Living in the post-Visa world

By Roger C. Wood, CEO, ORCA Inc.

Wood: Currency is a-changin'. Photo: ORCA

When I was contemplating moving from the wireless sector to the Web sector, I read just about every column Nick Negroponte wrote as a columnist for WIRED Magazine. His departing piece, entitled “Beyond Digital” was published in December 1998 and served as an inspiration to me. After reading it, I left my role as general manager of the International Division for the consortium of mobile start-ups (Voicestream, Omnipoint, Aerial and Powertel) that became T-Mobile USA  and joined Reebok International to launch the first multi-national interactive division of any Fortune 1000 company, launching e-commerce sites in 36 separate countries. This opinion piece is an ode to that pivotal article.

Nine-year-old Boy #1 – “I like Fusion Fall. It’s kind of a mission game; it’s not like a chatting game. Sometimes I like to play chat, that’s why I like Club Penguin. But now I like Fusion better, mostly it’s just more fun to earn Taros and Nanos and Fusion Matter. I like spending Fusion Matter because I can get more HP and cool clothes. And, it loads my clothes super fast.”

Nine-year-old Boy #2 – “I hate Adventurequest because it’s just an RPG and it looks like no one else is there. I like to earn prestige and HP. I get hurt all the time, so I need to buy HP all the time. I haven’t figured out all of the shopkeepers in Fusion Fall, but there are different types. The power shopkeeper seems like the best.”

“Load my clothes”? “Prestige and HP”? “Power shopkeeper”? If you have no idea what these kids are talking about, welcome to the post-VISA world of virtual currency.  The very nature of basic transactions will be transformed by this generation and this piece of a kid’s conversation is just the beginning.

No matter what you call it – virtual currency, s-commerce, contextual payments, in-apps buying or stored value – young people want to pay for things in little pieces without leaving the entertainment experience.

For instance, the kids above want their avatar warrior to walk up to an avatar merchant and buy some digital medicine to repair their digital muscles. As Apple's (AAPL)  iTunes has shown the world, most people want to buy digital stuff in little tiny pieces, for less than one dollar or euro, without entering a credit card number each time. This is what the interactive media industry calls a “micro-transaction.”  Using virtual currency and the concept has forever changed the world.

The primary way to accomplish all of this, while maintaining the security controls of the global personal banking system, is with stored value and virtual currency. Converting real money to virtual currency gives life to all kinds of marketing applications, as we have seen with “frequent flyer points,” one of the most successful forms of virtual currency around the world.

Having consumers load real money into accounts, “storing” the value, then drawing down on the balance in the form of points or credits as required, is a good idea for a lot of reasons.

• First, it minimizes interest impact from using credit cards for the consumer. In some countries, they don’t even like credit cards. In many parts of the world, interest is considered a sin.
• Second, it minimizes transaction fees from the Web site.
• Third, younger consumers want to make their spending modular. This demographic often subconsciously segment their spending into categories like phone, games, clothes, etc. Stored value and virtual currency helps them to facilitate the process.

As millennials — people born after 1978 — begin to play a bigger role in the global economy, we will see a blossoming of innovations using stored value and virtual currency in new and exciting ways. Lending will be restricted, credit will be scarce and young people will adapt faster than older generations. To paraphrase Negroponte, virtual currency will be noticed only by its absence, not its presence.

Virtual currency will be intrinsic to each and every transaction. Maybe one day, we will log on to Yahoo! (YHOO) and check our Yahoo! Coins balance. Then pay for dating services, games and comedy video with the Yahoo! Coins you bought. Or, AOL will give you AOL Coins for sharing TMZ videos and news items from PopEater, which you can then use to buy stuff on Sorority Life or Farmville, while hanging out on Bebo.

It will seem antiquated to use real money to pay for anything. Real money will be something you load into a stored value account for some specific purpose and the virtual currency will be what you actually use to pay for something. Virtual currency won’t really be a topic for discussion. The real excitement will come from the transformation of our lifestyles, business models and how we come to value intangible digital goods.

Below is my version of the five forces driving the irreversible trend towards ubiquitous virtual currency.

One World
American Express (AXP) travelers checks got it. Frequent flyer consortiums got it. In the future, new payment networks will emerge. Kind of like JCB, Visa and MasterCard, but a lot more flexible. When kids see a virtual currency payment network logo, they will assume the virtual currency they hold will be valid, regardless of its origin. It could have been earned on AOL, bought on Arkadium or gifted on Facebook. Kids want “one world” and they will spend their time on digital properties with open payment networks that allow them to move virtual currency around at a fraction of the fees and regulations required for moving real money.

Social Buckets
Our first Web portals (AOL, CompuServe, etc.) essentially were “social circles” didn’t translate in that digital world and were replaced by what I call “social buckets.”  There is no universally accepted social rank anymore or transfer of social status from one digital world to another. I’m a god in digital music bucket if enough people download my self-published iMix collections on iTunes, but that celebrity doesn’t translate to YouTube. Ten-year-olds kick my butt on FusionFall (the aforementioned multiplayer game) and my ability to throw a knuckleball in the real world means little to them.  I’m certainly no sociologist, but I do think that our concept of social status varies by digital bucket. Virtual currency will be the only common denominator.

Who owns your friends?
Imagine you get together with some friends at the pub. Your friends arrive then proceed to talk, drink and have a good time. Each one of your friends also brings a representative from their financial institution that they will use for individual transactions. Every time one of your friends buys a drink, their financial institution’s guy starts talking to them and you have lost your ability to host effectively. Sound chaotic? Even ridiculous?

This is what it feels like today for a digital media company. Every visitor to their site uses a payment method that oversteps it bounds and dominates the conversation with the consumers. The digital media company brought everyone together, yet the digital payment companies, offer businesses and payment gallery operators start dialogs with the visitors that prevent the digital media company from properly hosting the party. In the future, digital media companies will take control of the conversation with their friends through their own branded payment options.

Size Matters Not
Virtual currency will make the size of the digital media company irrelevant in relation to its potency. Virgin, Airtran and JetBlue are all really small airlines that used effective virtual currency and stored value business models to make a lot of trouble for Continental, Delta and United in long-haul air travel. A small Web site with a great concept of virtual currency and stored value can have a disproportionate impact on the marketplace. Just look at ActiveCause.com or Causes.com, versus United Way. I meet lots of 28-year-olds in my work life, and I really don’t know many that donate to the United Way.

Net Worth
Net worth was once judged by the difference between one’s assets and one’s liabilities. Both were valued in relation to money, which represented ounces of gold. What will the world be like when digital goods, images, ideas, concepts are a central part of the equation? I create a character on Blizzard’s World of Warcraft or Eve Online and it’s a hit. Hell, who knows, it might just be the next Avatar, SpiderMan or James Bond. I’d probably make out a little better than if I’d owned, say, a million shares of Washington Mutual stock. Thought products, secured by virtual currency, will likely make the next tycoons. Ralph Lauren, Paul McCartney, the mysterious founders of Skype, Steven Spielberg and even Jay-Z, all created multigenerational wealth through digital assets that none of us can actually touch. I’m sure the folks at TenCent, China’s most popular Internet portal, would agree.

Bye for now, I’m signing into WeeWorld to download a Justin Timberlake digital jacket for my avatar using my green diamonds.

Wood is CEO of ORCA Inc., a provider of electronic payment and transaction solutions for social interactive media.

Deal for AdMob accelerates scramble for a whopping $416 million in revenue.

As was trumpeted across the Internet Monday, Google (GOOG) is buying mobile display advertising startup AdMob for $750 million in (increasingly) precious Google stock. Wall Street digested the news and sent Google stock up almost $11.

Citi analyst Mark Mahaney says the deal “makes sense, because Google is moving aggressively to take advantage of the strong growth opportunity in mobile, which is fueled by smartphones.” Sandeep Aggarwal at Collins Stewart likes the deal, arguing “mobile advertising will be a $4 billion revenue opportunity by 2012-2013.”

Over my dead BlackBerry.

OK, I am in agreement that the whole smartphone movement is big, really big. But the ads on them? They are small, really small. In its own FAQ on the deal, Google brass acknowledge that mobile advertising is pint-sized today. They cite a number from eMarketer that pegs spending on mobile advertising at $416 million in 2009. That compares to the nearly $24 billion spent overall on online advertising.

It is true that $416 million ain’t chump-change, but it’s not Google dollars either. Estimates for AdMob’s gross revenue are in the neighborhood of $50 to 75 million, with a net of around $20 million. That is tiny, but presumably it will grow fast once AdMob’s display ads and universe of publishers and advertisers can plug into Google’s AdSense. But let’s get back to that small thing.

If you think online display ads are at best an annoyance on a 30-inch monitor, what about a three-inch screen? Ignoring ads on a PC is easy enough; on something I pay $60 or $80 a month for (especially if serving up the mobile ads slow my wireless network even more) ignoring the ads will be the default mode. Yes, there will be location-based bells and whistles to go along with the mobile ads — 30% off a ham sandwich and shoe-repair 30 feet from where you are standing — but that is still a ways off, and do you really want mobile coupons? Mobile advertising has been one of those things that gets promised year after year, and never seems to quite materialize (sort of like true broadband in the United States).

The mobile Internet is happening, and fast, the iPhone has shown us that. Whether an advertising experience works well enough on smartphones to really move the needle (and not simply cannibalize the non-mobile online ad world) remains to be seen.

Google: Buy vs. build

And by the way, Google knows how big this mobile Internet thing is going to be. Why couldn’t they figure it out, and save the $750 million? They have buildings filled with very smart people, and a good culture of “rolling their own,” as it were. I guess if your stock is up 83% since the beginning of the year you don’t have to sweat that too much.

Respect to AdMob for getting this deal done (barring any regulatory issues). Big ups to Sequoia Capital, Accel Partners and Draper Fisher Jurvetson who will make a bundle on the acquisition (and LiveOps CEO Maynard Webb who invested his own eBay money in AdMob). AdMob is clearly running fastest in this new mobile advertising world, and Google has the money to pull them off the startup track and install their 140 employees at the Googleplex. It seems there are plenty of Odwalla smoothies to go around, but I wonder, when will the big mobile advertising dollars arrive?

—

By Jon Fortt, senior writer

AdMob CEO Omar Hamoui doesn’t take himself too seriously. When I had lunch with him recently and he eyed the gourmet burgers on the menu, he had no qualms about asking one of his employees what aioli is. (It’s garlic mayonnaise.)

He shrugged and explained that he usually grabs a cheap sandwich, so he’s not used to the cloth napkin fare.

Hamoui’s easygoing manner shows in other areas. He doesn’t have an office in AdMob’s modest San Mateo headquarters — in fact, he doesn’t even have a cubicle. He works at one end of a row of computers, shoulder-to-shoulder with other engineers.

As you’ve read above, my colleague Michael Copeland is a bit down on Google’s decision to purchase AdMob for $750 million. Let me quickly offer another view. I think the AdMob deal is both a great business move and a signal that Hamoui can still fit in at Google — because the search giant is levelheaded enough to swallow its pride when it matters.

Let me explain. AdMob’s approach to mobile advertising is starkly different from Google’s. While Google has tried to squeeze its wildly successful PC-centric advertising onto the phone, AdMob has built a custom system that treats the phone as a unique sort of device. The differences between Google and AdMob were more than academic; they sometimes led to flare-ups between two passionate competitors. (Kind of like Copeland and me.)

A couple of sparks actually flew at Fortune’s Brainstorm Tech conference this past July. During my “Future of Mobile” breakfast roundtable, Google engineering VP Vic Gundotra argued that Google’s approach to mobile ads was superior. Hamoui listened quietly before offering a rebuttal. But in the audience, under his breath, AdMob executive Jason Spero used some colorful language to inform his neighbors that Google was full of it.

Right after breakfast, Gundotra confronted Spero. A Google employee nearby had picked up Spero's comments on her audio recorder, he said — and he casually suggested that if the recording ended up online, it could make AdMob look pretty bad. The clear implication: Watch what you say about us.

Less than four months later, bygones are bygones. Google executives realized AdMob is better positioned in the must-win mobile market, and decided to pay up before AdMob gets even more expensive — or worse, gets acquired by Microsoft (MSFT) or Yahoo (YHOO).

Sure, you could look at this as evidence of a problem. You could argue that Google has an expensive habit of failing to build the best products in new markets like online video and mobile ads, and getting outsmarted by spry startups.

But here’s another take: Google knows how to pick its battles. CEO Eric Schmidt has openly declared that mobile advertising is a key piece of his growth strategy, with the potential to be as big as Google’s core PC-based business. If Schmidt believes that, it doesn’t matter that AdMob’s revenues are small today — what matters is that AdMob has the right people and the right technology to win in mobile.

A storied financier of startups expands — but its new businesses have yet to take root.

A year ago, when venture capital firm Sequoia Capital ordered its portfolio companies to slash costs in the face of a sick economy, even healthy businesses, such as LinkedIn and Zappos.com, complied.

As word of the edict spread, many non-Sequoia startups also trimmed their budgets — a testament to the venture firm's influence in Silicon Valley and beyond. In its 35 years in business Sequoia had nurtured the likes of Atari, Apple (AAPL), Cisco (CSCO), Yahoo (YHOO), and Google (GOOG). If it was bracing for the worst, the situation must be serious.

But just as Sequoia was commanding its upstarts to contract, the firm was plotting an ambitious expansion of its own. Throughout 2008 and into this year Sequoia tried entering entirely new businesses, hiring professional investors to build a hedge fund, as well as an asset-management group that would mimic the wealth-preservation approach popularized by major university endowments.

Sequoia has said little publicly about these new initiatives. Its preeminent partner, Michael Moritz, wouldn't comment. He has good reason to remain mum: Both the hedge fund and endowment-like offering are off to exceedingly slow starts. The new initiatives have failed to attract a sufficient number of outside investors or even retain their initial high-profile employees.

More ominously, a nagging question lurks behind Sequoia's entrepreneurial aspirations: What does it say about Sequoia's commitment to the venture capital industry it helped invent if its partners are busy plotting entry into two corners of the financial services world in which Sequoia hasn't the slightest bit of experience? In short, do Sequoia's imperial ambitions confirm the venture world's worst fears, that its best days are behind it?

Sequoia is hardly the only VC firm that is straying from its roots. Kleiner Perkins, which successfully seeded the public-private investment firm Integral Capital Partners nearly 20 years ago, has been busily focusing on "growth" and alternative-energy funds. New Enterprise Associates, a firm based in California and Baltimore, manages so many billions of dollars that it can't possibly be considered merely a VC operation anymore. Sequoia itself had already broadened its offerings geographically with funds in Israel, India, and China.

What's unique about Sequoia's latest foray is the aggressiveness with which it has been expanding beyond the strategy that made it great. Sequoia began business in 1972 as a spinoff of Capital Group, the legendary fund management group in Los Angeles.

And for almost three decades Sequoia stuck mainly with venture investments. Even as its renown grew, Sequoia remained relatively small and focused. It put money into small, risky tech companies, and the size of its venture funds remained in the $400 million range, far below what competing firms raised. But this approach limited the fees Sequoia partners could earn — and the firm's profit potential.

A few years ago, according to people in the know, Sequoia's partners — chiefly Moritz and the other most senior active partner, Doug Leone — became convinced Sequoia needed to do more if it was to survive well into the future. Venture had passed through a golden age of relatively easy "exits" in the form of ubiquitous public offerings or sales to major tech companies. What's more, the partners had accumulated immense wealth and weren't satisfied with the various professionals offering to manage their money.

In 2008 Sequoia made its move. It hired Michael Beckwith, a seasoned hedge fund manager from Maverick Capital, a Dallas-based money management firm, and Eric Upin, the chief investment officer of Stanford's endowment.

The plan was to raise two new pools of capital from Sequoia's network — endowment investors in Sequoia's venture funds, entrepreneurs whom Sequoia had helped become rich, and Sequoia's partners themselves.

Its pitch? Sequoia's existing funds would benefit from increased exposure to public-securities investments and the new clients recruited by the asset-management product, dubbed the Heritage Fund.

Sequoia's timing couldn't have been worse. Its expansion coincided with the worldwide financial meltdown — not a great time for a VC-turned-money-management-firm to raise funds. Without funds to manage, Beckwith and Upin left, the former back to his old firm and the latter to Makena Capital, an existing multibillion-dollar fund pursuing precisely the wealth-preservation strategy Sequoia coveted.

Sequoia hasn't given up on its dreams, say people close to the firm. But it has scaled back its ambitions. Earlier in the year the firm abandoned swank office space in downtown San Francisco that was intended to house the Heritage staff, subletting the offices to a law firm.

The performance of Sequoia's core business is a mixed bag. It has had some nice exits: Battery maker A123 Systems (AONE) went public in September and is now worth more than $2 billion. Earlier this year Zappos.com agreed to sell to Amazon.com (AMZN), and Cisco last year bought videocamera maker Pure Digital for $590 million. A potential home run is LinkedIn, whose investors have assigned it a billion-dollar valuation.

Yet in its most recent venture fund there isn't one investment with the trademark Sequoia buzz. Some look promising, like mobile ad firm AdMob and Sugar Publishing, a producer of web content for women.

Others are duds, including online media companies Imeem and Joost. Sequoia notably isn't invested in the hottest Internet companies of the moment, Facebook and Twitter, both of which seem, for now, to be gushers for their early venture backers.

True to form, Sequoia isn't panicking. In September it gathered a group of friendly entrepreneurs and investing partners to update them on the firm's progress. Moritz told the group that Sequoia remains committed to financing small, risky technology companies, with nary a mention of the new funds. Who would have thought Sequoia's chanciest venture would have been its own?

The state of the state? "A train wreck," says one official.

If the world’s eighth-largest economy were a member of the proper religious order, it’d be time to call in a priest to administer last rites.

Name almost any serious malady and the state of California has it: the nation’s highest marginal tax rate coupled with an abysmal public education system; the most home foreclosures; a free-falling commercial real estate sector; lame-duck governor with no legislative support and a disdain for an annual budget process that he refers to as kabuki theater; unemployment somewhere between the official number of 12% and the whisper number of 18%; a 20% drop in year-over-year revenue; municipalities that have either declared bankruptcy (Vallejo) or are on the verge (Los Angeles); and a black-box permitting process that scares away business investment even while every week, 3,000 more taxpayers migrate to greener pastures.

Californians may be a can-do lot, but faced with all that evidence and much more, the political and economic leaders who spoke at the Milken Institute’s annual “State of the State” conference held yesterday at the Beverly Hilton could hardly have been more dour. “It’s a train wreck, and it’s getting worse,” said Bill Lockyer, California State Treasurer. Added former Assembly speaker Bob Hertzberg, now co-chair of governance reform group California Forward, “A high-speed train wreck.”

What’s this got to do with technology? Nothing, unless you consider that California is home to the many of the biggest tech companies on the planet (and 51 members of the FORTUNE 500), the bulk of the venture capital industry, many leaders of green-tech, two of the most patent-producing universities in the world in Stanford and UC Berkeley, and top thinkers across all spectra.

“California represents 10% of the population of the United States,” said Eric McAfee, chairman of McAfee Capital and CEO of AE Biofuels. “but probably 50% of innovation.”

Tech into ploughshares?

Ironically, Silicon Valley has built the tools and infrastructure to allow talented people to work anywhere in the world they choose, and as the state circles the drain, the fear is that businesses, entrepreneurs, and students will no longer feel the pull of the Golden State.

From a political and budgetary perspective, California has myriad problems – from Proposition 13 to direct-democracy ballot initiatives to abysmal credit ratings. But the biggest problem may be girth. The state increasingly seems too big not to fail.

“States were never intended to be the size of the entire eastern seaboard,” said Hertzberg. “What is the commonality between the folks in Calexico and Crescent City? This manifests itself in a politboro style of government in Sacramaento.”

None of the speakers–including gubernatorial candidates Gavin Newsom and Steve Poizner–offered a magic bullet, but there was some consensus on where to start.

Many called for an adjustment to the mandate that 2/3 of the legislature must approve a budget or a repeal of term limits that seem to enslave legislatures to special interests.

Others craved less (or more, take your pick) taxes and a lessened (or at least consistent) regulatory structure. Chevron's (CVX) John Watson, who will assume the CEO role in January, said the permit process for an upgrade to the company's Richmond, California, refinery took four years while an Indian company built its own entire refinery in half the time.

Still others offered hope that things will somehow work themselves out–because California has been in the dumps before and that the state will continue to be a magnet for the brightest immigrants.

“The combination of great science and great local universities and venture capital money started not just Genentech in 1976, but an entire industry,” says former Genentech president and current UCSF chancellor Susan Desmond-Hellmann, showing a slide of California tech companies that were either founded by immigrants or where immigrants played key roles in the early days, including Yahoo (YHOO), Sun (JAVA) , eBay (EBAY), Intel (INTC), Google (GOOG), Viewsonic, SanDisk (SNDK), and Nvidia (NVDA). “There’s something special about California: the atmosphere, the diversity, a wish to be curious and ask questions. The secret sauce behind Genentech, the Googles, Yahoos, and Amgens is the combination of entrepreneurial spirit, great universities, and a willingess to marry business and science.”

Desmond-Hellman warned, however, that Genentech has remained a biotech powerhouse because it has never lost sight of where its power comes from. “We always believed that the company would be no better than the people we recruited and we keep," she said. "We never took for granted that people had to work at Genentech. They have choices.”

So do the 3,000 Californians leaving the state every week.

After the Vista debacle, Microsoft changed the way it makes software. The result – Windows 7 – is winning raves. Can a new operating system (and a new attitude) help the company take on Google?

With Microsoft's founder and chairman, Bill Gates, trotting the globe in a quest to abolish diseases, his handpicked successor, CEO Steve Ballmer, has had most of a decade to move the company beyond its two biggest cash cows, the Windows operating system and the Office productivity suite. So far, not so good.

The company's web forays, such as MSN, have only highlighted the dominance of Google and Yahoo. In software for smartphones, there is Apple, RIM (RIMM), and everybody else. MP3 players? Microsoft's Zune hardly merits a mention. And even the core franchise has suffered. In the face of slowing PC sales and the economic pall, Microsoft's fiscal 2009 revenue actually contracted, to $58.4 billion from more than $60 billion in fiscal 2008 — and the company missed its earnings estimate by more than $1 billion.

Fresh Coat of Paint: Artist Ricardo Richey, commissioned by Fortune, spray-paints a street-smartversion of Microsoft'sname and Window's logo on a San Francisco wall.

But the biggest failure under Ballmer's tenure was self-inflicted. Vista was meant to be a wholesale reimagining of Windows, the brand name for Microsoft's operating systems dating back to the early 1980s. Every so often the company unveils a new OS, blandly named for the year of the release (Windows 95, Windows 98) or a geeky abbreviation (Windows XP is short for Windows Experience). Vista had a marketing-friendly moniker, a fancy user interface, new security architecture, a better file-storage system, and much more.

After a protracted six-year development process, much internal squabbling, false starts, blown deadlines, and broken promises to partners, the engineering team mopped up 50 million lines of code, wrung it all out into a shrink-wrapped box, and heaved it onto the world in early 2007.

The timing couldn't have been worse. Vista required top-end hardware to operate even while users were downgrading from desktops to notebooks. The bloated OS was incompatible with printers, web cams, and device drivers of all sorts. Early adopters scurried back to Windows XP; many corporations skipped the upgrade altogether. Worst of all, Vista energized the cloud computing chorus, led by Google (GOOG), whose vision of the future involves ubiquitous broadband, a good web browser, and everything else hosted on the Internet. No sophisticated operating system necessary. "Vista was the biggest debacle in the history of the company," says one former senior executive. "People were ashamed to say they worked on it."

But here's some good news: On Oct. 22 Vista will be safely behind Microsoft (MSFT). On that day, the company will introduce a successor, Windows 7, and guess what? It doesn't suck. In fact, it's really pretty good. For all the pomp around each new version of the iPhone, the latest Kindle, or Google's next beta, Wave, Windows 7 is sure to go down as the technology launch of the year. Critics love it, and IT managers are ready to buy. A recent Credit Suisse survey says that a quarter of corporate customers plan to upgrade within two years. Analysts estimate that the new OS could boost Microsoft's revenue by more than $3 billion over that time and ignite the entire ecosystem built on Windows — from computer makers like Dell and Hewlett-Packard (HPQ) to third-party software vendors, resellers, and system supporters. It could be the shot in the arm the entire tech sector has been looking for.

On a warm September day in Redmond, Wash., sitting in a conference room in Building 34, the economic epicenter of the Northwest, Ballmer is not ready to declare the doldrums over. A stock market turnaround means little in the face of staggering unemployment. But he remains hopeful because he thinks this version of Windows is a winner. "It's a great product. We did our best. Is that going to cause huge increases in spending by the world's businesses? I can't make that promise," he says, "although I think things are becoming slightly less cautious. There's some hope that says, ‘Hey, look, maybe this is part of the turnaround.'"

Back from the abyss

It's just a hint of optimism from an executive who has been bearish on the economy of late, an indication that the mood is shifting at one of the most self-loathing, hypercritical corporate cultures you're ever likely to encounter. As bad as the Vista years have been, Microsoft seems to be getting its act together. The Wall Street collapse stunned the company, and management reacted with uncharacteristic alacrity. "There was a week or two where everything seemed to come to a stop," says CFO Chris Liddell, "and we said, 'We're going to have to operate in a different way.' "The company laid off 5,000 employees and instituted a "10-point plan" to cut wasteful spending, from vendor allotments to travel and entertainment.

Meanwhile, executives ramped up development cycles. This past summer the company kicked off, in its words, "a year of product launches unlike any other in Microsoft history." Since then, Ballmer et al. have revamped Windows Server and unveiled the Zune HD line of MP3 players. On the way: overhauls of Windows Mobile, Office, Internet Explorer, Xbox Live, Bing (its new search engine), and the introduction of Azure, a plunge into the enemy territory of cloud computing. Microsoft is also about to venture into retailing, an area conquered by longtime nemesis Apple (AAPL).

All this, says Bob Muglia, president of the server and tools division, is part of what he calls Microsoft v.3 — a play on the old saw that it takes the company three releases to get a product right. "In the Vista era, we lost track of a bunch of things," he says. "Now Windows 7 has shipped, and it's the official start of [a time of] mature leadership, competitive focus, aggressive competition — and I think you see the results. You could say it's us getting our mojo back."

If Steve Ballmer has one attribute of a great leader, it's an ability to inspire the troops — which is what he's about to do standing onstage in July at a convention center in downtown New Orleans. The Big Easy is broiling in a midsummer haze. The locals have cleared out, making way for the 5,000 Microsoft partners — resellers, builders, software developers — who have gathered at a conference organized in their honor. Ballmer is, naturally, the headline act. He's peeled off some pretty outlandish keynotes over the years, including "Steve Ballmer Going Crazy" (2 million views on You- Tube) — in which he huffs, "Come on, give it up for me!" — and the much-remixed "Developers" (1 million-plus views), where a heavier Ballmer performs a sweaty, arrhythmic stomp dance.

Today job one is to inject some optimism into the crowd. Ballmer had a tough year. He took a modest (for a man worth $11 billion) pay cut. But his small-business partners are reeling from the downturn. "This is the most phenomenal year we've ever had for technology releases," he rumbles, ticking off reasons to be hopeful about 2010. Microsoft vows to keep investing $9 billion-plus in R&D, it'll increase spending on partner support, and most of all it will keep fighting competitors — because, well, that's what the company does best. "We don't go home," he says. "We just keep coming and coming and coming. We're tenacious, tenacious, tenacious. Boom!"

That's not entirely true. Over the years the company has cowered at least a few times. It bailed on Microsoft Money (a personal finance product designed to oust Quicken), would-be YouTube killer Soapbox, the long-forgotten BOB operating system for kids, tablet PCs, web-enabled TVs, etc. But the company has surely disrupted many markets — from web browsers to console games — by offering a fresh perspective. "Novell said, ‘The world is about single purpose operating systems,' " explains Ballmer, back at Building 34."We had to say, ‘No, the world is really about multiple-purpose operating systems.' Lotus and WordPerfect said, ‘The world is character-based,' and we said, ‘No, let's try some graphics.' Apple said, ‘The world is a proprietary software-hardware combination,' and we said, ‘No, the world needs to be open to choice.'"

The enemy within

Such conquests, while dated, have earned the company a reputation for being obsessed with competitors — a characterization Ballmer does little to diminish. Unlike most executives of his ilk, he says what's on his mind, which can include calling Google a "house of cards" or referring to Linux as a "cancer that … attaches itself to everything it touches." He once laughed derisively on camera at the prospect of the iPhone ever succeeding. But in Microsoft's core business, there is no real competition. Various versions of Windows run more than 95% of all PCs. So when it came to preventing another Vista, Ballmer had to find the enemy within.

Windows 7 is a departure from Vista in many ways. It will be unveiled on time after a three-year development cycle. It's compatible with previous versions and has excised all the security-permissions protocols that were lampooned in Apple's "I'm a Mac" ad campaign. It's sharp-looking, almost as sleek as the Mac OS, and has a few cool new features, like support for multitouch monitors and Aero Shake, which allows users to clear the desktop with a jiggle of the mouse. Perhaps most impressively, it requires less computing horsepower than Vista. That just never happens with a new OS. But the biggest departure comes in scope and ambition. Ballmer claims to have learned something from Vista: It's no longer advisable to try a "big bang" rollout — i.e., completely reimagine a product as sophisticated and interconnected as Windows.

So he hit control-alt-delete. He brought in a new taskmaster, Steven Sinofsky, to oversee the engineering. Sinofsky became known for hitting deadlines while overseeing the Office group from 2000–07. An executive close to the Windows team characterizes his changes as such: "Reset — or reboot — is something that we hear a lot about the transition," he says. "What we did was [give] the development team a clarity that was probably missing." With Vista, teams worked on features simultaneously without an awareness of other schedules. When separate features came together, they were often incompatible. "The goal was to produce a plan for features, but not just a plan — also the motivation, the business rationale," the executive says.

Sinofsky oversaw the largest beta test in history — more than 8 million users — blogged tirelessly about every little tweak, and kept lines open with partners. The team scrubbed inefficiencies and ushered out a fully functional, backward-compatible OS on time, earning Sinofsky a promotion to president of the Windows division. The new openness has resonated in the marketplace. According to Credit Suisse, 58% of corporate customers were either dissatisfied or extremely dissatisfied with Vista. With Windows 7, it's 21% dissatisfied and none extremely dissatisfied. The PC makers seem happy too. "With Vista, the expectations were very high, and the customer reaction was not so positive," says Satjiv Chahil, senior VP of global marketing for HP's Personal Systems Group. "This time the response has been very positive. It's what the market has been waiting for." In the end Windows 7 is what Vista should have been the first time.

Software fades

With its house in order, Microsoft can safely get back to its imperialistic ways. And there's no bigger land grab than web search. Ballmer has pledged to fund his new search engine, Bing, with as much as 10% of operating income over the next five years (potentially $11 billion). Why do something so risky when he's lost so much online already? Because the opportunity is simply too big to ignore. Microsoft considers the global search market to be worth as much as $80 billion. And Ballmer recognizes that there's even more power than money in being the leader. Google.com is what Windows used to be: leverage. Controlling the on-ramp to the web allows a company to distribute a broad array of products, which is what Google does so effectively. "They promote YouTube, they promote Chrome," he says, referring to Google's web browser. "If it was us, people would call it an unfair advantage."

As the importance of client software diminishes, so too does Microsoft as we know it. Bing represents the company's best hope yet of maintaining its own unfair advantage. And Ballmer thinks that Google, despite its enormous market share, is vulnerable. "There are a lot of negative views right now of what's going on — Google Books, monopolization, blah, blah, blah," he says, simultaneously highlighting and waving away a growing anti- Google sentiment. "Put all that aside and you have to ask, ‘Has the experience really changed much? Is it easier to find what you're looking for? Is there a chance to do a better job?' I think there's a real opportunity to do that, and somebody had better seize it. Who's got the best shot?"

Microsoft launched Bing in May, and it confirms Muglia's assertion that the company has become more focused on customers. Rather than Google's minimalist homepage, Bing rotates stunning photos embedded with interesting snippets about various parts of the globe. Like Google, the site acts as a jumping-off point, but has just enough flair to make you want to linger. Visitors see more information than they do in Google results and can even play videos without clicking away. Bing is organized more intuitively, and it outperforms in real-time search — a big plus for the Twitter set.

Early returns have been promising. Before Bing, Microsoft's search engine, Live Search, had 8% of the market, according to ComScore. After three months Bing stands at 9.3%; meanwhile, Google's share has dropped 0.4%. Over the summer Microsoft struck a deal for Bing to power the search function across many Yahoo (YHOO) properties. Once the arrangement kicks in, Bing's share could jump to around 30%. "It's a pretty good start," says Yusuf Mehdi, SVP of Microsoft's online audience group. "Best of all, it's really hot with certain demographics, like elementary school children and women, because of the aesthetic design and feel."

Of course the hope is that greater traffic will lure advertisers. Craig Macdonald is the chief marketing officer at media-buying firm Covario. He spends $250 million a year on search ads for clients like McAfee, Intel (INTC), and Procter & Gamble. Impressed with Bing's aesthetic and buzz, he initially increased spending, but has been disappointed. "We saw a 15% to 20% increase in impressions but a 39% spike in the cost of acquisition," he says. Compared with Live Search traffic, driven primarily from the MSN homepage, Bing users are younger, more web-savvy, and frugal. "They did a nice job creating buzz, but we said, ‘We're pulling back.' "

Microsoft may yet benefit from the anti-Google sentiment that Ballmer calls out. No one likes a monopoly, and everyone's favorite web brand has become a freeloader in the eyes of the telecom, book, and media industries. Some of Google's partners have grown disenchanted as well. "With Google, everything's a black box, completely opaque. You have no idea why things go up or down. They're impossible to deal with," says the president of a website that each year generates more than $10 million hosting Google AdSense ads. "Everyone who's not Google is rooting for someone to be a counterweight."

It's not obvious from walking around the company's sprawling campus that Microsoft is locked in combat with some of the business world's most ferocious competitors. There's little resemblance here to the 24/7 sleep-under-the-desk startup culture that permeates Silicon Valley. Many executives are tanned and fit from weekend sails on Puget Sound, hiking up Mount Rainier, golfing, or exploring Machu Picchu. People arrive promptly to meetings, smile broadly, and are exceedingly polite. If quality of life were the most important metric for a recent grad deciding between Redmond and Redwood City, there really would be no choice.

The Valley set sees this as a sign of age and weakness. "They're the IBM of this generation," says Tod Nielsen, chief operating officer of virtualization software company VMware, who worked at Microsoft for 12 years and now competes with his former employer. "They're profitable and successful, but there's not a lot of excitement. It used to be the velvet sweatshop. Now it's all about 9 to 5, 10 to 5 if you're good, and 10 to 4 if you're really good."

Some ex-employees and analysts, none of whom spoke for attribution, agree that the company remains hugely inefficient and lacks vision. They also question whether Ballmer is up to the task of taking on Google, Apple, VMware, and so many other laser-focused competitors. "If shareholders could vote, I don't think they'd pick Steve," says a former vice president who claims to have left Microsoft on good terms. "It's the whole 'dances with elephants' thing, and I don't think Steve can be Gerstner," he adds, referring to Lou Gerstner's book "Who Says Elephants Can't Dance?", in which he details how he rescued IBM (IBM).

It's an easy analogy — the old IBM and the current Microsoft both bulked up in a bygone era. But pre-Gerstner, IBM was on the brink. Its finance team held weekly meetings to see whether the company could cover payroll. With $15 billion in annual net income, Microsoft, on the other hand, is a cash machine. Even the great Vista failure must be viewed with perspective: It runs 350 million PCs. Analysts expect the Windows division to turn an $11 billion profit in fiscal 2010. And really, that's Ballmer's unfair advantage. The profits rolling off Windows and Office subsidize any lack of vision and allow the company to go the safer, more expensive route of chasing down Goliaths after new markets have solidified.

In search, Microsoft is confronting a Goliath with arguably as much market power. (Google has a $158 billion market cap, vs. Microsoft's $230 billion.) Google's new Chrome browser could prove a significant threat to Internet Explorer, which has already been encroached upon by Mozilla's Firefox. Gmail is making headway with businesses in the battle against Exchange, not to mention consumers. Google Docs has spurred Microsoft to make parts of Office available online free in coming months. And then there's Google's Android OS for mobile phones. Launched in 2007, Android will operate more than two dozen heavily hyped phones by 2010, including T-Mobile's MyTouch.

The battle between these two titans isn't just about bragging rights or short-term profit. As our computing activity moves increasingly off our PCs into our phones, onto the web, and all around us, the most platform-agnostic company will rule. That presents Microsoft with a classic innovator's dilemma: It must diminish, or at least ignore, its prior success to secure a place in the future.

Which is why Google executives like their position in this fight. "They are a very large incumbent in an area that's shifting toward a new technology — cloud computing," says Dave Girouard, president of enterprise for Google. "We are a company that was born of the cloud, and we don't have to deal with the legacy issues they have to deal with."

A year ago it would have been easy to agree with Girouard and skeptics who dismiss Microsoft as a sluggish incumbent. But the Windows 7 reboot has reinvigorated the company. In November it will launch Azure, a platform for building applications that are delivered via the Internet; as with Windows 7, potential users seem optimistic. For a change, Microsoft is even getting under Google's skin: Google's Chrome OS basically looks like a PR ploy designed to drive Ballmer nuts.

Whether the company circa 2009 truly represents Microsoft v.3, as Muglia suggests — the version in which Redmond gets things right — Vista is a turning point. It will be remembered either as a harbinger of a bloated company in decline, or it will be the wake-up call that prompted Ballmer and his team to set down a new path. Of course it will be years before we know how the Microsoft story, post-Vista, will play out. As Ballmer himself will tell you, "Plenty of people say everything in tech takes off or fails quickly. There's nothing more laughable than that."

–Reporter Associate, Kim Thai

Shaw is the latest non-technologist to ascend at Intel. Photo: Intel.

Who rules techland? Increasingly, it isn't the inmates.

In May, when Craig Barrett retired as chairman of Intel (INTC), the choice of his replacement marked a momentous occasion for the granddaddy of the semiconductor industry.

That Jane Shaw became nonexecutive chairman of Intel is a big deal, but not because she is Intel's first outsider to chair the board or because she is the first woman.

What makes her role noteworthy is that she is the first non-technologist in that seat. Yes, she has a science background, with a doctorate in physiology and a career in the pharmaceutical industry. But she's not a technologist in the Silicon Valley sense.

Considering that Intel's CEO, Paul Otellini, is the first non-technologist to run the company (see my 2005 profile of him) and that his most likely successor, Sean Maloney, isn't a silicon guy either, it's a remarkable turnabout.

Revenge of the anti-nerds

Now, this isn't a piece about Intel, though it could be.  Shaw is perfectly well qualified to be Intel's chairman, having served on the board — loaded with academics, retired government officials and three corporate types, not one of whom has a commercial semiconductor background — for 16 years. (She shows up in Brent Schlender's 2004 take on how Andy Grove was trying to re-make Intel's board and himself.)

The point is that Intel's experience represents one of the quietest yet fiercest battles going on across the Valley: the technologists versus the business people.

Time after time I come across people in the Valley who want to talk about this, most of whom are technologists bemoaning their loss of power. Hewlett-Packard (HPQ) hasn't had a gearhead at the helm for years. Yahoo (YHOO) ditched its engineer/founder/CEO who missed key turns in the Internet industry. Google (GOOG), firmly run by engineers, struggles to retain its top business talent because they know they can't move up.

Most careful Apple (AAPL) and Oracle (ORCL) watchers dread the day when their tech-savvy CEOs no longer are around to work their innovative magic.

Growing up, or selling out?

The company that seems to be biggest exception is Cisco, (CSCO) where salesman-in-chief John Chambers has skillfully guided the company for years.

Cisco, however, isn't lauded for its innovation. It is known for superior execution, deft acquisitions and a clear understanding of market opportunities — not the sorts of things that makes the hearts of engineers go pitter-patter.

The charitable explanation for all this is that Silicon Valley is becoming mature. It has grown up into  a real industry, not a frontier collection of maverick companies, and its leaders approach their tasks in an industrial fashion.

The less cheerful interpretation is that the glory days are gone, that Silicon Valley is little more than a bunch of careerists and, worse, venture capitalists.

The truth probably lies somewhere in the middle: Yes, Silicon Valley has become a destination for new MBAs who see the tech biz as a money-making opportunity rather than a passion to pursue. But the Valley will continue to produce interesting new companies – founded by whip-smart engineers and technologists.

If those founders want their companies to evolve into the next Intel, they're probably going to need a few of those spreadsheet jockies to help them get there.

Apple (AAPL) is up, as are Google (GOOG), Amazon (AMZN) and to a lesser extent Research in Motion's (RIMM) BlackBerry.

Microsoft (MSFT), Dell (DELL) and Yahoo (YHOO) are down.

Such are the high-tech highlights of the 2009 edition of Interbrand's annual listing of the top 100 "best global brands."

Google (up 25%) is the big winner, followed closely by Amazon (up 22%). Dell (down 12%) was the biggest loser.

Apple, whose name is now valued by Interbrand at $15.443 billion, up $1.6 billion (12%) from last year, jumped four places to break into the top 20 for the first time.

"The recession won’t take a bite out of this Apple," wrote Interbrand, employing a metaphor that's not exactly brand new. "Declining Mac sales and fears for the company’s future without brand visionary Steve Jobs, were outweighed by record high iPod sales, doubling sales for the iPod Touch, and all-time high market share for Mac OS software. Price might be a barrier for cost-conscious consumers, but Apple responded quickly with high margin, low-priced products like the US $99 iPhone and a new, voice-activated iPod Shuffle."

Below the fold: The tech results in bar graph form.

Source: Interbrand

Interbrand, a division of Omnicom (OMC), is a consulting firm that has been estimating the value of the biggest brand names for 20 years. For a description of their methodology, click here.

The Yahoo CEO offers candid views on life post-retirement — and dealing with activist shareholders

Bartz has no regrets about joining Yahoo. Photo: Yahoo

At Fortune's Most Powerful Women conference in Carlsbad, Calif., Yahoo (YHOO) CEO Carol Bartz didn't talk much tech but didn't disappoint.

In characteristically blunt language that was peppered with not-quite-explicit words like "friggin' " and "damn" (she declined to talk about the way she talks, telling interviewer Andy Serwer: "I don't think it's that interesting, personally") Bartz recalled her her nearly nine-month tenure at one of the Internet's pioneering brands.

She ticked off the questions her friends asked her when she made the decision to come out of retirement (she was CEO of Autodesk (ADSK) for 14 years) to take the helm at struggling Yahoo.

Why are you coming back? Why Yahoo? What are going to to do about Microsoft (MSFT) and search and what are you going to do about Carl? (Ichan had gained a board seat at Yahoo and had been agitating for change.) "My friends said, 'are you friggin' crazy?'"

She answered all four questions for the 300-plus women assembled at the Four Seasons Aviara.

Flunking retirement

On coming back, Bartz admits she was a failure as a retiree. She grew restless playing golf and vacationing in Hawaii. Cocktail hour moved from 6 p.m. to 4 p.m.

On taking on the Yahoo challenge: "I can actually do this and have fun." She acknowledges she wasn't prepared for the scrutiny the consumer-facing company receives, but she told the audience that accepting the post "was the best thing I've ever done other than having my daughter, who was 21 yesterday."

Carol and Steve and Carl

On search, Bartz elaborated on the deal she struck in July with Microsoft CEO Steve Ballmer  whereby the software giant will power Yahoo search, and Yahoo's sales force will manage relationships for both companies' premium search advertisers.

Bartz says Yahoo isn't ceding its ability to create a unique search experience for its customers. She maintains the company can enhance the search engine provided by Microsoft; it will free up Yahoo to do "what we do best, which is great content and great user experience."

As for Icahn, Bartz was diplomatic, perhaps surprisingly so. "He's a very smart man who has a dominant point of view on things," she says. "If you listen, really really listen, you can have a relationship.

"For a shareholder to come in and be that interested there is some inherent truth to why they're there. "

She did reveal that Icahn can be quite persistent. "That man can call about 12 times a day," she deadpanned. "He's totally capable (of that). "

Social networking site elbows in on LinkedIn's job-finding franchise.

When it comes to finding a new job, they say it’s all about who you know. With the rise of online social networks that has never been truer.

Today, 42% of adults in the U.S. with Internet access maintain a profile on a social networking site, up from 20% in 2007, according to Forrester Research. And in an economy where almost one-tenth of the population is unemployed, more job-seekers are likely to look for opportunities online.

Meanwhile existing members of social networks may take the time to fill in more of their job history in their profiles.

Recruiters have been scouring professionally-oriented social network LinkedIn for qualified candidates for years now. More than 40% of Fortune 100 companies pay to use the site to find talent among its 46 million members.

But social networks are still evolving as places to hire and be hired, and Facebook, with its 250 million members, is gaining ground.

Unlike its more career-focused competitor, Facebook offers members profiles that tend to reflect their whole life. In the past that deterred many who were concerned an incriminating photo or wall post might be discovered by a potential new boss.

Professional and personal lines blurring

That fear is going away as people become more comfortable sharing their lives online, sometimes even blending their personal and professional personas. Some users take advantage of Facebook’s privacy settings to edit the information they present to professional contacts.

More importantly, Facebook is gaining credibility as a tool for recruiters and human resources professionals, the very folks who've been avid fans of LinkedIn. For one thing, Facebook seems to cast a wider net and provide recruiters with more references – and more outlets to spread the news about a job opening. Facebook users have an average of 120 friends. While LinkedIn won’t release this statistic for its members, recruiters say the average number of connections likely is smaller because of the site’s narrower scope.

The types of relationships and contacts found in a personal network versus a professional one are also assumed to be more authentic and less transactional, and therefore more desirable to marketers. And while Facebook members now span all ages and demographics, the average age of its users is 31, compared to 41-years-old for LinkedIn.

These are aspects that attracted technology company EMC (EMC) to Facebook. “Many college grads aren’t on LinkedIn,” says Polly Pearson, VP of employment brand and strategy engagement at EMC. “We’re going where target market is—that’s why we’re on Facebook.”

Reaching recent college grads

As a business-to-business lacking strong consumer awareness, EMC relies on its Facebook page to build its reputation as a great place to work. It’s still too early to judge the success of EMC’s foray into social networking—the page only has 745 fans—but Pearson says the company has made hires through social networks and is more focused on starting a dialogue with potential employees.

“We have to have a huge pipeline,” explains Pearson. “A company can have a website all day long but there’s a lot more people hanging out on Facebook than on our website.”

As a technology company, EMC took a DIY approach to Facebook. But companies like the Pepsi Bottling Group (PBG), Harley Davidson (HOG) and Bally Fitness rely on CareerBuilder to develop a presence on social networks. The career site consults with 250 clients, helping them build Facebook community pages that incorporate job listings, blogs about applying for positions and discussions among candidates and employees.

“Companies are always initially afraid,” says CareerBuilder chief marketing officer Richard Castellini. “We’re trying to help them understand that by giving up control you’re still going to get benefits in terms of deeper and wider conversations.”

While active job seekers might visit the Facebook pages of companies they're interested in, Facebook also enables companies to reach target candidates who might not be looking. This more recent advance is made possible by Facebook Connect, a feature that enables websites and applications to access information in a user’s profile (with their permission).

Two Silicon Valley start-ups are deploying the feature to help companies encourage their employees to refer friends for open positions. Internal referral candidates are the most appealing to human resources departments since they are less expensive to find and tend to be the best fit for a position, meaning less turnover.

San Francisco-based Jobvite manages the entire hiring process for its customers, which include Tivo (TIVO), Mattson (MTSN) and Mozilla. The firm, which announced an additional $8.25 million in funding yesterday from ATA Ventures and CMEA Capital on top of an initial $7.2 million investment from CMEA in 2007, operates a “software as a service,” or SAAS, platform. Clients simply subscribe the service on a monthly basis, rather than paying to have the software installed on their own servers.

The name Jobvite originally referred to a feature that enabled clients’ employees to use Outlook to generate invitations to apply for jobs at their company. But that required employees to sift through their contacts themselves, assuming they even used Outlook as their source for email addresses.

In February the company created an application that used Facebook Connect to allow employees to send job invitations via Facebook. The app will even search the profiles of the employee’s Facebook friends to see who might make a good match for the job. The invite can then also be forwarded on to friends outside the original employee’s network. (The invite feature is also available for LinkedIn.)

“We help companies scale how they hire people through networks,” says Jobvite CEO Dan Finnigan, who spent five years at Yahoo's (YHOO) HotJobs unit prior to joining the start-up last year.

Appirio in San Mateo offers a similar invite feature as software-as-a-service, but only for customers of Salesforce.com (CRM). The firm, which is backed by Salesforce, Sequoia Capital and GGV Capital, offers applications that manage referrals in social networks, whether for hiring purposes or a marketing campaign. All the data is sent back to Salesforce for analysis and tracking.

If you’re fortunate enough to have a job right now, especially one you love, all of this may not seem especially relevant to you. But at some point in your career, you could simply be posting a status update when your next job comes looking for you.

Microsoft, Yahoo and others band against Google – using familar tactics.

By Jia Lynn Yang, writer

With its friendly, helpful image and total dominance in search, Google (GOOG) makes it all look so easy. Meanwhile its enemies are just sweating harder to take it down.

There are reports today  that Microsoft (MSFT), Yahoo (YHOO), Amazon (AMZN) and others are banding together to block a settlement Google made last fall with authors and publishers for its Book Search service—the same settlement that’s being scrutinized by the antitrust cops over at the Justice Department.

The Open Book Alliance, as the coalition is called, is simply the latest chapter in a war against Google that’s increasingly being fought in DC rather than California.

Witness what happened last fall when Google tried to seal a search advertising deal with Yahoo. For months, Microsoft campaigned mightily to block the deal by convincing the Senate Antitrust Committee to hold hearings and by enlisting the support of advertisers. In the end, the DOJ decided to file an antitrust case, and Google hastily pulled out of the deal.

And it’s not just Microsoft going toe to toe with Google in DC. Google’s widening reach has only lengthened its list of nemeses. Telco and cable companies don’t like Google’s support for net neutrality, a principle that broadly would prevent internet service providers from favoring certain web sites, no matter how much or what kind of data was being streamed. The telcos say that while they’re building out expensive broadband networks, Google gets a free ride.

Google also ran into opposition in DC recently when it tried to convince the Federal Communications Commission to allow unlicensed “white space” spectrum to be used for wireless broadband. The National Association of Broadcasters didn’t like that effort either. Google’s stance seems to be that its competitors are just fearful of fighting fair and square.

“The Google Books settlement is injecting more competition into the digital books space, so it’s understandable why our competitors might fight hard to prevent more competition,” says Gabriel Stricker, Google spokesperson, in a statement. And it’s not just Google’s search dominance that will be hard for Microsoft et al to topple. The company also boasts the world’s top brand, according to the market research firm Millward Brown—-meaning it’s an uphill battle for Google’s enemies to put a dent in the company’s glowing, benevolent image.

That’s not stopping them from going for the jugular though. In Washington, the knives are out.