Adobe Shares Surge on Report of Microsoft's Interest in Merger

Bloomberg

Adobe Systems Inc. shares surged as much as 17 percent, triggering exchange circuit breakers meant to curb volatility, on a report that Microsoft Corp. Chief Executive Officer Steve Ballmer discussed buying the company.

The New York Times reported that Ballmer recently visited Adobe CEO Shantanu Narayen at Adobe’s offices in San Francisco. The discussion centered on Apple Inc.’s control of the mobile- phone market and how the two companies could work together to compete, the Times said. A possible acquisition of Adobe by Microsoft was among the options discussed, according to the newspaper.

Adobe rose $2.96, or 12 percent, to $28.69 at 4 p.m. on the Nasdaq Stock Market. Earlier in the session, the shares jumped as high as $30, triggering the circuit breaker halt for five minutes. The stock has declined 22 percent this year.

Adobe has clashed with Apple CEO Steve Jobs, who banned Adobe’s flash video software from Apple’s mobile devices. Adobe won a partial victory on Sept. 9, when Apple eased restrictions on creating applications for its iPhone and iPad devices. Apple had prevented developers from using Adobe’s Flash video software.

Rival Standard

Still, the change didn’t let Flash apps run inside the browser on Apple devices, and that’s a larger concern, Jeff Gaggin, an analyst at Avian Securities Inc. in New York, said last month. Apple, which dominates the market for mobile apps, is promoting an Internet standard called HTML5 instead.

At the meeting, which included a “small entourage of deputies,” Ballmer and Adobe discussed how they might counter Apple’s position in smartphones, the New York Times said. The companies had held informal discussions about a Microsoft acquisition of Adobe several years ago, according to the report. Adobe has a market value of $15.1 billion.

Adobe spokeswomen Holly Campbell and Jodi Sorensen weren’t immediately available for comment. Frank Shaw, a spokesman at Redmond, Washington-based Microsoft, declined to comment.

Adobe forecast sales last month that fell short of analysts’ estimates, sending the shares down the most in eight years. Cash-strapped schools aren’t paying for as many copies of the product, which includes Photoshop and Illustrator, the San Jose, California-based company said. The sluggish economy in Japan, typically Adobe’s biggest Asian market, also hampered sales.

And This Bird You Cannot Change

CNBC / Tech Check

Ballmer takes flight from Twitter questions

Microsoft CEO Steve Ballmer was on hand earlier this morning at the Search Marketing Expo in Santa Clara, and sat for a wide-ranging interview on stage in front of about 1,000 visitors, and while much of his comments were about Bing, Yahoo, Google, Microsoft more broadly, and lots of other topics, what he had to say about Twitter was intriguing.

Ballmer was asked directly whether Microsoft would be interested in owning Twitter. Interestingly, he didn't dismiss the idea all together, and judging by his answer, Microsoft has clearly been noodling all this.

"Not clear," says Ballmer about whether it would be a good idea to buy Twitter.

"We have a great relationship, partnership with Twitter. It's not clear to me. I would hate to not have that partnership. Whether we need to own the company is far less clear. In some senses, as an independent, they have a lot of value, a lot of credibility with their user community. Would they have that same credibility with that user community if they were captive? Not clear. They want to be an independent company which means we want have a great partnership with them and do a good job."

Microsoft made lots of headlines with its early investment in Facebook as a way to head off any deeper partnership that might have been under consideration between the social networking giant and Microsoft nemesis Google. That deal was widely seen as a placeholder of sorts for Microsoft should Facebook ever entertain the idea of being acquired. Of course, that was billions of dollars in value ago, and it seems Facebook would probably go public first before submitting to a Microsoft acquisition. Knowing that, maybe Microsoft would be more interested in working some kind of deal with Twitter, which clearly has the eyeballs, but certainly not the path to profitability and growth that Facebook enjoys.

Meantime, check out the accompanying video of me trying to get a comment directly from Ballmer after his on-stage appearance.



I caught up with him, camera in tow, trying to get his thoughts on Microsoft's increasingly aggressive behavior in lobbying the European Union to go after Google for possible anti-trust violations (forget about the pot calling the kettle black, here; if anyone knows its way around anti-trust charges, it's Microsoft!) Ballmer seemed ready to play ball, but zealous public relations handlers said Ballmer was unavailable.

Umm, he was standing right in front of me!

Nonetheless, despite Ballmer telling me he wanted to answer my questions, he was escorted away.

So I pursued! And Ballmer's swift exit, while frustrating, was at least kinda funny to watch.

In Search, Microsoft May Race To The Bottom

Business Week

The world is finally waking up to the full implications of Google's business, and they're not all pretty.

Leading the rebellion is News Corp. (NWS) CEO Rupert Murdoch, who is threatening to keep his newspaper content beyond the reach of Google (GOOG) searches. Murdoch wants to keep Google from reaping so many of the financial benefits of advertising placed adjacent to News Corp. content. He's being aided and abetted by Microsoft (MSFT).

In a scenario under consideration, Microsoft would pay News Corp. for making articles from The Wall Street Journal and other Murdoch-owned publications searchable exclusively through Microsoft's Bing search engine. If the effort encourages other powerful content providers to demand compensation from Internet companies that generate revenue from online ads, the Murdoch-Microsoft partnership could create a big problem for Google.

Search is not Microsoft's core business, but it generates a lot of tech industry revenue—and funds Google, Microsoft's No. 1 competitor. So the best play for Microsoft in the Web search market could be to diminish the revenue stream for everyone involved. If Microsoft could reduce the overall market value of Web searches, it could protect its own software revenue while hurting Google.
Changing the Economics of Search

Blogger and entrepreneur Jason Calacanis recently suggested a strategy whereby Microsoft could gain search market share by paying content providers more than they're getting from search referrals.

Google's threat to Microsoft and other software and telecom companies is manifold. Google is competing not only in search engine software, but also in mobile phone services, personal navigation, and operating systems.

In concept, it wouldn't be especially difficult for Microsoft to change the economics of the Web search market, as long as the company can tolerate losses. Microsoft could take advertising revenue generated by Bing and pass it along to media providers, in return for exclusive arrangements to make their content available on Bing. Microsoft would modify the money flow.
Alternative Model: GDS

The search-engine economy doesn't need to work the way it does; there are alternative models. Consider the travel industry's global distribution systems, used by airlines, car rental agencies, and hotels to make their inventory available to travel agents. The systems amount to search engines for the travel industry.

As time went on, the global distribution systems (GDS) had to pass more money from airlines to travel agents in order to motivate them to use the systems. So an airline might pass $8 per booking to its GDS, which then must pass $5 on to Expedia.com (EXPA). Like Google, the GDS centralize great power over finding information. But unlike Google, companies that invest in the travel systems don't keep all the profits for themselves.

Similarly in the Web search market, Microsoft could redirect the flow of funds. The company doesn't need the money from search. In its most recent quarter, Microsoft generated more than $7 billion in sales from its main businesses, Windows and Office. By reducing the value of Web searches for media content, Microsoft could strike a blow at Google, which is challenging its main applications and operating system businesses. In other words, Microsoft could make Internet search more like the GDS model and sap the profitability from it.

Microsoft is likely well aware of the potential. In 2008 it tried to follow exactly the GDS model by "incenting" consumers to use Bing through a program that provided consumers with cash back on purchases made via its search engine. The program wasn't successful, but it reflected Microsoft's willingness to try to shake up the Web-search economy.
Will Others Emulate Murdoch?

Today, Microsoft is focused on working with companies that care dearly about revenues—media companies such as News Corp. Search-related ad revenue is the bonanza on the Internet, and News Corp. doesn't make enough from display ads to pass up Microsoft's deal. News Corp. could strike an arrangement that lets it lock in a disproportionate share of search ad revenue from Bing-driven hits on News Corp. sites. That kind of deal would work to Microsoft's advantage, too.

Microsoft could sweeten the deal for News Corp. by sharing a cut of broader Bing search ad revenue. Microsoft could in effect say, "Rupert, old pal, we really like you. Here's a big chunk of our search revenues, as long as you're willing to work with only us."

Other publishers have reasons to follow News Corp.'s lead. If payments from Microsoft exceed the value of ads generated by Google-related traffic, it would make sense for other publications to delist from Google, too.

As more content becomes available exclusively on Bing, users could switch away from Google search. That in turn will move market share. Google may even begin to pay incentives, putting pressure on its margins. Microsoft could be willing to race all the way to the bottom.

Google, Bing Kick Yahoo To The Curb

CNN Money

Once the world's online search leader, Yahoo's share has sharply declined, putting it in danger of losing its relevance in a market increasingly dominated by Google.

Yahoo's search market share in November fell to 17.5% from 18% in October, according to a monthly comScore report released late Wednesday. It's the lowest share ever recorded for Yahoo.

Cannibalizing Yahoo's market share is Microsoft (MSFT, Fortune 500), whose new Bing search site gained 0.4 points of the search market to 10.3% in November. That was the first time Microsoft owned more than 10% of the market since September 2007.



Despite that good news, it's really a mixed blessing of sorts for Microsoft, which entered into a search deal with Yahoo that is expected to start in the next several months. When the deal was announced in July, analysts largely praised the marriage, since the companies held a combined 28% of the market -- close to the 30% that experts say is needed to convince advertisers that a company is a relevant competitor in a marketplace.

Since the July announcement, "Microhoo" has gone in the wrong direction. The companies' combined share has taken a 0.4-point hit, as Yahoo's share has fallen by 1.8 points, outpacing Bing's 1.4-point gain.

"They're still going to be a viable No. 2 behind Google, but less so than they expected," said Daniel Ruby, research director at search-advertising firm Chitika, Inc. "Everyone is surprised by the fact that Yahoo has lost such a significant amount of traffic. Thirty percent seems like a very long shot."

Google grew its share by 0.9 points since July to take 65.6% of the search market in November. That's the largest share Google has ever garnered.

Meanwhile, Yahoo has lost share for 10-straight months. As the closing date nears for the search rivals' deal, some say Yahoo is reaching a tipping point that could make or break the value of its partnership.


The devil is in the details

Under the 10-year agreement, Microsoft will power the searches that users make on Yahoo.com. In return, Microsoft will pay Yahoo 88% of the revenue it gains from searches on Yahoo's sites. Yahoo.com and Bing.com will maintain their own branding but search results on Yahoo.com will say "powered by Bing."

"There is no getting around the fact that the market share trend for Yahoo is absolutely awful," said Benjamin Schachter, analyst for Broadpoint AmTech. "The Microsoft deal does not guarantee any search revenue, only revenue-per-search levels; therefore, search share and volume are as critical as ever."

Still, another school of thought says not all is lost for Yahoo.

Both Yahoo and Microsoft have poured millions of dollars into advertising campaigns to get users to come to their Web sites. Yahoo's new "It's Y!ou" campaign has been plastered all over billboards and television spots. Microsoft just launched its new highly publicized Bing iPhone App on Tuesday.

As a result, some advertisers believe users who search on those sites are more likely to indulge a sales pitch and therefore are more likely to click on their ads than Google's users.

"Microsoft and Yahoo offer quality versus quantity," said Ruby. "The traffic they drive is more valuable than Google's in some advertisers' eyes, because their users are going to be delivering higher margins."

So even as Google SEO continues to gain share at "Microhoo's" expense, Yahoo and Microsoft live on to fight for high-quality searchers as a way to stay relevant.

Peter Griffin: Spokescartoon For Windows 7

Story from AdAge

To sell people on the merits of its latest operating system, Windows 7, Microsoft has employed good old-fashioned PR and the saccharine sweetness of young Kylie. Now it's counting on Hollywood for a big push.

The software giant has signed a deal with Fox to sponsor a variety show produced by "Family Guy" creator Seth MacFarlane, voice of the family guy himself, Peter Griffin, and actress Alex Borstein, who plays wife Lois Griffin. The show will air Nov. 8 without commercial interruption -- because it will instead feature Windows-branded programming throughout the program.

The branded-entertainment deal is a collaboration between Microsoft, the brand-friendly Mr. MacFarlane and Crispin, Porter & Bogusky, the ad agency responsible for the multimillion-dollar worldwide Windows 7 push. Microsoft's media agency, Universal McCann, was also involved in brokering the deal. Mr. MacFarlane and Crispin have worked together before on "Cavalcade of Comedy," Mr. MacFarlane's online-video series that ran on YouTube and Google's AdSense network and was sponsored by Crispin client Burger King.

The Microsoft-sponsored variety show, whose working title is "Family Guy Presents: Seth & Alex's Almost Live Comedy Show," is a mix of live-action "Family Guy" musical performances, animated shorts and celebrity guest appearances, and is part of an all-Seth MacFarlane night on Fox. The software company wouldn't elaborate on what exactly the Microsoft integrations would look like or possible scenarios in which Windows 7 could play a starring role, but said Crispin's copywriter and art director on the Windows campaign were working closely with Mr. MacFarlane and Ms. Borstein.

"You'll see us deeply integrated into the content ... you'll hear a lot about how Windows 7 can help you simplify your PC -- it's simple, fast and easy to use," said Gayle Troberman, general manager of consumer engagement and advertising at Microsoft. She went on: "Think about metaphors and examples we might use, talking about how simple things are. We'll be evoking the cast of 'Family Guy' in some interesting ways that integrate the product messages."

Ms. Troberman, who headed branded entertainment at Microsoft's MSN before assuming her current post, said Microsoft turned to Hollywood for content integration and programming for the launch of the search engine Bing and saw "some phenomenal results," which is why it's employing the same strategy for Windows 7. Specifically, she said, they noticed that branded entertainment helped amplify traditional-media buys.

"Consumers exposed to both branded entertainment and advertising have more positive reactions," she said. Some of the branded-entertainment elements will extend to the web as well. But working an operating system into content isn't as easy as, say, talking about an energy drink or even a search engine.

"As much as [an operating system is] a product you interact with every day, it's not something most people can put a definition around," she said. "What we've found is seeing is really believing. ... That's a lot of what you'll see us do in the advertising and the branded integration ... give people a chance to see the product and interact with the product."

The MacFarlane sponsorship is part of a broader deal with the News corp.-owned network through its Fox ONE multiplatform sales group and also includes 20th Century Fox Television, Fox Licensing and Merchandising, Fox Sports, FX, Fox Sports on MSN and Hulu. Another part of the Fox deal has Microsoft working with its licensing division for a 12-week college tour that will let students try out Windows 7 and receive custom content, such as outdoor movie nights hosted by "Family Guy" characters Stewie and Brian.

The push around Windows 7, which officially launches October 22, has largely fueled by TV and will also lean heavily on digital. So far, the reaction to the marketing has been mixed. It's been boosted by largely positive reviews in the marketplace, to which Microsoft has smartly been calling people's attention in TV spots. But a five-minute web video promoting in-house, Tupperware-style Windows 7 launch parties has for the past couple weeks been the butt of many a joke, even making it onto Ad Age's Viral Video Chart twice.

Ms. Troberman wouldn't comment on the size of the deal but said the overall Windows 7 push is one of the "largest consumer-advertising investments the company has made."

Microsoft Sells Razorfish

From eWeek

Microsoft has finalized the sale of its Razorfish digital-advertising subsidiary to French advertising company Publicis Groupe SA. Under the terms of the closing, announced on Oct. 14, Publicis Groupe will pay Microsoft some $286.8 million and 6.5 million shares of stock.

In return, Microsoft will gain a 3.3 percent stake in Publicis Groupe.

According to a joint statement released on the Publicis Groupe Website, Razorfish “is the second largest interactive advertising agency (Ad Age) in the U.S. with approximately FY June 30, 2009 revenue of $380 million.” Previous clients have included Nortel, Disney, McDonald’s and Mercedes-Benz.

First acquired by Microsoft as part of its $6 billion takeover of aQuantive in 2007, Razorfish was originally intended to bolster Redmond’s efforts in building a substantive online advertising platform. Other advertising and publishing tools acquired as part of the aQuantive deal included DrivePM, which matched ad campaigns to publisher inventory.

However, Microsoft’s search-and-advertising partnership with Yahoo, which will see the latter take over worldwide search-ad sales for both companies, may have transformed Razorfish into something of a corporate misfit. On Aug. 9, Microsoft announced that it would sell the division to Publicis Groupe for $530 million in cash and stock.

As originally laid out, that deal will give Microsoft access to Publicis Groupe clients and offer them display and search advertising "on favorable terms" for a five-year period.

"We are grateful for the contributions that Razorfish has made to our online advertising business since joining the company," Microsoft CEO Steve Ballmer said in an August statement announcing the deal. "We look forward to continuing to work with Razorfish as one of our agencies."

The original aQuantive deal came during a period in which Microsoft predicted it would purchase around 20 companies—ranging in size from $50 million to $1 billion—over a five-year period. The original hope was that Microsoft would be able to craft an advertising platform that would provide the company with a substantial revenue stream.

However, since 2007, a global economic recession and accompanying slump in PC sales has forced Microsoft to consolidate its holdings and re-focus its corporate strategy around certain key software lines, including the upcoming Windows 7 and Office 2010.