Some said the deal was inevitable and some said it never would happen. (I was in both camps, depending on which day you asked me.) But now software giant and Bing creator Microsoft has a 10-year search deal with Internet portal pioneer Yahoo, so it's time for industry pundits and observers to assess the agreement's merits, flaws and larger ramifications.

One of the first to make their voices heard were Yahoo (NASDAQ:YHOO) stockholders, who were distinctly unimpressed. Yahoo shares were down 11 percent in early afternoon trading as investors appeared disappointed that Yahoo CEO Carol Bartz didn't negotiate for more. From an article in the Wall Street Journal:

[T]he deal didn't come with any upfront cash payment from Microsoft, though many analysts believe Yahoo could have received up to $1 billion in cash. As such, some argued that Bartz allowed Microsoft to gain the second-largest share of Internet search without receiving a return on the investment Yahoo has made over the years.

"In one fell swoop, she's allowed [Microsoft] really to potentially be a viable competitor in the space and has gotten very little in return for that important of an asset," said Darren Chervitz, director of research at Jacob Asset Management, a Yahoo shareholder.

Under the agreement, Microsoft will compensate Yahoo through a revenue-sharing agreement on traffic generated on Yahoo's network of Web sites. Microsoft will initially pay Yahoo 88% of revenue from Yahoo's sites for the first five years of the 10-year agreement.

"Yahoo shareholders could be a bit miffed because Yahoo spent a lot of money over the years developing search, and it appears a lot of that technology will go by the way," Cross Research analyst Richard Williams said.

Miffedness notwithstanding, only a willfully uninformed Yahoo shareholder could fail to see that Yahoo's position  weakened considerably when Microsoft introduced its Bing search engine, which has been taking traffic from Yahoo. Indeed, let's give props to TechCrunch's Erick Schonfeld, who essentially nailed the unfolding scenario back on July 15:

All the fuss about Microsoft finally posing a credible challenge to Google with Bing, its new search engine, misses the real primary target of Microsoft's search efforts: Yahoo. Microsoft knows it can't unseat Google anytime soon, but it does have a fighting chance of taking down Yahoo to soften it for an acquisition or simply take over the No. 2 spot in search. Even that day is still a long ways away, with Yahoo commanding about twice as much search market share in the U.S. as Bing.

Really, you can argue that Bing's success -- modest and incremental as it has been -- was the handwriting on the wall in Yahoo's executive suites. I'm sure the possibility of falling into third place in search within two or three  years was viewed as the death knell to Yahoo that it would be.

Forced hand or no, Quentin Hardy over at Forbes thinks Yahoo did the right thing:

[Bartz's] mantra has always been focus, and a Yahoo! that is divided between editorial and display-based revenues and search revenues is, in effect, two companies. That makes it slow to move and make decisions, something past management struggled with for years. ...

Besides, being in search left Yahoo! continually compared with Google, something Bartz knew could never work in her favor. ...With Microsoft in the picture, Bartz was looking at spending even more money for a business she saw as lucrative but not core to what Yahoo! does. Yahoo!, she has told her people, is fundamentally about e-mail, news, sports and entertainment. It can now focus on those areas and try to create a more efficient model for advertisers.

With a relatively swift move, she has defined, internally and to the world, what Yahoo! will be in the future. That's more than we've seen from the company in years.

As for Google, with 65 percent of the U.S. search market (Microsoft and Yahoo combine for 28 percent) it will have little to worry about for some time. Converting Google customers will take more than marketing dollars. The only real threat to Google would be if Microsoft-Yahoo moved the search ball forward by creating a measurably better (or more satisfying) search process than Google now offers. Bing hasn't done that.

As successful as Microsoft's introduction of its Bing search engine seems to be, Google presently is in no danger of losing its commanding online search market share.

But a new study shows that Bing already has one edge over Google, and in a way that is very meaningful to advertisers. From MediaPost Publications:

Yahoo may have several more reasons to adopt Microsoft's Bing.com to power its search engine. A study by the search advertising network Chitika suggests people who land on sites from organic search results via Bing are 55% more likely to click on an ad, compared with arriving on the site from Google.

Analyzing click-through rates from 32 million ad impressions across a network of more than 50,000 sites during seven days in July, Chitika found that people finding their way to sites from Bing clicked on ads 1.5% on average, compared with 0.97 percent for Google, and 1.24% for Yahoo.

This is significant in that online advertisers care less these days about ad impressions than they do about click-throughs and other indicators of reader involvement. It'll be interesting to see if that gap closes naturally over time or whether Google will respond with an ad campaign or similar counter-measure.

Economic recoveries aren't clean and neat things, nor are they initially easy to spot. But I'll allow two events -- 1) the release of a study on pricing trends in online advertising and 2) a network equipment maker's earnings report -- to sway me into at least considering that the worst may be over.

First, as reported by InternetNews.com, ad revenue optimization company PubMatic reported that online advertising pricing levels have increased 35% this year:

"Although ad pricing has not returned to year-ago levels, the industry has gone up consistently every month since January 2009," PubMatic CEO Rajeev Goel said in a statement. "There is more hope that fall online ad spending may reach near-normal levels."

PubMatic has a good line graph here that illustrates the trend. Pricing has risen for five consecutive months.

Then storage giant EMC this morning announced Q2 earnings that beat street estimates. And while sales were down 11% from last year's Q2, company officials said the IT spending freefall appears to have ended:

EMC CFO David Goulden and CEO Joe Tucci said on a conference call that IT spending stabilized and became more predictable in the second quarter, albeit at a "much lower level" than in recent years. Still, the company expects the second half of the year to be stronger.

A far cry from irrational exuberance, I know, but I'll take it. 

By Tom Dunlap

Bing is Microsoft's newest search engine, marketed as a "decision engine." It's designed to integrate searches to bring surfers better results than Google and Yahoo, and it's getting some impressive press.

Microsoft launched a Bing media blitz, running several TV commercials about it (although I've seen better technology spots.)  Tech writers, some of them pretty wowed, have written a lot about Bing, including SemanticWeb.com's Ron Miller, who filed a nice video tour of the search engine yesterday.

But is it all just pie in the sky? Google's Eric Schmidt recently slammed Bing, saying Microsoft does this about once a year. So my question is:

Have You Tried Bing? 

To Vote in the Poll (it takes a couple steps, so I beg your indulgence):

1. Click Watch Now below.
2. Look for the small Vote Now link. Click it
3. A box pops up. Vote, and you'll see your vote tally in real time
4. You can also post a comment

If you missed it over the weekend (as I did), there's a very good column in Saturday's New York Times about crowdsourcing.

Until recently I had only a vague notion of what crowdsourcing was all about. But the Internet lets you catch up on this stuff pretty fast, so I've learned a lot in the past few weeks. Steve Lohr's piece takes a look not at just what crowdsourcing is, but at what makes it work, for there's more to it than assembling a crowd and turning it loose on your problem.

"There is this misconception that you can sprinkle crowd wisdom on something and things will turn out for the best," said Thomas W. Malone, director of the Center for Collective Intelligence at the Massachusetts Institute of Technology. "That's not true. It's not magic."

What you need to sprinkle on something instead is planning, methodology and strategy.

A look at recent cases and new research suggests that open-innovation models succeed only when carefully designed for a particular task and when the incentives are tailored to attract the most effective collaborators.

One case Lohr cites is Netflix, the online DVD rental service (fanboy note: I'm a huge fan of Netflix. It has removed for me the sting and stigma of not having premium cable stations). Netflix's approach to crowdsourcing was pretty bold, and should not be tried at home:

In October 2006, Netflix announced that it would pay $1 million to the contestant who could improve the movie recommendations made by Netflix’s internal software, Cinematch, by at least 10 percent. In other words, the company wanted recommendations that were at least 10 percent closer to the preferences of its customers, as measured by their own ratings.

Naturally, with that kind of stake, Netflix attracted some serious intellectual firepower to the competition:

The frontrunner is a seven-person team, and its members are statisticians, machine learning experts and computer engineers from the United States, Austria, Canada and Israel. It is led by statisticians at AT&T Research. ... The teams in close pursuit are similar collaborations of skilled researchers and engineers.

Many more examples of crowdsourcing can be found at what is perhaps the most famous Internet project relying on collective crowd knowledge: Wikipedia.  

Following chipmaker Intel's excellent earnings report earlier this week, two other tech titans on Thursday reported quarterly numbers that exceeded street estimates.

From InternetNews.com's Paul Shread:

Google's earnings of $5.36 a share were 27 cents better than Wall Street analysts expected, while sales after traffic acquisition costs of $4.07 billion were up more than 4% from the year-ago quarter and just ahead of estimates. Despite the strong report, Google shares fell 2.5% in after-hours trading after a 1% gain ahead of the report.

IBM's earnings of $2.32 a share were 30 cents above forecasts, while a 13% sales decline to $23.25 billion put the company about $340 million below revenue estimates. IBM also lifted its full-year earnings forecast, and its shares added 2% on top of a 3% gain during the day.

So why did Google's stock price drop in after-hours trading despite beating the street? Beats me. Stock market writers often ascribe cause-effect that really can't be proved. But if I were to take a stab at it, I'd say investors are concerned that, as this Bloomberg article notes, the search giant's revenues rose only 2.9 percent over last year's second quarter, down from Q1's year-over-year quarterly sales growth of 6.2 percent.

Nonetheless, Google's revenue still is growing in the face of a terrible recession that has gutted online advertising. That, plus the positive earnings reports from Big Blue and Intel, makes it tempting to believe that the worst is behind us. I'm certainly an optimist, but I think Google CEO Eric Schmidt put things in proper perspective during an earnings conference call:

“We saw relative stability in our business in the second quarter -- too early for us to tell when the recovery materializes."

What he said.

By Tom Dunlap

Remember when midnight movies were rare, reserved for the high school and college crowd? Featuring only dark, twisted, or eccentric flicks? I'm talking the 1970s and 80s and the midnight showings of "Heavy Metal," "Eraserhead," and, of course, "The Rocky Horror Picture Show." Maybe even a Three Stooges marathon.

Since when did pre-teen movies join this trend? Last month, I let my 12-year-old son drag me to the midnight screening of the new "Transformers." (Disclaimer, in case my son reads this: "drag me" isn't fair. I wanted to see it too.) I was fading fast as the flick hit 2:30 a.m., and so was he, though he still refuses to admit it. And that was on a Tuesday.

Well, with the new "Harry Potter," the midnight movie for kids is officially a trend. Locally, a Santa Cruz theater sold out on three screens, but that wasn't enough for the young Hermoine and Harry wannabes, so the theater decided to start Potter on another screen -- at 3:10 a.m.

Thank Dumbledore, I mean God, my son did not conjure up a spell and trick me into going last night, although he tried many times. I learned my lesson with "Transformers." But tens of thousands in the country did show up last night. Theaters were packed. "Harry Potter's the New King of Midnight!" proclaims E! Online, while AP's headline writer went with, "Midnight Hour Strikes with $22M for `Harry Potter.'

As AP reported:

Harry Potter has conjured up a record-breaking witching hour.
 
The latest adventure of the teen wizard, "Harry Potter and the Half-Blood Prince," took in $22.2 million domestically from midnight screenings, distributor Warner Bros. said Wednesday. That breaks the record set by another Warner blockbuster, "The Dark Knight," which grossed $18.5 million from midnight shows last summer.

The sixth installment in the "Harry Potter" franchise also topped this year's biggest hit, "Transformers: Revenge of the Fallen," which pulled in $16 million from midnight screenings on its first day in June.

"Half-Blood Prince" raked in $10 million more from midnight screenings than part five, "Harry Potter and the Order of the Phoenix," in summer 2007.

We're seeing Potter tonight, if we can get in. I guess I'm glad so many kids like the flick, but I will rue the day the great cult era of midnight movies ends, if it hasn't already. And those kids (and their fathers) need their sleep.

There are a couple of interesting stories on internetnews.com that underscore the challenge facing Microsoft in selling its new operating system to skeptical corporate buyers, many of who felt burned by Vista.

First, Stuart Johnston reports on a survey showing resistance in the enterprise to Windows 7:

An online survey of 1,100 IT decision makers conducted in June by systems lifecycle management vendor ScriptLogic found that interest in a new version of Windows to replace Vista and XP may actually have been growing as Windows 7's ship date nears.

Yet ScriptLogic said that hasn't been enough to convince most IT buyers -- 59.3 percent -- to trade up to (NASDAQ: MSFT)'s newest offering, which is slated for its debut in late October.

"Nearly 60 percent of IT administrators do not plan to migrate to Microsoft Windows 7, despite the operating system's acclaim and notable user interface improvements from Windows Vista," a ScriptLogic spokesperson said in an e-mail to InternetNews.com.

Then Johnston writes about Redmond's efforts to prime the pump:

Microsoft is gearing up for Windows 7's launch at its annual partner conclave, Monday announcing upcoming markdowns for volume customers and emphasizing the revenue potential of the new system for resellers.

Bill Veghte, senior vice president for the Windows business, told the audience that Windows 7 will be "released to manufacturing" (RTM) by the end of the month as promised in June. Windows 7 is scheduled to launch on Oct. 22. Meanwhile, Veghte continued the drumbeat of promoting what may be Microsoft's most important release of Windows since Windows 95 -- 24 years ago. High on his list of talking points to partners were volume licensing programs coming Sept. 1.

"We will have a limited time promotion that provides a 15 to 35 percent discount for customers," Veghte said, adding that provides big financial benefits to partners.

If Windows 7 flops -- and I'm certainly not predicting it will -- you have to believe it will be a sobering moment for Microsoft. I wonder how long after the late October release before we get a sense of the new OS's success.

By Tom Dunlap

Google certainly garnered the spotlight this week with news of its operating system, as my colleague Chris Nerney pointed out in yesterday's blog.

As an extremely long notebook user, and a former hardware reviewer for CNET in the late 90s and early 00s, I can't wait to try the Google Chrome Operating System.

So kudos to the search leader, and Microsoft should indeed be worried. But at the same time, Bing is slowly on the rise. Bing is Microsoft's new "decision engine," featuring an impressive-looking home page and some eye-popping search results.

It's hard to fathom that Microsoft could make such a search leap. Since when does the Redmond behemoth produce a brilliant piece of software? But the company indeed has. I urge you to give it a spin. For a look at the semantic web technology baked into Bing, check out the SemanticWeb.com article, "Are Semantics Helping Bing Make Better Decisions?," penned by our new writer Ron Miller.

Meanwhile, David Pogue of The New York Times wrote an excellent piece on Bing this week, "Bing, the Imitator, Often Goes Google One Better."  So far, it's the definitive piece on the new search engine:

Here's the shocker, though: in many ways, Bing is better.

That's quite a statement, of course -- almost heresy. But check it out yourself. It's easy to compare the two, thanks to sites like bing-vs-google.com. Here, you're shown search results from both Bing and Google, side by side, on a split screen.

At first, Bing is pretty much Google. Oh, there's a big National Geographic-y photo on the home page instead of plain white, but otherwise it's the same deal: a search box; a menu that offers to complete what you're typing; and inconspicuous links to Images, Videos, News, Shopping and Maps.

Once you hit Enter, however, you can't help noticing Bing's more concerted effort to get you answers faster. To minimize the clicking, the hunting, the dead ends.

For starters, how's this for a dream feature? Point to any search result without clicking; a pop-up balloon shows you the first few paragraphs of text on it. Without leaving the results list, you know if it's going to be helpful. Simple and irresistible.

Pogue winds up his State of the Art column with strong words of praise:

People won't start dumping Google en masse; Google is a habit. Everyone already knows how to work it, and it may be built right into your Web browser. But if you value your time, you should give Bing a fling.

Put another way, even if Bing really did stand for "But it's not Google," that is not necessarily an insult.

Yesterday I (and most of the world) wrote about Google's plans for a netbook OS. Today David Lawsky of Reuters follows up with a good piece about how start-ups -- not to mention computing trends -- could give the search giant an important edge in its battle against Redmond:

A growing number of tech entrepreneurs argue that Microsoft's current software is out of date and inefficient because, unlike applications that run off the Web in a "cloud" environment, they run one copy per person at a time, rather than allowing multiple users to share information.

"In a business setting you never work on things alone," said Tien Tzuo, chief executive of Zuora, a company that sells software to facilitate billing online.

"The idea of sending a file back and forth is just archaic," said Tzuo. "Why not just give employees an inexpensive device that allows them to plug into the Internet?"

Microsoft's Windows nonetheless dominates. It remains the operating system software for about 95 percent of PCs, with more than 950 million copies running worldwide.

Key to Windows's success is that it offers the most applications and draws the most programmers. But start-ups, who thrive on low-cost efficiency, say Google's operating system -- which will be free -- offers superior applications.

The article points out that Microsoft has advantages of its own -- a set of heretofore indispensable applications (well, mostly Excel) and mindshare, both of which create a certain cost of conversion for enterprises and businesses. But you have to think that "superior applications" will win out in the end, especially if the cost of conversion may be as much psychological as financial. After all, mindshare isn't infinite.

Executives from the world's largest tech and media companies are meeting this week in Sun Valley, Idaho for an annual conference. Thanks to search giant Google, they'll have plenty to talk about.

As reported by InternetNews.com:

Google Inc is planning a direct attack on Microsoft Corp's core business by taking on the software giant's globally dominant Windows operating system for personal computers.

Google, which already offers a suite of e-mail, Web and other software products that compete with Microsoft, said on Tuesday it would launch a new operating system that will initially be targeted at netbooks.

Called the Google Chrome Operating System, the new software will be in netbooks for consumers in the second half of 2010, Google said in a blog post, adding that it was working with multiple manufacturers.

I don't recall any company with Google's size and resources ever challenging Microsoft on its own turf -- operating systems. Yes, we're just talking about netbooks now, but if consumer response is positive you can safely assume more powerful operating systems for large PCs will follow.

As to what constitutes positive response, obviously that's for Google to determine. But with more than 90 percent of the world's PCs now running on Windows and most PC consumers fairly averse to change, Google's expectations need to be realistic. Indeed, if the tepid response to Google Chrome -- which has only 1.2 percent of the browser market since being launched late last year -- is any indication, Google's not going to be the OS market leader anytime soon.

Still, Google has a couple of big advantages it can leverage: 1) A strong, positive brand, and 2) an immense promotional vehicle in its search engine, whose home page is the most popular site on the Internet. With the stakes higher in the battle for operating systems than they are in the fight over browser supremacy, I expect Google to put a lot of muscle behind the Chrome OS. And if I were Microsoft, I'd take this threat seriously. 

By Tom Dunlap

The Twitterverse is going bonkers over the Michael Jackson funeral in L.A. The micro-blogging phenom has seen a massive burst of tweets over the memorial service.

You have to wonder if today's Web activity will be the same as the day he died, when Twitter took a direct hit as people went online when the news of his death broke, and then they kept chattering about it for days. I heard from several people who said that Twitter was too jammed up to tweet the day the music died.

As we monitor how Twitter and other sites handle the pressure, here's a sample of today's tweets:

NancyODell: Going into Jackson Memorial service. Police everywhere.  airport type security.

NancyODell: http://twitpic.com/9lses - Billy and I talking about the weird emotions u feel here at the service...going inside now
 
TheTashaSparks: I woulda been tight if I was michael jackson yo! He died 2 weeks before he woulda came into madd money and his concerts
 
edhenderson: will stand and applaud if they rig up Michael Jackson ala Weekend At Bernies to sit up during the Memorial Concert

newspathweb: Coming Up at 1pm ET ... Katie Couric anchors a CBS News Special Report on the Michael Jackson Memorial at the Staples Center in Los Angeles.

rturner229: CBS showcasing Katie Couric interviews with Michael Jackson fans. Isn't this kind of thing what put Katie further in the cellar?

For a more serious look at Jackson and his troubled life, the site I edit, SemanticWeb.com, compiled a short list of how some leading semantic web applications -- Bing, Twine, Wolfram Alpha, Yahoo SearchMonkey, Google Rich Snippets, etc. -- are serving up the latest information on the fallen entertainer.

No one reading this has to be told how tough the economy is. Unemployment has crept into scary territory and companies continue to regroup, retrench and reduce their spending.

So it's fairly surprising to read the results of an IBM survey that show nearly half of all small and mid-sized businesses plan to continue spending a healthy amount of money on IT.

As reported by InternetNews.com:

The study, conducted between April 13 and May 20 on IBM's behalf by Opinion Research, examined 1,879 business decision makers around the world who were working at firms of between 100 and 1,000 employees.

The findings are an important indicator of future growth, IBM said.

"With companies of 500 or fewer employees generating 60 to 80 percent of net new jobs annually over the last decade, these small and medium businesses are one of the most likely engines to lead us back to growth," the company said in a statement.

While 53 percent of companies are focusing on containing costs, 47 percent of those surveyed said they are investing in the future by transforming the business, expanding it, or investing in customer relationships through technologies such as social media.

If the survey is accurate, it's a sign of hope for the economy. By which I don't mean that prosperity is around the corner because smaller businesses are getting on Twitter. Rather, many smaller companies correctly conclude that in a digital economy, you need to have your digital game in order. Hacking your IT budget because money's tight now poorly positions you for an eventual recovery.

Of course, how you spend your IT money is another matter altogether, which is where aligning tech with the business goals becomes paramount. But strategy is meaningless if you don't have the right tools or infrastructure to compete effectively. It seems as though a healthy number of SMBs know this.