Tech Tracks

While at aQuantive, it was Brian McAndrews practice to send out an annual message looking back at the past year and looking forward to what's coming. He seems to be continuing that tradition at Microsoft as the senior vice president of the new Advertiser and Publisher Solutions Group.

McAndrews echoed some themes I'd been hearing from people working in his group late last year. Of particular interest are his comments on Internet search, an area where Microsoft continues to trail Google. Search ads get too much credit, he says, and not enough credit goes to the other forms of advertising that may convince consumers to finally search for a product and click on the ad. Microsoft intends to change that.

McAndrews says search ads get more than their share of credit.

"While search has been the main driver of the blistering growth of online advertising in the past, at least partially because of the 'last ad clicked' performance measurement standard (pioneered by Atlas in the late 90s), we do not believe this will necessarily be the case in the coming years. The current system for tracking ad conversions, while the best available for years, is not optimal because it gives all credit to that last ad seen or clicked -- often a search engine -- and not any credit to other ad units the consumer may have seen prior that helped influence the user to seek more information about the advertiser. Thus, Search has gotten more than its share of the credit, but that's starting to change. We'll be making significant inroads here in 2008 through our continuing ground-breaking work in the area of 'conversion attribution,' a new Atlas technology offering that will do a better job of 'giving credit where credit is due.'

"That said, we're not discounting the importance of Search as it continues to drive a lion's share of digital advertising budgets. Our goal is to help advertisers and agencies make their Search campaigns as relevant, targeted and highly converting as possible. We've made great strides toward this end, and will continue to make deep investments in both our Live Search engine and Microsoft adCenter to improve the value of our Search offerings for customers."

McAndrews goes on to discuss emerging digital ad formats, which are attracting more spending and would presumably be viewed as more valuable if Microsoft can successful push better "conversion attribution." These areas include:

-- Online video advertising, "expected to be the fastest growing ad category on the web for the foreseeable future."

-- In-game advertising, an emerging area that Microsoft entered whole-hog with the purchase of the Massive Network. But growth forecasts were ridiculed late last year by EA's chief executive officer. I'm looking forward to hearing from game makers on this issue at the Game Developers Conference in San Francisco next month.

-- Mobile advertising, "nascent" but with "huge potential," McAndrews wrote. "Here you'll see us invest in our Atlas toolset, working very closely with our subsidiary ScreenTonic and our colleagues in Windows Mobile, to make significant progress with new mobile advertiser and publisher tools, mobile syndication, and new advertising clients."

Want to easily compare the share of revenue coming from Microsoft's various sales channels? Interested in how many premium copies of Windows Vista Microsoft is selling to consumers and businesses? Are you a fan of XBRL (eXtensible business reporting language)?

Then Microsoft has a site for you. The company just launched an extension of its regular investor relations site called Investor Central. On a welcome page, Microsoft CFO Chris Liddell says it is "intended to help investors from large institutions to retail shareholders better understand Microsoft's business strategies and our financial results.

"It takes advantage of new technologies (like XBRL). As you navigate around the site, you'll see that you can click on many of the line items in the financial statements for additional information, and you can move back and forth easily between views."

I played around with it a bit and it is pretty helpful, even if it is still a work in progress, as a spokeswoman noted. Instead of trolling through the 10-Qs, most of what I'm interested in is in one place.

U.S. District Court Judge Colleen Kollar-Kotelly today decided to extend judicial oversight of Microsoft until Nov. 12, 2009. Most terms of the company's landmark 2001 settlement with state and federal governments were set to expire in November 2007. That expiration date was extended until Jan. 31 as Kollar-Kotelly considered motions from most of the states to extend oversight by five years, which Microsoft and the U.S. Department of Justice opposed. Her decision today splits the difference.

More to come shortly.

Update, 5:05 p.m.: Brad Smith, Microsoft's general counsel, has issued a statement:

"We will continue to comply fully with the consent decree. We are gratified that the court recognized our extensive efforts to work cooperatively with the large number of government agencies involved. We built Windows Vista in compliance with these rules, and we will continue to adhere to the decree's requirements."

Kollar-Kotelly issued a 78-page opinion (PDF) and, mercifully, a six-page executive summary (also PDF) "to assist the public in understanding the Court's ruling". She notes "that this is a very complex and unprecedented case and that this summary, by necessity, simplifies the issues."

Kollar-Kotelly based her decision to extend the bulk of the consent decree, also called the final judgments, on "the extreme and unforeseen delay in the availability of complete, accurate, and useable technical documentation relating to the Communications Protocols". These are the links that allow Microsoft's desktop software to interact with its server software, which Microsoft must make available to competitors. The parties already agreed to extend this portion of the consent decree until 2009.

That delay, in Kollar-Kotelly ruled, "constitutes changed circumstances, which have prevented the Final Judgments from achieving their principal objectives. ... The Court's extension should not be viewed as a sanction against Microsoft, but rather as a means to allow the respective provisions of the Final Judgments the opportunity to operate together towards maximizing" the potential of the communications protocols provision to foster competition.

Update, Wednesday: Here's a link to today's story on the ruling.

Microsoft continues to rack up online advertising deals, and seems to be doing particularly well with purveyors of financial information.

The company today announced a deal with The Wall Street Journal Digital Network to become the "exclusive third-party provider of contextual and paid search advertising for its network of sites, including The Wall Street Journal Online, Barrons.com, MarketWatch.com, AllThingsD.com and others." The deal begins in February. No other terms were disclosed.

The network has 20 million unique monthly visitors.

Brian McAndrews, the former CEO of aQuantive who now heads Microsoft's new Advertiser and Publisher Sollutions Group, boasted that the win makes Microsoft's extended advertising network "the premier destination for advertisers interested in reaching financially minded users." The company has announced other deals in recent months with CNBC and Edgar Online (third item).

Microsoft has just announced its earnings for the quarter ended Dec. 31. Revenue was nearly $16.4 billion, up 30 percent, and earnings per share were 50 cents, better by 4 cents than the high end of management forecasts and the Wall Street consensus estimate. The revenue growth figure is a bit misleading because last fiscal year the company deferred $1.6 billion in revenue to help spur demand for PCs as Vista's release was delayed past the 2006 holidays. Absent the deferral, this quarter's revenue growth is 15 percent.

Here are links to the company's 10-Q and press release.

Stay tuned for coverage this afternoon.

Update, 2:30 p.m.: I just spoke with Microsoft CFO Chris Liddell. Here's some of what he had to say.

Is Microsoft getting even more attention this quarter because of the turmoil in the larger economy?

"There certainly seems to be a lot of focus. I think that's clearly because of the number of markets that we're in. We're not only a bellwether in terms of our size, I think we're a bellwether in terms of the breadth as well, so depending on the division you look at you get a pretty good look at what's happening on the business side vs. consumer side and, the market vs. international markets, so there's plenty of interest."

Microsoft raised its full-year forecasts for fiscal 2008. Revenue is now projected to be $59.9 billion to $60.5 billion, up from the Oct. 25 forecast of $58.8 billion to $59.7 billion, an increase of 1.3 percent on the high end. Earnings per share should now come in between $1.85 to $1.88, up nearly 3.9 percent from the high end of the range of $1.78 to $1.81 given in October. How does Microsoft have the confidence to raise its guidance in the face of a U.S. recession?

"We're just very happy with the position we have in the markets that we have. Clearly, we, like everyone else, would be impacted if we did see an economic downturn, but relatively speaking we still feel very good about the products we're in, the market positions we're in and we're helped for example by over 60 percent of our sales are now to customers outside the U.S. So, whilst there's a lot of focus on what's happening inside the U.S., at the growth rates we are seeing in non-U.S. mature markets and emerging markets are very healthy." (The former grew more than 20 percent in the first half and the latter, while starting on a smaller base, grew more than 30 percent. Emphasis mine.)

The raised guidance results in part from the company's performance through the first six months of the fiscal year, and in part from the outlook for the second half of the year, Liddell said.

In addition to strength in a broad spread of geographical markets, Liddell said Microsoft's bread and butter -- PC operating systems -- were helped by a strong holiday quarter of PC sales. "PC demand in this second quarter was 14 or 15 percent. Clearly that's a very healthy number," he said.

After taking a beating with the rest of the blue chips this week, Microsoft's stock gained $1.32, or 4.1 percent, to close regular trading at $33.25, on higher volume than usual. In early after-hours trading, the stock was up $1.53, 4.60 percent, to $34.78 as of 5:21 p.m. ET.

Third-party cellphone directories that don't have permission to list a subscriber's phone number are one step closer to being illegal thanks to a bill being proposed by Washington's House of Representatives.

Last week, the House's Committee on Technology, Energy and Communications, heard testimony on Bill 2479, proposed by Rep. Dawn Morrell, D-Puyallup.

Morrell is attempting to update a bill passed earlier that made it illegal for cellphone companies to create a wireless phone directory without permission from individuals. In new language she is now proposing, it would preclude most any company — not just cellular operators — from creating a directory without permission.

Morrell proposed the bill after reading our story about how Bellevue-based Intelius was claiming to have millions of U.S. cellphone numbers for sale on its Web site. Since then, Intelius has filed for a $144 million initial public offering.

The wireless auction that is selling off a swath of highly coveted airwaves started this morning with a flurry of activity -- more than $2.4 billion in bids during the opening round.

But this is not like a bankruptcy auction, where people show up on the steps of a building and raise their hands to place a bid. Rather the whole thing takes place online -- in secret.

Click here and then click on "View Auction Results" and you can see the clock countdown on the time left during a given round. You can even see what bids have been placed, but the entire process is anonymous.

A Reuters story reports that the $2.4 billion bid so far represents the highest received for five separate blocks of spectrum. The federal government should be able to raise at least $10 billion from the sale.

Bidders will be kept secret until the auction is completed.

It's worth noting in particular that the "D" Block received a $472 million bid. That is the section of airwaves that must be shared with public safety and has a number of likely expensive requirements. Some wondered whether there would be any demand for that swath after Frontline Wireless -- which lobbied on behalf of such requirements -- failed to qualify for the auction.

Addressing the World Economic Forum today, Microsoft chairman and world's richest man Bill Gates said free-market forces have failed the world's poor.

"We have to find a way to make the aspects of capitalism that serve wealthier people serve poorer people as well," he told the annual meeting in Davos, Switzerland, according to coverage from Reuters. "I like to call this idea creative capitalism."

The Wall Street Journal today ran a front-page story on Gates' speech, having been given an advance copy and an interview last week. More after the jump.

Update, 1:20 p.m.: Microsoft has posted a transcript of Gates' speech. Tell us what you think of his vision for "creative capitalism" in the comments section.