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Thursday, April 10, 2008

Microsoft Increase Pressure on Yahoo.
Microsoft Ratchets Up Deal Pressure on Yahoo

Ballmer Threatens to Launch A Hostile Bid if Internet Firm Doesn't Agree to Merger Soon

Microsoft Corp. is turning the screws to try to force Yahoo Inc. to agree to a takeover, but Yahoo remains focused on finding an alternative.

In a letter sent Saturday to Yahoo directors, Microsoft Chief Executive Steve Ballmer threatened a hostile takeover bid for the Internet company if it doesn't agree to a merger within the next three weeks. On Sunday, Yahoo was planning a written response to the letter, saying Microsoft had failed to address antitrust concerns and other issues raised by its offer, according to people familiar with the matter. The offer is currently valued at $42.2 billion.

Yahoo's reluctance to negotiate has given some Microsoft executives a window to voice their opposition to the proposed acquisition, say people familiar with the matter. Their skepticism probably wouldn't derail a possible deal, but it could at least limit Microsoft's appetite for raising its offer, these people say.

Some in Yahoo's camp view Mr. Ballmer's latest move as a negotiating strategy, and they believe there is still time for Yahoo to pursue alternatives to an acquisition by the software giant, say people familiar with the matter. One of the people says some members of Yahoo's management would prefer not to sell to Microsoft and are still looking for another deal that would allow Yahoo to avoid that.

The company's directors were scheduled to discuss the matter Sunday, but it wasn't clear, whether they came to any new conclusions.

On Jan. 31, Microsoft offered to acquire Yahoo for $44.6 billion, or $31 a share in cash and stock Yahoo's board rejected the offer, which has sin< declined in value to $29.36 a share because of substantial drop in Microsoft's share price. In p.m. trading Friday on the Nasdaq Stock Mark Yahoo's shares were up 23 cents at $28.36, who Microsoft's traded at $29.16, up 16 cents.

Since the unsolicited offer, Yahoo has been discussing alternative arrangements with companies that including News Corp. and Time Warn Inc. People familiar with the matter say the talks with Time Warner, which center around its folding its AOL Internet unit into Yahoo in return for a significant Yahoo stake, have heated up recently. The separate Yahoo discussions with News Corp., owner of Wall Street Journal publisher Dow Jones & Co., have cooled, these people say.

It's unclear how much patience Yahoo's shareholders might have for a drawn out pursuit of non- Microsoft options, or taste for deals that might represent less-certain financial returns than Microsoft's stock-and-cash offer. But one person familiar with the matter says there is some frustration that Yahoo's delay might have caused it to lose leverage in negotiating a higher offer from Microsoft.

Microsoft has been keeping close tabs on the views of Yahoo's major shareholders and, with Saturday's letter, it appears to be betting that investors want Yahoo to begin negotiations. Microsoft believes that a recent series of presentations that Yahoo management made to investors failed to persuade them that the company is worth substantially more than what Microsoft has offered.

If Yahoo's board doesn't agree to a sale in three weeks, Microsoft would be "compelled" to take its offer directly to shareholders and wage a proxy fight to replace Yahoo's directors, Mr. Ballmer wrote in his letter to Yahoo directors. He also implied that the offer Microsoft would make after the deadline would be lower than the one now on the table.

The amount of time any hostile effort would take is unclear, because Yahoo has so-called poison pill provisions designed to thwart hostile takeovers. Microsoft would presumably have to persuade shareholders to vote for its alternative slate of directors at Yahoo's annual meeting, for which Yahoo has yet to fix a date. If elected, those pro- Microsoft directors could then remove Yahoo's poison pill and accept Microsoft's offer. Under the law in Delaware, where Yahoo is incorporated, it could be forced to hold its annual meeting if it hasn't already done so by July.

Mr. Ballmer's letter, which comes after senior executives from the two companies failed to make any headway in two separate meetings in recent weeks, may make a friendly resolution of the standoff less likely. The sharply worded letter makes no secret of Microsoft's frustration at the lack of progress and could end up alienating Yahoo's board and management, some of whom already regard the software maker with a degree of suspicion.

In his letter, Mr. Ballmer suggests that worsening economic conditions have reduced Yahoo's market value, adding that "by any fair measure, the large premium we offered in January is even more significant today." Microsoft's original $31 per share offer represented a 62% premium to where Yahoo's shares had been trading before the offer.

Many Yahoo shareholders have been holding out for a higher offer and it is unlikely they would embrace a deal for less than the original bid. Still, Mr. Ballmer's threat underscores the frustration on the part of the software maker with the lack of any progress

The offer for Yahoo has generated some opposition within Microsoft, say people familiar with the situation. The plan to bid for the company was kept secret among a limited group of executives and advisers driving the strategy. Many other Microsoft executives learned of it only after Microsoft made the offer to Yahoo's board on Jan. 31.

Drivers of the deal at Microsoft include Senior Vice President Yusuf Mehdi and Senior Vice President Hank Vigil, two executives whose roles are to map out strategy and negotiate deals; they don't manage business groups.

If a deal with Yahoo goes through, Messrs. Mehdi and Vigil stand to play key roles in guiding the integration of the companies and could have greater clout to pursue other deals.

But other Microsoft executives have been raising concerns about the risks in buying Yahoo, say people familiar with the matter. Among the issues they have raised to other Microsoft executives and outsiders is the huge challenge of merging the two companies' computer systems that handle functions such as graphical display advertisements on Web sites. The skeptics argue that Microsoft should continue to build its online systems and services - a strategy that so far has fallen short of Microsoft's expectations - and make a number of smaller acquisitions complement that effort.

Another worry among some insiders is who would lead the complex integration. Microsoft has limited experience in digesting very large acquisitions and las recently lost several executives who might have helped in that undertaking.

Such opposition, say some people, is to be expected in a deal the size that Microsoft is pursuing with Yahoo. Microsoft also has a culture that allows debate to thrive - sometimes at the expense of making timely decisions. At this point, doubts about the deal don't seem strong enough to scuttle it, say the people familiar with the matter.

"There is no dissension among the people who are making the decisions," said one person close to Microsoft. This person said top executives including Mr. Ballmer have been level-headed since the start about the challenges and risks of completing such an acquisition.

By: Kevin Delaney, Robert Guth, and Matthew Karnitschnig
Wall Street Journal; April 7, 2008
Corporate News: Yahoo Details Ad System Geared Toward Graphical Display


Yahoo Inc. is releasing more-detailed plans for an online-ad system aimed at increasing revenue from graphical display advertising, such as banner ads.

The effort is a bet that advertisers and Web publishers will be attracted to buy and sell Internet ads across a range of Yahoo and partner sites through a single system, with standardized means of targeting the ads at groups of consumers. The announcement Monday comes as Yahoo attempts to focus its activities and seeks alternatives to an unsolicited takeover bid by Microsoft Corp.

When released, Yahoo's system is expected to compete with efforts by Google Inc., Microsoft and others, some of which have acquired online-ad infrastructure companies in recent years to help build such systems. The system, which Yahoo calls AMP, is an attempt to bring together its own ad-sales systems and acquired activities.

Yahoo executives said they expected to begin releasing AMP in the third quarter for use by newspaper companies that are part of an existing Yahoo ad- sales consortium, and eventually extend it to additional Web publishers, advertisers, agencies and online-ad networks. The company said the system, in a future stage, will handle ad types besides display, such as search, mobile and video.

With the AMP system, Web publishers are expected to be able to manage the ads on their sites, as well as sell ads on behalf of other participants in exchange for a commission. Advertisers could buy online ads across a range of sites using standardized geographic, demographic and other targeting.

"That's huge in terms of reducing friction in the marketplace," said Rachel Happe, a research manager at IDC in Framingham, Mass., who was briefed by Yahoo on its plans. "If Microsoft buys Yahoo, they would be foolish to dismantle this, " she added.

Some analysts and investors have been skeptical of Yahoo's ability to deliver AMP -- previously called Project Apex -- on time. Yahoo struggled to deliver a major advertising-technology system called Project Panama that since its delivery has improved the amount of ad revenue Yahoo generates for each Web search.

"It's a larger undertaking than Panama was," said Michael Walrath, a Yahoo senior vice president. But he said Yahoo was "very confident" it would meet its expected deadline.

It is unclear whether any uncertainty generated by Microsoft's possible Yahoo acquisition could damp advertiser or Web-publisher adoption of AMP.

"Will there be bumps in the process? Sure there will be," said Jay Smith, president of Yahoo partner Cox Newspapers Inc., a division of Cox Enterprises Inc. "But based on what I've seen of Yahoo to this point, I think we'll get by those bumps."

Mr. Smith said he believed using AMP would help newspaper companies increase their online-revenue growth rates. Yahoo has 500 to 700 engineers working on AMP, he said. A Yahoo spokesman declined to comment on the number of employees involved.


By: Kevin J. Delaney
The Wall Street Journal; April 07, 2008
Straight Talk for Ballmer From One Yahoo Holder


Steve Ballmer
Chief Executive
Microsoft Corp.

Dear Steve:

As a Yahoo shareholder, I have reviewed your most recent letter with regard to the unsolicited proposal you made to acquire Yahoo on Jan. 31.

I have carefully considered your unsolicited proposal and have concluded that it is in the best interest of Yahoo shareholders for Microsoft to buy Yahoo.

I understand that our board has been actively and expeditiously exploring strategic alternatives to maximize shareholder value. Frankly, that effort has been a big disappointment to many of us. After hitting $30, Yahoo shares have drifted to $27 and change this week. Despite Yahoo's 305 million unique monthly users, no one else has stepped up with an offer. No one is more disappointed than I am that no bidding war erupted.

At this point, I've given up hope that some white knight will emerge. All we shareholders have heard about is talks with News Corp., now apparently over, and with Time Warner's AOL. (News Corp. is the owner of The Wall Street Journal publisher Dow Jones & Co.) I'm sure you and your Microsoft colleagues are quaking in fear at the competitive threat from a combined Yahoo-AOL. AOL has already dragged down one once great corporation. Why should we be next?

Let's talk about the real threat here: Google. I'm a Google shareholder, too, which is fortunate for me since Google has eaten Yahoo's lunch in search -- yours, too, for that matter. Yahoo's board and top executives are pinning their hopes on growth in search and on display/video advertising. But even if those markets grow, Google has been steadily expanding its lead in search. Now that it owns DoubleClick, it will be a formidable threat in display/video as well.

These businesses depend on scale, but not just on sheer size, which is something people running Yahoo either don't grasp or don't want to talk about. Google's searches are more effective for both searchers and advertisers, which is why it keeps gaining share. Yahoo has 262 million email users, which gives users a reason to return to the site and is surely valuable to Microsoft. But beyond that, there's little to deter Yahoo users from migrating to other sites.

I realize that you recently received a letter from Yahoo CEO Jerry Yang and Chairman Roy Bostock very similar in tone to this one, but reaching the opposite conclusion. Don't listen to them. I'm sure they know their options are running out. I also hear there's been grumbling from people inside Microsoft. Don't listen to them, either. You need to do something with the $37.8 billion in current assets sitting on Microsoft's balance sheet. In fact, you'd get no complaint from me if you made your bid all cash.

So there can be no confusion, let me reiterate that my goal is to maximize shareholder value. I have no desire for a drawn-out hostile bid, and you will generate no goodwill whatsoever if you carry out your threat to lower your offer. You previously offered $31 a share. All of us understand that no one makes their highest bid first, so why don't you tell us what you're really prepared to pay, and we'll call it a deal.

Very truly yours,
James B. Stewart

James B. Stewart, a columnist for SmartMoney magazine and SmartMoney.com, writes weekly about his personal investing strategy. Unlike Dow Jones reporters, he may have positions in the stocks he writes about. For his past columns, see: www.smartmoney.com/commonsense.



By James B. Stewart
Wall Street Journal; April 9, 2008
Yahoo to Announce Test Partnership With Google

Another shot has been fired in the increasingly bitter battle between Microsoft and Yahoo.

The Internet company said it would begin a limited test of Google’s search advertising technology as part of efforts to remain independent from Microsoft. The test is designed to show whether or not the company could extract more revenue if it outsourced its search advertising system to Google, a person briefed on the plan said.

The test will involve using Google’s search advertising system, called AdSense for Search, to deliver ads that appear alongside Yahoo’s search results. The test will involve searches conducted in the United States on Yahoo.com, not on any of
the company’s search affiliates, and will be limited to no more than 3 percent of all search queries, Yahoo said in a press release.

“As previously announced, Yahoo!’s board of directors is exploring strategic alternatives to maximize stockholder value, including exploration of potential commercial business arrangements. The Company noted that the testing does not necessarily mean that Yahoo! will join the AdSense for Search program or that any further commercial relationship with Google will result. The Company further stated that it would not comment on the nature or timing of any potential relationship.

The move is the latest salvo in the two-month battle for control of Yahoo, as the ailing Internet pioneer seeks to thwart Microsoft’s bid – or at least force the software giant to raise its $42 billion price.

Microsoft immediately blasted the possibility of a search advertising partnership between Google and Yahoo saying it would be anticompetitive.

“Any definitive agreement between Yahoo! and Google would consolidate over 90% of the search advertising market in Google’s hands,” Microsoft said in a statement. “This would make the market far less competitive, in sharp contrast to our own proposal to acquire Yahoo! We will assess closely all of our options. Our proposal remains the only alternative put forward that offers Yahoo! shareholders full and fair value for their shares, gives every shareholder a vote on the future of the company, and enhances choice for content creators, advertisers, and consumers.”

Depending on the results of the experiment, Yahoo hopes that it may be able to use it as proof that it can generate additional revenue that would justify a higher bid.

In recent months, Yahoo has discussed possible partnerships or combinations with Google, Time Warner’s AOL and the News Corporation in attempts to fend off Microsoft. The conversations with AOL continue, people familiar with the matter previously told The New York Times.

Google has long generated far more revenue for every search than competitors like Yahoo and Microsoft. Last year, Yahoo unveiled a new search advertising system, called Panama, which was intended to close the gap with Google. While the system has helped bolster Yahoo’s search revenues, it is not as effective as Google’s.

Some investors have urged Yahoo to outsource its search and search advertising system to Google for years, as it could help Yahoo increase revenues and cut costs. Yahoo executives, however, have resisted the move, saying that search was an essential piece of the company’s business.

After Microsoft made its offer, Eric Schmidt, Google’s chief executive called his Yahoo counterpart, Jerry Yang, to offer his help in fending off the Microsoft bid. A search or search advertising partnership has been an important part of their discussion, according to people familiar with the situation. Mr. Yang and Yahoo president Susan Decker visited Google in the past two weeks, said a person briefed on their visit.

While the test is intended to show how much Yahoo could earn from such a partnership, legal experts have warned that a broader search or search advertising pact with Google could pose antitrust issues, as it would expand Google’s already dominant position in those businesses.

With Microsoft Corp. and Yahoo Inc. firing tense public missives at each other, the real question is whether Microsoft is willing to pay the additional premium Yahoo wants to get a deal done quickly.

Monday, Yahoo's board said in a letter to Microsoft that it wasn't opposed to selling itself as long as the price "fully reflects the value of Yahoo, including any strategic benefits to Microsoft." In the meantime, it again rejected Microsoft's original offer-currently valued at $29.36 a share-as inadequate. The letter from Yahoo followed one from Microsoft on Saturday in which the software maker threatened a hostile takeover, of Yahoo if the Internet company' doesn't'agree to a merger within the next
three weeks.

"We consider your threat to commence an unsolicited offer and proxy contest to displace our independent board members to be counterproductive and inconsistent with your stated objective of a friendly transaction," says the Yahoo letter addressed to Microsoft Chief Executive Steve Ballmer and signed by Yahoo Chairman Roy Bostock and CEO Jerry Yang.

Despite the sharp exchange, many analysts believe Yahoo wUl eventually fall into Microsoft's grasp. It hasn't revealed any serious alternative deals in the more than two months since Microsoft made its unsolicited offer public. Some investors also question whether Yahoo has lost its leverage to secure a higher price as time has dragged on.

Some in Yahoo's camp believe there is still time for the company to pursue alternatives, say people familiar with the matter. But there's a rough consensus among analysts and investors that two other scenarios are more likely.

In the first, Microsoft would signal to Yahoo that it's prepared to raise its offer and the two would enter friendly negotiations. In the second scenario, Microsoft would decide to wait it out and prepare a hostile effort, hoping that Yahoo will come to the table in the meantime.

Getting into a protracted battle has been a distraction for Microsoft's senior management at a time when the company can ill afford to miss a beat in its competition with Google Inc. and other rivals. Prolonged uncertainty also increases the likelihood that Yahoo's top talent will go elsewhere. A friendly approach could ensure smoother sailing when it comes time for a regulatory review of any deal.

There has been some contact: Senior executives from the companies have met at least twice in recent weeks, though they haven't made any real headway. Some analysts believe Yahoo has little choice over the long run but to enter negotiations in the hopes of securing a higher price.

Some major Yahoo shareholders have suggested they would embrace an offer closer to $35 a share. But because of the passage of time and the deteriorating economic climate, that's probably unrealistic. Supporting a $35 bid would cost Microsoft an additional $8 billion, and Mr. Ballmer would have difficulty justifying that to his own shareholders after publicly suggesting that Yahoo's value has declined since January.

There are no signs Microsoft is willing to raise its offer. People close to the company have said it doesn't want to bid against itself by increasing the offer without negotiations. Mr. Ballmer, in his Saturday letter to Yahoo directors, suggested that worsening' economic conditions have reduced Yahoo's market value.

When extended on Jan. 31, Microsoft's cash-and-stock offer was valued at $31 a share, a 62% premium over the price at which Yahoo was trading. The value is lower now because of a subsequent decline in Microsoft's share price. Each dollar per share that Microsoft raises its offer would sweeten the deal by about $1.4 billion, and the software maker would have to pay more than $2 billion more just to get back to the value of its original bid.

On Monday, Yahoo ended 4 p.m. trading on the Nasdaq Stock Market down 2.3%, or 66 cents, at $27.70, and' Microsoft was unchanged at $29.16.

Some executives at Microsoft have aired their skepticism about the deal in recent weeks, accord-' ingto people farniliarwith the matter. These people don't expect their view to torpe4,o Microsoft's offer but say it coUld limit Microsoft's willingness to raise its offer.

Some bankers not involved in the transaction say Yahoo miscalculated and should have entered negotiations right away to secure a higher price and get a deal done quickly. Instead of sitting down to negotiate with Microsoft, Yahoo decided to explore other options, none of which currently appears likely. Now, any premium over the original value Microsoft offered
will likely be measured in pennies, not dollars, the bankers say.

Meanwhile, there's a chance Microsoft and Yahoo could become embroiled in the second, hostile scenario, analysts say. Microsoft has been assembling a slate of candidates to nominate to Yahoo's board in case a deal isn't reached by the Steve Ballmer three-week deadline it announced. Yahoo has so-called poison pill provisions designed to thwart hostile takeovers, but if shareholders voted in Microsoft's slate of directors at Yahoo's annual meeting, those directors could get rid of the pill provisions and reach an agreement. Microsoft might have to raise its offer at least back to $31 to guarantee shareholder support for its slate. Under the law in Delaware, where Yahoo is incorporated, it could be forced to hold its annual meeting if it hasn't already done so by July.

Yahoo and Microsoft each believe they would prevail in a proxy fight over the current offer, according to people close to them. There's yet another scenario. In this situation, Microsoft could lose patience with Yahoo and decide to drop its pursuit of the company. People close to Microsoft have dismissed that option, saying the company remains committed to a deal.

Yahoo has also been searching for alternatives to a Microsoft sale, something some executives would prefer to the Microsoft option, according to a person familiar with the matter. Discussions with Time Warner Inc., which center on it folding its AOL Internet unit into Yahoo in return for a significant Yahoo stake, have heated up recently. But people familiar with the matter consider such an agreement a long shot because it would be so complex.

Most observers don't see any possibility for Yahoo to escape Microsoft's clutches. Yahoo's only hope is a substantial upturn in the markets, which is unlikely anytime soon, they say. If Microsoft were to abandon the bid, Yahoo's shares might well plunge into the teens, exposing the company to shareholder litigation.

By: Kevin Delaney and Matthew Karnitschnig
Wall Street Journal; April 8, 2008

Wednesday, April 09, 2008


Protecting Trademarks in Google

Google has recently expanded bidding options on trademarked keywords.

Google has determined that advertiser demand and revenue gains derived by allowing keyword sponsors to bid and advertise on trademark protected brand name is an enormous market, a profit opportunity too large to ignore. Google has also decided that they are ultimately in control of Google search results pages and as the rulers of their enterprise they do not need to abide by any established laws and can ignore any tradeamrk protections virtually providing a web free for all that spits in the face of any established trademark laws.

A significant number of searches include brand names. Google previously excluded these, for the most part, from open bidding. Brand name search generally connotes purchase intent. That makes them particularly valuable searches.

Determining the exact amount of revenue involved is difficult, analysts project that a sizable portion of Google's 150,000 plus advertisers could expand a few more trademark keywords onto bulk keyword lists. Google, like any business, must first look to its current customers for growth and has decided that trademark holders be required to spend additional and unique dollars exclusively to further protect the very trademark that corporations have legally established.

Trademark Search is an opportunity for new revenue generation for Google. Google knows that searching for tradmark names is very popular and the volume of searches for trademark names is huge. Google has decided to earn new dollars and profit by allowing anyone to advertise on trademark protected keywords.

The new policy is a revenue win for Google and a loss to everyone else. Allowing non trademark holding third party sponsors to advertise on trademark protected keywords provides no value to consumers worldwide. The potential for marketplace confusion regarding trademark protected brands is huge. Trademark holders will be forced to substantially increase advertsing expenditures in further efforts to protect their trademarks yet when consumers use Google all protection goes away and the trademark holder just becomes one sponsored link on a crowded results page loaded with revenue generating links for Google.

Google's opening up trademarked keywords for bidding is one more piece of power shifted away from corporations and toward consumers. I imagine corporations will waste little time heading to court to protect their property. In the long run, I doubt the corporations will come out on top.

Trademark Economics

Let's first look at why Google wants to do this. Mainly, it's opening up a potentially enormous market for itself, of course. A significant number of searches include brand names. Google previously excluded these, for the most part, from open bidding. Brand name search generally connotes purchase intent (according to who?). Brand Name searches are popular making them valuable searches. Allowing anyone in the world to sponsor and advertise on Trademark keywords is senseless.

What Corporations Now Must Do To Protect Their Trademark On Google

Brand owners must find ways to increase the advertsing expenditures on Google, particularly in areas such as search.

The Internet has increased the volume of competitive threats on protected trademarks as the cost to infringe on a trademark via a website is as low as $100 dollars annually. That makes this open policy by Google so embarrassingly greed driven as looking the other way and taking no action

Google's policy to look the other way runs a risk of polluting the Google results pages and delivers flea market results to trademark keyword searchers.

How Can Trademark Holders Protect Their Brand in Google?

Open a Google AdWords account and Sponsor your Trademark name.

Avoid using paid search listings exclusively, at some point any company worth their salt needs to apply proven organic search engine optimization best practices. Regardless of what's going on in the paid listings, try to hire a natural seo specialist that can ensure your corporate site is listed at the top of the natural search results.

Monday, April 07, 2008

Nonprofit Hospitals, Once For the Poor, Strike It Rich

With Tax Breaks,They Outperform For-Profit Rivals

Nonprofit hospitals, originally set up to serve the poor, have transformed themselves into profit machines. And as the money rolls in, the large tax breaks they receive are drawing fire.

Riding gains from investment portfolios and enjoying the pricing power that came from a decade of mergers, many nonprofit hospitals have seen earnings soar in recent years. The combined net income of the 50 largest nonprofit hospitals jumped nearly eight-fold to $4.27 billion between 2001 and 2006, according to a Wall Street Journal analysis of data from the American Hospital Directory. AHD, an information-service company, compiles data that hospitals report to the federal government.

The Cleveland Clinic swung from a loss to net income of $229 million during that period. No fewer than 25 nonprofit hospitals or hospital systems now earn more than $250 million a year. One nonprofit hospital system, Ascension Health, has a treasure chest of $7.4 billion -- more than many large, publicly traded companies.

Nonprofits, which account for a majority of U.S. hospitals, are faring even better than their for-profit counterparts: 77% of the 2,033 U.S. nonprofit hospitals are in the black, while just 61% of for-profit hospitals are profitable, according to the AHD data.

At some nonprofits, the good times are reflected in new facilities and rich executive pay. Flush with cash, Northwestern Memorial Hospital in Chicago has rebuilt its entire campus since 1999 at a cost of more than $1 billion. In October, it opened a new women's hospital that features marble in the lobby, birthing rooms with flat-screen televisions, 1,000 works of art and a roof topped with 10,000 square feet of gardens. In 2006, Northwestern Memorial's former chief executive officer, Gary Mecklenburg, received a $16.4 million payout.
WSJ's John Carreyrou provides a tour of Chicago's non-profit Northwestern Memorial Hospital, which underwent a renovation costing more than $1 billion.

But Northwestern Memorial has been frugal in its spending on charity care, the free treatment for poor patients that nonprofit hospitals are expected to provide in return for the federal and state tax breaks they receive. In 2006, Northwestern Memorial spent $20.8 million on charity care -- less than 2% of its revenues and a fraction of what it received in tax breaks. By comparison, the hospitals run by Cook County, where Northwestern Memorial is located, spent 14% of revenues on charity care.

Northwestern Memorial says that in addition to charity care, it provides other benefits to its community, such as pioneering research in obstetrics and other areas that improve standards of care nationally.

To be sure, some nonprofit hospitals, particularly ones in inner cities that handle large numbers of uninsured patients, remain under financial strain and are struggling to keep their doors open.

But the growing gap between many nonprofit hospitals' wealth and what they give back to their communities is raising questions about the billions of dollars in tax exemptions they receive.

"Some nonprofit hospitals seem to forget that their operations are subsidized with generous tax breaks. They allow their priorities to get out of whack," says Sen. Charles Grassley. The senior Republican on the Senate Finance Committee threatened last year to introduce legislation forcing nonprofit hospitals to provide a minimum amount of charity care.

Nonprofit hospitals account for about 60% of the more than 3,400 hospitals in the U.S. The rest are either for-profit or government-owned.

In a report issued in December 2006, the Congressional Budget Office estimated nonprofit hospitals receive $12.6 billion in annual tax exemptions, on top of the $32 billion in federal, state and local subsidies the hospital industry as a whole receives each year.

Community Benefit

In return for not paying taxes, nonprofit hospitals are supposed to provide a "community benefit," a loosely defined requirement whose most important component is charity care. But many hospitals include other expenses in their community-benefit accounting to the Internal Revenue Service, including unpaid patient bills. Often, hospitals also include the difference between the list prices of treatment they provide and what they are paid by Medicaid and Medicare, the government programs for the poor, disabled and elderly. Excluding those other expenses, many hospitals spend less on charity care than they get in tax breaks, studies by various counties and states show.


One nonprofit hospital system, St. Louis-based BJC HealthCare, counts the salaries of its employees as a community benefit. BJC, which runs 14 hospitals in Missouri and Illinois, says on its Web site that it provided more than $1.8 billion in benefits to various communities in 2004. Its payroll, including its CEO's $1.8 million compensation, accounted for $937 million of that figure, while charity care represented $35 million, according to BJC.

"The impact that any organization that's job-producing and buying goods has on a community is of benefit to that community," says BJC HealthCare spokeswoman June Fowler. However, she says BJC won't count its payroll as a community benefit in the future because of new standards adopted by the IRS.

The new standards, due to take full effect in 2009, will require nonprofit hospitals to break out specifics of their community-benefit contributions. But they won't require the hospitals to provide any minimum amount of charity care.

The size of nonprofit hospitals' tax exemptions is coming under scrutiny in part because their incomes have risen so sharply in recent years, and because they represent such a big chunk of America's health-care spending. Thirty-one cents of every dollar spent on medical care is spent on hospitals.

One reason for hospitals' soaring profits is a gradual increase in Medicare reimbursements after federal budget cutbacks during the 1990s. By merging and gaining scale, many hospitals also gained leverage in price negotiations with health insurers.

However, much of the industry's profit growth comes from strategies it honed to increase profits. Among them: demanding upfront payments from patients; hiking list prices for procedures and services to several times their actual cost; selling patients' debts to collection companies; focusing on expensive procedures; and issuing tax-exempt bonds and investing the proceeds in higher-yielding securities.

Untaxed investment gains have greatly increased some hospitals' cash piles. Ascension Health, a Catholic nonprofit system that runs 65 hospitals, mostly in the Midwest and Northeast, reported net income of $1.2 billion in its fiscal year ended June 30, 2007, and cash and investments of $7.4 billion. That's more cash than Walt Disney Co. has.

Ascension says it needs to maintain a sufficient amount of cash to pay for charity care, to keep the interest rates it pays on its debt low, to provide retirement benefits to its 106,000 employees, and to make capital and technology investments at its hospitals.

At the University of Pittsburgh Medical Center, which runs 20 facilities, cash and investments totaled $3.35 billion at the end of last year. UPMC says the money goes toward producing "world-class health care, education and research," citing the $1 billion it spent over five years to create electronic medical records for patients and an additional $500 million to build a children's hospital and a network of cancer centers.

But some of UPMC's expenses are only tenuously related to medicine. In its 2006 fiscal year, UPMC also spent $10 million on advertising, including $1 million on ads in the New York Times. Wendy Zellner, a spokeswoman for the hospital, says the ads enable UPMC "to better compete with other leading hospitals."

UPMC paid its CEO, Jeffrey Romoff, $3.3 million in fiscal 2006. Mr. Romoff also received $36,995 from the hospital to cover a car allowance, spousal travel and legal and financial counseling. Ms. Zellner says what UPMC pays Mr. Romoff is in line with "nonprofit and for-profit organizations of comparable scope and complexity."

Some nonprofit hospital executives enjoy other perks. Royal Oak, Mich.-based Beaumont Hospitals says it paid $10,795 for the country-club membership of the president of its foundation last year. A spokeswoman for Beaumont says it pays for the membership to provide the executive "a venue with access to potential donors."

The Cleveland Clinic continued to pay its former CEO, Floyd Loop, more than $1 million a year for two years after he retired in April 2005. The Cleveland Clinic says part of that was deferred compensation and vacation pay and the rest was for consulting services.

The University of California San Francisco Medical Center provided its CEO and chief operating officer low-interest mortgage loans of more than $1 million each, according to the University of California's executive compensation reports. A UCSF spokeswoman says such loans help recruit and retain executives, given the area's high cost of housing.

Catholic Healthcare West, a hospital system based in San Francisco, forgave a $782,541 housing loan it made to its CEO, Lloyd Dean. Counting the forgiven loan, Mr. Dean's total accrued compensation in 2005 was $5.8 million. Catholic Healthcare West says his compensation reflects his skill in turning the hospital system around financially.

One nonprofit hospital executive who has benefited from the industry's good fortunes is Mr. Mecklenburg, the former CEO of Chicago's Northwestern Memorial. The hospital says it paid him $5.45 million in salary, bonus and deferred compensation in its fiscal year ended Aug. 31, 2006, and an additional $10.95 million when he retired the next day. The hospital also awarded five other executives a combined $13.3 million in total compensation in fiscal 2006, according to its filings to the IRS.

Mr. Mecklenburg, now a partner at Chicago private-equity firm Waud Capital Partners LLC, declined to comment, referring questions to the hospital and to the former chairman of its compensation committee, James Denny.

Stellar Results

Northwestern Memorial says a big part of Mr. Mecklenburg's $16.4 million payout represents retirement benefits and deferred compensation accrued over his 21-year tenure. Mr. Denny, who chaired the hospital's compensation committee from 1995 to January 2008, says Mr. Mecklenburg delivered stellar results, nearly quintupling the hospital's patient revenues. "Our view of it is: This is the best deal we've ever made," he says.

Critics argue that Mr. Mecklenburg's compensation is excessive for a charity organization that gets tens of millions of dollars a year in tax breaks. Northwestern Memorial sits on property on the Gold Coast, Chicago's most affluent neighborhood, abutting Lake Michigan. The Center for Tax and Budget Accountability, a Chicago nonprofit organization, estimates the value of the hospital's annual property-tax exemption at $37.5 million. Northwestern Memorial is also exempt from $12.5 million in sales tax for a total of $50 million in annual tax exemptions, not counting the taxes it doesn't pay on its investment gains, the center estimates.

"The hospital's tax benefit is more than two times greater than the charity care provided," says Heather O'Donnell, the center's health-care policy director.

Northwestern Memorial says it hasn't calculated the value of its tax exemptions. Robert Christie, the hospital's vice president for government relations, notes that the Center for Tax and Budget Accountability receives funding from the Service Employees International Union, which represents numerous hospital employees and frequently clashes with hospitals in labor disputes. Ms. O'Donnell says her organization receives funding from many foundations besides SEIU.

Peter McCanna, Northwestern Memorial's chief financial officer, says the hospital's contribution to its community should be judged more broadly. "We fundamentally disagree with narrowing [the definition of] our community-benefit contribution to charity care," he says. He says Northwestern Memorial's research and education expenses should also be counted. The hospital is the primary teaching hospital for Northwestern University's Feinberg School of Medicine.

Taking into account educational and other expenses, such as bad debt and unreimbursed Medicaid costs, Northwestern Memorial values its total community-benefit contribution at $230 million for fiscal 2006.

Room Service

Around Chicago, Northwestern Memorial is known as a hospital that attracts the well-heeled. It's a short walk from the Magnificent Mile, the famous thoroughfare lined with expensive shops and restaurants. At Northwestern Memorial's new Prentice Women's Hospital, expectant mothers can watch TV or browse the Internet on 42-inch flat-screen televisions, order room service 24 hours a day and page nurses and doctors via a wireless system. Some birthing rooms have views of Lake Michigan. Only 6% of Northwestern Memorial's patient revenues come from Medicaid.

By comparison, Sacred Heart Hospital, a small for-profit hospital in a poor neighborhood on the west side of the city, gets 62% of its revenues from Medicaid and pays several million dollars a year in taxes, according to its president, Edward Novak. Parts of Sacred Heart date back to 1928, when the hospital was founded. Another wing was built in 1950. Mr. Novak says he would like to replace the aging hospital with a new facility, but is struggling to figure out how to pay for it. He says his compensation is less than $220,000 a year.

At John H. Stroger Jr. Hospital -- formerly known as Cook County Hospital -- 56% of patients don't have any insurance when they are admitted, says John Cookinham, the hospital's chief financial officer. At Northwestern Memorial, the percentage of uninsured patients is less than 5%. Stroger's chief operating officer earned $204,485 in 2007, according to Cook County budget records.

In recent years, some nonprofit hospitals have decided to stop using the courts to collect from patients who owe them money. But Northwestern Memorial pursues patients such as Iris Ayala who haven't paid their bills. While running an errand for her employer, the 50-year-old Ms. Ayala fainted and collapsed in the street one day in 2006. A friend rushed her to Northwestern Memorial's emergency room.

Ms. Ayala says her insurer paid for the bulk of her 24-hour hospital stay, but she was responsible for a $1,035.39 co-pay. Working only part-time because of health issues and with a daughter in college, she says she couldn't afford her portion of the bill.

After representatives for Northwestern Memorial repeatedly called her to ask for payment, Ms. Ayala says she promised she would settle the bill once she got her annual tax refund. But Northwestern Memorial sued her in Cook County Circuit Court in July 2007. To make the lawsuit go away, Ms. Ayala says she borrowed the money and paid the hospital. "They didn't want to hear my sob story," she says.

Northwestern Memorial declined to discuss Ms. Ayala's case, citing patient privacy laws. Mr. McCanna says the hospital sued only 82 patients in 2006 and 2007, a number he says is small compared with the more than one million accounts it billed over that period. He says the hospital tries to determine whether patients who are behind on bills qualify for assistance, but some can't be reached or refuse to volunteer information about their finances. "Absent of information, a lawsuit is sometimes the only recourse," he says. Mr. McCanna adds that, in some cases, the hospital has waived patients' bills after later learning that they did qualify for aid.

Northwestern Memorial says its strong balance sheet allows it to provide outstanding care and conduct innovative research. As of Aug. 31, 2007, its cash and investments totaled $1.82 billion, making it one of richest individual nonprofit hospitals in the country. With such a treasure chest, it could operate for a year and two months without any revenue -- a gauge of financial strength Mr. McCanna highlights in presentations to bond investors and analysts.

"Nonprofit is a misnomer -- it's nontaxable," says Sacred Heart Hospital's Mr. Novak. "When you're making hundreds of millions of dollars a year, how can you call yourself a not-for-profit?"

By John Carreyrou and Barbara Martinez
Wall Street Journal; April 4, 2008

Friday, April 04, 2008

Mobile Search From Yahoo.

Yahoo Introduces Mobile Search

Yahoo custs deal with V-Lingo and rolls out Mobile Voice Search.

Yahoo became the first major search engine to let people search the Web by talking to a mobile device.

Yahoo Mobile Search.

Marco Boerries, an executive vice president, said technology from vlingo, a start-up based in Cambridge, Mass., would allow people who have BlackBerry Curves, Pearls or the 8800 series to scour the Web with their voice, using Yahoo's mobile search engine, known as oneSearch. Yahoo is working to make the service available on other mobile devices and overseas.

"We are fundamentally changing the way consumers use the Internet on their mobile phones," Boerries said during a keynote at the CTIA Wireless conference in Las Vegas.

Dave Grannon, chief executive of vlingo, said the service can handle any spoken query. It is also built to adapt to a person's voice and to improve over time, he said.

Competitive products, such as the voice search in Microsoft's Live Search for mobile, can only handle queries for specific local information, such as directions to a local pizza parlor.

ChaCha, an Indiana company, lets people search the Internet from any phone by calling 1-800-2-ChaCha (1-800-224-2242). ChaCha sends a text message in response. Unlike vlingo, ChaCha employs people to listen to and answer the queries.

Scott Jones, chief executive of ChaCha, said vlingo's speech recognition is the best he has seen on a cell phone - though still not as good as human recognition.

Cory Pforzheimer, a spokesman for Yahoo, said the company looked at all of the Sunnyvale VOIP technology for doing voice recognition on cell phones before settling on vlingo. "We have many search and voice recognition experts at Yahoo and they were just blown away," he said. Pforzheimer said Yahoo's deal restricted vlingo from doing business with Yahoo's competitors, such as Google and Microsoft.

Yahoo led vlingo's new $20 million series B financing round, the companies announced Wednesday. Other investors included Charles River Ventures and Sigma Partners.

To get the new Yahoo voice search software go to mobile.yahoo.com

Wednesday, April 02, 2008

SEO Addiction.SEO Addiction

Introducing my new habit - SEO.

I have been working some long days (14-18 hours) here at Peak Positions for the past couple of months and often find myself wanting to work even more. Many times I work on page code and search content in my off hours. I am starting to wonder if I will get hooked and drawn into this SEO thing for real like the rest of the SEO addicts around here: Tom, Chad, Bill, even Carol all seem WAY into this search thing and I am getting more juiced on SEO daily. Is my ultimate destiny to become terminally hard-wired on SEO like Jack?

I know it seems crazy because its only been 9-10 weeks but lately I keep asking myself a very important question

Am I Addicted To SEO?


Internet Addiction.Internet Addiction Running High As Search Engines Deliver The World's Content 24/7.

Why We're Powerless To Resist Grazing On Endless Web Data.

While there is a certain grand mystery to some aspects of human behavior, others can be easily explained. Just find yourself a garden-variety house cat, along with a $10 laser pointer.

Many cat owners know that the lasers are the easiest way to keep the pet amused. The cats will ceaselessly, maniacally chase it as it's beamed about the room, literally climbing the walls to capture what they surely regard as some form of ultimate prey.

Obviously, cats are hard-wired to hunt down small, bright objects, like birds. But since nothing in nature is as bright as a laser, they are powerless to resist its charms.

Cats and lasers are useful in explaining some of the more addictive aspects of Web use, including a recent occurrence on the site for Andrew Sullivan, a popular political blogger. Mr. Sullivan's blog doesn't follow the standard practice of making room for readers to add their own comments after each blog item. Curious if he should change his policy, he put the question to a vote.

Readers responded 60-40 against allowing comments. Even more striking than the fact that these readers were denying themselves a voice was the reason some of them gave for declining the offer: Like cats chasing a laser, they wouldn't be able to stop themselves.

"In truth we would rarely opt not to read them," said one reader. "Blog comments have the power to hammerlock one's attention. ... We'd be impotent to resist looking over the rantings and counter-rantings. ... Not only would comments be an incredible drain on one's time (especially if we check your blog several times a day from work), but it also exposes readers to the nasty underbelly of blogging."

What is it about a Web site that might make it literally irresistible? Clues are offered by research conducted by Irving Biederman, a neuroscientist at the University of Southern California, who is interested in the evolutionary and biological basis of the human need for information.

Dr. Biederman first showed a collection of photographs to volunteer test subjects, and found they said they preferred certain kinds of pictures (monkeys in a tree or a group of houses along a river) over others (an empty parking lot or a pile of old paint cans).

The preferred pictures had certain common features, including a good vantage on a landscape and an element of mystery. In one way or another, said Dr. Biederman, they all presented new information that somehow needed to be interpreted.

When he hooked up volunteers to a brain-scanning machine, the preferred pictures were shown to generate much more brain activity than the unpreferred shots. While researchers don't yet know what exactly these brain scans signify, a likely possibility involves increased production of the brain's pleasure-enhancing neurotransmitters called opioids.

In other words, coming across what Dr. Biederman calls new and richly interpretable information triggers a chemical reaction that makes us feel good, which in turn causes us to seek out even more of it. The reverse is true as well: We want to avoid not getting those hits because, for one, we are so averse to boredom.

It is something we seem hard-wired to do, says Dr. Biederman. When you find new information, you get an opioid hit, and we are junkies for those. You might call us 'infovores.' "



For most of human history, there was little chance of overdosing on information, because any one day in the Olduvai Gorge was a lot like any other. Today, though, thanks primarily to the amazing search engines, we can find in the course of a few hours online more information than our ancient ancestors could in their whole lives.



Just like the laser and the cat, technology is playing a trick on us. We are programmed for scarcity and can't dial back when something is abundant.

The same happens with food: Because at one time we never knew when the next saber-toothed tiger might come along for food, it made sense to pack on the calories whenever we chanced upon them. That's not much help in today's world of snack aisles and super sizes.

Using computers traditionally has been associated with Mr. Spock-style cerebration, the ultimate kind of left-brain activity. But Dr. Biederman is just one of many researchers now linking it with some of the oldest parts of the human brain.

A group of Stanford University researchers, for example, recently found gender differences in the brains of computer gamers. Males showed more neural firings, suggesting that they were physically experiencing the game in a manner different from women.

Watching a cat play with a laser, you realize the cat never learns there is no real "prey" there. You can show the cat the pointer, clicking it off and on, and it will remain transfixed.

Indeed, while cats find a causal link between the pointer and the shimmering light, they come to a wrong conclusion. They believe the pointer is the container that holds the prey, and that the critter is released once the cat's owner gets the pen down from the shelf and starts to wave it around.

People presumably are smarter than cats, and as we become more familiar with the Web and its torrent of information, maybe we'll do a better job learning what is useful and what isn't.

By: Lee Gomes
Wall Street Journal; March 12, 2008

Friday, March 28, 2008

Yahoo Endorses Social Networks

Yahoo Inc. is joining an effort backed by Google Inc. and News Corp.'s MySpace to spur the creation of applications for social networks, a small but growing area of interest among software developers.

Yahoo said Tuesday it will endorse a technical specification called OpenSocial that was initiated by Google and supported by MySpace and other social- networking sites, a sign the initiative is gaining momentum after a slow start last fall. Yahoo, Google and MySpace also said they are planning an independent, nonprofit foundation to provide technology and intellectual-property guidelines for the evolving standard, while ensuring no one company has too much influence over its future.

Yahoo's move could pressure holdouts like Facebook Inc., which has stuck to its own software standards for developers, to join OpenSocial. Facebook, whose investors include Microsoft Corp., has indicated a willingness to license its platform to other sites. A Facebook representative said the company is evaluating OpenSocial. Microsoft, which has made a bid for Yahoo, hasn't joined OpenSocial, either. It declined to comment on if it would do so or to comment on Yahoo's move.

MySpace and Google's social network, Orkut, have both recently launched developer platforms compatible with OpenSocial. But Facebook, whose platform was announced in May 2007, has a head start and already offers some 20,000 applications to its users. MySpace owner News Corp. also owns Dow Jones & Co., publisher of The Wall Street Journal.

Internet companies are initiating the new guidelines to encourage software developers to build a range of entertainment and productivity services to keep users hooked on their sites. Developers, keen to reach the massive audiences, have done so eagerly, building tools like photo-sharing software or games that users can add to their profiles and share with their friends.

OpenSocial was designed to make it easier for developers to create these services across a range of Web sites. Developers can build their applications once and have them run across any site compatible with OpenSocial, with minimal modifications. But in the months after its launch, many developers were disappointed with the technology, which they said had holes and was not widely supported.

On a conference call with reporters, Joe Kraus, director of product management at Google, said developers will potentially be able to reach more than 200 million users through an OpenSocial-based application by next week. He added that the nonprofit will help to drive the effort by formalizing a range of guidelines critical to its success. For instance, the foundation will enable developers and sites to use the OpenSocial specification without fear of patent- infringement suits from contributors.

Wade Chambers, vice president of platforms for Yahoo, said on the call that Yahoo was not yet going to provide details about which Yahoo sites for which developers could build OpenSocial-compatible applications, but he said Yahoo wanted to sign on because it felt the standard was "rapidly maturing."

By Jessica E. Vascellaro
The Wall Street Journal; March 26, 2008
Open Source "Social App Server" Might Crack Garden Walls?

From right here in Philly's backyard, Ringside Networks came out of stealth mode yesterday to launch the first open source "social application server."

And what is that exactly?

It's the software guts of a social network that you can use behind your own firewall, old school style, to build social networking "stuff" into your own site.

Companies that want to build social applications (for runners sharing times at Runlicious) or socially aware marketing programs (like Jeep owners sharing pictures and videos) will be able to use social servers to develop the whole thing on their own websites. Their brand on their site instead of their brand on Facebook next to the "get help for your gambling problem" advertisement.

Developing a social network will be harder to do this way than it would be using a white label network like Ning, but it will be completely customizable, will integrate neatly into the rest of the site, and all the data will be right there for the application owner to mine.

That's the simple version anyway; use social servers to roll your own social apps and sites. But I also wonder how it might upset the balance of power inside the behemoth walled gardens of Facebook and Myspace.

OpenSocial took the first shot at the garden walls with a goal of empowering users to keep their social data portable (well, portable inside Google anyway). However, while OpenSocial promises developers social apps without servers, Ringside is saying that at least some developers are going to want their own stuff under their control. I think social app servers are going to take shots at the wall too, but with the social networking advertisers and application ecosystem as the core constituency.

By supporting Facebook's API (with other API's to follow), Ringside makes it a lot simpler to take a social application written for Facebook and move it to its own site, or visa versa as shown in this picture. This kind of write once deliver anywhere approach to social applications raises all kinds of interesting possibilities.

Like,... Don't want to have to enter your favorite beers into Beer! in both Facebook and Myspace? If Beer! builds their application on a social server that can tie your Facebook user name to your Myspace user name, you won't have to. Facebook and Myspace just become two points of presence for the application, and they'll be on equal terms with Beer!'s own web site. Wherever you log in, you see your beers and (most of) your beer friends.

Facebook opened up this possibility when they designed their platform to have the developer's servers do the heavy lifting. Doing it this way meant they didn't have to provide all of the servers and gear to run the applications, but it also means that it's easier to stick a social server outside the wall and treat it and other branded networks like distribution shelf space. Once an application can seamlessly span the networks, it can do more than map a user's identity across sites, it may also piece together a social graph that is bigger than any one site's. Sort of an application-specific super graph.

In one possible end state, users own all of "their" social graph and data in OpenSocial, and application providers own all of "their" social graph and data in their own social application servers. Meanwhile, the big branded social networks are still in the game with very large "lily pad graphs," but they no longer see the whole picture for any one user or any single application.

As this evolves we may see developers building first for Facebook and Myspace to get quick viral adoption in a huge audience. However, as soon as they can they may start to drive traffic over to their own sites where they can provide a better or different interface with a more carefully managed brand experience. Imagine if NBC let you show your first YouTube video from a planned series at 7pm on Thursday, for free.

Or, developers may use the write once deliver everywhere strategy to deliver their app as widely as possible. Where Facebook and Myspace were once king, in this scenario they may end up as two of many application points of presence with awareness of only a piece of the associated social graph. The successful application developer with a network-spanning super graph might then be free to monetize it however and wherever they can.

Well, at least until the API wars start in earnest. There is a good reason for the server to be open source, it will spread the load of keeping up with all those inevitable API changes.

By: Jim Stogdill
O’Reilly Radar; March 25, 2008
Justices turn down Microsoft appeal


Google CEO Eric Schmidt
former President of
Novell Frustrated with

Court Decision



WASHINGTON - The Supreme Court on Monday handed Microsoft Corp. a defeat by refusing to rule on the software giant's request to halt an antitrust suit against it.

The suit was brought in 2004 by Waltham, Mass.-based Novell Inc., which said in court papers that Microsoft "deliberately targeted and destroyed" its WordPerfect and QuattroPro programs in order to protect its Windows operating system monopoly.

Novell alleged that Microsoft targeted the programs because they could run on alternative operating systems and therefore could enable alternatives to Windows to gain market share.

Microsoft argued in court filings that Novell did not compete in the operating systems market, and therefore cannot claim to have been harmed by alleged anticompetitive conduct by Microsoft in that market.

A federal district court and the 4th U.S. Circuit Court of Appeals, based in Richmond, Va., sided with Novell and allowed the suit to proceed. Microsoft's lawyers said that decision expands the application of antitrust laws "far beyond their intended scope."

Plaintiffs in antitrust suits can seek damages that are triple the actual harm.

A federal court ruled in 2001 that Microsoft had illegally protected its Windows operating system monopoly. As part of a settlement with the federal government and 17 states the following year, Microsoft agreed to court oversight of its business practices. A federal judge in January extended that oversight to November 2009.

The federal government's antitrust lawsuit focused on Microsoft's anticompetitive actions against Netscape and Sun Microsystems Inc. Novell argues that its software is similar to Netscape's Navigator browser and Sun's Java: neither competed directly with Windows, but Microsoft saw them as benefiting potential competitors.

Novell sold WordPerfect and QuattroPro to Corel Corp. in 1996.

Despite the suit, the two companies later became business partners. In 2006 Microsoft agreed to pay Novell $240 million to license its Linux enterprise software and to spend $94 million over five years to market both Novell's software and Windows to its corporate customers. Microsoft also agreed to pay Novell $108 million under a patent agreement.

The deal also required Novell to pay millions in royalties to Microsoft.

The Supreme Court's decision allows Novell's lawsuit to continue. Microsoft said it would defend itself in lower court. "We believe the facts will show that Novell's claims, which are 12 to 14 years old, are without merit," David Bowermaster, a Microsoft spokesman, said in an e-mail.

The case is Microsoft Corp. v. Novell Inc., 07-924. Chief Justice John Roberts, who owns Microsoft stock, recused himself from the decision.

Microsoft shares rose 34 cents to close at $28.30 Monday, while Novell shares fell 6 cents to $6.01.

By Christopher S. Rugaber; Jessica Mintz contributed to this story
Associated Press; Mar 17, 2008
Comcast, Time Warner Cable in Wireless Talks


The two biggest U.S. cable providers, Comcast Corp. and Time Warner Cable Inc., are discussing a plan to provide funding for a new wireless company that would be operated by Sprint Nextel Corp. and Clearwire Corp., people familiar with the talks say.

The partnership would create a nationwide wireless network using WiMax technology, which is designed to provide high-speed Web access from laptops, cellphones and other mobile devices, as well as high-quality mobile video. Sprint and Clearwire have been working for months to cooperate on a WiMax rollout and are now trying to raise at least $3 billion for a joint venture.

Under the plan the parties are reviewing, Comcast -- the largest cable operator with 24 million subscribers -- would put as much as $1 billion into the venture, with No. 2 operator Time Warner Cable adding $500 million. The sixth- biggest cable operator, Bright House Networks, is also involved in the talks and would contribute between $100 million and $200 million, people familiar with the matter said. Comcast Chief Executive Brian Roberts has played a prominent role in the talks.

Sprint, of Overland Park, Kan., and Clearwire, a Kirkland, Wash., start-up founded by wireless pioneer Craig McCaw, are trying to line up other funding too. Intel Corp. has signaled a willingness to put in about $1 billion or more, depending on the terms, people familiar with the discussion say. And Google Inc. could provide hundreds of millions of dollars, the people say. The exact amount each would contribute could change, and people involved in the discussions said it is still possible the entire deal could fall through. Google and Intel both declined to comment.

Entering the wireless business is becoming a bigger priority for cable companies as they compete fiercely for customers with telecom giants AT&T Inc. and Verizon Communications Inc. Those phone companies have encroached on cable's turf by entering the pay-TV business and are positioning themselves to offer a " quadruple play" of services that includes landline phone, high-speed Web access, cellphone, and video. "That's obviously a concern, if Verizon can put together a converged service offering that starts to peel people away from cable operators, " said Mark Rowland, head of the wireless practice at IBB Consulting.

Cable companies' push into wireless would mark the next chapter in that escalating rivalry. It isn't clear precisely what wireless services the cable operators intend to offer via the WiMax venture. Executives at some of the operators feel the U.S. wireless market is already crowded, with 80% of U.S. consumers already owning a cellphone.

The companies are likely to try to distinguish themselves with advanced mobile data and video services that take advantage of the stockpiles of content they are already adept at licensing. People familiar with the discussions said some cable companies are looking at options to develop their own mobile devices in partnerships with manufacturers.

Sprint CEO Dan Hesse is pressing all parties to wrap up discussions in time for the wireless industry's trade show next week in Las Vegas, so Sprint can have something to present to investors. In addition to the $3 billion Sprint and Clearwire are trying to raise now to start rolling out WiMax, they will likely need more to complete a nationwide network. Sprint previously had told Wall Street the venture would cost $5 billion by 2010.

Mr. Hesse wants Sprint to begin building the WiMax network quickly so it can get a head-start over competitors AT&T and Verizon Wireless on advanced wireless broadband services. WiMax promises faster speeds than current technologies and a wider range of video and other services.

In exchange for funding the WiMax joint venture, the cable companies would get equity in the business and would be able to purchase wholesale access to the network to offer their own high-speed wireless data and voice services to customers, the people familiar with the discussions said.

The cable industry has been flirting with the idea of getting into wireless for years, but hasn't had a clear strategy. Investors have also discouraged cable companies from embarking on any big spending projects. A consortium of cable operators including Comcast, Time Warner Cable, Bright House Networks and Cox Communications Inc. bought more than $2 billion in radio spectrum in a 2006 government auction but never put it to use.

The same companies created a separate joint venture with Sprint in 2005, dubbed Pivot, that offered cellphone service in about 30 markets by the time it stopped marketing late last year amid low demand. One key problem was that cable providers didn't have significant control over pricing and marketing. They are asking for that control in the new WiMax venture. Comcast and other cable operators have also mulled acquiring a major wireless carrier.

Cox, the third-biggest cable operator, appears to be pursuing a separate wireless push. It acquired 22 radio spectrum licenses for $305 million last week, which would allow Cox to offer wireless service in its markets, predominantly in the south and southwest.

If cable operators dive into wireless, that will put more pressure on satellite TV providers, their other major competitors, to do the same. Satellite providers on their own can't offer high-speed Web access or voice services. Dish Network Corp. took a step into the wireless business through the FCC auction, winning 168 licenses throughout the country for $712 million. DirecTV Group Inc. hasn't announced any plans in wireless.

"This is like a game of three dimensional chess because the cable operators aren't just thinking about how this helps them compete with Verizon and AT&T, but how this helps them block potential threats from DirecTV and Dish," says Bernstein analyst Craig Moffett.


By Amol Sharma and Vishesh Kumar
The Wall Street JournalMarch 26, 2008
AOL Ad Project, 'Platform A,' Plots Plan B


Digital Effort Aiming To Unite Multiple Fronts Faces Various Obstacles

Over the past two years, Lynda Clarizio has helped build Advertising.com, AOL's ad network, into one of the hottest properties in online advertising. Her reward: She gets to try to clean up one of the Internet company's messiest divisions.

Time Warner's AOL unit is aiming to transform itself from an Internet service provider into a full-service digital-advertising business. To that end, it has spent about $1 billion to buy seven ad-technology firms with different areas of expertise, from behavioral targeting to video ads. The next step is to knit them together with Advertising.com -- an entity AOL has dubbed Platform A, but has yet to take to market.

AOL's future largely hinges on the success of that transformation, which involves aggressively slashing costs, forsaking billions of dollars in overall subscription revenue, and laying off thousands of employees. Time Warner Chief Executive Jeff Bewkes has said that mission is key to plotting a new course for a company whose stock price has stagnated in recent years.

But Platform A is off to a rocky start. In its first six months, it has been marked by failed sales targets, tensions among its different business groups, and, most recently, the dismissal of its president, Curt Viebranz. A number of marketers say they are ready to spend their ad dollars with Platform A, but can't because the disparate units still operate independently.

The idea behind Platform A is that AOL can be a one-stop shop for placing ads both on AOL's own Web sites and on the broader Web, through its ad networks like Advertising.com, which sell ads on thousands of Web sites. So far, though, the company is a long way from that reality. AOL is fourth among the major Web portals -- behind Google, Microsoft's MSN and Yahoo -- in ad revenue, and the pace of its ad-revenue growth has also dropped off. AOL's ad revenue grew 12% in 2007, compared with 37% in 2006 and 38% in 2005, according to research firm eMarketer.

Even Advertising.com, a rare bright spot in AOL's business recently, is facing new pressures. A major part of a two-year deal with its biggest advertiser, Apollo Group's University of Phoenix, ended in January. Advertising.com was University of Phoenix's exclusive online marketing partner, managing its ad buys both on its network of sites and on other ad networks. The deal generated $215 million for AOL in 2007, up $58 million from $157 million in 2006, and accounted for 17% of AOL's ad-revenue growth last year. (University of Phoenix will continue to buy ads on the Advertising.com network, but decided to take its ad buying in-house.)

AOL's biggest competitors are developing their own ad networks, which will make life tougher for Advertising.com. "If I get the inkling they are not innovating, I'm going to look elsewhere and talk to Yahoo or any of the other Web giants," says Tom Hespos, president of Underscore Marketing, a closely held digital agency in New York.

AOL executives have picked Ms. Clarizio, 47 years old, to rescue Platform A, which has the widest reach of any ad network in the country -- reaching 90% of the U.S. online audience, according to comScore -- but isn't able to effectively sell across that spectrum yet. A nine-year veteran of AOL, Ms. Clarizio led the deal team that acquired Advertising.com in 2004 for $435 million. That unit has accounted for nearly a quarter of AOL's revenue and is one of the fastest-growing parts of the company.

Trained as a lawyer, Ms. Clarizio is known internally for an analytical mind and an ability to delegate. A graduate of Princeton University and Harvard Law School, she came to AOL from Washington law firm Arnold & Porter, where she was a partner for seven years and also worked as an AOL outside counsel.

While AOL is known as a relatively slow-moving, bureaucratic company, Advertising.com has developed a different reputation. "AOL has reinvented itself so many times. It is hard to keep track," says Adam Schlachter, senior partner and group director at Mediaedge:cia, a media-planning firm that is a part of WPP Group's Group M. "(Advertising.com) has been able to grow steadily, consistently and innovate."

Ad.com grew from a cramped townhouse on the outskirts of Baltimore, where brothers Scott and John Ferber opened a digital advertising company called TeknoSurf in 1998. Their idea was to piece together a network of Web sites where they would buy ad space, then resell it to advertisers at a premium. It changed its name to Advertising.com in 2000.

Ms. Clarizio tried to embrace Ad.com's start-up spirit. The company remained at its Baltimore headquarters, instead of relocating to AOL's Dulles, Va., base, 60 miles away. She dressed up for Halloween and competed in relay races.

She also has tried to get the company's various sales teams and engineers working on common goals. During daily 9 a.m. meetings in Ad.com's "War Room," midlevel executives discuss the previous day's results and chart the next day's goals.

Ms. Clarizio wants to replicate that culture at Platform A, which suffers from duplication among its sales, tech and other groups. Different ad units, for instance, call on the same clients -- in essence competing for the business. One of Ms. Clarizio's first moves in her new post was to announce a "leadership team" for Platform A. The new structure puts in place one sales team, one technology team, one product and operations team, one marketing team and one publisher-services team to cut across all the company's different ad units.

Some digital-advertising executives question whether combining sales teams is the right strategy. They fear Ad.com's emphasis on data-driven results will come to dominate Platform A, frustrating bigger-brand marketers used to the tailored campaigns they have gotten from some of AOL's ad-sales teams.

But Ms. Clarizio is moving full speed ahead with the integration. AOL also announced last week that it has integrated two of the companies that provided separate search-engine-marketing services -- Advertising.com and Quigo, a contextual targeting ad firm AOL acquired last fall. "It's an example of what we need to do across the board. It's definitely an iterative process and takes a lot of work to do that," Ms. Clarizio says.

By Emily Steel
Wall Street Journal; March 26, 2008