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    • COMPANIES INTERNATIONAL: Ebay launches music project By Scott Morrison Financial Times; Jul 16, 2004 Ebay, the internet auction site, is testing the waters of the online music market. The auctioneer said yesterday it was launching a six-month pilot programme in which a handful of pre-approved sellers - including a record label and a music distributor - would be allowed sell digital music tracks on its site. If eBay's six-month trial is deemed successful, the auctioneer is likely to allow a wider group of sellers to list songs on the site, creating what could become a significant avenue for online music distribution. A wide range of companies, including retailer Wal-Mart, consumer electronics giant Sony and soft drink maker Coca-Cola, have jumped into the online digital music market in the wake of the success of Apple Computer's iTunes music store, which this week surpassed 100m songs sold in its first 14 months. These online sites have been selling songs for 99 cents or less, with a limited ability to copy the music to CDs and other devices. However, eBay had thus far remained on the sidelines and forbidden the sale of most digital downloads, including software, music files, video delivered through peer-to-peer file-sharing communities and e-books. Scott Morrison, San Francisco.
    • -2- Internet reviews: honest assessments or a web of deceit? By Michael Skapinker Published: August 11 2004 05:00 | Last updated: August 11 2004 05:00 I should not have been surprised to discover that the Flatotel had no record of my reservation. The oddly-named New York hotel was highly rated by my colleagues but had mixed reviews on TripAdvisor.com. "Clean, comfortable, stylish!" said one recent guest from Gaithersburg, Maryland. "Very depressing," said another from Wethersfield, Connecticut, who disliked the "dark ebony lobby with a moo moo decor. I felt ridiculous at the check-in counter". I had no idea what moo moo decor was, but I, too, felt ridiculous at the check-in counter as the clerk asked whether I might have booked under someone else's name. Fortunately there was one room left and, after a couple of nights in it, I inclined to the clean-and-comfortable faction rather than the moo moo tendency. The Flatotel was fine. My room was big and the double glazing kept out the traffic noise - a blessing in Manhattan. But then quiet is what I look for in a hotel. Judging by TripAdvisor.com, many of my fellow travellers are more interested in the speed of the lifts. "The elevators are painfully slow," moaned a Flatotel guest from Gainesville, Georgia. Over at the Hilton on Avenue of the Americas, on the other hand, a satisfied TripAdvisor user from Fayetteville, Arkansas, declared the lifts "timely and quick". I stayed at the Hilton in 2002 and did not like it. A few TripAdvisor guests concurred. "Staff are, in general, rude," said one visitor from Baltimore. "Utterly disgraceful," was the verdict from a traveller from Sydney. But a tourist from Hollidaysburg in Pennsylvania could not have been happier. "Loved it," was the comment on TripAdvisor. I asked Stephen Kaufer, TripAdvisor's chief executive and co-founder, whether these web reviews were not a little contradictory. That tended to be the case with some hotels, he said, but there were others that everyone liked. This is true. TripAdvisor lists each city's favourite hotels, and the top establishments do, mostly, win page after web page of plaudits. But are all these reviews genuine? Could hotels perhaps send in e-mails praising themselves and rubbishing their rivals? Mr Kaufer said his company had a number of techniques to weed out fraudulent critics, which he declined to describe. TripAdvisor tried to keep dishonest reviews to a minimum. "But by no means can I claim that there's no fraud," he said. This is a problem for all sites that carry consumer reviews. Earlier this year, a software glitch at Amazon.com revealed the names behind some of the site's anonymous critics. It emerged that authors were submitting reviews praising themselves and rubbishing their rivals. Amazon now puts the sign "real name" under reviewers whose identities have been verified through their credit cards. But there is still nothing to stop anonymous reviewers from praising their friends, damning their enemies or simply making mischief. Reviews of books by Robert Chote, an economist and former Financial Times journalist, for example, suggest that some of my colleagues have too much time on their hands. ("A splendid assault on the 'mindless vandalism' of historic cost accounting, which, he shows, was largely responsible for the South Sea Bubble, the fall of Singapore and the Liberal Democrats' loss of Bournemouth City Council to no overall control in the 1998 local elections," is one Amazon reviewer's assessment of Mr Chote's International Stock Returns and Business Cycles.) Books are relatively cheap. If we do not like the ones we have ordered, we can give them away or even resell them over Amazon. Holidays are a different matter. Most people look forward to them all year. If you do not like the hotel, it is often hard to find rooms in another. A spoilt holiday cannot be returned to the shop, and a partial refund, if you are prepared to fight for it, does not really compensate for the hurt. That seems like an argument for entrusting holiday arrangements to experienced tour operators who have checked out the hotels and resorts. The problem is that web reviewers are paragons of probity compared with some of the tour operators. A survey by the Consumers' Association found that fewer than half of returning holidaymakers would recommend the largest UK tour operators to their friends. One prominent travel company received the approval of only 29 per cent of its customers. The biggest cause of complaint was that holiday accommodation did not live up to what had been promised. The Consumers' Association suggested using independent operators instead. I have tried a couple and found they were not above telling fibs either.
    • -3- No one need put up with them any longer. Travellers can book their own low-cost flights, find hotels on the internet and often come up with prices lower than the tour operators'. The result is that several of the biggest holiday companies are in trouble. But if we are booking holidays ourselves, we need to know that hotels are as comfortable as their online photographs suggest. Web reviews have their uses, but even when they are honest, the reviewers' tastes may not be ours. Some people praise hotels because you can watch DVDs in their minibus shuttles to the airport; other travellers are very particular about the shower pressure. What is the solution? Guide books are usually more objective, but the entries on individual hotels can be skimpy. And doubts have been cast on some of the most prestigious. Pascal Remy, a former inspector for the Michelin restaurant guides, claimed this year that some establishments kept their three stars because they were considered "untouchable", and that the guide was influenced by letter-writing campaigns - claims Michelin denies. I am off on holiday myself, which will include some time in a hotel so obscure it does not seem to feature on any website. But family and friends say it is good, which is probably worth more than an online recommendation. I did not ask what the lifts were like. Unless I get stuck in one, this column will return on September 8. michael.skapinker@ft.com
    • -4- FEATURES - BUSINESS EDUCATION: Let the online buyer beware By Patti Waldmeir Financial Times; Jun 28, 2004 I buy everything on eBay and I know that the world's biggest online marketplace is also probably the world's biggest online market for fakes. This does not bother me: my eBay purchases are eclectic and frequent - in the past week alone they have included a rabbit-shaped cake tin, 13 used baby beakers, two garment bags and six bottles of anti-bacterial soap - but not a single Prada item. The stuff I buy on eBay no one would bother to counterfeit. But some of my fellow spendthrifts are not so lucky: those with a taste for Gucci or Coach could end up with an imposter. Last time I checked, there were nearly 2,000 Guccis, over 1,000 pieces of Tiffany jewellery and 900 Prada listings on eBay all for under $10. Those kind of deals cannot be for real, even in cyberspace. So whose fault are the fakes? Ten days ago Tiffany, the toffs of e-commerce, brought a lawsuit against eBay claiming that virtually all the Tiffanies on the auction site are phony. The suit blames the world's most successful dotcom, not just for failing to keep counterfeiters off its site, but for actively promoting piracy by recommending the bogus items as, among other things, the perfect gift for Mother's Day. Such suits are partly just the price of profits: success always breeds lawsuits. And eBay predicts even more are on the way: in the mood of forced candour provoked by a recent Securities and Exchange Commission filing, eBay declares: "We expect that we will increasingly be subject to copyright and trademark infringement claims as the geographical reach of our services expands", especially into jurisdictions where "the underlying laws with respect to the potential liability of online intermediaries like ourselves is less favourable". In the US, the legal atmosphere is favourable indeed: eBay seems to think recent court rulings have pretty much inoculated it against the Tiffany suit, and many like it. Jay Monahan, eBay's top intellectual property lawyer, says the trend is towards protecting the electronic middleman from liability. From the dawn of the e-commerce era, eBay has been winning cases that blame the middleman. First there was the case of the fake Mansons: counterfeit copies of a documentary about the American cult murderer, Charles Manson, which turned up cheap on eBay. The film-maker sued, but a federal court in California found that eBay was shielded from liability by the Digital Millennium Copyright Act (the new copyright law for the internet), which immunises those who merely provide a venue for electronic activities like internet service providers and, arguably, sites like eBay. The court also let eBay off the hook for any trademark violation, for broadly the same reason: it just publishes what other people say about their wares; it cannot be expected to vouch for their accuracy - indeed, far less so even than a traditional publisher. To get there, the court drew a distinction between eBay and a traditional auction house that organises the sale, handles the goods and collects the money. Ebay is just a place where buyers and sellers meet to do business. Nearly all the time they trade legitimate goods, but if there is a problem, they sort it out themselves. EBay just rents out the stalls: what people do with them is largely their business. To expect anything else would simply be impractical, that court argued: millions of auctions are posted on eBay each day and to police each one for intellectual property violations would be both impossible and not required by any current law. The goal, the court said, is for intellectual property owners to work with eBay to police the site, not for eBay to go it alone. That is the heart of the Tiffany case: eBay says it is perfectly happy to close down every fake Tiffany auction that it knows about and that it already does some limited monitoring of its own. But it cannot shoulder the whole burden of keeping fakes off its site: rights owners like Tiffany have got to help out. But Tiffany says it takes too much time and money to monitor individual listings. Since Tiffany never discounts its goods, anyone selling more than five of its items on eBay is surely selling fakes, the company says; it wants eBay to stop such auctions automatically. If the past is any guide, eBay has a good chance of beating this suit, just as it did the Manson suit and another involving phony autographed baseballs. But even if a court decides the fakes are not eBay's fault, they are still its
    • -5- problem. Anything that reminds consumers of the risks of online commerce cannot be good for a business that relies almost entirely on that most ephemeral of commodities, trust. For most eBay buyers, brand names are all they have to go by: when you buy goods from a total stranger, you want the comfort of a brand name to guarantee quality. If you cannot trust the brand, you will not trust the site. Nothing could be more crucial to eBay's future than the way it handles the problem of fakes. But in the end, there is only so much eBay can do. If you want to be absolutely sure the Tiffany you are buying is a real one, buy it at Tiffany.com where gold bangles can be had for a mere $3,000. At eBay, the risk is in the price. If you want Tiffany certainty, you have to pay for it. FT staff member Neil McDonald contributed research for this article ......................................................................... waldmeir@aol.com © Copyright The Financial Times Ltd
    • -6- FEATURES: Growing pains for Google's idealists By Richard Waters Financial Times; Apr 20, 2004 What does Google want to be when it grows up? And is it ready for the raised public expectations its rapidly expanding reach and power on the internet are provoking? The latest test of the internet adolescent has come with the storm of protest from privacy advocates caused by its plans for a free e-mail service to rival Hotmail (owned by Microsoft) and Yahoo. At the same time, the ever-expanding influence of its search engine continues to put the company at the centre of a string of controversies. The latest case in point: the fact that a Google search using the single word "Jew" brings up an anti-Semitic website, called "Jew Watch", as its first listing. As its reach extends into more corners of the internet, the scale of the company's ambitions is raising concerns of its own. The trial e-mail service follows a shopping site (Froogle), a "social networking" service for connecting to friends and acquaintances (Orkut) and a news service, all of which rely on its core search engine. If it can link these and other services, how much power will Google eventually wield, and how will that power be used? Inside Google, founded by two idealistic Stanford University engineering students, such questions seem almost beside the point. There is a strong belief that Google is on the side of right. Asked about the high expectations it faces, Sergey Brin, founder, recites one of the principles on which he and Larry Page based their company: "Don't be evil". "I guess it sounds very childish - but it's a good principle to have," he says, adding that some of the recent corporate scandals might not have happened if more companies had shared a similar principle. But the Google brand of idealism has started to rub against some tough real-world dilemmas. The company's version of e-mail, Gmail, will carry advertisements. There is nothing new in that - other "free" e-mail is also advertising-supported. In fact, compared with the distracting pop-ups and flashy banner ads that normally clutter free internet services, the text-only links to advertisers' websites that Google has been placing in the margin of its e-mails during the first two weeks of tests are almost invisible. The way those adverts are selected, though, has sent privacy advocates into a spin, bringing a call last week from Liz Figueroa, California state senator, for legislation to block the service. Google's software scans the text of e-mails looking for certain words, then attaches adverts that fit the context. Mention the name of an exotic Caribbean island, for instance, and it may bring a link to a holiday resort or an airline. The outcry provoked by Gmail has taken the company off-guard. "I think it's irrational," says Mr Brin. "The magnitude of the response was a surprise to me - there really were a lot of opinions," he says - from people who had not used the service. Rationality, though, may be the least of it. As Google is finding to its cost, becoming the world's most prominent internet company almost overnight brings massive expectations. That does not apply only to privacy advocates. Any number of political pressure groups and commercial interests see the pervasive internet search engine as a vehicle for protecting or furthering their interests. This is a path that was already well-trodden by the first generation of internet companies, though the outsized influence of the Google search engine sets it apart. If much of the internet's power lies in the ability to collect and analyse information about millions of users, privacy advocates have long been in a running battle with the dotcoms. Doubleclick, one of the first companies to try to use personal information to target advertising, was antagonising the privacy lobby before Google was even born. Also, the global reach of internet companies has long forced them to tackle tricky legal and cultural issues. eBay, the dominant internet auction company, banned the sale of Nazi war memorabilia after it caused a stir in France. For its part, Google still exhibits all the hallmarks of the young, engineering-centred company it is.
    • -7- For Mr Brin, using software to scan private correspondence is a technical task that has nothing to do with intruding on privacy. "The reality of e-mail today is that a lot of outside systems check it," he says. He points to the spell-checking software that is often used to "read" e-mail before it is sent, and the anti-spam programs that scan e-mail for tell-tale words. As far as Google is concerned, this is fine - just as long as any personal information stays inside the company and is never shown to advertisers. The visceral response it has aroused has become the latest challenge to this techno-centric view of the world. As Google grows more powerful, battles such as these are almost certain to multiply. Exactly how big Google's ambitions are remains one of the most intriguing questions. It is already using its core search engine technology to move into shopping, communication and other areas of internet activity. Could the company find ways to link these various services? "That makes it sound more sinister than it is," says Mr Brin. He also denies that the company is pursuing some overarching plan to build an all-purpose internet platform. "There's not a grand scheme," he says. "We like to be opportunistic." The potential to connect a growing range of online services, though, may end up being Google's most powerful business weapon - a parallel to the bundling strategy that Microsoft has used so effectively to extend the reach of its Windows operating system. Connecting different services together would improve the experience of using the internet, according to Mr Brin. By sharing "cookies" - the pieces of software that sites such as Google plant in a user's computer to track their customers' behaviour - it would be possible to connect a social networking site with an e-mail service, adding to the value of both. "Maybe when I log on to Orkut, I could see I have 100 Gmails," he says. Expanding the amount of information it has about its users and using this to construct new and better services is central to the Google plan. Two of the main strategies for its search engine rely on this. By tracking where its users are based, the company has just launched a local advertising service to rival Yellow Pages. And, like its main rivals, it believes that the future of internet searching lies in personalisation: being able to provide the most relevant results to each particular user. Whatever the validity of the Gmail concerns, Google's policies in dealing with privacy issues have so far put it broadly in line with general practice on the internet. Search Engine Watch, a website that tracks Google and its rivals, generally gives the company high marks over its approach to privacy. Mr Brin concedes, though, that the dispute over Gmail has taught the company that it probably needs to be clearer in public about what its policies are and how they are applied. While it tries to calm the storm of protest over Gmail, meanwhile, Google continues to grapple with a familiar problem: pacifying users who are offended by the priorities shown in its search results. The demands of objectivity mean Google can never try to suppress unpleasant results, such as the prominence of Jew Watch, says Mr Brin. "We do not believe we should be imposing our beliefs and ethical standards on the search results." He notes with some satisfaction, though, that other search results are climbing higher in the rankings and last week temporarily overthrew Jew Watch - a clear sign that opponents have found ways to push less offensive results higher in the rankings. "The web community has been responding," says Mr Brin. Even appearing to voice approval for one search result over another in this way risks condoning efforts to distort the results of the Google search engine. But preventing evil sometimes calls for drastic measures. © Copyright The Financial Times Ltd
    • -8- A tussle for power in online shopping By Richard Waters FT.com site; Feb 22, 2004 Susan Girardot's dainty straw baskets and vintage dolls may not be to everyone's taste, but they helped to make eBay an internet juggernaut. From her home in rural Ohio, Ms Girardot has been selling frilly Longeberger baskets and 1950s Terri Lee dolls online since 1996, the year after the auction site was launched. These days, though, web surfers do not need to go to the internet auction site to find what Ms Girardot has to offer. Instead, she has been dabbling with new ways to reach customers online. By advertising on a search engine, she has started to lure customers directly to her own website - in effect competing head on with eBay and avoiding some of the listings fees she would otherwise pay to the auction site. "I get more customers from eBay - but I get some good business from the search engine," she says. For slow- moving, expensive items in particular, the economics of selling online are shifting. "If you list on eBay, it costs a lot more." Ms Girardot is not alone. The commercialisation of internet searching is starting to shake up the e-commerce industry. Indeed, if 2003 was the year that online shopping roared back to life after the dotcom bust, 2004 will be the year when the battle lines for the next era of e-commerce are drawn. Call it the latest example of the Google Effect. The search engine has already changed the way millions of people find information on the web. And it is now becoming one of the main gateways through which many shoppers pass as they start their hunt for things to buy online. Along with rival search engine operator Yahoo, Google has used that privileged position to start linking buyers and sellers directly, taking a cut for itself in the process. Microsoft, which is gearing up to launch its own search engine later this year, has its eyes on the same prize. "The game has changed dramatically over the past year and a half," says Rob Sullivan, head of product search at Yahoo. "Search is really driving a lot of e-commerce, and it will only become more important." At stake is access to the growing legions of people who turn to the internet to shop. As search engines become more widely used as the starting point for e-commerce, they are assuming greater power to direct shoppers to their ultimate destination. This has set up a classic tussle between the power of content and the power of distribution. Shopping sites such as eBay and Amazon.com may have the goods but, increasingly, search engines such as Google have the eyeballs. How companies like these learn to co-exist will determine the way much online commerce is conducted in the future. The beginnings of this sea-change in online shopping habits were evident during the Christmas season. Last Christmas two out of every five US shoppers went to Google first when looking for an online store, while more than a third went to Yahoo, according to Goldman Sachs.
    • -9- Increasingly, they are also turning to the search engines to find specific products as well. That has fuelled a rise in "comparison shopping" sites, which use the power of a search engine to dig out and compare details on similar products available around the web. Yahoo launched its own site last autumn, while Google's version, Froogle, is still in development. The effects of this shift are clearest in the most easily compared products, such as digital cameras, iPod music players and DVD machines. According to Nielsen/NetRatings, a US research firm that tracks online behaviour, nearly a third of shoppers who turned to the web to buy consumer electronics last Christmas did so because it was easier to compare products and prices online than in the mall or the high street. This ability to search out bargains contributed to the pressure on prices, leading to a generally disappointing season for the retailers, according to Nielsen. During the internet's first decade, online merchants and auction sites have counted on attracting customers the way retailers always do - with better choice, prices and service than their rivals. For eBay, for instance, that has meant building a mass market of goods that cannot be bought anywhere else, then using this to build a loyal base of regular sellers and buyers. "Our listings are valuable - we consider them and the community our main assets," says Jeff Jordan, head of eBay's North American business. "Power sellers" of collectibles such as Ms Girardot have been joined more recently by car dealerships, consumer electronics stores and many others as eBay has turned itself into the web's biggest commercial enterprise, shifting more than $24bn worth of goods last year. Amazon has followed a similar path, expanding from books to clothing to gourmet food. Like eBay, Amazon has also turned itself into a massive virtual shopping mall, hosting the online stores of many other merchants.
    • - 10 - Search engines now pose a challenge to this model. While eBay and Amazon have become giant aggregators of content, search engines specialise in dis- aggregation. Burrowing below the surface to find the particular fact or the specialised product, they aim to deliver just what the user is looking for, regardless of its origin or location. Google and eBay are direct competitors in at least one respect. Bill Gates pointed last month to one reason for Google's astounding rise: it has concentrated on finding answers to the least-asked questions, the highly specialised requests that other search engines ignored. In effect, eBay did the same long before for online commerce, linking traders of rare collectible items who had had no way of finding each other before. Led by Google and Yahoo, search engines are now finding new ways to make money from their new-found power. Their biggest success so far is known as "sponsored search", the service Ms Girardot has used to sell her dolls and baskets. Merchants pay for the right to have a link to their website displayed alongside the search results when someone includes a certain word or phrase in an internet search. The search engine is paid a fee every time a potential customer clicks on the link. Ms Girardot currently pays 7 cents for each of these leads, though for some high- value goods the "price per click", which is determined in an auction among competing merchants, can rise as high as $1.50. These direct introductions to merchants have become the biggest growth business on the internet. According to PwC, the sponsored search business, barely three years old, will generate fees of more than $2bn this year. It is still almost entirely a US phenomenon but is starting to spread fast overseas as well. The ability to reach customers directly plays to one of the internet's greatest strengths. It has the power to disintermediate established intermediaries - even if, as in this case, the go-betweens are companies such as eBay, itself the product of the new online medium. If this poses a threat, the e-commerce companies are not taking it lying down. In broad terms, they are using three tactics to fight back and keep their place at the centre of online commerce. One has been to co-opt the power of the search engines. EBay and Amazon, for instance, are already among the biggest customers for the sponsored search advertising that was pioneered by Google and Overture, which is now a subsidiary of Yahoo. "There are a number of on-ramps to e-commerce, and we are working hard to use all of them," says Mr Jordan.
    • - 11 - To some extent, this is nothing new. E-commerce sites used to rely heavily on internet portals such as AOL. That dependence has declined as the search engines have gained strength. They are also working harder to make sure that their products figure prominently in the standard results of web searches. EBay used to bar automated search engines from its website, preventing them from trawling its contents. In recent months, though, it has allowed in the automated "spiders" that supply information to the search engines, and has been working on ways to make its data more easily readable so that eBay results appears higher in search results. "To hold back that depth of content would reduce our relevance," says Mr Jordan. The auction site has stopped short, though, of letting the search engines "crawl" its individual product listings, instead giving them access only to categories of products. To get to the actual listings - the core of much of eBay's value - customers still have to click through to get on to the company's website. "We want the reader to know these listings come with all the value-added services of eBay," says Mr Jordan. The merchants' second line of defence has been to expand the services they offer to buyers and sellers, adding to their attractions as a destination for e-commerce. They have also broadened the scope of their stores to become, in effect, shopping portals themselves - a process that has broken down the old distinctions in the e- commerce business and led to direct competition between companies such as Amazon and eBay. Both Amazon and eBay have invested heavily in their own technology and brand to maintain that edge, and have if anything been able to consolidate their position as the dominant e-commerce destinations. EBay, for instance, says its share of all online shopping increased from 16 per cent in 2000 to 22 per cent last year. A third defensive tactic is to try to beat the search engines at their own game. Both eBay and Amazon are investing in search engines, although it remains unclear whether they will eventually use these to compete head on with the likes of Google and Yahoo. EBay says it only began work on its own technology, known as Voyager, after failing to find an existing search engine capable of handling the demands of its site. The auction business creates problems that standard search engines cannot handle, the company says: the average auction on the site lasts only five days, and sellers need a guarantee that their listing will be included in results. EBay says that it has no plans to compete head-on with Google. "We have huge commercial ambitions for search, but it is on eBay," says Mr Jordan. "It is an internal functionality, not a business initiative." But as eBay itself continues to expand, drawing other merchants into its online realm - it already hosts more than 1,400 stores - its internal search engine will become an increasingly important competitive weapon. Amazon is less forthcoming about its plans. Its recent decision to develop a search service in partnership with a small technology company, K9, has set off a round of speculation among rivals that it plans to create a comparison shopping service of its own, to rival Google and Yahoo. Amazon has already demonstrated it is capable of thinking big when it comes to using the power of internet search. Its "Search Inside the Book" service, launched last year, has opened up the contents of 120,000 books to the casual online browser. All this suggests that the two biggest online commerce destinations are well on their way to adjusting to a time when search will become a more powerful tool for connecting buyers and sellers over the internet. For other merchants, though, it raises the spectre of a world in which a handful of technology powers assumes an increasingly dominant role. That is certainly the way that eBay, Amazon, Yahoo and Google would like it to be. "There will be four main starting points for e-commerce," predicts Mr Sullivan at Yahoo. "You will have to be one of these guys, or have a relationship with one of these guys." ...........................................................................................................................................
    • - 12 - High science and sophisticated gamesmanship The first internet search engines were powered by human editors reviewing and cataloguing web pages. These days, most of the work is done by automated "spiders", and the task of ranking search results by relevance has become a combination of high science and sophisticated gamesmanship. The spiders, or "crawlers", are software programs sent out to explore the web. Information about the sites they find is sent back and entered into a huge central index, usually containing billions of pages. Each search engine's spiders make a complete round of the web every month or two, updating the information in their central directories. The high science involves the mathematical algorithms used to examine and rank the billions of web pages in the index in response to specific search requests. Although each search engine keeps the rules that underlie its algorithms a closely guarded secret, all follow the same basic principles. Web pages are ranked based on how prominently they feature the key words entered in a search request, either in the text of the page itself or in their "meta tags", labels that are attached to the pages and act as signposts for passing web crawlers. Other elements also come into play, including how often other internet sites link to a particular web page. The more links that exist, the more likely it is that the page is considered useful by others and the higher it will rank in the search results. The gamesmanship is needed to prevent devious web site operators from playing the system to win a higher ranking in search results than they deserve. Such tricks include loading particular terms into a page to make them seem more relevant than they are, or creating links between networks of sites to increase their apparent popularity. Search engine operators regularly change the way their algorithms work to prevent this kind of exploitation - a practice known as a "Google dance". ........................................................................................................................................... They pay to control your click The ability to turn every click you make on the internet into a potential transaction gives the online medium its commercial power. But it also creates an incentive for others to shape your surfing behaviour. When you use a search engine, someone out there may have more control over your clicks than you realise. "Cost per click" has become the favoured way of paying for advertising on the internet, letting advertisers pay only when a viewer clicks to visit their website. It has also become a basic ingredient of e-commerce. By tracking how many visitors actually buy something, the operator of an e-commerce site can calculate exactly how much it is worth paying for each introduction. In the search engine world, the commercialisation of clicking comes in two forms. One is called sponsored search. Advertisers bid against each other in an online, real-time auction for the right to have their messages displayed when certain key words are entered in a search engine. These messages are contained in a separate section of the web page from the search results, and advertisers pay for every click they attract. The other, less visible and more controversial version is known as paid inclusion. To its supporters, this makes internet searching a more useful experience. But to its critics, it subverts the integrity of the search process, substituting commercial interest for objectivity. Under paid inclusion, a company pays to have information about its products included in a search engine's index. That way, it doesn't have to trust to the search engine to find its site and catalogue its contents, and information such as pricing does not become out of date. The information is not identified as advertising but is included in normal search results. There is no guarantee where it will appear in the rankings. "You can keep better control of the content in an index, and the rate of refresh is happening faster," says Jeff Weiner, head of search at Yahoo, which uses paid inclusion in its search engine. Yahoo's decision last week to drop Google and use its own search engine means that many more web surfers are about to experience paid inclusion for the first time, although few will realise it. Google, the only big search engine to resist the practice, argues that paid inclusion is an attack on the fundamental principles of independent search. "The Google search results are objective," says Jonathan Rosenberg, vice-president of product development at Google. "We're going to separate and label ads."
    • - 13 - Copyright © Financial Times group
    • - 14 - US online giants set sights on overseas expansion By Richard Waters and Chris Nuttall FT.com site; Jun 09, 2004 Executives at eBay, the internet auction site, have taken to displaying a provocative chart when they speak at public events. It shows a $1,900bn global market of goods that do not fit well into the traditional retail system, because the items are secondhand, represent the end of a product line or are in scarce supply. "In a sense, we think that entire market could be available on eBay," says Bill Dobb, head of the US company's international operations. A similar outsized ambition is brewing at Yahoo, the internet portal company. "We're a global network, we have a great brand globally," Terry Semel, the former Hollywood mogul who has presided over a resurgence of the dotcom pioneer, told analysts last month. Yahoo's strategy "is about taking a bigger share globally", he said. Yahoo now measures itself against the worldwide online advertising market. It says it accounts for about 15 per cent of the market - and aims to raise that share. Is another bout of American dotcom hubris in the works? If so, any internet bust would play out on a much bigger international stage than the 2000 collapse that brought an end to the first burst of growth of dotcom companies. There are good reasons, though, to think that this latest flourish of US dotcom ambition will prove more resilient. That should ring alarm bells at rivals around the world, whether they are fledgling e-commerce companies or traditional retailers, which are turning increasingly to the internet. For one thing, the claims of companies such as Yahoo and eBay are more than mere bluster. Recent experience bears out some of the grandiose promises of the late 1990s about the global potential of selling to consumers over the internet. At eBay and Amazon, the US online retailer, international revenues are on track to eclipse domestic sales soon and the international businesses of all the leading US internet companies are booming (see chart). eBay already claims to be the biggest e-commerce site - measured by the value of goods sold - in a dozen countries, from the UK and Germany to Argentina and South Korea. US companies now stand on the verge of the next big online market, and one that is poised to become global even faster. Google and Yahoo - with Microsoft in hot pursuit - dominate the internet search business. Google distributes its search results in 97 languages, often through partnerships with local internet companies, and gets more than half its traffic from outside the US. The contextual advertising, which is displayed alongside the results of internet searches, is in some ways closer to e-commerce than it is to traditional branded advertising. By charging only when users click on the advertisements, the search companies are really selling business leads. It is not a big step for the search companies from this "per click" pricing to sharing in the actual transactions that result. Barry Diller, chief executive of InterActive and one of the US's most successful entrepreneurs, has assembled a conglomerate with a big foothold in the biggest e-commerce market of all - online travel. According to Forrester, the research group, selling travel packages and tickets to events will remain among the biggest online businesses for some time. Given Mr Diller's appetite for acquisitions and avowed intent to have an international presence, it is no surprise that the imminent purchase of foreign travel sites is rumoured almost daily. Behind all of these international ambitions lies a belief that the internet is a scale business. If retailing has been a local affair, selling over the internet turns the old rules on their head. Because they do not need to open bricks-
    • - 15 - and-mortar stores, e-commerce companies do not face the high costs that come with expansion for ordinary retailers. Instead, much of the investment in a centrally run e-commerce company is fixed. For Amazon, that has been a central part of its business model: it uses its scale to drive down prices and offers free shipping on its five non-US sites just as it does at home. In its more developed categories, such as books, Amazon already buys globally. The ability to invest heavily in the technology platform on which businesses such as Amazon are founded is another benefit of scale. "One of the great myths of the 1990s was that there are no barriers to entry in e-commerce," says Robin Terrell, head of Amazon's UK operations. "But actually building scale is incredibly complex and hard." The internet search business could turn out to be the ultimate scale business on the internet. Yahoo, for instance, now has 500 engineers working on its search engine. Apart from Google and Microsoft, that is the sort of effort that few others could match. "The [search] technology is very extensible across languages," says John Marcom, head of Yahoo's international operations. "This definitely is one area where scale is an advantage. Without a big distribution network, it's difficult to invest and expand." The advertising business that has grown up alongside the search engines could also turn into a common international market. "The value of a click has not at all evolved into a global standard," says Mr Marcom. "But there is no reason to think it won't in the end." eBay and Amazon are competing to use their technology platforms to attract local retailers to their sites. Nearly a quarter of the sales on Amazon's websites is now conducted on behalf of these third-party sellers. For pure e-commerce companies outside the US, the power of these increasingly global platforms is hard to match. Few have been able to reach the same scale in their own domestic markets or to succeed in building multinational businesses of their own. Those that do are quickly becoming acquisition targets for US companies.
    • - 16 - eBay has just purchased Germany's largest online classified advertising site for cars, and Yahoo this year snapped up Kelcoo, the French company that was on the way to building a Europe-wide service that allowed consumers to compare the prices of rival vendors. If similar deals remain scarce, it is largely because of the lack of sizeable companies to buy. "There are very, very few that have broken through to an international scale, where it's worth us thinking about" making an acquisition, says Mr Marcom. What, then, could go wrong? The ambitions of the US e-commerce multinationals are built on the belief that e- commerce in the rest of the world will unfold in the way it has in the US. "In the last year and a half, we took the business model we have in the US and really started to enforce it" elsewhere, says Jerry Yang, a Yahoo founder. So far, according to the leading e-commerce companies, it has proved straightforward to export these business ideas. The spectacular overseas growth of companies such as Amazon and eBay suggests they are right. Hellen Omwando, European e-commerce analyst for Forrester, says the US companies are right to think international e-commerce markets will develop in the same way as the US - but with a time lag of two or three years. "When it comes to e-commerce, there are really no fundamental differences in people's appetite online," she says. While that may apply to the most straightforward online shopping or auction sites, this "same size fits all" approach does not apply to all aspects of e-commerce. Danny Rimer, a Silicon Valley venture capitalist who has moved to London to back European internet start-ups, says that expansionist US companies have often misjudged the European market. "Rumsfeld economics doesn't work here," he says. "You can't use overwhelming firepower with a limited number of troops on the ground and no understanding of the locals or the culture and then expect you're going to win and be the market leader."
    • - 17 - Mr Rimer's Index Ventures has backed original European internet ventures such as Betfair, the online betting exchange, and Voice over internet protocol (VoIP) service Skype, both of which have turned heads back in Silicon Valley. It has also invested in Video Island, one of numerous online DVD rental companies that have appeared in the UK, copying Netflix of the US. "With Video Island, we have tweaked the Netflix model so it is much more effective in a European context. We are leveraging European brands such as Tesco and Comet rather than using our own brand," Mr Rimer says. "This is what US companies face abroad: educated entrepreneurs who have adapted [US ideas] to the local market in a more resourceful manner and with better-suited local partners." There is also a question whether new e-commerce markets will continue to develop as they have in the past. The online auction business, for instance, has all the hallmarks of a winner-takes-all market. The largest marketplace enjoys the network effects of having the highest number of buyers, which in turn attracts the largest number of sellers. eBay has ridden that logic to a dominant position in many markets, though Yahoo won out in Japan, the world's second biggest internet economy. Mr Marcom at Yahoo warns, though: "Just because it has evolved into a winner-takes-all market in developed countries doesn't mean it will in developing countries as well." China, where eBay and Yahoo are battling against local newcomers, could be a case in point. Given the size of the country and its under-developed infrastructure, China could see a series of regional auction and other e-commerce markets coexist, says Mr Marcom. The US e-commerce companies have yet to show how adaptable their businesses can be. Another danger is that the companies themselves will make mistakes. There is no guarantee that the US companies' management will have the focus and discipline to follow through on their business plans. Even eBay, which generally has a successful record in exporting well-honed operating plans, is not infallible. Its withdrawal from Japan, having failed to make inroads against Yahoo Japan, is a case in point. "We weren't as disciplined as we are now in rolling out our marketplace" in other countries, says Mr Cobb of eBay. He says eBay will re-enter Japan and will not make the mistake of "cutting and running" from a key market again. The lure of fast-growing international markets and slowing growth at home may add to the risk of ill-judged expansion. The number of internet users in non-US markets is likely to grow by about 13 per cent a year over the next five years, twice the rate of US growth, according to Mr Semel of Yahoo. "There is no question that, as US companies mature in their own market, they have to look for growth outside the US and one of the quickest and easiest markets to enter is Europe," says Mr Rimer. The pursuit of the seemingly quick and easy European expansion, though, has been the undoing of many US companies in the past.
    • - 18 - COMPANIES THE AMERICAS: Armchair travel really takes off By Amy Yee Financial Times; Feb 27, 2004 Armchair travel more often means the place from which you book trips rather than just dream about them. Last year more than 42m people booked travel over the internet - up 8 per cent from 2002, according to the Travel Industry Association of America. Jupiter Research says travel is the largest consumer spending category on the internet with about $28bn worth of online bookings made last year. By 2008, online travel sales are expected to reach $53bn. But as the stakes get higher, competition gets stiffer. Online travel companies such as Orbitz, Expedia and Travelocity face not only the challenge of sustaining growth while achieving profitability, but also of differentiating themselves. Orbitz, the third-largest online travel company based on gross bookings, enjoyed plenty of hype before its much- awaited IPO last December. Most agree that Orbitz is promising, but the company has posted operating losses every year. This month Orbitz reported a fourth-quarter net loss of $14.6m. However, excluding a non-cash charge related to restructuring of stock options, the company turned a profit of $11.9m. Orbitz has much work ahead. Its larger rivals Expedia and Travelocity, founded in 1996 and 1997 respectively, have more product diversity and operating experience. Expedia is part of InterActiveCorp, Barry Diller's internet empire that includes hotels.com, hotwire and match.com, the dating service. InterActive this month reported a 5 per cent rise in fourth-quarter earnings with its travel division boosting operating income by 11 per cent to $150.2m. Sales of hotel rooms and travel packages grew by 58 per cent to $82m. Expedia hopes that a recent deal struck with Marriott, the world's largest hotel operator, will increase volumes and offset lower margins. Sabre Holdings, Travelocity's parent, had a 2003 operating loss of $55m, but forecasts profits for this year. Travelocity, which cut jobs in the fourth quarter, is embarking on an aggressive branding campaign. Orbitz enjoys strong brand recognition but is "way behind" rival Expedia, which leads the field in providing packaged holidays, says Henry Harteveldt, analyst at Forrester Research. He says Expedia has the most comprehensive offerings, allowing users to book flights and hotels, pre-pay meals, airport hotel transfers, and even arrange tickets to tourist sites. Booking hotel rooms and travel packages is much more lucrative because online agencies buy wholesale from suppliers and reach margins of up to 25 per cent. In contrast, the margin for airline tickets is 3-5 per cent. Diminishing margins on airline tickets could hurt Orbitz, which generates about 60 per cent of revenues from this area. According to CIBC World Markets, airlines pay Orbitz about $5 per ticket, but this will halve by 2006. Because of its airline background, Orbitz was slower to offer hotel and travel packages, says Jared Blank of Online Travel Review. The company was founded by the five major US airlines - Continental, Delta, Northwest, United and American - to compete online. Orbitz set up a partnership in 2000 with Travelweb, a hotel distribution group owned by hotel groups such as Hilton and Hyatt. However, they have been embroiled in a lawsuit since Orbitz last year set up its own rival hotel booking programme. Another challenge for online travel is a shift in the airline industry toward low-fare carriers. More consumers are turning to airlines such as JetBlue, which sell tickets directly to consumers. Online travel companies are also adapting to serve not only leisure consumers but also business travellers in the lucrative corporate market.
    • - 19 - For example, Orbitz in October announced a partnership with McDonald's to manage the fast food giant's corporate travel. Travelocity provides travel services to General Dynamics and Computer Associates, while Expedia has links with Akamai Technologies. However, Mr Harteveldt cautions that while online travel continues to increase its pace, travel overall remains sluggish. The industry has signalled some cautious optimism, but for the most part, much remains in the air. © Copyright The Financial Times Ltd
    • - 20 - Lex: Google FT.com site; May 02, 2004 I'm feeling lucky. Any self-respecting Google user has taken a gamble on that button - hoping it takes them straight to the most relevant website instead of a normal search's range of options. As investors, they will need a serious dose of the same confidence to buy shares at the heady valuations of more than $30bn buzzing around Google. There is a bull case. In five years Google has carved out an extraordinarily strong position in internet search, a sweet spot in the fast-growing online advertising market. Net revenues could hit $2bn this year. That is about 20 per cent less than rival Yahoo - valued at about $34bn, including a Yahoo Japan stake worth more than $10bn. But Google's operating margins are far richer than Yahoo's and last quarter's revenue growth of 120 per cent dwarfed that of its more established rival. Google showed great savvy in building its brand by word of mouth and public relations while rivals' attention was elsewhere. It is burrowing into new markets such as e-mail. Cash from the IPO should provide firepower to help protect market position. However, Google's technology lead has narrowed. It faces far tougher competition now others have realised the potential of search. Google's growth will slow as competition increases and its revenue base expands. Margins will also come under pressure. Advertising on network partners' sites enjoys lower margins than on Google's own site but is also its fastest growing business. Rivals could exacerbate the pressure by offering Google's partners a bigger slice of the spoils if they switch allegiance. Google's costs, such as sales and marketing, will also rise. Google's business model is purer than Yahoo's - with its portal banner adverts and other businesses such as HotJobs. That means higher growth now but less diversification to fall back on. Google could still be early in its growth cycle but is probably going public at its most attractive. Not for nothing does the threat from Microsoft and Yahoo kick off Google's exhaustive assessment of the risks ahead. Copyright © Financial Times group
    • - 21 - FRONT PAGE - COMPANIES & MARKETS: Yahoo stops using Google By Richard Waters in San Francisco Financial Times; Feb 19, 2004 Yahoo yesterday raised the stakes in the internet search wars by abandoning Google in favour of an in-house search engine on its websites. With Microsoft ready to launch a rival technology, the move sets up a three-way struggle that will challenge Google's recent dominance of internet searching. The coming battle reflects the emergence of searching as the internet's "killer application", with more people using a search engine as the starting point, whether to find information or products to buy. Yahoo signalled its intent to challenge Google last year when it bought Inktomi, a company that enjoyed an early technology lead but fell on hard times after the dotcom crash. It had already indicated that it planned to replace Google as the search service used by visitors to the Yahoo portal early this year. The race to catch up with Google comes as the internet upstart continues to strengthen its grip on searching. In December, half of all people in the US who used a search engine visited Google at least once, according to Nielsen/NetRatings, a research firm. In contrast, 29 per cent visited Yahoo during the month, 30 per cent went to Microsoft's MSN service and just 15 per cent opted to use AOL. Google's dominance is even greater than these numbers suggest. Its search engine carried out all the searches on AOL and, until now, Yahoo. Searches on MSN, meanwhile, are powered by Yahoo's search engine, though that relationship is also expected to end once Microsoft perfects its own technology. Jeff Weiner, head of search at Yahoo, said the decision to switch on the company's new search engine came after internal tests showed the quality of its results were better than those of rivals in terms of relevance, comprehensiveness and timeliness. The company planned to use personal information about its users to customise the results of searches to make them more relevant. This personalisation would take advantage of data supplied by more than 100m people registered to use Yahoo's various information services. In an effort to compete with Google, Yahoo has built its own engineering research group round Inktomi and two other search engines it acquired. But unlike Google, its results still rely partly on human intervention, using the team of editors that created the first internet directory on which Yahoo's original business was built. © Copyright The Financial Times Ltd
    • - 22 - Google looks for overseas advertisers By Gary Silverman in New York FT.com site; May 03, 2004 Advertisers outside the US are the next target for Google, according to the preliminary prospectus for the internet company's initial public offering. The document showed that Google's non-US advertising revenues were soaring, but they had failed to keep up with the size of its international user traffic. Google, which makes about 96 per cent of its revenues from advertising, said international revenues rose from 14 per cent of the total in 2001 to 21 per cent in 2002, 26 per cent in 2003 and 30 per cent in this year's first quarter. At the same time, the search engine company noted that "more than half of our user traffic came from outside the US". It added: "We expect that international net revenues will continue to grow as a percentage of the total." The document highlights the difficulties Google will face internationally. In particular, it might have to spend more on marketing efforts abroad, where in some cases other technology companies are better known and better connected. The document testifies to Google's role in promoting internet advertising. It took in $961.9m in advertising revenue last year, up from $347.8m in 2002 and $86.4m in 2001. Advertisers like Google's approach because it helps them reach consumers who are interested in their products. It then helps them measure the impact of their marketing messages. "What a search engine basically says is, 'You put your hand up and say I'm interested and we will give you this message'," said Rishad Tobaccowala, who oversees digital advertising at StarCom MediaVest, which helps companies buy ads. Advertisers forge agreements with Google to run their advertisements when users search for particular words. Google gets paid when users click on the ads. Companies can then track activity and sales on their web sites. Sir Martin Sorrell, chairman of WPP, the world's third biggest marketing services company, said he believed the Google IPO would be "good for us". He said the Google revenue figures highlighted the appeal of marketing services with more easily-measured results. These included direct marketing as well as internet ads. Mr Tobaccowala said Google's search-related business model was also helping to erode interest in other forms of internet advertising. Advertisers were coming to see pop-up ads as annoying and banner ads as irrelevant. "The banner . . . was the standard unit," he said. "Now, they throw it in extra. No one says they will do a banner buy." He said longer-form internet ads were also gaining popularity with companies looking to convey longer-term branding messages. Consumer goods companies would probably be drawn to these forms of appeals, he said. American Express recently unveiled a four-minute internet advertisement featuring Jerry Seinfeld, the comedian, as a test of the approach. Copyright © Financial Times group
    • - 23 - FRONT PAGE - FIRST SECTION: Terra Lycos to sell US portal By James Politi in New York and Joshua Levitt in Madrid Financial Times; Apr 29, 2004 Terra Lycos, the US unit of Spanish telecommunications group Telefónica, is considering a sale of Lycos.com, the US internet portal it acquired at the height of the dotcom boom in 2000 after making an all-share offer worth $12.5bn. In a stark reminder of the sharp drop in valuations suffered in the technology sector, a disposal of Lycos is expected to earn its parent as little as $200m. According to people familiar with the situation, Terra has recently hired Lehman Brothers, the US investment bank, to advise it on valuing Lycos. After that, Terra will decide whether to proceed with a sale. It was unclear who might be interested in Lycos. This week, Silicon Valley's top investment bankers are busy waiting for Google, the internet search engine, to decide whether to file for an initial public offering that would be one of the largest flotations of the year. Four years ago, when Terra agreed to buy Lycos, Juan Villalonga, the chairman of Telefónica, hailed the deal as Terra's "big leap". It would marry new markets in North America, Europe and Asia with Terra's "natural market" in Spanish and Portuguese-speaking countries. But those hopes were rapidly dashed by a realisation that internet portals were not generating the revenues many were expecting. Terra executives familiar with the negotiations said the company had received offers of about $200m for Lycos. Even at the price, the capital gain for Terra would be significant. Lycos's book value is less than half of that offer, after it had been written down along with Telefónica's UMTS mobile phone licences in Europe, the executives said. In the absence of Lycos, Terra will concentrate on its businesses in Spain and Latin America. © Copyright The Financial Times Ltd
    • - 24 - FEATURES: Growing pains for Google's idealists By Richard Waters Financial Times; Apr 20, 2004 What does Google want to be when it grows up? And is it ready for the raised public expectations its rapidly expanding reach and power on the internet are provoking? The latest test of the internet adolescent has come with the storm of protest from privacy advocates caused by its plans for a free e-mail service to rival Hotmail (owned by Microsoft) and Yahoo. At the same time, the ever-expanding influence of its search engine continues to put the company at the centre of a string of controversies. The latest case in point: the fact that a Google search using the single word "Jew" brings up an anti-Semitic website, called "Jew Watch", as its first listing. As its reach extends into more corners of the internet, the scale of the company's ambitions is raising concerns of its own. The trial e-mail service follows a shopping site (Froogle), a "social networking" service for connecting to friends and acquaintances (Orkut) and a news service, all of which rely on its core search engine. If it can link these and other services, how much power will Google eventually wield, and how will that power be used? Inside Google, founded by two idealistic Stanford University engineering students, such questions seem almost beside the point. There is a strong belief that Google is on the side of right. Asked about the high expectations it faces, Sergey Brin, founder, recites one of the principles on which he and Larry Page based their company: "Don't be evil". "I guess it sounds very childish - but it's a good principle to have," he says, adding that some of the recent corporate scandals might not have happened if more companies had shared a similar principle. But the Google brand of idealism has started to rub against some tough real-world dilemmas. The company's version of e-mail, Gmail, will carry advertisements. There is nothing new in that - other "free" e-mail is also advertising-supported. In fact, compared with the distracting pop-ups and flashy banner ads that normally clutter free internet services, the text-only links to advertisers' websites that Google has been placing in the margin of its e-mails during the first two weeks of tests are almost invisible. The way those adverts are selected, though, has sent privacy advocates into a spin, bringing a call last week from Liz Figueroa, California state senator, for legislation to block the service. Google's software scans the text of e-mails looking for certain words, then attaches adverts that fit the context. Mention the name of an exotic Caribbean island, for instance, and it may bring a link to a holiday resort or an airline. The outcry provoked by Gmail has taken the company off-guard. "I think it's irrational," says Mr Brin. "The magnitude of the response was a surprise to me - there really were a lot of opinions," he says - from people who had not used the service. Rationality, though, may be the least of it. As Google is finding to its cost, becoming the world's most prominent internet company almost overnight brings massive expectations. That does not apply only to privacy advocates. Any number of political pressure groups and commercial interests see the pervasive internet search engine as a vehicle for protecting or furthering their interests. This is a path that was already well-trodden by the first generation of internet companies, though the outsized influence of the Google search engine sets it apart. If much of the internet's power lies in the ability to collect and analyse information about millions of users, privacy advocates have long been in a running battle with the dotcoms. Doubleclick, one of the first companies to try to use personal information to target advertising, was antagonising the privacy lobby before Google was even born. Also, the global reach of internet companies has long forced them to tackle tricky legal and cultural issues. eBay, the dominant internet auction company, banned the sale of Nazi war memorabilia after it caused a stir in France. For its part, Google still exhibits all the hallmarks of the young, engineering-centred company it is.
    • - 25 - For Mr Brin, using software to scan private correspondence is a technical task that has nothing to do with intruding on privacy. "The reality of e-mail today is that a lot of outside systems check it," he says. He points to the spell-checking software that is often used to "read" e-mail before it is sent, and the anti-spam programs that scan e-mail for tell-tale words. As far as Google is concerned, this is fine - just as long as any personal information stays inside the company and is never shown to advertisers. The visceral response it has aroused has become the latest challenge to this techno-centric view of the world. As Google grows more powerful, battles such as these are almost certain to multiply. Exactly how big Google's ambitions are remains one of the most intriguing questions. It is already using its core search engine technology to move into shopping, communication and other areas of internet activity. Could the company find ways to link these various services? "That makes it sound more sinister than it is," says Mr Brin. He also denies that the company is pursuing some overarching plan to build an all-purpose internet platform. "There's not a grand scheme," he says. "We like to be opportunistic." The potential to connect a growing range of online services, though, may end up being Google's most powerful business weapon - a parallel to the bundling strategy that Microsoft has used so effectively to extend the reach of its Windows operating system. Connecting different services together would improve the experience of using the internet, according to Mr Brin. By sharing "cookies" - the pieces of software that sites such as Google plant in a user's computer to track their customers' behaviour - it would be possible to connect a social networking site with an e-mail service, adding to the value of both. "Maybe when I log on to Orkut, I could see I have 100 Gmails," he says. Expanding the amount of information it has about its users and using this to construct new and better services is central to the Google plan. Two of the main strategies for its search engine rely on this. By tracking where its users are based, the company has just launched a local advertising service to rival Yellow Pages. And, like its main rivals, it believes that the future of internet searching lies in personalisation: being able to provide the most relevant results to each particular user. Whatever the validity of the Gmail concerns, Google's policies in dealing with privacy issues have so far put it broadly in line with general practice on the internet. Search Engine Watch, a website that tracks Google and its rivals, generally gives the company high marks over its approach to privacy. Mr Brin concedes, though, that the dispute over Gmail has taught the company that it probably needs to be clearer in public about what its policies are and how they are applied. While it tries to calm the storm of protest over Gmail, meanwhile, Google continues to grapple with a familiar problem: pacifying users who are offended by the priorities shown in its search results. The demands of objectivity mean Google can never try to suppress unpleasant results, such as the prominence of Jew Watch, says Mr Brin. "We do not believe we should be imposing our beliefs and ethical standards on the search results." He notes with some satisfaction, though, that other search results are climbing higher in the rankings and last week temporarily overthrew Jew Watch - a clear sign that opponents have found ways to push less offensive results higher in the rankings. "The web community has been responding," says Mr Brin. Even appearing to voice approval for one search result over another in this way risks condoning efforts to distort the results of the Google search engine. But preventing evil sometimes calls for drastic measures. © Copyright The Financial Times Ltd
    • - 26 - FRONT PAGE - FIRST SECTION: Tesco law goes online with the groceries By Bob Sherwood, Legal Correspondent Financial Times; Jun 22, 2004 Online shoppers can buy wills, tenancy agreements and even DIY divorce kits alongside groceries after Tesco yesterday launched a web-based legal advice store. The planned deregulation of legal services had already been dubbed "Tesco law" before the retail chain became the first to "dip a toe" into a potentially lucrative market. Tesco's "legal store", on its Tesco.com website, offers: a DIY separation and divorce kit, a "special offer" at £7.49; flat rental agreement forms for £4.49; and triple clubcard points with its £9.99 last will and testament kit. Tesco has expanded into areas such as financial services and telecommunications in recent years. It has received plenty of free publicity since Lord Falconer, the lord chancellor, coined the term "Tesco law" to explain the concept of high street stores offering simplified legal services. A review of legal regulation, headed by Sir David Clementi, former deputy governor of the Bank of England, is expected by the year's end to recommend changes to regulations that bar companies from owning law firms or employing solicitors to offer advice to the public. Tesco's action would allow expansion into the market should regulations change. Many see such changes eventually enabling high street chains to offer simplified legal services - such as divorce, conveyancing, probate and personal injury - to compete with traditional solicitors. © Copyright The Financial Times Ltd
    • - 27 - Survivors of the dotcom era regroup to fight another day By Nuala Moran FT.com site; May 12, 2004 "I like to think Ariba is a two year old company inside a seven year old one," says Bob Calderoni, chief executive of Ariba, highlighting the extent of the makeover required to pull through the dotcom fallout. Ariba, whose software powered many of the now defunct electronic marketplaces, retrenched almost to the point of no return before emerging to champion the concept of spend management. According to Mr Calderoni, spend management is the route to extracting the real value from e-sourcing and e- procurement systems. "The early adopters are showing big rewards, saving tens, if not hundreds, of millions of dollars," he says. Ariba's main rival from the dotcom days, Commerce One, also survives, albeit in a much reduced form, and has rejected its e-marketplace roots to specialise in application integration within supply chains. Since emerging from its makeover Ariba has gobbled up several of its erstwhile competitors, most recently agreeing the takeover of the sourcing specialist Freemarkets for $493m. Fittingly, it was Freemarkets that drew the metaphorical line under the e-marketplace frenzy last December when it acquired the auction services arm of Covisint, the automobile industry exchange. Formed in February 2002 by DaimlerChrysler, Ford and General Motors, and subsequently joined by Renault, Nissan and Peugeot, Covisint exemplified the arrogant assumption of industry consortia that e-marketplaces which the buyers owned and controlled would readily become the central transaction engines in their sector, giving suppliers no choice but to link up to them. At its formation in early 2002, analysts valued Covisint at $5bn. But in common with so many other over-valued e- commerce ventures Covisint encountered resistance from both manufacturers and suppliers, who did not trust the medium and were neither prepared to give up their old ways of doing business, or to drop their in house e- business projects. When the remainder of Covisint was acquired by Compuware in February it joined some 1,300 failed e- marketplaces. Those that survive have scaled down their ambitions and settled for providing e-sourcing and e- procurement services, rather than being central transaction engines. Some act as data hubs, others as repositories for electronic catalogues, or as noticeboards. And consolidation of these marketplaces continues. In March the French marketplace Hubwoo agreed to merge with its German peer cc-chemplorer (itself the fruit of the merger of two chemicals marketplaces). The new entity claims to be Europe's largest e-procurement market, hosting 1,700 electronic catalogues with 25m items. Clients include Diageo, Syngenta, SAP, Volkswagen and Bayer. While public marketplaces withered, private ones have prospered. "These are extranets controlled by powerful buyers to link their suppliers, like a private post office service. It is a perfectly viable model providing the buying organisation has all the power to make suppliers do what they want," says Andy Kyte, analyst at Gartner. Some are very ambitious in scale such as e-procurementScotl@nd, which claims to be the world's first national public sector e-marketplace. The government-run service has more than 1,000 suppliers and the aim is that it will be used by all government-funded organisations in Scotland. This ambition is backed by a mandate requiring all such bodies to switch to e-procurement. The supplier's nightmare of the reverse auction still lives on. For example Achilles Information of Abingdon, UK, provides a hosting platform for electronic auctions. One customer, the UK Environment Agency, claims to have saved £1m in nine months by awarding contracts for electricity supplies, IT consumables, paper and stationery via reverse auctions run by Achilles. Other specialist e-sourcing and e-procurement companies also survive, but Andrew Bartels, analyst at Forrester Research, says that while the market will remain fragmented for the next two to three years Ariba's acquisition of Freemarkets is an indication the market is starting to mature. "Differentiation in e-sourcing product offerings is diminishing, and further consolidation is likely." This is good news for business process outsourcers and application service providers, which prefer to supply and support standard products. For example, last month Accenture announced the formation of a new business unit to provide outsourced procurement services.
    • - 28 - "We are creating a one-to-many service offering," says Len Sherman, president of Accenture Procurement Solutions. "We are building capabilities and assets that are intended to be reusable, and looking to migrate clients on to standard solutions." He adds, "One reason e-procurement did not meet expectations was that it didn't screw into existing desktops." It is this ability of e-sourcing and e-procurement modules to plug into existing systems that the enterprise software vendors such as SAP, PeopleSoft and Oracle, are pushing as one of the main attractions of their software. These vendors are now bundling e-sourcing and e-procurement into supplier relationship management modules that also include the facility to manage contracts, and are busy selling these extensions into their existing customer base. In the dotcom boom days e-procurement was seen as the ideal application for the internet, because of the potential to connect every employee to all suppliers, with e-procurement systems holding it all together. "There was phenomenal optimism out there, but it did not happen because of the limits of the technology," says Mr Sherman. But the boom did shine a torch into an area where there had been underinvestment. Mr Sherman sat on the board of what he describes as "an aspiring but now hardly hanging on" dotcom company. "Being in the position I am now, I am delighted I went through it," he says. "The venture capital and the bright, energetic people it attracted laid the groundwork. Properly deployed e-sourcing and e-procurement can make a big difference; the potential was always there." Copyright © Financial Times group
    • - 29 - DoCoMo in talks to offer i-mode in UK By Michiyo Nakamoto in Tokyo and Robert Budden in London FT.com site; May 27, 2004 NTT DoCoMo has entered into discussions with mobile operators Orange, T-Mobile and MMO2 to offer its i- mode mobile internet service in the UK following the collapse of ties with Hutchison 3G UK, the new entrant mobile operator pioneering third-generation services. DoCoMo said on Thursday it was to sell its 20 per cent stake in Hutchison 3G UK for £120m ($220m) in a complicated deal that ends an increasingly fraught relationship with the struggling third-generation mobile phone company. But the revelation that it has opened talks with Orange and T-Mobile in the UK will surprise many in the mobile industry as both these operators are aggressively pursuing their own operator-branded mobile internet portals. Under the exit agreement with Hutchison, DoCoMo will sell its entire 20 per cent stake to Hutchison Whampoa, the Hong Kong parent company. Hutchison will pay DoCoMo in shares of Hutchison Telecommunications International (HTIL), a Hong Kong based mobile telecoms operator, subject to the listing of the latter. DoCoMo retains the right to receive payment in cash if HTIL fails to be listed. The agreement is a blow to Hutchison, which considered DoCoMo's stake in its UK operation an important sign of support for a service that has struggled to take off. The payments to DoCoMo will be made in three instalments, with the third and final instalment to be made in December, 2006. Each of the three payments could be in cash or shares. The start of the payments is expected to depend on the timing of the listing of HTIL. Hutchison has also agreed to repay £200m loaned to it by DoCoMo in May 2003 as part of the shareholder agreement made when DoCoMo invested in Hutchison 3G. This loan was one source of the increasing friction between DoCoMo and Hutchison. A similar request for a loan from KPN Mobile, an investor in Hutchison 3G UK at the time, was turned down by the Dutch group, which subsequently pulled out of the UK operator. The sale agreement, which was finalised after prolonged negotiations, frees the Japanese operator to seek another partner in the UK for its i-mode mobile internet service, which Hutchison had failed to adopt. DoCoMo paid Y185.7bn ($1.7bn) in 2000 for its 20 per cent stake in Hutchison 3G in return for a commitment by the latter to start a 3G service in the UK. Since then, DoCoMo has written down the bulk of its Y1,800bn investments in a range of overseas operators. It had written down its investment in Hutchison 3G UK to Y22.5bn. DoCoMo was keen to see i-mode adopted globally. However, Hutchison dragged its feet on i-mode, while DoCoMo's other European partners launched the service, leaving the UK as the one big European market where it was not represented.
    • - 30 - WORLD NEWS: Recording industry in 'victory' over file-sharer By Tim Burt in London Financial Times; Feb 07, 2004 The embattled music industry claimed a breakthrough in the fight against internet piracy after winning court approval to raid the headquarters of KaZaA, the world's largest file-sharing network. Industry investigators in Australia - home to Sharman Networks, KaZaA's parent company - yesterday seized documents and electronic records from a dozen offices as part of a long-running campaign against illegal music copying. The music industry, which lost an estimated $2.4bn to internet downloading last year, has accused KaZaA of mass copyright infringement. KaZaA's software, allowing web users to share music files, has been downloaded more than 230m times in the past 10 months, according to Music Industry Piracy Investigations, the Australian agency which conducted yesterday's raids in and around Sydney. Michael Speck, the agency's general manager, said: "If we can stop KaZaA it will have an impact on downloading of sound recordings around the world." The raids follow a global industry effort to crack down on internet piracy, which has already seen hundreds of lawsuits filed in the US. Similar action is expected in Europe this year. Leading record companies have blamed illegal file-sharing for a three-year decline in sales. On Thursday, Universal Music, the world's largest record company, said its sales fell 21 per cent to €4.97bn ($6.3bn, £3.4bn) in 2003. The Australian raids follow other legal moves against KaZaA and its parent company in the US and the Netherlands. The Dutch supreme court, however, recently ruled that KaZaA did not violate copyrights. Sharman Networks dismissed yesterday's raids and threats of further legal action in the Australian courts. It said: "This is a knee-jerk reaction by the recording industry to discredit Sharman Networks and the KaZaA software, following a number of recent court decisions around the world that have ruled against the entertainment industry's agenda to stamp out peer-to-peer technology." Nevertheless, the music industry hailed the decision of the Australian federal court to permit raids on Sharman and its KaZaA offshoot. Jay Berman, chairman of the International Federation for the Phonographic Industry, said: "We think the corner is turning in the development of a legitimate online music business worldwide. "Actions against unauthorised music distribution in different countries, including this case in Australia in which mass infringement is alleged, are playing are a very important role in helping craft that change." The industry claims legal action has persuaded internet users to reduce unauthorised file sharing, although more than 800m illegal tracks are still in circulation on the web. Evidence gathered against Sharman Networks and KaZaA will be presented to the Australian courts next week, paving the way for a lengthy legal battle. The world's largest file-sharing network said: "Sharman will be applying to have these orders set aside, but in the meantime is complying with the terms of the order." © Copyright The Financial Times Ltd
    • - 31 - European comment: Skype challenges giants By Brian Groom FT.com site; Mar 16, 2004 Could it be second time lucky for Niklas Zennstrom, a 37-year-old Swede, and his business partner Janus Friis, a 27-year-old Dane? Their last venture, Kazaa, the internet's most popular file-sharing service, attracted litigation from music and film companies but little profit before they sold to Sharman Networks in 2002. This time Skype, their service offering free telephone calls over the internet, is creating excitement. In six months its software has been downloaded 8.9m times - a faster take-up than Hotmail, the internet e-mail service, at its peak. Personal computer users with headphones, a microphone and an internet connection can call others with Skype software free, anywhere in the world. Skype is not the only company marketing voice over internet protocol (VoIP). But easy use and clear quality have helped. Profitability will depend on its revenue model, which involves keeping basic calls free but charging for premium services. This week it secured $18.8m in second-round funding. Operators such as AT&T in the US and BT Group in the UK are hitting back. BT claims that Skype's service is "primitive" compared with one it will launch this year. Internet service provider Tiscali is another entering the market. A lot depends on whether regulators keep regulation light, as they should, compared with traditional services. It is too early to predict who will win this battle - apart, one hopes, from the consumer. US tanks storm into Europe The US has blasted away any lingering hopes of a pan-European arms industry. With its £309m ($558m) bid for Britain's Alvis, maker of Challenger tanks and Warrior armoured vehicles, General Dynamics is set to become the great consolidator of the European armaments sector. BAe Systems, with a 29 per cent stake in Alvis, says it will not challenge GD and could well be tempted to offload its Royal Ordnance business to the Americans. By dithering too long, Europe has lost the chance of creating for its ground force defence equipment industry the cross-border partnership it has succeeded in developing for its aeronautical sector through EADS and is now talking of extending to the naval business. GD has been quietly and systematically picking up the pieces of the European arms industry - in Switzerland with Mowag, in Austria with Steyr and in Spain with Santa Barbara. Once Alvis goes, Europe will essentially be left with the distressed, state-owned GIAT Industries in France and two German companies, Rheinmetall Detec and Krauss-Maffei-Wegmann. The latter, 51 per cent owned by the Bode family and 49 per cent by Siemens, could well be the next morsel for GD. Siemens plans to shed its stake, which came with its acquisition of Mannesmann's engineering and vehicle parts business. American Abrams, British Challenger and German Leopard tanks would all come under the GD umbrella, isolating even further the poor old French Leclerc tanks. Barely noticing it, Europe would have capitulated to American firepower. The blemish in Brown's golden picture Can Gordon Brown avoid breaking his "golden rule"? Britain's finance minister, who delivers his eighth budget on Wednesday, is often criticised for increasing red tape and tax but he has certainly delivered stability. The economy is heading for its best year since 2000, with the Treasury forecasting 3 to 3.5 per cent growth. His biggest problem - apart the threat of a house price crash - is government borrowing, expected to be at least £10bn higher than the £27bn Mr Brown forecast last April. Consequently Mr Brown, who has raised public spending by 37 per cent since 2000, will announce a slowdown in spending growth between now and 2008. Some question whether he can meet his "golden rule" of borrowing only to invest over the economic cycle, which by the Treasury's definition ends in 2005-06.
    • - 32 - Independent forecasters, on average, believe borrowing over the next two years will be £14bn higher than the Treasury expects, which would wipe out his margin. Some economists and the International Monetary Fund say a further £10bn of spending cuts or tax rises will be needed. Mr Brown has proved sceptics wrong before, and an upturn in tax revenues from financial services may yet come to his aid. It would be embarrassing, though, if he broke the rule he imposed on himself.
    • - 33 - Yahoo stops using Google as its search engine By Richard Waters in San Francisco FT.com site; Feb 18, 2004 Yahoo on Wednesday raised the stakes in the internet search wars by abandoning Google in favour of an in- house search engine on its websites. With Microsoft ready to launch a rival technology, the move sets up a three-way struggle that will challenge Google's recent dominance of internet searching. The coming battle reflects the emergence of searching as the internet's "killer application", with more people using a search engine as the starting point, whether to find information or products to buy. Yahoo signalled its intent to challenge Google last year when it bought Inktomi, a company that enjoyed an early technology lead but fell on hard times after the dotcom crash. It had already indicated that it planned to replace Google as the search service used by visitors to the Yahoo portal early this year. The race to catch up with Google comes as the internet upstart continues to strengthen its grip on searching. In December, half of all people in the US who used a search engine visited Google at least once, according to Nielsen/NetRatings, a research firm. In contrast, 29 per cent visited Yahoo during the month, 30 per cent went to Microsoft's MSN service and just 15 per cent opted to use AOL. Google's dominance is even greater than these numbers suggest. Its search engine carried out all the searches on AOL and, until now, Yahoo. Searches on MSN, meanwhile, are powered by Yahoo's search engine, though that relationship is also expected to end once Microsoft perfects its own technology. Jeff Weiner, head of search at Yahoo, said the decision to switch on the company's new search engine came after internal tests showed the quality of its results were better than those of rivals in terms of relevance, comprehensiveness and timeliness. The company planned to use personal information about its users to customise the results of searches to make them more relevant. This personalisation would take advantage of data supplied by more than 100m people registered to use Yahoo's various information services. In an effort to compete with Google, Yahoo has built its own engineering research group round Inktomi and two other search engines it acquired. But unlike Google, its results still rely partly on human intervention, using the team of editors that created the first internet directory on which Yahoo's original business was built. Copyright © Financial Times group