By Michael Copeland

It’s not your 15-year-old daughter’s Internet anymore. On the first full day of the Web 2.0 Expo, that more than anything seemed to be the message from the conference room floor.

Tech stalwarts like Oracle (ORCL), IBM (IBM) and Microsoft (MSFT) were showing off technologies that bring elements of the consumer Internet to the workplace. Startups that last year might have been flogging a consumer video service or photo sharing site, instead were demonstrating web-based technologies to develop better Flash sites for business, a cheaper CRM software or an easier way to collaborate on projects. Dubbed Enterprise 2.0, the movement has been gathering steam for some time, but at the Web 2.0 Expo, business seems to have at last eclipsed the consumer Web.

The usual laptop-covered-in-stickers crowd was present as well, but for the most part this is not a gathering of people breathless over the latest Facebook app or keen on launching a widget that makes it easy to find where your favorite band is playing.

Part of that is by design: The companies that can afford to set up in the Expo hall are companies with money, like IBM, Microsoft, Adobe (ADBE) and others. But that itself is a sign of where Web 2.0 is heading. Last year, consumer Web companies had cash to burn. This year, many of the darlings of the social Web, startups that nailed funding at lofty valuations over the last 12 to 18 months, are holding onto what cash they have in anticipation of tougher times ahead.

It has been harder to monetize the social Web than many have thought, and buyers have become harder to come by, especially at the prices many Web2 companies thought they could command. As a result, companies are switching business models like spent horses. “People are realizing that advertising is not good for everything, that it’s not going to make them the next Google,” says Raju Vegesna, an engineer with online applications developer Zoho. “They are starting to get worried.”

Easy for Vegesna to say - Zoho is going directly after the business world, and makes money from subscriptions for its Web-based software. There is no question, though that smart entrepreneurs are starting to see things the way the Zoho team does, and creating applications and services that cater to business. That’s the good news for the corporate world. It’s about to get a slew of new tools that are informed by the best of the consumer world, but that pack the scaleability, security and customization that business users require. We’ll highlight the best over the next two days. It’s enough to make a 15-year-old girl jealous.

Microsoft (MSFT) signaled its ready to play hardball with Yahoo (YHOO) in its bid to acquire the Internet giant, and antitrust regulators are scrutinizing a trial advertising partnership that Google (GOOG) and Yahoo recently struck.

Microsoft put some substance behind its threat to take its three-month-old buyout offer to Yahoo shareholders by naming 13 people as potential candidates to the company’s board, according to Thursday’s The Wall Street Journal.

The list includes former Nextel Partners CEO John Chapple; Edward Meyer, former chief of Grey Global Group; Jaynie Studenmund, the former chief operating officer at Overture Services, a company Yahoo acquired a few years ago; and former Adelphia Chief financial officer Vanessa Wittman, the Journal reported.

Microsoft’s tougher stance comes amid news reports that the Justice Department is looking into Yahoo’s outsourcing of some of its advertising to Google. The companies’ two-week trial ended Wednesday. Yahoo has said it involved about 3% of its search results.

Yahoo has been looking for ways to reduce the cost of operating its search service and, in an effort to thwart Microsoft, to demonstrate it can thrive as a standalone business. But the cooperation between the No.1 and No.2 two search engine shops immediately raised anticompetitive flags when the pact was announced earlier this month.

Google says it “informed the Justice Department before we launched this test, and we have been responsive to their questions about it,” according to the Los Angeles Times. Yahoo said it too had given the Justice Department a heads up prior to the test, according to the Times report.

Microsoft has given Yahoo until Saturday to come up with a counter proposal or answer to its $43 billion takeover offer.

By Yi-Wyn Yen

A slowing economy hasn’t fazed Amazon.

The online retail giant beat the Street on Wednesday with sales that soared 37% to $4.13 billion for the first quarter. Amazon (AMZN) also reported profits of $143 million, or 34 cents per share from the same period a year ago, which came in ahead of analyst estimates of 32 cents a share on revenue of $4.08 billion.

Despite fears of an economic meltdown, Amazon raised its 2008 sales forecast slightly, to between $19.1 and $20 billion, which would be an increase of about 30% over 2007. Specifically, Amazon expects to see growth in sales from third-party retailers that sell on the site and make up about one third of its revenues, as well as from Amazon Prime, a $79 service that guarantees free two-day delivery on every purchase.

Still, analysts grilled Amazon CFO Tom Szkutak about how a consumer slowdown might affect the company. Szkutak said he didn’t have a “lot of data points on the economy,” but that Amazon was focused a simple strategy: offer customers good selections at low prices. “It’s hard to predict what will happen,” Szkutak said. “We think that in this type of environment, customers want great value for down times and up times.”

Though revenues continue to surprise investors, Amazon’s operating margins - long a concern for Wall Street - have remained flat at 4.8% as the company invests heavily to expand its technology and its businesses abroad.

“They’re driving hard for growth,” says Jeffrey Lindsay, an Internet analyst with Bernstein Research. “What keeps surprising us is better than expected growth versus lower than expected margins.”

Investors have punished Amazon before for its disappointing margins, and this latest report was no different. Shares fell 5% in after-hours trading Wednesday.

By Scott Moritz, writer

Qualcomm (QCOM) isn’t seeing a slowdown in wireless apparently. The San Diego tech giant posted solid fiscal second quarter results and guided up for the current quarter.

The wireless standard bearer posted an adjusted profit of 54 cents a share, up from 50 cents a year ago, and 2 cents better than analysts predicted. Sales in the quarter rose 17% to $2.6 billion from $2.2 billion in the year-ago quarter. Analysts anticipated a $2.5 billion revenue performance.

“The fundamental drivers of our business remain strong, and based on the current business outlook, we are raising fiscal 2008 revenue and earnings per share guidance,” CEO Paul Jacobs said in a press release.

Looking ahead, Qualcomm expects a fiscal third quarter profit of 51 cents, directly in line with analysts expectations. Sales for the quarter are expected to remain flat at about $2.6 billion, well above analysts estimates calling for sales of $2.3 billion.

And as a sign that demand for more expensive smart phones is rising, Qualcomm forecast the average selling price of phones to jump to $223 in the fiscal third quarter from $215 last year.

For the full year, Qualcomm now expects sales to be around $10.2 billion that is up from previous guidance calling for $9.8 billion in revenue.  That compares with $8.8 billion last year. Analysts were looking for $9.9 billion in total sale for the year ending in September.

Qualcomm shares dipped 53 cents to $41.36 in after-hours trading Wednesday.

By Scott Moritz, writer

The yelling phase of the proposed Microsoft/Yahoo merger got a bit louder as Yahoo (YHOO) turned in good numbers ahead of the deal negotiation deadline.

In the wake of a solid first quarter performance from Yahoo Tuesday, Microsoft (MSFT) chief Steve Ballmer said his company was standing pat on its original $31 a share unsolicited takeover offer. Microsoft has given Yahoo until Saturday to come to the table with a counter proposal, or face a proxy battle.

“We know what Yahoo is worth to us. We offered a lot of money: $44 billion,” Ballmer said in Milan Wednesday, according to a Reuters report. “If their board thinks that’s fair, great. If not, we’ll move forward,” Ballmer said.

Ballmer is likely waiting to see what Yahoo does come Saturday — the end of the three-week period Microsoft gave Yahoo to consider its options. Microsoft has threatened to start a proxy fight if the two companies fail to come to terms. This would open up an ugly process where Microsoft takes its appeal to shareholders calling for the ouster of Yahoo’s top management and key board members.

Last week, Yahoo rejected the Microsoft bid for a second time saying the proposal undervalued the company. Yahoo also held discussions with Time Warner (TWX) about a deal involving a 20% stake to be held by Time Warner in exchange for AOL and a pile of cash for share buybacks.

But many analysts and investors favor a more amicable conclusion that seems to call for a slightly sweeter offer from Microsoft, either a price higher than $31 a share or an all-cash offer.

Yahoo’s earnings Tuesday, while far from dazzling, did show that the company is not deteriorating as quickly as Microsoft may have suggested. Both companies, however, continue to lose business to Google (GOOG) a point that industry observers say makes the Microsoft Yahoo merger a growing necessity.

The trouble for Yahoo is that it must convince Microsoft to outbid itself, says Darren Chervitz analyst with the Jacob Internet Fund, a big Yahoo investor.

It’s well known that Yahoo has long been losing Net search traffic to Google. And by passing on the acquisition of Facebook last year, they’ve done little to improve their competitive position, says Chervitz.

And for its part, Microsoft has gained very little traction on the Internet. Efforts like MSN mail and .Net haven’t exactly hit any jackpots. Meanwhile, Google has expanded into Microsoft’s software domain with word processing and other office applications available to users online for free.

An even bigger threat to Microsoft is Google’s push into wireless applications. The Google-sponsored Android project hopes to create an operating system for a new generation of mobile devices, a direct threat to Microsoft’s Windows Mobile system. Microsoft can’t easily afford to miss the mobile Internet opportunity, says Chervitz.

“Yahoo,” says Chervitz, “is the only acquisition that gets Microsoft into the game.”

By Yi-Wyn Yen

It’s time for Microsoft to sweeten the bid.

Hours before Yahoo (YHOO) beat easy quarterly estimates on Tuesday, Microsoft CEO Steve Ballmer said his company wouldn’t raise its $43 billion offer no matter how well Yahoo performed. Nevertheless, Ballmer must up the ante if Microsoft (MSFT) intends to get a deal done with Yahoo.

In a call with analysts Tuesday, Yahoo CEO Jerry Yang signaled that his company wasn’t interested in a deal unless his company was offered more money. Microsoft’s No. 1 takeover target has until Saturday to accept the bid that would buy out Yahoo at slightly less than $30 a share or else face a proxy fight.

It took Yang a mere five minutes into Yahoo’s highly-anticipated earnings call to let Microsoft know he wasn’t going to be the first to back down. For the millionth time, Yang said the deal “substantially undervalues” his company.

Then he threw the ball back into Microsoft’s court. “Our board and management team continue to be open to any and all alternatives,” Yang said, “including a sale to Microsoft.”

Surely, Ballmer, who was halfway around the world in Morocco to launch the company’s MSN portal, is weighing his options: Go hostile or throw a few billion more at Yahoo, which has twice rejected its original offer. “We think we can accelerate our strategy by buying Yahoo and will pay what makes sense for our shareholders,” Ballmer said before the earnings Tuesday.

On Wednesday, Ballmer let Yang know he wasn’t going to be bullied around. “We know what Yahoo is worth. We offered a lot of money,” Ballmer said at a conference in Milan, according to Reuters. “If their board thinks that’s fair, great. If not, we’ll move forward.” Likely the move will be to begin a hostile takeover Saturday. Microsoft has hired Innisfree M&A to help it oust Yahoo’s 10-member board.

On the call, Yang and president Sue Decker insisted that the company is headed in the right direction. Yahoo offered its latest numbers as a final defense to its shareholders that it’s worth more than Microsoft is offering. Yahoo posted earnings per share of 11 cents, beating analyst forecasts by 2 cents. Its revenues, which exclude money it shares with advertising partners, climbed 14% to $1.35 billion, $20 million ahead of the consensus. Yang highlighted Yahoo’s display advertising revenues, which grew 25% from a year ago, and praised the company for its satisfactory quarter, calling it “impressive” under the circumstances.

But let’s face it. Those estimates weren’t too difficult to beat given that analysts had started with such low expectations. Yahoo also didn’t change its guidance for the year on annual revenues of $7.2 billion to $8 billion, which analysts considered a weak forecast when it was issued in January.

Yang said the company is still exploring “strategic alternatives” as Microsoft decides its next move. Yahoo ends its two-week test using Google’s search advertising on Wednesday and the company is in talks with Fortune’s parent Time Warner (TWX) to strike a partnership with AOL.

Analysts argue that Yahoo is playing for time. “Yahoo puts in numbers slightly better than expectations and wants a little more time to pursue alternatives. It’s time Microsoft doesn’t want [them to have], which means they will have to increase their offer to get investors over,” says Youssef Squali, an analyst with Jefferies.

As Google continues to gain online advertising share, Yahoo and Microsoft continue to fight with one another and fall further behind. The best way to quickly catch up is to start with Microsoft raising its bid. Analysts have suggested that an offer between $31 to $35 a share will make the deal possible. “If I’m a Yahoo shareholder looking at Yahoo’s performance and Microsoft as a potential buyer, I would think Microsoft is going to come in and sweeten the bid,” Squali says.

Expect that to happen or things will start to get ugly fast.

By Scott Moritz, writer

Broadcom (BRCM) will pay $12 million to settle federal charges of stock option backdating and, in an unrelated but hotly-anticipated development, the communications chipmaker posted solid first quarter results.

The Irvine, Calif. semiconductor shop posted a profit of $74.3 million or 14 cents a share for the quarter ended  March 31. Those numbers compare with $90 million or 16 cents a share in the prior quarter and a dime in the year-ago period.

Sales for the first quarer were $1.03 billion, nearly flat with the prior quarter but 14% above last year’s level.

Analysts were looking for sales of $992 million.

Broadcom didn’t provide immediate detailed financial guidance, but said it saw strong sales trends in the current quarter.

“While we remain cautious on the macroeconomic front, based on strong ordering trends from our customers throughout the first quarter, we expect solid revenue growth for the second quarter within each of our three major target markets,” CEO Scott McGregor said in a press release.

The company also settled Security and Exchange Commission charges that it falsified income accounting by backdating employee stock options. The $12 million payment comes more than a year after the company took a $2.2 billion charge to account for 234 million backdated stock options.

Broadcom shares were up $1.36, or 6%, to $24.91 in after-hours trading Tuesday.

By Scott Moritz, writer

Phone giant AT&T (T) — No.10 on the Fortune 500 list — boosted first-quarter results by finding enough growth in segments like wireless to help offset its weakening core business.

The shrinkage in Ma Bell’s total phone lines continued in the first quarter with land — or access – lines dropping 7.7% from a year ago as customers fled to rivals or simply canceled their home phone service.

On a conference call with analysts, CFO Rick Lindner said the company “still sees softness in access lines,” but he added that the impact was offset by new broadband and video customers.

Lindner now says this balancing act “supports our premise that our business continues to be more defensive than most when the economy is under stress.”

For example, Ma Bell’s sputtering video-over-the-Net offering, dubbed U-Verse, is finally starting to stem customer defections to competing services offered by cable companies such as Comcast (CMCSA) and Time Warner Cable (TWC). AT&T added 148,000 new U-Verse customers in the first quarter and says it is on target to reach 1 million subscribers at year-end.

AT&T was one of the first telcos to wave the warning flag on consumer spending. In January, the company reported that it saw “softness” in some regions with high foreclosure rates. The weak housing market comes amid an acceleration in phone and high-definition TV competition from cable and satellite service providers.

Asked if he could comment on the health of the market Lindner declined, saying he chose “not to enter the debate on the state of the economy,” and will let AT&T’s “numbers speak for themselves.”

For the first quarter, AT&T posted an adjusted profit of 74 cents a share, up from the 65 cents a year ago and in line with analysts expectations. Sales for the quarter were $30.7 billion, up from $28.9 billion at the same time last year, and also in line with the Street.

In wireless, the San Antonio, Tex.-based company added 1.3 million net new users, down from the 2.7 million in the prior quarter, but more than the 1.19 million that signed on a year ago. The net gain in retail post-paid subscribers (users who have signed on with one or two-year contracts) was 705,000. That number is below the 1.7 million logged in the Christmas quarter and up slightly from the 678,915 users that were added a year ago.

Churn, the measure of monthly subscriber cancellations remained flat at 1.7%, both sequentially and for the year. Post-paid customer loyalty remained steady at 1.2% in the quarter.

AT&T managed to squeeze more profit out of its wireless business in the first quarter. Adjusted operating income was $3.5 billion, up from $2.5 billion a year ago. Some of the improvement came from a 2% increase in the average revenue per user, or ARPU, which came in at $50.18, as wireless customers racked up more data charges for messaging, e-mail and Net access.

On the iPhone front, where AT&T serves as the exclusive sales partner for Apple (AAPL), the company said it saw “stable demand” in the first quarter. About 40% of iPhone buyers are new to AT&T, and the ARPU for iPhone customers was more than $95 a month — considerably higher than for the average AT&T customer.

But total access lines continued to decrease. Total lines fell 7.7%, to 60.4 million, from 65 million a year ago. That pace is slightly slower than the overall 8.1% line loss rate in 2007.

One area of massive growth that caught little attention was AT&T’s total debt, which grew 15% to $73.4 billion from $64 billion a year ago.

AT&T shares were up a quarter to $37.84 Tuesday.

By Michael Copeland

On the eve of the latest and largest Internet gathering this year, O’Reilly’s Web 2.0 Conference and Expo, Forrester Research dropped a report that concludes that companies will spend $4.6 billion on Web2-related technologies by 2013. What that means for you, fellow office dweller, is that Forrester believes the world of wikis, widgets, blogs, mashups and social networks will increasingly find a way into your work life.

The emphasis won’t be entirely on internal collaboration, Forrester analyst G. Oliver Young writes, but will also offer “a fundamentally new way to connect with customers and prospects…By 2013 investment in customer-facing Web 2.0 technology will dwarf spending on internal collaboration software by nearly a billion dollars.”

In other words, you will interact with your customers and prospects the same way you do with friends on Facebook or maybe more likely with colleagues on LinkedIn, and with the same Web-based communication and tracking tools.

It makes sense that companies embrace the same easy-to use Web-based tools that we use increasingly in our social lives. Mark Benioff at Salesforce.com has been preaching that for some time now, both through AppExchange and his latest brainchild Force.com, his so-called platform-as-a-service offering. There are numerous other Web-based services including Jigsaw, BaseCamp, Yahoo’s Zimbra, Zoho, and many others that are already bring a Web2 flavor to the work world. What Forrester is arguing, however, is that for everyone who still thinks AJAX is a cleaner, and Twitter is what birds do, a lot of Web2.0 will come.

Does that mean you will be getting Twitter updates from your customers or your boss? If not actual Twitter updates, than perhaps a more corporate version that can offer the same immediacy and easy access to a list of key people. Much of the consumer Web2.0 stuff that makes it fun won’t make the leap, no doubt, but the ease of use and connectivity will.

Will it be a less exciting and dynamic Web-based world that Forrester anticipates? Clearly. What it might also be, however, is a more profitable one. And that is something that many of the Web2 startups that are piling into San Francisco at the moment will be very happy to hear.

By Yi-Wyn Yen

Is Yahoo bluffing?

Wall Street, which has spent weeks trying to read CEO Jerry Yang’s poker face, will finally get an answer when Yahoo (YHOO) shows its cards and reports earnings after the closing bell Tuesday.

Expectations are high as Yahoo, Microsoft’s No. 1 takeover target, attempts to convince investors that it’s worth more than Microsoft (MSFT) is currently willing to pay. Yahoo has until Saturday to accept Microsoft’s $43 billion offer, which values the stock at slightly less than $30 per share, before Microsoft begins a hostile takeover. The Redmond, Wash. software giant will report its own numbers Thursday.

In this high-stakes game, Yahoo can’t afford to disappoint. Some analysts say that truly terribly first-quarter earnings are unlikely; Yahoo has been talking up this quarter in an investor roadshow. Besides, for the past three months it’s steadily rebuffed Microsoft’s advances. If Yahoo were having serious problems, its board would likely have quickly accepted Microsoft’s original cash-and-stock offer, which was valued at $31 a share when it was made on Jan. 31. “If Yahoo! management does not have a reasonably good quarter’s performance in the bag at this point, even announcing a deal with Google at the last minute is unlikely to stave off investor pressure to close the Microsoft deal,” wrote Jeffrey Lindsay, an analyst with Bernstein Research, in a recent note to investors.

In fact, any sign from the tarnished Internet portal that it’s doing better than expected should bolster its bargaining position. That shouldn’t be that difficult considering that Yahoo executives set such a low bar after its last quarterly earnings, forecasting revenue (excluding money the company shares with advertising partners) of between $1.28-1.38 billion. Analysts polled by Thomson Financial expect Yahoo to report first-quarter net revenues that are in line with their estimates of $1.33 billion and modest earnings of 9 cents per share.

Other analysts have become more bullish on Yahoo in the wake of Google’s strong showing last week. Google’s paid-search profits rose 30% last quarter, a sign that could indicate that more ad dollars will continue to shift online. “GOOG has been seeing relatively higher growth from big advertisers. This means YHOO, which tends to have deeper relationships with big advertisers, should see continuation of growth reacceleration in its [owned and operated] display ad,” said Sandeep Aggarwal, a Collins Stewart analyst, in a note to clients.

Though economists have argued that display advertising, which is the way that big brands prefer to spend their online ad dollars, is vulnerable in a recession, some industry watchers aren’t convinced. Digital ad spending in the United States, which includes display – or banner – advertising, is expected to rise 23% to $26 billion, according to research firm eMarketer.

During Yahoo’s last earnings call, Yang promised that display advertising would grow by the second half of the year. Last year Yahoo bought ad exchange Right Media to compete with Google’s DoubleClick and ad network Blue Lithium to help sell its unsold ad inventory. The company also reorganized its sales team to refocus on display advertising, the company’s core business. “For an extended period of time last year, Yahoo had an unhealthy focus on their search business,” says Jeff Lanctot, the senior vice president of media for Microsoft’s online ad agency, Avenue A/Razorfish. “Their focus on returning to the display business has been noticeable this quarter.”

Microsoft CEO Steve Ballmer will be watching closely on Tuesday to see if that paid off. In a letter to Yahoo shareholders, Ballmer cited economic conditions that have “weakened considerably” and suggested that Yahoo’s market share had fallen. Yahoo’s stock has traded 51% higher on average than when it last traded at $19.18 prior to Microsoft’s offer.

Strong quarterly results could put pressure on Ballmer to raise his bid. “It was pretty clear that Microsoft was betting on Yahoo having a lousy quarter so it wouldn’t have to negotiate,” says Martin Pyykkonen, an analyst with Global Crown Capital. “Yahoo isn’t going to win or lose this hand, but Microsoft got a little aggressive.”

Some analysts are expecting Microsoft to up the ante to $34-35 a share to close the deal. Microsoft has admitted that it cannot catch up with Google (GOOG) in the online ad space without Yahoo. Google owns a 59% share of the U.S. search market, while Yahoo and Microsoft’s MSN combined would command 30% of the market, according to Nielsen Online. Now, Microsoft must contend with a possible scenario in which Yahoo teams up with AOL, which is owned by Fortune’s parent company Time Warner (TWX). Yahoo is also running Google’s search advertising in a limited test run that ends Wednesday.

Will Microsoft raise its bid? Will Yahoo sit pat and trigger a proxy fight? The cards that Yahoo shows Tuesday afternoon could determine how this game plays out.