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Week in review: Yahoo to replace Yang

Search giant searches for new CEO, while Microsoft takes its security strategy in a new direction. Also: Sing along with DRM.

The biggest search Yahoo is working on involves finding a new CEO.

Eighteen months after returning to the helm of the company he co-founded in 1994, Jerry Yang will step down as chief executive when a replacement is found, the company said. Yang will resume his position as chief Yahoo, the role he had before taking over in 2007 after former CEO Terry Semel departed.

Yahoo has been struggling for months to improve its financial performance, but things have gone from bad to worse for the company this year, and its stock has sunk to less than $10. First, the company thwarted Microsoft's unfriendly attempt to acquire Yahoo outright, and later just its search business, though Yahoo appeared to grow more interested in a deal even as Microsoft grew cooler. At one point, Microsoft offered to acquire the company at $33 per share.

After reporting a 64 percent drop in net income and warning that the advertising market is softening, Yahoo announced in October a layoff of at least 1,430 by the end of 2008. The cut follows another in which about 1,000 Yahoo employees lost their jobs in February.

But if Yahoo thinks it can get Microsoft back to the negotiating table, it would do well to try the lure of a search-only deal--regardless of whether Yang is CEO. That's the assessment from one influential Microsoft source.

"If Jerry was still CEO and called (Microsoft CEO) Steve (Ballmer) tomorrow and said, let's talk about a search-only deal, I think Steve would listen," said the source. "Microsoft is open to a mutually beneficial search deal. But people are still lusting after a Yahoo (buyout) and no one is thinking about that in Redmond. There's been no discussion of it for months and months."

And while Ballmer said the software giant might be interested in a search-only partnership, a buyout of the entire company is out of the question. His comments sent Yahoo shares into a free fall, plummeting 20.9 percent on Wednesday.

"We are done with all acquisition discussions with Yahoo," Ballmer said, adding that he has said this a bunch of times but that some people remain "confused."

"We did our best," he said. "We've moved on."

Changing of the guard
Microsoft it is changing its strategy for offering PC antivirus software, with plans to discontinue its subscription-based consumer security suite and instead offer individuals free software to protect their PCs. Code-named Morro, the new offering will be available in the second half of 2009 and will protect against viruses, spyware, rootkits, and Trojans.

With the arrival of Morro, Microsoft plans to stop selling the Windows Live OneCare service, although the two services are not identical. Morro lacks OneCare's non-security features, such as printer sharing and automated PC tuneup. Morro will, however, use fewer resources than the subscription-based offering, making it better suited to low-bandwidth systems and less powerful PCs.

Microsoft's decision to discontinue OneCare also means an end to Equipt, a $69-per-year subscription version of Office and OneCare that the company had been selling on the shelves of Circuit City.

The copies will be headed out of retail stores in the coming weeks, although the subscription will run through sometime next year. But since Microsoft plans to offer free licenses of Office to Equipt customers when their subscriptions end, those existing copies look like a pretty good deal for those who need Office Home and Student--the version of Office included in Equipt.

Microsoft's decision to offer free antivirus software puts rivals such as McAfee and Symantec in a tough position. To be sure, those two--and other rivals--will be able to tout products that offer a broader range of features than Microsoft plans to deliver with Morro next year. At the same time, "nada" is a tough price to compete against.

That raises the question of whether those companies or others may look to antitrust regulators for help. One thing in Microsoft's corner is the fact there are already free antivirus products on the market, such as AVG, though typically security vendors look to up-sell consumers from low-cost or free products to higher-end ones.

Rowan Trollope, senior vice president of Symantec's consumer business, characterized the announcement as a "capitulation by Microsoft, and a reinforcement of the notion that it's simply not in Microsoft's DNA to provide high-quality, frequently updated security protection."

Amy Barzdukas, senior director of product management for the Online Services and Windows Division at Microsoft, had dismissed similar criticism from McAfee. "If the current approach isn't working (as far as protecting consumers broadly) we need to go with a new approach," she said.

Sing along with DRM
Tennessee has agreed to filter computer networks for unauthorized music downloads at the state's colleges and universities. Tennessee Gov. Phil Bredesen signed into law a bill designed to thwart music piracy at the state's campuses.

The bill requires Tennessee public and private schools to exercise "appropriate means" to ensure that campus computer networks aren't being used to download copyright material via peer-to-peer file-sharing programs, the Recording Industry Association of America said.

A year after iTunes began offering music without copy protection software from EMI, Apple is in discussions with the other three top recording companies about acquiring DRM-free songs, music industry sources said. The talks are still preliminary and no deals have been finalized, but one source said one of the major labels is close to a final agreement. Rumors have been swirling on the Internet for a week that Sony would soon be offering music without the controversial digital rights management software.

With fewer consumers than hoped for signing up for all-you-can-eat music subscriptions, Microsoft and the record industry are trying to make the option more appealing. Those who pay for the $14.95 a month Zune Pass subscription will start being able to permanently keep 10 tracks a month. The subscription already allows unlimited music downloads, but users have the ability to listen to the music only so long as they are subscribers.

Under the new plan, Zune Pass members will essentially get $10 worth of music to own each month, along with whatever subscription content they download. The move comes as much of the consumer enthusiasm in the digital music industry has been for music that is sold free of DRM (digital rights management) protections.

Guns N' Roses fans who have waited 17 years to hear the rock band's new album were rewarded with a free Web debut before it goes on sale next week. Guns N' Roses' Chinese Democracy made its debut on the band's MySpace page on Thursday. Fans can stream the album for free before it goes on sale Sunday in an exclusive deal with Best Buy. Listeners, however, will not be able to download tracks from the site.

Also of note
Internet advertising revenue for the third quarter was nearly $5.9 billion, representing an 11 percent increase over the same period last year...Microsoft plans to offer one more public test version of Internet Explorer 8 before releasing the final version of the updated browser in 2009...Transmeta, a company that once hoped to rival Intel and Advanced Micro Devices to power portable computers, plans to sell itself to Novafora for $255.6 million in cash.