Ad giant Publicis Groupe this morning confirmed an agreement to buy Microsoft’s Razorfish online advertising agency for $530 million, along with a five-year strategic alliance under which Publicis will buy display and search advertising from the Redmond company at "certain minimum guaranteed aggregate purchase levels."

Razorfish was part of Microsoft’s $6 billion deal for Seattle digital marketing company aQuantive in 2007. The agency, formerly known as Avenue A/Razorfish, was seen as an odd fit inside Microsoft in part because it works on campaigns that run across a variety of sites, including Google, Yahoo and other competitors to Microsoft’s online properties. The clues that Razorfish wouldn’t be with Microsoft for the long haul included the fact that its employees didn’t get the standard Microsoft benefits package.

[Update, 8:40 a.m.: There are "no plans to displace any Razorfish workers in the Seattle region or elsewhere as a result of this agreement," said Microsoft spokesman Lou Gellos in an email message this morning, responding to our question on that topic.]

The cash-and-stock agreement with Publicis follows a bidding war that included ad companies WPP PLC and Omnicom Group, according to the Wall Street Journal, citing people with knowledge of the bidding. Dentsu, Japan’s largest advertising company, bid more than than Publicis did, the Journal reported.

That suggests that details of the strategic alliance may have tipped the balance in favor of Publicis, bringing the promise of guaranteed ad revenue. Microsoft is hungry for online advertising dollars and traction in the search market, as evidenced by its 18-month pursuit of Yahoo for their recently announced online advertising and search partnership.

"The agreement helps Publicis Groupe media clients by allowing their agencies to purchase display and search advertising from Microsoft over the five-year term of the agreement on favorable terms, in exchange for certain minimum guaranteed aggregate purchase levels," the companies said in a news release. "The agreement also provides that Razorfish will continue to be a preferred provider to Microsoft for digital strategy, creative and experiential marketing services, and contains a commitment by Microsoft to spend a minimum amount for those services each year during the term of the agreement."

The Razorfish management team will remain intact, according to Publicis, and the agency will operate under its own name as part of VivaKi, a Publicis umbrella for Digitas, Starcom MediaVest Group, Denuo, and ZenithOptimedia.

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A few weeks ago we reported on speculation about a split between Amazon.com and Target. Well, it turns out the two are headed for a divorce. Target this morning announced it will take the reins of its own ecommerce operation starting in 2011. That would be a big loss for Amazon’s ecommerce platform business, which runs web operations for third-party retailers.

Here’s more from Target’s press release:

“Amazon has been an important strategic partner since we re-launched Target.com in 2001, and the strength of Amazon’s technology and fulfillment services has been a contributing factor in Target.com’s success,” saidSteve Eastman, president, Target.com. “However, to deliver a customized multi-channel experience for Target’s guests, we believe it is in Target’s best interest going forward to assume full control over the design and management of Target’s e-commerce technology platform, fulfillment and guest services operations.”

Previously, Target and Amazon extended their contract to 2011. Amazon and Target will continue to work together during the next two years to optimize performance of the existing platform and fulfillment services.

“We are grateful to have been able to work with Target for the last eight years, and we wish Target the very best as they go forward,” saidSebastian Gunningham, Senior Vice President of Seller Services for Amazon.com, Inc.

Target said it plans to launch its own platform ahead of the 2011 holiday season. With Target out, Amazon’s biggest known customer for the ecommerce platform business will be U.K.-based Marks & Spencer.

In recent years, Amazon has lost other big enterprise customers, Toys "R" Us and the Borders book chain. Amazon may be shifting to a more middle-market strategy with the ecommerce platform business. The company has been working on a secret project code-named Vitamin C to build ecommerce tools for mid-sized retailers.

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and Amazon’s A9: Rumors of its death are greatly exaggerated  

It’s been three years since Amazon.com’s effort to match Google with its own internet search engine, called A9, crashed and burned. Since then A9 has largely fallen off the technology industry’s radar. But the unit is still around, and playing an active role in Amazon’s efforts to improve product search on its network of ecommerce websites.

“People say things like, ‘Oh, you used to work there. What happened to that?’” said Barnaby Dorfman, a veteran of A9 whose online recipe startup, Foodista, secured an investment from Amazon in April. “The public-facing experiment did not work out, but the other piece worked out quite well for them. They’re helping to maximize sales across all Amazon’s sites.”

While A9, based in Palo Alto, has been extremely quiet since Amazon pulled back on its web search efforts in 2006, its name has popped up repeatedly in recent months, providing a glimpse of Amazon’s evolving strategy with the search unit.

In June, A9 acquired a mobile startup called SnapTell that lets people take photos of items with their smartphones and match them to corresponding product images — technology that is central to Amazon’s efforts to let shoppers browse and buy items from their iPhones and BlackBerrys.

Amazon is also reaping a harvest of patents that were germinated during A9’s early years as a would-be Google rival. For example, Amazon on July 21 was granted a patent for a “System and method for providing search results based on location.”

That kind of broad patent could potentially have a huge impact on the mobile market, given that so many iPhone and BlackBerry applications today have location-based search features, using built-in Global Positioning System technology to direct users to local sights, restaurants, etc.

While it’s not clear what Amazon plans to do with the patent, it’s a sign that A9’s early work on search technology has resulted in some interesting intellectual property that could benefit Amazon in the future, giving it leverage in negotiations with other tech companies, for example.

Amazon spokesman Drew Herdener declined to make A9 executives available for an interview and declined to go into much detail about the search unit, saying only that it does “product search for Amazon.com sites and mobile applications.” He said Amazon does not comment on patents.

A9, on its website, says its product search efforts include Amazon’s Search Inside the Book feature that lets people search for terms within the text of books. The unit also works on the Clickriver Ads program that lets advertisers put sponsored links on Amazon sites (the A9 website also lists OpenSearch, an Amazon-inspired effort to create a standardized format for sharing search results).

Product search is a critical element of the online shopping experience. When someone searches for a product on Amazon.com, the speed and relevance of the results can prompt people to buy more and generate more sales. Amazon is also keen to adapt its product search to the iPhone and other smartphones, where more consumers are doing their shopping these days.

A9 has "moved from this very ambitious vision to something that’s a better fit for Amazon’s needs, which is searching for products,” said Oren Etzioni, a University of Washington computer scientist who founded Farecast, an airfare prediction tool. Farecast was acquired by Microsoft last year and its technology was incorporated into Microsoft’s new search engine, Bing.

A9 never made a big dent in the internet search market, which continues to be dominated by Google. For June 2009, Google had a 65 percent share of the U.S. search market, followed by 19.6 percent for Yahoo sites and 8.4 percent for Microsoft sites, according to internet measurement firm comScore (the data came out before the recently announced Microsoft Bing-Yahoo search partnership).

Amazon, which launched A9 in 2004, essentially dismantled the public-facing part of the search engine in Oct. 2006, removing its maps and block view function, its instant reward program, and search history feature.

The A9 unit is headed by Bill Stasior, a veteran of the AltaVista search engine. The A9 site says the unit is hiring for 10 positions, mostly in software engineering.

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We’ve certainly seen our fair share of "down rounds" in recent months, venture capital deals in which the valuation comes in at a lower price point than previous rounds. That recalibration is certainly part of larger economic forces as VCs and entrepreneurs re-think the values they placed on startup companies from a year or two ago.

A survey released today by Fenwick & West points out just how prevalent "down rounds" are becoming — at least in Silicon Valley where the law firm analyzed recent financings for 89 companies.

According to the report, 46 percent of the deals were down rounds while 22 percent showed "flat" valuations. More interestingly, Fenwick notes that the past two quarters are the only two quarters where down rounds have exceeded up rounds since the fourth quarter of 2003.

And the tide has shifted rapidly. During the second quarter of 2008, just 13 percent of deals were down rounds while 68 percent were up rounds.

Furthermore, Fenwick’s Venture Capital Barometer shows an average price decrease of six percent for those companies receiving venture financing during the quarter. That followed a decline in the first quarter — the only two negative quarters since the firm started tracking price movements in 2004.

What does it all mean?

The New York Times’ Brad Stone offers his insights in a story headlined "Falling Valuations: Poison for the VC Industry."

But there are other things at work here too, highlighted by my story yesterday on DevHub which gave up on venture financing earlier this year in order to focus on reaching profitability.

Those stories may become more common as startups try to make their previous venture round last as long as possible or learn to exist on their own cash flows, rather than butt their heads up against tough terms in a new venture deal. (Seattle-based iLike is another example of a company that’s living off its venture reserves and own cash flows at the moment).

Prominent Seattle venture capitalists — speaking in good times — have told me that you should only take venture capital as a last resort. In tough times like these, that’s probably even more important.

The Fenwick report also discusses liquidation preferences, corporate restructurings and other topics.

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and Marchex’s sales; Richrelevance scores cash; CTI; and more  

Seattle online local advertising company Marchex could see its revenue further eroded due to the recently announced advertising partnership between Microsoft and Yahoo, with CFO Michael Arends pointing out potential issues in a conference call this week, reports Domain Name Wire.

Onvia, which provides an online service to connect businesses with government contracts, said that its revenue increased 21 percent during the second quarter to $6.2 million as its clients base grew five percent to 8,500. The Seattle company also trimmed its net loss for the second quarter to $197,000.

In a story from TheStreet.com titled "Honey I Shrunk the Tech Sector," Seattle entrepreneur and venture capitalist Martin Tobias predicts more tech M&A deals in the near future.

Bothell biotech Scolr Pharma saw revenues decline 17 percent to $230,789 during the second quarter as royalty payments from Perrigo fell. The company — which finished the quarter with $3.1 million in cash and cash equivalents on the books and is looking at ways to reduce the burn rate — saw its net loss decrease 26 percent to $1.6 million.

Comcast said it plans to begin reselling its WiMax broadband Internet service — dubbed HighSpeed2Go and currently available in Atlanta and Portland– in Washington state, Philadelphia andChicago this year.

Rosetta Inpharmatics founder Stephen Friend — who is in the midst of creating the new Seattle non-profit Sage Bionetworks — is the subject of a detailed Xconomy profile in which he describes how the life sciences non-profit is taking cues from the open source software movement.

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and Zappos parties it up after big Amazon acquisition deal  

Things have been pretty festive over at online shoe retailer Zappos since the company announced it was getting acquired by Amazon.com. First, Zappos CEO Tony Hsieh said he would hand out bonuses and Kindles to staff. Then the company threw a 10-year anniversary party complete with disco lights, carnival games and an open bar. Here are some video highlights of the over-the-top party. Check out the human hamster ball about 35 seconds in.

Previous coverage:
Amazon and Zappos: a good fit?
A blow-by-blow account of the Amazon-Zappos deal
Zappos CEO: ’Nobody was forced to sell to Amazon’

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Kindle users flock to freebies  

Amazon.com has raised the ire of some in the book publishing industry for pricing Kindle versions of best-sellers and new releases at $9.99. But what about Kindle books that cost, well, nothing? The Associated Press reports that free books have become top "sellers" in the Kindle store, a development that could hold promise — or peril — for publishers.

AP writes:

Publishers and authors have been nervous that the standard cost for electronic editions of new releases, just under $10, will take away sales from the more expensive hardcovers and set an unrealistically low price for the future. They are concerned, but open-minded, about free books, which present a chance and a challenge: Readers may buy other books, or, they may simply seek more free titles.

Scott Shannon, publisher of the Del Rey/Spectra imprint at Random House, tells AP that free Kindle books are "a huge hot-button topic we’ve been discussing within our division and at the corporate level." He said free books can prompt people to buy other titles, but "in the long term, we have to guard the market. We have to make sure people understand that time and energy goes into writing a book."

Right now the top three bestsellers in the Kindle store — "The Angel Experiment" by James Patterson, "The Briar King" by Greg Keyes, and "Paranoia" by Joseph Finder — are all free. In fact, half of the top 20 Kindle bestsellers are listed at $0.00.

Amazon isn’t the only company offering free e-books. Sony and Barnes & Noble have tapped Google’s huge book-scanning project to add free public domain books to their collections. But Amazon appears to be the only one including free titles in its bestselling e-book list — giving them broad exposure.

Interesting side note: Amazon’s Kindle store is now heavily promoting its recently announced collaboration with Shmoop. The new Shmoop Classics for Kindle are a mashup offering, combining literary works with an interactive guide of "smart, fun analysis." Kind of sounds like electronic CliffsNotes. More from the Amazon Kindle blog.

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Amazon is making progress getting the major college textbook publishers on board with its Kindle electronic reader. Today, McGraw-Hill Education said it will begin offering 100 higher education titles on the Kindle. McGraw-Hill joins the other major textbook publishers, Cengage Learning, Pearson, and Wiley, which are already selling Kindle editions. Amazon is positioning its new large-screen Kindle DX reader as a replacement for physical textbooks — and needs to get as many titles as possible into electronic form.

When Amazon announced the Kindle DX in May, it said Cengage Learning, Pearson, and Wiley were all part of the project, but McGraw-Hill’s name was conspicuously absent. Now, with McGraw-Hill in the lineup, the Kindle DX can offer titles from the four biggest textbook publishers. According to Subtext, a monthly newsletter covering the book publishing industry, the top four college publishers by 2008 annual sales were Cengage ($1.7 billion), Pearson ($1.6 billion), McGraw-Hill ($610 million), and Wiley ($230 million).

McGraw-Hill said the textbook titles will be used in on-campus pilot programs with the Kindle DX this fall. Amazon and a handful of universities (including the University of Washington) are providing Kindle DXs to some students to test as a textbook replacement.

"The modern student body increasingly requires digital access and capabilities, and we are pleased to be strengthening our partnership with Amazon to help meet these critical needs," said Ed Stanford, president of McGraw-Hill Higher Education, in a statement.

Will students take to the Kindle DX? The devices would be certainly easier to lug around than a pile of books. Students spend a lot of money on textbooks today, though the Kindle DX, currently priced at $489, isn’t cheap either.

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and T-Mobile adds subscribers at a slower pace as revenues fall  

T-Mobile USA, the fourth largest wireless carrier in the U.S., said that it netted 325,000 new customers during the second quarter as revenues fell slightly to $5.34 billion.

T-Mobile also has been struggling to hang onto customers, with a contract churn rate that increased to 2.2 percent from 1.9 percent for the same period last year.  The number of new subscribers also has slowed, with 415,000 net additions in the first quarter and 668,000 in the second quarter of last year.

T-Mobile, with 33.5 million subscribers, boosted its operating income before depreciation and amortization (OIBDA) to $1.6 billion. That was up 16 percent over the first quarter and up 1 percent over the same period last year. Full press release here.

Meanwhile, T-Mobile plans to introduce its new myTouch 3G — built on Google’s Android operating system — today in by having 100 skydivers form a "T" as they fall from the sky above San Francisco. (Cnet has a photo gallery of the extravagant launch ceremonies here).

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and John L. Scott Real Estate unveils new mobile site for the iPhone  

Zillow.com grabbed some buzz — not to mention users — when it introduced a slick iPhone application in April that allowed home buyers to pull up information while on the go.  Not to be outdone, John L. Scott Real Estate today unveiled a new mobile service that’s optimized for the iPhone and other smartphones.  

Instead of creating an iPhone app that is downloaded, the Seattle real estate firm opted to create a service that automatically detects the device and provides enhanced features. Those include the ability to pull up nearby for-sale listings based on the phone’s GPS capabilities. It also creates easy shortcuts to contact a John L. Scott agents and nearby offices.

“There’s no assembly required; just switch on your iPhone and our website will do the rest,” said CEO J. Lennox Scott in a release. 

Of course, there’s one big difference between John L. Scott’s new service and Zillow’s app — other than the fact that it doesn’t require a download. While you can search for nearby sale listings on the new service, it doesn’t show every home in the neighborhood as Zillow’s offering does. 

That’s especially helpful for home buyers — not to mention real estate professionals — since they can conduct research on nearby properties as they look at homes for sale in a specific neighborhood.

John L. Scott has been trying to push the envelope when it comes to new technologies, working with Microsoft to create a new social network called JLSconnect and incorporating enhanced online mapping technologies on its Web site.

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Report: Publicis heads the pack to buy Microsoft’s Razorfish  

Microsoft has been looking for some time to unload Razorfish, the digital ad agency that it acquired as part of its $6 billion acquisition of aQuantive two years ago. Now the pack of potential suitors appears to be narrowing down.

French ad agency Publicis is currently in the lead to buy Razorfish, and has bid between $500 million and $600 million for the agency, according to a report today in the Wall Street Journal. Microsoft wants the buyer of Razorfish to commit to purchasing "hundreds of millions of dollars" in ads across its various web properties, an issue that’s now being "hammered out" by Microsoft and Publicis, the Journal reports.

That kind of ad commitment — if Microsoft can nail it down — could boost Microsoft’s newly minted partnership with Yahoo as it takes on Google in the internet search market. According to the Journal, Japanese ad giant Dentsu also made a bid for Razorfish, and Omnicom Group and WPP expressed early interest in the agency.

Many observers believe Microsoft was primarily interested in aQuantive’s technology units, the online advertising platform Atlas and website ad network DRIVEpm, and picked up Razorfish as part of the deal. Razorfish, which has been hit hard by the economic downturn as clients cut back on ad budgets, has undergone several rounds of layoffs over the past year.

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Microsoft this afternoon released an update for Mac Office 2008 that the company says will fix a file-format problem encountered by users after the July 20 release of Service Pack 2 for the Mac Office suite. You can download the fix here.

Mac PowerPoint users originally brought the problem to our attention, saying that the previous Service Pack 2 update prevented them from opening PowerPoint files previously saved with the ".pptx" extension. However, the accompanying support document indicates that Mac Office and Excel files were impacted, as well.

If you were experiencing the problem previously, let us know if the update fixes it for you.

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and Seattle company introduces automatic pancake machine  

Americans have created some pretty cool high-tech gadgets over the years. The iPhone. The Xbox. The Kindle.

Now, get ready for some real innovation. A Seattle company has introduced the ChefStack, a $3,500 automatic pancake machine that creates "perfect panless pancakes" in a matter of seconds. In fact, the machine can spit out fat-free flapjacks at a rate of 200 per hour.  Ah, you gotta love America.

ChefStack was formed earlier this year by R.J. Selfridge, a long-time food executive who spent the past 10 years as head of operations at Tully’s Coffee. The device — about the size of a small microwave oven — has been sold in Australia and New Zealand where it has been deployed in Marriott Hotels and the airport lounges of Qantas airlines.

The company — which also is targeting sales in coffee shops, schools and hospitals — writes in a press release:

Presentation and vending options to end customers are limited only by the creativity and menu selection of the ChefStack partner. From traditional restaurant-style three pancake stacks with butter and maple syrup, to mini-pancake “shooters” with eggs and meat, to fruit-filled pancake turnovers, the possibilities for customer satisfaction and profits are virtually limitless.

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and Blue Nile earnings down, but in line with analyst estimates  

Online diamond and jewelry retailer Blue Nile reported a dip in second-quarter earnings, but the results were in line with analyst expectations. The Seattle-based company said Q2 net income was $2.8 million, or 19 cents a share, compared to $3.2 million, or 20 cents a share, the same quarter a year ago. Analysts had expected earnings of 19 cents a share.

Sales for the second quarter totaled $69.9 million, down from $73.7 million in the year-ago quarter, a drop of 5.2 percent. International sales were $7.1 million, down 12.3 percent, primarily due to the impact of foreign currency exchange rates.

Blue Nile said that excluding the impact of currency exchange rates, international sales would have declined 1.2 percent, but the company also said it "experienced continued economic weakness in key markets, particularly the U.K."

"Blue Nile delivered excellent financial results in a challenging retail environment, with strong profitability and market share gains,” saidCEO Diane Irvine, in a statement.

In an Aug. 4 preview of Blue Nile’s second-quarter earnings, McAdams Wright Ragen analyst Dan Geiman wrote:

We continue to believe that NILE is relatively well positioned within the jewelry market given its competitive price points, relatively affluent and educated customer base, and strong supplier relationships, which should allow the company to outperform its peers. Longer-term, a reduction in store capacity within the jewelry industry should be a plus for NILE as well.

Blue Nile said its inventories were $15.7 million at the end of Q2, a decline of 6.3% from a year ago. The company said it had $48 million in cash and cash equivalents at the end of the second quarter.

Blue Nile Chief Financial Officer Marc Stolzman said expects sales to be "flat to slightly down" in the third quarter. He said he projects full-year net sales of between $288 million and $295 million, and diluted earnings per share in the range of 78 cents to 82 cents.

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RealNetworks cuts 12 more jobs, or 9 percent of its music division  

One week after a tough earnings report, RealNetworks today moved to further reduce its expenses by cutting 12 more positions, totaling 9 percent of its music division, a spokesman confirmed this afternoon. The latest layoffs follow the elimination of 130 jobs last year, and a smaller round of cuts a couple months ago.

The jobs cut today involved employees of RealNetworks and its Rhapsody America joint venture with MTV Networks. The layoffs represent about a half-percent of the company’s overall workforce, said Bill Hankes, a RealNetworks spokesman. He said the company is putting greater emphasis on its mobile and web businesses, and reducing the resources it’s putting into editorial projects and PC client software.

The cuts come despite the fact that music was the only one of the company’s main business units to see an increase in revenue in the second quarter, rising 9 percent to more than $40 million. Revenue in the company’s games unit and media software and services business declined by 15 percent and 34 percent, respectively.

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Oncothyreon Inc., which is developing drugs for the treatment of cancer, said that it has received commitments from investors to purchase stock and warrants valued at $15 million. The Seattle company also named Diana Hausman  — formerly of ZymoGentics — as vice president of clinical development.

Seattle’s Walk Score gets a positive review from Opposing Views, with Kaid Benfield writing that "it’s great fun, and highly useful in generating a rough approximation of how "smart" a location is." The review also mentions how the site integrates with real estate sites such as Zillow.com and Estately. 

Speaking of real estate, DocuSign today introduced enhanced features for its electronic signature which are specifically geared toward real estate professionals. The service –which starts at $19.95 per month — is designed to eliminate the printing and faxing of real estate documents when a transaction is nearing completion.

The University of Washington Bothell MBA Program is launching a Leadership MBA program this fall at its Eastside Leadership Center in Bellevue. Information is available here. Demand for the LMBA program has been high, despite the recession, but there are still slots open, says Sandeep Krishnamurthy, director of the UW Bothell Business Administration Program. UW Bothell also offers a Technology Management MBA Program at its Bothell campus.

Getty Images today introduced a new set of products designed for those seeking images to display on Web sites and mobile devices. Andy Saunders, vice president of creative imagery at the Seattle company, said that images will allow customers to get "high quality imagery quickly, easily and at the appropriate price points."  Images in the collection range from $5 to $49, which compares to some of the free images offered in the creative commons section of Flickr.

The Life Sciences Discovery Fund — which was established by Washington state to support cutting-edge life science research — today announced grants totaling $300,000 for two University of Washington researchers. The UW’s Kenneth Schenkman and his team received $150,000 "to test a new instrument for the diagnosis and monitoring of shock" while the UW’s Philip Fleckman received $150,000 "to test the ability of a percutaneous catheter to resist infection."

Boston venture capitalist Jeff Bussgang explains why it’s tough to say "no" all of the time.

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and Marchex sales take a big hit  

Revenue at Marchex fell to $21.1 million during the second quarter, down from $37.4 million for the same period last year. Meanwhile, the company swung to a net loss during the quarter as it struggles with a tight online advertising market.

"While there are some signs of stabilization in the economy, we continue to experience an uncertain economic environment that is impacting our near-term revenue outlook. Additionally, while we made significant progress in lowering our exposure to certain financially challenged customers, conversations with these customers are still ongoing. As a result, we believe it prudent to not issue guidance at this time," said CEO Russell Horowitz in a press release.

The company’s net loss for the quarter was $1.2 million, which compared to net income of $509,000 for the same period last year. The stock has lost about 29 percent of its value so far this year.

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Is Amazon’s Kindle store about to lose a bunch of content? News Corp. CEO Rupert Murdoch is making noises about breaking ties with Amazon over its pricing terms for Kindle books. That could be significant, given that News Corp. owns publishing giant HarperCollins, the Wall Street Journal and a bevy of other newspapers.

Here’s a report that just came out of Dow Jones Newswires (also part of News Corp):

News Corp. (NWS) may break ties with Amazon (AMZN) over pricing terms for the Kindle e-reader, News Corp. Chairman and Chief Executive Rupert Murdoch said Wednesday in a conference call, according to a report on Fox Business Network. Murdoch also said News Corp. is in talks with Sony Corp. (SNE) about making content available on that company’s upcoming e-reader, which aims to challenge the Kindle.

Sony just announced it will soon start selling two new electronic readers, including a $199 version that would be significantly cheaper than Amazon’s $299 Kindle.

Murdoch has grumbled in the past about Kindle and dropped hints of investing in a rival reader.

More to come.

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and InfoSpace profit, revenue up, surprising analysts  

Bellevue-based InfoSpace reported a jump in second quarter profit and revenue, surprising analysts. The internet search company’s shares rose more than 11 percent in after-hours trading.

InfoSpace said Q2 net income increased to $2.9 million, or 8 cents per share, from net income of $1.9 million, or 6 cents per share, the same quarter a year ago. Second-quarter revenue was $43.8 million, up 14 percent from the year-ago quarter. Analysts polled by Thomson Reuters First Call expected a Q2 loss of 2 cents a share and $38 million in revenue.

InfoSpace CEO Will Lansing pronounced himself "extremely pleased" with the results. "We achieved revenue growth and greater profitability in a tough economy. At the same time, we continue to invest in new product initiatives including the launch of two new metasearch sites in the quarter," Lansing said in a statement.

InfoSpace yesterday unveiled an upgraded metasearch engine at InfoSpace.com — though it faces a long uphill climb to compete against the likes of Google and Bing-Yahoo for a piece of the search market. Last month, the company launched a charity search engine called DoGreatGood.com — which will donate half its net revenue to various charities.

InfoSpace shares were up more than 11 percent in after-hours trading to $8.13.

The company said it ended the second quarter with $208.3 million in cash, cash equivalents, and marketable securities, including $8.2 million of auction rate securities. The company said it had no debt obligation at the end of Q2.

InfoSpace gave guidance for the third quarter, saying it expects revenue between $47 million and $49 million and operating results to be between a net loss of $500,000 and net income of 500,000, or a net loss of 1 cent per share to net income of 1 cent per share.

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and Microsoft moving Azure from WA data center, citing state tax policy  

Microsoft today told early users of its Windows Azure cloud computing platform that it will shift applications and storage away from its Pacific Northwest data center in Quincy, Wash., prior to Azure’s commercial launch. Microsoft cited "a change in local tax laws," referring  to a controversial decision that excluded data centers from a rural manufacturing sales tax exemption under Washington state law.

"Due to a change in local tax laws, we’ve decided to migrate Windows Azure applications out of our northwest data center prior to our commercial launch this November," the company says on the Windows Azure blog. "This means that all applications and storage accounts in the “USA - Northwest” region will need to move to another region in the next few months, or they will be deleted."

That doesn’t bode well for Grant County, Wash., the home of data centers for Microsoft, Yahoo and others. Despite Intuit’s recent opening of a data center in Quincy, the big data center operators have been reevaluating their plans in the region since Washington state Attorney General Rob McKenna determined in 2007 that they didn’t qualify for a major sales tax deferral program.

The Data Center Knowledge blog says the Azure services in Quincy will shift to San Antonio, Texas, where Microsoft has another large data center. The Oak Leaf Systems blog has more details and background, as cited by ZDNet’s Mary Jo Foley in a post on the topic.

The potential impact on the rest of Microsoft’s operations in Quincy isn’t clear. We’ve asked Microsoft for more information about its plans for the data center, and we’ll update this post depending on the response.

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Concur CEO ‘very pleased’ with company’s 63% net income gain  

Concur Technologies, which earlier this week announced the purchase of France’s Etap-On-Line, today reported a 13 percent increase in revenues and a big increase in net income that beat company expectations. Shares jumped nearly four percent in after hours trading. 

The Redmond software company, which helps corporations streamline travel and entertainment expense forms, posted fiscal third quarter revenues of $62.2 million. Its net income increased to $7.2 million, or 14 cents per share. That compared to net income of $4.5 million for the same period last year.

Chief Executive Steve Singh said he was "very pleased" with the results and noted that new customer growth in the quarter was among the strongest in the company history.

“Against the backdrop of an environment that is beginning to stabilize, our ongoing ability to execute well, and the large-scale opportunity in front of us, we are beginning to reaccelerate our investments across the business while we continue to execute on our core objectives of expanding distribution, driving innovation in our industry, and setting the bar for service excellence," he said in the release.

For fiscal 2009, Concur expects earnings per share of 49 cents and cash flows from operations of $64 million to $66 million.

Year-to-date, the stock is up five percent.

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Seattle startup EnerG2, a University of Washington spinout that is developing a longer-lasting alternative to the battery, has scored $21 million in federal funding to build a manufacturing facility in Oregon.

The grant is part of a $2.4-billion U.S. stimulus package to accelerate the next generation of U.S. batteries and electric vehicles. EnerG2 will use its funding to build a facility in Albany, Oregon, for "production of high energy density nano-carbon for ultracapacitors," according to information put out today by the U.S. Energy Department.

EnerG2 has raised $11 million from investors, who include OVP Venture Partners, Firelake Capital. EnerG2 CEO Rick Luebbe did not immediately return a message seeking comment.

Here’s how EnerG2 describes its technology on its website:

EnerG2 is currently focused on customizing electrode materials to enhance energy and power density in ultracapacitors, one of the essential engines of the new energy economy. Ultracapacitors, which are dependent on the performance of their materials, store and release more energy faster than conventional batteries. The size and make-up of the electrodes’ surface area helps ultracapacitors store and supply large bursts of energy; the materials also effectively enable limitless cycle life.

Ultracapacitors containing EnerG2 materials will be increasingly embraced by the automotive industry for hybrid electric vehicles, by electronics manufacturers for enhancing the life and usability of consumer goods, and by a variety of industrial customers to deliver an ever-increasing breadth of new ways to improve energy efficiency.

In the future, EnerG2 materials may be used to improve natural gas, methane and hydrogen storage as well as lithium-ion batteries.

My colleague John Cook explored EnerG2’s technology in a report last November.

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and With Jaech in charge, Verdiem’s green IT business surges  

Shortly after Jeremy Jaech was tapped as CEO of Verdiem last year, the serial entrepreneur said he was excited by the opportunity to take the green IT business and "scale it."

Well, today we’re getting some insights into Jaech’s handy-work after nine months on the job. The 8-year-old company, which helps government entities and corporations save money and electricity by powering down computers when they are not in use, said that the software has now been installed on more than one million desktops.

It also announced that its business customer base has more than doubled in the past 12 months. One of those new customers is Cox Communications, which recently deployed Verdiem’s Surveyor software on 15,000 networked computers. That has resulted in PC energy savings of 40 percent, the companies said.

Jaech has been known to build big companies before — namely Aldus (sold to Adobe) and Visio (sold to Microsoft). In an interview with TechFlash earlier this year, Jaech said there’s a lot of momentum right now behind the idea of reducing energy costs in a corporate environment.

"Whereas a couple years ago it was pretty hard to make a corporate sell of a green IT product or service, that has completely switched," he said. "Part of it is corporate responsibility, but another part of it is with the Obama administration coming in."

Verdiem has raised about $27 million from Kleiner Perkins Caufield & Byers, NCD, Phoenix Partners and others.

John Cook is co-founder of TechFlash. Follow on Twitter @johnhcook.

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Add another consumer service to the Microsoft dustbin. The Windows Live team says it’s discontinuing Windows Live Events in stages starting next month and ending next year. The company is encouraging people to use Windows Live Calendar to plan and manage events.

Microsoft launched the service in October 2007, hoping to rival Evite and other online events sites. Less than two years later, Windows Live Events has turned out to be about as effective in that mission as MSN Soapbox was in taking on YouTube.

"In order to focus and prioritize our resources on Windows Live, we are retiring Windows Live Events and encouraging people to use Windows Live Calendar for their event organizing needs," a Microsoft representative said in response to our inquiry. "With Windows Live Calendar we’re making it easier to manage and share your events, to-do lists and reminders all from one place."

A post on the Windows Live blog yesterday outlined the process by which Windows Live Events will be retired, saying that the ability to add events will go away early next month. "You’ll still be able to access and edit your existing events until 2010," the post added, "and we encourage you to save your photos and files from your existing events before then."

Microsoft in recent months has announced plans to discontinue a series of consumer products and services — including the Encarta encyclopedia, Windows Live OneCare security program and Digital Image Suite photo software — as part of its effort to cut costs.

(Via CNet News.com)

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and Market Leader’s sales continue to fall as real estate slump persists  

The tough real estate market continues to take a toll on Market Leader, the Kirkland provider of online marketing tools to real estate professionals. The company said that revenue declined to $5.9 million in the second quarter, down from $10.1 million for the same period last year.

The company — formerly known as HouseValues — also posted a net loss of $3 million for the quarter. It finished the quarter with $55 million in cash and cash equivalents.

According to Google Finance and Yahoo Finance, the company today had a market capitalization of $47.5 million.

The company said in the release that its customer attrition rates are slowing. But it also noted that times remain tight:

While existing home sales improved in the second quarter compared to the first quarter level, research from REAL Trends, Inc. shows that real estate commissions declined once again in the second quarter. Market Leader expects real estate professionals to continue to remain cautious regarding new marketing expenditures as they recover from the industry slowdown.

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and Guest Post: We’re better than this  

Glenn Kelman: Anyone noticed how nasty the TechFlash comments have gotten lately? When I first arrived in Seattle after 17 years away, I was at a low point in my life, working for a company I hadn’t founded in a market I didn’t understand. It was this community that helped me find my way.

Aaron Finn pulled me aside to explain how display ads really work. Udai Shekawat, I remember, had to spell out what SEM stood for on a hike to Snow Lake. And the great Brad Silverberg – if there was a baseball card for software geniuses, I’d have his rookie card — invited me to his house for an otherwise lonely holiday.

Later, after Redfin had picked a fight with the whole real estate industry, and our blog posts were routinely attacked by Realtors out for blood, I thought, “Now these people, these people are animals.” I was relieved by the certainty that the folks in tech were my people. I had your back — I still do — and you had mine.

Well now the civilized conversations are happening on the real estate blogs, and we’re the ones tearing each other part.

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Amazon’s MP3 business gets some traction on Twitter  

When I last did a survey of Amazon.com’s various Twitter accounts, the biggest, for Amazon’s MP3 digital music service, had 13,000 followers. Fast forward a few months and it now 860,000 followers. Can it be long before it hits the 1 million mark? Amazon MP3, which generates a stream of music deal alerts, continues to dwarf Amazon’s other Twitter accounts.

The other official Amazon Twitter accounts I’m aware of are quite a bit smaller — @amazondeals (15,000 followers), @amazongames (5,000), @amazonpayments (600), and @amazonwishlist (100). There’s also the official @amazon account (5,000) and a mysterious @jeffbezos account, which has produced a single test tweet but managed to accumulate more than 400 followers. Amazon CTO Werner Vogels and Amazon web services evangelist Jeff Barr are also active on Twitter (with 6,000 and 4,000 followers, respectively).

Let me know if you’re aware of other Amazon units on Twitter.

Amazon has been experimenting with Twitter in various ways this year. The online retailer created a URL shortener for products and integrated Twitter into its "Share with Friends" feature (If you share an Amazon product on Twitter, it automatically creates a tweet with the product name and short Amazon URL).

Amazon just announced it’s acquiring online shoe retailer Zappos, which is an active user of Twitter and other social media. Amazon and Zappos make an interest contrast in the way they use Twitter — with Amazon sticking mostly to deal alerts and Zappos CEO Tony Hsieh tweeting his thoughts, interesting quotes, travel plans, and conversations with Snoop Dogg, in addition to highlighting his company.

Follow my updates on Twitter.

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Is the electronic reader market headed for a price war? Sony — which represents the main competition for Amazon’s Kindle — is reportedly planning to unveil two new e-readers, priced at $199 and $299. Amazon recently reduced the price of its Kindle 2 reader to $299, though its larger-screen Kindle DX still retails for a whopping $489.

The new Sony readers, called PRS-300 and PRS-600, are expected to go on sale later this month at retail chains including Best Buy and Wal-Mart, the Wall Street Journal reports. It will be interesting to see if the new readers — particularly the $199 device — take any market share away from Kindle. Forrester Research recently questioned whether Amazon can hold onto its early lead in the e-reader market, particularly if it sticks with the online-only sales model.

Interestingly, Amazon’s pricing model for Kindle books — $9.99 for new releases and best-sellers — appears to be the standard now. The Journal says Sony is planning to slash the cost of its best-selling e-book titles to $9.99 from $11.99. Barnes & Noble, the other big player in e-books, moved to the $9.99 model last month.

Sony recently took steps to bolster its list of available e-book titles, by adding more free public domain books from Google’s massive book-scanning project.

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and Search deal requires Microsoft to hire at least 400 Yahoo workers  

Microsoft and Yahoo openly acknowledged last week that their search partnership would result in some Yahoo employees shifting to Microsoft, as the Redmond company’s plan takes over search development for both. Turns out they aren’t leaving it to chance.

Yahoo today filed new details about the agreement with the Securities and Exchange Commission — including the fact that the partnership requires Microsoft to hire "not less than 400" employees from Yahoo. The provision would kick in after the companies finalize the deal, which still hinges on regulatory approval in the U.S. and overseas. Here’s what the filing says about the transition.

As promptly as practicable, Yahoo! and Microsoft will agree on a detailed transition and implementation plan and schedule for implementing Microsoft’s algorithmic search services and paid search services on all Yahoo! Properties and Syndication Properties. The transition and implementation plan will be for a period of no longer than 24 months from the Commencement Date, subject to an extension for up to three additional months if the end of the 24-month period ends during the fourth quarter of a calendar year. The parties intend that the transition and implementation plan will be either set forth in a separate transition services agreement or as part of the Search Agreement.

Following the Commencement Date, Microsoft will hire not less than 400 Yahoo! employees (the “Transferred Employees”) and will offer the Transferred Employees market competitive compensation packages. In addition, Yahoo! and Microsoft will mutually agree on a retention plan to be paid for by Microsoft to assist in retaining the Transferred Employees and an additional 150 Yahoo! employees to be mutually agreed upon between Microsoft and Yahoo! to assist with providing the transition services.

Microsoft has hired several former Yahoo executives in recent months, including Qi Lu, now the president of Microsoft’s Online Services Business. The Redmond company has significant operations in Silicon Valley, so it’s possible that many of the workers could remain in California even after shifting between the companies.

[Via The Associated Press] 

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and Supercomputer maker Cray swings to a profit, stock surges  

Shares of Cray Inc. jumped 14 percent today after the Seattle supercomputer maker reported strong earnings that beat analysts’ expectations. The company reported net income of $3.4 million, or 10 cents per share, on revenue of $62.7 million. That compared to a net loss of $6.4 million and revenue $46.7 million.

Analysts expected earnings of just one cent per share and revenues of $61.1 million for the quarter, according to Thomson Reuters First Call.

"We’ve made tremendous progress on some of our new initiatives, expanding our product and service offerings to further solidify our leadership position in the industry and delivering our cutting-edge supercomputing technology to a broader set of customers," said Peter Ungaro, president and CEO of Cray. "With a solid pipeline of opportunities and over $70 million in new wins in just the last week our investments are paying off, putting us in an excellent position to deliver continued growth and sustained profitability in 2009 and beyond."

In trading today, the stock rose $1.20 to $9.36 to close near its 52-week high. The company — which recently won contracts with Department of Energy’s National Energy Research Scientific Computing Center, Oak Ridge National Laboratory and the Korea Meteorological Administration — said it now expects revenue of about $290 million this year, including $90 million of service revenue.

It also expects to see revenue grow modestly next year and to be profitable.

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Microsoft’s Mac unit schedules mysterious news conference  

Microsoft’s Mac Business Unit, which makes Microsoft Office and other programs Apple computers, today scheduled a news conference call for Thursday, Aug. 13, without any hint of what it will be announcing — saying only that it has "some exciting news to share." It’s an unusual move for a division of the company that isn’t known for big surprises.

We don’t yet have any further insight, but if Microsoft were to come out with a version of Office for the iPhone, the Mac unit would be the natural division to produce it, given its experience writing software for Apple platforms. The conference call will feature Eric Wilfrid, the Mac BU general manager. When we quizzed him about the possibility of an Office app for iPhone earlier this year, he didn’t rule it out.

"It’s something we’re looking at, clearly," Wilfrid said at the time. "Our mission is delivering Microsoft productivity to Mac customers. There are a lot of Mac customers who have iPhones, so we’ll think about it through that lens. What is it that we might be able to do on the iPhone that would help Mac customers be productive, and contribute to the business that we’ve built and to the connections to Microsoft software and services. But we still don’t have any iPhone news to share at this point."

Of course, it’s possible that they still won’t have any iPhone news to share next week, and the announcement could be about something else entirely. But Stephen Elop, president of Microsoft’s Business Division, also has hinted at the possibility of an Office iPhone app.

Microsoft already offers mobile versions of Office apps for Windows Mobile, but an expansion to the iPhone would put the company in a delicate position, given the fact that it’s planning to launch a rival to the iPhone App Store on Windows Mobile later this year.

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