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Saturday, October 30, 2010

FTC: No fine in Google Street View Wi-Fi Probe


Google won't face any fines from U.S. regulators over its accidental Street View Wi-Fi data collection.

The Federal Trade Commission sent a letter to the search company today, saying that because Google has made improvements to its internal privacy practices, including a formal review process, it would not pursue the matter further.

"Because of these commitments, we are ending our inquiry into this matter at this time," wrote David Vladeck, director of the FTC's Bureau of Consumer Protection.

In May, Google said that because of a programming error, its Street View cars had intercepted fragments of data from unencrypted Wi-Fi networks for periods of 200 milliseconds at a time. An investigation by the Canadian government showed that the about 12 Blu-ray discs' worth of Wi-Fi transmissions worldwide were collected after an unnamed Google engineer failed to follow company procedures--by not sending design specifications for Street View code to the company's legal department for review.

Google acknowledged last week that, in some cases, it collected e-mail messages and passwords. There is no evidence the data was ever misused or used for any purpose except Google seo. The company has no plans to resume using its Street View cars to collect information about the locations of Wi-Fi networks.

Vladeck's letter said that Google "should develop and implement reasonable procedures" to "identify risks to consumer privacy."

In a blog post on October 22, Google outlined the steps it was taking to improve its privacy practices, including appointing computer scientist Alma Whitten as a director of privacy, and better training and legal compliance.

Some other privacy commissioners continue to investigate Street View.

Google has issued this statement: "We welcome the news that the FTC has closed its inquiry and recognized the steps we have taken to improve our internal controls. As we've said before and as we've assured the FTC, we did not want and have never used the payload data in any of our products or services." And while I'm at it, in case there's any confusion, the investigations aren't targeting Street-View-the-mapping-product. Instead, the agencies have been looking into how Google's cars that did the mapping separately collected fragments of unencrypted Wi-Fi transmissions.

Friday, October 29, 2010

Yahoo taps former News Corp. exec Ross Levinsohn


Yahoo has hired former Fox Interactive Media president Ross Levinsohn, Yahoo company announced yesterday.

Starting in November, Levinsohn will become Yahoo's executive vice president of the Americas. In his new role, Levinsohn will be in charge of the Web giant's "media group, advertising sales, and partnerships," the company said in a statement. He will report directly to Yahoo CEO Carol Bartz.

Levinsohn will leave his current position as co-founder and managing director of equity management firm Fuse Capital.

Although Levinsohn of late has been on the investment side of the digital media business, he has lots of hands-on experience to draw on. He played an integral role in News Corp.'s acquisition of social network MySpace when he was president of Fox Interactive Media. He also oversaw Fox Interactive Media's highly lucrative 2006 advertising deal with Google. Prior to joining Fox, he held management positions at AltaVista, CBS Sportsline, and HBO.

Yahoo currently finds itself in an interesting position. Earlier this month, rumors started surfacing that Yahoo was being courted by several firms, including AOL and News Corp., looking to acquire the company. Those rumors have since died down. And with Levinsohn's arrival at Yahoo, it seems the company might be planning to try its own luck online.

Yahoo Stock rises on buyout Rumors


Make no mistake, there are no definitive offers on the table to do a variety of takeover deals of Yahoo by either private equity moneybags or from big media giants such as News Corp. and smaller Web firms such as AOL.

But that does not mean that major players are not circling Yahoo and assessing the situation aggressively, a fact reflected in the rise in the Internet giant's stock price today based on the many rumors swirling around it.

Despite being news to some, BoomTown had previously written about all these various scenarios, including interest from News Corp. and AOL, after the recent departure of a trio of top Yahoo media and sales execs brought into sharp relief the pressure CEO Carol Bartz is under to turn around the company.

Yahoo shares were up almost 6 percent to close at $15.25, a high of late. They're up to $16.20 in after-hours trading.

According to sources close to the situation, that's because big PE firms such as Silver Lake Partners, as well as News Corp., AOL, and others, all have their PowerPoints opened up to try to figure out if there is a deal to be made to buy all or a piece of Yahoo in the wake of corporate turmoil, slow revenue growth, and a weak stock under the leadership of Bartz.

Sources said the key players in the growing soap opera are the execs who run Yahoo-affiliated companies in Japan and China. That would be Masayoshi Son of Yahoo Japan and Jack Ma of the Alibaba Group.

Yahoo owns big and lucrative stakes in both companies, assets which make up a big part of the company's current valuation.

The sale of those stakes is what has some investors interested, since--if thorny tax issues can be solved--it would make the purchase of part or all of Yahoo very inexpensive in relative terms.

Sources added that any approach would have to be nonhostile, since Yahoo still has some stringent antitakeover provisions in place from a takeover attempt a few years ago by Microsoft.

But alternate CEOs to Bartz are part of the ruminations:

As I wrote two weeks ago, which others are finally getting around to checking out (took you long enough!):

    Most frequently mentioned by big investors in Yahoo: AOL and its CEO Tim Armstrong.

    Armstrong, said sources, has not shied away from the idea of Yahoo acquiring AOL and installing him as CEO with Bartz as chairman. AOL's valuation is just $2.65 billion.

    Although AOL has also been trying to turn itself around and is in a much less powerful position than Yahoo, Wall Street likes Armstrong's story for AOL as a modern-day media and media distribution company.

    "At least he has a narrative that is believable," said one big investor in both companies. "Bartz has no vision."

Among the other credible candidates most mentioned: News Corp. digital head Jon Miller, if the media giant was part of any deal; and Juniper Networks CEO Kevin Johnson, who was the architect of the failed takeover of Yahoo by Microsoft.

What's interesting here is what the board--and, most specifically, co-founder and former CEO Jerry Yang--is doing now.

For certain, it is receiving an incoming flood of negative communications from big shareholders, most of whom are unhappy with Bartz's management. One big investor recently told board members that their continued inaction in the face of all the trouble was unsettling.

One big event coming up is the third-quarter earnings report by Yahoo on Tuesday, after the markets close.

If Yahoo's sales remain flat as they were in the second quarter, even with improved earnings, there will be even more scrutiny of Bartz to find growth.

One way might be via a big acquisition. Yahoo has recently been contemplating the local space, especially social discounting phenom Groupon. But the price would have to be high, sources said--well above $2 billion in cash and stock.

Would such a bold move be enough to keep the predators of Yahoo at bay? We'll see, as the purple world turns.

A Yahoo PR person declined to comment on the stock rise.

Of course, a higher stock is a problem for acquirers, as it makes Yahoo more expensive. Still, sources said a Yahoo deal of about $20 a share is entirely "doable."

Melinda Gates: No Apple Products in my House


How should one bring up children? Should one give them everything for which they ask? Or should one make them understand very early in life that some things are bad for them, whether it is physically or psychologically?

This flight of philosophical depth comes to me on reading an interview in the New York Times with Melinda Gates, wife of Microsoft's Bill.

I wasn't sure whether to laugh, cry, admire or attempt to plait my eyebrows. You see, the interviewer offered her questions about Apple. The first was quite amusing: "Do you own an iPod, which is made by Apple?"

When I read this i was overcome with a feeling that Halloween had come early. Melinda Gates needs to be told that the iPod is made by Apple? Might this phraseology not have made her shiver too?

Still, her reply was sturdily corporate: "No, I have a Zune."

The interviewer persisted on pushing the buttons of Melinda Gates and her Zuneiness: "What if one of your children says, 'Mom, I have to have an iPod?'"

Again I was disturbed by this phraseology. Do kids really say "I have to have"? Or might they still have a tinge of human politeness and offer "Please can I have?"

Gates again offered a corporately correct response: "I have gotten that argument--'You may have a Zune.'" Note the enormously polite use of "may" in response to the alleged "I have to have".

The interviewer was not to be deterred. She asked Gates whether she owned an iPad ("Of course not"). Gates denied that her husband works on an Apple laptop. "False. Nothing crosses the threshold of our doorstep," she said.

This curious interview of domestic manners reached its highest note when the interviewer asked: "Isn't there room in this world for both Apple and Microsoft?"

Really. Isn't that like asking someone whether there's room for rabbits and porcupines? Voles and raccoons?

But the response might suggest to some that this interview was being conducted via Google Translate. For Gates' reply was: "Microsoft certainly makes products for the Macintosh. Go talk to Bill."

Perhaps you, too, are left with a peculiar sensation in several of your active quarters on reading these exchanges. I wonder, though, what the Gates' kids might make of it all. Surely they must have held an iPod or an iPad in their hands. What if they liked them?

Is deprivation a positive parenting tactic? Or will children grown up to crave what they were denied? Just as those who own Apple products crave Flash. Oh, wait.

Thursday, October 28, 2010

Travel Sites oppose Google ITA Purchase

The Wall Street Journal

Several popular online travel companies are joining forces to oppose Google Inc.'s proposed $700 million purchase of ITA Software Inc., the leading provider of flight data, saying the deal would give it too much sway over the travel sector.

Expedia Inc.,, Sabre Holdings and Farelogix Inc.—which operate half-a-dozen leading online travel sites—are forming a coalition called to persuade the Justice Department to block Google's latest deal.

The companies are also launching a lobbying blitz on Capitol Hill, making the case to members of Congress that the deal would allow Google to dominate the online air-travel market by giving it control over the software that powers many of its rivals in the travel search business.

Google responds that buying the service will help it provide more useful information to consumers when they search for flight data.

But opponents of the deal worry that Google could limit access to ITA's software, which is used by many of the flight-comparison sites operated by the members of the newly formed coalition. Expedia also runs Hotwire and TripAdvisor. Sabre runs Travelocity, while Kayak runs SideStep in addition to

Separately, Microsoft Corp. has also opposed the deal in conversations with Justice Department investigators and lawmakers. Its search engine, Bing, relies on data from ITA to power travel searches.

Overall, ITA's software handles about 65% of direct, online air-travel bookings for airlines, the company says. ITA declined to comment.

Opponents of the deal also highlight what they say is Google's power over an ever-expanding array of businesses as it reaches into sectors from broadband Internet to mobile telephony and now travel. They cite figures from Experian Hitwise showing that Google is the source of more than 30% of all search engine traffic to online travel sites—and could direct that traffic its own way.

"Google has tremendous power in the search market, and it gives Google the ability to steer users in directions that are best for Google," Expedia's counsel, Thomas Barnett, said in an interview. "All of that would ultimately end up harming consumers."

Mr. Barnett blocked Google's proposed advertising deal with Yahoo Inc. when he headed the Justice Department antitrust division during the administration of George W. Bush.

Not everyone in the $80 billion online travel sector opposes the deal. Some, such as Priceline, Travelport and Orbitz, have offered qualified support. Airlines have generally remained cagey about the deal. But some have signaled their concern privately, saying they haven't received assurances they have sought from Google.

Google says its purchase of ITA won't allow it to corner the market on travel searches. It points to several other companies that provide airline travel data and says it doesn't plan to sell tickets itself. Google also promises to honor all of ITA's existing contacts.

"When a user is searching on Google for a flight, we'd like to provide a more useful answer in the form of flight results, just as other search engines do today," said Adam Kovacevich, a Google spokesman. "We plan on building flight-search tools that will drive more traffic and potential customers to airlines' and online travel agencies' websites, and so we've been encouraged by the support this deal has received from the online travel industry."

Rivals say that Google's promises are hollow. They say that no other company can replace ITA's service and that Google hasn't committed to renewing their contracts or passing along any upgrades. They also fear that Google could analyze their use of ITA's data to gain an insight into their own proprietary systems for competitive reasons.

"We have raised those concerns with both ITA and Google separately through multiple requests," said Robert Birge, chief marketing officer of Kayak. "Those requests have been explicitly denied, signaling their intent."

The online travel companies question why, if it doesn't intend to keep ITA's data to itself, Google decided to buy the company instead of simply becoming another client. Google says the purchase will allow it to more fully integrate ITA's data, creating more innovative products that will benefit the consumer.

The Justice Department is conducting an extended antitrust review of the deal, which was unveiled in July.

Wednesday, October 27, 2010

Google Names Susan Wojcicki SVP


AdSense creator joins elite group

Susan Wojcicki is an important figure in Google's history for all sorts of reasons, which we'll run through in a moment.  But it looks like she'll play an important role in its future, too, as word has come that Wojcicki was named a senior vice president yesterday.

A little background info: Wojcicki is the person who rented her garage to Larry and Sergey when they were in the process of founding Google.  She later became Google employee number 18, and managed to create everything from Google Doodles to AdSense over the years.

One more interesting point: Wojcicki became Sergey's sister-in-law when he married her younger sister, Anne, in 2007.

As for the latest development, Claire Cain Miller reported, "Ms. Wojcicki has been named a senior vice president, Eric E. Schmidt, Google's chief executive, announced on Monday in a memo to Google employees. . . .  She was formerly a vice president, of which there are dozens at Google.  She joins eight other senior vice presidents."

Miller then added, "Ms. Wojcicki's day-to-day job will remain the same, overseeing all Google advertising products, including AdWords, AdSense and DoubleClick."

Bill Gates, Google's Brin Fund Fight for California Carbon Law


Clean-energy investors and environmentalists in California raised $11.9 million in the past two weeks to snuff out a challenge, backed by oil refiners Tesoro Corp. and Valero Energy Corp., to the state’s global- warming laws.

Voters in the most-populous U.S. state will decide in eight days on Proposition 23, a proposal to suspend a state law restricting greenhouse-gas emissions until California’s unemployment rate falls to at least 5.5 percent. The rate in September was 12.4 percent, third-highest after Nevada and Michigan.

Microsoft Corp. founder Bill Gates, Google co-founder Sergey Brin and James Cameron, director of the world’s top- grossing film “Avatar,” have donated to the campaign in the past two weeks, according to state records. If passed, the measure would undermine the nation’s largest solar market and threaten $9 billion in venture capital investments, according to analysts, investors and renewable-energy companies.

It would have “a significantly negative impact on the valuation of solar energy stocks,” said Ramesh Misra, a solar analyst with New York-based Brigantine Advisors.

First Solar Inc., the world’s biggest maker of solar panel modules, SunPower Corp., the second-biggest U.S. supplier of solar modules, and Yingli Green Energy Holding Co., China’s second-largest maker of solar panels, may fall if the measure passes, Misra said.

Share Prices

Shares of First Solar, based in Tempe, Arizona, rose 7.5 percent this year through Oct. 22. SunPower, based in San Jose, California, fell 43 percent. Yingli Green Energy’s American depositary receipts dropped 26 percent. Each ADR represents one ordinary share.

First Solar rose $1.60, or 1.1 percent, to $147.15 at 4:19 p.m. in composite trading on the Nasdaq Stock Market. SunPower rose 27 cents or, 2 percent, to $13.70. Yingli Green Energy rose 23 cents, or 2 percent, to $11.88 in New York Stock Exchange composite trading.

Groups opposed to the ballot initiative have taken in more than $30 million to sway voters with radio, television and print advertising, out-raising supporters of the measure by almost three to one, according to state records.

The proposition would delay enforcement of California’s Global Warming Solutions Act, which was signed into law by Governor Arnold Schwarzenegger in 2006 and requires the state to cut output of greenhouse gases linked to climate change to their 1990 levels by 2020. The carbon law would create a market for carbon dioxide pollution permits and require utilities to buy almost a third of their electricity from renewable sources such as solar panels.

Fading Support

The proposition looks likely to be defeated in part due to the well-funded challengers, as well as the public’s displeasure with oil companies after the BP Plc spill this year in the Gulf of Mexico, said Robert Stern, president of the Center for Governmental Studies in Los Angeles.

“There has been a lot of opposition to this,” Stern said.

To pass, the proposition requires a majority vote. Among likely voters, 48 percent oppose Proposition 23 and 32 percent support it, according to a poll released today by the University of Southern California and the Los Angeles Times. A Sept. 29 poll from the San Francisco-based Public Policy Institute of California indicated a much closer contest, with 42 percent of likely voters opposed to the ballot initiative and 43 percent supporting it.

Refiner Fundraising

Tesoro, Valero, and Flint Hills Resources LLC, a refining subsidiary of Wichita, Kansas-based Koch Industries Inc., have raised more than two-thirds of the $10.6 million that has financed support of the proposition. Backers say the measure is needed to prevent job losses and will give California’s economy time to recover so that it can better absorb the cost of climate regulations.

Proposition 23 stipulates that the law for cutting greenhouse gases would not take effect until California’s unemployment rate falls to at least 5.5 percent for four consecutive quarters. Since 1970, there have been three periods when the state’s jobless rate has fallen that low for that long, according to an analysis of the ballot measure by the state’s Legislative Analyst’s Office, a non-partisan agency that works for the legislature.

‘Common-Sense Approach’

Valero, based in San Antonio, has 1,600 employees in the state and remains a “dedicated and enthusiastic supporter” of the measure, Bill Day, a Valero spokesman, said in a telephone interview. “We still think it is a common-sense approach to some of the economic difficulties California faces,” Day said.

Tesoro, also based in San Antonio, “firmly supports” the proposition, Lynn Westfall, a Tesoro spokesman, said in an e- mailed statement. Its passage “would be a major milestone in the recovery of the California economy and improve its dismal unemployment rate.”

Koch Industries did not respond to requests for comment.

On Oct. 19, 68 investors managing $415 billion in assets, including venture capital firms Kleiner Perkins Caufield & Byers and VantagePoint Venture Partners, issued a statement opposing the measure. Opponents say it may trigger a backlash against government support for alternative-energy sources across the rest of the U.S.

“I know it will have a national effect,” Jim Watson, a San Francisco-based venture capitalist who serves on the executive committee of the “No on 23” campaign, said in an interview in Washington. “It really is a test of the people’s will,” said Watson, the managing general partner of CMEA Capital, which has $1.2 billion invested in energy, information technology and life sciences companies, according to its website.

Private Contribution

Gates’s contribution was a private one and not from the Bill and Melinda Gates Foundation, said John Pinette, a spokesman for Gates. Google declined to comment on Brin’s contribution. Cameron declined to comment on his donation, said Steven Maviglio, a spokesman for a committee that is campaigning to defeat the proposition.

Backers of the ballot initiative are “quite confident” it will prevail on election day, Anita Mangels, a spokeswoman for the “Yes on 23” committee, said in a telephone interview.

“The volume of venture-capital dollars” that have been devoted to defeating Proposition 23 are meant to “artificially prop up” investments in “clean-tech” companies, Mangels said.

Venture capital firms have invested $9 billion in clean- technology companies in the state since 2005, said Martin Lagod, co-founder and managing director of Firelake Capital Management LLC in Palo Alto, California and an opponent of the ballot measure.

Most of that money was invested on the assumption that California would enforce its greenhouse gas limits, he said.

Tuesday, October 26, 2010

MySpace, Apps Leak User Data

The Wall Street Journal

MySpace and some popular applications have been transmitting information to outside advertising companies that could be used to identify users. Above, website pages from

MySpace and some popular applications on the social-networking site have been transmitting data to outside advertising companies that could be used to identify users, a Wall Street Journal investigation has found.

The information was primarily sent by MySpace when users clicked on ads. The website had pledged to discontinue the practice of sending personal data when users click on ads after the Journal reported it in May.

A MySpace spokesman said the data identify the user profile being viewed but not necessarily the person who clicked on the ad. MySpace is owned by News Corp., which also owns The Wall Street Journal.

MySpace, which had 58 million visitors in the U.S. in September, has been struggling to turn its business around in the face of tough competition from Facebook Inc., which had 148 million U.S. visitors last month, according to comScore Inc.

The data being transmitted were MySpace user IDs. These unique numbers can be used to look up a person's MySpace profile page, which sometimes includes their real name, photographs, location, gender and age. The advertising companies being sent the data, which included Google Inc., Quantcast Corp. and Rubicon Project, said they didn't use the information.

Earlier this week, the Journal reported that the top 10 most-popular applications on Facebook were passing that site's user ID numbers to outside companies. Facebook said it is changing its technology to block the transmission of user IDs.

The MySpace leaks appear to be more limited than those at Facebook, which has far more users and requires them to make public their name, gender and country.

On Facebook, the user ID is linked to a person's real name. MySpace allows users to hide their real names and use a "display name" on the network. That means that user IDs don't necessarily link to people's real identities. MySpace says knowledge of a user ID number only provides access to information a person has made public on their profile.

In addition, the Journal investigation found some MySpace applications were transmitting user IDs, including BitRhymes Inc.'s TagMe, which lets its 8.3 million users make and comment on friends; WonderHill Inc.'s GreenSpot, a virtual gardening game with 1.8 million users; and RockYou Inc.'s RockYou Pets, a game with 6.1 million users.

MySpace said it prohibits app makers from sharing user data, including user IDs, with other entities. "It has recently come to our attention that several third-party app developers may have violated these terms and we are taking appropriate action against those developers," a MySpace spokesman said.

The Journal's investigation demonstrates how fundamental Web technologies can jeopardize user privacy. When a user clicks on an online ad, several pieces of data are transmitted, including the web address of the page where the user saw the ad. At both MySpace and Facebook, that web address has included a user ID.

Craig Wills, a professor at Worcester Polytechnic Institute who has studied how social-networking sites handle user IDs, said such referral data are a growing problem for the Web. As more sites try to tap into social-networking capabilities, "there is the potential danger that those sites with the identifier don't necessarily take care of it, and potentially leak it to whatever third parties are present," he said.

In many cases, the transmission is inadvertent. A RockYou spokeswoman said a company that works with RockYou was transmitting user information to a third company without RockYou's knowledge. "We have taken immediate action to indefinitely suspend their services in connection with RockYou and we are reviewing all third-party providers to ensure compliance with our platform partners' terms of service," she said.

WonderHill didn't respond to requests for comment.

The Journal found that TagMe transmitted a user ID to online tracking company RapLeaf Inc. MySpace and TagMe both said TagMe has since stopped the practice. RapLeaf declined to comment.

BitRhymes, maker of TagMe, said it "has a strict policy of not passing personally identifiable information to any third parties. When we were informed of the issue, any suspect relationship was immediately dissolved."

Monday, October 25, 2010

Google Tightening Privacy Leash on Employees

Associated Press

Google Inc. is tightening its privacy leash on employees in an effort to ensure they don't intrude on people while the Internet search leader collects and stores information about its users.

Besides promoting longtime employee Alma Whitten to be its director of privacy, Google said Friday that it will require all 23,000 of its employees to undergo privacy training. The company also is introducing more checks aimed at making sure workers are obeying the rules.

Google's tougher privacy measures appear to be a response to recent breaches that have raised questions about the company's internal controls and policies.

In the most glaring example that indicated the company didn't have a good grasp on what its workers were doing, Google acknowledged in May that one of its engineers had created a program that vacuumed up potentially sensitive personal information, including e-mails and passwords, from unsecured wireless networks while Google cars cruised neighborhoods around the world. The vehicles were dispatched primarily to take photos for Google's online mapping service, but they also carried equipment to log the location of Wi-Fi networks.

The incident, which some critics have derisively labeled as "Wi-Spy," was caused by "an engineer's careless error as well as a lack of controls to ensure that necessary procedures to protect privacy were followed," Canada Privacy Commissioner Jennifer Stoddart concluded in a report this week.

Several other countries have skewered Google for scooping up 600 gigabytes of data - equivalent to about six floors of an academic library - from Wi-Fi systems for more than two years before detecting a problem five months ago in response from to an inquiry from regulators in Germany.

Google initially said it had only captured fragments of people's online activities, but Canada's investigation determined that entire e-mails, passwords and website addresses had been obtained and stored. In confirming Canada's findings Friday, Google said it wants to delete all the Wi-Fi data remaining on its computers as quickly as possible, but must hold on to most of the information while authorities in different countries conduct their own investigations.

So far, Google has purged the Wi-Fi data it got in Ireland, Austria, Denmark and Hong Kong after gaining clearance from regulators in those countries. It still has the data from more than 20 other countries, including the United States, where a coalition of state attorneys generals has been looking into the breach.

While some countries have asserted Google's Wi-Fi snooping was illegal, the company has maintained it didn't break any laws even as management apologized for its bad behavior.

"We are mortified by what happened, but confident that these changes to our processes and structure will significantly improve our internal privacy and security practices for the benefit of all our users," Alan Eustace, Google's head of engineering, wrote in a Friday blog post.

Google's privacy safeguards appeared to be suspect once again after the Gawker blog reported that an engineer in its Kirkland, Wash. office had been using the privileges of his job to spy on the online accounts of four minors. Prompted by that report, Google last month acknowledged that it had fired the engineer for violating its privacy policies.

Maintaining the public's trust is critical to Google because the success of its search engine and part of its long-term business plans hinge in part on its ability to build databases about its users' preferences. Among other things, Google believes the information helps it deliver better search results than its rivals and sell more of the ads that generate virtually all the company's revenue.

Google, based in Mountain View, Calif., hopes to become an even bigger part of people's online lives by introducing more social networking features on its website so it can better compete with Facebook in the increasingly lucrative field of connecting friends and family members online. When Google introduced a social networking option into its free e-mail service in February, many users protested because the feature exposed their contact lists without prior permission.

Sunday, October 24, 2010

Networks Block Web Programs From Being Viewed on Google TV

The Wall Street Journal

ABC, CBS and NBC are blocking TV programming on their websites from being viewable on Google Inc.'s new Web-TV service, exposing the rift that remains between the technology giant and some of the media companies it wants to supply content for its new products.

Full-length episodes of shows like NBC's "The Office," CBS's "CSI: Crime Scene Investigation," and ABC's "Modern Family" can't be viewed on Google TV, a service that allows people to access the Internet and search for Web videos on their television screens, as well as to search live TV listings. Logitech International S.A. and Sony Corp. began selling devices running the software this month.

Spokespeople for the three networks confirmed that they are blocking the episodes on their websites from playing on Google TV, although both ABC and NBC allow promotional clips to work using the service. ABC is owned by Walt Disney Co., CBS is part of CBS Corp., and NBC is a unit of General Electric Co.'s NBC Universal.

"Google TV enables access to all the Web content you already get today on your phone and PC, but it is ultimately the content owners' choice to restrict their fans from accessing their content on the platform," a Google spokeswoman said in a statement.

The move marks an escalation in ongoing disputes between Google and some media companies, which are skeptical that Google can provide a business model that would compensate them for potentially cannibalizing existing broadcast businesses.

Over the summer, Google pressed major media companies to optimize their websites and videos to work more seamlessly with Google TV. Some outlets, including Time Warner Inc.'s HBO and Turner Broadcasting networks, did so. Even NBC Universal's CNBC embraced the service, optimizing some content to work specifically on Google TV.

But many other companies declined to specifically optimize their websites, and some held out the possibility that they could block their content from the service, as the three networks are now doing. Some TV executives said they were worried their shows would be lost in the larger Internet. Some, including Disney and NBC, were also concerned about Google's stance on websites that offer pirated content, according to people familiar with their thinking.

Disney executives, for example, asked that Google filter out results from pirate sites when users search for Disney content, like "Desperate Housewives." But they were unsatisfied with Google's response, according to people familiar with the conversations.

News Corp.'s Fox Broadcasting and Viacom Inc.'s MTV aren't blocking Google TV from playing episodes on their websites, according to a spot check Thursday. Spokespeople for Fox and MTV confirmed they are not currently blocking Google TV, but the Fox spokeswoman said "a firm decision has not yet been reached." News Corp. also owns The Wall Street Journal.

For its part, Google has tried to assure broadcasters and content owners such as Disney that Google TV's search feature is optimized to promote their TV broadcasts and own websites' video content rather than pirated content, according to a person familiar with the matter.

In addition, Google has also told broadcasters and content owners they can submit requests to Google to delete unauthorized results from the Google TV search feature, just like they do for results in Google's traditional Web search engine, this person said.

Some shows—from siblings of the networks that are blocking their content—were working on Google TV on Thursday. Shows from the CW network, which is jointly owned by CBS and Time Warner, appear to play on Google TV, as do some from Lifetime, a cable channel jointly owned by Walt Disney Co., Hearst Inc., and NBC Universal.

Google won't directly make money from the sale of the Google TV software, but the software's use will benefit Google's ad-supported Web search engine and is expected to increase viewership of the ad-supported YouTube site, which is owned by Google. The company also has been in talks with Madison Avenue's media-buying firms to discuss how to sell ads on the Google TV interface without interfering with TV commercials, people familiar with the matter have said.

But the three networks are also not alone in blocking their content. Video site Hulu, whose owners include Disney, NBC Universal and News Corp., also blocks its video from being played through the Google TV interface. Spokeswomen for both Hulu and Google said the companies are in talks to bring the Hulu Plus subscription service to Google TV.

Friday, October 22, 2010

Governors using YouTube to get Message out

USA Today

A growing number of the nation's governors are joining the laughing babies and dancing cats on YouTube with videos aimed at getting their unfiltered messages to constituents.

At least 38 governors have videos on the online site, including nine who have started this year, a USA TODAY review shows. At least nine other governors have posted videos using other services and state websites.

"It's helpful in getting the message out directly to the public," says Rachel Reeves, a spokeswoman for Kansas Democratic Gov. Mark Parkinson. "Social media in general really helps in getting your message out directly to constituents, unfiltered, without any sort of press sort of narrowing it down to a couple of quotes he may have used."

YouTube use by governors is a bipartisan activity. Seventeen Republicans, 20 Democrats and one independent — Florida Gov. Charlie Crist— currently have videos posted there, the review shows.

Some, like Minnesota Republican Gov. Tim Pawlenty, are using online videos for their campaigns ads. Others, such as Democrat Jim Doyle in Wisconsin, are using YouTube to broadcast official speeches and events. Two governors, Crist and Democratic West Virginia Gov. Joe Manchin, are using YouTube videos in their U.S. Senate campaigns.

In Maryland, Democratic Gov. Martin O'Malley posts videos on YouTube channels that also include other state agency information, such as, in the case of Maryland, tips on how to track black bears. Republican Gov. Rick Perry in Texas has posted videos of speeches, statements and interviews, and he has recently posted videos that use the work of Texas animators.

Arnold Shober, an assistant professor of government at Lawrence University in Appleton, Wis., said online videos allow candidates or sitting governors to control the content.

"They don't have to worry that the newsroom is going to slice up their video package with only the juiciest quote," Shober said. "This gives candidates a lot more control over their message."

That control, however, doesn't guarantee an audience.

The most popular video uploaded by a governor so far was on an issue that captured big attention nationwide — an ad from the campaign of Republican Arizona Gov. Jan Brewer in which she attacked President Obama on immigration. It has garnered more than 1 million views over the past five months.

Most of the governors' videos aren't getting anywhere near that many views. In fact, online viewership counters indicate some of the governors' videos have captured only single-digit page views, even after being online for weeks or months.

• Republican Mississippi Gov. Haley Barbour's remembrance of Hurricane Katrina survivor stories captured eight page views the first six weeks it was online.

• Republican Nebraska Gov. Dave Heineman's speech about a new health science center received just eight views in the year it spent online.

• A video uploaded by Democratic Kansas Gov. Mark Parkinson about flu prevention gathered 17 views in the year it was online.

Reeves said some videos get few clicks but they are still worth posting because they provide another connection to constituents, so they can feel that they are part of the governing process.

"And they certainly are," Reeves said. "Maybe we don't get as many hits, but it's important to reach out to them."

Ines Mergel, an assistant professor of public administration at Maxwell School of Syracuse University, said politicians like the ability to provide quick feedback and responses on issues without waiting for a TV crew. And Mergel, who has studied the use of YouTube in Congress, said it also gives politicians a chance to show another, behind the scenes, side of themselves.

But Mergel said online video and YouTube SEO hasn't replaced the need for politicians to work with traditional media.

"For them, it's adding additional channels and populating everything that they can," she said. "It's just an additional channel on top of everything else.

In North Carolina, Democratic Gov. Bev Perdue, recently hired a director of new media who will oversee YouTube videos.

"We're all beginning to have a new realization of how connected people are," said Chrissy Pearson, Perdue's communications director.

In Indiana, a staffer with a $200 Flip camera broadcast video last year from a trade trip Republican Gov. Mitch Daniels made to China. His spokeswoman, Jane Jankowski, said her office uses YouTube to broadcast events the news media aren't interested in covering and it also is able to show different sides of the governor. Democratic Oregon Gov. Ted Kulongoski posted videos on YouTube in his last re-election campaign in 2006. But his spokeswoman Anna Richter Taylor said his official office doesn't have the resources to post videos online.

Thursday, October 21, 2010

Google 2.4% Rate Shows How $60 Billion Lost to Tax Loopholes


Google Inc. cut its taxes by $3.1 billion in the last three years using a technique that moves most of its foreign profits through Ireland and the Netherlands to Bermuda.

Google’s income shifting -- involving strategies known to lawyers as the “Double Irish” and the “Dutch Sandwich” -- helped reduce its overseas tax rate to 2.4 percent, the lowest of the top five U.S. technology companies by market capitalization, according to regulatory filings in six countries.

“It’s remarkable that Google’s effective rate is that low,” said Martin A. Sullivan, a tax economist who formerly worked for the U.S. Treasury Department. “We know this company operates throughout the world mostly in high-tax countries where the average corporate rate is well over 20 percent.”

The U.S. corporate income-tax rate is 35 percent. In the U.K., Google’s second-biggest market by revenue, it’s 28 percent.

Google, the owner of the world’s most popular search engine, uses a strategy that has gained favor among such companies as Facebook Inc. and Microsoft Corp. The method takes advantage of Irish tax law to legally shuttle profits into and out of subsidiaries there, largely escaping the country’s 12.5 percent income tax.

The earnings wind up in island havens that levy no corporate income taxes at all. Companies that use the Double Irish arrangement avoid taxes at home and abroad as the U.S. government struggles to close a projected $1.4 trillion budget gap and European Union countries face a collective projected deficit of 868 billion euros.

Countless Companies

Google, the third-largest U.S. technology company by market capitalization, hasn’t been accused of breaking tax laws. “Google’s practices are very similar to those at countless other global companies operating across a wide range of industries,” said Jane Penner, a spokeswoman for the Mountain View, California-based company. Penner declined to address the particulars of its tax strategies.

Facebook, the world’s biggest social network, is preparing a structure similar to Google’s that will send earnings from Ireland to the Cayman Islands, according to the company’s filings in Ireland and the Caymans and to a person familiar with its plans. A spokesman for the Palo Alto, California-based company declined to comment.

Transfer Pricing

The tactics of Google and Facebook depend on “transfer pricing,” paper transactions among corporate subsidiaries that allow for allocating income to tax havens while attributing expenses to higher-tax countries. Such income shifting costs the U.S. government as much as $60 billion in annual revenue, according to Kimberly A. Clausing, an economics professor at Reed College in Portland, Oregon.

U.S. Representative Dave Camp of Michigan, the ranking Republican on the House Ways and Means Committee, and other politicians say the 35 percent U.S. statutory rate is too high relative to foreign countries. International income-shifting, which helped cut Google’s overall effective tax rate to 22.2 percent last year, shows one way that loopholes undermine that top U.S. rate.

Two thousand U.S. companies paid a median effective cash rate of 28.3 percent in federal, state and foreign income taxes in a 2005 study by academics at the University of Michigan and the University of North Carolina. The combined national-local statutory rate is 34.4 percent in France, 30.2 percent in Germany and 39.5 percent in Japan, according to the Paris-based Organization for Economic Cooperation and Development.

The Double Irish

As a strategy for limiting taxes, the Double Irish method is “very common at the moment, particularly with companies with intellectual property,” said Richard Murphy, director of U.K.- based Tax Research LLP. Murphy, who has worked on similar transactions, estimates that hundreds of multinationals use some version of the method.

The high corporate tax rate in the U.S. motivates companies to move activities and related income to lower-tax countries, said Irving H. Plotkin, a senior managing director at PricewaterhouseCoopers LLP’s national tax practice in Boston. He delivered a presentation in Washington, D.C. this year titled “Transfer Pricing is Not a Four Letter Word.”

“A company’s obligation to its shareholders is to try to minimize its taxes and all costs, but to do so legally,” Plotkin said in an interview.

Boosting Earnings

Google’s transfer pricing contributed to international tax benefits that boosted its earnings by 26 percent last year, company filings show. Based on a rough analysis, if the company paid taxes at the 35 percent rate on all its earnings, its share price might be reduced by about $100, said Clayton Moran, an analyst at Benchmark Co. in Boca Raton, Florida. He recommends buying Google stock, which closed yesterday at $607.98.

The company, which tells employees “don’t be evil” in its code of conduct, has cut its effective tax rate abroad more than its peers in the technology sector: Apple Inc., the maker of the iPhone; Microsoft, the largest software company; International Business Machines Corp., the biggest computer-services provider; and Oracle Corp., the second-biggest software company. Those companies reported rates that ranged between 4.5 percent and 25.8 percent for 2007 through 2009.

Google is “flying a banner of doing no evil, and then they’re perpetrating evil under our noses,” said Abraham J. Briloff, a professor emeritus of accounting at Baruch College in New York who has examined Google’s tax disclosures.

“Who is it that paid for the underlying concept on which they built these billions of dollars of revenues?” Briloff said. “It was paid for by the United States citizenry.”

Taxpayer Funding

The U.S. National Science Foundation funded the mid-1990s research at Stanford University that helped lead to Google’s creation. Taxpayers also paid for a scholarship for the company’s cofounder, Sergey Brin, while he worked on that research. Google now has a stock market value of $194.2 billion.

Google’s annual reports from 2007 to 2009 ascribe a cumulative $3.1 billion tax savings to the “foreign rate differential.” Such entries typically describe how much tax U.S. companies save from profits earned overseas.

In February, the Obama administration proposed measures to curb shifting profits offshore, part of a package intended to raise $12 billion a year over the coming decade. While the key proposals largely haven’t advanced in Congress, the IRS said in April it would devote additional agents and lawyers to focus on five large transfer pricing arrangements.

Arm’s Length

Income shifting commonly begins when companies like Google sell or license the foreign rights to intellectual property developed in the U.S. to a subsidiary in a low-tax country. That means foreign profits based on the technology get attributed to the offshore unit, not the parent. Under U.S. tax rules, subsidiaries must pay “arm’s length” prices for the rights -- or the amount an unrelated company would.

Because the payments contribute to taxable income, the parent company has an incentive to set them as low as possible. Cutting the foreign subsidiary’s expenses effectively shifts profits overseas.

After three years of negotiations, Google received approval from the IRS in 2006 for its transfer pricing arrangement, according to filings with the Securities and Exchange Commission.

The IRS gave its consent in a secret pact known as an advanced pricing agreement. Google wouldn’t discuss the price set under the arrangement, which licensed the rights to its search and advertising technology and other intangible property for Europe, the Middle East and Africa to a unit called Google Ireland Holdings, according to a person familiar with the matter.

Dublin Office

That licensee in turn owns Google Ireland Limited, which employs almost 2,000 people in a silvery glass office building in central Dublin, a block from the city’s Grand Canal. The Dublin subsidiary sells advertising globally and was credited by Google with 88 percent of its $12.5 billion in non-U.S. sales in 2009.

Allocating the revenue to Ireland helps Google avoid income taxes in the U.S., where most of its technology was developed. The arrangement also reduces the company’s liabilities in relatively high-tax European countries where many of its customers are located.

The profits don’t stay with the Dublin subsidiary, which reported pretax income of less than 1 percent of sales in 2008, according to Irish records. That’s largely because it paid $5.4 billion in royalties to Google Ireland Holdings, which has its “effective centre of management” in Bermuda, according to company filings.

Law Firm Directors

This Bermuda-managed entity is owned by a pair of Google subsidiaries that list as their directors two attorneys and a manager at Conyers Dill & Pearman, a Hamilton, Bermuda law firm.

Tax planners call such an arrangement a Double Irish because it relies on two Irish companies. One pays royalties to use intellectual property, generating expenses that reduce Irish taxable income. The second collects the royalties in a tax haven like Bermuda, avoiding Irish taxes.

To steer clear of an Irish withholding tax, payments from Google’s Dublin unit don’t go directly to Bermuda. A brief detour to the Netherlands avoids that liability, because Irish tax law exempts certain royalties to companies in other EU- member nations. The fees first go to a Dutch unit, Google Netherlands Holdings B.V., which pays out about 99.8 percent of what it collects to the Bermuda entity, company filings show. The Amsterdam-based subsidiary lists no employees.

The Dutch Sandwich

Inserting the Netherlands stopover between two other units gives rise to the “Dutch Sandwich” nickname.

“The sandwich leaves no tax behind to taste,” said Murphy of Tax Research LLP.

Microsoft, based in Redmond, Washington, has also used a Double Irish structure, according to company filings overseas. Forest Laboratories Inc., maker of the antidepressant Lexapro, does as well, Bloomberg News reported in May. The New York-based drug manufacturer claims that most of its profits are earned overseas even though its sales are almost entirely in the U.S. Forest later disclosed that its transfer pricing was being audited by the IRS.

Since the 1960s, Ireland has pursued a strategy of offering tax incentives to attract multinationals. A lesser-appreciated aspect of Ireland’s appeal is that it allows companies to shift income out of the country with minimal tax consequences, said Jim Stewart, a senior lecturer in finance at Trinity College’s school of business in Dublin.

Getting Profits Out

“You accumulate profits within Ireland, but then you get them out of the country relatively easily,” Stewart said. “And you do it by using Bermuda.”

Eoin Dorgan, a spokesman for the Irish Department of Finance, declined to comment on Google’s strategies specifically. “Ireland always seeks to ensure that the profits charged in Ireland fully reflect the functions, assets and risks located here by multinational groups,” he said.

Once Google’s non-U.S. profits hit Bermuda, they become difficult to track. The subsidiary managed there changed its legal form of organization in 2006 to become a so-called unlimited liability company. Under Irish rules, that means it’s not required to disclose such financial information as income statements or balance sheets.

“Sticking an unlimited company in the group structure has become more common in Ireland, largely to prevent disclosure,” Stewart said.

Deferred Indefinitely

Technically, multinationals that shift profits overseas are deferring U.S. income taxes, not avoiding them permanently. The deferral lasts until companies decide to bring the earnings back to the U.S. In practice, they rarely repatriate significant portions, thus avoiding the taxes indefinitely, said Michelle Hanlon, an accounting professor at the Massachusetts Institute of Technology.

U.S. policy makers, meanwhile, have taken halting steps to address concerns about transfer pricing. In 2009, the Treasury Department proposed levying taxes on certain payments between U.S. companies’ foreign subsidiaries.

Treasury officials, who estimated the policy change would raise $86.5 billion in new revenue over the next decade, dropped it after Congress and Treasury were lobbied by companies, including manufacturing and media conglomerate General Electric Co., health-product maker Johnson & Johnson and coffee giant Starbucks Corp., according to federal disclosures compiled by the non-profit Center for Responsive Politics.

Administration Concerned

While the administration “remains concerned” about potential abuses, officials decided “to defer consideration of how to reform those rules until they can be studied more broadly,” said Sandra Salstrom, a Treasury spokeswoman. The White House still proposes to tax excessive profits of offshore subsidiaries as a curb on income shifting, she said.

The rules for transfer pricing should be replaced with a system that allocates profits among countries the way most U.S. states with a corporate income tax do -- based on such aspects as sales or number of employees in each jurisdiction, said Reuven S. Avi-Yonah, director of the international tax program at the University of Michigan Law School.

“The system is broken and I think it needs to be scrapped,” said Avi-Yonah, also a special counsel at law firm Steptoe & Johnson LLP in Washington D.C. “Companies are getting away with murder.”

Yahoo Profit doubles on Cost Cutting, Revenue still Lackluster

USA Today

Yahoo reported lackluster results Tuesday that extended its four-year financial slowdown and could intensify pressure on CEO Carol Bartz.

Third-quarter revenue inched up 2% — to $1.6 billion — from the same quarter a year ago. Google, by comparison, reported a 23% increase this month.

Yahoo's profit of $396 million, or 29 cents per share, was more than double last year's result. However, a big part of the gain came from its sale of HotJobs.

"We have been working hard to create a stronger and more efficient company," Bartz said in a conference call.

Yahoo reported after markets closed. Its stock was up 1%, at $15.65, in extended trading. The sluggish results underscore ongoing challenges at Yahoo, which has been bruised by stiff competition from Google and Facebook, shrinking market share and stagnant business despite a nearly two-year turnaround plan.

Yahoo's current state — compounded by a recent spate of executive defections — has prompted skepticism about Bartz's strategy and whether anyone can reverse Yahoo's flagging fortunes.

"This is a systemic problem in terms of trying to regenerate growth at the company, period," says Martin Pyykkonen, an analyst at Wedge Partners.

Indeed, Yahoo offered a conservative forecast for the holiday shopping season. It expects $1.13 billion to $1.23 billion in revenue — shy of the average analyst estimate of $1.26 billion.

Bartz has said that it would take several years to revive Yahoo. Whether the company's board and shareholders have the patience may be another matter.

Yahoo is refocusing its efforts on e-mail, instant messaging and creating news content. The company, with 600 million worldwide users a month, also is pushing a social-networking strategy.

Wednesday, October 20, 2010

Google's spending Spree tests Nerves on Wall Street


Wall Street wants Google Inc's new products and initiatives to start paying off, as its accelerating spending spree nibbles away at margins and alarms investors.

The Internet giant's free-spending -- from more than 20 acquisitions this year alone to internal projects such a self-driven cars and big bets in wind energy -- has weighed on the company's stock, which has underperformed the market this year.

Headcount, capital expenditures and operating expenses will be key issues for investors when Google reports third-quarter results Thursday, particularly after a rare profit shortfall in the second quarter wiped 7 percent off its shares in a single day.

But with Google's shares up roughly 20 percent since mid-August, analysts are betting it will justify its spending with details of improving business prospects.

"People don't mind expenses if you're growing revenue," said BGC Partners' analyst Colin Gillis.

Google has two-thirds of the Internet search market, but is facing a renewed threat from Yahoo Inc and Microsoft Corp which have forged a search partnership.

At the same time, social networking companies such as Facebook are attracting increasing amounts of online advertising, posing a growing threat to Google's business.

Google is also shelling out cash to develop new technology and build a viable smartphone business based on its Android phone software to take on Apple's iPhone juggernaut.

This week, it also announced it was joining an estimated $5 billion undersea cable project to carry power from offshore windfarms to the east coast of the United States.

The spending spree is taking a toll. Operating margins slipped to 35 percent last quarter from 37 percent in the first, while headcount increased by roughly 2,000 employees in the first six months of the year alone.

Google has roughly $30 billion in cash and marketable securities.


Analysts expect Google to report revenue, excluding the fees that Google shares with website partners, of $5.26 billion in the third quarter, up 3.3 percent from the second but up roughly 20 percent from a year earlier, with adjusted earnings of $6.68 a share.

Some of Google's attempts to find the next big thing have failed. For example, it pulled the plug on its much-hyped Wave product that combined instant messaging and online collaboration this year. Nevertheless, analysts say some initiatives are beginning to help business.

Its new Instant technology, which speeds up searches by predicting queries, could improve revenue by prompting web surfers to click on ads more frequently, say analysts.

Paid clicks and cost-per-click, the two metrics that investors use to gauge the health of Google's search ad business, should both improve compared to the second quarter, said UBS analyst Brian Pitz, citing Instant search as one of several factors.

"There's some strong fundamental trends that look pretty positive, whether it's product search doing well, Instant search driving some growth, and just generally positive monetization trends," Pitz said of business in the third quarter.

Its fledgling Android software for smartphones came from nowhere two years ago and is now challenging Apple's position in the market.

A recent report by industry research firm Gartner predicted Android would overtake Apple's iOS this year to become the No. 2 operating system for cell phones, after Nokia's Symbian.

While it does not break out financial results for its mobile business, some analysts say Android is becoming an important part of the company's efforts to establish itself in mobile advertising.

Citigroup analyst Mark Mahaney estimates that revenue from Google mobile SEO could reach a run rate of $450 million by the end of the year.

Tuesday, October 19, 2010

More Questions for Facebook

The Wall Street Journal

Two House members asked Facebook Inc. for more details about the way applications on the social network handle user information, following revelations of new privacy concerns.

U.S. Reps. Edward Markey (D., Mass.) and Joe Barton (R., Texas) sent Facebook Chief Executive Mark Zuckerberg a letter expressing concerns that "third-party applications gathered and transmitted personally identifiable information about Facebook users and those users' friends." The two representatives are co-chairmen of the House Bipartisan Privacy Caucus.

Their letter follows an article in Monday's Wall Street Journal highlighting a potential privacy loophole in many of the most popular applications on Facebook. The Journal reported apps were transmitting identification numbers for users and their friends to dozens of advertising and Internet tracking companies. The ID numbers can be used to look up a user's real name, and sometimes other information users have made public, and potentially tie it to their activity inside the apps.

Given Facebook's 500 million users and the amount of information they post on the site, "this series of breaches of consumer privacy is a cause for concern," the lawmakers wrote.

The letter asked Mr. Zuckerberg how many users had been affected by the breach, when Facebook became aware of it, and what changes Facebook plans in order to deal with the problem, among other questions. Facebook must respond by Oct. 27.

In August, Reps. Markey and Barton requested information about data-collection practices from 15 websites identified by the Journal as installing the most tracking technology on visitors' computers.

A Facebook spokesman said the company looked forward "to addressing any confusion" and working with the congressmen. "The suggestion that the passing of a user ID to an application, as described in Facebook's privacy policy, constitutes a 'breach' is curious at best," he said.

In a blog post Sunday night, Facebook executive Mike Vernal said that passing along user IDs violated the company's policies. "In most cases, developers did not intend to pass this information, but did so because of the technical details of how browsers work," he wrote.

Still, he said Facebook was "committed to ensuring that even the inadvertent passing of (user IDs) is prevented and all applications are in compliance with our policy."

Mr. Vernal played down the potential risks, writing that knowing a user's ID "does not enable anyone to access private user information without explicit user consent."

Privacy watchdogs called on Facebook to improve privacy controls regarding applications. "Facebook needs to stop addressing this problem with secret 'policy enforcement' and start putting choices and control" in users' hands, wrote Chris Conley, a fellow at the American Civil Liberties Union of Northern California.

At least some of the apps that Facebook shut down after Journal queries into privacy breaches were reinstated by Monday.

"We're back!" wrote Arjun Sethi, the CEO of LOLapps Media Inc., in a blog post. LOLapps makes applications like Gift Creator, which has 3.5 million monthly active users. His company's apps were shut down Friday, after the Journal had found that some LOLapps applications were transmitting users' Facebook ID numbers to a company called RapLeaf Inc., which then sent them with other personal details to a dozen other advertising and data firms. RapLeaf said the transmission was inadvertent.

LOLapps' Mr. Sethi said the company didn't intend to pass along user IDs. He didn't say that the problem was what led to the apps being shut down.

He also wrote that LOLapps had "immediately dissolved" the relationship that had caused it to run afoul of Facebook. He didn't specify whether that relationship was with RapLeaf.

Monday, October 18, 2010

Microsoft, Facebook Pairing Could Challenge Google


Microsoft and Facebook have deepened their partnership on everything from to Bing. Does this give Microsoft more leverage against Google?

Microsoft executives have talked for months about their company’s “all in” cloud strategy, which will gradually shift its product focus from the desktop to the Web. Social networking is an integral component of that strategy—and some announcements this week suggest that Microsoft sees Facebook, with its install base of 500 million users, as a key partner in the effort.

Microsoft and Facebook announced a deeper partnership Oct. 13, centered on a set of new social-search features accessible via Bing and Facebook’s Web results. One of the features, Liked Results, displays Websites and links “liked” by a Facebook user’s friends. The other, Facebook Profile Search, leverages a user’s Facebook connections to deliver more relevant results.

Thanks to a $240 million investment, Microsoft owns a 1.6 percent stake in Facebook. That makes such collaborations inevitable—especially if they allow Microsoft and Facebook to more aggressively combat their mutual enemy, Google.

“We think it’s time for a real, robust, persistent social signal,” Satya Nadella, senior vice president of Microsoft’s Online Services Division, wrote in an Oct. 13 posting on the Bing Community blog. “Facebook has led a transformation of the Internet already. It has reached and passed 500 million members, and the amount of content created inside Facebook each day is staggering.”

Nadella added: “This new signal will allow us to do a better and more comprehensive job predicting what resources and content are most relevant to you because, in addition to all the other signals we use, other people you trust have found them interesting.”

However, Microsoft’s Facebook integration extends beyond Bing. On Oct. 14, the company announced updates to its online applications platform, which allows Facebook users to create and share Word, Excel and PowerPoint documents. New features include .PDF support, full-text search, user-generated templates, and drag-and-drop Silverlight document uploading.

Microsoft chief software architect Ray Ozzie, in an Oct. 14 note on his personal blog, described using the new features to upload documents from a folder discovered while cleaning out his home office. “Inside a sealed packet I found a wonderful artifact from decades ago—a folder of collaterals from the Windows 1.0 launch event,” he wrote. “I’ve scanned and posted this artifact at, which as of today has introduced, among other features, ‘browser-based PDF reading’ support.” is a product of FUSE Labs, a Microsoft division created by Ozzie in Oct. 2009 to focus on “software and services that are centered on social connectivity, real-time experiences and rich media,” according to a Microsoft release at the time.

More to the point, FUSE Labs would theoretically allow Microsoft to quickly capitalize on social computing opportunities developed by Microsoft Research and other divisions: “The lab will prioritize efforts where its capabilities can be applied to areas where the company’s extant missions, structures, tempo or risk might otherwise cause us to miss a material threat or opportunity.”

Such a threat exists in Google Docs and similar cloud-based productivity platforms. To counter that, Microsoft rolled out stripped-down, browser-accessible versions of OneNote, Excel, Word and PowerPoint for Windows Live subscribers. But collaborating with Facebook gives Microsoft access to a massive brand and a built-in audience—fuel to the fire of its increasingly intense cloud efforts.

“We’re hard-wired so that information about people is the most interesting information we track in the world,” Facebook CEO Mark Zuckerberg told the audience during the Oct. 13 presentation to introduce the Bing social-networking apps.

But will those deeper links to Facebook, even across multiple Microsoft platforms, allow Redmond to more effectively battle Google? More to the point, will Facebook’s users—many of them already wary about how their information spreads online—gravitate towards using a social-networking-enhanced and Bing in greater numbers. That remains to be seen.

Sunday, October 17, 2010

Investment Vultures increase Pressure on Yahoo CEO

Associated Press

With buyout vultures circling the Internet company, Yahoo Inc. CEO Carol Bartz may have to accelerate her timetable for engineering a turnaround if she wants to save her job.

Bartz has said it could take a couple more years to revive Yahoo after a long period of listlessness, but it appears the company could become a takeover target if its financial performance doesn't improve within the next few months.

That urgency was underscored late Wednesday as The Wall Street Journal reported that another falling Internet icon, AOL Inc., is in preliminary discussions with a group of leveraged buyout firms, including Silver Lake Partners and Blackstone Group LP, about making a joint bid for Yahoo because its stock has been slumping for so long. The Journal story cited unnamed people familiar with the talks and said two or three other firms could also be interested in the deal, which could bring AOL's charismatic CEO, Tim Armstrong, to Yahoo.

It's likely an opportunistic suitor would emerge if Yahoo's revenue keeps growing at a turtle's pace while rivals such as Google Inc. and Facebook sprint further ahead as advertisers shift more of their spending to the Internet.

Although Yahoo's market value has fallen dramatically in the past few years, buying the company would still be expensive and quite complicated. That's the main reason most analysts believe it would take a while to put together a deal, even if Yahoo disappoints investors yet again next Tuesday when it reports its third-quarter earnings.

With no bid on the immediate horizon, Yahoo shares cooled from the heated reaction to the Journal's initial report. The stock rose 68 cents, or 4.5 percent, to $15.93 on Thursday. It had soared by nearly 13 percent in extended trading Wednesday following the Journal's report.

Yahoo hired Bartz, a tough-talking Silicon Valley veteran, in January 2009, convinced that she would prove the company is worth more than the $47.5 billion that Microsoft Corp. was offering to take over the company, a bid that Yahoo snubbed in May 2008. Microsoft has since forged an Internet search partnership with Yahoo in a joint challenge to Google's dominance of the Web's most lucrative ad market.

Although Bartz has won praise for negotiating the Microsoft alliance and cutting costs to boost Yahoo's profits, the company's revenue through the first half of the year edged up by less than 2 percent. By comparison, Google's rose 23 percent during the same period. That letdown has left Yahoo's stock far below Microsoft's final offer of $33 per share, turning that bid into a millstone.

"Given everything that Yahoo shareholders have been through since then, there is a limited amount of patience left," said Ryan Jacob, portfolio manager of the Jacob Internet Fund, which owns more than 100,000 shares. "It's not necessarily Bartz's fault, but she had to know what she was getting into coming in."

The recent defections of several top Yahoo executives have stirred speculation that Bartz is wearing out her welcome as she approaches the midway point of her four-year contract.

If that's true, it could open the door for Armstrong, 39, who could be seen as a more media-friendly, suave leader than the sometimes-cranky, profanity-spewing Bartz, 62. What's more, Armstrong's Internet background could be seen as a better fit, given that he built up Google's highly prosperous North American advertising business before leaving to become AOL's CEO last year. Bartz is more of a technologist, having previously been CEO of software maker Autodesk Inc. and a top executive at Sun Microsystems Inc.

But Armstrong's reign at AOL so far has largely mirrored Bartz's time at Yahoo. Like his counterpart, Armstrong has spent much of his time weeding out the company's unprofitable operations while focusing on bringing in more unique content in an effort to lure more Web surfers and bring in more advertisers.

Those changes haven't been enough to lift AOL's yet, making it look like a "mini-Yahoo," Jacob said.

AOL's market value is just $2.7 billion, about 13 percent of Yahoo's $21.5 billion. That gap means AOL would need plenty of help to buy Yahoo.

Yahoo declined a request to interview Bartz Thursday. The company, which is based in Sunnyvale, Calif., also declined to comment on the reports of a possible takeover bid. The Journal said Yahoo hasn't been involved in the talks yet.

But the board appears to be taking the talk seriously enough to have hired Goldman Sachs Group Inc. to advise directors on a possible defense, according to Bloomberg News, which also cited unnamed people. Goldman Sachs declined to comment.

AOL and Blackstone also declined to comment Thursday. Silver Lake didn't return calls.

Despite Yahoo's struggles, there are several reasons why the company remains a takeover target.

For starters, Yahoo still boasts one of the world's best-known brands. Its website remains alluring enough to attract an audience of nearly 600 million, although people have been spending less time there as they hang out more frequently at trendier spots such as Facebook.

Yahoo also owns a 39 percent stake in one of China's fastest growing companies, the Alibaba Group. That stake presumably would be sold if leveraged buyout firms were to attempt a takeover to make the bid easier to finance. Analysts have estimated that selling Yahoo's Alibaba holdings and other Asian assets could fetch anywhere from $8 billion to $13 billion, depending on market conditions. That's a large chunk of Yahoo's current market value of $21.5 billion.

Bartz has argued that selling the Alibaba stake right now doesn't make sense because it will likely be worth even more in the years ahead as China's Internet market continues to grow. That's a notion some shareholders support.

If AOL and the buyout firms decide to pursue Yahoo, a successful bid would first hinge on whether the offer was high enough. Analysts seem to believe Yahoo's board would be hard pressed to turn down an offer ranging from $21 to $23 per share after spurning Microsoft two years ago. That would still be 32 percent to 44 percent above Thursday's closing price, though far less than Microsoft's final offer of $33.

Analysts aren't convinced a combination between AOL and Yahoo even makes sense. "I don't believe putting together two weak, stumbling companies would make the sum greater than its parts," Wedge Partners analyst Martin Pyykkonen said.

He believes another possible scenario might make more sense: Microsoft pouncing on Yahoo with another takeover bid at a price far below its offer of 2½ years ago.

Google's 3Q Proves Company can Afford Big Spending

Associated Press

Google Inc. is still spending money like the recession is a distant memory, but investors can't complain too much as long as the Internet search leader keeps expanding its advertising empire like it did in the summer.

The evidence of Google's dominance - and prosperity - emerged in its third-quarter results released late Thursday. The performance marked the latest sign that the technology industry is rolling again, even as other parts of the economy lag.

Its shares climbed $55, or more than 10 percent, to $590.93 in morning trading Friday.

Net income surged 32 percent to trounce analyst estimates, and would have been even higher if Google's management hadn't decided to hire so many more workers, buy other companies and invest in more equipment to keep its services humming.

Google's liberal spending dismayed some investors during the first half of the year, causing the company's stock to sag.

It probably helped that Google shared some data that showed some of the company's previous investments are starting to pay off. As a result, Google finally appears to be turning it into something more than a one-trick pony dependent solely on text ads that appear alongside search results on a computer screen.

In the first and what may be the only time that Google provides such details, executives indicated Thursday that display advertising accounted for nearly 10 percent of ad revenue in the quarter, and mobile advertising was almost 4 percent.

Those figures helped justify two of Google's biggest acquisitions. In 2008, it took aim at the display ad market with a $3.2 billion acquisition of DoubleClick Inc. and earlier this year it completed a $681 million purchase of AdMob to supplement its marketing efforts on mobile phones.

Although it remains a small piece of Google's business, CEO Eric Schmidt remains convinced that the company will bring in more ad revenue from mobile phones than it does from computers in homes and offices.

Text links placed above or alongside search results are still Google's main source of revenue, which totaled $7.3 billion, a 23 percent increase from last year.

Google executives said those ads are turning into even bigger moneymakers since the company invested in a new system that displays search results as soon as people begin to type in a request. The "Instant Search" feature, which debuted in early September, churns out results so quickly that people seem to be doing more searches, generating more advertising opportunities in the process.

Third-quarter earnings rose to $2.2 billion, or $6.72 per share, from $1.6 billion, or $5.13 per share, a year earlier.

Excluding certain expenses, Google earned $7.64, topping the $6.69 analysts expected.

With things going so well, Google added 1,500 workers in the quarter, the most during any three-month period since the spring of 2007 when it added more than 2,100 employees.

The company has added about 3,500 workers during the first nine months of the year. At the same juncture last year, Google had reduced its staffing by about 550 workers. It now has 23,331 employees and is eager to hire even more.

"We're on this growth agenda at full throttle," Patrick Pichette, Google's chief financial officer, said.

Capital expenditures - what Google pays for data centers, servers and networking equipment to keep its growing number of Web services online - increased more than fourfold to $757 million in the third quarter from $186 million a year earlier. It marked Google's biggest outlay for capital expenditures since the first quarter of 2008.

The company, based in Mountain View, can easily afford it. It ended the quarter with about $33.4 billion in cash.

In another heartening sign, Google said its average cost per click rose 3 percent from a year ago, meaning companies paid more to place ads. People clicked on ads 16 percent more than they did in the same period last year.

During a conference call with analysts, Google said sales of its display ads, which include those on YouTube, are on a pace that would translate to $2.5 billion annually. Its mobile advertising businesses are on pace to bring in $1 billion in revenue annually.

Thursday, October 14, 2010

AOL May Acquire Yahoo, Report Says

Information Week

Shares of Yahoo were up more than 12% in pre-market trading Thursday following a report the Internet portal may be bought out by a consortium of investors that includes AOL.

The Wall Street Journal, citing unnamed individuals said to be familiar with the plan, reported that Silver Lake Partners and Blackstone Group were among the private equity firms that could team up with AOL to buy out Yahoo.

The newspaper said the discussions were very preliminary. Yahoo and AOL have not publicly commented on the report.

Yahoo's shares, priced at $17.09 early Thursday, have been on a roller coaster for the past couple of years as the company engaged in an on-again, off-again courtship with Microsoft. Microsoft made several attempts to purchase Yahoo outright, but ended up striking a partnership with the company.

Under the ten-year pact, announced in July, 2009, Microsoft has placed its Bing search engine on all Yahoo sites and, initially, keeps 12% of the revenue from Yahoo-driven searches. Yahoo is handling sales and marketing for premium search ads for both its properties and Microsoft's.

Yahoo can terminate the arrangement if search traffic generated by the alliance falls below a specified percentage of rival Google's traffic. Yahoo also retains the right to expand the partnership by adding Microsoft's mapping and mobile search services to its Web properties.

One complication of any deal involving Yahoo and AOL is that AOL's search tools are in part powered by Microsoft rival Google. One possibility is that AOL could also turn to Microsoft's Bing search engine if it ties up with Yahoo.

Microsoft, Yahoo, and AOL would together control about 30% of the U.S. search market, compared to Google's 65.4% stake, according to the latest figures from market watcher Comscore.

Wednesday, October 13, 2010

Microsoft Redials Phone Pursuit

The Wall Street Journal

Unveils New Software, Ad Campaign as It Tries to Catch Up

Microsoft Corp. launched its latest assault on the crowded smartphone market, where it has struggled to gain traction, with a bevy of handsets based on overhauled software and a big advertising push.

The Redmond, Wash., company on Monday formally released its new Windows Phone 7 operating system, which it spent two years developing. During that time, it was beat to the market by competitors like Apple Inc.'s iPhone and Google Inc.'s Android software.

The new Microsoft software displays commonly used applications on a home screen in large blocks--dubbed tiles--rather than the array of many small icons found on competing smartphones that Microsoft contends is overly complicated. The tiles are constantly updated with fresh content from the Internet, such as status updates or new photos from a user's Facebook friends.

"This is a different kind of phone," Microsoft Chief Executive Steve Ballmer said at a launch event in New York.

While the software has been praised for its originality, Microsoft still faces skepticism about its prospects in the mobile business, after several years of missteps that gave competitors time to cement their positions in the market.

Microsoft plans to spend more than $100 million on a new advertising campaign for Windows Phone 7. The ads focus on the chaos that ensues when people become too absorbed in their smartphones, from collisions on the sidewalk to distracted dinner companions.

The point of the ads is to underscore how Windows Phone 7 is designed to let people do certain activities more efficiently without needing to constantly fumble around with their devices. The tag line of one of the ads: "It's time for a phone to save us from our phones."

All Windows Phone 7 devices also have camera buttons on them so people can quickly shoot photographs with their phones even if the devices are locked with a password.

At the New York event, Microsoft unveiled nine handsets planned for the holiday season, including the Focus by Samsung Electronics Co., the Quantum by LG Electronics Inc. and the Surround from HTC Corp. All three will cost $199.99 with two-year service contracts with AT&T Inc. when they go on sale in early November.

Wireless carrier T-Mobile USA will also sell Windows Phones 7 devices starting in November. In all, Microsoft says phones using its software will be available in 30 countries from 60 carrier partners.

Microsoft is also attempting to turn a potential liability—the small number of applications it will have for Windows Phone 7 compared with the tens of thousands of apps available for Google and Apple devices—into an advantage.

In a recent interview, Terry Meyerson, corporate vice president of Windows Phone engineering, said Microsoft will take a more active role in managing the apps available for Windows Phone 7 than its rivals do, partly to weed out "knock offs" of popular apps—say, Scrabble or Tetris games.

"Windows is a platform that cannot be ignored," Darren Cross, head of business development for Comcast Corp.'s Fandango movie ticketing service, which has developed a Windows Phone 7 app. "This is a very fresh take."

Mr. Cross said the company hadn't received any payment from Microsoft to develop the app, but he hopes the company features the app in its marketing in the future.

AT&T, which is sole U.S. iPhone carrier, plans to integrate its U-Verse home TV service with the new Windows phones, allowing customers to sign up for an entertainment plan to access cable shows found on its TV service.

The mobile service will cost $9.99 a month for non U-Verse customers, and will be free for high-end U-Verse subscribers.

Microsoft needs its new software to help reverse a slide in its share of the smartphone market, which fell to 5% world-wide in the second quarter from 9.3% during the same period the prior year, according to the research firm Gartner Inc. Android jumped to 17.2% from 1.8% and the iPhone rose to 14.2% from 13% during that same period.

Microsoft executives said they still have a big opportunity to win customers, particularly since 80% of the cellphone market hasn't yet gotten an Android device, iPhone or another brand of smartphone.

Ken Dulaney, a Gartner analyst, agreed that Windows Phone 7 will get some traction in the market. "But I think its going to take a few more iterations to get truly competitive," he said.

The launch comes as the smartphone competition has shifted to the courthouse with companies engaged in several patent disputes. Microsoft recently sued Motorola Inc., a big maker of Android phones; while Apple has sued Taiwanese phone maker HTC.