msft

Microsoft (NASDAQ: MSFT) wants to expand the reach of its vital Office suite of products. The software giant wants to utilize a subscription model for the collection of programs. The initiative will commence later this month at Circuit City (NYSE: CC) and it will eventually reach other retail stores. People will also eventually have the option of accessing the subscription product via computers such as ones made by Dell (NASDAQ: DELL). The cost is reported to be $70 for twelve months of Office access.

This is an interesting scheme. As the article points out, businesses might not bat an eye at subscribing to software applications, but for consumers, this is a different ballgame. Many of us, myself included, are so used to going down to a Best Buy (NYSE: BBY) to purchase a software package for a flat fee that paying yearly dues just seems like an alien concept. And I'd say this goes double for something as large and complex as the Office program. Microsoft believes that $70 on an annual basis will be perceived as cheap and will expose consumers who might normally either seek upgrades on a pirated basis or who would simply continue using older versions to regular approved updates. It is a large investment, after all, to upgrade to a new iteration of Office.

Microsoft would be wise to market the heck out of the subscription model for Office, taking full advantage of the inflationary environment we are currently in. If potential users can be convinced of the value proposition, then they could eventually become hooked on the promise of upgrades over time for the relatively economical price indicated. Checking around on the net, I notice that a lot of the negative comments about this idea center on the fact that there are already free alternatives out there to Office, such as applications offered by Google (NASDAQ: GOOG).

When Google, Inc. (NASDAQ: GOOG) purchased wireless software development company Android years ago, its founder asked Google's co-founder Larry Page, "Is this interesting to Google?" It sure turned out to be, although the mobile phone operating system environment was announced almost a year ago and nothing concrete has shipped in a customer device yet. My bet is that Google isn't delaying development to fine-tune its software -- it's had years to do that and the money to boot.

The problem is the wireless environment in the U.S., for starters. The competitive landscape is so tightly controlled that Google's mantra of "open access" just won't sit well with wireless carriers used to telling customers what they can and cannot do with their phones. If you think U.S. consumers have control over their wireless lifestyles, a quick trip to Europe will dispel that notion pretty fast.

If Google really wants to make Android the ubiquitous, free and open mobile operating system it wants it to be, what are the alternatives to having partnerships with mobile carriers who will, of course, be afraid of Google? Google has bid on wireless airwaves before (only to have the goal of allowing open devices accessible to closed networks), but this time, I see it going down the mobile virtual network operator route, plain and simple. Although the MVNO model has largely failed in the U.S., Google doesn't have a national wireless network to operate. But with its large pockets, it sure can buy wholesale from the existing carriers and place its Android customers with service -- and then, give them anything they want. Like, mobile search results with ads next to them.

Over the past couple years, major players like Google (NASDAQ: GOOG) and Amazon.com (NASDAQ: AMZN) have invested in the so-called "cloud." Basically, they are leveraging their huge infrastructures to provision services – like web hosting, storage and so on – to other companies. Actually, I know many startups that have such deals (helping to cut costs and get to market faster).

But what if you don't want to outsource this? Well, there is an alternative: Parascale. The company sells cloud software that you can install on your own servers.

As an indication of its power, Parascale has raised $11.37 million in a Series A round. The investors include Charles River Ventures and Menlo Ventures (both firms have extensive backgrounds in the storage area).

Parascale got its start four years ago. Interestingly enough, it hasn't been an easy journey. The original team had to get second mortgages and lines of credit to support operations.

But now, it looks like the timing is right. "With the explosion of digital content," said Sajai Krishnan, who is the CEO of Parascale CEO, "there is a need for more efficient storage systems."

The Parascale Cloud Storage (PCS) is built on widely followed standards as well as Linux servers. This makes it easier for customers to adapt the technology to their needs (which is not an easy thing to do with Google and Amazon.com).

No doubt, the storage marketplace has gone through several major shifts over the past twenty years. So, with cloud storage, it looks like we may be seeing another shift – and Parascale will now have the resources to become a leader in the space.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

Google (NYSE: GOOG) closed at $534.74 Tuesday.

GOOG is scheduled to report Q2 EPS on July 17.

Jefferies says: "Reiterating Buy and $600 target on healthy domestic search growth.

GOOG July option implied volatility of 46 is above its 26-week average of 37 according to Track Data, suggesting large price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

MAJOR PAPERS:

• According to people familiar with the discussions, the Wall Street Journal reported that Microsoft Corporation (NASDAQ: MSFT) has held discussions with Time Warner Inc (NYSE: TWX) and News Corporation (NYSE: NWS), among others, about joining it in a deal that could lead to the breakup of Yahoo! Inc (NASDAQ: YHOO). Some of the sources said the preliminary talks are unlikely to result in a deal with Yahoo!
• Johnson & Johnson (NYSE: JNJ) is reportedly in exclusive talks to sell its wound-care business Ethicon to the private-equity arm of JP Morgan Chase & Co (NYSE: JPM), according to the Wall Street Journal. Terms of the potential deal were not disclosed.

OTHER PAPERS:

• Sources familiar with the inquiry said that the Justice Department has opened a formal antitrust investigation into a deal that would allow Google Inc (NASDAQ: GOOG) to provide some search advertising for Yahoo!. The Washington Post reported that investigators will demand documents from Google and Yahoo!, as well as other large companies in the media and Internet industries.

WEB SITES:

• Reuters reported that regulators in the European Union are looking at the long-term effects of BHP Billiton Limited's (NYSE: BHP) $170B bid for Rio Tinto Group (NYSE: RTP). Sources familiar with the EU questionnaire said regulators have asked competitors and customers about effects of the deal on their businesses through 2015.

Microsoft (NASDAQ: MSFT) may try to buy Yahoo! (NASDAQ: YHOO) again, but it does not want the whole company. It finds the search business useful as part of its battle with Google (NASDAQ: GOOG). The content portal business does not have much attraction, and Redmond wants a company like Time Warner (NYSE: TWX) to pick up that piece. According to The Wall Street Journal, Microsoft "approached other media companies in recent days about joining it in a deal that would effectively lead to Yahoo's breakup."

The new deal just might work. Yahoo! dropped below $20 yesterday, putting its stock back where it traded before the first buy-out offer. The No. 2 search company's shares reached as high as $33. Investors, especially Carl Icahn, are steamed that Yahoo! did not grab all of that extra money.

Even if Microsoft cannot find a partner to take the Yahoo! content business, it may move ahead. It only has 10% of the US search business. Yahoo! has about 20% and Google around 60%.

Microsoft still needs Yahoo!, and with its stock down by a third, Yahoo! needs a buyer.

Douglas A. McIntyre is an editor at 247wallst.com.

Seth MacFarlane is the genius behind News Corp.'s (NYSE: NWS) Family Guy animated television series. But why should News Corp. have all the fun programming cool content? That's apparently what Google Inc. (NASDAQ: GOOG) was thinking when it signed up Seth MacFarlane to produce a series of short animated clips for the Google Content Network.

According to The New York Times, MacFarlane has created something called Seth MacFarlane's Cavalcade of Cartoon Comedy. Little two-minute clips will be distributed to various websites that key in on the youthful male demographic which loves Family Guy. When users click on the clips, they will perhaps see an ad before the thing starts or some sort of banner attached to it. They might also simply see the name of the presenting sponsor before watching. Google will split monies generated by the ads with MacFarlane, the website that features the clip, and Media Rights Capital, the entity which sells the inventory.

I love the idea of the Google Content Network and I think that, over time, it should be a great success, but as with any novel platform, it all comes down to the word in the middle -- content. Google will live and die by the quality of the content because, although lesser-quality stuff might still find an audience in other mediums, the web has such intense competition for eyeballs that have minuscule attention spans. If the clips don't grab the viewer right away, then the ad inventory won't be as valuable to the buyers.

Time Warner Inc. (NYSE: TWX) reaches an interesting milestone this morning. The terms of its paid search advertising deal with Google Inc. (NASDAQ: GOOG), give the search giant the right to require AOL to register Google's 5% equity interest for sale in an initial public offering as of July 1, 2008.

It isn't a forced IPO of the unit -- or at least it doesn't have to be. Time Warner has the right to purchase Google's equity interest for cash or shares of Time Warner common stock based on the appraised fair market value of the equity interest in lieu of conducting an initial public offering.

FULL DETAILS can be seen in this filing for the terms and exceptions.

It is hard to know what Google will do, but I think Google will likely want to keep the AOL stake. If not, it is pretty hard to imagine Time Warner chief Jeff Bewkes allowing 5% of AOL to go public (in this lousy market) or be sold to someone that the company wasn't fully on board with. It seems he'd have little choice but to buy back the equity interest.

Win or lose, after two years time's finally up.

Yahoo's (NASDAQ: YHOO) embattled management and board have one month left to prove to shareholders that they made the right call in rejecting Microsoft's (NASDAQ:MSFT) bid. With shares trading at about $20, they are going to have to do some fancy footwork to show why rejecting a $31to $33 per share offer was actually good for shareholders.

Yahoo is trying to convince investors that a proposed 'search' deal with Google (NASDAQ:GOOG) will provide the growth needed to restore Yahoo to previous glory. According to an AP report: " By relying on Google's superior technology to show some of the ads alongside its search results, Yahoo believes it can increase its annual revenue by about $800 million and generate another $250 million to $450 million in annual cash flow."

Keep in mind that since the Microsoft deal fell apart, Yahoo has lost more than $16 billion in market cap. It is going to have to generate a lot more in revenues to show that they made the right choice.

My other problem is that I have many friends who over the last week have told me they can't access their Yahoo mail or open up their saved stock portfolio's on Yahoo Finance. I, personally, have been locked out for two days.

Minyanville's top dog, Todd Harrison, dares to ask in public what Wall Street types quietly consider in private. For more insight and ideas, visit www.minyanville.com.

Lot's going on today as I juggle the end of June. With time constraints on both sides of this screen in mind, I humbly offer the following thoughts:

• I covered the incremental "fade" exposure in Google (NASDAQ: GOOG) (put out near the opening) and I'm now in watch mode.
  
  
• It's tough to tell how much of the big beta action is quarter-end proppage and how much is legitimate demand. As I covered my American Express (NYSE: AXP) earlier--and continue to have exposure in Wachovia (NYSE: WB)--I'm leaving it on for the time being (and yes, subject to change).
  
  
• And yeah, I'm trading around that ugly duckling--nibbling under $15 and trading the swings. There's no putting lipstick on that pig--using it as my vehicle of choice has thus far been wrong. It ain't over till our interns sing, however, so I'm fighting the good fight.
  
  
• That sorta brings up the question du jour: Are we gonna see quarterly inflows... or quarterly outflows?
  
  
• The upside seems begrudging. Of course, after the decline we've seen, you'd be grudging too if you were Hoofy.
  
  
• Somebody call Armond Goldman! l I'm starting the South Beach Diet on Monday, lest anyone wonders what is happening to my sense of humor.
  
  
• The scariest thing on my screen? The VXO is down 6% today. I repeat, the VXO is down 6% today. Ruh roh...

R.P.

I read an article over the weekend about Yahoo! Inc. (NASDAQ: YHOO) and its reorganization attempts. Make no mistake about it, this company needs to alter its DNA if it intends to survive in a world without a Microsoft Corp. (NASDAQ: MSFT) taking it over.

In a nutshell, it looks like Yahoo! wants to retool its divisions so that it can more efficiently react to changes in the online marketplace. Yahoo! apparently feels that its current organizational structure inhibits growth and is looking to create new teams dedicated to developing products that will capture eyeballs and advertising opportunities as quickly as possible. The company also wants to focus on cloud computing, a technology that is important to the business sector.

Well, from the point of view of an investor looking at Yahoo!, I don't see anything here that persuades me to buy the stock. Synthesizing a new plan of corporate attack is pretty much par for the course for any company that is doing terribly and is looking to get back on the good side of Wall Street. But is there anything really exciting in the plan? No. It's just Yahoo! doing something. There's nothing too revolutionary going on. Centralizing this and that might add value. It also might not. It's all in the execution, and I'm not sure I want to trust a company that rebuffed Microsoft's reasonable buyout offer to execute anything at this point.

The news couldn't get much worse. Commodity prices keep soaring, consumer confidence is in the gutter, inflation has reared its ugly head, the US dollar loses value by the day and each day we read of more company layoffs. With all this seemingly endless stream of negativity the question is if now is the time to start buying stocks?

There is an old investing adage that says that you should invest when there is "blood in the streets." There is no doubt that it takes some serious courage to buy stocks at this point, but if you are a long term investor, you have to think that the tide will turn at some point in the not too distant future. I know many of you will say that we haven't even gotten close to hearing the worst of the news. That we are in store for consumer bankruptcies, and maybe a large bank or two to fail. My point is that the market is already pricing that in. Or at least most of that has been priced in. Even stocks like Google Inc. (NASDAQ: GOOG) have fallen to levels that they could be considered value stocks as opposed to growth stories. Stocks just seem cheap.

No one can predict if the market will drop another 15% from our current levels. What is indisputable is that the market is selling at a large discount to where we were eight months ago. While some of the sell-off is justified, keep in mind that the market generally overshoots both when it rises and when it falls.Then it finds a middle ground.

With all of today's bad news, maybe it's time to back up the truck and start buying stocks.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 6/29/08.

Get Ready for Cuts in Government Services
State and local governments were flush with tax revenue during the five-year housing boom. They pulled from bulging pools of property, income, and sales tax to expand education, law enforcement, health care, and infrastructure programs without needing to burden residents and corporations with tax hikes. Those days are over. As the economy stalls, state and local governments will see less tax revenue roll in and you will likely see for cuts in services. Among the states with the worst shortfalls are Arizona, Florida, Rhode Island, Nevada and Georgia.
The Next Victim of the Real Estate Crisis- BusinessWeek
Also: States With Worst Tax Shortfalls


Where Bad Credit Hurts the Most
Most people understand that low credit scores will translate into higher mortgage and credit card interest rates. But few realize there are plenty of other insidious ways that low scores can add to a person's costs. Bad credit can also negatively effect your job, utilities, cell phone, elective medical procedures and your marriage.
Bad credit hurts in many ways - Bankrate.com

Alcatel-Lucent (NYSE:ALU) was raised to "neutral" from "underperform" at Merrill Lynch, according to 24/7 Wall St. The financial website also reports that Whole Foods Market (NASDAQ:WFMI) was cut to "neutral" from "buy" at UBS.

Citigroup added Google (NASDAQ:GOOG) to its Top Picks Live list, according to Briefing.com. The news service reports that Time Warner (NYSE:TWX) was also added to the list.

Societe Generale raised its rating on BP (NYSE:BP) to "hold" from "sell" according to MarketWatch.

Douglas A. McIntyre