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Microsoft Pri0

Welcome to Microsoft Pri0: That's Microspeak for top priority, and that's the news and observations you'll find here from Seattle Times reporter Sharon Chan.

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February 29, 2008 9:56 AM

ComScore says Google 'paid click' decline not actually bad news

Posted by Benjamin J. Romano

Earlier this week, news stories across the Internet and in every major business publication had Google on the rocks. A comScore report on paid clicks showed an 8 percent decline from December to January and flat annual growth. Google's shares tumbled $22.25 on the news Tuesday to close at $464.19, wiping $5.2 billion off the company's balance sheet. It was also viewed as another sign of the economic slowdown dragging on the lifeblood of Web 2.0, online advertising.

Today, comScore posted a blog explaining why that reaction misinterpreted the Internet measurement company's data, and behind the decline in paid clicks actually is a positive trend for Google.

Oops.

While comScore isn't saying everything's rosy in the broader economy, the company is correcting the record, in some detail, on what's going on at Google:

"The evidence suggests that the softness in Google's paid click metrics is primarily a result of Google's own quality initiatives that result in a reduction in the number of paid listings and, therefore, the opportunity for paid clicks to occur. In addition, the reduction in the incidence of paid listings existed progressively throughout 2007 and was successfully offset by improved revenue per click. It is entirely possible, if not likely, that the improved revenue yield will continue to deliver strong revenue growth in the first quarter."

And in the broader economy?

"Separately, there is no evidence of a slowdown in consumers clicking on paid search ads for rest of the U.S. search market, which comprises 40% of all searches."

Not everyone is buying comScore's interpretation of its own data, however. At Silicon Alley Insider, Henry Blodget continues "to view the comScore report as supporting the theory that Google is exposed to economic weakness."

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February 28, 2008 9:34 AM

Morning radar: China plans Olympics Web site; Crispin wins Vista account; Google Sites

Posted by Benjamin J. Romano

China Central Television is planning an interactive Web site for the Beijing Olympics in partnership with MySpace China and Tudou.com, an online video site, The Wall Street Journal reports. It will be viewable only in China, so it won't compete directly with Microsoft's own site, which it's producing in partnership with NBC Universal.

That site, www.nbcolympics.com, was announced during Bill Gates keynote address at the Consumer Electronics Show earlier this year. It's expected to offer some 2,200 hours of live event coverage from the games with up to 30 streams of full-screen content to choose from. It will be based on Microsoft's new Silverlight technology, which competes with Adobe's Flash -- the widely used online multimedia player that powers YouTube and other popular Internet video destinations.

Advertising agency Crispin Porter & Bogusky has won the Windows account at Microsoft. The company is reportedly preparing a $300 million campaign, according to sources cited in this Advertising Age story. The campaign would seek to promote the operating system with consumers later this year, probably to coincide with the release of Service Pack 1 for Windows Vista. Given the beating Vista has taken in the "I'm a Mac. I'm a PC" campaign for Apple, it will be interesting to watch how aggressive Microsoft and Crispin are willing to be in this next wave of promotions for Vista.

Google Sites, a retooled JotSpot, is getting headlines today as a competitor to Microsoft SharePoint. Microsoft will be making noise about SharePoint next week when it hosts a conference here in Seattle devoted to the software for collaboration among work groups. Bill Gates is scheduled to give a keynote on Monday morning. I wonder how much execs will entertain comparisons of their technology with what Google has on offer.

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February 27, 2008 7:34 AM

In the bad timing category: EU fine rains on Microsoft launch parade

Posted by Benjamin J. Romano

The reports from Europe are probably echoing around the Los Angeles Convention Center, where Microsoft's "Heroes Happen Here" launch event is scheduled to get going this morning. Despite his best efforts to make peace with Neelie Kroes, the European competition commissioner who announced $1.3 billion in fines against the company, Microsoft CEO Steve Ballmer's launch of three big products later today will be overshadowed by the European regulator.

Ballmer is set to give a keynote speech extolling the virtues of Windows Server 2008, SQL Server 2008 and Visual Studio 2008. Check out today's story for more on what these products, particularly Server 2008, mean for the company and the market. I wonder if he will make reference to the fines -- and whether Microsoft will appeal them. I doubt it. I imagine this is particularly frustrating for Microsoft, especially given its effort last week to position itself and its products as even more open and interoperable -- an announcement that was greeted with a skeptical statement by Kroes even as Microsoft executives were still holding a press conference.

I also wonder whether the fines were announced now with Kroes knowing that Microsoft was trotting out major products. Here's her press release.

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February 26, 2008 3:06 PM

Microsoft says Windows Live outage issue is resolved for all customers

Posted by Benjamin J. Romano

Microsoft has just resolved today's widespread outage of its online services, Windows Live.

Here's a statement from the company, attributed to Samantha McManus, Windows Live product manager:

"Earlier today, an issue began that has caused some consumers worldwide to experience difficulty logging in to their Windows Live ID accounts. This issue has since been resolved and normal operations have been restored to all customers.

"The issue purely impacted the log-in process for customers and largely did not impact customers who were already logged in. Microsoft working quickly and aggressively to resolve the issue. Our customers have come to expect a high level of service reliability in their experience with Windows Live and we apologize for any inconvenience this particular issue has caused consumers.

"Microsoft customers experienced issues accessing various services that rely on Windows Live ID for authentication including Windows Live Hotmail, Windows Live Messenger and Xbox Live. We worked to identify the issue and have restored full normal operation to all of our customers. We do not have a specific number [of customers impacted] to share at this time. There is no danger of data loss or data compromise. It is important to note that the security and privacy of our customers was at no time compromised as a result of this issue."

I've asked for details on the number of users affected and what caused the Live ID system to go down. I'll post them if I get them.

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February 26, 2008 12:46 PM

Crab lovers, start your Xboxes: 'Deadliest Catch' game due in April

Posted by Benjamin J. Romano

How to explain the phenomenon that is Discovery Channel's hit reality series "Deadliest Catch"?

The high seas, the extreme conditions, the danger, the payoff of a big catch of Alaskan king and opilio crab. It has all the elements of a great adventure game. So, no surprise, newly formed game publisher Greenwave announced today that "Deadliest Catch Alaskan Storm," is due out for the Xbox 360 and PC in April, just in time for the show's fourth season.


ALAN BERNER / THE SEATTLE TIMES

Brothers Norman, left, Edgar and Sig Hansen have been crab-fishing aboard the Northwestern for decades. Now they're starring in a video game about it.

According to a press release, "The game was inspired by Sig, Edgar and Norman Hansen -- three brothers who have made their living crab fishing on the Bering Sea aboard their family's fishing vessel, the Northwestern." Again, no surprise to fans of the show that it's the Hansen brothers -- who seem to have taken best advantage of the new attention paid to their vocation -- that would work with game developers Liquid Dragon Studios on this project. Check out this 2006 Seattle Times story on their line of lingerie, among other things.

The local tie-ins don't stop with the Hansens, who are Shorewood High School grads.

Liquid Dragon Studios is in Bellevue. Greenwave is a "recently established" Seattle company whose offices are in Ballard not far from Fisherman's Terminal.

The game looks like it's packed with features to keep the amateur seafarer interested. Here's some more detail:

"Weather and fishing conditions are based on authentic weather and storm data and get progressively worse each season, increasing the challenge. The ultimate goal is to return safely each season, upgrade your boat and crew, and attempt to break Captain Sig Hansen and the Northwestern crew's actual lifetime catch of twenty million pounds."

To underscore the danger, the game will be the first to feature U.S. Coast Guard helicopters and boats.

The developers are also boasting "the best wave effects in a video game to date." We'll see, but if so, I hope they'll come out with a good surfing game next.

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February 26, 2008 12:17 PM

I can't access Hotmail either

Posted by Benjamin J. Romano

As reported in the usual places this morning, Microsoft is experiencing a widespread outage of at least one of its major online services, including Windows Live Hotmail. It looked like the West Coast wasn't suffering from it early this morning, but that has since changed. I've been unable to access Hotmail for the past four hours.

Microsoft has issued a statement saying it is investigating the problem, will fix it ASAP and is sorry for anyone put out by the outage.

I was reading Ina Fried's interview with Microsoft Server and Tools chief Bob Muglia just before checking my Hotmail again and was interested to see that Microsoft is using the forthcoming Windows Server 2008 internally for "a good part of the Windows Live servers." As Mary Jo Foley notes, an unfortunate coincidence. But let's wait and see what Microsoft says is the cause of the outage. It could be any number of things, right?

Update, 12:45 p.m.: A bit more on the scope of the outage. The AP is confirming that it's international in scope and that other services that require a Live ID to log in, such as the Xbox Live video game network, aren't working either.

Update, 1:40 p.m.: Hotmail is working again for me and seems pretty snappy.

Update, 3:30 p.m.: Everything's hunky dory now. Check out this post for Microsoft's all-clear statement, which has a bit of additional detail on what happened.

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February 26, 2008 6:00 AM

Openess another MSFT-YHOO synergy?

Posted by Benjamin J. Romano

"If you didn't realize it, Yahoo! is embracing openness like never before."

That's how the company put it in a blog post Monday announcing its new open Internet search effort, the Open Search Platform. Of course, last week, Microsoft, which would like to acquire Yahoo, announced that it is also embracing openness like never before. Shows how closely the companies are aligned, right?

Microsoft pledged to open communications protocols and application programming interfaces (APIs) for its biggest products to developers, with a few catches. The company didn't say whether that would extend to its struggling Internet search efforts, but some analysts I talked to saw the broader strategic shift toward openness as a potential boon for Microsoft's online services efforts.

Here's what Yahoo is saying about opening up its Internet search platform:

"This open search platform enables 3rd parties to build and present the next generation of search results. There are a number of layers and capabilities that we have built into the platform, but our intent is clear -- present users with richer, more useful search results so that they can complete their tasks more efficiently and get from 'to do' to 'done.' "

Details were sketchy on the blog post and Yahoo says it will elaborate over "the next few months."

The company wasn't shy about extolling the benefits, however, which will flow to Web site owners, big and small, who will be able to build plug-ins that, once enabled, will present more detailed information -- including reviews, images and deep links -- on Yahoo Search than on the competition. These enhanced results will help generate more traffic and please users with better information, according to the blog post from Vish Makhijani, senior vice president and general manager of Yahoo Search.

Meanwhile, outlets including Search Engine Watch, have more details and analysis:

Yahoo will not feature or promote plug-ins that include advertising, or that are not relevant to users. And publishers will never be able to pay for placement in the gallery or other promotion by Yahoo. "This is not a paid relationship; it's all about relevance," Amit Kumar, director of product management for Yahoo Search, told the Web site.

But will it be enough to help lift the company's market share in Internet search? In January, Yahoo's share declined 0.7 points from December to 22.2 percent of the nearly 10.5 billion Internet searches performed in the U.S. Google remained the leader by a long shot with 58.5 percent. Microsoft held on to third, it's market share unchanged at 9.8 percent.

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February 25, 2008 5:31 PM

Microsoft 'Engagement Mapping' seeks to give advertising credit where it's due

Posted by Benjamin J. Romano

Microsoft's "new approach" to tracking the effectiveness of online advertising can be read as a broadside attack on the way that Google makes most of its money: search ads.

We've seen this coming for a while. Brian McAndrews, formerly CEO of aQuantive and now Microsoft's top advertising strategist, foreshadowed what the company is calling "Engagement Mapping" late last month. He wrote that "the current system for tracking ad conversions, while the best available for years, is not optimal because it gives all credit to that last ad seen or clicked -- often a search engine -- and not any credit to other ad units the consumer may have seen prior that helped influence the user to seek more information about the advertiser."

Presumably, Engagement Mapping will correct that inequity by accounting for "all the various online touchpoints and interactions a consumer experiences before an eventual sale." So if you see a banner ad for a Honda Prius on a Web site and then search for "Prius" in Google on your way to finding a dealer and buying a new car, this system could give some credit -- and revenue, I'd guess -- to the banner ad and perhaps take some credit away from search ads. That could increase the banner ad's value for both advertisers and the publishers who sell space on their Web sites.

The system will measure and account for data about a consumer's contact with ads, including recency, frequency, size and format (such as rich media and video) and how each ad channels the consumer toward a purchase. The tool itself, about which Microsoft provides precious little detail, will be called Engagement ROI and available as part of the Atlas Media Console -- a technology for advertisers that Microsoft acquired as part of aQuantive. Starting March 1, a group of customers will try out the beta version of Engagement ROI and Microsoft plans to have results before the end of June.

ReadWriteWeb has some good discussion of where this effort fits among the broader changes in how the Web and people's interaction with it is measured for commercial purposes.

My question is how would this system account for off-line sales and advertising such as billboards, TV commercials or, in the case of consumer packaged goods, a product's place in the store? (Think of how often you reach for an item that's at eye level vs. the stuff down by your feet.)

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February 22, 2008 5:38 PM

Judge certifies class-action lawsuit against Microsoft for 'Vista Capable' program

Posted by Benjamin J. Romano

Late today, a federal judge in Seattle approved a class-action lawsuit challenging Microsoft's "Vista Capable" marketing program as deceptive. U.S. District Court Judge Marsha Pechman also ruled that Washington law will govern the case.

The plaintiffs' complaint stems from Microsoft's efforts to prop up PC demand after Windows Vista's release was delayed, missing the 2006 holidays -- a key sales period for consumer PCs.

Their allegation is that "a large number of the PCs certified as 'Windows Vista Capable' can only operate 'Vista Home Basic,' which does not include any of the enhanced features unique to Vista and which make Vista attractive to customers," according to Pechman's order (PDF, 25 pages). "In addition, in October 2006, Microsoft offered PC customers an 'Express Upgrade Guarantee Program,' which purportedly allowed consumers purchasing 'Windows Vista Capable' PCs to receive upgrades to Vista for little or no cost. In fact, plaintiffs allege, the upgrade for many of these customers is only to Vista Home Basic."

They say that the "real" Vista -- based on the company's marketing -- is the "Premium" version of the operating system, with features such as the Aero user interface. Microsoft says it described the different features of all four versions of the operating system it released. The other three are "Basic," "Business" and "Ultimate."

Microsoft also argued that some PCs carried a "Premium Ready" sticker to indicate that they had the necessary hardware to run the Premium version, and that the Basic version still represents an upgrade from Windows XP.

Pechman limited the scope of the class and the arguments that plaintiffs can make as the case goes forward. Some of those restrictions:

-- The class can't pursue injuries from participation in the "Express Upgrade" program "unless they amend their complaint to add a named plaintiff who participated in the program."

-- Plaintiffs can't rely on the legal theory that Microsoft's "deceptive advertising induced consumers to purchase PCs that they would not have otherwise purchased."

-- They may, however, pursue a " 'price inflation' theory, i.e. that plaintiffs paid more than they would have for their PCs had Microsoft's 'Windows Vista Capable' marketing campaign not created artificial demand for and/or increased prices of PCs only capable of running Vista Home Basic."

Here's Pechman's official class certification language:

"All persons and entities residing in the United States who purchased a personal computer certified by Microsoft as 'Windows Vista Capable' and not also bearing the 'Premium Ready' designation.


"Excluded from this class are: (a) Defendant, any entity in which defendant has a controlling interest or which has a controlling interest in defendant; (b) Defendant's employees, agents, predecessors, successors or assigns; and (c) the judge and staff to whom this case is assigned, and any member of the judge's immediate family."

Microsoft spokesman Jack Evans issued a statement shortly after the order was issued:

"We are currently reviewing the court's ruling. We believe the facts will show that Microsoft offered different versions of Windows Vista, including Windows Vista Home Basic, to meet the varied needs of our customers purchasing computers at different price points."

Here's a story from last April, when the suit was filed, and another from August, when the judge declined to dismiss the suit.

The Seattle law firm Gordon Murray Tilden is representing the plaintiffs.

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February 22, 2008 1:34 PM

Microsoft employee e-mail reiterates reasons for Yahoo acquisition

Posted by Benjamin J. Romano

Microsoft just posted an e-mail Kevin Johnson sent to the company's Platforms and Services division earlier this afternoon restating the rationale for the company's $44.6 billion bid for Yahoo and answering questions about what it will mean to employees.

The company posted it on its Web site, so it's essentially an e-mail to Yahoo's employees, too.

The whole e-mail is here. I'll be picking out some key passages to highlight below.

Update, 2:30: The e-mail comes at the end of a week significant developments in the merger story. Microsoft has hired a firm to advise it on replacing Yahoo's board of directors, a signal that, as it stated, the company is pursuing all possible options to have its will be done including a costly and potentially acrimonious proxy fight.

Yahoo, meanwhile, instituted a beefed-up severance package for employees and top executives that would kick in if the company were acquired. It's a move that both encourages key personnel to stick around despite the looming acquisition and could make integrating the companies more costly and complicated. The developments were summarized in this AP story. Microsoft Chairman Bill Gates also told the AP earlier this week that the Yahoo acquisition is about the people.

Large portions of Johnson's e-mail are essentially a copy-and-paste job, covering the same ground Microsoft executives have been over in various forms since the proposal was announced Feb. 1.

He again addressed a source of concern at both companies -- that the combination would create redundancies in staffing and result in layoffs.

"Q: What impact would this combination have on staffing? Would there be any reductions?

"A: People are the single most important asset in this combination. We want the very best talent at the combined company, and we will demonstrate this to Yahoo! and Microsoft employees at each step of the deal. There's no question we will dedicate significant rewards and compensation to Yahoo! and Microsoft employees.

"While some overlap is expected in any combination of this size, we should remember that Microsoft is a growth company that has hired over 20,000 people since 2005, and we would look to place talented employees throughout the company as a whole. We have no shortage of business and technical opportunities, and we need great people to focus on them."

In describing the two companies' cultures, Johnson shed light on just how important advertising has become in the minds of Microsoft executives.

"Respect for both the creative and analytical aspects of advertising is core to both companies, along with recognition that advertising is an industry that represents opportunity and growth." (Emphasis added.)

Also, he noted that it's tough to define a Microsoft culture vs. a Yahoo culture because Microsoft with its 83,000 employees spread across businesses and markets around the world, has many cultures.

"At Microsoft today, we have a corporate culture, but individual teams develop, nurture, and retain a culture of their own as well. The culture of the combined entity will be shaped by individuals and teams from both Yahoo! and Microsoft."

One somewhat novel message is Johnson's instruction that Microsoft keep mum on what a combined company would look like. Particularly verboten are discussions with Yahoo employees.

"Prior to close of the transaction, no Microsoft employee should reach out to Yahoo! employees for the purpose of integration planning unless specifically instructed to do so by the integration team and its LCA advisors."

Do you see anything new in Johnson's e-mail? What questions remain unanswered?

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February 21, 2008 7:25 PM

U.S. search market share essentially unchanged in January

Posted by Benjamin J. Romano

Lost in the shuffle today -- though it wasn't a great loss -- were the January Internet search market share figures from comScore. None of the major search engines saw their market share change either way by more than a percentage point.

The biggest loser was Yahoo, whose share declined 0.7 points from December to 22.2 percent in January. Google remained the leader by a country mile with 58.5 percent of the nearly 10.5 billion Internet searches performed in the U.S. last year. Microsoft held on to third, it's market share unchanged at 9.8 percent.

Here's the full release.

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February 21, 2008 3:01 PM

Seattle City Light to test plug-in cars' appetite

Posted by Angel Gonzalez

Seattle City Light is getting on the smart-charging bandwagon.

The public utility said it will monitor the performance of 13 plug-in hybrid vehicles using technology developed by V2Green, a local start-up founded by a former Microsoftie. V2Green develops software and hardware to help utilities handle charging loads for electric vehicles -- a business that's could boom if the cars become more popular.

V2Green's equipment will collect data on fuel efficiency and electricity usage, and send it to analysts at the Department of Energy's Idaho National Labs. Other utilities are also part of the experiment, but Seattle's fleet is the largest.

The Toyota Priuses to be closely watched will be driven by Seattle City Light, the City of Seattle, the Port, the Puget Sound Clear Air Agency and King County.

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February 21, 2008 11:47 AM

Could cellulosic ethanol and biotech crops improve biofuels' greenhouse rep?

Posted by Angel Gonzalez

Biofuels have taken flak in recent studies that claim running cars on Midwestern grain and Malaysian palm oil creates more greenhouse gases than created by the reviled fossil fuels. But what about fuels made out of agricultural waste, combined with high-yielding biotech-enhanced crops exclusively dedicated to energy?

"The next generation of dedicated energy crops shows tremendous potential of improving the greenhouse gas profile of agriculture," said Matt Carr, an official with the Biotechnology Industry Organization in Washington during a conference call today to discuss biofuels.

Biotech applied to increasing the yield of switchgrass or sorghum could help cellulosic ethanol become a massive industry. The government is certainly pinning its hopes on cellulosic fuel: the Department of Energy
recently announced that it would invest up to $114 million in four small cellulosic ethanol biorefineries in Missouri, Colorado, Oregon and Wisconsin. The government also plans to fund a second round of facilities this spring.

The plants are expected to be up and running by 2011, said participants in the project, speaking at a round-table organized by the Biotechnology Industry Organization (BIO).

But to quench the nation's ever-growing thirst for transportation fuel -- and the government's ambitious biofuel mandates -- will require about 300 large biorefineries, an investment "equal to the Apollo project and the Manhattan project put together," said Brent Erickson, executive vice president of BIO's Industrial and Environmental Section. Ethanol plans are still relatively simple facilities, but over time "will become like oil refineries," Erickson said.

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February 21, 2008 8:14 AM

Microsoft to make its biggest products more 'interoperable'

Posted by Benjamin J. Romano

The big Microsoft news referred to earlier this morning is a strategy shift toward more interoperability for many of the company's biggest products for businesses.

The company outlined four broad new principles for its products, including Windows Vista, the .NET Framework, Windows Server 2008, SQL Server 2008, Office 2007, Exchange Server 2007, and Office SharePoint Server 2007, and future versions.

The principles are:

-- Ensuring open connections.

-- Promoting data portability.

-- Enhancing support for industry standards.

-- Fostering more open engagement with customers and the industry, including open source communities.

Why make this change now? Microsoft Chief Software Architect Ray Ozzie cited demand from consumers and businesses for easier information sharing.

"Customers need all their vendors, including and especially Microsoft, to deliver software and services that are flexible enough such that any developer can use their open interfaces and data to effectively integrate applications or to compose entirely new solutions," Ozzie said in a press release this morning. "By increasing the openness of our products, we will provide developers additional opportunity to innovate and deliver value for customers."

Executives will discuss this announcement in further detail on a conference call set to begin in a few minutes. Check back later for updates.

Update, 8:40: While on hold for the start of the conference call, I checked out some early reaction. Mary Jo Foley, who has been covering Microsoft for as long as anyone and pays particular attention to this area, found the news a bit repetitive.

"Microsoft is promising -- for the umpteenth time -- that it will share all the protocols and programming interfaces needed to allow interoperability between its products and others," she writes.

Her guess on the timing: There's an important meeting next week at the International Organization for Standardization on whether the Microsoft Office Open XML (OOXML) format should become a standard. The company needs its format to become a standard, Foley reports. "Losing lucrative government contracts here and abroad that require 'open' standards would be no financial joke for the company.

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February 21, 2008 5:31 AM

Big Microsoft announcement coming this morning, not about Yahoo

Posted by Benjamin J. Romano

Microsoft is holding a conference call later this morning with Chief Executive Steve Ballmer; Chief Software Architect Ray Ozzie; Bob Muglia, senior vice president of the Server and Tools Business; and General Counsel Brad Smith.


Ballmer, chief executive.

Not clear exactly what the content will be, though the company's media alert says it will not be about the $45 billion offer for Yahoo, which "will not be discussed during this call."


Ozzie, chief software architect.

I'll have details here as soon as they're available.

What do you think they're going to say?


Smith, general counsel.

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February 19, 2008 9:12 PM

GDC: Industry giants unite to boost PC gaming

Posted by Benjamin J. Romano

SAN FRANCISCO -- I'm here covering the Game Developers Conference for a few days. The show doesn't have the glitz and slick stage shows of the Electronics Entertainment Expo better known as E3, but for video game developers, this is the place to talk about their craft, network and show off the latest and greatest.

Developers are working on games for a variety of platforms, including mobile phones, consoles and PCs. In recent years, consoles have been the stars of the video game world, while PC games have been pushed to the back shelves of electronics retailers.

A group of industry heavyweights is seeking to change that and reverse the perception that PC gaming is dying. Today, on the sidelines of the conference, they announced the formation of the PC Gaming Alliance, a nonprofit group that will try to counter the perception that the platform is out of vogue. The PCGA plans to push information about the size of the PC gaming market and try to clear up consumer and game-developer confusion about hardware requirements.

Continue reading this post ...


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February 19, 2008 9:00 PM

Microsoft: Death of HD DVD format to have no material impact on Xbox 360

Posted by Benjamin J. Romano

With Toshiba today making it official that HD DVD is done, Microsoft updated the statement they gave me last week about the company's plans for how to proceed with the Xbox 360's HD DVD player accessory. In last week's post, I discussed how the competing formats played out in the console battle between Sony and Microsoft. (Sony's PlayStation 3 comes equipped with the victorious Blu-ray Disc format.)

There's not much new from the earlier Microsoft statement:

"We do not believe the recent reports about HD DVD will have any material impact on the Xbox 360 platform or our position in the marketplace. As we've long stated, we believe it is games that sell consoles and Xbox 360 continues to have the largest next-gen games library with the most exclusives and best selling games in the industry. We will wait until we hear from Toshiba before announcing any specific plans around the Xbox 360 HD DVD player. HD DVD is one of the several ways we offer a high definition experience to consumers and we will continue to give consumers the choice to enjoy digital distribution of high definition movies and TV shows directly to their living room along with playback of the DVD movies they already own."

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February 15, 2008 5:12 PM

Ex-Microsoft worker charged with fraud pleaded guilty, sentencing in April

Posted by Benjamin J. Romano

Carolyn M. Gudmundson, who in December was charged with defrauding Microsoft through a complicated set of transactions orchestrated to channel payment for Microsoft and Expedia Internet domain names to herself, pleaded guilty to one of 18 charges last month and will be sentenced in April.

At the time the charges were brought, her attorney said she intended to plead not guilty.

Gudmundson struck a deal with the U.S. Attorney's Office that resulted in dismissal of the rest of the charges for wire and mail fraud. Her attorney, C. James Frush, said the agreement also stipulates that the amount of money she's charged with having stolen be described as less than $1 million. Before, it was described by the U.S. Attorney's Office as "over $1 million."

The agreement was approved by a judge in mid-January. I just found out about it today when a reader asked for an update on the status of the case and I checked the docket. Her original plea of not guilty would have put her in front of a jury starting earlier this week.

"She accepted responsibility for what happened and is prepared to pay whatever price the court requires," Frush said this afternoon.

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February 15, 2008 12:08 PM

Microsoft, still supporting HD-DVD, doesn't close the door on Blu-ray

Posted by Benjamin J. Romano

It's been a rough start to 2008 for the next-generation high-definition format backed by Microsoft, HD DVD, which is being eulogized around the Web today. The latest blow comes from Wal-Mart, which announced today that, by June, it will stock exclusively Blu-ray movies and players, in addition to its standard definition lines. And The Hollywood Reporter is quoting "reliable industry sources" who say that even HD DVD's prime backer, Toshiba, is expected to give up the format fight "sometime in the coming weeks." Netflix and Best Buy jumped on the Blu-ray bandwagon earlier this week.

All of which raises the question of what's next for Microsoft, which sells a $130 add-on HD DVD player for its Xbox 360. Unlike Sony's PlayStation 3, the device is not built-in. That helped Microsoft keep the price of the Xbox 360 lower at first. Sony has since cut its price for the PS3, and it bet on the winning hi-def horse, with a Blu-ray player built in to each box. In fact, the cheapest way to play high-def optical media through a game console now is to buy a $400 40-gigabyte Sony PlayStation 3. To match that, you'd have to buy an Xbox 360 for $350 and the $130 HD DVD add-on.

I asked a spokeswoman with the PR firm that handles Xbox for comment on Microsoft's plans if HD DVD should officially bite the dust. The company is sticking with it for now, but with caveats.

"Microsoft's plans for HD DVD won't change as long as they continue to see strong consumer interest and their partners remain committed. Sales of HD DVD players have remained brisk and there is a healthy catalog of more than 400 HD DVD titles offered at retail," she wrote in an email.

What about the possibility of switching to a Blu-ray player as an add-on?

"[I]t's too premature to say, but as Microsoft has long stated, Xbox is focused on delivering great high-definition experiences to consumers -- whether it's through HD gaming, digital downloads through Xbox LIVE Marketplace, optical media or IPTV."

So, gamers, would you like the option of a Blu-ray add-on for Xbox 360? And what would you pay for it?

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February 15, 2008 9:24 AM

New York Post: Yahoo's board of directors splitting

Posted by Benjamin J. Romano

Yahoo's board of directors could be starting to fragment, if a report in today's New York Post is to be believed. A faction, including new Chairman Roy Bostock and billionaire Ron Burkle, is emerging in opposition to another group sympathetic to co-founder and CEO Jerry Yang's desire to fight off the Microsoft bid, the Post reported this morning, quoting "one source close to the situation."

"The emotional part of Yang would rather do anything but sell to Microsoft, but he doesn't have the cards to come up with a value-creating, competitive alternative for shareholders," the source said.

The Post writes that the Bostock contingent "is worried that the Yang group might act out of emotion rather than their fiduciary duty, thereby exposing the board to shareholder lawsuits."

I discussed Microsoft's options for pressing ahead, after the Yahoo board rejected the initial $44.6 billion offer on Monday, with Richard Rafferty, a corporate and securities lawyer with Dallas-based Strasburger & Price. Here's a relevant part of our talk that didn't make the print story:

Among other widely reported options, Rafferty suggested Microsoft could try to persuade Yahoo board members individually.

"I hate to say this, but Microsoft could take a divide and conquer-type approach," he said, adding at the time that this was not a likely approach. "There's nothing that keeps them from contacting individual directors. They don't have to talk to the whole board."

He added that if those board members are well advised, they will refuse to talk individually and channel all communications through Yang. "Now, that won't stop the phone calls," he said.

It's also interesting that the Post's tipster references concern about "exposing the board to shareholder lawsuits," some of which have already emerged.

Continue reading this post ...


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February 14, 2008 7:30 PM

PS3 outsells Xbox, but Wii beats both in January, and other notes on gaming

Posted by Benjamin J. Romano

NPD's January figures on the U.S. video game industry are in. Nintendo keeps its monthly sales lead and Sony can gloat about besting Microsoft for the first time in this generation, while Microsoft looks for excuses.

Here's the break down:
Nintendo Wii: 274,000 units
Sony PlayStation 3: 269,000
Microsoft Xbox 360: 230,000

Analysis, and some predictions about the future of the console market, after the jump. And tune-in next week for much more on video games. I'll be reporting from the Game Developers Conference in San Francisco.

Continue reading this post ...


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February 14, 2008 3:25 PM

Microsoft reorg means 14 promotions

Posted by Benjamin J. Romano

It's official. Microsoft is shuffling the deck -- again. It's all described here.

The short version, starting with the exits:

-- Steve Berkowitz, the former CEO of Ask.com, "will step down as senior vice president of the Online Services Group. He will remain with the company, focusing on a smooth transition of the business, until the end of August 2008."

-- Michael Sievert, "has decided to leave Microsoft to pursue new endeavors," and will be replaced as head of Windows marketing, by Brad Brooks, who gains the title corporate vice president, Windows Consumer Product Marketing.

-- As reported earlier, Pieter Knook, head of Windows Mobile, is heading to Vodafone. His replacement, as reported earlier, is Andrew Lees, formerly head of marketing for the Server and Tools business.

More to come.

Update, 3:57: A Microsoft spokesman said the company is not commenting on the changes beyond what's in the press release. Microsoft CEO Steve Ballmer is quoted therein:

"Along with attracting world-class talent from outside the company, one of my top priorities is growing Microsoft's existing leadership team. Each of these executives will play a critical role in leading Microsoft into the future. Today's promotions are a result of their ability to think strategically on a global scale, the respect they've earned from their peers, customers and partners, and their significant contributions to the company."

The new senior vice presidents, followed by their groups and responsibilities, with new or expanded responsibilities in bold:

-- Satya Nadella, Search, Portals & Advertising Group. Engineering across Live Search, Microsoft adCenter, and Subscriptions, Points and Billing platforms. Responsibility for MSN programming and engineering.


-- Bill Veghte, Online Services & Windows Business Group. All end-user business strategy, sales and marketing across Windows Client, Windows Live, MSN and Search, plus shared responsibility for OEM sales.

-- Chris Capossela, Information Worker Product Management Group. Office, unified communications and collaboration, business intelligence and enterprise content management.

-- Kurt DelBene, Office Business Platform Group. Platform products for collaboration, information sharing and business applications.

-- Antoine Leblond, Office Productivity Applications Group. Design, development and testing of Office.

-- Andy Lees, as noted above, Mobile Communications Business. Development, marketing and sales of software and services for mobile devices.

-- S. Somasegar, Developer Division. Developer-related languages, tools and platforms, development centers in India and Canada.

Update, 4:15: But wait, there's even more.

The following executives got the corporate vice president title (anyone else flashing back to their Boy Scout awards ceremony?). Most were previously general managers:


-- Walid Abu-Hadba, Developer and Platform Evangelism Group. Platform strategy and evangelism of developers, IT professionals and partners worldwide. This post was recently vacated by Sanjay Parthasarathy, according to Mary Jo Foley. Not clear where he's ending up.


-- Larry Cohen, Corporate Communications. Public relations, executive communications and employee communications.

-- Steve Guggenheimer, Original Equipment Manufacturer (OEM) Division. Manages relationships PC and device makers.

-- Scott Guthrie, .NET Developer Platform. Visual Studio developer tools and Microsoft .NET Framework for building client and Web applications.

-- Roz Ho, Premium Mobile Offerings. New Danger Inc. team and "continue to focus on various consumer-focused premium mobile offerings in mobile communications."

-- Brian Tobey, Entertainment and Devices Division manufacturing and operations. Global manufacturing, supply chain and IT functions within E&D.

Update 4:30: I added links to the Microsoft bio pages of most of the executives affected.

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February 14, 2008 6:28 AM

Microsoft's Knook, mobile division head, to Vodafone; more reorg happening today

Posted by Benjamin J. Romano

Vodafone, the global mobile communications group, announced this morning it has hired Pieter Knook, Microsoft's top mobile executive, to head a new group focused on the "development and delivery of Vodafone's current and future consumer propositions for the Internet."


MICROSOFT

Knook, formerly senior vice president of Microsoft's Mobile Communications Business, is joining Vodafone.

Knook, 49, joined Microsoft in 1990 and for the past five years has been senior vice president of the Mobile Communications Business, in charge of "development, marketing and sales of software that powers mobile phones and personal digital assistants" and "coordinating the overall mobile communications strategy across Microsoft." Here's his Microsoft bio.

Vodafone, in a news release, said Knook will be director of a new Internet services group seeking to develop "distinctive consumer Web services such as IP communications, mobile Internet access and selected content categories, through mobile devices." Knook, who will begin March 10, has the responsibility of "delivering new revenue growth around Internet, content and advertising."

A reorganization in Microsoft's Online Services Business is rumored to be on the way today, but I had seen no indication that change was afoot in Windows Mobile.


MICROSOFT

Lees is reportedly replacing Knook.

The Wall Street Journal was tipped off and has a story this morning, saying Andrew Lees, Microsoft corporate vice president for marketing server and tools. Coincidentally, Lees joined Microsoft in 1990, the same year as Knook. Lees reported to Bob Muglia, senior vice president in that business, which has an important launch coming up at the end of this month -- probably the biggest new product release of the year for Microsoft. The company is set to release the latest versions Windows Server, SQL Server and Visual Studio.

Microsoft's mobile efforts are within the Entertainment and Devices Division, led by Robbie Bach, who said last summer that more than 20 million Windows Mobile devices would be sold in the company's 2008 fiscal year, which ends June 30.

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February 13, 2008 5:30 PM

Mary Jo Foley: Valentine's reorg coming to Microsoft Online Services?

Posted by Benjamin J. Romano

She's been right before, so when Mary Jo Foley's sources say a reorg is coming at Microsoft, listen up.

Foley caught wind of this at least more than a week ago. From the outlines she's reporting, the reorg, among other things, would consolidate more of the online services business under Satya Nadella, who has been in his new post for only 11 months.

Nadella came over from the business division to head research and development for a new group combining both Internet search and the advertising platform. His star seems to be rising, even if search still isn't faring all that well. I've heard from people in his organization that he's gained the respect of the engineers.

Changes also coming in Windows marketing, Foley reports, with Mike Sievert taking a bow.

What do you get for your valentine when he or she has just been ousted? Someone should start a Yahoo group for sweethearts of recently "impacted" tech workers. To be clear, however, there's no indication that the Microsoft Online Services reorg would involve the kind of wholesale job cuts that came down at Yahoo.

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February 13, 2008 11:03 AM

Agenda suggestions for a Yahoo board meeting

Posted by Benjamin J. Romano

Kara Swisher reported on Friday that Yahoo's board of directors would be meeting in person today. Asked about it on Monday evening, a Yahoo spokeswoman told me, "As matter of policy we do not comment on board proceedings."

If they are meeting today, they obviously have plenty to discuss, including:

-- Whether Microsoft will up the ante or get more aggressive (Yahoo board of director season opens today -- shareholders can submit director candidates, who would stand for election at the shareholders' meeting in late May or early June).


-- How things are going in the "negotiations," real or imagined, with News Corp. or AOL.

-- Google reportedly cooling to the idea of an ad partnership.

-- Whether to sell the 1,000 newly emptied desks and PCs around the company or put them in storage. This is the Twitter log of one employee who was "impacted." Step-by-step through your last day at work.

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February 12, 2008 4:01 PM

UW finance professor puts MSFT+YHOO in interesting context

Posted by Benjamin J. Romano

University of Washington finance professor Jarrad Harford, who helped me outline Microsoft's options after Yahoo's board of directors rejected its $44.6 billion buyout offer Monday, has conducted interesting research relevant to two aspects of mergers and acquisitions, and this deal in particular.

In one paper, he looked at how cash-rich companies fare when they go shopping (not all that well). In another, he researched how directors at a company targeted for acquisition balance shareholder interests with their own.

Cash-rich acquirers
Microsoft, with more than $21 billion in cash and short-term investments on its balance sheet on Dec. 31, is certainly cash rich, though less so than it was just a few years ago, thanks to stock repurchases and dividends.

Here's how Harford described his research, which looked at a broad set of companies and was published in the Journal of Finance, December 1999: "When managers have a lot of cash available to them, they don't have to go out and raise the capital and so they're not getting vetted at that point. They're not really being monitored by the capital market.

"You could very broadly paraphrase this as [cash] sort of burning a hole in their pocket," he said.

Companies in that situation, he found, are less careful about their acquisition targets and "their own natural optimism doesn't get put in check." As a result, "cash-rich firms are more active as acquirers and the acquisitions they make tend to be worse than average." He also found, quoting now from the abstract of his paper, that the targets of cash-rich acquirers tend not to attract other bidders and "mergers in which the bidder is cash-rich are followed by abnormal declines in operating performance."

Microsoft's proposal to buy Yahoo includes a combination of stock and cash from the balance sheet, as well as outside financing -- a departure from the company's norm. I asked Harford if that, plus the added scrutiny because the deal is particularly large and high-profile, means that it wouldn't fit the pattern described in his research.

"It certainly mitigates it in these extremely high-profile [cases]. This particular case actually does fit the pattern in the sense that they were cash rich and the market reacted pretty negatively to the offer" -- Microsoft shares are down about 13 percent since the proposal was made public Feb. 1 -- "But that doesn't mean that's what's going on. There's so much that goes into the market's initial reaction to a bid that you really need a large sample to kind of say what the trends are."


Directors at acquisition targets

Harford points out, in a paper published in the Journal of Financial Economics, July 2003, that company directors, like most people, have a natural drive for self preservation. Voting to accept an acquisition proposal could mean no more sitting in the big leather chairs.

"When a target director votes to accept a bid, he or she is basically voting him or herself out of a job," Harford said. The acquiring company usually brings only one or two key people from the target on to its board. "... A lot these [directors] are retired executives and they maybe have plenty of money, but they value the prestige of being involved in something like that."

They're supposed to be acting with the shareholders' best interests in mind, but they do face some conflict of interest in considering an acquisition, he said.

Harford's research found that if directors do the right thing -- or the thing that is perceived to be in the best interest of shareholders -- they will be rewarded in the long run. "If your company has been doing badly and you accept a takeover bid, than you will be asked on to other boards," he said.

This typically holds true for directors at firms that have been doing poorly under the current management and board, he said. The converse is also true, his research showed.

So if Yahoo's board ultimately rejects Microsoft's offer?

"Basically, they would be less likely to be invited onto other boards in the future," he said.

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February 12, 2008 1:43 PM

GigaOm: Microsoft spent $500 million on Danger

Posted by Benjamin J. Romano

On the scale of Microsoft acquisitions, Danger may be even bigger than it first appeared. While the companies did not disclose terms of the deal Monday, Om Malik "spent most of my day yesterday dialing-for-information, and have come up with the price from a fairly solid source": $500 million.

That's a lot.

I'm fishing for a confirmation of that price. So far, no one's biting.

Update, 2:20: From a company spokesman: "As of now, Microsoft is not disclosing the proposed transaction amount. The amount Om Malik has in his story is strictly based on rumor."

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February 12, 2008 9:19 AM

Yahoo does some buying of its own, scoops up online video provider

Posted by Benjamin J. Romano

If Microsoft buys Yahoo, the deal would now come with a shiny new online video platform.

Yahoo today announced the acquisition of Maven Networks, a Cambridge, Mass.-based online video platform provider, for $160 million. Its technology is "used to manage, distribute and monetize premium online video content for over 30 major media companies, including Fox News, Sony BMG, CBS Sports, Hearst, Gannett, Scripps Networks, and the Financial Times" among others.

Yahoo says in this press release that it intends to "expand on the Maven offering with video monetization services allowing publishers to take advantage of Yahoo!'s industry leading display sales force and advanced technologies for delivering consumers more relevant advertising experiences, both of which help them maximize their video advertising dollars."

Maven, founded in 2002, is a competitor of other high-end online video platforms such as Brightcove. U.S. online video advertising is expected to be a $4 billion market by 2011, according to a Forrester estimate cited by Yahoo.

(Update, 10:10 a.m.: A Yahoo spokeswoman says Maven has 70 employees and "we anticipate having them stay on board post acquisition." From the press release, "With this acquisition, Yahoo! has established a Cambridge, MA presence and Maven has become a wholly-owned subsidiary of Yahoo!.")

Combined with yesterday's acquisition of Danger by Microsoft, a mobile phone software maker, "it doesn't look like either Microsoft or Yahoo are slowing down their VC-backed acquisition pace," wrote Daniel Primack in this morning's PE Week Wire.

Meanwhile, the previously announced layoffs at Yahoo appear to be coming down today. The Wall Street Journal, citing an anonymous source, reports that roughly 1,000 employees are getting layoff notices.

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February 11, 2008 1:58 PM

Microsoft responds to Yahoo snub with more of the same

Posted by Benjamin J. Romano

Microsoft just issued a statement in response to the formal rejection of its $31-per-share bid:

It is unfortunate that Yahoo! has not embraced our full and fair proposal to combine our companies. Based on conversations with stakeholders of both companies, we are confident that moving forward promptly to consummate a transaction is in the best interests of all parties.


We are offering shareholders superior value and the opportunity to participate in the upside of the combined company. The combination also offers an increasingly exciting set of solutions for consumers, publishers and advertisers while becoming better positioned to compete in the online services market.

A Microsoft-Yahoo! combination will create a more effective company that would provide greater value and service to our customers. Furthermore, the combination will create a more competitive marketplace by establishing a compelling number two competitor for Internet search and online advertising.

The Yahoo! response does not change our belief in the strategic and financial merits of our proposal. As we have said previously, Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo!'s shareholders are provided with the opportunity to realize the value inherent in our proposal.

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February 11, 2008 1:45 PM

All the fuss is about this: U.S. online ad revenue up 27 percent to $25.5 billion

Posted by Benjamin J. Romano

Analysis firm IDC just reported that U.S. online ad revenue last year grew to $25.5 billion, up 27 percent from 2006.

That pot of money covers search, display and other forms of online ads, and it's projected to continue growing as advertisers follow people from old media to the Interne. That's why Microsoft is trying to buy Yahoo.

Their common rival Google has been the dominant player in this market, but, interestingly, Google's net U.S. market share "declined for the first time in two years due to slower growth in domestic fourth quarter sales," IDC found. It's a slight decline -- 0.5 percentage points -- to 23.7 percent in the fourth quarter. It still has more than twice the share of its two closest rivals individually.

IDC conveniently put the figures in context with the news of the day. Karsten Weide, program director for IDC's Digital Marketplace: Media and Entertainment service, said, in a statement:

"If a merger between Microsoft's new media business and Yahoo! would come to pass, the combined entity would have a net U.S. advertising market share of about 17% based on our 4Q07 data. It would not quite bring Microsoft-Yahoo! to where Google is in online advertising in the U. S., but it would give them a much better fighting chance than if they went it alone."

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February 11, 2008 10:50 AM

Yahoo's risks grow because of Microsoft acquisition proposal

Posted by Benjamin J. Romano

Yahoo has added some additional disclosure to the usual boiler plate safe-harbor statement on its SEC filings to reflect the "[f]urther risks and uncertainties associated with Microsoft's unsolicited proposal to acquire the Company." They are not that surprising, but it's interesting to see how the company's lawyers crafted the language and the degree to which the whole acquisition process throws a wrench in the works.

They include:

"the risk that key employees may pursue other employment opportunities due to concerns as to their employment security with the Company; the risk that the acquisition proposal will make it more difficult for the Company to execute its strategic plan and pursue other strategic opportunities; and the risk that stockholder litigation in connection with Microsoft's unsolicited proposal may result in significant costs of defense, indemnification and liability."

As far as I can tell, the language is new with today's SEC filings that reported the company's rejection statement and CEO Jerry Yang's email to employees.

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February 11, 2008 8:13 AM

Some Microsoft choices in response to Yahoo snub

Posted by Benjamin J. Romano

So far, Microsoft has no comment on the Yahoo rejection, a spokeswoman just told me.

Meanwhile, Seattle-based McAdams Wright Ragen analyst Sid Parakh issued a research note this morning outlining the potential courses Microsoft could take in response to Yahoo's rejection of its $44.6 billion, or $31-per-share, buyout offer.

The most obvious choice, and the one that Yahoo's board seems to be hinting at with its rejection statement today, is for Microsoft to up the price. "We expect Microsoft to be willing to pay up to ~$35 per share, going as high as $40, essentially valuing Yahoo! at $50 - $58 billion," Parakh wrote.

Another option is to "persuade shareholders to accept the offer," Parakh wrote. That's something Microsoft may already be doing, given reports that Microsoft CEO Steve Ballmer met with a major institutional shareholder last week.

Parakh does not explicitly explore the possibility of a proxy fight as other analysts have. This would involve Microsoft filing a slate of candidates for Yahoo's board of directors and convincing investors to vote for them. This truly "hostile" approach risks sending Yahoo's best employees to the exits -- and maybe to Google -- but it also potentially keeps the acquiring company from paying a premium for its target. The deadline to file for new Yahoo directors is March 13.

Parakh's third possibility is that Microsoft could also make a tender offer for Yahoo! stock. A tender offer, according to the Securities and Exchange Commission, is "a broad solicitation by a company or a third party to purchase a substantial percentage of a company's shares or units for a limited period of time. The offer is at a fixed price, usually at a premium over the current market price, and is contingent on shareholders tendering a fixed number of their shares or units."

A fourth way, Parakh suggests, is to "Offer other ways to drive co-operation (joint development, joint venture, etc.) between the two companies." That would represent an expansion of several places where the companies have formed alliances in the past, such as linking their instant messaging networks and working together -- with Google and others -- on the OpenID online digital identity program.

In general, Parakh is negative on the deal, noting that its cost is much higher if you lump in the 14 percent (and counting) hit Microsoft's shares have taken in the days since the buyout proposal was announced.

"[That] has wiped out over $43 billion (or 98% of its offer for Yahoo!) in shareholder wealth. Add to that the likely scenario in which Microsoft pays ~$50 billion for Yahoo!, Microsoft is essentially paying >$93 billion for Yahoo!"

Of course, Microsoft could walk from the deal, as CFO Chris Liddell suggested he is prepared to do in a New York Times interview we ran in today's paper. As much as he'd like to see just that, Parakh doesn't view it as a likely outcome.

"While we hope that Microsoft is unable to conclude the deal, we believe that such chances are low," he wrote.

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February 11, 2008 6:37 AM

It's official: Yahoo rejects Microsoft

Posted by Benjamin J. Romano

Yahoo's board of directors has "unanimously concluded" that Microsoft's $31-per-share offer to acquire the company "is not in the best interests of Yahoo! and our stockholders."

The board concluded that the offer "substantially undervalues Yahoo! including our global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential, as well as our substantial unconsolidated investments."

The official word came in a short statement just posted to the company's Web site. No formal word on the $40-per-share price range that Yahoo had indicated it might accept in press leaks over the weekend.

The ball is in Microsoft's court. We'll post the company's reaction as soon as we learn it.

Update, 7 a.m.: In early trading this morning, investors are bidding Microsoft shares down (off 52 cents, 1.8 percent, to $28.04) and Yahoo shares up (up 55 cents, 1.9 percent, to $29.75), perhaps thinking that Microsoft is willing to pay more -- one of the company's several options.

Update, 7:20: The Wall Street Journal has an interesting perspective on a potential increase in Microsoft's bid for Yahoo. It looks at five major institutional shareholders that have large holdings in both companies. "[T]hey all are deal arbitrageurs of sorts now," Heidi Moore writes in Deal Journal. "... What might be good for Yahoo in this proposed deal could be bad for Microsoft, and vice versa. Yahoo's shares may rise dizzily on speculation that the search and Internet advertising company can get a higher bid."

What do those shareholders think about the early trading today, in which the companies shares moved nearly equal amounts in opposite directions?

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February 10, 2008 7:33 PM

Reports: Yahoo seeks to restart talks with AOL; MSFT may up bid

Posted by Benjamin J. Romano

With the expectation that Yahoo will formally reject Microsoft's $31-per-share offer Monday, it follows that the company would be chatting up other potential suitors. The Times of London is reporting that Yahoo has sought talks with AOL. The sourcing on this story is a little thin. The opening paragraph says, "the Times has learnt," but there's no indication on how or where. Later "a source close to Yahoo!'s thinking" tells The Times about the board's coming rejection of the Microsoft bid and that the offer "would have to be in the 40s [per share] to start talking, and we would have to get over regulatory issues." But no mention of whether that's where the paper learned -- er, learnt -- about AOL.

From the story:


"Although Yahoo! and AOL previously failed to join forces because of differences over price, it is hoped that the urgency created by an unwelcome approach from Microsoft and an impending economic downturn will spur the two into new talks. Google, which offered support to Yahoo! when the Microsoft approach was made public, also has a 5 per cent stake in AOL."

Also this evening, The Wall Street Journal is reporting that Microsoft "may sweeten its offer" in response to a rejection from Yahoo. "But any increase is likely to fall short of what Yahoo's directors believe would fairly value the company ... setting the stage for a protracted battle," The Journal reports, citing people familiar with the matter.

After a poorly timed week of vacation, I am back to work on Monday covering what is looking to be a long, complicated and really interesting acquisition battle. In addition to any formal word from Yahoo, we will be checking on a presentation Monday morning by Microsoft Chairman Bill Gates to the Office System Developer Conference in San Jose, Calif., to see if he has anything to say about the acquisition.

While reading to get back up to speed this evening, I saw that Mini-Microsoft has come out against the acquisition of Yahoo in a post this afternoon.

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February 7, 2008 2:19 PM

Energy challenge becomes election fodder

Posted by Angel Gonzalez

Blame rising gas prices, Hugo Chavez's strident antics or Al Gore's Powerpoint slides -- energy and climate change issues have earned a prominent place in the race for the White House.

The main Democratic contenders -- Senators Hillary Clinton and Barack Obama -- boast detailed agendas in their campaign websites on how they would deal with the energy crunch and the global warming challenge.

The stance of both candidates seems drawn with the same pen, however. Both say they want to reduce greenhouse gas emissions by 80 percent below 1990 levels by 2050. Both support a market-based cap and trade system to achieve that goal; and both want 25 percent of U.S. electricity to come from renewable sources by 2025. They both also want to spend $150 billion over the the next 10 years on clean energy.

The differences are minute. Clinton proposes to put a third of that $150 billion in a strategic energy fund partly paid for by oil companies. Obama proposes a 'green jobs corps' to connect lower-income people with environmentally friendly jobs. You can see the detailed lists at Obama's and Clinton's websites.

The campaign site of the presumptive Republican candidate, John McCain, is a lot less specific about what regulatory paths to take, but shares the same alarm about climate change. Global warming, he says, is "an issue we can no longer afford to ignore."

He proposes a "common-sense" approach to limiting carbon emissions by "harnessing market forces" that will speed up access to advanced technologies "such as nuclear energy" and reduce U.S. dependence on foreign oil and gas.

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February 5, 2008 4:44 PM

Canola biodiesel weathers winter spell

Posted by Angel Gonzalez

Harsh northern climes can turn biodiesel -- a fuel made out of vegetable or animal oil -- into a mayonnaise-like goo. To avoid cloudy fuel tanks and clogged fuel filters, many biodiesel makers and distributors recommend blending biodiesel and petroleum diesel in winter.

But the most recent Northwest cold snap didn't seem to have much gelling effect on local biodiesel users running on B99, a 99% biodiesel blend, according to Propel Biofuels founder Rob Elam.

"A number of customers contacted us to tell us how they expected to have some trouble and they didn't," he said.

The B99 biodiesel blend distributed by Propel (and manufactured by Imperium Renewables) is made out of canola, and is "good down to 9 degrees Fahrenheit," Elam says.

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February 1, 2008 12:07 PM

MSFT-YHOO: Why now?

Posted by Benjamin J. Romano

Given Microsoft's long pursuit of Yahoo, why was this the right time to bring the overture out in the open? There are several factors and theories, but let's start with a bit of history.

Microsoft CEO Steve Ballmer said in a conference call with six top Wall Street analysts this morning that "we have been engaged in conversations with Yahoo management off and on for the last 18 months. Last night I called [Yahoo CEO] Jerry Yang to discuss our proposal." (Transcript of the call is here: 12-page PDF.) He continued:

"A year ago, the Yahoo management team told us it wasn't really the right time to discuss an acquisition. We believed then in the benefits of combining the two companies, and we believe now in those benefits more than ever. That's why we're making it public today, so both sets of shareholders, employees, and customers can understand the incredible opportunity in the combination of Microsoft and Yahoo."

Some other thoughts on the timing of what is currently an unsolicited offer for Yahoo. (A quick aside: If Yahoo's board, which pledged to consider the offer "carefully and promptly," decides to reject the bid and Microsoft carries forward with it, it would then become a hostile takeover attempt.)

Matt Rosoff, an analyst at Kirkland-based Directions on Microsoft, said it's no coincidence that Google gave its bad news Thursday.

"They were waiting for Google's first bad earnings report to make this kind of deal. Yahoo has already shown weakness, so they have a better chance of succeeding in a hostile takeover. And it's right at the time when Google is stumbling."

Yahoo's slump helps, too. Making an offer when the company was trading around its 52-week low, which Yahoo was yesterday, is just good shopping. It's like waiting to buy those shoes you want until the Nordstrom's Half-Yearly Sale.

Also of note, Yahoo Chairman Terry Semel, who was most certainly in on the decision to rebuff Microsoft's earlier overtures, left the company Thursday, which was also the date of a company board meeting. Roy Bostock, a board member since May 2003, was elected to serve as Yahoo's non-executive chairman.

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February 1, 2008 11:32 AM

MSFT-YHOO: It's all about search... or is it?

Posted by Benjamin J. Romano

The easy analysis says Microsoft is angling to acquire Yahoo to knock Google off its Internet search throne. That's definitely part of it. Both Microsoft and Yahoo have struggled to gain market share as Google has run away with the game. But it's not necessarily a winner-takes-all proposition.

"I think this whole Google vs. Microsoft thing can be kind of overplayed," said Kip Kniskern, a close-follower of Microsoft's Windows Live efforts for the blog LiveSide.net.

"As Americans, we're all about who wins the Super Bowl and nothing else counts," he said, adding that a strong second place in the lucrative business of selling ads next to search results is still a huge business. What's important to advertisers is scale -- not necessarily being with the No. 1 player, he said. Microsoft is buying scale. Combined with Yahoo, its share of Internet searches in the U.S. would grow from about 10 percent to about 30 percent (less depending on whose metrics you use), compared with Google's 60 percent.

"The big boys are going to go where they can get more bang for the buck. If you're 10 percent vs. 30 percent, you have that much more," Kniskern said.

Ellen Siminoff, a former Yahoo executive who now runs Efficient Frontier, a search-advertising agency in Mountain View, Calif., said she recently did a study that found 97 cents of each additional dollar advertisers are spending on Internet search advertising is going to Google, with Microsoft and Yahoo scrapping for the rest.

"I'd rather have a strong No. 2 [in a combined Microsoft and Yahoo] than a two and a three that aren't growing," she said.

Some of the best analysis of how the search engines at Microsoft and Yahoo stack up is being done by Danny Sullivan at Search Engine Land:

"Practically no one seems to know about the 'flagship' Microsoft Live Search brand. Hitwise stats, for example, show that of Microsoft's 7.1 percent share of the U.S. search market in November 2007, only 1.6 percent of those searches happened at Live Search. The bigger chunk happened at MSN, 5.5 percent.

"In contrast, Yahoo has an excellent search brand. It existed before Google and was THE search engine for many years. Today, it still arguably remains synonymous with search. Abandoning Live.com as the flagship and putting efforts behind Microsoft's Yahoo might keep the company's efforts more focused and effective.

"The challenge is that both Yahoo and MSN -- the strongest search brands in a combined company -- are weighted down by being littered with portal features. The Yahoo home page is heavy compared to the clean Google home page, though Google continues to play its long-standing "stealth" portal conversion by showing more people its iGoogle portal page and offering a "classic" option for those who dislike it."

Microsoft has recently downplayed the actual value of Internet search, arguing that it gets too much credit for influencing purchasing decisions when in fact a series of advertisements in various places influence consumers. Brian McAndrews, who would play a key role in monetizing the Yahoo acquisition, discussed this issue in an e-mail Thursday.

"While search has been the main driver of the blistering growth of online advertising in the past, at least partially because of the 'last ad clicked' performance measurement standard ... we do not believe this will necessarily be the case in the coming years. The current system for tracking ad conversions, while the best available for years, is not optimal because it gives all credit to that last ad seen or clicked -- often a search engine -- and not any credit to other ad units the consumer may have seen prior that helped influence the user to seek more information about the advertiser. ... [T]hat's starting to change. We'll be making significant inroads here in 2008 through our continuing ground-breaking work in the area of 'conversion attribution.'"

Beyond Internet search advertising, the competition is fierce for other types of digital advertising -- such as online display ads -- the banners and towers that appear on Web pages -- where Yahoo and Microsoft rank ahead of Google.

Here are the latest figures from comScore for November 2007 online display advertising market share:

Yahoo! Sites: 18.8%

Fox Interactive Media: 16.3%

Microsoft Sites: 6.7%

Time Warner Network: 5.8%

FACEBOOK.COM: 1.5%

eBay: 1.2%

Google Sites: 1.0%

Beyond display advertising, all three companies are pushing into areas such as online video, mobile ads, in- and around-video game advertising and other small, though fast-growing categories.

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February 1, 2008 10:21 AM

Microhoo or Yasoft?

Posted by Benjamin J. Romano

Not because we seriously expect them to change the name of the combined company, but because it's fun. Add your vote for one name or the other in the comments section, or feel free to suggest other names.

Meanwhile, Mike Fancher, editor at large of The Seattle Times, blogs about another potential combination involving a Seattle company. This one is only the future as imagined in "EPIC 2015, a wonderfully chilling short film that looks back at how the press, as we know it, ceased to exist."

The combined company? Googlezon.

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February 1, 2008 9:15 AM

What would MSFT + YHOO = for employees?

Posted by Benjamin J. Romano

Microsoft has close to 80,000 employees. Yahoo has plans to cut its staff of 14,300 by about 1,000 jobs, or 7 percent, later this month. So, combined, we're looking at a company with close perhaps 93,300 full-time workers.

Already, we're seeing some signs of anxiety over job cuts -- mainly in the divisions where Microsoft and Yahoo overlap. Mini-Microsoft gives voice to those concerns in this post:

"Internally, a number of us had heard reasons from Steve Ballmer why a Yahoo! acquisition didn't make sense. One that sticks in my mind right now is how if we acquired Yahoo! -- such a big company -- we'd have to naturally have layoffs within Microsoft to accommodate it.

"Maybe there are HR people wandering around Microsoft this morning asking, 'What color slip did you say? Pink?'

"Man, if I was in the Online Services Division I would be worried. Especially if Yahoo! did something my team did and did it well."

Earlier this morning, I asked Kevin Johnson, president of the Microsoft Platforms and Services Division, who has responsibility for online services, point blank about layoffs at either company. Not surprisingly, I did not get a straight yes or no answer.

He said the expanded ability to do research and development is a key benefit for the deal. "This is an opportunity to get that expanded R&D capability and really prioritize what they're working on so that we can expand the range of innovation that's taking place."

"Now, certainly, in combination with that, there are operational efficiencies that we will gain from this combination. And on the people front, much of the operational efficiencies certainly relate to the integration work where we've got to do a great job of getting the right people in the right jobs and making sure that we have the right amount of head count and resources, focused in the right areas."

In Microsoft's press release announcing the deal, it intends to "offer significant retention packages to Yahoo engineers, key leaders and employees across all disciplines."

I just got my hands on the internal e-mail Microsoft CEO Steve Ballmer sent to employees this morning. It is silent on the question of job cuts.

"As we move forward, we'll look carefully at how to bring our assets together to create the greatest value for customers, employees, and shareholders.

"During this transition period, I urge you to stay focused on your commitments and team goals. We are committed to communicating with you frequently as our leadership team works on bringing the two companies together."

The rest of the e-mail reads very much like Microsoft's press release and statements from Johnson and other executives. Not surprisingly, they're staying tightly on message. The whole e-mail is after the jump.

Continue reading this post ...


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February 1, 2008 8:05 AM

Microsoft's Kevin Johnson on proposed Yahoo acquisition

Posted by Benjamin J. Romano

Kevin Johnson, president of Microsoft's Platforms and Services Division, answered questions about integrating the two huge companies after Microsoft made a $31 per share offer for Yahoo this morning. Here is an edited transcript of my conversation with him:

Q: Why are you doing this and why is now the right time to do it?

A: Well first of all, this combined entity creates a more competitive company. It creates value for shareholders and it's going to enable us to enhance experiences for customers, whether they are end users, advertisers or publishers, and it creates great opportunities for the employees of both Microsoft and Yahoo.

At the end of the day, this is about creating a more compelling alternative to an increasingly dominant player in the industry.

Q: Does this essentially say that at this point Microsoft doesn't see itself as able to catch Google alone?

A: I'd go back to the Financial Analyst Meeting [in July 2007]. We outlined a value chain analysis and the taxonomy of user services and ad platform, and, look, we've been making good progress over this last year. We released the Windows Live Suite in November, a new release in Live Search last October. We successfully completed the first phase of integration with aQuantive. We've signed up new publishers to our ad platform. You know, look, we're pleased with the progress and we're very proud of the work that our employees have been driving in this area.

You know, the fact is that this is an industry where scale matters and by combining our resources with Yahoo, not only are we able to achieve scale economics, we're able to expand the R&D [research and development] capability, capture operational efficiencies and focus on new user experiences.

Q: Certainly one of the most important metrics for online advertising and success overall online is still search market share and I think it's fair to say both Microsoft and Yahoo have been steadily losing share against Google over the last year. On that front, what makes you think that combining two entities that are losing share is going to help against the one that's dominant and still gaining?

A: Well, there's two things. First, I'd point out, if you look at our share, I think we've been kind of holding share, and holding flat on share. The fact is this is a game of scale. By bringing the companies together we can create a more efficient operation and organization that scale enables us to eliminate duplicate capital costs, such as servers and data centers and infrastructure and by combining our R&D capability it allows us to have more engineers that focus on a broader range of products. Instead of having engineers both working on search indexes and core search relevance, we can have one team of engineers working on that and that frees up engineers to drive new innovations in search -- search verticals, new search user experiences. There's plenty of opportunity to drive breakthroughs in search.

Q: When I think about Yahoo, it's hard to think of something that they do that Microsoft doesn't also do in the area of online services. So what's your strategy going to be for combining those many overlapping services? Is it going to be a co-branding thing, or what do you see happening there?

A: First of all, through recent experiences with aQuantive and Tellme, we know how to do successful integration. And part of that successful integration is having clear, defined synergies we're working to get. A clear set of integration principles and then it's putting together a joint team of Microsoft leaders and Yahoo leaders who are going to work through a thoughtful integration process to make the decisions on how this lands. We're confident based on our recent success of integration with companies like aQuantive and Tellme that this process is the right process to yield great results.

Q: But aQuantive and Tellme had much less of an overlapping set of technologies or businesses they were in. It seemed like it was adding technology to what you guys were already doing whereas there are so many things that both MSN and Yahoo do that are essentially competitive and the same service. Will those go forward under the same name, or how do you see that part happening?

A: If you just take decisions around brands, you know, first of all, we've got a great set of brands, The Yahoo brand is a great brand and as part of this integration process, we're going to get leaders from Microsoft and Yahoo that are going to make thoughtful decisions, not only around the technology integration, but the user experiences and the brands. This is an opportunity to bring together the best of both worlds.

Q: Are you anticipating any layoffs at Microsoft or Yahoo as you combine the two companies?

A: A key part of this is the expanded R&D capacity. We're hiring engineers today and by combining resources with Yahoo this expands the R&D capability. This is an opportunity to get that expanded R&D capability and really prioritize what they're working on so that we can expand the range of innovation that's taking place.

Now, certainly, in combination with that, there are operational efficiencies that we will gain from this combination. And on the people front, much of the operational efficiencies certainly relate to the integration work where we've got to do a great job of getting the right people in the right jobs and making sure that we have the right amount of head count and resources, focused in the right areas.

I think we're confident, not only will we take advantage of this expanded engineering capability, but we'll be very thoughtful about the operational efficiencies that we can gain by getting the right people in the right jobs and the right amount of resources allocated to individual areas.

Q: What about combining the cultures of the two companies? Is that a big challenge too?

A: Our two companies share a common passion for innovation and creating opportunity and great user experiences through technology. And that passion for innovation is really at the core, and so together I think we're going to redefine how people and businesses think about information in the new age of the Internet and I think that common passion is really a glue that helps us bring the workforces together.

Q: What you've described is a complicated and extensive integration process. What's your best-case scenario for how long it takes after approval is granted?

A: Certainly, we're going to go through the integration planning process with the joint team of Microsoft and Yahoo, make thoughtful decisions about that. Some of the thoughtful decisions that will be made is sort of the timing of when and how things are sequenced.

But, you know, clearly we've got a certain set of integration activities that would happen on day one of closing and then certainly over some period following that. We're going to work through the set of things that get implemented to bring resources together.

Q: Do you face a risk here of spending so much focus on integrating the two companies that you don't get quickly to some of the benefits you've talked about?

A: Certainly, there is some -- you know, you look at scale economics. Combining our search inventory on the same ad platform, that's going to deliver better yield or better revenue very quickly. So there's certain synergies that will happen very quickly. he fact that on our integration plan, we've got to work to get to a single search index, a single ad platform. And by doing that, that means that we have one team of engineers working on that instead of two.

That enables us to now prioritize engineering work on new emerging scenarios such as video, mobile services, social media, social platforms. And so, I think there's a set of things that we can get immediately and as we deploy engineering resources on the broad set of priorities, there's things that will also be driven long-term.

Q: How big of a risk do you think you face from antitrust regulation on this?

A: We've worked closely with our legal counsel and we are confident we can obtain all necessary approvals in a timely manner. And we'd expect to close within the second half of this calendar year.

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