Overall, though, Yahoo is betting that smaller adjustments are appropriate, even though it raises the risk the company will end up muddling along through a series of not-bold-enough course corrections.

Bank of America analyst Brian Pitz called the quarter “lackluster” in a report Tuesday. “The weakening economic environment continues to weigh on branded advertising,” he said.

Based on Yahoo’s third-quarter expenses, the company spends money at a rate of about $3.9 billion a year. The layoff is central to a plan to cut that spending rate permanently by about $400 million.

Plan B
Layoffs, of course, aren’t Yahoo’s only answer to its plight, and some of its initiatives hold promise. Decker was eager to draw attention to Apt, the company’s new system for letting advertisers deal with display ads, and to a move to a customizable Yahoo.com home page that’s a centerpiece of the Yahoo Open Strategy. Ads on the home page are sold out in October, and there are only a few days available in November and December, “which is better than we expected,” Decker said.

Though Yahoo announced a 10 percent layoff that will affect at least 1,430 employees, Yang and President Sue Decker also talked in optimistic terms about how the company is working to achieve a strong position when the advertising market recovers from the current economic troubles. It’s smart to plan for the long-term, but right now, investors are fixated on Yahoo’s short-term prospects.

One uncertainty, though, is what will happen with a Yahoo’s search-ad deal with Google, implementation of which has been twice postponed as the companies grapple with antitrust regulators.

Investors were only modestly cheered by Yahoo’s new position, though. In after-hours trading, a 7 percent increase the company’s stock only erased the day’s loss and left the stock under $13 per share. Compare that with the Microsoft acquisition offer, which when made public in February sent Yahoo’s stock from $19.18 to near $29, and you’ll see what Yahoo is up against.

Yahoo's net income has risen and fallen in recent quarters.

Part of Yahoo’s core problem today is that the online advertising market–in particular ads for autos, finance, real estate, and travel–is weakening. Another part is that Yahoo is more exposed to that trouble than its top rival, Google, whose stronger results afford it some of the breathing room Yahoo lacks.

To refresh your memory, other difficult moments of 2008 included Yahoo cutting about 1,000 jobs already in January, trying to fend off Microsoft’s unwelcome acquisition attempt, losing search market share to Google, and giving a seat on the board to activist investor Carl Icahn after an acrimonious struggle.

But Yang and his fellow executives are betting that this cut will be deep enough. Announcing the earlier layoffs in January, Yang declared, “We’re making good progress executing on this strategy, and I’m confident we’re heading in the right direction,” but as it turned out, not fast enough. It’s not pleasant being laid off, but it was easier for out-of-work Yahoo staff to find new jobs then than it is now.

Cost cutting
Any company has two ways to improve profitability: increase revenue or decrease expenses. With advertisers’ purse-strings tightening, the latter option rises to the fore.

But one of the most promising possibilities is following in Google’s footsteps with search ads. Growth in search queries was better than the 10 percent that ComScore estimated, Decker said, meaning that there are more opportunities to display ads. At the same time, Yahoo is improving the relevance of ads, a move that encourages users to click on them, and has improved revenue by instituting minimum bids for search advertisers in the United States, United Kingdom, and Japan.

(Credit:
Yahoo)

Yang said the weakened spending environment triggered the current layoffs, and to be fair that environment that wasn’t visible early this year. But there’s no indication that the current economic woes will be short-lived, and Yang shied away from forecasting anything concrete.

Yahoo shows a combination of graphical “display” ads, used to promote advertisers’ brand clout, and search ads that appear next to search results. Google makes the vast majority of its revenue from search ads, which are easier to tie to customer behavior like purchasing a specific product and which are paid for only when a person clicks on the ad. Because search-ad spending can therefore be tied closely to financial performance, spending can be justified and the ads are less vulnerable to an economic downturn.

Here’s the visibility investors have, though: Yahoo lowered its full-year revenue outlook from a range of $7.35 billion to $7.85 billion to a range of $7.175 billion to $7.375 billion.

“This is a pretty different environment than even four weeks ago,” Yang said. “I don’t think we have any visibility into ‘09.”

That 10 percent expense cut is significant, to be sure, and Yang said in an internal memo about the layoffs that “having layoffs is very difficult, particularly in light of all we’ve experienced this year.”

“While the advertising market goes through a down cycle, we believe the Internet ad market will recover, with Yahoo positioned to take share,” Yang said on a conference call to announce earnings. “Despite a tough environment, I remain very optimistic about Yahoo’s future.”

Yahoo Chief Executive Jerry Yang had some bold words to say while announcing the company’s third-quarter financial results. The only problem is that they might have been a different set of words than disgruntled investors were expecting.

Although the company reserved the option of more layoffs in 2009, those won’t cut expenses or mollify investors today.

Yahoo hopes for $800 million in new revenue during the deal’s first year by showing Google-supplied ads on for search results where Yahoo’s technology currently can’t, but it’s not clear whether the deal will go into effect at the scale expected. Other wild cards include selling off decreasingly valuable Asian Internet properties and an acquisition of AOL that could come with a cash infusion from its corporate parent, Time Warner.

Of course, the decision is an extremely difficult one. Obviously some would choose their old standby — Super Mario Bros., but others would venture out into unknown territory with picks like Lunar or even the cult classic, Shenmue.

Gamespot recently posted an interesting story about the upcoming release of Metal Gear Solid: The Essential Collection for the
PlayStation 2.

Is Metal Gear Solid the best?

Unlike so many other aspects of the tech industry, choosing the best video game series of all time is an extremely difficult task. Who can possibly say that just because you like the Zelda series, you’re somehow incapable of being right just because I may choose Halo?

And as a fan of the Metal Gear series (and others, like Final Fantasy), I thought it would be a good time to ask you all a simple question, “what’s the best video game series of all time?”

According to the report, “The Essential Collection will compile the original PlayStation edition of Metal Gear Solid along with Metal Gear Solid 2: Substance and Metal Gear Solid 3: Subsistence, both “director’s cut” versions of the PS2 games. The compilation will sell for $29.99, and will feature commemorative packaging designed by series artist Yoji Shinkawa.”

So in the end, I thought I would leave it up to you. Instead of preaching to you about why I think certain series are better than others, I want to get your feel for it and respond to that.

(Credit: Gamespot)

So let’s hear it — what’s the best video game series of all time?

Suffice it to say, the chances of any of us coming to a conclusion regarding which video game series is the best of all time are nil.

Apple’s
iPhone may be the darling of the mobile-phone industry right now, but some users in France aren’t singing its praises, claiming that the device explodes or cracks without warning.

“The iPhones with broken glass that we have analyzed to date show that in all cases, the glass cracked due to an external force that was applied to the iPhone,” Apple said in a statement cited by the BBC.

As part of its investigation, Apple also looked into complaints of the iPhone battery overheating but again said it found no problems. “To date, there are no confirmed battery-overheating incidents for iPhone 3GS, and the number of reports we are investigating is in the single digits,” according to the statement.

France’s trade minister declined to comment on a meeting with Apple about an investigation that the country’s consumer protection agency is conducting into the reports, according to Bloomberg.

However, after conducting an internal investigation into the cause of the broken touch-screen glass, Apple denies that there is an underlying iPhone flaw. In fact, Apple said that in all cases it investigated, some kind of force was applied to the iPhone, causing the glass to break, according to a BBC report Friday.

(Credit:
Apple)

The European Commission also issued a warning using its rapid-alert system, Rapex, which warns of dangerous consumer products.

The investigation’s findings don’t mean much to France’s Frank Benoiton, a consumer who said his wife’s iPhone cracked, and it “was not dropped and experienced no unusual shock,” he told the Associated Press.

Our database now contains over 2,000 projects that are using the GPL v3. At this rate the GPL v3 is being adopted by 1,000 projects every 4-5 months, and if the trend continues, the license will be used by 5,000 projects by the end of the year.

In the meantime, Palamida, a request: Could we get a count on the number of projects using the Affero GPL (AGPL)? It will be miniscule today but I’d be interested in following its growth.

In my estimation, the GPL is by far the world’s best open-source license for business. If Palamida’s recent count of GPLv3-licensed projects is any indication, business in open source is very, very good:

commentary

Gawker has unearthed a rather odd bug in the Google Translate software: its English-to-Spanish translator converts the name of the actor Heath Ledger, who died tragically on Tuesday, to the name of another actor–Tom Cruise. So if you enter in “I will miss Heath Ledger,” Google Translate will come back with “Voy a perder Tom Cruise.”

It’d all be pretty funny were it not for the terrible circumstances surrounding Ledger, 28, who was found dead after an apparent overdose of sleeping pills; there’s nothing tasteless about it, thankfully, but cracking jokes or hinting at Scientology conspiracies just doesn’t seem all that fitting. We’ve contacted Google for comment. But we’re guessing that this won’t be a very pressing issue for Mountain View.

This looks like a simple bug in the system, perhaps the work of a bored Googler somewhere in the world. It only affects the English-to-Spanish translation; translations from English into other languages leave “Heath Ledger” intact, and “Tom Cruise” remains “Tom Cruise” in a Spanish-to-English translation. And the bug only appears to apply to the name “Heath Ledger,” as substituting a number of other actors’ names (Owen Wilson, John Travolta, Russell Crowe, Jake Gyllenhaal) also fails to yield “Tom Cruise.”

UPDATE: Google representatives informed CNET News.com on Thursday that this “internal issue with Google Translate” has been fixed.

There is no DRM inherent in the OTN universe. While file locations are obscured through the system, downloaded files are not protected. Once they hit a user’s machine, they can be copied.

Publishers, likewise, sign up on the OTN site. They’re given instructions to publish their content to the OTN servers so the technology can track downloads and credit their account. The site is self-service, and there are no content gatekeepers. Pornographic content is removed, though.

That resonates with me. By Hodgetts’ metric, the sample site he showed me, Wonderful World of Flying, overcharges by about a factor of 30 for its airplane porn. Thirteen cents for a 13-minute video tribute of the Stearman biplane makes sense. But at $3.99 I’m skipping it, or going to BitTorrent instead.

OTN’s fee is 15 percent for the money it collects. The service starts out new users with a $5.00 credit.

The Open Television Network launched today. Don’t let the name fool you: If you go to the site you won’t see a competitor to YouTube, Hulu, Joost, or the like. OTN is a behind-the-scenes platform that lets small-fry media publishers sell content that’s distributed through RSS.

I discussed this philosophy with OTN CEO Philip Hodgetts. My takeaway is that OTN was not designed to prevent content from being stolen. Rather, it’s to enable content to be sold. There’s a big difference, especially for the “long-tail” content publishers that OTN was built for.

Selling video via RSS: Cool. Overcharging: Not.

As Hodgetts says, current video technologies have “democratized production, but not distribution.” Advertising only pays for a small proportion of online videos. OTN might help everyone else get paid.

Small publishers can sell their media via RSS using OTN's platform.

The network, such as it is, leverages a technology the company previously built, called KlickTab. Users need to establish an account first, and then whenever they want to buy content from an OTN publisher, that account is debited.

Big publishers will continue to sell content through major stores like iTunes. OTN, by contrast, allows publishers to self-publish content that, if fairly priced, might make a few bucks. Hodgetts told me, “I think it’s really egregious that people would not be willing to pay a few pennies a minute for content.” Television content, he said, monetizes at roughly a penny a minute per viewer, taking advertising and cable subscription revenues into account. He thinks that’s about the right price for long-tail content like obscure hobby videos.

NetApp’s IP patent infringement lawsuit against rival Sun Microsystems may throw a wrench in Sun’s reported merger talks with IBM, according to a report on American Lawyer’s AM Law.com site.

That IBM-NetApp relationship is still intact, which is sold by Big Blue under its IBM System Storage N Series, an IBM spokesman said.

But NetApp also has a relationship it may want to retain with IBM.

The ZFS file system is a key part of Solaris, and Solaris’ role in the open-source community puts it in an enviable position in relation to IBM’s efforts. IBM, as a result, may not want to lose that connection to the open-source community should NetApp prevail in its Sun lawsuit.

NetApp did not return e-mails or phone calls seeking comment. IBM declined to comment on rumors or speculation regarding merger talks involving Sun.

Two years ago, NetApp filed a patent infringement lawsuit against Sun, alleging its rival violated seven of its patents with its ZFS file system–a key element to its Solaris operating system. NetApp demanded Sun remove its ZFS file system from the open-source community and storage products, and limit its use to computing devices.

Back in 2005, the companies formed a manufacturing partnership, in which NetApp’s network-attached storage and storage area network products were repackaged under IBM’s brand.

For Sun, which reportedly has IBM combing through its contracts as part of its due diligence in the merger discussions, the NetApp lawsuit could pose a potential problem.

We mentioned that the LG Banter would be available from U.S. Cellular back at CTIA 2009, but U.S. Cellular just made it official with pricing. The design is similar to that of the LG Rumor 2, and is pretty identical to the LG Banter for Alltel.

It has the number keypad on the front like on a candy bar phone, plus it has a slide-out QWERTY keyboard for easier messaging. Features are about the same as the Banter for Alltel; it has a 1.3-megapixel camera, Bluetooth, music player, GPS, and changeable faceplates. It is available for $49.95 after a two-year contract.

LG Banter now available from U.S. Cellular.

As she noted in an interview with CNET News.com, Healy says that the company saw higher piracy in the quarter, which also dented sales and earnings in the Windows unit.

“Piracy is a tough battle and an area where we will need to continue investing,” Healy says.

3:11 p.m.: He reiterates the company’s Saturday deadline for Yahoo to come to the negotiating table. “Unless we make progress with Yahoo by this weekend, we will reconsider our options.” He adds that those options include taking an offer directly to Yahoo shareholders or walking away from Yahoo shareholders and spending that money on other investments or trying to grow Microsoft’s own business.

2:52 p.m.: In the online services area, Healy says that Microsoft saw search queries and page views up during the quarter, and says that the number of individual IDs for one of Microsoft’s Live services grew 18 percent in the quarter, to end at 448 million. She addresses the elephant in the room, saying Liddell would have more to say about Yahoo later in the call.

2:46 p.m.: In addition to Microsoft’s reported results, company watchers keep a close eye on sales taken in for future quarters, which show up in several line items on Microsoft’s balance sheet.

2:40 p.m.: Chief Financial Officer Chris Liddell notes that the company’s diversification helps the company in different economic markets

2:41 p.m.: While Office and Windows were strong in the prior two quarters, Liddell says the March quarter was buoyed by strength in the unit that includes the
Xbox 360. He notes that the company’s outlook for the current quarter continues to be strong. “We expect a strong finish to what has been an excellent year,” he said.

2:47 p.m.: The company’s “unearned revenue,” was roughly flat from the prior quarter at $12.1 billion, consistent with the typical seasonal pattern, says Colleen Healy, Microsoft’s general manager of investor relations. The balance of sales contracted but not billed increased during the quarter, to finish above $11.5 billion, Healy says.

3:33 p.m.: That’s it for the call. Reflecting back, the two issues that struck me the most were the hard line on Yahoo and the piracy issue. I’ll have more to say on both fronts in the next little bit.

3:17 p.m.: For piracy, Liddell says the company expects to see modest gains into its next fiscal year. “We still think it is a positive trend overall,” he says. As for buybacks, he says it would remain “modest” until the company gets more clarity on whether it will be buying Yahoo.

(Credit:
Microsoft)

(Credit:
Microsoft)

With that, Liddell moves on to questions from analysts.

3:09 p.m.: Liddell says that Yahoo’s reaction has been characterized by “unrealistic expectations” and that Microsoft intends to remain disciplined. He says that the best reason he’s heard for why Microsoft should up its bid is the fact it can afford to do so, adding that argument “is not one that I favor.”

“I think things are tracking well and as expected from that perspective,” Healy says.

3:07 p.m.: Liddell says the size of Microsoft’s initial offer was made in an effort to complete the deal quickly. “We have been clear that speed is of the essence,” he says. “Unfortunately, the transaction has been anything but speedy.”

3:31 p.m.: Finally, an analyst notes that the biggest disappointment in the quarter seemed to be Windows revenue and asks if the mix of Windows XP was a factor.

2:49 p.m.: Healy addresses the Windows division, noting that sales were affected by PC growth rates that were a couple of percentage points lower than expected in mature markets, partly offset by the fact that emerging markets grew one percentage point higher than forecast in January.

2:59 p.m.: Liddell again teases the fact that he would address Yahoo later in the call, noting that there are twice as many people as usual on the conference call.

3:07 p.m.: As for Yahoo, Liddell starts by saying that Microsoft is focused on the online advertising market “with or without a Yahoo combination.”

3:24 p.m.: There’s more discussion about piracy and the PC growth forecast. Liddell is pressed on how the company remains sure that it will see this quarter’s piracy trend not continue into future quarters. Liddell notes that there were some unique factors in China this quarter and says that, for the year, Microsoft believes its Windows units will grow 12 percent to 14 percent as compared to overall PC unit growth of 11 percent to 13 percent, reflecting a percentage point or two of piracy gains.

Microsoft CFO Chris Liddell

2:34 p.m.: The call is starting with usual disclaimers and prepared remarks.

Check back here for updates from Microsoft’s call with financial analysts following their earnings report. We’ll be updating this blog as new information comes to light. You can see how they did here.

2:58 p.m.: Microsoft shifts to its outlook. CFO Liddell notes that the company is forecasting “software spending mixed, but positive overall on a global basis.” He says the company is cautious on the U.S. economy, but adds that as far as any economic worries are concerned, Microsoft has “not seen any significant spillover to our business.”

2:30 p.m. PDT: The hold music sounds like the cartoons before an old drive-in (to date myself).

3:15 p.m.: Liddell fields questions on piracy and whether the company expects to continue to buy back shares or will hold off until it knows where things are going with Yahoo.

Liddell says that the Vista versus XP issue did not play into the quarter, and Healy notes that the mix shifted up a bit in favor of Vista from the prior quarter, adding that the company has now sold 140 million Vista licenses to date.

Expect analysts to push for some more details on Microsoft’s plans to significantly boost Windows marketing, particularly as Apple is gaining not only mindshare with its anti-Vista ads, but also market share.

And of course, folks will be hanging on every word regarding Yahoo, AOL and anyone else Microsoft is thinking about buying. I would expect company officials to have only the expected things to say, that they are still interested in transactions that would accelerate their growth, strong go-it-alone strategy, etc. More interesting will be if they give any of the investment levels that go-it-alone strategy will entail.

While much attention these days has centered around whether Microsoft will buy a big name to boost its online business, expect a lot of attention on Thursday to focus on the areas where Microsoft actually earns money.

Here’s another thing I’m going to be watching–piracy rates. Last quarter, the company noted an uptick in piracy rates after making some significant gains. With Vista Service Pack 1, Microsoft also made life for pirates somewhat less onerous.

Overall, Microsoft said in April to expect earnings of 45 cents to 48 cents per share on revenue of $15.5 billion to $15.8 billion. (First Call has analysts pegging earnings at 47 cents per share, on revenue of $15.7 billion.)

As for the outlook for the current quarter, which stretches through September, analysts are currently expecting earnings of 49 cents per share, on revenue of $15 billion. It will be interesting to see where Microsoft’s forecast comes in, as well as what it has to say about the broader economy and IT spending in particular.

The Windows business in particular will get attention after showing less than stellar results last quarter. Microsoft has forecast its Windows client unit will show between 7 percent and 11 percent growth for the quarter.