Beyond Binary

Microsoft's latest effort to get people to use its search service is something called SearchPerks, which gives people points for using the search engine that can later be redeemed for prizes.

Users who agree to download a small program to track their usage get one "ticket" per day for every Live Search query, up to 25 per day. The program runs through April, at which point users can "cash in" the tickets that they get and trade them in for prizes or donate them to a charity.

It's the latest in a series of financial incentive-related projects from Redmond, joining such efforts as Live Search Club, Search and Give, and Live Search Cashback, a program Microsoft introduced in May.

The latest project doesn't just require one to use Microsoft's search engine, however. At least for now, it also requires Microsoft's browser (Internet Explorer 6.0 or higher) as well as a Windows PC. Microsoft said those latter restrictions are not necessarily permanent.

"At this time, SearchPerks is a limited promotion, though we remain open to expending availability of the promotion to different browsers and operating systems based on consumer interest," Microsoft said.

There's also the broader question of what it says about Live Search overall that Microsoft has to keep coming up with gimmicks to get people to try it. Not to mention the fact that Microsoft has continued to struggle to make inroads on Google in overall share, promotions notwithstanding. According to figures recently released by ComScore, Google increased its share of the U.S. search market in August--it's at 63 percent--while Yahoo and Microsoft both slipped a bit, to 19.6 percent and 8.3 percent respectively.

In an interview, Live Search Senior Director Frederick Savoye said that the new business models, as Microsoft likes to refer to these programs, are just one part of a three-prong strategy that includes continued improvements in core search as well as in vertical search, or "simplifying key tasks" in Microsoft parlance.

Microsoft has seen mixed results with its incentive programs. Live Search Club, for example, gave Microsoft an initial boost, but its gains appear to be directly tied to its level of incentives. With Live Search Cashback, Microsoft said it has seen some advertisers boost their Live Search spend. eBay, in particular, is spending 50 percent more on Live Search thanks to Cashback, which Microsoft says offers significantly higher conversion rates than traditional search.

I'm going to try to briefly accomplish in a few paragraphs what it seems to me our government has completely failed to do in this financial crisis.

No, I don't have $700 billion of my own to shell out. But to me, Congress' failure came not today on the House floor, but over the past week as both elected officials and members of the administration failed to translate the crisis into terms that have meaning for everyday Americans.

I've heard the phrases "Main Street" and "Wall Street" a lot, but what I haven't heard is plain explanations of what credit really means and how essential it is to our system of doing business.

Here goes.

If the credit markets should freeze up--which many say is happening and will continue without massive intervention--everyone that borrows money will face a cash crunch. That means companies that take advantage of short-term loans to get by won't be able to buy raw materials or make payroll. Even businesses that don't need short-term capital may defer purchases to preserve capital.

If even banks are having a hard time getting money, what does that say for the small and midsize business? The Wall Street Journal had a story on Monday on how companies like McDonald's may face a squeeze as their franchisees are unable to get loans to purchase or upgrade stores. I suspect that is just one visible example of a growing issue for businesses across the country.

We are stuck trying to move forward with new loans--essentially to keep the economy moving--while dealing with clearly bad ones of the past. While much of the attention has focused on concern over home loans, there are also construction loans and business loans that are at risk of default, risks that grow as those businesses find themselves essentially shut off from getting any new capital, extending the vicious circle.

You don't have to take it from me.

Here's C.H. Low, CEO of social-networking software start-up Orbius and a serial entrepreneur.

"When financial markets don't function well, the ramification is broad," he said in an e-mail interview on Monday. He said he is disappointed that the bailout is so misunderstood. Even the term bailout, he said, is a misnomer.

"This is an asset purchase, not a 100 percent bailout expense to taxpayer," he said. "There is risk but also possibility of making a profit. Government's main function is to do things that private sector cannot handle. This Market Stabilization Bill...is as necessary as having an Armed Forces to defend the country."

Low noted that the main beneficiary is not Wall Street.

Following the massive Wall Street sell-off, Microsoft on Monday called on Congress to revisit its bailout decision, saying government action is "vitally important."

"Microsoft strongly urges members of the U.S. House of Representatives to reconsider and to support legislation that will re-instill confidence and stability in the financial markets," general counsel Brad Smith said in a statement. "This legislation is vitally important to the health and preservation of jobs in all sectors of the economy of Washington State and the nation, and we urge Congress to act swiftly."

The move follows the largest one-day point decline ever for the Dow Jones Industrial Average, a drop of 777.68 points or almost 7 percent. Microsoft shares, which had held to a less-than-5-percent drop for much of the day Monday, closed at $25.01, down $2.39 or more than 8.7 percent.

The House voted down the $700 billion bailout plan by a vote of 228 to 205, with 133 Republicans and 95 Democrats casting "no" votes.

Congressional leaders of both parties proceeded to blame one another for the bill's failure on Monday, with minority leader John Boehner (R-Ohio) blaming a partisan speech from House Speaker Nancy Pelosi, while Pelosi (D-Calif.) insisted that Democrats held up their end of the deal.

This post was updated several times throughout the afternoon with more details and comments, and to reflect market changes.

The Dow Jones Industrial Average closed down 777.68 points Monday after the House of Representatives voted against a financial industry bail-out bill. (Click to enlarge.)

(Credit: Yahoo Finance)

Shares of technology companies took a beating on Monday as the House of Representatives failed to pass a bailout plan for the financial sector.

The House voted down the $700 billion plan, 228 to 205, with two-thirds of Republicans and a significant number of Democrats casting "no" votes.

When the dust settled at the end of the trading day on Monday, the Dow Jones index was down more than 777.68, a record point decline, with the index down nearly 7 percent from Friday. The CNET Tech index closed Monday at 1375.64, a one-day drop of more than 107 points, or nearly 7.25 percent.

The S&P 500 Index dropped 106.46 points, or 8.8 percent, to close at 1,106.55, while the tech-heavy Nasdaq Composite Index dropped 199.61 points, or more than 9 percent, to close at 1,983.73--the first time it dipped below 2,000 since 2005.

Among the hardest hit individual stocks was Apple, which also was hit with a pair of analyst downgrades. Shares of the Mac and iPhone maker closed at $105.26, down $22.98 or almost 18 percent. Also hard-hit were the stocks of chipmaker AMD, which was down nearly 17 percent percent, while Google dropped more than 11 percent to close at $381.

Bellwethers such as Hewlett-Packard, Intel, and Microsoft were all off more than 5 percent. One of the narrowest percentage losses was IBM, which was still off more than 4 percent, to $114.46

Longtime technology analyst Ashok Kumar, of brokerage Collins Stewart, said the macroeconomic concerns will weigh heavily on the technology industry, which is still perceived as a discretionary expenditure for both consumers and businesses.

"Until these clouds clear everybody is going to be in a bunker mentality," he said. "The hope is that six months out or nine months out the clouds have cleared.... but near term obviously the outlook is extremely cloudly."

Popular sentiment on Wall Street, he said, is that the government's inaction amounts to "rearranging the deck chairs on the Titanic."

Microsoft, Google, Intel and Yahoo representatives all declined to comment on the market plunge. An Apple representative was not immediately available for comment.

Members of Congress left Monday without scheduling any sort of re-vote, as many aides and lawmakers headed out early for the Jewish New Year, which begins at sundown. A revised bill or new vote could come later in the week, pundits said.

With no bill to tout, Congressional leaders shifted to the blame game. Minority leader John Boehner, the Ohio Republican, expressed frustration that the bill didn't pass, but shifted blame to the Democrats.

"Congress has failed to act," Boehner said. "I do believe that we could have gotten there today, had it not been for the partisan speech that the speaker (Nancy Pelosi) gave today."

Democrats, meanwhile, blamed Republicans.

"The administration impressed upon us the seriousness of (this crisis)," House speaker Nancy Pelosi told reporters. "We delivered on our side of the bargain. Clearly that message has not been received yet by the Republican caucus."

Pelosi, a California Democrat, said she will try and reach out to Republicans to resolve the issue.

"Where we go from here is we still have those concerns about everyday Americans," Pelosi said, referring to the reach of the credit crisis. "We want to insulate them from that. We want to protect them from that."

In a televised statement, President George W. Bush said that he was "very disappointed" in the failure of Congress to pass a bill. "We'll be working to develop a strategy that will enable us to continue to move forward," he said.

U.S. Treasury Secretary Henry Paulson later touted the bailout plan he worked on with congressional leaders as one that "gave us the tools we needed to protect the American people." He further expressed his commitment to coming up with some sort of rescue plan that works, "as soon as possible."

"We've got much to do, and this is simply too important to simply let fail," he said.

CNET News' Stephen Shankland and Daniel Terdiman contributed to this report.

The tech-heavy Nasdaq Composite Index dropped 199.61 points, or more than 9 percent, to close at 1,983.73--the first time it dipped below 2,000 since 2005.

Updated 9:56 a.m. PDT: Added screen shot and a link to Microsoft's Visual Studio 2010 page.

Airplanes are equipped with recorders that capture both cockpit audio and flight data, so in the event that something goes wrong, investigators can try to determine the source of the problem.

Microsoft is aiming to give software developers the same kind of access. In the next version of its developer tool suite, to be known as Visual Studio 2010, Microsoft plans to include the ability to record the full screens of what testers are seeing, as well as data about their machine. When a test application crashes, the technology will enable developers to see the bug as it occurred.

In an interview last week, Microsoft Developer Division Director Dave Mendlen said the feature is designed to avoid the all-to-frequent conflict that occurs when a software tester finds a bug that the developer says it can't reproduce. Internally, the feature has been called "TiVo for debuggers."

Visual Studio Team System 2010 will offer tools for managing test cases and execution, and will boost support for filing actionable bugs.

(Credit: Microsoft)

A service outage Monday means Zune customers could see this error message for up to 48 hours if they try to connect to the Zune's online store. Microsoft said the outage is for "scheduled maintenance", but declined to say what accounted for the extended time frame.

(Credit: Ina Fried/CNET News)

Microsoft warned Zune owners on Friday to prepare for an extended service outage starting Monday.

In an e-mail sent at 5:30 p.m. Friday, Microsoft warned that the outage could last for "up to 48 hours." The e-mail said the outage, which begins at 12:01 a.m. PDT on Monday, is for "scheduled maintenance."

A Microsoft representative would not offer more specifics or say why the outage was for such a long period of time. During the outage, the Zune Social, the Zune.Net forums as well as the Zune Marketplace online store will all be offline, Microsoft said. While the Zune devices themselves won't stop working, many of its features are heavily tied to the service, including its Zune Pass subscription service, new channels feature as well as the ability to stream music over the Internet at certain Wi-Fi hot spots.

"We apologize for any inconvenience this might cause you," Microsoft said. "Please check back soon. We look forward to sharing our picks, plays and recommendations with you."

The outage comes less than two weeks after Microsoft launched the latest version of its player, service and online store.

Update: A Microsoft representative confirmed Friday evening that the "downtime is not related to any security concerns or issues. The company did not immediately say whether it planned to offer any type of credit to Zune Pass subscribers because of the outage.

One of the topics I didn't get a chance to write about during last night's Churchill Club speech was Steve Ballmer's comments on virtualization.

Here's a ZDNet video with Ballmer talking about Microsoft's "opportunity to democratize virtualization."

For those who want to skip to the money quote, here it is:

"If you want virtualization on 80 percent of servers instead of 5 percent of servers, you better not charge three times as much as the price of the server for the virtualization," Ballmer said. "For certain high-end applications, the approach that VMware has used is a perfectly good approach, but it's not an approach that is going to lead to virtualization of a high percentage of servers."

ZDNet posted other videos as well, including Ballmer on the economy and on competition with Google.

SANTA CLARA, Calif.--Microsoft is, indeed, working on an iPhone application.

One of the big challenges in bringing the Tellme search application to the iPhone: the lack of physical buttons on the device.

(Credit: Microsoft)

As I predicted, it is the company's Tellme unit that is actively developing a program for Apple's iPhone. Tellme offers voice-activated search for a variety of phones, including the BlackBerry.

Although the company created an early alpha program in a matter of weeks, senior director Dariusz Paczuski said it will probably be a couple of months before a public version is ready. He said it will definitely happen within the current fiscal year, which runs through June.

"I'm not sure we can squeeze it out this year, given everything we've got going on," Paczuski told me at last night's Churchill Club event.

With that time frame, it is possible some other Microsoft division could beat Tellme out of the gate, although I haven't heard any other firm plans. (Microsoft did license its ActiveSync technology to Apple, which allows the iPhone to connect to an Exchange server.)

The iPhone does present some interesting challenges. One of its big features is the fact that everything is done via a touch screen. But Tellme relies on a physical button to determine when to start listening to a query.

"You want a button," Paczuski said. Even on Sprint's touch-screen Instinct, Tellme is able to use the call button to determine when a user is speaking. He said that when the iPhone application launches, there will probably be a big virtual button in the middle of the screen.

SANTA CLARA, Calif.--Microsoft CEO Steve Ballmer said his company may be the only one with a chance to rival Google in search over the long term, but acknowledged that it will take several more years and a whole lot of money.

Microsoft CEO Steve Ballmer

"It's going to take us a while," he said, during a speech at the Churchill Club. "We've got a lot to do."

Venture Capitalist Ann Winblad, who was moderating the talk with Ballmer, noted that when Ballmer addressed the club in 2006, he said search was a five-year battle.

"It's a five-year task," he said, with a smile. "It's a long-term task."

To succeed, he said, the company will have to find a way to fundamentally change the experience and the economics of search. "You have to redefine the category," Ballmer said. "We've taken some steps in that direction."

"You don't really brute force your way into any market," he said. (I looked around, but I didn't see anyone choke on their water over that one.)

On the antitrust front, Winblad asked Ballmer if he had any advice for Google's executives. "I'd probably keep that advice to myself," he said.

He also stayed silent on several other topics, such as a question about "Red Dog," the company's rumored competitor to Amazon's EC2. He did promise Microsoft would have much more to say in six weeks at the company's Professional Developer Conference in Los Angeles.

He did say that Red Dog and other cloud computing efforts are key to winning the battle for developers, particularly Web developers.

"I think at the end of the day, cloud computing will be dictated by the interests and the degree to which you capture the imagination of developers," Ballmer said.

On other topics:

The Seinfeld-Gates ads: "It was a two-week campaign but man did it get people talking for more than two weeks," Ballmer said.

The phone business: In five to ten years, Ballmer said all of the one billion cell phones sold a year will be smartphones. He said that means that software and hardware are likely to separate, at least in the mass market. He said of the players in that area--Windows Mobile, Symbian, Linux mobile and Android--Microsoft's is the most mature.

He said RIM and Apple may have nice and profitable businesses, but they are likely to be niches. "We're kind of battling for the big part," Ballmer said. "That doesn't mean Apple and RIM wont make lots of money."

On Windows-related headaches: "Every version of Windows statistically... gets better than versions before," he said. "I'm not saying that we are there yet."

With Vista, Ballmer said Microsoft made a choice, right or wrong, to change some things that caused compatibility issues in the name of security.

He said that it would be easier if Microsoft was trying to build a fixed-function device rather than an open, general-purpose platform. Still, he said, the goal is a system that everyone likes. "Every day we've got 5,000 people...that come to work just focused on that single challenge."

SANTA CLARA, Calif.--Microsoft chief executive Steve Ballmer said Thursday that it remains to be seen how much the current economic crisis affects the technology industry.

"Our industry is not immune to what goes on in the global economy and yet as I travel and talk...I would say given the current circumstances, people see a certain buoyancy (in technology)," Ballmer said.

That, he said, comes from a variety of factors--the fact that consumer spending has not yet been harder hit and the fact that things globally aren't as severe as they have been in the U.S.

"At least for now, people that I talk to in our business (are), I wouldn't say optimistic, but better than you would feel if you watch CNBC all day," he said. (He made it clear that he wasn't speaking to Microsoft's specific results, noting that the company is in the last week of its quarter and thus in a quiet period.)

Ballmer's comments came at the start of a conversation with Hummer Winblad founder Ann Winblad at Silicon Valley's Churchill Club.

Such appearances have been frequent for Microsoft's CEO in recent years. Ballmer hasn't hesitated to take on the local names, either: in remarks following a 2006 Churchill Club appearance, he chastised Google for its demands over browser search defaults in Internet Explorer.