More on MSN, Google

Microsoft has now posted the full text of MSN exec Yusuf Mehdi's speech at Wednesday's Goldman Sachs Internet conference, which you can access here. (See my two most recent posts for more.) On a related note, Google has taken a commanding lead in our latest poll, in which we're asking who will dominate the search-engine market in five years. To the right are the results as of earlier today. (Go here to cast your vote, if you haven't already.)

John Battelle, who runs the popular Searchblog and is writing a book on Internet search, notes that he was given a background briefing on MSN's strategy and hadn't expected some of what Mehdi said yesterday -- specifically, the stuff about PC search -- to be revealed so soon.

I listened to Mehdi's speech online yesterday, but looking back over the transcript, some of his comments on Google stand out. Here's another excerpt.

"I'd say in some respects the biggest thing that Google has is I think their current culture of innovating fast, working quickly, the focus on simplicity and speed of the Web user interface. I think that's the thing that is probably right now the most impressive thing. They've got that great focus on the consumer experience, which I admire and I think respect.

"It will be interesting what happens as they try and broaden their ambition to get into other areas and as they're set to become a public company and have to show revenue growth, in spite of the fact that they claim they're an unconventional company and won't be held to quarter over quarter results. I think that will be tested and we'll see how that does."

MSN vs. iTunes, iPod

In addition to his comments about PC search, Microsoft's Yusuf Mehdi talked Wednesday about how the company's forthcoming MSN Music service will compete against the one-two punch of Apple's iTunes Music Store and its popular iPod music player. Here's what he said, in response to an audience question:

"Number one, our strategy is certainly to offer a multitude of devices. I think the iPod’s a great product, but there’s a lot of opportunities. They’re only in 4 percent of U.S. homes today, even with all the success they’ve had. There are a number of other great devices that are coming out. I personally have spent time with a bunch of hardware manufacturers who will launch hardware products when we ship our service that will look and feel as good as the iPod product. And they will undoubtedly be a little bit less expensive. … The proposition is that you can buy a number of different devices with the MSN Music service as opposed to just a single device from Apple.

"The other thing is, of course, we’ll have a very broad selection of music. My goal is that if we don’t have the broadest selection, we’re tied for the broadest selection of music. We’ll have the best discovery (of songs), it’ll work with your Windows PCs, and that alone I think will give us a big enough market share that we certainly should be able to go out there and be in a nice horse race, if not take the lead at some point in the future."

Mehdi also pointed out that the MSN service will work with Portable Media Centers, audio/video devices to debut later this year, based on Microsoft software. Apple CEO Steve Jobs, of course, has a different perspective on these types of issues. See some of his previous comments in this post and this story.

MSN exec on PC search

Microsoft plans to come out with a combined system for searching across the PC and the Web even before the release of Longhorn, the next version of Windows, according to Yusuf Mehdi, corporate vice president in the company's MSN division, who spoke today at a Goldman Sachs Internet conference.

Previously it was assumed that the combined PC/Internet search system wouldn't come until Longhorn's release, expected sometime in 2006.

Here's an Associated Press story based on his comments. And here's the text of what Mehdi said on the topic, transcribed from the webcast earlier today.

"There will be a lot of innovation that we’re going to do in MSN-oriented search and, to be fair, there’s a lot of cross-company investment in search from a number of people, so we are really leveraging the strength and talent from our Microsoft Research group under Rick Rashid. Folks there have spent five, 10 years' investment doing things like image recognition and a number of those things. Things from the Office group, things from advanced user interface group. We will do in MSN Search, starting shortly with a beta and well before Longhorn ships, everything across local PC search, e-mail search, Web search … database search. That will, as far as the consumer is concerned, be an end-to-end system for searching across any data type. We’re going to do work to figure out how and when we add value to Longhorn. There’s no specific plan … nothing to really talk about yet. ... But I think it’s fair to say that we will tackle all of the things that you would expect, even PC search, as part of the MSN effort, well before the Longhorn time-period."

Mythica settlement

Game developer Mythic Entertainment says it reached a settlement with Microsoft in their trademark dispute over the Redmond company's past effort to develop a game called "Mythica." See Mythic's press release, coverage on GameSpot, an earlier blog post about the dispute, and a previous story about Microsoft's decision to suspend development of "Mythica."

Reaction to cutbacks

For more on the employee reaction to Microsoft's planned benefits cutbacks, detailed in this story this morning, see today's Washington Post Filter column, which has a complete roundup of the coverage in our paper and elsewhere.

This is how the poll results stood as of yesterday:

1. How satisfied are you with the changes to ESPP?
-Reduction of discount from 15% to 10%
-Price now set by end date. Previously set by the lower of start date and end date.

5. Very Satisfied
79 (3%)

4. Satisfied
19 (1%)

3. Neutral
56 (2%)

2. Dissatisfied
615 (21%)

1. Very Dissatisfied
2145 (72%)

No Answer
67 (2%)

--------------------------------------------------------------------------------

Total: 2981

2. Do these changes to ESPP reduce your overall compensation

4. Yes: significant reduction in compensation
1015 (34%)

3. Yes: moderate reduction in compensation
1478 (50%)

2. Yes: little impact in compensation
380 (13%)

1. No: No Impact to compensation
40 (1%)

No Answer
68 (2%)

--------------------------------------------------------------------------------

Total: 2981

Dreary Skies v. 1.0

Microsoft CEO Steve Ballmer opening his TechEd keynote yesterday:

"Let me join in welcoming you to Tech·Ed 2004 here in San Diego. It is an honor and a privilege for me to have a chance to kick this session off today, and to see so many, and I do mean many, folks here in San Diego for what I hope will absolutely be an informative, educational and perhaps most importantly, a lot of fun few days here in this beautiful California sun.

"Actually, you missed that part. I would apologize on that normally, but what we have here is the first extension of our DSI initiative, Dreary Skies Initiative, Microsoft can now span out dreary skies from Seattle absolutely anyplace. It's all under centralized management control."

New search-engine poll

We changed the poll question on our Microsoft page today. The new one: "In five years, who will dominate the search-engine market?" Your options: Google, Microsoft, Yahoo!, someone else, or no one. You can go to this page to weigh in. If you answer "someone else," or if you'd just like to explain why you voted the way you did, feel free to comment at the bottom of this post.

It's important to remember that these polls aren't meant to be scientific samplings of public opinion. Among other things, given our geographic location, there tends be a disproportionate number of Microsoft employees, and people related to Microsoft employees, among our readership. But for the record, about 68 percent of the 140 people who responded to the previous question -- "Will Microsoft remain the major power in software during the next 10 years?" -- answered "yes."

Choosing Microsoft's art

P-I art critic Regina Hackett has a great profile of Michael Klein, Microsoft's art curator, in the Life and Arts section of today's paper. It's an interesting glimpse of life inside Microsoft, and an aspect of the company not ordinarily considered by outsiders. My favorite part:

Some of his choices have not pleased the recipients of his largesse. He wanted to hang a Bruce Nauman print of the word "NO" in Steve Ballmer's office. Ballmer said no. Klein thought a Gaylen Hansen painting of a cat and dog fight would be a good fit for Microsoft's legal department. The legal department disagreed.

See this page for more details on Microsoft's art collection.

WSJ on desktop Linux

The lead item in today's Microsoft Notebook explored the latest ways Sun Microsystems' Linux-based Java Desktop System is taking on Microsoft's Windows and Office franchises. A special report on technology in the Wall Street Journal today included a story demonstrating how it's easier in some cases to use Linux on a desktop computer at home than in a corporate setting: Can Linux Take Over the Desktop?

Brad Smith Q&A

Business Week's Jay Greene has a wide-ranging interview with Brad Smith, Microsoft's general counsel, touching on subjects including the settlement in the Sun Microsystems suit and the lack of one in the European Commission case. Greene also asks Smith to compare himself to his predecessor, Bill Neukom, who built Microsoft's legal department and led it during the United States antitrust case. Click here for the Q&A transcript.

Buffett, Bezos & Ballmer

Journalist Cydney Gillis penned an especially enterprising story on Microsoft's CEO Summit for Wired News, including some memorable scenes from a Wednesday night reception that Microsoft held for the CEOs at the swanky Fairmont Olympic Hotel in downtown Seattle. One of the best passages:

[Buffett] downed his drink and sauntered toward the doors of the ballroom, where Microsoft CEO Steve Ballmer and Amazon.com chief Jeff Bezos stood locked in conversation. Whether it was a point or a product the towering Ballmer was trying to sell, tiny Bezos wasn't buying. He turned and slowly inched his way to the dinner hall doors.

Read the full story here. Any wild guesses on what Ballmer was talking to Bezos about? Here's mine.

Bill Gates on blogging

During Microsoft's CEO Summit on the Redmond campus today, Bill Gates offered what may have been his most extensive public comments to date on the blogging phenomenon. See the official transcript for the details. He didn't mention Microsoft's Channel 9 specifically (see related story), but he included an image of the site in his PowerPoint presentation (at right).

See also this story by Reed Stevenson of Reuters: Microsoft's Gates Touts Blogging as Business Tool. Our story this morning touched on the subject, and Microsoft blogger Robert Scoble has a good roundup here.

Google's PC search tool

One of the great conundrums of personal computing is that it's often easier to find something in the vast reaches of the Internet than on your own measly hard drive. Making it easier to search the PC is one of the big promises of Longhorn, the next version of Microsoft's Windows operating system, and its new WinFS file system.

But Longhorn isn't due until 2006. And now it looks like Internet search king Google will have a hard-drive search tool on the market well before then, in what could become a serious challenge to Microsoft. We published this story by John Markoff of The New York Times in the P-I this morning, via the New York Times news service. (Free registration is required to see the full version on the NY Times site.)

Reaction to the Google project, code-named "Puffin," has been across the board this morning. "How cool is that!" writes Colin Faulkingham on his Noise & More weblog. On the other end of the spectrum, Rafat Ali of PaidContent.org calls it "just pre-IPO hype, with John Markoff as the clear conduit of this calculated leak."

Notes on Mac Office

The latest version of Microsoft Office for Mac, which comes out today, has been getting favorable reviews from some of the media given an early preview. See the latest from USA Today. Time magazine online called it "clearly superior" to Office for Windows, as the Mac Observer summarizes in this story. The software suite -- which comes with Mac versions of such programs as Word, Excel, and PowerPoint -- is the biggest product from Microsoft's Mac Business Unit, which we profiled in this story earlier this year.

As we noted in our Tech Digest column this morning, the professional edition of Office 2004 for Mac will be delayed to accommodate a later-than-expected release of Virtual PC for Mac, which comes with the professional edition.

Mary Starman, lead product manager in the Mac BU, said yesterday that the company needed more time to address issues that arose during a standard security check of the new Virtual PC for Mac software. (It's the first full release of the product since Microsoft acquired it from Connectix Corp.) Also a factor was the delay in the upcoming service pack update for Windows XP; Microsoft wanted to include those updates with the new Virtual PC. (The software emulates the Windows operating system on Mac computers, letting users run programs written for Windows machines.)

Oracle, Justice and MSFT

Doug Burgum, senior vice president of Microsoft's Business Solutions Group, is among the witnesses the U.S. Justice Department plans to call in its bid to block Oracle's Bid to take over PeopleSoft. Click here for a .pdf of the full list, submitted yesterday. Cindy Bates, Microsoft general manager for U.S. small business, is on Oracle's witness list. Click here for that list.

Also see reports on the respective lists by CNet News.com, Bloomberg News, and IDG News Service.

Report: Xbox sales double

Reuters, citing unnamed industry analysts, reports today that unit sales of the Xbox more than doubled in April, following the price cut to $149, according to new NPD Group data. This is in line with what Robbie Bach, Microsoft's chief Xbox officer, said in our interview with him last week: "[C]ertainly it would be fair to say there's going to be a position shift in the marketplace, at least during the month of April."

Apple's window patent

eWeek reports that Apple Computer is seeking a patent for "graduated visual and manipulative translucency for windows." In plain English, the technology makes an open window on a computer screen more translucent the longer the content of the window is unchanged. The eWeek story cites possible parallels to the translucent-window technology that Microsoft has shown in demonstrations of Longhorn, the next version of Microsoft's Windows operating system.

Booth babes v. alien cows

David Becker of CNet News.com captures the essence of E3 in this insightful story. Highly recommended.

Sony exec on Microsoft

Microsoft's executives say this year's E3 Expo marks the company's emergence as a leader in the video-game console industry. Yesterday I got a chance to ask Jack Tretton, Sony Computer Entertainment America executive vice president, what his company thinks of that statement, given the dominant market position of Sony's PlayStation 2. Here's what he said:

"It's a novel aspiration, but until you deliver on it, it's just talk. ... I would say that historically they have met with less-than-tremendous success, with four (Xbox) titles that have sold over a million units. (Compared with more than 40 on the PlayStation 2). That's not to say that they can't be successful in the future, but right now if you look at the scorecard, it's not real impressive.

"We were new to the business 10 years ago. That's not to say that somebody else couldn't come in and do what we've done. But we've done it. There's a difference between doing it and hoping to do it, and until you do it, it's just talk."

More from J Allard

J Allard, corporate vice president on Microsoft's Xbox team and the company's new "chief XNA officer," had a lot more to say than I could fit into today's story about XNA, the combined Windows/Xbox game development system. Here are some excerpts from my interview with him:

On the philosophy behind the initiative: "Our point of view is very consistent with what Microsoft has always done, which is, the success of our platforms are predicated on the success of the experiences that our partners create. Our role in this is to establish a bedrock platform that gives the best creatives and the best developers in the world the most expansive canvas with the best palette to express and create their visions and realize their visions and bring them to market. In doing that, they’ll create new things that we could never have imagined and create draw for our platform. That whole ecosystem, that whole dynamic, is really what fuels category growth."

On competition with other forms of entertainment: "Our vision for gaming is really that it takes a place right next to television, movies, film and music and it just becomes a ubiquitous entertainment experience, and there’s something in it for everybody. Today we haven’t created as an industry a stable and robust enough and expansive enough platform to draw the world’s greatest creators in and to drive that explosive category growth. We’re sort of PC circa 1985."

On why Sony and Nintendo aren't doing something similar: "Because the PC is so open, there’s nothing that prevents Sony or Nintendo from going and building a very rich, software-based development platform. I think the thing that holds them back is it’s not in their DNA. Sony is a hardware company and Nintendo is an intellectual property company and we’re the software platform company. It is in our DNA, and it is an essential part of our strategy. I think it will fuel incredible category growth and benefit our partners a great deal."

On the need to make gaming more accessible: "We have to create a game development platform that draws more game creators, innovative game creators to create experiences that don’t require 50 hours of investment, that don’t require five hours before you get the first big reward, that don’t require one hour of learning before you have fun. If I turn on the TV and I flip to "Friends," I’m laughing. If I turn on a game console today or a PC today and try to play a game, the delta between turning it on and having fun is too long for most people’s patience. The input controllers and everything else, it’s just intimidating. We’re intimidating 80 percent of our potential audience and driving them to go watch TV or go watch sports or go to a game or go to a movie or buy a record. That’s our ultimate competition: to capture more of those leisure dollars in the ecosystem and bring those to the gaming ecosystem.

On that last point, there was an interesting story by Clive Thompson in Slate over the weekend: Can a video game be too hard?. For more background on Allard, see his bio on the Microsoft page. IGN has an interesting interview with him here. And Rob Guth of The Wall Street Journal had lots of insight into Allard's personality in this story, which starts by describing the PlayStation 2 in his office, "pierced by a .50-caliber machine gun bullet."

Peter Moore's 'tattoo'

Never did I think I'd ask a Microsoft executive to roll up his sleeve and show me his tattoo, but there you have it, over on the right. (Click on the thumbnail for a larger image.) That's Peter Moore, corporate vice president on the Xbox team, but in truth it's not a real tattoo. He had it inked on his arm by a Hollywood makeup artist prior to the Xbox opening event Monday night at E3, where he let his arm serve as the medium for announcing the long-awaited relase date for Halo 2, the successor to the best-selling Xbox title. It will wear off in about a week.

"I didn't tell my wife, but I think my son probably saw it online last night," he said Wednesday morning, referring to photos from the event. "I know he's gone and said, 'Did you see what dad did?' "

Moore said the company tried to make its presence at E3 more fun and lighthearted this year, with elements including the "Apprentice" spoof that poked fun at Sony Computer Entertainment's top executives. He said he hopes the Sony executives take the ribbing in good fun. In fact, he said he'd like to see them respond in kind.

Images from E3

Outside the L.A. Convention Center

At the EA Sports booth

The ramp leading up to the Xbox booth

Howard Lincoln at E3

Leaving Nintendo's media briefing Tuesday morning, I spotted none other than Howard Lincoln, the former Nintendo of America chairman better known these days as the chief executive of the Seattle Mariners baseball club. I introduced myself, and he agreed to give his impressions about what he had just seen at the Nintendo presentation. Here's what he had to say:

On the new Nintendo DS portable gaming device: "First of all, I thought they did a marvelous job. It was a great press conference, and Reggie (Fils-Aime), our new marketing executive, I thought did a tremendous job. This Nintendo DS looks spectacular. It has so many functions, and the way it was presented today was very effective in getting all those features out -- the wireless feature, the touchpad feature, the dual-screen feature, one screen in 3D, the other in 2D. So many things that developers can focus on, and so it's not just an add-on product, it's a completely new product, a completely new category."

On Nintendo's future prospects in the video-game console market: "Well, $99 (the current GameCube price) has always been a magic price, and it's going to remain a magic price. And given the kinds of games that are going to be supporting it, particularly Legend of Zelda, Star Fox ... it should do very well."

On the the industry's growth: "It's fun to see the industry expand. When we started, our press conferences could be in a small room. Now there are several thousand people here. That makes you feel good. It's a big industry and a great industry. Reggie made the point, we've been in this business from the very beginning. And [Nintendo President Satoru] Iwata made the point that many of the things that are taken for granted are the things that Nintendo invented. And the Nintendo DS is just the next thing."

Equal opportunity gamer

One of the people on stage during Sony's media event this morning looked awfully familiar, and for good reason: He spoke at rival Microsoft's event the night before.

The speaker in question was Don Mattrick, president of Electronic Arts Inc.'s worldwide studios. He appeared at the Xbox opening gala Monday night to announce a deal with Microsoft to put EA Sports games and other titles on the Xbox Live online gaming service. At Sony's event, he announced that EA is working on games to launch with Sony's PlayStation Portable, or PSP, a new gaming device.

Thinking back, during a briefing on Monday, an EA spokesman stressed that the company is what they call "platform agnostic." Now I have a better sense for what he was talking about.

Trumping Leno at E3

Jay Leno appeared with Bill Gates at the Consumer Electronics Show in January to launch the new version of MSN. But that was nothing compared with the lineup of celebrities at the Xbox opening event here at E3 Monday night.

First came real estate icon Donald Trump, who appeared in a taped spoof of "The Apprentice," which featured Xbox executives Robbie Bach, Peter Moore and J Allard competing against a slate of actors impersonating Sony executives Andrew House, Kaz Hirai and Ken Kutaragi. Given that this was an Xbox event, you can guess who was fired by Trump in the end.

Then came Jenny McCarthy, formerly of Playboy and MTV fame, who participated from backstage in a live demonstration of the video chat feature to be added to the Xbox Live service.

And finally was the coup de grace, when sports stars including Muhammad Ali, St. Louis Rams running back Marshall Faulk and Carmelo Anthony of the Denver Nuggets appeared on stage for the announcement that EA Sports titles will be added to the Xbox Live service. The crowd gave Ali an ovation rivaled only by the one it gave the earlier demonstration of Halo 2.

Thanks for that image

Attending an Xbox event after going to a Microsoft corporate conference (like WinHEC last week) feels almost like visiting a group of teenagers when their parents are away for the weekend.

Case in point: As people filed into the auditorium for Monday night's E3 opening event, a series of trivia questions were shown on the screen, similar to those shown at many movie theaters. One of the questions asked what Bill Gates wore to the 2001 launch of the Xbox console.

The answer: "Xbox jacket, black jeans, and lacey green garters."

Introducing ... a car?!

Microsoft didn't unveil the next Xbox video-game console at its E3 opening event Monday night at the Shrine Auditorium in Los Angeles, but for a brief moment, it sounded as if it might. J Allard, one of the top executives on the Xbox team, remarked at one point during his speech that everyone always gives him a hard time for focusing on the importance of software development, rather than hardware.

"So tonight," he said, "let's talk about hardware. Tonight I want to introduce ... "

He paused briefly for dramatic effect. A murmur went through the crowd. Could this be it? Did Microsoft have a surprise up its sleeve? But the image that emerged on the screen was a car, not a next-generation console.

" ... the Saleen S7," Allard said, as the audience laughed. "Now this is a serious piece of hardware."

Such a tease. As it turned out, the intro was for an updated version of the car crash demo shown at the Game Developers Conference several weeks back to illustrate Microsoft's new development system, XNA. Both the original and the updated version are viewable on this site. Very cool. But definitely not the Xbox Next.

Heading to E3 ...

I'll be in Los Angeles next week for the Electronic Entertainment Exposition, better known as E3, the biggest U.S. video-game convention of the year. Microsoft's Xbox and PC games teams will be there, as will Redmond-based Nintendo of America. So will Sony Computer Entertainment, the company behind the market-leading PlayStation 2. Look for posts on this blog and stories in the paper throughout the week.

In the meantime, here's a collection of E3-related stories from other sites and publications:

• GameSpot: E3 predictions from the pros
  
• MSNBC: Handhelds, hype, Halo 2 and more ...
  
• Investor's Business Daily: New handhelds, games to dominate E3 ...
  
• CNet News.com: Game handhelds to take spotlight at E3
  
• Wired News: Game Makers' Hand-to-Hand Combat
  
• Business Week: Microsoft plays video leapfrog
  
• USA Today: Sony, Nintendo aim to wow gamers ...

From punch cards to USB

Bill Gates' comment yesterday about the inevitable passing of the floppy disk, and the transition to USB flash drives, reminded me of an experience that I probably appreciate more today than when it happened.

During a summer internship for a newspaper in Chico, Calif., I got a chance to interview and write about former IBM engineer Bill Goddard, of the Goddard-Lynott patent for direct-access magnetic disk storage. The technology was credited for leading to the first disk drive, moving the industry away from punch cards. (Goddard, then 80, was living in Chico at the time.) Remembering this yesterday, I dug through my old clippings and found a paste-up of the story. You can click here for a scanned image. It's interesting to me that even back then, a decade ago, he was marvelling at how far computers had come.

Microsoft exec on iPod

Here's one more note from the discussion earlier this week with Microsoft's Pieter Knook, senior vice president in the Mobile and Embedded Devices division. (See also this earlier post.) Responding to a question from one of the reporters, Knook downplayed the popular notion of a head-to-head competition between Apple Computer's iPod music player and the handheld audio/video playback devices that will run on Microsoft's Portable Media Center software.

"It's not in the same category, of course," Knook said of the Portable Media Center, citing the inclusion of video as the key point of differentiation. He explained that Microsoft isn't positioning the Portable Media Center as an iPod alternative, but as something more -- the "next big thing" in portable entertainment. That message "will resonate with some people," he predicted.

See this earlier post for comments on the matter from Apple CEO Steve Jobs.

Microsoft's Apple patent

Microsoft has received a patent on an apple. No, not the kind from Cupertino, Calif., but the kind from East Wenatchee, Wash. David Becker of CNet News.com explains in this amusing story.

Posting from WinHEC

I'm over here today at the convention center in Seattle for Microsoft's Windows Hardware Engineering Conference, where the speakers this morning included Bill Gates and Jim Allchin, Windows group vice president. Among other things, they showed the new "Windows home concept," developed in conjunction with Hewlett-Packard. (For more info on that, see this story from today's paper.)

See this page for materials from the conference, including transcripts. Also see coverage by Paul Thurrott, IDG News Service, and CNet News.com, and look for further coverage in Wednesday's P-I.

Windows Mobile and Palm

Microsoft's Windows Mobile software running on a palmOne handheld device or smartphone? It might sound far-fetched, given the longtime Pocket PC/Palm rivalry, but Pieter Knook isn't ruling it out.

Asked about the possibility yesterday during a discussion with Seattle-area reporters, the senior vice president in charge of Microsoft's Mobile and Embedded Devices Division called such a scenario "perfectly feasible."

The development that made it feasible was last year's decision by Palm Inc. shareholders to separate it into two independent companies, one for hardware and another for the Palm operating system. The hardware company, known as palmOne, was bolstered at the same time with the acquisition of Handspring, the company behind the Treo line of smartphones.

"They are a hardware company and we are a software company," Knook said yesterday, adding later, "They would be an interesting partner for us."

Pressed on the issue, Knook wouldn't say whether Microsoft and PalmOne have held any discussions to that effect. "We talk to lots of people," he said. "I wouldn't be in a position to tell you even if we had."

A new Gartner report shows that Microsoft's software for personal digital assistants (known in the Microsoft world as Pocket PCs) pulled into a virtual tie for market share with the Palm operating system from PalmSource, the Palm software spin-off. See coverage on InfoWorld and Forbes.

Permatemps correction

An important note to those who may have seen the print version of this morning's story on the Microsoft permatemps case: The main headline on the front page of the paper was incorrect. (It has been fixed online.) As the story explains, Microsoft paid the $97 million into an escrow account after the settlement was reached, meeting its obligations under the agreement. The plaintiffs' law firm and the claims administrator are responsible for overseeing the disbursement, which has been held up by a variety of factors beyond their control. We're planning a correction for tomorrow's print edition.

More on Google numbers

Google's IPO filing last week, warning potential investors about risks, outlined some of the advantages enjoyed by Microsoft and Yahoo, the company's primary competitors in the search business. (For an excerpt, see this post from last week.) Those advantages include more employees, larger amounts of cash, and ancillary businesses -- including popular Internet portals and, in Microsoft's case, a dominant operating system -- that will help drive traffic and advertisers to the MSN and Yahoo Web searches.

But a closer look at Google's financial statements -- made public for the first time as part of the filing -- shows that its strengths aren't limited to brand recognition and customer loyalty. The Mountain View, Calif., company does particularly well in a key financial measure in the area where the three companies compete head-to-head. Taken as a whole, the numbers provide a clearer picture of the different strengths the companies are likely to lean on in their battle for control of the Internet search market.

To start, look at this chart, which compares the three companies' overall operations for the 2003 calendar year. (Note that Microsoft's results here won't match the totals from its fiscal year, which ended June 30.) This is where you begin to see some of the advantages held by Microsoft and Yahoo, as explained in Google's filing.

But it's important to realize that those numbers don't provide an apples-to-apples comparison. Among other factors, both Microsoft and Yahoo have been around significantly longer than Google has, and their results reflect years of growth and business development. At the same time, Microsoft's net income includes earnings from its extremely high-margin Windows and Office businesses. Google has nothing similar.

To really get a sense for how the three companies stack up in the area where they compete head-to-head, it's better to compare the performance of Google and Yahoo to that of Microsoft's MSN Internet division. See this chart, with numbers from the most recent quarter, the three months ended March 31.

As you can see, even though it took in less revenue than MSN or Yahoo during the quarter, Google was able to generate more operating profit than either of them on an absolute basis. That put it far ahead in terms of operating profit margin, as well. Here's a bar chart that illustrates what amounts to operating efficiency -- revenue collected in proportion to operating income generated. (If you're looking for an analogy, you could think of this in terms of gas mileage, with the blue bar representing the amount of gas put in and the red bar representing how far the car is able to go on that gas.)

What to take from this? There are commonalities among the three businesses, as evidenced by the fact that they've all benefited recently from newfound strength in the online advertising market. But there are also big differences. In addition to operating an Internet portal and selling premium services to broadband users, MSN still has a large number of customers to whom it sells dial-up access. All of those things will give Microsoft a natural base of users to look to when it launches its Web search later this year. At the same time, they're generally low-margin businesses. Google, in contrast, is focused primarily on its search business. As its operating results show, there's something to be said for simplicity.

It's anyone's guess which strategy will prevail. At the very least, the next few years in the search business should be interesting.

On the trail of Sasser

Here's a collection of stories about "Sasser," the latest virus to target Windows.

• Associated Press: New virus snarls thousands of computers
  
• PC World: Experts probe Sasser, Netsky link
  
• ComputerWorld: Corporate users wary of Sasser worm
  
• ZDNet: Newest Sasser worm a greater danger
  
• TechWeb: How to protect PCs against Sasser
  
• ArsTechnica: Could Sasser be the MSBlast of 2004?