Biggest Chapter Yet for a Poison Pen

Story first reported from WSJ.com

Daniel Loeb isn't one given to half-measures. The hedge-fund manager competes in triathlons, never, ever drinks from a plastic water bottle and is unsparing at times in his criticism of corporate executives.

That is exactly how his investors like him.

Hugh F. Culverhouse, a Miami investor whose family once owned the Tampa Bay Buccaneers football team, said he didn't give Dan Loeb his money because he is mellow.

Mr. Loeb, 50 years old, whose Third Point LLC oversees $8.7 billion, is coming off his biggest victory as an activist investor. His three-month drive against Yahoo Inc. YHOO -0.06% culminated in the May resignations of the Web-search company's chief executive and a director—and three board seats for Third Point, including one for Mr. Loeb.

Earlier this month, Mr. Loeb and his fellow directors poached Marissa Mayer from Google Inc. to serve as Yahoo's new CEO. On Monday, Ross Levinsohn, who was passed over for the job, said he is leaving the company. But while Ms. Mayer's arrival was hailed as a coup in Silicon Valley, the stock remains in a rut.

Yahoo shares have risen 17% since September, when Third Point disclosed it had amassed a more than 5% stake. But since the start of this year, the stock is down 1%, closing Monday at $15.98, and it is off 32% over five years. The company has struggled to extract more money from advertisers, and faces growing competition from Google, Facebook Inc. FB and other sites.

Because of those challenges and others, it is going to be very difficult for Ms. Mayer to turn Yahoo around, said Mark Mahaney, a managing director and analyst with Citigroup Inc. who covers Internet stocks.

Third Point bought some $39.4 million in additional stock the week after Ms. Mayer was hired. With a 6% stake valued at $1.2 billion, it is Yahoo's largest shareholder, according to securities filings. Based on information available in public filings about Third Point's stock purchases, Mr. Loeb has made around $150 million in paper profits on Yahoo so far.

The Yahoo campaign signals a new phase in Mr. Loeb's career. Until now, he was perhaps best-known for his poison-pen letters, in which he has scolded executives for everything from keeping relatives on the payroll to socializing at the U.S. Open tennis tournament. Armed with a much bigger war chest—Third Point managed just $1.7 billion as of April 2009—Mr. Loeb can now aim for bigger targets.

Other big investors have pulled back from Yahoo. David Einhorn dumped his sizable Yahoo stake last year, while Carl Icahn stepped down from the board in 2009.

A spokesman for Mr. Einhorn declined to comment. Mr. Icahn said he believed his Yahoo effort was successful.

Mr. Loeb, who grew up skateboarding and surfing in California, caught an early glimpse of the boardroom. His father, Ronald, who died earlier this year, served as general counsel at retailer Williams-Sonoma Inc. and co-wrote a textbook on corporate governance.

His great-aunt and uncle founded toy maker Mattel Inc. When Mattel Chief Executive Jill Barad resigned in 2000, Ronald Loeb stepped in as interim CEO.

Daniel Loeb graduated from Columbia University in 1983, and was a classmate of Barack Obama. Mr. Loeb worked on Wall Street as an analyst at Lafer Equity Investors and later at Jefferies & Co. and Citicorp. Borrowing space in the weight room at Mr. Tepper's Appaloosa Management LP, Mr. Loeb started Third Point in 1995 with $3 million.

Third Point's largest fund has produced an annualized return of 17%, net of fees, since December 1996. Like many fund managers, Mr. Loeb endured a brutal 2008. His largest fund, Third Point Offshore Fund, fell 33%. So far this year, the fund is up almost 5% through July 25 after being flat in 2011, according to a person close to the firm.

Mr. Loeb regularly travels to India for yoga retreats and eschews carbohydrates and sugary beverages, friends said. He is married with three children and last year completed the New York City Marathon.

Friends and investors said his decisions are unequivocal. He doesn't drink out of plastic water bottles for environmental and health reasons, and has been active in education reform and the effort to legalize gay marriage in New York.

Even his reversals can be striking: Mr. Loeb was one of then-Senator Obama's biggest fundraisers in 2008, but in July co-hosted a $25,000-a-plate fundraiser for Mitt Romney, Mr. Obama's presumed Republican opponent this fall.

He began buying Yahoo stock at about $11 a share. He believes the shares are worth somewhere in the mid-$20s based on the value he assigns assets such as Yahoo's media and advertising businesses, and its stake in Chinese e-commerce giant Alibaba Group Holding Ltd., said people close to the firm.

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Levinsohn Leaving Yahoo

Story first reported from USA Today

LOS ANGELES (AP) – Ross Levinsohn, the interim CEO who was snubbed in the search for a permanent leader at Yahoo, is leaving the Internet portal.

Yahoo announced the departure in a securities filing on Monday.

With much fanfare, Yahoo appointed 37-year-old Marissa Mayer as CEO two weeks ago. Retaining Levinsohn, who had been interim CEO since May, would have been one of her first big triumphs.

Levinsohn's exit is not unexpected. Levinsohn, 48, had been head of Yahoo's global media business and had pushed the company to enter into exclusive partnerships with the likes of CNBC and Tom Hanks to create original content.

But Levinsohn was passed over twice by the company's board in favor of other top executives, including Scott Thompson, who resigned in May over discrepancies on his resume after just four months on the job.

The appointment of Mayer, a former Google top executive who oversaw its email, mapping and news services, suggests the company intends to focus more on the functionality of its products rather than on the media content which was Levinsohn's domain.

Levinsohn leaves Yahoo with a hefty severance package. As part of the agreement, he was granted 67,000 shares of restricted Yahoo stock and the option to buy another 250,000 shares at $15.80 apiece. Both benefits were immediately available to Levinsohn.

He also received a lump sum equal to his salary and bonus of about $1.5 million along with health premiums and faster vesting of stock options he had accrued already. Levinsohn's compensation package was valued at $12 million last year.
—
Here's biographical information on Levinsohn:

PROFESSIONAL BACKGROUND: Brief stint as interim Yahoo CEO. Was executive vice president and head of global media for Yahoo, where he led strategy, engineering and content creation. Prior positions included president of News Corp.'s Fox Interactive Media; senior management at AltaVista, an early search engine; and programming work at CBS Sportsline and HBO Inc.

CO-FOUNDER: Fuse Capital, an investment and strategic equity management firm.

BOARD MEMBERSHIPS: Freedom Communications, Bogart Pediatric Cancer Research Program.

EDUCATION: B.A. in communications from American University.

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10,000 Arrested in China Internet Crackdown

Story first reported from USA Today

Chinese authorities say they have arrested more than 10,000 suspects and smashed more than 600 gangs during a four-month crackdown on Internet crimes, according to news reports.

At the same time, Beijing police are threatening to punish any online "political rumor" or "attack" on Communist Party leaders, the system or the country, raising fears of tighter controls on speech on the country's 538 million Internet users.

The Ministry of Public Security said "major crimes uncovered" during the nationwide operation since May include pornographic information, gun trading, wiretapping devices, counterfeiting, as well as illegally collecting and selling citizens' personal information, the official Xinhua News Agency writes.

The cyber-police have also deleted 3.2 million messages deemed "harmful," closed hundreds of Internet cafes and punished 30 service providers for granting access to unlicensed sites, the BBC says.

Additionally, 62 websites and online forums were ordered to remove "inappropriate content."

In southern China, police reported detaining "a gang of hackers" believed responsible for attacks on 185 government websites, the state-run China Daily newspaper says.

The warning from Beijing's Public Security Bureau about Internet comments came Tuesday during a meeting about protecting minors online, the Global Times  reports.

In May, a BBC article asked, "Will China's Great Firewall backfire?"

China's crackdown comes as the U.S. Congress is considering new cybersecurity legislation.

The Senate voted today to begin debating and amending the Cybersecurity Act of 2012, which is intended to bolster cyber-defenses against attacks on communications systems and infrastructure.

The measure "calls for the Department of Homeland Security (DHS) to assess risks and vulnerabilities of computer systems running at critical infrastructure sites such as power companies and electricity and water utilities and to work with the operators to develop security standards that they would be required to meet," Cnet wrote when the legislation was introduced in February.

The Electronic Frontier Foundation says the Cybersecurity Act "poses serious threats to online rights."

The House approved a similar bill in April -- the Cyber Intelligence Sharing and Protection Act -- despite a threatened White House veto. The measure encourages but does not require companies and the federal government to share information collected on the Internet to prevent against online attacks.

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Losses Posted for Facebook

Story first reported from USA Today

Ending a tumultuous day for social media companies, Facebook posted a loss Thursday in its first test as a public company.

Investors fled the social-networking giant in after-hours trading following a quarterly loss of $157 million, which included one-time charges related to the accounting of stock awards disclosed amid the botched initial public offering on May 18.

The social-networking giant, which went public in May with an eye-popping high valuation, reported on an adjusted basis a profit of $295 million, or 12 cents a share, on revenue of $1.18 billion for its second fiscal quarter. That met the consensus estimate for the quarter.

The company's stock plunged 11% in after-hours trading to $23.77 after losing nearly as much during the day's trading session. And the stocks of other social media companies slumped further, among them Zynga, Groupon and LinkedIn . The stocks had fallen during regular trading, even as the broad market rallied. Zynga had released disappointing earnings Tuesday after the close of regular trading, giving investors pause.

Meanwhile, a problem at Twitter's data centers took the micro-blogging site offline for several hours, affecting millions of its users. Google Chat also crashed.

The stakes could not be higher for social-networking giant after its much-anticipated IPO fizzled amid questions about its online and mobile advertising business. Its initial valuation of $100 billion is now $60 billion.

There was some good news. The social-networking giant's revenue of $1.18 billion for its second fiscal quarter compared to consensus estimates of $1.15 billion.

It was the first quarterly report for Facebook as a public company. It's unusual for a company to miss estimates on its first quarter as a public company, says Jay Ritter, professor of finance at the University of Florida. When companies go public, they typically have a solid outlook at least for the first few months.

Seeing Facebook's earnings coming in roughly in line with expectations was a disappointment for investors who have been hoping for more, says Jordan Rohan of Stifel Nicolaus. "Investors still hung to the hope that Facebook would rise to the occasion," he says.

Investors response to Facebook's report shows just how jaded Internet investors have become, he says. "It takes a particularly special performance for a stock to go up on its earnings," he says. "That's the rhythm of this quarter earnings period."

Facebook had warned investors that the quarter wasn't going to be a stellar one, by updating the risk section of its prospectus, Rohan says. "A company wouldn't do that unless the results were going to be uninspiring," he says.

Rohan continues to rate the stock a "hold." "This quarter's fundamentals don't seem to change the story of the outlook," he says.

"They have to show they can justify" even that lower valuation, says Lucy Jacobs, chief operating officer of Spruce Media, a technology platform for social-media advertising. She said Facebook has made several changes to goose ad revenue.

Like nearly every business in social media and beyond, Facebook is betting a large portion of its future on mobile ads. Yet few companies, including Facebook, have been able to capitalize on the promise. The popularity of mobile devices comes, in part, from their lack of ads.

CEO Mark Zuckerberg said mobile is a huge opportunity on a conference call with analysts, but he downplayed a rumored mobile phone from Facebook, adding that it "wouldn't make much sense." There had been speculation prior to the call that Zuckerberg might skip the conference call.

The market for the ads that dot smartphone and tablet screens is expected to soar to $10.8 billion in U.S. sales by 2016, from an estimated $2.6 billion this year, says research firm eMarketer. That's a tiny slice of the $169.5 billion market for media ad spending in the U.S.

Google has the early lead in the U.S. in monetizing mobile, with 51% of the market, largely due to its success with mobile search ads, says Noah Elkin, an eMarketer analyst. Phone numbers embedded in mobile ads on Google's click-to-call feature, for example, generate about 15 million calls per month.

Facebook barely registers yet, though the company has the potential to rake in $2.54 billion from mobile advertising, according to researcher Chitika. Facebook Sponsored Stories — an ad form that appears on a member's Facebook page and generally consists of a friend's name, profile picture and an advertiser the person "likes" — now appear in a user's Facebook mobile news feed.

 Debra Williamson, an analyst at eMarketer, says mobile is where it's at right now.

Until early this year, Facebook had no real mobile strategy, she says.
The company's challenges don't end there.

In the U.S., where Facebook makes most of its advertising revenue, the social network is not drawing new users. In May, 158.01 million unique visitors logged on to the network, compared with 158.69 million in April, according to market researcher comScore. Facebook says it has more than 955 million members worldwide.

Underwriters of Facebook's IPO lowered guidance in May, suggesting the company would earn about $4.8 billion for 2012 — a billion-dollar drop in confidence that fed market uncertainty about the effectiveness of Facebook's advertising machine.

Social-gaming leader Zynga's woeful results on Wednesday — it lost $22.8 million in its most recent quarter — underscored Facebook anxiety, since Facebook depends on Zynga for about 12% of revenue.

Zynga CEO Mark Pincus blamed some of its problems on changes Facebook made to its platform.

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Mobile Device Ads on Rise

Story first reported from forbes.com

Worries that mobile advertising will never amount to much have investors worries about even relatively strong companies such as Google and Facebook. And there’s reason for concern, from whether people want their little smartphone or even tablet screens cluttered with ads to whether advertisers will ever be able to know, for instance, that someone who sees an ad then went into a physical store and bought something.

For now, though, the advertisers who command the marketing budgets don’t seem too concerned. According to a new report, search ads in particular are growing rapidly on mobile devices, especially tablets. The study, from online ad management firm Marin Software, points up several interesting trends, pretty much all of them a positive for advertisers and search engines–mainly Google, since it still owns 81% of all search ad spending.

First, a lot more clicks on search ads are coming from mobile devices, says Marin Marketing VP Matt Lawson. In the U.S., mobile devices accounted for 18% of paid search clicks, up from 14% in the first quarter. And in an indication of a surge in tablet ownership and use, the share of clicks on tablets, at 8%, was up 33% in the quarter.

More important to advertisers, those tablet clicks are paying off. The cost per click for search ads on tablets is 18% lower than for ads on desktops or laptops. And the click-through rate is 42% higher. Putting both together, advertisers are getting more bang for the buck on tablet ads.

Lawson says that may not last forever. One reason for the difference is that not as many marketers are aiming ads specifically for tablets, so those that do don’t have as much competition on keywords. Indeed, the cost-per-click gap is already starting to close.

Still, the results are prompting marketers to shift their budgets toward tablets. The share of Marin’s 1,800 advertisers’ and agencies’ overall online ad spending that goes toward tablet campaigns rose 40% in the second quarter alone–from 5% of budgets in March to 7% by June.

Not least, Lawson says, the conversion rate–ad industry lingo for clicks that lead to a sale, a lead, or another desired action–on tablets is comparable to desktop ads. In other words, it’s better than on smartphones, which still lag behind desktops in conversions.

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Yahoo to Compensate Mayer $100 Million

Story first reported from wsj.com

Yahoo Inc. showed just how big it is betting that new Chief Executive Marissa Mayer can change its fortunes.

Ms. Mayer will receive up to $100 million in compensation, stock, bonus and retention awards over the next five years, according to a Thursday regulatory filing by the Sunnyvale, Calif., Internet company.

Ms. Mayer is expected to receive around $5.4 million from Yahoo for the remainder of this year and around $20 million a year after that, though some of that amount is tied to performance targets set by the board.

While it is hard to make a direct comparison, Ms. Mayer's predecessors, Scott Thompson and Carol Bartz, received compensation packages worth $27 million and $44.6 million, respectively, over several years. Both CEOs departed prematurely. Mr. Thompson resigned in May after a five-month stint, while Ms. Bartz was fired last fall after more than 2½ years at Yahoo.

Ms. Mayer, 37 years old, joined Yahoo as CEO on Tuesday after a 13-year career at rival Google Inc., where most recently she was a vice president of local, maps and location services.

The Yahoo pay package includes restricted stock units valued at $14 million in order to "partially compensate" Ms. Mayer for forfeiting her compensation from Google. It also includes a one-time retention award that is valued at $15 million and will vest over five years.

Ms. Mayer wasn't one of Google's top officers and so her compensation wasn't publicly disclosed, but she was employee No. 20 at the Internet search firm and received a windfall in the company's 2004 initial public offering.

Mark Reilly, a partner at 3C Compensation Consulting Consortium LLC in Chicago, said that Ms. Mayer's compensation package seemed "reasonable and competitive" given that Yahoo is "a huge company, a turnaround situation, and they got someone who was doing a fantastic job" at Google. Such a package is "needed to attract that type of talent," he said.

Ms. Mayer faces the challenge of turning around onetime Internet pioneer Yahoo, which has more than 700 million monthly unique visitors to its news, sports, entertainment and email sites but has failed to develop innovative Web services and is far behind its competitors in offering sophisticated tools for advertisers to buy ads on its sites.

Yahoo on Tuesday reported second-quarter profit dropped 4% from a year earlier to $227 million, while revenue slipped 1% to $1.22 billion.

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Marissa Mayer Becomes Yahoo CEO

Story first reported from USA Today

Just days after Yahoo tapped former Google executive Marissa Mayer for its CEO post, the 37-year-old has taken on another high-profile role. After announcing that she was pregnant — and wouldn't let that interfere with her work duties — Mayer took center stage in the nation's often-heated debate over women's roles at home and in the workplace.

Reaction was swift, and in some cases, scorching, as her matter-of-fact declaration took on a life of its own in social media. Countless posts on Facebook, Twitter and throughout the blogosphere criticized her decision to keep working. Others warned that Mayer, who is expecting her first child, had underestimated the challenges of being a mom.

Much of the scrutiny comes because of the unique circumstances in play, says Laura Graves, associate professor of management at the Graduate School of Management at Clark University in Worcester, Mass. Not just a female CEO, but one who is expecting. Society has not given up traditional gender roles yet, she says.

And so Mayer's swift move to take over and revive the struggling Yahoo brand was quickly eclipsed this week by talk of her parenting choices, the pros and cons of taking a long maternity leave, female ascension in the workplace and the challenges of work-life balance.

Some of the myriad armchair critics have also suggested that her vast wealth and high-level position give her an edge — indeed, the luxury — that other working mothers don't have.

But it has gotten better

Though few would argue that raising a child while working has ever been easy, a series of advances since the 1960s have at least changed the circumstances faced by working mothers in the United States.

Equal Employment Opportunity Commission laws came into force prohibiting discrimination against new and expecting mothers, workplaces began offering greater flexibility. Today, telecommuting and on-site day care are more common.

Even so, many practical questions remain. How do the mental and physical drains of pregnancy affect a woman's performance at work? How much time does a mother need to recover physically after giving birth? What are the logistics of planning out child care?

Polling still reflects a deep cultural skepticism of mothers who decide to return to work.

In a 2010 report, the Pew Research Center found that 21% of adults in the USA said the trend toward mothers of young children working outside the home has been a good thing for society. Thirty-seven percent deemed it a bad thing, and 38% said it hasn't made much difference.

Deena Rosenberg, 29, of Teaneck, N.J., just returned to work at a public relations firm after a 12-week maternity leave for her first child. She says she has a good friend, also 29, who questioned her decision to go back to work and put her son in day care.

But even Rosenberg has concerns about Mayer's plans to work during her official maternity leave.
She sets a bad precedent and the corporations will now expect that to be normal maternity-leave behavior, she says


Celebs make it look easy.

High-profile women in areas such as business, politics and fashion have garnered headlines with their examples of what looks like an easy return to work.

Sarah Palin, who was governor of Alaska when she gave birth to her youngest son in 2008, was back on the job just three days later. Model Heidi Klum gave birth in October 2009 and sauntered back onto the Victoria's Secret runway in November. Then-expecting singer-turned-fashion designer Victoria Beckham told Glamour magazine in June 2011 that she planned to work right until her fourth child was born.

But as with Mayer, these women have resources that other working moms don't. They can hire full-time help. They are also in entrepreneurial or leadership roles that tend to give them more professional power than other workers.

Even with that cash and caché, some mothers predict that these women will lose out on certain things because of their demanding work schedules.

Elana Drell-Szyfer, CEO of cosmetics company AHAVA North America and a mother of three, says that working after her first child's birth was more difficult than she expected.

She figured she could manage business e-mails and other needs, but she was surprised by how much time it took to take care of her baby — and by the drain on her.

She recalls the night she realized she couldn't keep up.

While trying to nurse the baby and work on her laptop at the same time, Drell-Szyfer says she realized she couldn’t bond with her child, and didn’t appear professional answering emails at 3 a.m.

A double standard?

In June 2011, gossip website Gawker reported that Google co-founder Larry Page was expecting his second child. That was two months after Page took the CEO title at the technology behemoth. There were no follow-up headlines, no social media debates, no loud conversations about how he could lead an Internet giant and still be a father.

As for Yahoo, its board didn't seem to flinch at Mayer's pregnancy. Company representatives and Mayer — the company's fifth CEO in five years — weren't available for comment, but in a news release, Yahoo board Chairman Fred Amoroso said Mayer's   record in technology, design and product execution makes her the right leader for Yahoo.

Mayer, who was previously an executive at Google, said in the Fortune interview that Yahoo's directors "showed their evolved thinking."

As much as society has evolved, women still face the greater scrutiny when they decide to return to work after having children, says Rosalind Chait Barnett, a senior scientist at Brandeis University's Women's Studies Research Center.

She says that a man in Mayer’s position and his wife were expecting, people wouldn’t be talking about it. Women and men will wonder if she can do it, but that is a pressure men don’t have to deal with, Barnett says.

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Microsoft Assembles 'Google Compete' Team

Story first reported from wsj.com

Microsoft Corp. has publicly dismissed Web-based Google Apps as a competitor to its Office software suite. But, behind the scenes, Microsoft is stepping up its efforts to halt Google Inc.'s encroachment on its business-software turf.

In recent months, Microsoft has cut prices, boosted its commissions to resellers and changed how it pitches Office 365, a Web-based version of products including Microsoft Word, Outlook email and PowerPoint.

On Monday, Microsoft is expected to announce a next-generation version of Office, its single-biggest profit engine, exceeding even its Windows operating system.

Microsoft also is lavishing attention on businesses that have weighed switching to Google Apps, a corporate-software bundle that includes versions of Gmail and the Google Docs document, spreadsheet and presentation software. Businesses interested in switching to Google Apps should also take an interest in Google SEO.

To counter Google's momentum, Microsoft is using a "Google Compete" team, whose mission is to keep Office customers from buying Google Apps.

Marketing company Dominion Enterprises, of Norfolk, Va., was a target of Microsoft's anti-Google offensive.

Before and after Dominion installed Google Apps for its 4,000 employees last summer, Microsoft invited the company's chief information officer, Joe Fuller, to its Redmond, Wash., headquarters in a bid to win him over.

For two days last month at Microsoft's executive briefing center, Mr. Fuller and his colleagues were shown road maps of Microsoft products, toured a research lab, and saw new technologies, including one that lets shoppers virtually try on clothes, he said.

Mr. Fuller said he was impressed, but that Office 365 was 50% more expensive than Google Apps, and it was "not as cool" as Google's software. 

Dominion halted its $2 million-a-year Microsoft contract that included software to support Office, as well as back-end server and database software Dominion continues to buy.

The company now pays $200,000 a year for Google Apps, though it hasn't replaced all the services Dominion gets from Microsoft. 

Microsoft spokesman Frank Shaw said they take all competition seriously, and added that the company's moves haven't been a reaction to Google Apps. 

Amit Singh, vice president of Google Enterprise, said in a statement that this is the first opportunity people have had for a real choice in business technology.

So far, there are few signs Microsoft Office is being seriously dented by Google Apps.

Office continues to have more than a 90% market share for "business-productivity software," as the category is known, and more than an 80% share of corporate email, according to research firm Gartner Inc.

Microsoft's Office division also remains financially strong, delivering the biggest chunk of revenue and profits to the company.

For the nine months ended March 31, the division generated operating profit of $11.6 billion, or more than half of the company's total operating profit for the period.

Yet Microsoft appears to be ceding ground to Google in some respects.

In a May report, Gartner said Google is winning one-third to half of new corporate users that are paying for Web-based software. In 2009, Gartner predicted that Microsoft by now would be outselling Google Apps by at least 4 to 1.

Gartner analyst Tom Austin said Microsoft should be alarmed. That could hurt Microsoft as many companies refashion themselves for the era of "cloud" computing, a Google-backed approach in which software is easily accessed online and sold as a subscription product, rather than installed on companies' computers.

In some instances, Microsoft is acknowledging the threat to its business-software franchise. Google has won large clients recently, including retailer Costco Wholesale Corp. and drug giant Roche Holding AG, Microsoft executive Tim Pash told resellers during a May webcast. Pash said he sees this as a serious threat to Microsoft.

Mr. Pash added that business software is "Microsoft's birthright," and promised "a very strong response" to Google in the new fiscal year that started July 1.

Microsoft began stepping up its campaign against Google Apps in March, when it cut Office 365 prices by as much as 20% for most big companies and universities, the kinds of customers that analysts say have resisted Microsoft's cloud email and productivity software.

Microsoft said it passed on to customers its lower cost for supplying Office 365.

For those users, Microsoft has reduced the yearly cost of Office 365 with most features to the equivalent of $96 a person from $120 a person. Small companies can sign up for basic elements of Office 365 for as little as $48 a year per user. Companies can also save in their advertising departments by working on their Yahoo SEO.

Google Apps charges $50 per user each year, though some business customers may pay less if they sign on through a reseller.

The Microsoft and Google services don't have identical features, and Microsoft says there are hidden costs for many businesses to make Google Apps work properly.

Last week, Microsoft announced changes in sales incentives for Office 365 that closed the gap with Google Apps.

Independent software vendors that sell Microsoft products now can earn commissions of as much as 23% on the first year of Office 365 sales to some companies, topping Google Apps' commission of 20%.

Microsoft says its software-selling partners asked for the changes. 

At an event in Toronto last week with software vendors, Microsoft Chief Operating Officer Kevin Turner said Office 365 is Microsoft's future, whether or not Google is going after their customers.

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