It’s been a busy week around here for the big tech companies. At Xconomy, we don’t usually report on things like product releases from Microsoft or sales figures from Amazon—our main focus is on new ideas, models, and companies—but readers need to understand where the big players are heading so they can see the gaps and opportunities for new businesses. So, for each of these pieces of mainstream tech news, I’ll tell you why savvy innovators and business leaders should care.

—Google (NASDAQ: GOOG) demonstrated its Web-based Chrome operating system for the first time in public yesterday. It won’t be available for another year, but the tech community is scrambling to understand all the implications. (Google’s Seattle engineers have contributed technology to the Chrome Web browser, helping to boost security—one potential advantage of a cloud-based operating system).

Sure, a fully cloud-based OS is a direct threat to Microsoft’s business model and the ecosystem of companies that support Windows. But more than that, it could reshape the landscape of online advertising by providing a new platform for launching ads on mobile devices, video channels (YouTube), and Internet TV. Perhaps the only thing that can slow down Google’s dominance on the Web is the federal government. In other words, this could get ugly.

—Microsoft (NASDAQ: MSFT) has teamed up with LinkedIn to provide info about your business contacts within Outlook e-mail. It’s all part of Microsoft’s Outlook Social Connector, an add-in that feeds you data from your social networks. Integrating e-mail with social networks and search is a fast-growing area, with startups like Gist in Seattle (backed by Paul Allen and Foundry Group) helping lead the way. Gist’s CEO T.A. McCann told TechFlash that he’s known about Microsoft’s effort for a while and doesn’t see it as a direct challenge. Gist’s offering is more advanced, he said, and it includes features like integrating with Salesforce.com and the iPhone. But startups and investors beware: if you’re in this crowded space, you better have a product that cuts through the noise and has a way to attract customers fast.

—RealNetworks (NASDAQ: RNWK) is in discussions with Viacom’s MTV Networks to sell off at least some of its stake in the Rhapsody music service, as first reported by PaidContent. In a regulatory filing, prompted by a tender offer to issue new stock, Real said it is in talks to reorganize the management structure and/or corporate governance of the division, which might mean giving up its majority ownership stake (51 percent) in Rhapsody. Back in September, digital-media guru Bill Baxter (now at Seattle-based Cozi) wrote in Xconomy about Rhapsody’s fierce competition with Pandora, iTunes, and piracy. Message to startups: the world of digital music services is probably not where you want to be.

—Amazon (NASDAQ: AMZN) has been busy ramping up operations ahead of the holiday shopping season. Its billion-dollar acquisition of Zappos is helping it expand into shoes and apparel, and its Kindle sales look poised to take off, especially now that Barnes & Noble’s competing e-book reader, the Nook, has sold out until January. Amazon has really become the business and technology model to follow in online retail and product search. While there is still room for e-commerce startups to compete in various niches, they would be wise to study how Amazon built its brand and customer relationships before branching out to the wider world of retail.

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Online search and information discovery are being transformed before our eyes. It’s no longer just Google, or Google and Bing, or even Google, Bing, and Twitter—there are big problems in technology and business to solve across all areas of social media search, real-time news and information, mobile search, user interfaces, search marketing, vertical search (travel, products, people, video, you name it), and other related topics. Just imagine what the landscape might look like in another 10 years.

A lot of the action is happening around Seattle. If you want to hear what the big companies are doing to stay ahead of the curve, and where startups and venture capitalists have some real opportunities, you’ll want to join us for the Xconomy Forum on “The Future of Search and Information Discovery” on November 30 at the University of Washington. (Registration info is here—the early bird rate ends tomorrow, and tickets are going fast.)

Search touches almost every aspect of business today. So get your tough questions ready for our panel, which will feature Brian Bershad from Google, Harry Shum from Microsoft (Bing), Steve Hall from Vulcan Capital, and Oren Etzioni from UW, Madrona Venture Group, and Farecast (acquired by Microsoft last year). Ed Lazowska will moderate the discussion, and I’ll be there to help stir up the crowd and make sure your questions are heard.

We’ll also have a series of startup “bursts”—short presentations from some of the most exciting young companies in the field. They include Evri, which is creating a smart index of the Web to help you browse for information more effectively; Gist, which sits at the intersection of e-mail, social media, and search, feeding you updates about your contacts; Sage Bionetworks, an effort to do for biology what open source did for software and Twitter and Facebook did for social networks; SEOmoz, which helps businesses do search engine optimization and online marketing; and Topsy, which is developing a new search engine for social media (starting with Twitter).

I can’t think of a better way to kick off the holiday season than to spend a couple hours being inspired and challenged by these guys. And, of course, some of the best stuff isn’t even in the program, it’s in the networking—besides our stellar panelists and speakers, you’ll be mingling with a first-rate crowd of entrepreneurs, investors, VCs, executives, researchers, technologists, and students.

Come to think of it, let’s get the discussion rolling right now. What do you really want to hear about at the event? What are your most compelling questions about search, information discovery, and online marketing? Leave a comment below, and we’ll address it.

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This morning I checked my e-mail, powered by Google, and then used Google Maps to find my way to the Google Kirkland open house. It reminded me a little bit of the scene in “Being John Malkovich” when Malkovich, the actor, finds a portal into his own brain and sees that everyone looks like him and says nothing but, “Malkovich, Malkovich.” OK, I guess the analogy would fit better if I also worked for Google and uttered “Google, Google” all day—but that might even happen sometime, if Google’s pace of hiring keeps up. (Just kidding.)

Engineering and site director Scott Silver, who’s been on the job since June (succeeding Peter Wilson, who left the company), introduced the new Kirkland facility, which has been officially open since August 31 and employs more than 350 people in a unified campus setting. He gave a little history of Google’s Kirkland operation—the first office was at Carillon Point in 2004, Google’s first major presence in the Northwest—and how it has grown and contributed to the company’s products. Google Talk, which does Internet telephony and instant messaging, was born and raised in Kirkland, for instance.

Other areas of focus for the Kirkland office include:

—Search: Webmaster tools, and instant indexing for real-time news.

—Advertising: AdPlanner (see below), AdWords Opportunities (helping advertisers optimize search ads), Google Analytics, and Campaign Insights (a new service released last week that’s around making brand ads more effective).

—Applications: Google Talk, Google Talk Video (within Gmail), Google Maps (including a new application for directions on mobile phones), the Chrome Web browser, YouTube video clips, and Google Sync (for synchronizing your mobile phone).

—Infrastructure: system and corporate billing software for supporting applications at huge scales.

Silver, a former Amazon and Netscape veteran, said he’s “quite proud of what we’ve done here, and immensely happy to come to this day,” and to be able to say Google is here to “create great products and find great engineers.”

I followed up with Silver afterwards, and he confirmed Google Kirkland is actively hiring software engineers, but he didn’t say how many positions are open at the moment. He said his team is doing hundreds of interviews per month, “and we’d love to do more.” I asked him about the 800-pound gorilla down the road, Microsoft, and whether Google is recruiting much talent from …Next Page »

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It was a big week for big companies. Amazon’s stock soared, and the e-commerce giant made a deal with Microsoft that should make Kindle e-books even more popular. There was also interesting deals news from Bing and a few Northwest venture firms and startups.

—Kennewick, WA-based Infinia has raised $3.25 million in debt and options out of a total financing round worth as much as $10.5 million, as Luke reported. The investors were not disclosed. Infinia, which (before this latest round) has raised $84 million from a syndicate that includes Paul Allen’s Vulcan Capital and Vinod Khosla, is developing novel solar power systems.

—Seattle-based Bezos Expeditions, the venture firm run by Amazon’s Jeff Bezos, re-upped with an investment in Aviary, a design software startup based in Long Island, NY. The $7 million Series B round was led by Boston-based Spark Capital. Aviary makes cloud-based software for graphic design, audio editing, and other creative digital services.

—Amazon (NASDAQ: AMZN) is teaming up with Microsoft (NASDAQ: MSFT) to release Kindle for PC, a software application that will let people read Kindle electronic books on Windows personal computers. No financial terms were announced. The free application will be released next month.

—Revolution Computing, which has offices in Seattle and New Haven, CT, raised $9 million from North Bridge Venture Partners of Waltham, MA, and Intel Capital, based in Santa Clara, CA, as Wade reported. The startup, which provides software and support for the statistical programming language known as “R,” also announced that Norman Nie, a veteran of the data mining software firm SPSS, is its new CEO.

—Kirkland, WA-based OVP Venture Partners led a $12 million investment in RedSeal Systems, a security software firm in San Mateo, CA. Existing investors Venrock Associates, Jafco Ventures, Sutter Hill Ventures, and Leapfrog Ventures also participated in the deal, which brings RedSeal’s total funding to more than $43 million. OVP managing director Mark Ashida has joined the company’s board.

—Bellevue, WA-based AudienceScience confirmed it has raised $20 million from Silicon Valley investors Mohr Davidow Ventures, Mayfield Fund, Meritech Capital Partners, and Integral Capital Partners. The online advertising firm said it will use the funding to hire new staff, do R&D in targeted advertising, and expand internationally. Luke previously reported that AudienceScience (formerly called Revenue Science) had closed a $15.1 million funding round involving equity, debt, and preferred stock, which had the potential to go up to $20 million, based on an SEC filing.

—Microsoft is integrating real-time status updates from Twitter and Facebook into its Bing search engine, as Thea Chard reported in her first freelance story for Xconomy. The Redmond, WA, software company has formed non-exclusive partnerships with the two social media networks, as part of Microsoft’s plan to fuse the “real-time Web” with its search engine to create a new kind of social-media focused reader. Bing’s access to tweets is now in beta form, while the Facebook deal, which will grant the search engine access to all publicly shared information from the social network’s users, will be effective at a later date, according to Microsoft senior vice president Yusuf Mehdi.

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Working for the man. It’s what most entrepreneurs want to avoid at all costs. But if their startup gets bought by a big company, that’s often just what happens—at least for a while.

Although the acquisitions market for tech startups has been relatively soft during the recession, there have been a few recent local examples to draw from. I took a highly unscientific sample of how three Seattle startups are doing post-acquisition. I wanted to hear about the cultural fit, the level of autonomy, and so forth. Not surprisingly, the ones I talked to said their transitions have gone very smoothly. Maybe the surprising thing is that I believe them (well, mostly—they did have to be pretty vague about future plans).

Here’s an update on the three startups and their founders:

Ethan Lowry, Urbanspoon (acquired by IAC in February 2009, announced in April)

The transition has been “remarkably uneventful,” Lowry says. “They’ve been very hands off.” He says IAC (NASDAQ: IACI) has been very supportive of Urbanspoon’s restaurant site, and that his team touches base with the mother ship once a week. “There’s all sorts of discussions before you get acquired. They say you’ll run your own ship…you’re kind of nodding, but what’s it really going to be like?” Lowry says. “I’ve been through other acquisitions that left you feeling more ripped out of your culture.”

He does say, half-jokingly, that Urbanspoon has gone through a “huge shift for us”—growing from three to five employees (adding a developer and a customer service person), and relocating to an office with a better view of Lake Union in Fremont, about a mile away from the old digs on Eastlake Avenue.

Last week, Urbanspoon introduced its “Scope” feature for its iPhone app, which lets you discover restaurants on the street around you by adding visual info to the camera feed on the screen. “In the beginning of summer, ‘augmented reality’ got a little bit of buzz,” Lowry says. “We thought, ‘This is cool, but seems super-gimmicky.’ We started prototyping something, and quickly discovered it’s entertaining. It’s fun, but can solve a real problem.” He adds that Urbanspoon has about 7 million installs of its iPhone app, making the Scope the biggest augmented reality app so far.

IAC’s future plans for the company are under wraps, but Lowry says Urbanspoon is …Next Page »

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It was a light week for deals in the Northwest, but there were still some big investments in online advertising and social business software. (Not to mention we’re all trying to confirm the rumors of an Ontela acquisition of Photobucket.)

—Venture capital stats for the quarter ending Sept. 30 were released from multiple sources in the past couple of weeks. The latest report, from MoneyTree / PricewaterhouseCoopers / National Venture Capital Association / Thomson Reuters, says $242 million was invested in 30 Northwest companies. That marks a bit of a recovery for the region, as Seattle-area investors Andy Dale (Buerk Dale Victor), Thomas Hodge (Frazier Technology and Healthcare Ventures), and Scott Jacobson (Madrona Venture Group) told me about on Monday.

—Portland, OR-based Jive Software raised $12 million in Series B funding from the Silicon Valley venture firm Sequoia Capital. Sequoia had previously invested $15 million in Jive back in 2007. Jive Software makes social business software that helps companies and employees collaborate more effectively using social networks, as well as monitor and interact with online communities.

—Bellevue, WA-based AudienceScience confirmed it has raised $20 million from existing investors Mayfield Fund, Mohr Davidow Ventures, Integral Capital Partners, and Meritech Capital Partners. AudienceScience (formerly Revenue Science) makes software for targeted online advertising. Luke broke the funding news last week based on a regulatory filing.

—Bellevue, WA-based Visible Technologies, a maker of software that helps companies monitor social media and manage their reputations online, formed a strategic partnership with In-Q-Tel, the investment firm run by the CIA. Financial details weren’t announced, but the deal includes a technology development agreement. Last week, Visible Technologies said it had raised $2 million more from existing investors, bringing the company’s total funding to $23.5 million.

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Bellevue, WA-based AudienceScience (formerly Revenue Science) has confirmed it has raised $20 million from Silicon Valley investors Mohr Davidow Ventures, Mayfield Fund, Meritech Capital Partners, and Integral Capital Partners. The online advertising firm says it will use the money to hire new staff, do R&D for products in targeted advertising, and expand internationally. Last week, Xconomy reported AudienceScience had closed a $15.1 million funding round (involving equity, debt, and preferred stock), with the potential to go as high as $20 million, based on a regulatory filing.

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It’s one of the great mysteries of the modern Internet. How can Web publishers make more money from their content? For everything from blogs and journalism to games and entertainment, publishers and software companies alike have been trying to solve this problem for many years.

Now BigDoor Media, a six-person startup in Bellevue, WA, thinks it has found the right approach, at least for a certain market. Its basic idea is to provide a revenue stream for entertainment publishers that bridges the gap between traditional advertising and subscription models. BigDoor, which is emerging from stealth mode today with a beta version of its software, provides an “offer platform” that acts as a gateway to a website’s premium content. Instead of paying for a game by credit card, say, a consumer can opt to fill out a survey, sign up for a newsletter, or buy an advertiser’s product (like Fiji Water, for instance).

This is not an entirely new idea. And in fact, BigDoor operates in a similar space as many other Seattle-area startups we’ve reported on, including AppBank (for social entertainment applications), DevHub (for creating and hosting websites), Mpire (for online-ad optimization), Wetpaint (for social publishing), and Others Online (for behavioral profiling of audiences), which was acquired this summer by the Rubicon Project. These companies have different customers and revenue models, but they are all fundamentally trying to help Web publishers make more money from their content.

What seems to set BigDoor apart is the experience of its founders. Keith Smith and Jeff Malek spent about 10 years in the online advertising world with Bellevue-based Zango, the controversial “adware” company that closed down earlier this year. Smith was CEO and co-founder of Zango, while Malek was vice president of engineering and products. Zango had success but eventually ran into problems, in part because adware in general—software that tracks which sites you visit and delivers targeted ads—became widely reviled by people who felt it violated their privacy or was just plain annoying.

The key is that Smith and Malek seem to have learned from their mistakes as well as …Next Page »

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Online reputation management is hot these days. Today, Seattle-based Marchex, the online advertising and search company, is announcing a new thrust in its strategy for connecting local consumers with restaurants, florists, and other businesses. The firm is releasing software that helps small, local businesses monitor and understand what people are saying about them and their competitors—and make sure information about the businesses online is accurate.

Marchex (NASDAQ: MCHX) says the product is the first of its kind, but the news fits into a broader trend of Seattle-area companies offering reputation management and “Web sentiment” software. The idea is to sell software tools that automatically collect what people are saying about brands and products in blogs, articles, and social media like Twitter, and then summarize the positive and negative feedback so businesses can quickly respond to customers. Visible Technologies, Appature, and Evri are some of the other Seattle companies working in the space.

“This is a really important product if you think of the next generation of performance advertising,” says Peter Christothoulou, the chief operating officer and a founding executive of Marchex. “It’s about not just acquiring new partners, but communicating with them.” Christothoulou adds that the new effort acts like the “front of the funnel” in Marchex’s strategy for helping businesses find new customers and maintain relationships with them.

While other offerings provide insights into how a company name or brand is represented online, Marchex is focusing specifically on the local aspect of small businesses, says Matthew Berk, the company’s executive vice president of product engineering. In addition to monitoring the sentiment of local customers, that means making sure a restaurant’s phone number and address are listed correctly in various places online, and that the special features of a Petco store in one neighborhood, say, are differentiated from those of other Petco stores at different locations.

But connecting these local stores with feedback from social media and other sources is the main advance here. “Businesses know things are being said about them online,” adds Ryan Fritzky, a senior product manager at Marchex. “It’s an important first step to provide them with a service where intelligence is brought to them in one place.”

Marchex isn’t selling the product directly to small businesses. Rather, it is going through its big partners like AT&T, Comcast, the Cobalt Group, and Yellowbook.com, who will in turn resell the software to local businesses for a monthly fee.

Strategically, it sounds like reputation management could be an important new revenue stream for Marchex, which reported a 44 percent drop in revenues in the second quarter of this year ($21.1 million) compared to the same period in 2008 ($37.4 million). “This is the first of many forward-looking products we’re delivering to the [small and medium-size business] channel. It can be significant for us over time,” Christothoulou says.

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How do you go about summarizing a company’s culture in one word? I haven’t a clue, but whenever I ask CEOs, they always come up with something interesting—and often surprising. In the past couple of months, I’ve been asking top executives at Northwest tech startups to talk about their company culture and why it’s unique. So far, none has refused to play the “one word” game.

I’ve received a fascinating array of responses that speak to the companies’ management styles, the kinds of talent they’re looking for, and their overall strategy—what they think sets them apart from their competition. From Bellevue, WA-based Apptio’s “paranoid” to Seattle-based Picnik’s “easy,” you can see a lot of a company’s mindset through the keyhole of just one word. And last month, Bob did a comparison of Boston vs. Seattle one-word cultures—and found that the New England startups were a little more New-Agey in their responses than companies here in the Northwest. (No idea what this means, but it’s always fun to go up against the East Coast.) And Bruce followed that up by checking in with five San Diego firms.

Now I’m extending the exercise to Seattle’s public tech companies. I wondered whether their responses would show any glaring differences from the startups—more conventional, say, or boring. After checking with a few of them (each has been around for six years or longer), my scientific answer is “not really.”

Our initial short list of public companies spans the fields of supercomputing, data storage, and online advertising. Be warned, Mr. Ballmer, Mr. Bezos, and Mr. Glaser—I’m coming for you too.

Cray (NASDAQ: CRAY)
CEO: Peter Ungaro
Culture: “Next”
Comments: Ungaro says, “Never satisfied with the status quo, our employees are committed to providing our customers with the next-generation of Cray supercomputers. Collectively as a company, our passion is setting new boundaries of what supercomputers are capable of and providing those resources to the world’s researchers and engineers.” He adds, “We celebrate achievements and acknowledge milestones, but we are focused on what’s next and what we all have to do to get there.”

Isilon Systems (NASDAQ: ISLN)
CEO: Sujal Patel
Culture: “Driven”
Comments: Patel says, “We have been through a million different things that show how driven we are. We survived…we grew, we built, we went public, we ran into some nasty roadblocks, we recovered from that.” He adds, “We only get through that stuff because we are driven as an organization—and that’s not about me, it’s about the people in this building.”

Marchex (NASDAQ: MCHX)
COO: Peter Christothoulou
Culture: “Innovative”
Comments: Christothoulou says, “Being innovative is at the core of everything we do; from delivering the most innovative products and technology, to hiring and employing innovative, collaborative people to provide our customers with the best experience possible.”

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It’s always good to hear about another small Seattle startup that’s bootstrapped and already profitable. Yesterday it was Appature, today it’s AppBank. They may share the first three letters of their names (and bootstrapped profitability), but after that they’re about as different as two Internet software companies can be.

AppBank is a six-person company focused on developing software to help Facebook users create social entertainment applications—and get paid for them. The company is rolling out the public beta version of its site today. The world of Facebook apps is very crowded, of course, but what AppBank is trying to do is give average Facebook users easier ways to make simple apps like quizzes, surveys, and games in their spare time, and more effective ways to make money from them by providing targeted advertising. “It’s the first time a company has paired relevant ads with crowdsourced social entertainment,” says Fred Hsu, AppBank’s founder and CEO.

Hsu started the company in April of this year, together with chief operating officer Joyce Chang. Hsu is the co-founder of Oversee.net, a Los Angeles company that holds Internet domain names and does domain marketing for the search, display, and lead-generation industries. Oversee did $200 million in revenue last year, and Hsu sold a minority stake in the company to private equity firm Oak Hill Capital Partners for $150 million. Chang, for her part, came from Seattle-based Tracento, which implements Facebook applications like Friend Hugs, Kisses, and Send Flowers. Both UCLA computer science grads, Hsu and Chang are based in Seattle, and the rest of the company’s employees are in the Los Angeles and San Francisco areas.

What AppBank offers is a quick way to create a Facebook quiz, for example—”What type of underwear are you?” or “Are you left-brained or right-brained?” or some such—and then free tools to …Next Page »

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Seattle-based Lucid Commerce, a startup focused on business intelligence for direct marketers, has raised a round of equity funding, according to a regulatory filing. The total offering amount is listed as about $4 million. TechFlash reports that Lucid has raised $3 million from Kirkland, WA-based OVP Venture Partners and European venture firm Adinvest. OVP previously led Lucid’s $2.5 million Series A round, announced in June 2008. Lucid Commerce is led by co-founder and CEO Tyson Roberts, a former employee of Seattle-based aQuantive.

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[Updated 9/15/09 1:20 pm. See below.] Seattle-based Others Online, a Web advertising and optimization startup led by founder and CEO Jordan Mitchell, has been acquired by the Rubicon Project in Los Angeles for an undisclosed price. Mitchell has become vice president of data intelligence for the Rubicon Project, which automates the buying and selling of online advertising. Rubicon announced the news this morning, although the acquisition apparently began in June. Terms of the deal were not released.

“We built Others Online to specifically help publishers leverage data to make more money,” Mitchell said in a statement. “We were looking to partner with a company that was going to use our technology on a massive global scale, and we found that indeed with the Rubicon Project.” On his LinkedIn page, Mitchell refers to Rubicon as “our favorite customer.”

Reached by e-mail, Nicole Jordan of the Rubicon Project says four employees of Others Online (including Mitchell, presumably) have joined Rubicon. They are staying in Seattle but will commute to Los Angeles on a regular basis, she says. [Paragraph added to provide more details of the acquisition.]

The Rubicon Project says that “Others Online’s technology will serve as an enhanced data infrastructure foundation to unite disparate data points from multiple data providers to create a singular, data-rich view of audience for publishers, ad networks, exchanges and audience rep firms.”

Mitchell started Others Online in January 2006. The idea was to offer online publishers “behavioral profiling” software to help them better understand what their audience cares about. Others Online also provides behavioral analytics and ad services to help publishers better target and generate revenues from their audiences. Previously, Mitchell founded an e-business software firm in Seattle, which he sold in 1996 and then became part of Meridian Partners (now Saltmine). He was also the co-founder and CEO of Siaxx, an IT systems management startup. Mitchell got into online advertising through 121Media, which he joined as chief operating officer and director in 2003.

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Last month, we broke the story of Marketfish, the Seattle-based online marketing startup that has raised an undisclosed sum of money from prominent local investors, including the Alliance of Angels. Today, Marketfish launched a beta version of its new online platform, which helps marketing agencies and businesses find and rent direct mail and e-mail lists of potential customers.

Here’s how the platform works. Marketfish helps media buyers at agencies and marketing departments shop for marketing lists from list owners, using a secure Web interface. The plan is to allow marketers to track the performance of their campaigns as well. Meanwhile, marketing list owners can use Marketfish to put their lists in front of more businesses and marketing agencies, and boost their own profits.

What Marketfish is doing is worth a closer look. For that, I spoke with Clark Kokich, the chairman and former CEO of Seattle-based Razorfish, the online advertising firm bought by Publicis for $530 million last month. Razorfish was formerly part of Microsoft and, before that, aQuantive (which Microsoft acquired for some $6 billion in 2007).

Kokich says he met Marketfish founder Dave Scott about four months ago and signed on as an advisor to the startup soon after. “I have a lot of respect for David. He’s been in the business a long time, and he knows what the challenges are,” Kokich says. “The more time I spent with him, the more I became convinced it was a significant opportunity. So I invested and joined the board.”

I asked Kokich for more details on what makes Marketfish special compared to what’s available now. “The thing that’s appealing to me is this looks a lot like the business we established at aQuantive,” Kokich says. “It’s an opportunity to use sophisticated technology to dramatically improve the ability to source and [rent] direct mail and e-mail lists. It appealed to me because I’ve been a purchaser, and I know it’s not working for customers.”

In the case of aQuantive—or more specifically, Avenue A/Razorfish, which Kokich joined back in 1999—the key innovation was an online ad-serving system that connected advertisers to actual sales on their websites, so they could accurately calculate return on investment and optimize their media campaigns, Kokich says. That kind of tool did not really exist before.

Similarly, Marketfish is about “creating an efficient market where one doesn’t exist,” Kokich says. “Right now, if you want to buy a list, there’s no place to go where you can search, source, and execute a campaign. It’s a lot of time and hassle, a lot of expense. This is making a marketplace for the list.”

We’ll be watching to see how much of a splash Marketfish makes, and whether the marketplace it is creating takes off with marketing agencies and list owners. As for Kokich, I asked whether he’s staying with Razorfish through the integration with Publicis. “I plan to stay on, absolutely,” he says. “Strategically, it’s a great thing for Razorfish. It will accelerate our international expansion, and allow us to provide greater integration between online and offline.”

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Brian McAndrews, the former CEO of digital marketing technology firm aQuantive (formerly Avenue A), is joining the world of venture capital with Seattle-based Madrona Venture Group. Madrona is announcing today that McAndrews has joined the firm as a managing director.

McAndrews was chief executive of aQuantive for eight years, and he oversaw the company through its $6 billion-plus acquisition by Microsoft in 2007. Until this past January, he served as a senior vice president at Microsoft, leading the advertising and publisher solutions group.

In his new job, McAndrews is charged with identifying and leading new investments from Madrona’s most recent $250 million fund, which it closed in June 2008, as well as supporting the firm’s existing portfolio companies. Madrona currently has more than $675 million under management, and is known for backing firms like Amazon, Isilon Systems, Farecast, iConclude, and, more recently, AdReady, Apptio, Skytap, and Yieldex. (See also our profiles of ExtraHop Networks and PetraVM.)

The new hire strengthens Madrona’s expertise in digital advertising and marketing. What’s more, McAndrews’s skills and experience seem to complement those of the firm’s other top decision-makers—managing directors Tom Alberg, Paul Goodrich, Greg Gottesman, and Matt McIlwain. “Brian has an amazing talent for identifying exceptional people and helping them develop ideas to their full potential,” said McIlwain (who, I’m told, has been McAndrews’s neighbor in Seattle’s Windermere neighborhood for years) in a statement. “That’s what he accomplished at aQuantive, growing the company from a small digital agency to a leading global technology marketing company.”

It may seem like a tough time to make the transition to VC, but McAndrews sounds undaunted. “As we learned at aQuantive, technology-driven innovation occurs in all market cycles, and I am excited about jumping in and helping talented teams take their ideas and build them into lasting companies,” McAndrews said in a statement. (It’s probably safe to assume McAndrews has given his new colleagues grief for not putting Madrona’s capital into Avenue A back in 1999—although Alberg personally invested as an angel.)

Before joining Avenue A as CEO, McAndrews, a Harvard alum and Stanford business school grad, worked as a product manager for General Mills and as executive vice president and general manager for ABC Sports. He currently serves as a director for Clearwire, Fisher Communications, WhitePages.com, and United Way of King County.

Last December, when Microsoft announced McAndrews’s departure, CEO Steve Ballmer noted in a statement, “Brian McAndrews built a world-class business for advertisers and publishers and led the successful integration of aQuantive into Microsoft, setting the foundation for our next phase of growth.”

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One of the biggest tech deals of the year came over this past weekend—the $530 million acquisition of Seattle-based Razorfish by French marketing firm Publicis Groupe. Most people I’ve talked to seem to think the deal makes good sense for all parties. (Razorfish became an online advertising subsidiary of Microsoft in 2007 when Microsoft bought aQuantive for $6 billion-plus.)

For some deeper perspective on recent events, I asked Warren Gouk, managing director at Cascadia Capital in Seattle, about the implications of the deal for Razorfish, Microsoft, and the future of online advertising. Gouk specializes in mergers and Internet strategy, particularly in the realm of online marketing.

Gouk draws parallels between the Razorfish sale and Google’s sale of Performics, also to Publicis, last August. Google inherited Performics, another online ad agency, as part of its $3.1 billion acquisition of DoubleClick in 2007. “Both companies (Microsoft and Google) wanted to maintain their Switzerland/neutral status in selling search, display and other online marketing services to the agencies and therefore decided to divest their agency businesses,” Gouk writes in an e-mail. “Similar in both divestitures, commercial deals required the buyer (Publicis) to buy online marketing services from the sellers.”

Microsoft was “very motivated to find a buyer that would make a meaningful and long-term commitment to buy [Microsoft's] online marketing services, in particular their search services,” Gouk adds. “Publicis is rumored to have agreed to a 5-year deal to purchase a minimum amount of display and search services from Microsoft worth several hundreds of millions of dollars each year.”

As for the future of Razorfish, Gouk says, “I believe Razorfish is much better situated for success under the ownership of Publicis. Publicis is very strong in international markets and can help Razorfish expand internationally. The internal conflict Microsoft faced with trying to sell online search services to competitors of Razorfish should be cleared up; as well, there may be more of an opportunity for Razorfish to go outside Microsoft for other alternative online marketing services.” He adds, “In the near-term it will be interesting to see how Publicis integrates Razorfish into VivaKi [its digital media division], deals with competitive client situations (Ford vs. GM), and handles the taxing effects of the 5-year commitment to the Microsoft search and display advertising agreement.”

More broadly, Gouk sees the deal as a “healthy valuation in the present market.” He says it paves the way for a “closer working relationship between specialized online marketing software/service vendors (e.g. Media Math, Covario, AdXpose/Mpire) and the big holding company agencies like WPP, Omnicom, IPG, Havas, etc.”

Gouk also thinks the deal is a “great outcome” for Microsoft if it helps drive the Redmond company’s search and display advertising business. “Microsoft was never really well situated to chase agency business from Fortune 1000 accounts—their historical strength comes from the [small to medium-size business] market, which was not a core focus for Razorfish. The big holding company agencies are likely to be the future gatekeepers of online marketing and advertising—much the same way Accenture and others help drive decisions in the world of [enterprise resource planning]. It’s a strong move for Microsoft to begin to shore [up] ’special’ relationships with as many agencies as they can.”

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Yesterday was a busy day for Razorfish chief strategy officer Jeff Lanctot. With the official announcement that French advertising firm Publicis will acquire Microsoft-owned Razorfish, Lanctot had quite a lot on his plate. Despite his having to fly out from Seattle to another office, I managed to get a few answers from him about the deal and what it may actually mean for Razorfish.

Publicis is buying the digital marketing company from Microsoft for $530 million in cash and stock. “We view this deal [as] accelerating our mission of expanding our global reach and client offerings,” Lanctot said in an e-mail. But he added that even with the change in ownership, Razorfish won’t change unduly, existing as part of Publicis but operating autonomously. “Razorfish will operate as an independent entity under VivaKi, the operating unit of Publicis Groupe,” he said. This means there won’t be any big changes in management either, he added, with Bob Lord staying on as CEO with the rest of the Razorfish managers—at least in the coming weeks and months.

Publicis stands to gain a lot from the deal, with Razorfish already being one of the largest companies of its kind in the world. Acquiring Razorfish “will make Publicis Groupe a leading player in digital communications, including Search and Display,” Lanctot wrote.

Razorfish users don’t need to panic yet, even if they are concerned about how things may change, since the final transaction isn’t expected to conclude until the end of the year. “Until the deal closes, it’s business as usual,” Lanctot said.

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So that’s what all those late-night phone calls were about. In the weeks leading up to the Microsoft-Yahoo search deal announced last Wednesday, executives from both companies would gather (virtually) at 9:30 pm PT every night, including weekends, for a conference call to discuss the latest developments. Dinners, baseball games, and camping trips were interrupted. The Microsoft search team, at least, has apparently been working seven days a week for many months now.

And for what? Besides working on improvements to their Bing search engine, they were hammering out many more parameters of the 10-year search and advertising deal with Yahoo, some further details of which have now emerged in a filing (Form 8-K) with the Securities and Exchange Commission.

For starters, Microsoft has agreed to pay Yahoo $50 million a year for three years, to cover “transition and implementation costs.” Microsoft also guarantees a minimum amount of gross revenue per search for 18 months. (Yahoo keeps 88 percent of search ad revenues and control of ad sales for five years, in exchange for replacing its search technology with Bing.) In terms of personnel, Microsoft will hire 400 Yahoo employees, plus another 150 to assist with the transition, according to the filing.

The deal includes its fair share of escape clauses. Yahoo can opt out if Microsoft and Yahoo’s combined market share of search falls below an undisclosed percentage—currently they combine for about 28 percent of search queries in the U.S., as compared with Google’s 65 percent. Yahoo can also back out if the deal isn’t approved within one year (by July 29, 2010). Lastly, Microsoft can end Yahoo’s exclusive selling of search ads for Bing results after five years. If that happens, Yahoo would get 93 percent of the ad revenue from its sites; but if Yahoo wants to keep exclusive control over ad sales for Bing, it would get 83 percent of the revenues.

Will the deal work? That’s a search query you won’t find an answer for just yet—unless, perhaps, you and all your friends switch to Bing.

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Microsoft and Yahoo officially announced this morning that they had reached a search engine and advertising agreement. Amid intense speculation, and after more than a year of disagreements over minor and not-so-minor details, the two companies have signed a ten-year agreement that puts Redmond, WA-based Microsoft (NASDAQ: MSFT) in control of both companies’ search engine technology, and Yahoo (NASDAQ: YHOO) in charge of the sale and distribution of advertising for both its own search engine and Microsoft’s Bing search engine.

As part of the announcement, Microsoft and Yahoo launched a website dedicated to explaining and promoting the agreement. “It establishes the foundation for a new era of Internet innovation and development,” Yahoo CEO Carol Bartz said in the press release attached to the website. Microsoft now owns an exclusive license to the Sunnyvale, CA-based company’s search technology, including the right to integrate it into its own search platforms, a process that will cost hundreds of millions of dollars, according to Microsoft CEO Steve Ballmer in a conference call with reporters and financial analysts this morning.

Even before that integration, the Bing search algorithm developed by Microsoft will be used on the search engine sites of both companies. According to Ballmer, expanding Bing onto Yahoo will give the fledgling search engine, just a few months old, the room to compete more effectively, both in terms of users and advertising dollars. The press release does not mention Google, the colossus of Internet search, by name, instead referring to it as “one company that dominates more than 70 percent of all search.” But it’s hard to imagine Microsoft and Yahoo would have reached an accord without Google overwhelmingly outcompeting them. At the moment though, Google employees are not allowed to comment on the deal.

On the other end of the deal, advertisers wanting to use either company’s search engine will have to go through Yahoo, although this only applies to so-called premium advertisers. Yahoo will use Microsoft’s AdCenter program to run this business, and AdCenter will still be the program for self-serve advertising. Although Yahoo is in control, both companies will still have their own …Next Page »

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It might all turn out to be anticlimactic. After a tumultuous year of on-again, off-again talks to strike an Internet search and advertising deal, Microsoft (NASDAQ: MSFT) and Yahoo (NASDAQ: YHOO) are about to tie the knot, according to several media outlets. The Wall Street Journal’s All Things Digital blog, citing multiple sources close to the situation, says a deal will be announced within 24 hours. A separate report in Advertising Age says Microsoft’s Bing will become the default search engine on Yahoo, and Microsoft’s AdCenter is expected to be the technology platform for selling online ads.

The specifics of the deal are still speculative at this point. There will probably be no upfront payment made to Yahoo, says Advertising Age, which cites executives with knowledge of the discussions. Instead, the deal is to be structured as a revenue share from the sale of search ads. So, it appears Microsoft will handle the search technology and infrastructure end of things, leaving Yahoo to focus on ad sales, marketing, and media.

All in all, it sounds like the deal is smaller and less dramatic than many outsiders had envisioned. (Yahoo was said to be looking for an upfront payment of hundreds of millions of dollars.) But the partnership—assuming it goes through—will still represent a huge step in the two companies’ struggles against Google in the search and online ads space. Together, Microsoft and Yahoo’s share of the search market is about 30 percent, while Google’s is about 65 percent. Stay tuned…

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