Coop's Corner

The company on Tuesday morning announced Z-Payments, an online payment service for subscription-based businesses. Interestingly, the product will also accept payments from PayPal.

Along with the announcement, PayPal's president, Scott Thompson, has joined Zuora's board of directors.

What with the stock market in a funk and companies acutely concerned about the impact of a slowing economy on their bottom lines, the pitch Tzuo plans to make is that Z-Payments can handle the job of collecting recurring payments more efficiently and at a lower cost than doing it themselves--especially compared with paper-based payment processes. So the question becomes: If the economy tanks, will subscription services like Zuora's benefit?

In an interview, Tzuo made the case for the subscription model. In a post he wrote a few days ago, he laid out the same argument:

For one, the cost to subscribe is much more affordable than it is to buy. Look at Zipcar, for instance. It's far less expensive to subscribe to an entire fleet of cars vs. purchasing your own. Not to mention, many can't get the credit they need to buy a car or other goods right now, making subscriptions the only option. Likewise, it's more cost effective for businesses to use SaaS applications. Companies operating under this model have an advantage to win more business for that reason alone. Salesforce.com, as an example, thrived during the recession from 2001 to 2002.

Also on the subject of cost savings, it's less expensive for companies to offer their apps as a subscription. Building a Web app can be very inexpensive compared to a desktop app or one that you buy off the shelf. Paying for server space vs. manufacturing and shipping is also a consideration that many businesses are taking into account as they build out their products.

This marks the company's second product in the online subscription segment. In the spring, Zuora introduced Z-Billing.

I kidded Tzuo about the PayPal arrangement, suggesting it may be the prelude to a marriage between the companies. But it's not so far-fetched. PayPal doesn't do billing, and in an interview with ZDNet's Phil Wainewright, Thompson gushed about the extension of Zuora's pay-as-you-go model.

"All these enterprise software vendors sell you a chunk of stuff, most of which you don't want," he said--and it becomes a burden, he added. "Your business is slowed down because you're dragging along this big anchor."

You know it's grim out there when the television talking heads report that the stock market only finished down 369 on a day when it fell as low as 800 points.

(Credit: CNET News)

With banks disappearing, liquidity drying up, and the political class clueless about events overtaking the economy, this is what a crisis looks like. If you want a good primer on the origins of what's now turning into a global credit crunch, check out the primer, courtesy of 60 Minutes, that I've embedded at the bottom of this post.

The $64,000 question (now $32,000 and falling) is the impact on the technology industry. So it is that just Monday, the following items came in on the transom:

• SAP issued a third-quarter warning.

• Netflix lowered its quarterly outlook.

• Another Wall Street house cut estimates on Yahoo.

• eBay announced plans to lay off 1,000 employees.

Heading into the teeth of earnings season, the news won't be much more encouraging. At best, it promises to be a rough patch. At worst, who knows? The VIX, a volatility index, climbed to levels Monday that now basically price in the coming of Armageddon. OK, we've seen better times. But before jumping off a ledge, some historical context is in order.

The pendulum swings both ways. Fact is that we've been here before, folks. Not in the exact same circumstances, of course, but in an atmosphere where the fashion of the day favored sackcloth and ashes.

Remember the October 1987 crash? In its aftermath, technology companies couldn't get the time of day from investors. Back then, I was a young reporter and was amazed that it didn't seem to matter that companies like Apple or IBM had beaten expectations. Their stocks would still get creamed. The herd simply was too frightened to think past the headlines du jour.

But Silicon Valley kept doing what it always does, inventing better hardware and software. Venture capitalists regained their nerves, entrepreneurs got funded, and innovation flourished.

More people have fresher memories of the Internet bubble burst. That was an especially ugly time as tech got nearly obliterated after 2000. For a while, it seemed the weekly additions to the Dead Pool of former high flyers would never end. But as bad as it got, that was only a brief chapter in the longer-running story of the computer industry. Normalcy returned and market valuations--for real companies, not the fakers--would later recover.

As the author of Ecclesiastes wrote a long time ago, there is nothing new under the sun. Cliche or not, take that advice to heart in the days and weeks ahead. It may come in handy.

"It is totally revolutionary, a game changer. One of the biggest Apple innovations in a decade. The MacBook manufacturing process up to this point has been outsourced to Chinese or Taiwanese manufacturers like Foxconn. Now Apple is in charge. The company has spent the last few years building an entirely new manufacturing process that uses lasers and jets of water to carve the MacBooks out of a brick of aluminum. (Yes, this sounded a bit crazy to us as well. But our source is adamant so bear with us. He says Apple has built a manufacturing process that would make Henry Ford proud.)"

Henry Ford? Yowza.

At the same time, Mike Schramm from TUAW.com writes that Nvidia is offering sneak peaks of the product to employees. He speculates that the units may include "some extra Nvidia power," presumably to turn the MacBook into a more serious game machine.

Something up his sleeve?

(Credit: CNET News)

Of course, some or all--or none--of the above may be accurate. The hype cycle always works the Mac faithful into a lather, and this time the meter is simply off the charts. The "brick," as it's being referred to, may shape up to be quite the story. (And Apple definitely could use a different narrative after a steady stock decline topped off by a phony Steve Jobs rumor.) But if the breakthrough isn't as revolutionary as the early leaks suggest, will we be talking about the brick the way we now recall the Segway? Just wondering.

Just as many of you settled into your seats to watch Thursday evening's debate between Joe Biden and Sarah Palin, Allen Stern of CenterNetworks was attracting his own crowd on Twitter after raising a question that strikes at heart of the blogosphere.

(Credit: CNET News)

"It's clear the link economy is broken," he wrote, pointing to a write-up CNET News published on Friendster's support for Facebook applications. The piece contained nine links, six of which pointed to previous CNET posts.

Not long after, Matthew Ingram piled on with a post dinging us for attempting "to prove how authoritative" we are "by making it look as though the only stories worth linking to are their own.

"To say that their internal links are better than anything else they could possibly link to is just ridiculous. It's obvious that they either didn't even bother to look for other information to link to, or there's an internal policy to promote their own material."

Actually, not so obvious.

In a response posted in the talkback area on Ingram's page, CNET's Dan Farber set the record straight:

At CNET we link to our stories and to others. Generally if it is a standard news item that everyone has, we link to our version. If someone has the seed of a story or a take that helps to carry a story forward or deeper, we link to whatever. A challenge for all of us is finding and linking to content that we should point our readers at...often we don't have the time to go figure who has the best take or where a story came from before it got refactored by the blogosphere...so we continue to improve on it every day.

Still, link etiquette is basic to the integrity of the ongoing conversation in the blogosphere. One can honestly ask why not feature more outside sources? But let's consider the question from another perspective. Under deadline, we make informed choices based on our best judgment at the time. In this instance, my colleague, Caroline McCarthy, who authored the post, trusted her previous reporting and went with what she knew to be accurate.

Would she have improved her story by including even more outside links? Perhaps. Then again, we don't operate in a laboratory environment. It's a 24-7 competition where we all work under often severe time constraints. One approach is not necessarily better, but each tries to engage the community in the best way it knows how.

A nuanced commentary on all this comes courtesy of TechDirt's Mike Masnick. In his response to Ingram's post, Masnick explained his own site's link policy in a broader context:

Almost every one of my posts has external links, but I also do plenty of internal linking. But there's an important reason for my internal links: I know the internal links will survive. External links I can't guarantee. And I get tons of complaints from people who came on an old story where the link no longer works. So I can trust my old links because I know they'll be there. But I have no problem linking out when it's appropriate. And, in fact, the main point of the story is almost always a link out (and, of course, if I find a story from someone else, I always try to give credit). But internal links aren't always done for nefarious purposes...

Amen to all that. Earlier today, I spoke with Stern to get a better handle on his complaint. What I heard was less a general critique of CNET than a larger worry about the direction of the link economy. He is particularly troubled that as blog sites grow larger, they are pulling back from linking to outsiders.

"To me, when you're linking to other sources or viewpoints, I think that's where linking really matters. And you're not seeing it that much," he said. "From my perspective, it's very disappointing...People need to see diversity of opinions on a topic."

No disagreement here. But Stern suspects that larger blogs (or Web sites) believe that linking out would make them appear less credible and are reining in the practice.

"Let's get down to the raw facts. It's about search engine optimization," he said. "They want to keep you within their network as long as possible. A lot of that works into it."

No doubt, a lot of sites--ours included--devote a lot of attention to search engine optimization. But Stern is right to wonder whether that ambition to improve SEO scores may get extended in ways that hurt the wider blog ecosystem. Can you imagine what would ensue if the blogosphere descended into a beggar-thy-neighbor free-for-all? What's more, it would take place at the worst juncture, considering the existing financial strains caused by the credit crisis.

As the economy skids into a (add your preferred noun here), there's mounting worry about Silicon Valley's ability to weather the credit crunch. If past is prologue, I suppose that most of the biggest companies will find a way to slog through. As always, the folks on the bottom of the food chain have the most to worry about--especially the legions of bloggers who make a full-time or part-time living through their writing.

Later, I put the same question to Om Malik, the impresario behind GigaOm. He said there are no rules at his shop limiting outside links.

"I don't even think about it like that. Every time we see something good, we link to it. If someone has the better scoop or better story, we constantly link to that," Malik

A meritocracy of links. However imperfect, it's a recipe that's worked until now. It's about giving sunlight to the best content.

The buzz around Washington is that the Justice Department will rule on whether to approve the Google-Yahoo advertising pact by late next week.

Of course, the government being the government, maybe it'll do something supremely annoying and keep us in the dark beyond next Friday. But the calendar suggests that a decision is nigh. In June, when Google and Yahoo announced their accord, the companies voluntarily delayed implementing its terms for up to three and a half months to let the Justice Department review the deal.

If the antitrust division decides not to oppose the agreement, the big question is whether it will attach conditions. One source involved with the opponents of the partnership said there's not much chance the trustbusters will allow the deal to be implemented without modification. Of course, nobody outside of the Justice Department really knows the answer yet--and they ain't talking. True to form, a spokeswoman for the Justice Department declined to comment.

Since the deal's announcement, Microsoft and the advertising community have been making the case against the Yahoo-Google agreement. The Association of National Advertisers, which represents over 400 companies, last month issued a public letter maintaining the arrangement would raise prices and limit choice. Google and Yahoo obviously see things differently. Yahoo president Sue Decker then responded with a blog refutation of the argument put forth by the ANA and other critics:

This agreement gives advertisers a new opportunity to bid for placement on an additional network that includes Yahoo inventory. They will bid for what they think this opportunity is worth at prices that produce positive ROI. That's how pricing works today in this industry and this agreement won't change that.

So for now, we're stuck in a he-said, she-said limbo, where the spinmeisters on both sides are slinging as much hash as possible. Despite their conflicting predictions of reality, the truth is that nobody will know whether this deal is pro- or anti-competitive until long after it goes into effect--assuming that Uncle Sam's minions give it the green light.

To be continued.

George Carlin said that when you live in the United States, you're guaranteed a front row seat to the freak show. Events of the last few weeks only reconfirm how right he was.

(Credit: CNET News)

But first, think back a few years.

The deflating of the Internet bubble, which began in 2000, wasn't a one-day blowup. Instead, the pain was spread over months and only ended after dozens of one-time high-flying technology companies got obliterated.

Out of the rubble emerged a new generation of start-ups that went on to operate under the Web 2.0 rubric. And since 2002, the innovation in consumer and social-network services has been the more interesting story in tech.

But this latest market upset takes place at a very inconvenient time. (When is it not inconvenient?) It's hard to know exactly, but most of these start-ups aren't swimming in cash. Before it's over, this may become a particularly hard transition for companies that depend on Internet advertising to pay the bills. Especially companies that operate according to the "freemium" model.

What's "freemium"? Fred Wilson of Union Square Ventures nicely defines how the model is supposed to work.

Give your service away for free, possibly ad-supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc., then offer premium-priced, value-added services or an enhanced version of your service to your customer base.

The idea is predicated on the assumption that you'll be around long enough to collect. In normal times, that might work. Does anyone believe we're living in normal times? Even if Bush convinces congressional renegades in his party who opposed the Wall Street bailout, this economy's getting worse by the week.

If past is prologue, the technology business may emerge changed, and ready for the next big challenge. But that's the longer-term perspective. In the meantime, there's that matter of meeting payroll. "Freemium" was a grand experiment but its practitioners don't have the luxury of time any more.

After watching the demise of U.S. capitalism in the last couple of weeks, nothing shocks me any more. So I'm the last person to dismiss the veracity of M&A rumors one might ordinarily classify in the "No way, Jose" category.

But here's why it makes sense. Increasingly, word is that Google is going to have trouble upholding its advertising deal with Yahoo, because antitrust regulators are concerned about the market dominance the deal gives to Google and there's a very strong chance they'll reject it...That would make Yahoo even more desperate to do a deal with another company.

As a dear college professor of mine used to say, yes, but. Yes, Yahoo conceivably would want to do another advertising deal. But would it be that keen on going all the way with Microsoft? I'm not sure there's much ardor on the Yahoo side. After four months of foreplay and no consummation, both sides were left hot and very bothered.

That's not to say they don't still have a yen for each other. A lot's going to depend on how far south the Internet advertising business falls. Earlier today, an analyst with Collins Stewart put out a note arguing that Yahoo's "fundamentals are deteriorating." Yahoo earlier in the week gave the world its first public viewing of the company's new APT ad platform. Jerry Yang and Sue Decker still want to prove the naysayers wrong.

The wild card is the wild man on Yahoo's board. Now that Carl Icahn's on the inside, thanks to his campaign to win board representation, what's to stop him if the Justice Department puts the kibosh on the proposed Yahoo-Google ad arrangement? If the DOJ kills the Google deal, Icahn can go to the mattresses again--this time as a oh so respectable insider.

And so it starts.

Marc Andreessen

(Credit: Seth Rosenblatt/CNET Networks)

Earlier Friday, analysts lowered estimates on Amazon.com and Yahoo, setting off renewed worries about the earnings outlook for Internet companies. The Nasdaq finished Friday in the red, even as the Dow Jones climbed back from an early morning sell-off with a triple-digit gain, ostensibly, on hopes that Congress would come up with a financial bailout plan.

What to make of all this? Up until lately, most of the people involved in Internet companies (and particularly, Web 2.0 types) shrugged off the gyrations in the financial markets as Wall Street's problem. The standard refrain was that the Internet economy "is a lot different."

Well, not really. Go back a few years and you'll find that was pretty much the same line of jive peddled by the folks pumping Internet stocks. That lesson got learned the hard way. Fact is that the economy is intertwined and the ripples--both for good and ill--touch every sector. So it was that more than a few of today's current class of born-again pumpers snorted derisively when Marc Andreessen last year quipped that Ning's decision to raise $60 million in private equity would prove handy during the coming nuclear winter. They're going to eat their words before long.

Talking about his August channel checks at Amazon, Lazard Capital analyst Colin Sebastian reports that online spending trends "remain challenging" and may have deteriorated since then. Citing a customer survey by Billme, an Internet payment services provider, Sebastian notes that almost half of the consumers polled said economic uncertainty had convinced them to delay purchases, with 42 percent saying they intend to cut back on credit cards. What's more, Sebastian expects competitive holiday promotions to hit even earlier than usual.

Was there any good news out there? Well, sort of. "We continue to believe that e-commerce growth should outpace brick-and-mortar retail as consumers seek better values online and are now more accustomed to shopping online for the holidays," he wrote.

Meanwhile, Collins Stewart analyst Sandeep Aggarwal's dismal note on Yahoo easily could apply to any number of advertising-dependent Internet companies:

We believe that the fundamentals at YHOO are deteriorating. On the one hand economic headwinds and turmoil in the financial markets are causing weaker display ad revenues. On the other hand changes with the minimum bid with search and a possible GOOG/YHOO deal are causing an outcry among many advertisers. To further complicate the situation is an ongoing loss of talent which might accelerate with the renewed restructuring efforts. We don't see any near-term upside in the shares of YHOO on fundamental basis. However, we would not rule out a possible MSFT/YHOO deal in the future.

The evidence is piling up every day. During the just-concluded Advertising Week conference in New York, Wenda Millard, the co-CEO of Martha Stewart Living Omnimedia, said during a panel that the financial crisis is going to reverberate through the economy with "pretty severe implications for medium-sized and smaller businesses and consumers."

The venture capitalists who've invested in sundry Internet start-ups (most with unpronounceable names) are spinning this as a passing event. Once Congress and the president agree on the $700 billion bailout (or rescue, if you prefer), we'll return to normalcy. Suuure.

I can't put it any better than did AllThingsD's Kara Swisher's recent post, where she wrote that "the economic crisis is likely to become a whirlpool that will be hard for any ad business to avoid, even the often recession-proof digital sector."

Translation: It's only a matter of time before the stuff hits the fan in a big, big way.

So there I was, watching the replay of Katie Couric's interview with Republican vice presidential hopeful Sarah Palin when a tweet flew by on my Twitter transom. Dan Gillmor was asking why the Democrats' Joe Biden didn't get equal grief for making dopey remarks. Among the Best of Joe-isms was his recent blooper confusing the timeline for FDR and the age of television.

Does she Twitter?

(Credit: State of Alaska)

Well, I think I have an answer. But I've taken an oath to keep my big mouth shut for the remainder of the political season--at least on these pages. (If you want to bore yourself reading my election rants, you'll have to go up on Twitter.) But I was so keen to share my opinion with Dan that I immediately composed a ditty of a twitty and sent it off as a direct message. Not so fast, Twitter informed me; Dan was not "following" me.

Bummer. As much as I was sure that he might enjoy my 140-character pearls of wisdom, there was no way to engage in a private Twitter dialogue. I think I understand why Twitter maintains the padlock. Who wants every Tom, Dick, and Harry convinced you're a knucklehead sending private tweets to that effect? We already live with the unexpected consequences of unfettered access on e-mail. There's enough spam in the world, thank you. (A few days ago I saw what purports to be a hack that allows you to send direct messages to non-followers.)

Right now Twitter is populated by the cyber equivalent of gated communities. If you're not part of the club, you don't get to participate in the gabfest. A more general critique is that Twitter still makes it hard to find folks to follow. I can't follow what I don't know about. But that's fodder for another day. Right now on my wish list of future features, I'd love to see Twitter incorporate something akin to a "knock knock" button where you can still ping someone who is not your friend. It would be up to you whether to grant permission. The idea here being a more free-wheeling conversation that allows more people to participate. And isn't that supposed to be the point or am I missing something?

Larry Ellison is finally in the hardware business. Maybe the second time's a charm.

Oracle CEO Larry Ellison

(Credit: Dan Farber)

In the late 1990s, Ellison tried to drum up support for a network-based computer. He barnstormed around the country with Sun Microsystems' Scott McNealy and made the case for a thin-client alternative to the Wintel duopoly. They were so convincing that Intel embarked upon a crash course to squeeze down costs before the NC could ever get going. Intel prevailed in that contest and Ellison moved on.

Now he's back on a considerably bigger scale--not to mention on more familiar turf.

Oracle's announcement this afternoon qualifies as big news. So does its burgeoning development relationship with Hewlett-Packard, which may be even bigger news. (HP's Ann Livermore noted that HP and Oracle already share about 150,000 joint customers worldwide. If the companies don't blow what looks to be a big opportunity, that number can only grow.)

Oracle's got a lot more riding on its "data warehouse appliance" (as Mark Hurd described the HP Oracle Database Machine) than in the days when the network computer was Ellison's rallying cry. The first units feature 168 terabytes of disk data and 64 Intel cores. HP, which made the systems according to an Oracle design, will supply hardware support. Customers still have to order the machines from Oracle, which should make Ellison happy about the opportunity for his sales team to to cultivate (and sell) that customer list to their hearts' content.

Forrester's James Kobielus noted that Oracle had demonstrated that it can now scale its DW/DBMS platform to address the petabyte-scale analytics requirements that will soon come into the enterprise mainstream everywhere."

Indeed, Ellison made the case that customers will receive better performance because Oracle has coupled its database software with custom hardware. Dana Gardner, who has a good writeup of the event, points out that in this case, the idea is to bring the "intelligence closer to the data, that is bringing the Exadata Programmable Storage Server appliance into close proximity to the Oracle database servers, and then connecting them through InfiniBand connections."

How these two companies were able to keep this secret for most of the three years it took to complete the project is a source of some chagrin to the Fourth Estate and associated blogger types who follow this stuff. But the announcement is already being hailed as "earth shattering"--and perhaps the hyperbole this time isn't so over the top.