Silicon Valley Watcher - reporting on the business of technology and media

The big news yesterday was that Yahoo and Reuters are embracing citizen photojournalism in a big way. Today, Dan Gillmor offers a long goodbye for the profession of photojournalism.

How can people who cover breaking news for a living begin to compete? They can’t possibly be everywhere at once. They can compete only on the stories where they are physically present — and, in the immediate future, by being relatively trusted sources.

But the fact remains, there are far more newsworthy situations than pro picture takers. In the past, most of those situations never were captured. Not any longer.

Is it so sad that the professionals will have more trouble making a living this way in coming years? To them, it must be — and I have friends in the business, which makes this painful to write in some ways.

To the rest of us, as long as we get the trustworthy news we need, the trend is more positive.

As for the deal in question, Dan says flat-out: "I’m highly skeptical of business models, typically conceived by Big Media Companies, that tell the rest of us: “You do all the work, and we’ll take all the money we make by exploiting it.” This is not just unethical.. It’s also unsustainable in the long run."

Under the deal, users won't be paid for images appearing on Yahoo and Reuters websites but will be paid if they run in print. Isn't that backwards? Newspapers are rapidly moving operations online. Getting paid for the dying business model is a little funky and it just goes to show that online is still seen as a place where the advertising revenue comes at very little editorial cost.

Nicole Simon notes: "Basically you are giving Reuters a huge amount of material to select from (without them having to pay anything for it) and if you are lucky, your work is taken. Then your work gets used (probably without usable credits) and if it gets reprinted AND it will be reported, first Reuters and Yahoo will receive money.

I am no friend of the old copyright system, I call it outdated and it needs work done. It was invented in the last millenium and could not have forseen the internet. Still, we have to talk about ways to share revenue in a fair way between all parties.

Former journalist and current J-teacher Mark Hamilton argues that Gillmor misses something:

News “shooters” may be ubiquitous, but far fewer will be the citizen photogs willing (or even able) to go in-depth, to string together the compelling series of images, to work the subject to capture the image, or video, that rises above mere showing to telling.

I’m not going to argue that only those shooters with press passes can do this. Evidence abounds on Flickr that there are talented, passionate storytellers out there. So do the best of the videoblogs. I will argue that storytelling takes time and energy and someone has to pay for that.

It’s that type of visual storytelling that I suspect will remain the province of the pros and the dedicated amateurs, even as news, sports, enertainment and even feature photography slowly slides out of the hands of the traditional newsroom.

The fact of the matter, though, is that the bread and butter of the news is news shots. If you're on the scene and can basically point the lens at the action with some semblance of lighting, that's the shot that's needed. Gorgeous, compelling, story-telling photographs are few and far between. We can't live without any photojournalism but as Mark notes, there are some amateurs out there who can compete with the best. For the pros, the market is getting very small.

By Richard Koman for SiliconValleyWatcher

Apple has completed its investigation into alleged mistreatement of workers at its Chinese iPod plant and found the Chinese company was working employees harder than Apple rules allow. Other than that, there is no child labor or forced labor, the company said. In the official report on the Apple website, the company addressed several accusations.

Apple found no evidence of forced labor or child labor but was unhappy with the worker dormitories. Some of these, Apple said, were too "impersonal." Later, it is stated that "we believe in the importance of a healthy work-life balance." Are such touchy-feely sentiments a little out of place when dealing with the inherently inhumane work of snapping together iPod after iPod?

At Ars Technica, Jacqui Cheng note: "For a company like Apple who has a widespread reputation for being an environmentally and socially conscious company that even the hippest of hippies could love, it's extremely important for them to issue such a high-profile response to such accusations in order to save face with the general public."

Our audit of on-site dormitories found no violations of our Code of Conduct. We were not satisfied, however, with the living conditions of three of the off-site leased dorms that we visited. These buildings were converted by the supplier during a period of rapid growth and have served as interim housing. Two of the dormitories, originally built as factories, now contain a large number of beds and lockers in an open space, and from our perspective, felt too impersonal. The third contained triple-bunks, which in our opinion didn’t provide reasonable personal space.

Apple found that pay met local minimum standards but that the pay structure was too complex:

The pay structure was unnecessarily complex. An employee’s wage was comprised of several elements (base pay, skill bonus, attendance bonus, housing allowance, meal allowance, overtime), making it difficult to understand and communicate to employees. This structure effectively failed to meet our Code of Conduct requirement that how workers are paid must be clearly conveyed.

Employees worked substantially more overtime than Apple policies allow and Apple says workers were allowed to refuse overtime without penalty.

[We] found that the weekly limit was exceeded 35% of the time and employees worked more than six consecutive days 25% of the time. Although our Code of Conduct allows overtime limit exceptions in unusual circumstances, we believe in the importance of a healthy work-life balance and found these percentages to be excessive.

If anything, workers said they wanted more overtime. Lack of overtime was the number one complaint. The other major complaint was inadequate transportation between factory and dorms.

by Richard Koman for

RedHat was a no-show at LinuxWorld, leaving most vendors and attendees scratching their heads, all the more so because Novell had a huge booth near the entrance promoting new SUSE products ... Yahoo is leaving its mark on del.ici.ous with a new homepage featuring thumbnails and "tags to watch" and contextual ads. Steve Rubel finds it dicey to screw around with techies' core web service but notes "there are no contextual ads on del.icio.us tag pages yet. However, I am sure that Yahoo will soon move to monetize these pages since they are prime real estate on certain keywords." The idea of course is that it won't be just for techies for much longer .... Google has updated GoogleTalk with voicemail, file and folder sharing and music status. I guess that's cool but G is so far behind the major chat players, not sure how many people care ...

BizDev 2.0

Flickr's Caterina Fake has a line on the 2.0 way to do business around here. Build it, then negotiate.

Several companies -- probably more than a dozen -- have approached us to provide printing services for Flickr users, and while we were unable to respond to most of them, given the number of similar requests and other things eating up our time, one company, QOOP, just went ahead and applied for a Commercial API key, which was approved almost immediately, and built a fully-fleshed out service. Then after the fact, business development on our side got in touch, worked out a deal -- and the site was built and taking orders while their competitors were still waiting for us to return their emails. QOOP even patrols the discussions on the Flickr boards about their product, and responds and makes adjustments based on what they read there. Now that's customer service, and BizDev 2.0.

Cap'n TechCrunch

The bidding for tickets to tomorrow's TechCrunch August Capital deal is at $310, bid by eBay users ronsheridan (possibly this Ron Sheridan). That's because the RSVP list is locked at 700 people and demand to get into the 2.0 event of the summer is bigger than that. Seems like I've been here before ...

2.0 apps are great but it's not the be-all-end-all, hm? TechCrunch's Michael Arrington set up a Wiki to handle reservations but conceded: "The wiki is overwhelmed and is frustrating people because it is constantly locked. I apologize. I hate wasting people's time and I can imagine how frustrating it must be to sit there and hit "refresh". All of those "refreshes" are also crushing our servers." The Chronicle's Al Saracevic is amused:

To leverage the popularity of the movement, the ticket auction has generated bids over $300 apiece, with all the money generated going to help a charity ... that helps entrepreneurs! Like we need more 2.0 carpetbaggers starting photo sharing sites around here??

By Richard Koman for SiliconValleyWatcher.com

Here's one for the conspiracy theorists. Yesterday Google announced the purchase of Neven Vision, which specialized in photo recognition software which does business both with the cellphone industry (organize your camphone pics) and the federal government (recognize who's going through security with tubes of gel in each hand and white powder on his shoes). So does buy give Google a leg up in the online digital photo service biz? (Yes.) Or a foot in the door into the lucrative federal government contracting biz (possibly).

As far as online photos go, Neven's tech will be integrated into Picasa. Adrian Graham, Picasa product manager, says this on the Google blog: "Unless you take the time to label and organize all your pictures (and I'll freely admit that I don't), chances are it can be pretty hard to find that photo you just know is hidden somewhere deep inside your computer. ... Neven Vision comes to Google with deep technology and expertise around automatically extracting information from a photo. It could be as simple as detecting whether or not a photo contains a person, or, one day, as complex as recognizing people, places, and objects. This technology just may make it a lot easier for you to organize and find the photos you care about."

Uh huh. Picasa. The thing, is, Neven is a powerhouse in the mobile market with 15 patents. Their technology works without communication to a central server. In March they cut a deal with NTT DoCoMo to run a security application on one DoCoMo-running phone. Scott Schaefer reported at the time on how it works:

When the user initiates an action, the automated authentication process completes correctly and then executes the chosen application, all without any additional action by the user, such as having to manually enter a password. Designed as replacement of access control by password or PIN number, the technology supports i-mode FeliCa, PIM data protection, and device lock function.

In addition, Neven's iScout is a major mobile marketing application. Think that's a business with some application to Google? "Google could easily use this software to improve local search and advertising from cell phones, for example," Schaefer notes.

Schaefer looks for Yahoo to have to respond in kind, possibly by acquiring ActiveSymbols, a division of Logicalis. ActiveSymbols combines recognition software with a proprietary server that recognizes a camphone-snapped image, searches the web for related information and returns results to the phone.

The blogosphere seems ready to assume that Neven can check a photo of any person against the database of all human users and figure out who they are. From there, it's a quick tour through users' search history and email, MySpace friends lists, and real-world locations.

The first part of that is far-fetched I think. Face recognition is surely at the biometrics level, not being able to identify individuals. But the trick is to get users to identify faces to the system. Once instructed, the system should be able to use biometrics to get that person's ID right in the future. (GigaOm reports that the LAPD uses Neven to do facial IDs of gang members; that sounds like it's getting close, but the LAPD's photobase of gang members is a much smaller population than Google users.) Once that's done, the rest lines up quite nicely.

Google now has relationships with DoCoMo and other major mobile players. With Neven, it has pic-to-search capabilities and killer mobile security features, which can open the door to mobile e-commerce. Google has an ad relationship with News Corp and MySpace. If there were a way to connect MySpace networks into phone applications, say - this is where in physical space your friends are right now, where do you want to meet for lunch? - that sounds interesting.

How to get a job

Guy Kawasaki posted Monday about "How to get a job in Silicon Valley but didn't know who to ask." By yesterday, even the legal bloggers were shaking in recognition of his awful truths. The piece is notable not just for his solid job hunting advice but for his antropology of homo siliconis.

The job hunting advice is straight-forward - be enthusiastic, keep your res to one page, show up early - but it's these other little gems that nail the Valley.

Passion for what a company makes or does is the most important factor in getting a job in Silicon Valley. Companies here are built on passion—indeed, perhaps more passion than reality. Hence, they hire passionate people who are already in the Reality Distortion Field. The question is, How do you show your passion?

Passion for what a company makes or does is the most important factor in getting a job in Silicon Valley. Companies here are built on passion—indeed, perhaps more passion than reality. Hence, they hire passionate people who are already in the Reality Distortion Field. The question is, How do you show your passion?

And then ... Guy delivers this little table of the people you're likely to meet around the table at the gang interview. This is so spot on, all you can do is smile and say, wow. Like the marketing guy:

And of course, Ms. CEO:

By Richard Koman for SiliconValleyWatcher.com

In the aftermath of the AOL leak, people are getting more interested than ever in exactly what search engines are doing with all the information they're collecting. The Times takes a look with a piece today by Saul Hansell, headlined "Advertisers trace paths users leave on the Internet."

Yahoo, it seems, has some complex data modeling in which users are categorized into some 300 groups, based on search history, and then served appropriate ads. Every search company does something similar. As the AOL leak showed, search histories create a portrait of an individual, and targetted searching is an early warning sign of imminent spending, and if you're about to spend money, there are a lot of companies that would like to know about that.

No suprises there. You search, we look at what you search and serve you ads. It gets a little spookier when you realize that cookies allow advertisers to track users across the Web.

“You are no longer targeting people you think will be interested in your product,” said Les Kruger, a senior marketing manager at Cingular. “We know based on your behavior that you are in the market, and we can target you as you bounce around the Internet.”

Tacoda Systems runs its behavior targeting ad software on a network of some 3,500 sites, including the Times. So when you've visited one site, Tacoda can serve you ads related to that subject anywhere you travel on the network. For instance, you visit Cars.com and see car ads when you're on Weather.com.

For its part Google is not impressed with history-based advertising. “Does a user want to see an ad on cars when they are planning their weekend vacation, or do they want to see an ad related to what they are looking at?” asks Google's Tim Anderson.

But there are some impressive anecdotes.

LendingTree, an online loan broker, has experimented with aiming ads at some of the 300 categories of users in Yahoo’s new system, like newlyweds and people who have just moved. It had by far the best results advertising to people who had searched for and read information about borrowing money.

“People aren’t in the market for loans all the time,” said Darren Beck, LendingTree’s vice president for online advertising. “These behavioral targeting models seem like the holy grail. We can find people exactly when they want a loan.”

By Richard Koman for SiliconValleyWatcher.com

XBox 2.0

The 2.0 meme is all over the front pages today. First and foremost, Microsoft takes a 2.0 approach to future XBox development with the release of a low-end game authoring environment for the XBox 360. Reports the Times:

Programs created with XNA Game Studio Express will not look as good as most packaged titles. But at a time when gamers seem tired of sequels and genre standards, the company says it believes that some kind of independent games business could provide a breath of fresh air. “We thought a lot about ‘The Blair Witch Project,’ ” said Scott Henson, a director for Microsoft’s game developer group, referring to the low-budget horror film that became a surprise hit in 1999.

And, of course, the company hopes the process of making games proves as addictive as playing them. “On the Internet, we’re going from a monologue world to a dialogue world,” Mr. Henson said, referring to sites with user-created content like MySpace and YouTube. “It’s amazing how much participation there is.”

TV 2.0

And Current, the cable network co-founded by Al Gore that broadcasts user-generated content, is suddenly looking good to investors. The magic phrase that causes otherwise hard-boiled business types to moan "ooooo" is - wait for it - "YouTube."

The Chronicle says: "Now carried in 30 million homes, Current will announce a plan next month for online expansion and is planning an international version next year. Madeleine Smithberg, co-creator of Comedy Central's "The Daily Show With Jon Stewart," will start a daily offering this fall that's still under wraps.'

The pitch to creators is basically that getting a bazillion views on YouTube might get you web wuffie but it won't make you any money. Getting on current will pay you some bucks and get you on the big small screen, and that could lead to a call from, say, Honda to direct an ad for their next under-30 campaign.

That's a fine theory, but asks Broadcast & Cable's John Higgins: "Do you ever hear people say, 'Did you see that video on Current?' No. They say, 'Did you see that video on YouTube?' " Ouch. So why not just the YouTube Channel? A creative/marketing deal with say, I dunno, News Corp? I think such a deal is Chad Hurley's for the asking.

As the owner of dynamo MySpace, which in large part powered the YouTube phenom, as the Mercury News notes, News Corp is by far the most savvy at bridging the TV/cable-to-online divide. So much so that they had Google jumping through hoops to land a search and ad-serving deal.

Other news of note: AOL buys Uplane to extend the AIM network into a social engineering play; and the big shocker ... AP discovers that Google replaced the Froogle link with Video. John Batelle holds forth.

By Richard Koman for SiliconValleyWatcher.com

After Apple announced they would restate all their earnings post-2002, the stock naturally fell but not as much as one might have suspected. Conventional wisdom was that investors were holding out hope that the restatements wouldn't be all that serious. Forget it.

In its 10-Q filed today (PDF), Apple stated:

The company anticipates that there will be significant changes in the results of operation for the quarter ended July 1, 2006, compared to the quarter ended June 25, 2005, including significant increases in the Company's revenue and expenses. The Company cannot provide a reasonable estimate of the results because it will likely need to restate its historical financial statments to record non-cash charges for compensation expense related to past stock option grants.

The AP's Michael Liedtke notes that the "irregularities" in the stock options date to 1997 — the same time that Steve Jobs began running the company (again).

Apple has acknowledged its stock option inquiry involves some awards made to Jobs, although the grants were canceled before its chief executive realized any gains.

Some investors nevertheless worry the brewing scandal might distract or, in a worst case scenario, force out Jobs, who is widely viewed as the key to Apple's continuing success. Industry analysts so far seem to believe he will remain on the job and focused on building upon Apple's recent momentum.

More charges against Reyes

p>More trouble for ex-Brocade execs Greg Reyes and Stephanie Jensen. Much more trouble. A day after a judge refused to throw out the backdating charges against them (while acknowledging the charges "could and perhaps should have been more specific"), a federal grand jury returned eight additional counts against the pair, including securities fraud, falsifying records, mail fraud and filing false financial statements that overstated the company's profits, the Mercury reports.

Reyes was also indicted on four additional counts of making false statements to Brocade's auditors, who had probed whether the company routinely rigged prices on stock options to secretly give new employees a head start to potential profits.

Meanwhile Brocade executives including former board member and legal adviser Larry Sonsini agreed to settle a shareholder lawsuit. Auditor KPMG was part of the settlement too.

Under the deal, Brocade's board of directors will appoint either a lead outside director or an independent chairperson, and the company's general counsel will serve as chief compliance officer. Brocade also will pay $525,000 to lawyers representing investors. A settlement hearing is scheduled for Aug. 18.

By Richard Koman for SiliconValleyWatcher.com

MTV is buying SF's Atom Entertainment (Atom Films, Shockwave.com) for the big bucks - $200 million. The Chronicle's Ellen Lee is reporting the acquisition as a sign that the chase is on for media corps to snap up online video sites with an attractive demographic.

Atom has been profitable since 2002, making tens of millions a year, according to CEO Mika Salmi.

"It's a move that brings together two really innovative companies whose sum of their part is going to be pretty significant," sai Allen Weiner of Gartner. Not sure how innovative MTV is these days but they have certainly been going digital.

"We are transforming our company into a television and digital company," MTV CEO Michael Wolf said.

Bad reporter

Three stories quoted Robert Ash as a "space historian" and "aeronautical engineer and amateur space historian." But Ash is an aeronautical engineering professor.

Chien's reporting came under scrutiny when he submitted a draft article citing a different source, Ted Collins, along with contact information for Collins, as required by Wired News ever since questions arose last year over another reporter's sources.

An investigation traced the name and Hotmail account provided to a Usenet posting praising Chien's work. Wired News senior editor Kevin Poulsen then compared the IP address of the poster and Chien's computer and discovered they matched. An e-mail sent to Wired News from the Ted Collins account also originated with the same IP address.

Poulsen linked Chien's IP address to at least one other Hotmail account, created under the name Robert Stevens, which Chien had provided to Wired News as contact information for Ash. The name and address were used in additional Usenet posts making positive comments about Chien's work.

Chien has used Robert Stevens as a source in at least three articles published in two newspapers, which we have contacted privately. In each case he used a different description, variously calling him a retired engineer, a NASA engineer and an amateur astronomer.

Justifiable hype

Gartner released its Emerging Technologies Hype Cycle report yesterday and the big three hype sectors are no surprise: Web 2.0, Real World Web and Application Architecture.

Under Web 2.0, Gartner picks "social networking analysis" - using the information and knowledge gathered from people's personal networks to identify target markets - and Ajax as "high impact," Information Week reports.

Real World Web apps are essentially concerned with location awareness. Using GPS and location-aware mobile devices, business applications will create new capabilities for delivering location-based services. For instance, field force management, fleet management, logistics and goods transportation, Gartner said.

Finally, "Event-driven architecture, a form of distributed computing, was expected to reach mainstream adoption in five to 10 years. EDA involves the packaging of discrete functions into modular, encapsulated, shareable components, some of which are triggered by the arrival of one or more event objects, Gartner said."

Consumer Reports found more than $8bn in online fraud, another $7.8bn spent by consumers to repair or replace computers damaged by spyware and viruses. It is amazing that people still use the Internet and find it useful.

The Consumer Reports figures don't factor in the costs of ad click fraud, which could be as high as one click in eight being fraudulent. Consumers pay because of higher marketing costs by retailers.

And also what about the lost time people spend dealing with viruses, spyware, spam etc. There must be several billions dollars in lost productivity that should be added to the damages caused by fraudsters and spammers. That is a very large bill to pay and it is one that people still seem to be willing to pay because of the other benefits.

But, not everybody is going to be willing to continue to take risks on the Internet and that is a problem that the industry needs to tackle. How do you make it safe for users?

AOL, for example, could have created a walled garden, a safe(r) place for users. Instead it decided to open up to the Internet, an example of it again, choosing the wrong business strategy.

Another approach is to create closed platforms as in the cell phone market. The cell phone service provider chooses the phones, the applications, and handles billing. A cell phone service is a more secure place than the wilds of the Internet.

Why not a Google or Yahoo PC? Or one from another company. It could be inexpensive, it could be sold as a service. And it would have consumer applications such as photo editor, word processor, spreadsheet, etc. It would have a browser but it would only communicate with trusted web sites, Google validated sites, for example. GOOG and YHOO and MSFT already have lots of consumer apps and could easily brand such a system set it up to use its services first, and that would be good enough for 90 per cent of tasks.

And if it used technology such as that from Wyse, it could be set up as a thin computing system and it would be highly secure because a central server would determine what applications it would run, and prevent spyware or any other malware from causing damage or exposing users to fraud.

By Richard Koman for SiliconValleyWatcher.com

Score another MSM takedown for right-wing bloggers. Reuters has pulled two photos of the Israel-Hezbollah War taken by Lebanese photographer Adnan Hajj. Most egregiously, the first photo shows obvious and heavy-handed Photoshop-like cloning of smoke plumes created by Israeli bombing of Hezbollah leaders' residences. Right-wing bloggers, always on the lookout for evidence of left-wing bias in the media immediately flagged the suspicious image.

The doctored photo

The original photo

littlegreenfootballs, which was instrumental in the takedown of Dan Rather, was quick to point out the similarities between the two episodes, namely that the doctoring was so sloppy that even "guys in their pajamas" (to quote Rather) could see it.

It’s so incredibly obvious, it reminds me of the faked CBS memos. Smoke simply does not contain repeating symmetrical patterns like this, and you can see the repetition in both plumes of smoke. There’s really no question about it.

So does this mean that the liberal media is out to spin the war against Israel? Or at least that Reuters photo editors intentionally pass over fraud obvious to amateurs? Perhaps the answer has more to do with economics than politics. MSM-basher Ace of Spades writes:

Reuters has some explaining to do. The whole MSM has some explaining to do. But they will do no explaining, and ask no questions, and embargo the story, because they cannot admit that they have cut foreign budgets to such a degree tthey now rely almost entirely on local stringers of questionable objectivity and integrity for the bulk of their foreign reportage.

If you look at these pages, the bloggers are very conservative. They have an obvious axe to grind. But their near-obsessional dedication to rooting out fraud in the media yields results. Stories like these put the media in a defensive position. They will now overcompensate to show that they are not politically motivated, left-wing, or anti-Israel, even though current coverage is hardly pro-Hezbollah.

The episode shows the short-sightedness of cutting back editorial staff and forcing the most seasoned reporters into early retirement. Since the economic model apparently can't sustain the level of accuracy required, and the bloggers have now established a zero-tolerance policy for errors, there is only one choice. Find a way to include bloggers, "citizen journalists," and a multitude of content providers with varying political agendas - and somehow melt them all together with professional journalists into a mix that has a better self-correction mechanism.

I really think the media cannot just continue to keep cutting reporters, editors and producers and maintain credibility. But the citizen journalism efforts have largely tanked - or shortly will, while YouTube goes crazy. Perhaps Big News will cease to be an industry and will find itself flowing int the digital media ocean.

Email Koman at rkoman /at/ gmail/dot/com

By Richard Koman for SiliconValleyWatcher.com

Josh Wolf is in jail.

The 24-year-old freelance videographer and blogger (www.joshwolf.net was not responding to repeated attempts as I write this) went to jail yesterday for refusing to turn over to a federal grand jury unpublished video of a 2005 clash between demonstrators and SF police. Prosecutors were investigating the arson of a police car, they said.

At first glance, the case seemed to me as "slam dunk" as the judge, US District Judge William Alsup, said it was. According to the Chronicle, he said:

"Every person, from the president of the United States down to you and me, has to give information to the grand jury if the grand jury wants it."

High-flown words and an accurate statement of law, but then one wonders, isn't the burning of a SF cop car a local matter? It is - and it's one that apparently the SF DA didn't bother to investigate. So how did Josh Wolf wind up in federal court?

The government's argument is that the SFPD receives federal terrorism dollars from Washington, therefore crimes against the police are crimes against the United States

That's a very shaky argument. It essentially says that the Justice Dept. can step in at any time and say that any crime against any local agency that receives any federal funds - and the Dept. of Homeland Security has been littering the country with antiterrorism funds (there are, for instance, over 8,000 target sites in Indiana, 40% more than in New York).

But since the case is in federal court, Wolf has to make the case that he qualifies as a journalist and that federal law would protect him if he is. "We're not going to have Mr. Wolf or any reporters covering protests. Confidential sources are not going to come forward. They (journalists) are going to be viewed as investigative arms of the government," his lawyer said.

But this is mostly nonsense. The video is of events on public streets. No confidential sources were involved. As much as Wolf might wish for a federal shield law it doesn't exist.

Even so, there is a big problem with the jailing of Josh Wolf. The Justice Dept. shouldn't be permitted to make local crimes federal issues. Conservatives should be screaming states' rights over this.

Here's Ted Rheingold's take:

This is a very scary premise that is being used all over the country by the feds. Did the event happen on a highway, well that’s Federal Land? Did it happen in a library that gets federal funding? Under this math, where aren’t federal dollars spent? I really don’t like this abuse of jurisdiction, especailly when the definition of terrorist is very different that what the average American would say.

Josh Wolf is in prison because he has violated the law as it stands. Laws that he thinks are unjust. So much so that he’s willing to screw up his whole life just to say in the loudest voice that he can that our federal law enforcement has gotten off track. What would I do in the situation, I don’t know. But Josh has made his decision and I respect it immensely.

Wolf will surely appeal the case - indeed he asked the judge to delay his incarceration until it could be brought to the Ninth Circuit - but the judge declined.

As the SEC and other law enforcement agencies investigate whether executives and companies committed crimes by backdating stock options, the list of Silicon Valley companies under investigation looks like a client list of one firm: Wilson Sonsini.

Actually, that's something of an overstatement: Sonsini represents just under half of the Valley companies under investigation, according to a NY Times profile of Larry Sonsini, described as the Valley's "most feared and sought-after lawyer," (reporter Gary Rivlin), "the most powerful person in Silicon Valley," (investment banker Sanford Robertson), a better deal-maker than lawyer, and a great lawyer.

While Sonsini was untouched during the dot-bomb meltdown and accounting scandals of a few years back, the current spreading scandal may be enough to tarnish Sonsini's untouchable reputation, Rivlin suggests. Specifically, what liability if any does Sonsini have for his advice to ex-Brodade CEO Gregory Reynes? Wilson Sonsini served as outside counsel to Brocade and Sonsini sat on Brocade's board until last year.

Prosecutors have accused [Reyes] of defrauding not only investors but also its board by doctoring documents, including board minutes. ... [P]rosecutors, questioned at a news conference, said that they had not ruled out the possibility that Mr. Sonsini could be charged at a later date."

Back in February, Reyes lashed out at Sonsini in a Business Week article.

Reyes says Sonsini urged the board to make Reyes a "committee of one" to dole out options as he wished in 1999. The next he heard from the board, he claims, was after a disgruntled former employee threatened to file a whistleblower suit in 2004 alleging improprieties related to options.

After an investigation, Reyes says Sonsini persuaded him to resign because the evidence pointing to him was "overwhelming and conclusive." Only after Reyes had seen the evidence and, unimpressed, tried to rescind his resignation did Sonsini reveal that Brocade's outside auditor had refused to certify Brocade's financials with Reyes as CEO, says Reyes. His argument: that members of the board overstated his role in order to deflect the auditor's attention from themselves.

Sonsini offered the Times this non-denial denial: ""I'm not so sure the committee-of-one didn't exist before becoming counsel to Brocade."

At Spot-On, Chris Nolan sees the Brocade investigation as signs that the SEC is dealing proactively with Bubble 2.0 even as it prosecutes on 1.0.

The U.S. government - finally! - means business when it comes to how Silicon Valley conducts its affairs. For Bubble 2.0 the valley is going to have to join the real world, you know the one with real, regulator oversight, non-partisan legal advice and objective accounting? That real world, the one in which the rest of American businesses are located.

... Remember, the government regulates white collar crime by example. That's why they're stepping in now - they can see Bubble 2.0 as clearly as the rest of us. And while much of what Silicon Valley will say in response to the investigations, the investigators, the scandals, the indictment and the possible convictions may well be true - it doesn't matter. This is how regulation is enforced and laws are interpreted.

By Richard Koman for SiliconValleyWatcher.com

On July 20, the full force of the law came down on former executives of Brocade Communications, when the SEC, the US Attorney's Office and the FBI filed charges against Gregory Reeves, the company's former CEO, and Stephanie Jensen, former VP of HR, for crimes related to the backdating of stock options.

U.S. Attorney Kevin V. Ryan stated, ``The criminal charges filed today allege that this backdating scheme contributed to the restatements of hundreds of millions of dollars of Brocade's financial results. The criminal complaint alleges that these defendants altered and backdated Board of Director meeting minutes and employment offer letters in a scheme to defraud in connection with the pricing and granting of stock options." (Mercury News, 7/20)

Today, the SEC announced that it is investigating Santa Monica-based Activision, a game maker, over its accounting practices, presumably looking at failure to account for backdated options.

And Friday the IRS said it would be looking closely at executive compensation for problems with options.

And run of the mill employees who received options may also be facing criminal liability, Eumi Choi, second in command at the US Attorney's Office for Northern California Today, told the Mercury News in an interview.

On Sunday, the Chronicle looked looked at what fueled the backdating craze of the 90s.

"The recruiting pressure was so intense," said Ron Bottano, senior partner in the executive compensation practice at recruitment firm Korn/Ferry. "Companies were viewing (options) as currency. (Job seekers) focused on the number of options, 'Can I get more options at one location than another?' "

...
"Because of the very rapid growth (in granting of stock options), the infrastructure for administering and dealing with it didn't grow as quickly," said Corey Rosen, executive director of the National Center for Employee Ownership. "To put it simply, you had a lot of amateurs. Professional advisers were giving advice that may not have been very good and stock plan administrators made mistakes."

Bottano said the software commonly used in the 1990s to administer options grants made it easy to change records, facilitating backdating. "You could make an edit, the program didn't ask for any verification," he said. "It was more a tool than an auditing mechanism. The systems weren't very advanced because options weren't."

The fast-moving digital media world basically cleaves into two parts: those that license, sell or pirate traditional, label/studio-generated content, and Web 2.0 stuff - media created, sampled or collected by people for other people. Apple clearly belongs in the first camp, YouTube clearly in the second.

(Yahoo uncomfortably tries to split the difference, simultaneously pursuing studios and labels, while buying up social networking sites. Not too much has really changed with Yahoo since I wrote about them last year - see 'Yahoo unveils Media RSS spec and elaborates on its schizophrenic strategy'.)

The cleavage becomes apparent in coverage of Chad Hurley's appearance at the AlwaysOn Summit yesterday. Hurley was speaking on a panel with Yahoo, Sony and Michael Robertson, but all eyes were on Hurley as Bubble-blowers continued to salivate over the way-cool vidclip service.

People like the WSJ's Kara Swisher, who moderated the panel, are calling on hot companies to show their profits. Wall Street won't get fooled by a tech bubble again! A typical exchange went roughly like this.

Hurley: We already are generating revenue and developing a new ad platform and building out our sales team.

Swisher: So not profitable, huh?

Hurley: No, not yet.

Robertson: Give them a break, they just started.

Swisher: It's back to the dot-com days!

The real juicy issue is media, not profits, though. `We are not trying to stream full-length programming. We have developed a new clip culture," Hurley said. The site limits videos to 10 minutes. Or as Tony Perkins has it, a "personal content revolution."

Hurley thinks he has protection against liability because the clips are limited in time and because they're responsive to copyright holders demands to remove material. Presumably, he has some legal advice to that effect, but it won't really matter because the business proposition will be so strong.

NBC demanded YT remove clips of Saturday Night Live sketches, which they did, but now NBC wants to use the site to promote its fall lineup, says the Mercury News. There's tons of Jon Stewart on YT but you don't see Comedy Central complaining.

Let's throw all the buzz words at this baby. Clip culture is a powerful long-tail economic engine that wind up wagging the dog of traditional media. YT's energy is from its contributor-users. Right now, unlike Napster in its heyday, YT is anything but a cesspool of copyright rip-offs. Stuff ripped off from TiVO is there for sure, but it's still overwhelmed by Mentos, the history of dance, and cyberspace's funniest home videos.

Hurley can monetize the crap out of this engine, as he plans: "We are in discussions with all of the networks, studios and labels to leverage what we have built." And as long as he keeps what he's built on the Web 2.0 side of the media divide, leaving the Sonys to deal with Steve Jobs, YT will do just fine.

Verne Kopytoff suggests in the Chronicle that it's just a matter of time until YT gets bought up by some needy multibillion-dollar search engine. Hurley's avowal that staying independent is "the best place" for YouTube "undoubtedly convinced few in the audience," Kopytoff wrote. Perhaps it's not the best place for Hurley but based on Yahoo's buys of Flickr and Delicious, it's probably an excellent place for the clip culture.

By Richard Koman for SiliconValleyWatcher.com

Even as a judge prepares to decide whether to enforce a $90 million settlement against Google for a class-action lawsuit, Google announced moves to shine some light on their click fraud suspicions. The Mercury reports that will tell advertisers how many clicks have been deemed invalid each day for advertising campaigns they run on Google.

Google will start giving advertisers an estimate of the number and percentage of invalid clicks over a day, week, quarter and year, the Chronicle reported.

``This gives them the data that shows that Google is doing what we say we have been doing,'' Shuman Ghosemajumder, business product manager for trust and safety, told the Mercury. What Google says they have been doing is using sophisticated software to filter out the vast majority of fraudulent clicks.

On the official Adwords blog, available here) concludes that Google's efforts at stopping click fraud are "reasonable." While the report says that Google is doing a lot to deal with the problem, as much as anyone, there are hard limits to a technological solution. Danny Sullivan points out:

Between the obviously clear cases of valid and invalid clicks, lies the whole spectrum of highly complicated cases when the clicking intent is far from clear and depends on a whole range of complicated factors, including the parameter values of the click. Therefore, this intent (and thus the validity of a click based on the above definitions) cannot be operationalized and detected by technological means with any reasonable measure of certainty.

Google's offered settlement is being criticized by 40 of the plaintiffs as ipoorly calculated and unfair. According to the National Law Journal:

Under the settlement, class members who contributed 10 percent of Google's billions of dollars in revenue by paying for fraudulent clicks would receive compensation based on only 10 percent of the $60 million fund, or $6 million, he said in court papers. Such an undervalued settlement is "unprecedented," [said a lawyer representing two of the objectors.]

By Richard Koman for SiliconValleyWatcher.com

HP President Marc Hurd shows he's serious about building a software business with the acquisition of Mercury Interactive, a Mountain View-based company specializing in business technology optimization (BTO.) Analysts say it's a stunningly good fit for HP - `It's so complementary we think it could be worth more to HP than to many other bidders,'' said Cindy Shaw of Moors and Cabot, the Merc reported.

It must be, because Mercury carries with it more than the usual risk baggage. It was the "grandaddy of companies being investigated for options backdating," as Jack Ciesielski puts it on Seeking Alpha. Backdating is claiming a grant date that is different that the actual grant date. Mercury did lots of that, apparently, plus incorrect accounting of options, incorrect reporting of options, failure to record options. You get the picture.

Hurd said HP had been pondering the Mercury purchase ``for a while.'' One of the issues HP was mulling over was the possibility of assuming liability for the costs of cleaning up Mercury's stock-option backdating.

HP Chief Financial Officer Bob Wayman told financial analysts during a conference call, ``We have done a lot of work evaluating the potential liability. We think we have our arms around them. . . . We think they're very manageable.''

As for the actual business synergy, CXOToday provides perspective:

The acquisition is likely to strengthen HP's OpenView line of offerings with Mercury's application management, application delivery, IT governance and SOA governance range of offerings. ...

In 2006 May, Mercury rolled out a new tool designed to let companies automate change management and carefully assess associated risk with new application and infrastructure modifications. With HP gradually maturing into a prominent infrastructure management vendor, capabilities such as Mercury's Change Control Management tool could do a lot to fortify its credentials.

The price of $52 a share for Mercury is a 33 percent premium on the company's closing price of $39 yesterday. Not bad for a company that's essentially damaged goods - even if it has cleaned up its act.

By Richard Koman for SiliconValleyWatcher

AMD made a major push towards parity with Intel today with a $5.4 billion acquisition of ATI Technologies - a major manufacturer of graphics chips, chipsets and the semiconductors used in cellphones and HDTVs. The move, says AMD CEO Hector Ruiz, will enable AMD to offer more integrated platforms by integrating microprocessors with other types of components.

ZDNet's David Berlind has a podcast of the press announcement of the deal, in which Ruiz and ATI pres Dave Orton describe "a future where graphics technologies are integrated into the microprocessor silicon much the same way that AMD already integrates memory controller technology into the same dies as its CPUs."

At The Register, Guy Kewney points out that concerns that AMD paid a premium (as much as 25%) simply miss the point. The world is moving to GPUs - you just can't cram all the processing power required for HDTV and fast-response gaming. Throw in the exploding market for video iPod devices and the convergence of media and voice that is finally happening in cellphones and, Kewney writes:

AMD feels that it has to move, now, before it becomes part of Intel, rather than part of a generic processor platform. If it is right, then the question of "how much did you pay for ATI?" is irrelevant. It may be a question of "How can you expect to survive, without ATI?"

Now Valley wags are turning their attention to Nvidia, the Santa Clara-based graphics chip maker who has been AMD's main supplier of such chips. Does the deal leave Nvidia out in the cold for supplying the NForce Pro chipset to AMD's Opterons? Will Intel now buy Nvidia?