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The next IBM is likely to be born in this recession. You’ll know it because it’s the one pumping out profits, not press releases.

At any rate, welcome to the real world. In the real world, CEOs get paid for vision and holding to a budget. In the real world, companies must be managed well to win. Sure, every so often, there’s a Google that grows for years without any apparent adult supervision, but for every Google phenomenon, there’s a Microsoft, Intel, or IBM that wins because it out-executes the competition.

Every day, we’re hearing about yet another start-up (or established technology vendor) laying off workers. This may mean that the companies are battening down the hatches in preparation for a nuclear economic winter, but it also likely means that these same companies haven’t been prudently managing their VC investments.

I guess it took the collapse of a few financial institutions to convince us that we actually have to start treating our companies like businesses, not Monopoly games. Perhaps we were distracted by cutesy Web 2.0 names. More likely, we were distracted by the cutesy Web 2.0 revenue models that are long on marketing and short on substance.

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Several sites are tallying up lists of start-ups that are undergoing significant layoffs. (Interestingly, not much noise on that front is coming out of Europe.)

It took Sequoia Capital to describe the obvious: we’re in a tight, recessionary economy. But any CEO worth her salt should have seen this long ago. I wrote in February about a pending recession and its effects on open-source start-ups like SugarCRM, but I was no prophet: everyone was talking about a weakening economy.

“Stateless computing isn’t about having no state. It’s kind of a misnomer. It’s about where that state is stored. Since the emergence of the PC in the early ’80s, we have stored the state on the physical computer and that has presented a myriad of challenges that has driven IT costs through the roof,” Birnbaum said.

With stateless computing, users’ settings and data are automatically saved to the server, which could be run by their employer or outsourced. Cloud computing generally refers to technology that lets people use Web browsers to access applications running on central servers, though it also can refer to general-purpose server infrastructure that companies can tap into as needed.

But to get to the state of stateless computing, companies will need to change the way they view their hardware needs and how they store and access the information, said Jeffrey Birnbaum of Merrill Lynch, who served as a keynote speaker Tuesday at LinuxWorld in San Francisco.

“Stateless computing isn’t about having no state. It’s kind of a misnomer. It’s about where that state is stored.” –Jeffrey Birnbaum, chief technology architect, Merrill Lynch

As companies glom onto cloud computing, stateless computing is likely to emerge as a core tenant within the cloud and one that can deliver cost savings, predicted the chief technology architect for Merrill Lynch.

But key to accessing the information and applications via stateless computing is placing them all in an organized name space file system. For example, Gmail.google.com is a name space, in which Gmail is the application and Google is the domain, which aids users in how to navigate to the site.

As for cost savings via stateless computing, Birnbaum noted that the use of stateless computing will remove a lot of IT redundancies for companies. He added that 61 percent of computing systems are underutilized, because of these redundancies.

“The key to this is the version. The idea is to put everything you view, whether it’s an application or library, you put it into this file system. So, therefore, you never have this problem of an IT industry created problem of the software stack,” Birnbaum said. “If you placed every little thing that you had, a config file, everything, into a version name space, and then you were able to build your applications against that and all the dependencies for applications were referable in this file system, there would be no need to ever build a stack because every application would inherently know what it’s dependents were and would all be (retrievable) through this global file system.”

He added that the advent of 10GB Ethernet will aid the move to cloudless computing, and also stateless computing.

A similar method can be use with applications, said Birnbaum, who noted Merrill Lynch is in the process of building a name space, with a file system behind it and a set of tools to manage that name space.

Whether companies are using Windows or Linux, there is a root of a file system, a meta project, and version number.

Birnbaum noted that in stateless computing, as in cloud computing, companies need to ask themselves what they seek to achieve, how much capacity they expect they’ll need, and whether those needs will change and when. And from there, a placement engine goes out and searches for capacity within a physical server or through a virtual machine (verses, for example, filling the need by buying an additional 20 dedicated servers on a network.)

“Many customers end up with multiple agreements because Select is not as flexible as customers would like,” he said. Microsoft isn’t getting rid of Select, but expects that over time, customers will choose the new option.

Although it adds yet another option, Joe Matz, corporate vice president at Microsoft, said that Select Plus fills a need.

“Microsoft’s software maintenance agreement is among the industry’s most expensive–25 percent for server products and 29 percent for desktop products,” Forrester said in the report. “In terms of upgrade rights–the major element–this
is only cost-justified by a three- to four-year upgrade cycle, but Microsoft has undermined Software Assurance’s value proposition by missing delivery dates for new versions.”

In a recent report, Forrester advised its clients to plan months ahead to figure out which Microsoft licensing option made the most financial sense. The analysis firm also said that Microsoft’s Software Assurance support program is more expensive compared with rivals.

The program’s two main attractions are the fact that it is not tied to a specific term and it makes it easier for different subsidiaries of a company to take advantage of their combined purchasing power.

Microsoft said Monday that it is adding a new licensing option, this one dubbed Select Plus and targeted largely at midsize firms.

The additional option runs counter to the trend at Microsoft, which has been working to scale back the number of different licensing plans. The company had managed to shrink its number of options–from 107 programs in 2006 to 23 as of last year. With Select Plus, the number of Microsoft licensing programs has crept back up to 26.

The software maker has come under criticism from some customers and analysts for both the cost and the complexity of its licensing programs.

I’m always skeptical of any proposition that requires the studios to agree on standards. Hollywood should also learn from the music industry and abandon DRM now. Consumers have already rendered a verdict on DRM: death.

OK, while acknowledging I haven’t heard all the details, the plan at this point sounds complicated and it also calls for competitors to cooperate. This is not an easy thing in Hollywood.

Most of the largest motion picture studios are backing a plan that would create interoperability among digital rights management schemes.

The plan also calls for a neutral party to manage a central registry where users would register their devices. Movies purchased from participating services would then play on devices from participating manufacturers.

TechCrunch is reporting that Sony Pictures is behind the plan that has the support of most of the top film companies–other than those backed by Walt Disney. A Sony spokesman could not be reached for comment Tuesday evening.

According to Michael Arrington, the plan calls for “a set of policy decisions and a software and services framework that will allow interoperability of various formats and DRM schemes that are currently splintering the market.”

Google and Yahoo’s controversial search advertising partnership deal took another hit Thursday, as consumer and public interest group Center for Digital Democracy fired off an opposition letter (PDF) to the chairman of the Senate antitrust committee.

It is crucial that the U.S. do everything it can to promote competition in the key digital advertising market, especially given its emerging core role as the principal means supporting online editorial content. Unless action is taken–the deal opposed or, at the very least, meaningful conditions imposed, serious competitive harm will be inflicted on this vital sector of the U.S. economy.

And Google offered this perspective on whether Yahoo will eventually outsource an increasing volume of its ads to Google to the point where it would cease to be in that line of business:

Neither Google nor Yahoo! set ad prices. Ads are priced by an auction where an advertiser only bids what an ad is worth to them. And because of the wide variety of keywords and ads it is impossible for anyone to predict with certainty what might happen to prices for individual queries or even across the board. Furthermore, ad price is only one part of the story. A more important measure for advertisers large and small is the return on investment of their advertising dollar. The Google-Yahoo! agreement will help advertisers convert more clicks into customers by showing more relevant ads on Yahoo!, giving advertisers a better return for every dollar they invest.

Google, meanwhile, is not standing still as various organizations weigh in on its proposed transaction with Yahoo.

But Yahoo, according to a letter (PDF) obtained by CNET News, had its U.S. executive vice president, Hilary Schneider, respond to the ANA concerns with this:

In its FAQ, Google addresses the pricing issue by noting:

Yahoo! has made clear that it will still use its own system to serve ads, and it will use extra revenue from this deal to improve its ad platform. The arrangement covers only the U.S. and Canada, and excludes the fast-growing mobile segment. Yahoo! also has an economic incentive to keep serving as many of its own ads as possible, since it gets to keep all of the revenue from those ads, while receiving only part of the revenue from ads served by Google.

The Center for Digital Democracy also cited concerns that the transaction may undermine competition and could ultimately reduce payments to newspaper publishers, which receive revenue from the two companies’ online search ads and related services.

Google announced Thursday that it has launched a Web site about its deal with Yahoo to serve as a FAQ.

The letter to Kohl also notes that the group had already issued its complaints to the Justice Department last July.

Update at 10:43 a.m. PDT: Additional information added relating to Google’s FAQ Web site.

In the coming days and weeks, it will become more clear whether the Department of Justice shares those views.

The organization, which is known for taking positions on issues like privacy, asked Kohl to press antitrust regulators to address potential privacy issues arising out of the search advertising partnership, as well as concerns about the deal reducing competition in the market. According to the letter:

The Center for Digital Democracy asked Sen. Herb Kohl (D-Wis.), to call on the Department of Justice to oppose the partnership between the two companies, or at a minimum establish “meaningful safeguards” to the arrangement.

This is exactly the opposite of our business goals in pursuing this agreement. The essence of our strategy is to 1) enhance the search user experience by showing the most relevant ads, and 2) show ads that deliver the most value to advertisers and to Yahoo! For example, the agreement allows us to provide more valuable results to queries where we have no coverage or are under‐covered, and importantly to use the proceeds to develop products and services that scale and will strengthen our own marketplace.

Under the proposed deal, Google’s paid ads would appear on Yahoo’s search pages, an arrangement through which Yahoo expects to generate an additional $800 million in revenues within the first year. In terms of the competitive landscape, Google holds a substantial lead over its competitors Yahoo and Microsoft in the market for search advertising.

Earlier this month, the Association of National Advertisers expressed similar concerns as the Digital Democracy, relating to potentially rising advertising prices and reduced competition in the marketplace over time.

Federal antitrust regulators have recently narrowed their focus on the proposed transaction to whether it will lead to increased prices for advertisers in the short term and, in the longer term, lead to Yahoo exiting the online search advertising market altogether. Privacy is not a topic of interest for the antitrust regulators, much to the dismay of the Center for Digital Democracy.

Between the 421 stations that made the switch Tuesday and the approximately 220 stations that transitioned earlier, about one-third of the country’s television stations have now dropped their analog signals.

Five EU states have transitioned to digital signals (Germany, Finland, Luxembourg, Sweden and the Netherlands), and the entire EU is aiming to complete the transition by 2012.

Meanwhile, the European Union on Monday released a statement saying “Europe is leading the world in switching from analogue to digital television.”

Even though the national deadline for television stations to switch from analog to digital broadcasting has been pushed back to June, 421 stations made the transition Tuesday, the date of the original deadline. The changeover prompted 28,315 people to call the Federal Communications Commission’s DTV transition help line.

More than 28,000 consumers called a federal help line Tuesday, after hundreds of television stations dropped their analog signals.

The number of calls Tuesday was 37 percent higher than on Monday, when 20,673 people called for help. However, most of the 421 stations that transitioned to digital broadcasting Tuesday did not do so until midnight, so the calls did not represent the full impact of the switchover. From midnight through 11 a.m. Wednesday, the FCC received 6,750 calls for help.

The FCC said the help line has been running smoothly, with calls being answered almost immediately. Most calls, the agency said, were from people who were unaware they needed to run the “scan” function on their digital televisions or converter boxes to search for changed channels.

To protect his privacy and that of his clients, Mitnick encrypts all the confidential data on his laptops, transmits it over the Internet for storage on servers in the U.S., and wipes it from the computer before returning from any international trips, just in case officials decide to search or seize his equipment. He also encrypts his hard drive. And now, he says he is going to keep a “clone” of his MacBook at home so he will have an exact duplicate of it if it is ever seized.

Mitnick’s Delta Airlines plane landed in Atlanta on September 16 at around 3 p.m. He had flown in from Bogota, where he had gone to give a speech to the newspaper El Tiempo and to visit his girlfriend.

“They can detain you for four hours, inspect everything, and put you through the third degree for no reason…I travel in foreign countries that have even more stringent rules, and I never have problems.”

He finished the call and went back to the business at hand, offering his luggage up for inspection. A customs agent asked if he had ever been arrested. “Yes.” Had he ever been to jail? “Yes.” For how long? “Five years.” They knew the answers all too well, of course.

“There was uncertainty, fear, and panic because I didn’t know what was going on, and I didn’t do anything wrong,” he said in a recent telephone interview with CNET News. “In my mind, I thought I was being set up for something.”

As if that wasn’t bad enough, while he waited to retrieve his luggage, Mitnick’s cell phone rang. It was his girlfriend in Bogota saying she’d just gotten a call from the police there. They wanted permission to open up a package of computer equipment and souvenirs he’d mailed back to the U.S. a few days earlier because they said they found traces of cocaine on the package.

Fortunately for Mitnick, one of the members of the panel he was to moderate works for the FBI, and customs agents were able to reach him to verify Mitnick’s story. Meanwhile, ASIS organizers, worried about Mitnick’s non-arrival for his awaiting airport ride, had also called the director of security at the airport and helped clear things up. The FBI in Atlanta cleared Mitnick of any wrongdoing, so ICE let him go after apologizing several times. After some more questioning from customs officials, he was released.

“Then I realized I was logged in and I don’t want them to have my password,” Mitnick said. So, he quickly reached over and hits the power button to “off.”

But what about the package in Bogota? Police there tore open the box, took the electronic equipment apart, and destroyed the hard drive trying to open it by drilling a hole in it, but didn’t find any drugs. The two incidents were, apparently, completely unrelated and coincidental.

After landing at the Atlanta airport for a security conference, Mitnick was detained for four hours for reasons still not fully explained. To make matters worse, while customs officials in Atlanta were busy inspecting his cell phone, laptop, and luggage, police in Bogota were ripping open a package he had mailed to his U.S. address on suspicion that it contained cocaine.

He can laugh about it now, but he was willing to share the story as a cautionary tale for anyone traveling into the United States with computer equipment. He was red-flagged for obvious reasons, and someone without his background might be able to stay under the radar. However, scrutiny is at the whim of officials who have been said to target political activists, nuns, and people who just happen to have a last name on no-fly government lists.

Updated at 7:55 a.m. PT on Wednesday to specify that the FBI cleared Mitnick of any wrongdoing in this event.

(Credit:
Monty Brinton )

Here’s a rundown of what happened:

The first sign of trouble was when a U.S. customs agent swiped his passport through the computer system and started staring intently at the screen and typing. “Kevin,” the agent said with a big smile on his face. “Guess what? There are some people downstairs who want to have a word with you, but don’t worry. Everything will be OK.”

In his luggage, they found a MacBook Pro, a Dell XPS M1210 laptop, an Asus 900 mini-laptop, three or four hard drives, numerous USB storage devices, some Bluetooth dongles, three iPhones, and four Nokia cell phones (with different SIM cards for different countries).

Since being released from prison eight years ago, Kevin Mitnick’s brushes with the law have consisted of a few parking tickets and a citation for driving without a front license plate–that is, until he returned from a trip to Colombia two weeks ago.

Agents from the Immigrations Customs Enforcement (ICE) arrived to question him. They asked why he was in Atlanta and he told them; he was there to moderate a panel at a security conference sponsored by the American Society for Industrial Security (ASIS). Asked for proof, he fired up a laptop to show them the itinerary in his e-mail. But when he clicked “yes” to have
Firefox clear his private data–an automatic response to a default setting–the agents snatched the laptop away from him, thinking he was deleting evidence.

“Can you imagine if I had said to the agents ‘Does this have to do with the cocaine?’” Mitnick jokes.

“I was really nervous because I didn’t know what the hell was going on,” he said.

“They can detain you for four hours, inspect everything, and put you through the third degree for no reason. It’s really a police state,” Mitnick said. “I travel in foreign countries that have even more stringent rules, and I never have problems.”

The simultaneous incidents gave Mitnick deja vu of his days as a fugitive pursued by the FBI for breaking into computer networks, only this time, he hadn’t broken any laws.

They also found a lock-picking kit and an HID proximity card spoofer that can be used to snag data stored on physical access cards by swiping it in front of them. The data can then be used to enter locked doors without having to make a forged access card. Mitnick says he used the device in a demonstration about security in his speech in Bogota, but that the customs agents’ eyes lit up when they saw it, thinking it was a credit card reader.

And then there is the recently bestowed right customs officials have to seize laptops crossing into the country with no cause whatsoever–though that may change. Legislation was recently introduced that would require reasonable suspicion of illegal activity before border agents could search electronic devices of U.S. citizens.

“I don’t harbor any ill feelings toward (customs), but I was really scared because of the circumstances that were happening in Bogota at the same time,” he says. “I feel lucky in a sense, and I feel violated in a sense.”

Mitnick asked if he was under arrest and was told that, no, he was just being detained. He asked if there is a warrant for his arrest and he was told, “We don’t know yet.” The agents let him call his lawyer and his family.

Search ad strength
Google makes most of its money through ads delivered alongside search results. Advertisers bid to have their ads placed next to results based on search keywords that people type into the search box, and they pay Google only once people click on those ads. One significant measurement from the company: the number of search ads on which people clicked increased 18 percent from the year-earlier quarter.

“We’re seeing an explosion in mobile search volume,” Schmidt said on a conference call to discuss earnings results. “The compound growth rate is one of the fastest growing things in the company.”

“We had a good third quarter with strong traffic and revenue growth across all of our major geographies thanks to the underlying strength of our core search and ads business. The measurability and return on investment of search-based advertising remain key assets for Google,” said Chief Executive Eric Schmidt in a statement. “While we are realistic about the poor state of the global economy, we will continue to manage Google for the long term, driving improvements to search and ads, while also investing in future growth areas such as enterprise, mobile, and display.”

The company reported net income of $4.92 per share, excluding various items such as stock-based compensation, compared to expectations of $4.75 from analysts surveyed by Thomson Reuters. Revenue was $4.04 billion, excluding commissions called traffic acquisition costs that are paid to advertising partners, compared to an expected $4.053 billion.

Keeping expenses down
Not that Google is immune to ordinary business pressures. The company also is trying to keep expenses in check, though it continues to hire at a slower rate. “We kept tight control over costs,” Schmidt said.

Updated at 3:22 p.m. PDT with further details.

In Google’s second quarter, the company missed expectations for profit and issued a more cautious assessment of the online advertising market, sending the stock down to $478 or so. With the current economic pessimism, that price looks downright giddy: Google’s stock closed at $353.02 a share on Thursday, and Collins Stewart analyst Sandeep Aggarwal pointed out that a full third of Google’s employees have nothing but valueless “underwater” stock options that have greatly diminished incentive value.

Google's revenue continued to rise in the third quarter of 2008.

However, he and chief economist Hal Varian were willing to raise expectations that Google could fare well in the current climate. Not only do advertisers prefer ads they can prove are profitable to run, but even consumers might put the company ahead.

Is a recession good for Google? ‘The Wal-Mart effect’
Taking the big-picture view, Google has been cheery about Silicon Valley’s prospects overall, but analysts skeptical of online advertising growth have reduced forecasts. The credit crunch and expected recession have sent tech companies’ stock plunging downward in October.

“When we did the deal, we understood it would be controversial, that competitors would oppose it, and there’s a proper role for legal review,” Schmidt said. “We anticipated what turned out to be about a four-month (antitrust review). We’re hopefully nearing the end of that period. We’re in communication with the Justice Department and others.”

The company, through its acquisition of DoubleClick earlier this year, is trying to bring the same measurability to the more loosey-goosey world of graphical “display” ads, where costs are paid when ads are displayed and many ads are intended to promote brands rather than more specific actions such as buying a particular gadget.

Google easily cleared analysts’ profit expectations for the third quarter of the year, patting itself on the back for the results but offering a cautious qualifier about current economic conditions.

Using generally accepted accounting principles, net income increased from $1.07 billion in the year-earlier quarter and $1.25 billion in the second quarter to $1.35 billion in the third, the company said.

After-hours trading sent the stock up 10 percent to $389.

Schmidt offered no new guidance on the search-ad deal with Yahoo, a partnership the companies had expected to have begun by now but that they delayed for further antitrust review at the Justice Department.

The company hired at a relatively slow rate, with employee head count increasing by 521 to 20,123, the company said.

“When there is a recessionary event, and people are counting pennies and researching purchases, this potentially has an upside for Google,” added Varian, who called the phenomenon “the Wal-Mart effect.” “We think this kind of effect could work to Google’s benefit potentially.”

(Credit:
Google)

Because of the paid-click mechanism, advertisers’ spending on search ads can be tightly linked to the success of specific ads, a factor Google executives eagerly point out when confronted by worries about advertisers’ cold feet. “Advertisers are willing to take all the clicks we can give them at the current cost per click. Even in tough times, that will continue to be true because nobody wants to turn away a customer,” said Omid Kordestani, Google’s senior vice president of global sales and business development.

“As consumer budgets are squeezed, people use the Web for comparison shopping,” Schmidt said.

The company also is eyeing new ad revenue from increasing use of the Internet by people with mobile devices.

Schmidt was careful to include plenty of cautionary statements in his conference call remarks. “It’s clear the economic situation is so fluid that we’re all in uncharted territory…It’s clear the global economic situation is worse than predictions just a month ago,” he said.

Download today’s podcast

Today’s stories:

Gadgets go greener, thinner, and wireless at Ceatec

Jobs heart attack rumor not true, Apple stock swings

Also in this podcast, Windows XP gets another lifeline, a date has been set for the Large Hadron Collider to be turned on again, and we look at which gadgets at Ceatec might actually make it into the real world.

Hands on with Sony’s new PRS-700 digital reader

What’s the big deal about WiMax?

Listen now:

Steve Fossett’s unfinished legacy: Deepest ocean exploration

Apple is strongly denying a rumor posted on CNN’s iReport page that Steve Jobs suffered a heart attack this morning. iReport is a citizen journalism section of CNN, where people can submit their own news stories. CNN has removed the post in question, but the report caused a sharp drop in Apple’s stock price before company representatives were able to deny the charge.

Date set for restart of Large Hadron Collider

Sony’s ‘David Blaine’ starts 30 days of living in display window

In addition to a legacy of adventure and entrepreneurship, Steve Fossett leaves behind a top secret project he’d been working on. He had bought a highly advanced underwater submersible he hoped would take him to the bottom of the Mariana Trench, lower than any point on Earth humans have gone. Reporter Daniel Terdiman joins today’s podcast to talk about the project and where it goes from here.

Windows XP gets another lifeline

Skype: We didn’t know about security issues

Report: New HP smartphone aimed at consumers

Here’s a sampling of recent
green-tech news:

Compression Could Reduce Data Center Energy Use by 95% - EcoGeek

The specific company pitch aside, compression could make a difference in data center space and energy usage. Last week, IBM Software general manager Steve Mills told me 75 percent of corporate data is redundant.

(Credit:
BioPowerSystems)

Underwater Wind Turbines? - CleanTechnica
Another wave/tidal power design, called BioWave, that uses biomimcry, or copying nature.
Costs to Build Power Plants Pressure Rates - WSJ.com
Because of rising commodity prices, it costs twice what it did in 2000 to build power plants today, says energy research firm CERA. Utilities could push energy efficiency harder to avoid building new plants.
Rockefellers Seek Change at Exxon - NYTimes.com
Fascinating drama playing out as the descendants of Standard Oil’s founder submit shareholder votes to urge Exxon to move into alternative energy for environmental reasons.
Biofuel powered microbial fuel cell wins World Bank’s "Lighting Africa" grant - Exchange Morning Post
The microbial fuel cell, developed at Harvard University, uses dirt to draw small amounts of electricity–enough to light an LED lamp.
World Bank to Raise $5.5 Billion for Climate Funds - Bloomberg.com
In Japan, rich nations pledge money to fund clean-energy technologies and projects in developing countries until 2012, the year the Kyoto Protocol expires.

A design for utility-scale power generation from ocean power.