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Tuesday, April 29, 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

Monday, April 28, 2008

Steve Ballmer's Laptop Use

Ballmer uses a Mac
As the CEO of Microsoft, he presents using a Mac

Steve Ballmer giving presentation
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, 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

Friday, April 25, 2008

Click Fraud On The Rise.

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 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.”

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The most significant approach to SEO is one that provides redeeming long-term value; Organic SEO.

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Monday, April 21, 2008

Power Trio of Google
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
April 17, 2008

Friday, April 18, 2008

This is what it would look like if Yahoo & Google became one.
Yahoo-Google Plan Advances

Yahoo Inc. moved closer to outsourcing its search advertising to Google Inc. after an initial test of the system yielded what the two firms deemed positive results, people familiar with the matter said.

A broader partnership between the companies is now increasingly likely, the people said. Yahoo and Google said last week that they would undertake the test to evaluate the revenue potential of a broader search-ad outsourcing arrangement.

A deal might increase Yahoo’s cash flow by more than $1 billion a year, according to Citigroup Global Markets analyst Mark Mahaney.

But a partnership also might serve as needed leverage for Yahoo as it tries to ward off an unwelcome $44.6 billion bid from Microsoft Corp., of Redmond, Wash. Some view the potential combination as gamesmanship, particularly in light of antitrust concerns of a Google-Yahoo linkup.

A broad partnership between Google, based in Mountain View, Calif., and Yahoo could complicate Microsoft efforts but doesn’t derail it immediately. Yahoo could simply pull out of the partnership should it agree to a takeover by Microsoft.

Nevertheless, a deal with Google might make it easier for Yahoo, of Sunnyvale, Calif., to do a separate deal it has been deliberating with Time Warner Inc’s AOL. Yahoo has been in talks with New York-based Time Warner about merging with AOL. Time Warner would receive a stake of about 20% in the merged entity in return.

By: Matthew Karnitshnig
Wall Street Journal; April 17, 2008

FCC Continues Press for Clarity In Web Providers' Delivery Practices

SAN JOSE, Calif. -- Federal Communications Commission Chairman Kevin Martin is bringing his campaign for unfettered Internet access to Silicon Valley Thursday, putting Comcast Corp. on the spot, despite the cable giant's efforts to back away from a policy of limiting the way customers download some Internet files.
The News: FCC Chairman Kevin Martin will hold a hearing on limits placed on Internet traffic.
The Background: A move by Comcast to restrict downloads through file-sharing software has drawn criticism, and is likely to make the company a focus of the hearing.
Outlook: Comcast recently backed away from the restrictions. Broadband providers have argued new FCC rules on traffic aren't necessary.

Mr. Martin will preside over a seven-hour hearing at Stanford University that will explore what responsibilities Internet providers have to deliver traffic fairly, and what phone and cable companies should be telling consumers about the services they can expect for their $40 or $60 a month.

"We'll focus on the disclosure issues and the broader impact these practices are having from the consumer perspective," Mr. Martin said in an interview Wednesday.

If an Internet provider decides to limit traffic in some way to manage its network, that should be "clearly and reasonably disclosed to the consumer," Mr. Martin says. "If people are going to upgrade [their Internet service] they need to understand what they're getting."

Comcast declined an FCC invitation to attend Thursday's hearing, though it appeared at a hearing earlier this year. A Comcast spokeswoman said the company "felt the issues specific to us were well covered at the first hearing, and the focus of this event should be broader than any individual company's issues."

A few years ago, Mr. Martin expressed the view that he didn't think the FCC needed new rules to make sure all online traffic was treated equally -- an issue that has come to be known as net neutrality -- because there were no examples of Internet providers degrading traffic.

But his stance changed last year when Comcast was accused of deliberating dropping some traffic by users of file-sharing service BitTorrent, Inc. Consumer advocates and file-sharing company Vuze Inc. filed complaints at the FCC, accusing Comcast of violating the FCC's net-neutrality principles and asking the agency to wade into the area of deciding what constitutes "reasonable" network-management practices.

Now, the FCC is pressing an investigation into whether phone and cable companies can deliberately slow or block some Internet traffic, and Mr. Martin has strongly suggested companies provide more consumer disclosure before the FCC makes them do so.

Mr. Martin's interest in enforcing the FCC's net-neutrality stand hasn't flagged in recent days, despite efforts by Comcast to cut deals with some file-sharing companies whose users consume an outsized share of the capacity of high-speed networks.

Last month, Comcast and BitTorrent Inc. announced they'd begun collaborating on ways to allow BitTorrent's applications to work more smoothly on the cable company's network. Comcast had a policy of deliberately slowing some traffic flowing over BitTorrent's file-sharing network during peak Internet usage times.

Instead of slowing file-sharing traffic used by specific applications during peak times, Comcast said it would target consumers instead, slowing traffic for those who use too much bandwidth.

Earlier this week, Comcast announced it had teamed up with peer-to-peer software company Pando Networks Inc. to create a "Bill of Rights and Responsibilities" for network owners and consumers who use peer-sharing software. The effort was mocked by consumer advocates and bloggers.

Despite Comcast's efforts, it is not clear Mr. Martin or other FCC officials are willing to let them off the hook.

"I'd be interested in hearing what they're talking about in the 'Bill of Rights,' " said Mr. Martin, who indicated he has not ruled out a third public net-neutrality hearing. "I think we obviously need to continue to focus on the complaint that's in front of us and how that's impacting consumers."

Some FCC officials and telecom lobbyists have privately questioned whether Mr. Martin's interest in investigating Comcast's network-management practices have more to do with his ongoing battle with the cable industry.

Mr. Martin dismisses the speculation, noting that he backed a condition in two mergers -- involving AT&T Inc. and Verizon Communications Inc., respectively -- that required the companies to abide by the FCC's net-neutrality principles.

Mr. Martin's investigation into Comcast's efforts to limit traffic for file-sharing programs set off alarms in Hollywood and the recording industry. Entertainment-industry executives would welcome help from Internet providers to block the illegal online sharing of movies, television shows and music. Several entertainment-industry officials will testify at the FCC's hearing Thursday.

"How should network operators deal with certain kinds of content that's illegal?" Mr. Martin asked. "The commission's net-neutrality principles don't only apply to legal content, but it's important to hear from those people concerned about how the principles might apply."

By: Amy Schatz
Wall Street Journal; April 17, 2008

Wednesday, April 16, 2008

Sizing Up a Post-Yahoo Ad Landscape

Marketing Executives See Potential New Order Under Proposed Deals

The latest developments in the Microsoft-Yahoo affair have advertising executives contemplating a drastically different landscape in the online-ad world.

"The flurry of news over the last 18 hours is the online-media industry's equivalent of nuclear war. Nothing short of a new world order in this space is up for grabs," says Tim Hanlon, executive vice president at Denuo Group, a unit of Publicis Groupe that explores new marketing technologies.

Consolidation, of course, usually reduces competition, and under some of the deal scenarios on the table, advertisers could find themselves having to work with a Google that has an ever-greater stranglehold on the online search market. But some of the potential deals-such as a Microsoft News Corp.-Yahoo combination or the proposed Yahoo-AOL agreement, which Yahoo hopes will help fend off an offer from Microsoft could wind up spreading the power rather than consolidating it.

While Google now dominates the market for paid search advertising and its potential new agreement with Yahoo would only add to that dominance-other areas of the online-ad market are up for grabs. Battles are raging over display advertising, social networking, online video and mobile, and pair-ups between Google competitors could create a few sizable players in these other fast-growing areas.

"You'd have a three-cornered hat," says Rob Norman, chief executive of GroupM Interaction Worldwide. "If you've got three major players driving to• innovate, then you'd have three pretty substantial platforms in play." GroupM is the parent company of WPP Group's media businesses and represents nearly $50 billion in global advertising spending across media-buying agencies MindShare, Mediaedge:cia, Maxus and MediaCom.

Meanwhile, Madison Avenue executives fear that a decision by Yahoo to outsource more of its search-ad sales to Google would place too much power in Google's hands and potentially drive up prices. The two companies announced Wednesday that they will conduct a two-week test, starting as early as next week, in which Yahoo lets Google handle up to 3% of its search-ad sales. Marketers say such a deal would ultimately raise the cost of doing business.

Google already has a dominant position in the online-search-ad market. It has deals to sell search advertising for a number of companies, including News Corp.'s MySpace, lAC/InterActive's search engine and Time Warner's AOL, in which it owns a 5% stake. Google captured 71.2%, or $6 billion, of the U.S. search-advertising market in 2007, according to research firm eMarketer. Yahoo's paid-search sales came to $746 million in 2007, or 8.9% of the U.S. search-ad market.

Some Madison Avenue executives say a Yahoo-Google deal could make the market more efficient by implementing one system for the entire search marketplace, similar to what stock exchanges have done for trading equities. But other executives point out that Google's bidding system is based on algorithms that aren't completely transparent to marketers and say that advertisers would be vulnerable to the whims of that system.

Now, when advertisers buy search ads on the Web, they look at the types of consumers who use each of the different search engines and place bids accordingly. It usually works out that about 70% of the money spent by a marketer goes to Google, with the rest spread among Yahoo, Microsoft and other players. Marketers then adjust their spending among the search engines according to how each performs.

"If all of a sudden the cost-per-click prices go very high for Google and the return on investment goes down, you can instantaneously move money away from Google and into Yahoo. If you lose that option to move money into Yahoo or a Yahoo-Microsoft combination, the only option is to retreat from the search market, lower your spend, or grin and bear it" says Bryan Wiener, chief executive of 360i, a privately held agency that allocates $200 n search-advertising spending for marketers including H& General Electric's NBC Unive Office Depot.

Media buyers are also concerned about possible glitches as these companies try to integreate Meshing different technologies, sales teams and culture could ultimately slow innovation. Together, Yahoo and AOL have more than $1 billion in the past year to buy a series of ad-technology companies, each with the hope of building a one-stop shop for buying ads on the Web. Even alone, AOL has had a rock start, and its new ad-selling effort Platform-A, is just getting off the ground. Advertising executives fear such issues will be magnified by a larger deal.

"If things just get combined, but not integrated well, we'll have a real mess," says David Kenny, CEO of Digitas, the digital-marketing concerned owned by Publicis. "Ironically, it will favor the people who didn't do the deals because they will have a running start since they weren't involved."

By: Emily Steel
Wall Street Journal; April 11, 2008

Tuesday, April 15, 2008

Will Yahoo End In Traffic Jam?

Microsoft, News Corp. May Make Things Sticky Under a Three-Way Deal

As if Microsoft and Yahoo weren't a queasy-enough combination. Now comes the possibility of a messy, three-way, three-platform, three-headed, three-strategy, hostile-motivated combination of Microsoft, Yahoo and News Corp.'s Internet properties.

It all seems quite fantastical. But not necessarily if you are in charge at one of the participants. On an individual basis, a three-way deal would solve Microsoft's and News Corp.'s individual problems. The hitch is that the players also will create a collective mess.

Consider the incentives for News Corp. (the owner of The Wall Street Journal): It gets to contribute MySpace at a time when the valuation for the social-networking site is coming into question. Advertising on these sites has proved a less-than-brilliant opportunity, a reality revealed as Fox Interactive Media is expected to miss its $1 billion annual sales target by about $100 million. For Microsoft, the benefit is to convince investors that it is creating a viable alternative to Google.

But one need only look at some of the great serial acquirers of the 1990s to understand just how hard this truly is. Three-way deals rarely make it from announcement to the finish line. Then consider the combinations at Citigroup, where three separate sales organizations from three different parts of the Franken-bank still call on clients. Multiparty deals work best when the acquirers divvy up the target, as in last summer's $100 billion scrum over the Dutch bank ABN Amro.

Consider, as well, that the reason Yahoo is in this mess is because it can't operate its business as well as Google; Microsoft, because it can't compete as well as either Yahoo or Google; and MySpace still is trying to close the credibility and usability gap with Facebook. If these companies can't work well separately, why should investors trust them to do it well together?

By: Dennis K. Berman
Wall Street Journal; April 11, 2008

Monday, April 14, 2008

As Microsoft bids for Yahoo, Google could come in to play
Yahoo Continues to Measure Tie- Up Prospects

As Microsoft bids for Yahoo, Google could come into play Yahoo Inc.'s directors met Friday to weigh the company's strategic options, but remained undecided about which path the Internet portal should pursue.

Yahoo's advisers gave the board their latest assessment of Yahoo's' options. These include deepening negotiations with Time Warner Inc.'s AOL and Google Inc., or engaging with Microsoft Corp. to discuss its unsolicited takeover offer.

Yahoo is in talks with Time Warner about combining with AOL. Under that scenario, Time Warner would fold AOL into Yahoo and make a cash contribution in return for an equity stake of about 20%, according to people familiar with the matter.

The proposed deal would value AOL at about $10 billion. That valuation excludes AOL's fading dial-up Internet-access business, which had complicated negotiations with potential partners in years past.

Yahoo also has been talking with Google. Wednesday, the two companies announced a two-week test in Steve Ballmer which Yahoo will carry Google search advertisements next to a small portion of its Web search results. Yahoo and Google are studying a broader search-advertising pact, which could allow Yahoo to demonstrate that it is worth more than Microsoft has offered, according to people familiar with the matter. Antitrust experts have said such a pact likely would raise regulatory issues.

Friday's meeting capped a tumultuous week for Yahoo. It began with a testy exchange of letters between Microsoft Chief Executive Steve Ball-mer and the Yahoo board.

Frustrated that Yahoo hasn't embraced Microsoft's offer, Mr. Ballmer gave the board three weeks to cut a deal or face a proxy fight. He also hinted that Microsoft would cut its bid if Yahoo didn't agree to a friendly deal. Yahoo responded with a letter of its own in which it called his ultimatum "counterproductive."

Yahoo rejected Microsoft's unsolicited $44.6 billion stock-and-cash offer in February, saying that it undervalued the Internet company. Since then, the value of the offer has declined because of a drop in Microsoft's share price. It is currently valued at about $42 billion.

News Corp., owner of Dow Jones, the publisher of The Wall Street Journal, has held discussions with Microsoft about joining its bid but people close to the software company say it plans to pursue Yahoo on its own.

By: Matthew Karnitschnig
Wall Street Journal; April 11, 2008

Friday, April 11, 2008

Murdoch to back Microsoft's Yahoo bid

News Corporation is again wading into the tense takeover negotiations between Microsoft and Yahoo, this time discussing how it could back up the technology giant's bid for the web company.

A deal could create a powerful internet alliance between the News Corp-owned MySpace site, Microsoft's MSN brand and, if the takeover of Yahoo succeeds, its online network.

The New York Times, which today reported that negotiations were at a "sensitive stage" between News Corp and Microsoft, said that with Rupert Murdoch's backing the technology company could increase its offer for Yahoo.

"There's a long way to go before anything is definite," one source told the paper.

Another source said the terms were still being worked out, but that MySpace's parent company, Fox Interactive Media, would be put into the mix as part of the alliance between the two companies' internet assets.

The source also suggested that News Corp would put cash into the Microsoft bid for Yahoo.

When Microsoft made the unsolicited cash and stock offer for Yahoo on January 31, the deal was valued at $44.6bn. But a subsequent drop in Microsoft's share price has pushed the value down to $42bn.

Yahoo has rejected the offer, claiming it undervalues the company, but has also been pursuing various alternatives to revive its finances - including discussions with News Corp about a similar merger of internet assets.

Rupert Murdoch, the News Corp chairman and chief executive, reportedly met Yahoo chief executive Jerry Yang shortly after Microsoft made its offer earlier this year.

This revives the possibility of News Corp swapping MySpace for a stake in Yahoo and discussing an advertising partnership that would see the two partnering with Google.

The latest twist in the battle for Yahoo comes as the internet company announced a two-week experiment to bring Google's powerful AdSense service on to its search site in the US.

This test will be limited to showing Google ads against 3% of Yahoo's search queries. But it is a move designed to frustrate Microsoft, which responded by saying a definitive deal would "consolidate 90% of the search advertising market in Google's hands" and "make the market far less competitive".

Earlier rumours of discussions between Yahoo and Time Warner's AOL division have also been revived, with the Wall Street Journal reporting yesterday that the two sides are nearing an agreement over combining the two web companies.

Such a deal would reportedly see Time Warner paying Yahoo in cash for a 20% stake in the newly merged internet firm.

By: Jemima Kiss; April 10, 2008

Google Taps Quattrone to Advise on Yahoo

Look who Google’s turned to for help.

Frank P. Quattrone is advising Eric E. Schmidt, Google’s chief executive, as the Internet giant figures out its next step in the takeover struggle between Yahoo and Microsoft, people briefed on the matter told DealBook.

Mr. Quattrone’s role — his first high-profile transaction since being cleared of obstruction of justice charges last year — arrives as the drama surrounding Yahoo reaches a new level of complexity. Google and Yahoo announced Wednesday afternoon that they are testing out an advertising partnership, one that if successful may be used by Yahoo to demand a higher bid from Microsoft.

Google has formally hired Mr. Quattrone’s new firm, the Qatalyst Group, people close to the company said. He has already been involved in a series of meetings and conference calls, these people said.

That Mr. Schmidt would call on Mr. Quattrone is no surprise. The two men have worked together for years, and Mr. Schmidt was even quoted in the press release announcing the creation of Qatalyst. “I look forward to working with him again and am very enthusiastic about Qatalyst’s prospects for success,” Mr. Schmidt said at the time.

Mr. Quattrone was also one of the first investment bankers ever to meet with Google when the company was still in its infancy in the late 1990’s.

Google is clearly weighing its options, especially after it emerged that Microsoft is in talks with the News Corporation about teaming up for a new bid. If it comes to pass, the pairing would involve combining Yahoo with Microsoft’s MSN and News Corp.’s MySpace.

Google has been actively involved in Yahoo’s discussions about a potential merger with Time Warner’s AOL.

By:Andrew Ross Sorkin and Michael J. de la Merced
NY Times; April 10, 2008, 4:17 pm

Thursday, April 10, 2008

Microsoft Increase Pressure on Yahoo.
Microsoft Ratchets Up Deal Pressure on Yahoo

Ballmer Threatens to Launch A Hostile Bid if Internet Firm Doesn't Agree to Merger Soon

Microsoft Corp. is turning the screws to try to force Yahoo Inc. to agree to a takeover, but Yahoo remains focused on finding an alternative.

In a letter sent Saturday to Yahoo directors, Microsoft Chief Executive Steve Ballmer threatened a hostile takeover bid for the Internet company if it doesn't agree to a merger within the next three weeks. On Sunday, Yahoo was planning a written response to the letter, saying Microsoft had failed to address antitrust concerns and other issues raised by its offer, according to people familiar with the matter. The offer is currently valued at $42.2 billion.

Yahoo's reluctance to negotiate has given some Microsoft executives a window to voice their opposition to the proposed acquisition, say people familiar with the matter. Their skepticism probably wouldn't derail a possible deal, but it could at least limit Microsoft's appetite for raising its offer, these people say.

Some in Yahoo's camp view Mr. Ballmer's latest move as a negotiating strategy, and they believe there is still time for Yahoo to pursue alternatives to an acquisition by the software giant, say people familiar with the matter. One of the people says some members of Yahoo's management would prefer not to sell to Microsoft and are still looking for another deal that would allow Yahoo to avoid that.

The company's directors were scheduled to discuss the matter Sunday, but it wasn't clear, whether they came to any new conclusions.

On Jan. 31, Microsoft offered to acquire Yahoo for $44.6 billion, or $31 a share in cash and stock Yahoo's board rejected the offer, which has sin< declined in value to $29.36 a share because of substantial drop in Microsoft's share price. In p.m. trading Friday on the Nasdaq Stock Mark Yahoo's shares were up 23 cents at $28.36, who Microsoft's traded at $29.16, up 16 cents.

Since the unsolicited offer, Yahoo has been discussing alternative arrangements with companies that including News Corp. and Time Warn Inc. People familiar with the matter say the talks with Time Warner, which center around its folding its AOL Internet unit into Yahoo in return for a significant Yahoo stake, have heated up recently. The separate Yahoo discussions with News Corp., owner of Wall Street Journal publisher Dow Jones & Co., have cooled, these people say.

It's unclear how much patience Yahoo's shareholders might have for a drawn out pursuit of non- Microsoft options, or taste for deals that might represent less-certain financial returns than Microsoft's stock-and-cash offer. But one person familiar with the matter says there is some frustration that Yahoo's delay might have caused it to lose leverage in negotiating a higher offer from Microsoft.

Microsoft has been keeping close tabs on the views of Yahoo's major shareholders and, with Saturday's letter, it appears to be betting that investors want Yahoo to begin negotiations. Microsoft believes that a recent series of presentations that Yahoo management made to investors failed to persuade them that the company is worth substantially more than what Microsoft has offered.

If Yahoo's board doesn't agree to a sale in three weeks, Microsoft would be "compelled" to take its offer directly to shareholders and wage a proxy fight to replace Yahoo's directors, Mr. Ballmer wrote in his letter to Yahoo directors. He also implied that the offer Microsoft would make after the deadline would be lower than the one now on the table.

The amount of time any hostile effort would take is unclear, because Yahoo has so-called poison pill provisions designed to thwart hostile takeovers. Microsoft would presumably have to persuade shareholders to vote for its alternative slate of directors at Yahoo's annual meeting, for which Yahoo has yet to fix a date. If elected, those pro- Microsoft directors could then remove Yahoo's poison pill and accept Microsoft's offer. Under the law in Delaware, where Yahoo is incorporated, it could be forced to hold its annual meeting if it hasn't already done so by July.

Mr. Ballmer's letter, which comes after senior executives from the two companies failed to make any headway in two separate meetings in recent weeks, may make a friendly resolution of the standoff less likely. The sharply worded letter makes no secret of Microsoft's frustration at the lack of progress and could end up alienating Yahoo's board and management, some of whom already regard the software maker with a degree of suspicion.

In his letter, Mr. Ballmer suggests that worsening economic conditions have reduced Yahoo's market value, adding that "by any fair measure, the large premium we offered in January is even more significant today." Microsoft's original $31 per share offer represented a 62% premium to where Yahoo's shares had been trading before the offer.

Many Yahoo shareholders have been holding out for a higher offer and it is unlikely they would embrace a deal for less than the original bid. Still, Mr. Ballmer's threat underscores the frustration on the part of the software maker with the lack of any progress

The offer for Yahoo has generated some opposition within Microsoft, say people familiar with the situation. The plan to bid for the company was kept secret among a limited group of executives and advisers driving the strategy. Many other Microsoft executives learned of it only after Microsoft made the offer to Yahoo's board on Jan. 31.

Drivers of the deal at Microsoft include Senior Vice President Yusuf Mehdi and Senior Vice President Hank Vigil, two executives whose roles are to map out strategy and negotiate deals; they don't manage business groups.

If a deal with Yahoo goes through, Messrs. Mehdi and Vigil stand to play key roles in guiding the integration of the companies and could have greater clout to pursue other deals.

But other Microsoft executives have been raising concerns about the risks in buying Yahoo, say people familiar with the matter. Among the issues they have raised to other Microsoft executives and outsiders is the huge challenge of merging the two companies' computer systems that handle functions such as graphical display advertisements on Web sites. The skeptics argue that Microsoft should continue to build its online systems and services - a strategy that so far has fallen short of Microsoft's expectations - and make a number of smaller acquisitions complement that effort.

Another worry among some insiders is who would lead the complex integration. Microsoft has limited experience in digesting very large acquisitions and las recently lost several executives who might have helped in that undertaking.

Such opposition, say some people, is to be expected in a deal the size that Microsoft is pursuing with Yahoo. Microsoft also has a culture that allows debate to thrive - sometimes at the expense of making timely decisions. At this point, doubts about the deal don't seem strong enough to scuttle it, say the people familiar with the matter.

"There is no dissension among the people who are making the decisions," said one person close to Microsoft. This person said top executives including Mr. Ballmer have been level-headed since the start about the challenges and risks of completing such an acquisition.

By: Kevin Delaney, Robert Guth, and Matthew Karnitschnig
Wall Street Journal; April 7, 2008
Corporate News: Yahoo Details Ad System Geared Toward Graphical Display

Yahoo Inc. is releasing more-detailed plans for an online-ad system aimed at increasing revenue from graphical display advertising, such as banner ads.

The effort is a bet that advertisers and Web publishers will be attracted to buy and sell Internet ads across a range of Yahoo and partner sites through a single system, with standardized means of targeting the ads at groups of consumers. The announcement Monday comes as Yahoo attempts to focus its activities and seeks alternatives to an unsolicited takeover bid by Microsoft Corp.

When released, Yahoo's system is expected to compete with efforts by Google Inc., Microsoft and others, some of which have acquired online-ad infrastructure companies in recent years to help build such systems. The system, which Yahoo calls AMP, is an attempt to bring together its own ad-sales systems and acquired activities.

Yahoo executives said they expected to begin releasing AMP in the third quarter for use by newspaper companies that are part of an existing Yahoo ad- sales consortium, and eventually extend it to additional Web publishers, advertisers, agencies and online-ad networks. The company said the system, in a future stage, will handle ad types besides display, such as search, mobile and video.

With the AMP system, Web publishers are expected to be able to manage the ads on their sites, as well as sell ads on behalf of other participants in exchange for a commission. Advertisers could buy online ads across a range of sites using standardized geographic, demographic and other targeting.

"That's huge in terms of reducing friction in the marketplace," said Rachel Happe, a research manager at IDC in Framingham, Mass., who was briefed by Yahoo on its plans. "If Microsoft buys Yahoo, they would be foolish to dismantle this, " she added.

Some analysts and investors have been skeptical of Yahoo's ability to deliver AMP -- previously called Project Apex -- on time. Yahoo struggled to deliver a major advertising-technology system called Project Panama that since its delivery has improved the amount of ad revenue Yahoo generates for each Web search.

"It's a larger undertaking than Panama was," said Michael Walrath, a Yahoo senior vice president. But he said Yahoo was "very confident" it would meet its expected deadline.

It is unclear whether any uncertainty generated by Microsoft's possible Yahoo acquisition could damp advertiser or Web-publisher adoption of AMP.

"Will there be bumps in the process? Sure there will be," said Jay Smith, president of Yahoo partner Cox Newspapers Inc., a division of Cox Enterprises Inc. "But based on what I've seen of Yahoo to this point, I think we'll get by those bumps."

Mr. Smith said he believed using AMP would help newspaper companies increase their online-revenue growth rates. Yahoo has 500 to 700 engineers working on AMP, he said. A Yahoo spokesman declined to comment on the number of employees involved.

By: Kevin J. Delaney
The Wall Street Journal; April 07, 2008
Straight Talk for Ballmer From One Yahoo Holder

Steve Ballmer
Chief Executive
Microsoft Corp.

Dear Steve:

As a Yahoo shareholder, I have reviewed your most recent letter with regard to the unsolicited proposal you made to acquire Yahoo on Jan. 31.

I have carefully considered your unsolicited proposal and have concluded that it is in the best interest of Yahoo shareholders for Microsoft to buy Yahoo.

I understand that our board has been actively and expeditiously exploring strategic alternatives to maximize shareholder value. Frankly, that effort has been a big disappointment to many of us. After hitting $30, Yahoo shares have drifted to $27 and change this week. Despite Yahoo's 305 million unique monthly users, no one else has stepped up with an offer. No one is more disappointed than I am that no bidding war erupted.

At this point, I've given up hope that some white knight will emerge. All we shareholders have heard about is talks with News Corp., now apparently over, and with Time Warner's AOL. (News Corp. is the owner of The Wall Street Journal publisher Dow Jones & Co.) I'm sure you and your Microsoft colleagues are quaking in fear at the competitive threat from a combined Yahoo-AOL. AOL has already dragged down one once great corporation. Why should we be next?

Let's talk about the real threat here: Google. I'm a Google shareholder, too, which is fortunate for me since Google has eaten Yahoo's lunch in search -- yours, too, for that matter. Yahoo's board and top executives are pinning their hopes on growth in search and on display/video advertising. But even if those markets grow, Google has been steadily expanding its lead in search. Now that it owns DoubleClick, it will be a formidable threat in display/video as well.

These businesses depend on scale, but not just on sheer size, which is something people running Yahoo either don't grasp or don't want to talk about. Google's searches are more effective for both searchers and advertisers, which is why it keeps gaining share. Yahoo has 262 million email users, which gives users a reason to return to the site and is surely valuable to Microsoft. But beyond that, there's little to deter Yahoo users from migrating to other sites.

I realize that you recently received a letter from Yahoo CEO Jerry Yang and Chairman Roy Bostock very similar in tone to this one, but reaching the opposite conclusion. Don't listen to them. I'm sure they know their options are running out. I also hear there's been grumbling from people inside Microsoft. Don't listen to them, either. You need to do something with the $37.8 billion in current assets sitting on Microsoft's balance sheet. In fact, you'd get no complaint from me if you made your bid all cash.

So there can be no confusion, let me reiterate that my goal is to maximize shareholder value. I have no desire for a drawn-out hostile bid, and you will generate no goodwill whatsoever if you carry out your threat to lower your offer. You previously offered $31 a share. All of us understand that no one makes their highest bid first, so why don't you tell us what you're really prepared to pay, and we'll call it a deal.

Very truly yours,
James B. Stewart

James B. Stewart, a columnist for SmartMoney magazine and, writes weekly about his personal investing strategy. Unlike Dow Jones reporters, he may have positions in the stocks he writes about. For his past columns, see:

By James B. Stewart
Wall Street Journal; April 9, 2008
Yahoo to Announce Test Partnership With Google

Another shot has been fired in the increasingly bitter battle between Microsoft and Yahoo.

The Internet company said it would begin a limited test of Google’s search advertising technology as part of efforts to remain independent from Microsoft. The test is designed to show whether or not the company could extract more revenue if it outsourced its search advertising system to Google, a person briefed on the plan said.

The test will involve using Google’s search advertising system, called AdSense for Search, to deliver ads that appear alongside Yahoo’s search results. The test will involve searches conducted in the United States on, not on any of
the company’s search affiliates, and will be limited to no more than 3 percent of all search queries, Yahoo said in a press release.

“As previously announced, Yahoo!’s board of directors is exploring strategic alternatives to maximize stockholder value, including exploration of potential commercial business arrangements. The Company noted that the testing does not necessarily mean that Yahoo! will join the AdSense for Search program or that any further commercial relationship with Google will result. The Company further stated that it would not comment on the nature or timing of any potential relationship.

The move is the latest salvo in the two-month battle for control of Yahoo, as the ailing Internet pioneer seeks to thwart Microsoft’s bid – or at least force the software giant to raise its $42 billion price.

Microsoft immediately blasted the possibility of a search advertising partnership between Google and Yahoo saying it would be anticompetitive.

“Any definitive agreement between Yahoo! and Google would consolidate over 90% of the search advertising market in Google’s hands,” Microsoft said in a statement. “This would make the market far less competitive, in sharp contrast to our own proposal to acquire Yahoo! We will assess closely all of our options. Our proposal remains the only alternative put forward that offers Yahoo! shareholders full and fair value for their shares, gives every shareholder a vote on the future of the company, and enhances choice for content creators, advertisers, and consumers.”

Depending on the results of the experiment, Yahoo hopes that it may be able to use it as proof that it can generate additional revenue that would justify a higher bid.

In recent months, Yahoo has discussed possible partnerships or combinations with Google, Time Warner’s AOL and the News Corporation in attempts to fend off Microsoft. The conversations with AOL continue, people familiar with the matter previously told The New York Times.

Google has long generated far more revenue for every search than competitors like Yahoo and Microsoft. Last year, Yahoo unveiled a new search advertising system, called Panama, which was intended to close the gap with Google. While the system has helped bolster Yahoo’s search revenues, it is not as effective as Google’s.

Some investors have urged Yahoo to outsource its search and search advertising system to Google for years, as it could help Yahoo increase revenues and cut costs. Yahoo executives, however, have resisted the move, saying that search was an essential piece of the company’s business.

After Microsoft made its offer, Eric Schmidt, Google’s chief executive called his Yahoo counterpart, Jerry Yang, to offer his help in fending off the Microsoft bid. A search or search advertising partnership has been an important part of their discussion, according to people familiar with the situation. Mr. Yang and Yahoo president Susan Decker visited Google in the past two weeks, said a person briefed on their visit.

While the test is intended to show how much Yahoo could earn from such a partnership, legal experts have warned that a broader search or search advertising pact with Google could pose antitrust issues, as it would expand Google’s already dominant position in those businesses.

With Microsoft Corp. and Yahoo Inc. firing tense public missives at each other, the real question is whether Microsoft is willing to pay the additional premium Yahoo wants to get a deal done quickly.

Monday, Yahoo's board said in a letter to Microsoft that it wasn't opposed to selling itself as long as the price "fully reflects the value of Yahoo, including any strategic benefits to Microsoft." In the meantime, it again rejected Microsoft's original offer-currently valued at $29.36 a share-as inadequate. The letter from Yahoo followed one from Microsoft on Saturday in which the software maker threatened a hostile takeover, of Yahoo if the Internet company' doesn't'agree to a merger within the next
three weeks.

"We consider your threat to commence an unsolicited offer and proxy contest to displace our independent board members to be counterproductive and inconsistent with your stated objective of a friendly transaction," says the Yahoo letter addressed to Microsoft Chief Executive Steve Ballmer and signed by Yahoo Chairman Roy Bostock and CEO Jerry Yang.

Despite the sharp exchange, many analysts believe Yahoo wUl eventually fall into Microsoft's grasp. It hasn't revealed any serious alternative deals in the more than two months since Microsoft made its unsolicited offer public. Some investors also question whether Yahoo has lost its leverage to secure a higher price as time has dragged on.

Some in Yahoo's camp believe there is still time for the company to pursue alternatives, say people familiar with the matter. But there's a rough consensus among analysts and investors that two other scenarios are more likely.

In the first, Microsoft would signal to Yahoo that it's prepared to raise its offer and the two would enter friendly negotiations. In the second scenario, Microsoft would decide to wait it out and prepare a hostile effort, hoping that Yahoo will come to the table in the meantime.

Getting into a protracted battle has been a distraction for Microsoft's senior management at a time when the company can ill afford to miss a beat in its competition with Google Inc. and other rivals. Prolonged uncertainty also increases the likelihood that Yahoo's top talent will go elsewhere. A friendly approach could ensure smoother sailing when it comes time for a regulatory review of any deal.

There has been some contact: Senior executives from the companies have met at least twice in recent weeks, though they haven't made any real headway. Some analysts believe Yahoo has little choice over the long run but to enter negotiations in the hopes of securing a higher price.

Some major Yahoo shareholders have suggested they would embrace an offer closer to $35 a share. But because of the passage of time and the deteriorating economic climate, that's probably unrealistic. Supporting a $35 bid would cost Microsoft an additional $8 billion, and Mr. Ballmer would have difficulty justifying that to his own shareholders after publicly suggesting that Yahoo's value has declined since January.

There are no signs Microsoft is willing to raise its offer. People close to the company have said it doesn't want to bid against itself by increasing the offer without negotiations. Mr. Ballmer, in his Saturday letter to Yahoo directors, suggested that worsening' economic conditions have reduced Yahoo's market value.

When extended on Jan. 31, Microsoft's cash-and-stock offer was valued at $31 a share, a 62% premium over the price at which Yahoo was trading. The value is lower now because of a subsequent decline in Microsoft's share price. Each dollar per share that Microsoft raises its offer would sweeten the deal by about $1.4 billion, and the software maker would have to pay more than $2 billion more just to get back to the value of its original bid.

On Monday, Yahoo ended 4 p.m. trading on the Nasdaq Stock Market down 2.3%, or 66 cents, at $27.70, and' Microsoft was unchanged at $29.16.

Some executives at Microsoft have aired their skepticism about the deal in recent weeks, accord-' ingto people farniliarwith the matter. These people don't expect their view to torpe4,o Microsoft's offer but say it coUld limit Microsoft's willingness to raise its offer.

Some bankers not involved in the transaction say Yahoo miscalculated and should have entered negotiations right away to secure a higher price and get a deal done quickly. Instead of sitting down to negotiate with Microsoft, Yahoo decided to explore other options, none of which currently appears likely. Now, any premium over the original value Microsoft offered
will likely be measured in pennies, not dollars, the bankers say.

Meanwhile, there's a chance Microsoft and Yahoo could become embroiled in the second, hostile scenario, analysts say. Microsoft has been assembling a slate of candidates to nominate to Yahoo's board in case a deal isn't reached by the Steve Ballmer three-week deadline it announced. Yahoo has so-called poison pill provisions designed to thwart hostile takeovers, but if shareholders voted in Microsoft's slate of directors at Yahoo's annual meeting, those directors could get rid of the pill provisions and reach an agreement. Microsoft might have to raise its offer at least back to $31 to guarantee shareholder support for its slate. Under the law in Delaware, where Yahoo is incorporated, it could be forced to hold its annual meeting if it hasn't already done so by July.

Yahoo and Microsoft each believe they would prevail in a proxy fight over the current offer, according to people close to them. There's yet another scenario. In this situation, Microsoft could lose patience with Yahoo and decide to drop its pursuit of the company. People close to Microsoft have dismissed that option, saying the company remains committed to a deal.

Yahoo has also been searching for alternatives to a Microsoft sale, something some executives would prefer to the Microsoft option, according to a person familiar with the matter. Discussions with Time Warner Inc., which center on it folding its AOL Internet unit into Yahoo in return for a significant Yahoo stake, have heated up recently. But people familiar with the matter consider such an agreement a long shot because it would be so complex.

Most observers don't see any possibility for Yahoo to escape Microsoft's clutches. Yahoo's only hope is a substantial upturn in the markets, which is unlikely anytime soon, they say. If Microsoft were to abandon the bid, Yahoo's shares might well plunge into the teens, exposing the company to shareholder litigation.

By: Kevin Delaney and Matthew Karnitschnig
Wall Street Journal; April 8, 2008

Wednesday, April 09, 2008

Protecting Trademarks in Google

Google has recently expanded bidding options on trademarked keywords.

Google has determined that advertiser demand and revenue gains derived by allowing keyword sponsors to bid and advertise on trademark protected brand name is an enormous market, a profit opportunity too large to ignore. Google has also decided that they are ultimately in control of Google search results pages and as the rulers of their enterprise they do not need to abide by any established laws and can ignore any tradeamrk protections virtually providing a web free for all that spits in the face of any established trademark laws.

A significant number of searches include brand names. Google previously excluded these, for the most part, from open bidding. Brand name search generally connotes purchase intent. That makes them particularly valuable searches.

Determining the exact amount of revenue involved is difficult, analysts project that a sizable portion of Google's 150,000 plus advertisers could expand a few more trademark keywords onto bulk keyword lists. Google, like any business, must first look to its current customers for growth and has decided that trademark holders be required to spend additional and unique dollars exclusively to further protect the very trademark that corporations have legally established.

Trademark Search is an opportunity for new revenue generation for Google. Google knows that searching for tradmark names is very popular and the volume of searches for trademark names is huge. Google has decided to earn new dollars and profit by allowing anyone to advertise on trademark protected keywords.

The new policy is a revenue win for Google and a loss to everyone else. Allowing non trademark holding third party sponsors to advertise on trademark protected keywords provides no value to consumers worldwide. The potential for marketplace confusion regarding trademark protected brands is huge. Trademark holders will be forced to substantially increase advertsing expenditures in further efforts to protect their trademarks yet when consumers use Google all protection goes away and the trademark holder just becomes one sponsored link on a crowded results page loaded with revenue generating links for Google.

Google's opening up trademarked keywords for bidding is one more piece of power shifted away from corporations and toward consumers. I imagine corporations will waste little time heading to court to protect their property. In the long run, I doubt the corporations will come out on top.

Trademark Economics

Let's first look at why Google wants to do this. Mainly, it's opening up a potentially enormous market for itself, of course. A significant number of searches include brand names. Google previously excluded these, for the most part, from open bidding. Brand name search generally connotes purchase intent (according to who?). Brand Name searches are popular making them valuable searches. Allowing anyone in the world to sponsor and advertise on Trademark keywords is senseless.

What Corporations Now Must Do To Protect Their Trademark On Google

Brand owners must find ways to increase the advertsing expenditures on Google, particularly in areas such as search.

The Internet has increased the volume of competitive threats on protected trademarks as the cost to infringe on a trademark via a website is as low as $100 dollars annually. That makes this open policy by Google so embarrassingly greed driven as looking the other way and taking no action

Google's policy to look the other way runs a risk of polluting the Google results pages and delivers flea market results to trademark keyword searchers.

How Can Trademark Holders Protect Their Brand in Google?

Open a Google AdWords account and Sponsor your Trademark name.

Avoid using paid search listings exclusively, at some point any company worth their salt needs to apply proven organic search engine optimization best practices. Regardless of what's going on in the paid listings, try to hire a natural seo specialist that can ensure your corporate site is listed at the top of the natural search results.

Monday, April 07, 2008

Nonprofit Hospitals, Once For the Poor, Strike It Rich

With Tax Breaks,They Outperform For-Profit Rivals

Nonprofit hospitals, originally set up to serve the poor, have transformed themselves into profit machines. And as the money rolls in, the large tax breaks they receive are drawing fire.

Riding gains from investment portfolios and enjoying the pricing power that came from a decade of mergers, many nonprofit hospitals have seen earnings soar in recent years. The combined net income of the 50 largest nonprofit hospitals jumped nearly eight-fold to $4.27 billion between 2001 and 2006, according to a Wall Street Journal analysis of data from the American Hospital Directory. AHD, an information-service company, compiles data that hospitals report to the federal government.

The Cleveland Clinic swung from a loss to net income of $229 million during that period. No fewer than 25 nonprofit hospitals or hospital systems now earn more than $250 million a year. One nonprofit hospital system, Ascension Health, has a treasure chest of $7.4 billion -- more than many large, publicly traded companies.

Nonprofits, which account for a majority of U.S. hospitals, are faring even better than their for-profit counterparts: 77% of the 2,033 U.S. nonprofit hospitals are in the black, while just 61% of for-profit hospitals are profitable, according to the AHD data.

At some nonprofits, the good times are reflected in new facilities and rich executive pay. Flush with cash, Northwestern Memorial Hospital in Chicago has rebuilt its entire campus since 1999 at a cost of more than $1 billion. In October, it opened a new women's hospital that features marble in the lobby, birthing rooms with flat-screen televisions, 1,000 works of art and a roof topped with 10,000 square feet of gardens. In 2006, Northwestern Memorial's former chief executive officer, Gary Mecklenburg, received a $16.4 million payout.
WSJ's John Carreyrou provides a tour of Chicago's non-profit Northwestern Memorial Hospital, which underwent a renovation costing more than $1 billion.

But Northwestern Memorial has been frugal in its spending on charity care, the free treatment for poor patients that nonprofit hospitals are expected to provide in return for the federal and state tax breaks they receive. In 2006, Northwestern Memorial spent $20.8 million on charity care -- less than 2% of its revenues and a fraction of what it received in tax breaks. By comparison, the hospitals run by Cook County, where Northwestern Memorial is located, spent 14% of revenues on charity care.

Northwestern Memorial says that in addition to charity care, it provides other benefits to its community, such as pioneering research in obstetrics and other areas that improve standards of care nationally.

To be sure, some nonprofit hospitals, particularly ones in inner cities that handle large numbers of uninsured patients, remain under financial strain and are struggling to keep their doors open.

But the growing gap between many nonprofit hospitals' wealth and what they give back to their communities is raising questions about the billions of dollars in tax exemptions they receive.

"Some nonprofit hospitals seem to forget that their operations are subsidized with generous tax breaks. They allow their priorities to get out of whack," says Sen. Charles Grassley. The senior Republican on the Senate Finance Committee threatened last year to introduce legislation forcing nonprofit hospitals to provide a minimum amount of charity care.

Nonprofit hospitals account for about 60% of the more than 3,400 hospitals in the U.S. The rest are either for-profit or government-owned.

In a report issued in December 2006, the Congressional Budget Office estimated nonprofit hospitals receive $12.6 billion in annual tax exemptions, on top of the $32 billion in federal, state and local subsidies the hospital industry as a whole receives each year.

Community Benefit

In return for not paying taxes, nonprofit hospitals are supposed to provide a "community benefit," a loosely defined requirement whose most important component is charity care. But many hospitals include other expenses in their community-benefit accounting to the Internal Revenue Service, including unpaid patient bills. Often, hospitals also include the difference between the list prices of treatment they provide and what they are paid by Medicaid and Medicare, the government programs for the poor, disabled and elderly. Excluding those other expenses, many hospitals spend less on charity care than they get in tax breaks, studies by various counties and states show.

One nonprofit hospital system, St. Louis-based BJC HealthCare, counts the salaries of its employees as a community benefit. BJC, which runs 14 hospitals in Missouri and Illinois, says on its Web site that it provided more than $1.8 billion in benefits to various communities in 2004. Its payroll, including its CEO's $1.8 million compensation, accounted for $937 million of that figure, while charity care represented $35 million, according to BJC.

"The impact that any organization that's job-producing and buying goods has on a community is of benefit to that community," says BJC HealthCare spokeswoman June Fowler. However, she says BJC won't count its payroll as a community benefit in the future because of new standards adopted by the IRS.

The new standards, due to take full effect in 2009, will require nonprofit hospitals to break out specifics of their community-benefit contributions. But they won't require the hospitals to provide any minimum amount of charity care.

The size of nonprofit hospitals' tax exemptions is coming under scrutiny in part because their incomes have risen so sharply in recent years, and because they represent such a big chunk of America's health-care spending. Thirty-one cents of every dollar spent on medical care is spent on hospitals.

One reason for hospitals' soaring profits is a gradual increase in Medicare reimbursements after federal budget cutbacks during the 1990s. By merging and gaining scale, many hospitals also gained leverage in price negotiations with health insurers.

However, much of the industry's profit growth comes from strategies it honed to increase profits. Among them: demanding upfront payments from patients; hiking list prices for procedures and services to several times their actual cost; selling patients' debts to collection companies; focusing on expensive procedures; and issuing tax-exempt bonds and investing the proceeds in higher-yielding securities.

Untaxed investment gains have greatly increased some hospitals' cash piles. Ascension Health, a Catholic nonprofit system that runs 65 hospitals, mostly in the Midwest and Northeast, reported net income of $1.2 billion in its fiscal year ended June 30, 2007, and cash and investments of $7.4 billion. That's more cash than Walt Disney Co. has.

Ascension says it needs to maintain a sufficient amount of cash to pay for charity care, to keep the interest rates it pays on its debt low, to provide retirement benefits to its 106,000 employees, and to make capital and technology investments at its hospitals.

At the University of Pittsburgh Medical Center, which runs 20 facilities, cash and investments totaled $3.35 billion at the end of last year. UPMC says the money goes toward producing "world-class health care, education and research," citing the $1 billion it spent over five years to create electronic medical records for patients and an additional $500 million to build a children's hospital and a network of cancer centers.

But some of UPMC's expenses are only tenuously related to medicine. In its 2006 fiscal year, UPMC also spent $10 million on advertising, including $1 million on ads in the New York Times. Wendy Zellner, a spokeswoman for the hospital, says the ads enable UPMC "to better compete with other leading hospitals."

UPMC paid its CEO, Jeffrey Romoff, $3.3 million in fiscal 2006. Mr. Romoff also received $36,995 from the hospital to cover a car allowance, spousal travel and legal and financial counseling. Ms. Zellner says what UPMC pays Mr. Romoff is in line with "nonprofit and for-profit organizations of comparable scope and complexity."

Some nonprofit hospital executives enjoy other perks. Royal Oak, Mich.-based Beaumont Hospitals says it paid $10,795 for the country-club membership of the president of its foundation last year. A spokeswoman for Beaumont says it pays for the membership to provide the executive "a venue with access to potential donors."

The Cleveland Clinic continued to pay its former CEO, Floyd Loop, more than $1 million a year for two years after he retired in April 2005. The Cleveland Clinic says part of that was deferred compensation and vacation pay and the rest was for consulting services.

The University of California San Francisco Medical Center provided its CEO and chief operating officer low-interest mortgage loans of more than $1 million each, according to the University of California's executive compensation reports. A UCSF spokeswoman says such loans help recruit and retain executives, given the area's high cost of housing.

Catholic Healthcare West, a hospital system based in San Francisco, forgave a $782,541 housing loan it made to its CEO, Lloyd Dean. Counting the forgiven loan, Mr. Dean's total accrued compensation in 2005 was $5.8 million. Catholic Healthcare West says his compensation reflects his skill in turning the hospital system around financially.

One nonprofit hospital executive who has benefited from the industry's good fortunes is Mr. Mecklenburg, the former CEO of Chicago's Northwestern Memorial. The hospital says it paid him $5.45 million in salary, bonus and deferred compensation in its fiscal year ended Aug. 31, 2006, and an additional $10.95 million when he retired the next day. The hospital also awarded five other executives a combined $13.3 million in total compensation in fiscal 2006, according to its filings to the IRS.

Mr. Mecklenburg, now a partner at Chicago private-equity firm Waud Capital Partners LLC, declined to comment, referring questions to the hospital and to the former chairman of its compensation committee, James Denny.

Stellar Results

Northwestern Memorial says a big part of Mr. Mecklenburg's $16.4 million payout represents retirement benefits and deferred compensation accrued over his 21-year tenure. Mr. Denny, who chaired the hospital's compensation committee from 1995 to January 2008, says Mr. Mecklenburg delivered stellar results, nearly quintupling the hospital's patient revenues. "Our view of it is: This is the best deal we've ever made," he says.

Critics argue that Mr. Mecklenburg's compensation is excessive for a charity organization that gets tens of millions of dollars a year in tax breaks. Northwestern Memorial sits on property on the Gold Coast, Chicago's most affluent neighborhood, abutting Lake Michigan. The Center for Tax and Budget Accountability, a Chicago nonprofit organization, estimates the value of the hospital's annual property-tax exemption at $37.5 million. Northwestern Memorial is also exempt from $12.5 million in sales tax for a total of $50 million in annual tax exemptions, not counting the taxes it doesn't pay on its investment gains, the center estimates.

"The hospital's tax benefit is more than two times greater than the charity care provided," says Heather O'Donnell, the center's health-care policy director.

Northwestern Memorial says it hasn't calculated the value of its tax exemptions. Robert Christie, the hospital's vice president for government relations, notes that the Center for Tax and Budget Accountability receives funding from the Service Employees International Union, which represents numerous hospital employees and frequently clashes with hospitals in labor disputes. Ms. O'Donnell says her organization receives funding from many foundations besides SEIU.

Peter McCanna, Northwestern Memorial's chief financial officer, says the hospital's contribution to its community should be judged more broadly. "We fundamentally disagree with narrowing [the definition of] our community-benefit contribution to charity care," he says. He says Northwestern Memorial's research and education expenses should also be counted. The hospital is the primary teaching hospital for Northwestern University's Feinberg School of Medicine.

Taking into account educational and other expenses, such as bad debt and unreimbursed Medicaid costs, Northwestern Memorial values its total community-benefit contribution at $230 million for fiscal 2006.

Room Service

Around Chicago, Northwestern Memorial is known as a hospital that attracts the well-heeled. It's a short walk from the Magnificent Mile, the famous thoroughfare lined with expensive shops and restaurants. At Northwestern Memorial's new Prentice Women's Hospital, expectant mothers can watch TV or browse the Internet on 42-inch flat-screen televisions, order room service 24 hours a day and page nurses and doctors via a wireless system. Some birthing rooms have views of Lake Michigan. Only 6% of Northwestern Memorial's patient revenues come from Medicaid.

By comparison, Sacred Heart Hospital, a small for-profit hospital in a poor neighborhood on the west side of the city, gets 62% of its revenues from Medicaid and pays several million dollars a year in taxes, according to its president, Edward Novak. Parts of Sacred Heart date back to 1928, when the hospital was founded. Another wing was built in 1950. Mr. Novak says he would like to replace the aging hospital with a new facility, but is struggling to figure out how to pay for it. He says his compensation is less than $220,000 a year.

At John H. Stroger Jr. Hospital -- formerly known as Cook County Hospital -- 56% of patients don't have any insurance when they are admitted, says John Cookinham, the hospital's chief financial officer. At Northwestern Memorial, the percentage of uninsured patients is less than 5%. Stroger's chief operating officer earned $204,485 in 2007, according to Cook County budget records.

In recent years, some nonprofit hospitals have decided to stop using the courts to collect from patients who owe them money. But Northwestern Memorial pursues patients such as Iris Ayala who haven't paid their bills. While running an errand for her employer, the 50-year-old Ms. Ayala fainted and collapsed in the street one day in 2006. A friend rushed her to Northwestern Memorial's emergency room.

Ms. Ayala says her insurer paid for the bulk of her 24-hour hospital stay, but she was responsible for a $1,035.39 co-pay. Working only part-time because of health issues and with a daughter in college, she says she couldn't afford her portion of the bill.

After representatives for Northwestern Memorial repeatedly called her to ask for payment, Ms. Ayala says she promised she would settle the bill once she got her annual tax refund. But Northwestern Memorial sued her in Cook County Circuit Court in July 2007. To make the lawsuit go away, Ms. Ayala says she borrowed the money and paid the hospital. "They didn't want to hear my sob story," she says.

Northwestern Memorial declined to discuss Ms. Ayala's case, citing patient privacy laws. Mr. McCanna says the hospital sued only 82 patients in 2006 and 2007, a number he says is small compared with the more than one million accounts it billed over that period. He says the hospital tries to determine whether patients who are behind on bills qualify for assistance, but some can't be reached or refuse to volunteer information about their finances. "Absent of information, a lawsuit is sometimes the only recourse," he says. Mr. McCanna adds that, in some cases, the hospital has waived patients' bills after later learning that they did qualify for aid.

Northwestern Memorial says its strong balance sheet allows it to provide outstanding care and conduct innovative research. As of Aug. 31, 2007, its cash and investments totaled $1.82 billion, making it one of richest individual nonprofit hospitals in the country. With such a treasure chest, it could operate for a year and two months without any revenue -- a gauge of financial strength Mr. McCanna highlights in presentations to bond investors and analysts.

"Nonprofit is a misnomer -- it's nontaxable," says Sacred Heart Hospital's Mr. Novak. "When you're making hundreds of millions of dollars a year, how can you call yourself a not-for-profit?"

By John Carreyrou and Barbara Martinez
Wall Street Journal; April 4, 2008

Friday, April 04, 2008

Mobile Search From Yahoo.

Yahoo Introduces Mobile Search

Yahoo custs deal with V-Lingo and rolls out Mobile Voice Search.

Yahoo became the first major search engine to let people search the Web by talking to a mobile device.

Yahoo Mobile Search.

Marco Boerries, an executive vice president, said technology from vlingo, a start-up based in Cambridge, Mass., would allow people who have BlackBerry Curves, Pearls or the 8800 series to scour the Web with their voice, using Yahoo's mobile search engine, known as oneSearch. Yahoo is working to make the service available on other mobile devices and overseas.

"We are fundamentally changing the way consumers use the Internet on their mobile phones," Boerries said during a keynote at the CTIA Wireless conference in Las Vegas.

Dave Grannon, chief executive of vlingo, said the service can handle any spoken query. It is also built to adapt to a person's voice and to improve over time, he said.

Competitive products, such as the voice search in Microsoft's Live Search for mobile, can only handle queries for specific local information, such as directions to a local pizza parlor.

ChaCha, an Indiana company, lets people search the Internet from any phone by calling 1-800-2-ChaCha (1-800-224-2242). ChaCha sends a text message in response. Unlike vlingo, ChaCha employs people to listen to and answer the queries.

Scott Jones, chief executive of ChaCha, said vlingo's speech recognition is the best he has seen on a cell phone - though still not as good as human recognition.

Cory Pforzheimer, a spokesman for Yahoo, said the company looked at all of the Sunnyvale VOIP technology for doing voice recognition on cell phones before settling on vlingo. "We have many search and voice recognition experts at Yahoo and they were just blown away," he said. Pforzheimer said Yahoo's deal restricted vlingo from doing business with Yahoo's competitors, such as Google and Microsoft.

Yahoo led vlingo's new $20 million series B financing round, the companies announced Wednesday. Other investors included Charles River Ventures and Sigma Partners.

To get the new Yahoo voice search software go to