TechCrunch

Updated: 6-16

Will 2008 Be Google’s End Of Innocence?

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2008 may be the year that Google’s innocence ends, as media and governments start to cast a less forgiving eye at the behavior of the company that controls 60% of the search market and perhaps as much as half of all online advertising revenue.

In 2007 the Federal Trade Commission opened an antitrust investigation into Google’s $3.1 billion acquisition of DoubleClick. The deal was eventually approved, although the EU took a lot longer to give their stamp of approval (The EU in general isn’t a fan of Google).

This year, though, things might not go so well. Politicians are lining up to question Google’s recent search marketing deal with Yahoo. The deal was clearly structured to try to slide past regulators, but it isn’t clear that this time Google will get a pass.

Other questions are being raised as well - such as why Firefox continues to default search to Google on clean installs, instead of offering users a choice right up front. Microsoft is forced to offer users a choice when they install Internet Explorer. Given the longstanding financial ties between Google and Firefox, perhaps the same choice should be presented there as well.

There’s no getting past the fact that Google has out-competed everyone in the search game, and is justly collecting the economic rewards of that effort. But society loves to tear down their heroes just as quickly as they supported them as underdogs.

This may be the year that things change for the ten-year-old Google. Their days of innocence may be over - perhaps Yahoo, or Firefox, are the apples that they should not have bitten into.
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Here’s What’s Going To Happen To Apple’s Rivals

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Business Week investigates what the iPhone’s impact is going to be on rival high-end phone makers like RIM, Palm, Nokia, etc. I’ll save you the read - the answer is summed up in the image to the right.

It’s true, Apple only sold 6 million iPhones in its first year, out of a billion or so handsets sold worldwide. But remember that they are currently available in only a couple of countries. And in the U.S., they’ve grabbed a 25 % share of the smart phone market. And that was with a slow, no-GPS, expensive device (here’s our side-by-side comparison of the iPhone v. the RIM Blackberry 8820 from a year ago).

Imagine the havoc they will wreak with the twice-as-fast, half-as-expensive, GPS-enabled, Exchange-supported 3G iPhone that they’ll unleash on 22 countries this year.

In short, it must be really unpleasant to be in this business and not be Apple right now.

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Dead Simple Flash Based WebChat For MySpace

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MySpace IM is popular - as many as twenty percent of users on the site at any time are also logged in to their IM client. But it’s only available via a download for Windows machines, locking out everyone else. There is no official MySpace support for webchat or non-Windows clients.

Pidgin, Trillian and eBuddy have announced support for MySpace IM via a reverse engineering of their proprietary text-based protocol. The version of Trillian that supports MySpace, however, is in private beta, and I have never been able to get eBuddy to work properly with MySpace IM.

So if you really, really want MySpace webchat, you can now use unofficialmyspaceim, a new flash based site build by Prasad Mahendra. I tested it, it works. I even had a somewhat unsatisfying chat with MySpace co-founder Tom Anderson.

Beware - you have to enter your MySpace credentials to use the service, and there’s no guarantee this service won’t use them for, well, anything they want.

Also, you may not have to wait too long for official Mac and webchat versions of MySpace IM. Rumor is they’re already working on it.

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Here’s Our New Policy On A.P. stories: They’re Banned

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The stories over the weekend were bad enough - the Associated Press, with a long history of suing over quotations from their articles, went after Drudge Retort for having the audacity to link to their stories along with short quotations via reader submissions. Drudge Retort is doing nothing different than what Digg, TechMeme, Mixx and dozens of other sites do, and frankly the fact that they are being linked to should be considered a favor.

After heavy criticism over the last few days, the A.P. is in damage control mode, says the NYTimes, and retreating from their earlier position. But from what I read, they’re just pushing their case further.

They do not want people quoting their stories, despite the fact that such activity very clearly falls within the fair use exception to copyright law. They claim that the activity is an infringement.

A.P. vice president Jim Kennedy says they will issue guidelines telling bloggers what is acceptable and what isn’t, over and above what the law says is acceptable. They will “attempt to define clear standards as to how much of its articles and broadcasts bloggers and Web sites can excerpt without infringing on The A.P.’s copyright.”

Those that disregard the guidelines risk being sued by the A.P., despite the fact that such use may fall under the concept of fair use.

The A.P. doesn’t get to make it’s own rules around how its content is used, if those rules are stricter than the law allows. So even thought they say they are making these new guidelines in the spirit of cooperation, it’s clear that, like the RIAA and MPAA, they are trying to claw their way to a set of property rights that don’t exist today and that they are not legally entitled to. And like the RIAA and MPAA, this is done to protect a dying business model - paid content.

So here’s our new policy on A.P. stories: they don’t exist. We don’t see them, we don’t quote them, we don’t link to them. They’re banned until they abandon this new strategy, and I encourage others to do the same until they back down from these ridiculous attempts to stop the spread of information around the Internet.

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Ebay Opens Up Seller Tools As A Platform

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eBay will unveil a new platform strategy called Project Echo tomorrow at their developer conference that is aimed at better servicing its seller community.

Ebay has had a rich set of developer APIs for some time now that let third party developers bring eBay functions and features into their applications. Now they are expanding those APIs and asking Developers to build apps to appear within the eBay Selling Manager, which 700,000 or so large eBay sellers use to manage their listings and customer information. Until now, all of the tools in Selling Manager have been created by Ebay.

A few partners will demo applications tomorrow - Hosted Support will show a CRM application to help sellers manage buyer communications and contact information, and Terapeak will show off an application that provides recent market research data to sellers, based on their listings (so if the price of iPhones suddenly drops when the 3G is announced, sellers who list those will get a notice).

The platform is far from actually launching - an alpha version will be available late this year, and will launch publicly in early 2009, they say.

This is analogous to Facebook Platform, Salesforce AppExchange and Google’s Open Social. When the platform launches there will be a defined markup language for developers to use (Ebay’s Max Mancini says they will look to Facebook and Open Social for guidance, and won’t reinvent the wheel), and other tools.

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Israel’s LabPixies Offers Highly Awesome Widgets

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Tel Aviv, Israel based LabPixies, which was founded in March 2006, was one of the early players in the exploding widget space. They’ve stayed small and focused on building really useful or really entertaining widgets, and have mostly kept a low profile. And while you may not have heard of the company, you’ll probably have heard of at least one of the widgets they’ve built, such as the official New York Times crossword widget.

The company competes with a small army of highly funded widget startups: Slide, Rockyou, Goowy, Clearspring, Gigya and Widgetbox, among others. 41 million people a month view their widgets, the company says, generating 750 million total widget views. At first they built widgets solely for the iGoogle platform, but have expanded to include Netvibes, Live.com and other platforms.

I’ve embedded a few of my favorites below - The New York Times crossword puzzle, Space Invaders, Defender and a Babylon language translation tool. The company also offers interactive advertising widgets that are a lot more interesting than normal ads.

The company has created all of this with very few resources. They’ve self financed to now with advertising revenue, and just closed a small $1 million round of financing from angel investors in Israel. They have ten employees.
Gadget by LabPixies.com Gadget by LabPixies.com Gadget by LabPixies.com Gadget by LabPixies.com
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NYTimes Article Reverberates Through Yahoo; Who’s Their Next CEO?

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When blogs and regional newspapers trash Jerry Yang it’s one thing. But when the New York Times does it, people really notice. Public lynchings like this are few and far between from that bastion of traditional journalism.

Yesterday’s article by Joe Nocera, titled “ Oh Jerry, It’s No Longer Your Baby” was a stinging condemnation of Yang. It’s presented as a memo from Nocera to Yang, with the subject “Shafting Yahoo’s Shareholders” and outlines the many ways Yang has failed Yahoo’s shareholders and employees.

In reference to the recently announced Google search deal, the article says “You’ve chosen to become a pawn of the most dominant company on the Internet. How exactly is that going to lead to a brighter future for Yahoo?”

Nocera also condemns Yang for purposefully killing the Microsoft negotiations even thought the deal was in the best interests of shareholders, watching as key employees walked out, and generally running with his emotions rather than taking care of business.

The article ends with “Jerry, you’re a billionaire because people all over the world bought your stock, and trusted you to do right by them..It doesn’t matter that you would like Yahoo to remain independent, or that you can’t stand Microsoft. Your feelings aren’t supposed to get in the way of your fiduciary duty…A takeover by Microsoft was your last, best hope of rewarding your long-suffering shareholders. Now that opportunity is gone…I would be taking odds that your days as Yahoo’s C.E.O. are numbered. It’ll be better for everyone to have someone in that role who understands who he’s supposed to be working for. Wouldn’t you agree?”

From what we hear from multiple sources close to Yahoo, this article may be the final straw - whether the board backs Yang or not, this is just too much negative press for the company to overcome. A fresh start is now a necessity for moving forward.

Yang will step down, our sources say. It may be next week or it may be next month, but it’s going to happen.

Who Will Be Yahoo’s Next CEO?

But who in the world would take the job given the state of Yahoo today? It would have to be someone there already, no outsider would want the job. Right? Well, maybe not.

President Sue Decker is considered to be too close to Yang, and lacking in operational experience. Other Yahoo execs are also unlikely candidates.

But the names of two ex-Yahoo’ers are being tossed around as people who may consider the job, and who may be able to fire up the troops enough to give Yahoo a fighting chance. Those people are Jeff Mallet, Yahoo’s former President. And Dan Rosensweig, Yahoo’s former COO.

Jeff Mallett

Jeff Mallett joined Yahoo as employee number 13 back in 1995, when the company was still privately held. He was there for seven years as President and COO. In the early days of Yahoo, Yang called himself, Mallett and former CEO Tim Koogle the “Three Amigos.”

Mallet moved on to other projects after he left Yahoo. He’s one of the owners of the San Francisco Giants, makes angel investments and was most recently the Chairman of SNOCAP, which sold to Imeem in February 2008.

Old time employees remember Mallett’s days as the golden age of Yahoo - at one time the company was worth $100 billion under his tenure.

Dan Rosensweig

Dan Rosensweig is another former Yahoo exec - he was COO until he left the company in December 2006. His departure was rumored to be largely driven by a power struggle with Decker, which he lost.

Rosensweig is now an Operating Principal at Quadrangle Group, a $6 billion private equity firm. My guess is that he’d strongly consider taking the job if offered - he’d relish the chance to show that he should have won that power struggle back in 2006.

Tim Koogle, Yahoo’s CEO before Terry Semel took over in 2001, would likely be another candidate to consider. But he’s long retired, and now ( literally) sells high end real estate in Mexico with his wife. He may once have been part of the Three Amigos with Yang and Mallet, but don’t look to him to come and save Yahoo.

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Arrington Talks Yahoo/Google/Microsoft

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Mike’s been busy this week, breaking the news of the Yahoo/Google deal and then expressing one or two opinions on Yahoo’s business judgment as well.

If you’re still unsure about how he feels about the deal, check out the clip below where he talks to Gabriel Slate on local San Francisco station KRON4.

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Why Kyte.tv will kill Qik and Flixwagon in cell phone video space

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The post below is written by Robert Scoble, a top blogger and the founder FastCompanyTV.

Robert has been one of the earliest adopters of cell phone video, which offers the ability to stream live to the Internet, with the primary tradeoff being relatively poor video quality. He’s extensively tested all of the major emerging services in this area, including Kyte, Qik and Flixwagon, among others.

This is a post I didn’t want to write. Why? For the last six months I’ve been using Qik’s live video service off of my cell phone. I’m the top user there, with most views, most videos, and all that. I’ve used that service to take videos inside the first production Tesla, Annie Leibovitz as she showed us around her latest photos of famous people, Google press conferences, Ansel Adams’ son at the top of Glacier Point in Yosemite, Bono at the World Economic Forum, and more than 700 other videos as well.

Qik has done something remarkable: it put a TV studio in my pocket. I can get live video onto the Internet faster than I can make a phone call (Qik takes two clicks to start streaming, a phone call takes 12 clicks on my phone’s keypad). Even better, while doing a video you can watch live and you can send text chat messages to my phone while I am filming. While we were racing around Santa Monica in Elon Musk’s new Tesla (he’s the chairman of the board and was giving us a killer demo) we had hundreds of people watching my cell phone along with Jason Calacanis’ phone, which was shooting the same view from his Corvette alongside. As Elon was driving we had hundreds of people asking questions about the new Tesla. This was interactivity the world had never seen.

At the same time a company in Israel, FlixWagon, has been competing with Qik. I liked FlixWagon too. The quality on their video was slightly better than Qik’s although I went with Qik because they had a better live experience, at least on my phone. Other cell phone videographers, though, like Sarah Meyers loved Flixwagon. When I visited Israel recently I interviewed the Flixwagon guys and they are whip smart and really nice too.

Which gets me to why this is the post I never wanted to write. I have been treated absolutely wonderfully by the Qik team. They call me often, make sure I’m having a great experience, and have fixed many of the problems I have been having as I push their service into places it simply wasn’t really designed for. My interview with Annie Liebovitz, for instance, was done in a museum that had absolutely no wifi or cell phone service. So, I used up every bit of memory on my phone and gingerly carried my cell phone back outside where it started sending information again. I’ve had AT&T’s 3G service die right in the middle of many of my interviews (most troublingly right in the middle of an interview with Sun Microsystems’ CEO Jonathan Schwartz) and Qik got on those problems quickly.

Anyway, back to the fight between Kyte, Qik, and Flixwagon over your cell phone video experience. Last year I was Kyte’s top user too. Why did I switch to Qik? Because I saw that cell phone video would let me extend my brand into places no other video network was letting me get to. I was the only one doing cell phone videos from the World Economic Forum, for instance, something that got me a lot of attention and followers. I told Kyte’s CEO, Daniel Graf, tons of times over the past seven months to get video streaming into his product. At first he resisted, thinking it wasn’t that big a deal, but on Friday I finally tested it out on my cell phone and was impressed enough to give Kyte a second look.

That led me to this post. Here’s why I think Kyte will dominate over Qik and Flixwagon:

1. The distribution system that Kyte has built is much better than either Qik or Flixwagon. Translation: the embeddable player that Kyte.tv has is much better than Qik or Flixwagon, more on that in a second.

2. The chat room that Kyte has built is much better than Qik or Flixwagon and can be participated in from other cell phones, something that Qik and Flixwagon can’t do.

3. The ability to mix videos from your webcam, live videos streaming from your web cam, recorded videos from camcorders, or from places like YouTube, along with both recorded and streamed videos from your cell phone goes way beyond what Qik and Flixwagon have done today.

4. Kyte.tv can play videos on an iPhone today. Neither Qik or Flixwagon can do that.

5. Kyte.tv can play videos on a Nokia today. Both from your recordings and other people’s. Neither Qik or Flixwagon can do that.

6. Kyte.tv is partially funded and supported by Nokia. That might not sound like a big deal, but it is. Nokia is using Kyte’s service internally too, and I’m sure Nokia is giving Kyte better engineering support than it’s giving Qik or Flixwagon.

7. Kyte.tv is way ahead of Qik and Kyte in getting real mainstream celebrities like 50 cent on its service, which means its growth is way stronger.

Why do I say that Kyte’s distribution system is stronger? Well, the Kyte.tv player has some significant advantages over the Qik one.

1. When embedded it can be set to play the latest video, or a specific video. Qik can only play the specific video you embedded in (I hear they are changing this, but even if they do the second part makes this not as useful). Flixwagon’s gadget lets you show your blog’s readers other videos you’ve done, but not the chat.

2. The chat room is always the same. This makes interactivity much quicker on the Kyte.tv video player. Many of my Qik videos don’t have any comments, or only have one or two. This makes those videos seem lame. Compare to Kyte, though, where everyone talks about you all day long, and it is a better place. Plus Kyte’s chat is much nicer and can contain video and audio comments (Qik can only have text comments) and Kyte’s can come from Facebook or other Nokia phones. Major win for Kyte here. I love participating in Kyte’s chat room from my cell phone because I can leave audio comments. I’ve gotten in some interesting conversations done with nothing but audio from other people. Audio is a lot easier to do from your cell phone than text or even video, particularly if you have a crappy cell phone camera or you don’t want to look like a dork out in public holding the cell phone up to take video of you.

3. I like the Kyte player on Facebook better than anything that Qik or Flixwagon has done yet. Kyte’s can be branded to yourself and you can make your own customized Facebook app for your own Facebook profile. So, TechCrunch can have its own Kyte app, which is much better for branding purposes.

Add all these together and I don’t see how Qik or Flixwagon can beat Kyte anymore in the cell phone video game. What do you think?

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Our Home Town

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About noon Friday here in California, I happened to click on a Summize tab substituting for Twitter’s Track functionality and monitoring the use of my Twitter screen name. Someone named Scrabo had tweeted “Rumor here at NBC is that Tim Russert passed away”. A minute later another: “@stevegillmor Brokaw getting ready to go on air.”

Turning on NBC, then MSNBC, then CNN, I found nothing: reports on flooding in the Midwest, breaking news about a bomb attack in an Afghan prison, a strange obliviousness on the NBC outlets. Something about the first tweet resonated - “here at NBC” - and I went back to the computer and Summize, finding another tweet directed at me that said Wikipedia was already updated with the news. Jumping to the New York Times, a single line at the top of the home page. Finally, at 12:33 Tom Brokaw broke into programming with the news.

Today Summize has “Tim Russert” at the top of the Trending Topics list, with “Russert” third. The tweets continue to roll in 20 hours after the fact, even now at 9am Pacific at some 200 per hour. Twitter’s international audience lets the story follow the sun, but Russert’s fame is largely U.S. centric. Clearly we have lost what many consider the soul or conscience of our political process at the head of the stretch leading to November.

That same presidential race is the likely culprit in Twitter’s recent collapse and partitioning into minimal services. As the company scrambled to get some coherent strategy in place to keep users from tipping into a stampede away from the service, Twitter’s API was gated, the Web UI was dynamically stripped of pagination, @replies, and sometimes even the array of follow icons as event swarms stressed the servers. Most significantly, IM services over XMPP were the first to disappear and not yet fully restored, and with that the service known as Track that I was emulating with the third party Summize client when Russert collapsed.

We may look back at Monday’s Steve Jobs keynote at the WWDC as the point where Twitter stabilized enough to survive. Because of the intense developer interest in creating applications for the iPhone 3G product, the conference was sold out and, like Twitter services, the media gated to only a certain number from each outlet, whether blogger or mainstream. Missing the cut, I went to Plan B as I’ve often done when trips took me away to New York or CES during Apple rollouts.

As the event began, I followed Qik reports from Mike Arrington, page refreshes of photos and text from EnGadget, Techcrunch, Gizmodo, and Cnet, and a live video aggregation of various Ustreams and commentary from Leo Laporte’s TwiT Live. As Jobs took the stage, a video stream captured a murky view of the stage from too many rows back, but the audio proved unmanageable. Laporte’s chat stream produced a URL to a more stable audio feed that held up throughout the rest of the keynote. Arrington produced two short Qik videos of key sections that surfaced as Qik servers restabilized.

The net effect was exhilarating; a bootstrapped symphony of virtualized Steve Reality Distortion Field funneled through the MacBook AIR that I route every bit of my real time digital life through. Throughout, Twitter remained up except for a ten minute period when Jobs announced the 3G device’s price, and as the event retreated into the past Twitter services unseen for weeks began to reemerge.

Much has been made of the fanaticism spurred by social media events and seminal products such as the iPhone - the swarming of the early adopters, the trivialization of Twitter as a toy, you know the drill and the comments on this post will likely personalize the pushback. But an event such as Russert’s death and the emotional shock wave it produced put the lie to the notion that this stuff is echo chamber or A-List or whatever. 30 minutes before the world knew about this tragedy, someone I don’t know reached out and established a connection based on mutual affinity.

The magic of Twitter, and Ustream, and Qik, and all the social tools just now emerging, is this incredible, subtle, hacked, user-controlled information network, that in a million ways and micro-communities, performs as efficiently and professionally as the greatest media empires on Earth. In fact, the two have merged as we gain access to the tools of the trade while the trade gains access to our hearts and minds. Track will return, and with it a flowering of this new media revolution where the new boss is the same as the old boss: Us. And you’ll see Tim there in the front row, if you look closely.
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Hey Microsoft, How ’bout We Do That First Deal You Offered?

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The devil is in the details, and the details of the Yahoo-Google search advertising deal reveal the desperate, possibly neurotic state of Yahoo these days. Quite simply, it looks to me like Yahoo is effectively paying Google off to step in and (1) keep Jerry Yang, Sue Decker and the current board of directors in power, and (2) avoid a desperation deal with Microsoft for as long as possible, or longer. It’s not even clear to me that Google wants this deal, based on the terms. It almost looks like they’re just doing Yahoo a favor, and trying to keep them out of Microsoft’s hands.

My guess is, Yahoo is wondering exactly why they didn’t take that Microsoft acquisition offer back when it was on the table. Those were the days that Yahoo was a key asset in the Microsoft/Google war, and most of their best employees hadn’t bailed. Of course, that was $15 billion ago, and that offer appears to be long gone.

I’ll get more specific below, but the combination of a basically non-binding agreement combined with a complex termination clause and associated termination fee to Google, suggest that the deal is little more than a favor to Yahoo, with a payoff to Google for their trouble. And there are some other agreement oddities mixed in that are probably driven by both companies strong suspicion that at least a few politicians intend to make hay by trying to kill this deal. The Department of Justice, which will review the agreement for compliance with Antitrust laws, is going to have massive commercial (Microsoft) and governmental (Congressional members up for reelection) pressure to find things to object over.

I’m not going to quote language in the half dozen press releases, leaked internal memos and blog posts that all parties have now published. The actual language of the agreement Yahoo signed with Google tells me everything I need to know about why both sides did the deal, and what they think is likely to happen next.

Microsoft’s Last Offer

Microsoft last offered Yahoo a combination stock, asset and business deal that sources with knowledge of the situation summarize as follows:

- Microsoft to acquire 16% of Yahoo’s outstanding stock from existing stockholders for $8 billion, or $35/share.

- Microsoft to acquire all of Yahoo’s search and search marketing assets - servers, code, advertisers, third party publishers, intellectual property and employees (perhaps 3,000 of them) for $1 billion in cash plus a guaranteed CPC rate that is higher than what Yahoo can generate itself.

- Yahoo gets increased search revenue from the deal over what they generate now, and get to remove people and operational costs of search.

- Yahoo agrees not to touch the search or search marketing businesses directly ever again. All their searches are controlled by Microsoft.

Here’s what I think of this deal - it stinks. Microsoft isn’t marrying Yahoo, they’re just getting her pregnant, setting her up in a nice apartment and telling her not to talk to any other guys.

But either way, Microsoft is signaling that their offer remains open. And Yahoo can probably pick and choose parts of it to accept, within reason.

The Google Deal

Forget the flowerly language about how this deal “strengthens Yahoo’s competitive position” (Yahoo press release) or “is good for competition” (Google blog post). Both are flat out lies. The deal crushes any notion of a competitive search advertising market and turns Yahoo’s search and search marketing efforts into the undead.

The deal allows Yahoo to put Google ads along side their own, presumably to maximize revenue to Yahoo. Google’s good at the top search terms (probably 80% or so of revenue potential), but Yahoo thinks they do fine in the long tail. The problem, of course, is that they’ll show Google ads for all the good stuff - and advertisers will go to Google to bid for those ads. More advertisers will leave the platform, further degrading Yahoo’s core search economics.

The four year deal (which Yahoo can extend to ten years) seems great on the surface. It’s non-exclusive and doesn’t require Yahoo to place any ads.

But the non-exclusivity isn’t real, because there’s no one else out there that can compete with Google’s search ad rates anyway. And while there is no requirement for Yahoo to place any number of ads, if they don’t generate at least $83 million in revenue to Google every four months Google can terminate the deal.

And then there’s the matter of the extremely complicated $250 million (minus any net revenues Google received from running advertisements) termination fee should Yahoo merge with anyone else (with easier triggers for mergers with Time Warner, News Corp. or Microsoft). If Yahoo merges with anyone Google can terminate the agreement and force Yahoo to pay them $250 million. Time Warner, News Corp and Microsoft only have to acquire 35% of Yahoo’s stock to trigger this position.

But then things get a little neurotic. If Microsoft acquires between 15% and 35% of Yahoo, Google can terminate but not collect the $250 million fee. Over 35%, Google gets the fee.

I’m calling this the “If our shareholders or the government kill this deal, as is highly likely, then we get to try things with Microsoft and don’t have to pay you off” fee.

If you want to wade through the language yourself, the summary is here.

Bottom Line

Yahoo has pissed off shareholders and a looming meeting - they can’t ignore reality much longer. And reality says Yahoo’s future is bleak. They continue to lose market share, they have serious brain drain and morale has never been lower.

The Microsoft search deal seals their fate permanently, and I can understand why they didn’t want to do it. This Google deal is their only alternative at this point. They can get out of it at any time, simply by not serving Google’s ads. But as long as it’s live they’ll see their advertisers flow to Google instead of their own search platform, and they have to pay a hefty fine if they end up selling themselves to a third party.

Microsoft may yet get their hands on Yahoo, or at least the parts of Yahoo they want, simply by default as shareholders continue their revolt and/or the government puts a stop to the madness. Or not, and Google gets a long term pass to transition Yahoo’s remaining advertisers over to their own platform plus a hefty termination fee if Yahoo gets sold off at some point.

Either way, Google wins. Or Microsoft wins.

But Yahoo has lost.

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Orgoo To Offer True Webmail To Existing Social Networks

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Social networks are, first and foremost, vehicles for personal expression and interaction. But for all the wall posts, direct messages and pokes, one means of communication is conspicuously missing: email ( Yahoo understands this, if little else). Apart possibly from the phone numbers you keep on your mobile phone, there is no better electronic indication of your social graph than your email address book.

Aside from emailing out notifications to lure users back, however, social networks opt for their own proprietary messaging systems. Unfortunately, these systems are much less powerful than email, and they’re certainly not as ubiquitous. Virtually everyone on the internet has an email account, but only a fraction of the digital populace happens to be part of the same social network as you.

Orgoo, a startup that has built an email-centric web interface for communications (see our coverage from 2007), thinks it can bridge the divide between email and social networking by pulling them together into a unified experience.

They will offer a white label solution to their webmail product marketed specifically to social networks looking to keep users on their sites for even longer periods of time. The result: Gmail and Facebook in one (or Hotmail and Friendster, if you’d prefer).

Orgoo integration into a social network would basically bestow upon that network webmail functionality. Users could send and receive email messages from any POP or IMAP-enabled account just a page away from their friends’ profiles and favorite social apps.

A range of synergies is also possible. When you receive an email from a friend in your network, you could see their current status message or recently added pictures. If the sender isn’t your friend but is part of the social network, you could be presented with an option to add them as a friend or view commonly shared friends.

There’s been talk that email is the true social network, since the people you email most must be the most important to you. That’s rubbish, of course. How are you going to check out that cute girl in class using email? Or share your favorite music and photos with several friends without annoying the hell out of them?

No. Email - no matter how advanced it gets - isn’t going to supplant Facebook, MySpace, and Orkut. But that doesn’t mean the social networks shouldn’t embrace email more tightly. Imagine the page view increases if users began checking their email messages along with their friends’ profiles. And the development cycles that would be saved by social networks that would otherwise need to replicate email functionality with their own messaging systems.

The benefits of integrating something like Orgoo wouldn’t necessarily stop at email. Orgoo would like to white label its instant messaging and video chat capabilities as well. The former would be particularly appealing to networks other than Facebook, which already has on-site instant messaging. None of the networks, however, has really embrace video communication yet.

Despite the potential mutual benefits of Orgoo integration (Orgoo itself would enjoy access to large, well-established user bases), the startup has a tough sell to make. Social networks will only reluctantly put so much of their users’ experience into the hands of a separate company. I imagine we’ll see smaller networks in the long tail implement Orgoo before any of the big players, such as MySpace, which was hypothetically mocked up in the shots accompanying this post.

Check out Zenbe and Xobni for two other attempts to blur the lines between email and social networking.

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Technorati Confirms New Financing; New Business Focus Coming

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Blog search engine Technorati, which was simultaneously pitching a sale through Montgomery & Co. as well as a new venture round, raised $7.5 million in a fourth round of financing according to a regulatory filing. Investors include Draper Fisher Jurvetson, Mobius Venture Capital and FG Incubation.

I spoke with Technorati CEO Richard Jalichandra this evening, who confirms that a venture round has been closed and says that the company will make an announcement next week that includes more information.

It’s also clear that the company is refocusing its business. We believe they are launching a blogger-focused advertising network based on documents we published in February. The company has, however, considered other strategies recently, including a blog rollup. We’ll know more next week.

Crunch Network: CrunchBoard because it’s time for you to find a new Job2.0

Upcoming Conferences From Our Sponsors

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Stay out the summer heat and get into these cool summer conferences.

Supernova starts this Monday. It’s June 16-18 in San Francisco, CA. TechCrunch readers automatically receive a $200 discount here.

Come join TechCrunch as we co-host the Mobile Connections forum with Kevin Werbach Monday at 5:15 pm at the Mission Bay Conference Center.

Sun Microsystems is hosting an Open Source Business Intelligence Summit on June 26, 2008 in Menlo Park, CA.

They are creating a forum to learn about the challenges and benefits of implementing an Open Source strategy. It is also a chance to understand how to develop next generation applications based on Open Source technology and how Sun can help you take advantage of it for your commercial success.

The detailed agenda is here and key topics include:

- Open Source as an emerging paradigm

- Culture and community of Open Source and its buyers

- Open Source products and technologies from Sun

- Open Source impact on Database, Business Intelligence and Data Warehouse environments

Speakers include:

- Mark Madsen, award winning IT architect, analyst and consultant

- Ian Murdock, champion of Developer and Community Marketing

- Zack Urlocker, former VP at MySQL

Free admission to the conference is extended on an invitation basis here. To request to attend the conference, register here (and tell them TechCrunch sent you).

OReilly’s Velocity Conference, June 23-24 in Burlingame, CA. Use “vel08tech” for a 15% registration discount. Email freeticket [at] techcrunch [dot com] if you’re interested in securing a free ticket. OReilly will select one name at random next Thursday, June 19 at 5 pm pst.

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Loopt Now Available For BlackBerry Users

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Mobile social network Loopt is making a big push this summer.

CEO Sam Altman already took stage at last week’s Stevenote prior to the unveiling of iPhone 3G. He was there to present the friend tracking software Loopt has been developing in time for the iPhone App Store launch on July 11th.

But while Altman describes Loopt’s iPhone version as the company’s best ever, he’s not overlooking the fact that many smartphone consumers still prefer the BlackBerry (and may even go for the BlackBerry Bold over the new iPhone). So Loopt is releasing software for BlackBerry devices as well, available here.

As with the iPhone, the BlackBerry software is free of charge. But unlike the iPhone, it will work on a variety of networks: Sprint, Alltel, T-Mobile, and AT&T.

See here for a full list of supported phones. Competitors include Whrrl, Brightkite, Zyb, and several others.

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Microsoft’s Letter to The Troops: Our Yahoo Offer Was Better

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Kevin Johnson, president of Microsoft’s platforms and services division, sent the following letter to Microsoft employees today. He outlines the deal that Microsoft offered Yahoo, and argues it would have been better for Yahoo than the Google deal. Specifically, he estimates Microsoft’s offer would have added $1 billion to Yahoo’s operating profits. (In contrast, the Google deal is expected to add $800 million in revenues, and less than that in operating profits).

The letter reveals that the three components of the deal Microsoft offered Yahoo were:

1. Microsoft would have invested $8 billion in Yahoo! at $35/share;

2. Microsoft would have purchased Yahoo!’s search assets for $1 billion, and assumed the operations and R&D expense while returning data back to Yahoo! for use in their advertising business; and

3. Microsoft and Yahoo! would have entered into a long-term search partnership, where Microsoft would have provided favorable economics to Yahoo! search, including a three-year guarantee of higher monetization than Yahoo!’s Panama paid search system currently provides.

Here is the full text of the letter.

From: Kevin Johnson
Sent: Friday, June 13, 2008 2:20 PM
To: Platforms & Services Division; APSP FTE - Adv & Pub Solutions Platform; Employees.all.corpXXXXXXXXXXXXXX
Cc: Executive Staff and Direct Reports
Subject: Update on our Yahoo! discussions

I wanted to take an opportunity to provide my thoughts and perspective on the conclusion of our discussions with Yahoo!, and its announcement of a commercial agreement with Google.

As I shared in my mail on May 18 (see attached), we have better options than a full combination with Yahoo! at the price it suggested, and we have moved forward on our strategy to grow our online business.

Let me share a little background with you. When we made our original proposal on February 1st to combine with Yahoo!, we offered a 62% premium that was based on a desire to reach an agreement in short order. The faster we could reach an agreement, the sooner we could begin the regulatory process and create value through this combination.

In a March 10th meeting in Palo Alto, we explained to Yahoo! management the importance of reaching an agreement by the end of April in order to have an opportunity to complete the regulatory process by the end of this calendar year. Because we could not come to an agreement on price by the end of April and given our concerns about Yahoo!’s business performance, we elected to withdraw our bid and pursue better options for Microsoft.

During the last few weeks, we spent a considerable amount of time with Yahoo! discussing an alternative proposal around search. Specifically, this search proposal had three components:

—Microsoft would have invested $8 billion in Yahoo! at $35/share;

—Microsoft would have purchased Yahoo!’s search assets for $1 billion, and assumed the operations and R&D expense while returning data back to Yahoo! for use in their advertising business; and

—Microsoft and Yahoo! would have entered into a long-term search partnership, where Microsoft would have provided favorable economics to Yahoo! search, including a three-year guarantee of higher monetization than Yahoo!’s Panama paid search system currently provides.

This partnership would have created a stronger competitor to Google, providing greater choice and innovation for advertisers, publishers and consumers. This approach could have been implemented quickly and would have simplified the integration process for both parties. It would have also established the basis for a long-term Internet partnership between Yahoo! and Microsoft.

We believe this proposal would have created compelling value for Yahoo! and its shareholders in at least three ways:

—New Transfer of Cash to Yahoo! Shareholders. This proposal would have transferred $9 billion from Microsoft to Yahoo!, which could have been used by Yahoo! to reward their shareholders.

—A More Profitable Ongoing Business. This proposal would have resulted in higher operating income on an annual basis for Yahoo!, with our projections more than doubling Yahoo!’s operating income in the first year of operation, and increasing it by more than $1 billion above its current operating income level.

—A More Compelling Search Offering. The combination of the search platforms would have unlocked new R&D innovation, eliminated redundant engineering efforts and allowed for greater scale in serving our customers.

Taken together, we believe that our proposal would have created total value for Yahoo!’s shareholders in excess of $33 per share.

Unfortunately Yahoo! has chosen a different course, and yesterday announced an agreement that would start to consolidate over 90% of the paid search advertising market in Google’s hands. This will make the market far less competitive. There are many experts who suggest that a host of legal and regulatory problems lie ahead for Google and Yahoo!.

Regardless of Yahoo!’s decision, we will continue to move forward on our strategy in online services and advertising.

Since my mail on May 18, we have been making great progress. At our advance08 conference, we announced Live Search cashback and Live Search Farecast, and the initial response to these user experience and business model innovations in search has been very positive. On June 2nd, we also announced a distribution deal with HP, the world’s largest PC manufacturer, to install a Live Search-enabled toolbar on all HP consumer PCs planned to ship in the United States and Canada, beginning in January 2009.

We look forward to sharing more milestones and details on our plans as we head to MGX and our Financial Analyst Meeting in July.

I remain confident in our assets, plans and people to succeed in building our online business. Thanks again for your commitment and focus.

Regards,

Kevin Johnson l President Microsoft Platforms & Services Division l

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Next New Networks Looking For Next New CEO

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Web video production house Next New Networks is looking for a new CEO. Founder and current CEO Herb Scannell, who will remain as chairman, announced it on the company’s blog. Previously, Scannell was vice chairman of MTV Networks and president of Nickelodeon, where he launched the career of SpongeBob SquarePants. (Not that he’s looking for a SpongeBob type to fill his shoes, necessarily). Next New Networks runs 16 different video Websites, including Barely Political and Channel Frederator, all creating original online video.

So what kind of candidate is Scannell and his investors (Goldman Sachs, Spark Capital, Velocity Interactive) looking for? Scannell writes in his post:

Thus far, we’ve been video-centric, built our network model, and got distribution and advertising up and running. Now, I want to see us go beyond video by building up our web capabilities in key categories, and move the company to make our sites and new offerings even more robust for communities to gather and interact. Hence, I plan on bringing in someone as CEO who has “been there, done that” in building a web business, and who will work with me as Executive Chairman.

Blogs are becoming an executive recruiting tool for startups. Last year, SocialText founder Ross Mayfield used his blog to similarly announce that he wanted to find a CEO to take his company to “thenext level.” Four months later, he found his replacement. (He remains chairman and president)

How long will it take Next New Networks to find a new CEO? If you’ve been there, done that, and want to do it again, send Herb your resume.

Crunch Network: MobileCrunch Mobile Gadgets and Applications, Delivered Daily.

Get Ready For A New Platform War. Google Gears Drives Straight At Microsoft’s Profits.

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Google launched Gears last May, and for the first year of its release it was considered a minor, niche product that a few developers and users may take advantage of to allow offline access to web applications. You can probably recall the arguments at the time: who needs offline access, connectivity is everywhere anyway, not enough apps will support this etc. It wasn’t until a year later and only a few weeks ago, that Google revealed its ace card: Gears-powered messaging for MySpace that is super-accelerated. Google had entered the race to provide the new web API, and for a year almost nobody had noticed.

The browser of the future is likely to become the virtual machine that hosts almost all applications. In this scenario the operating system becomes transparent, so Microsoft has something to protect (the source of its profits), as does Adobe, who currently provides the most common and consistent web virtual machine with Flash. Google has made no secret of its plans to target and harm Microsoft, and they know that the best way to go about that is to make the operating system irrelevant by moving up a layer and turning the browser into a standard, but powerful, virtual machine for applications.

It is hard to convey in a review how Gears can change and accelerate the functions of a web application. With browser-based Javascript, functions in MySpace such as listing and sorting emails or filtering through a list of friends felt very slow; the loading bar would freeze as the hourglass spins while your browser makes multiple requests back to the server. With a quick install of gears, a click on a confirmation box and a couple of seconds of loading time, the same functions that would previously almost drive a user insane now feel like they are part of the browser itself. What Google showed us Gears could do with the MySpace integration woke almost everybody up to the true intention of the product: this was no longer about offline browsing, but a shot aimed directly at Adobe and Microsoft.

At last count, Google had a suite of 28 different web-based applications, all being used by millions of people all over the world. The technology they use to implement their web applications has always been standards-based HTML, CSS and Javascript. The choice of Ajax may be because it is simply the best solution, but it may have more to do with the fact that almost every alternate web development technology stack is produced and controlled by a direct competitor. Google strongly backed the development of the open source Firefox web browser and supported open web standards as their technology stack of choice. They did this because their web applications depended on it, and a weak Firefox could possibly result in a revived Internet Explorer that would hand over control of the web back to Microsoft.

Previously, using only browser-based Javascript to power web applications wasn’t a problem for Google. That was, until their competitors took a step forward and released their respective second generation web platforms in the form of Flex/AIR and Silverlight. Microsoft and Adobe had taken a big step forward in terms of what could be done with web based applications, with desktop-like interfaces and functionality. It wasn’t going to be too long before competitors big and small would be using competing technology platforms to build competing applications that would make the Google app suite look like it was stuck in the 90’s.

The choice for Google was clear: either give up on browser-based Javascript and standards development and take up one of the new technologies, or stick with it and progress the core web technologies forward to the point where they are a viable alternative. The problem for Google was that while there were new standards and planned browser features that would soon introduce rich web technologies, the progress in developing these standards was so slow that it would be years before they would see wide-spread adoption. The new HTML standard, HTML5, was specifically aimed at extending the capabilities of web applications within native browsers, without the need for an added proprietary runtime. Those same functions and other additions would form the basis for the new Google web API.

With slow standards development blocking the path to better and faster, yet still free and open web application development, Google decided to take on that market itself through Google Gears. The idea was simple: bring forward the features of tomorrow’s web technologies into today’s browsers. The specific features mostly came from the new HTML5 specifications that standards bodies had been spending years working on. Instead of waiting for them to hit production, Google simply implemented them as best they could by extending the browser through a plugin. They would sacrifice standards in the short-term (and essentially ‘figure it out later’) in order to bring their web applications up to a rich next-generation standard from where they could stand up to Flash and Silverlight.

Gears would be developed by a group of 30 or so developers as part of the open source group in Google. In an ironic twist, the group is led by Vic Gundotra, who prior to Google led developer evangelism at Microsoft. The small group of developers set out to mark out and preserve Google’s interests in Javascript and an open browser virtual machine. On paper they would seem out-gunned by the larger groups and budgets that Microsoft and Adobe were pouring into their respective platforms. To help boost their case, they have detached Gears from Google (literally also – the project is now called just ‘Gears’) and released the code under an open source license.

The first release would focus on a few features proposed in HTML5 that were considered most important: client-based structured and object storage. Because of the choice to implement client-storage first, Gears would be framed as an offline application solution for the next year, which if not intentional, certainly served them well as competitors likely didn’t notice the broader goal. Google could have developed and released their own browser, there was speculation and rumors in blogs stating exactly that, but the browser market was competitive, tedious and generally a pain. Besides, even after having developed a new browser they would have to wait for critical market mass while they drove users to adopting it, and there would still be the other 70, 80 or 90 percent of the market not using their browser who might still want to use Google apps.

The shortcut was to skip past the browsers and add a new layer above them – the Google web layer. All the popular browsers provide mechanisms by which developers can extend their functionality, so all Google had to do was to developer a plugin for each browser. It could have its new web API on potentially 100% of desktops without asking users to switch and most importantly, in a manner much faster and less painful than entering the browser market. Browsers would now do all the boring bits: rendering HTML, presenting an interface, user options etc. while Google leveraged what was there and dashed ahead.

Today Gears supports a whole host of new features, some that it has in common with the other next generation web API efforts from Microsoft and Adobe while others are a result of their own innovation. Function calls available to developers include background processes (no more hourglass), client-side image manipulation, location-awareness, better file uploading and a local database inside the browser.

There are two sides to the adoption of a new API and development platform: one side is user support, and in this case it requires a plug-in to be installed; the other side is developer support, and with Gears it couldn’t be easier as the applications are the same as any other in using browser-based Javascript, it just provides developers with a whole lot more they can do in the browser. Javascript and web developers have nothing new to learn and users are only a plug-in away (with the inevitable upcoming bundling deals, not even that). It took Flash 5 or 6 years to become common enough for developers to target it with confidence, with Google backing it, Gears could take less than half that time.

In this race Google has nothing to lose but a lot to gain, and in a single shot has kick-started the standards-based and open-source alternate new web API. Unlike their competitors they don’t have an interest in controlling the platform nor directly profiting from it. They are instead seeking to maintain the current status quo: Javascript in the browser for most applications and Flash or another alternate when you need just a little bit more.

It has been a long time since the last platform war, but each time that technology experiences one you can see the biggest companies fall and the smallest companies prosper. Add open source to the equation and the result may still be that no single company dominates. With so much at stake and such large companies involved, we are surely about to witness a long and protracted battle. Only time will tell if the Google approach to taking the web forward will work.

This post is part of a series written by Nik Cubrilovic on the Next-Gen Web, read other posts here.

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Quillpill: A Twitter For Cell-Phone Novelists (500 Invites)

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Even if they could, few people have the time to write a book. But what if they could Twitter one? For all those aspiring novelists out there, Quillpill might be the app to get them started.

Twitter clones have been cropping up all over the web in recent months with most of them replicating the “What are you doing?” concept in one way or the other.

Quillpill takes a totally different approach by wanting to know what stories you would like to tell. The site is primarily aimed at aspiring authors and readers of fiction. Quillpill is currently in private beta but available to the first 500 Techcrunch readers to sign up by sending an e-mail to techcrunch[at]quillpill[dot]com.

In order to compose a so-called book, users first choose a title and then submit posts with a maximum of 140 characters. Entries belonging together are displayed one below the other in a thread-like structure. Authors are able to create any kind of text-based content over time, including diaries, short stories, poems or even novels. Here is an excerpt from one called Saijo City Notebook by Eric Rice:

I remember reading in school about the controversy about broadcasting
public executions– a quaint and kitsch idea, considering the failure.

Televised executions came and went, as fads do, because the interest
wasn’t there. The ratings sucked. In otherwords, death was canceled.

Why are entries limited to 140 characters? The answer is simple: Founders Derek Maune and Elissa Rose have their eyes on the mobile web. The Twitter-like approach makes it possible even for owners of low-end mobile devices to blog stories wherever they want, regardless if a PC is around or not. In addition to the regular web site, Quillpill is available in an optimized mobile and iPhone version (”ipill”). The founders claim the service can also be used on video game consoles such as the Nintendo Wii, the DS or the Sony PSP.

Quillpill does a lot of things right. The site’s most superficial selling point is a strangely futuristic, yet beautiful design. The threading mechanism is straightforward, allowing for an easy read for people who are often on the road. The minimalist interface lets users create books very easily. As of now, there isn’t even a help section on the site, and it’s not really needed.

With all essentials covered and no major competing service suited to serial fiction around, the question is if Quillpill’s underlying concept will actually work. It remains to be seen whether writers will embrace the concept of composing texts one thought at a time, on small keyboards and mini screens. At least as important, a critical mass of readers must be ready for “cellular storytelling” in order for Quillpill to become a scalable business.

Japanese readers began saying yes to mobile publishing quite a while ago. Books written on cell phones are selling hundreds of thousands of copies in Japan. The founders say this phenomenon actually triggered the development of Quillpill. Consequently, the site will be released almost simultaneously in the US and Japan (as “Kyupi”). Future enhancements such as exporting content to different formats or a reward system for popular stories are planned to be implemented into both versions at the same time. Tokyo-based web consultancy Genkii is currently in the process of localizing the service into Japanese.

As of now, using Quillpill is completely free, but a paid subscription system is planned. Readers will also be able to purchase Quillpill books as ebooks or hard copies through the site itself or via print-on-demand services. Just like Twitter Japan, the Japanese version will be additionally monetized with display ads.

Quillpill was founded by Kansas-based Synthetic Entertainment in January 2008 and has been self-funded, costing about $30,000 so far.

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Shopzilla Founder Farhad Mohit Behind Stealth Startup DotSpots

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Serial entrepreneur Farhad Mohit is at it again. Back in 1996, Mohit founded BizRate, one of the first consumer review sites, and then shopping search engine Shopzilla. He sold both to E.W. Scripps for $570 million in June 2005.

Now he has a new super stealthy startup called DotSpots. The startup raised a seed round of $300,000 last September from Mohit and HitForge, the angel fund run by engineers. (HitForge is also an investor in WeGame and Mesmo.tv). In his LinkedIn profile, Mohit hints that DotSpots:

will make my other ideas to date look like child’s play…

Not much else is known about DotSpots other than that it wants to apply crowd wisdom to every piece of information out there, beyond shopping and product info. We’ll be keeping an eye on this one.

Crunch Network: CrunchBoard because it’s time for you to find a new Job2.0

Google’s $83 Million Escape Clause: SEC Filing Spells Out Details Of Yahoo-Google Deal

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In a new filing with the SEC, Yahoo spells out the terms of the search-advertising agreement it announced yesterday with Google. Most of the filing fleshes out known details about the agreement. But it also discloses something Jerry Yang and Sue Decker didn’t want to talk about yesterday. The deal includes an $83 million escape clause for Google:

Google may terminate the Services Agreement if, after ten months after the Services are first launched, and each month thereafter, the gross revenues recognized by Google under the Services Agreement are less than $83,333,333 for the four prior calendar months.

In other words, Google has a minimum guarantee of serving at least $83 million worth of ads through Yahoo on a rolling 4-month basis, or else it can walk away. That’s a pretty tiny threshold, considering that Yahoo’s quarterly U.S. revenues are $1.3 billion. The amount comes to about one percent of Yahoo’s total projected revenues for 2008. (When Yahoo president Sue Decker was asked about minimum guarantees yesterday during a conference call, she wouldn’t comment).

There is another clause that lets both companies out of the agreement without penalty to avoid antitrust lawsuits or other similar actions. But Google negotiated a $250 million kill fee if the agreement is terminated within two years because of a “change in control” of Yahoo (i.e., a sale). Update: A change in control is defined as occurring if more than 50 percent of Yahoo’s shares are purchased by another company (in the case of Microsoft, News Corp., or Time Warner, that threshold is lowered to 35 percent). Curiously, the agreement provides loopholes for a change of control “triggered by” Microsoft acquiring more than 15 percent of shares on the open market or more than 5 percent of shares acquired directly from Yahoo or buying any part of Yahoo representing more than one percent of its annual revenues. If any of this happens, Yahoo does not have to pay the fee If Yahoo is acquired by Microsoft, it doesn’t have to pay the fee. Thus, this single clause means that anyone other than Microsoft might have to pay up to $250 million more to buy Yahoo.

If the Services Agreement is terminated by either party within 24 months of the Effective Date as a result of a Change in Control of Yahoo! (other than a Change in Control triggered only by Microsoft …), Yahoo! is required to pay to Google the sum of $250,000,000

The agreement also explains Yahoo’s discretion in deciding how, when, and where to display Google ads. It also goes into how the deal is structured. There are two portions. Google is to pay Yahoo both a variable and fixed percentage of the gross revenues it generates through the deal. The variable percentage is based on monthly targets, presumably on top of a fixed percentage. The actual percentages of the revenue split was not disclosed:

Under the Services Agreement, Yahoo! has sole discretion to choose which search queries to send to Google and is not obligated to send any minimum number of search queries. Yahoo! also has sole discretion to decide on which pages to display ads provided by Google through its AFC Services. In addition, the Services Agreement is non-exclusive, and expressly provides that Yahoo! is not prevented from implementing any other advertising, promotion or marketing service or monetization method, including any that are the same as or substantially similar in nature to the Services or displaying comparable advertisements. Yahoo! also has sole discretion with respect to the placement and location of ads generated from the Services, the number of ads requested and the formatting of ads. Additionally, Yahoo! may serve its own ads or third-party ads alongside Google ads.

Google will pay Yahoo! a percentage of the gross revenues generated from AFS Services on the Yahoo! Properties, with such percentage adjusting based on specified monthly gross revenue thresholds, and with respect to the Yahoo! Partner Properties will pay a similar percentage of gross revenues less a separate specified percentage. Google will also pay Yahoo! a fixed percentage of gross revenues generated from AFC Services on the Yahoo! Properties and a fixed percentage of gross revenues for AFC Services on Yahoo! Partner Properties.

The full text of the agreement follows:

Item 1.01. Entry into a Material Definitive Agreement.

Services Agreement
On June 12, 2008 (the “Effective Date”), Yahoo! Inc., a Delaware corporation (“Yahoo!”), and Google Inc., a Delaware corporation (“Google”), entered into a Services Agreement (the “Services Agreement”), pursuant to which Google will provide Yahoo! with advertisements through Google’s AdSense for Search service (the “AFS Services”) and AdSense for Content service (the “AFC Services” and together with the “AFS Services,” the “Services”) for display on web sites and other applications owned and operated by Yahoo! and its subsidiaries (the “Yahoo! Properties”) and certain of Yahoo!’s business partners/affiliates (the “Yahoo! Partner Properties”). The Services Agreement applies to properties within the United States and Canada.

Under the Services Agreement, Yahoo! has sole discretion to choose which search queries to send to Google and is not obligated to send any minimum number of search queries. Yahoo! also has sole discretion to decide on which pages to display ads provided by Google through its AFC Services. In addition, the Services Agreement is non-exclusive, and expressly provides that Yahoo! is not prevented from implementing any other advertising, promotion or marketing service or monetization method, including any that are the same as or substantially similar in nature to the Services or displaying comparable advertisements. Yahoo! also has sole discretion with respect to the placement and location of ads generated from the Services, the number of ads requested and the formatting of ads. Additionally, Yahoo! may serve its own ads or third-party ads alongside Google ads.

Google will pay Yahoo! a percentage of the gross revenues generated from AFS Services on the Yahoo! Properties, with such percentage adjusting based on specified monthly gross revenue thresholds, and with respect to the Yahoo! Partner Properties will pay a similar percentage of gross revenues less a separate specified percentage. Google will also pay Yahoo! a fixed percentage of gross revenues generated from AFC Services on the Yahoo! Properties and a fixed percentage of gross revenues for AFC Services on Yahoo! Partner Properties.

The initial term of the Services Agreement commenced on the Effective Date and will continue for a period of four years thereafter. Yahoo! may, at its option, extend the term of the Services Agreement for up to two additional periods of three years each. Either party may terminate the Services Agreement upon notice to the other party (i) in the event of an uncured material breach of the Services Agreement by the other party, subject to dispute resolution procedures and certain limitations; (ii) in the event of a Change in Control (as defined below) involving either party; (iii) 120 days after the Effective Date in order to avoid or end a lawsuit or similar action filed on competition law grounds if the terminating party has taken all actions required under the Services Agreement with respect to regulatory matters and defending such action is not commercially reasonable for that party (taking all factors into account); or (iv) if a court of competent jurisdiction has entered an order enjoining the implementation of the Services Agreement. In addition, Google may terminate the Services Agreement if, after ten months after the Services are first launched, and each month thereafter, the gross revenues recognized by Google under the Services Agreement are less than $83,333,333 for the four prior calendar months.

As defined in the Services Agreement, the term “Change in Control” means (a) a merger, consolidation, statutory share exchange, recapitalization, restructuring or business combination involving directly or indirectly a party or a subsidiary of a party in which voting securities of the party outstanding immediately prior to such transaction do not continue to represent more than 50% (or 65% in the case of a transaction involving Microsoft Corporation (“Microsoft”), Time Warner Inc. (“Time Warner”) or News Corporation (“News Corp”), in each case together with their respective affiliates) of the voting power represented by the outstanding voting securities of the surviving entity immediately following the transaction; (b) any “person” or “group” becoming the “beneficial owner” (as such terms are used or defined in Sections 13(d) and 14(d) under the Securities Exchange Act of 1934, as amended) of more than 50% of the voting power of the then outstanding voting securities of the party, except that, in the case of Time Warner and News Corp, the percentage will be 35% instead of 50% and, in the case of Microsoft, the percentage will be 15% instead of 50% and a Change in Control will also be deemed to occur if Microsoft (i) beneficially owns 15% of the voting power of the party or (ii) acquires directly from a party any equity or voting securities of that party representing (or having a right to receive in the aggregate) 5% or more of the total equity value of the party or 1% or more of the party’s annual revenues on a consolidated basis); (c) approval by the stockholders of a party of a plan of liquidation or dissolution; (d) the sale or disposition of all or substantially all the consolidated assets of a party; or (e) at any point in time, Yahoo! no longer owns and, with respect to the U.S. and Canada, controls a majority portion of Yahoo!’s technology and intellectual property assets that in the 12-month period prior to that time had been owned by Yahoo! and used by Yahoo! to provide services in the U.S. and Canada for either its algorithmic search or search advertising business. The Services Agreement also permits Google to suspend performance of the Services under certain circumstances, including a pending Change in Control of Yahoo! involving Microsoft, Time Warner or News Corp and a change in a majority of the board of directors of Yahoo! following an annual or special meeting of stockholders if a majority of the new directors did not serve on Yahoo!’s board immediately prior to such stockholder meeting and were nominated or solicited for by Microsoft, Time Warner or News Corp or, solely with respect to Yahoo!’s first two annual or special meetings held after the Effective Date where the election of a majority of directors is before Yahoo! stockholders (but not later than September 1, 2009), by any other person or group.

If the Services Agreement is terminated by either party within 24 months of the Effective Date as a result of a Change in Control of Yahoo! (other than a Change in Control triggered only by Microsoft either (x) acquiring beneficial ownership of voting securities representing more than 15% of the voting power of outstanding Yahoo! voting securities or (y) acquiring directly from Yahoo! equity or voting securities representing 5% or more of Yahoo!’s total equity value or 1% or more of Yahoo!’s consolidated annual revenues, unless Microsoft becomes the beneficial owner of more than 35% of the voting power of such securities within such 24 month period), Yahoo! is required to pay to Google the sum of $250,000,000, which payment will be reduced by one-half of an amount equal to (a) all gross revenues received by Google pursuant to the Services Agreement through the date of termination less (b) the amount equal to Yahoo!’s share of such gross revenues during the same period.

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Massive Destruction Of Shareholder Value, Employee Morale and Internet Balance Of Power

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I don’t believe that there is anything Yahoo could do at this point to further destroy their business that would surprise me.

At 1:35 pm EST yesterday we posted that we believed Yahoo would announce a search marketing deal with Google, essentially ending their negotiations with Microsoft and, pending government approval, sealing Google’s monopoly position in search marketing. Twenty-five minutes later a massive sell off of Yahoo stock began - the company lost billions in market valuation over the course of the next hour as the market made it’s bets on the news.

At 3 pm EST Yahoo announced that all talks with Microsoft were formally off, and the stock fell further. It eventually climbed back a little, but by the end of the trading day, $3.6 billion had been removed from the pockets of Yahoo stockholders. Well after trading ended, Yahoo confirmed our original report that they’d signed a deal with Google to hand over much of their search marketing business.

The deal terms announced with Google appear to be fairly innocent - a non-exclusive arrangement that let’s Yahoo take Google’s ads if and when they choose to, and put them alongside their own ads, and/or other third party ads. But the truth is that this will cause even more advertisers to flee Yahoo’s platform. Which will drive auction-determined ad rates down. Which will drive Yahoo to take more Google ads. Which will…

It’s a vicious cycle and they will have no choice, as a public company, but to rely more and more on Google as time goes on.

Our sources inside Yahoo had interesting things to say about the general state of things at the office today as Yahoo’s stock price fall apart. “Unclear what’s happening” said one vice president. “Fucking train wreck, total chaos” was the less eloquent observation of a more junior employee.

When I accused Yahoo of playing the crazy card in their negotiations with Microsoft, I never thought these people were actually insane. Handing Google a monopoly in search marketing was just a ploy, I thought. A way to get Microsoft to bid a little higher than $31 per share.

But it turns out I was wrong. Yahoo’s hatred of Microsoft runs so deep that they were actually, in the end, willing to destroy the future of their company just to keep it independent for a short while longer. They’ve ignored the wishes of their shareholders, employees and many now former key employees in killing that deal. And apart from Google, CEO Jerry Yang, President Sue Decker and possibly Tim O’Reilly, I don’t believe there is anyone in the world that is happy with what has happened.

As much as everyone still has lingering doubts about Microsoft after their hardball monopolistic practices of the nineties, it’s clear that they, along with Yahoo, were the only force counterbalancing the massive presence of Google in search marketing.

Without them, Google would continue to keep the lion’s share of search marketing dollars to themselves, and distribute next to nothing to third party publishers. But Microsoft and Yahoo were both willing to fight for some of those deals, at least pushing Google’s profits down a little. Now, with Yahoo taken out of the game, it’s unclear that Microsoft can fight Google on its own. How long will they pour profits from Windows and Office into trying to compete in search?

The delicate power balance among the big players was disrupted today in a big way, and the consequences will be felt over the coming months and years. We needed a competitive market in search to ensure the health of the Internet. Now, it’s nearly impossible to see how that can happen.

It took me about five minutes of watching Yahoo’s top two executives talk last month to realize that they had no fight left in them. The fact that they simply gave up wouldn’t matter so much if the only people hurt by their actions were their employees and stockholders. But that just isn’t the case, and now we all have to deal with the fallout.

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Google Speeds Up Mobile Search

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At Google, it’s all about speed. That’s doubly true for mobile applications. Google made some improvements to its mobile search, making it load faster on most mobile browsers. It does this by caching the page.

Google also added an iGoogle link to its mobile homepage. It also now allows you to customize and rearrange the widgets on the mobile version of your iGoogle start page so what you see on your mobile iGoogle can be different than what you see on your desktop. (You have to set this up from a regular computer, but can basically drag and drop widgets around to your liking).

This should make iGoogle a much more viable mobile start page. And, arguably, you need a start page with shortcuts to your favorite content on your mobile browser more than you do on your desktop. It’s just faster that way.

Below is a longish Google video with a demo of the new functionality (skip to about 1:44 in, when the actual demo starts:

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Facebook’s Second F8 Developer Conference Announced. How Will They Top Last Year’s Facebook Platform Launch?

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Facebook announced its second F8 Developer event earlier today, to be held in San Francisco on July 23, 2008.

It’ll be hard for them to top last year’s announcement of Facebook Platform at the first F8 event. Facebook Platform transformed the idea of social networking from an activity to a platform to engage users. MySpace’s Platform, Google Open Social, and even Yahoo’s new feel-good social strategy can all be linked back to that single event.

What will Facebook launch this year? I don’t know yet, but look for them to expand their open source offering, push the new profile product, and, I’m sure, have at least one new major announcement. There may even be a little celebrating over their new status as the largest social network in the world.

Update: We’ve been informed that Senior Platform Manager Dave Morin has said Facebook will launch Facebook Connect at F8 this year, although this has yet to be confirmed by the company. Its launch would certainly make sense given its intention to essentially extend the app platform into the broader web. Facebook may very well have been saving the initial announcement of Connect for F8 until MySpace surprised them.

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Facebook No Longer The Second Largest Social Network

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It was sort of inevitable given Facebook’s monster growth over the last few years, but April 2008 was the milestone: Facebook officially caught up to MySpace in terms of unique monthly worldwide visitors, according to data released by Comscore and shown above. Both services are attracting around 115 million people to their respective sites each month.

Most of Facebook’s user growth, however, has been in international markets - MySpace is still dominates Facebook in the U.S. market, with 72 million monthly uniques. Facebook has 36 million monthly uniques, up from 23 million a year ago.

Facebook added 75 million monthly uniques over the last twelve month, but just 13 million of those visitors are located in the U.S. MySpace added 5 million U.S. uniques during that period - at this rate it will take 4 years for Facebook to catch up to MySpace in the U.S. market.

There’s a real question about how valuable all these international users are from an advertising standpoint. We’ll be publishing our thoughts on that next week.

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Table of Contents

Will 2008 Be Google’s End Of Innocence?

Here’s What’s Going To Happen To Apple’s Rivals

Dead Simple Flash Based WebChat For MySpace

Here’s Our New Policy On A.P. stories: They’re Banned

Ebay Opens Up Seller Tools As A Platform

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NYTimes Article Reverberates Through Yahoo; Who’s Their Next CEO?

Arrington Talks Yahoo/Google/Microsoft

Why Kyte.tv will kill Qik and Flixwagon in cell phone video space

Our Home Town

Hey Microsoft, How ’bout We Do That First Deal You Offered?

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Technorati Confirms New Financing; New Business Focus Coming

Upcoming Conferences From Our Sponsors

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Microsoft’s Letter to The Troops: Our Yahoo Offer Was Better

Next New Networks Looking For Next New CEO

Get Ready For A New Platform War. Google Gears Drives Straight At Microsoft’s Profits.

Quillpill: A Twitter For Cell-Phone Novelists (500 Invites)

Shopzilla Founder Farhad Mohit Behind Stealth Startup DotSpots

Google’s $83 Million Escape Clause: SEC Filing Spells Out Details Of Yahoo-Google Deal

Massive Destruction Of Shareholder Value, Employee Morale and Internet Balance Of Power

Google Speeds Up Mobile Search

Facebook’s Second F8 Developer Conference Announced. How Will They Top Last Year’s Facebook Platform Launch?

Facebook No Longer The Second Largest Social Network