All Things Digital

At precisely 1:35 p.m. Pacific time, Facebook CEO Mark Zuckerberg, the guy “Rolling Stone” once described as a “Nietzschean superdork,” takes the stage and begins his address with a simple, unassuming “hey, guys.” He moves quickly on to the “Facebook Movement” and the company’s mission, which he defined while on his recent worldwide vision quest. According to Zuckerberg, Facebook’s mission is to “give people the power to share and make the world more open and connected.”

Apparently, we’ve refined things a bit since D6 and that “Facebook is about helping people to share information and share themselves” episode.

“We want to define human presence and extend it,” Zuckerberg says. “We’re working to make the world a more open place. We’re working to make people have a more open connection with each other and the world around them … We’re making the world more transparent.”

Zuckerberg says Facebook’s goal is to highlight the good in people, cultivate it, and expose the bad. “Facebook is all about transparency,” he says. “It’s good for people to be good to each other.”

“It’s good for people to be good to each other.” Sort of like Google’s (GOOG) informal “Don’t be evil” motto, but sillier.

Yahoo has managed a détente with billionaire backseat driver Carl Icahn. So the question now is this: Can Yahoo manage one with the rest of its shareholders? We’ll find out this afternoon when the company reports second-quarter earnings. Analysts surveyed by FactSet Research expect Yahoo (YHOO) to post earnings of 10 cents a share, and $1.38 billion in net revenue. And that’s not really expecting all that much. So if Yahoo is able to best those estimates, it could go a long way toward convincing investors that the company is in a turnaround and not in decline. It may even convince them that Yahoo’s virtually unattainable three-year growth plans are, perhaps, not quite so unattainable.

That said, Yahoo’s second quarter is more likely to prove soft than not. Certainly, rival and benefactor Google’s own second-quarter results, reported last Thursday, don’t bode well for the company. Google (GOOG) posted profit and sales gains, but its results nonetheless fell short of Wall Street analysts’ estimates, sending shares lower in late trading. Yahoo, of course, isn’t in nearly as good health as Google. If Google fails to impress the street with a respectable quarter, how can the besieged and beleaguered Yahoo do so?

[Image Credit: Byzantin3]

Google posted its latest financials Thursday afternoon, and though second-quarter net income rose 35 percent, the company’s results fell short of estimates. The Internet search sovereign reported net income of $1.25 billion, or $3.92 a share, compared with $925.1 million, or $2.93 a share, a year earlier. Net revenue rose to $3.9 billion. Meanwhile, Google’s (GOOG) U.S.-paid clicks for the second quarter rose 19 percent from a year earlier, but fell 1 percent from the first quarter.

Google Chief Executive Eric Schmidt described the the company’s performance as “another strong quarter, despite a more challenging economic environment.” Sadly, investors didn’t quite see it that way. Shares in the company tanked in after-hours trading.

Google accounted for 77.4 percent of all search engine spending in the second quarter of 2008. This according to Efficient Frontier, which notes that Google claims $1.10 of every new search dollar.

How is that possible? Because advertisers are putting their new advertising dollars with Google (GOOG) and pulling some of their old ones away from the company’s rivals. Yahoo (YHOO) lost $0.09 of every new search dollar in the second quarter. Microsoft (MSFT) lost $0.01.

A dismal state of affairs if you’re Yahoo or Microsoft. That said, allocation of search marketing dollars hasn’t really changed all that much. Google maintained its 77.4 percent share of U.S. search marketing dollars, while Yahoo captured 17.8 percent of spending and Microsoft Live Search maintained its 4.8-percent share.

Google is slated to report second-quarter earnings after the bell this afternoon, with analysts expecting the company to post strong profit and sales growth. Though you’d think the economic slowdown would ill-effect the advertising revenue underpinning the company, Google (GOOG) has yet to report such an impact. Analysts expect Google’s earnings to jump 33 percent to $4.74 per share, from $3.56 per share in the year-ago quarter, on continued strong growth in search advertising.

As Google, Viacom, and Viacom PR flack Jeremy Zweig will tell you, user IDs and Internet protocol addresses aren’t personally identifiable. So any public outrage over the logging database YouTube is handing over to Viacom under court order is really just the product of so much misinformation and paranoia. “The court has held that user names are not personally identifiable information, and it doesn’t consider an IP address personally identifiable data, either,” Zweig helpfully pointed out in comments to Digital Daily and elsewhere as well last week. “In fact, Google (GOOG) itself has argued the position that IP addresses are not personally identifiable.”

It has, indeed. Which is why it’s so supremely ironic to hear that Viacom (VIA) and Google have reached a deal to mask the user IDs, visitor IDs and Internet protocol addresses contained in the YouTube database. From the agreement:

When producing data from the Logging Database pursuant to the Order, Defendants shall substitute values while preserving uniqueness for entries in the following fields: User ID, IP Address and Visitor ID. The parties shall agree as promptly as feasible on a specific protocol to govern this substitution whereby each unique value contained in these fields shall be assigned a correlative unique substituted value, and pre-existing interdependencies shall be retained in the version of the data produced.”

Why go to such trouble to conceal information that both companies claim isn’t personally identifiable?

Apparently, to protect the privacy of tens of millions of YouTube viewers who it personally identifies.

So Microsoft’s hostile bid for Yahoo! raises troubling questions. This is about more than simply a financial transaction, one company taking over another. It’s about preserving the underlying principles of the Internet: openness and innovation.”

–Google Chief Legal Officer David Drummond, Feb. 3, 2008

Google (GOOG) Chief Legal Officer David Drummond says the company’s proposed search advertising partnership with Yahoo “will not increase Google’s share of search traffic” (Talking points here). But no one appears to be taking him at his word. The evidence: A dozen or so states worried about the excessive concentration of market power the deal would create have opened antitrust investigations into it. And according to MarketWatch, several have begun issuing subpoenas.

Seems that just as Microsoft’s (MSFT) hostile bid for Yahoo (YHOO) raises troubling questions about openness and innovation, so too does the Google-Yahoo ad deal. Funny how well that shoe fits on the other foot.

Google CEO Eric Schmidt says the world would be “better off” if Yahoo were to remain independent. And perhaps it would be–assuming you define “world” as “Google,” as Schmidt and the rest of Google’s executive leadership almost certainly does.

Speaking at the annual Allen & Co media conference in Sun Valley, Idaho, Schmidt said Yahoo did the right thing in rejecting Microsoft’s bid. “The moment we saw the offer from Microsoft (MSFT) we saw it as anti-competitive,” he said. “ … We absolutely support the decision that Yahoo made. There is no question in our view that an independent Yahoo is better.”

Of course there isn’t. Google (GOOG) controls an estimated 70 percent of search advertising. Microsoft and Yahoo together control an estimated 20 to 24 percent of the global search advertising market and 30 percent of the online display market. Were the two to combine, they might have a reasonable chance of narrowing Google’s runaway lead in online advertising. And the search giant doesn’t want that. It would much prefer its own partnership with Yahoo (YHOO), which, according to May data from comScore, would give it control of 83 percent of the U.S. search market. Now who could possibly call that anti-competitive?

Nothing indicates a job well done better than outsourcing your own job to the competition, a nameless Yahoo employee recently said of the company’s deal with Google. And having done that with advertising, Yahoo is now doing it with search as well. Today Yahoo (YHOO) announced BOSS (Build your Own Search Service), an open platform for building and launching Web-scale search products. Why open your core search technologies to anyone who cares use to them? Because, according to Prabhakar Raghavan, Yahoo’s chief strategist for search, there are thousands of companies that might revolutionize search if they only had access to Yahoo’s technology and infrastructure.

Sadly, Yahoo doesn’t appear to be among them. Which is why the company is where it is today, risking cannibalization of its own search business for the chance to grab a sliver of market share with the help of a certain Web search giant based in Mountain View. (Too bad Yahoo didn’t acquire Google for $3 billion when it was still an up-and-comer back in the day, huh?)

“We believe that being open is core to Yahoo!’s future success. Opening our network, opening our own search experience via SearchMonkey, and now, opening our search infrastructure via BOSS will lead to innovation both on Yahoo! and powered by Yahoo!,” the BOSS team said in a post to Yahoo’s Search Blog. “For BOSS, we see a virtuous circle in which partners deliver innovative search experiences. As they grow their audiences and usage, we have more data that can be used to improve our own Yahoo! Search experience, and as a result, improve the quality of results our BOSS partners and their users get. [And] we do see new revenue streams from BOSS. In the coming months, we’ll be launching a monetization platform for BOSS that will enable Yahoo! to expand its ad network and enable BOSS partners to jointly participate in the compelling economics of search.”

VMware (VMW), whose share price set records last year by spiking more than 300 percent in the months following its IPO, offered a bit of perspective on the exuberance with which that offering was met today, delivering a brace of ugly announcements. First, the virtualization firm said that co-founder and CEO Diane Greene has resigned and will be replaced with former Microsoft executive Paul Maritz. Second, the company warned that it expects 2008 sales to come in “modestly below” its previous estimates of 50 percent growth over last year’s revenue.

“As one of the founders and the leader of VMware, Diane guided the creation and development of a company that is changing the way that people think about computing,” Joe Tucci, Chairman of VMware’s board, said in a statement. “The board thanks her for her considerable contributions to VMware and wishes her every success in the future.”

VMware offered no reason for Greene’s departure, though presumably it has something to do with the company’s lowered guidance. The company’s stock tanked on the news, falling more than 30 percent to $36.97, taking billions of dollars of shareholder wealth with it. Truly an ugly decline for a company that launched the biggest technology IPO since Google went public in 2004. Since hitting a 52-week high of $125.25 last October, shares VMware have shed nearly 70 percent of their value.