Google's Vision of Life to be Subsidized by Advertisers

The techno-worlds of open-source and standards-compliance are united in celebration on the heels of Google's (GOOG) announcement of a new and upcoming platform called Chrome OS. A new giant has awaken to try and breach the Windows stranglehold of the modern world. Free and widely available Linux couldn't do it, the fawned-over and renowned Mac OS X still can't do it, but perhaps the quirky little giant that is Google can lead a way towards universal, free and open salvation.

Google's announcement that it is in fact working on a full fledged Personal Computer Operating System shouldn't really come as a surprise given that over the past year and a half it has launched the Android OS for Mobile Devices and Chrome, the first browser to have individual process management, a staple of every flavor of operating system in the modern computing world. Rumors of Google's OS work span back years in the blogosphere, but nothing was concrete until today's unveiling of Chrome OS, an operating system to run on full household computers based on Google technology and an open source Linux under-pinning.

By marketing this move into Operating System territory on the back of its growing Chrome browser user-base, Google is squarely taking a web-centric view of the computing world. Coincidentally, after years of perpetual beta, Google removed the beta label off of several products in its Apps suite, charting a path towards an enterprise serious attitude that the company has of yet never employed. First Google Apps gets a fresh coat of grown-up paint and now Google eyes the netbook market as the first for its full fledged operating system. Microsoft (MSFT) better not turn a blind eye to these threats like it has to others who have tried to vault into its dominant space.

After mostly shrugging off Apple's jabs at Windows Vista and watching itself slowly but surely lose some market share, it still took the worst worldwide recession in generations to get Microsoft's attention to start firing back at competitors. This is a company that cannot afford to rest on its laurels, nor one that can afford to blow dollar after dollar in a blinding struggle for relevance in markets that it is an also-ran in (i.e. Internet Search). Google's head on assault began years ago as it made the web (and inherently itself) the first destination for millions of computer users, then it got them hooked on a new way of looking at e-mail, then followed that with calendars and slowly simple documents and spreadsheets, all while being dismissed by market leaders as too simple or too weak for real use. Newsflash to those competitors: Majority of people only really need simple and weak, and powerful office suites and complex operating systems exist on most computers because there was no other choice!

The web browser is the portal to the new technology world and Google, Microsoft and Apple (AAPL) all know it, however Google's become the most nimble of the three at being able to adapt to it. Chrome was a starting point, and while getting 30 million users in 9 months is a good start, it is still just a tiny fraction of the web population, so Google's got a long way to go before it can claim the browser Chrome a success. Chrome OS on the other hand is a different animal, it'll be the only thing users need to get up and running on a new computer while having simple native tasks be quick and web tasks even quicker. As new web technologies evolve along with the growing presence of "offline" web apps, there was still always a need to have some distinction between the browser and the operation system. That line is blurring and perhaps Google's figured this out and may just have found a way to combine the two under Chrome's umbrella. Brilliant, if it were available today, but unfortunately for Google and its users the creation of a platform needs the help of several building partners, since no one buys an operating system off the shelf these days. Except of course for loyal Mac purists, which love having their Mac OS X be the latest and greatest, and given Apple's pricing commitment to the next version of OS X its a hard upgrade to pass up. Kudos to Apple for figuring out people can still want to buy software off the shelf.

$29 for a new version of an operating system, that's an incredible price from the folks at Cupertino, and something Microsoft's bean-counters certainly cannot match with Windows 7. However, someone can, and that someone is Google! Chrome OS, like the Chrome browser, is of course based on open-source software, and in and of itself will be open-source, just like Google's Android OS is for mobile phones. What that means is that Chrome OS will cost NOTHING to computer manufacturers who will shoe-horn it into the netbooks/laptops/desktops of the future. Tough to compete with free! Especially if its quality free from a source as reputable as Google.

But herein lies the rub, what's in it for Google? All these free services and platforms can't just be a secret desire to topple the greatest technology behemoth of all time, can it? Of course not, Google's clearest path to monetization is to get users onto the web as quickly, efficiently and distraction-free as possible, because it wants to be the one doing the distracting with advertisements of all shapes and sizes, from text ads in search, to display ads on the network, to video ads on youTube and everything else under the sun. How do you provide web users the easiest route to the web? Well build your own free multi-lane uber-autobahns with Android and now Chrome OS. The two pillars of the web of the future and Google will have troops at each one, mobile and home computing.

The more time users spend on the web, and the more tasks they begin shifting to the web, the better for Google and the more opportunities Google gets to serve up ads from its vast and numerically superior stable of advertisers. This is why Google is free, in its eyes Life should be subsidized by advertising, and advertising of the future will all become Internet based and completely traceable because it gives the advertiser complete metrics and Return-On-Investment calculations to the tiniest detail that are unmatched in any other ad-based marketplace. And as Televisions and Radios become Internet enabled in the future, bet Google will be right there with the expertise to build out a similar type of ad network. Google is more than willing to subsidize its own development costs if its able to produce a pathway to a Google-centric web that others wouldn't or couldn't replicate.

As encompassing as technology and the web already are in everyday life, we've yet to scratch even the earliest of limits, with every piece of new technology becoming web-enabled the inter-connections between people and their technology becomes further encompassing, with the cloud becoming a centralized hub forcing information separation to consist only of virtual borders. A prospect not completely sold to business just yet, but the power of the crowd, and the cost-effectiveness of the cloud will break down those barriers. How will all this happen, and who will pay for it? As Mark Cuban recently wrote about the prospects of free business, the biggest problem is the continued expectation of free and the inability of the biggest pushers of free-service to keep costs in check and monetization opportunities plentiful. That thesis is very much on the mark, no pun intended, by how it related to business, but what it misses, is the relationship of consumers as the end-goal for the real buyers of free: The advertisers.

The Internet, being the disruptive technological platform that it is, essentially drives costs of everything to near zero. This is due to the simple phenomenon that if everyone is connected to everything, there's always someone who'll do something for cheaper, until the cost of that something is driven close enough to zero to become minuscule. And the ones paying the bills at that point will rely on advertising for profitability, and the advertisers will rely on their ads working to then sell products and services and in turn pay their own bills. Google just happens to be the biggest entity making use of the free economy that is the Internet, using all of its advertisers to pay for its storage, bandwidth and corporate costs.

Advertising is funding an over-indulgence in all things web, but subsidizing life, that seems like a stretch right? Currently yes, but as the computer and the Internet is engulfed by all of the younger generations for communications, commerce, entertainment, social networking, dating & relationships and more, it will start to look startlingly close to the major components of life.

Imagine if the brick & mortar world worked this way? Say there was a Google that would pay for everyone's gasoline, provided they had a billion lane road to a super-shopping center, and drove a car they purchased but had customized by Google to point out interesting things along the road and showcase the occasional billboard tailored to an individual's needs and previous purchases. How many would turn that down? And after sometime of that model working, I'd say the brick & mortar Google would even be willing to take you to the lot and pay for the vehicle, guaranteeing it would always work perfectly on those roads to the mall. All subsidized of course by your friendly neighbourhood Spidermen, umm, I mean Mad Men.

Disclosure: Author owns GOOG, AAPL

Console Makers battle for fans taking over Gaming Expo

Video Games and Movies, the two business channels that were least hit by floundering worldwide economics. Box Office receipts and attendance are at or near records and the growth of gaming, while pausing slightly, still stands out as a tech sector on the rise. With gaming options like Nintendo's (NTDOY) Wii & DS, Apple's (AAPL) iPod Touch & iPhone, Microsoft's (MSFT) XBox and Sony's (SNE) Playstation 3 & PSP the kids (and ever increasing adults) these days have choices aplenty.

The Electronic Entertainment Expo goes on as we speak and it has been an interesting couple of days with keynote speeches by the big 3 console makers; Microsoft, Nintendo & Sony. While its been common knowledge that Nintendo and its motion controlled & causal gamer placed Wii has been the big winner in this generation of the console wars, with NDP data showing it outselling the XBox by 2:1 and the PS3 by a factor of 2.5:1 lately, the true test is likely to be longevity.

It's no surprise that laggards Microsoft and Sony had to deliver something to excite fans and developers in order to gain traction against Nintendo. It was the folks from Redmond up first yesterday with a keynote speech that excited not only the XBox faithful but fence-sitters alike.
Not only was the XBox opened up for several applications including social networks Twitter and Facebook and music streaming service Last.fm, it also introduced several enticing games and a entirely new control system.

It was the control system that garnered the heaviest reaction. "Project Natal", as it was coined, gives players a way to become the controller for their games. A camera system with facial and voice recognition follows a player's movements and can translate them onscreen for gaming interactions. The Microsoft team showed off several demos, straight out of Minority Report, of the "still-in-development" technology but it was very promising and it goes completely the other way from Nintendo's popular Wii motion controls. A development high-point for Microsoft in the gaming world? Or would Sony steal some thunder with their own announcements just a day later?

Sony's day had arrived and the company had several announcements to make, first a foremost another handheld system, dubbed the PSP Go. Sony will continue selling its existing PSP which has slowly but surely been selling very well for the company (although not as well as Nintendo's DS line or Apple's iPod Touch). With this new version Sony is going to full digital distribution for games and media making it a direct competitor to the aforementioned iPod. With 16GB of storage it undercuts the iPod's price by $50 ($249 vs $299).

Not to be outdone, Sony also jumped into the Motion Control business with a new controller. Internet outlets were quick to praise Sony's efforts as the motion control (based on a similar technology as Hollywood CGI & Motion Capture) allow the player to use the controller for a vast spectrum of game situations with incredible control accuracy. One of the demos showed off how to "air-write" with the controller, with incredibly precise results. The difference between Sony's and Microsoft's new controller entries is that in Microsoft's case the player actually need a controller to play.

Along with an army of popular game developers, both Sony and Microsoft made their case to the video game community that they are not only in the business to try and win and despite Nintendo's early lead, but also want to allow this generation of console hardware to still go strong. If today's announcement are any indiciation there's plenty of innovation left in the space. But what does E3 have to do with Investing?

Sony, despite its size is a vast gaming operation, and with the company posting its first yearly loss, it needs the Gaming operation to deliver incredible results in the years going forward. This will not happen without 1) Exciting innovations in the hardware (and lower costs) and 2) Developers excited about making games for that hardware. Sony has been in 3rd place in console sales since the PS3 launch but it has a long lifetime committed to the platform and even still sells a lot of PS2 machines. The bet on Blu-Ray as a standard will be debated for a long time as to whether it helped or hurt the PS3 in its early years, but the fact remains that Sony still loses money on each sale. The one thing consumers are clamoring for they still haven't received with the machine and that's a deeper price cut! Until it can cut those costs, Sony may simply have to suffer through more months at number 3 on the sales charts.

But with an upcoming stable of games, the new PSP Go and an impressive Motion Controller demo Sony is hitting the right track with Gamers and Developers, and Sony's stock followed suit with a gain of over 2% to close at $28/share.

Microsoft on the other hand, prints money from Windows and Office and doesn't really need a Gaming division, or does it? It in fact needs the XBox to succeed now more than ever for one simple reason. Image! Microsoft has a huge image problem amongst the computer using youth, with a floundering Windows Mobile team being eclipsed by Apple's iPhone, the disaster that was Windows Vista opening the door to more mainstream Mac usage, and the ignorance of anything related to Search the company can come up with due to Google's dominance in the area. This "Old-man's" Microsoft, being out-innovated by hipster companies will eventually trickle down to its core businesses.

The devices group may be that saving grace, while the Zune hadn't exactly lit anything on fire, the original XBox was a good start that has picked up steam with the XBox 360. The innovations of Project Natal, specifically the player controller, are the kinds of things the computer buying youth can get excited about, and once you've got them, if Microsoft can link the XBox brand with the Microsoft corporate image, a Windows user may come back or emerge. Microsoft stock was up about 2% on the day of its E3 speech and sits at $21.40/share.

While Video Games may have been child's play in the past, this business is as important as ever and some of the biggest tech names on the planet rely on a little old conference to reshape an entire corporate vision. Maybe its time to put a little stock into what things like E3 and those who attend have to say.

Disclosure: Author owns AAPL, holds no position in any stock mentioned.

Microsoft's Search Strategy: Mo' Money Less Problems

With the Consumer Electronics Show having more of the media's attention than in recent years it was an opportune time for Microsoft (MSFT) to make the kind of splash during their annual speech the company needs. Granted part of the reason of the shifted media was Apple's (AAPL) MacWorld keynote speech, valiantly presented by stand-in Phil Schiller, focused on Apple software updates and lacked the ominous flair that "El Jobso" exudes or the shiny new toys gadget-connoisseurs have come to expect.

While Apple CEO Steve Jobs took a backseat this January it presented Microsoft head Steve Ballmer with a chance to speak at CES and present Microsoft's vision for not only renewed hope on its Operating System and Mobile front, where it's losing share to Apple, but also in Search, where it heavily trails juggernaut Google (GOOG).

While Microsoft has long tried to make inroads into Search, the company's approach has been the Biggie Smalls to Google's Puffy: "Mo' Money Mo' Problems". Year after year of throwing Billions of dollars at the cause hasn't resulted in any significant traction for Microsoft and in fact latest metrics show continued search share erosion. October-November data from comScore puts Google growing from 63.1% to 63.5% while Microsoft remains in 3rd place behind Yahoo (YHOO) falling from 8.5% to 8.3%. With the December holiday season on deck and the increase in search queries to boot it only stands to reason that Google continued to heavily outpace its two rivals.

Someone at Microsoft has been thinking about the late Notorious B.I.G., and finally the company has decided to try to turn the popular song around in its favour. The new strategy involves outbidding Google at every turn in order to put Live Search in front of as many "default" consumers as possible. It's a well known industry practice that companies pay hardware makers to have their products and services installed on default machines. Computers from Dell, Sony and HP all come with software from a variety of vendors beyond the standard Windows operating system, and recently this system has extended beyond hardware into web services as Google is in a deal with Mozilla (the makers of Firefox) to be the default search engine for the popular web browser. Microsoft hopes that by having many more default eyes on Live they can retain a high proportion of those users and turn them into searchers and ad-clickers. In essence: Mo' Money Less Problems.

Microsoft announced a couple of these partnerships during their CES presentation. The first with Dell, to have Windows Live essentials software pre-installed on all computers, which includes various software components including a browser toolbar and default search. The second with Verizon, and this may end up being the bigger of the two, to make Live Search the default search engine on Verizon phones. Microsoft clearly gave Verizon much better terms than Google as both companies were reported to be in the running for this deal. The 5 year exclusive partnership will see Microsoft search be put front and center to customers of now America's largest wireless carrier by subscribers.

Google of course now has its own Andriod operating system for Mobile devices and will look to that for growth, it also is the default search engine on Apple's incredibly popular iPhone and has its own Mobile Search application in the App Store. With an increasing number of web users becoming acclimatized to "google-ing", it will be difficult to say with certainty how many default users Microsoft can expect to keep for these partnerships. And you can certainly expect Google to be front and center in providing users with ways to have Google Search be installed alongside Microsoft's default offering or to replace it altogether. Either way shareholders of Microsoft need some sort of spark from the company, and with Windows 7 getting good press thus far, the Xbox successes and now the possibility of gains in Mobile and Desktop search the company may be finally ready to turn the corner.

Disclosure: Author owns AAPL, GOOG

Google throws its hat in the Browser & OS ring with shiny Chrome

Joining a "war" is neither a decision taken easily or for that matter lightly, especially one that historically has seen incumbents muscle and push out thriving rivals, (see Microsoft (MSFT) and Netscape) but Google (GOOG) is not just any company, and it hopes that in the future of web computing Chrome wont just be any browser. And with it perhaps change completely the role of the browser from presenting web pages, to managing web applications in the computers of tomorrow.

Lofty ambitions I know, but this is the same company that has plans to index the entire web, present a photographic view of the entire world, create renewable energy cheaper than coal, and house the complete archive of human information since the start of the written age. Google's getting well compensated for the lucrative advertising network it pioneered in Search and with that comes radically thinking about ways to out-innovate, out-maneuver, and out-class anything offered by main competitors.

Google's newly released "Beta" Chrome web browser is another hat in the ring that contains Microsoft's Internet Explorer (70% market share), Mozilla's Firefox (20% share) and Apple's (AAPL) Safari (6% share). However it has the potential to avoid the also-ran results of other browser efforts and truly usher in an age of web-computing. If this sounds like techno-babble, that's because it is, and Chrome is definitely not any sort of catalyst for Google's ailing stock right now.

View the GOOG WikiChart on Wikinvest

Unfortunately only blowout quarterly reports can do that for this richly valued company. The company is down significantly from all-time highs and Chrome will not get them back there anytime soon. This is an evolutionary step that just might end up being revolutionary when all is said and down.

Google's cash cow of serving up targeted advertising works now because it can collect information on users, their web habits and their searches. The more people who have Google Accounts and the more searches they do, helps Google tailor all those ads. Throw in the popular Google toolbar collecting user information and viola you've got an incredible breadth of information in which to base ad serving decisions on. However, browsers are evolving, not only from a functionality perspective but from a privacy perspective as well. Microsoft's newest browser will incorporate an InPrivate feature which will not store anything users do on the web if they choose to use it. If Google can't know what you've been doing on the web for the last 6 months those ads could start looking less and less attractive and Google will have to only rely on what users search for, assuming of course they use Google for search. Chrome has a similar feature but getting users on the Google experience is priority number 1 for the company.

While the above is a minor detail for browser technology, it is the main driver of Google profitability. The next driver of profitability, Google hopes, will be Web Applications, and their Google Apps suite which is shaping up with constant improvements to become a true Microsoft Office competitor. The difference of course is that Office you install on your own computer, whereas Google Apps, and the online suite of Productivity software, can be accessed from anywhere and collaborated on in real-time.

Industry people believe the browser will become the Operating System of the future!

Considering Microsoft's Windows is on 90% of computers, it is almost an impossible mountain to climb for someone new to create an Operating System. For Google, and looking into the future of web based applications the most logical step to creating an Operating System would be to create the Web Browser of the future. And in a matter of speaking they did.

Where previous browser were a single application that served up web pages and ran applications within itself, Chrome spawns processes for each web page or web application, and includes a task manager to manage them. If something crashed on one web page, only that web page would fail while others would remain perfectly isolated. Process Task Management, Individual Processes for each web application sounds a lot like an Operating System to me. If Google wants to get serious about challenging Microsoft in the OS and Business Software games in the years to come it needs to control how users will access their web applications. A Web Browser that controls each web application individually, and even each component of each web application individually, is exactly the steps Google has to take.

By creating Chrome they've started this journey, and by making the entire project open-source and given out for free, they can quickly and nimbly adapt suggestions, improvements and changes from the developer community at large. As with a first release there will always be kinks to iron out, however the prognosis looks really good, and with a feature set comparable to the fastest growing browsers, in terms of popularity, Firefox and Safari, Google has the brand power and the clout to make a real dent in this industry. It is hard gaining market share in anything, and in the browser-war it is notoriously difficult so by throwing its hat into thing ring, Google's also throwing caution to the wind and hoping they'll be early enough for the web revolution.

Just don't expect the revolution to happen overnight Traders!

Disclosure: Author owns GOOG

Stocks rise Thursday, Carl Icahn takes on Yahoo board

Technology and Energy sectors made the biggest gains leading the Nasdaq (up 1.5%) and the S&P (up 1%) Thursday as the May Options expiration window winds to a close. Oil prices, still the brightest mark for the Energy sector stayed around $124, although they were unable to reach new peaks much past $126 a barrel.

It's an Oil price era in Stock and Futures trading right now and the commodity folks have been rejoicing the last couple of months virtually non-stop. Concerns over high oil resonate through many facets of the economy, with the biggest being the story of inflation. As high oil funnels itself through each and every sectors of the consumer business the increasing cost of manufacturing, transport and services will all have to be pushed onto the consumer, thus sparking increased inflation. Definitely an issue the Fed doesn't want to have to dive right into after seemingly only months ago steering the US away from a full blown recession by dramatically cutting Interest Rates.

In other news, technology related, Carl Icahn (shareholder activist/corporate wheeler-dealer) took a large stake in Yahoo (YHOO) and is prepared to enter into a proxy battle with current management. It is clear, several large shareholders were unhappy with the way the whole Yahoo-Microsoft (MSFT) situation went that the pressure was applied in order to unseat the current board at Yahoo, which for one will be more open to a buyout. The $33/share offer from Microsoft was substantial, and on the brink of completely overpaying, for the struggling Yahoo Internet outfit. On the one hand, the Internet is the future and Internet advertising is leading that future, but on the other, Yahoo is a struggling horse in the advertising game and can't seem to find any ways of putting together its huge customer base into meaningful and exciting new services. Carl Icahn thinks he can help though, and his track record for displacing management rings throughout Wall Street (see Motorola (MOT) for an example). Icahn is going to nominate his board members that will be more open to deal and hopefully get shareholders a fair price above $30/share. With Yahoo currently trading under $28 there's a potential there for an easy profitable trade, if Icahn is able to do as he wants.

Getting Microsoft back to the table will not be easy, as Microsoft's own shareholders jumped ship sending the stock to drift lower as the weeks to the potential alliance dragged on and on, so it is clear the deal isn't the most favourable from within the Software Giant's rank and file. Microsoft however, is desperate for an Internet presence and it can't seem to find the functionality and scale of web software and web services on its own. Windows Live is frankly unheard of in tech and user circles, Office Live, hasn't made any sort of dent and the Advertising division is losing money hand over fist as Google (GOOG) dominants Internet Search. Microsoft's biggest fear in this space has to be Google Apps (Google's free word processing, spreadsheet and presentation tools hosted on the web), and as such they have got to think that Yahoo's Internet service experience and scale will allow them to have viable online software tools when the game really changes.

Icahn will definitely use these points to re-open dialogue, and this along with Yahoo's profitable advertising initiatives should get Steve Ballmer talking again, which might at the end of the day reward those patient Yahoo shareholders.

Disclosure: Author owns GOOG, does not own MSFT, YHOO

Technology News & Market Notes: May 6th

Techno-Superhero Iron Man delivered almost $100Million at the domestic box office for Marvel (MVL) over the weekend and brought with it a shift in Market News as Technology Stocks have been the focus. Trading started the day lower but drifted towards the green as the day went on, eventually keeping the Dow, Nasdaq & S&P all with gains on the day.

Although Microsoft (MSFT) over the weekend withdrew its bid for Yahoo (YHOO), over a pricing issue, the sentiment across the street is that this deal has may have legs. Microsoft offered to raise its bid to $33/share while Yahoo remained firm at $37. Yahoo shareholders felt the brunt of the pain as Monday the stock lost 15%. A 6% rebound Tuesday, is largely attributed to Yahoo executives reiterating to the press they are still willing to negotiate. Microsoft has a couple choices, and even though they refused to go into a proxy fight to overthrow Yahoo's board of directors once, Traders seem to think a 2nd go-round is likely.

The dance with these two historic tech names will likely continue in the coming weeks and for what its worth, how badly Microsoft needs an effective brand presence in the growing Internet economy makes it pretty certain that the company will continue to pursue Yahoo, hoping this initial backing-away will build shareholder angst at Yahoo and force more favourable negotiations.

Apple (AAPL) made more headlines and extended its recent stock run as it announced partnerships with a couple carriers to expand iPhone distribution. Both deals revolve around the "sometime later this year" time-frame, so the thinking is that the European partners are waiting for the ever-so-coveted 3G iPhone to make its debut at the WorldWide Developer Conference in early June. Apple made deals with Vodafone to distribute the iPhone in 10 counties including India, Australia and Italy. Apple changed its business model for iPhone distribution in Italy by also partnering with Telecom Italia in that region. Other countries on the iPhone slate include Czech Republic, Egypt, Greece, Portugal, New Zealand, South Africa, Turkey and Canada (based on recent announcements by Rogers Communications (RCI.B)).

Disclosure: Author owns AAPL

Microsoft shows $44Billion, eyes Yahoo, to take on Google

On the morning of a rare Google (GOOG) earnings miss, the world's largest software company, Microsoft (MSFT), is taking full advantage of the negativity and swinging its own news story. The Seattle company disclosed to the public that it has offered $31/share ($44Billion) to purchase Yahoo! (YHOO). This combined Microsoft Internet division would be a stronger second place competitor to Google's search and advertising dominance.

Google reportedly owns about 60% of search share and almost 70% of search advertising dollars, with competitors, mainly Yahoo and Microsoft, claiming the remaining scraps. Mind you those scraps, can amount to plenty in a business sector expected to expand from $40Billion to $80Billion in value in the coming years. The scope, breadth and quality of advertising is increasing on the Internet as its ease of use, ease of tracking, and ROI effectiveness become clearler to companies all over the world. While still a small piece of the overall advertising pie, the Internet provides the most complete customer profile available for any form of advertising.

Now this is a point of contention, the whole privacy issue, but the fact remains that most things on the Internet can be tracked, and the more advertisers and advertising platforms know about their users, the more effective the ads can be. Google knows this very well, hence their dominant position! Microsoft and Yahoo know this as well but they've failed to make any strides on their own. Perhaps the combined division can put a dent in Google's cash-hording fortress. (At last check Google as a business is still extremely young and has almost $20Billion in the bank)

Let's hope the deal goes through, for Yahoo investors sake anyway. The stock has been beaten up of late falling to its lowest level in several years at $18 and change per share. Microsoft's offer represents an over 60% premium from Yahoo's closing price yesterday. But before we tout this as the resurrgence of Microsoft's Internet division (A business line that is still bleeding losses year after year), lets expand on thier strategy and ambitions here.

First, its clear Microsoft wants to be in the Internet Advertising space, and be successful at it. It's the future of advertising and its extremely lucrative and high margin. Secondly, Yahoo's the only big player with a decent following and even a shot at dethroning Google. It makes sense right, to just combine 2nd and 3rd place, and eventually maybe they'll cause a stir. Unfortunately the gold medalist here right now is the behemoth known as Google. And unless Google's been mysteriously taking Human Growth Hormone they wont topple themselves off the podium anytime soon.

There's plenty of problems I see with this deal, and not even first on my list is the sheer smell of desperation on Microsoft's part to completely over pay to get this deal done. Yes it's true, they tried to talk to Yahoo a year ago and were told to go home. So they came back, with thicker pockets and the attitude of "No, is unacceptable". Granted this deal would still have to pass through all sorts of regulatory hurdles but that shouldn't cause too much of a delay. The biggest problem is SYNERGY. I would imagine lots of Yahooligans are going to be out of work, unfortunately. Do you think corporate cultures easily come together. Not a chance. It takes long, hard work to make even the simpliest teams fit together, let alone putting a company like Yahoo, with over 11,000 employees, inside of Microsoft.

Interestingly enough, it wasn't too long ago that Microsoft head Steve Balmer was talking up a storm on how Microsoft's strategy will be to make smaller niche acquitions and develope integrated web services and all that jazz. Now it seems this is a complete shift in the opposite direction. The thing you know about Microsoft though, is that when they smell blood, and trust me, Yahoo is bleeding mercilessly, they go for the kill. In the end Yahoo shareholders must be smiling because they have just been bailed out of a 50% decline in their company stock.

Now there's been big time deals that have completely blown up when firms weren't in the same industry. AOL-Time Warner come to mind perhaps? But even within the same industry, it doesn't always work. Diamler-Chrysler? Can you say disaster? Now I'm optimistic that if Yahoo accepts, and it most likely will, there will be better times ahead for both companies in the Internet space. Micrsoft's platform for advertising has failed to excite anyone, and Yahoo's Panama Ad Center was seen to be its saviour once. Perhaps together they can work out the kinks and actually leverage all those millions of unused hotmail and yahoo mail accounts. Yahoo still is a giant Internet portal with lots of user traffic, and with that comes great potential. The key is Clear Focus and Strategy and perhaps that's something that Microsoft can bring to the table for a scrambling Yahoo and its convulated Internet vision. How long this will take to integrate and fulfill? Not even the experts know that, but trust me, it will not be soon.

On the upside, we know Microsoft is loaded and extremely patient when it comes to new initiatives. They can lose money for years to try and make a footprint. Let's just hope for Microsoft shareholders, that this isn't looked back on in history as a major stumble in its quest for the Internet. Microsoft's Ad platform has a long way to go but perhaps with Yahoo's profitable help they can get on track and mount a serious offensive on the next phase of the Internet business.

Disclosure: Author is long GOOG

Yahoo's New Search Tool shows how far ahead Google is

Google (GOOG), the dominant player in search and search advertising, is seeing its competitors constantly nipping at its heels and it seemingly ignores them and continues to innovate. While Yahoo (YHOO), Microsoft (MSFT), and Interactive's Ask (IACI) are trying to revamp, recreate and reinvigorate the search experience in the hopes of gaining market share and hence more advertisers, Google is padding its lead and running away with first rate technology innovations.

Ask.com has some neat complete search functions and combines results of all types of media and even includes little previews, but it is still a minor player in the search game. Microsoft's failed MSN unit is still around and kicking and losing ever more money, while the revamped Live platform has yet to gain any traction and Microsoft is continually seeing search share losses. Microsoft even tried to lure searchers by offering them points in exchange for prizes when they did searches and even included games inside MSN Messenger that forced users to search for answers to questions. Sorry Softie, but that's not gonna win over the advertisers and not gonna get people to give up on Google altogether.

Yahoo's newest feature, billed as a Search "Innovation", while positive for the languishing company, signals just how far behind the company is on the technology spectrum. Yahoo was once the poster child for the future of the Internet and these days it seemingly can't catch a break as revenue growth is slowing, share prices are slipping and it loses portions of market share to Google every quarter. The new feature for Yahoo is "Search-Assist", which is a Search Suggestion/Completion tool that slides out when users type in a search keyword. As a user starts typing into the search box a list of common or relevant search terms comes up. Pretty cool huh! It is beneficial but looking behind the scenes I think tells a different story. Let's step back and see just what this says about Yahoo's tactics.

I think it showcases a desperation on Yahoo's part that it simply doesn't have the back end grunt to truly become a personalized search power house. A Power House that Google is slowing but surely building as it releases tools such as Web History, iGoogle and Personalized Search. All those quarters of increasing Capital Expenditures that analysts were frightened about are proving well worth their weight in gold as Google is able to completely change the search game again and again while its competitors struggle to keep up. Yahoo's search box suggestions come off as simply common or popular search terms, while all well and good, that's actually a step sideways and not forwards in the technological sense.

As the Internet expands and the plethora of information becomes exceedingly complex only YOU can determine exactly what YOU'RE looking for, not everybody else. Google's got you covered. A recent post on Google's official blog states (Link) that Yes its concerned about the huge privacy issues and its doing all it can but it also is working tremendously to tailor the Internet to each user.

"search algorithms that are designed to take your personal preferences into account, including the things you search for and the sites you visit, have better odds of delivering useful results for you. So if you’ve been checking out sites about the Louvre and you search for 'Paris', you’re more likely to get results about the French capital than the celebrity heiress" Additionally Google goes on to showcase that a search for Football in Chicago is completely different than a search for Football in London, England.

Google is taking localized and personalized search into realms that its competitors can only dream of getting to. This is all due to that massive technology spending to build out an infrastructure of computing that can handle incredible complexity when it comes to something that should be as simple as search. That is why Google gets a majority of search traffic, has higher click-through rates for its tailored advertisements, continues to grow rapidly and demands a market premium via a lofty valuation.

Yahoo, Microsoft and Ask right now are simply out of their league when it comes to search innovations. Google has the brains, with its thousands of dedicated creative employees, it has the brawn, with its incredible breadth of technology infrastructure, and it has bank roll to keep innovating in ever expanding new areas of not only Search Technology but all aspects of our daily Internet lives.

Disclosure: Author is long GOOG

Markets Rise Modestly Thursday on Subdued Volume while China Stocks Soar

North American market were higher across the board Thursday as Investors were buying cautiously towards the end of the quarter. Many however sat on the sidelines as trading volume was lower across the board than in previous weeks. The Dow, Nasdaq and S&P all saw gains today of about .3%. In Canadian Markets the TSX was up almost triple digits which translated to about .7% in the green.

Google (GOOG) went in front of the Government today to defend its decision to buy DoubleClick. A group of challengers led by Microsoft (MSFT) had complained that this deal would give Google too much power over Internet Advertising. Google's dominance in search ads, coupled with DoubleClick's reporting and distribution services would give Google too much control according to Microsoft. Yes, I understand the irony of Microsoft complaining about Anti-Trust issues hot on the heels of its appeal loss in Europe for the very same infractions. Talk about the Pot calling the Kettle black! Google seems confident enough that the deal would be allowed to go through as it points out that Microsoft had also been in the bidding for DoubleClick and lost, having to settle for competitor aQuantive.

In the airline sector a large order was placed by British Airways (BAIRY). The company leveraged heavy competition between Boeing (BA) and Airbus and took orders from both airplane makers. The Airline placed an order for 12 Airbus A380 planes and 24 Boeing 787s with an option to buy even more planes should needs arise. British Airways climbed almost 5% on the news while Boeing was only slightly higher.

The other continuing big stock growth story is China. Many Chinese based companies have done extremely well this week and the run was capped off today with even more substantial gains. China Eastern Airlines (CEA) was up 15%, China Telecom (CHA) was up 15% and 18% on the week and China BAK Battery (CBAK) was up 19% and has doubled in the last 5 days. Another Chinese mobile/Internet play KongZhong (KONG) was really flying today as the stock jumped 72% rebounding from year-lows recently.

While its tempting to jump in and try to ride more momentum here, caution is the name of the game. With these type of gains an cool, calm and collected investor would sit back and see whether the now inflated prices can be sustained going forward to a quick trade. While I would particularly be cautious about the Airline industry, China Telecom is a great play on the expanding mobile world and KongZhong was beaten down from the $10s to the high $3s before rebounding now to $8.50 on inklings of hope and raised estimates. Due to government control and very strict laws the Chinese business world is one not fully understood by a majority of casual investors and as such I don't recommend jumping in blind hoping to catch a wave.

Disclosure: Author is long GOOG and holds no position in any other companies mentioned

Markets Drift Lower Day Before Fed Announcement

North American markets took a breather today drifting steady but lower throughout the day. The major indices were all off less than 0.8% in both American and Canadian Trading. All eyes are going to be on the Fed announcement tomorrow as market watchers prepare for anticipated interest rate cuts.

Of note in today's session was the early news out of Europe that the EU (European Union) upheld previous court ruling against Microsoft (MSFT) in their anti-competitive practices case. The software giant was accused of bundling Windows Media Player with its Operating System thus shutting out competitors. It was also accused of not allowing competition in the server space by not allowing competitors to properly design software so Servers and Computers could communicate as well as Microsoft only solutions.

The ruling was a big loss for Microsoft and it included over $600Million in fines. It also opens a door of precedent for other big firms who dominate their industries, especially in technology, to potentially be caught in the EU sights.

Bad News came after the market closed for investors of NovaStar Financial (NFI) as the firm deleted its dividend for this calendar year. The company is set up as a Real Estate Income Trust and had to pay shareholders but it has now lost that REIT status and shocked investors by totally cutting off this year's payout. This poses a dire outlook for the company as it tries to stay in business being a mortgage lender at a time when companies in its industry seem to be cutting jobs and falling left and right by the wayside. Shares of NFI were down almost 20% after hours.

While the Federal Reserve rate decision remains the focal point of trading this week, Apple (AAPL) its own special event in London. Most rumors suggest that the company is ready to unveil its partners in Europe for the iPhone. The announcement is taking place well before American markets open tomorrow and will be another catalyst for a company that is itching to break out to new highs as soon as the credit crisis subsides. All that comes from this announcement may be lost if the market perceives any Fed action as negative.

Investor should stay on the sidelines till the market can find a direction either way after the Fed announcement. While analysts and stock market experts are predicting a fall no matter what the Fed does, I am cautiously optimistic that the markets will recover from this rather quickly and would use dips as buying opportunities in fundamentally solid growth companies.

Disclosure: Author owns AAPL, NFI

Earnings Week: July 16-20

Earnings season has gotten underway in full swing in the American markets.

Weekly earnings that are of note:

July 17th
Intel (INTC) : Expected $0.19/share
Merrill Lynch (MER): Expected $2.02/share
Coca-Cola (KO): Expected $0.82/share
Yahoo (YHOO): Expected $0.11/share

July 18th
Altria (MO): Expected $1.13/share
eBay (EBAY): Expected $0.32/share
JP Morgan Chase (JPM): Expected $1.08/share
Pfizer (PFE): Expected $0.50/share

July 19th
Banc Of America (BAC): Expected $1.20/share
Broadcom (BRCM): Expected $0.27/share
Google (GOOG): Expected $ 3.59/share
Microsoft (MSFT): Expected $0.31/share

July 20th
Citigroup (C): Expected $1.13/share
Wachovia (WB): Expected $1.22/share

complete earnings schedule available at Yahoo Finance
http://biz.yahoo.com/research/earncal/20070716.html

It'll be a big week for financials and banking as investors will get to see how munch of an effect the sub-prime meltdown spillover has continued to have. Also a big week for technology, specifically in the Internet space as Google will once again be in a position to overshadow Yahoo and Microsoft in the search earnings space.

Innovators within Technology

It's really Apple (AAPL) and Google (GOOG) that are the two driving forces of innovation within the Internet/Computer part of the technology sector. When Google's CEO became an Apple board member there was some signs that the companies would work together on many more projects. We're seeing this now with Google Maps integration into the iPhone, YouTube on AppleTV and the iPhone and Google's search being prominent in Safari and Leopard.

Yahoo (YHOO) also is involved with Apple providing push e-mail to the iPhone, the Stock app and a host of other innovative services, however, it's a company very much in limbo, having just ousted long time CEO Terry Semel. Any reaps from their long-awaited ad platform Project Panama have yet to show major dividends and it seems like Yahoo has a long way to go to steer the ship in the right direction.

Microsoft (MSFT) on the other hand seems stuck in the mud, is a company that has far too many silos for its own good and cannot innovate as quickly as the others. While companies like Apple, Google, and Research In Motion (RIMM) are busy combining all of their products and services over a common platform, Microsoft is missing the party by having completely separate divisions trying to integrate separate products into a common themes. However thus far very few have ended in success and nothing but bad press surrounds this "innovative" company of late with Vista issues, charges on Xbox problems and who could forget the almighty Zune.

Disclosure: Author is long AAPL & GOOG