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Week in review: Merger and Microsoft mania

The week kicked off with news of two major mergers, while developers gathered in Los Angeles to hear the latest at Microsoft's annual confab.

The week started off with a bang on "Merger Monday" when software maker Oracle announced it will acquire rival Siebel Systems, and then, within hours, auction site eBay revealed plans to buy Net telephone provider Skype.

All the while, developers were gathering in Los Angeles to hear the latest from Redmond at Microsoft's annual Professional Developers Conference.

Oracle will acquire rival Siebel in a deal worth $5.8 billion, the second major competitor the company has targeted since mid-2004.

Oracle executives said the megadeal is intended as a "major beachhead" against archrival SAP, which is the world's largest business-applications seller.

Siebel specializes in customer relationship management software. Oracle said the Siebel acquisition will add 4,000 customers and 3.4 million CRM users.

Oracle Chief Executive Larry Ellison said the deal was in part fueled by requests from partners and customers, such as General Electric, who wanted to hold a single company accountable for their applications and also ease the integration process.

CNET News.com readers responded to the news with some concern about the loss of competition in the marketplace. There's still SAP, one reader pointed out, "although with Oracle taking PeopleSoft and now Siebel, it makes a pretty mean deal for anyone else in this sector."

eBay plans to buy Skype in a $2.6 billion deal aimed at boosting the auction site's sales volumes and supplying seamless voice communications to its consumers.

The move, expected to be complete by the end of the fourth quarter, marks the biggest acquisition in eBay's 10-year history. In another big-time merger, eBay acquired online payments company PayPal in 2002 for about $1.5 billion. It more recently picked up Shopping.com for $620 million in cash.

News.com readers questioned eBay's rationale and plans to integrate voice communications by allowing sellers to talk. Ivan Yagolnikov wondered if that would be inconvenient for "PowerSellers" like him who like more efficient means of communicating, such as template e-mails and auto-feedback.

"At least, they could've done what one analyst suggested in the article--license Skype and try it out. If you recall, PayPal was working with eBay long before it was bought out," he said. But "Keith J." wondered if there might be ulterior motives for the acquisition: "At its core, Skype is a peer-to-peer network...Skype's founders created Kazaa. They may be kicking around other ideas that they don't have funding to develop right now. We've seen companies like Microsoft buy other companies for the underlying technology."

While tech companies tended to ink smaller deals after the dot-com bust, they're spending big now. The eBay and Oracle deals added to the roughly 3,000 tech mergers announced in the first nine months this year, according to Thomson Financial. While the number of deals is down in comparison to the same period last year, the total value of all deals this year, excluding assumption of debt, is $109.9 billion--a 50 percent jump over the first nine months of last year.

"We're seeing larger and larger deals come through," said Richard Peterson, a market strategist for Thomson Financial. "The average deal size is over $35 million this year for tech companies big and small, and that's more than double the $17 million in 2002."

Redmond rally
Back at the PDC, Microsoft Chairman Bill Gates sat down with CNET News.com and said his company intends to expand its hosted software offerings by blurring the lines between the company's server products and online Web properties. The software giant will expand its "software as a service" line, particularly for businesses, he said. The idea is that customers can choose to either purchase server software, such as mail or portal applications, from Microsoft or get it delivered as a service over the Internet.

Gates also reflected on software innovation and on the extent to which he feels his company is in competition with Web companies like Google. He doesn't see the search king as being in the same game when it comes to offering development capabilities.

Google has "this slogan that they are going to organize the world's information. Our slogan is that we are going to give people tools to let them organize the world's information," Gates said. "It's a slightly different approach, based on the platformization of all of our capabilities and not thinking of ourselves as the organizer."

Reader Nick Tomkin challenged that notion: "Not in the data collection business? What the hell do you call Passport," he said, speaking of Microsoft's authentication technology. "You, Mr. Gates are in any business so long as it's trailing a momentous invention. If digital pet rocks was the next 'blog' or 'IM,' Microsoft would be setting up 'petrock.msn.com' in 10 minutes."

In other big news at the PDC, Microsoft appears to be considering a product lineup with its newest version of Windows--Vista--that would include several new high-end editions of the operating system.

Microsoft has discussed plans for an edition for corporations and is also evaluating both a small-business version and an "ultimate" edition of the operating system that would combine the best of Microsoft's corporate and consumer features.

The company has not yet said how it will sell Vista, and an announcement is not expected for some months. However, buried within the test code handed out to developers at the PDC was a reference to six separate versions of Vista.

Microsoft had earlier announced plans for a community technology preview version of Vista that was also handed out to developers.

Also at the confab, Microsoft revealed initiatives that will help it muscle its way into two markets next year--work flow and enterprise content management--using its time-tested techniques of exploiting its desktop dominance and appealing to developers.

The company announced Windows Workflow Foundation, software plumbing that tracks the different steps in a wide range of work flow processes, such as handling the flow of one Web page to the next or passing electronic forms between two systems.

The software, which will be built into Windows Vista when the new operating system ships in the second half of next year, will be used extensively in Office 12 as well as in future versions of BizTalk and the company's Dynamics packaged applications, according to Microsoft executives.

Though company executives are cagey on packaging and pricing details, Microsoft also intends to provide enterprise content management capabilities with Office 12, which will be available in the second half of next year as well.

Both initiatives have the potential to shake up the competitive landscape in markets where there are several specialized vendors.

Back in the halls of justice, a Washington state judge ruled Tuesday that former Microsoft executive Kai-Fu Lee can continue to work for a Google development center in China--but with restrictions. The court barred Lee from working on technologies such as search or speech. It has also prohibited Lee from recruiting Microsoft employees or using any confidential information he gleaned from his work at the software giant.

But following the ruling, Microsoft proposed settling its lawsuit by asking Google to agree to limit the executive's duties until July 2006, when the noncompete agreement he signed with Microsoft expires. Click here for a roundup of this week's Google news.

Firefox gets hairy
Security researchers claimed that they have found ways to exploit a serious bug in Firefox and Mozilla Web browsers, a sign that attacks could be on the way.

The issue, which could let attackers secretly run malicious software on PCs, was disclosed on Thursday by security researcher Tom Ferris. The Mozilla Foundation, which distributes and coordinates the development of the Firefox and Mozilla browsers, responded swiftly and released a temporary fix last Friday.

The problem also affects the latest Netscape Web browser, according to security experts. Netscape, a division of Time Warner's America Online subsidiary, is investigating the issue, a company representative said Tuesday.

Mozilla on Wednesday said it plans to "shortly" release new versions of its Firefox and Mozilla Web browsers to address the security bug as well as several additional flaws.

Also in security news, a Massachusetts teenager who admitted to accessing T-Mobile USA's internal systems and posting data from Paris Hilton's cell phone on the Web will serve 11 months in a juvenile facility.

The teenager pleaded guilty last week to a series of hacking incidents, the theft of personal information, and making bomb threats to high schools in Florida and Massachusetts, according to a statement from the U.S. attorney for the district of Massachusetts.

All crimes took place over a 15-month period, beginning in March 2004. Victims suffered a total of about $1 million in damages.

Also of note
Congress took another step toward overhauling a telecommunications law to reflect new technologies...Microsoft is on linking with AOL...Yahoo unveiled a beta version of its new Instant Search and Yahoo Mail...Microsoft revealed the launch dates for its much-anticipated Xbox 360 video game console...Google launched a blog search feature...Nintendo surprised the game industry with an unconventional one-handed controller for its next-generation console.