While a deal is far from imminent, the two sides are talking more directly than they have for some time, a source familiar with the situation told CNET News.com. The talks, which picked up steam on Friday, are being held in the San Francisco Bay Area, with at least some of the parties on both sides meeting in person, the source said.

The talks are no guarantee a deal will close, but investors found the evidence convincing. Yahoo’s stock rose $1.82, or 7 percent, to $28.63, in late-day trading.

But posturing is par for the course in any serious negotiation.

The purported talks, if successful, could spare Microsoft the trouble and time of a hostile bid for the search company, if indeed it chooses not to walk away from its three-month-long attempt to acquire Yahoo.

Microsoft has various options to consider in its attempt to acquire Yahoo. Hostile ones include making a tender offer directly to shareholders and offering an opposing slate for election to Yahoo’s board of directors.

This report was jointly written by News.com staff writer Stephen Shankland.

If you’re buying a
car, for example, threatening to walk away and then insisting you won’t settle for a higher price can help minimize the amount you end up paying.

Microsoft’s discussions with Yahoo “intensified” Friday as the two companies considered possibilities for a last-minute friendly acquisition, The Wall Street Journal reported, citing anonymous sources.

And The New York Times had a similar assessment, citing a source who said talks were back on and that Microsoft had increased its offer by “several dollars.” Late Friday afternoon, the Journal said that the two companies were “discussing a possible price in the mid-$30s range per share.”

(Credit:
Etsy)

In your face, iPhone! CrackBerry addicts now have a new way to show their loyalty to the smartphone–by dangling tiny versions from their ears.

Thanks to Popgadget for ringing us up on this one.

Maybe the upcoming release of Research In Motion’s highly anticipated Bold will inspire the artist, whose Etsy handle is picnicbybarbfeldman, to pound out some more. She has been working with Fimo since 1971 and says she can make the earrings even tinier than the ones pictured–as studs about three-eighths of an inch wide and a half an inch high. Um, talk about BlackBerry thumb!

But as soon as that announcement hit the wire, Apple zealots and pundits alike were speculating about what the company would possibly announce. A new iPod? An enhancement to iTunes? Maybe a new iTunes song purchasing system that would see Apple dump per-song purchases and affix a monthly fee instead? The list goes on.

Apple announced yesterday that it will be holding a press event that most believe will discuss what the company has on-tap for the future of of its
iPod.

If this event will surround the iPod — and most think it will — how important will it really be? Let’s face it — an iPod event may have a few big announcements that will make some swoon, but by and large, it’s nothing more than another run-of-the-mill day at the Apple office.

What more can Apple really do to make an iPod event a blow-out? The way I see it, the only thing that would surprise me at this point would be a different song purchase policy on iTunes. Other than that, a slim iPod Nano or an iPod with a larger screen just won’t do it for me.

And while I can understand where everyone is coming from and Steve Jobs is able to captivate an audience unlike any other CEO in the business, I’m not so sure it’s going to be as wonderful as everyone seems to think.

Chances are, the announcement made next Tuesday will go something like this: Steve Jobs will make a big fuss over how well the iPod sells and how many songs his company has been able to sell on iTunes. After that, someone will come on stage and bore us with minute details about things we don’t care about. Once that’s over, Steve will come out and announce a new lineup of iPods that will “be the most popular yet.” After that, in order to keep in line with the “rock” moniker, a band will perform to end the show.

Check out Don’s Digital Home podcast, Twitter feed, and FriendFeed.

I wouldn’t expect anything more out of next week’s show.

In its first year on the market, Microsoft shipped 1.2 million Zunes, reaching about 3 percent of the U.S. market for MP3 players by the first quarter of 2007. A year later, the company’s market share stands at about 4 percent, but that slight gain comes as Microsoft has expanded from one hard-drive model into a family of products that includes both flash-based and hard drive-based units.

As part of its announcement of a Zune video store this week, Microsoft noted that it has now sold more than 2 million Zunes. That would appear to show that business is not growing much despite the expansion of the product line. (And, to get a sense of where the competition is, Apple sold more than 10 million iPods in just the non-holiday January to March quarter).

For their part, Microsoft Zune officials say they’re pleased with where things stand, reiterating that they see their effort to form a serious rival to the
iPod as a years-long project.

Jason Reindorp, director of product marketing, said the company has shipped roughly a million devices since the second-generation models debuted in December.

“I’d actually say that’s pretty good,” Reindorp said. The company said it feels it has succeeded in its goal of being seen as a credible alternative for those who don’t want an iPod.

“The strategy has been really focused on getting in the game,” he said.

The company has been criticized for being slow, though, to match Apple features, taking more than a year to start selling video despite the fact that its initial model came with a large color screen and video playback abilities.

Microsoft also misjudged initial demand for the flash-based Zune last year. In gearing up for the holiday season, Microsoft assumed demand would be highest for those models, and boosted production of those at the expense of the hard drive-based models. Demand turned out to be higher for the 80GB hard drive model, which ended up being in short supply.

“We’ve said all along that, being a software company, we are much more focused on the experiences we can bring to life through the software.” –Jason Reindorp, Microsoft director of product marketing

Reindorp said that demand has evened out some in the ensuing months, although Zune still has a far higher share of the hard drive-based MP3 market than it does in either the flash-based or overall market.

Much of Microsoft’s effort, Reindorp said, has been around building the service connected to the Zune, particularly its social elements. In addition to the video store launched Tuesday, Microsoft also added new social capabilities, such as the ability to share with friends an electronic “Zune Card” that allows them to access playlists of your favorite and most recently listened to music. Those who take part in Microsoft’s subscription service gain access to the songs themselves, as well.

Gartner analyst Mike McGuire said although the social aspect to the Zune is a good idea, it also complicates life for Microsoft, which not only needs to try and match Apple on the hardware and software fronts, but also to compete with other social music services such as Imeem and Last.fm.

“Zune’s trying to be all of these in one place,” he said. “I think it’s a tougher sell with Zune.”

Of course, Microsoft is plugging ahead with plans to expand the service as well as the number of devices that can connect to it.

“This fall, expect to see a new wave of devices,” Reindorp said, noting that the company has established a pattern of updating the Zune software in the spring and introducing new hardware in the fall.

But Reindorp said Microsoft thinks of the dedicated portable player as just one of many “tuners” that could potentially connect to the Zune service. The company is looking at how desktop software, online services, other portable devices, and even
cars might be able to connect into the Zune service.

“We’ve said all along that, being a software company, we are much more focused on the experiences we can bring to life through the software,” Reindorp said.

One area in which the company is looking to make changes is its subscription service, known as Zune Pass. Today, consumers pay $15 a month to access an unlimited number of music tracks, though all of those songs expire if consumers stop their subscription.

“We believe today the Zune Pass model is pretty darn good, but it could be better.”

Asked whether Microsoft is locked to the notion of being the only maker of Zune hardware, Reindorp said the company would consider allowing others.

“It’s an interesting idea to explore,” he said. “It’s something the company has tried in the past and we had some successes and some failures.”

The iPhone is becoming quite the world traveler.

The deal with Apple, announced Friday, will bring the popular device later this year into Austria, Belgium, Switzerland, Poland, Romania, Slovakia, Portugal, Egypt, and Jordan, as well as into unspecified countries in Africa and–back on the home side of the Atlantic–the Dominican Republic.

Until recently the iPhone has been available in just a handful of countries outside the U.S., including the U.K., France, Germany, and Ireland.

But announcement after announcement of foreign outreach keep popping up. Since late April, the list of target countries has frenetically expanded to include Canada, Mexico, Australia, New Zealand, Singapore, India, the Philippines, South Africa, Greece, Turkey, Czech Republic, Italy, Portugal, Argentina, Brazil, Chile, Colombia, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Paraguay, Peru, Uruguay, Jamaica, and Puerto Rico.

No doubt, that list is incomplete.

Joel West, professor at San Jose State University College of Business, and Siobh?n O’Mahony, professor at UC Davis Graduate School of Management, have produced some insightful research over the years. However, I particularly like a new academic study the two recently released: “The Role of Participation Architecture in Growing Sponsored Open Source Communities.” It studies why developers contribute to certain open-source projects and don’t contribute to others.

The key? If you want outside participation, you need to deliver more than mere transparency: Developers need to be able to change the direction of the project to make it worthwhile to stick around. (For a quick example of how too much control can stifle a community, take a look at Sun and OpenOffice.)

This is not surprising, but the research is helpful in detailing why this is so, and how firms cope with it. While most open-source projects attract little to no outside developer interest, corporate-sponsored open-source projects start with an implicit handicap by demanding control of the destinies of their projects:

By comparing the participation architectures that resulted from sponsors’ design decisions, we identified two types of openness: transparency and accessibility ["Accessibility allows external participants to directly influence the direction of the community to meet their specific wants and needs"].

While transparency offered potential contributors the ability to follow and understand a community’s production efforts, accessibility determined the degree to which external contributors could influence that production. In designing a community, sponsors were more likely to offer transparency than they were to offer accessibility to external community members.

We found that sponsors faced a control vs. growth tension. To leverage the ability of communities to contribute to their firm’s bottom line, sponsors sought to maintain control over the community’s strategic direction. However, sponsors soon discovered that by restricting access to community processes, they limited their community’s ability to attract new members and grow.

In Cheers, “you want to go where everybody knows your name.” In open source, developers want to go where they can exercise control over their code. Commercial/corporate open-source projects offer less of this opportunity unless you represent a customer-developer. The real question for commercial open-source projects for me is whether commercially involved participants - e.g., customers and partners - can be motivated to contribute code.

Red Hat CEO Jim Whitehurst has called for more enterprise (read: customer) participation in open-source communities, and I think he’s dead-on. This is the untapped market for contributions to commercial open-source projects. Not only are enterprise customers using open source in ever-increasing amounts, but they also may well prefer the control (and legal cover) of a commercial open-source project.

The next question is how to structure code contribution policies to favor this class of developer. Given the relative dearth of organic code contributions in any commercial open-source project, even when doing everything right to encourage contributions, we should be willing to experiment with new models. The old models that follow Apache, Linux, and other community-driven open-source projects have not worked for commercial open-source projects. Let’s figure out new ones.

For a Web 2.0 powerhouse, Flickr feels awfully Web 1.0. At least that was my conclusion after spending a few hours in the chat rooms of Photophlow, a start-up that grafts a highly interactive experience on top of Yahoo’s photo-sharing Web site.

Flickr deserves credit for pioneering what can be done with photos on the Internet beyond merely displaying photos and albums. Flickr advantages include tags that let members sort and search photos, groups for finding like-minded photographers and sharing photos, and maps to sift through pictures geographically.

Photophlow presents a live chat about Flickr photos that members select.

(Credit:
Photophlow)

But Photophlow, which presents a chat room interface to the act of browsing Flickr, makes all those interfaces seem static. For me, the site felt like wandering through a museum with a group of new acquaintances, commenting on pictures as we went from room to room. And some of the rooms featured our own pictures.

The site is invitation-only right now so that Oortle, the start-up behind Photophlow, can keep up with growth. I ran out of invitations, but you also can request one at the site, which is how I got in.

I’m not the only person who’s favorably impressed.

‘A comfy coffee lounge’
“It really changes the way I use Flickr,” said Alex Almeida, who publishes the Phat Photographer blog, who described Photophlow with a different metaphor. With its instant interaction, “it really is like a comfy coffee lounge with a big shoe box of photos where people can chat comfortably and pull any of those photos out of the shoebox and discuss them.”

And Photophlow made it much easier to find new contacts, Almeida added. “I also was able to pick up the pace on getting people that were interested in my photography, as well as other similar interests, on my contact list,” he said.

The site was founded and mostly programmed by Berkeley, Calif., resident Neil Berkman. Before founding Oortle, the company behind Photophlow, Berkman most recently was vice president of engineering at online dating site Engage.

After Berkman had a working Photophlow prototype, he found out Flickr actually once had something similar, a chat room interface called Flickr Live that the company scrapped. His searches on the subject led him to a resurrected Flickr Live mock-up by Bryan “striatic” Partington, whom he hired to be interface designer.

Berkman’s company now has a handful of other part-time and contractor employees, but he isn’t willing to say how exactly he plans to turn Photophlow into a revenue-generating operation.

Some ideas that occurred to me are advertising, subscriptions, premium features, and reserved rooms for photography classes, but the only thing Berkman would say on the subject was, “A big item on our list is adding support for more structured activities and events like tutorials, critiques, and competitions.”

To me, Photophlow looks like just the kind of thing Yahoo might be interested in snapping up. But Berkman has plans that extend beyond Flickr–to social-networking superpower Facebook, for example.

“We’ve built the real-time collaboration technology underlying Photophlow in a way that makes it relatively easy for us to build very different services on top of it,” Berkman said. “We will be taking advantage of this to build support for other photo-sharing services. These new applications will be distinct from the current Flickr-centric Photophlow service. A Facebook version is in the works.”

How it works
With Photophlow, members join a chat room, either their own or an existing one. On the left side of the page is a collection of recently browsed photo thumbnails, and on the right is a space where anyone in the chat room can place a photo for discussion.

For a glimpse of Photophlow in action, I recommend two helpful online videos, one from Demogirl and another from Photophlow itself.

The site design can lead to a spontaneous sort of group free association. That’s because the images on the left change each time a member searches for new pictures, and that can be done by explicitly searching, by clicking to see what a particular chat room member’s photos are, or by clicking on hyperlinked words that Photophlow identifies in the chat.

For example, Photophlow highlighted “wink,” “hook,” “harsh criticism,” “hoarfrost,” “bear fetish,” and “Pauli exclusion principle.” Clicking these links shows photos that can lead the conversation in new directions.

With all the distractions, don’t expect to keep a conversational thread going for too long on the general rooms. Users can set the conversational topic, but nobody seems to pay much attention.

The design works in part because photo enthusiasts are the kind of person who’s likely to show up in the chat rooms, so a basic minimum compatibility is likely already achieved.

That’s not to say the discourse is always enthralling; you take the bad with the good. Commentary during my chats ranged from uninsightful “nice photo” remarks to much more useful expert critiques by Tiny Malone of the Portfolio Pro. Off-topic conversations tackled everything from goose migration to how somebody’s date went.

It’s not just a chat room, though. Photophlow also integrates with Flickr itself for adding comments to photos. And its facility for making fellow photographers to your Flickr contacts list is vastly easier than Flickr’s obtuse interface.

That’s all possible because of the openness of Flickr’s application programming interface, or API. “The nice thing about working with Flickr’s API is that so many applications have been built on it, and Flickr has been so responsive to its developer community, that it’s been able to support virtually every feature we’ve conceived of,” Berkman said.

Growing pains
The bad is that the site hangs up occasionally, and I had some trouble at times retrieving various members’ photos. I think the “magnify” operation shows a photo that could be magnified a lot more. Sometimes the pace of searches and photo postings is more frenetic than I’d prefer (hint: if you click the “private” button, your searches and posts will be for your eyes alone).

But I’m willing to cut the site slack–it’s still in beta testing. When will Photophlow come out of beta?

“This depends on a number of things, including funding,” Berkman said. “We could benefit from some additional engineering help. I’m optimistic that we can be open within a few months, but at this point I wouldn’t go so far as to say I expect it.”

Flickr probably need not be too worried about being gobbled up by Photophlow, a site in its comparative infancy and one that probably couldn’t exist without piggybacking on Flickr’s immense following.

But there are signs that perhaps Flickr is getting the message. On Tuesday, the company published a job posting looking for a senior Flickr user interface designer.

Salesforce.com CEO Marc Benioff and Google chief Eric Schmidt.

(Credit:
Dan Farber/ CNET News)

Benioff said one of the goals is to “get rid of the albratross of IT.”

Benioff also has referred to Microsoft as a kind of albatross, the old guard of software holding on to the client/server past. Previously, Benioff described Microsoft a dinosaur: I think Microsoft is still a dinosaur. More than ever, it tries to hold onto its monopolistic position around technology that they hold, whether it’s SQL Server, whether it’s NT, whether it’s Windows, whether it’s Office–these are their cash cows they don’t want slaughtered. Benioff recognizes that to achieve success he must eventually replace, not just complement, the enterprise software giants. The alignment with Google is a direct shot at Microsoft, as well as Benioff opportunistically aligning his company with the current alpha company in Silicon Valley.

“Customers are demanding a new generation of software, and the standard bearers of the previous generation have not stepped forward,” Benioff said during the rollout event. “The power will be to run your applications in the cloud,” he proclaimed. Coincidentally, Microsoft is launching on Monday the first day of the free 30-day trial of Microsoft Dynamics CRM 4.

Schmidt also gave his take on the alliance of Google and Salesforce.com. “We know what it takes to build this next generation of services,” he said. “You need a company with values,” he said, citing the social responsibility leadership of Salesforce.com. Importantly, he said, Salesforce.com figured out the model for making money selling services from the cloud. “That model is the defining model of the new computing cloud age,” he said, and it is “a 20- or 30- or 40-year vision.”

“Although the two companies are working in the same space in different ways, the models are getting closer and closer. The clouds are beginning to merge,” Schmidt said. Google has even changed its tag line to reflect its investment in applications, from search and ads to search, ads, and apps.

(Credit:
Google/Salesforce.com)

Now the question is whether enterprises will be attracted to the merged clouds. Salesforce.com is eating its own dog food, moving its entire company to Salesforce.com for Google Apps. It’s a viable, and extremely low-cost, alternative to Microsoft Word, Outlook, Excel, and related products. Salesforce.com has integration with
Microsoft Office, but no equivalent to Gtalk.

For customers who need offline capabilities, Salesforce.com provides support. Dave Girouard, general manager of Google Enterprise, said that Google is committed to making all of its apps available offline via Google Gears. (Google Docs currently has offline support.) “As the Internet becomes more persistent it becomes less of an issue,” Benioff said.

According to Girouard, Google Apps, at $50 per user per year, has 10x better economics than a well-provisioned suite of Microsoft Office products, which would include some administrative support. Rebecca Wettemann of Nucleus Research told me that the difference between a Google and Microsoft solution on Salesforce.com differed by a couple orders of magnitude, and that the Salesforce.com alliance gives Google a sales channel. She also noted that companies should take a tiered approach; some users might need Excel and others could do fine with just the spreadsheet in Google Apps.

This locking of arms by Benioff and Schmidt should force Microsoft to show its hand sooner than later. On April 24 in San Francisco it plans to offer more details on its Live Mesh service, which reportedly synchronizes data between a variety of devices. That won’t quell the call for a nearly free cloud-based, collaborative suite of applications as Salesforce for Google Apps gets some traction.

Financial terms of the agreement were not released, but the companies said Nokia will pay royalties to Qualcomm for 15 years to license technology that improves performance and battery life, while reducing the size of products. Nokia said it will also withdraw its antitrust complaint against Qualcomm filed with the European Commission.

“We believe that this agreement is positive for the industry, enabling the market to benefit from innovation and new technologies,” Nokia Chief Executive Olli-Pekka Kallasvuo said in a statement.

Shares of San Diego-based Qualcomm rose 18 percent, or $8.38, to $53.20 in after-hours trading.

The companies have been locked in a bitter court battle since April 2007, when negotiations over the renewal of key patents broke down. The pair had sued and countersued each other in various countries across the world but had been unable to find a resolution to the spat over the patents.

The agreement was announced after a Delaware Chancery Court judge delayed the opening of a trial on patent commitments and fees.

Qualcomm delayed the release of its fiscal third-quarter results for several hours to first announce the agreement with the Finnish phone maker. It reported that profits fell 6 percent to $748 million, or 45 cents a share, during the three-month period ended June 29, down from $798 million, or 47 cents a share, the same period last year. Revenue grew 19 percent, to $2.76 billion from $2.33 billion.

(Credit: Yahoo)

Dear Jerry,

Whew, things aren’t going so well lately, huh? First, the company you founded and love was being pushed into turmoil by some executives, like your old buddy Semel, who had no idea how to run an organization. And then, to add insult to injury, you found a company that was marked with issues, like over-spending and too many acquisitions that caused your beloved organization to become a bloated mess.

But then, you took over and promised your shareholders and employees a new culture and a new Yahoo that would change the Internet and adapt far better to the changing needs of your customer base.

And while you succeeded in reducing expenditures and changed the culture of Yahoo by putting it on the right track with an open source initiative with your mobile products and a vastly improved home page, something much larger than even you came along and spoiled your party. And it’s that organization — Microsoft — that will lead to your downfall unless you realize that not even you can save the company you founded.

It’s time to move over, buddy.

What? You disagree? Well, certainly I can understand why you would, but have you taken a thorough look at what exactly is going on?

First, Microsoft offers you a 67 percent premium on your floundering stock price. After taking a weekend to mull the offer, you sent out a cryptic message explaining your reasons for why you wouldn’t take the deal.

Your conclusion? “Yahoo’s management…believes that Microsoft’s proposal substantially undervalues Yahoo and is not in the best interests of [its] stockholders.”

“More importantly,” you told your stockholders. “I want you to know that your board is continuously evaluating all of Yahoo’s strategic options in the context of the rapidly evolving industry environment, and we remain committed to pursuing initiatives that maximize value for all our stockholders.”

Really, Jerry? Is that true? Hey, I’m not one to doubt your intentions and I honestly believe you want what’s best for Yahoo, but if you truly do, why not listen those shareholders you value so much?

After all, aren’t those shareholders the same people who have already started lawsuits urging you and the board to accept Microsoft’s offer for the good of the company?

On top of that, aren’t those shareholders the people who theoretically own your company and thus, have the power to tell you what they want out of their company?

Sure, you own a considerable piece of the pie still, but I think there’s more to this story than your distaste for Microsoft and the rancid thought of your beloved company heading into the grimy hands of Steve Ballmer.

And then there’s this other issue that you don’t want to talk about — a proxy fight. What if Microsoft succeeds in obtaining support from those people that are more likely to acquiesce to its demands and you’re the only person guarding the door against a mob? How do you handle that?

Jerry, I can appreciate where you’re coming from and understand that you’re trying to stay true to your company. But in the end, you’re standing up to a foe that is much bigger and more powerful than you and even those who should be on your side are already counting their cash.

It’s over, Jerry. It’s time to move on and do what you want elsewhere. If you don’t, this is going to get much worse and that company you’re trying to protect could very well be destroyed.

Do what’s right for Yahoo, Jerry: step aside.