How Will Recession Affect IT Outsourcing?
Original Story Posted at Data Center News

The recession has left companies decidedly mixed when it comes to outsourcing IT operations.

According to a recent SearchDataCenter.com survey of 233 IT professionals, just over 28% said they are less likely to outsource in this economy than before; 23.4% are more likely to make the move; and 27.78% are as likely as before to outsource. The remainder weren't sure.

For many, there is still a clear aversion to outsourcing, stemming from concerns over data security, quality of service, and fear of giving up control over data and applications.

One IT director with a New Brunswick, Canada-based health insurance company said some of his company's IT functions are outsourced, but management is careful with what it lets outside the four walls of the data center.

For this company, IT outsourcing only makes sense for commodity operations where economies of scale are necessary but turn around time is not a factor, he said. This company outsources the data center facilities -- space, security, power, and cooling -- but keeps control of data center operations, including server, network, and software management.
"Our organization requires quick and flexible response to market opportunities or software development projects, and we are leery of providing control to an outsourcer along the critical delivery path," the IT director said.

"We are very selective in what we choose to outsource. There is always a hesitation that an outsourcer will not provide quality services, will lack flexibility, and the long-term cost will be greater once they have you 'hooked,'" he added.

Some companies would rather hire more IT staff before outsourcing to keep sensitive data in-house, said a lead systems software engineer at a major U.S. hospital. "Other than in-house long term contractors [who augment IT staff], we do not do any outsourcing and are not planning to. For us, the cost is greater, and there's really no benefit that we couldn't get by adding real staff," he said.

Hosting providers often have to overcome fears surrounding security and quality of service, and a few bad apples make it all that more difficult for IT pros to trust their data to hosting providers, explained Aaron Sawchuk, CTO and co-founder of ColoSpace Inc., which operates six data centers in New England. "We speak to many customers who have been burned by outsourcing vendors and end up being hypersensitive as a result," he said. "The only way to overcome this challenge is, one, through striving to deliver the best service, and, two, backing it up with a strong service-level agreement."

He added, "In my experience, we often are only able to truly alleviate the giving-up-control and quality-of-service concerns over time, after a customer has come on board. We can address them to the point where they no longer become hurdles, but it can take years of working with a client until they are completely comfortable with the outsourced relationship," Sawchuk said.

Despite outsourcing concerns, the economic downturn sparked growth for some colocation services and managed hosting companies, including ColoSpace. The fourth quarter of 2008 was the company's best quarter in terms of new revenue and the first quarter of 2009 is looking strong as well, Sawchuk said.

Overall, the IT outsourcing market will see only moderate growth in 2009 and 2010, with about 2.1% growth this year and up to 6.8% in 2010, according to Forrester Research data released March 31 data released March 31.

Another colocation and hosting company, Opus Interactive Inc. saw a 15% jump in business since the economic downturn began, and continues to grow, said Jeremy Sherwood, an engineer and account manager at Opus Interactive. "More and more people are starting to see IT as a hosting utility -- business lifeblood, just like they have, for years, with power, water, sewer and telecom," Sherwood said. He said most applications and IT infrastructure can be hosted outside an organization better and cheaper than when run internally.

The biggest area of growth for the Portland, Ore.-based company is hosting company applications, such as websites, email, disaster recovery services, file storage, SharePoint, and customer relationship management and Software as a Service-based applications, Sherwood said. Other colocation areas include:

Atlanta Colocation
Chicago Colocation
Los Angeles Colocation
New York Colocation

Many of the companies outsourcing their IT operations have either downsized IT staff or need to grow their infrastructure but don't want to build a facility or pay for ongoing operating and staffing expenses, Sawchuk said.

Build-versus-buy decisions drive most colocation decisions. "Customers are severely restrained with their capital budgets for 2009 and 2010, so rather than build out new data centers in their offices they can rent space in a facility and shift the expense to an operating basis," Sawchuk said.

The cost of building a new data center space ranges from $1,000 to $1,400 per square foot, and ongoing operating expense runs between $15 to $20 per square foot per month, mostly due to energy costs, Sawchuk said. Equipment maintenance and underlying office rent are other major contributors, he said.

Sherwood said many of Opus Interactive's clients outsource to keep from buying hardware. "Renting servers is a heck of a lot less costly short term and long term than acquiring equipment," especially companies using virtualization to maximize server capacity. "[With virtualization], you'll be renting less equipment for significance savings without hurting performance."

Plus, many companies have downsized and need to outsource IT, so managed hosting helps them keep their IT head count low, Sawchuk said. "This is especially true for the small to medium-sized businesses. If a customer has fewer than 50 machines they rarely need a full-time server administration or network staff. Similarly, for a firm with fewer than 500 employees it rarely makes sense to hire a full time Exchange administrator," Sawchuk said.

Sherwood concurred. "A hosting provider is up to speed on the latest technologies, trained and certified to keep your business connectivity up and running at all times, which really means you don't have to worry about it and instead can focus on what you do best."

Google Improving SERP Presentation
As Posted to InformationWeek

The search market-share leader's latest improvements come in the form of better search-term association and longer search results snippets.

Sounding like a restaurateur defending Michelin stars against the whisperings of fickle critics, Google on Tuesday offered assurance that its search is of the highest quality and introduced two new improvements to the way it presents search results.

To most Internet users, if Google (NSDQ: GOOG)'s dominant search market share can be said to represent a yardstick of satisfaction, Google's search service works just fine. But Google nonetheless feels the heat from startups and competitors that claim to have built a better mousetrap. It can't afford to rest on its laurels.

So Google constantly strives to make its crown jewels -- its search algorithms -- shine more brightly. As Udi Manber, VP of engineering at Google in charge of search quality, explained in a blog post last year, Google maintains search teams that focus separately on core ranking, user experience improvements, new features and interfaces, fighting Web spam, and special projects.

In 2007, according to Manber, Google introduced more than 450 search improvements, an average of nine per week. A company spokesperson said Google hasn't released a comparable figure for 2008. Nonetheless, search research never sleeps at Google.

"We're improving Google all the time and most of the time you don't even hear about it," said Ori Allon, technical lead on Google's search quality team.

The latest improvements come in the form of better search-term association and longer search results snippets.

The search-term association improvement helps Google understand when search terms are related to other concepts that don't necessarily contain the same words. Google makes use of this knowledge by providing searches related to the keywords entered at the bottom of its search results page.

Allon said that Google's better understanding of how search terms relate isn't so much semantic technology -- systems for understanding meaning -- as it is a matter of data mining.

As an example of how this search improvement might work, someone searching for "principles of physics" would see related search query suggestions that use the words "physics special relativity," "physics angular momentum," and "quantum mechanics physics," among others.

While IAC's Ask, Microsoft (NSDQ: MSFT)'s Live Search, and Yahoo (NSDQ: YHOO) Search offer related search suggestions for the search "principles of physics," their suggestions cover less conceptual ground and, arguably, are less useful. Live, for example, offers as related search suggestions "laws of physics," "principles of science," "fundamentals of physics," "definition of physics," and "principles of chemistry," among others.

The lengthening of search results snippets for searches with lots of keywords represents an attempt by Google to provide searchers with more context. The goal is to help searchers understand what the pages at the end of search results links are about. Reducing visits to pages that don't really address a query means more satisfied users.

Allon said he couldn't discuss specific metrics that quantify how much these two search improvements affect user happiness, but he said they had indeed helped more Google users find what they're looking for. "We witnessed a significant increase in people who get to a page and stay on the page," he said.

Google was recently criticized by a departing designer, Douglas Bowman, who lamented the company's reliance on data to evaluate design decisions. While Google's dependence on data as a driver of product features may not lead to the most inspired aesthetics, data clearly plays an indispensable role in making Google's search responsive, effective, and innovative.

And Google is likely to keep relying on data as it continues to refine its search technology and other products. "We're doing a pretty good job [with search], but there's a really long way to go," said Allon.

HP Considering Android
As Posted at InformationWeek

The computer maker reportedly may be considering swapping out Microsoft Windows for the Android operating system in some PCs.

Hewlett-Packard (NYSE: HPQ) on Tuesday said it's studying Google (NSDQ: GOOG)'s Android operating system to determine whether it would be useful in PCs and other products, but didn't commit to using the software in any particular device.

HP's comments to InformationWeek came in response to a Wall Street Journal report that said the computer maker is considering swapping Microsoft (NSDQ: MSFT) Windows for Android in some HP mini-laptops, which the industry calls netbooks.

While acknowledging it's studying the OS, a company spokeswoman said HP hadn't committed to using the software in any computer.

"HP is acknowledging that we are studying the Android operating system," the spokeswoman said. "We want to assess the capability that Android may have for the computer and communications industry.

"As to how and when HP might produce any products using the Android OS, we don't comment on any speculation like that."

As the world's largest PC maker, HP's use of Android would be a major boost for the Google-developed OS that's used today in mobile phones. Because Android is open source, any company can download the software at no charge and use it without permission from Google.

Google confirmed that fact Tuesday in calling Android a "free, open source mobile platform" in an e-mail sent following a request for comment by InformationWeek.

"This means that anyone can take the Android platform and add code or download it to create a mobile device without restrictions," a Google spokeswoman said. "The Android smartphone platform was designed from the beginning to scale downward to feature phones and upward to MID [mobile Internet devices] and netbook-style devices."

The use of Android in a netbook isn't new. Asustek Computer said last month that it had dedicated engineers to create an Android mini-notebook, but had not decided whether it would sell it. The system could be completed by the end of the year.

In January, Matthaus Krzykowski and Daniel Hartmann, who run startup Mobile-Facts, compiled Android for an Asustek EEEPC 1000H netbook and got the system running with all the necessary hardware, including graphics, sound, and the wireless card for the Internet. They described their work in an article published by the site VentureBeat.

Netbooks, defined as having screens 10 inches or less and costing less than $500, with many models selling for as little as $300, are the fastest-selling segments of the PC market. While the rest of the market is expected to see a decline in unit sales, global sales of netbooks will grow nearly 80% this year to capture 8% of the total PC sales, according to the latest Gartner forecast.

New Mobile Apps From Yahoo!
As Posted to InformationWeek

Yahoo (NSDQ: YHOO) rolled out its new suite of mobile applications for the iPhone 3G and other handsets Wednesday at the CTIA Wireless trade show.

The Yahoo Messenger app can be downloaded from Apple's App Store, and it enables iPhone and iPod Touch users to send and receive messages, share photos, add contacts, and change status. The Yahoo Mobile app is available for more than 300 handsets with HTML-enabled browsers, and it offers a portal to online content like social networks, news, RSS, and Yahoo-based e-mail.

"Consumers around the globe are demanding compelling mobile Internet services that offer increased personalization," said David Ko, senior VP of Yahoo Mobile, in a statement. "To further capitalize on the market potential and continue our mobile leadership, we created Yahoo Mobile, a dynamic starting point enabling consumers to discover the world around them, stay connected through a variety of communication services, and customize content to define their Internet experience on mobile devices."

It's unclear how big a role the mobile division will play as the company is in the midst of a reorganization under new CEO Carol Bartz, and Microsoft (NSDQ: MSFT) continues to show interest in an acquisition. Marco Boerries, Yahoo's highly visible mobile leader, recently left for personal reasons, but many industry watchers expected the resignation once Bartz was brought on board.

The mobile division has been tough to monetize so far, but the new apps could help as they'll feature display advertising with rich media functions like click-to-call and location-based services. The company may extend this advertising to its Blueprint platform, which enables developers to write an app once and have it run on multiple phones, including Java, Windows Mobile, and Symbian.

Internet Fraud On Rise After 2 Years In Decline
Story Posted at BizNet

Internet crimes continue to steal millions of dollars every year from unsuspecting victims, and new data from the Internet Crime Complaint Center (IC3) shows that the number of complaints was up last year.

The IC3, which is made up of the FBI, the National White Collar Crime Center and the Bureau of Justice Assistance, saw a rise in the number of complaints of Internet fraud last year, after two years of declines.

The U.S. watchdog received 33% more complaints in 2008 than in the previous year. A new report shows a total of 275,284 complaints were received last year, amounting to losses of $265 million.

Non-delivery of goods was the most common complaint, comprising 33% of all received. Auction fraud accounted for just over a quarter of complaints, followed by credit/debit card fraud with 10%.

While the vast majority of complainants suffered financial loss to some degree, the highest dollar amounts lost were to check fraud ($3,000), confidence fraud ($2,000) and a variant of the Nigerian letter fraud scam ($1,650).

The primary channels via which Internet fraud was conducted were email (74%) and websites (28.9%).

These figures may already look grim, but some believe it's just the tip of the iceberg, with many cases of Internet fraud going unreported.

"Our own research suggests that as few as 15% of cases of cyber-fraud are being reported to crime control agencies," said John Kane, managing director of the National White Collar Crime Center and author of the report (.pdf).

Month Of March Sees Rise In Malicious Websites

Story Posted at BizNet

Almost 3,000 potentially malicious websites were blocked each day by MessageLabs during March this year. That's almost three times the number blocked during February.

Cyber crooks are changing tactics and focusing their malevolence on web servers and SQL injection attacks, says MessageLabs' senior analyst, Paul Wood. However, the amount of email containing links to malicious sites in March reached the highest level since June last year, up 16.5%.

While the problem is a global concern, the worst affected areas were throughout Asia-Pacific with Australia, Hong Kong, China, India and Japan receiving the highest amount of spam.

Google is pulling and manually removing many .php urls from their index ... to learn more about why .php urls don't rank in google visit this page.

An iconic virus, Melissa, turns 10 years old this year. A decade ago, this virus was credited with being the first to make use of botnets and even today, MessageLabs still encounters about 10 occurrences of the virus each month.

"Melissa was the virus equivalent of the supermodels from the 90's, known by one name and iconic within the industry," said Alex Shipp, senior director at MessageLabs. "This was the first attack of this magnitude and I remember that when the numbers reached the hundreds within the first hour of stopping Melissa, which were significant levels in 1999, we knew the threat landscape had changed evermore."

Since intercepting the virus in March 1999, MessageLabs' Anti-Virus service has stopped 108 different strains and more than 100,000 copies of the virus, claims the company.

Google has also noticed the return to pre-McColo spam rates, saying that spammers have almost fully recovered from the shutdown of the notorious web-hosting firm.

CFO Gideon Yu Out At Facebook
As Originally Posted at the Wall Street Journal

Facebook Inc.'s chief financial officer, Gideon Yu, is leaving the Internet company, which has begun a search for his replacement, said a person familiar with the matter.

Mr. Yu, who joined Facebook in 2007, was previously the chief financial officer of YouTube, now a Google Inc. unit. He couldn't immediately be reached for comment.

Mr. Yu is the latest in a string of executives to depart the five-year-old company, whose employees and investors remain anxious about when and whether it will go public. Facebook is looking for a CFO with "public company experience," the person familiar with the matter said.

The departure of the 37-year-old Mr. Yu and the ensuing search for a replacement are likely to renew speculation that Facebook, which has previously said it hopes to go public within the next few years, is stepping up plans to do so despite the rocky economy.

The person familiar with the matter said Facebook's financials are strong and that the company expects revenue growth of at least 70% in 2009 compared with 2008 revenue--far above the estimates of some outside analysts.

This person declined to say how much revenue Facebook is making, but added that the company has had positive earnings before interest, taxes, depreciation and amortization, or EBITDA, for the past five quarters and expects to be cash-flow positive in 2010.

The numbers suggest that Facebook's rapid climb to roughly 200 million users hasn't taken the toll some investors and analysts had been speculating about, and that interest in its online-advertising products is growing. But whether the company can grow fast enough to justify its high valuation, remain unclear.

Mr. Yu was an executive at Yahoo Inc. before joining YouTube, which he helped sell to Google. After Google bought YouTube, he accepted an offer to join the venture-capital firm of Sequoia Capital before landing at Facebook.

Mr. Yu helped seal a major round of investment for the company in late 2007. At that time, Microsoft Corp. bought a preferred 1.6% stake in for $240 million, valuing the startup at $15 billion. Other investors with different terms bought in that round at a lower valuation, however, according to investors.

Since the collapse of the economy last year, Mr. Yu's job has grown more difficult, as Facebook has struggled to raise money at even lower valuations.

In December, Facebook postponed a program to allow employees to sell some of their shares after the company struggled to raise money at around a $4 billion company valuation, according to people familiar with the plan. At the time, the company cited the "incredibly difficult" global economy.

Google Adding To Nation's Unemployment Figures
As Originally Posted to Mercury News

Google announced Thursday that it is trimming just under 200 positions from its sales and marketing operations, or about 1 percent of its global work force.

"Google has grown very quickly in a very short period of time," sales chief Omid Kordestani wrote in an unusually candid post on the company's official blog. "When companies grow that quickly it's almost impossible to get everything right — and we certainly didn't."

The layoffs represent the latest round of cuts at the Mountain View Internet powerhouse. As the economy has slowed, Google has throttled back on expenses.

In January, Google cut its recruiting department by about 100 positions. In February, about 40 Googlers were let go when the company stopped selling audio ads. Google has also laid off more than a thousand contractors.

The company has 20,222 employees.

In a research note published Thursday, Jim Friedland, an analyst at Cowen and Co., said advertisers at a recent conference in New York said advertising budgets for paid search — Google's bread and butter — were either down or flat in the first quarter.

Rob Sanderson, an analyst with Broadpoint AmTech, downgraded Google last week to neutral, citing a slowdown in "monetization," in other words, advertising sales.

"We still like Google longer term and will return to the stock," Sanderson wrote. But he added that in the near term, expectations for Google's growth this year were too high.

In his blog post, Kordestani said he was laying off salespeople because the company had over-invested in preparation for growth that has petered out in some areas.

Stay Tuned For The Latest From: Search Engine Strategies Conference New York City

Beginning Tues., March 23, Peak Positions frontman Jack Roberts will be reporting directly from the SES NYC show with updates on the latest developments in the SEO Industry.

Jack will deliver his insights and takes on all of the hot topics of discussion from the New York Show.

The Latest On Microsoft And Live Search
Interview With Steve Ballmer
Originally Posted at All Things Digital

The Microsoft (MSFT) boss is sitting down with BusinessWeek editor Stephen Adler at the McGraw-Hill media conference. Expect at least some chatter about Yahoo (YHOO) and its new boss Carol Bartz, who just happens to be visiting New York this week as well.

Following is paraphrased live notes, unless in quotes. Please refresh your browser for updates.

Starting off with an economy question: Should be believe that recent rally means things are getting better?

SB: The principle we’re operating on is that the economy will contract, reset… and we’ll begin again what I call “regular growth”. We had had abnormal growth fueled by too much debt in the system. I don’t how long that will take. It could take, two, three, four years to get there.

SA: Back to MSFT business. Why don’t you dominate search?

SB: We had to start essentially from scratch about 6 years ago. Essential thesis: Most of the innovation is still come in search. Search hasn’t changed much in the last 5 years, 10 years. “It’s gotten somewhat better, but at the end of the day you search to do something, you don’t search to find links to web pages.” We think there’s a lot of innovation yet to come. We’ve learned that cost of just getting into the game - the table stakes - is a lot higher than we realized in R&D, capex. Google (GOOG) is making that investment, Yahoo can’t, we are.

SA: Isn’t much of this a marketing question, that no one visits you for search?

SB: Yes. But it means opportunity for us. Our brand will differentiate us, and if we can just get 15 or 20% in the next few years, that’s a big step up.

SA: Please tell us about Kumo, your new search product.

SB: Not really ready to talk about it. Need a new name. We update search every 9 months. Going still call it “Live Search” for now.

SA: So not a new product, just an incremental release?

SB: “I think we could use a “set change” as they say in organizational behavior classes, and when we’re ready to release one, we will”.

SA: What’s up with Yahoo talks?

SB: Principles first: “Whether or not there’s a partnership to be had with Yahoo, we think our own innovation… it’s not about Yahoo’s technology. It’s really about getting the pooled volume, because you actually can improve your product faster if you have more users.” If you have more advertisers, you can improve the product as well. “There are returns to scale. And putting the scale together is valuable.”

“With that as context, we’re largely on the same strategy, with or without a partnership with Yahoo.” I’ve talked with Carol briefly, over the phone. “I’m sure when it’s appropriate, we’ll have a chance to sit down and talk.” I’ve known her for years. She’s straightforward and friendly “and when she’s ready, we’ll have that type of discussion. Whether a deal gets done or not, who knows.” People at our two companies talk all the time.

SA: Will there be a deal?

SB: “There are a lot of things that are fairly compelling economically in trying to put our two search efforts together in a partnership.” I thought that last year, and “I got bailed out of this economy by Yahoo on that”. [Laughs].

SA: Do you own an Apple (AAPL) products?

SB: “No. I don’t. My sons don’t. My wife doesn’t.”

SA: Why does MSFT, which is so smart have so much trouble outside of Windows, Office. Why so difficult to expand beyond that (ie against the likes of Apple?).

SB: “Most people in our industry never expand beyond one thing.” So the fact that we have Windows, Office, business software…”So beyond those three, Mrs. Lincoln, or whatever, how was the play? I think I got that backward, but you get the point.”

Xbox doing great for us. Incredible asset, opportunity. We have areas where we have our work cut out for us. No doubt that Apple does a nice job in video and music services. We’ve talked about search… but if you were a shareholder, I’d also say, it’s great because there’s lot of opportunity.

SA: Whither Zune?

SB: “We’re going to keep going with Zune”. It’s two things: Service and a device. The Zune service, that’s going to fan out its footprint. Hardware will continue to improve. “The question is whether even if we flog them heavily, is their profit upside”. We’re going to keep going “I won’t say full steam ahead, because that implies acceleration of investment, but we’re going to sustain our investment.” We like it and the future may be the software/ecosystem on other devices.

On to smartphone market:

SB: Smartphones will go from 10% to 70 or 80% of market next few years. So what will people want? Good experience built in, w/out downloading stuff. You want good price range. iPhone is very expensive phone, without a keyboard. Some people can’t afford them. Sweet spot is phones that cost $150 to $200 to make — forget retail price. iPhone is about $500. We want to provide vendors with ability to make Windows phones up and down the price scale.

Unless you assume Apple and BlackBerry are going to sell the lion’s share of most phones, which I don’t, I think the play for us is to provide broad innovation at many price points.

A $500 phone is not going to work for everybody in every market. The most popular phones in China and India cost about $25 to build. We can’t get our software on that.

SA: Do you care about “touch” on phones? The blogs say you are.

SB: Windows Mobile 6.5 has touch on it. The way Apple does touch drives cost. They way they do it on the iPhone is not an inexpensive component. We’ll do it in a way that you can afford to do it on most phones.

SA: What are you thinking with these retail stores? How different than Apple?

SB: You have an interesting case in the US. Right now there’s a range in innovation, around, by our partners. Not selling software in stores, but hardware. It is a challenge today for our partners, who do the most innovative designs, to get them to market. Because it’s too high risk for the Best Buys of the world. So we need an outlet to champion that innovation. Showcase devices that are hard to get stocked in traditional electronics retailer.

Apple actually sells about half of all Apple machines through its stores or online. We’re not going to do that for PCs. But we don’t to show off interesting stuff. It’s sort of like our enterprise consulting services, which doesn’t really compete with the big consultants. It’s a place to showcase.

SA: Back to Windows/Office. How are you adapting the Cloud - Software as Service?

SB: I think we’re doing a good job. Rattles off series of vaguely cloud-related services - things that involve the Web. “We’re doing a lot of work in the area and I see all upside from the cloud.” Do we have competitors? Sure. Is Google going to compete with us? Sure. We try to compete with them, too. Everybody makes their software really run on the client. The truth of the matter is that nothing is really a Web software — even Google Apps. Everything really runs on the local device, because it runs better there.

SA: What do you think of IBM/Sun deal?

SB: “I don’t exactly get it, but it doesn’t exactly surprise me either.” Logical exit strategy for Sun shareholders. On IBM’s side. “I think you pick up a lot of stuff when you buy Sun” and you have to figure out if you want everything you’re going to get. “It doesn’t change our fundamental” economics, strategy. “I think it gives me a year or two where they’re digesting it. I relish that year.”

SA: Recently you promised to keep investing in R&D, etc and you got criticism for that. Please respond.

SB: The feedback we’ve gotten isn’t just about the R&D number. It’s “Cut costs. Cut them more.” But in R&D, when you’re giving someone some people today, you’re really, giving them more people tomorrow. So we need to flatten that curve a bit. There are plenty of areas where we spend less than the competition. Apple, for instance, spends much more (proportionally) on marketing than we do.

SA: Those layoffs you announced may have been the first major round you did. How are you absorbing that.

SB: We feel bad about the layoffs. Nobody wants a death by a 1,000 cuts. So we really thought it through beforehand. I “revectored” my Christmas and New Years to go over this. “While it’s not fun, they’re moving forward with good attitudes.”

SA: Talk about future markets, opportunities

SB: PC market will shrink nearterm, but when it turns around Windows/Office will go gangbusters. Cloud-based services has big growth. Big possibilities in servers/mainframes. On a percent basis, fastest growth will be in search, phones. Those things will grow quickly, but we’re still in investment mode. Xbox we’ve turned the corner on. We’ve paid our upfront costs. Have big base of subscribers, and a real opportunity for it to be “more than a console” and I think you’ll see that 12 months from now.

On convergence: Zune needs to come from the cloud and support the TV. It will support the phone/mobile device, and it has to run on the PC. Right now it’s on a device but it broaden from there. LiveMessenger will work the same way.

But the PC has real advantages compared to TV or mobile. TV has no intelligence. The phone today is pretty nascent. There will be about 300M PCs sold this year, compared to 20M iphones or Windows Mobile phones. PCs are open. PCs are compatible. So importance of PC-centered innovation…most of the new media creation, the PC will actually be the primary target device, for now, and eventually the same type of opportunities will be available on three screens, from the cloud.

SA: What about M&A?

SB: “We don’t have an acquisition strategy. We have a business strategy that might lead to acquisitions.” We did 20 deals last year. We’ll do about 20 this year. Most between $10M and $400M in value. “But will be buy many things things that are $2, $3, $4B and up? We could.” But I’m not sure we will. But integration is hard. And pricing is hard. “Nobody knows what asset values should be, at least until the economy finishes resetting”. I only get involved in deals about “a couple hundred million”.

[Missed some parts about evolution in Ballmer's management style. Apologies]

SA: Is it better now that Bill Gates is gone?

SB: “It’s different”. We’re growing, but “we miss Bill.” But everyone values what Bill is doing with this nonprofit, and everybody relishes the chance to grow. Windows 7 is a great product, that we’re building without Bill’s involvement.

SA: You recently called on government to invest in innovation. What should they be doing?

SB: “A lot of basic research in this country needs to be funded by government.” A lot of important research has come out of government, and I think it’s important that they understand it. GDP growth comes from basic transformations in science and the business cycle. “The most important thing is that the government says, he we believe , and we’re going to put our money where our mouth is” on the science side.

On the education side, anything we can do to shore up what is the best set of universities, I think the more we can keep that system healthy, the better.

“I’m not going to pretend to be the expert in how that happens.”

SA: You’ve made a lot of money [then a dig at Forbes]. What would you do if you weren’t running Microsoft?

SB: “I’m not really sure. I don’t really allow myself much time to think about it, because you might fall in love with it, if you think about it too hard.” I have kids who are 13, 14.

SA: So you’re saving for college?

SB: I mean that we’re not moving out of Seattle anytime soon. But if there’s one thing that captivates me, I think it’s education.

IE8: A Notable Improvement
As Originally Posted to The Wall Street Journal

The Web browser is arguably the most important piece of software on a computer. No longer just a tool for perusing or searching for information, it has become, for many people, their principal communications medium, their photo album, their newspaper, social club, bank and shopping mall.

And, among Web browsers, by far the most popular is Microsoft's Internet Explorer, or IE, which comes on every new Windows computer. So when Microsoft changes Internet Explorer, those changes affect vast numbers of people, and the Web itself. This week, Microsoft is changing its browser in a major way. On Thursday, the company will release IE8, the biggest overhaul of Internet Explorer in years.

I've been testing IE8 for months, first using its prerelease versions and, more recently, the final version. I've found it to be a big improvement over its predecessor, IE7, and a much closer competitor to its main rival, Mozilla's Firefox. IE8 is more stable than IE7, more compatible with industrywide Web standards, and packed with new features that improve navigation, search, ease of use, privacy and security.

Some of these features can't be matched out of the box by its main rival browsers. For instance, related tabs are color-coded, the search field can show images along with text, you can get instant fly-out maps of place names in Web pages, and you can easily hide your tracks online from the prying eyes of advertisers.

But, in my tests, IE8 wasn't as fast as Firefox, or two other notable browsers -- the Windows version of Apple's new Safari 4 and Google's Chrome. IE8 loaded a variety of pages I tested more slowly than any of the other browsers, and it grew sluggish when juggling a large number of Web pages opened simultaneously in tabs.

For that reason, I can't say that IE8 dethrones my previous browser champ, Firefox. If you're a light-duty user and attracted to the new IE's strong suite of fresh features, you might prefer it to Firefox. But if you would be bothered by the speed difference, or the slowdown I saw under a heavy load, Firefox would still be better.

Microsoft is making IE8 available, free, at noon EDT Thursday, for both Windows XP and Windows Vista, at microsoft.com/ie8. A version also will be tailored for the forthcoming Windows 7, the next edition of the company's operating system. But that version won't be available until the next prerelease iteration of Windows 7 comes out. It will also be automatically offered via the Windows Update system over the next few months.

Unlike its competitors, IE8 won't be available in a Macintosh version, though I found it worked fine on a Mac that is running Windows alongside the Mac's own operating system.

Favorites and Tabs

This new Internet Explorer looks a bit different, right away. It finally displays, by default, the old Links bar, now renamed the Favorites Bar. This is a toolbar near the top of the screen where you can store your most-used Web sites or folders containing groups of frequently visited sites, for convenient access. It's like the Bookmarks Toolbar in Firefox or the Bookmarks Bar in Safari. This bar was available in older versions of IE, but was hidden unless you turned it on.

And this Favorites Bar has a couple of nice features. There's a one-click button that will add any Web site to the bar, as opposed to adding it to the longer Favorites list of less-frequently visited sites. And, to help fit as many sites as possible on the bar, IE8 has a command that automatically condenses the titles of the entries.

There are also big changes in the way tabbed browsing works. In IE8, tabs you open from links on the same Web site are grouped together and color-coded. And when you have too many tabs to see at once, you can click on a button to see mini images of the pages they represent, or, alternatively, you can get a quick text list of all of them.

In addition, when you create a new, empty tab, IE8 displays a number of choices inside the page. These include the ability to reopen tabs you've closed or to perform various actions on text you've copied, such as emailing or blogging it.

There also is an optional Suggested Sites feature, which pops up a list of other Web pages that might be similar to, or related to, the page you're viewing. This feature doesn't always do a great job, but when it works, it's handy. For example, when I was reading the BBC's Web site and clicked Suggested Sites, IE8 listed a variety of other British news sources I hadn't bookmarked.

Addresses and Search

Like the other major Web browsers, IE8 now also makes smart suggestions about what you might be looking for when you type something into its address bar or its search box. In the address bar, these are based on your history and your Favorites. In the search box, they are based on suggestions from whatever search engine you choose to view in the box, plus your history. All of these suggestions are organized nicely. (If you are using Windows XP, you must install Microsoft's desktop search product for all of these features to work.)

But the IE8 search box does two cool things the other browsers don't. First, it allows search engines to show images in the search results that drop down from the box, something Microsoft calls Visual Search. With some providers, like Google, you don't see images, at least not today. But with others, such as Wikipedia and Amazon, images show up.

Second, and more important, IE8's search box lets you switch search providers on the fly by just clicking on an icon at the bottom of the results list. So, for instance, you could type in Red Sox, see the results in, say, Google, and then without retyping your search term, almost instantly get different results from Yahoo or from Microsoft's Live Search engine, by just clicking their icons.

Surfing Tools

IE8 includes a new feature called Accelerators, which can perform specific actions on any text you select in a Web page, often without taking you to a new page. When you select text, a light-blue icon appears near it. When you click on that icon, you get a list of options. For instance, you can translate the text to another language, email it, blog it or, if it's a place name, map it.

Depending on which company's services your chosen accelerator is using, these actions can happen right on the page you're viewing, in a fly-out panel. For example, I selected the word "Beijing" in a news story, chose Map with Yahoo from the Accelerator list, and got a map showing Beijing in a small window atop the same page.

When you install IE8, Microsoft suggests you use its own set of accelerators, but gives you the option to choose from Google, Yahoo and other competitors. A full list of accelerators, search engines and other add-ons for IE8 is at ieaddons.com at the bottom left of the page.

Another nice feature is called WebSlices. This requires some effort on the part of Web page publishers and is on only a small number of pages right now. But it allows a user to add to her Favorites bar a constantly updating section of a Web site, complete with graphics, by just clicking a green icon that appears on the site. For instance, I added to my Favorites bar a slice that shows the top stories on digg.com.

Speed and Stability

Microsoft claims IE8 is very fast, but in my tests, speed and performance were its worst attributes. Using two computers, one running Windows XP and one running Windows Vista, I timed the loading of a half-dozen popular Web sites, plus two folders containing numerous news and sports sites. I repeated the test in IE8, and in Firefox, Safari 4 and Chrome. In every case, IE8 loaded the pages and folders more slowly than most of the other browsers, and in most cases it came in dead last.

In some instances, the differences were tolerable -- a few seconds. In others, primarily the folders containing nine or 21 sites, respectively, IE8 took two or three times as long as one or more of the other browsers to complete the task. Microsoft conducted its own tests, which show IE8 winning similar tests, but I rely on mine, which I also use when evaluating its competitors. You can judge for yourself.

IE8 never totally crashed on me. This is partly because when one tab crashes, it's designed to leave the others unaffected. However, in my tests on both machines, I found that IE8's general operating speed -- things like opening menus or switching among tabs -- slowed down noticeably when I had 15 or 20 sites opened in tabs, even after they finished loading.

Security and Privacy

By contrast, IE8 shines in the areas of protecting you on the Web. Like other browsers, it warns you when a Web site you've reached might be a phishing page, designed to steal your identity, or a page that's known to distribute malicious software. And, like others, IE8 allows you to conduct a private browsing session that won't leave any history or other evidence on your own PC.

But IE8 also has a feature, called InPrivate Filtering, that the company says will optionally allow you to surf multiple Web sites without leaving the kinds of tracks on Web servers that allow advertisers and others to know where you've been and what you did there. I was unable to test the effectiveness of this feature, but assuming it works, it's a step forward in privacy.

Compatibility

IE8 had good compatibility with most Web sites I visited. But in some cases, it didn't render a page properly. This is mainly because some sites were designed for older versions of IE, which used proprietary page-rendering features that made some sites look good only in IE. With the new version, Microsoft is moving away from those proprietary features.

To solve this problem, IE8 includes a compatibility button you can click that will cause the browser to behave like older versions of IE and render the page properly. You have to click the button only once for each page, and IE8 will automatically do it for you on subsequent visits.

Bottom Line

Internet Explorer 8 is a well-done advance on an important product used by most people to surf the Web. If it were faster, I would say it was the best browser currently available for Windows. But even so, it will be an improvement for current Internet Explorer users, and might even tempt some folks to switch.

Privacy Group Requests
Investigation Of Google By FTC
As Originally Posted to The Wall Street Journal

A privacy group has asked the Federal Trade Commission to investigate whether Google Inc. has built adequate privacy protections into its software services, such as Gmail and the company's word-processing and spreadsheet offering, Google Docs.

The Electronic Privacy Information Center filed the complaint Tuesday, a few weeks after Google admitted to accidentally sharing a small number of documents with users who lacked the permission to see them. The Washington, D.C., public-policy group has successfully prodded the FTC to make companies such as Microsoft Corp. change their privacy and security practices.

Separately, Google said that Dennis Woodside, a vice president, will succeed former Americas Operations head Tim Armstrong, who is leaving to become the new chief of Time Warner Inc.'s AOL. Mr. Woodside, 40 years old, has managed Google's relationships with big European advertisers and agencies as vice president for the U.K., Benelux and Ireland, one of the company's biggest revenue-generating units outside the U.S.

In a statement, Omid Kordestani, Google's senior vice president of global sales and business development, said Mr. Woodside's "combination of entrepreneurialism and operational excellence" make him well-suited to take on the position. Mr. Woodside will be responsible for maintaining Google's relationships with the large U.S. advertisers from which it is trying to lure more business.

Meanwhile, Google was delivered a fresh attack from a privacy group that argues that using online software hosted by big technology companies such as Google, as opposed to software that runs on individual computers, raises a number of privacy concerns.

In particular, EPIC is asking the FTC to require Google to revise its terms of service to better explain its obligations to protect the data it obtains. EPIC Executive Director Marc Rotenberg said in an interview that he doesn't believe that Google is being upfront with consumers about the risks of using its online software, which is becoming more mainstream.

"It's an opportunity to let the commission look at the issue more closely, and I think Google is the right place to start," Mr. Rotenberg said.

A spokesman for Google said in a statement that the company hadn't yet reviewed the complaint in detail but had policies and technology "to ensure the highest levels" of data protection. "We're highly aware of how important our users' data is to them and take our responsibility very seriously," he said.

The complaint comes as Google has ramped up efforts to sell government technology officials on the benefits of upgrading their current systems to use "cloud computing" software applications such as Gmail. It also comes as the FTC, now under control of Democrats, has signaled its interest in taking a tougher stance regarding online privacy.

A Rare Steve Case Appearance at AOL
As Originally Posted to The Wall Street Journal

In a rare appearance, AOL founder Steve Case told employees Tuesday that the company needs to focus on Main Street, not Wall Street, as it makes another attempt at a turnaround under new CEO Tim Armstrong.

At the town-hall meeting, held by Mr. Armstrong at AOL’s Dulles, Va., campus, Mr. Case said skeptics didn’t believe in AOL when he started the company, so we shouldn’t be disheartened that they don’t now, according to staffers in attendance.

In his first public address to workers before officially taking the reins on April 7, Mr. Armstrong also talked about his respect for AOL’s products and services coming from Google, where he has been a senior vice president. He added that he hoped to continue the advertising partnership between AOL and Google. Google has said it plans to sell its 5% stake in AOL.

Ted Leonsis, AOL’s former vice chairman, also joined the pep rally, saying that AOL can be around for another 25 years if it can get back to being focused on products and customers.

In calling on Mssrs. Case and Leonsis to address staff, Mr. Armstrong appears to be invoking a symbol of AOL’s heyday to set the tone for his leadership. The beleaguered Internet company has been a thorn in Time Warner’s side since the 2001 merger, and Mr. Case has kept his distance from the company in recent years. Mr. Armstrong’s surprise appointment last week is seen as a sign that Time Warner is seriously considering a spinoff of all or parts of AOL.

Google Growth Continues

Excerpts From Google Press Day 2007

Originally Posted at Google Blogoscoped

The world's most popular search engine in getting larger by the minute. For more perspective on the Google System and its scalability, let's review some 2007 outtakes from key Google execs.

CEO Eric Schmidt:

“Search was, and is, and I suspect will be for many years, the killer application,” Eric says. “We have more engineers working at Google on search than we do anything else.” And: “As the web gets bigger, you need a bigger index ... It’s like looking for more needles in larger haystacks.”

Personal search is the next big phenomena, Eric says. The best search is a personal search – one that we arrange, we control, etc. This is going to become the theme of Google as they move forward, Eric proclaims, stating that (and this surprises Eric) iGoogle is exploding in its use. Eric likens iGoogle to a ring-tone as people love to personalize it.

Eric continues to say that Google likes to tackle things with the help of partners, sharing revenues, and that there are lots of challenges ahead; growth, society and the future. “What are the next billion people who come online going to do? Are they going to democra

tize the web? Are they going to bring more languages? I don’t know, but I know they’re going to come.” Eric mentions a Venezuelan TV station that survived by coming online... and using YouTube. This was an important event for the people of Venezuela.

Eric talks about how soon, it will be possible to walk up to a computer and make it yours: the “Be Mine” command. Securely, safely, without any question of theft. And then, when you’re done, you’ll say “Be Gone” and you’re logged out.

Marissa Mayer:

So far, she spoke about the core principles and components of search – the four answers which create the entire experience that you have on Google:

1. Comprehensiveness

2. Relevance - Which goes first? Apples, oranges or grapes? This is what they’re doing with websites, Marissa says: it’s a question of ranking and ordering the results, the question being how can they rank the results in the most relevant way possible?

3. Speed - Marissa says they’re constantly working on making Google faster and faster.

4. User Experience - Google asks themselves, “Do the results make sense? Is it easy or hard to understand the answers and the layout of the pages?”

With that in mind, Marissa says she wants to take a look at Google’s past, present and future. In the early days, around 1998, the world wide web would fit on one slide. This year is Marissa’s 8th year at Google, and they now have 10s of billions of slides, grown by more than a factor of 1000 in eight years. Back then, you could organize all websites in a manual directory, as Yahoo did, but as the web exploded search became a necessary tool.

Google is constantly working to crawl and include more and more content, Marissa says. In June 2000, a year after Marissa joined, it was the time of GIGA Google – 1 billion web pages crawled. Next search engine had 600 million. As you include more pages, relevance bec

omes a problem. In the early days, users got used to hunting and pecking at results. Google realized their job was to provide the best result first, and that if they did their job right, the user shouldn’t have to click “next” or even scroll. This lead to the “I’m Feeling Lucky” button, which has by now been translated into many languages.

Basically Marissa says Google realized they only had a few users, but they started to see the user base grow due to people getting better search results – which made it spread across the US and internationally.

Marissa says there are a lot of speed advances in the past 20 years. Two decades ago, you’d go to the library, look things up, get journals out and find your answer. Many questions would go unanswered because it wasn’t worth spending hours researching some questions. Then, you could email friends and sometimes they had the right answers. But with internet search, people could get answers within a second. But at some point, Google will be up against the constants of physics – though they’re aiming for light speed searches.

In an early Q&A that followed, Marissa was asked about the size of Google’s index and told the press it is “10s of billions of pages” and “three times bigger than next nearest rival.” (I wonder what Yahoo has to say on that...) Also, someone mentions how Jason Calacanis

thinks the internet is polluted, and that we need a human edited search engine. Marissa replies that when the ’net is large & polluted, you need more sophisticated means to help people find information. Ideal, she says, is a “blend of both” an algorithmic search engine and a human-edited one.

After lunch break, the presentation continues, and Marissa shows screenshots of the evolution of the Google homepage over the last eight years.

Apparently the first version of the homepage was so simple in the because co-founder Sergey Brin didn’t know much HTML. Marrissa adds that her family gives her a hard time over the look of the Google search result pages, as they say, “It looks the same! What do you do at work?”

Marissa goes on to speak about improvements to web search. One example are Google’s alternate queries; search for ABC Survivor and Google understands the semantics of this query and suggests “CBS Survivor” as well. Marissa also mentions that that Google serves different results for different locations - e.g. Cote D’or in Australia will return the chocolate brand, but in France they’ll localize the results to the region in France. (And in Belgium, they’ll return both.) Speaking on the future of search, Marissa mentions the Cross Language Information Retrieval designed for search in one language, to find documents from other languages,

translated back to your preferred language on the fly, and she reiterates the universal search concept, saying that “information silos” – Image search, Blog search, News, Video etc. – are united to break down search barriers.

Marissa also touches the subject of personalization. “I think the really powerful part about all this is that we can take information from Web History and iGoogle so that we can create a search engine of the future.”

In a second Q&A with Marissa, someone asks about potential copyright issues when the Cross Language Information Retrieval is republishing full pages for its translation service. Marissa admits that they translate search phrase, titles, descriptions and entire web pages, but that they believe this is legal with regards to copyright law. Another question mentions that Wikipedia is heavily featured in Google results; does Google have discussions about reliability and authenticity of any results, e.g. should the BBC website rank more highly than someone’s blog? Marissa answers that PageRank is user-driven by linking to pages. Links feed into page rank, anchor text, etc., so those types of links to

Wikipedia happen because people like the content and link to Wikipedia pages.

Questioned on googlebombing, Marissa says that links on blogs often look like googlebombs when they’re not. But she also says that googlebombs often become the “right result” in itself because people searching for e.g. “miserable failure” actually want to find a page on George Bush! When asked how much Google invests in video image recognition, Marissa states that voice-to-text recognition is more important for video search because it’s further along than image recognition.

Urs Hölzle (Google Senior Vice President, Operations) is responsible for energy usage and carbon dioxide emissions. Google has a focus on cutting their emissions and “working to raise industry standards,” but the average Google data center catering to the internet’s many users and services wastes power. Computers use a lot of energy, which turns to heat, which needs cooling, which needs more energy. Urs says in a typical data center, up to 65% of the energy is lost – only 35% reaches the computers!

Urs Hölzle:

To tackle some of the issues, Google is committing to being carbon neutral. They already use evaporative cooling, Urs says, which according to him results in data centers that use “50% less energy than standard industry data centers.” Goog

le also runs a shuttle service on Bio diesel in the San Francisco area, gives free bikes to employees, uses video conferencing to reduce travel, and has solar panels installed at their headquarters. Urs says that Google is “offsetting what is left,” which he says isn’t always the best, but a “good compromise.” Urs’ speech ties into yesterday’s announcement of Google Recharge, as well as the recent Climate Savers Initiate.

Also on stage speaking now is the French photographer Yann Arthus-Bertrand, who specializes in aerial photography and whose works have “both political and aesthetic connotations,” as Wikipedia writes. Yann talks about the people who are

going to suffer with global warming. Jim Walker of the Climate Group – which Google joined a couple years back – also makes an appearance, stating that Google’s announcements are “encouraging” and that they “reinforce their vision” on environmental issues.