Archive for May, 2008

May 3, 2008

Breaking: Microsoft Withdraws Yahoo Bid; Walks Away From Deal (Updated)

Michael Arrington


Microsoft will announce shortly that they have withdrawn their offer to acquire Yahoo. Talks between the two companies and their advisors broke down earlier today, according to a source close to Microsoft, after a failure to come to agreement on price and other terms.

A final meeting occurred today at Microsoft headquarters in Redmond, between Jerry Yang and David Filo from Yahoo, and Kevin Johnson and Steve Ballmer from Microsoft. At that meeting, Yahoo said the lowest price they could accept was $37/share. Microsoft reportedly went as high as $33/share. Yang and Filo returned to California shortly after the meeting, and Yang then had a subsequent phone conversation with Ballmer. At that time Ballmer withdrew the offer.

Other facts are emerging around recent negotiations between the companies. A rough timeline:

  • No meaningful talks occured between the companies until after Microsoft sent a letter to Yahoo on April 5 with a three week deadline to complete a deal.
  • On April 15, execs from both companies met in Portland, Oregon to discuss valuation and integration issues.
  • Following that April 15 meeting both sides signed a non disclosure agreement not to discuss any negotiations until after the April 26 deadline that Microsoft set in their April 5 letter.
  • On April 18, Microsoft and Yahoo advisors had a phone conversation; Yahoo signaled a minimum price of $40/share.
  • On April 29, there were multiple phone conversations between the companies; Yahoo supposedly said they would be willing to move from the $40 price and requested that Microsoft not go hostile or walk from the deal.
  • On April 30 the teams met in California. Yahoo said $38 gets the deal done.

Microsoft is making it clear that this is not just a breakdown in discussions between the companies. They are withdrawing their earlier bid and are saying they will not go hostile. They’re walking away cleanly from the deal.
Update: Press Release:

Microsoft Withdraws Proposal to Acquire Yahoo!

REDMOND, Wash., May 3 — Microsoft Corp. (Nasdaq: MSFT) today announced that it has withdrawn its proposal to acquire Yahoo! Inc. (Nasdaq: YHOO).

“We continue to believe that our proposed acquisition made sense for Microsoft, Yahoo! and the market as a whole. Our goal in pursuing a combination with Yahoo! was to provide greater choice and innovation in the marketplace and create real value for our respective stockholders and employees,” said Steve Ballmer, chief executive officer of Microsoft.

“Despite our best efforts, including raising our bid by roughly $5 billion, Yahoo! has not moved toward accepting our offer. After careful consideration, we believe the economics demanded by Yahoo! do not make sense for us, and it is in the best interests of Microsoft stockholders, employees and other stakeholders to withdraw our proposal,” said Ballmer.

“We have a talented team in place and a compelling plan to grow our business through innovative new services and strategic transactions with other business partners. While Yahoo! would have accelerated our strategy, I am confident that we can continue to move forward toward our goals,” Ballmer said.

“We are investing heavily in new tools and Web experiences, we have dramatically improved our search performance and advertiser satisfaction, and we will continue to build our scale through organic growth and partnerships,” said Kevin Johnson, Microsoft president for platforms and services.

Update: Letter From Ballmer To Yang

Below is the text of the letter from Microsoft CEO Steve Ballmer to Yahoo
CEO Jerry Yang.

May 3, 2008

Mr. Jerry Yang
CEO and Chief Yahoo
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089

Dear Jerry:

After over three months, we have reached the conclusion of the process regarding a possible combination of Microsoft and Yahoo!.

I first want to convey my personal thanks to you, your management team, and Yahoo!’s Board of Directors for your consideration of our proposal. I appreciate the time and attention all of you have given to this matter, and I especially appreciate the time that you have invested personally. I feel that our discussions this week have been particularly useful, providing me for the first time with real clarity on what is and is not possible.

I am disappointed that Yahoo! has not moved towards accepting our offer. I first called you with our offer on January 31 because I believed that a combination of our two companies would have created real value for our respective shareholders and would have provided consumers, publishers, and advertisers with greater innovation and choice in the marketplace. Our
decision to offer a 62 percent premium at that time reflected the strength of these convictions.

In our conversations this week, we conveyed our willingness to raise our offer to $33.00 per share, reflecting again our belief in this collective opportunity. This increase would have added approximately another $5 billion of value to your shareholders, compared to the current value of our initial offer. It also would have reflected a premium of over 70 percent compared to the price at which your stock closed on January 31. Yet it has proven insufficient, as your final position insisted on
Microsoft paying yet another $5 billion or more, or at least another $4 per share above our $33.00 offer.

Also, after giving this week’s conversations further thought, it is clear to me that it is not sensible for Microsoft to take our offer directly to your shareholders. This approach would necessarily involve a protracted proxy contest and eventually an exchange offer. Our discussions with you have led us to conclude that, in the interim, you would take steps
that would make Yahoo! undesirable as an acquisition for Microsoft.

We regard with particular concern your apparent planning to respond to a “hostile” bid by pursuing a new arrangement that would involve or lead to the outsourcing to Google of key paid Internet search terms offered by Yahoo! today. In our view, such an arrangement with the dominant search provider would make an acquisition of Yahoo! undesirable to us for a number
of reasons:

— First, it would fundamentally undermine Yahoo!’s own strategy and
long-term viability by encouraging advertisers to use Google as opposed
to your Panama paid search system. This would also fragment your
search advertising and display advertising strategies and the ecosystem
surrounding them. This would undermine the reliance on your display
advertising business to fuel future growth.

— Given this, it would impair Yahoo’s ability to retain the talented
engineers working on advertising systems that are important to our
interest in a combination of our companies.

— In addition, it would raise a host of regulatory and legal problems
that no acquirer, including Microsoft, would want to inherit. Among
other things, this would consolidate market share with the
already-dominant paid search provider in a manner that would reduce
competition and choice in the marketplace.

— This would also effectively enable Google to set the prices for key
search terms on both their and your search platforms and, in the
process, raise prices charged to advertisers on Yahoo. In addition to
whatever resulting legal problems, this seems unwise from a business
perspective unless in fact one simply wishes to use this as a vehicle
to exit the paid search business in favor of Google.

— It could foreclose any chance of a combination with any other search
provider that is not already relying on Google’s search services.

Accordingly, your apparent plan to pursue such an arrangement in the event of a proxy contest or exchange offer leads me to the firm decision not to pursue such a path. Instead, I hereby formally withdraw Microsoft’s proposal to acquire Yahoo!.

We will move forward and will continue to innovate and grow our business at Microsoft with the talented team we have in place and potentially through strategic transactions with other business partners.

I still believe even today that our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares. By failing to reach an agreement with us, you and your stockholders have left significant value on the table.

But clearly a deal is not to be.

Thank you again for the time we have spent together discussing this.

Sincerely yours,
/s/ Steven A. Ballmer

Steven A. Ballmer
Chief Executive Officer
Microsoft Corporation

Update: Email From Steve Ballmer To All Microsoft Employees

See here for text of email from Steve Ballmer to all Microsoft employees.

Update: Yahoo Responds

Yahoo was definitely slow to the trigger today with a public statement, but they have now issued a press release regarding the withdrawal of Microsoft’s offer.

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Google AdWords phishing threat
May 2, 2008
Web User

Google Adwords phishing scam Google AdWords customers are being warned of a phishing scam currently in circulation.

Researchers at security firm Trend Micro have discovered the trick which seeks to get AdWords users to hand over credit card details.
Google AdWords is a sevice used by advertisers to get their products seen online and is employed by all sorts of companies, small and big.
Phishing gangs send AdWords customers an email telling them that their last payment has not been successful and asking them to update their payment information for Google AdWords.
The link displayed in the email body is a legitimate one but the actual website it takes you to is a compromised site, where the details are stolen.
Rik Ferguson at Trend Micro said: “In many ways Google can be seen as a victim of its own success, as its market share has increased along with the variety of products and services it offers, so its value to the cybercriminal as a platform to exploit has grown alongside it.”

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China ‘plans to spy’ on Olympics
May 2, 2008
Web User

Watch Beijing Olympics movies online The Chinese government has been accused of ordering US-owned hotels to install web filters that can spy on international visitors ahead of this summer’s Olympics.

Republican Senator Sam Brownback made the charge at a news conference in Washington.
Along with several other lawmakers, he denounced China’s human rights record and urged President Bush not to attend the Olympic opening ceremonies in Beijing.
The Senator said he had seen memos received by at least two American-owned hotels in China requesting them to install the contentious filters. He declined to reveal his sources.
The filters would allow third-party monitoring of websites being visited by hotel guests and also restrict information coming in and out of China, according to Senator Brownback.
“This is wrong, it’s against international conventions, it’s certainly against the Olympic spirit,” Brownback said. “The Chinese government should remove that request and that order.”
China has repeatedly blocked access to websites including Yahoo, YouTube, the BBC and Google News in the past.
One Republican senator, Chris Smith, compared the Beijing Olympics to the 1936 games in Nazi Germany.
“When Berlin happened, a lot of people didn’t know what the Nazis were all about. But we’ve had year after year of credible reporting of [the] Chinese government’s human rights abuses,” Smith said.


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The IBM-Google connection

May 1, 2008 1:55 PM PDT

The IBM-Google connection

LOS ANGELES–Google Chief Executive Eric Schmidt gave a speech and chatted with IBM’s CEO Sam Palmisano onstage Thursday at IBM’s Business Partner Leadership Conference here. The two talked up their relationship, which primarily involves a joint research project. In October, Google and IBM announced a cloud computing initiative, based on Google’s expertise in distributed, parallel computing and IBM’s industrial enterprise management technologies, for public use by universities.

IBM is taking some of the learnings from the project and plans to operate a cloud that will allow partners to house their Web-based applications and sell them to customers, Palmisano said. “It is the first time we have taken something from the consumer arena and applied it to the enterprise,” he said.

Google CEO Eric Schmidt joins hands with IBM CEO Sam Palmisano.

(Credit: Dan Farber/CNET News.com)

Schmidt said that over time there won’t be much differentiation between consumer and enterprise architectures. The major difference is that enterprise customers will pay for software and services, with required security and other features, and consumers won’t.

Schmidt gave IBM lots of credit for pioneering many of the technologies that underlie today’s computing architectures. He noted that IBM, which has about 87 years on Google, has figured out that the underlying platform is a server and Web services.

“Cloud computing is the story of our lifetime,” Schmidt said. “Eventually all devices will be on the network.” Both IBM and Google, and a host of competitors, have the same idea, which was actually first promoted by Sun with its “the network is the computer” slogan. Google figured out how to monetize the fruits of the pages its massively parallel servers manage.

IBM wants to provide the infrastructure and support services to the planet, and Google wants to provide the world’s information, and some applications, on its platform. “The two companies are great and have lots of innovation in their gene pool,” Palmisano said. “There isn’t a lot of overlap in the strategies.” Both are committed to open standards and an open Internet, and they are both going in the same direction, he added.

Google’s YouTube captures 10 hours of video every 60 seconds, and IBM might like that business if it could figure out how to make money at it. But eventually, IBM, Microsoft, Sun, Google, and other big players will look more similar in their technical architectures and business models.

Google and IBM have more in common than a shared view of the world and an academic research project. It turns out that Google outsources its accounting to IBM and that Schmidt considers IBM’s sales organization important to Google’s enterprise software efforts.

As more companies look for Web-based tools, mashups, and standard applications, such as word processors, Google stands to benefit. “IBM is one of the key planks of our strategy–otherwise we couldn’t reach enterprise customers,” Schmidt said.

While IBM isn’t selling directly for Google in the enterprise, IBM’s software division and business partners are integrating Google applications and widgets into custom software solutions based on IBM’s development framework. The “business context” is the secret of the Google and IBM collaboration, Schmidt said. Embedding Google Gadgets in business applications, that can work on any device, is a common theme for both Google and IBM.

Currently, Salesforce.com is selling Google Apps as an integrated part of its platform. It’s not far-fetched to think that Google would seek out IBM’s help with its business partners to spread the Google word in the enterprise.

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May 2, 2008 7:25 PM PDT

The Silicon Valley triangle: Google, Yahoo, and Microsoft

It’s Friday night and still no word from the Microsoft or Yahoo bunkers. The headlines for today tell the story (see Techmeme).

The Wall Street Journal, which appears to be a conduit for the negotiations, has a story, “Microsoft, Yahoo Talks Intensify In Push to Reach a Friendly Deal,” and another one, “Yahoo-Google Pact May Be Close.” It doesn’t seem that a Yahoo-Google mating on advertising would lead to a friendly Microsoft-Yahoo discussion this weekend. It’s an interesting game of chicken, with many issues, such as regulatory approval, up in the air for any permutation of a deal with the triangle.

It’s clear that Yahoo and Google are trying to check Microsoft by hooking up, but it would only be strategic for Yahoo if Microsoft ends up paying a higher price, meaning it has to motivate Steve Ballmer into coming up with more cash.

Of course, Ballmer has other options. He could take the hostile takeover route, or walk away for now and perhaps come back later if Yahoo goes into freefall, even with Google filling its coffers.

Whatever the outcome, it doesn’t alter the reality that Microsoft senior management strongly believes that it has to do something dramatic to compete with Google. The fact that Google has inserted itself into the process has to be galling to Microsoft, which could lead to the hostile route.

For a reminder, here is the cast of characters and social graph.


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The Cognitive Age

Op-Ed Columnist

The Cognitive Age


Published: May 2, 2008
If you go into a good library, you will find thousands of books on globalization. Some will laud it. Some will warn about its dangers. But they’ll agree that globalization is the chief process driving our age. Our lives are being transformed by the increasing movement of goods, people and capital across borders.

The globalization paradigm has led, in the political arena, to a certain historical narrative: There were once nation-states like the U.S. and the European powers, whose economies could be secured within borders. But now capital flows freely. Technology has leveled the playing field. Competition is global and fierce.

New dynamos like India and China threaten American dominance thanks to their cheap labor and manipulated currencies. Now, everything is made abroad. American manufacturing is in decline. The rest of the economy is threatened.

Hillary Clinton summarized the narrative this week: “They came for the steel companies and nobody said anything. They came for the auto companies and nobody said anything. They came for the office companies, people who did white-collar service jobs, and no one said anything. And they came for the professional jobs that could be outsourced, and nobody said anything.”

The globalization paradigm has turned out to be very convenient for politicians. It allows them to blame foreigners for economic woes. It allows them to pretend that by rewriting trade deals, they can assuage economic anxiety. It allows them to treat economic and social change as a great mercantilist competition, with various teams competing for global supremacy, and with politicians starring as the commanding generals.

But there’s a problem with the way the globalization paradigm has evolved. It doesn’t really explain most of what is happening in the world.

Globalization is real and important. It’s just not the central force driving economic change. Some Americans have seen their jobs shipped overseas, but global competition has accounted for a small share of job creation and destruction over the past few decades. Capital does indeed flow around the world. But as Pankaj Ghemawat of the Harvard Business School has observed, 90 percent of fixed investment around the world is domestic. Companies open plants overseas, but that’s mainly so their production facilities can be close to local markets.

Nor is the globalization paradigm even accurate when applied to manufacturing. Instead of fleeing to Asia, U.S. manufacturing output is up over recent decades. As Thomas Duesterberg of Manufacturers Alliance/MAPI, a research firm, has pointed out, the U.S.’s share of global manufacturing output has actually increased slightly since 1980.

The chief force reshaping manufacturing is technological change (hastened by competition with other companies in Canada, Germany or down the street). Thanks to innovation, manufacturing productivity has doubled over two decades. Employers now require fewer but more highly skilled workers. Technological change affects China just as it does the America. William Overholt of the RAND Corporation has noted that between 1994 and 2004 the Chinese shed 25 million manufacturing jobs, 10 times more than the U.S.

The central process driving this is not globalization. It’s the skills revolution. We’re moving into a more demanding cognitive age. In order to thrive, people are compelled to become better at absorbing, processing and combining information. This is happening in localized and globalized sectors, and it would be happening even if you tore up every free trade deal ever inked.

The globalization paradigm emphasizes the fact that information can now travel 15,000 miles in an instant. But the most important part of information’s journey is the last few inches — the space between a person’s eyes or ears and the various regions of the brain. Does the individual have the capacity to understand the information? Does he or she have the training to exploit it? Are there cultural assumptions that distort the way it is perceived?

The globalization paradigm leads people to see economic development as a form of foreign policy, as a grand competition between nations and civilizations. These abstractions, called “the Chinese” or “the Indians,” are doing this or that. But the cognitive age paradigm emphasizes psychology, culture and pedagogy — the specific processes that foster learning. It emphasizes that different societies are being stressed in similar ways by increased demands on human capital. If you understand that you are living at the beginning of a cognitive age, you’re focusing on the real source of prosperity and understand that your anxiety is not being caused by a foreigner.

It’s not that globalization and the skills revolution are contradictory processes. But which paradigm you embrace determines which facts and remedies you emphasize. Politicians, especially Democratic ones, have fallen in love with the globalization paradigm. It’s time to move beyond it.

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Pursuing the Next Level of Artificial Intelligence

Jim Wilson/The New York Times

Daphne Koller’s award-winning work in artificial intelligence has had commercial impact.


Published: May 3, 2008

PALO ALTO, Calif. — Like a good gambler, Daphne Koller, a researcher at Stanford whose work has led to advances in artificial intelligence, sees the world as a web of probabilities.

There is, however, nothing uncertain about her impact.

A mathematical theoretician, she has made contributions in areas like robotics and biology. Her biggest accomplishment — and at age 39, she is expected to make more — is creating a set of computational tools for artificial intelligence that can be used by scientists and engineers to do things like predict traffic jams, improve machine vision and understand the way cancer spreads.

Ms. Koller’s work, building on an 18th-century theorem about probability, has already had an important commercial impact, and her colleagues say that will grow in the coming decade. Her techniques have been used to improve computer vision systems and in understanding natural language, and in the future they are expected to lead to an improved generation of Web search.

“She’s on the bleeding edge of the leading edge,” said Gary Bradski, a machine vision researcher at Willow Garage, a robotics start-up firm in Menlo Park, Calif.

Ms. Koller was honored last week with a new computer sciences award sponsored by the Association for Computing Machinery and the Infosys Foundation, the philanthropic arm of the Indian computer services firm Infosys.

The award to Ms. Koller, with a prize of $150,000, is viewed by scientists and industry executives as validating her research, which has helped transform artificial intelligence from science fiction and speculation into an engineering discipline that is creating an array of intelligent machines and systems. It is not the first such recognition; in 2004, Ms. Koller received a $500,000 MacArthur Fellowship.

Ms. Koller is part of a revival of interest in artificial intelligence. After three decades of disappointments, artificial intelligence researchers are making progress. Recent developments made possible spam filters, Microsoft’s new ClearFlow traffic maps and the driverless robotic cars that Stanford teams have built for competitions sponsored by the Defense Advanced Research Projects Agency.

Since arriving at Stanford as a professor in 1995, Ms. Koller has led a group of researchers who have reinvented the discipline of artificial intelligence. Pioneered during the 1960s, the field was originally dominated by efforts to build reasoning systems from logic and rules. Judea Pearl, a computer scientist at the University of California, Los Angeles, had a decade earlier advanced statistical techniques that relied on repeated measurements of real-world phenomena.

Called the Bayesian approach, it centers on a formula for updating the probabilities of events based on repeated observations. The Bayes rule, named for the 18th-century mathematician Thomas Bayes, describes how to transform a current assumption about an event into a revised, more accurate assumption after observing further evidence.

Ms. Koller has led research that has greatly increased the scope of existing Bayesian-related software. “When I started in the mid- to late 1980s, there was a sense that numbers didn’t belong in A.I.,” she said in a recent interview. “People didn’t think in numbers, so why should computers use numbers?”

Ms. Koller is beginning to apply her algorithms more generally to help scientists discern patterns in vast collections of data.

“The world is noisy and messy,” Ms. Koller said. “You need to deal with the noise and uncertainty.”

That philosophy has led her to do research in game theory and artificial intelligence, and more recently in molecular biology.

Her tools led to a new type of cancer gene map based on examining the behavior of a large number of genes that are active in a variety of tumors. From the research, scientists were able to develop a new explanation of how breast tumors spread into bone.

One potentially promising area to apply Ms. Koller’s theoretical work will be the emerging field of information extraction, which could be applied to Web searches. Web pages would be read by software systems that could organize the information and effectively understand unstructured text.

“Daphne is one of the most passionate researchers in the A.I. community,” said Eric Horvitz, a Microsoft researcher and president of the Association for the Advancement of Artificial Intelligence. “After being immersed for a few years with the computational challenges of decoding regulatory genomics, she confided her excitement to me, saying something like, ‘I think I’ve become a biologist — I mean a real biologist — and it’s fabulous.’ ”

To that end, Ms. Koller is spending a sabbatical doing research with biologists at the University of California, San Francisco. Because biology is increasingly computational, her expertise is vital in gaining deeper understanding of cellular processes.

Ms. Koller grew up in an academic family in Israel, the daughter of a botanist and an English professor. While her father spent a year at Stanford in 1981 when she was 12, she began programming on a Radio Shack PC that she shared with another student.

When her family returned to Israel the next year, she told her father, the botanist, that she was bored with high school and wanted to pursue something more stimulating in college. After half a year, she persuaded him to let her enter Hebrew University, where she studied computer science and mathematics.

By 17, she was teaching a database course at the university. The next year she received her master’s degree and then joined the Israeli Army before coming to the United States to study for a Ph.D. at Stanford.

She didn’t spend her time looking at a computer monitor. “I find it distressing that the view of the field is that you sit in your office by yourself surrounded by old pizza boxes and cans of Coke, hacking away at the bowels of the Windows operating system,” she said. “I spend most of my time thinking about things like how does a cell work or how do we understand images in the world around us?”

In recent years, many of her graduate students have gone to work at Google. However she tries to persuade undergraduates to stay in academia and not rush off to become software engineers at start-up companies.

She acknowledges that the allure of Silicon Valley riches can be seductive. “My husband still berates me for not having jumped on the Google bandwagon at the beginning,” she said. Still, she insists she does not regret her decision to stay in academia. “I like the freedom to explore the things I care about,” she said.

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