Could this deal be any more boring? Microsoft and Yahoo finally consummated their on-again, off-again relation today by announcing a technology and revenue sharing agreement between the two companies. The hideously complex details are subject to regulatory approval, but the highlights are:

• Bing will power Yahoo search. Bing will become Yahoo’s primary search engine for Yahoo users, and Microsoft will get 10-years worth of rights to Yahoo’s search technology and indexes.
• Microsoft will pay Yahoo for traffic. Microsoft will pay Yahoo 88% of the search revenue generated for the first five years.
• Yahoo will do the search ad selling. Yahoo now will become the exclusive sales force for both Yahoo and Bing search ads. Display ads, though remain separate, as do Yahoo’s content sites and advertising. This is a search-only deal.
• No upfront money is being exchanged. Unlike the rumors that have been going around, Yahoo is getting no capital from this deal. All the value is in operational savings and traffic acquisition payments.

This Deal Changes Nothing In Search and Advertising

The amazing thing about this deal is how little impact it has. Specifically:

• Search rankings won’t change. According to our 2Yahoo was previously the number two search engine in the world. Now that it and Microsoft are joining forces, it will grow to be….still number two. When Google controls almost two-thirds of the market, there isn’t a lot of room to grow without taking share from it, and this deal does little to change that. See the report Can Anyone Stop Google on the Mobile Web? for details.
• Ad rates are still headed south. Despite the allure of search advertising, the facts are that Internet advertising inventory is still growing dramatically faster than advertiser budgets. This deal does nothing to reduce that inventory glut or the falling ad rates that result from it. See the report, 2009 Advertising Forecast: Getting the Consumer’s Attention for more details of the struggles advertising faces.
• Regulatory hassles will benefit Google, not Microsoft or Yahoo. Because this deal is being subjected to regulatory approval, it will make advertisers hesitate to commit their dollars to both Yahoo and Microsoft when they might have to modify their deal to satisfy regulators. The result: ad dollars will flee to the safety of Google’s search marketplace rather than take a chance.

The best thing to say about this deal is that it removes a lot of the uncertainty about the relationship between Microsoft and Yahoo. They met, they negotiated, and they came to deal. Now that that’s done, we can all move along. There’s nothing really to see here.

Yankee Group predicted 2009 would be a watershed year that would drive profound changes to forever alter the communications landscape. Just six months into the year, dramatic shifts have already taken place amid economic anxiety, declining consumer confidence and widespread industry pessimism.

Phil Hochmuth, David Vorhaus  and myself hosted a webinar where we revisited Yankee Group’s 2009 predictions and explored the marketplace dynamics from the first half of the year.

The webinar runs about an hour: audio (mp3) and slides (pdf).

Yankee Group analysts write prolifically about how connectivity transforms businesses and yesterday Bank of America provided a proof point. Ken Lewis, the CEO from B of A, announced that after more than a decade of rapid branch expansion the company will reduce the number of branches by 10%. The reason given by Bank of America – “changing customer preferences.” Customers’ increasingly prefer online and mobile banking to branch visits. This is only possible because 1) consumers in the US have nearly ubiquitous access to high speed internet connections 2) Bank of America was at the forefront of leveraging that platform with its online and mobile storefronts.

Some will argue the bank is simply using changing customer preferences as cover for a cost cutting maneuver at a time when the bank is struggling to regain its composure after the economic meltdown and disastrous Merrill acquisition (thank you Mr. Paulson and Bernanke). Maybe so – but no one can deny that after years of investing in online services customers have finally caught on and consumer behavior has truly shifted. Upwards of 60 million US households now bank online. According to Yankee Group research the number of Americans who use their mobile device for online banking will grow from 4.1 million in 2008 to 38 million in 2013! By 2013 nearly 15% people with a bank account will use their mobile phone to execute banking transactions!

Today, B of A is the largest US bank (as measured by assets) despite having nearly 600 fewer branches than it nearest rival JP Morgan Chase. If B of A can maintain its lead over JPM (that’s a big if) with 1,200 few branches (assuming it sheds 600) it will be a testament to the power of connectivity. Simply put – B of A will be a more efficient retail banking organization because of the connected experience it offers customers.

When Mark Cavendish crossed the finish line as the winner of the 3^rd stage of the Tour de France, he triumphantly struck a pose for the assembled army of photographers and video cameras: he lifted his index and pinkie finger to chin and ear, making the international “call me” sign. It was a great moment for cycling – and an even better moment for Cavendish’s sponsor, mobile phone manufacturer HTC.

Cavendish’s nod to HTC highlighted the importance of team sponsors to professional cycling, so it wasn’t surprising that one of biggest stories happened off the race course: Lance Armstrong’s announcement that he would race in 2010 with a new sponsor, wireless device retailer RadioShack. The announcement means that the top three professional cycling teams in the US will be sponsored by wireless and connectivity ecosystem players, or what we would call Anywhere Brands. (In addition to HTC and RadioShack, GPS and navigational device manufacturer Garmin is the third.) So why are so many Anywhere Brands sponsoring professional cycling teams?

I have a couple theories. One is that professional cycling has always had a strong following among “aspirational” consumers – individuals who aspire to have the best products and services available. Much in the same way that Telefonica sponsors a sailing team and AT&T sponsors professional golf, the Tour de France is a effective marketing platform to reach discriminating consumers. For companies like Garmin and HTC, who have both enjoyed modest success but are eager to generate demand for their higher-end devices, an elite event like the Tour can help build valuable brand association.

Also, it doesn’t hurt that there is less competition for sponsorship dollars. Sports marketing certainly isn’t limited to cycling, and some of the most profligate sports marketers in recent years – especially banks and media companies – are suffering. The relatively strong performance of many Anywhere Brands is a reminder of how healthy our industry is.

Finally, as mobility and connectivity become increasingly ubiquitous and commonplace, the companies providing connectivity – either as a manufacturer, service provider or retailer – have to seek out different sources of competitive differentiation. The technical features, or “speed and feeds,” that were once the focus of most industry marketing efforts have given way to traditional consumer branding efforts. In Europe, where both the maturity of service provider markets and the popularity of cycling far exceed that in the US, regional providers from France (Bouygues Telecom), Spain (Euskatel) and Germany (Deutsche Telekom) have all sponsored cycling teams.

Which brings us back to Lance Armstrong. After four years away from the sport, Armstrong returned to cycling this summer, and RadioShack’s decision to sponsor the rider next year is a shrewd move. Armstrong is one of those rare athletes that transcend his sport, and his professional success (7 straight victories in the Tour de France), personal backstory (a cancer survivor and now prominent cancer fundraiser) and reliance on technology (earpiece radios and GPS devices are de rigueur in cycling today, plus Armstrong personally is a strong advocate of social media) combine to provide an exceptional advertising platform for an aspiring Anywhere Brand. RadioShack – which was left for dead as recently as two years ago, but has rebounded solidly because of its current emphasis on mobility – is a great match. This certainly wasn’t lost on RadioShack’s Chief Marketing Officer Lee Applbaum, who said in a statement “RadioShack keeps people connected in a highly mobile world through innovative technology from leading brands … Lance Armstrong understands the power of keeping people connected and that’s why we feel he’s the perfect partner for our brand.” 

The 2009 Tour de France concluded yesterday, with Alberto Contador of Spain the winner and Armstrong placing third. The two riders don’t like each other, and the prospect of two former champions battling head-to-head again should make next year’s Tour de France one of the most exciting ever. As the 2010 Tour heats up, expect to see a lot of “Team RadioShack” jerseys on the backs of recreational cyclists next summer, and plenty of visability for cycling-savvy Anywhere Brands.

My colleague Camille Mendler distilled the Amazon’s recent customer relations nightmare around it deleting copies of George Orwell’s 1984 and Animal Farm from Amazon customers’ Kindles in a recent tweet:

“The automated deletion of 1984 from Kindles is just Farenheit 451 without the mess.”

Today’s Wall Street Journal dives into the issues in more detail today in Who Took My Book? E-Book Readers Kindle Debate Over Digital Rights. In that article, the Journal notes:

Thing is, writes Fowler, owning an e-book is more akin to licensing a piece of software than it is to owning a bound volume: access comes with fine-print terms of service, and often digital rights management software to ensure that you abide by the rules.

These differences might not sit well with consumers in the long haul. Over time, “people are going to get uncomfortable with applying this software licensing model to all sorts of things in their lives that they used to just own,” says Cindy Cohn, the Legal Director for the Electronic Frontier Foundation. “A license is better for companies, but not necessarily for you.”

Case in point: an ordinary bookstore wouldn’t be allowed to come into a buyer’s home to retrieve a book that he or she owned. Legal experts are divided on whether Amazon broke its own contract with consumers by removing the Orwell e-books. The fine print in the company’s terms of service gives consumers the “right to keep a permanent copy” of purchased titles, but also reserves Amazon’s “right to modify, suspend, or discontinue the service at any time.”

The situation that Amazon has gotten itself into here drips with irony. Not only was the book in question one that illustrated the dangers of Big Brother authoritarianism (to me, Big Brother has always been the epitome of double plus ungood symbolism), but Amazon.com was founded on selling real, honest-to-goodness books that can’t be revoked at the touch of a button. Amazon should really have known better than to sully its online reputation this way.

So what’s the downside of this ebook Sturm und Drang? Well, for starters, Amazon will now face:

This morning compute vendor IBM and network vendor Juniper announced that IBM will OEM Juniper’s enterprise routers and Ethernet switches.  This announcement is on the heels of the OEM agreement IBM made with high performance networking vendor Brocade back in April of this year.  IBM, who hasn’t had its own network portfolio since the 90s, is back in the market in a big way and this won’t be the last move it makes.

What’s driving IBM to do this?  One could look at this and interpret it simply a response to Cisco’s Unified Computing System (aka California) launch when Cisco started stepping on IBM’s toes by becoming a server vendor.  I’m sure that’s part of the motivation, but this trend of compute and networking coming together is one of the outcomes Yankee Group predicted in our “Introducing Anywhere IT” report.  The transition to Anywhere IT demands that compute and network resources work as one to orchestrate the movement of virtual workloads across the network.  To date only Cisco’s UCS product and best-of-breed vendor Liquid Computing are the only two vendors that actually have a solution to address this need right now, but the OEM agreements give IBM some of the building blocks to create a “best-of-breed” solution.

IBM downplays the competitiveness this may have with its long time partner Cisco, but frankly that’s just smoke and mirrors.  I think initially IBM may be more careful than aggressive as it will test the waters and see how Cisco responds (unlike HP who has stated earlier that it has Cisco squarely in its cross hairs) but over time IBM and Cisco will have to compete more as unified computing and Anywhere IT move from vision to reality.  For Juniper, this partnership gives a viable enterprise channel for its enterprise product line, which it has sorely lacked over the years.  Because I’m expecting IBM to tread lightly initially, the impact to Juniper is likely to be a year or so out but the potential is there.

Historically an OEM channel strategy hasn’t been successful with data network equipment (although it has been with storage networking) but unified computing will make this a viable go to market strategy for all network vendors.  Based on this we are predicting the following over the next 12-24 months:

• Brocade, who has many OEM agreements in place already with its storage business will lead the way and expand its partnerships to companies such as Sun (Oracle), Dell and HP. Because of the experience Brocade has with this type of business model it should be the big winner from this trend.
• IBM will add at least one more OEM partner to fill in gaps on the low end of the product line. Rumor is that IBM has been considering 3Com for this role so it may get a piece of the IBM pie. Ultimately IBM will have almost a “menu” of networking vendors to choose from and where it can mix and match products from different vendors to deliver a full, IBM branded solution.
• HP will likely OEM to fill in the high end of its product line. My prediction is Brocade but HP could look to someone like Force10 that may be less competitive overall with them.
• Cisco will lose margin or share in Ethernet switching. Cisco’s competition in this market used to be a bunch of small companies that just didn’t have the resources to compete on the same level as Cisco. Today, HP is much more aggressive with its products, IBM’s moving back in,,Juniper is now a viable competitor and Brocade merged with Foundry to create a bigger competitor. With so many viable options, Cisco will be challenged to keep both its share and above industry average margins in place. The fact that it has kept both for so long is remarkable but the bell now tolls for Cisco and the likes of HP, and IBM is ringing it.
• Cisco’s strategic partnership strategy shifts from compute to applications. As Cisco grows its UCS portfolio it really doesn’t need to partner in the compute area any more. The HP alliance is all but over. IBM and Cisco still need each other for now but expect to see Cisco do more with the likes of VMWare, Oracle and SAP and then move the integration business to companies like Accenture and WiPro.

A plethora of devices are becoming connected. Samsung announced its Televisions would offer Blockbuster streaming. Blu-ray players are increasingly coming with Netflix. The Xbox 360 will soon connect to Twitter and Facebook. The primary commonality between these offerings is they all take the consumer out of the Pay TV experience. Losing consumer attention to other devices and services is a problem that needs eyeballs. Instead of standing pat, Verizon has integrated connected services into its set-top boxes to keep users engaged.

On first blush, content from Veoh or the addition of Twitter may not be particularly impressive. But, what Verizon will do is integrate these services with the television watching experience – something a connected HDTV or Blu-ray player will never do as the content is likely coming through an HDMI cable from a STB. This is increasingly important in a networked world and such applications will help keep connected consumers in the pay TV environment despite the availability of content beyond the set-top box. In a world where, according to Yankee Group’s consumer survey only 20% of respondents would never cancel their Pay TV for Internet content such services will be increasingly important – if not necessary.

There are a few interesting things about this announcement that should be evaluated:

1. Potential for widgets. Content aware widgets could be compelling for consumers, content owners, and developers. Twitter on the TV is interesting, but being able to see live tweets about the program you are watching is compelling. The same can be said of Facebok status updates, unless of course you don’t want your social group to know about your penchant for Rock of Love. Where could widgets go from here? In short, anywhere. How about an IMDB application that allows consumers to see who is in the program they are watching, what else they have been in, and when those programs are airing. Perhaps IMDB’s owner Amazon would like to sell DVDs at the same time as you are searching for information? There is a lot of opportunity for widgets to enhance the TV experience and Verizon should be careful only to add widgets which do this and not fill the curiously named Widget Bazaar with all manner of widgets just to fill it. For Verizon, widgets could mean revenue from sales of premium widgets (not highly suggested as consumers may think of widgets as part of the service), advertising revenue from branded widgets, or sell-through of goods through a widget, such as a DVD from Amazon.

2. Viral Marketing. Just as Tweetdeck and other applications stamp where your tweet originated, offering Twitter on FiOS will help to virally brand the service. A Facebook update to the effect of Josh is watching Burn Notice (and definitely not Rock of Love) on FiOS TV will help to freely promote the service.

3. More Content and services. As Verizon builds out its services partnering with more content owners such as Youtube, MLB.tv, and others will be integral to bringing broadband content to the TV in a compelling way. However, many of these services are available on Verizon’s Home Media DVR platform – a name which fails to capture the true value of the tier. A joint re-brand of bazaar and Home Media DVR could be done at the same time.

In short, these developments do more to thwart losing attention than they do to gain customers. In an economy where consumers are looking to save money these features alone will not compel subscribers to opt for FiOS. However, these applications will help the service enhance its appeal to the tech saavy that spend more on pay TV but are also yearning for alternative connected devices. Additionally, the exposure of these services through the viral nature of social networks could expose subscribers to the service in a way that makes them compelled to subscribe. AT&T is clearly poised to quickly jump on this bandwagon as well, as has DirecTV but MSO’s may be more challenged to bring these services to market quickly.

Ultimately, pay TV providers are recognizing the threats of connected devices and are launching their first salvo in the war for eyeballs. It will only get more interesting from here.

I don’t quite know how this post got published this morning when I wasn’t even logged in, but what the heck. John Gruber of Daring Fireball wrote an insightful piece on mobile phone keyboards that I thought I’d share. The bottom line: like many design tradeoffs, no matter how many near-religious battles there are over this topic, both approaches have their place, and neither approach will dominate the other.

We’re pleased to announce new forecasts in our Market Adoption Monitors and Forecast data suites. In June, we added new forecasts including:

Near field communications. Jon Paisner is building out a regional m-commerce forecast and has built an NFC forecast, shortly to be followed by contactless payments, mobile couponing, mobile banking and P2P. Jon’s NFC forecast charts this nascent market from 2009 including NFC-enabled phones, active users and transaction volumes and values. Volumes and values are segmented by denomination because the competitive behavior of transactions under $5 differs from those over $5. Jon shows rapid growth in this market, predicting 4.7 billion transactions globally in the 5 years from 2009-2013. Nearly 9 in 10 of these transactions will be low denomination by volume, but the value of high denomination transactions is 62.4% of the $28 billion that will be transacted globally over NFC over the next 5 years, predominantly in Asia.

IPTV. Vince Vittore has completed his work on IPTV forecasts by touching all 55 countries in our forecast. With 21 million global subscribers in 2008, he shows nearly 80 million IPTV subscribers in 2013, an increase of 58.8 million new subscribers during 2009 through 2013. The most new subs are in Asia, adding 27.9m followed by Western Europe (adding 17.6m), and North America (10.2m). Latin America, Eastern Europe and MEA are only 3.1m new subs. The country view gives us household penetration, and although Hong Kong leads now at 49.7% forecast for 2009, followed by France at 35.7%, in 2013 five countries will have penetration over 30% (France, Hong Kong, Taiwan, Switzerland and South Korea in descending order).

Digital advertising forecast. Carl Howe is leading an integrated digital advertising forecast that includes TV, Internet and Mobile advertising revenues, complementing the carrier mobile advertising forecast that we have had for some time. Mobile advertising in this new forecast defines the entire market for mobile advertising, rather than the piece seen by the carrier. As a share of all advertising, mobile is small, remaining under 1% throughout the 5-year forecast to 2013, but in North America it jumps the half-billion dollar mark in 2013 from a lowly $185m expected in 2009. Set against the $79.3 billion total North American digital advertising market in 2008, which we see rising to nearly $100 billion in 2013 through modest growth in TV and (moreso) Internet advertising, though, and mobile advertising is perhaps not a big play. Carl is currently working on expanding the digital TV forecast into other regions and countries.

Expansion of Middle East and African forecasts: Wally Swain has been spending time focusing on Africa and the Middle East and completed the range of fixed-line forecasts in that region to add to the mobile-related forecasts already available.

The long-awaited rules around the broadband portion of the massive U.S. stimulus bill have finally been released. While a first glance at the Notice of Funds Availability (NOFA) contains no bombshells, several items pop out. Let’s take the important questions first and leave the fine details for later postings.
How much is at stake? While the whole program will dole out more than $7 billion, this current Notice of Funding Availability take into account a mere $1.6 billion of the $4 billion plus allocated to NTIA. Subsequent rounds of funding are may take on revised rules and add some requirements for applicants. The RUS is opening up its entire $2.4 billion with this notice.
Who gets the money? As expected both NTIA and RUS are allowing everyone and their brothers apply for funding. There are plenty of special considerations in both but it would be hard to say any organization including the Boy Scouts being automatically disqualified.
What qualifies as broadband? Probably the most disappointing of the multiple definitions offered up by this NOFA. Broadband under this interpretation is “advertised speeds” of at least 768 kbps down and at least 200 kbps upstream. Both NTIA and RUS missed the opportunity to push the boundaries here.
What is rural? No big surprise here with this NOFA defining rural as any area not located: within a city, town, or incorporated area with more than 20,000 inhabitants; or within an urbanized area contiguous and adjacent to a city or town that has a population of greater than 50,000 inhabitants. Sorry suburbs, you’re out of luck.

What about that “open access” requirement? You mean that big elephant in the center of the room? He’s still there. The U.S. is not moving to an open access requirement but there certain is a desire to get a little taste of it. In the notice’s “Nondiscrimination, interconnection, and choice of provider” provisions, NTIA appears to state that applicants will receive a higher consideration if they provide a plan that “would allow more than one provider to serve end users in the proposed funded service area.” It’s not really open access but it’s a half step in that direction.