A departing designer claims data too often trumps art. Image: Google Sketchup logo

On his way out of Google, Douglas Bowman has posted  a blog missive that might haunt the company one day. Bowman, the (now former) visual design lead, accuses the company's culture of relying too much on numbers, to the point where creativity suffers.

"Yes, it’s true that a team at Google couldn’t decide between two blues, so they’re testing 41 shades between each blue to see which one performs better," he writes. "I had a recent debate over whether a border should be 3, 4 or 5 pixels wide, and was asked to prove my case. I can’t operate in an environment like that."

It's hard to get on Google's (GOOG) case for loving data; after all, expertise in number-crunching algorithms and attention to user behavior are a big part of what's grown it into a company with a $104 billion market cap and nearly $16 billion in the bank. Google's data wizards have humbled Yahoo (YHOO), and set Microsoft (MSFT) on its heels in the online game. If that's where data gets you, well, then, more data for everyone. Right?

Maybe not. When I read Bowman's post, I immediately thought of Apple (AAPL) – a Silicon Valley company that has a very different relationship with numbers. Unlike Google, which is (if Bowman is to be believed) running online focus groups to choose among 41 shades of blue, Apple hates focus groups. Focus groups trigger Apple's cultural gag reflex. Where Google leads with the left brain, Apple leads with the right. Sometimes Apple's attitude yields products like the Flower Power iMac and the G4 Cube. But sometimes you get the iPod or the iPhone. Apple's attitude is that sometimes, to truly innovate, you've got to go beyond giving people what they say they want.

Who knows if Bowman has an ax to grind with Google – but I still hope Bowman's criticism at least gets some attention at the Googleplex. As Google has grown, so have its ambitions – it wants to expand beyond the number-centric search ads game into brand advertising, operating systems and phone design. And those are areas that favor Apple types – the right-brained. (Don't believe me? Think about how well Apple does in all those areas.) Perhaps search optimization can be boiled down to finding the answer to very complicated math problems, but these are design problems that are more subjective in nature. It's a different thing than online apps. You can't soft-launch a phone to the public, get feedback, and tweak it endlessly in public beta. You have to design a phone based on a bold vision, and try to release a product that wows people. Try to imagine a focus-grouped iPhone; it would have been a clunky thing with a slide out keyboard and pretty-good software. (Kind of like the first Google phone, which is due for a software update any day now.)

This is not to suggest that Google is lacking in right-brain skills. Fantastic designs like its search pages and maps prove it can do art, not just numbers. But if Google wants to be as successful in other areas as it has been in search, it may do well to heed Bowman's words. It may well have to develop more of an artist's arrogance – that quality of being able, in the right situations, to put aside its beloved data points and do what's best, even if it's not what users say they want.

Investors hoped a high-flying debut from Rackspace would reignite the IPO market. No such luck.

Rackspace took the IPO plunge Friday and fell flat on its face, which will only make other startups more hesitant to follow its lead.

The web-hosting company had planned to offer 15 million shares at between $12 and $16 per share in a modified Dutch auction, but hopes ran even higher. Scott Sweet of IPO Boutique told TheStreet.com that Wall Street chatter indicated Rackspace (RAX) share would price as high as $17; MorningNotes pegged it at closer to $16. The shares ended up pricing Thursday night at $12.50, and they began trading closer to $10 per share. They rose as high as $11.58 in mid-day trading before settling back near $10.

"If people were looking for this deal to turn things around for the market, it certainly hasn't done that yet," Renaissance Capital analyst Matt Therian told Marketwatch, managing to sound both gloomy and hopeful.

Trying an initial public offering this year was a gutsy move to begin with. Only four U.S. tech companies (including Rackspace) have tried making their public market debuts in this rocky economic environment, according to Dealogic – and there were actually zero venture-backed IPOs this spring, making it the driest quarter since 1978.

Rackspace, though, had a few things going for it. The company had net revenues of $362 million in 2007, profit of $17.8 million, and steady growth rate, making it the rare tech startup with a track record showing profit growth and financial discipline. But apparently that wasn't enough to overcome a choppy market and general skepticism about the hosting market in which it operates. (As I noted earlier this week, the hosting market is a crowded field, and there are some unflattering parallels to the real estate market.)

So what's a tech IPO watcher to do? Maybe look overseas. According to Dealogic, that's where a lot of the action is this year. Though the values aren't nearly as high as the U.S. market, South Korea has done 18 IPOs this year, and Poland has done 12. The Dealogic numbers, below:

Google vice president Marissa Mayer says Google News might not make money on its own, but it drives $100 million worth of search. Image: Google

HALF MOON BAY, Calif. – Google News is free and has zero ads. So what's it worth to Google? About $100 million.

That's the figure Google (GOOG) vice president Marissa Mayer, who heads search products and user experience, threw out during a Tuesday lunch session at Fortune's Brainstorm Tech conference in Half Moon Bay, Calif.  How does she put a value on a product that doesn't directly make money? The online giant figures that Google News funnels readers over to the main Google search engine, where they do searches that do produce ads. And that's a nice business. Think of Google News as a $100 million search referral machine.

Mayer's observation about Google News sheds some light on the company's broader strategy for driving traffic to its search engine – a strategy that has helped the company build a dominant market share lead over rivals Yahoo (YHOO) and Microsoft (MSFT). It's not all about the search engine itself. Google is happy to build popular products that don't make any money on their own but tie users into a broader Google ecosystem. It’s like Vegas casinos that offer cheap buffets to get people into the building, knowing a lot of them will end up playing slots.

Mayer said that's the way Google thinks about monetizing digital consumer health records. The company is one of many working to make it convenient for people to store and access their medical records online, a move that proponents say will improve health care by empowering consumers. But Mayer said that after some internal discussions, Google brass decided not to put ads on health record pages.

Salesforce.com (CRM) CEO Marc Benioff, who was sitting in on the lunch session, challenged the decision: Why not let consumers opt into health record ads? Mayer said it's not worth it. For one, the inventory of health record ads wouldn't be sizeable enough to draw serious ad dollars. Add to that the criticism Google would draw from privacy advocates, and there's not much point.

But that doesn't mean Google's doing health records as charity. Mayer and the rest of Google leadership are counting on the Google News model: If people come to Google for their health records, they'll end up using the search engine to buy prescriptions, find doctors, whatever. And in the process, Google will cash in.

Image: Apple

Can Apple regain its status as a Wall Street darling?

So far 2008 has not been kind to the technology trendsetter. With U.S. iPod sales slowing and iPhone hype fading, investors have been seized by worries that the crew in Cupertino isn’t much of a growth story anymore. The stock has fallen 40 percent from its recent highs, losing some $50 billion in market value –and it isn’t clear what could turn things around.

It does seem certain that major relief won’t come from Apple’s (AAPL) newest products. This week's update of the MacBook laptop line adds speed and memory, but no breathtaking design touches. The super-slim but pricey MacBook Air laptop that CEO Steve Jobs unveiled in January has met with mixed reviews, and won’t provide enough of a boost to make up for the iPod slowdown. And Apple TV, the second incarnation of Apple’s failed attempt to bring digital downloads to the television, doesn’t seem to be attracting an iPod-like following either; on Amazon (AMZN), it’s about as popular as a niche backup hard drive.

So where will Apple go for a sales boost to lift its stock? Perhaps overseas.

Even as U.S. tech spending slows, the market for high-tech gear and the opportunity for Apple to grow, is rapidly expanding in Europe and Asia. To wit: Hewlett-Packard (HPQ) CEO Mark Hurd noted last week that emerging markets accounted for nearly half of the industry’s PC shipments at the end of 2007, and well over half of the growth.

Those stats should be particularly encouraging to Apple because they suggest there’s opportunity that the company hasn’t yet tapped. While the Mac maker had an impressive holiday season in the U.S., ranking third in overall PC shipments behind Dell (DELL) and HP according to IDC, Apple came in seventh in the global rankings. That suggests the company has plenty of room for improvement in Europe and Asia.

IDC analyst Richard Shim points out that Apple must increasingly look to Europe and Asia in an uncertain year for U.S. consumer spending. “A lot of their growth is coming from these other regions,” he says “If the consumer market starts to back up as a result of the dour economic scene right now, they could face some serious challenges.”

International expansion has long been part of Apple’s plan. The company plans to open its first retail store in China this year, and to open one in Australia as well. Apple might also have its eye on Europe, where retail remains a largely untapped possibility; while Apple has 13 stores in the United Kingdom and one in Italy, the company lacks a company-owned retail presence anywhere else on the continent. With a higher profile there, Apple might drive even more sales; in the quarter that ended 2007, Apple reported that net sales in Europe grew twice as fast as in the United States.

Indeed, when I caught up to Apple vice president Greg Joswiak during the holiday season, he had international markets on the brain. On the phone from a Paris hotel, the iPod and iPhone marketing chief stressed the strategic importance of consumers outside the U.S. He seemed particularly interested in countries where Apple’s share of the MP3 player market was less than 30 percent.

“That’s a significant opportunity because not only can we grow share, but we don’t have, in any of these markets, an incumbent to beat,” Joswiak said. “We’re actually competing against ‘Other’ – the off-brands that somebody’s trying to sell only on price, and not establishing any value in the market.”

It’s a good thing, too, because it’s those overseas consumers who are still buying. In Apple’s most recent conference call with analysts, Chief Operating Officer Tim Cook said U.S. iPod unit sales were flat year-over-year during the holidays, and it took strong international sales to help Apple meet its targets. In an apparent attempt to stoke volume in 2008, Apple introduced a pink iPod nano in time for Valentine’s Day, and dropped the price of the iPod nano.

And Apple’s computers are selling, too. According to IDC, worldwide Mac shipments jumped 37.8 percent in 2007, outpacing the industry.

Shoppers headed online in droves on Cyber Monday, according to the latest stats: 32.5 million visitors entered virtual stores, up 10 percent from a year ago.

Nielsen Online, the Internet measurement firm, said that eBay (EBAY) was the top destination, drawing nearly 11 million visitors. Next were Amazon (AMZN), with more than 7 million, and Wal-Mart (WMT) with about 5 million.

And consumers gave their credit cards a workout. ComScore said shoppers spent $733 million online on Monday, a 21 percent gain from the same day a year ago.

Microsoft’s Zune: The sequel (Photos 1-4)

What were the herds buying versus the week before? Think gear like Apple's (AAPL) iPod and Nintendo's (NTDOY) Wii. Consumer electronics and games saw the most growth, followed by music, video and books. This was yet another bit of news that bodes well for Apple; Nielsen's Black Friday numbers showed the company's web site surged past Dell's (DELL) to become the computer maker most visited from home PCs on that popular shopping day. Nielsen estimated that 1.4 million people visited Apple.com, up 111 percent from a year before. Dell's traffic rose 29 percent, to 1.3 million.

The Cyber Monday numbers:

 Top 10 Fastest Growing Product Categories Ranked by Week-Over-Week Growth (U.S.,

 Home & Work)

  +---------------------------------+-------------------------------+

 | Categories                      |  Unique Audience Growth from  |

 |                                 |     11/19/07 to 11/26/07      |

 +---------------------------------+-------------------------------+

 | Consumer Electronics            |             72.5%             |

 | Toys/Videogames                 |             72.0%             |

 | Books/Music/Video               |             63.1%             |

 | Apparel                         |             55.3%             |

 | Home and Garden                 |             45.6%             |

 | Computer Hardware/Software      |             42.1%             |

 | Shopping Comparison/Portals     |             32.4%             |

 | Jewelry                         |             23.1%             |

 | Retail                          |             13.2%             |

 | Flowers and Gifts               |             12.6%             |

 +---------------------------------+-------------------------------+

 Source: Nielsen Online, Holiday eShopping Index

 Top 10 Online Retail Sites* on Cyber Monday vs Black Friday (U.S., Home & Work)

  +-----------------+----------+------------------+----------+

 | Cyber Monday    | 11/26/07 | Black Friday     | 11/23/07 |

 | Sites           | UA (000) | Sites            | UA (000) |

 +-----------------+----------+------------------+----------+

 | eBay (EBAY)     |  10,799  | eBay             |  10,837  |

 | Amazon (AMZN)   |  7,225   | Amazon           |  6,932   |

 | Wal-Mart Stores |  5,165   | Wal-Mart Stores  |  4,509   |

 | AT&T (T)        |  3,879   | Target           |  4,071   |

 | Target (TGT)    |  3,393   | AT&T             |  3,781   |

 | Circuit City    |  2,824   | Best Buy         |  3,125   |

 | Dell (DELL)     |  2,673   | Circuit City     |  2,563   |

 | Best Buy (BBY)  |  2,363   | Dell             |  1,965   |

 | Overstock.com   |  2,154   | JCPenney         |  1,652   |

 | Sears           |  1,698   | ToysRUs          |  1,626   |

 +-----------------+----------+------------------+----------+

 Source: Nielsen Online, NetView

 *Based on Nielsen Online, MegaView Online Retail list.

Facebook's unique audience grew by 1.5 million people in October, according to a report released this week by Nielsen Online. That's five times the rate of larger rival MySpace, which grew by about 300,000.

If the numbers are accurate, it means Facebook, the second-largest social network, continued its surge. MySpace logged 58.8 million unique visitors in October, up 19 percent from a year before; Facebook logged 19.5 million, up 125 percent.

Though the numbers seem to suggest that Facebook is growing at a far faster clip than MySpace (NWS), third-party numbers can be deceiving. Because of the methods companies like Nielsen use to estimate traffic, the official numbers from the sites themselves can differ somewhat. It's also not clear whether the trend will continue as both companies link up with powerful online allies. Facebook last month took a $240 million investment from Microsoft (MSFT), and MySpace announced that it will participate in Google's (GOOG) OpenSocial initiative to build social software on the Web.

Nielsen also released stats that show WordPress.com for the first time edging out TypePad to become the number-two blogging platform behind Blogger. The numbers are below:

 Table 1: Top 10 Social Networking Sites for October 2007 (U.S., Home and Work)

 +-----------------------+----------+----------+----------------+

 | Site                  |   Oct-06 |   Oct-07 | Percent Change |

 |                       | UA (000) | UA (000) |                |

 +-----------------------+----------+----------+----------------+

 | Myspace.com           |   49,516 |   58,843 |            19% |

 | Facebook              |    8,682 |   19,519 |           125% |

 | Classmates Online     |   13,564 |   13,278 |            -2% |

 | Windows Live Spaces   |    7,795 |   10,261 |            32% |

 | AOL Hometown (TWX)    |    9,298 |    7,923 |           -15% |

 | LinkedIn              |    1,705 |    4,919 |           189% |

 | AOL People Connection |    5,849 |    4,084 |           -30% |

 | Reunion.com           |    4,723 |    4,082 |           -14% |

 | Club Penguin          |    1,512 |    3,880 |           157% |

 | Buzznet.com           |    1,104 |    2,397 |           117% |

 +-----------------------+----------+----------+----------------+

 Source: Nielsen Online



 Table 2: Top 10 Blogs for October 2007 (U.S., Home and Work)

 +-------------------+----------+----------+-----------------+

 | Site              |   Oct-06 |   Oct-07 |  Percent Change |

 |                   | UA (000) | UA (000) |                 |

 +-------------------+----------+----------+-----------------+

 | Blogger           |   21,572 |   34,104 |             58% |

 | WordPress.com     |    2,104 |   11,440 |            444% |

 | Six Apart TypePad |    8,813 |   10,601 |             20% |

 | tmz.com           |    7,107 |    7,805 |             10% |

 | LiveJournal       |    3,366 |    4,260 |             27% |

 | Xanga.com         |    4,760 |    2,741 |            -42% |

 | Thatsfit          |     534* |    2,613 |            389% |

 | Gizmodo           |     941* |    2,135 |            127% |

 | Autoblog          |      920 |    1,949 |            112% |

 | StyleDash         |    1,319 |    1,947 |             48% |

 +-------------------+----------+----------+-----------------+

 Source: Nielsen Online



 * This Web site did not meet minimum sample size standards in October 2006. Projected

 and average measures for this site may exhibit large changes month-to-month as

 a result.

InterActiveCorp (IACI), a multi-billion-dollar company that manages online brands including Ask.com, Evite and LendingTree, scored its strongest traffic growth this summer from a site that helps people manage their timeshare vacations.

The company reported earnings today. Profit for the quarter that ended Sept. 30 fell to $71.8 million, or 24 cents per share, from $74.9 million, or 24 cents, last year. The 4.2 percent drop was attributed to troubles in the company's home shopping network business. Revenue grew 7.4 percent to $1.52 billion.

According to data released Tuesday by Nielsen Online, traffic to IAC's timeshare site, Interval International, grew 78 percent over the same period a year before to reach nearly 900,000 unique visitors.

Growth at IAC's Evite and Ticketmaster businesses also is encouraging, though the percentages weren't as high as the vacation business. Evite, the most trafficked website for invitations, saw traffic rise 28 percent to 7.9 million unique visitors. Ticketmaster, the top website for events, grew 9 percent to 12.9 million. Nielsen said purchases grew 24 percent year-over-year, to 1.5 million transactions. IAC's online properties compete with Internet titans like eBay (EBAY), Yahoo (YHOO) and Amazon (AMZN).

The numbers:

IAC Fastest Growing Web Brands* (U.S., Home and Work)

+------------------------+----

------+----------+--------------+

| InterActiveCorp Brands |  Q3 2006 |  Q3 2007 | Q3-Q3 Growth |

|                        | UA (000) | UA (000) |              |

+------------------------+----------+----------+--------------+

| Interval International |      498 |      888 |          78% |

| Gifts.com              |      685 |      929 |          36% |

| Evite.com              |    6,148 |    7,898 |          28% |

| Ticketmaster           |   11,796 |   12,859 |           9% |

| ServiceMagic           |    2,681 |    2,804 |           5% |

+------------------------+----------+----------+--------------+

Source: Nielsen Online, NetView

*Based on three-month average monthly unique audience.

Microsoft (MSFT) mostly saw modest increases in traffic to its online properties in the third quarter, with gaming, technology, real estate and search leading the company's growth.

The latest numbers from Nielsen Online show that the category for Microsoft's Xbox 360 console, which is battling Nintendo's Wii and Sony's (SNE) PlayStation 3, was the fastest-growing online property for Microsoft compared to a year ago. Most important for the company though, its search business ranked in the top-five fastest-growing categories, a trend that will help Microsoft better compete with the likes of Google (GOOG) and Yahoo (YHOO) for online advertising.

A financial edge from edgy PC design (Photos 1-7)

Overall online traffic increases were small, however. Traffic to the Microsoft parent company increased three percent year over year, from a three-month average monthly audience of 115.9 million unique visitors in Q3 2006 to 119.1 million unique visitors in Q3 2007.

Microsoft's Top 5 Fastest Growing Channels (3-Month Average Monthly Unique

Audience)

+-------------------------+---

-------+----------+--------------+

| Channel                 |  Q3 2006 |  Q3 2007 | Q3-Q3 Growth |

|                         | UA (000) | UA (000) |              |

+-------------------------+----------+----------+--------------+

| XBOX                    |    1,116 |    1,724 |          55% |

| MSN Tech & Gadgets      |    1,626 |    2,215 |          36% |

| MSN Astrology           |    1,110 |    1,457 |          31% |

| MSN Real Estate         |    2,941 |    3,805 |          29% |

| MSN/Windows Live Search |   39,856 |   51,525 |          29% |

+-------------------------+----------+----------+--------------+

Source: Nielsen Online, NetView

Image: http://store.apple.com

If its online traffic is any guide, Apple (AAPL) had a pretty decent quarter.

The maker of iPods, iPhones and Macs grew its online traffic 18 percent compared to a year earlier, from a monthly average of 36.6 million unique visitors to 43 million, according to Nielsen Online. Total minutes at the site grew 22 percent, from 7 billion in calendar Q3 2006 to 8.6 billion in calendar Q3 2007.

Nielsen also said that in September, Apple's online traffic ranked number one in its category, hardware manufacturers.

iTunes, the Apple Store and .Mac were the fastest-growing online channels for Apple – which is good for the company, because those are the places where money is made.

 Table 1: Fastest Growing Apple Web Channels, Q3* Year over Year (U.S., Home and

 Work)

  +----------------------+----------+----------+-------------+

 | Apple Computer       | Q3 2006  | Q3 2007  |   Q3-Q3 %   |

 | Channels             | UA (000) | UA (000) |   Growth    |

 +----------------------+----------+----------+-------------+

 | iTunes               |  22,644  |  30,738  |     36%     |

 | Apple Store          |  3,346   |  4,375   |     31%     |

 | .mac                 |  3,525   |  3,995   |     13%     |

 +----------------------+----------+----------+-------------+

 Source: Nielsen Online, October 2007

 *Quarterly Web traffic based on a three month average monthly unique audience.

Apple's cost to build the iPod classic is 11 percent lower than the previous verison, iSuppli estimates. Photo: Apple

Apple's (AAPL) redesign of the iPod classic has allowed the company to make better profits while also offering more storage, an analysis from researcher iSuppli has found.

The iSuppli numbers (below) help shed light on how Apple continues to make money off of its iPod line even as certain versions mature. iSuppli estimates that the components in the iPod cost $127 for the 80-gigabyte version and $190 for the 160GB version. Apple sells them for $249 and $349. (iSuppli's figures don't factor in costs for manufacturing, software development, marketing, packaging and shipping. They also don't factor in some volume discounts Apple receives.)

According to iSuppli, the 80GB iPod costs 11 percent less to build than the previous 30GB version. Apple makes even better margins on the 160GB version.

Increasingly, though, the hard drive-based iPod classic seems to be a niche product. The iPod nano, a sleeker flash memory-based product with less storage capacity, has consistently outsold the classic. And now, based on one month of sales, it seems Apple's new iPod touch, the flash-based iPhone look-alike, might outsell the classic as well.

Apple’s new iPod lineup: An analysis (Photos 1/5)

One has to imagine this is what CEO Steve Jobs and the marketing crew at Apple expected. When Jobs first renamed the device the "classic" at the iPod update event in September, it seemed to be an acknowledgment that its design is past its prime. (While Apple clearly sees value in having hard drive-based options in its lineup, it seems to be transitioning the overall iPod line to a touch-screen interface that runs on Mac OS X.)

iSuppli estimated the cost of the components Apple uses to build the hard drive-based iPod classic.