All Things Digital

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.

Microsoft (MSFT) and Time Warner (TWX) are finally getting around to finishing up the joint venture talks they began back in … oh, September of 2005. While no transaction is imminent, the two companies are said to be “casually” discussing a possible combination of Microsoft’s online operations and AOL–perhaps even at this very moment. Silicon Alley Insider reports that executives from both companies were scheduled to meet in Seattle sometime today.

Meanwhile, Yahoo (YHOO) continues to pursue its own discussions with AOL. With its annual shareholder meeting fast approaching, the struggling Internet company is scrambling for something, anything, with which to distract shareholders from the travesty of the past few months.

News of developing talks between Microsoft and AOL, and AOL and Yahoo, was first reported in BoomTown on Monday.

After five days without comment, Apple today acknowledged that the rollout of its MobileMe suite of Internet services was, in the company’s own words, “a lot rockier than we had hoped.” In a message to MobileMe subscribers, Apple (AAPL) apologized for the service’s troubled debut and its lack of “true push” capabilities and offered them a 30-day subscription extension to allay any hard feelings.

We have recently completed the transition from .Mac to MobileMe. Unfortunately, it was a lot rockier than we had hoped.

Although core services such as Mail, iDisk, Sync, Back to My Mac, and Gallery went relatively smoothly, the new MobileMe web applications had lots of problems initially. Fortunately we have worked through those problems and the web apps are now up and running.

Another snag we have run into is our use of the word “push” in describing everything under the MobileMe umbrella. While all email, contact or calendar changes on the iPhone and the web apps are immediately synced to and from the MobileMe “cloud,” changes made on a PC or Mac take up to 15 minutes to sync with the cloud and your other devices. So even though things are indeed instantly pushed to and from your iPhone and the web apps today, we are going to stop using the word “push” until it is near-instant on PCs and Macs, too.

We want to apologize to our loyal customers and express our appreciation for their patience by giving all current subscribers an automatic 30-day extension to their MobileMe subscription free of charge. Your extension will be reflected in your account settings within the next few weeks.

We hope you enjoy your new suite of web applications at me.com, in addition to keeping your iPhone and iPod touch wirelessly in sync with these new web applications and your Mac or PC.”

Thank you,

The MobileMe Team

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.

Apple’s iPhone 3G arrived in stores today and was met by lines of enthusiastic buyers –dauntingly long lines. At Softbank Mobile’s flagship store in Omotesando, Tokyo, where iPhone monomaniacs first began camping out three days ago, the queue stretched for a half mile. “Mobile phones become Internet machines this year,” Softbank President Masayoshi Son said with almost Jobsian hyperbole before opening the store’s doors. “Today is a historic day.”

In New Zealand, where the deck chairs and sleeping bags began appearing Tuesday night outside the Auckland shop of Vodafone, the line included a customer who traveled to New Zealand from San Luis Obispo, Calif., simply to purchase the phone before it went on sale in any other country. Also in line: some folks with more nefarious purposes.

Back in the states, the sustainable-agriculture activists who dominated the queue outside Apple’s (AAPL) Fifth Avenue store earlier this week were quickly overwhelmed by less altruistic iPhone activators. No reason to break out the iPod white riot gear yet, though.

And, then there were the profiteers. For those not willing to spend the night squatting on the sidewalk outside an Apple store, the rate for a decent spot in line at many of Apple’s US retail stores was $50 or more. “I will have the rest of the family stay in line. I will have FOUR (4) extra spots so you don’t have to camp out,” read one ad on craigslist. “You give me $75 cash and you will have a spot in line.”

And, if you still happen to be waiting in line, describing exactly MacRumors has graciously posted an Apple Retail document what you have to look forward to.

If Microsoft is so intent on acquiring Yahoo, why doesn’t it go ahead and make another offer? That was the gist of Yahoo’s (YHOO) comment on Microsoft’s (MSFT) claim this morning that it’s interested in discussing an acquisition of some or all of Yahoo–but only if the company replaces its CEO and board of directors. In an incredulous reply to investor Carl Icahn’s letter to Yahoo shareholders and Microsoft’s statement on on the letter, the foundering Internet company accused the software giant of teaming up with Icahn to bully Yahoo into accepting a lousy deal.

If Microsoft really wants to buy Yahoo, “we again invite them to make a proposal immediately. And if Mr. Icahn has an actual plan for Yahoo beyond hoping that Microsoft might actually consummate a deal which they have repeatedly walked away from, we would be very interested in hearing it,” Yahoo said in a statement. The company noted as well that “as recently as June, Yahoo!’s independent directors and management approached Steve Ballmer about just such a transaction, only to be told that Microsoft was no longer interested even in the price range which they had previously proposed.”

So what now? Who knows. Piper Jaffray (PJC) analyst Gene Munster figures Icahn, who still plans to run a full board slate, has a decent chance of prevailing at Yahoo’s Aug. 1 meeting. “We had previously suggested that Icahn had a 30% likelihood of gaining control of Yahoo!’s board at the annual meeting,” Munster said in a research note. “Now we believe he has a 50% chance of gaining control.”

“Good for competition.” That’s how Omid Kordestani, Google’s (GOOG) senior VP of Global Sales and Business Development, described the advertising deal it struck last month with Yahoo (YHOO). “Why did we make this agreement?” he asked. “Quite simply, we think it is good for users, advertisers and publishers. By offering Google’s industry-leading technology to Yahoo, the whole system becomes more efficient, and everyone benefits.”

A reassuring profession of altruism, but one that the Justice Department isn’t buying. The agency has opened a formal antitrust investigation into the deal and will soon begin issuing civil investigative demands to the companies’ competitors, customers and potential partners in the hopes of determining whether it will further tighten Google’s near-monopoly grip on the search advertising market. “This is a complicated situation, but one of the key questions is very simple,” said David Balto, an antitrust lawyer who was competition policy director at the Federal Trade Commission during the Clinton administration. “What is Yahoo’s incentive to continue to compete?”

Good question.

Helpfully, Google and Yahoo have already agreed to delay implementing their new alliance for three and a half months so the DOJ can answer it.

You think Internet domain namespace is an unwieldy, unnavigable mess now? Just wait. ICANN, the Internet’s body for domain-name management–and I use that term loosely–today approved a domain-name system that permits an unlimited number of top-level domains.

Under the new system, anyone can register as a TLD any combination of letters and numbers they like, their range limited only by the breadth of their own imaginations and the $100,000 and $500,000 fee ICANN plans to charge. So, ICANN’s domain, for example, could become MassiveTechnical.Problems, Total.Chaos, Utter.Confusion or Cluster.F … well, you see my point.

“We are opening up a new world, and I think this cannot be underestimated,” said ICANN member Roberto Gaetano. And that’s an understatement if I ever heard one. Because, when the adult-entertainment industry catches wind of this … well, let’s just hope .xxx will be the least of our worries. How many slang terms for sexual anatomy can you think of?

“What has become of the Sony known for its technology,” Japanese Economy, Trade and Industry Minister and former Sony employee Akira Amari asked in October of 2006. “I hope it will solve its problems soon to quickly recover its brand image reputed for technological prowess.”

If Amari can recall when that was Sony’s image, he has a good memory. Because Sony (SNE) lost its dominant position in consumer electronics to rivals in Japan, South Korea and the U.S. long ago and has yet to regain it.

But it will soon, according to company CEO Howard Stringer, who announced today a new growth strategy designed to re-establish its global supremacy. Stringer’s plan: to peddle software and video-downloading services, not just hardware. And to bind them together over the Internet. “Our mission is simply to be the leading global provider of networked consumer electronics and entertainment,” Stringer said at a news conference.

To that end, Sony will soon announce a movie download service for its PlayStation 3 game console. And this fall it will begin broadcasting films and television shows directly to its Bravia TVs via the Internet. And if all goes according to plan, 90% of Sony’s devices will wirelessly connect to the Net by March 2011. Perhaps even Rolly, Sony’s dancing iPod killer …

Said Stringer, “This is not your father’s Sony.”

Hope not. Because my father’s Sony is Apple (AAPL).

The days of measuring Internet usage with panels and surveys are finally coming to an end. Good thing too, because those media-measurement techniques–which were developed to gauge radio audience size 70 years ago–were getting, you know, a bit old.

Google (GOOG) today unveiled a new tool that promises to measure Internet usage more precisely. Called AdPlanner, it combines search engine and audience measurement data to create a richer, more intelligent picture of Internet usage, one that may prove far more useful to advertisers looking to identify the best places to buy ads that will reach their target audiences. Slap it together with the recently announced Google Trends for Web Sites and what use is there for traditional advertising-research suppliers?

Great news for media buyers and advertisers who’ve long relied on comScore (SCOR) and Nielsen/Netratings and their shallow, inconsistent metrics. Ugly news for comScore and Nielsen/Netratings, which now seem destined to be disintermediated by Google in much the same way the company disintermediated the rest of the online advertising industry. Sadly, they’ve no one to blame for this but themselves. It’s not like they haven’t been hearing complaints about discrepancies in audience measurement for nearly a decade now (some, presumably, from Google itself).

“We in the marketing-media ecosystem have spent too many years trying to clean up the residue of flawed media-research methodologies,” Randall Rothenberg, president & CEO of the Interactive Advertising Bureau wrote in a scathing letter to comScore and Nielsen//NetRatings back in 2007. “We simply cannot let the Internet, the most accountable medium ever invented, fall into the same bad customs that have hindered older media and angered advertisers for decades–customs such as inadequate samples, accepted out of begrudging convenience; or phantom metrics, like ‘pass-along readers,’ that add shadowy bulk to audiences that cannot be measured directly; or metering technologies and processes that are easy to game.”

During a 2005 panel discussion about the future of newspapers, a photo of Craigslist Founder Craig Newmark was displayed and attendees were asked whether or not they recognized him or his name. Few did.

Conduct the same experiment today and the results would be much different. Newmark’s name and photo would almost certainly be recognized, and perhaps met with brief attacks of intense terror and apprehension as well. After all, Craigslist has been eating the newspaper industry’s lunch for quite a few years now, just as the broader Internet has been eating its breakfast, dinner and midafternoon pudding cup as well. And neither are leaving much in the way of crumbs as recent metrics show.

Newspaper advertising revenues, which fell almost 8% last year, have fallen another 12% since then, and company reports suggest they will fall 15% more in the next few months. Seems the Internet, which has been siphoning away the newspaper industry’s ad revenue and fragmenting its audience, has bled it to near desanguination.

“Never in my most bearish dreams six months ago did I think we’d be talking about negative 15% numbers against weak comps,” said Goldman Sachs (GS) analyst Peter S. Appert. “I think the probability is very high that there will be a number of examples of individual newspapers and newspaper companies that fall into a loss position. And I think it’s inevitable that there will be closures in this industry, and maybe bankruptcies.”