China Continues Web Crackdown

The Wall Street Journal

The Internet has made it easier for dissidents, but Beijing now proposes to block access to Web sites not registered and approved by the government.

In 1968, Nicolae Ceausescu made it a crime punishable by death for anyone in Romania to own a typewriter without registering it. When anonymous letters criticizing the dictator were intercepted on their way to Radio Free Europe, Ceausescu ordered up handwriting samples from every Romanian so that handwriting experts could look for the culprits. Ceausescu managed to control the country until 1989, when communism collapsed in Eastern Europe and he was summarily tried and executed.

Authoritarian governments now have to do a lot more than register typewriters and monitor the mail. So much more that it's tempting to assume that just because digital technologies do so much to enable free speech, that they must also ensure free speech.

China is doing its best to remind us that technology can also be a tool of suppression, with Beijing recommitting to censoring its large corner of the Internet. Last summer, the authorities required computer makers to install "Green Dam" software on every PC sold in China, which would block troubling political and religious sites. The regulation was put on hold. But last week a Santa Barbara-based company called Cybersitter sued China and several computer makers for $2.2 billion for allegedly stealing code from its parental-control software aimed at blocking pornography.

The lawsuit—which faces an uphill climb because of difficulties in fighting global copyright violations—says makers of the Green Dam software lifted 3,000 lines of code from Cybersitter (even including some of its customer updates) and incorporated them into the Chinese software. Violations of rights to software in China are usually on display as close as the nearest side street, but it's telling that the government would go to such lengths.

Cybersitter alleges there were several thousand attempts from China to hack into its servers, some with thousands of attempts at access per session, including one traced back to a government ministry. Spoofed emails originating in China purported to come from Cybersitter staff and attempted to install Trojan code to lift information from the company's servers.

Even without the Green Dam censorship, China manages to block full Web access. Last Monday, Internet users in China were surprised when they could access banned sites such as Facebook, Twitter and YouTube. But after a few hours, what's called the "Great Firewall" was back up, with error messages again replacing access to banned sites. The gap in the wall might have been from routine maintenance, but is a reminder that maintaining control over 300 million Chinese Web users requires vigilance.

China makes no secret of its commitment to censorship. Its minister of public security last month wrote an essay on the importance of control in a Communist Party magazine called Quishi ("Seeking Truth"). Meng Jianzhu said that the country needed to do a better job limiting use of the Web and social media to organize anticorruption and other protests, which now officially number 80,000 a year.

"The Internet has become an important means for anti-China forces to engage in infiltration and sabotage," he wrote, urging policies that "give greater prominence to correct guidance of Internet opinion."

Also last month, the Ministry of Industry and Information Technology issued a regulation that all Web sites must register with the Chinese government. If these rules are carried out, the result will be "whitelisting"—only registered sites will be accessible. Or as China-watcher Gordon Chang commented in Forbes, "Once the regulation is fully implemented, China will no longer have an Internet, it will downgrade to an intranet." Only some fraction of the world's Web sites, those that register and are approved, would be available.

China's best-known dissident, Liu Xiaobo, agrees with Chinese officials about the importance of the Web. Last month he was sentenced to 11 years in prison for subversion arising from his role in organizing a signature campaign for a manifesto called "Charter 08," modeled on the Czechoslovak Charter 77. It called for free expression, human rights and the rule of law. Since Mr. Liu's detention at the end of 2008, more than 10,000 people in China have signed it, including online.

In a blog post before his detention, Mr. Liu recalled how hard it was before the Web to organize such efforts. He said that when he circulated such letters in 1989, the most time-consuming part was collecting signatures. "Since the government was monitoring the telephones of sensitive people, we had to ride our bicycles in all directions of Beijing."

Dissidents have it easier in the digital era. As Mr. Liu put it in the blog post, "The Internet is God's present to China."

But the Internet won't now free Mr. Liu from jail, just as Twitter posts couldn't protect protesters in Iran demanding a decent government. That will require action beyond communication. Meanwhile, censoring the Web is hard for any government. But as China is showing, with enough commitment it can be done.

Yahoo's Bartz Downgrades Herself For Moving Too Slowly

Bloomberg

Carol Bartz gives herself a B-minus in her first year as chief executive officer of Yahoo! Inc., saying she could have moved faster to reorganize the company and strike a Web-search agreement with Microsoft Corp.

“It was a little tougher internally than I think I had anticipated,” Bartz, 61, said in an interview at Yahoo’s headquarters in Sunnyvale, California. “I did move fast, but this is a big job.”

Bartz, who marks her one-year anniversary as CEO next week, is striving to keep Yahoo’s 15-year-old site relevant in an era of Twitter and Facebook. Yahoo’s sales have fallen for four straight quarters, and its stock trailed the Nasdaq Composite Index in the past year. Bartz expects Yahoo’s sales and profit to grow in 2010 as it makes acquisitions and improves products.

“Carol was dealt a pretty tough hand,” said Ryan Jacob, portfolio manager of the Los Angeles-based Jacob Internet Fund, which holds about 100,000 Yahoo shares. “A lot of what she’s put in place -- we’ll know in the next year or two really whether it pays off. I think at this point it’s still a bit up in the air.”

After becoming CEO, Bartz cut her staff by 5 percent, shuttered underperforming businesses such as the GeoCities Web- hosting site and installed her own management team. In July, she struck a deal with Microsoft Corp. to collaborate in Web search and advertising, letting it cut capital spending by a projected $200 million.

‘Tough Hand’

The company also has been hiring people for sales and engineering, tapping into the savings generated by its cost- cutting efforts.

“A very good company kind of got buried,” Bartz said. “It is coming out.”

Roy Bostock, Yahoo’s chairman, gave Bartz an A-minus for her first year, said his assistant, Marla Evans. He wasn’t available to comment further today, she said.

The CEO of Autodesk Inc. from 1992 to 2006, Bartz took the reins at Yahoo from the company’s co-founder Jerry Yang. He rankled investors in 2008 by spurning a $47.5 billion takeover attempt by Microsoft. Yang then pursued an ad partnership with Mountain View, California-based Google Inc. That deal fell apart in late 2008 after the U.S. government threatened to challenge the agreement.

By the time Bartz took over, Microsoft said it was no longer interested in an acquisition, preferring a partnership instead. She worked out that deal about six months after her arrival. Under the 10-year agreement, aimed at challenging Google, Yahoo will use Microsoft’s Bing search engine on its Web sites.

Bing Partnership

Yahoo will sell ads that appear next to Internet-search results, sharing the revenue with Microsoft. Bartz expects the deal to get regulatory approval early this year.

The Microsoft deal will help boost operating margins and let Yahoo focus on other services, such as the home page and e- mail, Jacob said. Yahoo expects to achieve profit margins of 15 percent to 20 percent by 2012, up from about 6 percent in 2009.

Yahoo was unchanged at $16.70 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares climbed 38 percent in 2009, a year in which Google’s stock more than doubled and the Nasdaq Composite Index advanced 44 percent. Yahoo’s stock tumbled 48 percent in 2008, when the Microsoft acquisition talks fizzled.

Sales Fall

Investors have held back from buying Yahoo shares because of the sales slump, said Martin Pyykkonen, an analyst with Janco Partners Inc. in Greenwood Village, Colorado. He rates the stock a hold. Third-quarter revenue fell 12 percent to $1.58 billion from the year-earlier period.

Bartz said that while the stock price indicates the company has been in the “penalty box,” the share price is fair. The sales declines aren’t surprising, given the recession and a broader slowdown in advertising, she said.

“We came out of one of the worst climates ever,” Bartz said. “And if you look at growth of Fortune 500 companies, only being down 12 or 15 percent is damn good. I’m not going to apologize for our growth.”

Yahoo already is benefiting from the rebounding economy, which is encouraging companies to buy online ads, said Gene Munster, an analyst at Piper Jaffray & Co. in Minneapolis. He said Bartz eventually should be able to get sales growth up to 10 percent annually.

“We believe in Carol Bartz and believe that she is going to get the revenue growth to a point that’s acceptable,” Munster said.

More Acquisitions

Bartz said she plans to do more acquisitions this year, probably of less than $1 billion apiece. Potential targets include overseas companies and data-analytics businesses that help advertisers assess their results, she said.

“Last year people talked about, ‘Oh, Yahoo is trying to get smaller,’” she said. “We were never trying to get smaller. We were just trying to get more focused.”

Bartz said the company continues to improve its products, such as its home page, e-mail service and Yahoo SEO, though she didn’t give specifics. Last year, Yahoo unveiled a new version of the home page, the site’s first major upgrade since 2006.

The home page is the entry point to dozens of services, including Yahoo Finance and the Flickr photo site. The new design lets users easily access other companies’ sites, such as Facebook and Twitter, from the page.

The role of Web portals is shrinking, because more users are moving to social-networking sites, said Sameet Sinha, an analyst with JMP Securities LLC in San Francisco. He gives Bartz a B-minus grade as well and has a “market perform” rating on the stock.

“Aggregation worked in the early stages of the Internet, when people were less sophisticated,” said Sinha, who doesn’t own Yahoo shares personally.

The fact that the company still serves up billions of pages to users daily shows that Yahoo plays an important role on the Internet, Bartz said.

“You’re just going to see Yahoo bloom more,” she said.

France Calls For Investigation of Google’s Dominant Position in Search
CNBC

French President Nicolas Sarkozy said on Thursday that he wanted the authorities to explore whether online advertising revenues of major search engines could be taxed in France as well as their home countries.

Speaking to leaders and representatives of the arts and entertainment sector, he also said he wanted the country's antitrust body to rule on whether Google enjoys a dominant market position in online advertising.

"For the time being, these companies are taxed in the country in which they are headquartered even though they make up a big part of our advertising market," he said.

Sarkozy's comments followed a media report saying France could start taxing Internet advertising revenues from online giants such as Google, using the funds to support creative industries that have been hit by the digital revolution.

The proposal, put forward in a government-commissioned survey, is France's latest challenge to the virtual free-for-all for Internet content.

The country has caused controversy in the past with some of the world's harshest laws on online piracy.

The levy, which would also apply to other operators such as MSN and Yahoo, would put an end to "enrichment without any limit or compensation," Liberation quoted Guillaume Cerutti, one of the authors of the report, as saying.

It would apply even if the operator had its offices outside France, as long as the Internet users who click on ad banners or sponsored links are here, the paper said.

Defending Culture

President Nicolas Sarkozy has repeatedly tried to present himself as a defender of France's cultural heritage in the digital age, most recently calling for public projects to rival Google's plans for a massive online library.

Critics say the issue of compensating authors is a complex one, given that many of the songs, films and texts published online these days are created for free by amateurs outside the cultural establishment.

Cerutti, president of Sotheby's in France, drew up the report together with Jacques Toubon, a former minister, and Patrick Zelnik, a former music executive who has among others produced the songs of France's first lady, Carla Bruni-Sarkozy.

The authors also suggest taxing Internet service providers to raise tens of millions of euros that would be invested in developing the online music business and other creative sectors.

For example, they propose offering government-subsidized online subscriptions and expanding online publishing platforms, said Liberation, which obtained a copy of the report.

In his address to industry players, Sarkozy also unveiled plans to subsidize half the cost of a card -- worth up to 200 euros ($287) -- which young people could use to legally download music from the Internet.

It is desirable that the algorithm for Google SEO be tailored in such a way as to eliminate as much illegal or pirated content as possible.

In recent months, operators and users have faced increased pressure to pay for content from online newspapers to films and books. Under France's new Internet piracy law, repeat illegal downloaders will be disconnected and fined.

The new report was handed into the Culture Ministry earlier this week. It was not immediately clear if the government has a precise timetable to act on it.

Inside The Mind Of Google
CNBC Feature Program

Google Seeks To Tap Power Markets

The Wall Street Joural

As Google Inc. grows, so does its appetite for energy.

The Internet giant has taken the unusual step of applying for approval from the Federal Energy Regulatory Commission to become an electricity marketer, essentially giving it the authority to buy and sell bulk power at market prices, just the way large utilities and energy traders do.

The company, which made the application last month through its Google Energy LLC subsidiary, says the change will help it better manage supplies for its own operations and give it greater access to renewable energy sources. The move offers an indication of just how much electricity large tech firms now consume in order to run their sprawling networks of servers and mainframes.

Although more than 1,500 companies currently have status as energy marketers, the vast majority are utilities or power generators. The move is unusual for a tech company, though some industrial concerns that operate stores or factories, such as fixture-maker Kohler Co., smelter Alcoa Inc. and grocer Safeway Inc, have approval from FERC.

Google's power usage is unclear; it doesn't disclose how many data centers it operates or where they are located. Last April, it said its data centers were the most efficient in the world, so far as it was able to determine, but declined to say how much power it actually uses.

Rich Miller, editor of Data Center Knowledge, an online publication that tracks the data center industry, says he has identified about 24 Google data centers and calculates the company's energy consumption is roughly equivalent to two large conventional power plants.

Mr. Miller says it is common for large operations run by Internet companies to have capacity of 30 to 50 megawatts of power.

Google's largest data centers could use even more. A data center consuming 10 megawatts is about what a large retail store or a subdivision of single-family homes consumes.

Google doesn't disclose how many data centers it operates or where they are located, but Mr. Miller noted that Google is focused on improving its energy efficiency at its data centers, 24 of which have been identified globally, including seven or eight large ones in the U.S. That would make its total energy consumption roughly equivalent to two large conventional power plants.

In 2007, Google announced its intention to become "carbon neutral," meaning it would take actions to neutralize the effects of carbon dioxide produced in the course of furnishing its buildings and data centers with electricity. It installed a 1.6-megawatt solar array on its headquarters building and has been trying to obtain green power, when available.

If its FERC request is granted, "we could go directly to a renewable energy project and buy power for our operations," says Google spokeswoman Niki Fenwick. The company also wants the ability to enter into contracts for carbon offsets.

Google's FERC application could also potentially allow the company to play a much larger role in energy markets, even becoming a wholesaler of electricity to other big buyers.

In its application, the company said it was reserving for itself the right to "act as a power marketer, purchasing electricity and reselling it to wholesale customers," and trading "in the bulk power markets, such as arranging...transmission and fuel supplies."

Ms. Fenwick says the company has "no plans" to sell its energy management services to others or to become a speculative energy trader, but she acknowledged the "green team" it has formed "is not sure what we're going to do."

A FERC spokeswoman says the commission's primary concern is market dominance and since Google doesn't own power plants or utilities, that's not likely to be an issue. But the commission could ask for clarity on Google's plans, since it's an unusual applicant, she added.

Google has a long history of downplaying forays into new areas, only to later surprise competitors with new products and services. When the company announced its mobile operating system, Android, in 2007, it tried to dampen speculation that it would build a Google-branded cellphone, calling the announcement "more ambitious than any single Google phone." This week it began selling a Google-branded, Android-powered phone which it designed, called Nexus One, exclusively through a new Google online phone store.

In 2008, the company made an unsuccessful bid for wireless spectrum, fueling speculation that it would start selling phone services to consumers. Google didn't elaborate on what it planned to do with the spectrum, but said it entered the auction to force the winner of the spectrum to open up it to a range of devices. Since then, the company has begun to offer different types of phone service, including Google Voice, an Internet-based call-routing service.

Google has been focusing more attention on energy markets lately. It is partnering with several utilities, including TXU Energy and Sempra Energy, to offer consumers a free energy-use monitoring tool, called Google's PowerMeter, that takes readings from digital "smart" meters and other devices to show a household's energy consumption to help consumers make choices that can save money and cut power industry emissions. That doesn't require permission from FERC.

Appliance maker Whirlpool Corp. has looked at the software since it's keen on developing tools to help consumers maximize the benefits offor "smart" appliances it intends to market. Warwick Stirling, Whirlpool's global director of energy and sustainability, said Thursday the tool is "a good first step," but isn't simple enough to satisfy the needs of the appliance industry.

Other technology companies that aren't conventional energy players, like Microsoft Corp. and Intel Corp., also are studying energy markets for opportunities to make money by helping the nation improve the efficiency of the electricity business.

Squeezing Websites Onto Cellphones

The Wall Street Journal

When a group of engineers at National Instruments Corp. modified a 1988 Oldsmobile so it could be controlled by an iPhone, the company was quick to share the project on its online forum for customers.

A spouse "might not care about it, but our community eats it up," said Deidre Walsh, community and social media manager for National Instruments, a supplier of automation and computer measurement tools.

The Austin, Texas, company has a fostered dedicated online group of 125,000 engineers and scientists with do-it-yourself projects. Its strategy illustrates how companies have increasingly turned to Web communities to build their brand, address customer service problems and unveil new products.

But as people spend more time on their cellphones, many companies are considering taking their message boards, user forums and blogs to mobile devices. National Instruments is considering ways to build a mobile site, Ms. Walsh says but has to resolve issues such as how users can share programming code, which are large files.

Other companies, including technology giant Hewlett-Packard Co., are discussing ways to build their first Web sites specifically for wireless users. "We definitely have work to do to get our Web site mobile friendly," said Lois Townsend, H-P's director of community. "We know our customers want it."

H-P has a financial incentive to expand its community strategy. The forums, which often address problems before a customer has to call the service line, have saved millions of dollars in deflected calls, Ms. Townsend said.

The move to mobile isn't without challenges. Companies have to decide whether to create a barebones site accessible by even the most basic handset, or opt for a flashier application accessible by select smart phones. Different phones, screen sizes and platforms create headaches for site designers.

Mike Hardy, community manager for Pitney Bowes Inc., says moving the company's online forums to mobile devices is a "no brainer" though the postage-meter maker is still evaluating technologies to do so.

H-P and Pitney Bowes aren't the only companies without a mobile-friendly site. Among others without a significant mobile presence are retailer Ikea International A/S, Samsung Electronics Co. and Apple Inc. Samsung says it is exploring the possibility of mobile site but declined to comment further. Ikea and Apple didn't respond to requests for comment.

There are some who believe that the idea of a site designed for phones is becoming less relevant as mobile browsers improve. Most smart phones, for instance, are able to load up sites built for the computer.

Some companies are hesitant to build a mobile site because they want more than just a simple page displaying wares, said Robert Chimsky, a consultant for inCode Telecom. While there are still many companies without a mobile site or application, "given the way things are moving, having a mobile-enabled capability is going to be increasingly important," Mr. Chimsky said.

Companies, however, have to avoid overloading customers with information. "You have to be very careful of what you're pushing and how you're pushing it," Mr. Chimsky said. "It's that relevancy angle that's so hard."

The cellphone affords the opportunity to be more interactive with customers. That's where companies such as Lithium Technologies Inc. come in. The Emeryville, Calif., company's software runs the social components of many traditional Web sites, including those of H-P, AT&T Inc., and Best Buy Co.

Lithium wants to take those forums, blogs and other social-networking elements to cellphones with a service it plans to roll out next year. Beyond its own social-networking tools, the platform will draw in related feeds from services such as Facebook and Twitter.

"A lot of these companies don't have a mobile site, and right away, they'll have a lot of content," said Philip Soffer, Lithium's vice president of product marketing. "Because the community is active and based on addictive behavior, it's the kind of thing that works well on mobile phones."

Lithium declined to provide the pricing for its upcoming service, which would work on any phone.

It's not the only company looking to bring large corporate sites to the mobile Web. Rival Jive Software Inc., which powers communities for companies like Nike Inc., SAP AG and National Instruments, has opted to go with a program specifically designed for the iPhone.

The Portland, Ore., company last month unveiled an iPhone app that gives corporate workers access to Jive-powered message boards and blogs. While the app is a free download, Jive charges a company $10,000 a year for up to 1,000 users.

For BlackBerry users, the company has a simpler Web interface and email alerts on community developments.

Unlike Lithium, Jive is focused on smart-phone users, noting that sites specifically designed for the devices can do more. "We think the magic happens really when you're able to go deep with functionality," said Ben Kiker, Jive's marketing chief.

Researcher: Google Wave, iPhone and Android will be Heavily Attacked in 2010
USA Today

 

From the crystal ball of  Roel Schouwenberg: Google Wave, the iPhone and Android mobile phones will come under heavy cyber attacks in 2010.

Schouwenberg, a senior malware researcher at Kaspersky Lab Americas, predicts Google Wave will grab headlines in coming months -- but not necessarily for emerging as the next killer online networking app. Instead, he says, Google Wave is likely to become a top target of cyber criminals.

"Attacks on this new Google service will no doubt follow the usual pattern," Schouwenberg soothsays. "First, the sending of spam, followed by phishing attacks, then the exploiting of vulnerabilities and the spreading of malware."

Schouwenberg also anticipates a sharp rise in attacks on the iPhone and Android mobile platforms, following the successful probe attacks of 2009. "The first malicious programs for these mobile platforms appeared in 2009, a sure sign that they have aroused the interest of cybercriminals," he says.

Android users, in particular, seem ripe for plundering. "The increasing popularity of mobile phones running the Android operating system, combined with a lack of effective checks to ensure third-party software applications are secure, will lead to a number of high-profile malware outbreaks," he says.

Schowenberg's prescient orb also tells him that  the overheated race between Google, Microsoft Bing, and Yahoo Search to incorporate Facebook and Twitter posts in search results -- in real time -- is destined to aid and abet cyber criminals' deployment of phishing scams, banking Trojans and cutting-edge intrusions. "Malware will continue to further its sophistication in 2010," he says.

Hacker Pleads Guilty To Credit Card Theft

USA Today

A computer hacker who helped orchestrate the theft of tens of millions of credit and debit card numbers from major retailers in one of the largest such thefts in U.S. history pleaded guilty Tuesday in the last of three cases brought by federal prosecutors.

Albert Gonzalez, a one-time federal informant from Miami, faces a prison sentence of up to 25 years under the terms of separate plea agreements. He is tentatively scheduled for sentencing in March.

"This is a young kid who did some reckless things and he's going to pay a price for it," said Gonzalez's attorney, Martin Weinberg, after his 28-year-old client calmly answered guilty to charges of conspiracy and wire fraud.

Weinberg said Gonzalez was remorseful and that he would ask two federal judges hearing the cases to sentence Gonzalez to the lower end of the 17- to 25-year sentencing range spelled out in the plea agreements.

Tuesday's plea stemmed from a case that was originally brought by federal prosecutors in New Jersey, but later transferred to Boston. It charged Gonzalez with conspiracy to gain unauthorized access to computer servers at Hannaford Brothers, a Maine-based supermarket chain; convenience store giant 7-Eleven.; Heartland Payment Systems, a New Jersey-based processor of credit and debit cards; and two unnamed companies.

Gonzalez pleaded guilty in September in two other cases that were combined in Boston. Those cases included charges that he hacked into the computers of prominent retailers such as TJX Cos., BJ's Wholesale Club, OfficeMax, BostonMarket, Barnes & Noble and Sports Authority.

Under questioning Tuesday by U.S. District Court Judge Douglas Woodlock, Gonzalez indicated that he had used alcohol and a number of drugs, including marijuana, cocaine and LSD, prior to his arrest in May 2008.

Federal prosecutors have agreed to seek concurrent sentences in the cases, meaning that Gonzalez would serve no more than 25 years in prison. Weinberg, however, said he would argue for a lesser sentence based on factors including the prior drug abuse and a psychiatrist's report that Gonzalez exhibits behavior consistent with Asperger's syndrome, a form of autism.

The defense-commissioned report by Dr. Barry Roth described Gonzalez as an Internet addict with an "idiot-Savant-like genius for computers and information technology," but socially awkward.

"His personal life has been characterized most of all by awkwardness, impairment, troubles connecting to people, with an overarching preference and predilection to machines and technology," Roth wrote.

Authorities said Gonzalez, who said he had worked as a computer security consultant, was the ringleader of a group that targeted large retailers.

In 2003, Gonzalez was arrested for hacking but was not charged because he became an informant, helping the Secret Service find other hackers. But authorities said he continued to use his talents for illegal activities.

Over the next five years, he hacked into the computer systems of retailers even while providing assistance to the government.

He lived lavishly during that time. Authorities said he amassed $2.8 million and bought a Miami condo and a BMW. Under the plea deals, Gonzalez must forfeit more than $2.7 million, plus his condo, car, a Tiffany ring he gave to his girlfriend and Rolex watches he gave to his father and friends.

Before accepting the plea Tuesday, Woodlock heard Assistant U.S. Attorney Stephen Heymann outline the sophisticated hacking scheme, which also involved an individual identified only as "P.T." and two individuals identified in the indictment as Hacker 1 and Hacker 2. Heymann said they remain fugitives.

Gonzalez identified potential corporate victims by poring through lists of Fortune 500 companies and by going to retail stores to probe for potential vulnerabilities, Heymann said.

"It was foreseeable to defendant Gonzalez that the losses resulting from unauthorized access into the servers of the corporate victims identified in the indictment would exceed $20 million," Heymann said.

Google Sharpens Aim On Mobile Marketing With AdMob

AP

Four years ago, Omar Hamoui was just another ineffectual entrepreneur trying to spruce up his resume in graduate school.

Now, he's poised to become Google Inc.'s newest weapon as the company aims to extend its dominance of online advertising from computers to mobile devices.

Google is buying Hamoui's expertise in a $750 million acquisition of AdMob, a network for ads on iPhones and similar gadgets. He launched the business while struggling to support his wife and children as a student at the University of Pennsylvania's Wharton School.

Hamoui, 32, changed his life by setting up a system for advertising on mobile devices. Though that sounds simple, it was a breakthrough because Hamoui's network got around stifling controls that wireless carriers had imposed on the content their customers could see on their phones. The crack that AdMob opened in the carriers' "walled gardens" made it easier for independent programmers to profit from applications planted on mobile phones.

Users tend to click on mobile ads five to eight times more often than they do on PC ads

"It took a lot of guts because (the carriers) were the gatekeepers of the industry," says Rich Wong, an AdMob investor and board member who is with Accel Partners. "Back then, it was sort of like if you said no to the Godfather. Bad things could happen."

More than a year after Hamoui ignited the fuse, Apple Inc. blew up the status quo with the June 2007 introduction of the iPhone - which created a platform for applications chosen by users.

That has spawned more than 100,000 mobile "apps" for doing everything from bird watching to cooking poultry. The revenue from AdMob's ad network is one of the main reasons application developers can give the programs away or just charge a few bucks.

"Omar was absolutely the tip of the spear in this mobile media revolution," says Jason Spero, general manager of AdMob's North America operations.

If Google's proposed acquisition is approved by the U.S. Federal Trade Commission, Hamoui thinks he and AdMob's 150 employees will be in an even better position to turn mobile phones into moneymaking magnets.

Google is banking on it.

Drawing upon the more than $20 billion in revenue that it generates from Internet ads, Google has been investing aggressively in mobile technology. The Internet search leader has developed a free software system, Android, that runs mobile devices and is experimenting with its own phone, called Nexus One, that could be sold directly to consumers.

Google believes explosive growth in mobile advertising will justify its spending. For now, the market remains relatively small, with U.S. mobile advertising revenue expected to reach $416 million this year, according to the research firm eMarketer Inc.

AdMob has delivered nearly 140 billion ads on mobile Web sites and applications since its inception. That has helped AdMob double its revenue this year after tripling it last year. Hamoui won't be more specific, leaving it to analysts to estimate that AdMob's revenue this year will range between $45 million and $60 million.

That's less revenue than Google generates in a day. Nevertheless, AdMob's early lead in mobile advertising could trouble antitrust regulators already concerned about Google's growing power. The Federal Trade Commission has asked for more information about the deal - a sign that regulators want to take a closer look at how it will affect competition in the mobile ad market, which is expected to quadruple in size during the next four years.

Only two of Google's acquisitions have been bigger than the proposed AdMob deal. Regulators quickly approved Google's $1.76 billion acquisition of the Internet's top video channel, YouTube, in 2006 but took a year before signing off on the $3.2 billion purchase of another Internet ad service, DoubleClick Inc., in 2008. (By coincidence, AdMob is headquartered across the street from where YouTube started in San Mateo, Calif.)

Google contends its AdMob acquisition won't hurt competition. Among other things, Google points to other mobile ad networks from rivals such as Jumptap, Mojiva and AOL and argues that mobile ads still don't generate attract enough spending to be considered a distinct market.

Hamoui started AdMob out of frustration a few months after he enrolled in graduate school. He was building a phone-friendly Web site to make it easier for people to share photos with their family and friends, but he couldn't seem to attract much traffic.

To get the word out, Hamoui bought ads that would appear alongside certain search results at Google, Yahoo and other engines. That ended up costing him about $30 per referral, which he couldn't afford. So Hamoui decided to try advertising his site on other mobile Web sites, which are specially designed to work with the small screens and technological restraints of mobile phones.

Hamoui found a mobile Web site willing to run his ad for dramatically less money and wound up paying just 10 cents per referral. The experience resonated with Hamoui's studies on efficient markets, and inspired him to build a network that would make it easier to advertise on mobile devices.

If nothing else, he thought he might be able to turn the ad network into a project that would let him get out of having a conventional internship during his summer break in 2006. As it happened, AdMob created enough buzz that Hamoui dropped out of Wharton in the spring.

One key element of his system is that it lets programmers specify when and where ads can show up while their apps are running on a phone. Advertisers, which range from mass merchants to other app makers, can aim their messages widely - for instance, to everyone with an iPhone. Or ads can be aimed at a particular demographic. An ad for the movie "Fast and Furious" might show up on a mobile game such as "Tap Tap Revenge" that's popular among young men. The targeting frequently hits the mark: Users tend to click on mobile ads five to eight times more often than they do on PC ads, Hamoui says.

Jim Goetz, who joined AdMob's board after his firm, Sequoia Capital, put up the first $4 million of the $47 million in venture capital raised by AdMob, likens Hamoui to some of the other successful entrepreneurs that Sequoia has backed. That group includes Apple's Steve Jobs, Yahoo co-founders Jerry Yang and David Filo, and Google co-founders Sergey Brin and Larry Page.

"Omar is a lot like them," Goetz says. "He has the ambition, the intelligence and that special sparkle."

By selling his startup to a larger company, Hamoui is doing something those other entrepreneurs didn't. His investors say he didn't do it for the money - AdMob still had plenty in the bank, and Hamoui doesn't seem to be driven by striking it rich. He still drives a lime-green Toyota Camry that elicits good-natured gibes around AdMob's offices. When he splurges, he does so frugally. AdMob's holiday party is being held next month when the prices are cheaper.

"It just seemed like we would be able to do the things we want a lot faster and a lot better with the resources we will have at Google," Hamoui says. "We already have achieved a big part of what we wanted to do - getting mobile seo advertising going and making it possible for people to start a mobile company without having to do a deal with a carrier first."

Antitrust Regulators Examining Google's Purchase Of AdMob

USA Today

Antitrust regulators are taking a closer look at Google's proposed $750 million purchase of mobile phone marketer AdMob, the latest sign of greater government vigilance as Google tries to expand its advertising empire.

The Federal Trade Commission sought more information about the deal this week, according to a Wednesday post on Google's blog.

This so-called "second request" doesn't mean regulators intend to block Google's AdMob deal. Most other acquisitions that go through this stage end up getting approved.

But the FTC's action shows regulators are watching Google (GOOG) more carefully as the company tries to build upon its dominance of the Internet's lucrative search advertising market. Google is expected to pull in more than $22 billion in revenue this year, mostly from ads shown alongside search results and other Web content.

"We know that closer scrutiny has been one consequence of Google's success," Paul Feng, a Google product manager, wrote in Wednesday's blog posting. Echoing previous management comments, Feng said the company remains confident its AdMob purchase, announced last month, will be approved.

Google's huge lead in Internet search triggered a 2008 government investigation that scuttled its plans to enter into an advertising partnership with rival Yahoo, which runs the second most-popular search engine. Yahoo plans to work with Microsoft instead, beginning next year if those two companies can gain regulatory approval.

Since its inception nearly four years ago, AdMob has built a thriving network that sells and delivers ads on applications and websites designed for the iPhone and other mobile devices. It's still relatively small with estimated annual revenue of $45 million to $60 million, but regulators apparently want to understand whether its technology and advertising contacts would give Google an unfair advantage in its quest to sell more mobile phone ads.

Google management has indicated that it believes mobile marketing eventually may become bigger than advertising on Internet-connected computers. That tipping point still appears to be many years away, with U.S. mobile advertising expected to total $416 million this year, about 2% of overall Internet ad spending in the country.

The FTC's decision to take more time digging into the AdMob deal means Google probably won't be able to take over the company for several more months, Stifel Nicolaus analyst Rebecca Arbogast wrote in a Wednesday research note. It took a year for the FTC to approve Google's $3.2 billion acquisition of Internet ad service DoubleClick, which was completed in March 2008.

Google's first big deal, a $1.76 billion acquisition of the video site YouTube, was cleared by regulators in a month in 2006.

Google, Bing Kick Yahoo To The Curb

CNN Money

Once the world's online search leader, Yahoo's share has sharply declined, putting it in danger of losing its relevance in a market increasingly dominated by Google.

Yahoo's search market share in November fell to 17.5% from 18% in October, according to a monthly comScore report released late Wednesday. It's the lowest share ever recorded for Yahoo.

Cannibalizing Yahoo's market share is Microsoft (MSFT, Fortune 500), whose new Bing search site gained 0.4 points of the search market to 10.3% in November. That was the first time Microsoft owned more than 10% of the market since September 2007.



Despite that good news, it's really a mixed blessing of sorts for Microsoft, which entered into a search deal with Yahoo that is expected to start in the next several months. When the deal was announced in July, analysts largely praised the marriage, since the companies held a combined 28% of the market -- close to the 30% that experts say is needed to convince advertisers that a company is a relevant competitor in a marketplace.

Since the July announcement, "Microhoo" has gone in the wrong direction. The companies' combined share has taken a 0.4-point hit, as Yahoo's share has fallen by 1.8 points, outpacing Bing's 1.4-point gain.

"They're still going to be a viable No. 2 behind Google, but less so than they expected," said Daniel Ruby, research director at search-advertising firm Chitika, Inc. "Everyone is surprised by the fact that Yahoo has lost such a significant amount of traffic. Thirty percent seems like a very long shot."

Google grew its share by 0.9 points since July to take 65.6% of the search market in November. That's the largest share Google has ever garnered.

Meanwhile, Yahoo has lost share for 10-straight months. As the closing date nears for the search rivals' deal, some say Yahoo is reaching a tipping point that could make or break the value of its partnership.


The devil is in the details

Under the 10-year agreement, Microsoft will power the searches that users make on Yahoo.com. In return, Microsoft will pay Yahoo 88% of the revenue it gains from searches on Yahoo's sites. Yahoo.com and Bing.com will maintain their own branding but search results on Yahoo.com will say "powered by Bing."

"There is no getting around the fact that the market share trend for Yahoo is absolutely awful," said Benjamin Schachter, analyst for Broadpoint AmTech. "The Microsoft deal does not guarantee any search revenue, only revenue-per-search levels; therefore, search share and volume are as critical as ever."

Still, another school of thought says not all is lost for Yahoo.

Both Yahoo and Microsoft have poured millions of dollars into advertising campaigns to get users to come to their Web sites. Yahoo's new "It's Y!ou" campaign has been plastered all over billboards and television spots. Microsoft just launched its new highly publicized Bing iPhone App on Tuesday.

As a result, some advertisers believe users who search on those sites are more likely to indulge a sales pitch and therefore are more likely to click on their ads than Google's users.

"Microsoft and Yahoo offer quality versus quantity," said Ruby. "The traffic they drive is more valuable than Google's in some advertisers' eyes, because their users are going to be delivering higher margins."

So even as Google SEO continues to gain share at "Microhoo's" expense, Yahoo and Microsoft live on to fight for high-quality searchers as a way to stay relevant.

Twitter Is Said to Be Profitable After Making Search Agreements
Bloomberg

Twitter Inc. will make about $25 million from Internet-search deals with Google Inc. and Microsoft Corp. announced in October, enough to push the site into profitability, people familiar with the matter said.

An agreement that made Twitter’s messages searchable on Google’s site will generate about $15 million, said the people, who asked to remain anonymous because the terms aren’t public. A similar deal with Microsoft’s Bing search engine will earn Twitter about $10 million.

The multiyear agreements will allow Twitter to make a small profit in 2009, said the people, who estimate that its operating costs are about $20 million to $25 million a year. The San Francisco-based company, which started in 2006, has about 105 employees, according to its Web site.

Until earlier this year, Twitter wasn’t even focused on revenue -- let alone profit. The company attracted millions of users with a free service that posts 140-character messages, known as tweets. Chief Executive Officer Evan Williams said two months ago that the company was spending almost all its time improving the product, rather than seeking ways to make money.

That left many analysts and investors wondering how Twitter would convert its popularity into earnings. Twitter has more than 58 million global monthly users, according to ComScore Inc., a research firm in Reston, Virginia. The service is the third most popular social-networking site in the U.S., after Facebook Inc. and News Corp.’s MySpace.

No Comment

The company’s co-founder, Biz Stone, declined to comment on its finances, saying only that Twitter is proud of the work it accomplished in 2009.

“We’re thrilled about the partnerships we’ve formed this year and we’re looking forward to opening Twitter even more in the future,” Stone said in an e-mail.

Jane Penner, a spokeswoman for Mountain View, California- based Google, declined to comment, as did Pete Wootton, a spokesman for Redmond, Washington-based Microsoft. When the agreements were announced in October, none of the companies involved disclosed their value.

Twitter got help achieving profitability by reducing expenses, the people familiar with the situation said. The company used to pay more money to telecommunications companies for distributing its billions of tweets over wireless networks. Twitter’s popularity has given it bargaining power with phone companies, helping it renegotiate deals to bring down costs.

Workforce Costs

While telecommunication fees used to be the company’s single largest expense, employees are now the biggest line item, said one of the people. That means maintaining profitability will depend on whether Twitter keeps a lid on the size of its workforce.

The payments from Google and Microsoft underscore the growing value of the data coursing through Twitter’s network. Executives of both companies have said their search sites would be considered incomplete if they didn’t include the millions of messages that get posted on Twitter every minute.

“We believe that our search results and user experience will greatly benefit from the inclusion of this up-to-the-minute data,” Marissa Mayer, Google’s vice president in charge of search products, said in a blog posting after the deals with Twitter were announced. “The next time you search for something that can be aided by a real-time observation, say, snow conditions at your favorite ski resort, you’ll find tweets from other users who are there.”

Consumer Tweets

Tweets also are a source of product information, with shoppers using Twitter to share views on their purchases. Making that kind of information available on Google and Bing may help them sell more advertising, and provide more relevant search results to shoppers.

Twitter, which started in 2006, has raised about $155 million in venture capital. A round in September for $100 million valued the company at $1 billion, according to a person familiar with the deal. The size of the valuation, along with Twitter’s lack of a revenue plan, was reminiscent of the dot-com era, David Garrity, principal at GVA Research LLC in New York, said at the time.

Since then, Twitter has given more details about how it plans to make money. In addition to the search deals, it’s planning an advertising program for early next year. The company also will charge for commercial Twitter accounts, which would let businesses analyze tweet traffic.

Chief Operating Officer Dick Costolo, who joined Twitter in September, was key to getting the search-engine deals done, one person familiar with the matter said. Costolo helped found FeedBurner and worked at Google as an ad product manager after his company was acquired.

At FeedBurner, Costolo worked on selling ads on Web news feeds. The goal  for Twitter SEO now is to add advertising without disrupting the way Twitter works, Costolo said last month at a conference.

“We want to do something that’s organic and in the flow of the way people already use Twitter -- and not, ‘Here’s the tweets and here are the ads,’” he said.

Google Fined Per Day In France Over Copyright Issues

USA Today

PARIS — A Paris court ruled Friday that Google's expansion into digital books breaks France's copyright laws, and a judge slapped the Internet search leader with a $14,300-a-day fine until it stops showing literary snippets.

Besides being fined for each day in violation, Google was ordered to pay $430,000 in damages and interest to French publisher La Martiniere, which brought the case on behalf of a group of French publishers.

Google attorney Alexandra Neri said the company would appeal.

The decision erects another legal barrier that may prevent Google from realizing its 5-year-old goal of scanning all the world's books into a digital library accessible to anyone with an Internet connection.

A U.S. legal settlement that would give Google the digital rights to millions of books is in limbo because U.S. regulators have warned a federal judge in New York that the arrangement probably would thwart competition in the budding electronic book market and compromise copyrights, as well.

The top U.S. copyright official and the governments in Germany and France also have raised objections about that settlement overstepping its bounds. Google is trying to address the critics with a revised settlement that is still under court review.

The French case is relatively small in comparison. It didn't even seem to faze investors as Google shares gained $2.48 to $596.42.

Still, the ruling served as a reminder that Google's ambitious push into other markets beyond Internet search increasingly is clashing with fears the Mountain View, Calif., company is getting too powerful.

As part of the backlash, Google has been depicted as a copyright scofflaw that prospers off the content of others — a portrayal the company's management insists is totally off base.

The head of the French publisher's union applauded Friday's verdict.

"It shows Google that they are not the kings of the world and they can't do whatever they want," said Serge Eyrolles, president of France's Syndicat National de l'Edition. He said Google had scanned 100,000 French books into its database, 80% of which were under copyright.

Eyrolles said French publishers would still like to work with Google to digitize their books, "but only if they stop playing around with us and start respecting intellectual property rights."

Philippe Colombet, the head of Google's book-scanning project in France, said the company disagrees with the court's ruling.

"French readers now face the threat of losing access to a significant body of knowledge and falling behind the rest of Internet users," Colombet said in a conference call with reporters. "We believe that displaying a limited number of short extracts from books complies with copyright legislation both in France and the U.S. — and improves access to books."

Colombet declined to answer questions about whether Google would remove the books from its database or pay the fine. "We are going to study the judgment carefully over the coming days," he said.

The judgment will have little or no effect on Internet users outside of France. And French books that are in Google's database with publishers' consent will remain searchable, even in France. Colombet could not say how many French books Google has scanned overall, or how many French publishers allowing Google to show its works.

Google has scanned more than 10 million books worldwide since 2004, including 2 million with the consent of about 30,000 publishers, About 9,000 of those publishers are in Europe, Colombet said. Another 2 million books in Google's library no longer are in copyright. Google has been only showing snippets from the remaining books while it tries to iron out copyright disputes.

French President Nicolas Sarkozy has made catching up on France's digital delay one of the national priorities by earmarking euro750 million (about $1 billion) of a euro35 billion spending plan announced earlier this week for digitizing France's libraries, film and music archives and other repositories of the nation's recorded heritage.

Earlier this week a consortium of French technology companies announced a plan to create a book scanning project they said would be better than Google's, but only in three years time.

Facebook Can Wait For IPO After Large Russian Investment

Bloomberg

Facebook Inc., the most popular social-networking Web site, can take more time to decide on an initial public offering after Russia’s Digital Sky Technologies bought a stake, the head of the investment group said.

“Any IPO should be business driven and not liquidity driven as the latter can be done through the private market,” Chief Executive Officer Yuri Milner said in a Bloomberg Television interview in Moscow today. “That’s what we do, so founders and management can focus on business execution.”

Facebook CEO Mark Zuckerberg, who started Facebook as a Harvard University student in 2004, said in May he expects the company to have an IPO, though he wasn’t focused on it. Facebook is privately owned with a dual-class stock structure designed to allow current shareholders to hold on to voting control. Milner said today it’s up to Facebook’s board and management and not DST whether the social-networking Web site should hold an IPO.

Facebook SEO may attract the same level of attention as Google Inc.’s share sale in 2004, Adam Oliveri, managing director at New York-based SecondMarket, an exchange for private companies, said last month. Google sold 19.6 million shares for $1.67 billion in August 2004, giving the company a market value of $23 billion.

Kommersant Report

Paul Bard, an analyst at Renaissance Capital LLC, which has specialized in IPO research since 1991, also said last month that Facebook may sell stock through an IPO within 12 to 18 months. Zuckerberg said in May that an IPO is “something we’ll do when we’re ready for it” and “it’s something we don’t see on the immediate horizon.”

DST, which has offices in Moscow and London, in May paid $200 million for less than 2 percent of Palo Alto, California- based Facebook. The Russian investment company has since raised its stake to 5 percent and spent at least $400 million on its Facebook investment, Kommersant reported yesterday, citing an unidentified person at an investment fund close to Facebook.

Milner today declined to comment on the report, adding that DST doesn’t need to disclose details on its holdings as it is a private company.