News : Google unveils personal medical record service

ORLANDO, Florida (Reuters) - Google Inc has unveiled a plan to help U.S. patients gain control of their medical records and is working with doctors' groups, pharmacies and labs to help them securely share sensitive health data.

The company's long-rumored entry into the highly sensitive field came when Chief Executive Eric Schmidt introduced Google Health at a health-care conference in Florida on Thursday.

Google said it has signed deals with hospitals and companies including medical tester Quest Diagnostics Inc, health insurer Aetna Inc, Walgreens and Walmart Stores Inc pharmacies.

The password-protected Web service stores health records on Google computers, with a medical services directory that lets users import doctors' records, drug history and test results.

Google aims to foster sharing of information between these services, but keep control in patients' hands, allowing them to schedule appointments or refill prescriptions, for example.

"We don't know how to suck it out of the brains of doctors, but we know how to suck it out of the computer systems of doctors," Schmidt said in an interview after his speech.

A week ago, Google said it was teaming up with leading academic medical researcher Cleveland Clinic to test a data exchange that puts patients in charge of records.

Schmidt said it would likely be a few months before Google Health is offered more widely.

For decades progress has been slow converting paper records often scrawled in illegible doctors' script and stored in conflicting filing systems into centrally held digital records. IBM, Oracle Corp and Siemens AG, among many others, have worked on such digitization.

Google's biggest rival, Microsoft Corp, has introduced HealthVault, which gives users control over who sees what. Among start-ups active in the field are Revolution Health, a company backed by former AOL Chairman Steve Case.

All are based on the notion that individuals should retain control over the data. "The information in your health record is yours and it doesn't get shared with anyone else without your permission," Schmidt said.

Electronic record-keeping has been held back by a lack of focus on consumer needs, not privacy fears, he said, adding any system should "'normal-person' designed, not doctor designed."

PRIVACY DEBATE

While medical providers are covered by U.S. privacy laws, there is little in the way of established privacy, security and data usage standards for electronic personal health records.

Google is prepared to resist fishing expeditions by lawyers seeking to subpoena personal medical records stored on Google Health. Last year, it went to court to defeat an effort by the U.S. Justice Department to request some Google search records.

"We've taken a pretty aggressive position in a pro-consumer way in the U.S., but I do want to assure you we are subject to U.S. law," Schmidt said.

Google earns almost all its revenue in Web advertising, but has no plan to sell ads on Google Health. It aims to make money indirectly when users search for other medical information.

Google sees solving privacy issues around health as part of its none-too-humble corporate mission to "organize the world's information and make it universally accessible and useful."

In tackling medical privacy, Google also stands to benefit in finance and other areas where sensitive data is stored.

Some privacy advocates were quick to criticize the effort. Howard Simon, executive director of the Florida American Civil Liberties Union, said storing medical records with consumer Web services raises data breach risks. "A breach of security would be catastrophic," Simon said. "It's very, very troublesome."

But Andrew Rocklin, a principal in the health care practice of Diamond Management & Technology Consultants, whose clients include big U.S. health insurers, said giving patients more control over records promises many benefits, while raising some new issues.

Perceived risks of online health records will remain high until consumers become more familiar with the benefits. When tied to exercise, dieting or other wellness programs, such records can give consumers extraordinary insights, he noted.

"People need to be good stewards of their health in general and their health data, which is an aspect of that," he said.

(Additional reporting by Debra Sherman in Chicago and Eric Auchard in San Francisco; editing by Braden Reddall)

News : Google in the hot seat

Google unveils several new applications, but Wall Street focuses on weak click through numbers.

Google is under a microscope. The search engine, which not too long ago seemed untouchable, is finding itself under pressure.

Bobbi Rebell reports.

News : Google, SingTel and others to build submarine cable

SINGAPORE (Reuters) - Web search company Google Inc has agreed to build an undersea cable with five telecoms operators that will link the United States to Japan, and provide the capacity to sustain a surge in Internet traffic between the continents.

Google and the five telecoms companies said in joint statement that the 10,000 km (6,200 mile) undersea fiber optic cable, connecting the United States to Japan, will cost $300 million.

Google's partners in the consortium, dubbed Unity, comprises Bharti Airtel, Global Transit, KDDI Corp, Pacnet, and Singapore Telecommunications.

The cable will provide much-needed capacity to sustain unprecedented growth in data and Internet traffic between Asia and the United States.

"The Unity cable system allows the members of the consortium to provide the increased capacity needed as more applications and services migrate online," said Jayne Stowell, a spokesman for the consortium.

The consortium said it has picked NEC Corporation and Tyco Telecommunications to construct and install the system, which is expected to be ready for service in the first quarter of 2010.

(Reporting by Daryl Loo; editing by Louise Heavens)

News : YouTube outage might have been caused by Pakistan

ISLAMABAD (Reuters) - Pakistani Internet service providers may have inadvertently blocked the popular YouTube Web site across the world at the weekend when they restricted local access to the site, a telecommunications official said.

YouTube said on Monday that many users around the world could not access the site for about two hours because traffic had been routed according to erroneous Internet protocols.

The source of the problem was a network in Pakistan, YouTube said in a statement.

Pakistan ordered local Internet service providers to block access to the site because it was running material insulting to Islam, a Pakistani industry official said on Sunday.

A government telecommunications official said the initial order to restrict local access might have mistakenly affected users around the world.

"The blocking of the Web site within the country might have mistakenly affected its worldwide service, briefly," said the official, who declined to be identified.

But there had been no intention to block the site worldwide, he said.

Attempts to access YouTube in Islamabad on Sunday were met with a generic error message saying the site was unavailable.

A spokesman for the state telecommunications regulator, the Pakistan Telecommunication Authority, said on Tuesday the order had been lifted after Youtube removed the content deemed insulting to Islam.

"YouTube had been asked to remove the link, which they did, and we have subsequently ordered the unblocking of the site," the spokesman said.

The authority had earlier justified its order to block access in Pakistan saying it was necessary to avoid unrest in the overwhelming Muslim country of 160 million people.

"It has the potential to cause more unrest and possible loss of life and property across the country," the authority said in a statement on Monday, referring to the material.

Publication of caricatures of the Prophet Mohammad published in Danish newspapers in 2005 sparked widespread anger and deadly protests in several Muslim countries, including Pakistan.

Protests have been held in recent weeks in Pakistan after the republication of one of the cartoons.

On Tuesday, about 150 students staged a rally in the eastern city of Multan city and burned Danish and U.S. flags to express anger over the reprinting of the cartoon.

News : Reuters Technology Week

Biscuit the bionic golden retriever, ordering off an e-Menu, and the DVD's high definition denouement.

News : Microsoft's latest interoperability pledge: How free is 'open' now?

No move by Microsoft to share information with its competitors will ever be taken at face value, and certainly yesterday's new Interoperability Principle will come under very close scrutiny. Is this the opening of the floodgates the EC has been demanding?

In incremental, measured, if slow steps, Microsoft has made some efforts to comply with directives from the European Commission to make its software and protocols more interoperable with products from other manufacturers. Yesterday, the company surrendered one more boundary between its interoperability policy and the EC's dream situation, making a huge chunk of the information it published in response to the EC's order available to developers free of charge.

"We're announcing that developers will not need to take a license, or pay a royalty, or other fee to access any of that information," revealed CEO Steve Ballmer yesterday (according to Microsoft's transcript). "As an immediate first step to apply the principles today we're publishing to the Web over 30,000 pages of documentation for Windows client and server protocols that were previously available only under a 4D trade secret license. In addition, protocol documents for additional products like Office 2007 will be published in the upcoming months."

The company's newly published Interoperability Principle spells out the terms to which Ballmer referred: "Microsoft will publish its documentation for these Open Protocols and Open APIs on its website so that all developers will have the benefit of this technical information in a manner that takes advantage of the nature of open discussion on the web. Microsoft will not require developers to obtain a license, or to pay a royalty or other fee, to have access to all this information."

But free access, the Principle makes clear, does not mean free use. While Microsoft will no longer charge fees or royalties for parties seeking information on how to make their software interoperable, it may yet charge royalties for the way others use that information.

"Some of Microsoft's Open Protocols are covered by patents," reads the Principle. "Microsoft will indicate on its website which protocols are covered by Microsoft patents and will license all of these patents on reasonable and non-discriminatory terms, at low royalty rates. To assist developers in clearly understanding whether or not Microsoft patents may apply to any of the protocols, Microsoft will make available a list of the specific Microsoft patents and patent applications that cover each protocol."

The use of APIs to access those protocols, however, will not require a license, even if the service with which software is communicating is itself protected by Microsoft patents. So the company is making it clear, interoperability will not require licenses or incur fees, but like operability (building a product using a design inspired by Microsoft's patented IP) may very well.

The Principle does specify the products to which it applies: "Windows Vista including the .NET Framework, Windows Server 2008, SQL Server 2008, Office 2007, Exchange 2007, and Office SharePoint Server 2007, and future versions of these products." Previous editions of those products were not listed.

But while Ballmer and others referred to Office 2007 interoperability yesterday, there actually was no mention of Open Document Format, the basis of competing applications suites and the first such format to receive international standardization. Microsoft did open up access -- or at least, open it up somewhat more -- to its principal current products, so it did specify the "to what" part of the change argument, to borrow Rep. Barbara Jordan's famous phrase once again. But it did not specify the "from what."

Thus the status of an ODF plug-in for Office 2007 was not clarified yesterday, even though some got the impression that's what Ballmer was referring to.

The absence of any such mention was not lost on Red Hat chief counsel Michael Cunningham, in a response posted to his company's Web site yesterday afternoon.

"Rather than pushing forward its proprietary, Windows-based formats for document processing, OOXML," Cunningham wrote, "Microsoft should embrace the existing ISO-approved, cross-platform industry standard for document processing, Open Document Format (ODF) at the International Standards Organization's meeting next week in Geneva. Microsoft, please demonstrate implementation of an existing international open standard now rather than make press announcements about intentions of future standards support."

But Linux Foundation board member and attorney Andrew Updegrove thought yesterday's announcement was about ODF, in a sense...for the way in which it skillfully omitted mention of it.

"With respect to ODF, it will be important to see what kind of plug ins are made available, how they may be deployed, and also how effective (or ineffective) those translators may be," Updegrove said yesterday, in a statement shared with BetaNews. "If they are not easy for individual Office users to install, or if their results are less than satisfactory, then this promise will sound hopeful but deliver little. I am disappointed that the press release does not, as I read it, indicate that Microsoft will ship Office with a 'save to' ODF option already installed. This means that ODF will continue to be virtually the only important document format that Office will not support 'out of the box."'

The fact that Microsoft's making any movement in this direction at all, Updegrove added, is an indication to him that "multiple market forces" -- which, he said, included the EC investigation and the popular uprising of ODF support -- "are pushing and pulling Microsoft in a direction that it would have been highly unlikely to travel otherwise."

Yesterday's statement from the European Commission apparently was intended to serve as a reminder to everyone, including Microsoft, that its definition of "interoperability" is deeper than the mere dissemination of APIs. It said its current investigations are focused on "the alleged illegal refusal by Microsoft to disclose sufficient interoperability information across a broad range of products, including information related to its Office suite, a number of its server products, and also in relation to the so called .NET Framework and on the question whether Microsoft's new file format Office Open XML, as implemented in Office, is sufficiently interoperable with competitors' products."

Microsoft's APIs, as defined yesterday, provide open access by software with other software for the purposes of sharing information and functionality -- which is actually the way professional developers typically understand APIs and interoperability to work. But the legal definition is often fuzzier, as indicated by the EC's reminder yesterday that Microsoft needs to make its OOXML file format -- as opposed to Office 2007, the software which utilizes the format -- "sufficiently interoperable."

That would require not an API as Ballmer describes it but a plug-in as Updegrove describes it. Microsoft has said it is participating with open, community efforts to produce such plug-ins, though critics continue to question why the company doesn't just produce one on its own. Backers of Microsoft's efforts pose the counter-argument that it shouldn't be Microsoft's responsibility to ensure one-to-one correlation between its own format and every other one that comes along, whether or not it's an international standard.

News : ARM announces software for 3D graphics on phones

Mobile device CPU manufacturer ARM today announced Mali-JSR297 software, which takes full advantage of OpenGL ES 2.0 standard GPU and allows for 3D graphics processing on mobile platforms.

OpenGL ES has been appearing with increasing frequency in handsets, such as nVidia's recent prototype phone and Symbian OS devices.

The Khronos Group's OpenGL ES spec is designed specifically for embedded systems such as mobile handsets and video game consoles, and is the API of choice for the PlayStation 3. Members of the Khronos group include graphics companies nVidia and ATI, CPU manufacturers AMD and Intel, Sony Computer Entertainment, Nokia, Motorola, Ericsson, and Samsung.

At last year's Game Developers' Conference, the group ratified the standard, opening up a cross-platform environment for games to be developed upon. Games made for Sony's PS3 could therefore be easily ported down to the mobile phone. In doing this, gamers who play MMORPGs, for example, would be able to maintain play in a similar -- albeit stripped down -- mobile version of the game. This is, of course, only a possibility at present, but today's software announcement hopes to make the development process easier.

Mali-JSR297 is an addition to ARM's Mali graphics stack, an implementation of the OpenKODE set of APIs which the Khronos Group devised as a way for developers to produce cross-platform games and applications more quickly and easily. With it, calculations in Java will be minimized, allowing more sophisticated 3D graphics, which ARM claims can be similar to high-end consoles and PCs.

Release of the software is pending JSR287's approval as a standard, pre-release versions are expected in the third quarter of 2008.

News : Digital animals rule toy fair

A life-like golden retriever that responds to touch and your command was one of the highlights at this year's American International Toy Fair.

Elmo made a return appearance in a new form involving story-telling. Toymakers invested in sophisticated technology to integrate the analog and digital worlds.

Diane King reports from New York.

News : Microsoft to hold press call, not related to Yahoo

NEW YORK (Reuters) - Microsoft Corp (MSFT.O: Quote, Profile, Research) said it will hold a press conference on Thursday for a "significant" company announcement, but the software maker said the news was not related to its $42 billion offer for Yahoo Inc (YHOO.O: Quote, Profile, Research).

The company will hold a conference call at 11.30 a.m. EST with Chief Executive Steve Ballmer, chief software architect Ray Ozzie, senior vice president of server and tools Bob Muglia and general counsel Brad Smith.

Further details were not disclosed.

Microsoft shares rose 1.2 percent in premarket trading to $28.56 from its close of $28.22 on the Nasdaq on Wednesday.

News : Competing mobile visions

As Microsoft looks for ways to challenge Google in the online advertising space, the competitors look likely to tussle in the mobile arena.
While Microsoft says it's taking company-wide steps to place its technologies in the hands of an expanding mobile consumer audience, pointing out its Windows Mobile software runs on phones from 50 device makers used by 160 mobile operators, Google is working on a mobile platform it hopes will alter the rules and economics of this fast moving sector. After announcing The Open Handset Alliance along with 34 partners late last year, consumers are getting their first glimpse of Google's Android platform at the Mobile World Congress in Barcelona. Reuters Technology Correspondent Matt Cowan reports.

News : Yahoo gets personal with oneConnect

BARCELONA (Reuters) - Unfazed by Microsoft Corp's bid to acquire it, Yahoo Inc launched a mobile phone tool to let phone users share personal details from their favorite Web services with friends in their address books.

Yahoo on Tuesday said it was introducing a new tool it calls oneConnect that fits snippets of the Web's most popular services -- both from Yahoo, and rivals such as Microsoft, Google or Facebook -- onto the small screens of mobile phones.

OneConnect will be made available in the second quarter. Versions of the service can run on a majority of mass-market mobile phones sold around the world.

Yahoo said it will create special versions to work on Apple's iPhone and Research in Motion's Blackberry.

News : Microsoft: Takeover Offer in Yahoo's Best Interest

Microsoft says Yahoo's rejection of its multibillion dollar buyout offer is "unfortunate," and that moving forward on a deal is in both companies' best interest.

Microsoft said Yahoo's response Monday "does not change our belief in the strategic and financial merits of our proposal."

The Redmond, Wash., software maker added that it reserves the right to "pursue all necessary steps" to ensure Yahoo's shareholders have a chance to benefit from the offer that was initially valued at $31 per share.

Yahoo Bets on Higher Offer

Yahoo spurned Microsoft's $44.6 billion takeover bid as inadequate Monday, betting that it can elicit a higher offer from the world's largest software maker or find another way to deliver a comparable payoff to its shareholders.

The rebuff by the slumping Internet pioneer had been widely anticipated after word of Yahoo's intention was leaked during the weekend.

In its formal response, Yahoo said its board had concluded Microsoft's unsolicited offer "substantially undervalues" the Sunnyvale-based company.

Yahoo indicated it could be lured to the negotiating table if Microsoft ups the ante, without mentioning the price it has in mind.

"The board of directors is continually evaluating all of its strategic options in the context of the rapidly evolving industry environment and we remain committed to pursuing initiatives that maximize value for all stockholders," Yahoo said in a statement.

Investors appeared confident that Microsoft wants Yahoo badly enough to raise the stakes. Yahoo shares rose [YHOO 29.6699 -0.2001 (-0.67%) ] to near $30 Monday while Microsoft shares fell [MSFT 28.505 0.295 (+1.05%) ] to near $28.

If Microsoft doesn't raise its offer, Yahoo Chief Executive Jerry Yang assured employees in a Monday e-mail that the company is poised to rebound on its own and become a "must buy" in the $45 billion online advertising market.

"We have accomplished a great deal in a very short time," wrote Yang, a company co-founder who promised things would get better after he became CEO eight months ago. "Yahoo is a faster-moving, better organized, more nimble company well on its way to transforming the experiences of its users, advertisers, publishers and developers."

Just two days before Microsoft made its bid, Yang had warned Yahoo faced "headwinds" that made it unlikely the company's performance would improve significantly until 2009.

Yahoo's stock price had dropped by more than 40 percent in the three months leading to Microsoft's bid, valued at $31 per share when it was announced Feb. 1. The offer was 62 percent above Yahoo's market value at the time.

Many analysts believe Redmond, Wash.-based Microsoft will eventually raise its bid to $35 to $40 per share, sweetening the pot by $5 billion to $12 billion in an effort to negotiate an amicable sale.

Microsoft was prepared to pay at least $40 per share for Yahoo a year ago, according to a person familiar with the talks between the two companies a year ago. Yahoo wasn't interested then because it was confident in its own strategy, said the person, who didn't want to be identified because Microsoft's 2007 offer was never publicly disclosed.

But a higher bid now could hurt Microsoft's own stock price, which has been slipping amid concerns that a Yahoo takeover could be more trouble than its worth. Microsoft's market value has plunged by more than $40 billion, or 14 percent, since the bid was made public.

Microsoft representatives didn't immediately respond to requests for comment Monday morning.

RBC Capital Markets analyst Jordan Rohan predicted Yahoo's board will have little choice but to sell the company if Microsoft raises its bid to $35 or $36 per share. "Yahoo management has already exhausted the patience of its largest, longest-suffering shareholders," Rohan wrote in a Monday note.

If it doesn't want to pay more money, Microsoft could take its original bid directly to Yahoo's shareholders. Microsoft's management began preparing for that possibility last week by meeting with some of Yahoo's major shareholders to rally support for its offer.

In a more extreme tactic, Microsoft could try to override Yahoo's board by trying to oust the current directors later this year -- a risky maneuver that would likely create hard feelings that would make it more difficult to cobble the two businesses together if a deal were consummated.

Yahoo also could fend off Microsoft by exercising an anti-takeover device, known as a "poison pill," that would issue more company shares to make a buyout too expensive to pull off.

Although its profits have been dwindling during the past two years, Yahoo still possesses one of the Internet's biggest audiences and most valuable franchises.

Microsoft believes it can build on those assets to become a more formidable competitor to Google [GOOG 526.78 5.62 (+1.08%) ], which now holds a commanding lead in the lucrative online search and advertising markets.

Yahoo has reportedly been exploring an advertising partnership with Google as one way to boost its profits and remain independent. The company also has been looking for other suitors that might be interested in countering Microsoft's bid, but so far no one has stepped forward.

By rejecting Microsoft's initial offer, Yahoo's board is running the risk that the company's stock will plunge below $20 per share again if its suitor decides to walk away.

How Does Ego Play Into the Deal? Sound Off

That scenario would probably unleash a flood of shareholder lawsuits, intensifying the pressure on Yahoo's management team to deliver on a long-awaited turnaround that has been in the works for the past 18 months.

News : The Reuters Tech Show

News : Google offer of help to Yahoo

News : Microsoft, Google, Yahoo gain seats on OpenID Foundation board

What Yahoo's massive conversion to OpenID last month lacked is a way for Web sites to securely authenticate the users who have signed in. As it turns out, OpenID's directing body may want Microsoft to provide that part

Almost exactly one year ago, Microsoft made a bold announcement at an RSA security conference, saying it would be working with the OpenID Foundation to craft a solution to the problem of spoofing authentication. As was hidden from precisely no one, that method would involve Microsoft's CardSpace technology.

This morning, as part of an upgrade in membership status that also involves Google, Yahoo, and certificate provider VeriSign, Microsoft will be joining the other three as the Foundation's newest corporate board members. This means the four companies will now be represented on the board, rather than cooperating in ventures with the board.

Yahoo's upgrade in status is both important and deserved, as last month, it became the largest resource of OpenID identities in one fell swoop, moving its over quarter-billion registered usernames to an OpenID-compliant database. So Microsoft attaining a similar status with Yahoo in the same group would suggest it has something equally important to contribute.

That important component was apparently unveiled last year at this time: Microsoft wants to cement CardSpace's place as a provider of authentication for OpenID, the one component which even its own creators have admitted it lacks.

In a February 6, 2007 speech to the RSA conference, Microsoft Chairman Bill Gates spelled out the problem: "Identity...I think, is where the weakest link in these systems have been. You know, the overhead for password reset, the ease of guessing people's passwords, they use the same passwords on consumer things they sign up for that they use in the corporation. So passwords are not only weak, passwords have a huge problem in that...if you get more and more of them, the worse it is. And so that in the past if you want to just say get to a partner's Web site, they might give you a different account and a different password, and that would have to be managed, if you changed your role they wouldn't know to go and change that. So we have passwords, and, of course, we have to evolve from them, but we see Smart Cards as the specific, but certificates in general is the way that these things should go, that you'll be presenting certificates as opposed to weak passwords."

Gates did not, at that time, specifically mention OpenID as an example of a password-based approach which could be strengthened through the use of smart cards or certificates, but perhaps no knowledgeable person in the audience didn't think that's what he was talking about.

Just a few weeks prior to Gates' speech, Microsoft Chief Identity Architect Kim Cameron presented a demonstration of how CardSpace (which at the time was transitioning from its previous incarnation as InfoCard) could be used in an anti-phishing situation to prevent a malicious third party from using a man-in-the-middle approach to swipe an OpenID user's tokens. It wasn't a difficult demonstration to understand: CardSpace provided the secure transaction layer between the user (the relying party or RP) and the OpenID provider (which Cameron called the "IP," but which OpenID itself prefers to call the "OP"). As a result, an intermediary cannot then pretend to be the OP and provide the RP with a legitimate token, taken when that same party pretends to be the RP in communication with the OP.

Microsoft has been developing this system throughout the year, though little or no mention of it has been made by the Foundation. In fact, many of the Foundation's "current events" as of today continue to date back to December 2006 and earlier.

But today, it was Cameron who was given the floor by the Foundation in stating Microsoft's goals for making use of its board seat: "Since Bill Gates and [Chief Research and Strategy Officer] Craig Mundie announced our collaboration with the OpenID community last February at RSA, Microsoft has played a leading role in establishing the Foundation's open policy framework that allows everyone to participate in the development and use of OpenID specifications. Now, we look forward to working with the community to refine and drive adoption of the specifications."

And as Microsoft Director of Identity Partnerships Michael Jones pointed out to BetaNews early this afternoon, the Foundation needs to step up its work on completing the draft of the Provider Authentication Policy Extension document -- the specification which would enable CardSpace and others to provide that secure layer. Jones may have further comment for BetaNews later in the day.

Google's new seat on the board marks the official, and perhaps long overdue, acknowledgement by the Foundation of Brad Fitzpatrick, who is not only currently employed by Google but also just happens to be OpenID's creator.

Fitzpatrick's contribution to this morning's Foundation statement was noteworthy not only for what it said, but for the fact that it preceded Microsoft's by two paragraphs: "OpenID was always intended to be a decentralized sign-on system, so it's fantastic to join a foundation committed to keeping it free and unencumbered by proprietary extensions."

News : Yahoo board to meet on Microsoft offer: report

NEW YORK (Reuters) - Yahoo Inc's board of directors is to meet on Friday to discuss Microsoft Corp's $44.6 billion buyout offer, the TechCrunch blog said, citing unnamed sources.

Yahoo officials could not immediately be reached.

According to the report, Yahoo's outside advisers are in favor of a deal, despite the interest of some executives to seek an alternative tie-up with Web search leader Google Inc.

Analysts have said Microsoft could be persuaded to raise its $31 per share unsolicited bid, above a 62 percent premium when the offer was first made public last week, to make it easier for Yahoo co-founder and Chief Executive Jerry Yang and his board to accept.

Yahoo investor Capital Research and Management met with Microsoft CEO Steve Ballmer on Thursday to see whether he would be willing to raise the bid, the New York Post reported, citing a source familiar with the meeting.

Yahoo shares were down 12 cents at $28.92 on the Nasdaq.

(Reporting by Michele Gershberg)

News : Microsoft makes colossal bid for Yahoo in wake of chairman's departure

Confirming that his company had indeed been in discussions with Yahoo's senior management about a possible takeover throughout the last 18 months, Microsoft CEO Steve Ballmer revealed this morning he has personally placed an offer to Yahoo's board of directors, proposing a takeover whose value it estimates at $44.6 billion.

"We've been engaged in conversations with Yahoo management off and on for the last 18 months," Ballmer told reporters early this morning. He confirmed that he had a personal conversation with Yahoo CEO Jerry Yang yesterday, to discuss his formal offer to the board.

"Our companies really do share a vision for services and online advertising," he added. The offer appears to express an interest in keeping as many of Yahoo's engineers and technical staff as possible, though it is not as clear which parts, if any, of Yahoo's technical infrastructure and advertising platform would survive. Microsoft executives this morning appear to be focusing on Yahoo's market share position, employee base, and capital evaluation rather than its technology.

Platform division president Kevin Johnson made it clear later that the Yahoo brand would survive, but to what degree it survives is not yet stated. To that, Ballmer added that the Windows Live brand would survive anyway, since it is important to him that Windows embrace the online experience.

Ballmer's move comes in the wake of Yahoo chairman and former CEO Terry Semel having announced his resignation from the board of directors. Microsoft's statement this morning refers specifically to having been in communications with Yahoo's chairman -- presumably Semel -- and his prior refusal to entertain Microsoft's offers.

Here is the publicly released version of Ballmer's offer to Yahoo's board of directors, in its entirety:


January 31, 2008

Board of Directors
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089
Attention: Roy Bostock, Chairman
Attention: Jerry Yang, Chief Executive Officer

Dear Members of the Board:

I am writing on behalf of the Board of Directors of Microsoft to make a proposal for a business combination of Microsoft and Yahoo!. Under our proposal, Microsoft would acquire all of the outstanding shares of Yahoo! common stock for per share consideration of $31 based on Microsoft's closing share price on January 31, 2008, payable in the form of $31 in cash or 0.9509 of a share of Microsoft common stock. Microsoft would provide each Yahoo! shareholder with the ability to choose whether to receive the consideration in cash or Microsoft common stock, subject to pro-ration so that in the aggregate one-half of the Yahoo! common shares will be exchanged for shares of Microsoft common stock and one-half of the Yahoo! common shares will be converted into the right to receive cash. Our proposal is not subject to any financing condition.

Our proposal represents a 62% premium above the closing price of Yahoo! common stock of $19.18 on January 31, 2008. The implied premium for the operating assets of the company clearly is considerably greater when adjusted for the minority, non-controlled assets and cash. By whatever financial measure you use - EBITDA, free cash flow, operating cash flow, net income, or analyst target prices - this proposal represents a compelling value realization event for your shareholders.

We believe that Microsoft common stock represents a very attractive investment opportunity for Yahoo!'s shareholders. Microsoft has generated revenue growth of 15%, earnings growth of 26%, and a return on equity of 35% on average for the last three years. Microsoft's share price has generated shareholder returns of 8% during the last one year period and 28% during the last three year period, significantly outperforming the S&P 500. It is our view that Microsoft has significant potential upside given the continued solid growth in our core businesses, the recent launch of Windows Vista, and other strategic initiatives.

Microsoft's consistent belief has been that the combination of Microsoft and Yahoo! clearly represents the best way to deliver maximum value to our respective shareholders, as well as create a more efficient and competitive company that would provide greater value and service to our customers. In late 2006 and early 2007, we jointly explored a broad range of ways in which our two companies might work together. These discussions were based on a vision that the online businesses of Microsoft and Yahoo! should be aligned in some way to create a more effective competitor in the online marketplace. We discussed a number of alternatives ranging from commercial partnerships to a merger proposal, which you rejected. While a commercial partnership may have made sense at one time, Microsoft believes that the only alternative now is the combination of Microsoft and Yahoo! that we are proposing.

In February 2007, I received a letter from your Chairman indicating the view of the Yahoo! Board that "now is not the right time from the perspective of our shareholders to enter into discussions regarding an acquisition transaction." According to that letter, the principal reason for this view was the Yahoo! Board's confidence in the "potential upside" if management successfully executed on a reformulated strategy based on certain operational initiatives, such as Project Panama, and a significant organizational realignment. A year has gone by, and the competitive situation has not improved.

While online advertising growth continues, there are significant benefits of scale in advertising platform economics, in capital costs for search index build-out, and in research and development, making this a time of industry consolidation and convergence. Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition. Together, Microsoft and Yahoo! can offer a credible alternative for consumers, advertisers, and publishers. Synergies of this combination fall into four areas:

Scale economics: This combination enables synergies related to scale economics of the advertising platform where today there is only one competitor at scale. This includes synergies across both search and non-search related advertising that will strengthen the value proposition to both advertisers and publishers. Additionally, the combination allows us to consolidate capital spending.

Expanded R&D capacity: The combined talent of our engineering resources can be focused on R&D priorities such as a single search index and single advertising platform. Together we can unleash new levels of innovation, delivering enhanced user experiences, breakthroughs in search, and new advertising platform capabilities.

Many of these breakthroughs are a function of an engineering scale that today neither of our companies has on its own.

Operational efficiencies: Eliminating redundant infrastructure and duplicative operating costs will improve the financial performance of the combined entity.

Emerging user experiences: Our combined ability to focus engineering resources that drive innovation in emerging scenarios such as video, mobile services, online commerce, social media, and social platforms is greatly enhanced.

We would value the opportunity to further discuss with you how to optimize the integration of our respective businesses to create a leading global technology company with exceptional display and search advertising capabilities. You should also be aware that we intend to offer significant retention packages to your engineers, key leaders and employees across all disciplines.

We have dedicated considerable time and resources to an analysis of a potential transaction and are confident that the combination will receive all necessary regulatory approvals. We look forward to discussing this with you, and both our internal legal team and outside counsel are available to meet with your counsel at their earliest convenience.

Our proposal is subject to the negotiation of a definitive merger agreement and our having the opportunity to conduct certain limited and confirmatory due diligence. In addition, because a portion of the aggregate merger consideration would consist of Microsoft common stock, we would provide Yahoo! the opportunity to conduct appropriate limited due diligence with respect to Microsoft. We are prepared to deliver a draft merger agreement to you and begin discussions immediately.

In light of the significance of this proposal to your shareholders and ours, as well as the potential for selective disclosures, our intention is to publicly release the text of this letter tomorrow morning.

Due to the importance of these discussions and the value represented by our proposal, we expect the Yahoo! Board to engage in a full review of our proposal. My leadership team and I would be happy to make ourselves available to meet with you and your Board at your earliest convenience. Depending on the nature of your response, 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.

We believe this proposal represents a unique opportunity to create significant value for Yahoo!'s shareholders and employees, and the combined company will be better positioned to provide an enhanced value proposition to users and advertisers. We hope that you and your Board share our enthusiasm, and we look forward to a prompt and favorable reply.

Sincerely yours,

/s/ Steven A. Ballmer
Steven A. Ballmer
Chief Executive Officer
Microsoft Corporation