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Although Microsoft is slowing its hiring, it still added about 500 employees to its work force in November, according to a spokesman.

To put the statistic in perspective: In August, Microsoft's work force grew by 1,200. In September, ranks increased by 700. And in October, the company's work force jumped by roughly 1,000. Microsoft now has about 95,768 employees world-wide, up from 91,259 at the end of June.

Going forward, though, Microsoft is expected to add fewer employees.

In a research report today, Morgan Stanley analyst Adam Holt says that "Microsoft has largely frozen non-strategic hiring post Q1." Microsoft's fiscal first quarter ended on Sept. 30.

From Holt's report, which was written after he met with Microsoft CFO Chris Liddell as well as other Microsoft executives:

Q2 is likely to be a transition quarter and we do not expect any incremental hiring in the back half of FY09. In absence of fresh hiring, any natural attrition within the employee base could result in headcount declining in (the second half of the year).

We do not anticipate Microsoft to announce any headcount reduction measures near-term. However, should the economy deteriorate further, we could see Microsoft announce a headcount reduction although not likely before next spring.

In early October, Microsoft said its hiring plans were under review due to economic conditions.

More recently, Microsoft CEO Steve Ballmer said during the company's shareholders meeting that Microsoft would have "much, much slower growth" in the size of its work force this fiscal year and probably the year after.

The company has said it will cut as much as $500 million from its budget, in part by reducing growth in the ranks of its employees.

In a sign that the Xbox 360 might outsell the PlayStation 3 for the third month in a row, Microsoft said it outsold Sony's PlayStation 3 by a three-to-one ratio over the Black Friday shopping weekend.

Holiday sales are critical for video game console makers because they account for the majority of console sales each year.

Heading into November, the Xbox 360 had widened its lead over the PlayStation 3 in the wake of a price cut. But Sony executives had maintained that Microsoft's lead would not last and had predicted a "tight race" during the holiday shopping season.

In a statement, Microsoft said the Xbox 360's sales were up roughly 25 percent, compared to the same week-end last year.

I'm awaiting a response from Sony.

Microsoft has signed up another customer for its Surface tabletop computer: BMW.

When I talked to Brad Carpenter, the general manager of the Microsoft Surface team in October, he said automotive was one of five areas Microsoft had targeted for Surface, in addition to entertainment, healthcare, banking, and retail.

BMW, the first carmaker to use the Surface, is using it to make it easy for car buyers to customize their cars.

Here's a video:

Asked to name their favorite brand, college students ranked Apple number two for the second year in a row right after Nike, according to a survey by Anderson Analytics.

In 2006, college students ranked Apple number 6, and in 2005, they ranked the brand ninth.

(I graduated from college in 2007 and can provide anecdotal evidence to support the trend: Apple computers were the dominant brand in my college library. Disclosure: I owned a MacBook, too).

Anyway, an Ad Age summary of the survey results does not show how the Microsoft brand performed, but it does show that college students had little patience for the Microsoft ads featuring Bill Gates and Jerry Seinfeld.

Asked to name the No. 1 "bad" commercial of the year, college students chose the Gates/Seinfeld Microsoft ad, according to the survey.

The number one "good" commercial? The Apple ads.

(I first saw this on Joe Wilcox's Microsoft Watch)

There's constant criticism of Microsoft (Just think Vista), but the staff at Redmond's Directions on Microsoft has put together a list of five things Microsoft got right over its 33 years of existence. Here they are:

1. Software Is King: "Microsoft was among the first companies to see software as the business, not just an add-on sale to hardware."

2. Outsource Your Sales Force: "(Microsoft's) partner community, from small mom-and-pop computer shops to the world's largest systems integrators, enabled the company to achieve unprecedented sales volumes with astounding speed without having to spend huge sums to build a direct sales force and consulting practice."

3. Technology for the Masses: "Microsoft has consistently figured out how to make powerful technologies once exclusive to big business -- business intelligence, intranets, systems management -- accessible to smaller IT shops at a fraction of the cost."

4. Developers, Developers, Developers!: "More than any other software company, Microsoft courts developers, lavishing them with powerful tools, free training and low-cost support."

5. The Long View:"The company will sustain breathtaking losses to gain a foothold in a market (think of Xbox) and endure hits to its image to change a business model that isn't working (think of MSN)."

Read the list, along with more commentary, here.

In my haste last week to report the latest numbers from comScore, I overlooked one additional tidbit of good news for Microsoft's Live Search: While Microsoft's share of the search market was steady, Live actually outpaced Google in the growth of new queries.

Here's the data:

So, the number of search queries at Microsoft sites jumped 8 percent, while overall they grew by 6 percent on the Internet. Google also saw a 6 percent increase.

Then, again, Google started September with about 10 times the number of search queries as Microsoft, so it would have had to register a much greater number of new queries to match Microsoft's increase.

Microsoft's Live Cashback program, which gives Live search users who buy selected products a percentage of the purchase price back, was down for much of Black Friday, according to a number of reports.

Customers were not too pleased. Via Twitter:

At least Microsoft was in good company, though. According to the Associated Press, Sears.com was down, and transactions at Amazon.com took longer than usual.

Turns out that some who did get through got 3 percent back instead of 40 percent on their purchases of HP products.

"eburley" might have a point.

(I first saw this on TechFlash)

Updated, 3:30pm, Monday: A Microsoft spokeswoman says, "Microsoft Live Search cashback experienced an unexpected outage for several hours on Friday, November 28. If you are interested in following up on a cashback rebate for a qualifying HP purchase that you completed Friday at HP's Home & Home Office web site, we kindly request that you contact Microsoft at https://support.search.live.com/. To ensure the best possible support from Microsoft, please have available your order number and the email address you provided prior to transferring to the HP site. We apologize for any inconvenience that this issue caused."

The on-again, off-again talks between Yahoo and Microsoft are reportedly on again, with Microsoft willing to pay $20 billion for Yahoo's search business, according to the Times of London.

Microsoft representatives could not be immediately reached for comment late Saturday evening.

Still, the arrangement reportedly under discussion would mesh with what Microsoft executives have said publicly in recent months: While Microsoft is no longer interested in purchasing Yahoo, it is open to some sort of search partnership.

As recently as two weeks ago, Microsoft CEO Steve Ballmer described such a partnership as an "interesting possibility," although he said no talks were ongoing.

Yahoo CEO Jerry Yang, who rebuffed Microsoft's initial offer last February to purchase all of Yahoo, has also said more recently that Yahoo would welcome a transaction with Microsoft. Yang has also said he will step down from Yahoo once the company finds a new CEO.

Under the agreement under discussion, according to the Times of London, Microsoft would manage Yahoo's search business. It would also get an option to buy the search business within the next two years for $20 billion.

As of Friday, the entire market value of Yahoo was roughly $16 billion.

Jonathan Miller, ex-chairman and chief executive of AOL, and Ross Levinsohn, a former president of Fox Interactive Media, would take leading roles in the venture.

Microsoft would immediately invest $5 billion, while other investors would put in another $5 billion.

For Microsoft, the deal would allow it to bulk up its shrinking share of the search market, while it would give Yahoo, which has seen its share price slip dramatically this year, an influx of cash. An ad partnership between Yahoo and Google fell apart earlier this fall.

Updated, Sunday 3 pm: Microsoft representatives will not comment about the Times of London report. Also, it should be noted that a Yahoo executive told the San Francisco Chronicle that no talks between the two companies were ongoing and that the Times of London report had "no basis in fact."

According to a report on the Times of London Web site, Microsoft Corp. has resumed its pursuit of Yahoo in a deal that could cost the Redmond-based company $20 billion, less than half of what it offered for the search site this summer.

The report, which you can read here, says Microsoft has put forward Jonathan Miller, ex-chairman and chief executive of AOL, and Ross Levinsohn, a former president of Fox Interactive Media, to lead a new management team at Yahoo under a 10-year agreement. Microsoft would have a two-year option to buy Yahoo outright for $20 billion. The report also says senior management at both companies "have agreed (to) the broad terms of a deal, but there is no guarantee that it will succeed."

As recently as last week, Microsoft CEO Steve Ballmer told company shareholders that the company had no intention of resuming its pursuit of Yahoo, which collapsed over the summer when Yahoo rejected Microsoft's offer of $33 per share, or nearly $50 billion. Since then, Yahoo shares have dropped to less than $9 per share, although the stock has rebounded above $11 recently.

The P-I is awaiting a comment from Microsoft.

The situation at Yahoo has changed considerably in recent weeks as CEO Jerry Yang, one of the founders of the company, has announced he will step down from his post. Yang led the fight to reject Microsoft's offer earlier this year. Since then, billionaire investor Carl Icahn has won a fight to get a seat on the Yahoo board and has built a 5.5% stake in the company, according to the Times report, which cited Securities and Exchange Commission filings.

--Guest post by Margaret Santjer, business editor

I'm heading home to Cleveland so I will be off for the rest of the week. I'll be back on Monday, Dec. 1, when I'll start posting again.

It's Thanksgiving, though, so I quickly wanted to thank you for reading the blog over the last two months and for commenting, calling, and e-mailing.

As always, please send any tips or suggestions to joetartakoff@seattlepi.com.

For two months in a row now, the Xbox 360 has solidly outsold the PlayStation 3. But in an interview last week, a PlayStation executive said that the Xbox 360's rise was a "blip" attributable to its September price cut and that the consoles would be neck and neck during the holidays.

"We're going to see a very tight race this holiday because of our gaming lineup," said John Koller, Sony's director of hardware marketing. "We're very bullish on holiday sales."

Of course, Microsoft is talking up its own holiday prospects, partly on the basis of its own titles, as well as the price cut, which brought the price of the Xbox 360 Arcade to $199. In an e-mail I received earlier this week, a spokesman wrote, "Microsoft is uniquely positioned for a record breaking holiday and we look forward to sharing the results with you!"

But Sony's Koller said that Microsoft's edge over the PS3 would not last through the holidays because sales boosts due to price drops have a "shelf life" of two to three months. For instance, after Sony cut the price of the PS3 in June 2007, sales jumped from 95,000 that month to 159,000 that July. In August 2007, they dropped to 130,000, though, and by September they had stabilized at 119,000, a level that they would maintain through that October.

(There were, of course, other factors at work, besides the price cut, notably the late September release of "Halo 3," exclusively for the Xbox 360).

So far this year, sales of the PS3 and the Xbox 360 are essentially tied, with each console maker selling about 2.4 million units. Prior to the price cut, though, the PS3 had the lead, with 2 million unit sales through August to the Xbox 360's 1.7 million.

"You are going to see all consoles do well seasonally," Koller said. "Going into next year that's when proof is going to be."

Here's a chart, comparing Xbox 360, Wii and PS3 sales since June 2007. A couple of things to note: The spike is last December. Sales of the PS3 increased in July 2007 after the price cut. And sales of the Xbox 360 have increased since the September 2008 price cut.

Microsoft's MSN.com will broadcast the Dec. 1 launch of a new digital music service, which is intended to help raise money for those living with HIV/AIDS in Africa.

For $5 a month, subscribers of the (RED)Wire service will receive exclusive songs, as well as other art, each week from a number of top name artists. A portion of the proceeds go to the Global Fund, which finances programs to fight AIDS.

U2's Bono started the (RED) program in 2006 to benefit the Global Fund.

The debut of (RED)Wire at http://red.msn.com will include world premieres from Coldplay, Death Cab for Cutie, Dixie Chicks, Jay-Z, John Legend, U2, as well as other artists.

Microsoft has partnered with (RED) before, notably with its Windows Vista Ultimate (PRODUCT) RED offering. A portion of the purchase price of a Dell PC with Windows Vista Ultimate (PRODUCT) RED benefits the Global Fund.

Microsoft's share of the search market held steady at 8.5 percent in October, according to the latest numbers from comScore.

Google's share inched up to 63.1 percent, from 62.9 percent in September, while Yahoo's share bumped up to 20.5 percent from 20.2 percent.

Still, maybe there's good news here for Microsoft's Live Search. Granted, a year ago last month its share was 9.7 percent (Nielsen Online reports today that year over year the number of queries with Microsoft tumbled 19 percent). Nevertheless, after sharp declines earlier this year, Live's share has been mostly steady now for the last three months.

Here's the trend. First data point represents September 2007:

Last week, Microsoft's Internet Explorer team announced that a release candidate of IE8 would be issued in the first quarter of next year, followed some time thereafter with a final release of the new browser.

Microsoft has never laid out an official timeline for the release of IE8, but there had been hints that the next version of the Web browser was due out before then (Bill Veghte, Microsoft's senior vice president of online services, said in July, "This is the product that we'll release to the Web later this year.")

But in an interview Friday, Matthew Lapsen, a director of Windows Product Management, insisted that the release of IE8 was not delayed.

"It's not a slipped schedule," he said. "We release based on product quality, not dates."

He declined to state any targets, but did say that the release of IE8 would be independent of any release of Windows.

He told me that the bug counts in the second beta of IE8 were "pretty good," and that there had been "no glaring surprises." But Lapsen said it was essential that, with Internet Explorer's dominant market share, the market be ready when the product is released.

Asked about Internet Explorer's market share (which is declining), he said that there was "flux."

"Everyone is going to look at shiny new objects," he said. "We focus on what are core unmet needs."

He also dismissed suggestions that people were not actively choosing to use Internet Explorer and instead using the browser by default.

"IE 7 (was) the fastest adopted browser in history," he said. "We are continuing to have strong active engagement."

Lapsen then outlined for me a number of IE8 features that were released as part of the two betas, which he described as "groundbreaking."

An IE8 "accelerator"

He showed off the Accelerator feature in IE8. Highlight any text on a page and an icon pops up. Click on the icon and a host of different actions (such as Search with Flickr or Map with Google Maps) show up. Here's an example: Highlight an address on a page, click on the Accelerator icon, select Search with Google Maps, and see a mini-map of that location from within the same page.

Another feature, Web slices, lets you track sites from your favorites bar. For instance, you can track an ebay auction or a stock price without having to navigate to a different page.

Lapsen also showed me the tab isolation in IE8 (if one site crashes, others don't), as well as how the domain (like microsoft.com) is highlighted in the address bar when users navigate to a site, so they can more easily identify if they are at a malicious copycat site.

Some of those features (such as tab isolation) were released with Google's Chrome earlier this fall. But Lapsen said that was not surprising.

"We are all looking at the same consumers. You're going to see some feature overlap."

Robert Youngjohns chats with the P-I / Brad Vest, Seattle P-I

For an article in today's paper, I talked to Robert Youngjohns, Microsoft's president of sales and marketing in North America. He joined Microsoft roughly a year ago. Here are some extended excerpts from the conversation.

On the downturn: Looking at what is going on in the economy is far from straightforward. We have customers who are continuing as though nothing changed and some who are in total panic.

On how Microsoft is adjusting its sales strategy: We are ... getting our focus back to some of the fundamentals at Microsoft. Ultimately, we see ourselves as a volume player and a low-cost player. Occasionally people get tempted to be more like Oracle and have high-cost software, high-ticket items. (Microsoft) has always succeeded in having large volumes of relatively low-cost items and that's a message we need to play out very strongly over the next few months. It's really twisting the value proposition around so it goes around what the customer is really worried about, which is, "How do I make my budget this month?"

I think as a business you have to do what every business does in these circumstances and look at how you can use this as an opportunity to gain share and come out of it stronger than you went into it. And i think were in a position to do that.

Microsoft said recently it would offer 0 percent financing for some buyers of its Dynamics business software. Youngjohns' take: Most of our Dynamics products (are sold) through a web of business partners. They said, "Look we don't have the credit terms we used to have, it would be really helpful if you could help us with credit terms and offer attractive financing." We've had a Microsoft finance organization, which is essentially a leasing company within Microsoft, and we are using them pretty aggressively to help in those situations where customers want to modify payment terms to more suit their business needs and help fund products over a longer period of time.

On the highlight of his tenure so far at Microsoft:

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