Google, Yahoo Messaging May Help Drive Growth

Instant messaging, a tiny cog in the new alliance between Yahoo Inc. and Google Inc., may turn out to be a large motor of growth in the long term and make the companies best friends.

While instant-messaging services don't generate much revenue, they serve as guideposts directing users to various Internet portals. Google's push to make Yahoo's more popular Messenger work with its own lagging Google Talk demonstrates the importance placed on the feature. Instant messaging, or IM, is seen as playing a key role in the battle for eyebaalls in the mobile arena.

"In the mobile story, instant messaging will be more important," said Michael Wolf, an analyst at ABI Research. "Right now, it's a fuzzy business proposition."

Much of the attention around the partnership announced last week between Yahoo and Google has been focused on a search-advertising pact between the two Internet giants. But as part of the deal, the two agreed to allow users of their competing 1M services to communicate with each other.

It was seen as a minor victory for Google because usage of its IT service falls well behind its more established competitors. In terms of audience reach, Yahoo holds slight lead with 23% of users surveyed by research firm IDC. AOL, unit of Time Warner Inc., trailed closely with 22% of users, while Microsoft Corp.'s MSN Messenger was at 18%. Google Talk reached 5% of users, according 1 IDC.

Google Talk already works with AOL's Instant Messenger. Microsoft's MSN Messenger, meanwhile, can interface with Yahoo service.

Analysts say that, in general IM services generate relatively little revenue. Users see ads in the lists of "buddies," and are sometimes hit with ads when loggir into the services. But down tl line, analysts say, Internet portal will likely be able to better target ads based on monitoring ho their users access such services

But portals must walk a fine line in making sure their targeting doesn't violate users' privacy feature on Facebook that broadcast a users' purchases to friends received heavy criticism when was launched.

By: Roger Cheng
Wall Street Journal; June 17, 2008

Microsoft Strikes Web-Search Deal With H-P

Microsoft Corp., hoping to gain ground on rivals Google Inc. and Yahoo Inc., announced a deal with Hewlett-Packard Co. to add built-in links to its Internet search service on H-P consumer computers sold in the U.S. and Canada.

Microsoft said it will design a custom toolbar for its Live Search service that will sit atop Web browser windows on new H-P machines. Yahoo, second to Google in the Web search market, has had the default position on H-P personal computers since 2006, a spot it will retain until Microsoft replaces it in January.

"This deal comes at Yahoo's expense," said Sandeep Aggarwal, an Internet analyst at Collins Stewart.

A Yahoo spokeswoman said the company will continue to have a business relationship with H-P, but didn't comment on why Yahoo gave up the search deal or on its relationship with Microsoft.

Google currently accounts for 62% of all searches in the U.S., while Yahoo has 20% and Microsoft 9%, Mr. Aggarwal estimates. That makes it important for Microsoft -- which recently mounted and then withdrew a buyout bid for Yahoo -- to increase its exposure with PC users. Typically, such deals involve search- engine makers paying fees to PC makers for each toolbar installed, along with additional fees for each Web search initiated by those toolbars. Google and Yahoo struck such deals around 2006; The Wall Street Journal reported that year that Google was paying PC makers $1 for every PC shipped with a Google toolbar, plus additional fees each time a user performed a search.

An H-P spokeswoman declined to detail terms of the deal, though she confirmed the Yahoo arrangement expires at the end of this year. Angus Norton, the director of the Microsoft team responsible for marketing Live Search, didn't give financial details of the deal, but said its structure is "more or less the same" as the agreements Google and Yahoo struck with PC makers.

Mr. Norton said his staff was already considering a request for toolbar-deal proposals from H-P when Microsoft leaders decided to speed their online push last month. In a May 18 memo sent in the wake of Microsoft's failed bid to buy Yahoo, Microsoft's president of platform and services, Kevin Johnson, outlined a strategy for his company to expand its Web presence without Yahoo.

"The discussions started before the date of his memo, but were certainly accelerated after the memo was published," Mr. Norton said. Last month, Microsoft announced a cash-back program for Live Search users who buy items they find via Microsoft searches.

Greg Sterling, an Internet analyst with Sterling Market Intelligence, said that given Microsoft's small market share, it makes sense for the company to " pay a premium" to get its search engine widely distributed. "They just have to show people that Live is a good search engine," he said. "They have to get people comfortable with using it." Still, he added, only about 14% of searches are initiated through toolbars.

Microsoft said the custom search toolbar for H-P machines will include Hewlett-Packard applications such as photo service Snapfish. The toolbar will use Silverlight, a browser plug-in that Microsoft has designed, to run animation programs.

Microsoft's Mr. Norton said he doesn't anticipate the toolbar deal will run into the antitrust problems that Microsoft had with past attempts to make its browser the default on consumer PCs. In the late 1990s, PC makers that wanted Windows were required by license terms to follow Microsoft's restrictions involving browsers, requirements later found to be illegal. Now, by contrast, the company is on an equal footing with rivals in paying PC makers for a prominent position for its search service. "We're simply the small guy trying to compete with the big guy here," Mr. Norton said.

By: Justin Scheck
The Wall Street Journal; June 03, 2008

Time Warner, Comcast to Test Web-Usage Plans

Time Warner & Comcast Need to Rethink Network As Internet Traffic Increases And Slows Things Down

Comcast Corp. and Time Warner Cable Inc. will Thursday each begin tests of ways to manage Web traffic on their Internet networks, a contentious issue that has drawn scrutiny from regulators and consumer groups.

Comcast said it will test limiting bandwidth available to heavy Internet users at times of network congestion. The cable operator will test the approach in the Chambersburg, Pa., and Warrenton, Va., markets Thursday. Tests will also soon be under way in Colorado Springs, Co.

Time Warner Cable will try a different approach. The cable operator said it plans to start metering new subscribers -- charging them $1 a gigabyte for Internet usage above a monthly allowance -- beginning Thursday in Beaumont, Texas.

"We realize this will require a cultural shift away from the all-you-can-eat model consumers have grown used to and we want to see what our customers' response will be," said Time Warner Cable spokesman Alex Dudley.

The growth of video and music file sharing has created problems for Internet service providers but particularly cable companies, whose Internet networks are shared among users at the neighborhood level. That means users consuming lots of bandwidth can slow the network performance for those living nearby.

Comcast had said it would experiment with ways to cope with surging Internet traffic on its network. The company had admitted to slowing certain types of bandwidth-heavy applications such as peer to peer file sharing technologies. But advocates of so called net neutrality, who say service providers should not prioritize one type of Internet traffic over another, argue Comcast's approach unfairly targets certain applications and will ultimately hinder consumer choice. By curbing the amount of bandwidth available to heavy users rather than throttling particular applications, the company may deflect some criticism.

Congress is considering legislation that would rein in a carrier's ability to throttle traffic on its network, and the Federal Communications Commission is also investigating the issue.

Time Warner says about 5% of the company's subscribers account for half of local bandwidth use. Mr. Dudley said metered billing is an attempt to deal fairly with the explosive growth of Internet traffic, and the huge amounts of bandwidth consumed by a minority of customers. "We want to find the most equitable way to deal with this issue," said Mr. Dudley.

By: Vishesh Kumar
The Wall Street Journal; June 04, 2008

ComScore Buys M:Metric Inc.

ComScore Inc. said it acquired M:Metric Inc., which, through surveys and on-device meters, offers services to measure mobile-phone use, mobile Internet behavior and tracking services for mobile advertising. ComScore, a Reston, Va., Internet-use tracking company, will pay $44.3 million for M:Metrics, and the deal also involves the issuance of about 50,000 options to buy comScore common shares to certain M:Metrics unvested option holders. M:Metrics expects revenue in 2008 to be about $11 million to $12 million.

Cable & Wireless Talks to Rival Thus

Cable & Wireless PLC, the united Kingdom telecommunications company, said it had approached smaller rival Thus Group PLC about a possible bid, which, according to one London-based analyst, would likely be in the range of £270 million to £280 million ($534 million to $554 million). Thus, which is unprofitable, mainly provides fixed-line and wireless telecom services to businesses and the public sector. Its Internet provider, Demon, largely serves small businesses. Cable & Wireless said the approach wasn't a firm intention to make an offer.

Microsoft to Close Classified-Ad Web Site in July

Microsoft Corp. is closing Windows Live Expo, the classified advertising Web site that was seen initially as a potential competitor to Craigslist. The service, which launched in February 2006, will close on July 31, a post on the site said. Live Expo was one in a series of services launched by the Redmond, Wash.-based software firm to beef up its online presence. The market for online classifieds in the U.S. is dominated by Craigslist, which is in more than 50 countries. Other companies with online classifieds include eBay Inc., which recently developed a site, call Kijiji, and Wal-mart Stores Inc., which launched a service with classified Oodle.com.

Wall Street Journal

AOL Looks to Europe For Ad-Platform Success

Time Warner Inc.'s AOL will provide European customers with access to its Platform-A ad effort, expanding an operation which has struggled in the U.S. The platform – created last year – allows advertisers to make purchases across its ad network, including Adverstising.com, the behavioral-targeting Tacoda and other areas. In April, Time Warner Chief Executive Jeff Bewkes said difficulty in integrating Platform-A led the media conglomerate's advertising-revenue growth at AOL to slow to 1% in the first quarter after posting double-digit growth in previous quarters.

Wall Street Journal; June 9, 2008

Yang Mulls Partnership Deal

Yahoo Look to Bezo at Amazon and Diller at IAC and Ask.com for New Deal

Yahoo Inc. Chief Executive Jerry Yang Wednesday admitted to mixed feelings about the withdrawal of Microsoft Corp.'s merger bid and reiterated Yahoo continues to consider Microsoft proposals for various partnerships.

Mr. Yang, appearing at The All Things Digital conference here, attributed the failed negotiations to more than the disputed price. While price was "the most public issue," he said "regulatory issues and a number of other things" were also concerns. He stressed that it was Microsoft, not Yahoo, that walked away from the negotiating table.

In his first extensive public discussion of the merger, Mr. Yang said the Sunnyvale, Calif., company has changed for the better as a result of the furor over the bid. "In many ways it has pulled us together as a company," he said. Yahoo continues to talk to Google about a possible partnership, he said, without offering any details.

His remarks came on the second day of a conference that heard technology executives hail their companies' staying power despite economic weakness. Michael S. Dell, chairman and founder of Dell Inc., Howard Stringer, chief executive of Sony Corp., and Amazon. com Inc.Chairman Jeffrey P. Bezos took turns promoting their companies' new directions and technologies.

Mr. Dell said the computer maker is reaping the benefits of a recent reorganization and is growing faster in the U.S. than its rivals. Although displaced in world-wide, PC-unit sales by Hewlett-Packard Co., Mr. Dell insisted the Austin, Texas, PC maker still leads by revenue and its outlook remains strong due to a focus on diversifying its businesses.

But, he admitted, "in the U.S., there's definitely caution. You can't have a country where the overall growth is 3.5%, and say, 'that's fantastic,'" he said.

He said consumer preferences are changing. "If you go back five or 10 years ago, we used to go to forums like this and we would talk about megahertz and gigahertz," Mr. Dell said. "But now in the consumer world ... fashion definitely plays a role that it didn't play [previously]."

Sony's Mr. Stringer showed off a television that uses an ultrathin screen technology that uses organic light-emitting diodes, or OLEDs, to illuminate the screen. Sony will start selling a 27-inch OLED set with a screen the thickness of a credit-card within the next 12 months, he said. Mr. Stringer didn't disclose pricing but suggested it would have limited early appeal.

"It is fairly expensive. The only people who can buy one are in this room," he joked. Sony cur-
rently sells an ll-inch OLED screen for about $2,500. He also said Sony's Blu-ray high-definition video format will "more than hold up" against competition from new online video devices. Blu-ray faces new challengers including Amazon.com, which sells movie downloads, and announced plans here to offer streaming services, and Netflix Inc., which recently announced it would allow customers to watch streaming video on their televisions rather than their PCs.

Amazon.com's Mr. Bezos, also said Amazon has improved supplies of its Kindle electrc book reader. "It is selling and we are very happy about it," he added. He declined to provide sales figures. Mr. Bezos offered no other details of the proposed streaming video download device. Amazon already sells video downloads on its Web site, and is increasingly challenging Apple Inc. in the digital realm.

Mr. Bezos said the company plans to keep working on improving its Kindle reader, though said consumers shouldn't intrepret its recent price cut (to $359 from $399) as an indication that a second version is imminent. "There will be a second version and a third version and a 10th version," he said. But he added: "The second version is not that near."

IAC/InterActiveCorp chairman Barry Diller says he is ready to create some trouble again. He told conference attendees that a planned August spinoff of some ofIAC's largest businesses will allow him to "create trouble" instead of "fix trouble." Mr. Diller, who spent the past few months distracted by a lawsuit with majority shareholder John Malone, chairman of Liberty Media Corp., was short on specifics.

Mr. Diller, former chairman of Paramount Pictures and Fox, also had colorful words for his former colleagues in Hollywood and rivals in the online world. "The [film] community is so inbred that it's no wonder the children have any teeth," he said. He called Google Inc. "irrelevant" to IAC but predicted that its growth wouldn't continue indefinitely, leaving new openings for smaller players like his Ask.com.

He also joked that he had been rooting for Microsoft to acquire Yahoo on the grounds that it would have bumped up Ask.com in search-engine rankings "It would have been good for me," he joked.

Activision Inc. Chairman anc CEO Robert Kotick presided over the first public demonstration of "Guitar Hero World Tour," a new multi-instrumental version of Activision's best-selling music videogame.

By: Jessica Vascellaro, Jason Anders, Marcelo Prince, & Nick Wingfield
Wall Street Journal; June 2008

Icahn Says Jerry Yang Must Be Pushed Out

Billionaire investor Carl Icahn plans to seek the ouster of Yahoo CEO Jerry Yang, should his dissident slate of directors gain control of Yahoo's board, according to a report in The Wall Street Journal.

Icahn previously has centered his comments on removing Yahoo's board of directors, of which Yang is one of nine members who are up for re-election to a one-year term, when the next annual shareholders meeting is held.

Yahoo announced later in the day that it planned to hold its annual shareholders meeting on August 1 in San Jose, Calif. The meeting was originally scheduled for July 3, but the company announced a delay when one of its board members resigned in May.

Icahn apparently is irate over newly released details from a shareholders lawsuit unsealed Monday, according to the Journal. In the amended lawsuit by two Detroit retirement funds, Yang is portrayed as the architect of a controversial employee severance program, which would be triggered if Yahoo undergoes a change in control.

The change in control applies to not only a buyout, like the one Microsoft had on the table before it withdrew its $33 a share bid for Yahoo on May 3, but also a change in control of a majority of Yahoo's board, as noted in a CNET News.com blog.

"It's no longer a mystery to me why Microsoft's offer isn't around," Icahn said in his Journal interview. "How can Yahoo keep saying they're willing to negotiate and sell the company on the one hand, while at the same time they're completely sabotaging the process without telling anyone."

Icahn noted he believes the unsealed shareholders lawsuit will aid his efforts to win a proxy fight to unseat Yahoo's board, especially given his belief that investors will fear Microsoft will not come back with a buyout bid until Yang and the current board are gone.

The Journal also reported Yahoo's board is expected to meet Tuesday.

Comments left about this story include:
Who does Carl Icahn have tapped to replace Jerry Yang? Hopefully someone with a proven history of web and internet advertising success. Susan Decker might have to be moved out. The Yahoo sales efforts and advertising programs are overpriced and weak at best. Yahoo is not delivering advertisers enough return on investment. When will Yahoo shift focus and actually help advertisers drive conversions and ROI? If Yahoo would focus on advertiser ROI and moving the sale needle for their clients, they could turn the tide and truly compete with Google. I also was expecting Jerry Yang to focus more on quality user experiences. Yahoo is no longer delivering high-quality search results and content for users. C'mon Jerry, restructure the senior management team, trim the top level, take charge, clear the company of unskilled executives that lack "internet marketing" experience and take Yahoo back to its core. Improve Yahoo from the inside out and everything will fall into place.

Key Employees About to Jump Ship at Yahoo

Yang's Memo to Yahoo Employees ... Sit Tight I'll Get You Paid

As the proxy fight heats up, Yahoo CEO Jerry Yang issued a letter to employees to address the mechanics of a proxy contest and what to expect.

Yang's letter comes as Yahoo and billionaire investor Carl Icahn have exchanged several rounds of proxy fight letters over the past few days. The fevered pitch between the two parties is expected to further accelerate in the coming weeks leading up Yahoo's August 1 annual shareholders' meeting.

Icahn is seeking to unseat Yahoo's board of directors with his own dissident slate, while Yahoo is working to persuade investors to re-elect the current board. Here is Yang on what constitutes a proxy fight and what employees should expect:

To: Yahoo global staff
From: jerry
Subject: proxy contest update

yahoos,

over the last few weeks, i'm sure you've read a lot about a potential proxy contest leading up to our august 1, 2008 annual meeting of stockholders. the proxy contest has now begun.

so what is a proxy contest?

a proxy contest happens when one or more stockholders proposes nominees for the board of directors other than the nominees proposed by the company. and as you know, carl icahn has also announced his intention to nominate an alternate slate of directors for election to our board.

in a proxy contest, it is typical for a variety of positive and negative statements to be made about a company's board and management. we expect these kinds of statements about yahoo! to intensify in the weeks ahead. we intend to respond to statements that we believe are unfair or misleading, and we did so with the press releases we issued this week.

what should you expect in the coming weeks?

we have already filed our proxy statement with the SEC, which includes the board's nominees for election as directors and the other matters to be voted on at the annual meeting. next, we'll mail our proxy statement to all stockholders as soon as it's cleared by the SEC . in our proxy statement, our board unanimously recommends that all stockholders vote for all of yahoo!'s board of director nominees.

we believe the yahoo! board has the independence, knowledge and commitment to navigate the company through the rapidly changing internet environment and to deliver value for yahoo! and its stockholders. as we've said repeatedly, the entire yahoo! board is fully committed to doing what is in our stockholders' best interests. as yahoos, it's more important than ever that we put aside the rhetoric and continue to focus on strategic objectives and our efforts to maximize stockholder value. i want to thank all of you for your continued hard work and dedication through this distracting time. you are our most valued asset.

please remember that there are certain requirements that apply to communications during a proxy contest, but we'll do our best to keep you as informed as possible.

Financial Vultures Seek To Takeover Yahoo
Icahn Sends Open Letter to Board of Directors of Yahoo!





Carl C. Icahn
ICAHN CAPITAL LP
767 Fifth Avenue, 47th Floor
New York, NY 10153

June 6, 2008

Roy Bostock
Chairman
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089

Dear Roy:
While you may take issue with the content of my letter, I take issue
with your oversight of Yahoo! Again, I stand by my characterization of your
"poison pill" severance plan and I find it humorous to see you attempt to
defend it.

Roy, it is you who "misrepresents and misstates the details" of the
plan. Much like the rhetoric in many well known political campaigns, you
keep repeating misstatements in the hopes that by repeating misstatements
enough times it will convince your shareholders that these misstatements
are valid. For example, you repeated, "the plan was fully disclosed at the
time of its adoption and should be no surprise to anyone at this point."
This is simply not true. The egregious magnitude of the dollar amount cost
of the plan was never fully disclosed, nor was the email from your
compensation advisor calling the plan "nuts." While you keep repeating that
the severance plan was in the "best interests of shareholders", you neglect
to mention that the financial cost of the plan could be immense. The
documents obtained during discovery and released in the shareholder
complaint show that Yahoo! estimates the maximum change in control
severance expenses to be a staggering $2.4 billion if Microsoft bids $35
per share for Yahoo! You neglected to mention that the true cost to an
acquirer may be even higher as the perverse change in control severance
incentives may diminish the work effort of Yahoo! employees. In case you do
not understand the plan, in addition to the $2.4 billion of severance
expenses, I believe the plan will negatively impact employee behavior and
degrade the ability of an acquirer to successfully integrate the
acquisition. In the event of a change of control, the employee may decide
not to work as hard in the hopes of cashing in on a robust severance
package that awards up to two years salary and benefits, $15,000 of
outplacement expenses, and accelerated vesting of stock options and
restricted stock units. To make matters worse, it is not just the acquirer
firing the employee that can trigger the severance package but the employee
who may decide on his or her own to resign for "good reason" at any point
within two years of a change in control. It is quite obvious to me that
this plan impacts the price an acquirer would pay. Is it any wonder than an
acquirer, once fully comprehending this plan, might not wish to negotiate
any further? I again call upon you to honor your fiduciary duty to your
shareholders and rescind this "poison pill" severance plan.

You asked, "what exactly would happen to our Company if you and your
nominees were to take control of Yahoo!" I will give you my perspective on
that.



-- First, I would work to have the board replace your "poison pill"
severance plan with an acceptable alternative.

-- Second, I intend to ask our new board to hire a talented and
experienced CEO (attempting to replicate Google's success with Eric
Schmidt) to replace Jerry Yang and return Jerry to his role as "Chief
Yahoo". Indeed, it was much speculated that Jerry would serve in the
CEO role temporarily until a permanent CEO was hired after the board
asked Terry Semel to resign.

-- Third, I intend to ask our new board to inform Microsoft that unless
any alternative transaction can insure a $33 or higher stock price (of
which I am skeptical) all talks of alternative transactions are over.

-- Fourth, I will ask our new board to offer publicly to sell Yahoo! to
Microsoft in a friendly and cooperative transaction.

-- Fifth, to the extent Microsoft does not want to make a proposal, I will
ask our new board do a deal on search with Google, but only if it
contains termination provisions that would in no way impede a
subsequent acquisition by Microsoft.


Now let me ask you a couple of questions, Roy:

-- Why don't you, now that you have the opportunity, remove the "poison
pill" severance plan that I find to be ridiculous and thereby remove a
major obstacle to a Microsoft acquisition?

-- In my opinion, Microsoft does not believe you will ever sell the entire
company on a friendly basis. So why don't you stop dancing around the
subject and publicly offer to sell the company to Microsoft for $34.375
per share and promise to cooperate completely?

-- Why are you still giving hope to Microsoft that there is a possible
"alternative deal"? As long as there is the possibility of an
"alternative deal", isn't it obvious that Microsoft will not make a bid
for the whole company?


Sincerely yours,

CARL C. ICAHN

Gates & Ballmer: Still Brothers At Arms

Gates-Ballmer Clash Shaped Microsoft's Coming Handover

One of the most successful business partnerships in history was coming unraveled. It was early 2000, and Bill Gates had relinquished the chief executive's job at Microsoft Corp. to Steve Ballmer -- for the first time taking a back seat to his college pal and right-hand man of 20 years.

Mr. Ballmer got the title. But Mr. Gates retained the power, triggering a yearlong struggle between the two men that until now has remained largely under wraps.

Things became so bitter that, on one occasion, Mr. Gates stormed out of a meeting in a huff after a shouting match in which Mr. Ballmer jumped to the defense of several colleagues, according to an individual present at the time. After the exchange, Mr. Ballmer seemed "remorseful," the person said.

The conflict between the two men paralyzed business-strategy decisions that the company still wrestles with today. Board members stepped in to try to mediate a truce.

The differences between the two men ended, Mr. Gates and other Microsoft executives say, when in 2001 Mr. Gates had an epiphany, recognizing he needed to accept his role as No. 2. "I had to change," Mr. Gates says.

On June 27, Mr. Gates will fully step aside from management at Microsoft, ending daily work there to focus on philanthropy. If the transition goes smoothly, it will be in large part because the clash eight years ago forced the two men to grapple with the crucial question of whether Mr. Gates can let his friend run the company unencumbered. Microsoft used the lessons of that crisis as it planned for the ultimate succession.

Read edited excerpts from The Wall Street Journal's interview with Bill Gates and Steve Ballmer, as the Microsoft executives talk to staff reporter Robert Guth about their relationship, Mr. Gates's transition and the future of the company.

This summer, Mr. Ballmer moves into the corner office inhabited for years by Mr. Gates, who will work only one day a week and serve as board chairman.

Once Mr. Gates leaves, "I'm not going to need him for anything. That's the principle," Mr. Ballmer says. "Use him, yes, need him, no."

The handover marks the end to a storied business partnership that created a new industry, spawned many millionaires, and redefined how the world uses computers. Under Mr. Gates, Microsoft also fought one of the most heated antitrust battles in U.S. history and created the personal fortune that he is now deploying against global problems such as AIDS.


Mr. Ballmer's challenge is to assure that Microsoft's best days aren't behind it. The company faces one of the widest sets of obstacles in its 33-year history, as nimble rivals try to chip away its traditional software business and broad industry shifts force it to build entirely new businesses. To repel rising titans like Google Inc., Microsoft is taking unprecedented steps, such as its recent bid for Yahoo Inc. Although that effort is now shelved, it would have been the software company's largest acquisition.

Elder Statesman

Messrs. Ballmer and Gates are attempting a tricky feat by navigating an "ambassadorial succession" -- when a founder steps aside but still makes himself available as an elder statesman, says Yale School of Management Professor Jeffrey Sonnenfeld. They have had eight years of rehearsal, but the approach still has its perils: History is riddled with company founders who stifle their creation when they don't entirely break free.

Mr. Gates and Steve Ballmer introduced the Windows Vista operating software in January 2007 in New York.

In addition, if Microsoft later needs radical change, it would be rare that loyal insiders like Mr. Ballmer can "really tear into their inheritance," says Joseph L. Bower, Baker Foundation Professor of Business Administration at Harvard Business School.

The weight of the transfer on the two men -- both 52 years old, and so close they often complete each other's sentences -- was clear at a March retreat of Microsoft's top executives. Mr. Ballmer gave the opening remarks to the group, his eyes streaming with tears as he noted that it would be the last such meeting with Mr. Gates and Jeff Raikes, a veteran executive and friend who is joining Mr. Gates's philanthropy.

Last month, in a joint interview with Mr. Gates, Mr. Ballmer's eyes welled up as the two men talked about building Microsoft. "It is a little like giving birth to something. Bill gave birth but I was kind of an early nanny in raising this child," Mr. Ballmer said. "There are fun things we get to do together, that's all nice. I mean, it's important, but this is..."

"...this is what we did," said Mr. Gates, smiling.

Their relationship started at Harvard University in the mid-1970s, where the two played poker and thrived by pushing their intellectual limits. Once they skipped a graduate economics class for the entire semester, then teamed up a few days before the final exam to try to learn the material all at once. Mr. Ballmer recalls he got a 97; Mr. Gates a 99.

Elements of their early friendship -- competition and hard work -- defined Microsoft's own culture. Mr. Gates focused on technology and business strategy, while Mr. Ballmer took on diverse roles. Among other things, he was Microsoft's first business manager, and managed development of the first version of Windows and North American sales. Later, he expanded Microsoft world-wide.

Even as the company grew, the two men could jointly manage almost every aspect of the business. "For a certain size organization, it was beautiful," Mr. Gates says.

Their tight relationship allowed for heated arguments that would quickly subside. Indeed, numerous executives say this was a key part of the decision-making culture.

Their centralized management of the company started to break down in the late 1990s as Microsoft grew in complexity. The U.S. Department of Justice alleged that Microsoft had abused its monopoly, and the company fought to keep from being split up. It faced an onslaught of competitors and was rankled by the threat posed by the Internet and the flight of Microsoft's employees to Web start-ups.

Embattled, Mr. Gates sought help. Eventually, in January 2000, he gave his chief executive title to Mr. Ballmer. Mr. Gates became Microsoft's "chief software architect," a new position that, in theory, was below that of Mr. Ballmer.

Soon, the two men clashed as Mr. Ballmer tried to assert himself in his new job. As the firm's iconic leader, Mr. Gates still held sway that wasn't tied to a title: In meetings Mr. Gates would interject with sarcasm, undermining Mr. Ballmer in front of other executives, Mr. Gates and other Microsoft executives say.

Debates spanned various subjects -- personnel decisions, the Xbox videogame machine then being developed, and even the future of Microsoft's core Windows software, Microsoft executives said.

Some major decisions got stuck due to the impasse, Messrs. Gates and Ballmer said. In one case, two vice presidents clashed over the future of NetDocs, a promising effort to offer software programs such as word processing over the Internet. The issue: Because NetDocs risked cannibalizing sales of Microsoft's cash-cow Office programs, some executives wanted NetDocs killed.

Messrs. Gates and Ballmer were unable to settle on a plan. First, NetDocs ballooned to a 400-person staff, then it got folded into the Office group in early 2001, where it died.

Other Microsoft executives tried to step in, calling Messrs. Gates and Ballmer into a meeting with a clear message: Your struggles threaten the company, according to people familiar with the situation.

Board's Concerns

Microsoft's board held its own discussions with the two men, and also dispatched Dave Marquardt, a director and early Microsoft investor, to have periodic dinners with the two to help sort through the troubles.

"The board was really concerned about what was going to happen," says Jon Shirley, a former Microsoft president who sits on the company's board.

The stress on Mr. Ballmer was clear one morning in January 2001 while he was in Paris for an annual review of Microsoft's businesses. In his hotel room at 3 a.m. after a long day of meetings, Mr. Ballmer posed a telling question to Mr. Raikes, the veteran Microsoft executive: "What is the CEO's job at Microsoft?"

At the urging of the board and their wives, Mr. Gates and Mr. Ballmer agreed in February 2001 to work out their differences over dinner at the Polaris restaurant in the Bellevue Club Hotel a few miles from Microsoft's campus. The two men declined to discuss details of that meeting, saying only that they needed to sort out their roles, with Mr. Gates as the "junior partner" to Mr. Ballmer's "senior partner."

Mr. Gates concluded that it was he who needed to change most. "Steve is all about being on the team, and being committed to the mutual goals," Mr. Gates said. "So I had to figure out, what are my behaviors that don't reinforce that? What is it about sarcasm in a meeting?" he said. "Or just going, 'This is completely screwed up'?"

Mr. Ballmer says that, as the top executive, he had to learn when to override decisions and when to just "let things go," he said. "We got it figured out," he said.

Soon, Mr. Gates started to hold back negative comments in meetings. During one deliberation among the executives who reported directly to Mr. Ballmer, Mr. Gates deferred to Mr. Ballmer on an important decision, prompting Microsoft executives to silently glance at each other with surprise, recalls Microsoft Vice President Mich Matthews.

Making an Imprint

Gradually, Mr. Ballmer made his imprint. He restructured the company to give more decision-making power to executives, and elevated people with general management experience into positions previously held by technology-focused executives. He also worked to settle Microsoft's many lawsuits, taking a more conciliatory line than Mr. Gates typically had, Microsoft executives say.

Mr. Gates, meantime, focused on guiding Microsoft's long-term technology strategy. Among other projects, he coached three younger managers on how to build a case for Microsoft's entry into business-communications software. That work was later launched as a major new business in "unified communications," or merging email, voice mail and other business communications.

In 2003, Mr. Gates let Mr. Ballmer lead secret talks to buy German software maker SAP AG, while he handled the technology-planning side of the talks and provided guidance in line with his job as Microsoft's chairman, says a person familiar with the situation. (Microsoft ended up not buying the company.)

Microsoft also started laying the foundation for Mr. Gates's eventual departure, in March 2005 buying Groove Networks Inc. to bring its founder, software pioneer Ray Ozzie, in house to complement Mr. Gates as a technology guru. Mr. Gates once described Mr. Ozzie -- known as the father of Lotus Notes information-sharing software -- as "one of the top five programmers in the universe."

Messrs. Gates and Ballmer had settled into their new roles by early 2006, when Mr. Gates decided to end full-time work at Microsoft, setting a two-year timeline for making the move.

One concern for Mr. Ballmer was how to preserve Mr. Gates's role of technology visionary inside the company. Looking for guidance, Mr. Ballmer says he cracked open a book from his college years by Max Weber, the German sociologist, on how organizations handle the disappearance of "charismatic leaders."

On March 28, 2006, Mr. Ballmer described the book to Microsoft's board at a retreat in the San Juan Islands near Seattle, Microsoft executives say. One way for a firm to retain the charisma of a departing leader, Mr. Weber wrote some 100 years ago, is for the leader to name his own replacement.

Mr. Gates did just that. In June 2006, he named his own two successors as tech czars: Craig Mundie, one of Mr. Gates's chief technical advisers, and Mr. Ozzie, the programmer.

"The world has had a tendency to focus a disproportionate amount of attention on me," Mr. Gates said at the time of the announcement. He then gave his successors some elbow room, disappearing on a seven-week sabbatical that included a trip to Africa.

In an interview at that time, Mr. Ballmer compared their relationship to that of brothers. "I think brothers tend to argue a lot, and somehow they stay brothers and stay connected," he said. "I think Bill and I have figured out how to do all of that."

Aborted Yahoo Bid

Leading into this year, evidence that the transfer of power has taken hold is in Microsoft's now-aborted bid for Yahoo. Buying Yahoo could have helped Microsoft expand its online-advertising business and build online versions of its personal-computer software -- the same transition it attempted with NetDocs, the project that died back in 2001. But at a price tag of nearly $50 billion in cash and stock, the bid had its risks and would have been the largest acquisition by far at a company that hasn't done many large deals.

Mr. Gates stayed largely on the sidelines, and notes that it was Mr. Ballmer behind the bid, tapping Mr. Ozzie to sort through how the two companies would merge their technologies.

Some Microsoft insiders say Mr. Gates -- who traditionally favored Microsoft building its own way into markets -- wasn't a major proponent of the deal. Whatever the case, Mr. Gates stands by his man. "I don't have a different point of view on the Yahoo thing than Steve does," he said.

The question remains if Mr. Gates can resist the temptation to dive back in if Microsoft hits a crisis point. Over the past decade, several high-profile founders jumped back in when their companies were under siege, including Steve Jobs, who remade Apple Inc., and Michael Dell of Dell Inc. and Howard Schultz of Starbucks Corp. "There is a savior complex that says, 'I'm the only one who can restore it to its glory,'" says David A. Nadler, senior partner at consulting firm Oliver Wyman Group.

Mr. Gates says he's happy to help on some long-term projects, but won't return full-time. "I am done with that," he said.

By: Robert Guth
Wall Street Journal; June 5, 2008

Mozilla Firefox 3.0 Is the Best Browser for Web — For Now

If you buy a new Windows Vista PC, it comes with a decent built-in Web browser, Internet Explorer 7. If you buy a new Macintosh computer, it comes with a decent built-in Web browser, Safari 3.0. So why would you want or need a different Web browser?

That is the question that Mozilla, the nonprofit organization that makes the leading alternative browser, hopes to answer this month when it releases version 3.0 of its Firefox Web browser. In some tech-industry circles, Firefox already is preferred over Microsoft’s (MSFT) Internet Explorer and Apple’s (AAPL) Safari, but it still isn’t used by most people, and Mozilla is hoping to broaden its appeal.

The new version will be released simultaneously for Windows and the Mac’s OS X operating system, as well as for Linux. While each of the three editions will have the visual style of the operating system on which it runs, all three will have the same features.

I’ve been using prerelease versions of Firefox 3.0 for months, and have recently been testing a near-final version and comparing it closely to IE and to Safari. I have tested it on multiple Windows PCs and Macs, on desktops and laptops, over slow connections and fast ones. I have tried it with well over 100 Web sites.

My verdict is that Firefox 3.0 is the best Web browser out there right now, and that it tops the current versions of both IE and Safari in features, speed and security. It is easy to install and easy to use, even for a mainstream, non-technical user. It can be downloaded, free, at mozilla.com by clicking on “Firefox 3 Sneak Peek.”

This situation may change. Microsoft is working on a new version of IE, scheduled to be unveiled later this year, with some impressive new features. And Apple is always working on new iterations of Safari, though it is secretive and hasn’t disclosed its plans. But for now, in my view, Firefox 3.0 rules on both Windows and Mac.

I couldn’t find any significant downsides to Firefox 3.0. Every page I tried rendered properly and rapidly on both platforms. I ran into only one glitch, in a preference setting. That problem appeared on only one of my four test machines and was fixable with the help of Mozilla, albeit via a geeky method.

In the one or two cases where Firefox lacked a feature I thought important, such as the “auto fill” feature in Safari that can quickly fill out an online form, I was able to find an add-on that did the trick from Mozilla’s vast library of add-ons, which are written by people all over the world. (One caution: Some existing add-ons won’t work with the new version until their authors update them.)

When Firefox first came out, it was the fastest browser, but it lost that title over the years. However, in my tests, this new third version of Firefox regained the speed crown. It beat IE 7 handily on my test Windows computers and edged Safari slightly on my test Macs.

For example, using a new Dell (DELL) XPS One desktop, I opened identical folders containing the same 16 bookmarks on both IE 7 and Firefox 3.0. IE took 37 seconds to completely display the 16 pages, but the new Firefox did it in just 23 seconds. On a new Apple iMac, I did a similar, but more daunting, test — opening identical folders containing 24 bookmarks. Safari rendered all of the pages in 36 seconds, but the new Firefox finished the job in 32 seconds.

The latest Firefox has a number of new and improved features. If you type any word or phrase into its address bar, the browser instantly searches your history and bookmarks for a possible match, to save you from typing or combing through your bookmark list.

The whole process of managing bookmarks has been vastly simplified. Every Web address is accompanied by a star icon at the right. To bookmark the site, you just click the star once. No other action is required. To specify where to file the bookmark, you click the star twice. You also can remove bookmarks by clicking the star. And you can tag bookmarks with key words, to make it easier to find them.

There are also smart bookmark folders, which gather your most visited sites, or most recently bookmarked sites, automatically into folders. You also now can more easily back up and restore your bookmarks, complete with tags.

Security is also improved. The old version of Firefox would warn you when a site you were visiting appeared to be a fake, designed to steal your identity. (IE has a similar feature, though Safari doesn’t.) But Firefox 3.0 now warns you about sites that are known for trying to plant viruses, spyware and other malicious software on your computer, a warning the other big browsers don’t yet provide.

With one click, Firefox 3.0 also provides details about who owns the site you’re visiting, and whether it’s encrypted, if the site owner has adopted a special type of security certificate.

My bottom line: Even though you already have a built-in browser, Firefox 3.0 can improve your Web experience.


By: Walter S. Mossberg
Wall Street Journal; June 5, 2008

Hiding A Hatred of Microsoft?

And the Truth Comes Out...


Sadly for Jerry Yang, psychic phenomena don’t carry a whole lot of weight in today’s corporate-governance regime.

Mr.Yang will have to keep that in mind as he and Yahoo defend the drafting of a press release in October to reject a Microsoft bid. For those not handy with calendars, that was three months before Microsoft actually got around to bidding. Now, Yahoo did have expressions of interest from Microsoft earlier that year, and indeed as long ago as March 2000 Microsoft was seen as “the most likely contender” to take over Yahoo after the then-terrifying AOL-Time Warner merger. But in October, there was no bid to reject. Yahoo just knew it didn’t want Microsoft.

Outraged activist Carl Icahn called Yang out Tuesday for having a “deep hostility” toward Microsoft. Yang denies this, but the denials ring hollow. (And not just because one of Yang’s nicknames within his company is “Grumpy.”)

But why hide a hatred of Microsoft? If anything, it would at least provide some kind of explanation for the otherwise knee-jerk rejection of a bid that didn’t yet exist. Besides, most of Silicon Valley’s old-line companies hate Microsoft–a legacy of Microsoft’s systematic destruction of Valley golden child Netscape (the subject of the U.S.’s antitrust crusade against Microsoft in the 1990s). Netscape was Yahoo’s buddy. Another Yahoo buddy, Google, doesn’t hide its disdain for Microsoft. Larry Page said a couple of weeks ago that Microsoft “has a history of doing bad stuff.”

Now no one is going to make an argument that Microsoft is pure of heart. After all, the company recently accepted faulty chips from Intel to help Intel make their earnings. But there is a big pot-and-kettle issue here with both Google and Yahoo. Critics see Google as having its own plans for world domination and, despite the quippy “Don’t Be Evil” motto, bemoan the Web search and ad giant’s amassing the personal information of its users on what may be the largest scale outside the government. As for Yahoo, there was that whole incident about helping China convict a dissident journalist, presumably to protect Yahoo’s business standing in that country.

But the larger point is this: It isn’t 1999 any more. The tech world is supposed to have matured, and the petty childhood rivalries forged in the heady spells of the tech boom don’t hold up in a world where time has revealed the strains of expansion on these companies and future growth no longer is assured. The past is past. The future is now.

By: Heidi Moore
Wall Street Journal; June 4, 2008

Google & The Government Getting Closer by the Day

Google Plans Growth On NASA Property

Google Inc. Wednesday announced a 40-year deal with the National Aeronautics and Space Administration to develop a high-tech research facility. Under terms of the deal, Google will pay NASA an initial base rent of $3.7 million a year to leave over 42.2 acres at NASA Ames Research Center in Mountain View, Calif. The facility will consist of up to 1.2 million square feet of offices and research and development facilities, Google said.