Microsoft Rumbles, Rearms For Online War It Can't Win Without Yahoo

Microsoft CEO Steve Ballmer dropped the ax today, and it landed on Kevin Johnson's neck.

Johnson, Microsoft's soon-to-be ex-President of Platforms & Services, has been with Microsoft since 1992. He was in the unfortunate position of leading the recent Vista effort through its very troubled launch, and running Microsoft's online efforts while watching their lunch be eaten by Google.

He takes a consolation prize: He's will become the CEO of Juniper Networks, a $12 billion network hardware manufacturer.

So what's next for Microsoft? The Windows and Windows Live products now reports directly to Ballmer. All the online stuff, including search, advertising and most MSN/Live.com services will be headed by a new executive.

Putting Johnson aside for a moment, It's damn well time Microsoft put someone in charge of its online efforts. Johnson had to split his time with the Windows cash machine and the results have been somewhat predictable. A half time executive running a product that doesn't even have a brand (Live? MSN? Microsoft?) can't win against Google.

The truth is that the next guy (or gal) isn't going to make any fast gains on Google, either. Ballmer seems willing to spend as long as it takes, though, noting that the war with Google is over the long term, not the short: "In the coming years, we?ll make progress against Google in search first by upping the ante in R&D through organic innovation and strategic acquisitions. Second, we will out-innovate Google in key areas¿"

That sounds like Microsoft will channel yet more Windows and Office profits into their Internet startup. There's no question that they intend to compete in search and advertising any more. The only question is whether they have any chance of winning.

Even if Microsoft concedes that they have a years (decades?) long war on their hands, they have to face the fact that Google's commanding lead in search, and the network-effect driven advertising wealth that comes with it, will be hard to beat. And all those client software profits won't last forever, particularly since Google is eating away at that via their suite of free Office products. The first thing Microsoft needs to do is buy Yahoo - all of it. That brings them to half of Google's market share in search, and at least they're in the game.

The Apple iPhone 3G

The good: The Apple iPhone 3G offers critical new features including support for high-speed 3G networks, third-party applications, and expanded e-mail. Its call quality is improved and it continues to deliver an excellent music and video experience.

The bad: The iPhone 3G continues to lack some basic features that are available on even the simplest cell phone. Also, we prefer the original iPhone's design.

The bottom line: The iPhone 3G delivers on its promises by adding critical features and sharper performance. The iTunes App Store is pretty amazing, and the 3G support is more than welcome. We still have a few gripes, but the iPhone 3G is a big improvement over the original model.

Microsoft 4Q profit rises

SEATTLE - With a Yahoo Inc. search deal uncertain at best, Microsoft Corp. plans to invest hundreds of millions of dollars more than expected in the next year to whip its unprofitable online operations into shape.

Analysts, however, wondered how long Wall Street can wait to see those bets pay off.

Microsoft said Thursday its fiscal fourth-quarter profit jumped 42 percent — or 13 percent, factoring in a hefty charge a year ago — as revenue topped $15 billion.

But due to weakness in the online business, which makes most of its money from Web advertising, the software maker missed Wall Street's earnings forecast by a penny and issued softer-than-expected guidance for the current first quarter.

Shares sank $1.65, or 6 percent, to $25.87 in after-hours trading, after rising 26 cents to close at $27.52.

For the three months ended June 30, Microsoft's profit jumped 42 percent to $4.3 billion, or 46 cents per share. In the year-ago quarter, earnings totaled $3 billion, hurt by more than $1 billion in charges related to defective Xbox game consoles.

Revenue increased 18 percent to $15.8 billion from $13.4 billion last year, just ahead of Wall Street's average forecast of $15.7 billion, according to a Thomson Financial survey. The revenue rise would have been 14 percent if not for weakness in the dollar.

"Those are very good numbers for a company of our size, in what many companies are finding challenging conditions," Microsoft's chief financial officer, Chris Liddell, said in an interview.

Sid Parakh, an analyst for McAdams Wright Ragen, wasn't buying it.

"The bottom line was disappointing," he said in an interview. "Across the board, they are investing more in growth, which is hurting the bottom line. That's been a concern about Microsoft that investors have felt for a long time."

Earnings for the thee segments responsible for Microsoft's major franchises — the Windows operating system, Office programs and server software — rose 18 percent to total $7.9 billion.

Strong PC sales helped bolster Office and Windows results. Liddell said Microsoft sold more than 40 million Vista licenses in the quarter, surpassing 180 million since January 2007.

The unit responsible for Xbox 360 lost money in the quarter but ended the year in the black, a milestone analysts have tracked for two years.

Microsoft's online business, which has come under renewed scrutiny from Wall Street since the software maker walked away from its bid to buy Yahoo in May, lost $488 million in the quarter, more than double its year-ago loss.

Liddell told analysts the company would invest hundreds of millions of dollars more than expected in the online business next year. He also forecast revenue growth for the unit would slow to between 7 percent and 11 percent in the quarter, and 18 to 20 percent for the full year, citing the tough economy.

"This is the area where we're seeing direct impact from the economic slowdown," Liddell said.

Again, Parakh was skeptical.

"We all know it's much more than the economy," Parakh said. Advertisers are waiting to see whether Microsoft and Yahoo will come together before spending their budgets with Microsoft, he said, and employees are distracted, too.

Walter Pritchard, an analyst for Cowen and Co., said Microsoft was stretching the definition of long-term investing by offering so few returns after so many years of spending.

"You could go back three years ago and say, these guys are still in the same situation. (They have a) quasi-strategy in online that isn't really clearly defined. They keep throwing money at it, and they're not getting any results," he said. "At the pace they're investing, they should be able to grow faster."

For the full fiscal year, Microsoft's earnings rose 26 percent to $17.7 billion, or $1.87 per share, from $14.1 billion, or $1.42 per share in fiscal 2007.

Sales for the year surged 18 percent to $60.4 billion.

For the current quarter, Microsoft said it expects to earn 47 to 48 cents per share on $14.7 billion to $14.9 billion in sales, shy of analysts' view for a profit of 49 cents per share on $15.1 billion in revenue.

For the full year, Microsoft forecast a profit of $2.12 to $2.18 per share on $67.3 billion to $68.1 billion in revenue.

Viacom has agreed to allow anonymize video sharing web site, YouTube

Viacom has agreed to allow search engine giant Google to anonymize the logs of its mega-popular video sharing web site, YouTube. Google needs to hand over the 12 terabytes of logs after Judge Louis L. Stanton of the U.S. District Court in New York ruled on July 1 that Viacom has the right to get the data as it was needed to prove its copyright infringement allegations.

The case was started about one year ago when Viacom filed charges against YouTube, accusing the popular website of having infringed upon numerous of its copyrights. Viacom said that Google does very "little or nothing" for stopping the upload of illegal videos on YouTube.

Viacom's lawsuit was initially filed last year, but was re-filed in a modified form last month. According to Viacom, Google should get more involved in finding ways to stop users from uploading copyrighted materials, seeing that at this point YouTube’s only measure for this problem enables owners to complain about a certain post and block it from being viewed.

In fact, Google will provide users' viewing histories, only that the real user names will be changed to coded strings. Viacom allegedly agreed not to circumvent any encryption techniques YouTube might put in place to protect user identities.

Microsoft and Icahn promised Yahoo billions in ad revenue

SAN FRANCISCO (Reuters) - Microsoft Corp and billionaire investor Carl Icahn's joint proposal for Yahoo Inc, which was rejected on Saturday, included improved revenue guarantees from search advertising, people familiar with the matter said on Sunday.

In joining forces with Icahn, Microsoft sweetened the terms of a proposal to control Yahoo's search business after withdrawing its offer in May to buy the whole company.

The improved terms included $2.3 billion (1.15 billion pounds) in guaranteed annual revenue from search advertising for five years, with the option to extend the deal for another five, according to the sources, who asked not to be named.

The deal would also have carried a minimum annual payment of $1.6 billion for the subsequent five years, The Wall Street Journal reported on Sunday, citing sources.

Previously, Microsoft had sought an exclusive, 10-year search ad agreement with Yahoo and had offered guarantees for only three years, a source told Reuters in June.

It remains unclear whether Microsoft had previously put a revenue guarantee amount on the table.

On Saturday Yahoo rejected the joint proposal, which would have given Microsoft its search business and left Icahn, who owns nearly 5 percent of Yahoo, in charge of the remaining company.

MIT opens new 'window' on solar energy

Cost effective devices expected on market soon

Imagine windows that not only provide a clear view and illuminate rooms, but also use sunlight to efficiently help power the building they are part of. MIT engineers report a new approach to harnessing the sun's energy that could allow just that.

The work, to be reported in the July 11 issue of Science, involves the creation of a novel "solar concentrator." "Light is collected over a large area [like a window] and gathered, or concentrated, at the edges," explains Marc A. Baldo, leader of the work and the Esther and Harold E. Edgerton Career Development Associate Professor of Electrical Engineering.

As a result, rather than covering a roof with expensive solar cells (the semiconductor devices that transform sunlight into electricity), the cells only need to be around the edges of a flat glass panel. In addition, the focused light increases the electrical power obtained from each solar cell "by a factor of over 40," Baldo says.

Because the system is simple to manufacture, the team believes that it could be implemented within three years--even added onto existing solar-panel systems to increase their efficiency by 50 percent for minimal additional cost. That, in turn, would substantially reduce the cost of solar electricity.

In addition to Baldo, the researchers involved are Michael Currie, Jon Mapel, and Timothy Heidel, all graduate students in the Department of Electrical Engineering and Computer Science, and Shalom Goffri, a postdoctoral associate in MIT's Research Laboratory of Electronics.

"Professor Baldo's project utilizes innovative design to achieve superior solar conversion without optical tracking," says Dr. Aravinda Kini, program manager in the Office of Basic Energy Sciences in the U.S. Department of Energy's Office of Science, a sponsor of the work. "This accomplishment demonstrates the critical importance of innovative basic research in bringing about revolutionary advances in solar energy utilization in a cost-effective manner."

Solar concentrators in use today "track the sun to generate high optical intensities, often by using large mobile mirrors that are expensive to deploy and maintain," Baldo and colleagues write in Science. Further, "solar cells at the focal point of the mirrors must be cooled, and the entire assembly wastes space around the perimeter to avoid shadowing neighboring concentrators."

The MIT solar concentrator involves a mixture of two or more dyes that is essentially painted onto a pane of glass or plastic. The dyes work together to absorb light across a range of wavelengths, which is then re-emitted at a different wavelength and transported across the pane to waiting solar cells at the edges.

In the 1970s, similar solar concentrators were developed by impregnating dyes in plastic. But the idea was abandoned because, among other things, not enough of the collected light could reach the edges of the concentrator. Much of it was lost en route.

The MIT engineers, experts in optical techniques developed for lasers and organic light-emitting diodes, realized that perhaps those same advances could be applied to solar concentrators. The result? A mixture of dyes in specific ratios, applied only to the surface of the glass, that allows some level of control over light absorption and emission. "We made it so the light can travel a much longer distance," Mapel says. "We were able to substantially reduce light transport losses, resulting in a tenfold increase in the amount of power converted by the solar cells."

This work was also supported by the National Science Foundation. Baldo is also affiliated with MIT's Research Laboratory of Electronics, Microsystems Technology Laboratories, and Institute for Soldier Nanotechnologies.

Mapel, Currie and Goffri are starting a company, Covalent Solar, to develop and commercialize the new technology. Earlier this year Covalent Solar won two prizes in the MIT $100K Entrepreneurship Competition. The company placed first in the Energy category ($20,000) and won the Audience Judging Award ($10,000), voted on by all who attended the awards.

Independent Yahoo better for competition

SUN VALLEY, Idaho - Google Inc. backs Yahoo in its effort to stave off an unsolicited takeover by Microsoft Corp. because an independent Yahoo will increase competition in the Internet search and advertising markets, Google Chief Executive Eric Schmidt said here Thursday.

"We absolutely support the decision that Yahoo made" in rejecting the Microsoft overture, Schmidt said at the annual Allen & Co. media summit at this Idaho resort. He made the comments during an hourlong interview with reporters. Google co-founders Larry Page and Sergey Brin were also present.

"There is no question in our view that an independent Yahoo is better," Schmidt It "will provide more competition in search and other advertising markets, in particular in display advertising," he said.

Google is the leading seller of Internet ads, but most of its revenue comes from paid search ads, which appear next to the results of an Internet search using Google.

Yahoo, which is stronger in display ads, rejected in May a $47.5 billion offer from the world's largest software maker. Schmidt would not say whether the informal offer — originally made in January for $31 per share, but later increased to $33 per share — fairly valued Yahoo, but said there is no way to know what the actual bid would ultimately be.

"Microsoft has a long history of having deals that look quite good and end up looking not so good when you read the fine print," he said.

Microsoft Corp. co-founder Bill Gates is also in Sun Valley, but has so far ducked reporters' questions. A Microsoft spokesman did not immediately return calls seeing comment.

The software company has indicated recently it would like to reopen talks, but Yahoo Inc. Chief Executive Jerry Yang told reporters he didn't expect to meet with anyone from Microsoft at the summit. Yang is trying to fend off activist investor Carl Icahn's attempts to replace the Yahoo board and sell the company.

The Google executives said their company had long considered making a deal with Yahoo, and the Microsoft bid spurred them to act. Google swooped in and inked a deal with Yahoo that will see the leading search companies share some ad revenue. Critics have said the deal was intended to block Microsoft, but Schmidt said the deal didn't prevent Yahoo from forging other partnerships, even with Microsoft.

"When Microsoft made the offer in January, we called (Yahoo) and said let's consider a business deal," Schmidt said. "We saw the Microsoft offer as anticompetitive for the market."

Schmidt said Microsoft has a history of gobbling up smaller companies and consolidating them in its Windows product, essentially choking off the market.

Google and Yahoo agreed to wait three months before starting their deal to give competition regulators a chance to review the deal. Schmidt expects the deal to pass antitrust muster, with testimony before regulators starting next week.

Schmidt and Page casually fielded questions on topics ranging from Google's presence in China to the company's plans to offer software that operates mobile phones. Brin joined the discussion halfway through, wearing a red and black cycling outfit after a bike ride with Michael Dell.

Schmidt was most pointed about a Viacom Inc. lawsuit that accuses Google's YouTube of violating copyrights on Viacom shows on cable networks MTV, Nickelodeon and Comedy Central. Viacom, which is seeking at least $1 billion in damages, won a court order to get viewership data from YouTube to prove its case.

"It's another mistake on their part," Schmidt said, sitting forward in his chair. "They should not have sued us. It was just an error. They should just retract the suit."

Schmidt said Google's relationship with media companies is better than it was a year ago, as many of them have started to embrace the Internet rather than fight it. The are no longer "in denial," he said.

Page said Google offers media companies the option of having their content removed from Google search indexes by simply adding a tag to the post.

"It's much easier to do on a practical basis" rather than involving lawyers, said Page, who is considered the technical guru at the Mountain View, Calif., company.

Schmidt said YouTube, which Google acquired last year, is "hugely successful in terms of users and content," although advertising revenue is expected to come in below expectations when results are reported for the most recent quarter.

"The revenue side has not been as forthcoming," Schmidt said. "We haven't come up yet with the right ad structure to go around that."

Page said the company would not run so-called pre-roll ads, which run before videos air, that many news sites run — even though that would boost revenue.

"If we ran pre-roll ads, we'd have more money today. But fewer users," he said.

Page also said Google sees "tremendous" revenue from the Apple Inc. iPhone because it is the only mobile phone that offers full Web browser capabilities. Schmidt, who is also an Apple board member, said he would be getting the latest version of the iPhone on Friday.

Florida toll system chooses eGo sticker

Florida’s Turnpike Enterprise (FTE), which manages the statewide SunPass system, has selected TransCore’s eGo Plus RFID sticker for use on the state’s 460 miles of toll road. The paper-thin, batteryless tags will be sold as the SunPass “Mini” and be available this summer.

The eGo Plus sticker tag is a 915 MHz programmable, beam-powered, windshield-mounted tag packaged as a flexible sticker. Each eGo Plus sticker tag comes equipped with a factory-programmed unique tag identification number to prevent the tag from being duplicated. The eGo Plus technology is also being used by Houston’s Harris County Toll Road Authority, the Texas Department of Transportation, and the Washington Department of Transportation.

The FTE’s initial order with TransCore is for 1.5 million of the tags, which will join the more than three million hardcase SunPass tags currently in use on the state’s roads.