Web's Hot New Commodity: Privacy

The Wall Street Journal
by JULIA ANGWIN and EMILY STEEL
February 28, 2011

As the surreptitious tracking of Internet users becomes more aggressive and widespread, tiny start-ups and technology giants alike are pushing a new product: privacy.

Companies including Microsoft Corp., McAfee Inc.—and even some online-tracking companies themselves—are rolling out new ways to protect users from having their movements monitored online. Some are going further and starting to pay people a commission every time their personal details are used by marketing companies.

"Data is a new form of currency," says Shane Green, chief executive of a Washington start-up, Personal Inc., which has raised $7.6 million for a business that aims to help people profit from providing their personal information to advertisers.

The Wall Street Journal's year-long What They Know investigation into online tracking has exposed a fast-growing network of hundreds of companies that collect highly personal details about Internet users—their online activities, political views, health worries, shopping habits, financial situations and even, in some cases, their real names—to feed the $26 billion U.S. online-advertising industry.

In the first nine months of last year, spending on Internet advertising rose nearly 14%, while the overall ad industry only grew about 6%, according to data from PriceWaterhouseCoopers LLP and WPP PLC's Kantar Media.

Testing the new privacy marketplace are people like Giles Sequeira, a London real-estate developer who recently began selling his own personal data. "I'm not paranoid about privacy," he says. But as he learned more, he says, he became concerned about how his data was getting used.

People "have no idea where it is going to end up," he says.

So in December, Mr. Sequeira became one of the first customers of London start-up Allow Ltd., which offers to sell people's personal information on their behalf, and give them 70% of the sale. Mr. Sequeira has already received one payment of £5.56 ($8.95) for letting Allow tell a credit-card company he is shopping for new plastic.

"I wouldn't give my car to a stranger" for free, Mr. Sequeira says, "So why do I do that with my personal data?"

As people are becoming more aware of the value of their data, some are seeking to protect it, and sometimes sell it. In January at the World Economic Forum in Davos, Switzerland, executives and academics gathered to discuss how to turn personal data into an "asset class" by giving people the right to manage and sell it on their own behalf.

"We are trying to shift the focus from purely privacy to what we call property rights," says Michele Luzi, a director at consulting firm Bain & Co. who led the Davos discussion.

Allow, the company that paid Mr. Sequeira, is just one of nearly a dozen start-ups hoping to profit from the nascent privacy market. Several promise to pay people a commission on the sale of their data. Others offer free products to block online tracking, in the hopes of later selling users other services—such as disposable phone numbers or email addresses that make personal tracking tougher. Still others sell paid services, such as removing people's names from marketing databases.

"Entrepreneurs smell opportunity," says Satya Patel, venture capitalist at Battery Ventures, which led a group of investors that poured $8 million in June into a start-up called SafetyWeb, which helps parents monitor their children's activities on social-networking sites and is rolling out a new privacy-protection service for adults, myID.com.

For the lightly regulated tracking industry, a big test of the new privacy marketplace is whether it will quiet the growing chorus of critics calling for tougher government oversight. Lawmakers this month introduced two separate privacy bills in Congress, and in December the Obama administration called for an online-privacy "bill of rights." The Federal Trade Commission is pushing for a do-not-track system inspired by the do-not-call registry that blocks phone calls from telemarketers.

The industry is hustling on several fronts to respond to regulatory concerns. Last week, Microsoft endorsed a do-not-track system. Microsoft also plans to add a powerful anti-tracking tool to the next version of its Web-browsing software, Internet Explorer 9. That's a reversal: Microsoft's earlier decision to remove a similar privacy feature from Explorer was the subject of a Journal article last year.

The online-ad industry itself is also rolling out new privacy services in hopes of heading off regulation. Most let users opt out of seeing targeted ads, though they generally don't prevent tracking.

The privacy market has been tested before, during the dot-com boom around 2000, a time when online tracking was just being born. A flurry of online-privacy-related start-ups sprang up but only a few survived due to limited consumer appetite.

As recently as 2008, privacy was so hard to sell that entrepreneur Rob Shavell says he avoided even using the word when he pitched investors on his start-up, Abine Inc., which blocks online tracking. Today, he says, Abine uses the word "privacy" again, and has received more than 30 unsolicited approaches from investors in the past six months.

In June, another company, TRUSTe, raised $12 million from venture capitalists to expand its privacy services. At the same time, Reputation.com Inc. raised $15 million and tripled its investments in new privacy initiatives including a service that removes people's names from online databases and a tool to let people encrypt their Facebook posts.

"It's just night and day out there," says Abine's Mr. Shavell.

Online advertising companies—many of which use online tracking to target ads—are also jumping into the privacy-protection business. AOL, one of largest online trackers, recently ramped up promotion of privacy services that it sells.

And in December, enCircle Media, an ad agency that works with tracking companies, invested in the creation of a privacy start-up, IntelliProtect. Last month IntelliProtect launched a $8.95-a-month privacy service that will, among other things, prevent people from seeing some online ads based on tracking data.

In its marketing material, IntelliProtect doesn't disclose its affiliation with the ad company, enCircle Media, that invested in it. When contacted by the Journal, IntelliProtect said it would never give or sell customer data to other entities, including its parent companies.

A cofounder of Allow, Justin Basini, also traces his roots to the ad industry. Mr. Basini came up with the idea for his new business when working as head of brand marketing for Capital One Europe. He says he was amazed at the "huge amounts" of data the credit-card companies had amassed about individuals.

But the data didn't produce great results, he says. The response rate to Capital One's targeted mailings was 1-in-100, he says—vastly better than untargeted mailings, but still "massively inefficient." Mr. Basini says. "So I thought, 'Why not try to incentivize the customer to become part of the process?"

People feel targeted ads online are "spooky," he says, because people aren't aware of how much personal data is being traded. His proposed solution: Ask people permission before showing them ads targeted at their personal interests, and base the ads only on information people agree to provide.

In 2009, Mr. Basini left Capital One and teamed up with cofounder Howard Huntley, a technologist. He raised £440,000 ($708,400) from family, friends and a few investors, and launched Allow in December. The company has attracted 4,000 customers, he says.

Mr. Basini says his strategy is to first make individuals' data scarce, so it can become more valuable when he sells it later. To do that, Allow removes its customers from the top 12 marketing databases in the U.K., which Mr. Basini says account for 90% of the market. Allow also lists its customers in the official U.K. registries for people who don't want to receive telemarketing or postal solicitations.

Currently, Allow operates only in the U.K., which (unlike the U.S.) has a law that requires companies to honor individuals' requests to be removed from marketing databases.

Then, Mr. Basini asks his customers to create a profile that can contain their name, address, employment, number of kids, hobbies and shopping intent—in other words, lists of things they're thinking about buying. Customers can choose to grant certain marketers permission to send them offers, in return for a 70% cut of the price marketers pay to reach them. Allow says it has finalized a deal with one marketer and has five more deals it hopes to close soon.

Mr. Basini says Allow tries to prevent people from "gaming" the system by watching for people who state an intention to buy lots of things, but don't follow through.

Because Allow's data comes from people who have explicitly stated their interest in being contacted about specific products, it can command a higher price than data gathered by stealthier online-tracking technologies. For instance, online-tracking companies routinely sell pieces of information about people's Web-browsing habits for less than a penny per person. By comparison, Allow says it sells access to Mr. Sequeira for £5 to £10 per marketer.

Mr. Sequeira, the London real-estate executive, says that after he filled out an "intention" to get a new credit card, he received a £15.56 credit in his Allow account: a £10 signing fee plus a £5.56 payment from the sale of his data to a credit-card marketer. So far, he says, he hasn't received a card offer from the company.

"I don't think it's going to make a life-changing amount of money," says Mr. Sequeira. But, he says he enjoyed the little windfall enough that he is now letting Allow offer his data to other advertisers. "I can see this becoming somewhat addictive."

China's state news agency launches search engine

Associated Press
by JOE McDONALD
February 22, 2011

BEIJING (AP) - China's main government news agency launched an Internet search site Tuesday, giving its own sanitized view of the Web following Google's closure of its China-based search engine last year over censorship.

The Xinhua News Agency is operating www.panguso.com in partnership with state-owned China Mobile Ltd., the world's biggest phone carrier by subscribers.

The venture gives the ruling Communist Party a new tool to try to control what China's public sees online. Industry analysts say it might be commercially viable, drawing on Xinhua's news report and China Mobile's vast subscriber base, but is unlikely to challenge local industry leader Baidu Inc., which has more than 75 percent of China's search market.

Xinhua and China Mobile announced the venture in August after Google Inc. closed its China-based search engine, saying it no longer wanted to comply with Chinese censorship and complaining its e-mail service was hacked from China.

Xinhua said it hopes to make Panguso one of China's leading search engines.

"We would like to fully exploit the advantage of Xinhua as an official agency having a large collection of news and information, and that of China Mobile in terms of technology, advanced operation principles and strong infrastructure," said Xinhua president Li Congjun in a statement released by the agency.

China has the world's biggest population of Internet users with 457 million people online as of Dec. 31, and 303 million people searched the Web by mobile phone last year, according to a state-sanctioned industry group, the China Internet Network Information Center. China Mobile says it has more than 589 million accounts.

Beijing promotes Web use for business and education but its extensive filters bar access to material deemed pornographic or subversive. Search engines in China are required to exclude results of banned sites abroad.

Panguso, available on both Web and mobile phone, appears to filter even more stringently than other Chinese sites.

A search on Panguso for Liu Xiaobo, the jailed activist and Nobel Peace Laureate, returned no results. A search on Baidu turned up Chinese-language commentaries criticizing Liu.

Searches on Panguso for the Dalai Lama turned up tourism information for Tibet, followed by commentaries from Chinese state media criticizing the exiled Tibetan leader.

And Panguso has politically embarrassing gaps. It returned no result in a search for the website of People's University in Beijing, the first university founded after the 1949 communist revolution and one of China's most prominent institutions.

Baidu claimed a 75.5 percent share of China's online search market in the final quarter of last year, according to Analysys International, a Beijing research firm. Google was second but its market share fell to 19.6 percent, down from 30.9 percent before the closure of its China search engine.

China's mobile phone-based search market is more fragmented. Baidu leads with 34.3 percent but local rivals such as Easou.com also have double-digit market shares.

Top Alibaba executives resign after fraud probe

Associated Press
by ELAINE KURTENBACH
February 21, 2011

SHANGHAI (AP) - Chinese e-commerce giant Alibaba says two of its top executives are resigning to take responsibility after a probe discovered more than 2,000 suppliers had defrauded customers, sometimes with the alleged collusion of its sales staff.

Alibaba said in a notice Monday to the Hong Kong Stock Exchange that its chief executive and chief operating officers, who were not implicated by the investigation, were resigning to take responsibility for the company's "breakdown in integrity."

The company said 100 sales representatives, out of a total workforce of 14,000, allegedly involved in defrauding customers were fired. Some supervisors and sales managers had either intentionally or negligently allowed the creation of fraudulent "storefronts" by letting some 2,326 suppliers evade authentication and verification measures, it said.

Most purchases involved offerings of popular consumer electronics at bargain prices with low required minimum orders. "The methods of the perpetrators suggest that they have engineered an organized and systemic attack on the integrity of the Alibaba.com platform for illegal gains," the company said.

"The investigation concluded that the pursuit of short-term financial gain at all cost had tainted parts of our sales organization, risking serious damage to our company's core values," it said.

Jack Ma, the entrepreneurial whiz and former English teacher who founded Alibaba in 1999, said he was sending a strong message meant to reinforce trust in his company, which has thrived in this age of online commerce and outsourcing.

"One of our most important values is integrity. That means the integrity of our employees and the integrity of our online marketplaces as trusted and safe places for our small business customers," Ma said in a statement.

Jonathan Lu Zhaoxi, CEO of affiliated Chinese e-commerce company Taobao, will replace David Wei Zhe as Alibaba's CEO, the notice said. It did not say who would replace resigning COO Elvis Lee Shi-Huei.

Alibaba, based in the eastern Chinese city of Hangzhou, claims more than 56 million registered users in more than 240 countries and regions.

The company says it investigated after noticing an increase in complaints of fraud by buyers using its websites in late 2009. The probe found that 1,219 of its "Gold Supplier" customers who joined in 2009 and 1,107 that joined in 2010 had engaged in fraud against buyers.

Alibaba terminated the "storefronts" of those allegedly fraudulent customers and will collaborate with authorities to seek redress, said company spokeswoman Linda Kozlowski.

But such efforts would depend partly on buyers deciding to take legal action, she said.

The average amount of fraud involved in the cases was less than $1,200, the company said. It gave no total amount involved. But Kozlowski said the company has paid out $1.7 million since 2009 from a fund set up to redistribute to buyers any revenues from companies found to be engaged in fraud.

"We decided we did not want to take revenue from fraud," she said.

Alibaba, whose shares are traded in Hong Kong, says the cases would not have an impact on its overall finances.

Facebook's Web of Frenemies

The Wall Street Journal
by GEOFFREY A. FOWLER
February 15, 2011

Facebook Inc.'s growing ambitions are redrawing battle lines in Silicon Valley.

As the seven-year-old company ramps up its hiring and adds new features to its social network, it is disrupting the businesses of established companies like Yahoo Inc. and Google Inc. and putting even more Internet firms on notice.

Facebook, which has more than 600 million users and was valued at $50 billion in a recent funding round, is grabbing online-advertising from Yahoo, Myspace and others. The social network is a potential rival in electronic payments to eBay Inc.'s PayPal, while partnerships Facebook is cementing with smartphone makers set the stage for competition with Apple Inc. and Google in mobile services.

Meanwhile, Facebook is tussling with Google and Microsoft Corp. for top engineers.

As a result, many Silicon Valley companies increasingly have to decide whether to treat Facebook like a friend whose reach and user data can help propel their own growth, or a foe that can become a destructive force.

"Facebook is both a great competitor and a benefactor here in Silicon Valley," said David Cowan, a venture capitalist at Bessemer Venture Partners in Menlo Park, Calif. "Anyone who's trying to get the attention of the young Internet user now has to compete with the dominant position that Facebook has there. On the other hand, they have opened up a lot of opportunities."

Facebook executives aren't shy about their aspirations. "We think every industry is going to be rebuilt around social engagement," Chief Operating Officer Sheryl Sandberg said.

Facebook already helped spur a new crop of videogame companies designed around interacting with friends, Ms. Sandberg said, adding, "News, health, finance, shopping and commerce—we think similarly, all of these things will be rebuilt by companies that work with us to put social at the core."

So far, Facebook's key battleground has been in online marketing.

In just two years, Facebook's share of online display ads has surged to 13.6% from 2.9% of the U.S. market, which reached $8.88 billion in 2010, according to research firm eMarketer.

Facebook's growth comes at the expense of companies such as Yahoo and AOL Inc., and the site is also likely taking ad money away from traditional media like newspapers and TV.

Yahoo has stopped trying to compete directly with the social network and instead integrated Facebook features into its sites, hoping to halt a slide in the time its users spend on Yahoo each month.

Myspace, which like Yahoo has struck some partnerships with Facebook, declined to comment. Myspace and The Wall Street Journal are owned by News Corp.

Jeff Levick, the president of AOL advertising, said he viewed the rise of Facebook as "complementary" because the companies are "running two very very different businesses."

AOL, he said, focuses on monetizing the content that Facebook users share. "The more high quality content we produce and is shared, the traffic comes back to us," Mr. Levick said. The top advertisers who are working with both companies are spending more with AOL each quarter, he said.

Facebook likely had revenue of $1.9 billion to $2 billion last year, mostly in advertising, one person familiar with the company has said.

Facebook has recently introduced ad formats that incorporate users' networks of friends—even their names, photos and postings—into the ads.

And Facebook has also turned its attention to the local advertising market, launching its own location check-in and deals services that bring together elements of sites such as coupon site Groupon Inc. and business reviews service Yelp Inc.

Groupon and Yelp declined to comment.

Facebook is likely to tread on more toes as it builds out what's known as a platform for the Internet, which other websites, cellphones and now even cars can use to build their own offerings to allow people to take their friends and preferences with them.

Some 2.5 million websites have so far tapped the platform, which lets them populate blog posts, news articles, product listings and other pages with Facebook's "Like" button.

With its platform play, Facebook is positioning itself as a partner to other tech companies—even Google, which allows YouTube users to share videos with their Facebook friends.

"The foundation of a platform is one where people want to build on top because there is equal value exchange," said Dan Rose, Facebook's vice president of partnerships and platform marketing.

Still, Mr. Rose said Facebook intends to participate in new businesses that emerge from the use of its platform.

One case in point: Game developers such as Zynga Game Network Inc., among the first to find massive growth on Facebook's platform, now have to pay a kind of tax.

Last month, Facebook said it would require all game developers on its platform to use its in-house Credits, a virtual currency for buying things in games. Facebook takes a 30% cut from all Credit sales. Zynga declined to comment.

Facebook could later extend its Credits system to other areas of commerce, including physical goods, potentially making it a competitor to PayPal and Amazon.com Inc.

Mr. Rose didn't rule that out, but said the company had no current plans to do so and was focused on virtual goods for now.

PayPal President Scott Thompson plays down any rivalry with Facebook.

He said his company partners with Facebook, which lets people pay for Facebook Credits with PayPal. Even if Facebook gets deeper into payments, he said PayPal will be well-protected. "Payments is really, really hard to do," he said.

Yet many Silicon Valley firms are wary of Facebook's control over its platform and have turned elsewhere.

Online-dating service Zoosk Inc. launched in 2007 as an application on Facebook, where it experienced fast user growth. But in mid-2008, co-founder Shayan Zadeh decided Zoosk needed to expand to other platforms such as Myspace and its own website. It began to ask its Facebook users for their real email addresses, instead of just relying on Facebook as a means of communication.

Mr. Zadeh said he was concerned that some shift in Facebook's business model or platform strategy could destabilize Zoosk. "If you want to be a long-term established business, you have to establish a direct communication line," he said. Today, Zoosk has about 15 million to 20 million active monthly users; only about 20% of new users come through Facebook.

Facebook executives also have their sights set on smartphones, where they hope to become more integrated in the software on the handsets. Last week, INQ Mobile, owned by Hutchison Whampoa Ltd., unveiled a handset for the U.K. that prominently features contacts, photos and other data from users' Facebook accounts. More such arrangements are expected soon.

Such activity increasingly puts Facebook on a collision course with Google, Apple and others in mobile advertising. Mr. Rose said Facebook could eventually make money off its mobile efforts through ads and Credits, but doesn't have any plans for it at the moment.

Google declined to comment on Facebook, but in an interview last, year Chief Executive Eric Schmidt said the two companies compete for talent but not for ad dollars and that Facebook users use more Google services than any other users. He also said that "you're assuming that if they do well we do poorly," but "winners tend to all do well.

AOL Makes an Expensive Bet With Huffington Post Deal

The Wall Street Journal
by EMILY STEEL And RUSSELL ADAMS
February 8, 2011

AOL Inc.'s acquisition of the Huffington Post is the latest step in its uphill quest to eke profits from free content on the Internet and to make the company relevant to users and advertisers again.

AOL is paying $315 million to buy the nearly six-year-old Huffington Post, a rich price to hitch itself to a news and opinion website and its outspoken celebrity co-founder and editor-in-chief, Arianna Huffington. While the site was launched as a counterweight to conservative sites like the Drudge Report, in recent years it has expanded into topics like sports, entertainment, sex and self-help.

The deal installs the 60-year-old Ms. Huffington as president and editor-in-chief of a new group inside AOL, overseeing the roughly 700 editorial employees across both the Huffington Post and AOL, including AOL's tech blogs Engadget and TechCrunch.

A columnist turned talk-show staple who has become an influential voice for the political left, Ms. Huffington signed a multi-year contract with AOL. She said she wants to apply the Huffington Post model—a combination of aggregated content and original reporting—to AOL.

She plans to move to New York and deploy a similar editorial management structure that she has pursued at the Huffington Post: selecting editors from established publications and pairing them with newly minted reporters and freelancers.

The site has taken heat from traditional news companies for aggregating other publications' content without paying for it.

Ms. Huffington has said news aggregation is "part of the Web's DNA."

And Huffington Post spokesman Mario Ruiz said, "The majority of our content is original, including our vast number of blog posts." The company has 148 editorial staffers.

Addressing the site's liberal political stance, AOL's chief executive, Tim Armstrong, said AOL will "build more and more properties that are beyond left and right and tackle larger issues in society that are not political based."

Some investors are dubious that AOL has the advertising prowess to make money off the content it is distributing and Wall Street had some doubts about the deal and the price. AOL stock fell 75 cents, or 3.4%, to $21.19 in Monday trading on the New York Stock Exchange.

Analysts said that the major risks are the integration and political controversy. "Arianna Huffington's political views could challenge AOL's perception as an unbiased source of news, potentially impacting traffic growth," UBS analyst Brian Pitz said.

"We think this is an aggressive move, but complicates the story." Ben Schachter, an Internet analyst with Macquarie Securities, said in an analyst note. "AOL remains a company in transition. In many ways, it is a binary equation: either its content business becomes profitable or it doesn't."

One person close to the situation said people in AOL's sales department are excited to have a fresh, high-profile, buzzy ad space to sell.

The cost to buy an ad on AOL's home page— the most expensive ad slot —is about $200,000 per day, and the cost to buy an ad on Huffington Post's home page ranges from $90,000 to $125,000, according to an ad buyer. AOL generally is the cheapest of the three major portals, MSN and Yahoo, the buyer said. These rates are estimates and depend on several factors, including the size of the total ad buy and time of year. Ad rates on other sections range widely.

The deal underscores how companies like AOL and Yahoo Inc. are racing to develop inexpensive content to bundle for advertisers and to keep consumers' on their sites longer.

Since becoming chief executive of AOL in 2009, Mr. Armstrong has been on the hunt for content companies, purchasing TechCrunch and online video company 5min Inc. in September, among others. Still, AOL's ad revenue fell 29% in the fourth quarter even as the broader industry enjoyed growth.

AOL is seeking to produce more content cheaply and it has struck partnerships with celebrities and producers to create more original video content. Last week, AOL said it was teaming up with reality-show producer Mark Burnett and an independent movie company to make comedic videos based on CliffsNotes, which students often read for quick summaries of school books.

AOL says that its content strategy will start to pay off in the second half of this year.

For the Huffington Post, the match-up connects it to a wider audience. In December, AOL had about 112 million unique visitors to all of its sites. The Huffington Post had about 25 million. Despite its rapid visitor growth in recent years, the Huffington Post still lacked the resources to expand aggressively and it remained too small for a public stock offering, Ms. Huffington said.

"There was no way we could do all these things on our own with our current resources," Ms. Huffington said in an interview.

Huffington Post is on track to generate more than $50 million in revenues this year, AOL said. The company started turning a profit in the third quarter of 2010, rounding out the full year in the black, according to a person familiar with the matter.

The company declined to comment on the size of Ms. Huffington's stake in her site. Softbank Capital, Oak Investment Partners, chairman and co-founder Kenneth Lerer and Ms. Huffington together own a little more than 50% of the company, according to a person familiar with the matter. Other investors hold the remainder.

On Monday, the Huffington Post said that several top officials would be stepping down, including Mr. Lerer, CEO Eric Hippeau and Chief Revenue Officer Greg Coleman. Mr. Coleman had worked at AOL until Mr. Armstrong came in.

Ms. Huffington and Mr. Armstrong crossed paths in November at a conference in New York. At the end of a panel discussion in which Mr. Armstrong participated, Ms. Huffington approached him from the audience and told him she thought they had similar views on content. The next day, the two met at Mr. Armstrong's New York office to continue their discussion and they met several more times throughout November and December.

The week after Christmas, Mr. Armstrong and Mr. Minson, the CFO, flew to California to have lunch at Ms. Huffington's house. "At the end of that lunch, we said, 'I think we're interested,"' Mr. Armstrong said.

The lunch kicked off a month of talks that culminated in a deal reached on Sunday night.

Microsoft: Google's Bing Probe is Click Fraud, Honeypot Attack

PCMag Mobile
By Chloe Albanesius
February 3rd

Microsoft hit back at Google Wednesday over accusations that it stole Google search results for its Bing search engine, accusing Google of engaging in a honeypot attack and going after Bing because it was worried about its growth.

"In simple terms, Google's 'experiment' was rigged to manipulate Bing search results through a type of attack also known as 'click fraud,'" Yusuf Mehdi, senior vice president of Microsoft's Online Services Division, wrote in a blog post. "That's right, the same type of attack employed by spammers on the Web to trick consumers and produce bogus search results."

"We do not copy results from any of our competitors. Period. Full stop," he continued.

Mehdi insisted that Google's investigation did not uncover anything that the industry didn't already know. "We use click stream optionally provided by consumers in an anonymous fashion as one of 1,000 signals to try and determine whether a site might make sense to be in our index," he wrote.

On Tuesday, Search Engine Land published a story that said Bing was copying search results from Google. Google later confirmed this , and said it had conducted a test to prove its suspicions. Specifically, Google took a phrase that the average Google user was unlikely to search - like "mbzrxpgjys" - and manually paired it with an unlikely search result, like the homepage for Research in Motion. These dummy search results were added to Google on December 17 and by December 31, about 9 of the 100 tests added to Google were showing up on Bing, which Google said proved its point.

Google said Microsoft was collecting data via Suggested Sites, which suggests similar Web sites you might want to visit, and the Bing toolbar, which has a default setting to collects information.

At a Bing-sponsored search event that day, Harry Shum, corporate vice president of search product development at Microsoft, said that "it's not like we actually copy anything; it's really that we learn from the customers, who opt-in to share the data with us."

Mehdi suggested that Google was getting worried about Bing's progress.

"In October 2010 we released a series of big, noticeable improvements to Bing's relevance. So big and noticeable that we are told Google took notice and began to worry," he wrote. "Then a short time later, here come the honeypot attacks. Is the timing purely coincidence?"

In a Tuesday blog post, Amit Singhal, a Google Fellow, said "we look forward to competing with genuinely new search algorithms out there—algorithms built on core innovation, and not on recycled search results from a competitor."

Schmidt Defends Incoming Google CEO

The Wall Street Journal
By Amir Efrati
January 27th, 2011

A week after announcing a management shakeup at Google, outgoing Chief Executive Eric Schmidt defended the credentials of company co-founder Larry Page, who will take the reins at the Internet giant in April.

“When people criticize Larry as the new CEO, that’s grossly unfair to Larry,” he said on Thursday at a small press conference in Davos, Switzerland, at the World Economic Forum. “He has been with me at every business decision for 10 years.”

Though he stayed largely behind the scenes while Mr. Schmidt was the public face of Google, Mr. Page has long called the shots on product initiatives. He also showed little care for matters like budgets and policy, functions that Mr. Schmidt gravitated toward, people familiar with the company have said.

Messrs. Schmidt, Page and fellow co-founder Sergey Brin said last week that some top-level decision-making had gotten slower and the management change would improve that.

Some press reports speculated that the management change was due to increasing pressure from rising competitors such as Facebook, the social network, and that Mr. Page was being elevated to combat such headwinds. Another report said debate last year about whether to stop self-censoring results for Google’s Chinese search engine had created tension between the men.

But at Davos, Mr. Schmidt dismissed such notions as false. He stressed that the change “had nothing to do with competitors” and has been “misinterpreted, I think, by many people.”

He added: “All of the predicates for why the reorganization happened have not been correct,” he added. “The correct reason is we sat down and said: ‘This is a company that needs to be run even more tightly.’”

Mr. Schmidt, who will become executive chairman of the company and focus on governmental and press relations, acquisitions and partnerships, also implied he would stay at Google for another 10 years.

Last fall Mr. Schmidt told a group of journalists that when he joined Google in 2001 he committed to staying for 20 years. But after Google announced the executive changes during last week’s quarterly earnings call and later gave Mr. Schmidt a $100 million equity award from the company, some management experts and other Silicon Valley figures speculated that he might not stay that long.

The 55-year-old Mr. Schmidt said at Davos that not only is he “very committed to Google” but that Mr. Page, 38, and Mr. Brin, 37, insisted he stay involved in certain company affairs that he was planning to leave to them.

Ring, Ring. Hi, It's Google

Wall Street Journal
By AMIR EFRATI

Google Inc., which helped popularize the idea of automated ad sales on the Web, has been quietly turning to an old-fashioned tool—phone calls—to compete in the hot market for local business advertising.

The Internet-search giant this year has hired several hundred sales representatives to call U.S. businesses such as spas, restaurants and hotels to promote new advertising initiatives, people familiar with the matter said. The effort includes an office in Tempe, Ariz., with around 100 sales representatives, one of these people said.

Since 20% of searches done on Google are for local information, "a strong Web presence can help neighborhood businesses answer those searches and bring in more customers," said Marissa Mayer, Google's vice president of geographic and local services, in a prepared statement. Google's new local ad offerings "are simple and they work, so we've been investing in marketing and sales to support them."



One person who has experienced the results is Debbie Codino, a manager at Bob Brown Tire Center Inc. in Portland, Ore. She said she hangs up daily on callers who say they can help boost the small tire shop's presence on the Web to attract new customers. But when she received a call from a Google salesman last month, she stayed on the line.

Ms. Codino quickly agreed to pay $25 a month to highlight her store and show a 10%-off coupon when people use terms like "Portland tires" in a search on Google. "I was surprised," she said. "This time it was really Google calling so I was motivated to listen."

Google, of Mountain View, Calif., is better known for search algorithms and the engineers who refine them to get better results. The company's $24 billion in revenue last year came almost entirely from AdWords, a self-service system developed 10 years ago to let anyone buy text ads that show up next to search results. More than one million small businesses, from makers of boots to distributors of special shampoo or contact lenses, advertise through Google on AdWords to drive online sales or get people to download catalogs, among other things, according to some analysts.

But AdWords never fully took off with local businesses, in part because it includes features viewed as too complex or time-consuming for average business owners to use, according to former Google employees. For example, AdWords uses an auction-like system to determine prices for ads. By contrast, Google introduced ad offerings this year for local businesses that cost a fixed amount per month, the kind pitched to Ms. Codino.

So far, only a fraction of local businesses advertise online. BIA/Kelsey, a local-media advisory firm, estimates that local businesses will spend about $20 billion online this year, a figure that could reach more than $35 billion by 2014.

Google signaled a strong interest in the market with an unsuccessful attempt to buy Groupon Inc., a fast-growing company that offers users daily deals on a variety of goods and services. People familiar with the matter have pegged Google's offer at $6 billion; both companies have declined comment. Had that deal been reached, Google would have picked up a sales force of more than 1,500 people who call local businesses to get them to offer discounts to Groupon customers.

Companies such as Groupon and Yelp Inc.—a business-reviews website that has hundreds of sales reps—have attracted big Web companies such as Google and social networking site Facebook Inc. to the growing online local ad market. Google tried to buy Yelp last year, people familiar with the matter have said.

The direct-sales approach on local business "constitutes a cultural change of sorts" for Google, said Greg Sterling, an analyst at Sterling Market Intelligence, but a necessary one. Paying sales people generates lower profit margins than a system like AdWords, "but what Google has come to see is that without a sales force or at least human involvement in the process, they're not going to acquire these small businesses as customers," he said.

Direct sales isn't a new approach for Google in handling large advertisers. Though many of Google's 23,000 employees have technical jobs, the company says it also has several thousand salespeople who work with Fortune 500 companies, small and medium-sized businesses and ad agencies on text and graphical ad campaigns, among other things.

To reach local businesses, Google has already built relationships through Web pages it developed last year for them on its search engine. Known as "Place pages," they list basic information, such as the location on a map and a summary of customer reviews.

Google's new sales reps are primarily selling two ad offerings called "tags" and "boost" to the four million businesses that have contacted Google electronically to verify the accuracy of their Place page. The ads show up on Google search results and in Google Maps that display local businesses.

When Facebook earlier this year began its own effort to establish relationships with local businesses, known as Facebook Places, its Chief Executive Mark Zuckerberg said the social network would compete with Google's offerings but added that the local market is huge. A Google executive said he welcomed Facebook's moves.

Links to Place pages on Google's search engine recently became more prominent on the results page for searches covering everything from Italian restaurants to spas. That has put Google into conflict with some business-review sites that generate revenue from local businesses, such as Citysearch.com, which claim Google is crimping their sites' growth by directing more Web searchers to its Place pages. Google executives say the changes are meant to improve users' experience and they believe the changes have generally helped direct more users to non-Google sites that specialize in local-business information.

Mr. Sterling said he expects Google to offer more opportunities for local businesses to reach consumers, perhaps through Groupon-type daily deals. In addition, Google Chief Executive Eric Schmidt said recently that Google's Android software for mobile devices could help people use those devices to pay for goods at a local store, rivaling credit cards.

"Google has always had large sales forces and, quite frankly, the advertiser opportunity has always been bigger than the number of people we were able to hire," said David Scacco, who joined Google as the first advertising sales executive in 2000. But he said Google co-founder Larry Page stressed from the beginning the "need to build automation," or allowing advertisers to buy ads through a self-serve system rather than just hiring scores of salespeople to reach the advertisers.

Mr. Scacco, who is now chief revenue officer at MyLikes, a social-media ad company, said Mr. Page would tell Google's ad team: "If you only throw people at the problem, you won't innovate."

Watchdog Planned for Online Privacy

The Wall Street Journal

The Obama administration is preparing a stepped-up approach to policing Internet privacy that calls for new laws and the creation of a new position to oversee the effort, according to people familiar with the situation.

The strategy is expected to be unveiled in a report being issued by the U.S. Commerce Department in coming weeks, these people said. The report isn't yet final and could change, these people said.

In a related move, the White House has created a special task force that is expected to help transform the Commerce Department recommendations into policy, these people said. The White House task force, set up three weeks ago, is led by Cameron Kerry, the brother of Sen. John Kerry (D., Mass.) and Commerce Department general counsel, and Christopher Schroeder, assistant attorney general at the Department of Justice.

The initiatives would mark a turning point in Internet policy. Recent administrations typically steered away from Internet regulations out of concern for stifling innovation. But the increasingly central role of personal information in the Internet economy helped spark government action, according to people familiar with the situation.

The Wall Street Journal has been examining this online information-gathering industry in its "What They Know" investigative series.

Privacy issues are bubbling up on Capitol Hill. Rep. Joe Barton (R., Texas), co-chairman of the Congressional Privacy Caucus and ranking member of the House Energy and Commerce Committee, said he welcomed the administration's privacy initiative.

"Better late than never," Mr. Barton said. "I am glad more and more folks, in the government and otherwise, are beginning to realize that there is a war against privacy."

Yet the administration faces significant obstacles to enacting its privacy agenda. While the Republicans who now control the House of Representatives generally support privacy, they are unlikely to support any bill to expand the enforcement powers of the Federal Trade Commission, GOP congressional aides say. Privacy advocates will be reluctant to back legislation that lacks enforcement and is perceived as toothless.

There is no comprehensive U.S. law that protects consumer privacy online. Internet privacy issues generally are policed by the FTC, which can take action only if a privacy-violating action is deemed "deceptive" or "unfair."

That means the recent privacy crackdowns on Facebook Inc. and Google Inc. were led by Canada, Germany, the U.K. and other countries that have stronger privacy laws.

The central issue in writing federal privacy legislation is whether the Internet industry's efforts to police its own behavior has been effective enough. Proponents of legislation argue the industry is a Wild West where consumer data are gathered and sold without restrictions. Opponents of legislation say the industry is committed to providing tools to give consumers better insight into and control over data about themselves.

Commerce's draft report doesn't recommend specific legislation, but does indicate that self-regulation isn't robust enough, these people said. The administration would seek to guide the legislative debate through its new privacy office.

In remarks in Jerusalem in late October, U.S. Commerce Department Assistant Secretary Lawrence E. Strickling said that Internet privacy needs to be strengthened for the industry to sustain users' trust.

"It's difficult for consumers to act in their own interest if the law doesn't meet their basic expectations," Mr. Strickling said. He cautioned that the coming report isn't a final position statement, but rather the beginning of a "dialogue" that would lead to an official administration policy on information privacy.

A spokesman for the Commerce Department said the administration is "committed to promoting policies that will preserve consumer privacy online while ensuring the Web remains a platform for innovation, jobs, and economic growth. These are complementary goals, because consumer trust in the Internet is essential for businesses to succeed online."

The Federal Trade Commission is also expected to issue a report on Internet privacy by the end of the year. It is expected to call for the industry to develop a so-called do-not-track tool that people could use to remove themselves from online surveillance by marketers and others.

The prospect of new laws raised hackles at the Interactive Advertising Bureau, which represents the online-ad industry. "We believe we are living up to consumer-privacy expectations and are very advanced in privacy protections and innovation," said Mike Zaneis, senior vice president, who said he wasn't familiar with the report's contents.

Some privacy advocates expressed disappointment that Commerce isn't going further. "While [the report] gives lip service to legislation and fair information practices, its framework is based on industry self-regulation," said Jeff Chester, founder of the Center for Digital Democracy, who has met with Commerce officials about the report.

In 1999 President Bill Clinton appointed Peter Swire as chief counselor for privacy in the Office of Management and Budget. Mr. Swire helped craft privacy guidelines for the use of consumer medical and financial data. The new office would be similar but have more resources, and would engage other countries in privacy discussions and negotiations.

Google announces 'Instant Previews' Search Feature

Associated Press

People searching on Google will soon be able to see previews of websites before clicking on them.

The "Instant Previews" feature announced Tuesday is meant to help people bypass websites that are either irrelevant or simply too visually cluttered for their tastes. It works for Google Web searches, as well as searches for news, video and local businesses.

After clicking on an icon of a magnifying glass, people will see a picture of the website in the white space to the right of the search results within a tenth of a second. Although the preview photo will vary in size, just as Google Inc.'s image results do, Google designed the previews so that they'll never eclipse the search results and clutter the page.

Google will also show a box above the picture zooming in on the section of the website where the search terms appear. The search terms will be highlighted in that box.

While someone looks at a picture of a website, Google will load visual previews for other search results in the background so that people can quickly compare websites by rolling the cursor over the results on the page.

The feature is a follow-up to Instant Search, a feature Google unveiled in September that updates search results as people continue typing. Last week, Google said that people who own an iPhone or a smart phone running Google's Android software can use Instant Search too.

Google said it is introducing visual previews because word-based search results can only tell someone so much about what a website holds in store. People who use Google can already read short snippets from a site before they click on it, as well as, say, the date a news story or article was published.

All told, Google claims that people who use Instant Previews are 5 percent more likely to feel satisfied with the website they chose.

Google will roll out Instant Previews in 40 languages over the coming days.

Google Instant Adds $5M a Week to Google's Search Revenues

eWeek

Google may say it didn't launch Instant to make more bucks from Google.com searches, but that's exactly what has happened since Instant launched Sept. 8.

When Google launched Google Instant to the market in September, financial analysts assumed the company designed the predictive search technology to boost search revenues.

Analysts believed Instant, which displays changing results on the fly as users type, would help users conduct quicker searches, leading to more searching on Google, ultimately accelerating search ad revenue.

While Google has said it created Instant to improve the user experience, it also appears it is making more money from Instant—about $5 million per week extra.

Paid search management platform provider Marin Software found that impressions for paid search ads increased by more than 9 percent while clicks increased by more than 5 percent through the first two weeks of Instant's existence on Google.com.

Spending rose 2 percent after Instant launched, according to Marin, which compared data for keywords from the two weeks before and after the launch of Google Instant.

Marin, which sampled clients that together manage $1.3 billion in paid search spend per year, asserted this is proof people are actually searching and clicking more as a result of Google Instant.

Using Google's approximate $3.3 billion in AdWords revenues for Q3 and Marin's estimate that AdWords spending was up about 2 percent after Instant launched, Search Engine Land concluded Google pocketed an extra $10 million in two weeks from Instant.

A Google spokesperson told eWEEK Google wouldn't comment on "individual firms or campaigns' performance metrics."

Instead, he pointed to the comments Jonathan Rosenberg, Google's senior vice president for product management, made on the company's third-quarter earnings call Oct. 14, 12 days before the Marin report.

Unprompted, Rosenberg told financial analysts that the search engine didn't launch the Google Instant predictive search technology to make more money.

"We launched Instant because it's so much better for the user. In fact, from a revenue standpoint, its impact has been very minimal; and from a resource standpoint, it's actually pretty expensive. So why did we do it? Well, we believe from a user standpoint, Instant is outstanding and the data that we are seeing actually bears this out."

Google may say it didn't launch Instant expressly to boost search revenues, but Rosenberg and his colleagues had to know it would make more money. It's straight common sense: More searches on Google.com equals more search ads shown equals more clicks and impressions on AdWords ads.

Marin's data proves Instant is performing well for Google.

Rosenberg also said Google Instant for mobile will come this fall, and Google delivered that functionality for iPhone 4 and Google Android 2.2 handsets in the United States Nov. 4.

Bing goes live with Facebook Social Search

cNet

Bing has rolled out its new social search, a feature that can display profiles and updates from your Facebook friends as part of your Bing search results.

This step of the Facebook integration has been in the works for a few weeks, but the techs at Bing fine-tuned the feature before yesterday's rollout, according to a post on the official Bing blog.

The new social search integrates with Facebook in a couple of ways.

If you opt to link your Facebook account with your Bing log-in, searching for the name of one of your Facebook friends in Bing brings up a link to that person's entire profile in your results. This is true even if that person has elected not to share their Facebook profile with any search engines, since only you can see those results. So if you have a Facebook friend named Jerry Seinfeld, a link to his profile will appear alongside results for the famed comedian.

Early testers of the Facebook integration were apparently unhappy that they couldn't view the profiles of their friends through Bing with the same ease they could through Facebook itself, according to the blog, leading Microsoft to set up this specific type of access.

Further, Bing tweaked the age requirements. Facebook requires its users to be 13 or older, but Bing initially limited profile search results to people 18 and older. Based on customer feedback, Microsoft changed this option to let all your Facebook friends regardless of age show up in your Bing search results.

The Bing and Facebook team-up also can retrieve results for items "liked by your Facebook friends." So if you're looking for opinions on a certain movie or restaurant, Bing can show you any Facebook friends who "liked" those specific items.

The ease with which Facebook information can flow into Bing may arouse some privacy concerns. The integration is a one-way street, so no information goes from Bing back to Facebook. But still, anyone wary of the new social search can control or turn off the feature on both accounts.

Broadband Usage growing even as Gaps Persist

Associated Press

The U.S. still faces a significant gap in residential broadband use that breaks down along incomes, education levels and other socio-economic factors, even as subscriptions among American households overall grew sevenfold between 2001 and 2009.

What's more, even when controlling for key socio-economic characteristics, the U.S. continues to confront a racial gap in residential broadband use, with non-Hispanic white Americans and Asian-Americans more likely to go online using a high-speed connection than African-Americans and Hispanics.

Those are some of the key conclusions of a new analysis of Census data being released Monday by the Commerce Department. It found that the percentage of households that connect to the Internet using broadband grew to 63.5 percent in 2009 from 9.2 percent in 2001, reflecting increases across nearly all demographics.

The report - prepared by the Commerce Department's National Telecommunications and Information Administration and the Economics and Statistics Administration - is based on a Census survey of about 54,000 households conducted in October 2009.

The new report provides some of the deepest analysis yet of broadband usage trends in the United States. And it is likely to help guide Congress and the Federal Communications Commission as they develop policies to ensure that all Americans have access to affordable high-speed Internet service.

The analysis, said Lawrence Strickling, head of the NTIA, shows that "there is no single solution" to make this happen.

Among the major findings:

- 94.1 percent of households with income exceeding $100,000 subscribed to broadband in 2009, compared with 35.8 percent of households with income of less than $25,000.

- 84.5 percent of households with at least one college degree subscribed to broadband last year, compared with 28.8 percent of households without a high school degree.

- 77.3 percent of Asian-American households and 68 percent of non-Hispanic white households subscribed to broadband last year, compared with 49.4 percent of African-American households and 47.9 percent of Hispanic households.

- 65.9 percent of urban households subscribed to broadband in 2009, compared with 51 percent of rural households.

Closing such gaps is a top priority for the FCC, which released a sweeping national broadband plan filled with policy proposals in March. The agency's top recommendations include tapping the federal program that subsidizes telephone service for poor and rural Americans to pay for broadband, and unleashing more airwaves for wireless connections. Wireless broadband is seen as a particularly attractive option for bringing high-speed connections to rural areas that may be too sparsely populated to justify costly landline networks.

At the same time, the NTIA and the Rural Utilities Service, part of the Agriculture Department, have been handing out roughly $7 billion in stimulus money to pay for new broadband networks and programs to get more Americans online.

Strickling stressed that one key challenge for policymakers lies in convincing Americans who are not online of the benefits of broadband.

The Census data found that 38 percent of Americans who don't have broadband at home say they don't subscribe because they don't need it, while 26 percent say it's too expensive and only 4 percent say it's not available where they live.

A survey conducted by the FCC last year reached many of the same conclusions. It found that 35 percent of Americans do not use broadband at home, including 22 percent of adults who do not use the Internet at all. Of that 35 percent, 36 percent say it is too expensive, while 19 percent do not see the Internet as relevant to their lives. Another 22 percent lack what the FCC calls "digital literacy" skills.

To try to change such attitudes, the stimulus program includes $250 million for projects to teach digital literacy skills and encourage broadband adoption, plus another $200 million for public computer centers.

One surprising finding of the new Commerce Department report is that African-Americans and Hispanics lag behind in broadband adoption even when controlling for factors such as income and education. The data show a gap of 10 percentage points in broadband use between whites and blacks and a gap of 14 percentage points between whites and Hispanics even after controlling for socio-economic factors.

Although the data do not provide an explanation for these numbers, Rebecca Blank, under secretary for Economic Affairs, believes it could reflect limited exposure to the Internet among certain racial groups.

"Internet usage relies on networks," she said. "If the people around you don't use the Internet, you will be less likely to use the Internet, too."

Cable Subscribers flee, but is Internet to Blame?

Associated Press

 

TV subscribers are ditching their cable companies at an ever faster rate in the past few months, and many of them aren't signing up with a satellite or phone competitor instead.

Their willingness to simply go without pay television could be a sign that Internet TV services such as Netflix and Hulu are finally starting to entice people to cancel cable, though company executives say the weak economy and housing market are to blame.

Third-quarter results reported this week by major cable and satellite TV companies show major losses, but don't settle the question of what's causing them.

If "cord-cutting" in favor of Internet video is finally taking hold, that has wide-ranging implications. Consumers who use the Internet to get their movies and TV shows bypass not just the cable companies, but the cable networks that produce the content. The move could have the same disruptive effect on the TV and movie industries as digital downloads have already had on music.

A few weeks ago, the CEO of phone company Verizon Communications Inc. likened cord-cutting to what started happening to the local-phone companies five or six years ago, when people started giving up their landlines in favor of relying solely on their cell phones.

"The first thing when that happens is you deny it," Ivan Seidenberg said. "I know the drill. I have been there."

On Thursday, Time Warner Cable Inc.'s chief operating officer, Landel Hobbs, said the company doesn't see evidence of people dropping cable in favor of the Internet. He said the biggest subscriber losses have been among people who don't have cable broadband services; high-speed Internet - from cable or a competitor - is key to watching video online. These people seem to be going to satellite or giving up on pay TV entirely.

On the theory that college students might be among the first to drop cable TV, the company looked at changes in subscriber figures in college towns such as Austin, Texas, and Columbus, Ohio. They weren't out of line with previous years, and they corresponded to the level of student enrollment, he said.

"We'll continue to monitor cord-cutting, but haven't found evidence where you might expect to see it," Hobbs told analysts on a conference call.

Time Warner Cable lost 155,000 video subscribers in the July-September quarter, compared with 64,000 a year ago.

The only larger cable company, Comcast Corp., reported last week that its subscriber loss more than doubled in the third quarter, to 275,000. Comcast said many of those leaving had taken advantage of low introductory rates that the company offered last year when the analog TV broadcast network was shut down.

Of the satellite companies, DirecTV gained subscribers and Dish Network Corp. lost them. On a conference call Friday, Dish CEO Charlie Ergen said the Internet was making itself noticed as a competitor.

"You know, my kids think I'm crazy for being in the pay-TV business because they don't pay for TV. They don't pay for movies," Ergen told analysts.

The country's eight largest publicly traded pay-TV companies, representing about 85 percent of the subscriber total, had reported their results for the third quarter by Friday. These cable, phone and satellite companies showed a combined gain of 66,700 video subscribers, or a 0.3 percent increase at an annualized rate, about a third the growth of the population.

The figure was a slight recovery from the seasonally weak second quarter, when they gained just 12,400 subscribers. But it's far short of the 401,300 subscribers gained a year ago.

Missing from the tally is the third-largest cable company, Cox Communications, which is privately held and doesn't report subscriber counts publicly. If it lost cable subscribers at the same rate as Comcast and Time Warner Cable, the nine largest pay-TV companies had zero net gain for the latest quarter and lost subscribers in the second.

Cable companies have been losing video subscribers for some time, but they have been compensating by upgrading basic subscribers to more expensive digital tiers, as well as adding broadband and phone subscribers.

However, both Time Warner Cable and Cablevision Systems Corp. lost digital video subscribers in the third quarter. Both added record-low number of phone subscribers, as years of growth are coming to an end.

Meanwhile, Netflix Inc.'s streaming service has become so popular that it is now the largest source of U.S. Internet traffic during peak evening hours, according to Sandvine Inc., a Canadian company that supplies traffic-management equipment to Internet service providers.

A variety of gadgets can send Netflix's streams to the living room TV, including game consoles and the $99 Apple TV box. Many high-end TVs now come with the built-in ability to play Internet content.

Thomas Clancy Jr., 35, in Long Beach, N.Y., canceled the family's Cablevision subscription this spring. He said he has been happy with Netflix and other Internet video services since then, even though there isn't a lot of live sports to be had online.

"The amount of sports that I watched certainly didn't justify a hundred-dollar-a-month expense for all this stuff. I mean, that's twelve hundred dollars a year," Clancy said. "Twelve hundred dollars is ... near a vacation."

But Clancy - who has no relation to the thriller writer - is also an example of the hurdles cord cutters face. He uses an Internet-connected Blu-ray player to get Netflix movies to the TV. And he pulls a cable from his computer to the TV for Internet content Netflix doesn't have. Clancy owns a computer consulting firm and is tech-savvy enough to do all that. Most people wouldn't know how.

Cablevision wanted to raise Clancy's Internet bill when he canceled TV service. That would have made cord-cutting less attractive, but he happens to live in an area where Verizon provides Internet service at speeds that are comparable with the best cable has to offer. He got a better deal from Verizon and switched to that provider.

Most people who have the technological skills to take advantage of Internet video find that the selection of movies and shows isn't broad enough to make the jump worth it, Sanford Bernstein analyst Craig Moffett said.

On the other hand, poor people have an excellent motive to cut cable and simply replace it with an antenna or nothing at all, he said.

"The price of cable TV has risen to the point where it's simply not affordable to lots of lower-income homes. And right now there are an awful lot of lower-income homes," Moffett said. "The evidence suggests that what we're seeing is a poverty problem rather than a technology phenomenon."

In addition, high unemployment means fewer new households, as kids are probably delaying moving out of their parents' houses, or people move in with roommates. That can reduce the number of households that pay for TV.

Cable companies would like to get low-income customers back with cheaper cable packages, but their hands are tied. Content providers such as The Walt Disney Co. and News Corp. won't license their channels one by one, so subscribers have to take big, expensive channel packages, or very basic ones, which offer little beyond what's available with an antenna.

Content providers now get billions of dollars in fees from cable service providers, and they want to make sure that whatever new industry model comes along, they'll get paid. It's not obvious yet that Internet video will let them sustain their profit levels.

Six companies create the content that consumes 85 percent of U.S. viewing hours, Moffett said. "Until they get on board, the train's not leaving the station."