sorted by: recent | see : popular

Content Tagged with Microsoft + Profiles

This isn’t enough data to declare Microsoft’s much derided Live Cashback search product a winner, but the first full month after it launched (June) shows a 15% gain in search volume v. the previous month, according to Comscore. This erases the previous month’s losses, bringing Microsoft up to 9.2% overall search share.

Live Search CashBack gives advertisers the option of offering users a direct rebate for purchases made after searching on Microsoft. The product shifts search advertising from cost-per-click (CPC) to cost-per-action (CPA) and give a lot of the revenue back to users.

Live Search Cashback isn’t designed to grab a ton of market share away from Google and Yahoo, but Microsoft is hopeful that more users will come to them when doing searches around buying goods online. And those queries tend to bring in the lion’s share of advertising dollars. This won’t affect Microsoft’s bottom line much, of course, since they are passing most of the money from purchases right back to consumers.

This is far from a definitive statement of Live Search Cashback’s success as an ongoing product, but the jump is an early sign that consumers may be intrigued. Let the debates continue.

Crunch Network: CrunchBoard because it’s time for you to find a new Job2.0

Both the Senate and House Judiciary Committees are holding separate hearings today on the antitrust issues raised by the proposed Google-Yahoo search advertising deal. (More details on the deal here). Microsoft’s general counsel Brad Smith, whose fought his own share of antitrust battles on behalf of Bill Gates, will be wagging the antitrust finger at Google. In his prepared testimony, he will claim that the deal potentially gives Google control of 90 percent of search ads, will lead to fewer choices and higher prices for advertisers, and raise serious privacy concerns for consumers. He will say:

If search is the gateway to the Internet, and most believe that it is, this deal will put Google in a position to own that gateway and the information that flows through it. Never before in the history of advertising has one company been in the position to control prices on up to 90 percent of advertising in a single medium. Not in television, not in radio, not in publishing. It should not happen on the Internet.

Google’s chief legal officer David Drummond will respond that the deal is good for consumers because they will see better ads, and good for advertisers and Web publishers because more people will click on those ads. He will maintain that Google will not control all of Yahoo’s search advertising, and will point out that Yahoo will compete in that arena, continuing to sell its own ads. It will also continue to compete in regular search. And as for privacy, Google and Yahoo will not exchange “personally identifiable information” about each user.

Here are Drummond’s talking points, which are summarized on the Google Policy Blog (where you can also find his full testimony):

* This agreement will be good for Internet users (who will see ads that are better targeted to their interests); advertisers (whose ads will be better matched to users’ interests, allowing them to reach potential customers more efficiently), and website publishers (who will see increased revenue from better-matched ads on their websites).

* Google and Yahoo! will remain vigorous competitors, and that competition will help fuel innovation that is good for users and the economy. As we’ve said before, commercial arrangements between competitors are commonplace in many industries. Antitrust regulators in the US have recognized that consumers can benefit form these arrangements, especially when one company has technical expertise that enables another company to improve the quality of its products.

* Our agreement will not increase Google’s share of search traffic, because Yahoo will continue to run its own search engine and compete in online search.

* We’re particularly excited that as part of the agreement, Yahoo! will make its instant messaging network interoperable with Google’s. This will mean easier and broader communication among a growing number of IM users, and enable users to choose among competing IM providers based on the merits and features of the services.

* We have taken a number of steps in the Yahoo! agreement to protect user privacy. As Google supplies ads to Yahoo! and its partners, personally identifiable information of individual Internet users will not be shared between the companies. Yahoo! will anonymize the IP address of a searcher’s computer before passing a search request to Google.

That last point about Yahoo anonymizing user IP addresses could set an interesting precedent. Advertisers would rather see those IP addresses freely shared across ad networks and Websites so that consumers can be targeted no matter where they go on the Web. But Yahoo and Google obviously felt it could have been a big enough issue to squirrel the deal with the government. As Congress looks at behavioral targeting in general further down the road, that could pop its head up again (even n a non-antitrust context).

These particular antitrust hearings have been brewing for a while. Google and Yahoo have tried to protect themselves against Microsoft’s criticisms by structuring the deal as a straightforward arms-length commercial agreement. And the fact that Microsoft has a lot at stake in seeing the deal squashed doesn’t make it the strongest witness at these hearings. It is not exactly a disinterested third party, since it is still trying to wrangle the search business from Yahoo itself.

Crunch Network: MobileCrunch Mobile Gadgets and Applications, Delivered Daily.

Yahoo rejected a new Microsoft offer to acquire Yahoo’s search business earlier this evening. The offer, which apparently was made on Friday in cooperation with Yahoo investor Carl Icahn, was a variation on Microsoft’s previous offer to acquire Yahoo’s search business in exchange for cash, a partial stock buyout and revenue guarantees, required the complete replacement of the Yahoo board and executive management team, had a 24 hour expiration period and stated that there was no room for negotiation.

Yahoo rejected it, saying that the Google search deal they’ve signed is a better deal and adding that the requirement to replace the board and executive team is “absurd and irresponsible given the complexity of the deal.” We, by the way, agree with both points.

Yahoo formally offered to sell itself whole to Microsoft in the release as well, saying “the Board believes a whole company transaction could be negotiated and executed prior to August 1st,” and suggesting Microsoft’s original $33 offer will work just fine for them right now.

Full text of release:

Yahoo! Rejects Microsoft/Icahn Search and Restructuring Proposal
Yahoo! Suggests Microsoft Make A Proposal To Acquire Whole Company

SUNNYVALE, Calif., Jul 12, 2008 (BUSINESS WIRE) — Yahoo! Inc. (Nasdaq:YHOO), a leading global Internet company, confirmed today that it has rejected a joint proposal from Microsoft Corporation and Carl Icahn for a complex restructuring of Yahoo! that would include the acquisition of Yahoo!’s search business by Microsoft.

The proposal was made on Friday evening and Yahoo! was given less than 24 hours to accept the proposal, the fundamental terms of which Microsoft and Mr. Icahn made clear they were unwilling to negotiate. After reviewing the proposal with its legal and financial advisers, Yahoo!’s Board of Directors determined that accepting the proposal is not in the best interests of its stockholders.

The Board’s rejection of the proposal was based on a number of factors, including the following:

1. Yahoo!’s existing business plus its recently signed commercial agreement with Google has superior financial value and less complexity and risk than the Microsoft/Icahn proposal.

2. The Microsoft/Icahn proposal would preclude a potential sale of all of Yahoo! for a full and fair price, including a control premium.

3. The major component of the overall value per share asserted by Microsoft/Icahn would be in Yahoo!’s remaining non-search businesses which would be overseen by Mr. Icahn’s slate of directors, which has virtually no working knowledge of Yahoo!’s businesses.

4. The Microsoft/Icahn proposal would require the immediate replacement of the current Board and removal of the top management team at Yahoo!. The Yahoo! Board believes these moves would destabilize Yahoo! for the up to the one year it would take to gain regulatory approval for this deal.

Roy Bostock, Chairman of Yahoo! said, “This odd and opportunistic alliance of Microsoft and Carl Icahn has anything but the interests of Yahoo!’s stockholders in mind. Clearly, Microsoft, having failed to advance in search, is aligning with the short-term objectives of Mr. Icahn to coerce Yahoo! into selling its core strategic search assets on terms that are highly advantageous to Microsoft, but disadvantageous to Yahoo! stockholders. Yahoo’s Board of Directors will not allow that to happen. Yahoo!’s Board remains open to any transaction that delivers full value to our stockholders - we just do not believe such a transaction should be dictated by Microsoft and a single short-term investor.”

Mr. Bostock continued, “After negotiating among themselves without the involvement of Yahoo!, Carl Icahn and Microsoft presented us with a ‘take it or leave it’ proposal under which we would be required to restructure the Company, hand over to Microsoft Yahoo!’s valuable search business and to Carl Icahn the rest of the Company, giving us less than 24 hours to respond. It is ludicrous to think that our Board could accept such a proposal. While this type of erratic and unpredictable behavior is consistent with what we have come to expect from Microsoft, we will not be bludgeoned into a transaction that is not in the best interests of our stockholders.”

Mr. Bostock also noted that Microsoft’s position that it would not deal with, or otherwise engage with, Yahoo!’s management to reach agreement on this proposal or to implement it, is completely absurd and irresponsible given the complexity of the deal - one that requires the removal of half of Yahoo!’s business from Yahoo! and then the integration of it into Microsoft.

Yahoo!’s Board points out that a transaction to acquire the whole company would be much more straightforward and involve far less risk than the new proposal or any similar alternative. The Board believes a whole company transaction could be negotiated and executed prior to August 1st. In rejecting the Microsoft/Icahn proposal, Yahoo! not only repeated its offer to sell the entire Company to Microsoft for at least $33 per share, but also offered to negotiate an improved search only transaction. Microsoft rejected both offers.

Ironically, Carl Icahn, who jointly with Microsoft developed and presented this proposal, had previously urged Yahoo! not to sell its search business to Microsoft. Specifically, in an interview on CNBC’s Fast Money program, on June 4, 2008, Mr. Icahn said, “… it’s crazy for this company now to do this alternative deal and give the store away, because obviously, an alternative deal is a poison pill because once you’ve done an alternative deal and given the search to Microsoft, you don’t need Microsoft to buy you anymore. So, that would be a poison pill….”

Significantly, the Board believes Microsoft and Mr. Icahn are overstating the value their search and restructuring proposal would deliver to Yahoo! stockholders and are substantially understating the risks. Yahoo! noted that a transaction that would separate the Company’s search and display businesses is an undertaking of great complexity. While the Board acknowledges that the current proposal contains a number of improvements over Microsoft’s earlier proposal, the Yahoo! Board’s conclusion that the current proposal is not in the best interests of stockholders is based on a number of factors, including:

– The revenue guarantees suggested, which are conditional and subject to reduction, are well below the search revenue that the Company is expected to generate on its own and in association with its announced commercial agreement with Google. That agreement alone is estimated to generate $250 to $450 million of incremental cash flow for the first twelve months following implementation, while allowing Yahoo! to remain a principal in paid search;

– The success of the remaining Company is critically dependent on Microsoft’s ability to effectively monetize search;

– Microsoft/Icahn’s proposed Traffic Acquisition Costs rates are below market;

– The proposal calls for Yahoo! to sell its industry-leading algorithmic search business and its related strategic and valuable intellectual property portfolio for no incremental consideration; and

– Many of the components of the headline value that Mr. Icahn and Microsoft put forward, such as the spin-off of the Yahoo!’s Asian assets and the return of cash to stockholders, are steps that could be taken by Yahoo! on its own and the Board continues to evaluate these options.

Mr. Bostock concluded, “Microsoft and Mr. Icahn are trying to dismantle the Company and deliver our search business to Microsoft on terms that would be disadvantageous to Yahoo! stockholders. We are prepared to let our stockholders, not Microsoft and Carl Icahn, decide what is in their best interests and we look forward to the upcoming vote.”

Crunch Network: MobileCrunch Mobile Gadgets and Applications, Delivered Daily.

Microsoft has announced this morning the availability of hosted Exchange, Sharepoint, collaboration and communication as part of the Microsoft Online suite. The hosted platform is a direct competitor to the Google App platform, which is currently available either for free or for as little as $50 per year.

The service plans for the Microsoft deals start from $3 per user per month - and with that plan users get an Exchange mailbox with webmail access, sharepoint server access and the basic communication tools such as messenger. The full hosted Exchange and Sharepoint, along with collaboration tools, starts at $15 per user per month - which is around $180 per year. While the alternatives are a lot cheaper, for most businesses an Exchange-based solution is at a different level than what Google or any other web-based company can provide.

Exchange already has deep penetration into the enterprise, and the online platform and suite integrates nicely with existing windows domains - so users can easily move users and mailboxes between hosted online or hosted on the local network. Pricing is a little more than what it would be with just an Exchange license, but it includes the hosted environment, administration tools and integration into other products such as hosted Dynamics CRM.

Microsoft also announced this morning that they will be paying partners a 12% fee for all new customers that they refer to the platform. Microsoft has a very large partner base (over 15,000 of them are currently meeting at the partner conference where this was announced), who are all ready to go out and sell this solution into businesses at all levels - something that Google does not have.

Continue reading at Techcrunch IT >>

Crunch Network: MobileCrunch Mobile Gadgets and Applications, Delivered Daily.

Dissident Yahoo shareholder Carl Icahn and Microsoft have been talking to each other (as has everyone else involved in a possible Yahoo deal, including Yahoo and AOL over the weekend). In a letter to shareholders, reproduced below, Icahn notes that he and Microsoft CEO Steve Ballmer have been discussing possible transactions over the past week, and that Ballmer ” made it clear to me that if a new board were elected, he would be interested in discussing a major transaction with Yahoo! . . . immediately.”

Microsoft is throwing its weight behind Icahn’s proxy battle, going so far as to signal that an Icahn-controlled Yahoo is the only one that it is willing to restart negotiations with. Icahn says Microsoft won’t enter into any deal with the current Yahoo board because of the risk that the company will be “mismanaged” in the nine months or more it could take to finalize a deal of this size. He states:

Steve made it abundantly clear that, due to his experiences with Yahoo! during the past several months, he cannot negotiate any transaction with the current board.

In a coordinated statement it just released, Microsoft confirms that while it has “concluded that we cannot reach an agreement” with the current board and management at Yahoo, and that “after the shareholder election Microsoft would be interested in discussing with a new board a major transaction with Yahoo!”

Microsoft is basically telling the market that the only way a Microsoft deal can be revived is by voting the current board out. Yahoo’s stock is up 10 percent this morning on the news to $23.50, last time I checked.

Icahn makes it sound like he and Ballmer are closer than two teenage Best Friends Forever, talking on the phone for “as long as an hour,” gossiping about what they plan to do to Yahoo. But Microsoft is not guaranteeing anything, just that it would talk to Yahoo again if a new board is elected that is more open to a deal than the current one. It would be Microsoft’s fiduciary duty to do so anyway. Ballmer just likes slapping Yahoo around. He is not really committing to anything.

Yahoo, for its part, plans on arguing at its shareholder meeting that selling its search business to Microsoft makes no sense. But one of its counterpoints to Icahn’s original five-point plan, that Microsoft is no longer interested in a full acquisition of Yahoo, is now officially invalid.

Update: Yahoo responds, saying these announcements are silly because Yahoo’s current board is ready to negotiate a full sale of the company with Microsoft. Here is the full statement (I’ve bolded parts of it for emphasis):

Yahoo!’s Board of Directors continues to stand ready to enter into negotiations with Microsoft Corporation for an acquisition of Yahoo!. Indeed, as recently as June, Yahoo!’s independent directors and management approached Steve Ballmer about just such a transaction, only to be told that Microsoft was no longer interested even in the price range which they had previously proposed. Now Mr. Ballmer and Mr. Icahn have teamed up in an apparent effort to force Yahoo! into selling to Microsoft its Search business at a price to be determined in a future “negotiation” between Mr. Icahn’s directors and Microsoft’s management. We feel very strongly that this would not lead to an outcome that would be in the best interests of Yahoo!’s stockholders. If Microsoft and Mr. Ballmer really want to purchase Yahoo!, we again invite them to make a proposal immediately. And if Mr. Icahn has an actual plan for Yahoo! beyond hoping that Microsoft might actually consummate a deal which they have repeatedly walked away from, we would be very interested in hearing it.

Read both Microsoft’s and Icahn’s coordinated statements after the break:

Here is Microsoft’s statement:

In the past week we have had the opportunity to discuss with Carl Icahn the prospects for a possible agreement between Microsoft and Yahoo!.

Despite working since January 31 of this year, as well as in the early part of last year, we have never been able to reach an agreement in a timely way on acceptable terms with the current management and Board of Directors at Yahoo!. We have concluded that we cannot reach an agreement with them. We confirm, however, that after the shareholder election Microsoft would be interested in discussing with a new board a major transaction with Yahoo!, such as either a transaction to purchase the “Search” function with large financial guarantees or, in the alternative, purchasing the whole company.

As Mr. Icahn notes in his statement today, it would be premature to discuss at this time important details such as the price or other terms of a possible transaction. We respect the right of Yahoo!’s shareholders to determine the destiny of their company, and we do not intend to engage in ongoing commentary on these issues in advance of Yahoo!’s shareholder meeting.

As we explained on June 12 when Yahoo! announced an agreement with Google, we believe that our proposed search acquisition and partnership would have delivered superior value to Yahoo!’s shareholders and the marketplace as a whole. We have not changed our position, even as we continue to move forward with our own online search and advertising offerings. We therefore welcome interest by Mr. Icahn in pursuing this and other discussions.

While of course there can be no assurance of a future transaction, we will be prepared to enter into discussions immediately after Yahoo!’s shareholder meeting if a new board is elected.

Here is Carl Icahn’s letter to Yahoo shareholders that Microsoft is responding to:

Carl C. Icahn
ICAHN CAPITAL LP
767 Fifth Avenue, 47th Floor
New York, NY 10153

July 7, 2008

Dear Yahoo! Shareholders:

During the past week I have spoken frequently with Steve Ballmer, CEO of
Microsoft. Several of our conversations have lasted as long as an hour. Also,
a few of our discussions have taken place while other top executives, such as
Kevin Johnson, participated. Our talks centered on the industry in general
but, more importantly, on how Yahoo! and Microsoft can do a transaction
together. Steve made it abundantly clear that, due to his experiences with
Yahoo! during the past several months, he cannot negotiate any transaction
with the current board. His logic is simple. If and when a transaction was
consummated, Microsoft would be guaranteeing a great deal of capital at
closing. However, a transaction could take at least nine months and perhaps
longer to obtain regulatory clearance in the U.S., Europe, and elsewhere.
During that period, if the current board and management team of Yahoo!
mismanage the company (and their recent track record is far from reassuring),
Microsoft would be putting its money at risk and a great deal could be lost.

For example, in a transaction to purchase the whole company, a very large
amount of capital would be due at closing. Even in an “alternate” transaction,
where just the “Search” assets were purchased, large guarantees would have to
be made and, again, large sums could be lost if the company was mismanaged.
Microsoft perceives this risk may be quite high with the current board and
management in place. However, Steve made it clear to me that if a new board
were elected, he would be interested in discussing a major transaction with
Yahoo!, such as either a transaction to purchase the “Search” function with
large financial guarantees or, in the alternative, purchasing the whole
company. He stated that Microsoft would be willing to enter into discussion
immediately if the new board that has been nominated were elected. While there
can be no assurance of a future transaction, as many of you know, I have
negotiated successfully a large number of transactions over the past years. If
and when elected, I strongly believe that in very short order the new board
would, subject to its fiduciary duties, be presenting to shareholders either a
purchase offer for the whole company or a very attractive offer to purchase
“Search” with large guarantees. I hope to continue to be speaking to Steve
over the next few weeks; however, since I do not as yet represent the Yahoo!
board, both Steve and I do not wish to get into details over price, or even
which of these transactions makes the most sense.

Much has been said about how badly the Yahoo! board has “botched up”
negotiations with Microsoft over the past months. There is no need to keep
pointing out the mistakes I believe Yahoo! made by not immediately taking a
$33 offer made by Microsoft. But one thing is clear — Jerry Yang and the
current board of Yahoo! will not be able to “botch up” a negotiation with
Microsoft again, simply because they will not have the opportunity.

Our company is now moving toward a precipice. It is currently losing
market share in its “Search” function; our current Board has failed to bring
in a talented and experienced CEO to replace Jerry Yang and return Jerry to
his role as Chief Yahoo!, and currently it is witnessing a meaningful exodus
of talent. It is no secret that Google (which hired a great operator as CEO)
continues to dramatically outperform Yahoo!. According to publicly available
information, Google’s income from operations grew 59% per year over the last
two years while Yahoo!’s shrank 21% per year. However, none of the above has
caused the Yahoo! board to hesitate in paying themselves $10,000 per week. IT
IS TIME FOR A CHANGE.

If elected, I have little doubt that the new board, subject to its
fiduciary duties, will do what the current board will not do, i.e.,

— Immediately start negotiation with Microsoft to sell the whole company
or, in the alternative, sell “Search” with large guarantees.

— Move expeditiously to replace Jerry Yang with a new CEO with operating
experience.

Sincerely yours,

CARL C. ICAHN

(Photo by Sam Lustgarten).

Crunch Network: MobileCrunch Mobile Gadgets and Applications, Delivered Daily.

I spoke with Powerset cofounder/CEO Barney Pell and Microsoft’s Live Search General Program Manager Ramez Naam shortly after Microsoft’s announcement of their acquisition of Powerset earlier today.

Microsoft intends to use Powerset’s natural language search technology as a major differentiating factor v. no. 1 search player Google (see our recent coverage of Live Search Cashback, a another Microsoft search effort aimed at getting more market share).

TechCrunchIT goes into detail on how effective Powerset may be as a weapon. But a few things are clear - the resource limitations (cash and computing resources) that slowed Powerset’s development are now history. The relevance problem is less important since Microsoft core search relevance is quite good. And users really seem to like the beta launch of Powerset even with the limited dataset.

Naam says 5% of searches contain elements of natural language that keyword based search algorithms don’t handle well, and there’s an assumption that as better results are returned, more people may start to simply type a normal sentence instead of a couple of keywords. Microsoft will integrate at least parts of Powerset technology into Microsoft Live Search by the end of the year, Naam says. I expect we’ll be hearing a lot more about natural language search coming out of Microsoft shortly.

The full interview transcript is below, and you can listen to the MP3 over at TalkCrunch.

Michael Arrington: Hello this is Mike Arrington with Techcrunch. I have on the line today Barney Pell the co-founder and CEO of Powerset which was acquired, or actually announced that it was going to be acquired by Microsoft, earlier today the ancones was made. And from Microsoft I have Ramez Naam on the phone as well. He’s the group program manager for Microsoft Live search. Welcome Guys.

Ramez Naam: Thank you.

Barney Pell: Thank you.

MA: So just to be clear, what exactly was announced today? You announced that you’ve signed a deal, but not closed it yet.

RN: That’s right, we’ve signed the deal but the transaction has not happened but we’ve agreed on all terms for Powerset to become a part of the Live search team at Microsoft.

MA. Is there anything that can happen can stop the closing at this point?

RN: It would be very, very unexpected for anything to stop the closing at this point.

MA: Okay, and how long do you think it would take to close the deal, or more importantly really integrating the teams and move the product forward using Microsoft’s resources.

RN: Well, closing the deal, it’ll take a typical amount of time and not too terribly long, as far as integrating the teams, I think we’ll start on that immediately. And this is both a short term and long term task: Short term we think that Powerset has an amazing team, great people like Tim Converse, Chad Walters, Lorenzo Thione, Scott Prevost, Barney and they’ll have a big impact on Live Search before the end of the year your going to see significant changes and then long term as Barney likes to say, this is a 20 year vision, really the understanding what the pages are about, what queries mean. This is the front line of artificial intelligence, computer science and we’re going to be working on this for quite a long time to come.

MA: Ramez, did you say that your going to be integrating the teams right away?

RN: Yea, essentially yes.

MA: Ok, so effectively the deals close, that means that the deals closed, from an outsiders perspective, you guys are one company and you’re moving forward right now.

RN: We’re certainly laying our plans right now and talk about what we’re going to start doing. You won’t see any impact until the deal actually closes, but we have a a lot of ideas and a lot of conversations.
MA: Barney I’d like to, before we jump in too much more, I’d like for you to give a little bit of a background of Powerset, just a couple of minutes on when you first had the idea, the early days when you founded the company and just a couple minutes on that, and the basic ideas you had that resulted in you founding Powerset.

BP: Ok great. 3 years ago I was an Entrepreneur in residence at Mayfield, a venture capital firm. And I was looking at what was going to be the future of search, projecting forward in an open ended, visionary way and looking at what were the major trends. I had a previous background in a lot of artificial intelligence, and taking advanced AI technology from research labs, and getting them into the world. Either through Mission Critical, or mission operations at NASA, spacecrafts when I was at NASA, or internet search related technologies among other things.

I could see that there was going to be a huge amount of computing power becoming available over time, and that a lot of the work in AI and in particular natural language, was sort of nearing the time where it was going to be commercially ready, and these two trends would be converging just as search was becoming the center of our interactions with computers and tapping into all the information that is out there on the internet. So, I could really see that there were a set of trends that were going to converge it looked like the center of a perfect storm, I then having seen this vision, went out to evaluate how good was this natural language technology across the different groups, the research organizations, identified the key requirements that would make it work at scale, what kind of properties would a natural language search have to have to work at scale, how would the economics work now, and was now really the right time. And in my assessment of the different technologies out there, I found that the technology at PARC, after 30 years of development, had come to a point where it was actually ready to be taken out, and to be commercialized. And in principal ought to be able to work at scale. I began negotiating with PARC, with Ron Kaplan, who was leading the natural language group there for 30 years, and also with his colleague Danny. These were sort of the fundamental guys in computational linguistics over all this time.

And in parallel I found that there was another group that was related, working with the same PARC technology, already looking to apply it to search, in a research basis, and these were the folks at Fuji-Xerox Palo Alto labs including, Lorenzo Thione, and two of our other key people inside Powerset. And they had a similar vision on a research side, and they were already looking at the PARC technology and they were saying that this should be able to work. So, we actually had a shared vision, a shared recognition across all of us, that this could be possible. And Lorenzo would up saying right away, “let’s go do this, you know I want to join you”, and became a co-founder.

We then spent a long time negotiating with PARC to set up the right kind of teaming and partnership relationship, and to ultimately develop a very powerful license for this technology that would work for everyone. And during that time, we wound up, we were stealth for a while, and we would up hiring and building a great team, raising several rounds of funding, and basically building our product. And we had to build a lot of challenging infrastructure, take this natural language technology from the research labs, and really making it work on a large scale. Bringing together a world class search team, with together people like Chad Walters and Tim Converse coming on board, bringing their expertise and figure out how to make this stuff work on scale with natural language and the best of search, and then build up a product and user experience team that would be able to make this work in a way users would understand and be able to see the differentiation and like it.

Ultimately, after two years after we hired the first employees, we launched our product a couple months ago, demonstrating this capability on Wikipedia, and the response, you know we talked about this mike, the response that we had is that people generally really like the system and they just want to have it on the whole web. So I guess that’s a basic tour through the history of the company it’s only been 2 years since we hired any employees at all, and now the company is 63 people.

MA: How many of those 63 are search engineers and scientists?

BP: Most of them.

MA: Okay, how much money have you raised?

BP: We reported our series A round which we raised 12.5 million and that was including our angel bridge round. We actually didn’t report anything after that; clearly we did raise some more money, but we you know, we didn’t report anything.

MA: And what was the acquisition price?

BP: We’re not discussing that?

MA: Really, how about a ballpark? Everyone said 100 million is that where it ended up?

BP: We’re not even discussing ballparks, we’re not talking about it all together.

MA: That’s a great background of the company, but let’s talk a little bit about what you actually do that’s different in terms of thinking about Yahoo! Or Google search or search that Microsoft has today that’s keyword based and I’d love to go back to a post you did probably over a year ago now, maybe a year and a half ago, I think on your personal blog, where you talked about Powerset for the first time, and what you were trying to accomplish. From a non technical standpoint, what’s your vision for helping users search?

RN: One way to think about it is today’s systems that are out there, they don’t really understand language, so they don’t understand what a user is really saying, and the intent that’s behind the users query and they also don’t understand the documents that they are reading that they are ultimately trying to let the users find and by the way, they don’t understand the ads. So they don’t really understand anything and their based largely on statistical properties. Does this particular stream of characters appear with the right frequency in the right locations on certain pages? Does it all match? And it kind of does it pretty good job for being such a basic approach.

Now if you think about, what could you do if you had a system that could understand language? What if I could read? What if it’s already read everything in the document collection you’re interested in? Whether that’s a smallish collection like Wikipedia, or whether that’s potentially the whole Web? How could that actually help you? Well it could help in many ways. One, is you could just use more natural queries, just stating your intent as you actually mean it. Where that’s a full sentence or a question, or just a little bit of a linguistic phrase, or just some persons name. But it could understand that better and it could figure out what you want to do with this and how can I help. And then on the content side, if it could really read, then it could do a much better job matching the meaning of your query to the actual meaning that’s there in the documents. Moreover, it could present for you the results, you often have a challenge when you’re looking at search results of you see a little bit of a snippet kind of two lines worth of characters and you have to figure out from that, is that what I actually wanted? Because the system we have today don’t actually understand the queries and they actually don’t understand the documents, all they can really show you is where the keywords you asked are matched approximately in the right regions. But if they actually could understand both the documents and your query then they could present results, first of all, better two lines, or potentially a whole new kind of presentation.

MA: Just to cut in for one second the way you have described this before I have heard you talk about this is Google and other search engines look for key word batches and then present results ranked according to some sort of algorithm that determines how important a page is. You’ve said before that what Powerset does is it pre-reads the content. It uses artificial intelligence to actually try to understand what sentences mean and in the live search blog post today, the Microsoft announcement effectively of the deal they talked about a couple of examples that you know, a shrub and a tree are similar concepts that was one example, or that the word cancer could mean a disease or a horoscope. How does… Ramez maybe you want to jump in here to. How does that actually happen and what… a computer receives a sentence, your server sees a sentence, how does it actually start to parse that, again as non-technical as you can describe it.

BP: Okay, I’ll take that and Ramez, you can jump in on your examples.

RN: Great

BP: I guess one way to think about it is like when you are learning how to diagram sentences in elementary school. You draw these trees of a sentence and find here is the noun phrase and a noun phrase has a determiner like “the” and then it has a noun like “dog” and here is a verb phrase, and it might have a verb like “barks” and then what does it mean for the that word, bark is a verb and it has a “S” at the end and the way that it works, which we call morphology, that’s the present tense of that verb. And then the whole sentence is composed of those pieces, and so the meaning is built out of those. So you draw these diagrams when you are learning how to do it. And the kind of knowledge that’s in a natural language processing system like Powerset is using is sort of like that. Its basically extracting out both the surface structure, that kind of a tree structure of a sentence, and then its converting that into a series of different representation, ultimately into one which expressing that thing in fact. So it will basically say that there is a kind of activity here and it is a barking activity and the thing that is doing that activity, the subject of that activity, is a dog. Ok. So it is going from that sort of a surface structure of the language that you are seeing and converting it into a semantic factor representation. In addition, it is then able to draw on the individual meaning and relationships between words so if you saw that the sentence said “The poodle barks.” Then the system knows, if it can draw upon other knowledge about the relationship between words, as Powerset does, that poodles are a kind of dog. So if you as the user were able to say, “I want dogs barking” then it can actually then match the concept of dog to the concept of poodle and it is matching barking to barking and it is then doing this sort of semantic match for you which uses words you are not even using in your query and matching those against the document.

RN: I think everything that Barney said was right on. I think you see search engines including Live Search and also Google and Yahoo are starting to do more work on this matching not exactly what the user entered but it is usually limited to very simple things. So now all of us do some expansion of abbreviations or expansion of acronyms. If you type “NYC” in a search engine these days, in the last couple years, it understands that it means the same thing as New York. These are very very simple rules based things, and no one understands that bark has one meaning if it about a tree and a different meaning if it is about a dog. Or an example that someone gave the other day was the question of “was so and so framed.” And framed could mean a framed picture or it could mean set-up for criminal activity that did not occur, and so on. And you have to actually understand something of it is a person’s name then it applies to one sense of the word framed if it is not then it doesn’t. So one of the things that Powerset brings that is unique is the ability to apply their search technology to the query to the user’s search in ways that are beyond just the simple pluralization or adding an “-ing” is that Powerset also looks at the document, it looks at the words that are on a web page and this is actually very important. If you look at just the users query, what you have available to you to figure what they are talking about are three words four words five words, maybe even less. That can give you certain hints. If you look at a web page that has hundreds or thousands of words on it you have a lot more information you can use if you understand it linguistically to tell what its about, what kind of quieries it should match and what kind of quieries it shouldn’t match. And Powerset is fairly unique in applying this technology in the index on a fairly large scale already and with Microsoft’s investment and long term commitment we can scale this out even further, an apply it even more of the web, not just the wikipedia content they have thus far.

MA: Ramez how much work has Microsoft done in this area before today? Is it something that has been simmering, that you guys have been interested in, do you have a number of people on staff that are experts in this area, that have built technology around this? it would be interesting to know what you have done to date in this area.

RN: Well Microsoft has some leading people in natural language processing. We have applied the idea in machine translating, translating from one language to another, and in other areas of natural lanaguage, even things like the grammar checker in Microsoft Word comes out of our natural language work in some ways, and that is very exciting. The thing about the Powerset team is that it is purely additive, like the people inside of Microsoft research I have talked to about this are extremely excited. They see the Powerset team in San Francisco as great collaborators and see this as a great chance to exchange data, ideas, tools, and so on. All of this is going to help us directly. Also this is the first time we have had a focused team working just on natural language applied to search specificially, and not a broader area. With this kind of focused effort and the great technology that the Powerset team has built we’ll be able to make really rapid progress.

MA: Where are your search engineers today? Are they in Washington, or in your Mountain View office?

RN: The bulk of our team is in Redmond, and we have a small team that is in Mountain View, as well.

MA: For now is Powerset staying in their San Francisco offices?

RN: Powerset is absolutely staying in San Francisco. They have a fantastic office. I plan on staying down there a couple days a week myself. It is a fantastic location, and we want to grow the team so we are looking for more and more qualified search engineers and more and more computational linguists to join the team at Powerset, and keep scaling up.

MA: Barney, how many of you’re current employees, how many of your employees previously worked at Microsoft? Did anybody get hired back after leaving Microsoft?

BP: Actually I have not counted. I think we have a few Microsoft people, but it is not a high proportion.

MA: One of the things that has obviously hindered Powerset is that you need to index the entire web in a different way than search engines index them today because as you say your reading web pages instead of just noting key words and publicly you have said that you are not prepared to do that yet because it costs money and you wanted to prove it out with the beta product that looks at Wikipedia first. Beyond the fact that it is more expensive to index the web that way, that’s obviously, expense is not as much of an issue now that you are part of Microsoft, how long will it take. If you turned on the gas now full blast and wanted to launch a full version of Powerset that indexed the web, what is the fastest we could expect to see it.

BP: Umm, we are just getting together as a team to look technical integration and look at the best ways for our teams to work together and how we are going to combine and really leverage the resources that Microsoft has, so it is early a little early to say how long it is going to take before you see it. What I can say…

MA: Barney you have become media trained.

(Laughter)

MA: (Mocking) We are Microsoft. We cannot comment on future product releases. You gave me thirty seconds of nothing.

BP: No, No I prefaced it (laughter). I am not finished yet. With all that said about what I can or can’t actually say, what I think I can say is that Powerset has already been doing some experiments processing web pages. Arbitrary, random web pages using our technology, and those results are looking pretty good. It is already a pretty parallel system, so to some extent the basic experience you see right now could be replicated just by running the larger set of content that Microsoft already has using our technology running on the machines that Microsoft already has. Now that doesn’t mean that you would get the full search experience because there’s all the rest of the features that Microsoft has developed that we would want to integrate together to give a really coherent and good search experience. But some of the things you see already like the facts that Powerset extracts from the documents, to building profiles automatically of any kind of concepts that you have and the ability to show the pages with their automatically generated summaries. A lot of those features could really be done, at least to some level of quality today just by running it on a Microsoft infrastructure with resources that exist today. So we are going to have to figure out on what order are we developing what, but we feel that fundamentally the challenges of getting this up to web scale, the main barriers that were in our way, with Microsoft are now removed.

RN: A.) Barney is really showing his media training here, I am really impressed. His answer is also spot on, and something to bear in mind is, at this point, it has been primarily senior people across the teams that have been talking. And we really do have a very bottoms up culture inside of search. I think Powerset does as well. So we are going to connect more and more engineering teams now that we have announced this and we can start working on detailed plans. What we have super high confidence in is that this is a great fit, with great people. The cultures are actually very similar, and this is right on strategy with what we see as the big barriers to customers getting high quality results. You are going to see some short term stuff. We are going to get some stuff out there that is available to you on the live search site before the end of this year for sure. And then we are going to, as Barney was saying, take the current technology and start to scale it out out out. And will we go straight from wikipedia to the entire web? Will we have some interim stuff? I am not sure yet. But we will start scaling it up, and getting more and more benefit for customers over time.

MA: So do you think that you will launch this technology on live search, or will you launch something on Powerset, and sort of keep the brands separate for a while? Or are you ditching the Powerset brand? Have you thought about that yet?

RN: We are going to keep Powerset alive, we think it is a fantastic technology showcase, and we will probably always have some things that are really interesting to play and show people, but that aren’t quite ready yet to be exposed to all of our customers. But what really is the payoff for us is integrating the Powerset technology deep within live search, and really making that product the one that really shines, in addition to Powerset. We want to take Powerset’s technology and really broaden it out and impact tens of millions of people, if not hundreds of millions of people with the benefits of what Powerset brings.

MA: In December of last year, Peter Norwig, head of research at Google, was interviewed, and he said some things about natural language search that were interesting, and I’ll link to this when we post the podcast, but he said that, I will quote him. I would love to get your guys’ reaction out of this on just a product and science level. “We don’t think it’s a big advance to be able to pose something as a question as opposed to keywords. Typing what is the capital of France won’t get you better results than capital of France.” To me that doesn’t really respond at all to what Powerset is promising to do, and what it is already doing with wikipedia. But then he went on to talk about the limiting value, in his opinion, of