Search and Not Destroy
Microsoft soft-pedals challenge to Google

1. Reyes of Sunshine

Google's ( GOOG) stumble this week had everyone walking on eggshells.

Finance chief George Reyes stunned bulls on the stock Tuesday by admitting growth is slowing. "You can see that each and every quarter," Reyes told investors and analysts Tuesday morning at a Merrill Lynch conference. "We are going to have to find new ways to monetize the business."

Though it only stands to reason that Google can't post 86% quarterly revenue gains forever, Reyes' comments still socked Google's shares. They dropped more than $30 Tuesday, pressuring the Nasdaq and putting Google stock down 12% in two months. The Mountain View, Calif., company rushed out a late statement pledging to "improve monetization," but to little avail.

Google's pratfall was clearly felt across the Atlantic, where Microsoft ( MSFT) was unveiling a characteristically aggressive plan to dethrone Google in the search market, Reuters reported.

Later this year, the Redmond, Wash., software giant will roll out a search engine that's twice as good as Google. At least that's how Neil Holloway, Microsoft's president for Europe, Middle East and Africa, sees it.

"What we're saying is that in six months' time we'll be more relevant in the U.S. marketplace than Google," Holloway told the Reuters Global Technology, Media and Telecom Summit in Paris. "The quality of our search and the relevance of our search from a solution perspective to the consumer will be more relevant."

Microsoft's newfound relevance wouldn't come a moment too soon, given that right now Google has 49% of the search market while Yahoo! ( YHOO) has 21% and MSN has 11%, according to Nielsen/NetRatings.

Yet even sharp-elbowed Microsoft was tiptoeing around Google in the wake of Tuesday's trip-up. Holloway says Microsoft won't bundle the new search engine into the next version of its computer operating system, called Vista.

"If we did that," explains Holloway, "I don't think a company called Google would be very happy."

They don't call Microsoft Mister Softee for nothing.

Dumb-o-Meter score: 93. Everybody play nice now.

To view Colin Barr's video take on Nastech's entry in Five Dumbest this week, click here .

Howard Sees a Bad Moonves Rising
CBS has eye on payback from satellite star

2. Stern Words

CBS ( CBS) pulled a real shocker this week.

CBS sued Sirius (SIRI) star Howard Stern Tuesday, claiming he breached his contract by hyping his new employer while he was still with CBS Radio. CBS wants damages of $500 million -- the exact amount Stern signed with Sirius for back on Oct. 6, 2004.

Though Stern's move was no secret -- it was announced in a press release titled "Howard Stern and Sirius Announce the Most Important Deal in Radio History" -- CBS claims to have been blindsided. The Black Rock contends that Stern "fraudulently concealed his interest in hundreds of millions of dollars of Sirius stock while promoting it on the air."

It's well established that Stern spent his last 14 months at CBS Radio, then called Infinity, hyping one particular satellite radio company and mocking CBS. But according to the suit, no one could have imagined that Stern was putting his money where his substantial mouth was.

"By engaging in continuous promotion of Sirius on CBS Radio airtime without any payment by Sirius to CBS for these advertisements and by pocketing over $200 million for his personal benefit, Stern misappropriated millions of dollars worth of CBS Radio airtime for his own financial benefit and the financial benefit of Don Buchwald, his agent, and Sirius in contravention of repeated directives by CBS Radio," CBS claims.

Howard Stern doing things for his personal benefit does seem unprecedented. Of course, cynics might suggest that CBS benefited too, by keeping Stern on the air when it couldn't find other talent to match his ratings. "I don't think anyone from Infinity's going to walk away from the advertising revenue," Sirius Chairman Joe Clayton said in 2004, explaining why CBS wasn't likely to let Stern go until his contract ended.

For his part, Stern held a Tuesday afternoon press conference decrying the suit even before it was filed. He called the action as "personal vendetta" on the part of CBS chief Les Moonves, whom Stern has described as "a stooge" and "a fraud."

Sounds like some people are looking at the dark side of the Moonves.

Dumb-o-Meter score: 90. Maybe Moonves is hoping to upstage the Martha Stewart-Donald Trump spat.

Fun With Cisco Stock
Chambers cashes in

3. Vigorous Exerciser

Cisco ( CSCO) chief John Chambers has got a healthy glow about him lately.

Shares in the San Jose, Calif., networking gearmaker are up 21% for 2006 after stalling in the mid-teens for the better part of two years. They still fetch less than a quarter of their bubble-era peak, but a strong earnings report has rekindled investors' growth hopes.

The revival has given the voluble Chambers an even loftier perch from which to preach to media outfits big and small.

"I am having fun again," Chambers tells trade magazine VAR Business this month. "I think we're really hitting the next generation of the Internet on the effect that it can have on business and society. ... I believe the network will go from being a transport mechanism to being a platform, with all of the implications that go with that."

One implication of Cisco's rally is that Chambers' penchant for selling his stock has turned even more lucrative. The tech chief, who has been one of Silicon Valley's staunchest supporters of stock-based compensation plans, sold 1.37 million shares last month for a net gain of $19.9 million, according to a filing with the Securities and Exchange Commission.

The sales are part of a so-called 10b5-1 prearranged stock-sale program that allows Chambers to sell more than $300 million worth of shares over four years. Chambers seems to have every intention of hitting that goal: In the year ended in July, he netted about $52.8 million after the cost of exercising options.

That's a nice take for a year's work, but to Chambers it's all about looking out for the little guy.

"Well, we try to share both the good times and the challenging," Chambers said in an interview last month with CNBC, discussing his optimistic take on order data. "And it is one of the things that is so important to our shareholders in terms of the credibility and trust. And we try to take and share the risk together."

Luckily, there was no risk Chambers would fail to share in the spoils of this rally.

Dumb-o-Meter score: 85. "And that's the Internet," Chambers later told CNBC. "It literally makes the world flat in many ways."

4. Nose Job

Nastech Pharmaceutical ( NSTK) got a bloody nose this week.

The Bothell, Wash., biotech saw its stock plunge 36% Thursday after partner Merck ( MRK) gave up on a project to make a nasal-spray weight loss drug.

Nastech vowed to keep working on the drug, known as PYY3-36, even though Merck said preliminary results of early studies showed the compound isn't effective.

That isn't stopping Nastech. "Based on our review, Nastech believes that clinical trial results to date support the continued development of this important investigational product for the treatment of obesity, and we remain committed to the further advancement of the PYY clinical program this year," said CEO Dr. Steven C. Quay. Nastech said it believes the drug can be delivered "with an acceptable nasal safety profile" and that further tests may identify "an appropriate dose or dosage regimen for intra-nasal PYY."

Sounds compelling. And if that's not enough, Nastech made clear there are no hard feelings.

"Merck noted that the 'interaction between Merck and Nastech has been positive and professional,' and that they 'would welcome the opportunity to collaborate with Nastech again should the appropriate opportunity arise,'" Nastech said in its Thursday morning press release. "Nastech as well would welcome the opportunity to work with Merck in the future."

Yes, if these two get together again we'll be in fat city.

Dumb-o-Meter score: 79. After all that work, Merck turned up its nose at the project.

5. Fool Throttle

Even Blockbuster ( BBI) managed to scrape up some good news this week.

The Dallas-based movie-rental chain has seen its shares plunge 64% off last spring's high. Deep-pocketed competition and a glut of cheap DVDs have combined to crush demand. The company lost $600 million over the first three quarters of 2005 -- full-year results aren't due for another week yet -- and Blockbuster last month announced another round of layoffs.

Even mighty Carl Icahn has gotten scorched by his foray into videoland. Icahn bought into the chain early last year, making his customary claims of management incompetence and burdensome red tape, only to see the stock head straight down soon afterward.

With Blockbuster flailing and mail-order DVD rival Netflix ( NFLX) surging, you'd think Blockbuster would be circumspect. But you'd be wrong. The company went on the offensive after a recent Associated Press story rehashing Netflix's practice of "throttling," or limiting the number of DVDs ordered by certain heavy-use customers.

"Blockbuster Online does not throttle. When we say our service offers unlimited rentals, we mean it," said Shane Evangelist, senior vice president and general manager for Blockbuster Online. "We don't prioritize our customers' movie fulfillment based on how often they use our service, and we don't limit the number of movies a subscriber receives each month. We want our customers to get the full entertainment value that comes from a subscription plan, whether that's watching 20-plus movies a month or five."

As nice as that sounds, you still can't blame shareholders for wanting to throttle someone.

Dumb-o-Meter score: 75. The only entertainment value investors have been getting from Blockbuster falls into the "how low can you go" department.

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