CEOs Hunker Down During Crisis


After the financial shocks of September and October, executives running businesses ranging from hair salons to giant utilities are hunkering down by trimming capital-spending budgets, delaying plant construction, laying off workers and skimping on pay raises.

Their actions are a sign that the crisis is still reverberating through the economy and could continue to do so for months.

Business leaders put large fiscal stimulus atop their to-do list for Barack Obama, saying the president-elect should seek to enact a program of tax cuts and spending increases in excess of $300 billion.

The proposal was among more than a dozen conceived by top executives to solve some of the nation's deepest problems, from the ailing economy to underperforming schools, high health-care costs and environmental worries.

Proposals included a push for electric cars, improvements in kindergarten through 12th-grade education, a fight against obesity, revived global-trade talks, tort reform and new gasoline taxes.

Fiscal stimulus ranked highest among the executives' goals. Just a few weeks ago, many economists pointed to stimulus in the range of $150 billion to $200 billion. The group said more was needed. A $300 billion program, if implemented in one year, would amount to a little more than 2% of the nation's $14 trillion gross domestic product.

The executives said obesity should be the top priority of the nation's surgeon general. The goal for electric cars, they said, should be 10% of the nation's total car fleet by 2020 and up to 50% of the fleet by 2030. They also exhorted the new administration to restart the Doha round of global trade talks. -- Jon Hilsenrath

Aluminum company Alcoa Inc. is idling about 400,000 metric tons of smelting capacity; American Electric Power Co. is cutting back on merit-pay increases and new hiring next year; Regis Corp., a Minneapolis-based hair-salon company, is slashing three-quarters of its capital-expenditure and merger-and-acquisition budgets; advertising company WPP Group PLC is scaling back share repurchases, dividend growth and merger plans.

"We're simply tightening our belt," says James Griffith, chief executive of Timken Co., an Ohio-based manufacturer. The firm is still experiencing growth in Asia, but hopes to reduce costs by more than $100 million in 2009.

CEOs gathered in Washington for The Wall Street Journal CEO Council, a meeting of top executives and policy makers aimed at discussing critical issues facing President-elect Barack Obama's incoming administration. Topics such as health, energy and the environment were high on the agenda, though none trumped executives' concern about the economy.

After the technology bubble burst in 2001, skittish executives continued pulling back well after the recession ended, contributing to a long period of languishing economic growth. A similar dynamic could hang over this cycle.

"There is a risk that it would be the steepest decline in the post-war period," said Laurence Meyer, a former Federal Reserve governor, in comments to the group. He projected a 4% annualized contraction in output in the fourth quarter and a 2% annualized drop in the first quarter, with the U.S. unemployment rate exceeding 8% by the end of next year. That forecast doesn't include the impact of potential fiscal stimulus, which many executives said should be a priority for Mr. Obama.

Asked at a Tuesday session "how long will it be until the U.S. economy returns to a normal growth rate," almost 80% were bracing for a slow economy for at least two years. Just one out of 93 CEOs, voting by electronic device, said it will be six months.

Michael Morris, CEO of American Electric Power in Columbus, Ohio, said the company won't undertake new hiring in 2009. The firm's existing 22,000 employees also won't see the typical merit raises of 2%-3% in the first half of 2009 and perhaps not for the entire year, he said.

Alcoa CEO Klaus Kleinfeld said his company could squeeze its capital-expenditure budget by more than $500 million just to "get through the crunch."

At the WSJ's CEO Council, Jon Hilsenrath summarizes how CEOs he has spoken with are adapting their businesses to deal with the ongoing financial crisis. (Nov. 18)

"It's bad out there. People just aren't shopping," said Regis CEO Paul Finkelstein. Consumers are showing signs of turning more frugal, either by having friends cut their hair or spending less. His company's lower-priced Supercuts chain is doing much better than his higher-end Regis chain of salons.

He laid off about 9% of the company's headquarters staff of 1,500 in Minneapolis. "What you don't want." Mr. Finkelstein said, are "some layoffs here and there." It is better for the remaining employees to know cuts were made cleanly and completely, he said.

Some companies do show signs of regaining stability after the financial shocks. James Owens, CEO of Caterpillar Inc., said his company based in Peoria, Ill., has laid off just 120 employees of 112,000, and 1,000 outside contractors since June. The maker of earth-moving and other heavy equipment is still expecting $50 billion in sales and revenue, and $6 per share in earnings, for 2008, and expects similar numbers in 2009.

Sir Martin Sorrell, CEO of WPP Group PLC, said his company ratcheted down its share-buyback program from about 5% a year to 3% in 2008 and plans to take it to about 1% for 2009, in an effort to preserve cash.

"I think 2009 will be a very difficult year.…The regular economy will return in 2010," Mr. Sorrell said.

A New Odd Couple: Google, P&G

Swap Workers to Spur Innovation

At Procter & Gamble Co., the corporate culture is so rigid, employees jokingly call themselves "Proctoids." In contrast, Google Inc. staffers are urged to wander the halls on company-provided scooters and brainstorm on public whiteboards.

Now, this odd couple thinks they have something to gain from one another -- so they've started swapping employees. So far, about two-dozen staffers from the two companies have spent weeks dipping into each other's staff training programs and sitting in on meetings where business plans get hammered out. The initiative has drawn little notice. Previously, neither company had granted this kind of access to outsiders.

Closer ties are crucial to both sides. P&G, the biggest advertising spender in the world, is waking up to the reality that the next generation of laundry-detergent, toilet-paper and skin-cream buyers now spends more time online than watching TV. Google craves a bigger slice of P&G's $8.7 billion annual ad pie as its own revenue growth slows.

The struggle by these two heavyweights to formulate successful strategies highlights how tough it is for myriad other companies, from newspapers to auto makers, to profit from Americans' rush online.

"We're trying to open the eyes of our brand managers," says P&G's Stan Joosten, whose title is "digital innovation manager," a job that didn't exist until last spring.

Consumers ages 18 to 27 say they use the Internet nearly 13 hours a week, compared to viewing 10 hours of TV, according to market-data firm Forrester Research Inc. But currently, P&G -- so famously thorough at understanding consumers, it even tracks people's tooth-brushing strokes -- spends only a sliver of its ad budget online.

Google already controls 74% of so-called "search term" advertising spending, according to research firm eMarketer Inc. So persuading deep-pocketed advertisers to shift away from TV to instead showcase their brands, say, on YouTube, Google's video-sharing site, is critical. Currently, TV snags nearly 40% of the world's total advertising spending, according to ZenithOptimedia, an ad-buying unit of Publicis Groupe.

The rapid spread of high-speed Internet access "has been the biggest disruption to marketing," says Rob Norman, CEO of WPP Group's media-buying firm, GroupM Interaction Worldwide. A key factor, he argues: TV-watchers are passive viewers. But Internet-surfers are tougher to reach because they take a more active role in what they choose to view.

As the two companies started working together, the gulf between them quickly became apparent. In April, when actress Salma Hayek unveiled an ambitious promotion for P&G's Pampers brand, the Google team was stunned to learn that Pampers hadn't invited any "motherhood" bloggers -- women who run popular Web sites about child-rearing -- to attend the press conference.

"Where are the bloggers?" asked a Google staffer in disbelief, according one person present.

For their part, P&G employees gasped in surprise during a Tide brand meeting when a Google job-swapper apparently didn't realize that Tide's signature orange-colored packaging is a key part of the brand's image.

The idea of the employee swap between the two companies gained momentum about a year ago, when P&G's then global marketing officer, Jim Stengel, expressed concern that one of the biggest initiatives in the company's laundry-soap history -- a switch to smaller bottles with a more concentrated formula -- didn't include enough of an online search-term marketing campaign, according to two people familiar with the matter.

The issue: Without an online campaign, Tide buyers searching the Internet to figure out why the detergent bottle shrank might not be directed to Tide's Web site. (Mr. Stengel acknowledges raising questions about the campaign but says he was ultimately satisfied.)

Mr. Stengel had recently met with Tim Armstrong, who runs Google's ad sales and operations in the Americas. The two men tossed around the job-swap idea. It started in January.

Recently, Denise Chudy, a Google sales-team leader, caused a stir when she showed a dozen or so P&G staffers some Google data indicating that online searches for the word "coupons" is up about 50% over the past 12 months.

Tracking online searches was "one of the best learning of my first week at Google," P&G marketing manager Catherine Duval-Russell wrote on an in-house blog. (In P&G jargon, the word "learning" often pops up in place of "lessons.")

P&G has a long history as a marketing innovator. Back in the late 1800s, it developed one of the earliest truly national brands -- Ivory soap -- with saturation advertising in everything from farm journals to religious periodicals. Decades later, radio and TV "soap operas" famously took their name from the fact that P&G advertised so heavily on them to reach women.

But amid the shift to online media, P&G has stayed mostly on the sidelines so far. P&G doesn't disclose how it allocates ad spending, but data firm TNS Media Intelligence, which tracks online display advertising, estimates P&G spends just 2% of its total U.S. ad budget online.

As part of a monthlong job swap at P&G's downtown Cincinnati headquarters, back in March, a mixed group of Google and P&G staffers crowded into P&G's archives to study the 62-year history of Tide. Sessions like these are a key part of P&G's training of up-and-coming brand managers.

Poring over decades of marketing material -- all featuring Tide's bright orange packaging in a starring role -- Google employee Jen Bradburn took note. "It's helpful to know not to mess with the orange too much," she said.

That elicited a chorus of unambiguous "yesses" from P&G employees in attendance. Many also vigorously nodded in agreement.

Tide is P&G's single biggest brand in North America, with annual sales of about $3.5 billion. It was also one of the first products to advertise on live television, P&G historian Ed Rider told the young Google team. "Back then, we were 'new media,'" added Aaron Lichtig, a P&G brand manager.

Later, while screening a 1951 ad featuring a woman singing about Tide while doing the laundry, Mr. Rider told the class, "That's when you reached 70% to 80% of your audience with television commercials." The Google team laughed in disbelief.

Still, despite the shift among younger consumers toward online media, it is clear from P&G's training sessions that its marketing approach still prioritizes TV. For instance, a big chunk of a session of Fabric Care College focused on critiquing TV ads.

"Is the viewer rewarded by spending time with this ad?" Kevin Burke, at the time a top P&G marketing executive who has since left the company, asked after screening an ad for critique. Immediately, hands shot into the air.

One of the first results of the collaboration between the two companies was an online campaign inviting people to make spoof videos of P&G's "Talking Stain" TV ad and post them to YouTube. The original ad, for Tide to Go stain-removing pens, aired during the Super

Bowl and shows a job candidate being drowned out by a talking stain on his shirt that babbles nonsense every time the man tries to speak during an employment interview.

Spoof campaigns can be risky. What if people post something rude about your product -- or don't participate at all?

This "never would have happened" previously, says Mr. Stengel, who left P&G last month to start his own firm. It's "something [P&G is] really wrestling with: How does a brand morph from one-way to two-way communication with the consumer?"

P&G tried to enforce limits. It provided prospective spoofers a tool kit of official logos. And it demanded that any stains appearing in mock ads must come from an approved list, ranging from a mai tai to spinach dip. (Grease, blood or ink was forbidden because the Tide to Go stain-removing pen doesn't work on those stains.)

In the end, of the 227 spoofs submitted, a handful were deemed good enough by P&G to air on TV. The campaign was successful enough that Tide plans to use more consumer-generated content in the future, P&G says.

Google job-swappers have started adopting P&G's lingo. During a session on evaluating in-store displays, a P&G marketer described the company's standard method, known as "stop, hold, close": Product packaging first needs to "stop" a shopper, Mr. Lichtig said. "Hold" is a pause to read the label, and "close" is when a shopper puts the product in the cart.

Google's Ms. Chudy gasped. "This is just like our text ads," she said. The headline is the "stop," its description is the "hold" and the "close" is clicking through to the Web site.

"This is going to get so much easier, now that I'm learning their language," she said.

A big hurdle for Google is that many big advertising agencies, which design campaigns for P&G and other giant firms, often don't make online strategies a priority.

"The worst answer you can hear from an agency is, 'Don't worry, we have a group to handle interactive,'" said David Bell, a Google consultant, during a session with some P&G job-swappers at Google's New York office. "Interactive isn't a group, it's everybody's job," said Mr. Bell, who himself formerly headed Interpublic Group, a major advertising-business holding company.

Consumer-products companies have been among the slowest to adopt online marketing because the traditional forms of marketing, including TV and newspaper fliers, are still reasonably effective, acknowledges Kevin Kells, Google's national industry director for consumer packaged goods.

Indeed, in meetings in New York, two Pampers brand managers openly voiced doubts about online marketing. A recurring suspicion: It works only for products that people buy online, which isn't usually the case with diapers.

"Everyone has a mindset that it has to be transactional," said Dominic Iacono, a Pampers brand manager.

Google's Mr. Kells was ready for that criticism. Online campaigns, he said, can powerfully influence brand awareness among consumers.

With mommy-bloggers, Pampers was quick to follow Google's advice. After failing to invite any to its April Pampers press conference, in July it invited a dozen or so to visit P&G's baby division in Cincinnati. The bloggers claim to have drawn anywhere from one-hundred thousand to six million visitors to their Web sites.

The bloggers toured the facilities, met with diaper executives, got a primer on diaper design and had their hotel and travel costs covered. Their visit was captured on video for other P&G brands to study.

Pampers' sense of discovery of the power of bloggers is apparent in the video. "This is a very different type of communication than what Procter & Gamble is used to," Pampers spokesman Bryan McCleary advises viewers of the video.

The bloggers "don't like advertising," he says in the video. "What they do like are exciting stories ... and those things actually can become word-of-

Who Will Lead Google?

New Rumors Are Whacked. Co-Founders Larry Page and Sergey Brin Doing Great Job

Are the three smart, talented and wealthy guys at the top of the Google food chain ready to move on?

That’s the speculation as CEO Eric Schmidt gabs on Rachel Maddow’s show on MSNBC about bailouts for automakers and Citigroup, and talks elsewhere how the government should invest in technology, and Larry Page and Sergey Brin talk about green energy or anything else except how to goose Google’s market capitalization.

For Schmidt, it could be time to go, says Technology, Media, and Telecom Analyst. The CEO raised revenues to $20 billion in 2008 from $86 million in 2001. Hard cash is now at $14 billion compared to $100 million seven years ago as well.

Silicon Alley Insider, claiming no insider knowledge, leans toward a changing of the guard as well. With a spiraling economy and scrambling for the next product to drive the next spurt of growth, Google leadership needs the same intense energy and focus that it had to became the online advertising behemoth it is today. Silicon Alley said it wouldn’t be surprised if Eric or all three step away from a day-to-day operating role next year to do other, easier things, like save the planet.

And the obvious, terrifying perhaps, question for workers and shareholders alike, will be who will step into the visionary roles needed?

Search Engines Killing Newspapers

Microsoft: Not all information can be free

Edited From Ina Fried Post - CNET.com

A top Microsoft lawyer made the case on Thursday that sites like Google News are making money while the folks creating that digital content aren't able to make a living.

Google News, said Thomas C. Rubin, makes $100 million a year, while the newspapers that power its content are having to cut staff in record numbers.

"Clearly this can't be the future for publishing," Rubin said, according to his prepared remarks delivered to the UK Association of Online Publishers. Rubin is Microsoft's chief counsel for intellectual property strategy.

It's somewhat curious though, since Microsoft essentially uses the same model with its MSNBC Newsbot . It just wasn't anywhere near as successful.

I'm all for a model that better compensates journalists and their employers for their work. I actually thought Microsoft was working on just such a model some time ago. But the longer I wait, the more journalism jobs get lost (not to mention the pain for other content creators, including musicians).

If Microsoft plans to save the publishing industry with a better business model online, it had better hurry.

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Another thing that is killing newspapers is Amazon's Kindle.

Yahoo Search Executive Moves to Microsoft

Last week a senior search executive at Yahoo resigned and moved over to Microsoft.

Rumors are swirling that is move is one of the first steps in setting the stage for Microsoft's take over of Yahoo Search in the coming months.

Microsoft (MSFT) released a formal statement last week confirming the hiring of Sean Suchter, an important tech leader at Yahoo (YHOO), from Satya Nadella, SVP for MSN Search, Portal and Advertising:

“We are very pleased to confirm that Sean Suchter will be joining Microsoft as the GM of our Silicon Valley Search Technology Center, working on MSN Live Search. Sean will report into Harry Shum when he starts work on December 22. We look forward to welcoming Sean Suchter to Microsoft at that time.”

Microsoft's talent grab from Yahoo is an interesting one, given that Microsoft has also tried to to buy Yahoo’s search and search ad business many times, to little success.

Microsoft CEO Steve Ballmer recently discounted the possibility that Microsoft would rebid for all of Yahoo after it abandoned a takeover attempt earlier this year.

Ballmer's most recent statements sent Yahoo’s stock further into the basement.

Losing important execs like Suchter, who was the VP of Search Technology at Yahoo, will also not help the company’s prospects. Suchter was deeply involved in Yahoo’s efforts to open up its search platform, initiatives the company has touted aggressively as a bright spot in its not-so-lustrous landscape.

Suchter–who came to Yahoo almost six years ago after it acquired Inktomi (the company that got Yahoo into the search business) in early 2003–has been talking with Microsoft for a while and his leaving was not linked or related to the resignation by Jerry Yang to step down as Yahoo's day to day CEO.

But it could be linked to the possibility that another former major Yahoo search exec could also be going to Microsoft. Rumors are that Steve Ballmer has expressed interest in Yahoo's Qi Lu a well-regarded Search and Advertising Technology group EVP at Yahoo, who left earlier this year to be its digital head.

All this muscling up in search by Microsoft is troubling for Yahoo. There are big questions, now that Yang is stepping down, whether Yahoo will stay in the search business or sell it off. Yang has been a big proponent of doubling down in search, considering it integral to the entire Yahoo ecosystem.

But others make the very persuasive argument that Yahoo will be increasingly outspent by both Google (GOOG) and Microsoft, in what is turning into a very vicious and expensive arms race.

If it sold off its No. 2 search business to Microsoft–ironically, Yahoo used to deliver Microsoft’s search results–many think it could have huge costs savings and garner guaranteed revenues.

Here is the official release of Sean Suchter’s departure from Yahoo ...

From: Tuoc Luong, EVP of Engineering for Yahoo!, Inc.
Date: 11/18/08 3:43 PM
To: Yahoo Search Team

Hi Everyone,

Unfortunately, I have to give some bad news to you. Sean Suchter has resigned. Sean’s last day will be December 19th.

Some of you will find this news shocking given that Sean has been a Gibraltar rock at Yahoo and in particular for the Search team. . I understand this.

I will point out that we’re on a good trajectory. We’ve released some good products and capabilities and the industry is beginning to take notice. We’ve closed the gap in Algo relevance and making great strides in building the next generation differentiated search experience and step function in relevance – not to mention infrastructure overhaul that prepares us for the future.

I came here to take on Google because I believe Yahoo above all is best positioned to take the battle to Google. I think we’re on the right path to changing the tide and would love to see everyone make the journey but I respect Sean’s personal decision. I’m committed to continue the battle against Google as long as Yahoo positions Search to be competitive (and I believe we are). I hope each and all of you feel the same way and stand with me to battle Google.

I’ve asked Arnab to step up and take over Sean’s role as head of YST. Just as Sean has been a strong arm for me, Arnab has been a strong arm for Sean. Although Sean casts a large shadow, I believe Arnab will step up to fill the hole with your support. Arnab will cast his own shadow as the new leader of YST and it’s the same YST team that has deliver great products like Search Assist, Secure Scan, SearchMonkey, BOSS, numerous MLR and QRW release to close the GAP in core relevance.

Sean and Arnab have been communicating to the YST leaders about the changes. Arnab has been thinking and discussing the new organization with people. He will send out an e-mail describing his organizational thoughts and plan for YST soon. I believe with the support of other leaders (myself, Bharat, Yongdong, Nam, ..etc), Arnab will fill the void and continue the battle with Google. I urge everyone to support Arnab in his new endeavor.

Tomorrow, I’ll be holding an all managers meeting to discuss the changes and Q&As.

Please wish Sean the best in his future endeavor and congratulate Arnab in his new role.

Thanks

Tuoc Luong
Executive Vice President of Engineering
Yahoo!, Inc.

Microsoft Corp., capitalizing on Google Inc.'s regulatory snarl, is working to steal a deal with Verizon Wireless away from its rival.

Microsoft has gotten the mobile carrier's attention by offering a sweeter deal to put its search service and related advertising on Verizon phones. Microsoft is also offering more generous revenue sharing and a guarantee of substantially higher payments to Verizon, say people familiar with the matter.

Google has been in discussions for months with Verizon to make its search engine the default on most Verizon phones, according to these people.

Verizon Wireless, the No. 2 U.S. wireless carrier by subscribers and a joint venture between Verizon Communications Inc. and Vodafone Group PLC, is considering both companies' offers and hasn't made a final decision, though it is leaning toward Microsoft, these people add.

Microsoft's move -- following its failure to acquire Yahoo Inc. for $45 billion earlier this year -- shows how it is trying to put together a new arsenal against Google. It is taking the step just as Google's search-ad partnership with Yahoo fell apart Wednesday amid opposition from the Department of Justice.

Microsoft has found an opening recently partly because Google has been busy dealing with the DOJ's review of its Yahoo partnership, according to the people familiar with the matter.

Now that Google has withdrawn its proposed Yahoo pact, it is possible it will push harder for the Verizon deal, these people said. It isn't clear whether Google is willing to match Microsoft's financial incentives for Verizon. A Google spokesman declined to comment on the Verizon negotiations.

Google may be hampered by the increased scrutiny it has received recently from regulators. That raises questions about what sorts of search deals the Internet giant may be allowed to pursue, just as the company -- which relies on online ads for 97% of its revenue -- needs to diversify to keep up its growth.

In an interview, Google Chief Executive Eric Schmidt said the Justice Department's moves were "unlikely" to affect deals Google tries to do next. "The particular issues around this one are fairly unique," he said. "I don't think it will change the way we do business. I don't know about perceptions."

At Microsoft, executives have sought to exploit growing concern among government officials about Google's dominance of the online search and advertising markets. Microsoft executives spoke out against the Google-Yahoo search partnership, calling it "illegal."

Microsoft has aggressively sought to woo Google partners with favorable financial terms, according to people familiar with Microsoft's efforts.

To many, there's an irony in Microsoft benefiting from concerns about another company's market power. For more than a decade, the software behemoth has fought bruising antitrust battles with government regulators in the U.S. and abroad, centered on the dominance of its Windows operating system.

The Google-Microsoft tussle over Verizon comes as the rivals clash on more fronts. Google recently completed its Android mobile operating system, a competitor to Microsoft's Windows Mobile software, which runs advanced applications on cellphones. Google also recently launched its own Web browser, Chrome, to challenge Microsoft's Internet Explorer.

Consumers can use search engines on cellphones by typing in the relevant Web address. But wireless carriers believe they can raise usage dramatically by putting search tools in easier-to-find places on their phones. Search providers, meanwhile, can benefit from closer integration with carriers, which will allow more targeted advertising to consumers, analysts say.

Roll Your Own Search Results With Google's New SearchWiki

In an attempt to offer a more customized search experience—and to stay ahead of competitors—Google will soon be rolling out its SearchWiki feature to everyone using its services while logged into a Google account. The feature, which has been in testing with select users over the last few months, will allow people to shift around, annotate, add, and delete search results to their liking.

"Have you ever wanted to mark up Google search results?" asked a post on The Official Google Blog. "Maybe you're an avid hiker and the trail map site you always go to is in the 4th or 5th position and you want to move it to the top. Or perhaps it's not there at all and you'd like to add it. Or maybe you'd like to add some notes about what you found on that site and why you thought it was useful. Starting today you can do all this and tailor Google search results to best meet your needs." SearchWiki will actually live up to its name and act as a wiki so that users can see notes made by other users, and view what pages others have added or deleted.



As to what the point of the SearchWiki is, well, Google isn't saying just yet. Google is known for its secretive, magical PageRank system that promotes important search results while demoting others, and PageRank already has some degree of human input on the Google end. We're not sure whether Google plans to incorporate user feedback from SearchWiki into its normal search results, or whether the company simply planned to consider the extra data when determining the relevance of its own rankings.

Microsoft, on the other hand, makes no attempt to hide the fact that it plans to use its own user input to improve its offerings. The company launched U Rank last month, a feature that allows users to edit, organize, and annotate search results—very similar to Google SearchWiki. The company described U Rank as a search engine "research prototype, to help us learn more about how people use such technologies so we can continue to innovate."

It's no surprise then that Google is introducing SearchWiki to more people. At the very least, the company will have data from Internet users (and presumably many, many more of them than Microsoft) that it will be able to analyze for preferences and usage patterns. And theoretically, if the sample size is big enough, people will use SearchWiki in the same way they would use U Rank, ensuring that Microsoft doesn't gain even the slightest edge over Google. For those (like me) dying to try out SearchWiki, you'll just have to be patient. Google is introducing the feature slowly to more users, and it's not showing up yet for everyone just yet.

Good Morning Silicon Valley

What exactly were these Yahoo investors expecting? That immediately upon the announcement of Jerry Yang's decision to step down as CEO, Microsoft would do a quick 180 and come running back with a new offer to buy the company? Apparently that dream alone, and not any renewed confidence in Yahoo's independent prospects, fueled Tuesday's run-up in the stock price, and when Microsoft CEO Steve Ballmer popped that bubble once again today, those gains and more evaporated, leaving the stock to bounce around near its 52-week low. Speaking at Microsoft's annual stockholders meeting, Ballmer was unequivocal: "Let me be as clear as I think I've tried to be publicly: We are done with all acquisition discussions with Yahoo. We have moved on." Consistent with earlier and repeated pronouncements (see "A Yahoo search for 'stages of grief' might help"), Ballmer said some sort of search and advertising deal with the purple portal people remained a possibility. "There's no active discussion on that front, but we'd be very open to it," Ballmer said. Apparently, Microsoft is also open to picking off some of Yahoo's talent on an individual basis. Sean Suchter, Yahoo's VP of search technology, has resigned and is reportedly heading toward Redmond.

Search Is on for New Yahoo CEO After Yang Steps Down

Yahoo Inc said Jerry Yang will step down as chief executive as soon as the board finds a replacement, sending its shares up 4 percent on hopes his departure will clear the way for a deal with Microsoft.

Yang — who will return to his former role as Chief Yahoo, focusing on strategy and technology — tried to carve an independent strategy for Yahoo and was blamed when Microsoft Corp walked away from an offer to buy the company earlier this year.

Rival Google Inc abandoned a search advertising partnership amid regulatory concerns, and Yang faced a growing chorus of criticism from investors and analysts as Yahoo’s shares nosedived.

Yahoo’s months-long talks with Time Warner Inc about combining with its AOL unit — as yet another way to boost Yahoo’s earnings — have also failed to produce a deal.

"Competing with Google is Tough Stuff"

“The company is in desperate need of change and this is clearly one way to do it,” said Ross Sandler, an analyst at RBC Capital Markets, adding that Microsoft could enter the picture again. “Jerry was the roadblock for the last deal getting done.”

Yang has consistently said that he would sell the company for the right price.

Microsoft declined to comment.

Yahoo shares rose to $11.10 in after-hours trading from their Nasdaq close of $10.63.

The shares are down nearly 65 percent from their 52-week high of $30.25, reached in February, two weeks after Microsoft made its $31-a-share offer public.

Microsoft withdrew its $47.5 billion buyout offer in May after Yahoo rejected the sweetened bid.

Yang, a co-founder of Yahoo, took on the CEO role in June 2007, hoping to strengthen its position as an online consumer brand.

“From founding this company to guiding its growth into a trusted global brand that is indispensable to millions of people, I have always sought to do what is best for our franchise,” Yang said in a statement.

Last month, Yahoo announced it planned to cut at least a tenth of its workforce, or about 1,500 jobs, as corporate brand advertisers scaled back spending on Web marketing promotions amid a global economic downturn.

In an e-mail sent to employees, a copy of which was seen by Reuters, Yang said his decision to step down was taken jointly with Yahoo’s board.

“All of you know that I have always, and will always bleed purple,” Yang wrote, referring to Yahoo’s corporate color.

Yang has been talking with the board, which includes activist investor Carl Icahn, about stepping down since before Google pulled out of the search deal in early November, said a person familiar with the talks.

Icahn did not return a call seeking comment.

Yahoo Chairman Roy Bostock is leading the effort to find a replacement, said Yang, who will continue to serve as a director.

“Jerry was miscast in this CEO role as far as running Yahoo at this point,” said Martin Pyykkonen, an analyst at Wunderlich Securities. “He’s much better off running strategy or technology behind the scenes.”

Pyykkonen said it was a step in the right direction for Yahoo, but warned that a lot depended on the board’s choice to replace Yang.

“Because he’s stepping down doesn’t mean the company is going to magically be wonderful again,” he said.

Yahoo has hired the executive search firm of Heidrick & Struggles to look for both internal and external candidates.

The process could take anywhere between four weeks and 12 weeks, the source said.

Analysts listed several executives as potential candidates for the job, including former AOL chief Jon Miller, News Corp President and Chief Operating Officer Peter Chernin, former eBay Inc Chief Executive Meg Whitman, former Yahoo COO Dan Rosensweig and Yahoo President Sue Decker.

The source familiar with Yang’s talks with the board said Decker, No. 2 at Yahoo, was among the candidates being considered.

Surprising Insights Revealed by Web Analytics

Google Analytics' group manager explains the way current site measurement can help you better understand your customers and what new capabilities may be on the horizon.

It wasn't long ago that only the largest companies had the tools to understand customer experience online -- to see what was working on their websites, what was broken and why. These tools, collectively called web analytics, are now within the reach of even the smallest sites.

Jupiter's recent Web Analytics Buyer's Guide found that nearly 90 percent of businesses with public-facing websites use a web analytics tool. And more and more, these tools are free, features are abundant and installation time has never been faster. Executives know what the term "page views" means, and all kinds of people within companies -- not just analysts -- use website data to drive business decisions. As the Jupiter report notes, "The feature war is over and now marketers need to know how to leverage the increased accessibility of analytics tools to develop more usable tracking strategies."

People generally look at web analytics as a way to learn about customer behavior. Used correctly, however, web analytics will reveal something that is possibly even more important: customer intent. Information gleaned through analytics data provides a peek into the hearts and minds of your customers, revealing their most pressing needs and wants. And the results are not always obvious: people's intent on a website can differ wildly from what the web designer had in mind.

Using the data
While many retailers and their designers spend considerable time worrying about aesthetic considerations -- making the site look appealing -- what they should focus on instead is their data. Properly used data can result in drastic improvements in user experience.

A great example of a site doing things right is Zappos.com, which sells shoes, accessories and clothing. The company launched in 1999 with little business and now projects $1 billion in sales this year, becoming the largest footwear retailer on the web. The company's website is mainly meant to be functional. But Zappos does two things well. The first is top-shelf customer service. The second is focusing on data, using it to understand their customers' needs and building their website around that understanding.

You can use analytics data to do the same. Start by answering four key questions about your website:

1. How do your visitors arrive? For those coming through a search-engine query, a list of search terms will tell you what they were seeking when they arrived. Analytics can also give you a list of referring URLs -- websites that send you traffic. The simple step of marrying those referring URLs with conversions on your site will help you identify valuable sources of traffic and sites that send you high-converting traffic.

2. What are visitors looking for? Your checkout page can tell you only where you've succeeded, not where you've missed an opportunity. Search keyword reports and internal site-search reports can reveal what people are seeking, not just what they've found. Another crucial metric is your cart abandonment rate: the percentage of customers who put items in the cart but left your site before checking out. Use it to find if something's amiss with your checkout process.

3. Where are visitors landing, bouncing and viewing? The assumption that user experience begins on the homepage drives many designers to waste hours of work in the wrong place: for customers entering your site through a search engine, you have multiple homepages -- not just a single entry point. Your Top Landing Pages or Top Entry Pages report will tell you where your real "homepages" reside, so you can focus your design work there. Analytics will also tell you which landing pages have the highest bounce rate – pages on which people landed, looked around and left. And through your Top Viewed Pages report, you can see what content interests your customers -- or doesn't.

4. What are your website's trends over time? Analytics can help you understand what drives your performance up or down. E-commerce tracking shows the number of orders placed and the value of those orders, and by segmenting your data over different timelines, you can see subtle buying habits that could have otherwise gone unnoticed.

Web analytics tools have always reflected changes in online behavior -- that's what they track, after all -- and with video, Flash and other multimedia pervading more and more websites, we need a way to measure their success.

You could think of it as event tracking; the events being a visitor's interaction with multimedia elements such as gadgets and YouTube videos. Increasingly, your customers are taking action within a page on your site, not among pages, and so measuring page activity doesn't fully cover their behavior. Event tracking reports can track web applications and interactions without artificially inflating your page-view metrics. These reports are in their early days, just like the media they're tracking, but look for more to come.

When it comes to customer insight, there's no substitute for web analytics, and no time like the present.

--Brett Crosby

Microsoft Nears Deal On Search With Verizon

Microsoft Corp. is moving closer to an agreement with Verizon Wireless to become the default search provider on the wireless carrier's cellphones, a deal rival Google Inc. has been striving for, people familiar with the discussions said.


Under the terms now being considered, Microsoft would share revenue with Verizon from ads shown in response to cellphone Web searches, with guaranteed payments to the carrier of approximately $550 million to $650 million over five years, or roughly twice what Google offered, these people said.

Separately, Microsoft is negotiating a deal to put its Windows Mobile software in more Verizon devices. The combined value of the two deals could top $1 billion, these people said, though it isn't clear if Microsoft is offering to pay Verizon to use Windows Mobile, or would allow Verizon to use the software for free.

Verizon is tilting toward Microsoft because the software giant is offering significantly better financial incentives, but the telecom company is still in discussions with Google and the situation is fluid with both companies, these people said.

A Google spokesman did not have an immediate comment.

Verizon Communications Inc. Chief Executive Ivan Seidenberg said in a CNBC interview Friday that the company plans to make a decision soon. The Wall Street Journal earlier reported on the talks with Verizon Wireless, which is a joint venture of Verizon Communications and Vodafone Group PLC.

Microsoft and Google have been competing over a variety of distribution deals and partnerships recently, with Microsoft showing that it is willing to outbid Google. Microsoft beat out Google for an investment in social-networking site Facebook Inc. last year, and more recently the two have jockeyed over different deals with Yahoo Inc.

Now the companies are both aiming for the rights to be the default search provider on cellphones. While a user can visit any search engine through the browser on their mobile device, carriers and Internet companies believe usage will increase when they put search services in prominent places on phones.

Web searching on cellphones is still new to most consumers. Only about 7.7% of cellphone users, or 17.6 million people, accessed Web search engines through their mobile phone browsers in September, according to comScore M:Metrics Inc. But Google is an early leader, with about 60% of users opting for its engine, while only 36% use Yahoo and 10% use Microsoft, comScore said.

Google already has a search and advertising partnership with Sprint Nextel Corp., while T-Mobile USA Inc. is selling the G1, a smartphone that runs on Google's Android software and has Google's search bar on its home screen.

AT&T Inc. plans to make Yahoo the default search engine for its MEdia Net Web portal, accessible on most high-end phones. Foreign carriers such as Deutsche Telekom AG's T-Mobile unit in Europe and KDDI in Japan already have partnerships in place with Google and Yahoo.

Skeptics say these partnerships ultimately won't matter much, as surfing the Web becomes easier on phones and consumers gravitate to whatever search engine they are most comfortable with. But Roger Entner, a telecom analyst with Nielsen IAG, said deals like Verizon's are an opportunity for Internet companies to leap ahead of rivals. "This is a market that hasn't been divided up yet," he said.

The two tech giants also are trying to push their mobile operating systems, the software that interacts with cellphone hardware and runs all other applications. Microsoft Windows Mobile, which has been in the market for seven years, already powers many Verizon phones. By contrast, Google's Android just hit the market this year and Verizon has so far declined to carry it.

—Amol Sharma and Nick Wingfield

Microsoft Turns to Sun Microsystems For Help With Keyword Search

In its latest move to increase Internet search traffic, Microsoft has turned to an old rival, Sun Microsystems, for marketing help.

Under the terms of a deal being announced today, Sun will promote a Microsoft toolbar for the Internet Explorer browser to U.S.-based Web surfers as they download Sun's Java software—which is required to view some Web sites. The toolbar has a built-in box for queries to Microsoft's Live Search and buttons that give people access to MSN content.

Microsoft ranks a distant third in the Web search market behind Google and Yahoo.

Sun and Microsoft have competed bitterly on several fronts. In particular, Sun was one of the most prominent antagonists in Microsoft's long antitrust battles. In 2004, Sun reaped nearly $2 billion in a patent and antitrust settlement payout from Microsoft.

Sun and Microsoft did not disclose the financial details or the length of their new deal. It comes as Sun is struggling mightily, having posted a $1.7 billion loss in its most recent quarter.

Online Sales Expected to Slow Pace

Online retailers expect sales growth to slow this holiday season from recent years, but more than half those surveyed by an industry group anticipate ringing up at least a 15% increase from last year.

"Online retailers are resilient when it comes to the economy, but they're not immune," said Scott Silverman, executive director of Shop.org, a unit of the National Retail Federation. He attributed the slower growth partly to the maturation of the online market. "It's challenging to keep up those really high growth rates."

The survey of 60 online retailers was conducted for Shop.org from Oct. 1 through 20. Shop.org expects online retail sales to rise 17% for the whole year to $204 billion. Online Sales for kids shoes and childrens shoes are still going strong. Heading into the key holiday season, retailers may be in for more tough times, according to Joe Feldman, senior research analyst at Telsey Advisory Group. Kelsey Hubbard reviews the sector's latest round of results. (Nov. 6)

"With consumers looking to save money due to the economy, the savings factor is playing a key role in keeping online shopping growing," Mr. Silverman said. "Consumers can comparison shop much more easily [online] than in other retail formats." In a survey of 2,040 shoppers conducted Sept. 29 through Oct. 3, Shop.org found that 23% said they were spending more online due to high gas prices.

While the 56% of online retailers who expect at least 15% sales growth this holiday season appears strong, it is well below the portion who have expressed such optimism in recent years. Last year, 78% of retailers forecast at least 15% sales growth.

A majority of the online retailers surveyed in October said they plan to offer free shipping to attract customers, but 21% of them said they would raise the minimum purchase requirement this year.

Retailers also said were focused on revamping Web sites to increase online sales: 43% said they are adding product videos, 33% are adding customer reviews and 25% are creating Facebook pages to promote their sites. To appeal to price-conscious customers, 27% said they are adding clearance-sale pages to their sites.

Google Ditches Ad Pact With Yahoo

Yielding to pressure from regulators, Google Inc. abandoned its partnership with Yahoo Inc. -- a move that leaves Yahoo in the lurch and highlights the increasing scrutiny of Google's dominance in the market for Internet search advertising.

The deal's demise comes at a pivotal moment for Yahoo and its chief executive, Jerry Yang, who had been counting on the deal to jumpstart Yahoo's flagging business and placate shareholders.

Some investors took Google's retreat as an opening for Microsoft Corp. to renew its interest in Yahoo, driving Yahoo's battered stock up 4.3% to $13.92 Wednesday. The stock has fallen about 40% this year.

At a conference in San Francisco Wednesday, Mr. Yang suggested he is willing to sell the company. "To this day, I believe the best thing for Microsoft to do is to buy Yahoo," he said.

A person familiar with Microsoft's thinking said there is still support within the upper echelons of the company for a narrow deal with Yahoo -- such as the purchase of Yahoo's search-engine business -- rather than a full-blown acquisition. However, this person said Microsoft is likely to wait before resuming serious deal talks with Yahoo to gauge how the weakening economy impacts Yahoo and Microsoft's own business.

"A deal such as the one turned down this summer with Microsoft, if still available, where Microsoft guaranteed income from search, would be excellent," Mr. Icahn said in an interview. "I never thought a short-term Google deal was that important to Yahoo."

To Yahoo's dismay, Google walked away from their pact Wednesday after the Department of Justice, which has been reviewing the agreement for months, told both companies it would sue to block the agreement.

Google said it was ending the pact to avoid a "protracted legal battle."

Yahoo said it was "disappointed that Google has elected to withdraw from the agreement rather than defend it in court." At the same time, the Internet giant played down the importance of the deal to its future, calling it "incremental." On stage Wednesday evening, Mr. Yang said the Justice Department's decision indicated "the government does not understand our industry."

The deal was a miscalculation for Google CEO Eric Schmidt, who had publicly opposed Microsoft's takeover of Yahoo. Mr. Schmidt had several times stated that his company's deal with Yahoo satisfied antitrust law.

Google has steadily grown into an online-ad powerhouse without major regulatory interference. But the Yahoo pact invited a high level of federal scrutiny, which could affect the types of future agreements and deals the search giant decides to pursue.

The agreement, which Yahoo struck with Google in June after talks with Microsoft collapsed, had been on the rocks for weeks. Talks between the companies and regulators had hit a stalemate, even though Google and Yahoo offered compromises like capping how much revenue Yahoo could get from the deal.

The Justice Department said attorneys generals from 15 states participated in the review and repeatedly highlighted Google's dominance in the search market, noting that it had "shares of more than 70 percent" in both the Internet search-advertising and search-syndication markets.

"This doesn't mean that everything Google wants to do will be challenged by the Justice Department," said Bruce McDonald, a former deputy assistant attorney general with the Department of Justice. But, he said, Google "is on notice that the Justice Department thinks that competition in the [search] space needs to be protected."

In the short-term, Google's decision shifts the spotlight to Yahoo and what that company will do next. Yahoo had been hoping that the deal would accelerate growth in its search business to prop up the rest of the company.

The unraveling of the search deal is likely to intensify investors' questions about whether Yahoo can continue to exist as an independent company.

Yahoo has continued to actively weigh its options. The company has for months been in talks with Time Warner Inc.'s AOL about a possible combination, according to people familiar with the matter. While talks continue, a deal isn't imminent, they said. Other one-time suitors such as News Corp. aren't actively considering a deal, according to people familiar with the matter. News Corp. owns Dow Jones & Co., which publishes The Wall Street Journal.

A Microsoft spokesman declined to say whether the collapse of the Google deal would lead to a resumption of talks between Microsoft and Yahoo.

The person familiar with Microsoft's thinking said two factors that might slow the company's urge to do a deal are the transition early next year to an Obama administration that will bring with it a new set of antitrust enforcers, and Microsoft's continuing hunt for a new executive to lead its online business.

In a statement, Microsoft General Counsel Brad Smith praised the government's opposition to the Google deal. "The Department of Justice's finding is significant for advertisers, publishers and consumers, who voiced overwhelming concern about this illegal deal to law enforcement and policymakers," Mr. Smith said.

The agreement would have allowed Yahoo to display search ads sold by Google and to share some revenue, but many advertisers and Google partners expressed concern that the deal would raise prices for search ads and give Google too much control over the online advertising market.

In a statement Wednesday, the Justice Department said that the deal would have "blunted" Yahoo's ability to compete on search pages where it chose to implement Google ads.

Yahoo's Search for Salvation


Jerry Yang is digging himself into an ever-deeper hole.

The Yahoo chief executive's latest effort to keep the company independent, disclosed Monday, is a proposal to outsource just 25% of Yahoo's search-advertising revenue to Google for just two years.

This half-baked plan is worse than his original idea: to outsource an unlimited amount of Yahoo's search advertising to Google for 10 years. That plan, which ran into government opposition, would likely have allowed Google to cement its domination in search. But in return, Yahoo would have significantly boosted its search-ad revenue, giving it breathing room to put the rest of its house in order.

Now Yahoo is essentially cutting back on its competition with Google, without getting much in return. With only 25% of revenue from Google's more-efficient ad engine, Yahoo won't get a huge sales boost, but will have less incentive to invest in improving its own search technology.

Yahoo, meanwhile, needs to revive its lucrative display-advertising business. Yahoo still has a chance to dominate the market for online display ads -- those big graphical ads that can take up more than a quarter of a Web page. But it has pursued a misguided advertising strategy, combining its search- and display-advertising sales forces and focusing on technology to try to boost the rates of lower-priced ads running across the entire site.

The strategic change meant Yahoo neglected its core business of selling premium ads on its front page and lucrative section fronts such as Yahoo Finance. Amid the turmoil, Yahoo's respected ad chief, Wenda Harris Millard, left the company with other top talent, taking with them some of their cozy relationships with Madison Avenue marketers.

An overall downturn in online display advertising and increased inventory from high-traffic rivals such as social-networking sites has further hurt Yahoo. The company has hired Microsoft's longtime ad sales executive Joanne Bradford to turn the situation around. But that is a big task, which could be muddied further by a partial reliance on Google.

Yahoo doesn't have many good options. A deal with AOL would simply yoke two sinking properties together, possibly making them sink faster. Traditional media companies that have sniffed around Yahoo are too weak themselves to make a bid. And, given the economic weakness, any Yahoo recovery could be far off.

Shareholder patience will be finite. Earlier this year, Yahoo failed to grab Microsoft's discussed $33-per-share offer. Now, Microsoft might be able to snap up a weakened Yahoo, which is trading at about $13, for closer to $20. Having fought Microsoft so hard, Mr. Yang faces the prospect of being forced back to Microsoft chief Steve Ballmer to lift him out of his hole.

Eric Schmidt wants to join the Obama cabinet

Google Inc. Chief Executive Eric Schmidt appears interested in joining Barack Obama's cabinet. He's not campaigning for the job, telling the Wall Street Journal that he was "too busy" running the world's largest search engine company.

Of course, anyone who wants a cabinet position never admits it. It's considered a faux pas. Schmidt, though, seems to be interested in making a difference beyond Google. He does not want to sit back on some deserted island counting his billions as he downs exotic frozen drinks.

The Journal, citing unnamed tech and media executives, speculated that Schmidt "might desire a role in an Obama administration, possibly the chief technology officer post Sen. Obama has said he would create." Exactly what that job would entail is not clear. It sounds like the type of job where Schmidt would sit in an office somewhere in the White House thinking grand thoughts and writing grand reports that would gather dust almost as soon as they were published.

Schmidt's endorsement is hardly a shock. The Google co-founders are liberal in their politics. As the Journal noted, Google employees gave $487,355 to Obama's campaign compared with $20,600 to Republican John McCain as of Aug 31. Google is in much better shape politically than Cisco Systems Inc. (NASDAQ: CSCO) whose CEO John Chambers is a big supporter of John McCain. Two other tech has-beens Meg Whitman of eBay Inc. (NASDAQ: EBAY) and Carly Fiorina of Hewlett-Packard Co. (NASDAQ: HPQ) also support McCain.

Maybe Schmidt is playing politics. Google has some major issues pending in Washington including net neutrality and possible Yahoo Inc. (NASDAQ: YHOO) dealings. You can bet that the Obama administration -- which will come into existence in a few weeks barring any shocking scandals -- will want to exploit its ties with the company that will one day rule the world.