AT&T headquarters move is not expected to be big blow to local real estate market, industry observers say

The news that AT&T's headquarters -- and about 700 employees -- will be moving to Dallas sent shock waves through the Alamo City's business community today.
Just how the local office market will be impacted by the move, however, remains to be seen.
Early indicators are, though, that at least on that front, the news may not be bleak.
All told, AT&T owns and/or occupies some 1.5 million square feet of space in San Antonio. The bulk of that space is spread out over four buildings that the telecommunications company owns, as follows:
530 McCullough, which spans 481,589 square feet;
4119 Broadway, 364,345 square feet;
105 Auditorium Circle, 214,503 square feet; and
1010 N. St. Mary's, 419,400 square feet.
The company's corporate headquarters are presently located in leased space downtown, in the IBC Centre buildings at 175 E. Houston St. AT&T is the anchor tenant -- occupying 275,000 square feet in the 352,000-square-foot complex.
AT&T employees are scattered throughout the various properties, notes AT&T spokesman Walt Sharp. But just how much space may be vacated at those buildings as a result of the pending headquarters move has not been disclosed.
"There are no plans to close any of the buildings," says Sharp, adding that even after the move of the 700 AT&T employees, that still leaves 5,300 people in San Antonio.
That is good news for the downtown office market, say real estate officials, adding that if AT&T vacated the IBC Centre complex, it would be a major blow to a submarket that has been losing steam over the past few years.
At present, the downtown office market is reporting a vacancy rate of 19 percent, according to Kimberly S. Gatley of NAI REOC Partners.
The bad news, however: Any hopes that local officials had that the AT&T/BellSouth merger might have resulted in more downtown office space being taken off the market is all but lost now.
"AT&T's exit will not be the end for San Antonio, but we were so hopeful that the recent AT&T mergers and growth would augment our local economy to even greater heights," Gatley says, "which now looks like it won't happen here."
credited by: bizjournals.com

Northwest, Delta pilots unions detail plans

Unions representing pilots at Northwest Airlines Corp. and Delta Air Lines Inc. hope to enter into a binding arbitration by the end of the year, after months of sparring over pilot seniority lists and other issues as the carriers move ahead with plans to merge.
Earlier this week, the pilots reached a tentative agreement on a joint contract that will apply to both groups when the two airlines merge. The groups also agreed on a process to hash out a merged seniority list. Atlanta-based Delta (NYSE: DAL) said that the deal, which will cover 12,000 pilots, still needs approval from rank-and-file union members.
Now, the carriers will go through a period of "good-faith discussions designed to reach a negotiated agreement," a memo from the Delta pilots union detailed, according to the Minneapolis Star Tribune.
The executive council for Delta's pilot union approved a joint pilot labor agreement Wednesday, and the Northwest (NYSE: NWA) council will vote on it Friday.
Terms of the tentative agreement would mean that Eagan, Minn.-based Northwest's pilots have pay equity with Delta pilots on the first day of the merger. It spells out a pay raise of 5 percent for Delta pilots in 2009, in addition to annual increases of 4 percent for Delta pilots through 2012. Northwest pilots would get bigger increases to bring their pay up to par with Delta's pilots.
Both groups would be awarded equity in the merged airline.
credited by: bizjournals.com

Hawaiian will charge for second bag on interisland flights

Hawaiian Airlines will begin charging customers $17 for a second checked bag on interisland flights.
The new fee, announced late Friday afternoon, goes into effect for tickets purchased on or after July 8 for travel on or after July 15.
The move by Hawaiian (owned by Hawaiian Holdings; Amex: HA) follows another interisland carrier, go!, which on Wednesday announced a $25 fee for a second checked bag.
Go! is operated by Phoenix-based Mesa Air Group (Nasdaq: MESA).
Hawaiian, like go!, said the baggage charge was due to the impact of fuel prices on operating expenses.
Some Hawaiian customers will be exempt from the fee, including first-class travelers; those with child car seats, strollers and carriers; and those needing wheelchairs, walkers, canes or crutches.
credited by: bizjournals.com

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SBA officials will counsel Hawaii businesses

Business specialists from the U.S. Small Business Administration will travel around Hawaii next week to help small-business owners on Oahu, Maui, Kauai and the Big Island apply for loans for startup, growth, diversification, inventory or operations.
The SBA's "Community Express Days" kick off in Kahului on Maui on Monday before traveling to Oahu for a veteran and military session at Pearl Harbor on Tuesday. Next stop is Lihue on Kauai on Wednesday, then to Kailua-Kona on the Big Island Thursday and back to Honolulu on Friday.
The sessions will bring an SBA specialist, technical assistance providers and lenders together to help small-business borrowers during private, 30-minute appointments.
"With the forecast of an economic slowdown, we recommend that small businesses assess their capital needs over the year and develop a strategy to address possible changes," said Andy Poepoe, SBA district director. "That means adjusting your operations and having sufficient funds on hand to keep moving. That may also mean getting a business loan before credit tightens further."
credited by: bizjournals.com

Hawaii Superferry to start sailing Monday

Hawaii Superferry will resume service between Oahu and Maui starting Monday.
The interisland ferry has been in dry dock and out of service since Feb. 13 for repairs and maintenance. It was scheduled to be out of service until April 22 and its return comes a week after Aloha Airlines shutdown its passenger service.
Hawaii Superferry said Thursday that it will be taking reservations for the Maui service with special fares available through June 5.
credited by: bizjournals.com

Ad Wars: Google's Green Light

The long-awaited completion of Google's $3.1 billion purchase of DoubleClick will kick off a new online advertising battle that may rage for years to come. Yet it may also take years for the search giant to gain a foothold in what's shaping up as the next front in the $20 billion online ad industry: the resurgence of display ads, those colorful but oft-ignored "banners" and videos that run along the tops and sides of Web pages.
On Mar. 11 the European Commission blessed the deal with no restrictions despite opposition from rivals and privacy advocates worried about one company having too much data about people's online activities. The green light from the European Union's executive arm came nearly three months after the U.S. Federal Trade Commission gave its go-ahead and nearly a year after the deal was first announced.
With the final regulatory hurdle removed, Google closed the deal immediately, taking over the company that places billions of ads per day on thousands of Web sites worldwide -- further concentrating the online ad industry into fewer powerful hands. Google (GOOG), Yahoo! (YHOO), Microsoft (MSFT), and Time Warner's (TWX) AOL have spent billions to snap up a variety of ad companies in the past year or so.
Targeting for Banner Ads, Too
Google's purchase of DoubleClick joins two ends of the online ad spectrum at a critical time. Search ads, those columns of tiny text that run alongside Internet search results, have come to dominate the industry's growth as Google has perfected its technology for targeting the right users with the right ads. That shift has come at the expense of display ads, whose share of the online market has fallen from 58% in 2001 to just 21% today.
But new technologies are starting to offer the same kind of targeting potential for banner and video ads as well. And with more users switching the focal point of their Web surfing from search engines to social networks such as MySpace and Facebook, banners and boxes may gain new appeal among advertisers. "We're in the midst of the third chapter of online advertising, and it's all about display ads," says Paul Levine, vice-president for marketing at ad network AdBrite.
The DoubleClick purchase will deal a double whammy to Microsoft. More than ever, the software giant will be pressured to prevail in its unsolicited $45 billion bid to buy Yahoo, the acknowledged leader in online display advertising. And Microsoft's struggle to wrestle that deal to the ground -- which could last until Yahoo's next board meeting, possibly not until June or July -- will distract the two Google rivals for months. That will give Google precious time to integrate DoubleClick into its business.
Schmidt Blogs About the Deal
What's more, the European Commission's clearance of the Google-DoubleClick deal won't let Microsoft off the regulatory hook in its bid for Yahoo. Microsoft might have benefited had the EC come down hard on Google, bolstering the argument that Google is such a fearsome force that a Mircosoft-Yahoo combination would help keep the market in balance. But sources in Brussels say it's unclear to the EC that a Microsoft purchase of Yahoo would increase competition, as Microsoft has claimed. In fact, the EC's current antitrust investigation into Microsoft focuses in part on Microsoft's alleged bid to quash competition on the Internet, so its proposed acquisition of Yahoo would probably be painted as more of the same.
For the time being, then, Google may be able to steal a march on its prime rivals. Google provided little immediate color about its plans for DoubleClick beyond a brief statement and a blog post by CEO Eric Schmidt. But it's clear Google sees the deal as a way to expand well beyond its mainstay search-ad business, where growth has been slowing in recent quarters. "Advertisers and publishers who work with us have long asked that we complement our search- and content-based text advertising with display advertising capabilities," Schmidt wrote on Google's official blog, most likely referring to an online ad dashboard it has discussed with advertisers and ad agencies. "DoubleClick gives Google the leading platform for display advertising, enabling us to rapidly bring advances to the market in technology and infrastructure that will dramatically improve the effectiveness, measurability, and performance of digital media for publishers, advertisers, and agencies."
For all the attention on the deal, however, the DoubleClick buy is likely to have little impact on Google and the ad industry in the short term. For one thing, DoubleClick's revenues, believed to be under $200 million a year, won't add much to Google's expected $16 billion in sales this year. That may be why Google's stock rose a relatively modest 6%, to $439.84 a share, still far below its high of $747.24 last November. And most of that gain arguably was driven by a strong day in the stock market, where the Nasdaq composite index rose nearly 4%. "It's still a very small piece of Google," says Clay Moran, an analyst at Stanford Group.
Indeed, many ad experts think it could take Google years to leverage DoubleClick's technology and relationships with advertisers and publishers into a formidable position in display ads. Google is believed to be less interested in DoubleClick's main ad-placement business than its staff of ad experts and thousands of clients that use DoubleClick tools. "By no means does this turn them into a guaranteed powerhouse," says Kevin Lee, executive chairman of search-marketing firm Didit. "But it does put in place a foundation that may give them a huge leg up in creating the next generation of Internet advertising."
Privacy Concerns
The biggest uncertainty -- for advertisers, publishers, consumers, and Google -- is how much and how well Google will tap DoubleClick's data on Internet users to target ads with the kind of precision that has made Google's search ads so lucrative. Unlike search ads, which are targeted based on what people are searching for -- often products they're looking to buy -- the placement of display ads has been relatively untargeted, more like traditional brand ads on TV and in print.
But new technologies and data-collection techniques have been developed to target display ads at Web users based on who they are and what they're doing as they surf the Web. That prospect is what frightens privacy advocates -- and what has kept advertisers and publishers from targeting display ads more aggressively. So far, Google hasn't engaged in this so-called behavioral targeting, which shows ads to people based on what they do on Web sites. In fact, Google has said it has no plans to mix DoubleClick user data, which it says is the property of DoubleClick's clients, with the search and other user data it already collects. So it's unclear at this point how much benefit Google will derive from that data.
Still, some analysts are assuming that Google will crunch at least some of DoubleClick's data with the information it collects from its search, e-mail, and other services so it can target display ads more effectively. That would let Google command higher ad rates. "Google will now have behavioral data from search, e-mail, video, and Web usage on network sites," JPMorgan (JPM) analysts wrote in a report after the deal closed. "We believe this will allow the company to provide much better ad-targeting, leading to increased [ad-placement rates] on DoubleClick sites."
Privacy advocates are continuing to lobby U.S. and European regulators to consider such data collection and usage in antitrust proceedings -- or at least to place limits on what may be collected and how it may be used. "We have to change antitrust policy to have a particular sensitivity to data collection," says Jeffrey Chester, executive director of the Center for Digital Democracy in Washington. For now, though, Google is free to explore the wider world of online advertising.
credited by: BusinessWeek.com

Aetna launches personalized search engine for members

Aetna Inc. announced Wednesday that it has partnered with a San Francisco's Healthline Networks Inc. to offer to its members a pilot version of a search engine that personalizes database search results.
The tool mines information from Aetna's databases and delivers search results based on a patient's gender, age, ZIP code, health care plan and employer.
The search engine is available for use only by Aetna members and can provide information about local doctors participating in the plan, treatment options and medications that would make sense given the searcher's medical history and estimated health care costs.
Aetna (NYSE: AET), which is based in Hartford, Conn., and has operations in Pleasanton, made made the application called Aetna SmartSource available first to its own 35,000 employees. It will be rolling out to large employer groups throughout 2008.
credited by bizjournals.com

Big Island home prices slip to $395K

The number of home sales on the Big Island declined last month and the median price of a single-family home fell below $400,000, although condominium prices were up.
The median price of a single-family home on the Big Island in February was $395,000, a 7 percent decrease from February 2007, when it was $425,000, according to statistics provided by Hawaii Information Service.
The median price was based on 99 sales, down from February 2007 when there were 128 sales.
The median price of a Big Island condominium last month was $435,500, a 13 percent increase over February 2007, when it was $400,000.
That price was based on 26 sales, down from February 2007 when there were 34 sales.
credited by: bizjournals.com

Australian company buys Hawaii water park

Australia's largest theme park owner and operator is buying Hawaiian Waters Adventure Park for $27 million.
Melbourne-based Village Roadshow Ltd. expects an early-May closing of the transaction to acquire the popular water park in Kapolei, the company said Wednesday in Australia.
"The acquisition of Hawaiian Waters Adventure Park is in line with our strategic focus on theme parks," said Managing Director Graham Burke. "The existing park will provide the fundamental infrastructure around which to create a world-class, family-oriented water park experience in a spectacular 30-acre tropical setting, to which we can apply our highly successful Gold Coast formula that has created one of the world's most successful water parks."
Village Roadshow owns the Warner Bros. Movie World, Sea World, Wet 'n' Wild Water World and Australian Outback Spectacular theme parks on the Queensland Gold Coast. Since the company acquired Wet 'n' Wild Water World in 1989, attendance has jumped from 137,000 to more than 1 million in 2007.
Hawaiian Waters Adventure Park, which opened in May 1999, can accommodate up to 6,000 people per day, according to the company's Web site.
"We like the water park space because it is for families what a day at the beach was when we were kids, but there is more to do and there aren't nasty stingers or sharks," Burke said of Hawaiian Waters, which is owned by Waters of Kapolei LLC. "In that context, Hawaii is a terrific market with a wonderful all-year-round climate attracting a large tourist base, including the significant U.S. Mainland interstate travel market, as well as drawing on a significant local population."
Village Roadshow also owns the Village Roadshow Pictures film production studio in Los Angeles, which produced the 2007 film "I am Legend;" a film distribution business with operations in Australia, New Zealand, Singapore and Greece; an international movie chain of approximately 670 screens in 68 separate sites; and a majority shareholding in Austereo Group Ltd., which operates Australia's leading radio networks, Triple M and Today.
credited by: bizjournals.com

McDonagh rising at HSBC

Brendan McDonagh, who once was HSBC Bank USA's top officer in Buffalo, has been named chief executive officer of HSBC North America Holdings Inc.
The unit is London-based HSBC Holdings PLC's banking and consumer finance businesses in the United States and Canada McDonagh, a 28-year veteran of international banking with HSBC, also becomes a group managing director of HSBC Holdings PLC and joins the Group Management Board.
In 2004-2006, while based in Buffalo, he was chief operating officer of HSBC Bank USA NA and oversaw the significant expansion of the bank¹s brand and its U.S. consumer and commercial network.
For the past year he has been chief executive of Illinois-based HSBC Finance Corp.
credited by bizjournals.com.com

Google Goes to the Doc's Office

The U.S. health-care system is the most costly in the world. Yet it's also remarkably antiquated. The medical records of as many as 90% of patients are hidden away in old-fashioned filing cabinets in doctors' offices. Prescriptions are scribbled on paper. Most Americans need to fill out separate medical histories for each specialist they visit. "We are trained, like Pavlov's dogs, to repeat the same information 17 times," says Scott Wallace, chief executive officer of the National Alliance for Health Information Technology, a not-for-profit alliance of health care providers, information technology vendors, and health and technology associations. The result: mistakes, duplicated tests, botched diagnoses, and billions of dollars in unnecessary costs and lost productivity.
Many providers, including Kaiser Permanente and Cleveland Clinic, have invested millions of dollars in information technology systems and creating electronic medical records for patients. Here's the rub: Much of that information can't be shared from one doctor or hospital to the next. As a result, blood-test results in the database of an Arizona doctor, for instance, are of little use when the patient is visiting a doctor halfway across the country. Linking systems "is the real challenge in this industry," says Dr. C. Martin Harris, chief information officer at the Cleveland Clinic.
Pilot Project Kicks Off
In an effort to meet that challenge, the Cleveland Clinic and Google (GOOG) on Feb. 21 announced a project to give patients and doctors better access to electronic medical records. "It is clear that one of the big needs is assembling health records from a variety of places and giving people control of those records," explains Marissa Mayer, vice-president for search products and user experience at Google. And while the Cleveland/Google project may revolutionize medical record-keeping and improve how hospitals and physicians provide care, it also raises concerns over patient privacy and the security of sensitive information.
Here's how the pilot project, officially begun on Feb. 18, works. The Cleveland Clinic already keeps electronic records for all its patients. The system has built-in smarts, so that it will alert doctors about possible drug interactions or when it's time for, say, the next mammogram. In addition, 120,000 patients have signed up for a service called eCleveland Clinic MyChart, which lets patients access their own information on a secure Web site and electronically renew prescriptions and make appointments.
The system has dramatically cut the number of routine calls to the doctor and boosted productivity, though it has yet to effectively deal with information from an outside physician, Harris says. Those records are typically still on paper, and have to be laboriously added to the Cleveland Clinic system. It is a big problem, especially for the clinic's many patients who spend winters in Florida or Arizona, where they see other doctors.
Adding Google's technology lets patients jump from their MyChart page to a Google account. Once on Google, they'll see the relevant health plans and doctors that also keep electronic medical records. That means the patient can choose to share information between, say, the Arizona doctor and the Cleveland Clinic.
The system is still fairly primitive compared with sophisticated electronic information-sharing systems such as an ATM network. The information being shared is limited to data on allergies, medications, and lab results. That's because this data is more easily put in a standard form that can be read by different computer systems.
Paring Health-Care Costs
For the health-care system as a whole, though, it's an important move forward. "What Martin [Harris] has done is revolutionary," says Wallace of the National Alliance for Health Information Technology. "It may not be the perfect solution, but it is a better solution than we have now." Over time, more information can be added, and more patients and doctors will be able to access the records. And if the pilot program works, Google intends to roll out a comparable service for the general public.
One payoff: cutting health-care costs. "There's a real potential to affect the slope of the health-care cost curve," Harris says. "I believe this kind of exchange is the way we will get the total value out of an electronic medical record."
Projects like the one started by Cleveland and Google could also have big implications for business. Companies want employees to take greater charge of their health care. Experts say employees can do a better job of that by gaining control over -- and access to -- records, and that they'll get a leg up, technology-wise, from the participation of such players as Google and Microsoft (MSFT). "I think Google is spectacular on this," Wallace says. "Health care is a mainstream issue, and getting the purveyors of information involved in this is a brilliant step."
What's In It for Google?
How the e-health program plays out for Google is less clear. Mountain View [Calif.]-based Google is not the first high-tech giant to dip a toe into health care. Microsoft, for example, launched a health records and information service, HealthVault, in October [BusinessWeek.com, 10/4/07]. The company has more than 100 partners including the Mayo Clinic, a nonprofit medical practice and large online health-information network, and hopes to use its large health software business to help bring new players on board.
On Feb. 20, the company released source code to help outside organizations and developers integrate their information and build programs around the HealthVault platform. "We think that we are the best health search out there, and we think more and more we are going to convince people of that," Sean Nolan, HealthVault's chief architect.
Being late to the game has hurt Google in the past. The company's finance site, launched May, 2006, has failed to gain much traction. It ranks 16th in the business information category of Hitwise, a company that measures Web traffic. Yahoo's (YHOO) much older finance site has remained No. 1 for much of the past three years. Similarly, Google's payment service Google Checkout [BusinessWeek.com, 7/10/06], launched in June, 2006, has failed to grab market share from eBay's (EBAY) leading payments service, PayPal .
Thorny Privacy Issues
When it comes to online health information, the obvious prize is the estimated $500 million to $1 billion health search advertising. Google won't admit to aiming for that market, though, and those familiar with the project suggest revenue could come from other sources. "They aren't wedded to advertising," Wallace says. "Their attitude is that this is such a nascent area, they can play around for a while and find a way to make huge amounts of money." It's not yet clear how that might happen. "The unanswered question is what is the business model that justifies the investment of these big players," says David Lansky, senior director of the health program at the John and Mary R. Markle Foundation, a nonprofit dedicated to improving information technology in health care.
One worry is that the companies might be tempted to sell personal information. While strict laws govern patient privacy at hospitals and health-care providers, "there is no federal regulation of what these middle-layer players can do with your data," Lansky explains. And while consumers might trust Google or Microsoft now, what might happen in years or decades? "This is deeply personal information that is being collected about you and your family," says Jeff Chester, executive director of the Center for Digital Democracy. "There is unease about marketers being able to access that vast range of information."
credited by: BusinessWeek.com

Capgemini: 'Building a Global Powerhouse'

Paul Hermelin has seen both sides of the offshoring phenomenon. When he took over as chief executive of Capgemini (CAPP.PA) in 2002, Europe's largest information technology services outfit was still struggling to get past its 2000 merger with Ernst & Young Consulting while facing competition from upstart Indian firms. Now, thanks to a lot of hard work by Hermelin and his executive team, the company is benefiting from the massive shift in outsourcing to lower-cost countries -- where Capgemini's staff has more than doubled over the past four years, to 20,000 people.

On Feb. 14, Capgemini turned in a stronger-than-expected earnings report. Revenues rose 13%, to $11.9 billion, and net income nearly doubled, to $602 million. The company's operating profit margin came in at 7.4%, and Hermelin expects it to hit 8.5% this year. Because of the restructuring of a major contract with the British government, however, Capgemini is forecasting only a 2% to 5% revenue increase in 2008. After the quarterly update, Hermelin discussed the company's strategy with BusinessWeek senior writer Steve Hamm.

Capgemini had a strong 2007, both in revenue growth and operating margin improvement. How do you account for that?

We are probably the one Western company, along with Accenture (ACN), that has truly embraced a global delivery model. You can see the speed of growth of our offshore head count. It helps us to be more and more competitive. We now have people in several countries. We're mastering multishore delivery. Now, in the U.S., if there are 100 people working for an outsourcing client, probably 45 of them are based in India. That makes us a hybrid animal between the Indian pure player and the traditional Western player.

You say Capgemini and Accenture are the Western companies that have most embraced the global delivery model. What about IBM (IBM), which employs 70,000 people in India?

Nearly half of them work for IBM software and hardware departments. If you look at the number of IBM people in India who are actually servicing Western customers, as a proportion of their revenues, they are behind us. I do not see them as often with customers with global delivery as I see Accenture.

You have dramatically increased your offshore workforce, both by acquiring India's Kanbay and through hiring, giving the company 5,000 employees in India. What are the biggest challenges you have faced, and how have you overcome them?

What worked very well was to use offshore skill groups initially as sort of offshore subcontractors. I could say to my Dutch guy or French guy, "You own the customer and you're rewarded for the revenue generation, and you keep the profit." It was a good way to awaken our onshore people to the offshore model. But that's not a sustainable model, because if I do that, I contain the Indian employees in a role they don't like, and I can't retain the best talents.

We are moving now to a model where there's a seamless organization that integrates on- and offshore people in a consolidated business unit. It's a little more difficult, but it's far more rewarding. It [offers] the customer a kind of embedded interface between offshore and onshore that they don't have to build. We won back some contracts from the pure players, be they Tata or Infosys (INFY). We can do this because of the multicultural nature of our organization. They are global players, but they're Bangalore-centric. There are other global players, like IBM, but they're Armonk [N.Y.]-centric.

We are the only global player that's truly multicultural and distributed. That's because the last time Paris was the center of the world was when Louis XIV reigned, 300 or 400 years ago. We can't do that now. So our only chance for building a global powerhouse is to combine many cultures and have a global company based on entrepreneurship and multiculturalism.

Do you expect this rapid growth in offshore workers to continue?

The plan is to go from 20,000 to 45,000 in two years.

Is there any truth to the reports that India's Reliance Communications is seeking to buy Capgemini?

There's a journalist in India, from the Economic Times, who loves this kind of story. It's the third time he has written about us talking with an Indian company. I don't know why he has a Capgemini obsession. The thing is, Reliance closed a major alliance with Accenture. So if there's one Indian company that would never even talk to us, it's Reliance. The guy is not aware.

You have been working hard to get your outsourcing contract with Schneider Electric (SCHN.PA) on the right track. Where did that deal go wrong, and what are you doing to fix it?

It was a long process of renegotiation that was closed on [Feb. 8]. The initial contract was flawed. They had one obsession, which was building a globally integrated system, based on nearly every module of SAP's (SAP) software, to create the backbone of their company. That we knew. But it's a company with many baronies, and when we tried to build the system in order to overcome the resistance of some of their baronies, we had to design something significantly more complex than we had at first planned. To get buy-in of the different business lines, we agreed on something more complex and comprehensive, and we thus delayed the savings that we both hoped to achieve. The whole contract became unbalanced.

We now have a new contract. The system is nearly ready. We have delivered the first pilot in India. We'll deliver the second pilot in Europe about midyear. We're rolling out the solution, and the contract is more flexible to acknowledge some adaptation. We took some adjustments on price points, but if there are adjustments on volumes, it will be their responsibility. If they have more PDAs and BlackBerrys, for example, we'll track the volume of hardware and applications, and make adjustments. Both parties are happy.

Why have business consulting services been relatively weak for Capgemini? Your revenues there only rose 4.5% last year. What are you doing about that?

In Europe, we had a nice ramp-up; it was 9% in the second half. In the U.S., we're lagging behind. We created a dedicated consulting entity in the U.S., which can be attractive for talent, and we may buy a company. It's a big differentiation against the Indians, because they don't have any consulting. In Europe, we're No. 1. We're big in France, Germany, and growing in the U.K. So I'm quite pleased. But in the U.S., we can't be at the level we need without an acquisition.

What new business initiatives will Capgemini launch in 2008?

It's still back on the onshore transformation. We don't want to make the Indians into a back office. We have to get our front-end people to understand that with a truly global delivery system they can gain market share. We have a program we're working on. This is the most demanding thing we're working on.

The other part is to monitor a quite unstable economic environment. If there is a downturn, the first thing people cut is consulting. The second is IT programs. We're exposed to a downturn. We're highly cyclical. We're in the people business, so we have to monitor this very carefully. In a recession, companies will try to get savings from handing over operations to a big outsourcer. They'll keep some projects that target cost savings. But they'll stop all projects that are related to their customers. Today there are a lot of customer management and marketing support projects. That will probably be frozen or sliced or delayed in a recession. In the last recession, people kept investing in their systems -- upgrading applications. But they delayed things like new supply-chain engineering. That can be delayed a few quarters without harming the business.

credited by: BusinessWeek.com

Florida, other states settle with Caremark

Florida will receive at least $1.7 million from a settlement with Caremark Rx involving 28 other states and the District of Colombia, state Attorney General Bill McCollum's office says.

Caremark Rx, a subsidiary of CVS Caremark, will pay $41 million to the states as part of a settlement. Of the $41 million, $2.5 million will be paid in direct reimbursements to consumers and $22 million -- including the $1.7 million -- will be paid into a fund to be used in various pre-determined ways to benefit prescription medication patients. The attorney general's office says the state is still determining how consumer reimbursements will be distributed. Of the $41 million, $16.5 million will be used to reimburse states for legal costs.

Benefits management companies such as Caremark process claims for prescription drugs.

The attorney general's office said Caremark engaged in deceptive business practices by encouraging doctors to switch patients to brand-name drugs and misleading the doctors about what that would entail. Specifically, Caremark did not tell doctors that it would be pocketing the savings from such switches instead of passing them on to a patient's health plan.

As part of the settlement, CVS Caremark denied the charges.
credited by: bizjournals.com

Marcial: Microsoft, Google Good Bets

With Microsoft (MSFT), Google (GOOG), and Yahoo! (YHOO) ensnared in troika-like machinations, how should investors approach this intriguing triangle? Some of the smart-money pros think this unprecedented battle of the tech titans could produce solid returns for their portfolios, if played adroitly.

Microsoft's hostile $44.6 billion bid to gobble up Yahoo has forced Google to engage the software giant in a battle to protect its turf in search. [The deal's current value is $41.5 billion, based on a drop in Microsoft shares since the Feb. 1 announcement.] Regulatory issues would stymie any attempt by Google, the No. 1 Internet search engine, to launch a rival bid. Nonetheless, Google is determined to stop any Microsoft-Yahoo deal, and one way to accomplish that is to convince Yahoo to form an alliance in Web search. Yahoo is No. 2 in that lucrative business.

Yahoo's stock skyrocketed from $19 a share to $28 after Microsoft unveiled its not-too-unexpected designs. Microsoft's cash-and-stock offer is equivalent to $31 a share, So unless you are a nimble trader, forget about chasing Yahoo. The big money has been made. The risks in pursuing Yahoo stock at this high level should scare anybody who isn't a prescient, professional, swift-footed trader.

But there is a way to win from the Microsoft-Yahoo-Google triangle. First, assume that Microsoft will play a hard-knuckle brawl and won't let Google get in its way. Assume, as well, that ultimately Microsoft will have its way with Yahoo, perhaps paying a few billion more for the embrace.

Things Could Get Ugly

Yahoo will, of course, attempt to delay any deal as part of a strategy to persuade Microsoft to up the ante. Microsoft might just do that, up to a point. But since it doesn't look like there are eager white knights waiting in the wings -- because the deal is mighty expensive as it is -- Microsoft may not be inclined to be too generous with its offer. And who, aside from Google, has the resources and capability to pursue Yahoo at this high price and expect to benefit from the chase?

Yahoo may want to outsource part or all of its search-engine business to Google and others. That, of course, would be anathema to Microsoft, which could drop the entire offer. In that case, Yahoo's stock would crash and leave its shareholders in limbo. At best, Microsoft will fight like an enraged rejected suitor to get what it wants. That could get ugly. And Yahoo would see its chances vanish of providing shareholders with the value they deserve. Nobody can guarantee, or even imagine, that Yahoo's stock price will get to the level it is today without a deal like the one that Microsoft is offering. Yahoo shareholders have been waiting patiently for a turnaround. The Internet bubble burst in 2000, and the tech bulls have left Yahoo's playroom.

So what should investors do? You can't go wrong at this point if you buy shares of both Microsoft, now trading at $28 -- off from $37 in November, 2007, and way down from its high of $59 in 2000 -- and Google, currently at $505, down from its high of $747 on Nov. 7, 2007.

An Underappreciated Microsoft

Why buy Microsoft and Google now? Both are down from their highs and are looking very attractive as long-term holdings based on their prospects for solid growth. One big investor who has been upping his stake in Microsoft and Google is Martin Sass, chairman and CEO of M.D. Sass, an investment management company that shepherds $10 billion. Sass first purchased Microsoft shares in May, 2007, at $28 a share, and Google when the stock was at $365. Sass considers Microsoft a "value" play and Google a "growth" stock.

Microsoft has long been underappreciated by the Street and by investors. Sass figures the stock, currently trading at a price-earnings ratio of 14, is cheap based on the company's expectations of yearly double-digit growth in 2008 and 2009. Revenue growth is projected at 14% to 18% over the next two years, says Sass. In the current difficult economic times, Microsoft and Google are both doing fairly well, he adds.

Microsoft should continue to gain market share in software, generating 60% of its revenues in foreign markets. Excluding any deal with Yahoo, Sass expects Microsoft stock to hit $40 in a year. Should Microsoft bag Yahoo, that would be a big positive for Microsoft shares, says Sass. Some analysts worry that the potential integration challenges in buying Yahoo could generate headaches for Microsoft, in part because of a dilution in earnings. But they agree that the hostile bid for Yahoo makes strategic sense to jump-start Microsoft's online presence with consumers, advertisers, and publishers. It would enable the software giant to "better monetize its online assets over time," says Brad Reback of Oppenheimer (OPY).

Buy Recommendations

One of the bulls on Microsoft is Jim Yin of Standard & Poor's (MHP), who hoisted a strong buy recommendation based on the fundamentals even before the offer to acquire Yahoo. His positive rating is based on his expectation of higher sales of PC units from the launch of Windows Vista and the stock's relatively low valuation. His 12-month target for Microsoft [without Yahoo] is $43 a share.

Mark Murphy, managing director at Broadpoint Capital, who recommends buying Microsoft shares, supports its move to acquire Yahoo. The deal would change the global Internet search and advertising landscape so that it would essentially comprise just two major players. "A fragmented market would become a duopoly overnight," says Murphy. With Yahoo, Microsoft would gain enhanced engineering talent to drive innovation, he adds. Internet advertising depends upon scale and requires massive capital investments to build a global platform, and Microsoft could add to Yahoo's strength.

Google: An Opportunity as Well

And why buy Google? Even with a combined Microsoft-Yahoo to confront, Google will continue to have an edge in the search business, with a 75% share of the global paid-search market and 65% of the U.S. paid-search business. In Europe, Google's advantage is even bigger, with its 85% slice of the pie. "Google remains a very attractive long-term growth stock," says Sass, who forecasts earnings of $19 a share in 2008 and $23 in 2009, vs. 2007's $11.78.

Rob Sanderson of American Technology Research, who rates Google a buy, believes strongly that Google has several years of "exceptional growth ahead." With the stock's slide after some investors bailed out following disappointment with the recent quarterly earnings, and Microsoft's bid for Yahoo, Google represents a buying opportunity, argues Sanderson. Neither event changes the opportunity for Google to grow strongly for a number of years, he adds. His 12-month target for Google: $750.

Any time a value play like Microsoft and a growth stock like Google weaken in price, the opportunity to buy them should be considered a gift, especially if you are a long-term investor. With or without a Microsoft-Yahoo combination, both Microsoft and Google will be considerable winners in the years ahead. Of course, with Yahoo, Microsoft will be a more challenging rival for Google. That in turn will undoubtedly push Google to move aggressively to widen its lead over the Microsoft-Yahoo combo. Who would end up the loser? Investors who fail to buy into Microsoft and Google now.
credited by: BusinessWeek.com

Making Science a Presidential Priority

When most of the Republican candidates for President proclaimed that they did not believe in evolution during a debate last year, astrophysicist Lawrence Krauss was one of many who were aghast. The Case Western University professor and best-selling author was even more upset when former Arkansas Governor Mike Huckabee shrugged off concerns, saying that he was running for President, not writing a middle-school curriculum. "How could being scientifically illiterate be perfectly acceptable?" Krauss asks. "No one would accept a candidate who, say, denied the Holocaust."

Instead of just fuming, Krauss seized on an idea then being proposed by screenwriter/director Matthew Chapman to stage a Presidential campaign debate focused on science. He linked up with Chapman and two other proponents, journalist Chris Mooney, author of The Republican War on Science, and screenwriter Shawn Lawrence Otto. In December, the group launched an effort to elevate the visibility of science in the Presidential race, starting an organization called Science Debate 2008.

Today, it's still hard to imagine science as a hot-button issue on the order of, say, religious faith or the war in Iraq. It's not even clear that a debate will happen: On Feb. 7, Science Debate 2008 sent invitations to the campaigns to participate in an event tentatively scheduled for April. There's been no response yet to the invitation, or to BusinessWeek's queries.

Frustrations with the Current Administration

However, the fact that more than 12,000 scientists have signed onto the effort, along with prestigious organizations such as the National Academies of Sciences, Engineering & Medicine and the Association for the Advancement of Science [AAAS], shows how serious some researchers are about elevating the profile of science in this election. "It's hard to get 12,000 scientists to agree on anything," says Alan Leschner, chief of AAAS and former director of the National Institute on Drug Abuse. "But science is the biggest issue facing modern society, and we are concerned that only one candidate -- Hillary Clinton -- has so far devoted any energy to science."

There's also a palatable hunger in the scientific community for a government that bases its policies on science, after years of decisions from the Bush Administration that they believe ignored scientific reality. "We have all become painfully aware in recent years that it is not only irresponsible but dangerous and expensive to distort and repackage scientific conclusions for political purposes," Otto explained in a recent editorial on the Salon Web site.

A couple of examples: The Bush Administration's conviction that Iraq was trying to build nuclear weapons might not have survived had the White House heeded scientists who pointed out that the aluminum tubes acquired by Iraq [cited as evidence of weapons building] were actually the wrong size for uranium enrichment, says Krauss. Or perhaps the Administration wouldn't have started its $1.2 billion Hydrogen Fuel Initiative if it had asked the National Academy of Sciences for advice first, instead of after. [The NAS was tepid on the idea, feeling its contribution to solving the nation's dependence on oil wasn't as great as the Administration claimed.]

There's no guarantee, of course, that any Presidential Administration will follow the science when the politics point in a different direction. Rice University professor and former White House science adviser Neal Lane recalls how President Bill Clinton backed away from expanding needle-exchange programs, even though the approach had clearly been shown to reduce transmission of AIDS and other diseases from dirty needles.

Consideration and Funding Sought

But rather than expecting firm positions on specific issues, what scientists mainly want now from the Presidential candidates are assurances that the next Administration will at least listen to the science and take it into consideration. "We don't want them to think about one or two hot-button issues, but rather how they would use science to inform decisions, and how they would use science and research to address the country's problems," explains Barry Toiv, spokesman for the Association of American Universities.

The research community, including high-tech companies, also wants the next President to boost funding for science. The main argument is that tomorrow's innovations, economic growth, and America's competitiveness all depend on investments today in research. "Science is not just a nice story," says Krauss. "Our standard of living today [depends] on research done a generation ago."

This argument was laid out in great detail in a recent NAS report, "Rising Above the Gathering Storm." And after strong lobbying by scientific and industry groups, Congress was sufficiently convinced of the need to pass a law authorizing increases in basic research. But it didn't happen. At the end of 2007, the appropriations committees balked at actually providing the money. "We really felt the rug was pulled out from under us," says Robert Spurrier Boege, executive director of the Alliance for Science & Technology Research in America [ASTRA].

The result has been continuing declines in government funding in many areas of science and technology. The fallout has already begun. Two of nation's top physics facilities, the Stanford Linear Accelerator and Fermilab, are laying off staff. On Feb. 12, top universities and business groups will hold a press conference to call on Congress to address the problem.

Some Worry the Effort Could Backfire

Researchers are also hoping a Presidential debate on science would help get this message across. They like some of what the candidates have said so far. [For a summary, see election2008.aaas.org/comparisons.] Hillary Clinton and Barack Obama both support big increases in basic research, along with targeted investments in energy. And like the two Democrats, John McCain promises action against global warming, though he's been silent on most other science issues.

Some experts warn that the effort to inject scientific issues into the Presidential race could backfire. "Anything that gets elevated on the political agenda has risks," explains Lane. It might be better to work quietly behind the scenes, suggests David Goldston, visiting lecturer at Harvard and former staff director of the House Science Committee. Scientists may feel slighted if their concerns are not in the limelight, but a high profile is not always the road to success, he argues. A case in point: Doubling of the National Institutes of Health's budget became a top political cause. But it happened too quickly and with too little care, leading to severe strains now that the budget has leveled off.

There's also the danger that scientists will be seen as just another interest group with its hand out. "The research community needs a more compelling message than 'give us 7% more money than last year,'" says Tom Kalil, special assistant to the chancellor for science and technology at the University of California at Berkeley and former deputy director of the National Economic Council during the Clinton Administration.

Krauss and his partners in the effort to get science higher on the agenda believe they have the right message: Our future prosperity, safety, and health depend on research, he says. We'll soon find out how much the candidates agree with that.
credited by: BusinessWeek

TIF-related bill is killed

A House committee killed HB 1163 on Tuesday.

The bill, sponsored by Rep. Jerry Sonnenberg, R-Sterling, would have authorized special districts and metropolitan districts that provide emergency services to keep property and sales tax revenue that would have been diverted to urban renewal authorities from tax increment financing (TIF). Such emergency services include ambulance and fire protection.

The bill would have affected TIF revenue that would have been used to service debt on urban renewal projects.

TIF is a popular financing mechanism used by urban renewal authorities and downtown development authorities to fund improvements to blighted areas. Such financing uses future gains in taxes to finance current improvements.

HB 1163 was introduced in the House on Jan. 16, and assigned to the Finance Committee. On Feb. 5, the committee postponed the bill indefinitely.

bizjournals.com

East Bay Community Foundation adds new board members

The East Bay Community Foundation, which gave out $36.7 million in grants during its 2006-2007 fiscal year, announced Feb. 5 that it has added two new members to its board of directors.

Asian Health Services CEO Sherry Hirota and Robert Davenport, an investor and adviser to technology companies, joined the 15-member panel effective Jan 1.

Davenport is the former CEO of Covad International, a subsidiary of the broadband provider Covad Communications in San Jose.

Hirota takes the place of Marcia Barinaga, a science writer and member of the board since 2003.

Davenport takes the place of Stephen Hicks, chief administrative and financial officer of Clark Sustainable Resource Developments Inc. and an East Bay Community Foundation board member since 2000.

A spokesman for the Oakland-based foundation said both Barinaga and Hicks resigned late last year to spend to spend more time on their work; the new members will serve out their terms and begin three-year terms starting July 1, 2008.

credited by: bizjournals.com

The Greening of the U.S. Consumer

Lisa Goodson, a 38-year-old mother of three children 5 and under, reuses printer paper by flipping every sheet over when she's done using one side. She wears a sweatshirt to keep warm during the day when she dials down the heat in her house in Greenville, S.C. These small gestures are part of Goodson's personal crusade to reduce her carbon footprint. "I think twice before buying anything for the kids, and I've even talked to my parents about holding back on gifts," says Goodson, who thinks her house is already loaded up with too much stuff and has lately been cleaning out toy boxes and donating toys to charity.

Goodson is part of a small, but growing, tide of consumers who have started shifting their spending patterns because of their concern about global warming. They want to contribute in any way they can to help reduce greenhouse gases. This kind of consumer behavior is starting to pick up steam nationwide. Consumers are choosing to drink tap water over bottled water, carrying reusable bags into supermarkets and eschewing plastic grocery bags, and buying locally produced, in-season foods, rather than purchasing fruits and vegetables that have traveled thousands of miles on carbon-emitting trucks.

"You know there's a shift, when drinking tap water is cooler than drinking Pellegrino or Evian," says Faith Popcorn, founder and chief executive of trend forecasting firm.

End of the Sub-Zero Fridge?

All this runs counter to the spending patterns of the last few years. And some economists and retail experts say the trend could exacerbate an already slowing consumer spending outlook. The days of easy credit [the U.S. Federal Reserve cut a key short-term interest ratefrom 6% to 1% in a two-year period after 2001] that freed up cash and engendered high-speed consumption are over for now [BusinessWeek.com, 1/10/08].

And so apparently is the kind of freewheeling spending that saw Americans replace kitchen stoves, refrigerators, and washers and dryers because they wanted to acquire the Viking stove which cost between $3,000 and $10,000, or a brushed-steel Sub-Zero refrigerator for $2,000, though similar appliances were available from mainstream brands like Kenmore or Maytag for a fourth of the price. Kitchen and Bath Business magazine reported the number of home renovations tripled in the last five years to over $100 billion.

Newspapers and magazines reported people were installing walk-in closets that were larger than their bedrooms. And to fill those fancy closets, middle America chose to shop at higher-end stores such as Nordstrom (JWN) and Saks (SKS) and started buying luxury items such as Coach (COH) handbags. "It was a time of laddering up, and people were buying the more expensive car or the extravagant vacation, but now they are doing the reverse of that," says Brian Bethune, retail economist at financial analytics firm Global Insight.

Pressures on Consumers Mounting

From the recent swoon of retailers as varied as J.C. Penney (JCP) and Saks, Kohl's (KSS) and Coach, all of whom reported negative or slowing sales, there is no doubt people are pulling back on all fronts. The U.S. Commerce Dept. reported on Jan. 31 that consumer spending, which accounts for two-thirds of the economy, rose by just 0.2% in December, down from a 1% gain in November. It was especially worrisome because December is generally one of the best consumer spending months, with people buying gifts during the peak holiday season.

There are many pressures on consumers -- not only is there no additional free money, since the home equity loan market has dried up, but mortgage payments are on the rise, even as home prices continue to fall across the nation. On top of that, there's no letting up of high gas and heating oil prices. "Consumers have adopted more cautious spending plans," says Richard Curtin, director of the Reuters/University of Michigan consumer sentiment survey, which said on Feb. 1 that consumer confidence had dropped by one-fifth in the last 12 months.

It could be difficult to rely on consumer spending to maintain the kind of growth the U.S. has enjoyed in recent years, especially if you add to all the pressures a fundamental change in consumer behavior. Bridal and children's magazines have been writing about an increasingly popular trend of no-gift wedding and birthday parties, where the hosts identify philanthropic causes or nonprofit groups to which guests can send a check instead.

A Vacation in Your Own Backyard

"People are saying they don't need more shoes, more clothes, or more bags; it's all about using less, consuming less," says Patricia Pao, founder of retail consultant The Pao Principle. Indeed, people are even giving away their stuff. A survey of How America Shops, by retail consultant WSL Strategic, of 1,600 consumers in the fourth quarter of 2007, found that 84% said they try to give old clothes to charity rather than throw them away. Thirty-eight percent say they used to care about wearing a designer brand, but not anymore.

It's not uncommon to see discussions on travel Web sites about whether it hurts the environment to get on an airplane and one site, responsibletravel.com, even poses the question, "to fly or not to fly?" There's evidence from conversations on these sites that some folks are even opting to take vacations with their children close to home and are discovering county and state parks.

Saving for Hard Times

No wonder airlines are working harder to retain eco-minded customers -- Continental (CAL), Delta (DAL), and Virgin have all launched carbon-offset programs. And people are starting to buy carbon-offsets or energy credits from companies that promise to identify ways to make up for carbon emissions or energy use by planting trees or investing in wind or solar energy. One such provider, TerraPass sold about 100,000 such carbon offsets by the end of 2007, a threefold increase since the beginning of the year.

The growing environmental awareness, and tougher economic times, could even influence the effectiveness of economic stimulus plans now being weighed by the Bush Administration and Congress. The kind of free spending the government hopes consumers will revert to might be difficult in this new mood. South Carolina's Goodson says her family of five will probably get a check of $2,100. Will she spend it? "No way," she says. "Spending got us to where we are today, and the last thing that the country needs is for people to hit the mall. I'll put my check in the bank and save it for hard times."

See the BusinessWeek.com slide show for more easy ways to reduce your own carbon footprint.
credited by: BusinessWeek.com

It's Down to Two: Microsoft and Google

If Microsoft's $44 billion acquisition of Yahoo! looks like a big business story, it is -- but not necessarily for the reasons you've been reading about these past few days. Yes, it's a Big Gulp of a deal that will pay a 60%-plus premium on the share price. And yes, it's a transaction that marries two high-profile brands of the technology world.

That's only the beginning.

If the Microsoft-Yahoo deal is consummated, what seemed increasingly to be Google vs. Everyone Else on the Web will become simply Google (GOOG) vs. Microsoft (MSFT). As a standalone brand, AOL won't be around for long, and the list of major online players drops off sharply after that. Without consolidation of massive proportions among the remaining giants of the online world, no one company has a chance at catching Google in the race for online ad dollars -- unless Google were to develop a bad case of "Big Company Disease" and derail its own momentum.

Scale, Features, and Analytics

The new online reality is that scale and features attract online users and the advertisers who want to reach them, and analytics -- the tools that help sites target ads to users more effectively -- build ad-pricing power and therefore margin. Scale is simply the traffic or number of unique visitors a site attracts. Features are the applications and services a particular Web site can deliver. In both cases, more is usually better. But analytics is an area that looks like art but is rapidly becoming science. It's the way sites parse users' profiles and click streams using behavioral targeting, predictive intelligence, and other database manipulations to boost ROI metrics for marketers spending advertising dollars online.

Google has it all: scale [more unique users than any other online site], an endlessly expanding array of features [tools and applications released continuously in beta versions on its site], and clearly superior analytics [which started with search-based advertising and is now expanding into extensive data mining of millions of search patterns and user profiles].

That's why Google has proven pre-eminent when it comes to turning its huge online audiences into its very own cash machine. In the last quarter, Google reported revenues of $4.8 billion, compared with $1.8 billion for Yahoo (YHOO) and $863 million for Microsoft, even though unique visitors for Google and Microsoft are roughly equivalent. [In December, Google registered 125 million unique visitors, and Microsoft 123 million.]

An Unattractive Choice

The fight for scale became clear when four companies -- Google, Yahoo, Time Warner's (TWX) AOL, and Microsoft's MSN -- emerged as the overwhelming winners in the competition for advertising on the Web. Even as the online ad market accelerated at growth rates of 25% to 35% a year, the Big Four search portals and aggregators increased market share, establishing a veritable oligopoly in the online world. Each of these companies could claim more than 100 million unique visitors a month, making them the most-trafficked sites online and paving the way for dramatic growth in online advertising.

By our estimates at Marketspace [an affiliate of Monitor Group], in 2006, the Big Four captured 85% of the U.S. online advertising market as measured in overall ad dollars. The top 10 online sites, including the Big Four and others operated by companies such as News Corp. (NWS) and InterActiveCorp (IACI), captured 99% of overall ad dollars in 2006. That means the remaining 100 million or so sites on the Web outside the top 10, and whose businesses are predicated on online ad revenues, must choose between giving up pricing power by selling through the Big Four [and other major players like them] or selling directly but competing with everyone else for their sliver of the last percentage point of online ad market share. [In the U.S. market, that last percentage was worth about $220 million in 2007.] This unattractive choice applies to just about every major media, content, or entertainment brand doing business online.

Consolidating Traffic

Online advertising is a big business and rapidly getting bigger. Last year, the average major corporation spent 7% of its marketing budget online, while U.S. consumers spent over 30% of their total media consumption time with digital media, according to our analysis. As marketers close this gap between brand budgets and consumer behavior, it's no wonder that the U.S. online ad market in 2007 hit $22 billion, that it will top nearly $30 billion in 2008, and that it's projected to reach $60 billion [and $80 billion worldwide] by 2011. It's also why Steve Ballmer, CEO of Microsoft, observed not long ago that "the future will be ad-funded," at least as far as digital business is concerned.

Which brings us to the question of how Microsoft and Yahoo combined could expect to compete for position with Google's rapidly expanding scale, features, and analytics. By acquiring Yahoo, Microsoft doubles its unique visitors to nearly 240 million, roughly twice Google's [not counting the reach of DoubleClick, its recently acquired ad network]. Even discounting for duplication of visitors, Microsoft gets to mark up its online traffic easily by 50%, to 180 million visitors, which vaults it to the top traffic position on the Web. Combined online revenues last quarter would amount to $2.6 billion, still only half Google's, but nonetheless establishing a powerful No. 2 position. While the aQuantive acquisition helped Microsoft close the competitive gap in online analytics, Yahoo brings traffic and features with the kind of sex appeal Microsoft itself could never achieve.

All that still makes this a long bet. With the acquisition, Microsoft has finally cried 'Uncle,' admitting to the world it cannot not build its way into online dominance, despite billions of dollars spent on online content, search technology, and analytics. Meanwhile, Yahoo has fallen far from its perch as the world's dot-com darling, and, at $31 a share, the acquisition price is only a quarter of its all-time high during the Internet boom.

By Consolidating Players

Now get ready for more consolidation -- from the Big Four to the Big Two. Time Warner has been looking to shed AOL for years, so consolidation of AOL is pretty much a sure thing. Yes, Microsoft needs the Justice Dept. and its European counterparts to sign off on the deal. And, yes, it needs to avoid a bidding war with News Corp. for Yahoo. And if AOL goes to Google [Google has flirted with AOL ever since the former went public], we'll soon see the online world divided between two iconic technology titans. If this really is a scale game, then it's a game only the supersized can play.

Sure, the "creative disruption" for which Silicon Valley is known will undoubtedly change the game at some future date. But, for now, there is an immediate need: More than $400 billion in global advertising is looking to make sense of online media, and no garage-based startup, no matter how visionary, can meet such high-volume needs. For the foreseeable future, it will be the reigning behemoth of the PC operating system vs. the emergent giant of the online world, competing for online consumers with resources of gargantuan proportions.

Who wins? Even with Microsoft's dramatic move, the answer is clear. It's a face-off, for sure, but it's still advantage, Google.

credited by: BusinessWeek.com

Worthwhile Small Business Technologies

There are things in life that just work as promised. Refrigerators. Clock radios. Flattery. Children's Motrin. FEMA. Velcro. Blue jeans. Big Macs. Seinfeld. Jack Daniel's.

These things make me happy. They consistently do their job. They do not inconvenience me. Except for FEMA [that's the Federal Emergency Management Agency]. I'm just kidding about that one.

As a small business owner, I'm happy to say there's also technology that consistently works. None of it is as good as, say, a Big Mac. But there's a bunch of stuff out there that helps me do things quicker and better. I previously weighed in on products that small businesses may find less effective than advertised [BusinessWeek.com, 1/4/08] and took a lot of heat from some very passionate readers.

Now I'd like to point out a few small business technologies [in no particular order] that I can proudly say are worthwhile, reliable, and will -- drum roll, please -- work.

1. Remote Desktop Technology

Morale was low that bitterly cold day in January. The troops were tired. They were no match for the enemy. Jonah, their leader, was desperate. And then, when all seemed lost, a lone soldier arrived at the front. "I come bearing a very special, top-secret weapon from HQ," he said. "It is called Microsoft (MSFT) Windows Terminal Server and it enables computers to be operated remotely. And it will vanquish the enemy." Though skeptical, Jonah gave the order to deploy. And suddenly -- information flowed.

The men tossed aside their overpriced laptops that were unable to synchronize the data they needed. They armed themselves with cheaper, more efficient models with good Internet browsers. They fought. They surfed. They uploaded and received customer information in real time. They were productive. The enemy faltered. Jonah had won this battle. But deep down he knew that remote desktop technology was the real hero.

2. Desktop Sharing Software

In December, Lake Superior State University published its List of Words Banished from the Queen's English for Misuse, Overuse and General Uselessness. Check it out for yourself. One of these words is Webinar. I couldn't disagree more. Webinars use desktop sharing software, a perfect storm of technologies that help small business owners decimate waste. In short, the software lets a user show the information on his or her computer simultaneously with others around the world.

Back in the day, face-to-face meetings had to be held. It was like waterboarding. Now, it's possible to meet without leaving your office. Desktop-sharing technology, authored by companies including Microsoft, Cisco (CSCO), Glance, and CrossLoop, gives back productivity to the business owner.

3. Free Conference Calling

Well, not exactly free, but pretty close. Try freeconferencecall.com. Once you sign up on this Web site [no credit card needed] you get assigned a unique conference code and a regular phone number to call. Mine starts with 712, which I'm told is in Idaho. Who cares? I pay for my call only. Everyone else calls the same number and uses the conference code I give them. They pay for their call. If their long-distance plan allows unlimited calls or cheap U.S. rates, then they're not even affected.

But man, I was affected. In one month, my cost of conference calls disappeared. Suddenly, I'm using the service all the time. I'm conferencing with my kids. I'm conferencing with my employees. I'm now getting yelled at by my clients in stereo. How do these guys offer something for nothing? Well, they've got other products to sell. More advanced services. Whatever. I'm not buying any of that stuff. I guess someone is. All I know is the reception is clear, the price is right, and this technology is saving me time.

4. Wireless Connectivity

I'm pretty sure there's a tumor growing somewhere in my brain. And I'm expecting my grandchildren will be born with three heads. But who cares! The wireless world is here and I'm loving it! Those invisible cancerous waves floating around our atmosphere let me watch a training video while sipping a mocha at the local coffee shop. I can check e-mail and look up a customer's order history while on the train. I'm quickly getting online at hotels, bookstores, and libraries. Embracing wireless technology enables more business to be done in more places more of the time. It's fast and mostly reliable. And if I wasn't blacking out so often nowadays I'd really be enjoying this technology to its fullest.

5. E-mail Marketing Services

Fred took his family on an RV trip to Niagara Falls a few years ago. He rented the RV from a place called RV Universe. The trip was a success, and the company was extremely professional. Problem is, RV Universe is probably missing out on a lot of extra business from Fred. Why? Because it never got back in contact with Fred after the trip. Not a peep! For well short of $100 per month, RV Universe could be sending out great-looking e-mails to happy customers like Fred with camping tips and special deals. Fred probably would've taken them up on one or two as well. These services are easy to use and work very well for the small business owner who wants to generate a continuous communication with people that can turn into potential business.

6. Contact Management Software

Ah, remember the good old days of the mid-1990s? Hillary was just the First Lady. Will Smith was just the Fresh Prince. And customer relationship management [CRM] was just contact management software. Things were so much simpler then. Apparently, Microsoft is a little misty-eyed for the old days, too. Its Office 2007 Small Business Edition includes the latest iteration of Outlook Business Contact Manager. Like the Spice Girls, contact management is making a comeback, and it's about time. Small businesses [and many large ones] don't need all the complexity of a CRM system. We just need a simple place to keep all of our business contacts, along with some notes, so that we can track who spoke to them last and what's scheduled next. Good software like the Outlook Business Contact Manager ably accomplishes that goal.

7. Hosted Phone Systems

Seth runs a marketing company from the basement of his house. He has two employees, two contractors, and a dog. You'd never know that Seth's in boxer shorts or that he sports an Ozzy tattoo. He's got an 800 number that's answered by a very professional-sounding attendant. His phone system is hosted. When a client calls his "office" in Boston, the call is actually going to a server in San Francisco. When a caller selects Seth's extension, the call is either bounced to his cell phone, a phone in his basement, or right to voice mail [which, in turn is made into a .wav file and e-mailed to him for storage]. How much? Twelve dollars per month per mailbox. Does it work? "Never failed yet," he told me the other day.

Other small business owners I know report the same. The leaders in hosted [or outsourced] phone systems are VirtualPBX and GotVMail Communications.

8. Messaging Software

Solutions Management Group has offices in Philadelphia and London. How they communicate still amazes me. Why? Because my wife is from London, too. In the seven years between when we met in 1984 and married in 1991 we corresponded via telegraph and carrier pigeons. Well, pretty close. The employees at SMG look at me with pity when I tell them this story. Life for them is much easier now.

For example, if someone in Philadelphia wants to, say, recommend a good tanning salon to a visiting Londoner, they just send an instant message. And don't leave out text messaging, either. Back in Philly, the SMG people frequently text each other rather than wasting time on the phone. Messaging software is a technology that works reliably and saves time.

9. SQL Server

Here are a few words you don't normally see in the same sentence: Microsoft, reliable, bug-free, worth the money. But Microsoft SQL Server 2005, used as a standard for so many applications, works and works well. Hopefully you've thrown Microsoft Access out the door by now, along with your cassette tapes and "Reverse the Curse" T-shirt. SQL Server, and its smaller but still attractive cousin SQL Server Express [which is free] makes all those older database systems obsolete. Nowadays, an SQL back end is a key component an IT person looks for when evaluating software systems.

10. Google Applications

Tony started a biotech company this year and, wanting to keep the cost of technology down, uses Google's (GOOG) free business word processor and spreadsheet applications. They do the job well. A client who's in the recruitment business needed a quick way to search thousands of resumes on file. So he downloaded Google's desktop search and solved the problem -- for free. I have other clients who use Google's calendar, e-mail, and analytics. This stuff works. And did I mention it's free? Hang on. Maybe this Web 2.0 stuff isn't so bad after all.

credited by: BusinessWeek.com

Microsoft Bid for Yahoo Lifts Stocks

Stocks finished higher Friday after a surprise $44.6 billion bid by Microsoft (MSFT) for Yahoo (YHOO) and some encouraging news for beleaguered bond insurers offset a report showing that payrolls shrank by 17,000 in January a decline that renewed recession fears on Wall Street.

The tech deal news and labor-market downturn overshadowed what on any other day would have been top market headlines: Disappointing profits at Google (GOOG), Alcoas (AA) deal with a Chinese metals company to buy a stake in Rio Tinto (RTP), record profits for Exxon Mobil (XOM), and word that Motorola (MOT) may be mulling a split-up of the company. Finally, the Federal Reserve announced a plan to inject $60 billion into the banking system through two auctions in February.

On Friday, the Dow Jones industrial average gained 92.83 points, or 0.73%, to finish at 12,743.19. The S&P 500 added 16.87 points, or 1.22%, to close at 1,395.42, while the Nasdaq composite index gained 23.50 points, or 0.98%, to end the week at 2,397.37.

Activity in the broader market was positive, with 25 shares rising in price for every six that declined. Nasdaq breadth was 20-9 positive.

Recession fears have been mitigated recently by strength in financial stocks and upside in the equity market, notes S&P MarketScope.

.

The Dow and the S&P 500 have actually risen for two straight weeks for the first time since late November/early December, says S&P chief technical strategist Mark Arbeter, following the markets worst January in 38 years. The S&P 500 fell 6.1% last month.

While U.S. nonfarm payrolls fell 17,000 in January, Decembers figure was revised higher and Novembers lower for a net increase to the previous months of positive 9,000. The unemployment rate fell from 5.0% to 4.9%, while average hourly earning rose a weak 0.2%. Average weekly hours worked fell from 33.8 to 33.7.

The surprise decline in January employment suggests that the economy is contracting," said Ryan Sweet of Moodys Economy.com. Economists had been expecting a gain of 75,000 to 100,000. Januarys drop in payrolls was the first in five years.

John Ryding, chief U.S. economist at Bear Stearns (BSC), said the data wasnt conclusive. We will have to wait for the February report before drawing a conclusion on whether the economy has slipped into recession," he wrote, adding that the data still might be weak enough to push the Federal Reserve toward another half-point cut to interest rates in March.

Weak areas of the job market were manufacturing, with payrolls down 28,000, construction, off 27,000, and government, down 18,000. The service sector added 34,000 jobs.

The jobs report was only one of a series of marquee economic releases Friday. The University of Michigan reported that its consumer sentiment survey rose to 78.4 in January from 75.5 in December. The index did drop from its preliminary reading of 80.5, but was near the consensus estimate of 79. The current conditions component rose to 94.4 from 91.0 in December [but 98.1 in early January]. The expectations component increased to 68.1 from 65.6 [69.1 preliminary]. The rise from December contrasts with the drop seen in the consumer confidence report earlier this week.

U.S. construction spending fell 1.1% in December. The decline dwarfed expectations of a 0.4% fall and followed a revised 0.4% drop in November [previously 0.1%]. Private spending fell 1.0% after falling 1.0% in November. Residential spending fell 2.8% over November and is down 20.4% over last year.

The January Manufacturing Report on Business from the Institute for Supply Management jumped to 50.7 from 48.4 in December. The market had expected 47.3. Strength in orders and production brought the overall index up strongly. Employment dropped again, in line with the January payroll report today. With most components up and the index back over 50, the ISM release contradicts the extreme weakness in other recent data, and suggests the manufacturing sector may be in better shape than we thought", according to S&P Economics.

This report and the December durable goods data suggest that manufacturing activity is growing at a slow pace in early 2008 rather than contracting as appeared to be the case in late 2007," wrote Bear Stearns economists in a note Friday. This report, however, also underscores cost inflation pressures."

Next week, investors will be looking at reports on December factory goods orders [Monday], the January ISM Non-Manufacturing index [Tuesday], MBA mortgage applications and preliminary fourth-quarter productivity [Wednesday]. Initial jobless claims will arrive Thursday, along with December NAHB pending home sales and consumer credit\. Wholesale trade data will be released Friday.

Microsofts unsolicited bid prices Yahoo shares at $31. Thats a 62% premium over Thursdays closing price, but it is below the level Yahoo shares hit in October. Yahoo said it will evaluate the proposal, which one analyst, at Stifel Nicolaus, rates at more than an 80% chance of success.

This deal would give the combined company formidable scale and create a viable competitor to Google," said Ryan Jacob, portfolio manager of the Jacob Internet Fund, which owns Yahoo stock.

Yahoo shares rose 48% on news of the bid, while Microsoft fell 7%.

Tech investors were also pondering the prospects of one of Yahoo and Microsofts fiercest competitors. Google (GOOG) reported surprisingly weak earnings late Thursday. Google posted profits of $4.43 per share, vs. $3.91 per share as revenue rose 51%. But shares were down nearly 9% as investors were spooked by revenue and profit numbers that didnt quite meet expectations, as well as worries that an economic slowdown may hurt online ad spending.

Google chief executive Eric Schmidt tried to reassure analysts: We have not yet seen any negative impact from the rumors of a possible recession," he said.

Ambac Financial (ABK) shares rose 13% Friday after a CNBC report that said eight large banks have joined forces to seek a rescue plan for the troubled bond insurer, citing a person familiar with the talks.

Among other stocks in the news Friday, Alcoa (AA) announced a partnership with Aluminum Corp. of China to buy a 12% stake in Rio Tinto (RTP). Alcoa will contribute $1.2 billion.

Motorola (MOT) said it is exploring the structural and strategic realignment of its businesses to better equip its Mobile Devices business to recapture global market leadership and to enhance shareholder value." Alternatives may include the separation of Mobile Devices from its other businesses. Separately, Carl C. Icahn said he is pleased" that Moto is exploring a separation of the Mobile Devices unit.

In energy markets Friday, March WTI crude oil futures fell $2.79 to $88.96 per barrel as a weaker than expected jobs report indicated the U.S. economy was close to a recession, which in turn, would reduce demand for oil and other commodities.

Still, the record oil prices in recent months have clearly helped oil company profits. Exxon Mobil (XOM) reported earnings of $2.13 per share, vs. $1.76 a year ago, as revenue rose 30%.

Chevron (CVX) posted earnings of $2.32, vs. $1.74 a year ago, as revenues also rose 30%.

Also in the news Friday, United Parcel Service (UPS) boosted its regular quarterly dividend to 45 cents per share, from 42 cents per share.

Capital One Financial (COF) raised its quarterly dividend from 2.7 cents to 3.75 cents per share, and announced a $2 billion stock buyback plan.

Beazer Homes USA (BZH) says it will stop its mortgage origination service immediately, and end a related mortgage services relationship with Homebuilders Financial Network. It says it has entered a deal with Countrywide Financial (CFC), which will become the preferred mortgage provider to the homebuilders customers.

Manpower (MAN) posted earnings of $1.63 per share, vs. $1.15 a year ago, as revenue rose 20%. It expects earnings of 78 to 82 cents per share this quarter.

European stock indexes rallied Friday. In London, the FTSE 100 index added 2.54% to 6,029.20. In Paris, the CAC 40 index rose 2.22% to 4,978.06. Germanys DAX index was up 1.71% to 6,968.67.

Asian markets were mixed Friday. Japans Nikkei 225 index fell 0.7% to 13,497.16. In Hong Kong, the Hang Seng index rose 2.85% to 23,123.58.

Treasury market

Treasuries rose on back of an unexpected 17,000 decline in January nonfarm payroll jobs. The 10-year note edged up 03/32 to 105-16/32 for a yield of 3.58%. The 30-year bond rose 12/32 to 111-18/32 for a yield of 4.30%.

credited by: BusinessWeek.com

Movers: MBIA, Amazon.com, Starbucks, AnnTaylor, Alliance Data Movers: MBIA, Amazon.com, Starbucks, AnnTaylor, Alliance Data

MBIA (MBI) posts $18.61 fourth quarter loss per share, vs. $1.32 EPS a year ago; posts $3.30 fourth quarter operating loss vs. $1.31 operating EPS. It says it's disappointed in its operating results for 2007 as performance of its insured prime, second-lien mortgage portfolio, three insured CDO-squared transactions led to unprecedented loss reserving, impairment activity. MBIA's CEO said the company will have real and significant losses, but nothing to justify the 80% decline in share price since last year. The CEO noted the company's capital plan will exceed all AAA rating requirements. The stock turned higher on the news.

Amazon.com (AMZN) posts fourth quarter EPS of $0.48, vs. $0.23 a year ago, on 42% sales rise. It sees first quarter sales of $3.95-$4.15 billion and 2008 sales of $18.75-$19.75 billion. It expects 2008 operating income of $785-$985 million, including $240 million for stock-based compensation and amortization of intangible assets. Separately, Amazon agrees to acquire Audible (ADBL) for about $300 million, or $11.50 per share. S&P upgrades to hold from sell. Bear Stearns ties the weakness in the stock to margin disappointment.

Starbucks (SBUX) posts first quarter EPS of $0.28, vs. $0.26 a year ago, on 1.0% higher same-store sales, 17% higher total sales. It views fiscal year 2008 as a "year of refocus and renewal." Expects low double-digit EPS expansion for fiscal year 2008.

Procter & Gamble (PG) posts second quarter EPS of $0.98, vs. $0.84 a year ago, on 9% sales rise. It sees $0.79-$0.81 third quarter EPS. For fiscal year 2008, it expects organic sales to grow 4%-6%, sees EPS of $3.46-$3.50. Plans to separate its coffee business and create an independent company named The Folgers Coffee Co. Assuming a split-off transaction, expects deal to be dilutive to EPS by $0.03-$0.05 on an annual basis. S&P maintains strong buy.

Pulte Homes (PHM) posts $3.54 fourth quarter loss per share from continuing operations, vs. $0.03 loss a year ago, on 34% lower revenue. Fourth quarter 2007 loss included $1.28/share of charges tied to inventory impairments, other land-related charges and impairment of goodwill; also, a $2.46/share non-cash charge to eliminate a tax loss-related asset on PHM's balance sheet. The home builder sees $0.15-$0.30 first quarter net loss from continuing operations, exclusive of a tax benefit and any add'l impairments or land-related charges. S&P narrows 2008 loss estimate, raises target price; reiterates hold.

Mattel (MAT) posts $0.89, vs. $0.75 a year ago, fourth quarter EPS on 3.8% revenue rise. S&P maintains strong buy.

AnnTaylor Stores (ANN) plans to cut 13% of staff at its headquarters and close 117 stores as part of a restructuring aimed at increasing its operating margin by more than 200 basis points over the next three years. Also says it is taking a conservative approach to new store growth in fiscal 2008, given the ongoing macroeconomic weakness and uncertainty in the retail sector.

Alliance Data Systems (ADS) posts $0.42, vs. $0.48 a year ago, fourth quarter EPS as merger, other costs offset 15% revenue rise. On purely organic basis, sees 2008 adjusted EBITDA in excess of $700 million, with operating EBITDA expected to be a minimum of $30 million greater than adjusted EBITDA and cash EPS of $4.30. Yesterday, ADS filed lawsuit against the Blackstone entities that are parties to the merger agreement. Wachovia reportedly upgrades to outperform from market perform.

Colgate-Palmolive (CL) posts $0.91, vs. $0.78 a year ago, fourth quarter operating EPS on 13% sales rise. It expects 2008 gross profit margin, excl. restructuring charges, to be up within targeted range of 75 basis points to 125 basis points. S&P maintains strong buy.

Bristol-Myers Squibb (BMY) posts $0.07 fourth quarter GAAP loss per share, vs. $0.09 loss on 33% revenue rise [including 5% favorable forex]. It revises 2008 GAAP EPS guidance to $1.36-$1.46 from $1.44-$1.54, primarily reflecting impact from sale of the Medical Imaging business. Notes guidance includes estimated charges of about $500 million related to implementation of the Productivity Transformation Initiative, which will be dependent on timing of implementation and accounting treatment.

MasterCard (MA) posts $2.26 [including after-tax gain of $1.37], vs. $0.30 a year ago, fourth quarter EPS on 28% revenue rise.

Cadence Design Systems (CDNS) posts fourth quarter EPS [non-GAAP] of $0.46 vs. $0.38 a year ago, on 6.2% revenue rise. It sees first quarter non-GAAP EPS of $0.03-$0.05 on revenue of $280-$290 million and fiscal year 2008 EPS of $1.11-$1.19. JP Morgan reportedly downgrades to underweight from neutral.

TurboChef Technologies (OVEN) says one of its customers announced modification of its North America food program which utilizes TurboChef ovens, which will reduce that customer's previously anticipated contribution to OVEN's 2008 results. OVEN says it comfortable with its previously announced commercial revenue guidance for 2008.

Advanced Medical Optics (EYE) says it has entered into deal with Bausch & Lomb, Inc. regarding AMO's patent relate to peristaltic pump fluidics used in phacoemulsification systems. Bausch & Lomb will pay AMO a royalty under the agreement. All other terms of the agreement are confidential.

JK Acquisition (JKA) postpones a special meeting of its stockholders from 10:00 a.m. CDT today to 5:00 p.m. CST today, in order to give JKA more time to solicit proxies and its stockholders more time to consider and vote on JKA's proposed merger with Multi-Shot LLC.

Starwood Hotels & Resorts Worldwide (HOT) posts $0.74, vs. $0.93 a year ago, fourth quarter EPS despite 2.4% revenue rise. Adjusts guidance to reflect economic uncertainty, possibility of slowdown in U.S. lodging demand. Now sees $0.22-$0.26 first quarter EPS, $2.32-$2.57 2008 EPS [both before special items].

ImClone Systems (IMCL) posts $0.23 fourth quarter loss per share, vs. $0.53 EPS a year ago, as patent litigation settlement expense, other items offset 14% rise in revenue. Posts $0.41 non-GAAP EPS [excluding items].

Cirrus Logic (CRUS) posts lower-than-expected $0.05, vs. $0.04 a year ago, third quarter EPS on 8.0% revenue rise. It says third quarter gross margin narrowed to 56% vs. 61% in the year-ago quarter. Sets $150 million stock buyback. It sees $44-$47 million fourth quarter revenue, gross margin of 55%-58%.

Alliant Techsystems (ATK) posts $1.65, vs. $1.53 a year ago, third quarter EPS on 17% sales rise. Based on continued strength in all three business groups, increasing visibility, ut raises fiscal year 2008 EPS guidance to $6.25-$6.35, expects sales in excess of $4.1 billion. It sees fiscal year 2009 EPS of $7.10-$7.30, expects sales of approximately $4.5 billion.
credted by: BusinessWeek.com

The Billion-Dollar Losers

Big-name U.S. CEOs have taken a bath, but not the kind that leaves you feeling warm and relaxed.

As the bears took over Wall Street, chief executives, rewarded handsomely in years past with stock options, have seen the value of their holdings plummet.

The continuing financial crisis and fears of a U.S. recession have sent the broad Standard & Poor's 500-stock index down 15% since its peak in October. BusinessWeek asked financial information provider Capital IQ to analyze how this stock market correction has affected CEOs of major U.S. companies. [Capital IQ, like BusinessWeek, is a unit of The McGraw-Hill Companies (MHP).]

The resulting data show that market forces have chewed up the portfolios of even the savviest chief executives. Capital IQ estimates that since October, five CEOs have lost more than $1 billion through holdings of their companies' stock: Larry Ellison of Oracle (ORCL), Michael Dell of Dell (DELL), Micky Arison of Carnival Corp. (CCL), Jeffrey Bezos of Amazon.com (AMZN), and Rupert Murdoch of News Corp. (NWS).

More than 20 CEOs on the list have lost more than $100 million. The pain is widespread, too. Of the 450 major company CEOs analyzed, only about 60 escaped the last three months without losses. The markets were so difficult that only five of that group were able to achieve what these CEOs would typically take for granted -- gains of more than $10 million each.

The methodology: Capital IQ analyzed the change in the value of CEO holdings in their firms' stock from the market peak on Oct. 11, 2007, through Jan. 29, 2008. The estimates are based on each company's annual disclosures of CEO stock holdings, so it does not reflect any buying and selling by CEOs since their last reports.

But the estimates do show how quickly CEO fortunes have shrunk in three months. In total, the bear-trapped CEOs identified by Capital IQ lost a combined $16.1 billion.

The Financial Storm

The U.S. economy's troubles began in the financial sector last summer, as bad mortgage debt caused havoc in the credit markets. As a result, some of the biggest losers are CEOs in the financial sector. The portfolio losses of top financial CEOs on the list total $1.8 billion.

Those at the center of the financial storm have been hit hardest.

Countrywide Financial (CFC) CEO Angelo Mozilo has seen his stock lose nearly two-thirds of its value, costing him more than $100 million. [Mozilo will step down as Countrywide's chief after the planned acquisition of the company by Bank of America (BAC) is completed.] Politicians, including Senator Hillary Clinton [D-N.Y.], have called Countrywide, the U.S.'s largest mortgage lender, a major culprit in the loose lending standards that led to the subprime crisis.

Subprime debt has also devastated the holdings of CEOs of bond insurers. Gary Dunton of MBIA (MBI) lost 76% of his holdings during the survey period, or $24.7 million, while Ambac Financial Group (ABK) CEO Michael Callen took an 82% haircut, bringing the value of his holdings in company stock down to little more than $400,000.

Performance Pay

Don't reach for the Kleenex just yet. Despite the recent market turbulence, CEOs are still quite wealthy in company stock. Capital IQ identified 16 CEOs who still own more than $1 billion in their firm's shares, and 73 who owned more than $100 million.

In the past, base salary was a much larger part of executive compensation, but starting in the 1990s corporate boards began to add a lot more stock to pay packages. Shareholder groups had argued that the interests of CEOs and shareholders weren't properly aligned, says David Leach, managing director of compensation consulting firm Strategic Apex Group. "Conventional wisdom says an owner is going to take care of something better than someone who is renting," he says.

By paying CEOs in stock or stock options, "the concept is they get paid for the performance of the organization overall," says Don Lindner of WorldatWork, a human resources nonprofit.

But this doesn't always work perfectly. When the economy is booming and the stock market is rising, even lackluster CEOs get rewarded. But now, while a recession threatens, CEOs of even top performers are hurt. For example, Amazon.com's Bezos has doubled profits in the past year, yet he has lost $1.6 billion since October. Bezos didn't fare too well when the company reported fourth-quarter results on Jan. 30 [BusinessWeek.com, 1/31/08]. Investors' concerns about the impact of an economic slowdown sent the stock tumbling 12%, to $65.29.

Tech Losses

The poor performance of technology holdings is a prime example of how broadly the stock market gloom has spread from its origins in the financial sector. While a few tech CEOs, such as Steven Ballmer of Microsoft (MSFT), have resisted the undertow, in total, top tech CEOs have lost more than $5.6 billion since October. The average U.S. tech CEO's portfolio has fallen 19% since October, according to the Capital IQ screen, not much better than the 20% drop for financial CEOs.

Part of the problem for these CEOs is Silicon Valley's love of stock options. Tech firms have typically used much more equity in pay packages than other companies. Tech chiefs have lost a lot, but past bull markets have made billionaires of Bezos, Ellison, and many tech executives. Also, tech losses are exaggerated a bit by the time frame of the analysis. Tech companies have faltered lately, but most had put in stellar 2007 performances up until November or so.

Still, the huge tech losses show there has been nowhere to hide from the recent stock market turbulence. Investors fled even from sectors that are traditionally havens in a tough economy. CEOs of health-care and consumer staples firms have also lost money -- an average of 6% and 7%, respectively -- though not nearly as much as in other sectors.

The Biggest Losers [and Winners]

Take a look at the accompanying slide shows for examples of CEOs who have won or lost big lately in the stock market. The biggest losers include some of the world's best known executives, including Apple's (AAPL) Steve Jobs, Howard Schultz of Starbucks (SBUX), and Google's (GOOG) Eric Schmidt. Concern about the U.S. economy and online ad spending pummeled Google's shares when it reported fourth-quarter earnings on Jan. 31 [BusinessWeek.com, 2/1/08].

The list of CEOs includes a variety of executives who have somehow found a way to make money in a tough market. Their outperformance usually reflects extraordinary circumstances: Surprisingly strong results that bucked an industry trend, or an outlook that suddenly turned from poor to favorable.

Of course, in today's volatile markets, the current winners could wind up in the company of their unlucky brethren in a heartbeat.

Check out the BusinessWeek.com slide shows for more about the CEOs who have lost the most and CEOs who have gained the most.
credted by: BusinessWeek.com