Google, IBM Join Forces To Offer Cloud Computing Services
"The cloud has higher value in business," says Google CEO Schmidt.
As Microsoft and Yahoo go their separate ways, IBM and Google are cozying up to move into what they think will be the dominant IT delivery model of the future--so-called cloud computing.
Over the next year, IBM and Google plan to roll out a worldwide network of servers from which consumers and businesses will tap everything from online soccer schedules to advanced engineering applications. The IBM-Google cloud, fresh off testing at several major universities, runs on Linux-based machines using Xen virtualization and Apache Hadoop, an open source implementation of the Google File System.
Google already has launched numerous cloud-based services for consumers, such as e-mail and storage. With the exception of security requirements, "there's not that much difference between the enterprise cloud and the consumer cloud," Google CEO Eric Schmidt said earlier this month during an appearance in Los Angeles with IBM chief Sam Palmisano. "The cloud has higher value in business. That's the secret to our collaboration."
A STUDY IN CONTRASTS
Palmisano and Schmidt insisted that their companies are similar, despite obvious differences. "We're boring, they're exciting. We're slow, they're fast. We're fat, they're skinny," Palmisano joked. But the contrasts are mostly skin deep, he said, noting that the companies share "a common technical alignment."
IBM believes the cloud model will allow it to reach small and midsize companies around the world, which it says represent a $500 billion IT market that it has trouble serving profitably through the usual sales channels. Google and IBM could conceivably supply computer users--both business and consumer--with hosted offerings ranging from basic productivity software like word processing and calendaring to sophisticated management and security tools through IBM's Tivoli brand and Google's Postini unit.
Under a portion of its cloud strategy it's calling the Blue Business Platform, IBM plans to launch an online marketplace offering its own pre-integrated products and services, as well as those from other software developers. Customers will be able to use the software they buy "on premises or in the cloud," Palmisano said.
The IBM-Google alliance started a couple of years ago with a phone call from Palmisano to Schmidt. "Sam called and wanted to know what we thought about distributed computing," Schmidt said. "We weren't looking to sell them anything," Palmisano insisted. Last October, the companies gave their joint platform project to several top engineering universities, including Carnegie Mellon, MIT, and Stanford, to poke away at. Now, IBM and Google say it's ready for wider use.
Their partnership is solidifying just when Microsoft's efforts to acquire Yahoo have broken down. Microsoft's approach to the cloud trend is to move some of its applications to the Internet under a strategy it calls software plus services. But the bulk of its profits still come from products either sold in boxes or preinstalled on PCs. Microsoft's enormous user base gives the company time and space to get its Internet efforts right. But, for the first time in years, Redmond is seeing clouds on the horizon--and they look a lot like Google and IBM.
By Paul McDougall
InformationWeek; May 12, 2008
The War for the Web
Microsoft was smart to walk away (for now) from its $44 billion bid for Yahoo. It's never good to overpay. But the software giant – whose stock has flatlined for eight years – was onto the right strategy in looking to the Web for growth.
Can't Microsoft build something on its own? Why the rush to pay billions for Yahoo? The simple (and wrong) answer was that adding Yahoo's 20% Web search market share to Microsoft's 10% meant that it could compete against Google's 60% share. Technology changes too fast for that to make sense except on paper. Programs run anywhere these days – on your desktop computer, on servers in data centers, on your iPod, cellphone, GPS, video game console, digital camera and on and on. It's not just about beating Google at search, it's about tying all these devices together in a new end-to-end computing framework.
With the Microsoft/Yahoo deal breakdown, everyone assumes Google walks away with the prize. Not so fast. This contest is just starting. For Microsoft or Google or anyone else to win, they need four key elements of an end-to-end strategy:
- The Cloud. The desktop computer isn't going away. But as bandwidth speeds increase, more and more computing can be done in the network of computers sitting in data centers – aka the "cloud."
There, search results can be calculated, companies' payrolls processed, even the complex graphics for video games can be drawn. But it's not cheap. These clouds are multibillion-dollar investments. Google spent $842 million in the last three months on servers, data centers and fiber optics.
Today, there are several major clouds: Google, Yahoo, Microsoft, Amazon and smaller players IBM and Sun. Can there be more? Sure, but it would require a business model that could not only pay for it, but could rip it out every few years and modernize it. Google's $20 billion Web advertising business gives it the cash flow to do so. Advantage Google.
- The Edge. The cloud is nothing without devices, browsers and users to feed it. Book buyers are basically paying for Amazon's data centers. Yahoo is a favorite for finance and sports enthusiasts, who pay for its data centers. Google worked its way into the toolbars of Firefox, and even Microsoft's browser.
And Microsoft? It was stripped of its ability to control Windows desktop real estate during the late '90s Netscape feud. Accused of using its overwhelmingly popular Windows operating system to unfairly dominate other new markets, Microsoft settled the dispute with the Justice Department in 2001.
Now Microsoft scrambles for other advantages. One lies in smart mobile devices, which is the fastest-growing location to launch search requests. Microsoft software runs on about 20% of smart phones in the U.S.
Don't underestimate the value of Microsoft's other market stronghold, its X-Box video game platform. Now you know why Google is scrambling to plant a flag in the cellphone business with its Android technology and bids for wireless spectrum. So far, advantage Microsoft.
- Speed. Once you build the cloud, it's all about network operations. Whoever can deliver search results faster, wins. Users only realize this subconsciously, but it's true: Google's dominant share is as much about speed as it is for relevant results. Compare it to Microsoft or Yahoo and you'll see. Google built data centers next to waterfalls so electricity could be cheap enough to help it win the speed war.
New cloud applications appear every day – backing up files, managing your money, editing photos, running the back end of multiplayer games like World of Warcraft. Now corporate America is evaluating moving its accounting, scheduling, order management and the like into the cloud, and speed will be a top priority. Advantage Google.
- Platform. Yahoo's mistake was relying on expensive workers to update Web pages and sell ads, and especially to run Yahoo Finance, Sports, HotJobs and Travel. Google hates using people for these tasks. The company may love programmers and probably customers as well, but it tries to put absolutely no one in between them. Google's genius was to automate all its Web page creation and to have a market set prices for ads.
But even though Google has more than 10,000 employees, the company doesn't have a lock on brain power – especially since its stock is not climbing as fast as it once did, and with young coders setting their eyes on the next big startup.
Having a fast cloud is nothing if you keep it closed. The trick is to open it up as a platform for every new business idea to run on, charging appropriate fees as necessary.
Microsoft knows this. I sat through a keynote speech by Bill Gates maybe 15 years ago. Asked why Microsoft makes all the money in the software business, he snapped: We don't make all the money. Actually, we only make money because we are a platform for others to use our software to make money themselves.
Only by opening up system internals to thousands of hungry developers can anyone truly create an operating system in the cloud. Google has made open announcements but is still quite closed. Advantage Microsoft.
So with the failure of the Yahoo bid, where does that leave Microsoft? The answer is found in Microsoft's mantra: embrace, extend and innovate. Made famous in a 1994 Microsoft executive memo, this mantra has worked again and again: Windows dominated Apple for decades, the Excel spreadsheet bypassed Lotus 1-2-3, and the Internet Explorer browser destroyed Netscape.
Of course, Microsoft could come back and bid again for Yahoo at $25. But there is a go-it-alone strategy: Embrace the Web search and advertising business. Maybe even do what Craigslist did to newspaper want ads, devaluing search advertising by offering the same thing for free, or really cheap.
The trick is to then extend and innovate. Run code that figures out what users are looking for, not just on servers, but on X-Boxes, Zune music devices and even Apple iPhones. Some of the new markets aren't even twinkles in developers' eyes.
At the moment, neither Google nor Microsoft, or anyone else, has nailed down cloud, edge, speed and platform. All the loosely coupled electronic devices in our pockets need to work together seamlessly with Facebook applications in the cloud. Who will do it? Unclear.
The continuing battle between Microsoft and Google will mean fierce competition – adding features, building data centers, cutting deals and spending money on speed and customer convenience. That's the way to move technology forward. It's great to see Microsoft with some fight left in it. Not only hasn't the Internet yet matured, it's becoming an ever-more high stakes game.
By: Andy Kessler
Wall Street Journal; May 6, 2008
Microsoft Ends Pursuit of Yahoo, Reassesses Its Online Options
Software Maker Cites Divide Over Price; The Google Factor
Yahoo Inc. Chief Executive Jerry Yang didn't really want Microsoft Corp. to buy his company. By Saturday, Microsoft Chief CEO Steve Ballmer didn't want that either, leaving both technology companies facing fundamental questions about their futures.
The failed courtship leaves Microsoft with limited options for achieving its strategic goal of expanding its presence online and may not close the door to another bid for Yahoo down the road.
In a letter to Mr. Yang Saturday in which he withdrew Microsoft's takeover offer, Mr. Ballmer cited a divide over price, saying Microsoft had been willing to raise its offer for Yahoo to $33 a share, or about $47.5 billion, and Yahoo demanded at least $4 a share more.
But some people close to the matter believe that the two sides could have found a middle ground if negotiations continued, particularly since some of Yahoo's major shareholders had signaled late last week they would support a takeover by Microsoft at a price in the range of $34 or $35 a share.
Microsoft's battle for Yahoo represented part of the scramble by technology and media giants to capture the flood of advertising dollars moving online and to block Web giant Google Inc. from extending its dominance in online-search advertising.
Mr. Ballmer had said in recent days that he was confident Microsoft could go it alone to build a competitive online-advertising business without buying Yahoo. At the same time, he had faced skepticism from within Microsoft about its ability to pull off such a large acquisition at a time when the software maker faces many other challenges. Mr. Ballmer himself had shown hints of such doubts in recent weeks, say people familiar with the matter.
He also squared off against a Yahoo that was increasingly confident that it was worth much more than Microsoft had been offering. While Mr. Yang and Yahoo directors preferred from the start that the Internet company stay independent, they were particularly emboldened by the success of a test late last month to carry search advertising from Google. "There was just nothing that showed any sign of this potentially coming on track," said one person familiar with Microsoft's thinking, who questioned Yahoo's stated willingness to sell the company to Microsoft at the right price, as it had said publicly.
Having averted a sale to Microsoft, Mr. Yang probably will have to placate shareholders who had been hoping for a deal. Analysts estimate Yahoo shares will fall to between $20 and $25 a share without Microsoft's bid to prop them up, down from their 4 p.m. close of $28.67 Friday in Nasdaq StockMarket trading.
Yahoo is hoping to seal a broader search-ad pact with Google in the coming days, but antitrust experts warn that will surely encounter intense regulatory scrutiny. And the company, which has struggled to focus and execute its plans in recent years, faces deep skepticism from investors about the financial targets it has released for 2009 and 2010 to justify its value on its own.
Microsoft's withdrawal diminishes prospects that Google will face a dramatically bulked up competitor in Web search and online advertising anytime soon. Google's runaway success at the expense of Yahoo and Microsoft in recent years was one major driver of Mr. Ballmer's effort to close a deal. Now, Google is likely to handle at least some of Yahoo's search-advertising business, and Microsoft is heading back to the drawing board to consider its own options. "It's disappointing because one would hope there would be a more balanced marketplace," said Sir Martin Sorrell, chief executive of advertising company WPP Group PLC. "Google's dominance continues."
Microsoft could still eventually end up buying Yahoo. If Yahoo's share price plummets, shareholders could intensify efforts to pressure Yahoo's board to agree to a deal at a lower price. Already several shareholders have sued the company over its rejection of the Microsoft bid.
Mr. Ballmer's letter Saturday appeared intentionally crafted to spell out to Yahoo shareholders how hard Microsoft worked - and the amount it boosted its bid-to entice Yahoo's board to enter a deal. That is a typical tactic for a would-be acquirer hoping to spur shareholder activism and one followed by Oracle Corp. last year in its bid for BEA Systems Inc. After BEA rejected Oracle's offer, Oracle withdrew its bid and its executives took great pains to spell out the effort they made to persuade BEA to enter a deal. Shareholder pressure early this year forced BEA into Oracle's arms.
The takeover standoff that began with Microsoft's unsolicited $31-a-share offer for Yahoo on Jan. 31 finally came to a head Saturday morning in a meeting between Mr. Ballmer, Microsoft Platforms and Services Division President Kevin Johnson, Mr. Yang and Yahoo co-founder David Filo at the airport in Seattle, say people familiar with the matter.
Messrs. Yang and Filo said that Yahoo directors were open to a deal at $37 11 share, and that the two founders would accept that sum as well, despite their personal desire for $38 a share, these people say. "They were saying, this is as low as we can go. There was no indication they were coming off that number," a person close to Microsoft said.
In Seattle, the two sides discussed price and strategy for several hours and Messrs. Yang and Filo returned to California expecting Microsoft might counter with another offer, according to one of the people familiar with the matter.
In a subsequent telephone conversation with Mr. Ballmer, the Microsoft CEO told Mr. Yang that Microsoft was ending its pursuit of Yahoo. Mr. Ballmer sent his letter to Mr. Yang around 4 p.m. Pacific time Saturday officially withdrawing Microsoft's offer. After hearing Messr.s. Yang and Filo's position on Saturday, Microsoft concluded that the Yahoo founders didn't really want to do a deal, according to people close to the. software maker.
People close to Yahoo dispute the assertion that the Internet company wasn't prepared to continue negotiating on price. Yahoo believed that its shareholders weren't prepared to accept a deal in the price range Microsoft was offering, people close the company say.
Though Microsoft never let go of the threat of a hostile deal, Mr. Ballmer ultimately determined that such a course would have been too destructive. Even if it ultimately won shareholder support for a hostile bid, Microsoft would likely have run into trouble with regulators, its advisers warned.
"Despite our best efforts, including raising our bid by roughly $5 billion, Yahoo has not moved toward accepting our offer," Mr. Ballmer said in a Microsoft news release. "We believe the economics demanded by Yahoo do not make sense for us, and it is in the best interests of Microsoft stockholders, employees and other stakeholders to withdraw our proposal," he added.
Yahoo Chairman Roy Bostock responded in a press release, by saying, "From the beginning of this process, our independent board and our management have been steadfast in our belief that Microsoft's offer undervalued the company and we are pleased that so many of our shareholders joined us in expressing that view."
One person familiar with the matter said that the $37 a share Mr. Yang cited to Mr. Ballmer was based on the company's calculation of its value-particularly in light of alternatives such as a Google ad deal-and not what its large shareholders were demanding. Major Yahoo shareholders had signaled by late last week that they were open to a deal around $34 or $35 per share and were optimistic that the price gap with Microsoft could be bridged, according to people familiar with the matter.
Some people close to the situation believe Microsoft would likely have won a hostile takeover battle at $33 per share. But Mr. Ballmer in his Saturday letter to Mr. Yang cited that potential Google deal as a reason that Microsoft decided not to go hostile. "Your apparent plan to pursue such an arrangement in the event of a proxy contest or exchange offer leads me to the firm decision not to pursue such a path," he wrote.
Mr. Ballmer said this was because such a deal would undermine Yahoo's online advertising sales strategy and pose regulatory and legal problems Microsoft wouldn't want to inherit.
A person familiar with Microsoft's thinking said that enhanced employee severance benefits Yahoo instituted in February in case of a change of control represented a cost that Microsoft was also reluctant to bear. Other concerns within Microsoft may have also influenced Mr. Ballmer's thinking. The Yahoo bid was driven by a small group of executives from Microsoft's online group. That group had planned for the bid process to play out fairly quickly with Yahoo entering a friendly deal.
But as time dragged on, other Microsoft executives, including some in the group over seeing Office software, ex pressed their opposition to th deal, say people familiar wit the situation. Also, concern within the company grew over the challenge of integrating Yahoo's roughly 14,000 staff an various online services, the say. Whether these concerns affected Mr. Ballmer is hard to tell but people close to mm say he started to raise more question about the deal to his lieutenants.
Internal confusion over Mr. Ballmer's plans was rife in March at a three-day meeting of Microsoft's 150 top executives in upstate Washington. Despite exhaustive presentations on the future plans of each Microsoft business group, Yahoo was hardly mentioned. Only on the last day
did Mr. Ballmer mention the bid, in response to a question. He said few words on the topic, leading some executives to believe was distancing himself from the deal.
As a result, Microsoft executives were surprised when Mr. Ballmer on April 5 sent a letter to Yahoo directors threatening a hostile approach if they didn't reach a friendly deal by April 26. That spurred Yahoo executives and an entourage of ankers and advisers from both sides to meet with Microsoft on April 15 at a Portland, Ore., law firm for what one attendee described as an "information-sharing session about operational issues, strategy and other issues." presentation from Yahoo included a slide that said Microsoft's offer "significantly undervalues" Yahoo.
Late into the meeting Mr. Ballmer addressed the elephant in the room: "Where are we on price?" he asked Mr. Yang, according to two people who were present. Responding to Mr. Ballmer's question, Mr. Yang repeated that the original offer of $31 a share "substantially" undervalued the Internet company. Mr. Ballmer again asked for a firm price, and Mr. Yang said he didn't have a number.
After flying back to New York on the redeye from Portland, Microsoft's advisers call with their counterparts at Yahoo to address the price issue.
During the April 18 call, Goldman Sachs banker Gene Sykes, one of Yahoo's lead bankers, said that at $40 a share the Internet company would be open to a friendly deal. Yahoo's advisers added that below that threshold there would be likely be a lot of debate among Yahoo directors, stressing that the board wasn't specifically asking for $40 at that point, say people familiar with the matter.
Microsoft and its advisers believed that by asking Yahoo for a price they were sending a clear signal that they were willing to pay more than the original bid of $31 a share. But they viewed an asking price of $40 a share as an unrealistic starting point.
For more than a week afterward, there was silence between the two camps. On Saturday, the deadline Mr. Ballmer had set came and went without any movement.
On the following Tuesday, April 29, Mr. Yang called Mr. Ballmer and told him Yahoo might be open to a deal below $40. He described $40 as the "bankers' view," not the board's, according to two people close to Microsoft. Yahoo Chairman Roy Bostock also called Mr. Ballmer and, along with Mr. Yang, urged the Microsoft 'CEO to sit down with Yahoo to kick-start discussions.
On Wednesday, Mr. Ballmer arid Mr. Yang met at Yahoo's law firm in Palo Alto, Calif., the people familiar with the matter say. At the meeting Mr. Yang signaled that Yahoo could accept less than $40 a share.
People close to Yahoo said that Microsoft indicated at Wednesday's meeting it could raise its bid per share a "couple" or a "few" dollars. But Yahoo learned that Microsoft was willing to make a specific offer of $33 a share only in Mr. Ballmer's letter to Mr. Yang Saturday these people said. "We did not know what the offer was," said one person close to Yahoo.
People close to Microsoft say they had made it very clear to Yahoo by the end of last week that they were prepared to offer $33, and that at that price the software maker was "near the end of the rope." On Friday, Microsoft general counsel Brad Smith called Ron Olson, a lawyer for Yahoo's board, and told him Microsoft was prepared to pay $33, according to people familiar with the matter.
During their talks last week, Microsoft and Yahoo at least briefly discussed the possibility of Microsoft's buying just Yahoo's Web-search business alone, say people familiar with the matter, though they never reached an agreement on that either .. One person involved in the negotiations described the search-business talks as a "sideshow."
While Microsoft could eventually pursue Yahoo again, people close to the two sides said they didn't believe Saturday's withdrawal was a negotiating tactic designed to pressure Yahoo to accept a lower offer. Yahoo will now likely face pressure from its investors to justify why it couldn't reach a deal in the range of $33.
In addition to the Google negotiations, Yahoo has also been in discussions to merge with Time Warner Inc.'s AOL Internet unit, under an arrangement in which Time Warner would hold a roughly 20% stake in Yahoo, people familiar with the matter said. But Microsoft's withdrawal of its Yahoo bid could shake the AOL discussions off course. It is possible, for example, that Microsoft will become a suitor for AOL, say people familiar with the matter.
Microsoft's next course of action, say people familiar with the company, will likely be to try to form a tie-up with another Internet company that could pull more consumers and advertisers to its Internet services such as Web search.
In an interview on Thursday Mr. Ballmer noted that few Internet companies have the size that Microsoft would need to immediately get a boost to its business and market share in Internet advertising. Among them, he listed Facebook Inc., AOL and MySpace, the social-networking service owned by News Corp., which also owns Dow Jones & Co., publisher of The Wall Street Journal.
By: Kevin Delaney, Matthew Karnitschnig, & Robert Guth
Wall Street Journal; May 5, 2008
Internet Says: 'Me Want Cookie'
The last time cookies became a matter of public debate was when the "Sesame Street" character Cookie Monster was accused of encouraging poor eating habits among toddlers. Today's controversial cookies are the small text files that track where people go online. Web sites do a poor job of explaining how and why this information is used, even as details about our lives are increasingly knowable online. Risks to privacy make this a race between smarter self-regulation on the Web and threatened new regulation by the Federal Trade Commission.
Most privacy advocates understand that advertising pays for the otherwise free Web, but worry that cookies can be used for more than matching advertising to individual interests. Some want a "do not track" approach on the Web, similar to the "do not call" rules that block unwanted marketing phone calls. This sounds attractive but could undercut much of the marketing power of the Web.
Even those of us who are enthusiastic about using the Web for what it does best, including access to highly customized information, agree there's something potentially creepy about cookies. How are personal data used? Are our names, addresses and financial and health records really secret? Is anonymity permanent? These questions come just as what technology can do is changing our expectations about what information remains personal. We worry about cookies despite many of us voluntarily becoming open books via sites like MySpace, Facebook and LinkedIn, which are designed to share personal information that until recently would have been considered confidential.
The cookie debate reflects the tension between what technology will allow and what privacy we expect. One problem is that Web sites and marketers have failed to explain why cookies are harmless. Cookies simply indicate where users have been and do not include sensitive information like credit cards or Social Security numbers. When data about Internet usage are tracked, it's in an anonymous, aggregated way. Cookies mean people see personally relevant advertisements. Web sites use cookies automatically to localize news, weather and sports for users, and designers mine tracked data to improve user experiences. Cookies helpfully remember registration and other personalization.
A group called the Center for Digital Democracy urges more privacy protections by arguing that "Our 'virtual' identities may be composed of discrete and disassembled bits of information about ourselves." The group objects that the Web's purpose is "to get individual consumers to behave or act in ways that favor or reflect the marketer's goal."
For some, that's the point. "To paraphrase the famous New Yorker magazine cartoon, when you're surfing the Internet, it's still true that nobody knows you're a dog. But providers can learn that you like dog biscuits, and serve you content and ads accordingly," argues Randall Rothenberg, president of the Interactive Advertising Bureau. "If politicians restrict it unthinkingly, advertising relevance will diminish, and spam will have a renaissance."
Information that is aggregated offline usually is not seen as threatening. We don't object when marketers track us by ZIP Code, age or sex, or when our cars are counted by traffic surveyors, or when we get benefits once tagged as good customers. And there's at least an implicit bargain in the case of the Web: In exchange for seeing targeted advertising, we get access to Web sites, usually free. Internet advertising was more than $20 billion last year. Some 500 million people around the world got free email, and some 200 million Americans accessed free search engines.
There are efforts to break down cookies into less potentially personally identifiable details – "crumbled cookies" – but this is technically complex. As Google CEO Eric Schmidt put it, "What we've discovered about cookies is that every question leads to a one-hour conversation." What is clear is that intentionally releasing personally identifiable information is unacceptable. When Facebook alerted people about purchases by other members, it quickly had to drop the feature.
Scholar Joseph Turow has identified a "culture of suspicion." People don't understand how the Web works, so fear they are being spied on and manipulated. Many Web sites, however they actually use cookies, contribute to the skepticism by burying disclosure deep inside privacy statements. For a counterexample of full disclosure, take a look at the All Things Digital Web site, from the Journal's Walt Mossberg and Kara Swisher (http://allthingsd.com/trackingcookies/).
People involved in building the Web are rightly proud of the openness of the digital culture. Most consider that cookies cause no harm and are key to the growth of the Internet, but many Web users feel left in the dark about how information about them is used and not used. Unless people can be reassured, there is a real risk that some day soon we'll find the untested hands of regulators in the cookie jar.
By: L. Gordon Crovitz
Wall Street Journal; May 5, 2008
Microsoft confronts tough choice on Yahoo
Steve Ballmer is facing one of the biggest decisions of his career: Walk away from Microsoft's $42.7 billion acquisition offer for Yahoo or launch the largest hostile takeover battle in tech-industry history.
The choice comes after Yahoo declined to agree to a deal by the Saturday deadline set by the Microsoft's chief executive -- and after the two sides failed to make any progress in recent weeks in resolving the disagreement over price that has divided them over the last three months. (Microsoft publishes MSN Money).
Ballmer vowed in an April 5 letter "to take our case directly to your shareholders, including the initiation of a proxy contest to elect an alternative slate of directors for the Yahoo board."
Still, Ballmer faces opposition to the deal in his own ranks: Executives at several Microsoft divisions oppose the bid on grounds it will divert needed resources and attention from other challenges the company faces, said people familiar with the company. That sentiment is heightened as Microsoft heads into its annual budgeting season, said people familiar with the company.
There was no direct contact between the two sides this past weekend and people close to both camps said they were preparing for the next stage of battle. Microsoft was unlikely to make a move on Monday, however, people familiar with the matter said.
Ending its pursuit of Yahoo seems less likely following Ballmer's promise to go directly to shareholders after the deadline. Abandoning the bid following his public saber rattling might damage his own credibility as well as Microsoft's. Though Microsoft hasn't ruled out abandoning its pursuit, it is unlikely to do so, people close to the company said.
Walking away could still draw Yahoo into Microsoft's arms if Yahoo's share price falls on the news. That could spark more investor pressure to strike a deal with Microsoft. Oracle followed a similar playbook last year to acquire BEA Systems.
If Microsoft pushes ahead with its proxy fight, its challenge will be in determining at what price it should pursue an exchange offer. The value of its bid has declined as its share price has fallen 8% since Jan. 31, when it offered Yahoo a combination of cash and stock then valued at $31 a share, or $44.6 billion. On Friday, Microsoft's stock took another hit after the company disappointed investors with its earnings outlook; as a result, the bid value stood at $29.68 a share as of 4 p.m. Friday. Yahoo's shares at that time were trading at $26.80 on the Nasdaq Composite Index
In his letter, Ballmer suggested Microsoft might offer less than the original bid if Yahoo didn't agree to a friendly deal. If Ballmer follows through with that threat, Yahoo could face tough questions from some shareholders angered that it has refused Microsoft's offer. Some Yahoo shareholders have already sued the company's directors for acting against shareholder interests in their handling of Microsoft's takeover attempt.
Yahoo has continued to insist that Microsoft's offer "substantially undervalues" it. Spokesmen for Microsoft and Yahoo declined to comment.
By: Matthew Karnitschnig & Robert Guth
Wall Street Journal; April 28, 2008
Agencies Know the Score on Web Tracking
ComScore's Bust On Google Clicks Is Hardly a Surprise
A discrepancy between Google click data and comScore's estimates of those data before they were released caused the Web-measurement firm's share price to plunge last week. But on Madison Avenue, the difference wasn't much of a shock. Rather, it was another reminder that the science of tracking Internet usage is still far from perfect.
Digital-advertising executives say they have long taken comScore numbers with a grain of salt and don't plan on curtailing their use of the Reston, Va., research firm because of the Google flap. "We have not expected the numbers to be 100% accurate," says Sarah Fay, chief executive of both Carat and Isobar US, ad companies owned by Aegis Group. "I think that comScore has been as good as anything we've had previously."
Marketers rely heavily on comScore and the other major Web-measurement company, Nielsen Online, when trying to decide how to spend their online ad dollars. Advertisers study their data -- including a Web site's total visitors or page views and time spent on the site -- to try to determine which sites are popular among particular demographic groups or in certain topic areas, such as news or sports. They typically compare those data with a Web site's own figures.
Both Web-measurement companies have gaps in their research. Because they use panels of Web users to gather data and then extrapolate, the results are estimates. And both companies lack the capacity to measure total international audiences.
The companies are trying to address those shortcomings by looking for ways to increase the size and depth of their panels, investing in technology and expanding overseas. Nielsen Online, which is owned by the audience-measurement firm Nielsen, also is trying to combine its Web research with usage data from other media, such as mobile-phone and television measures.
To complicate matters, disparities between comScore and Nielsen data are common, as the two companies use different methodologies to measure their audience panels. For instance, according to comScore Media Metrix, Yahoo's finance site received 15.8 million unique U.S. visitors in March. According to Nielsen Online, the site received 20.2 million unique U.S. visitors during that period.
"There is no truth on the Internet, but you have two companies vying to say they are the truth of the Internet, and they disagree," says Brad Bortner, an analyst with Cambridge, Mass.-based Forrester Research.
In its earnings report Thursday, Google said consumer clicks on its advertisements in the first quarter increased 20% from a year earlier. Earlier in the week, comScore had estimated 1.8% growth in U.S. clicks from a year earlier. ComScore's stock dropped more than 8% in after-hours trading Thursday. Friday, comScore shares closed down 1.7%, or 40 cents, to $23.18.
ComScore points out that Google's and comScore's numbers aren't an apples-to-apples comparison and says that explains the discrepancy. ComScore tallied only U.S. clicks and excluded Google's nonsearch ads. Google's own numbers were overall, world-wide figures.
"We anticipated that Google's revenues would do better than what our paid-click data were interpreted to imply," says comScore CEO Magid Abraham. "We are always concerned about maintaining our reputation and want to be as accurate as possible."
The syndicated data from comScore and Nielsen are used by media buyers as a research tool -- but not to determine how much advertisers pay. The pricing is calculated by outside ad-serving firms, such as Google's DoubleClick, that track the performance of ad campaigns for such measures as how many times an ad is clicked or viewed.
"We are not going to look at comScore to determine the effectiveness of Google. We are going to look at our own campaign-performance measures," says Sean Muzzy, senior partner and media director at Neo@Ogilvy, a digital ad agency owned by WPP Group's Ogilvy & Mather.
Even though they are fully aware of the holes in comScore's and Nielsen's data, media buyers sometimes put more weight in them than they probably should. "When time is really pressed, or when the complications are overwhelming, the temptation has got to be that media buyers take them more seriously than any of us should," says Sarah Chubb, president of CondéNet, the digital division of magazine publisher Condé Nast.
The reliability of third-party Web-measurement data has been a hot topic in the online media world for some time. About a year ago, the Interactive Advertising Bureau, a trade group that includes more than 375 Web publishers, asked comScore and Nielsen to submit to an outside audit to find out why the two companies report such different measurements for the same Web sites. The measurement firms are in the midst of completing those audits, which are expected to continue through the year and detail the differences between their panels and methodologies.
By: Emily Steel
Wall Street Journal; April 21, 2008
As the CEO of Microsoft, he presents using a Mac
Steve Ballmer giving his fabulous presentation
*Images courtesy of "Paint.It.Black" via Flickr*
AOL's Web Sites Show Gains in Traffic
A yearlong effort by AOL to transform its content Web sites into crowd-pleasers is beginning to pay off.
Traffic to the sites -- including AOL Money & Finance, entertainment, and the male-oriented Asylum -- grew 15% to 56.5 million unique U.S. visitors in the first quarter from a year ago, according to comScore Media Metrix. Measured by traffic, some of the sites even top the charts for their categories.
AOL still hasn't translated the surge in visits into higher ad revenue. But the news is positive for the Time Warner Inc. unit, which has struggled with another initiative -- building AOL into a major digital ad-sales firm. When Time Warner reports earnings next week, AOL is expected to post a weak first quarter, with ad revenue that is flat to slightly down.
The content push is part of AOL's bid to reinvent itself as an ad-supported Web company following its August 2006 decision to make its Internet-access service free. Visits to AOL's Web sites slowed as a side-effect of that decision. Many of the visitors had been paying subscribers who logged on to check email and then looked at other AOL features.
To draw visitors back, AOL redesigned sites in the news, sports and health categories. It also created a half-dozen new sites that don't use the AOL name, such as a technology-focused site called Switched, a hip-hop site called BlackVoices, and a Web trend tracker called Urlesque.com, as well as Asylum. Dropping its name was an acknowledgement that the brand wasn't hip enough for the consumers AOL was trying to attract. "If I call a hip-hop site AOL Hip Hop," says Bill Wilson, executive vice president of AOL Vertical Programming, "that just won't resonate with consumers."
AOL also adopted some common tricks of the trade, such as making its sites appear higher in search-engine results. As a result, a recent Google search for "money and finance" listed AOL's Money & Finance site as the top link. AOL hadn't turned to the technique before because it relied on paying subscribers to visit its pages.
Not every site has shown improvement. AOL's kids site, which faces tough competition from Walt Disney Co. and Viacom Inc.'s Nickelodeon, had a slight drop in unique U.S. visitors in March. AOL says it updated the site but hasn't focused on it as much as its other sites.
AOL is relying on its Web ad-selling unit, Platform-A, to market the sites to Madison Avenue. With that in mind, Platform-A announced Thursday the launch of a spot marketplace for online display and video ads, similar to the one that exists in the TV market. Advertisers will be able to bid on unsold inventory on all AOL sites and across the network of thousands of sites where Platform-A sells ads.
But some Madison Avenue executives believe AOL's programming strategy will be a tough sell. "It's not to say that AOL can't do it, I just think there's a challenge," says Ian Schafer, chief executive of Deep Focus, an independent digital marketing firm.
By: Emily Steel
Wall Street Journal; April 25, 2008
Click Fraud Up Year-Over-Year
Click fraud rates are increasing steadily as the search engines and the courts continue to look the other way.
The Click Fraud Index has been established to measure pay-per-click fraud figures gathered from the Click Fraud Network, comprised of more than 4,000 interactive advertisers and agencies.
The average click fraud rate in 2007 is 16.3% up significantly from 14.8% in the first quarter of 2006.
In fact with Google and Yahoo the click fraud rates are even higher. The major search engine Pay Per Click networks – like Google AdSense and the Yahoo Publisher Network – delivered the worst numbers, with click fraud rates as high as 27.8%.
The click fraud numbers have averaged over 28% for more than a year.
In other words approx. 30% of any PPC budget is being wasted.
Click Fraud costing all parties.
Sponsored keyword advertisers are not the only party paying for bogus clicks. Yahoo and Google have incurred millions of dollars in legal fees fighting hundreds of click-fraud related lawsuits.
Yahoo is being sued by online retailer Bigreds.com for more than $1 million, the click fraud lawsuit alleges that Yahoo knowingly overcharged the company for fraudulent clicks that Yahoo overlooked. And Google is also involved in a complex, class-action, click fraud lawsuit filed by Kabateck Brown Kellner in which Google is accused of “deceiving its customers into paying for ads that they do not want.”
Organic SEO is the most effective means of curbing click fraud.
Outsource with a proven organic search engine optimization firm like Peak Positions and secure and maintain top keyword rankings in the natural search results.
Natural search listings receive five times more click throughs than sponsored listings (many times 6 or 7 times higher than ppc), serve to endorse your website as the industry leader, and the best part is that no click fees are ever applied.
The most significant approach to SEO is one that provides redeeming long-term value; Organic SEO.
In addition, be wary of any SEO firm that does not rank in the top organic keyword positions themselves.
Why is their SEO site not ranking?
Do they have to rely on sponsored listings for website exposure?
If so, could you expect the same results for any website they are working with?
How much do they actually know or care about code, content, linking, algorithms, etc.?
Do they lead with aggression?
Bold promises? Self Hyped Marketing Speak?
Bold Fees?
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Google Profit Rose 30%, Quelling Investor Fears
Google Inc.'s GO-GO era apparently isn't over.
The Internet giant topped Wallstreet estimates for first-quarter revenue and fit, and it said that the weak economy don't hurt its business, as some investors had red. Google's solid performance came despite slowing growth in the number of times consumers clicked on ads that appear alongside Google's Web-search results and on partner sites.
Google's shares surged more than 17% in after hours trading after it reported first-quarter profit rose 30% from the year before, compared with 17% profit growth in the 2007 fourth quarter. Revenue rose 42% from a year earlier. Before the earnings were released Thursday afternoon, Google's shares had dropped 35% since the beginning of the year.
Chief Executive Eric Schmidt said that the Mountain View, Calif., company has studied the potential for any impact from a weaker economy in the future. "Our conclusion is we're well-positioned, should economics change, to continue to do well because our model is so targeted, and targeted advertising does well in pretty much most scenarios," he said. Investors have worried that a consumer slowdown could affect online advertising, which represents about 99% of Google's revenue.
Google reported that clicks on the ads it shows increased 20% in the first quarter from a year earlier, compared with 30% in the fourth quarter. Google generally charges advertisers only when a consumer clicks on the ads.
The overall paid-click gains in the quarter were significantly greater than research firm comScore Inc.'s Tuesday estimate of 1.8% growth in U.S. clicks-excluding some nonsearch Google partners-from a year earlier. ComScore's estimates had fueled concerns during the quarter that Google was being hurt by the softness in the U.S. economy, though the research firm said the cause was more likely Google-initiated changes.
"The comScore data have caused a lot of angst and anxiety for investors that look largely unfounded," said Jeffrey Lindsay, Internet analyst with Sanford C. Bernstein, whose firm makes a market in Google shares. ComScore declined to comment, but its Chief Executive Magid Abraham said in an interview Wednesday that some investors had jumped to conclusions that comScore's data don't support.
Google said it has continued to take measures to reduce the number of ads that consumers see per search query in order to show only the most relevant ads, which will lead to sales for advertisers.
"We're showing fewer but much better ads in each cycle, and that's a key part ofthe Google success story," Mr. Schmidt said.
On average, advertisers are paying more for each click. Mr. Schmidt acknowledged in an interview that, in some unspecified areas, those prices are near the maximum levels advertisers may be willing to pay, given their other advertising options.
"There are some 'verticals' where we might be hitting limits, and there are plenty of verticals where we're not-but in aggregate there's still plenty of room for growth," he said. He also specifed that there were hundreds of thousands of vertical advertising categories in Google's systems, factoring in such things as types of advertisers and regions. The price of search advertisements is determined by an auction-based system where advertisers bid against each other to have their ads displayed more prominently.
In 4 p.m. Nasdaq Stock Market composite trading, Google's shares dropped $5.49, or 1.2%, to $449.54. Following the news, shares rose 17% in after-hours trading to $526.62, adding almost $25 billion to the company's valuation.
Google executives highlighted their efforts to sell advertisements beyond the small text ads that are currently the company's core revenue driver. One key development during the quarter was the closing of its $3.2 billion acquisition of DoubleClick Inc., which offers services to Web publishers, ad agencies and advertisers for handling display advertisements, such as banner ads. "We're in a position to become the world's largest display-ads provider," said Jonathan Rosenberg, senior vice president for product management. Yahoo Inc., the target of an unsolicited takeover bid by Microsoft Corp., is the largest U.S. display ad seller, according to research firm eMarketer Inc.
Mr. Rosenberg said Google has seen consumer clicks in some categories traditionally affected by economic softness grow "a little less rapidly" than the overall growth. "But on an absolute basis, they are all showing healthy growth in ad revenue," he added. Areas such as financial services are among those analysts say are probably affected.
Google's solid financial performance comes as Yahoo is testing using Google ads alongside a small percentage of its Web search results. People familiar with the matter have said that test, announced last week, has been performing well, increasing the likelihood of a broader pact. But any such deal would probably face tough regulatory scrutiny because of the companies' combined majority share of the search-ad market.
Mr. Schmidt declined to discuss the test in any detail, but he said, "It's nice to be working with Yahoo-we like them very much."
International operations generated 51% of Google's revenue in the first quarter, compared with 48% in the fourth quarter. "International was a big part of the surprise here," said Rob Sanderson, Internet analyst with American Technology Research Inc. Google's employee growth rate in the first quarter climbed to 14%, compared with 6% in the fourth quarter.
By: Kevin Delaney
Wall Street Journal; April 18, 2008
Google tweaked search 450 times in 2007
Google is typically tight-lipped about it the inner workings of its search business, but there are a few nuggets worth looking at in a Popular Mechanics interview with Udi Manber, the Google vice president who oversees search quality. Among them: Google rejiggered its search algorithm 450 times last year.
The job of the algorithm is to best match Web pages with people's search terms. One tweak the company tried last week was increasing the "diversity" of search results so the listed Web pages would cover a broader scope in an attempt to compensate for the ambiguities of search terms, he said.
And while some might see the industry of search engine optimization (SEO), which strives to get Web sites higher placement on search sites, as gaming the system, Manber said that at least a basic amount would make his life easier.
"I wish people would put more effort into thinking about how other people will find them and putting the right keywords onto their pages," he said.
He also said Google doesn't adjust search results by hand.
"If we find, for a particular query, that result No. 4 should be result No. 1, we do not have the capability to manually change it," he said. "We have to find what weakness in the algorithm caused that result and find a general solution to that, evaluate whether a general solution really works and if it's better, and then launch a general solution."
For those interested in the subject, I also recommend the New York Times interview with Manber from last year and another from Eric Enge at SEO firm Stone Temple Consulting. (I can't help but note that the latter piece shows up higher in Google search results.)
Posted by Stephen Shankland on news.com
April 17, 2008