Top 10 Security Nightmares of the Decade

Blame the Internet for the latest decade of security lessons. Without it, you probably wouldn't even recognize the terms phishing, cybercrime, data breach, or botnet. Let's revisit the top security horrors of the past ten years, and try to remember what we learned from each.

1. Cyberwar

What started out small ended up pretty big. Back in February 2000, a Canadian teenager named Mafiaboy used automated floods of incomplete Internet traffic to cause several sites--including Amazon, CNN, Dell, eBay, and Yahoo--to grind to a halt, in what is called a distributed denial of service (DDoS) attack.

Michael Calce, aka Mafiaboy, pleaded guilty to 55 of 66 counts of mischief and was sentenced to eight months detention. Calce later wrote a book about his experience, entitled Mafiaboy: How I Cracked the Internet and Why It's Still Broken. Some experts say that all security threats progress through a cycle that moves from fun to profit to politics, and DDoS attacks were no different: Opportunist criminals next started using DDoS to hold various gambling sites for ransom.

In May 2007, DDoS attacks turned political, with hundreds of online Russian sympathizers blocking Estonian government Websites, all because a World War II memorial had been relocated. The attacks continued through the summer until Computer Emergency Response Teams (CERT) from various nations mitigated them. The following year, Russian organized crime targeted the government of Georgia with a DDoS attack.

While some people think the United States might not be ready for the upcoming cyberwars, experts from CERT are now advising the U.S. government on how better to protect its infrastructure based on the attacks we've seen thus far.

2. Malware Makes Strange Bedfellows

Viruses and worms have always been around, but in the summer of 2001 one aggressive worm threatened to shut down the official White House Website. Code Red, so named because the discoverer was drinking "Code Red" cola from Mountain Dew at the time, warranted an unprecedented joint press conference with the FBI's National Infrastructure Protection Center, the U.S. CERT, the Federal Computer Incident Response Center (FedCIRC), the Information Technology Association of America (ITAA), the SANS Institute, and Microsoft.

Two years later, Microsoft again teamed with the U.S. Secret Service, the FBI, and later Interpol to offer a $250,000 reward for information leading to the arrest of those responsible for SoBig, MSBlast, and other major viruses at the time.

Such public-private cooperation is rare, but it happened again in early 2009 when Conficker was poised to wreak havoc on the Internet at midnight on April 1. That didn't happen, thanks in part to a unique coalition of rival antivirus companies that collaborated with government agencies under the Conficker Working Group name. To this day, this group continues to monitor the worm. Organizations are stronger when they team up against a common enemy, and even security companies can put aside their differences for the common good.

3. MySpace, Facebook, and Twitter Attacks

At the beginning of the decade, security experts at businesses had to struggle with employees' use of instant messaging from AOL, Webmail from Yahoo, and peer-to-peer networks. These applications poked holes in corporate firewalls, opening various ports that created new vectors for malware.

The battle initally focused on server port 80; but by the end of the decade, the top concerns were Facebook, Twitter, and other Web 2.0 applications.



In 2005, a teenager authored the Samy worm on MySpace, which highlighted a central problem of Web 2.0--that user-contributed content could contain malware. Even as Facebook endured a few privacy snafus, it also had its own worm, called Koobface.

In 2009, Twitter came of age, too, attracting its own malware and highlighting the dangers of shortened URLs--with them, you can't see what's waiting on the other side. Twitter also suffered from spam...or did Guy Kawasaki really send you that porn link?

4. Organized Viruses and Organized Crime

After the Melissa virus struck in 1999, e-mail-borne viruses peaked the following year with ILOVEYOU, which clogged e-mail servers worldwide within 5 hours. (See "The World's Worst Viruses" for more about a clutch of the decade's early offenders.)

As e-mail spam filters improved to block bulk mailings, malicious coders looked elsewhere, turning to self-propagating worms like MSBlast, which exploited a flaw in Remote Procedure Call messages, and Sasser, which exploited a flaw in Internet Information Services (IIS). About this time, viruses and worms began using Simple Mail Transfer Protocol (SMTP) to bypass e-mail filters so that the compromised machines could spew pharmaceutical spam to random addresses on the Net.

Shortly after Microsoft's Reward program netted Sven Jaschen, author of Netsky and Sasser, in 2004, the image of a single author creating viruses in a parents' basement fell out of favor, replaced by organized crime operations with financial ties to porn and bulk pharmaceutical companies. (In 2005, PCWorld wrote a series on the problem, "Web of Crime.") Groups such as the Russian Business Network (RBN) ran sophisticated spam campaigns, including pump-and-dump penny-stock spam.

5. Botnets

With the financial backing of organized crime syndicates came widespread and clever innovations in malware.

In 2007, the Storm worm--which began like any other virus--started talking to other Storm-compromised computers, forming a network of compromised computers all using the Overnet peer-to-peer protocol. This protocol allowed the operator to send out a spam campaign or to use the compromised computers to launch a DDoS attack.

Storm was not alone. Nugache, another virus, was building a botnet, too. And there were others. Today, botnets have spread to the Mac OS and Linux operating systems. The chances are approaching 50/50 that you might have at least one bot on one of your computers now.



Dave & Busters, Hannaford Brothers, Heartland Payment Systems, and TJX, to name just a few. One man, Albert Gonzalez, pleaded guilty for most of these heists, and was implicated in others. Gonzalez and his crew entered malicious code through the Web-facing sites of these major companies. In turn, the malware infiltrated the internal network, where it could look for unencrypted credit card data.

To combat such data breaches, in 2005 the Payment Card Industry (PCI) produced 12 requirements that all of its member merchants must follow; the PCI Security Council updates those requirements every two years. What lies ahead is end-to-end encryption of the credit card data, so that your personal information is never in the clear from cash register to card brand.

7. Gone Phishing

More effective than spam, yet short of a full-blown data breach, is phishing. The idea here is that a creatively designed e-mail can lure you into visiting a believable-looking site designed solely to steal your personal information. Often these sites use "fast flux," the ability to switch domains quickly so that you can't lead law enforcement back to the site.

Using logos and designs from banks and e-commerce sites, some phishing sites seem entirely realistic, a vast improvement over the crude pages full of misspellings of a few years ago. The best defense? Don't click!

8. Old Protocol, New Problem

Behind the Internet are protocols, some of which today perform functions far beyond what they were originally designed to do. Perhaps the most well-known of the overextended protocols is the Domain Name System (DNS), which, as IOActive researcher Dan Kaminisky explained in 2008, could be vulnerable to various forms of attack, including DNS cache poisoning.

DNS converts a Website's common name (for example, www.pcworld.com) into its numerical server address (for example, 123.12.123.123). Cache poisoning means that the stored address for a common name could be incorrect, thus leading a user to a compromised site rather than to the intended site--and the user had no way to know. Kaminsky managed to keep the flaw known to a limited group of companies for about six months, and then rolled out a coordinated series of patches that seemed to address many of the more serious vulnerabilities.

Similarly, researcher Marsh Ray of PhoneFactor discovered a hole within SSL/TLS, one that allows for man-in-the-middle attacks while authenticating the two parties. This wasn't a vendor-specific problem, but a protocol-level flaw. Ray, like Kaminsky, also set about coordinating a patch among affected vendors. However, a second researcher stumbled upon roughly the same thing, so Ray felt compelled to come forward with his vulnerability, even though some of the patches are still to come.

Disclosures such as these have hastened the move to newer standards, such as DNSSEC, which authenticates data in the DNS system, and a newer version of SSL/TLS. Look for the replacement of existing protocols to continue in the coming years.

9. Microsoft Patch Tuesdays

A decade ago, Microsoft released its patches only as needed. Sometimes that was late on a Friday afternoon, which meant that bad guys had all weekend to reverse-engineer the patch and exploit the vulnerability before system administrators showed up for work on Monday.

Starting in the fall of 2003, Microsoft released its patches on a simple schedule: the second Tuesday of every month. What has become known as "Patch Tuesday" has, over the last six years, produced a crop of fresh patches every month, except for four. Oracle patches quarterly, and Adobe recently announced that it would patch quarterly, on or near Microsoft's Patch Tuesday. Apple remains the only major vendor that doesn't adhere to a regular cycle for its patches.

10. Paid Vulnerability Disclosure

Independent researchers have debated for years whether to go public with a newly found flaw or to stay with the vendor until a patch is created. In some cases the vendor doesn't get back to the researcher, or doesn't make publication of the flaw enough of a priority, so the researcher goes public. On the other side of the fence, criminals certainly don't go public, knowing that such vulnerability information is worth serious money on the black market.

After years of back and forth, in recent times one or two security companies have decided to pay researchers to stay quiet; in exchange, the company works with the necessary vendor to see that the patch is produced in a timely fashion and that clients of the company get details of the flaw sooner than the general public.

For instance, at the CanSecWest Applied Security Conference, Tipping Point Technologies annually awards $10,000 to the researcher who can hack a given system. And payment-for-vulnerabilities programs have matured in recent years. For example, in Microsoft's December 2009 Patch Tuesday release, all five of the Internet Explorer vulnerabilities patched can be attributed to the iDefense Zero Day Initiative program.

Cost-cutting Yahoo to close offices for holidays

Yahoo says it will close its offices from Christmas through New Year's to help save money. The cost-cutting move ends a year in which Yahoo's revenue declined for the first time since 2001.

It's the first time that Yahoo has required most of its 13,200 employees to use vacation time or unpaid leave during the holidays. Only employees performing essential duties will be working from Dec. 25 through Jan. 1.

Yahoo Inc., based in Sunnyvale, Calif., has eliminated about 2,000 jobs and shed other expenses since September 2008. The streamlining has helped offset a 12 percent decline in Yahoo's revenue through the first nine months of this year.

Several other Silicon Valley companies traditionally close most of their offices during the holidays.

Netbooks meet luxury in ultra-light

Netbooks have been a hit among laptop buyers because they're cheap and they're easy to carry. Now there's the option to pay a lot more and get a lot less — a lot less weight, that is.

Sony's Vaio X is the runway model of netbooks: stylish, super-thin and without an ounce of weight to spare. It's expensive too: the base model is $1,300 at Sonystyle.com and Sony Style stores. The price is nearly four times as much as a standard netbook.

Its carbon-fiber body, just over half an inch thick, houses an 11.1-inch screen and weighs just 1.6 pounds. How light is that? Well, it nearly blew out of my hands one day when I was walking down the street with it opened. I'm not kidding. It makes 2.5-pound netbooks feel heavy. It makes the 3-pound MacBook Air seem like a dumbbell.

Sony says it's the world's thinnest, lightest laptop with a screen larger than 10 inches diagonally. Whatever the state of the competition may be, the light weight means that carrying the Vaio X around never really felt like a burden. It was a great companion on my commute, with a screen large enough to read comfortably on, and light enough to hold in one hand when standing, at least for short periods of time. For the ultimate in mobility, the computer has a built-in modem for Verizon Wireless' cellular broadband network. Service costs an extra $60 or so per month.

Of course, a mobile laptop isn't much good if it has poor battery life and constantly needs to be tethered to an outlet. The Vaio X does pretty well in this regard, at least if you consider the weight. On battery power, it lasted 1 hour and 47 minutes when playing high-definition video nonstop and accessing the Web via Wi-Fi. In more typical circumstances, this translates into about three hours of use.

The Vaio X also comes with a protruding extended battery with four times the capacity of the regular one. Together, you could get about 17 hours of work from them. The extended battery bumps the weight of the unit to 2.3 pounds.



The carbon fiber and aluminum frame is part of the reason the Vaio X can be so light. Like other netbooks, it uses an Intel Atom processor, which is small and doesn't run hot, so the Vaio X doesn't need a big ventilation fan or ducting to carry away heat. The unit also dispenses with the standard, disk-based hard drive. Instead, it has a "solid-state disk," or SSD, composed of flash memory chips that don't have moving parts.

The chief drawback of SSDs is that they have low capacities and high prices. The basic Vaio X has 64 gigabytes of storage. There's a model with twice as much for $1,500.



The small hard drive isn't likely to be a major impediment, however, because the Vaio X isn't capable of heavy-duty computing in any case. The Atom processor is good enough for e-mail, Web surfing and office applications, but will crawl when forced to do anything more demanding. Running the premium version of Windows 7 is already a bit of a struggle for it, and it doesn't have the processor power to play TV shows from Hulu without stuttering.

Other sacrifices to the design include feeble speakers and a somewhat flimsy feeling. The carbon-fiber cover isn't as good at repelling fingerprints as anodized metal or matte plastic, so the runway-ready looks can get grubby fast. The keys don't "give" much under the fingers, so extended typing can be uncomfortable.

The Vaio X does have a slot for SD memory cards, common in digital cameras, and an Ethernet jack for plugging into wired networks. Both are missing from the MacBook Air. The Sony model also comes with a GPS chip and navigation software, but I wasn't able to get it to work.

If you have the money and need something portable, the Vaio X is a nice choice indeed. Like most netbooks, it's best used as a backup for a standard laptop or desktop.

Over the next decade, the evolution of computing and the Internet will produce faster

Ten years ago, we would have been blown away by a cell phone with far more computing power and memory than the average PC had in 1999, along with a built-in camera and programs to manage every aspect of our lives. Ten years from now, the iPhone and its ilk will be antiques.

Over the next decade, the evolution of computing and the Internet will produce faster, increasingly intelligent devices. More of our possessions will contain sensors and computers that log our activities, building digital dossiers that augment our memories, help us make decisions and tame information overload.

Such ideas may sound futuristic and excessive today. And technological predictions are notoriously off-base. Short-term forecasts tend to assume too much change and long-term forecasts underestimate the possibility of sudden, major shifts.

Even so, this vision of interconnected devices that produce and filter massive amounts of data in the 2010s is a logical progression of the Web, computers and gadgetry that emerged in the 2000s. Moore's Law, the principle that computing power doubles every two years without increasing in cost, still rules.

Recall the personal computer, circa 2000. It likely had a "clock speed" — a measure of how fast it could do things — just one-sixth of many computers today.

Apple's 1999 iMac came with 64 megabytes of RAM, memory that helps computers switch among programs. Today's iMac today has 60 times as much. The vintage iMac had a 10-gigabyte hard drive for storing digital photos and other files. Now iPods have more space than that, and iMac drives start at 500 gigabytes.

Remember dial-up? In 2000, fewer than 10 percent of U.S. households had broadband Internet, according to Forrester Research. In 2008, 61 percent of homes had it.

As computers and Internet connections got faster, we enjoyed them more. In October 2002, the average American spent about 52 hours a month on a home computer, according to the Nielsen Co. This October, the figure was nearly 68 hours a month.

We filled ever-more-spacious hard drives with music and photographs, as households with digital cameras jumped from 10 percent in 2000 to 68 percent last year, and those with an MP3 player climbed from less than 2 percent in 2000 to 41 percent in 2008, according to Forrester.



We increased the ways we could stay connected: More of us got cell phones, camera phones, smart phones and the iPhone. We bought more laptops and came to expect Internet connections almost everywhere.

Personal home pages were replaced by blogs that could be set up in seconds, which gave anyone with a computer and Web access the potential to reach a bigger audience than many newspapers. First-generation social networks, little more than online address books, gave way to sites such as Facebook and Twitter, where we add our words, photos, links and video posts to a collective stream of consciousness.

Online, we also tripped over the line between private and public. We shared intimate details with our network of online "friends," and sometimes it was simply too much information, especially when our boss was reading.

All these changes unfolded because of an explosion in computing power and connectivity that only figures to accelerate in the next decade.

As we move through our lives, we'll leave more and more digital detritus. Some of it will resemble what we share online today. Some will be emitted quietly by devices, just as mobile phones can signal their location.

We'll also have access to more data about the world around us, dwarfing the real-time stock quotes, government statistics, scientific databases and other information stores available today.

In the next decade as conjured by Forrester Research analyst James McQuivey, all that information will be available instantaneously, anywhere. He imagines spotting an acquaintance at a conference and having at his fingertips links to the person's most recent research, plus a reminder of her husband's name.

Software will remember everything McQuivey buys, reads online and watches on TV. A "smart filter" will use his past choices to suggest the next book or show, or even what he should eat for dinner. It's a more powerful version of the way Amazon.com and Netflix make book or movie recommendations.

He also thinks we'll all use this technology just to keep up with everyone else. He likens the situation to calculators in math class: At first teachers banned them but now they're required. Leaving yours at home on test day would be a big disadvantage.

Craig Mundie, Microsoft Corp.'s chief research and strategy officer, believes we are near a long-wished-for era of computers that respond to speech, gestures and handwriting.



In Mundie's vision, "digital assistant" programs will help us solve specific problems. Imagine you're moving to a new city and need to find a house. "Relocation assistant" software would listen as you brainstorm out loud about whether you want to drive to work or take the bus, about school preferences and the market value of your current house. As you converse with it, the program scouts real estate listings and plots the best on a map.

Our smaller devices will also benefit from speedy connections to "the cloud" — powerful networks of computers that perform services remotely. In a decade, Manny Vara, chief evangelist for Intel Labs, imagines he'll tap the power of the cloud on trips to foreign countries, speaking into his phone and seeing a translation on his screen within seconds.

In another scenario, Vara imagines we will each wear a tiny camera. It could snap a photo of the cutie next to you in the bar and send it up into the cloud for analysis. If it matches your friend's nasty ex, a voice could whisper into your earpiece that it's time to move on. Your portable devices don't have to be powerful enough to run facial recognition software; they just need a connection to the cloud.

Such ideas aren't brand new, but budding technology might finally make them happen. In the 1990s, Mark Weiser, then chief technology officer at Xerox's Silicon Valley research center, wrote about "calm technology" that will exist in the periphery and come forward to claim our full attention when needed. We won't "go on the Internet." Rather, it will become built-in, ubiquitous and unremarkable, much as electricity is today.

"Every physical object will have a digital cloud around it," says Marina Gorbis, executive director at the Institute for the Future.

That raises new challenges for our privacy. And it opens the door to a new leader in the technology industry.

The 2000s saw Google become one of the world's most powerful companies because it helped us get a grip on the sprawling content of the Web. What we will need next, however, is a company that doesn't just organize data. Google, or the next Google, will have to synthesize all that information and help us understand what it all means.

How fake sites trick search engines to hit the top

Even search engines can get suckered by Internet scams.

With a little sleight of hand, con artists can dupe them into giving top billing to fraudulent Web sites that prey on consumers, making unwitting accomplices of companies such as Google, Yahoo and Microsoft.

Online charlatans typically try to lure people into giving away their personal or financial information by posing as legitimate companies in "phishing" e-mails or through messages in forums such as Twitter and Facebook. But a new study by security researcher Jim Stickley shows how search engines also can turn into funnels for shady schemes.

Stickley created a Web site purporting to belong to the Credit Union of Southern California, a real business that agreed to be part of the experiment. He then used his knowledge of how search engines rank Web sites to achieve something that shocked him: His phony site got a No. 2 ranking on Yahoo Inc.'s search engine and landed in the top slot on Microsoft Corp.'s Bing, ahead of even the credit union's real site.

Google Inc., which handles two-thirds of U.S. search requests, didn't fall into Stickley's trap. His fake site never got higher than Google's sixth page of results, too far back to be seen by most people. The company also places a warning alongside sites that its system suspects might be malicious.

But even Google acknowledges it isn't foolproof.

Some recession-driven scams have been slipping into Google's search results, although that number is "very, very few," said Jason Morrison, a Google search quality engineer.

On one kind of fraudulent site, phony articles claim that participants can make thousands of dollars a month simply for posting links to certain Web sites. Often, the victims are asked to pay money for startup materials that never arrive, or bank account information is requested for payment purposes.



"As soon as we notice anything like it, we'll adapt, but it's kind of like a game of Whac-A-Mole," he said. "We can't remove every single scam from the Internet. It's just impossible."

In fact, Google said Tuesday it is suing a company for promising "work at home" programs through Web sites that look legitimate and pretend to be affiliated with Google.

Stickley's site wasn't malicious, but easily could have been. In the year and a half it was up, the 10,568 visitors were automatically redirected to the real credit union, and likely never knew they had passed through a fraudulent site.

"When you're using search engines, you've got to be diligent," said Stickley, co-founder of TraceSecurity Inc. "You can't trust that just because it's No. 2 or No. 1 that it really is. A phone book is actually probably a safer bet than a search engine."

A Yahoo spokeswoman didn't respond to requests for comment. Microsoft said in a statement that Stickley's experiment showed that search results can be cluttered with junk, but the company insists Bing "is equipped to address" the problem. Stickley's link no longer appears in Bing.

To fool people into thinking they were following the right link, Stickley established a domain (creditunionofsc.org) that sounded plausible. (The credit union's real site is cusocal.org.) After that, Stickley's site wasn't designed with humans in mind; it was programmed to make the search engines believe they were scanning a legitimate site. Stickley said he pulled it off by having link after link inside the site to create the appearance of "depth," even though those links only led to the same picture of the credit union's front page.

The experiment convinced Credit Union of Southern California that it should protect itself by being more aggressive about buying domain names similar to its own. Domains generally cost a few hundred dollars to a few thousand dollars each — a pittance compared with a financial institution's potential liability or loss of goodwill if its customers are ripped off by a fake site.

"The test was hugely successful," said Ray Rounds, the credit union's senior vice president of information services.

Stickley's manipulation illuminates the dark side of so-called search engine optimization. It's a legitimate tactic used by sites striving to boost their rankings — by designing them so search engines can capture information on them better.



But criminals can turn the tables to pump up fraudulent sites.

"You can do this on a very, very broad scale and have a ton of success," Stickley said. "This shows there's a major, major risk out there."

Robert Hansen, a Web security expert who wasn't involved in Stickley's research, said ranking high in search engine results gets easier as the topic gets more obscure. An extremely well-trafficked site such as Bank of America's would always outrank a phony one, he notes.

Still, Hansen said, criminals have been able to game Google's system well enough to carve out profitable niches. He says one trick is to hack into trusted sites, such as those run by universities, and stuff them with links to scam sites, which makes search engines interpret the fraudulent sites as legitimate.

"I don't think we're anywhere near winning" the fight against such frauds, said Hansen, chief executive of the SecTheory consulting firm.

Roger Thompson, chief research officer for AVG Technologies, who also wasn't involved in the research, said search results can be trusted, for the most part.

"But the rule is, if you're looking for something topical or newsworthy, you should be very cautious about clicking the link," he said. That's because criminals load their scam sites with hot topics in the news, to trap victims before the search engines have a chance to pull their sites out of the rankings.

"The bad guys don't have to get every search," he said. "They just have to get a percentage."

Consumers can protect themselves from scam sites by looking up the domain at http://www.whois.com, which details when a site was registered and by whom. That can be helpful if the Web address of a phony site is similar to the real one.

AOL ends ties with Time Warner

AOL is shaking loose from Time Warner Inc. and heading into the next decade the way it began this one, as an independent company. Unlike the 1990s, though, when AOL got rich selling dial-up Internet access, it starts the 2010s as an underdog, trying to beef up its Web sites and grab more advertising revenue.



Despite a few bright spots in its portfolio of sites, such as tech blog Engadget, AOL has a long way to go until Web advertising can replace the revenue it still gets from selling dial-up Internet access. One especially popular property, entertainment site TMZ, is a joint venture with a Time Warner unit that will keep TMZ and its revenue after AOL splits off.

Now investors are getting a chance to place bets on AOL. On Wednesday, Time Warner shareholders as of Nov. 27 will get one share of AOL for every 11 of their Time Warner shares. The next morning, AOL CEO Tim Armstrong is set to ring the opening bell at the New York Stock Exchange, and AOL will begin trading under the ticker symbol of the same name — the one it had when it was known as America Online and used $147 billion worth of its inflated stock to buy Time Warner in 2001.

The parent company was even known as AOL Time Warner in the heyday. At the time, Time Warner thought its movie, TV and magazine content would benefit from ties with AOL's Internet access business. The media conglomerate announced AOL's spinoff in May after years of trying unsuccessfully to integrate the two companies.

AOL will initially be worth about $2.5 billion, based on the value of preliminary AOL shares that have been trading ahead of the formal spinoff this week. AOL will have no debt, and the company is profitable, though falling — operating income dropped 50 percent to $134 million in the third quarter compared with last year.

In the past year, AOL hired Armstrong, a former Google advertising executive, to engineer a turnaround that eluded the company while it was part of Time Warner.




In those years, AOL struggled to complete its transition away from relying on its dial-up business. The service peaked in 2002 with 26.7 million subscribers, and has declined steadily as consumers switched to broadband. In the third quarter, AOL had 5.4 million dial-up subscribers, who paid an average of $18.54 per month.

Even with the decline, this business brought in $332 million during the quarter, or 43 percent of AOL's total revenue. But that's down from $1.8 billion, or 82 percent of revenue, during its peak quarter seven years earlier.

Overall third-quarter revenue dropped 23 percent from last year to $777 million.

AOL has tried to offset the fading service by moving away from its origins as a "walled garden" with subscriber-only content to a network of online destinations with free material, supported by ads. AOL even began giving away AOL.com e-mail accounts.

The results have been mixed. After initially showing promise, AOL's ad revenue fell last year and in each of the first three quarters of this year. AOL's advertising shortfall in the third quarter — an 18 percent decline from the same period a year ago — was much worse than the 5.4 percent drop in overall Web ad market, according to PricewaterhouseCoopers LLP.

Another problem: AOL's more than 80 Web sites are struggling to keep their viewers. In the third quarter, AOL's network had 102 million unique visitors in the U.S., according to comScore, a 7 percent drop from 110 million a year ago. By contrast, Google and Yahoo both showed gains of more than 10 percent.

AOL has responded partly with plans to shed up to 2,500 jobs, or more than a third of its employees, in an effort to save $300 million a year. That comes on top of thousands of other cuts in recent years and will leave the company at less than a quarter the size it was at its peak in 2004. The cost-cutting has allowed AOL to stay profitable despite shrinking revenue.




AOL also is trying to produce online material far more cheaply. It plans to launch dozens of new sites next year and populate much of them with work done by freelancers. These freelancers will be paid by the post — some with a flat rate, some with a share of revenue based on the amount of traffic the post generates.

Ned May, an analyst with Outsell Inc., believes AOL can use this low-cost method to experiment with building lots of new sites and see what sticks with viewers.

To stimulate the process, AOL is counting on a content-management system it calls Seed. It shows information about the kinds of things people are searching for online so that writers and editors can quickly create material people presumably want to read.

For example, a site might traditionally write about Halloween costumes in mid-September, but search data showed that people were looking for costumes in August, said Bill Wilson, AOL's head of media.

"There was this whole window we were missing," Wilson said.

Gabelli & Co. analyst Christopher Marangi believes AOL will have to figure out how to better integrate social networking into its sites. AOL owns a social site called Bebo, which is popular overseas but gets about 6 percent as many visitors as Facebook does in the U.S., according to comScore data.

Being its own company again means AOL will regain the freedom to use its resources solely for its own benefit, rather than worrying about how they fit into the Time Warner empire. If the stock performs well, it could become a currency AOL can use to snag employees and acquire other companies.

Of course, now the world also will be able to more closely follow whether AOL is making progress on its strategy.

"That may be a challenge," Armstrong said, "but I think it's a challenge we knew we were signing up for whether we were public or private."

Black Friday LCD-TV prices down 22 pct

Decisive price cuts are helping to lift sales of LCD flat-panel TVs after Thanksgiving, research firm iSuppli Corp. said in a new report.

ISuppli said promotional prices are 22 percent lower than before Black Friday, the traditional start of the holiday shopping season. ISuppli estimates 6 percent more TV sets will be sold during a seven-day period that began on Black Friday compared with the same period last year.

The average advertised Black Friday price for a 32-inch set was $369, down from $490 before Thanksgiving.

Prices for larger sets were down more modestly, about 7 percent. Manufacturers instead packed better features into the models that went on sale, such as faster refresh rates for a steadier picture, iSuppli said.

Big brands like Samsung Electronics Co., LG Electronics Inc. and Sony Corp. offered the biggest discounts because they have had the highest regular prices, according to iSuppli analyst Tina Tseng.




ISuppli's analysis excludes plasma TVs, another type of flat panel that's less popular than LCD-based units.

A power outage at a Corning Inc. factory in Taiwan didn't cause a shortage of glass for TVs as initially feared, iSuppli noted. The outage occurred in October, after manufacturers had already bought components for the sets that went on sale on Black Friday.

GPS cell phone apps challenge standalone devices

The growth of cell phones with global-positioning technology is making life uncertain for the makers of personal navigational devices that help drivers figure out where they are and where to go.

Manufacturers of standalone GPS products will have to move quickly and smartly to transform their dumb map readers into intelligent devices that can provide a host of services such as traffic avoidance.




Otherwise, they risk obsolescence in a future in which customers view navigation as simply one more application for their phones. Some of the newer apps already closely match what basic, dashboard-mounted gadgets can do.

"You have to redefine the category somewhat, like what Apple did with the iPod Touch," said Ross Rubin, technology analyst for research firm The NPD Group. "That turned it from something that was just a media player into something that accessed the Web."

Garmin, TomTom and other makers of satellite navigational devices could take a lesson from camera makers, which have convinced consumers that they still need standalone devices because there is a significant drop in quality with cameras built into cell phones.

Those GPS manufacturers now must make a similar argument for their devices or add enough extra services to give shoppers a reason to buy.

But there are unique challenges for gadgets primarily used while driving.

"The driver's attention should be on the road, not checking his or her Facebook," Rubin said.

Manufacturers already have begun broadening their GPS products, adding wireless technology to some of their top-end devices to provide up-to-the-minute traffic data, nearby gas prices and weather information. Research firm Berg Insight estimates that more than 80 percent of navigational devices will have wireless capability by 2015.




Other products, particularly pricey units built into a vehicle's dashboard, are coming with the ability to play digital audio files or act as an Internet hub for the driver and passengers.

These features could give manufacturers new revenue streams, as they'd be able to justify monthly subscription fees, which they don't currently charge for basic mapping and directions.

Satellite navigation devices have changed in recent years from being $1,000-and-up toys mostly for the affluent technorati to tools costing less than $200 and used by truckers, rental car customers and errand-running parents.

Although the economic slowdown has hampered sales somewhat, those devices are still popular. Research firm In-Stat estimates that worldwide unit sales will rise 19 percent this year from 2008 and grow 13 percent next year. The NPD Group says U.S. sales are up 4 percent to 4.7 million through September from the same nine months in 2008.

But cell phones are now offering similar GPS-based navigational features — for free on devices with software from one of the Internet's top brands.

Google Inc. recently introduced a free application that calls out turn-by-turn directions, just like the standalone devices do, letting motorists concentrate on driving without having to constantly look at the phone for written directions. The app was launched on the Droid phone for Verizon Wireless a few weeks ago and expanded this past week to include myTouch 3G and the G1 for T-Mobile.

The three main wireless providers, AT&T Inc., Verizon Wireless and Sprint Nextel Corp., also sell their own turn-by-turn mapping applications for $9.99 per month — or include the apps in an unlimited data plan.

Besides helping wireless carriers poach potentially thousands of customers, cell phones will likely also accelerate the decline in prices for navigational device — already down 25 percent from last year to an average of $175, according to NPD.

Normally, that means the standalone devices pay for themselves in about a year and a half, as consumers avoid monthly fees for the basic features.

Google's freebie changes the dynamics.

Investors are certainly spooked, greeting Google's Oct. 28 announcement by hammering shares of Garmin Ltd. and TomTom NV. Garmin shares have fallen 22 percent from a high of $39.58 a little more than a month ago. TomTom shares are about half their 52-week high of $13.65.

Company officials acknowledge the increased competition but say their devices still enjoy distinct advantages over cell phones: They have easier-to-use controls and screens that are bigger and can include more information. Maps also are built into the machines and won't suddenly disappear when the wireless network goes hazy.

Standalone devices "will still be an important way for consumers to get directions," said Ted Gartner, a spokesman for Garmin, which is based in the Cayman Islands but has its headquarters in Olathe, Kan. "We're not going anywhere."

But Frank Dickson, vice president of research at In-Stat, said customers who have never used a personal navigation device or don't travel often into unfamiliar areas might not care about the quality difference. They'd be more apt to demand additional functions and value to offset the higher upfront cost of a dedicated device.

At the same time, device makers are trying to make inroads in the cellular market. Both Garmin and TomTom, based in the Netherlands, sell $99 applications for smart phones.

"We consider ourselves to be very portable and we look forward to the growth of navigation across the board," said Tom Murray, vice president of market development for TomTom's U.S. division.

Garmin went one step further this fall, introducing the nuvifone, a cell phone with many of the features of the company's line of devices. Sold though AT&T, the nuvifone has been disappointing, but Garmin says it will release newer versions, including one next year for phones running Android, the Google-made operating system on which Google's own mapping application can run.

In-Stat's Dickson warns that entering the cell phone market may be a mistake because navigational device makers should emphasize their expertise in mapping software and location-based services.

"I can't help but think they're going to get a butt-kicking," Dickson said. "Let's focus on being the best navigation device maker that we can be and if we can integrate some of those other functions, like instant messaging or voice connectivity, then we can do that."

Google Chrome Operating system will start pc less than 7 second

New Google Inc software will start up a computer as fast as a television can be turned on, the search company said on Thursday as it showed off its Chrome operating system designed for PCs that do their work on the Web.



Google gave the first public look at its Chrome OS four months after declaring its intention of developing the PC's main software, a move that pits it directly against Microsoft Corp and Apple Inc.

True to Google's Internet-pedigree, the Chrome OS resembles a Web browser more than it does a traditional computer operating system like Microsoft Windows, matching Google's ambition to drive people to the Web -- where they can see Google ads.

Google said the software will initially be available by the holiday season of 2010 on low-cost netbooks that meet Google's hardware specifications, such as using only memory chips to store data instead of slower hard drives, the current standard.

Netbooks running Chrome OS will only be able to run Web applications and the user's data will automatically be stored on the Web in the so-called cloud of Internet servers, Google executives said at an event at the company's Mountain View, California headquarters on Thursday.

"It's basically a Web browsing machine," said Altimeter Group analyst Charlene Li, referring to the netbooks powered by Chrome OS.

Such a machine is made for a world of near-constant, extremely fast Web connection, without the type of software that made Microsoft famous, since most of the work would be done by big machines on the Web which take directions and send information to relatively uncomplicated devices like a Chrome PC.




Sundar Pichai, vice-president of product management for Google's Chrome OS, said that computers running Chrome OS will be able to start in less than seven seconds.

"From the time you press boot you want it to be like a TV: You turn it on and you should be on the Web using your applications," Pichai said.

MORE WEB USE DRIVES MORE GOOGLE ADS

Google said it is giving away the software for free, similar to its Android smartphone software, with the idea that improving the Web experience will ultimately benefit its Internet search advertising business, which generated roughly $22 billion in revenue in 2008.

"They're doing it to get further and further entrenched in whatever people are doing to go online, whether that's a browser, an operating system or in applications," said Todd Greenwald, an analyst with Signal Hill Group.

"If Chrome is the OS then the attach (access) rate on Google searches will be a lot higher," he said.

But analysts noted that the differences between conventional PCs and Chrome OS netbooks might give some consumers pause.

"If they view it from the conventional perspective, then it falls short," Gartner analyst Ray Valdes said of Chrome OS, citing its lack of compatibility with traditional software and its limited offline capabilities.

Google officials said Chrome OS netbooks will be able to provide some functions when offline, but that the product was primarily designed to be connected to the Internet.

But Valdes said if Google can deliver on the products' promises, such as fast performance, then consumers may view Chrome OS netbooks as distinct class of products with attractive benefits.

"I think that it's initially going to appeal to small subset of the general consumer population," said Valdes. "The question is can they build on that and expand that over time."

Google made the computer code for the Chrome OS available to outside developers on Thursday, allowing developers to tinker with the software and potentially design new applications to run alongside it.




With Chrome, Google is seeking to challenge the dominance of Microsoft Corp's Windows, which runs on nine out of 10 personal computers.

The Chrome OS also challenges makers of traditional, desktop software, including Microsoft and its lucrative Office suite of productivity software, since Chrome OS only runs Web applications.

Google's Pichai, noted during a demonstration on Thursday, that Chrome OS-based PCs would be interoperable with Web-based versions of software, such as Microsoft's online version of its Excel spreadsheet.

Google said all data in Chrome will automatically be housed in the so-called cloud, or on external servers, but also cached on the computer's internal hardware to boost performance.

If a person loses their netbook, Google Engineering Director Matt Papakipos explained, they can buy a new one, log in and within seconds have a machine with access to all the same data as their previous device.

"What really makes this a cloud device is that all the user data is synced back to the cloud in real time," said Papakipos.

Shares of Mountain View, California-based Google fell $3.66 to $572.99 in afternoon trading on the Nasdaq.

Microsoft co-founder Allen treated for lymphoma

Microsoft Corp. co-founder and billionaire investor Paul Allen has been diagnosed with non-Hodgkin's lymphoma and is undergoing chemotherapy.

In a memo sent to employees, Jody Allen, Paul Allen's sister and the CEO of his investment firm Vulcan Inc., said the 56-year-old received the diagnosis early this month. According to the memo, Paul Allen has diffuse large B-cell lymphoma, a relatively common form of lymphoma.

Allen battled another form of immune system cancer, Hodgkin's lymphoma, more than 20 years ago and survived. The CEO wrote that Allen "is optimistic he can beat this, too."

"Paul is feeling OK and remains upbeat," she added. "He continues to work and he has no plans to change his role at Vulcan."

Allen founded Microsoft with Bill Gates, a high school friend and fellow computer enthusiast, in 1975. He served as the company's executive vice president of research and new product development until 1983, when he left to focus on his health.

Allen remained a major shareholder and member of the board, and went on to invest broadly in technology, real estate, sports and the arts.

He formed Vulcan in the mid-1980s to invest in media and communications companies, including America Online, DreamWorks Animation and cable operator Charter Communications Inc. He also co-founded a Silicon Valley research lab that he then shuttered after investing more than $100 million.

Beyond technology, Allen has used his Microsoft earnings to take his interests to an extreme. A longtime sports fan, Allen bought football's Seattle Seahawks and basketball's Portland Trailblazers, and he is part owner of the Seattle Sounders FC, a major league soccer team. Allen has been present at Seahawks games this season, chatting in the locker room with players. He has a band and a recording studio, and built the Experience Music Project, a museum about rock music in Seattle.

Allen has also collected and restored more than 30 vintage airplanes, started a brain science institute and through Vulcan's real estate arm redeveloped a large swath of downtown Seattle known as the South Lake Union neighborhood.

At last count, Allen's net worth totaled about $11.5 billion, making him the 17th richest person in the world according to Forbes' September 2009 tally.

Activision posts 3Q profit, backs 2009 outlook

It's been a rough year for the video game industry, but Activision Blizzard Inc. reported a profit for its third quarter because of a lower costs and a good response for games such as "Guitar Hero 5" and "World of Warcraft."

It also reaffirmed its guidance for the full year, citing a big expected release next week for "Call of Duty: Modern Warfare 2," which could easily be the most lucrative entertainment launch this holiday season.




If all goes as planned, the hotly anticipated game will give the industry a much-needed boost for the holiday season. But it's not yet clear whether Americans will shell out as much cash for video games as they did last year. The recession, along with fewer hit game launches, has dampened sales this year after the industry hit a record in 2008.

Activision said Thursday its net income grew to $15 million, or a penny per share, in the latest quarter. In the same period of 2008 it lost $108 million, but the results are not completely comparable because Activision Blizzard was formed about 10 days into the year-ago quarter.

Revenue slid slightly to $703 million from $711 million.

On an adjusted basis, Activision earned 4 cents per share in the latest quarter, matching the average estimate of analysts polled by Thomson Reuters.

Its adjusted sales, which include revenue deferred from games' online components, was $755 million, surpassing Wall Street's expectations of $724 million.

The company's shares climbed 25 cents, or 2.3 percent, to $11.12 in after-hours trading.

CEO Bobby Kotick said in an interview that he hasn't seen a change in consumer behavior since the last time Activision reported its earnings, in August. The company boasts it has the industry's strongest slate of holiday releases, including "Modern Warfare 2," "Band Hero" and a new "Tony Hawk" skateboarding game, but Kotick said he sees no clear signs of how shoppers will spend this fall.

"What I am nervous about is consumer behavior," he said.




Even so, the company expects to end the year on a high note while the industry as a whole is facing a decline. Activision said it expects adjusted earnings of 63 cents per share and $4.5 billion in adjusted revenue for the full year, roughly what Wall Street is predicting. Its outlook for the current quarter is slightly below estimates. Even so, the company expects to bring in $2.22 billion in adjusted revenue.

Earlier Thursday, three industry groups said unit sales across the world's three largest game markets declined 6 percent during the third quarter. The U.S. saw a 9 percent decline, according to the report, published by the NPD Group, GfK Chart-Track Ltd. and Enterbrain Inc.

Because a big chunk of its revenue comes from online subscriptions for "World of Warcraft," a game with a dedicated following of millions, Activision is somewhat more insulated from the ups and downs of the retail economy than its counterparts that rely more on packaged video game sales.

Still, there is some uncertainty to the company's forecast, because Chinese regulators are squabbling over the right to oversee the game, which is operated by NetEase.com Inc. in the country.

The company, which is based in Santa Monica, Calif., was formed in July 2008 when French conglomerate Vivendi SA bought a majority stake in Activision and combined it with its games unit.

Best Buy embraces digital delivery of home video

Best Buy Co. is trying to nudge consumers away from its stores' DVD aisles by making it easier for them to rent and buy movies over high-speed Internet connections.

The largest U.S. retailer of consumer electronics is setting up its digital delivery service in partnership with CinemaNow, which has deals with the major movie studios.




The software making it possible to shop CinemaNow's video library will be included on all the Web-connected devices sold in Best Buy's more than 1,000 U.S. stores. That means consumers who buy flat-panel TVs, Blu-ray players, personal computers and mobile phones from Best Buy would be able to get downloads of videos the same day they are released on DVDs.

The alliance marks the latest step away from the DVD format. Consumers are getting more ways of finding home entertainment with just a few clicks instead of traveling to a video rental store or waiting for a disc to be delivered through the mail.

Apple Inc., Amazon.com Inc. and DVD-by-mail pioneer Netflix Inc. all have been winning over consumers with their own digital delivery systems. Blockbuster Inc. also has a deal with CinemaNow that lets people rent movies over the Internet.

Netflix gave an indication of the growing popularity of new video-delivery methods in its earnings report last month. It said that 42 percent of its subscribers streamed at least 15 minutes of video through its Internet-viewing service during the last quarter, up from 22 percent at the same time last year.

Lala.com gets in tune with Facebook gift shop

Facebook on Monday continued phasing Lala.com music service into its online shop, providing US users a way to buy music at the leading social networking service.

"You will now be able to purchase songs as gifts for your friends," Facebook engineer Will Chen said in a blog post announcing enhancements to the website's gift shop.




The Lala-powered music service boasts a playlist of more than eight million tunes, which can be bought as a "Web songs" at a cost of one Facebook credit each.

Facebook credits are a currency for purchases at the social networking service, and a single credit costs about ten cents (US).

Web songs can be played as often as desired using a Lala mini-application, or widget, at Facebook or at the Lala.com website.

Facebook members can buy songs as MP3 downloads for 90 cents worth of credits. The music downloads can be listened to on an array of devices.

Lala hosts people's digital music collections onto the Internet, allowing access from varied locations, in what it describes as "music in the clouds."




Lala also provides an application that scans people's music iTunes music collections and then stocks their LaLa account libraries with the same songs on the premise that they have already been purchased.

"Basically, we turn any songs you have at home into Web songs," said John Kuch of Lala.

"That is free. If you already own it, it is already your track."

Lala has content deals with all the major record studios as well as independent labels and artists, according to Kuch.

"Work, home, or wherever, music should be a part of that experience," Kuch said.

"In Lala we are really bringing music into the cloud. LaLa is putting itself at a lot of different points where people want to access music."

Kuch declined to comment on a "Discover Music" press conference planned for Wednesday which is expected to focus on Google teaming with Lala and MySpace-owned iLike to launch a search service devoted to music.

IPhone helps Apple profit rise 47 pct; stock leaps

Apple Inc. increased its net income 47 percent in the most recent quarter as more people bought Mac computers and gave in to the iPhone craze. The results sent Apple shares surging in extended trading Monday to an all-time high.

Apple unveiled a faster iPhone in June and cut the price of the previous generation of the phone to $99. Those moves boosted iPhone sales from July through September to 7.4 million devices, half a million more than in the same period of 2008.




Apple weathered the economic meltdown better than other computer companies, giving it a running start when PC sales grew in the quarter. Apple had also updated its Mac operating system and refreshed its Macbook Pro line. Apple sold 3.1 million Macs, a 19 percent rise from the same period a year ago.

As Apple's iPhone, which has iPod features built in, has grown in popularity, Apple's regular iPod music player business has suffered. The company sold 10.2 million iPods in the quarter, 8 percent fewer than last year, even though Apple unveiled a new iPod Nano with a video camera in September.

The iPod Touch was the bright spot in the media player lineup. Revenue for the gadget, which is like an iPhone without the phone, doubled from a year ago, Apple Chief Financial Officer Peter Oppenheimer said in an interview.

Apple is rumored to be working on a tablet-style computer that's a cross between a laptop and an iPhone or iPod Touch, but the company is notoriously secretive about new products. On a conference call, Apple executives boasted vaguely about the company's "amazing" future offerings and dropped one tantalizing indication something new might be coming in time for holiday shopping.




Apple typically spends more on air freight in the current quarter in order to make sure stores are stocked with iPods and other gadgets for the holidays, but this year, the increase is more than usual.

"I'm sorry I can't be specific on the product, but it's, it's, it's an abnormal sequential increase," Apple's chief operating officer, Tim Cook, said in response to a question from an analyst.

Apple said it earned $1.7 billion, $1.82 per share, in its fiscal fourth quarter, which ended Sept. 26. Revenue jumped 25 percent to $9.9 billion.

For all of fiscal 2009, Apple said its profit rose 18 percent to $5.7 billion, or $5.36 per share. Revenue climbed 13 percent to $36.5 billion.

For the current quarter, Apple, which is based in Cupertino, Calif., said it expects to earn $1.70 to $1.78 per share, well below the $1.91 that analysts are expecting, though the company traditionally gives extremely conservative guidance. Apple predicted revenue of $11.3 billion to $11.6 billion, while analysts are looking for $11.4 billion, according to a Thomson Reuters poll.

Wall Street shrugged off the profit guidance and sent the company's shares up $10.79, 5.7 percent, to $200.65 in extended trading. At one point in the after-hours trading the stock climbed past $203. Adjusted for splits, Apple's highest price had been $202.96, reached Dec. 27, 2007.

Investors also are anticipating even more growth for the iPhone. Apple is set to officially begin selling iPhones in China on Oct. 30 and has plans to launch in South Korea during this quarter as well.
But Apple could hit snags in those countries in the first few months. The company struggled to supply enough of the newest iPhone 3GS to store shelves around the world over the summer. Cook said most of the shortages had eased, but he added that he wishes more iPhones were ready for the China launch.

Google's growth accelerates as 3Q profit rises

Google Inc. shifted into a higher gear in the third quarter and began to leave the recession behind as the 11-year-old Internet search leader recorded its biggest profit yet.

Revenue growth also accelerated for the first time since the U.S. recession began in December 2007.




The results released Thursday are the strongest indication yet that the Internet advertising market is bouncing back from its worst funk since the dot-com bust at the start of the decade.

Google is considered a good barometer for the state of online commerce because its search engine serves as the hub of the Web's largest advertising network.

"The worst of the recession is clearly behind us and because of what we have seen, we now have the confidence to be optimistic about our future," Eric Schmidt, Google's chief executive, told analysts in a conference call.

Schmidt's optimism echoed his public remarks leading up to the earnings release. That sentiment has helped propel Google to a succession of new 52-week highs this week, a rally that continued after the company put out its third-quarter numbers.

Google's shares rose $17.13, or 3.2 percent, to $547.04 in extended trading. In regular trading earlier, its shares fell $5.41, or 1 percent, to close at $529.91. The stock remains well below its peak of nearly $750 reached almost two years ago, but has more than doubled from its 52-week low of $247.30.

Google earned $1.64 billion, or $5.13 per share, in the three months ended in September. That represented a 27 percent increase from $1.29 billion, or $4.06 per share, at the same time last year.

Excluding expenses for employee stock compensation, Google said it would have made $5.89 per share — above the average estimate of $5.42 per share among analysts polled by Thomson Reuters.




Revenue for the three months ending in September climbed 7 percent to $5.94 billion. That is Google's fastest growth rate so far this year.

In a telling sign that things are picking up again, Google's third-quarter revenue rose 8 percent from the second quarter. That's the biggest sequential quarterly increase since the end of 2007.

After subtracting commissions paid to Google's advertising partners, the company's revenue totaled $4.38 billion — about $140 million above analyst estimates.

Schmidt and other Google executives left no doubt that they believe the Mountain View-based company is poised to scale even greater financial heights in the next year or two. Among other things, they said the company's popular video service, YouTube, is getting closer to making money three years after Google bought it for $1.76 billion.

Feeling more emboldened, Schmidt said Google will start spending more liberally again after skimping on its expenses for the past year. The commitment includes hiring more employees after Google pruned its payroll for the past two quarters, paring its work force to 19,665 people at the end of September.

Google could be further along the comeback trail than other companies that depend on Internet advertising.

Part of the reason is because Google is such a dominant force; it process nearly two-thirds of the Internet search requests in the U.S. Advertisers are more likely to invest in search marketing because it only costs them when Web surfers click on their commercial messages.

Spending on online billboards — the kind of visual advertising that's Yahoo Inc.'s specialty — isn't expected to pick up until the economy gets even healthier.

Yahoo is scheduled to report its third-quarter earnings next week.

Intel stokes hopes for PC recovery

Intel Corp. has been asserting for months that the personal computer business is rebounding from its deepest slump in nearly a decade. Its stock jumped late Tuesday on signs things are picking up faster than expected, despite a few lingering trouble spots.

Intel reported after the market closed that its profit and sales both dipped 8 percent in the July-September period as spending by corporations remained weak, a trend that has dragged on throughout the recession and probably won't ease until next year.




The price for Intel's chips also fell. One reason is that "netbooks," little laptops that cost a few hundred dollars and have limited functions beyond surfing the Internet, have caught on but aren't big moneymakers. Another is that PC makers have slashed their prices on full-sized computers, and aren't willing to pay as much for the chips that go into them.

The results easily surpassed Wall Street's forecasts, however, and Intel's guidance for the October-December quarter of $9.7 billion to $10.5 billion in sales also topped projections.


As the first major technology company to report third-quarter earnings, Intel's numbers lend insight into the strength or weakness of PC makers' demand for new chips. What the figures don't necessarily show, though, is whether PC companies are stocking up on chips to replenish low supplies, or whether they expect especially brisk sales of computers. That will begin to play out in the coming weeks, as the holiday season gets under way and a new edition of Windows is released Oct. 22.

Intel had bumped up Wall Street's expectations twice ahead of Tuesday's report.

In August, the company raised its guidance, and last month CEO Paul Otellini predicted that PC sales could defy predictions by growing in 2009, which would avert the first year-over-year sales decline since 2001. Intel has been more optimistic than even some of its biggest customers. Hewlett-Packard Co. and Dell Inc., the top PC makers, have been reluctant to call a bottom in the PC market, as Otellini did in April.

Intel's net income was $1.9 billion, or 33 cents per share, down from $2.0 billion, or 35 cents a share, a year ago. Sales totaled $9.4 billion. Analysts had expected profit of 28 cents per share on sales of $9.0 billion, according to a poll by Thomson Reuters.

Another important number was Intel's gross profit margin, which was 57.6 percent of revenue. In the second quarter, the figure was 50.8 percent. The boost shows Intel is making its microprocessors cheaper to produce, a technological feat that comes from pouring billions of dollars into research and upgrading factories.

Intel shares jumped 99 cents, or 4.8 percent, to $21.48 in extended trading Tuesday. Before the earnings report the stock had closed at $20.49, up 9 cents on the day.

FCC launches probe of Google Voice service

Federal regulators will look into complaints by AT&T Inc. that Google Inc.'s free messaging and calling service, Google Voice, blocks calls to rural communities where local phone companies charge high connection fees.

The Federal Communications Commission on Friday sent a letter to Google requesting information about its Voice service, which lets people sign up for one number that can route incoming calls to cell, office or home phones. The service also lets users place calls, including international calls, at low rates.




As part of a broader quarrel with Google, AT&T has complained that Google Voice blocks calls to phone numbers in some rural communities to reduce the access charges it must pay. So-called "common carrier" regulations prevent AT&T and other big phone companies from blocking those same calls.

Google Voice "has claimed for itself a significant advantage over providers offering competing services," AT&T said in a letter to the FCC last month. Those concerns were echoed in a letter sent to the FCC this week by 20 members of Congress who represent rural districts.

Among other things, the FCC is asking Google to explain how its Voice service works, whether it blocks calls to certain numbers and whether it informs users that it does so.

In a blog post Friday, Richard Whitt, Google's Washington telecom and media counsel, explained that Google Voice restricts calls to phone numbers held by companies that "charge exorbitant termination rates for calls" and "partner with adult sex chat lines and `free' conference calling centers to drive high volumes of traffic."




He said Google could not afford to offer the service "if we paid these ludicrously high charges." Google also maintains that its Voice service should not be subject to common carrier laws because it is a free, Web-based software application, not a replacement for traditional phone service.

AT&T's complaint comes as the FCC prepares to vote Oct. 22 on "network neutrality" rules that would prohibit the big phone and cable companies from favoring or discriminating against Internet traffic flowing over their broadband networks.

That proposal has pitted Google and other Internet companies that support net neutrality against the big phone and cable companies, including AT&T, that want to be free of restrictions on what they can do with their networks.

AT&T's complaint to the FCC on Google Voice was an attempt to turn the tables on Google: AT&T claimed that Google Voice flouts net neutrality principles by blocking certain calling traffic.




But in his blog post on Friday, Google's Whitt said that "despite AT&T's lobbying efforts, this issue has nothing to do with network neutrality or rural America."

This is not the first time the FCC has looked at Google Voice. The agency has been investigating why Apple Inc. does not allow a Google Voice application to run on the iPhone — which is carried exclusively in the U.S. by AT&T.

That inquiry is ongoing, but it did prompt AT&T to reveal that under its agreement with Apple, Apple cannot enable any Internet calling applications that use AT&T's 3G network without AT&T's permission. AT&T reversed course on that rule this week.

Online ads: Big Brother or customer service?

U.S. marketers and consumer advocates are preparing for battle over the rules governing online advertising tailored to individual browsing habits,often tracked and collected without notice or permission.

The U.S. Congress is due to intervene in the issue in the coming weeks, with a bill in the House of Representatives that would oblige websites to state explicitly how they use the information and allow those using the site to opt out.




A billion-dollar industry and consumer privacy are at stake.

Advertisers and popular websites say visitors prefer ads that are targeted to their interests and must accept advertising as a necessary condition to obtain free content.

But 75 percent of Americans said in a recent survey they were opposed to tailored advertising if it meant their behavior surfing the Internet was being tracked.

"People want the benefits of the Web but don't know about the surveillance aspect," said Stephen Baker, author of "The Numerati," about the extent of online data collection. "And when they hear about it, they get the heebie-jeebies."

Researchers at the University of California, Berkeley, and the University of Pennsylvania who surveyed 1,000 Americans from June 18 to July 2 concluded there was a deep concern that tracking Internet habits for tailoring ads was wrong.

The survey came at a time when the debate in Washington over privacy and online advertising is at a "roiling boil," said Mike Zaneis, vice president of public policy at the Interactive Advertising Bureau, an industry trade association.

TARGETED ADS

"There's a battle for the online policy marketplace," Zaneis said, leading to "a paternalistic effort to restrict information online, even if it's anonymous."

Targeted ads account for $1.1 billion -- up from $500 million in 2007 -- or 4.5 percent of the overall $24.5 billion dollars projected for online advertising in 2009, according to eMarketer estimates.




In Washington, Democratic Representative Rick Boucher and other House members are introducing bipartisan legislation later this year aimed at helping consumers better understand what information is collected about them and how it is used.

Boucher, the chairman of the House Energy and Commerce Subcommittee on Communications, Technology and the Internet, told Reuters: "We want to enhance the sense of security and privacy protection,"

The bill would oblige websites to display a privacy policy and explain to users how their information was collected and how it would be used. It would also require sites to allow visitors to opt out of having their data used to create an advertisers' profile.

Last winter the Federal Trade Commission published guidelines for advertisers, which prompted the ad industry to put out its own set of self-regulatory principles in July.

Government agencies and consumer advocates argue that some form of regulation is needed to inform and protect consumers when they go online.

"The privacy implications of new technology are vast," said David Vladeck, head of the Bureau of Consumer Protection at the Federal Trade Commission.

COOKIE MONSTER

Each time a consumer points his or her browser to a website, it creates what are called "cookies," essentially chunks of code that marketers can read and interpret to determine how to target their ads.




Consumers can avoid some of this tracking by either deleting cookies on their browser or by instructing the browser not to accept cookies. But this can also disrupt web surfing as many websites will not function properly with the cookie function turned off.

Consumers have been tracked and followed by advertisers in the offline world for generations, often through credit card information, or supermarket cards.

But the Internet raises the stakes because "people are living their lives online, for essential transactions," said Jeff Chester, of the consumer protection group Center for Digital Democracy.

cellphone technology nowaday

You're walking down the street, looking for a good place to eat. You hold up your cell phone and use it like the viewfinder on a camera, so the screen shows what's in front of you. But it also shows things you couldn't see before: Brightly colored markers indicating nearby restaurants and bars.

Turn a corner, and the markers reflect the new scene. Click a marker for a restaurant, and you can see customer reviews and price information. Decide you'd rather be sightseeing? The indicators are easily changed to give information about the buildings you're passing.




This computer-enhanced view of the world is not just available to cyborgs in science-fiction movies. Increasingly it can be found on cell phones, for free or on the cheap, through programs that provide "augmented reality." These applications take advantage of the phones' GPS and compass features
and access to high-speed wireless networks to mash up super-local Web content with the world that surrounds you.

That means you can see available apartments on the block you're moseying down. You can view photos other people have taken at the park you're passing, or find the nearest bus stop or hotel room — all by just holding your phone up and peering at its screen.

The possibilities for melding the virtual and actual worlds have just started to become apparent. The first phones with Google's Android operating system, which enables augmented reality, have come out in the past year. The iPhone became augmented-reality-friendly with the compass that debuted in June on the iPhone 3GS. Apple also recently joined Google in making it possible for software developers to overlay images on the phone's camera view.

As cell phones get even smarter and GPS and wireless networks improve, we may soon be spending more time in a virtually enhanced world, using information gathered from the Internet to inform everything from eating to playing video games.




One company working to make this happen is Amsterdam-based Layar, which recently released an augmented reality browser by the same name for Android phones. Layar lets you search for things on Google, but delivers the results based on your location, which it determines from the GPS readout. So you can search for, say, a bike shop or a pet store close to where you happen to be. If you don't feel like actively searching, you can sign up to have certain kinds of information automatically appear on your phone screen. For instance, Layar lets other companies build on its system to overlay information about such places as skateboarding spots and local landmarks. A startup called Brightkite uses Layar to let people post virtual tags, with their locations and activities, that other people can see if they use the same app.

Layar's goal is to create a "serendipitous experience" that lets you can discover new things about your surroundings, says co-creator Maarten Lens-Fitzgerald.

The company is working on a 3-D function, too, that it hopes to release in November. That will allow virtual objects to be placed "on" actual locations. A guy might be able to put a virtual heart in front of his girlfriend's house for Valentine's Day — and she would see it if she used the Layar app on her phone.

For a year, Yelp, a Web site with business reviews written by customers, had an iPhone app that used the device's GPS and wireless Internet connectivity to deliver local search results. But when the iPhone got a compass, bloggers wondered whether Yelp would go further and make its app overlay information onto a real-time view of the world. After noticing the speculation, Yelp quietly created such an app this summer, spokesman Vince Sollitto said.




The augmented-reality program, known as Monocle, was built for Yelp by an industrious intern and originally hidden in Yelp's app. (It was activated if you shook the iPhone three times.) Monocle is now a formal feature that combines the iPhone's camera view with tiny tags indicating the names, distances and user ratings of proximate bars, restaurants and more. Poke a floating tag on the screen with your finger and up pops detailed information about the business.

Among the other augmented reality programs that recently have hit Apple's App Store is Robotvision, a 99-cent program built by Portland, Ore.-based developer Tim Sears.

If you hold your phone parallel to the ground, Robotvision displays a map of your surroundings. Hold the phone up, however, and it goes into augmented-reality mode, highlighting places like coffee shops and bars. Robotvision also can search for other kinds of businesses with Microsoft's Bing search engine.

You can view pictures that people took nearby and posted to Flickr with a "geotag" of the shot's physical location. Or you can see Twitter postings composed in the area.

Next Sears plans to update the application with local content from Wikipedia. "Looking at the world around you is something everyone can get. That, to me, is what makes it so fascinating," he said.

Consumers may feel that way initially, too. But Blair MacIntyre, an associate professor who runs the Augmented Environments Lab at Georgia Tech, worries that the technological limitations these applications currently face will keep them from living up to what people imagine they can do. Similar
disappointments followed early hype for virtual reality, a cousin of augmented reality in which the landscape is entirely computer generated.

Indeed, there are issues hindering augmented reality applications. Cell phones need to be more powerful, with improved cameras and graphics capabilities and more accurate GPS. The technology can generally pinpoint location to within 30 feet if a user is outdoors.

The limitations mean businesses you see on the screen are often not actually in front of you, though they are nearby. And often tags sometimes just kind of dart around on the screen, seemingly untethered to a physical place. Another problem: Using GPS for extended periods quickly sucks up the battery life on most phones.

Developers and industry watchers are optimistic, though, that in the next fewyears we might see everything from augmented reality video games to museum guide services that recognize paintings and can pull up videos showing the artist at work.

"Things are pretty cool right now," Sears says, "but they're definitely going to get better."

Web TV could come with a price tag after Comcast-NBC

Free TV shows on the Internet could be harder to find if Comcast Corp succeeds in acquiring a majority stake in NBC Universal.

Comcast would become a partner in Hulu, the video website which allows viewers to watch TV shows on the Web for free, a business potentially worth billions of dollars if consumers had to pay to watch the shows.




The video website is jointly owned by NBC Universal, News Corp and Walt Disney Co. Hulu is the most popular site in the United States for watching TV shows, according to comScore.

Comcast is in talks with General Electric Co, to buy 51 percent of NBC Universal, which would allow the cable operator to combine its cable assets with NBC's cable networks, movie studio and theme parks, according to people familiar with the talks.

Cable operators have downplayed investor fears that customers will drop cable for free TV on the Web. But privately they've warned TV networks they may stop paying affiliate fees if free TV shows keep cropping up on the Web.

Hulu had nearly 40 million unique viewers in August, web measurement company comScore said. That is more than Comcast's 24 million paying subscribers, which account for about $5 billion a quarter in revenue.

"We suspect Comcast believes it needs content to protect its landline distribution platform," Richard Greenfield, analyst at Pali Research, wrote in a note to investors on Friday. "It wants to mitigate the risk of becoming that scary 'dumb' pipe."

Comcast, the largest U.S. cable operator, has approached the Web's free TV threat by getting behind a service called TV Everywhere with Time Warner Inc. The idea behind TV Everywhere is to allow consumers to watch shows on the web -- so long as they are paying cable subscribers.

"This deal (Comcast-NBC) has major implications on the success of TV Everywhere," said Thomas Eagan, an analyst at Collins Stewart. "Comcast may decide to change Hulu to some degree to facilitate a premium Hulu service much faster."




Comcast has even tried to match Hulu with its own free TV website, Fancast. But while Hulu has come from nowhere to become the sixth most visited video site in the U.S. in just 18 months, Fancast hasn't even cracked the Top 10.

"Hulu was started by NBC and Fox so they could compete with Comcast. So this is a defensive move to some extent by Comcast," said Kaufman Bros. analyst Todd Mitchell. "Hulu will just become another choice of Comcast's pay-TV buffet."

If Comcast has a stake in Hulu's future, as Mitchell suggests, it effectively reduces competition to the cable sector.

Since web video is still a fledgling sector, however, it is unlikely to raise the hackles of U.S. regulators, said analysts.

Indeed, the Federal Communications Commission is likely to focus on other concerns if General Electric Co, which controls NBC Universal, decides to sell a 51 percent stake to Comcast, as sources have said the two sides are talking about.

Namely, the FCC may be concerned about combining NBC Universal's national broadcast network, NBC, and its huge range of cable networks, like Bravo and USA, with the largest cable operator in the country.

Paul Gallant, a telecom regulation analyst with Washington-based Concept Capital, said the deal would likely be approved by antitrust regulators and the FCC.

"The primary reason is that the two companies do not have a great deal of product overlap, and thus the competitive concerns appear to be fairly limited," Gallant said.

Gallant said the FCC already has program access rules that ensure that cable operators who own programming sell it to competitors at reasonable rates.

TV operators such as DirecTV Group, DISH Network, Verizon, AT&T may ask the FCC for a more effective enforcement process.

"Should the FCC pursue this angle, it could potentially hinder Comcast from realizing the full value of NBCU's programming," Gallant said.