OurView: The Opinion Blog

While we stopped writing about the day to day exploits of Microsoft and Yahoo! a bit ago, now that it appears to be coming to an end we can’t help but make a few observations.  When Microsoft first approached Yahoo! about some kind of deal, back in January 2007, the idea of a rapid advance in search share seemed obvious and advantageous.  Since then, Microsoft both wearied of dealing with Yahoo! and probably learned quite a bit about the motivations, and the weaknesses of the company it pursued.  From the moment Microsoft made a public offer for Yahoo!, on February 1 of this year, nothing about the way that Yahoo! responded could have come as much of a surprise to Microsoft.  They’d been witnessing the same kind of action for more than a year behind closed doors.

Make no mistake, finding weaknesses, and then going for the throat, is what Microsoft does best.  As an evil empire, they’re damn good at what they do.

So take a look at what’s transpired since February.  Yahoo! is a shambles.  Microsoft has begun to fire the first volleys in its assault on “the ten blue lines”, with a stated purpose of “disrupting” in search.  Google finds itself, while decidedly in a strengthened position, all of a sudden with the eyes of the Department of Justice upon them.

Jerry Yang and David Filo were shocked when Microsoft pulled back from the table, but was it an admission of defeat by Microsoft, or a calculated move to “disrupt” in a lot more ways than just rolling out a cashback program?  Did Microsoft lead Yahoo! up to the precipice and then give them a swift kick in the behind?  Microsoft walked away from the deal, and truthfully if anything it was a relief to shareholders, partners, and employees.  They came out of it with no damage done.  If they could have pulled off a deal that made sense, at a price that made sense, they would have done so.  By pulling out, they may have dealt a fatal blow to Yahoo!, set Google up for a monopoly battle that might, with any luck, get ugly quickly, and certainly have left the search game with more uncertainty (and more opportunity for Microsoft) than there was before the offer was made.

Over and over, word from within Microsoft is that “we’re in search for the long haul”, and “this game is just beginning”.  Microsoft isn’t going to win in search this year, or next.  Beating Yahoo! down isn’t going to guarantee Microsoft anything, and may indeed make Google even more powerful than before.  But it’s a shot, an opening that wasn’t there before.  Will the disruption they’ve caused by pursuing, and then spurning Yahoo! reveal some chinks in the Google armor?  Will Google be ready to withstand an assault by the DOJ, with Microsoft pulling every string they have available behind the scenes to spur them on? Expect Microsoft to be more than ready to exploit every weakness, to get down and dirty, to pull out its formidable bag of tricks.  Microsoft didn’t lose much by not buying Yahoo!, but what did they gain?  Time will tell. 

Last fall, some of our sources hinted at an upcoming rebranding effort for Live Search, code named “Rome”.  That renaming effort, seemingly thwarted by all the buzz around Yahoo!, never took place (or at least hasn’t so far).  Yet talk continues to swirl around rebranding Live Search, even including some strong hints by Microsoft Online Services President Kevin Johnson, both at Advance08, and again yesterday at SMX Advanced.

Does Live Search need rebranding?  First of all, what is a brand?  Of course a brand is much more than a catchy new name.  A brand is a conversation, the new thinking goes.  More than just a name and a logo, a brand carries emotional attachment.  In a Wikipedia entry on “Brand”, the authors quote Howard Shultz, CEO of Starbucks coffee:

"A great brand raises the bar -- it adds a greater sense of purpose to the experience, whether it's the challenge to do your best in sports and fitness, or the affirmation that the cup of coffee you're drinking really matters."

In a post on Nielsen NetRatings Small Business Professional Center blog, Matt Alderton quotes author Barbara Findley Schenk on brands:

branding is part cosmetic—a name, a logo, and a slogan on your business cards—but more than that, it's a promise that your customers believe in. "If you can't make and keep a promise," she says, "then all the marketing and advertising materials in the world won't work."

…

The easiest way to make customers fall in love with you is to walk your talk. "Great branders realize that the brand is either made or broken not by what you say, but by what you do," Schenck says.

…

"The magic ingredient is consistency," Schenck says. "If a business knows what it stands for and delivers messages and experiences that consistently reinforce how the business is different and more relevant than all competing options, it will succeed in developing consumer knowledge and, eventually, esteem. As a result of this consistency, it will win out over businesses that shift with the wind, regardless of how beautifully they've polished their identities or their marketing materials."
In other words, consistency breeds trust—and building trust is what branding's really all about.

And so in relating these tidbits to Live Search, we begin to see the problems Microsoft is facing.  Live Search hasn’t “raised the bar” up to this point, in fact it has struggled mightily to reach the bar that others have set.  Microsoft has been overly worried about trying to control the conversation, and not worried enough about “walking the walk”.  It hasn’t been consistent, and in fact isn’t up until this very day, when it can’t get behind a brand and get on with it.  The real problem with the Live Search brand isn’t the name or the logo, it’s that what the logo stands for hasn’t been defined, and frankly hasn’t been very good.

Interestingly, although Microsoft says it has “moved on” from the Yahoo! acquisition, and indeed Kevin Johnson said yesterday that by moving on, Microsoft was now free to “fix” the Live Search brand, all indications are that a Yahoo! deal is far from dead.  Even if something less than an acquisition happens (and Carl Icahn made even clearer today that he’s not about to stand for anything other than a new deal that sees Microsoft acquiring Yahoo!, although we’ll see where that goes, maybe as early as next week), those talks are all around search.  And Microsoft can’t define a search product until it declares its intentions regarding Yahoo!, including actually combining the two search products, not just signing papers. Until Microsoft either completes a deal or Carl Icahn goes away, a cloud will remain over the future of a search brand at Microsoft, with or without a new name.

For right now, Live Search needs to work on developing consistency and trust. That may be beginning to happen with a new focus on commercial search; alignment with, but separation from other Live products (Live Mesh, Office Live, Windows Live); and some serious market penetration deals like the one with HP, but there is still a lot of work to do before a new name would make much if any difference.  Search relevance needs to get better, search share needs to grow, and users need to begin to see how Live Search is not only different but better.

Microsoft’s brand problem with Live Search isn’t the name or the logo but the product itself, and the only way to fix the brand is to continue to work on building something worth branding. 

What happens when you take the man in charge of the world’s most-used operating system and ask him to talk about the future? Not a lot when that man is Steven Sinofsky.

Ina Fried from Cnet today posted an interview she did with Sinofsky, asking him about Windows 7 and Microsoft’s plans for the future. Full credit goes to Ina for mentioning the Translucency vs Transparency memo that Mary-Jo Foley published in her book. Josh over at Windows-Connected has the translation out of corporate-speak, which in summary equates to:

“i iz keeping it on lockdown, kthxbai.”

The reason for our mentioning this over here in the online services land is that Sinofsky is also the chief of Windows Live. Oh dear. While we can see some rational behind his corporate disclosure policy for Windows, unfortunately we stand on the total other side of the fence when it comes to the Internet.

• Microsoft isn’t winning in web services. Sure stay quiet when you’re The Man, but when your social networking products are barely a footnote and search share is going nowhere, you should probably start telling users how you’re going to deliver.
  
• Microsoft isn’t making money online. Unlike Google, the Online Services Business Unit has been loss-making ever since Microsoft announced Windows Live. Sure we’ve mentioned that this is due to high-levels of investment, but what about the bloated staff numbers, continued recruitment and the total lack of monetisation plans. Softies ask yourself how many Windows Live services would get VC funding. Microsoft shareholders have a right to know how its leaders plan to turn this ship around, and frankly the silence is deafening.

Perhaps the most worrying aspect about all this is a comment made at the recent MVP Summit, where Chris Jones (Sinofsky’s under-study in Windows Live) apparently said that Microsoft could learn from Apple. From what we heard, his logic was that part of the iPhone’s success was due to there being no leaks, meaning that the PR was controlled and carefully managed. I guess Chris doesn’t read Techmeme then.

To help spell this out:

1. Develop products that are innovative, make money and people actually want

2. Don’t try to control the PR, viral marketing has taken off for a reason

3. Ship on time!

In recent months we’ve also heard that there is a pr team ready to combat any Windows Live Wave 3 leaks, which makes me wonder why Microsoft doesn’t put them to better use and actually start working with the community and putting out positive pr. The Community Clubhouse on Spaces is a start, and any Windows Live uber-users who blog on Spaces should go and fill out this survey to take part (currently private for the time being).

This movie quote is perhaps the most fitting conclusion I could find [NSFW].

In the latest twist on the Microsoft-Yahoo! soap opera, Microsoft issued a statement today, announcing that they were back in the game, but this time looking to make a deal for "an alternative that would involve a transaction with Yahoo! but not an acquisition of all of Yahoo!”.  While reserving the right to "reconsider that alternative depending on future developments and discussions that may take place with Yahoo! or discussions with shareholders of Yahoo! or Microsoft or with other third parties.”

Now what the heck does that mean?  According to sources quoted by Kara Swisher, Microsoft is proposing to buy just the search ad business from Yahoo!:

Sources said that Microsoft, in its long-running war with archrival Google, wants most of all to grab Yahoo’s search ad business to become a credible #2 in the important sector.

Yahoo would would like to keep its online display ad business, its communications assets, including mail and instant messaging, as well as its many content properties.

These are all areas where Yahoo actually excels and should have been focusing on in the first place, instead of competing with Google in search.

In fact, sources said, when Microsoft was considering involving News Corp. in its unsolicited bid to buy Yahoo, it was going to own the search and search ad business, while spinning off all content and communications assets into a separate company that would also include New Corp.’s MySpace.

There are a couple of reasons this makes sense.  First off, Yahoo! is between a rock and a hard place.  It MUST do something, or shareholders, including Carl Icahn, will tear the company apart in order to get fair value.  Even if Yahoo! can hold off Icahn (and there are some indications that it might be able to do that, if Microsoft were to remain out of the game), it faces intense shareholder scrutiny, lawsuits present and future, Google circling the waters smelling blood, and the Microsoft elephant in the room.  Not a pleasant way to face a business day.

And in a letter to his team published by CNET News today, Microsoft President, Platforms & Services Division (edit: fixed job title) Kevin Johnson clarified Microsoft’s strategy:

1. Innovate and disrupt in search - We will disclose some elements of our plans with this week's release of search and sharpen our focus on user experience and business model innovation. The work we have done over the last 4 years on search has established a solid foundation to build upon.
2. Win targeted distribution - With this release of search, we are now ready to throttle up broader distribution initiatives.
3. Reinvent portal and deliver new experiences across PC, phone and web - We are building our new releases of Windows 7, Windows Live wave 3, Windows Mobile 7, Internet Explorer 8, Search and MSN with an eye towards optimizing and unifying experiences and scenarios.
4. Fix our online branding - Our brands are fragmented and confusing today, and we recognize a need to clarify and align our online branding. We are now driving forward to address this opportunity.
5. Win in display advertising - We have an advantage in tools, agency assets/relationships and a team laser-focused on capturing the display ad platform opportunity. As we build from a position of strength, we will increase engineering resources to drive even more innovation.
6. Build on our strengths in Europe - As measured by comScore in March, our online business in Europe is doing well. We have over 3 times the page view volume and nearly 7 times the minutes of usage compared to Yahoo!, and 68% reach to internet users throughout Europe. We will double down on our investments in Europe and expand on this strong position.
7. Expand strategic partnerships - In addition to our organic innovation agenda, we will expand strategic partnerships that increase inventory on our display ad platform, enable new paradigms in search and accelerate growth in key geographies.
8. Pursue small, targeted acquisitions - Looking forward, we will focus on small, targeted acquisitions that support our work in search, complement our value in the ad platform and help us grow scale in key geographies. Recent acquisitions including Rapt and YaData are examples of these types of acquisitions.

(emphasis mine)

For Microsoft, acquiring just the search business from Yahoo! would seem to fit in well with these goals.  What is interesting about Google is that while they have dominance in text based advertising around search, a market they basically created, that market may not look anything like it does today in 5 or 10 years time.  Microsoft doesn’t need to win that space, it just needs to “innovate and disrupt”, and win in the next round.

Of course we may have to wait until next weekend (and wouldn’t it be fitting if this all came together on US Memorial Day weekend, thereby capping the ruination of any semblance of a real life for tech journalists?) for this all to play out, but Microsoft wants search share, Yahoo! needs to fend off the sharks, there’s billions of dollars just burning a hole in Steve Ballmer’s pocket, and left unchecked Google will just keep getting stronger.  In his letter, Kevin Johnson mentions the Advance08 advertising summit on Microsoft’s campus.  I’ll be there, and can’t wait to fill you in on what happens next.

Today, billionaire investor Carl Icahn sent a letter to the Yahoo! Board of Directors, announcing his intentions to force Yahoo! to work out a deal with Microsoft.  He announced a slate of candidates who will be up for election at the annual meeting on July 3, and an aggressive plan to acquire enough stock to make sure they would be elected (and then to force a sale to Microsoft).  In the letter, Icahn pulled no punches about his intentions:

It is clear to me that the board of directors of Yahoo has acted irrationally and lost the faith of shareholders and Microsoft. It is quite obvious that Microsoft's bid of $33 per share is a superior alternative to Yahoo's prospects on a standalone basis. I am perplexed by the board's actions. It is irresponsible to hide behind management's more than overly optimistic financial forecasts. It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72% premium over Yahoo's closing price of $19.18 on the day before the initial Microsoft offer.

After Microsoft walked away from the deal, Yahoo! stock slid, but not nearly as far as the pre-offer price of $19.18.  Clearly Yahoo! investors weren’t ready to walk away.  First there were rumblings from large investors about ousting Jerry Yang, and now Icahn has stepped in.  While some have said that the Microsoft pull-out was a ploy, there were clear indications that Ballmer had soured on the whole idea, and that the damaged goods Yang was offering was not what Microsoft was looking for.

In his letter to the board, Icahn addresses the issue:

While it is my understanding that you do not intend to enter into any transaction that would impede a Microsoft-Yahoo merger, I am concerned that in several recent press releases you stated that you intend to pursue certain "strategic alternatives". I therefore hope and trust that if there is any question that these "strategic alternatives" might in any way impede a future Microsoft merger you will at the very least allow shareholders to opine on them before embarking on such a transaction.

I sincerely hope you heed the wishes of your shareholders and move expeditiously to negotiate a merger with Microsoft, thereby making a proxy fight unnecessary.

Now just to clarify, Carl Icahn doesn’t want Microsoft and Yahoo! to merge because he thinks that it will help Microsoft to compete with Google, or that it will help to guide the future of the internet.  Carl Icahn stands to make a LOT of money on buying Yahoo! shares now, forcing a sale at a higher price, and profiting from that sale.

Yahoo! finds itself today in an even worse position than it was a few weeks ago.  It can try to negotiate a sale with a newly reluctant Microsoft (who may very well see a crippled Yahoo! as a business advantage), it can try and fight and or wait out Icahn, or it can let Icahn tear the company apart in order to get the best value for shareholders (ahem, meaning Icahn).

As for Jerry Yang and the management team, really the only hope of continuing on with Yahoo! is to negotiate a sale, and to continue to lead Yahoo! from within Microsoft.  Yang was probably gone already, facing angry investors at the annual meeting out for his head.  Now, unless a deal is reached, it’s almost a certainty.

But after this latest smoke clears, even in a best case scenario where Yahoo! cuts the bs and offers its best self to Microsoft in a deal, is this a smart thing for Microsoft to do, to buy Yahoo!?

If Microsoft moves quickly (and Yang’s reluctance to deal was a major factor in the pull-out), the reasons that Microsoft made the offer in the first place still stand.  MS would get increased search share, a valuable display advertising business, lots of traffic to Yahoo! websites, engineering talent, inroads into mobile and emerging markets, and the Yahoo! brand.  These latest developments might put the acquisition in a different light, too.  Instead of Big Bad Microsoft trying to destroy poor little Yahoo!, perception might shift more toward Benevolent Microsoft helping Yahoo! out of a jam (ok, maybe not).

Of course the same regulatory hurdles, questions about differences in cultures, and reluctance from the rank and file (on both sides) remain, as well.  But if Yahoo! shareholders force it back to the table, expect Microsoft to be more than willing to listen.

A new blog entry on the Live Search blog from Evan Malahy, Designer, Live Search describes the “guiding principles for this latest version of Live Search” as Simple and powerful. Human. Fast.  And maybe indeed, the new look lives up to that.

However out here in the world, we don’t get to see design concepts, or PowerPoint presentations, or get to sit in on design reviews.  We only see what is presented to us.  So when new looks appear and disappear with no warning or explanation, when elements of designs long gone by still linger, and when a different set of “guiding principles” seems to be in place depending on what Windows Live page we visit, things become less simple, and certainly less powerful.

This is a sampling of the current state of Live Search pages, all taken in the space of a few minutes.  While none of these pages is offensive or poorly designed, is it a common experience?

 live.com home page

live.com search results

 msn.com home page

maps.live.com 

home.live.com 

my.live.com

Note that there are four different “search buttons”, two different “orbs” (and four different sizes), search boxes with and without subcategories (web, image, maps, etc), and 6 different banner backgrounds.

One part of the problem is that without any insights or any visible strategy to go by, we have no idea whether these are works in progress, or whether some of these pages will soon (or ever) be redesigned, or if this is the work of one design team, or many, or any at all.  Some transparency would go a long way here.  If these are in transition, fine.  Just let us know what’s going on (and move fast to get everyone “on the same page”).

Of course a unified search experience won’t vault Live Search up in the rankings, or make searches more relevant, or may not even be necessary at all, for that matter.  In our opinion, however, it might make for a better experience, and that can’t be bad.

For a tour of elements of the new Live Search, check out http://www.newlivesearch.com/

Microsoft just walked away from its proposed acquisition of Yahoo!, ending 3 months of speculation on what would ultimately happen.  While I have been generally supportive of the Yahoo! deal,  I was skeptical of the thought of a long protracted proxy battle.  And with Jerry Yang doing everything he could to burn and pillage the company and let Microsoft pick up the pieces, the deal became less desirable as it continued to drag on.

In his letter to Jerry Yang withdrawing the offer, Steve Ballmer alludes to a potential partnership between Yahoo! and Google, one that he sees tearing Yahoo! apart.  Of course that’s only if it is allowed to happen in the first place, and Ballmer will now turn his attention to doing everything in his power to stop the partnership, which would place Google ads on Yahoo! properties.  But even if it does occur, Ballmer makes a good point that it will weaken and demoralize Yahoo!’s Panama search marketing arm.  Ballmer said:

First, it would fundamentally undermine Yahoo!’s own strategy and long-term viability by encouraging advertisers to use Google as opposed to your Panama paid search system. This would also fragment your search advertising and display advertising strategies and the ecosystem surrounding them. This would undermine the reliance on your display advertising business to fuel future growth.

Given this, it would impair Yahoo’s ability to retain the talented engineers working on advertising systems that are important to our interest in a combination of our companies.

Certainly one outcome of the pull-out is going to be an all out attack on Yahoo!.  Steve Ballmer is going to want to make Jerry Yang pay, and the best way for Microsoft to gain share in search is to take it from Yahoo!  Yahoo! stock is widely expected to plummet after Microsoft walks, which it is bound to do on Monday morning.  Yahoo! shareholders are going to be fighting mad to see their stock return to the $19 – 20 range, and if Microsoft makes moves in other directions, making it clear that this isn’t a negotiating ploy, Yahoo! stock could fall well below $19.  Shareholder lawsuits, court battles over a potential Google partnership, a disillusioned workforce who may begin leaving in droves (assuming they can find someplace to go – down the street to Mountain View, perhaps?), and an all out assault by Microsoft all point to rough days ahead for Yahoo!  Remember that Yahoo! had been facing a year of rough days before Microsoft shored up its stock, and now that support is gone.

Yahoo! has made a number of moves to reshape the company in recent months, none of them bringing much more than a yawn to investors.  A vague, too little too late attempt to turn Yahoo! into a social networking platform by offering single sign on to their current mess of services (ever hear of Live ID?), might have well sent the stock price plummeting on its own if it wasn’t for Microsoft shoring it up.

As long as Microsoft doesn’t plan on coming back for Yahoo! at a lower price, and Steve Ballmer hints broadly that they won’t (“We will move forward and will continue to innovate and grow our business at Microsoft with the talented team we have in place and potentially through strategic transactions with other business partners.”), the worse Yahoo comes out of this, the better it is for Microsoft, as a significant share of the search market pie will be up for grabs.

So what else does Microsoft have up its sleeve?  Will it buy AOL?  AOL is clearly for sale, at a much lower price than Yahoo!.  While it doesn’t offer anywhere near the same value, buying AOL would send a strong signal that Microsoft is not just biding its time waiting to come back and save Yahoo!  Will it make a bigger play with Facebook?  Steve Ballmer was spotted outside the Facebook offices last week.  Or instead, will Ballmer himself be on the way out?

It is of course far too early to tell how this latest news will be perceived.  Certainly many at Microsoft will be relieved, this will give the troops in Redmond renewed confidence that their work matters.  While some have criticized Ballmer for making the attempt in the first place, pulling out now rather than engaging in a bloody battle that wasn’t a sure thing could be recognized as a smart move on his part.  There is of course a big danger that all of this will only strengthen Google’s dominance, but that was a danger no matter what transpired.

Microsoft’s attempt to acquire Yahoo! changed the game, whether the deal took place or not.  Microsoft is serious about search and advertising, an online presence.  Live Mesh has shown that there’s more to an online strategy than text ad placement, and Microsoft will be pursuing that strategy across a wide range of properties.  A Yahoo! acquisition might have been the best shot to gain share quickly, but a protracted battle wasn’t worth the hassle, and now it’s on to Plan B.  Can’t wait to see what it is.

First of all, congratulations to Ray Ozzie and the Windows Live Core/Live Mesh team(s) for an impressive initial offering, and for opening up the Live Mesh platform this early in the game.  We’re just getting our head around Live Mesh as a platform, and not just another file sharing app.  BTW this video (edit: fixed link) gives a good introduction into some of the platform aspects of Live Mesh.  One of the problems with this kind of early admittance is that a number of questions around the strategy and direction have to remain unanswered until the platform fills out.  Of course, that doesn’t stop us from asking!

What about Foldershare?

Windows Live Foldershare, still in beta, seems to be totally redundant to what Live Mesh offers.  In fact, with the cloud storage piece, and “coming soon” functionality for the Apple Mac and for mobile devices, Live Mesh seems primed to leapfrog Foldershare quite handily.  This is a familiar Windows Live theme, offering redundant, competing, and confusing services.  We hoped that with the efforts to clean up the Windows Live debacle that sort of thing was behind us.  Until someone comes up with a plausible answer to why on earth anyone would want both Foldershare and Live Mesh installed on the same computer at the same time, we have to ask: what about Foldershare?

When will we see Windows Live Calendar integration?  Favorites? etc.?

As much as Live Mesh is a cool development environment, and as much potential as it holds, end users are still faced with the same old problems.  Windows Live Calendar, for as long as we waited for it, just simply doesn’t do the job we need it to do.  Users need to be able to create, sync, and share calendars easily and seamlessly.  We need the rich abilities of a client app to create calendars, not some watered down web app.  And we need to then seamlessly sync to other computers, to a web interface, and to other users on a granular level.  Live Mesh seems to be built to do exactly that, so where is the calendar?  Are we going to have to wait until PDC or beyond to get a working calendar?

Ditto the same questions for Windows Live Favorites, etc.

What is the backup story, and what about a business model?

Live Mesh is shipping now with 5gb of storage.  Yet I have nearly a TB (not all of it used, of course) on my Windows Home Server, and Live Mesh would seem to be a logical either alternative or adjunct to a backup service.  Will I be able to subscribe (in the pay as you go sense, not in the RSS sense) to enough storage to make cloud backup an option?  The same questions have been swirling around Sky Drive, but cloud storage as a consumer subscription service is still an unanswered question.

Do we have to go through this naming mess again?

Most of the stories on Techmeme today are about a file syncing product, called Live Mesh.  Yet we know that Live Mesh isn’t a product, its a platform.  What happens when new sets of functionality are added?  Will the name change?  Will confusion reign (again)?  Microsoft concentrates on platform, and we’re very impressed by this latest platform offering, Live Mesh.  We think its a game changer.  But Microsoft still doesn’t seem to understand how much flubbing the naming of products, of not having a clear story going in, hurts.  Now when you’re changing the game, having a clear story is tricky.  But Windows Live has less of an impact today than it should because people wrote it off, mostly because of the naming debacle.  Will we have to go through the whole mess again?

Live Mesh, at first glance, rocks.  The model is well thought out, the tools will soon be in place to extend the platform and use it in new and exciting ways.  But Windows Live users need answers to the basic questions first, before we look to the sky.  Hopefully, in the next weeks and months, we’ll be able to look up and see the potential Ray Ozzie is offering us.  For right now, though, our basic needs aren’t being met, and we don’t know that Live Mesh will be providing the answers we need.

When we told you to “pay attention to Feedsync”, we were of course talking about Live Mesh, but what Ray Ozzie is bringing to the table with the Live Mesh Technology Preview, enabled by Feedsync, or Simple Sharing Extensions to ATOM and RSS, is a lightweight, robust, performant, and scalable method for connecting devices, data, applications, and relationships.

In his Channel 9 appearance with former O’Reilly writer and current Microsoft evangelist Jon Udell, Ray Ozzie gets almost giddy when he gets to talk about Live Mesh.  And with good reason, Ozzie has been working on these problems for a long time.  What Feedsync enables for Live Mesh, when it is connected to a mesh of devices, the array of services available to Windows Live users (Live ID, contact store, data storage, etc.), user data, and the relationships between all of them, quickly becomes much more than a really cool way to sync up some files.

In another Channel 9 interview, Windows Live Platform Architect Abolade Gbadegesin describes treating Live Mesh devices in a similar way to how Live IDs are handled.  You have an ID, and now your device has an ID, too.  With it, that device can share what it knows across other devices and to other users.  It can create and store information about relationships, as well as files and file sync.  The Live Mesh Notifier (it was called Live Mesh News internally, and the initial exposure is a news feed not unlike the one on Facebook), can not only display news items about these relationships (Joe just added 3 files), but can potentially expose a lot of rich information about them (show all files added to these folders by Joe).

Our relationships online, and how we connect, protect, manipulate, and store them become much richer and deeper when we consider our devices as part of what we relate to.  Live Mesh will know what computers I use, what files I need, who to share them with, what I’ve modified, what others have modified, and what I’ve shared in a number of complex ways.  This platform (of which the current Technology Preview exposes just a tiny bit) through a simple set of RSS/ATOM extensions has bridged a gap between our online relationships to people, and our relationship to our devices.   When the mesh is connected to devices, Windows Live services, data, and available online or on a client, by managing the relationships between and among them all, it suddenly opens up a whole new world of possibilities.  We said it before and we’ll say it again, pay attention to Feedsync.

We’ve been telling you to get ready for this since last December, and this week, Ray Ozzie and the Windows Live Core team are preparing to unveil their first big project, Live Mesh.  We gave you the rundown on Live Mesh last week: sync devices to each other and the “cloud”, share files and folders, allow remote access to files and programs from another mesh device, or from a “web desktop”, all from one common interface.

So what makes Live Mesh such a big bet?  Isn’t it pretty much like Foldershare, or Groove, or one of the web 2.0 startup offerings?  Those, of course, are good questions.  While we’ve been able to ferret out some information about what Live Mesh is, how it works, and what it does, we haven’t yet seen it in action. Is it just another variation, another attempt at file sync and sharing?  In an email interview with Steven Hazel, Mary Jo Foley asked:

MJF: Foldershare is supposedly a precursor to the mesh architecture/synchronization services Ray Ozzie described at Mix. In your words, could you explain how Foldershare fits in with mesh? Will mesh supersede (and replace) Foldershare?

Hazel: Honestly, I can’t figure out what the heck those guys are talking about.

However we know there are some key differences.  As a Windows Live offering, Live Mesh should be a free download, or at least have a free component (we’re expecting Live Mesh to start out with a 5gb web desktop offering).  Groove, on the other hand, is a $229 install (or a $79/yr subscription) per user.  Foldershare, along with some reliability issues, and shaky functionality, doesn’t provide the cloud based “web desktop” piece.  Other services are either just getting started, haven’t proven reliable, or have been pulled off the marketplace.

Live Mesh is an opportunity for Ray Ozzie and the new guard at Microsoft.  The Live Mesh bet could pay off big if the Microsoft Sync Framework, and RSS shared extensions (or Feedsync) work reliably, quickly, and robustly.  If it works as Ina Fried is hearing, cross browser, and coming soon, cross platform, it could help to signal real commitment to a more open Microsoft.  Internally, there have been rumblings about Ozzie’s ability to ship software, and Live Mesh could help there, as well.

We’ll have a lot more on Live Mesh very soon, and will be bringing you interviews and demos from the Web 2.0 Expo later in the week.  Will Live Mesh prove to be as exciting as we’re thinking?  It won’t be long til we find out.

Yesterday's flurry of activity on the MSFT-YHOO front had so many plot turns that my head is still spinning, but at the end of the day, analysts are still leaning in favor of a MSFT-YHOO deal.  We could breathlessly tell you what we think is going to happen (and indeed I was working up an opinion post yesterday morning), but then Yahoo! announced a trial run of Adsense ads from Google, and more news "leaked" out about a Yahoo-AOL deal (what was it Fake Steve Jobs said about a three-legged race?), and to top it off word got out about a possible partnership with Microsoft and News Corp. (owners of MySpace).  Whew.

So truthfully we have no idea what's going to happen next.  We're going to continue to follow the developments closely (reality television has nothing on these antics!), enjoy the heck out of reading everyone scramble to try and make sense of it all (and feel a little sorry for them).  But generally, until the dust clears a bit, we'll probably try our best to ignore the elephant in the room, and continue to focus on telling you about things we do have a handle on, like Live Mesh ;), a new Live Maps update, lots more to come involving Live Search announcements, and all the best on Windows Live.

In the meantime, check out our MSFT-YHOO pages, where we will continue to tag stories of interest (using del.icio.us and NewsGator), track the latest stock news and prices (using a nice widget from Yahoo!), and compile all the official releases in our Document Timeline (ps. if you have IE8, you can even subscribe to the Document Timeline WebSlice!).

When we introduced you to Windows Live Core (now Windows Live Platform Services) just over a year ago, we mentioned James Hamilton and his work on commoditizing server installations, in particular by using containers.  Well here we are a year later, and Microsoft is implementing this idea in its new data center in Northlake, Illinois.  While many web 2.0 pundits talk about running services in the cloud, its going to be up to companies like Microsoft, and people like James Hamilton, to build out the infrastructure needed to provide cost effective, geo-located, and energy efficient services.

In his blog Perspectives, Hamilton has been writing about a number of ideas around data centers and building out the infrastructure.  In talking about a service free, fail in place model, using containers, he says:

Going to a service free-model can save service costs but, even more interesting, in this model the servers can be packaged in designs optimized for cooling efficiency without regard to human access requirements. If technicians need to go into a space, then the space needs be safe for humans and meet multiple security regulations, a growing concern, and there needs to be space for them.  I believe we will get to a model where servers are treated like flash memory blocks: you have a few thousand in a service-free module, over time some fail and are shut off, and the overall module capacity diminishes over time.  When server work done/watt improves sufficiently or when the module capacity degrades far enough, the entire module is replaced and returned to the manufacturer for recycling.

In today's post, he compares the efficiencies of a) building a data center, or b) placing 1125 racks of servers, one each in a condominium(!).  Taking the container idea to the extreme, perhaps, but it's a good read.  When I commented that a rack of servers might be one of the better room-mates I have had, Hamilton responded:

Our goal is to draw attention to what makes a "real" data center expensive. It's not the security, it's not the shell (the building), it's none of those things. Typically over 75%, and sometimes more, of the cost of a data center is power and cooling. In the example above, that's $150M spent on power distribution and cooling equipment. I smell opportunity.

I just happen to be reading a novel, "The Invention of Everything Else", by Samantha Hunt.  In it, Nicola Tesla spends his last days in the Hotel New Yorker (a fictional account with a basis in truth).  At one point the author describes the electrical system outside Tesla's hotel window:

"Years ago power lines would have stretched across the block in a mad cobweb, a net, because years ago, any company that wanted to provide New York with electricity simply strung its own decentralized power lines all about the city before promptly going out of business or getting forced out by J.P. Morgan.  But now there is no net.  The power lines have been hidden underground."

That's pretty much where we are right now; just getting to the point of stringing up the wires, of building the mad cobweb.  Microsoft knows this and is racing to become a J.P. Morgan.  It is one of the reasons why Microsoft is hot to acquire Yahoo!, although Steve Ballmer would love for you to think it is just a desperate move against big bad Google.  While a move to web services might mean the end of Office (as we know it now, anyway), the demand for secure, cost effective, reliable, and at least somewhat green cloud infrastructure is going to grow immensely.  Microsoft seems to be intent on being a leading provider of those services.

Perspectives is definitely my new favorite blog, a welcome alternative to the daily blathering about Yahoo! speculation, Windows 7, and blogger stress.  Keep up the good work James!

Last week saw the public beta launch of Windows Search 4.0. While it brought several welcome improvements for consumers to the standard Windows Vista search, namely speed and better searching of remote computers, I can’t help get the feeling that the Vista search still (for want of a better word) sucks.

For starters lets take a look at what Microsoft started off at the drawing board with. Bear with me as the branding mess on this is unrivaled.

In May 2006 an application known simply as Windows Live Search (internally OneView & Casino) was demoed at the Microsoft CEO Summit, during Bill Gates’ keynote no less.  Brandon Paddock wrote a great description of what this team were trying to achieve:

“The focus of this demonstration was on searching in the Enterprise and how Microsoft is developing cutting-edge solutions to problems that information workers face every day.

But we aren't only providing a solution for Enterprises!  We're building the next-generation search application for Windows, and we want to take search to the next level for all kinds of users".”

This desktop application combined the Windows Desktop Search technology we have now as Windows Search 4.0, a Windows Live UI, and searching across both local machines, intranets and the internet. This federation of search results is something we heard this week “was a research project” but is still something we hope to see Microsoft releasing for consumers in the future (it’ll inevitably come for enterprises).

In July 2006 Steve Ballmer gave a demo of Windows Live Search Center, as it was then named and shortly after that it was announced that the project would fall under the Windows umbrella.

If you compare the designs above to what we now have in Windows Vista, you’ll see that most of the basic features made it across. Preview pane, ability to filter results by file type (All/Email/Document… etc)

While it was a great decision to combine the Windows Search 4.0 technology with native OS search as we now have, the actually usability of it has actually worsened in Vista.

Over the weekend DownloadSquad did a great comparison of Windows Search 4.0 (on XP) to Google Desktop Search. As a Vista RTM user for now 18 months, I’d forgotten exactly how WDS was laid out compared to Vista search, and so it gave me some food for thought.

XP users have categories to refine their search results, by images, documents or music. In contrast, Vista users just get a jumbled mess. Yes it’s easy to filter search results by hitting the All/Email/Document.. buttons, but this adds in another hoop for users to jump through.

While it is much easier to launch searches in Vista (each Explorer window has a search bar) what use is that when results are indistinguishable. Windows Vista saw changes to the folder navigation UI in order to encourage users to adopt search, but instead we just have two poor solutions.

Then there is the fact that searching local machines on the same small home network is still unachievable for the average consumer, nothing has improved since XP. If I've added a mapped drive or network share, I don't want to have to navigate there in Explorer in order to search for my file, I may as well just carry on browsing directly there myself. This is where the federation of search results I talked about above comes in, and makes me wonder why Microsoft haven't yet shipped this in a basic form for consumers.

Obviously Enterprise is a much larger scale, so it's understandable that there are many more requirements needed to make it operate effectively. However this technology was demoed almost two years ago, so what's the holdup? Home networks are commonplace and Windows Home Server is only going to increase the prevalence of these.

Sure search on the OS has come a long way, but compared to WDS on XP, Vista has barely made any progress.

Microsoft made a $44.6 billion offer to buy Yahoo! on February 1, 2008, and since then we've been waiting to see what happens next.  While nothing officially has been announced, there is speculation that the deal may be nearing its next phase.  Yahoo! hasn't come up with a miracle deal to save the company, and can only stall so long.  Yahoo! has already delayed the voting for a new Board of Directors, but Microsoft "reserves the right to pursue all necessary steps to ensure that Yahoo!’s shareholders are provided with the opportunity to realize the value inherent in our proposal", and according at least to TechCrunch, is ready to take over the Board if it should become necessary.

However, beating Yahoo! up to perhaps get a better price, or dragging them through the mud with an acrimonious proxy takeover, really does Microsoft no good.  Microsoft wants the Yahoo! brand intact, has big plans for it in fact, and a bitter fight over the acquisition will not serve Microsoft well.  Rumors are swirling that Microsoft and Yahoo! are talking, and that some kind of a deal will be announced fairly soon.  While Microsoft really has no reason to up the price, as there are no better offers, expect some sort of rearrangement of the numbers to make Yahoo! save some face, which of course in the end is a good thing for the brand, and as such for Microsoft.  Clarification of ownership issues regarding Alibaba, which is not very interested in being owned by Microsoft, may further change the numbers.  And even if Microsoft just straight out ups the price, that may be seen as confirmation of Yahoo!'s worth, a good thing once Microsoft takes possession.

So let's say Yahoo! ends the stalling and comes to the table.  Lots of questions will still have to be answered.  Here's a list of five:

1. WWJYD? (What will Jerry Yang Do?)
   While Yahoo! founder Jerry Yang certainly isn't a fan of Microsoft, is there any chance that he will stick around once Microsoft owns Yahoo!?  Microsoft would do well to do everything they can to compel him to stay.  Certainly the transition would be smoother.  But more than that, Jerry Yang embodies an open approach to software development.  If Microsoft is truly becoming a more open shop, as they seem to want the world to believe, Yang would not only lend credence to those efforts, but also be able to help Ray Ozzie push for a more open approach.  Keeping him could also help to stem an exodus from Yahoo! once Microsoft takes possession. It could actually put Yang in a more powerful position than he holds now, and allow him to continue to build on his Yahoo! dream.  Of course the chances of Yang staying once Microsoft takes over may not be great, given his feelings about the Redmond giant.  It would seem that there are real opportunities for Yang at Microsoft, however.  In fact, maintaining much of the Yahoo! corporate structure, at least in the near term, would be to Microsoft's benefit. Both Steve Berkowitz and Joanne Bradford are leaving Microsoft, and while Brian McAndrews, former AQuantive CEO, seems to be emerging as a powerful figure in the MSN/advertising space at Microsoft, there will be plenty of room for more.  The Yahoo! executive team would bring in successful experience in running content portals, something Microsoft will be in the thick of with the acquisition.
   
   
2. What about Asia and Alibaba?
   One of the most significant assets of Yahoo! is its influence in Asia.  While Google has a near stranglehold on search share in the Western world, not only is the market much less clear in China, Japan, and the rest of Asia, but the market is growing rapidly.  However Yahoo!'s relationship with Alibaba, a kind of an eBay for China, is a complication.  Yahoo! has a sizeable investment in Alibaba, and in return, Alibaba is invested in Yahoo! Japan.  And Alibaba, and the Chinese government, may question even partial Microsoft ownership.  In fact, the whole question of Microsoft and monopolistic practices will get a hard look in China as Microsoft tries to expand there.  Will Microsoft sell off the Alibaba.com investment?  Gaining a better foothold in Asia is one of the most compelling things about a Yahoo! acquisition, and it's not clear that Microsoft will want to just walk away from a piece of Alibaba.
   
   
3. Will the Yahoo! brand fix the Windows Live branding mess, or make it worse?
   We've been hearing since late last summer that some big changes were in store for Live Search, up to and including new branding.  Those naming plans have been put on hold, we've heard, which makes sense in light of the Yahoo! announcement.  However something clearly must be done to clarify not only Microsoft's branding of its live services, but its approach to them as well.  Mary Jo Foley reported a name change from CRM Live to CRM Online, and gave this breakdown in Microsoft's latest thinking on its Software + Services branding:
   • “Live” refers to consumer and very-low-end small-business offerings. Examples: Windows Live Messenger, Office Live Workspace.
   • “Online” refers to small-/mid-size and enterprise services that are hosted by Microsoft in its own datacenter. Examples: Exchange Online, SharePoint Online and now Dynamics CRM Online.
   • “Hosted services” refer to Microsoft offerings that are hosted by its integration/reseller partners at the partners’ facilities. Examples: Exchange Hosted Services, SharePoint Hosting Services.
   While this does clean things up a bit, it still leaves open the question of what to do with MSN, and Search.  With Windows 7, the branding for Windows Live becomes a bit more defined, as there won't be a Windows Mail, or Windows PhotoGallery, etc.  If you want those services for Windows, you will install Windows Live (or perhaps have it installed for you on new machines).  The brand isn't quite as clean around Live Search, however (especially since Microsoft just got done changing the name from "Windows Live Search").  Was Live Search about to be rebranded back to MSN Search?  That might explain the somewhat confusing billboards Todd Bishop spotted.  However none of that makes much difference now, as the bigger question is where to fit the (much stronger than "Live", or "MSN") Yahoo! brand into the system.  Still, it would be hard to imagine giving up on MSN.  Will we see Yahoo! become the new Search brand?  What will happen to MSN.com?  How quickly will the various services merge?  Branding is going to be one of the most important aspects of the acquisition in the near term, and up until now Microsoft has shown little ability to get branding right.
      
   
4. What about Messenger and Mail, how will like services combine?
   Our friend Long Zheng put up a nice comparison list of Yahoo! and Microsoft services back when the acquisition attempt was first announced, and there is a lot of overlap.  Some of the services seem to be no-brainers, like keeping Yahoo! Answers and dumping or folding in QnA, if only because of the vast difference in usage numbers.  Many others, however, are going to be tougher calls.  At first, most likely services like Messenger, Mail, and Yahoo! Finance/MSN Money will exist side by side, perhaps with some co-branding.  More than branding, however, there will be a significant amount of work in combining services on the back end while not losing market share.  Consumers are going to want to see progress, and more value from a combined Microsoft/Yahoo!.  Will Microsoft be able to deliver?
    
   
5. Sure branding is going to be a problem, but Yahoo runs on Linux, Apache, and Hadoop.  How will Microsoft absorb these incompatible systems?
   Microsoft is pushing itself as a new, open, company, even if no one seems to be listening.  They've even started an Interoperability Forum over at MSDN.  Maybe they should post a question on how to incorporate Yahoo!'s servers into their own systems.  Merely porting Linux systems over to Windows, as hard as that would be, won't be the answer, either.  Yahoo! is doing some great work in not only the technology behind search, but in cloud computing as well.  Microsoft may well be looking to not be so boxed in to its own systems that it can't take advantage of advances on other platforms, especially as it tries to compete with the likes of Google.  Moving toward interoperability may gain quite a bit of momentum when Microsoft finds itself running large Linux server farms, and needing to incorporate them into its existing search and cloud computing offerings.

Just the act of pulling off a $44 Billion dollar acquisition will be an enormous task, but once that's accomplished the work will have barely begun.  It seems far too optimistic to think that the transition will be smooth, but will it succeed at all?  This is a big gamble for Microsoft, and we can't wait to see what happens next.

Word seems to be filtering out about a move to a more modular core for Windows 7, with additional pieces layered on top.  Mary Jo Foley first wrote about it last week, with a hint at what's to come for Windows Live:

One of my sources close to Microsoft recently told me that “major parts are being removed from Windows 7 (mail, photo, video)” but still will be available as user-selectable services. This plan, if it comes to pass, ought to help lessen the Windows attack surface that has been the target of various Microsoft competitors and antitrust regulators who’ve been critical of Microsoft bundling everything but the kitchen sink into Windows.

..and then Ken Fisher at Ars Technica expounded a bit, with a somewhat different take on what it will mean for users:

So, Windows 7 will be modular, but to an unknown degree. I personally expect the modularization to focus on value-adds, as did Anytime Upgrade on Vista. It allows Microsoft to draw lines between what is and isn't "in" the OS for DoJ compliance issues. Whether it be Live Services, Windows Media Player, or even Internet Explorer, Microsoft could roll those into modules and then say, "Hey, look, that's not part of Windows, we're charging extra for that!" Foley says that she's heard from sources that Microsoft is working on a Photo + Mail + Video module that would exist apart from the OS, for instance. I've heard less specific groupings myself.

...

The software+services side of modularization is what is surely driving this change at Microsoft. As I argued last summer, this is all a critical piece of Microsoft's software subscription dreams. In "2010, a 'Windows 7' software subscription odyssey," I noted that Microsoft has been reinventing its approach to Windows in order to facilitate the continued sales of multiple levels of the Windows "experience." Microsoft has confirmed that there will be multiple SKUs for Windows 7 and that there will be different subscription services built around the OS.

So what is going on, here?  Will Windows start charging subscriptions for added services that up until now have been part of the OS?  My guess is probably not.  Let's look at the reasons why shipping a lean mean Windows 7 with "free" value adds makes sense for Microsoft, and might just make a lot of sense for consumers:

• Slimming down a bloated OS.  Windows, like many mature systems, is bloated, hard to manage, and hard to change.  Major steps were taken in Windows Vista to begin to move away from the old "everything and the kitchen sink" model, although MS is taking a beating in the marketplace and in public perception because of it.  Windows 7 will begin to build on the foundation laid by Vista.  Yes there will be value adds, but getting rid of the bloat allows for innovation at the core, upgrades to the additions outside the core development cycle, and continued focus on security and performance without tripping over problems wrought by peripherals.
   
• Consolidating Live Services.  The three pieces Mary Jo Foley mentions, Photo, Mail, and Video, all exist in some fashion as part of Vista now.  However up until last year, they were being developed separately from their Windows Live counterparts.  Microsoft had double the engineering and double the resources working on what really are not very difficult engineering challenges, and were getting in the way of Windows innovation.  By stripping out Windows Mail, Windows Photo Gallery, and Windows Movie Maker, among others, and replacing them with Windows Live add-ins (as is done now, actually, but with a lot of redundancy - add in Windows Live Mail and you still have Windows Mail on the machine - totally unnecessary), the experience is much cleaner on the consumer end, and much easier to maintain, on a lot of levels, on the backend.
   
• Ending monopolistic practices.  While it's enough of an incentive to strip out the live services to gain efficiencies outlined above, an even greater gain comes from how this will play out with the EU, etc.  Microsoft isn't happy about having to continue to shell out money to anti-trust litigations.  Rather than being a lock in service, as Ken Fisher thinks, Microsoft most likely will structure these add-ins as open ended.  In other words, if you want to use Firefox instead of IE, no problem.  If you want to use a different mail client, go for it.  Of course Microsoft will push hard to bundle its own services with new computer sales, and we've seen how well Windows N did in Europe - an OS with no bells and whistles is just no fun.  But there won't be lock in, the costs involved with fighting the EU over another OS are just too great for Microsoft to endure.  They need to change direction, and they may be about to do just that.
   
• Software + Services.  Microsoft, with Ray Ozzie at the lead, is about to place a big bet on Software + Services, showcased by Live Mesh and the upcoming Live Mesh Technology Preview.  While Windows Live offers an interesting set of services, Live Mesh may just be the killer app it has been looking for.  For once, instead of forcing it down our throats, Microsoft just may have a service that's compelling enough to go out and get.  If Microsoft can learn from the mistakes Apple just made with their iTunes/Safari upgrade (see: Windows Live Suite Installer), but instead offer a simple, up-front way to install Windows Live services that "just work", and offer them to a combined Microsoft/Yahoo! customer base, things might just get very interesting indeed.

Internet Explorer and Windows Media Player, along with the Windows Live services, are already "free", and there's no reason to think that Microsoft would expect people to stand for paying extra for them (especially when there are free alternatives).  Some services may indeed come subscription based, but a modular Windows 7 isn't about locking consumers into subscriptions.  The advantages to Microsoft in cleaning up Windows are clear, the complaints about monopolistic practices are loudly heard, and there is a real change taking place, led by Ray Ozzie, to embrace a more open model.

Microsoft has already made moves away from duplicating Windows/Windows Live redundancies, so some stripped out features will come as no surprise.  How much of a modular system Windows 7 will come to be remains to be seen, but one thing is certain: computers, with lots of processing power and lots of storage space, aren't going away anytime soon.  What Microsoft is putting together, with a lean OS, a readily available services layer, a robust cloud storage platform, and a way to synch it all together, may prove to be the right package for both Microsoft and consumers.