Google's Cash Conundrum






Could Google provide a stimulus package to help boost the ailing U.S. economy?

Google CEO Eric Schmidt revealed Monday to The Wall Street Journal that the company is "thinking" about returning cash to shareholders. It's only a concept at this point, mind you: Mr. Schmidt ruled out a dividend and said no cash return was likely anytime soon.

Even so, it was a telling comment, indicating that despite Google's continued investment in a range of new business initiatives and infrastructure, the company's cash is piling up faster than it can be spent. On Sept. 30, Google had $14.4 billion in cash and marketable securities.

It may also signal that management is concerned about the roughly 50% fall in Google's stock price over the past 12 months.

Companies in growth mode usually guard their cash resources jealously. Dividends or buybacks tend to come as a business matures -- witness Microsoft's belated generosity in recent years.

Google turned into a cash machine quickly. Founded in 1998, it was generating $155.2 million a year from operations in 2002, an amount that jumped to $977 million in 2004, the year the company went public. A year later it generated $2.46 billion; for the first nine months of this year it produced $5.7 billion.

In addition, the company has raised $7.5 billion since 2004 in stock offerings. It has also laid out billions on acquisitions, investments and capital spending, although it is starting to rein in costs. Third-quarter capex, down 18% on a year earlier, was $452 million, mostly on infrastructure such as data centers and servers.

Google's growth and love of experimentation is not over. But, on the financial front, it may be growing up.

Yahoo profit falls; up to 1,500 jobs to be cut







SAN FRANCISCO — Battered by plunging profits and a sketchy economic outlook, Yahoo (YHOO) announced at least a 10% staff reduction on Tuesday.

The layoffs amount to up to 1,500 jobs.

IN THE NEWS: Justice expected to weigh in on Google, Yahoo deal

It is Yahoo's second significant round of layoffs this year. In January, the troubled Internet giant laid off 1,000 workers, but the cuts have done little to assuage investor confidence.

Yahoo stock closed at $12.07 on Tuesday, less than half the value in June, when Yahoo spurned a takeover bid by Microsoft. (MSFT) In after-hours trading, shares rose 8% to $13.
FIND MORE STORIES IN: Internet | Justice Department | Google Inc. | Microsoft | Silicon Valley | Thomson Reuters | Yahoo CEO Jerry Yang

The Silicon Valley company announced the latest round of cuts against a backdrop of poor third-quarter results and a grim economic forecast. The company's profit tumbled 64%, to $54 million, or 4 cents per share, from $151 million, or 11 cents per share, in the same quarter a year ago.

Revenue inched up 1%, to $1.8 billion, from a year ago.

The profit fell short of the 9 cents per share forecast by analysts polled by Thomson Reuters.

Reflecting the downturn, Yahoo lowered its revenue estimates for the remainder of the year. It now expects 2008 revenue of $7.2 billion to $7.4 billion — down from a previous estimated range of $7.4 billion to $7.9 billion.

Yahoo said its quarterly profit fell sharply because advertisers slashed spending on online brand promotions. It said it was prepared to further cut expenses in 2009 if the global economic downturn continues to deepen.

"I believe we are doing the right thing to streamline our organization" to cope with a weakening economy, Yahoo CEO Jerry Yang said in a conference call on Tuesday. "The environment is totally different from what it was four weeks ago."

Yet financial analysts, including Martin Pyykkonen of Wunderlich Securities, say a workforce reduction is not enough.

Yahoo is seeking partnerships to boost its bottom line. Yahoo wants to outsource some search advertising to Google, (GOOG) but the Justice Department is investigating the antitrust ramifications of such a deal because Google and Yahoo control more than 80% of the U.S. search ad market.

Google CEO Eric Schmidt and Yang on Tuesday said their companies continue to talk to the Department of Justice about making the deal happen.

Google to Extend Reach With Venture-Capital Arm


Google Inc. is working on plans to start a venture-capital arm, according to several people briefed on the discussions.The group will be led by David Drummond, Google's senior vice president of corporate development and chief legal officer, according to two of these people. Google has hired William Maris, a 33-year-old former entrepreneur who has worked as an investor, to help set up the venture. How the group will be structured and what sort of investments it is likely to target remain unclear.Google executives previously have bandied about the idea of launching a venture-capital unit, and the plans could still fall through. Mr. Maris couldn't be reached for comment.The move would make Google the latest technology giant to take on a more-formal role in seeding start-ups. Intel Corp. has had a large venture-capital arm for years, as have Motorola Inc., Comcast Corp. and many others. In the consumer-Internet area, Walt Disney Co.'s Steamboat Ventures has invested in a number of Web start-ups. So has Amazon.com Inc., which has funded a number of young companies without structuring a formal fund.Their track records have been mixed. Corporate venture-capital arms have been hampered by challenges that traditional venture-capital businesses don't face. Venture capitalists invest in private start-ups at an early stage, usually in hopes of a big payout if the company is sold or if its stock goes public.Many start-ups fear that taking corporate money limits their options and comes with strings that could turn away other potential investors -- such as a right to buy the company at a later date. Some funds with less competitive compensation have struggled to retain managers, and corporate venture funds often don't allow senior employees to invest personal money in their funds, while other venture funds typically do.Corporate venture capitalists' share of overall venture-capital dollars invested in U.S. companies fell to 7% in the first half of 2008 from 8.4% in 2007, according to PricewaterhouseCoopers and the National Venture Capital Association. Corporate venture capitalists were involved in roughly 20% of the venture-capital deals signed during the first half of 2008, compared with 21% in 2007.With an abundance of venture-capital money available today, Google will have to convince entrepreneurs that it has something to offer that other investors don't. It has several advantages, including a brand admired by start-ups and the ability to offer sizable technical resources.The Mountain View, Calif., Web giant has long preferred to buy companies rather than invest in them, and has plenty of cash to keep doing so. But it has invested millions of dollars in companies ranging from Current Communications, which offers broadband Internet over power lines, to Meraki, a wireless-Internet-equipment manufacturer. The company said last year that it intends to invest hundreds of millions of dollars in renewable-energy projects in conjunction with its philanthropic arm, Google.org. Google also has launched a number of informal funding programs, including contests for software developers.The new venture could help formalize those efforts and could help Google expand the footprint of some of its online-software products geared at small businesses. Other corporate venture funds have made investments as a way to gain experience in new product areas and markets.

The Google Diaspora

"It's nothing. It's so marginal."
Salman Ullah spits the words from his black Aeron in the corner office that serves as the headquarters of Merus Capital. Sean Dempsey, who cofounded Merus last November with Ullah and another man, Peter Hsing, had just started telling Ullah about a pitch he'd recently heard. The pitch had come from a company that is developing a new Web browser, and Ullah made his pronouncement on the basis of that information alone. It was almost a matter of principle: On a whiteboard that hangs on a wall of the office, Ullah had a few days ago scrawled a list, with the heading "Avoiding the Graveyard," of businesses he does not believe Merus should invest in. Number two on the list was "Freeware, e.g., browsers."
"Tell them to go fuck themselves," Ullah says. "What value do I get as an end user? Why would I install a new browser?"
"You get two pieces of value," Dempsey says. "One is . . ."
I can't write down exactly what Dempsey says now, because that would violate the terms of confidentiality I agreed to in order to attend this meeting. I can say that as soon as Dempsey finishes describing the browser's first supposedly distinctive feature, Ullah laughs and says, derisively, "Shades of 1998." As Dempsey starts describing the new browser's second feature, my eyes drift to the window behind him, with its view of city hall in downtown Palo Alto, California. Hundreds of multicolored porous plastic panels obscure the building's original facade, creating a slightly blurry effect, like a newspaper photograph viewed too close. The new facade only makes sense if you look at it through one of the two telescopes installed at street level, which reveal that each of the hundreds of plastic panels contains almost a hundred small digital photos of houses located in Palo Alto. All together, the panels contain photographs of every single house in the city. Like the new browser Dempsey is describing, this art installation, which the city commissioned several years ago, would also have seemed a lot cooler in 1998. Today, a pedestrian with an iPhone can stand right where the telescopes are and call up a Google "street view" image of any house within miles of here and then, with a few more clicks, spin the view 360 degrees.
Score another point for Google: Without even knowing it was playing, the company bested a piece of municipal art at its own game. That's what Google does: It makes what came before it look old. Atlases, variety shows, newspapers, and diaries, to take just a few examples, wither under the diodic glow of Google Earth, Google News, Google's Blogger, and Google's YouTube. Google likes to say that it launches new products "early and often." Most fail to hit, but the ones that do hit hard.
Merus Capital, as it happens, is itself a new Google product. Or, to be more specific, Merus Capital is the product of a new Google phenomenon. Call it the Google exodus, the Google diaspora, whatever--in almost any given week, blogs and business sections perk up with news that key figures at Google are leaving. It happened last October, the day word leaked about Salman Ullah: ANOTHER DAY, ANOTHER KEY GOOGLER DEPARTS, read the headline on VentureBeat. Ullah and Dempsey, who resigned at the same time, ran Google's corporate-development group. This meant they were in charge of buying and assimilating new companies, spending billions on YouTube and DoubleClick, among others. They also witnessed some of the initial stirrings of restlessness, the trickle of defections and departures that seemed to them a harbinger of the future. Since the late nineties, when they worked together at the top of Microsoft's corporate-development office, they'd considered becoming venture capitalists. But the timing had never seemed right. By the middle of 2007, about three years after having joined Google, the timing seemed urgent. They became convinced that their departing Google colleagues were going to dream up some truly special projects, and they wanted in. So, along with Peter Hsing, who had previously worked with them at Microsoft and was currently that company's managing director of corporate strategy, they abandoned some of the best corporate jobs in the world in order to go into business for themselves.
Merus Capital, both a product of the Google diaspora and an exploiter of it, has become an important node in the increasingly complex web ex-Googlers are weaving around Silicon Valley. The firm's first entrepreneur in residence, and the first beneficiary of Merus funds, was Gokul Rajaram, perhaps the highest profile recent Google departure, a man whom Fortune magazine identified as "one of the godfathers of AdSense" for his role in creating the targeted advertising service that is one of Google's prime revenue sources. Rajaram's start-up, Chai Labs, which is still in stealth mode, was incubated at Merus. In just the past couple years, ex-Googlers like Rajaram and Ullah and Dempsey have started about two dozen new companies and invested tens of millions of dollars in other start-ups. As you would expect, this new breed of Google graduates has already come up with a cute and clever name to describe themselves. They, the ex-Googlers, are Xooglers.
It should be noted that the Xoogler network's profile is out of proportion with its size. Any large company, especially one that went public four years ago and is beginning to see its first generation of pre-IPO employees become fully vested, is going to experience some attrition. It is a testament to Google that the departures so far constitute more of a trickle than a flood. Still, the stature of some of the people leaving--the creator of Gmail, the company's head of information security, its head of wireless--makes it a force worth paying attention to.
It seems quite possible, in fact, that the next big thing to come out of Google won't come out of Google at all.
And it might just touch down at Merus Capital.
One thing about the next big thing: It's not, apparently, going to be a new Web browser.
Ullah eventually cuts Dempsey off.
"Some clown could build this for a Mozilla plug-in!" He shakes his head. "We're not meeting with them."

Whenever possible, all three of the Merus principals like to sit in on pitches, as they are doing today. When confronted with new business ideas, they say, Hsing is the optimist, Dempsey the pragmatist, and Ullah the skeptic. Hsing and Dempsey each followed fairly typical paths into the corporate world. Ullah's background is different: Born in Germany to Pakistani parents, raised in England, he studied physics at Oxford University, then received a Ph.D. in theoretical physics from Stanford. He entered the world of business late. But this unusual medley of a background made him a prototypical leader at Google, which prides itself on hiring more Ph.D.'s than any other company.
"In terms of our growth map," Gil is saying, "our first focus right now is on building an infrastructure and trying to . . ."
Ullah, who is sitting across the table from Gil, interrupts. "I think you'll have no trouble raising money, but if you want my help, learn how to do bullets." He waves dismissively at the screen. "Because the spacing drives me insane."
"You don't like these bullets?"
"You don't have any fucking space between the bullet and the letter! You need the ruler to do that. I can help you with that."
"Okay," Gil continues, "so I think we actually have four phases to this. Phase zero is changing our PowerPoint slides. Phase one, we focus on seeding the data . . . and SEOing. . . ." The grammar of a meeting between VCs and entrepreneurs--the PowerPoint slides and geekspeak and acronyms--ROI, LP, SEO (search-engine optimization)--can easily tip over into self-parody, and every party at this table knows it. But this is the music that goes with this particular dance, for better or for worse, and so far these dances have led Merus to shack up with six different start-ups.
The Peninsula Fountain & Grill in downtown Palo Alto, a few blocks from the Merus offices, is a place where VCs and entrepreneurs often meet. It's noisy--hard to eavesdrop in--maybe that's why.
I'm here meeting with Jason Shellen, an entrepreneur who's not currently connected directly to Merus, at least no more than all ex-Google employees are connected to one another. He went with a different venture firm, Polaris Venture Partners, for his funding, and Polaris just led a first round for his start-up, securing it $1.6 million. That should last him a year or so.
Shellen's experience at Google, and his reasons for leaving, are fairly typical. He joined Google in 2003, part of the team Google adopted when it purchased Pyra Labs, creators of Blogger, one of Google's biggest early acquisitions. "We were their first acquisition of live human beings," he says. Shellen's first big project at Google was to create an entirely new product, Google Reader, a collaborative blog-reading site.
At the time, Google had about six hundred employees, making it less than one twentieth of its current size, but that was still a big leap from the handful of people Shellen had worked with at Blogger. "Even at the size Google was then, there was already a little bit of process to keep Google Reader from being the product that I had hoped it would be. . . . The person who I reported to didn't like the idea, so I essentially went shopping for a new boss internally who would sponsor it, and she had certain caveats to what it would be. . . . It sort of ground me down to the point where I didn't feel like creating another product at Google. I was having trouble feeling like I would be rewarded in the same way as at a start-up."
So shortly after his stocks fully vested, he left. He wanted to do something entirely new, entirely for himself. He won't say much about his project, called Plinky, other than it's a "content-encouragement system," which he admits sounds "sort of buzzy and weird." But he will say he's having a great time. Start-ups of any size carry an excitement hard to duplicate when you're just one employee out of thousands. "No one joining Google today can ever go back to the garage with Sergey and Larry," he says.
In that garage, Sergey Brin and Larry Page built their empire on the basis of a simple and powerful idea that now seems obvious: Create a better search engine by taking into account not just a page's content but also its connectedness. The most popular pages would show up ahead of the lonelier pages in search results. This idea was so central to the Google experiment that its demo-stage name was "BackRub," as in, "You rub my site's back, I'll rub yours." It's this same basic idea that drives interest in the Google diaspora. Not only are Xooglers bright, entrepreneurial, and wealthy, but their links to one another and to Google endow them with a real-world ranking bonus--VC doors open wider; the press is more intrigued.
Of course, not all the people leaving Google are starting companies themselves. Some assume new roles at other companies. Google is still hot and young, but it is no longer the hottest, or the youngest, established company in Silicon Valley. Nor is it the only company here built on the value of connectedness. About twenty-five minutes into lunch with Shellen, he recognizes four former Google colleagues walking past the restaurant, and all are wearing Facebook employee badges.

The Merus founders can get pitch requests from a dozen entrepreneurs a week, and the few meetings they choose to set up usually take place in a glass-walled conference room, around a shellacked, Swedish-looking table made from blond- and burgundy-colored wood. A little shelf at one end of the room contains bottles of water; a few abstract, African-looking sculptures; and a vase of fresh, exotic flowers. The fancy conference room belongs not to Merus but to Regis, a wealth-management company. The decisions of Ullah, Dempsey, and Hsing to leave their jobs--decisions made with the knowledge that they were sacrificing combined stock options running well into the seven figures--were spurred in part by Regis's guarantee of a $5 million investment and a deal on office space. Unlike some other Xooglers investing in ex-Google start-ups--people like Aydin Senkut, Google's former international sales manager, who organizes occasional Xoogler get-togethers and cashed out of Google with tens of millions--the Merus guys are not stratospherically wealthy, at least not by Silicon Valley standards. They've got money--the name Merus, which means "pure" in Latin, was inspired by a favorite cabernet from Hsing's wine collection--but they still need to work for a living. (Senkut owns a Lamborghini; Ullah drives a Volvo wagon.) Rather, the value of their stints at Google is not how much money they left with but whom they worked alongside. Their particular jobs required them to get to know people from every area of the company. Those contacts, and the knowledge base that came with it, is what they hope they can now spin into gold.
In the borrowed conference room this afternoon, Elad Gil sits behind a black ThinkPad laptop, queuing up a PowerPoint slide that is being projected at the far end of the room. Gil and Othman Laraki, who's sitting next to him, are both newly minted Xooglers and have come to present details on a company they've dreamed up. When they were at Google, Gil played a prominent role in the development of the company's mobile infrastructure and Laraki worked on collaborations with the Mozilla Firefox browser. The slide onscreen charts the various stages they see their start-up growing through over the next year and a half, if they receive the low seven figures in funding they're looking for.
Ullah and Dempsey used to work with a guy named David Friedberg in Google's corporate-development office. He left Google a year before they did, and his departure added fire to their plans for Merus.
"We had a hypothesis that these were the kinds of things that were going to happen," Ullah says. "You know: Very smart guy--he likes Google, but he has this idea that doesn't fit the franchise."
Had Merus existed when Friedberg was looking for seed capital, the firm likely would have been happy to provide it to him. As it was, Ullah invested $50,000 of his own money in Friedberg's company, WeatherBill.
On a recent afternoon at his office, Friedberg, twenty-eight, wearing jeans, a black T-shirt, and a zip-up jacket that looks like a Members Only but isn't, explains how he got the idea for WeatherBill: He used to live in San Francisco's Embarcadero district, down by the water, near a bike-rental place called the Bike Hut. He'd drive by the Bike Hut all the time, and he started to notice that whenever it rained a lot, they'd just pull in the bikes, lower the shutters, and close shop--nobody wants to rent a bike on a rainy day.
"I thought, Well, that's such a shitty business," Friedberg recalls. "Every week, the guy's gonna make--or lose--money based on how much it rains."
And then Friedberg started to notice all sorts of other businesses with similar problems: Movie theaters full on rainy days, empty on sunny ones. The bar down the street, with its big outdoor patio, just the opposite. So he did some research.
The Department of Commerce estimates unpredictable weather has the potential to negatively affect up to $4 trillion worth of business in the U. S. every year, or about one third of the entire GDP. Sixty percent of weather-related financial losses are due to relatively small weather events, and there's often nothing businesses can do to protect themselves. "It's this huge problem that no one does anything about," says Friedberg. So he, together with fellow former Googler Siraj Khaliq, founded WeatherBill.
The company crunches large amounts of historical and forecasting data with proprietary algorithms in order to determine the best-guess probability that virtually any weather-related scenario will take place, and then sells risk-hedging contracts based on those probabilities. For example, a ski resort in Vermont might be able to buy a contract from WeatherBill for, say, $80,000 that would pay out $1 million (up to $10 million) for every degree above freezing that the average temperature strays during the upcoming ski season. WeatherBill sells its own risk to reinsurers, which theoretically means it could survive the sort of cataclysmic Katrina-level payouts that a bad string of weather events might bring. In fact, Friedberg himself is bullish on global warming and its resulting tempests. "Extreme weather is kind of ridiculously going off the charts right now. Stuff that used to be 10 percent likely is now 30 percent likely. The good thing for us is that it means people are more cognizant of [these extremes], and we get more customers. It's the fact that citrus farmers got frozen out and wiped out [last year] that we got the calls [this year]."
Near where I'm meeting with Friedberg, an intern from Berkeley is working on a WeatherBill white paper that identifies the Third World countries whose economies are most dependent on weather. Meanwhile, a WeatherBill sales manager is trying to get in touch with a minor league ball club, the Charleston RiverDogs, that stands to lose at least $50,000 if its big Fourth of July event is rained out. Meanwhile, automatically, revenue pours in from Priceline, which is currently offering a Sunshine Guarantee that offers full reimbursements to any customers whose Priceline-booked vacations are affected by a prespecified amount of rain. Priceline is covering all of its risks with WeatherBill, purchasing individually tailored contracts for every vacation package. Friedberg shows me, on his laptop screen, the latest batch. Since a high contract price indicates a high probability of rain, it's a good bet there will soon be a lot of wet, happy vacationers in Vancouver.
The firm has invested almost $13 million so far: $5 million in Airline Intelligence Systems, which uses proprietary algorithms to improve airline flight scheduling and routing efficiency; $1 million in DeviceVM, creator of Splashtop, a product that enables a PC to sprint from powered off to functional in seconds; $550,000 in TheStoreBook, which gives small, unwired businesses the means to advertise daily specials online; $3.5 million in Debix, which helps protect its customers from identity theft; $2 million in Adroll, which connects small networks of complementary Web sites and allows them to leverage their combined size to sell advertising space; and $350,000 in Chai Labs, which they won't say much about at all.

Ex-Googlers directly founded Chai Labs and TheStoreBook, but every company in the Merus portfolio becomes a de facto part of the Xoogler phenomenon, since each benefits from Merus's own network of advisors, not to mention the buzz and curiosity that surround a venture-capital firm that, its founders admit, is "mainly known for Google." This buzz leads a steady stream of entrepreneurs to Merus, and the firm anticipates investing in at least another eighteen start-ups over the next two years.
I promised not to publish many details about Gil and Laraki's plan, but I can say that although they are no longer a part of Google, their emulation of their former employer starts at a basic level. The company, though a single entity, will contain two different teams working semi-independently on two distinct products. As Gil explains during the meeting, this structure was inspired by Google's "20-percent time" policy, which encourages employees to spend a fifth of their working hours on projects outside their main purview. "Twenty-percent time really helps drive innovation," Gil says. "Originally we were thinking, Well, should we just do a company of 20-percent projects, in which we do five different things? But we decided to hone it down to the two big markets that we thought were the most intriguing."
Their hiring strategy, also, is Google-esque. "I think the way we phrased it at Google was, you know, we're looking for athletes versus specialists. So we're looking for people who are very, very sharp and who can do a variety of things."
Finally, they've appropriated their former employer's confident, playful nonchalance when it comes to the earnings side of their business.
"When do you think you'll get your first dollar of revenue?" Ullah asks.
"In a few months," Gil says. "We're estimating $1.2 million a year." He waits a beat, then adds, with exaggerated precision. "One point two five."
All four Xooglers laugh.
"It's just like, you know how Google raised, what was it, pi?" Gil adds, referring to Google's initial public offering, prior to which Brin and Page filed an SEC form declaring that they wanted to raise $2.718281828 billion.
"It was e," Ullah corrects him, and it was.
"We assume that, either way, our revenue will be irrational!" Gil continues, to more laughter all around.
"I discriminate against white people," Ullah tells me one afternoon. "You should know that. I do. I also discriminate against brown people. The discrimination is subtly different. With the white guy, I know he's stupid. Whereas with the brown guy, he better be fucking brilliant. So I'll take the meeting with the brown guy, because I want to give him the benefit of the doubt. I will never give the benefit of the doubt to the white guy. But the bar is lower for the white guy, much higher for the brown guy. It's weird. It's this weird off-diagonal thing."
"This is great PR for the firm," Dempsey says softly from his desk.
The guys are working today on a one-page mission statement that they intend to send out to all their investors. They show the draft to me, ask for my comments. One of the key lines reads:
"Within the software/Internet sector, we are focused on early-stage investment opportunities supported by one or more of our three major investment themes: algorithm-intensive solutions, multisided aggregation platforms, and next-generation productivity solutions."
I point out that the word solutions is used twice and offer that, in general, the term "next-generation" is used so often, it's basically useless. They change the line, replacing the first solutions with services, and writing "Web-centric" in place of "next-generation."
Then I tell them that the sentence is still, from my nontechnical perspective, pretty opaque.
"It's not self-explanatory," Ullah admits. "But that's a good thing. That's why they need us. We're like those priests in the temple. Can I talk to God? No. You talk to me. I will then talk to God." Anyway, the themes are just guidelines,and flexible ones at that.
"I mean the whole thing is a joke," Ullah says. "All of these [other firms], their portfolios are all over the place."
But the guys do genuinely believe that keeping these three investment themes in mind will help them sift through all of the pitches they hear each week and spot the nuggets amid all the worthless gravel. More important, they believe they know how to identify the gravel.
Although Merus Capital is the beneficiary of a species of buzz--of this idea that there is something special about Xooglers--the Merus founders have learned to be skeptical of buzz in general. For example, one of the buzziest little start-ups in the Valley these days is, they think, a lousy business. It's called Twitter. It allows you to write 140-word "tweets" all day long, from your cell phone or wherever, and post them to your Twitter page, a sort of short-attention-span blog. Lots of people are using it. And it doesn't hurt that Evan Williams, Twitter's cofounder, worked at Google until 2004. Twitter is just the sort of portfolio-jazzing start-up that some venture capitalists like to name-drop over cocktails, and it has raised $22 million so far. "But it's nothing we would invest in," Dempsey says. "Despite the excitement, we don't see the economics behind it."
After they finish editing the letter, they start brainstorming possible Merus slogans.
"Changing the Landscape," Hsing offers.
"Everyone says that," Ullah says.
"Not everyone says that."
"Kleiner says that. Sequoia says that."
"First Round doesn't say that."
"I don't know what the fuck First Round says."
There's a lull. Then Dempsey makes a suggestion: "Want to know what Google's doing? Come have a quiet conversation with us."
So what is Google doing?
During my lunch with Jason Shellen, he'd mentioned a meeting he had a few years ago with Susan Wojcicki, Google's vice-president of product management, about the problem of employee retention. Wojcicki was Google's fourteenth hire and the owner of the Menlo Park garage in which the company incubated. They'd discussed, among other things, whether it might be possible to create a "Google Ventures sort of thing" that would allow entrepreneurial employees with ideas to "spin projects out" while keeping them close by. The idea, Shellen believed, had never gained traction.
Six weeks after my conversation with Shellen, and days before this story went to press, an article appeared in The Wall Street Journal: GOOGLE TO EXTEND REACH WITH VENTURE-CAPITAL ARM.
The details are still vague, and Google hasn't confirmed anything, but here's one safe bet: Even Google doesn't want to miss out on the Xoogler action.

Google stock soars on 26 pct jump in 3Q earnings

SAN FRANCISCO (AP) -- Google Inc. shook off the economic turbulence to deliver a third-quarter profit that topped analysts' forecasts, supporting the Internet search leader's theory that its advertising system will prosper even in tough times.

The reassuring performance lifted Google shares by more than 10 percent late Thursday, even though the company's executives made some of their most sober remarks yet about the worst financial crisis since the stock market crashed in 1929.

It's been bad enough to prompt Google -- renowned for its free-spending ways -- to hunker down and start scrimping more than it has in the past because the economy has entered "uncharted territory," Chairman Eric Schmidt told analysts in a conference call.

Google navigated through the economic shoals in the third quarter, earning $1.35 billion, or $4.24 per share. The profit rose 26 percent from $1.07 billion, or $3.38 per share, at the same time last year.

Excluding costs for employee stock compensation, Google said it would have made $4.92 per share. That figure surpassed the average estimate of $4.75 per share among analysts polled by Thomson Reuters.

Revenue climbed 31 percent to $5.54 billion. After subtracting advertising commissions, Google's revenue totaled $4.04 billion -- about $20 million below analyst estimates.

Analysts had been decreasing their projections amid waves of investor pessimism that pounded Google's stock price to a three-year low of $309.44 earlier Thursday. The shares subsequently rebounded with the rest of the market to close at $353.02, up $13.85, and then surged by another $36.98, or 10.5 percent, in extended trading after the company released its third-quarter results.

The pleasant surprise helped ease fears that online advertisers will stop pouring as much money into Google in an effort to save money in an economy that appears headed toward its worst recession since the early 1980s.

Google executives have maintained that the company can still thrive because its technology does a better job of finding customers at a lower cost to advertisers than traditional marketing campaigns. Those factors, Google argues, means it could receive an even bigger slice of advertising budgets in a crumbling economy.

What's more, consumers scrambling to make ends meet may be more likely to use the Internet to hunt for bargains -- a quest that could increase the Google search requests that spit out ads.

Schmidt, though, acknowledged that even the Internet's most profitable company is facing a more daunting challenge now than when the third quarter began.

"It is pretty clear the economic situation today globally is worse than people were predicting a month ago," he said during the conference call.

Google co-founder Sergey Brin predicted the company will emerge from the turmoil even stronger. "My favorite time to manage is during a bust," Brin said in a Thursday interview with The Associated Press. "It brings more clarity about what your customers need and what your priorities should be."

Keeping a closer eye on expenses is near the top of Google's to-do list now, Schmidt told analysts, because "it's the right thing to do."

The frugal approach is a change of pace for Google, which takes pride in spending heavily to treat its employees to free meals and expand the capacity of its data centers that run its search engine, e-mail and other products.

While Google plans to continue feeding its employees for free, the company already has shortened the operating hours of some cafes and, in some instances, is offering two entrees instead of three, Brin said. The company also is reducing the number of contractors it uses.

In another indication of a tightening budget, Google's capital expenditures in the third quarter totaled $452 million, an 18 percent decrease from last year.

That's the lowest amount Google has spent on capital expenditures since the fourth quarter of 2006. Chief Financial Officer Patrick Pichette attributed the sharp decline to the company's fluctuating needs for additional computers, and said spending in that area could rise again.

Google clearly is managing its payroll more carefully. the company hired another 519 workers during the quarter, down from an increase of 2,130 employees at the same time last year. The company now has 20,123 employees.

Even as it curbs its costs, Google's bank account is swelling. The company ended September with $14.4 billion in cash, up from $12.7 billion in June.

Google also is vying to become an even more dominant force on the Internet by selling ads on behalf of its slumping rival, Yahoo Inc. The alliance has been delayed by an U.S. Justice Department investigation into whether the partnership would undercut competition in the Internet advertising market. Schmidt said he hopes to resolve the fate of the Yahoo deal soon.

Yahoo Buys AOL

A source close to AOL told us earlier that Yahoo's acquisition of AOL was a done deal. However, another senior source at Time Warner emphatically denied this. We apologize for the head-fake.

The two companies are still talking, the Time Warner source says, but a deal is "not imminent."

(Our original source expected a formal announcement tomorrow and reported the amusing sighting of a full-length Yahoo 18-wheeler semi-truck near AOL's Dulles campus.)

Some possible new variants on the already reported terms, none confirmed.

* Yahoo may acquire all of AOL, including the access business. This is smart, actually. The access business has real value and is tightly integrated into the content and advertising businesses. It will also allow Time Warner to sell AOL for a less embarrassing price. Then Yahoo can figure out what to keep and what to kill, rather than AOL doing it artificially for them.

* Purchase price might be $8-$10 billion. For the content and ad business alone, this would be way too high. If the deal includes the access business, however, it's in the ballpark of reasonable.

* No information yet on additional terms: Time Warner contributing cash, taking huge percentage of combined company, etc.

As we've discussed frequently over the past year, an AOL-Yahoo combination makes sense. By merging communications (email/IM), content (weblogs), ad networks, search, etc., the company will become an even more powerful global platform and a more effective competitor to Google.

Execution is crucial, however. Yahoo needs to ruthlessly eliminate redundancy and completely integrate what remains, or the merger will be a distraction and flop. Unfortunately, Yahoo has not yet demonstrated that it has this competency.

Don't Let Google Freeze the Airwaves

A scheme to keep precious spectrum underutilized.

Google is now pushing a "free the airwaves" campaign, rallying to open TV band frequencies for new wireless services. This is a superb idea, one suggested by South Dakota Republican Sen. Larry Pressler in 1996, just before he was targeted by broadcasters and defeated for re-election.

But something has been lost in translation as Google cofounder Larry Page presses the Federal Communications Commission (FCC) to act before the Nov. 4 election. Google's proposal would actually freeze the airwaves allocated to television prior to World War II. Innovative services would be lost for yet another generation.

The TV band is pathetically under-utilized. The problem is historical, but is increasingly exacerbated by the emergence of valuable new wireless technologies that are blocked due to artificial spectrum scarcity.

With the transition to digital broadcasting, scheduled for completion next February, some 49 TV channels will continue to be set aside for over-the-air broadcasts. In aggregate, these frequencies would fetch in excess of $100 billion at auction. But what wireless carriers pay is perhaps only one-tenth what the spectrum is worth to consumers, who realize vast benefits in lower prices, fatter bandwidth, and new applications. In short, the TV band could generate more than $1 trillion in innovative wireless services.

Continuing to lock up the band in its current mode sacrifices that potential contribution. Note, first, that the median TV market features only eight stations. That means that 41 channels of the 49 set aside are pretty much wasted "white space."

Second, while regulators in the 1950s spread signals apart to mitigate interference, today's digital transmissions can be tightly packed. It is now easily possible to deliver 50 digital signals using just eight TV channels of bandwidth. That would unleash five-sixths of the TV band for an array of other wireless services. But FCC regulators, intimidated by politically powerful TV broadcasters and other interests, raise nary a peep about such options.

So Google and its allies, including tech bedfellows such as Microsoft, lobby regulators to approve a plan permitting new low-power radio devices, like cordless phones or wi-fi routers, to use TV band "white spaces." The new radios would automatically dodge TV signals, leaving broadcasts undisturbed. Since 2002 the FCC has attempted to go down this path, crafting spectrum sharing rules and testing radios. None have thus far passed. Mr. Page calls the tests "rigged."

That this gambit has wasted six years is the bad news. The even worse news is that were the FCC to "succeed," approving devices for unlicensed use of the band, it would squander any opportunity to reorganize the band and unleash its vast utility.

Government management of the white spaces is doomed to fail. That is vividly seen in the wrong question now asked by the FCC: What devices can share the TV band without disturbing current broadcasts? But there is no reason to freeze TV channels in place. The right question is: How can we reorganize TV broadcasts to maximize wireless benefits? Transmissions could be better coordinated. Such innovative moves, however, rely on having spectrum owners.

Market transactions reveal how efficiencies are unleashed. TV stations that tell the FCC that any dollop of static will cause catastrophe have eagerly negotiated with Qualcomm, owner of (analog) TV channel 55 (auctioned in 2003), which pays broadcasters to accept interference from its new mobile video service, MediaFlo. These deals have pushed TV stations out of old assignments to make room for a 21st century application -- precisely what should be happening all through the TV band.

But such efficiencies will be impossible if "Free the Airwaves" results in government controls (under the Google plan regulators must approve specific devices) in lieu of spectrum ownership. These rights would logically be auctioned, as were select frequencies pulled away from TV channels 52-69, which sold for $19.6 billion in March 2008.

Google chose not to bid in that auction, exhibiting a crucial point. If Google believed that TV frequencies were productively used via the spectrum sharing approach they ask the FCC to impose, they could have purchased TV "white spaces" and imposed just such a plan. Revenues could have been extracted from the sales of devices, advertising, or other means. Yet, they rejected this play, outbid by rivals seeking to deploy alternative models.

Therein lies the beauty of competitive bidding: resources, including spectrum, go to their highest valued use. Other options, notably wide area wireless broadband networks, generate far more consumer interest. In FCC data now over a year old, some 35 million customers subscribe to wireless broadband offered by the four national wireless carriers. Google itself, partnering with Intel, Sprint, and others in Clearwire, has joined this fray. With more access to licensed and liberally regulated spectrum, they -- and entrants to come -- will have a fair chance of succeeding.

Sen. Pressler's May 1996 proposal could powerfully energize this competitive rivalry. Allot all TV band frequencies to, say, seven national licenses, and auction them. (Competition could be ensured by a one-to-a-customer rule.) TV stations would be grandfathered, and continue to broadcast on current channels. But they would also be able to change channels or accept some interference with their broadcast signals. They would happily accept payments to make way for new wireless stuff. Band usage would be radically transformed.

This procedure greases the skids for efficiency, downloading politically arduous tasks to market specialists. Many wireless services, from PCS to Blackberry to MediaFlo, have been launched through such spectrum trades. Those deals only happen when owners can bargain. To free the airwaves, we must liberate them from the pre-World War II template in which they are now trapped.

By: Thomas Hazlett and Vernon Smith
Wall Street Journal; October 3, 2008

Barry Diller's Breakup: Why IAC Didn't Work

Internet Company Was Too Complex, He Says; Smaller Firm Has Sharper Focus

Barry Diller's restless, 47-year business career is yet again taking a new turn. After a dizzying run from mailroom to studio mogul, he quit his high-flying Hollywood career 15 years ago to plunge into home-shopping television and the Internet.

Now, after years of defending his Internet conglomerate, IAC/InterActiveCorp, Mr. Diller broke apart the company six weeks ago, explaining it was too complicated and in too many diverse businesses. His remaining operations include the advertising-supported Web sites Ask.com and dating service Match.com.

The breakup means the 66-year-old Mr. Diller must prove himself anew. Mr. Diller's reputation has been dinged in recent years as IAC's market value withered. A dispute earlier this year with the company's majority shareholder, cable-TV mogul John Malone, over breakup terms was an unwelcome distraction.

In an interview, Mr. Diller talks about the new IAC, the effects of the bumpy financial climate and why he'd never return to running a major movie studio. Excerpts follow:

WSJ: Why did you decide to break up IAC?

Mr. Diller: Because I thought the company was overly complex and unmanageable. What I've learned over the years is that focus and singular purpose is the best approach for businesses. How can you function across 12 different businesses from financial services to dating?

If you're going to run a public company, be absolutely certain of what the parameters are, what the clarity is, that you can explain it to yourselves and explain it externally.
[Barry Diller] Justin Steele for The Wall Street Journal

"What I've learned over the years is that focus and singular purpose is the best approach for businesses," says Barry Diller. "How can you function across 12 different businesses from financial services to dating?"

WSJ: If, as you say, having operations across multiple businesses didn't work for IAC, why does it work for General Electric Co. or Walt Disney Co.?

Mr. Diller: Companies like GE and Procter & Gamble have been in business for a long time. Over decades or a century you're bound to figure out a management structure that works. Disney is a single brand in essence, but then you can say, wait a minute, what about ESPN? Tell me why ESPN belongs in Disney. I don't think it gives Disney anything. It gives Disney money, but I think that money is discounted. Its true value, I think Disney would say, is disguised.

I don't have answers for anybody else. What I know is that internal complexity makes for superficiality. There's never essentially a pure story unless there's a pure product line that has its own shining clarity.

WSJ: You have remade the company a few times now. Are you done? Will IAC in five years look the same as it does today?

Mr. Diller: I doubt it will look like what it looks like now, just because of the nature of what IAC is. We won't get out of the parameters we have set for ourselves, which is pure Internet whose drive wheel is this distribution and marketing machine. That to me is focused enough, and we may get even more focused as we go. We're sitting around here now saying we're going to dispose of some of our businesses.

WSJ: :What might you get rid of?

Mr. Diller: I'm not going to tell you since we haven't decided. But we're analyzing [the businesses] for potential size, the market they're in, should we bother with it.

WSJ: Does the credit crunch hurt your ability to sell assets?

Mr. Diller: The Internet area we're in is not really a sector that has had any current damage. But I can't predict that; if it freezes, it freezes.

WSJ: Companies have struggled to make money in online video and social networking. What is the outlook for advertising in these areas?

Mr. Diller: You really want to get a headache? Try to understand Internet advertising. Social networking advertising is being discounted because there is so much inventory [of available ad spots], and because methods have not yet been found to make it very effective. Will that get figured out? I absolutely believe it will. What form will it take? Absolutely unknown.

WSJ: Some investors were frustrated that IAC came out of the breakup with $1.3 billion in cash. What will you do with the money?

Mr. Diller: I think it's totally fair for people to say we have a company that is so overcapitalized. But we're not going to make acquisitions that are outside the parameters we have set: Internet, more than likely advertising-based, more than likely in our area of knowledge. Every mistake we've made in acquisitions has been outside our essential spheres of expertise. It's equally possible that as we focus more we will repatriate this cash in the next couple of years.

WSJ: Do the last three weeks of financial tumult make you feel differently about the capital structure of the company?

Mr. Diller: I'm happy about our position. We've operated very conservatively, and we've been criticized for it. Now we're in a position where -- not withstanding this current crisis -- we can continue to operate and invest in our business. Therefore I think over the next year or two we're going to be advantaged.

WSJ: : Liberty Media's John Malone had backed the creation of IAC, and he gave you his voting power over the company. Then Mr. Malone fought you -- and lost -- in court over terms of the breakup. Is the disagreement water under the bridge?

Mr. Diller: It is water down the drain. It's unfortunate that executives of Liberty forced us into this process that resulted in the court affirming our position, but they did. It was hurtful to the company in which they're investors, it was hurtful to me, it was a waste of time and money. It's over. It certainly has no effect because my relations with John Malone are right and proper. They can have board members, but I outvote them.

WSJ: IAC's stock performance has been lackluster in recent years. Why should investors stick by you now?

Mr. Diller: The truth is the market made judgments, and the recent judgments have been poor. There were legitimate reasons for that. Now, there are operating facts about this company that are irrefutable: It has revenue, it has earnings, it has a lot of cash and no debt.

WSJ: Would you want to run a movie company today?

Mr. Diller: No. Words like "tent pole" and "merchandising" have nothing to do with telling good stories. The current process of major film companies is so different than it was 10 or 20 years ago, and I find the output that comes from it far less interesting. It's a very hard business to get into, and I don't know why you'd make that choice rather than shoe manufacturing.

WSJ: Newspapers are suffering as advertising moves online. You are a director of Washington Post Co. Do you think newspaper companies will survive?

Mr. Diller: If they call themselves newspaper companies they are probably going to be toast. It will depend absolutely on what the product is. We're still at such an early period to talk about the death of journalism.

By: Shira Ovide
Wall Street Journal; October 7, 2008

EBay Pushes Deeper Into Payments as Auctions Flag

Looking for new growth engines as it struggles to revive its flagship auction site, eBay Inc. agreed to acquire Bill Me Later Inc. for about $945 million and revealed plans to cut 10% of its work force.

The San Jose, Calif., company, which plans to cut roughly 1,000 employees and 600 temporary workers, also warned Monday that third-quarter revenue would come in at the low end of its forecast.

Shares of eBay ended down 5.5% at $17.89 on the Nasdaq Stock Market, the lowest close in more than five years.

The moves come as eBay increasingly pins its turnaround efforts on its fast-growing PayPal unit, which handles payments for Internet transactions. It was acquired in 2002 and now accounts for more than a quarter of eBay's revenue.

Bill Me Later, based in Timonium, Md., is a service that allows Web shoppers to extend payment in exchange for a small fee, rather than paying immediately with a credit card. Unlike PayPal, which is popular among mom-and-pop sellers, it is often used by large retailers such as Toys R Us Inc. and Borders Group Inc. Bill Me Later, whose investors include Amazon.com Inc., serves 75 of the top 200 online retailers, said PayPal chief Scott Thompson.

But making online payments central to the company's turnaround has caused tension with some of eBay's sellers.

While many sellers were used to having choice in how they conducted their online sales, several now said they feel forced to use PayPal to generate revenue for eBay. The purchase of Bill Me Later may reinforce that perception.

EBay Chief Executive John Donahoe said in an interview the acquisition and layoffs are an effort by the company to be opportunistic and streamline its operations.

"This is the time that strong companies can get stronger," he said, adding that the layoffs will affect the auctions business more than PayPal and other units.

EBay has said the use of PayPal and online payments is intended to modernize the auction site.

Mr. Donahoe has instituted various changes to the auction site this year to attract repeat buyers and rejuvenate trading, such as requiring sellers to improve customer service in exchange for certain perks, but results have been mixed.

The economic slowdown has also hurt consumer spending, on which eBay depends for its auctions site to succeed.

At the same time, PayPal's revenue growth has outpaced that of eBay's traditional business, growing 33% in the second quarter compared with 13% at eBay's marketplaces unit, which includes auction and fixed-priced sales.

Overall, eBay posted growth of 20% in the second quarter.

Sellers' friction over PayPal stems in part from a change that eBay is making later this month. That's when eBay will start requiring all transactions on its auction site to be completed online.

The change means customers and sellers who had once used checks and money orders to close a sale will now only be able to use credit cards or services such as PayPal.

EBay said the shift helps the company catch up with other e-commerce destinations such as Amazon.com and Gap.com, where transactions are conducted only via credit cards and online payments.

But merchants such as Michele Godino, who sells antiques on eBay, said she feels as if she and other merchants are increasingly being forced to use PayPal to produce more revenue for eBay. "As a business owner and an adult, I feel like I should determine what payments I accept," she said.

In Australia, some eBay sellers are so steamed about the move to online-only transactions that they protested by writing letters and talking to the Australia Competition and Consumer Commission, a supervisory body. In July, eBay dropped its plan to go to online-only sales in Australia.

Mr. Donahoe defends the increased presence of PayPal on eBay, saying using the electronic-payments service makes transactions safer for both buyers and sellers.

EBay, which reports third-quarter earnings on Oct. 15, said Monday it would post revenue at the low end of its $2.1 billion to $2.15 billion forecast. But the company still expects to exceed its third-quarter earnings forecast.

The company expects to incur restructuring charges for the layoffs of about $70 million to $80 million, mostly in the fourth quarter, but save $150 million annually thereafter.

Along with Bill Me Later, eBay also said Monday it would buy Danish classifieds sites Den Bla Avis and BilBasen for $390 million.

By: Mylenne Mangalindan
Wall Street Journal; October 7, 2008

Yahoo, Google Delay Online-Ad Deal

Yahoo Inc. and Google Inc. said they agreed to a brief delay in completing their planned online-advertising partnership while the Department of Justice completes its antitrust review of the relationship.

The companies said in June, when they announced the alliance, that they were voluntarily delaying its implementation until October to give regulators time to consider the agreement.

Because the Justice Department hasn't completed the review, representatives of Yahoo and Google said Friday that they expect a short additional delay while they continue discussions with the agency.

"We have had discussions with regulators and look forward to responding to their questions about this agreement," a Yahoo spokeswoman said in prepared remarks.

The agreement will allow Yahoo to run some search ads sold by Google and to share in the revenue.

The latest delay follows indications that Justice Department officials are looking very closely at the transaction and may be considering an antitrust challenge to the deal.

Some advertisers and competitors, including Microsoft Corp., have expressed concern about the deal.

At issue is whether the alliance would unfairly reduce competition in online-search advertising.

By: Don Clark and Brent Kendall
Wall Street Journal; October 5, 2008

Ask.com Continues to Fall

Latest Redesign Aims for More-Efficient Web Searches in Bid to Raise User Numbers

Internet search engine Ask.com, the flagship of Barry Diller's IAC/InterActiveCorp, plans to launch its third redesign in as many years Monday as the company continues to seek a firmer foothold in the search market.

The revamp undoes a heralded but largely ineffective overhaul last year that presented images, audio clips and other Ask search results in separate panels. The new Ask looks more like other search engines, but aims to dig up search responses more efficiently.

For example, a search for "What's the biggest state in the U.S.," won't just pull up links that a user has to click through to find the answer. Instead, culling from community-generated and other resources across the Web, Ask aims to dig up the answer -- Alaska -- in the main page of search results.

Ask hopes that making search listings more useful will persuade increasing numbers of people to use Ask, and will push loyal users to return more often.

"To call it an all-new Ask is wrong; it's an evolution of Ask," Mr. Diller said in an interview. "I think it's going to help us primarily in retention and frequency. That is really its goal."

Boosting Ask is more important now for Mr. Diller, who broke IAC into five pieces in August. The split leaves Ask as IAC's biggest business.

Already, IAC has shifted the search engine's direction twice since 2005, when IAC bought the business -- then known as Ask Jeeves -- for nearly $2 billion.

IAC first shifted away from the hallmarks of Ask Jeeves, which was known for answering search queries posed as questions. Then last year Ask tried again with the tech-savvy redesign, Ask3D.

Prior efforts haven't lifted Ask above a minor competitor in the internet search business. Traffic on Ask.com and other Web sites that use its search technology accounted for 4.8% of Internet searches in August, according to comScore Inc.

Google and sites that use its technology had a 63% share.

Jim Safka, who took over as Ask's chief executive in January, is taking a cautious approach to the search engine's latest iteration. Ask3D was trumpeted with $100 million of television commercials, billboards and other marketing. Mr. Diller said Ask will spend $5 million on marketing this time around to test consumer response.

IAC executives defend Ask by pointing to small gains in market share.

Executives also say Ask is a financial success even if it doesn't budge its search position significantly, thanks to a deal under which Google Inc. sells most of the ads on Ask. The recently renewed deal has improved the average revenue Ask receives for each search.

"Search revenue for us is very profitable and it's certainly growing," Mr. Diller said. "Does it matter whether or not we take big chunks of...market share? No. Would we like and hope to? Yes."

IAC and News Corp.'s Dow Jones & Co., which publishes The Wall Street Journal, jointly own a personal-finance Web site.

By: Shira Ovide
Wall Street Journal; October 6, 2008

Cull Web Content With Alerts

It can be hard to find just what you want in the 24-hour news cycle that constantly churns content out online.

One way to find the information you want is by setting up computer-generated alerts. These electronic notifications are relatively simple to use and offer a range of helpful services, from a virtual heads-up when your name is mentioned online to messages about a product's price suddenly dropping.

For years, I've used Google Alerts as a way of keeping track of myself online. If my name is mentioned in a blog or if this column appears on the Web, such as on the site of a newspaper that syndicates it, a Google Alert sends me an email about it. Google Alerts can work for you to find a variety of things, such as telling you if a video of a favorite band popped up online or that a blogger posted something about last night's episode of "Mad Men."

In about a month, Google will begin delivering these alerts to users via feeds, as well as emails. Google certainly isn't alone in the alerts arena, as Yahoo, Microsoft and AOL are also players. This week I tried two small companies that recently joined the mission to help users find the Web content using alerts.
Pinpointing Searches

I tried Alerts.com and Yotify.com, and found worthwhile features in both. While Google Alerts does a good job of finding search terms in news, blogs and videos, Alerts.com and Yotify use forms that are a cinch to fill out and let you pinpoint your searches.

Alerts.com offers to notify users via email, SMS text messages or even voice calls to a cellphone or landline. The site organizes your alerts on a personalized Web page and uses a desktop application called Elertz to tell you when an alert has generated results. I liked this site's flexibility: It not only gave me different ways to receive notifications, but also enabled a variety of options for time-specific deliveries of alerts.

But Yotify has advantages of its own, including the ability to integrate with FriendFeed and Facebook so friends can offer their recommendations or opinions. It also lets users search for event tickets or items auctioned on eBay. And a smart preview panel gives you an idea of the type of results your search will return before you submit the request for an alert.
Viewing Results

For now, Google Alerts and Yotify will send alert notifications only via email, though all three services will let you view your alert results online. All three are free, but SMS alerts sent to a cellphone via Alerts.com may not be, depending on your plan.

All in all, I found there were certain things each service was good at doing. For example, Alerts.com lets me know college football scores when I want them: only after the final score; at the end of each quarter and after the final score; or at the end of each quarter, after the final score and after each time a team scores points. Yotify gave me detailed options in a Craigslist search for furniture, including showing only listings with photos or just those that included the word "sofa" in a title; it will even hunt for a specific price range.

For the person who wants to spend minimal time creating basic alerts, Google Alerts will do the trick. These can be narrowed down to show results that fall into the News, Web, Blogs, Video or Groups categories, or you can perform more-blanketed searches using a Comprehensive category.

Alerts.com offers plenty of simple alerts that require only a bit of scheduling to set up. Each alert appears as a widget that can be expanded, edited or deleted with a simple click, and this page has a clean look with attractive, cohesive graphics.

I didn't care much for Elertz, the desktop component of Alerts.com, because once installed, it notified me of new Alerts data using an irksome star that glowed red until I checked my notifications. Elertz didn't work properly on my Windows XP machine until Alerts.com fixed a bug.

But Alerts.com's price watch and price protection alerts are incredibly useful. Price watch looks to see if an item's price drops into a lower price range, at which point users are notified. Price protection watches to see if products you bought are now on sale so you can get a refund. I tried both, and I'm hoping I'll hear soon that a specific pair of Anthropologie boots is on sale.

Yotify uses the idea of virtual scouts that scour the Web for specific information. Scout findings can be condensed or expanded in one click, and results can be filtered for more specific findings or shared with friends via Facebook or FriendFeed.
Scout Work

But some scouts took too much work to set up. When I tried to set up a scout for college football scores, I didn't see a sports category (Alerts.com had a colorful NCAA icon right on its home page). Instead, I had to choose News, then select ESPN, then NCAAF and finally enter "Penn State" in a key word box for my scout. And after all that, the scout offered results only daily or hourly via email.

I would also prefer if I could better organize my scout lists. As it was, all of my results appeared in one list: The NCAA scout was right above the scout that found Obama mentions on Huffington Post, and below that were results for YouTube's most-watched videos. Yotify says it will add ways to more neatly arrange data in the next month or so.

On average, Yotify returned more results instantly, such as 10 instant Craigslist sofa results compared with Alerts.com's two in the first few hours.

Overall, these sites are worth trying so you can find which alert system works best for you and stop wasting time searching the Web the old-fashioned way.

By: Katherine Boehret
Wall Street Journal; October 1, 2008

Semantic Guardians for our computers?



If your computer has never crashed, it’s because it has been built on another planet. The microprocessors we use are faster and more complex year after year, increasing the risks of being hit by ‘functional bugs.’ This is why University of Michigan (U-M) researchers have started to develop a system that lets chips work around all functional bugs, even those that haven’t been detected. Their ’semantic guardians’ will continuously monitor what your computer processor is asked to do — and by which piece of software. Right now, the researchers have developed a software-based chip simulator, but they want to create a real programmable chip to control our computers.

















The figure above describes how this trusted hardware design flow. “The safe mode is verified thoroughly with formal tools, while the normal mode is validated with focus on the most common functionality. A semantic guardian is then automatically generated and manufactured with the design. The guardian, together with a recovery controller switches the design into the safe mode when any non-validated scenario is observed at runtime.” (Credit: Bertacco and Wagner, U-M)
This research work has been led by Valeria Bertacco, an assistant professor in the Department of Electrical Engineering and Computer Science of U-M, with the help of Ilya Wagner, a doctoral student working in the same department. Both belong to the Advanced Computer Architecture Laboratory (ACAL) and have been working on these Latent Sematic Indexing or LSI guardians during the last two years.
How will these guardians work? “The U-M researchers’ system would eliminate this risk by building a virtual fence that prevents a chip from operating in untested configurations. The approach keeps track of all the configurations the firm did test, and loads that information onto a miniscule monitor that would be added to each processor. The monitor, called a semantic guardian, keeps the chip operating within its virtual fence. It works by switching the processor into a slower, bare-bones, safe mode when the chip encounters a configuration that has not been validated. In this way, the monitor would treat all untested configurations as potential threats.”
Here are some quotes from Bertacco about this system. “If you consider all the possible configurations of the processor, only a tiny fraction of them is verified. But that tiny portion accounts for the configurations that occur 99.9 percent of the time. Users wouldn’t even notice when their processor switched to safe mode. It would happen infrequently, and it would only last momentarily, to get the computer through the uncharted territory. Then the chip would flip back to its regular mode.”
Will these monitors affect the performance of our computers? The answer is a clear no according to the researchers. “The guardian would take only a small fraction of the microprocessor’s area with a imperceptible performance impact, which the researchers assert is a small price to pay to eliminate the risks of buggy hardware.” According to IDG News Service (see below), “In their current design, the monitor takes up about 3 percent of the chip’s real estate, but they expect that it would be much smaller if ever developed commercially. ‘If any commercial company decides to do this it would be much less than 1 percent,’ Bertacco said.”
Early results of this project have been presented at the Design Automation and Test in Europe Conference in April 2007 in a paper called “Engineering Trust with Semantic Guardians” (PDF format, 6 pages, 597 KB). The above illustration has been extracted from this document. You’ll have to read this article by yourself, because even the abstract and the conclusions are too long to post here.
Let’s finish by an article from Robert McMillan, “Researchers develop bug-blocking chip monitor” (IDG News Service, September 29, 2008). McMillan looks at last year delays of AMD Barcelona chip because of flaws discovered after launch. “Insight 64 analyst Nathan Brookwood is unconvinced that a semantic guardian would have helped AMD with its Barcelona problem. According to him, there are at least two big problems with this approach: First, it would be hard to keep track of all the tested states on a commercial processor. ‘There are a very large number of legitimate states, so I really question whether this is anything that could ever be made to be a practical solution,’ he said.”
According to McMillan, “security concerns may soon cause chip makers to take a close look at the University of Michigan work. That’s because some security experts think that microprocessor bugs may enable a new wave of hacking attacks. [And] Bertacco believes that security concerns could make her semantic guardian more attractive to chip makers. ‘The general public is much more sensitive to security,’ she said.”

Cybercriminals syndicating Google Trends keywords to serve malware

In an underground ecosystem that is anything but old fashioned when it comes to abusing legitimate web services, cybecriminals have started exploiting the traffic momentum, and by monitoring the peak traffic for popular search queries using Google’s Trends, are syndicating the keywords in order to acquire the traffic and direct it to malware serving blogs primarily hosted at Windows Live’s Spaces.
According to a recent advisory issued by Webroot:
“For the first time, hackers are capitalizing on the top news stories from Google Trends Labs, which lists the day’s most frequently searched topics, which can include news of the Wall St. bail out or the presidential campaign,” said Paul Piccard, director of Threat Research, Webroot. “These highly relevant news stories and videos are being posted to the hackers’ fake blogs to increase the site’s Google search rankings.
These fraudulent blogs contain several video links about the news story for which the users were originally searching. Once a user clicks on one of the video links, they are prompted to download a video codec that downloads a rogue antispyware program designed to goad the user into purchasing an illegitimate program that may put their personal information and data at even greater risk. “
Let’s take a sample, and confirm the ongoing syndication of popular keywords in order to attract traffic to the several hundred malware serving blogs.
A random keyword “on fire” like Gwen Ifill wheelchair indicates that 55 minutes ago a malware serving blog has been successfully crawled and is now appearing within the first 10 results thanks to the high page rank of Windows Live Spaces. Upon clicking the link, the user is exposed to the typical ActiveX Object Error message that is attempting to trick them into installing Trojan Downloader: Win32/Zlob.AMV with 10 out of 36 AV scanners currently detecting it (27.78%).
Moreover, in order to ensure that their fake blogs will get crawled in the shortest time frame possible so that they can better abuse the momentum peak of the search query, they’re naturally taking advantage of the pre-registered blogs at popular blogging platforms which Google is crawling literally in real-time. Syndicating this particular keyword in order to serve malware is not an isolated event, with several hundred currently active blogs doing exactly the same as soon as Google Trends refreshes its hourly feed.
Malware campaigns have been taking advantage of pure SEO (search engine optimization), and mostly blackhat SEO techniques, during the entire 2008. The difference between the ongoing campaign and previous ones, is that the current approach has a higher probability of attracting generic search traffic since it’s relying on the world’s most popular search engine to tip them on what has the world been searching for during the past hour.
Dancho Danchev is an independent security consultant and cyber threats analyst, with extensive experience in open source intelligence gathering, malware and E-crime incident response. Dancho is also involved in business development, marketing research and competitive intelligence as an independent contractor. He's been an active security blogger since 2007, and maintains a popular security blog sharing real-time threats intelligence data with the rest of the community on a daily basis.