1 to Yahoo shareholders as an alternative to Carl Icahn's Microsoft-Yahoo promises. The deal would have combined Time Warner's online property AOL with Yahoo and given Time Warner 10 percent of the new company. But Yang's problem is once again the price he wants for Yahoo. Specifically, Yang believes Yahoo's recent search deal with Google boosts the company's revenues so much, it makes it worth more than Time Warner has so far said its willing to pay. Ah, the delicious irony, a Google deal that was supposed to keep Microsoft away ends up driving Yahoo right into its arms.

• Allying itself with Carl Icahn, Microsoft says it's open to restarting talks with Yahoo if Yahoo's board is replaced. [WSJ]

Google has come under increasing fire for a lack of transparency in how it does everything — from keeping porn off YouTube to calculating advertising rates to determining which search results go where. I may personally distrust the wise benevolence of markets, but information asymmetry is a time-tested business tactic. In an article comparing the applied economics of Microsoft in the PC era and Google in the Internet era, the New York Times gets more of the same blather from the Googleplex regarding the enigma wrapped inside a puzzle wrapped inside the algorithm from Hal Varian, Google's in-house rent-a-quote economics guru:

Wait a minute: Now Microsoft wants to buy Yahoo again, provided the current board gets dumped? We could have sworn we heard Microsoft executives from Steve Ballmer on down talking about how the company had moved on. Right. If this is moving on, then Julia Allison is over Kevin Rose. I'm starting to believe Jerry Yang's version of the deal.

Google cofounder Sergey Brin has explained his company's childcare fiasco thusly: It's an experiment in economics. And yet there's very little that's scientific about Google's approach to childcare, which has been to hand Susan Wojcicki, Brin's sister-in-law, a blank check, and then accuse parents of feeling entitled when the result comes in with sky-high costs. Raising the price well above market rates was the only way, Brin argued in meeting with parents, to reduce a long waitlist. Gosh, how can a large software company fairly handle childcare benefits? If Google weren't so determined to do things differently — wild ono and adzuki beans for lunch! Stanford grads with 3.5 GPAs as instructors! — it might look to Microsoft's example. The software giant offers employees 20 percent discounts on childcare from a number of providers — and its executives are smart enough to realize that they know how to write code, not take care of infants.

Court documents in the ConnectU case reveal that when it comes to the price of Facebook common shares, Facebook's board values the company at $3.75 billion — far lower than the $15 billion valuation set by Microsoft's $240 million purchase of 1.6 percent of the company. As an investor, Microsoft owns preferred stock — worth more in part because, in case of an acquisition or an IPO, it's the stuff that gets sold first. That means Facebook board really thinks the company isn't worth $3.75 billion or $15 billion, but somewhere in between. Actual shareholders — including Facebook employees, we've heard — are more than willing to move their shares at a $4 billion valuation. The revealing court documents, in which ConnectU lawyers complain about Facebook's valuation, are embedded below. Before you feel too sympathetic, ask yourself: Isn't this the kind of thing lawyers are paid to know?

Yahoo shareholders allied with corporate raider Carl Icahn just got their wish. In a statement, Microsoft has announced that if Yahoo shareholders replace Yahoo's current board during an annual shareholder meeting on August 1, Microsoft will resume merger talks with Yahoo. As for Yahoo's current board, a Microsoft statement reads: "we have concluded that we cannot reach an agreement with them." The full statement:

A relentless neophilia is Silicon Valley's signature characteristic. One must have a new iPhone, a new Twitter, a new electric car. You're either in beta or in the grave. That's why I'm intrigued by two decisions by Dell and Sony. Dell has figured out a way to wriggle around Microsoft's licensing rules and still sell its discontinued Windows XP operating system. Sony, meanwhile, is profitably selling its nine-year-old PlayStation 2 videogame console in markets like India. This just isn't done.

Sabeer Bhatia, the Hotmail founder who gleaned a cool $400 million in the email startup's sale to Microsoft, got married this year to the gorgeous Tanya Sharma, heiress to the Baidyanath Group fortune. This picture of the bride and groom from the nuptials held on "the exclusive Malaysian Island of Langkawi" was published by our new favorite anonymous blogger covering the Indian tech and outsourcing scene who promises further dish. Have a better caption? The best one will become the new headline. Yesterday's winner: "I think you know what the problem is just as well as I do." by kadedworkin.

After selling Yahoo entirely to Micosoft, corporate raider Carl Icahn's second choice for Yahoo was for it to outsource search advertising to Google. That happened. And since then, Icahn's been awfully quiet, even as he's putting forward a slate to unseat Yahoo's current board of directors. Is Icahn content to sit back and watch his slate lose? Not according to the Wall Street Journal, which reports that he and Microsoft are still working in cahoots:

Facebook's list of supported browsers does not include one that's proven relatively popular (if by hook or by crook) — Microsoft Internet Explorer. As blogger Dan Lewis points out, Microsoft may have invested $240 million in the social network startup, and you'd think that would win them some favors:

The Economist tidily sums up billg's career this week, now that Microsoft's Rain Man (see video) has walked away from the company after 33 years. I've whittled the piece down to its talking points.

The Wall Street Journal's report that Microsoft is looking for partners to dine on Yahoo's carcass à la carte — a group which includes Journal owner News Corp., whose media-mogul boss, Rupert Murdoch, has long flirted with swapping MySpace for a chunk of Yahoo — triggered after-hours trading that boosted Yahoo's stock well above $21 a share, keeping it from dipping below the $19 it was trading at before Team Redmond's initial buyout offer was announced. We can only hope the story was sourced better than TechCrunch's earlier stock-boosting rumor.

Microsoft can't convince customers that they need the new version of Office anymore, so they'e begun to sell it as software-as-a-service, bundled with security software. "Security is basically the No. 1 thing that gets attached with a PC," said Microsoft group product manager Bryson Gordon. The product, code-named "Albany" and now known as Equipt, will cost PC buyers an extra $20 a year over the $49 per year price Microsoft charges for its OneCare antivirus software. Why don't they just let users download the software? That might seem easier, but retailers like Circuit City move a lot of Xboxes and Windows PCs, and the software giant can't afford to leave them grounded as computing moves to the cloud.

In a presentation filed with SEC earlier this week, Yahoo's board tried to convince Yahoo shareholders that "the record casts doubt on whether Microsoft was ever committed to a whole company acquisition." But Yahoo shareholders don't buy it. You shouldn't either. Why? Remember the five weeks between when Microsoft made is offer public on February 1 and March 10, when Yahoo execs finally agreed to meet. One major shareholder tells us:

Microsoft's latest plan: acquire Yahoo's search business and convince either Time Warner or News Corp to snatch up the rest. Microsoft CEO Steve Ballmer and Yahoo board chairman Roy Bostock had a meeting scheduled Monday to discuss the plans, but Ballmer called it off at the last minute, reports the Wall Street Journal. Yahoo sources took the cancellation to mean Ballmer couldn't persuade News Corp's chairman Rupert Murdoch or Time Warner CEO Jeff Bewkes to do the deal. They're probably right about Bewkes. Word has it he's hoping Yahoo will buy Time Warner's AOL, not the other way around. As for Murdoch, he's been willing to hand over MySpace for Yahoo stock since at least last year, but perhaps like us, he's wondering why anyone would make a move for Yahoo shares right now, when they don't seem to be going anywhere but down. (Photo by xamad)