– Eric Auchard is a Reuters columnist. The opinions expressed are his own –

No one can easily define it.

But the next phase of the computer revolution is busy being born out of the ashes of the current economic crisis. The new approach delivers computing power as a service over the Web, like an electric utility, instead of making customers buy computers they manage themselves.

It goes by the hazy term of “cloud computing.”

Forget your tidy distinctions between hardware and software, networking and storage, the Web and the desktop. Most disappear as they merge into the cloud.

Clouds are located in centralized data centers that can house thousands of pizza-sized boxes, networked computers that can each process millions of transactions. They take advantage of the latest software that go by buzzwords like Web 2.0, virtualization and open source.

Always in search of the next big idea, the technology industry has latched onto the cloud as its big new organizing principle, once more normal corporate spending patterns return.

“Compelling economics will ultimately force you to move to clouds,” Erich Clementi, IBM’s general manager of cloud computing, told a Dublin conference last week. IBM is setting up centralized cloud computing centers across the globe.

Six months into a financial crisis that has stifled most corporate initiative, two of the world’s largest technology companies are taking the offensive.

Network gear leader Cisco has jumped into the market for big business computers called servers, while computer maker IBM is in talks to buy Sun Microsystems, another server maker, in its biggest merger deal ever, sources say. The value of the deal could run up to $8 billion.

Both Cisco and IBM aim to capitalize on the emerging shift to cloud computing, in particular by grabbing bigger slices of the data center supply market. They are looking to turn vast farms of server hardware and software into utility services that customers can rent.

The promise of the cloud is to do away with the need of organizations and individuals to maintain their own computer hardware, software, storage and network gear. The cloud metaphor is used to disguise the complexity of bringing all these pieces together. It’s the difference between owning and repairing a car yourself or leasing one with a mechanic to keep it running.

These actions, as they play out in coming years, have hundreds of companies large and small reassessing their strategies ahead of what Wall Street analysts are predicting will be a wave of mergers in the tech world. This consolidation could sweep up not only hardware makers, but software, networking, data storage and semiconductor suppliers as well as Web services.

CUMULO-NEBULOUS

There is no agreement on how to define the cloud. There are complicated academic definitions and others full of self-serving marketing spin. Computer maker Dell, created an industry uproar by trying to trademark “cloud computing” last year, but has retreated after widespread criticism they were claiming ownership for a generically accepted phrase.

The notion of centralized utility-scale computing dates is decades-old, dating back to the 1960s when corporations rented time slots on mainframes. Web hosting services proliferated during the 1990s. The term “cloud” to describe the inner workings of the Internet-at-large date back to the 1970s.

This is all part of a long shift from hardware-based computing to software and now Web-based computing. Clouds allow unused computing resources to be shared, or “virtualized,” and reused by other customers, improving efficiency. To further cut costs, most rely on inexpensive open-source software.

But unlike these earlier forms of managing dedicated machines on behalf of individual clients, cloud computing takes advantage of virtualization technology to reuse the same computing capacity again and again. Online retailer Amazon.com has dubbed this approach as “elastic” computing capacity and is making inroads with the idea.

The dominant players include not just hardware makers like Cisco and IBM and computer rival Hewlett-Packard. There are big name Internet services or software providers such as Amazon, Google and Microsoft, which deliver a range of pre-packaged software services to both start-ups and established businesses. Hot Web companies like Facebook use cloud computing to deliver thousands of different services to tens of millions of users everyday.

Earlier this month, the Financial Times quoted Microsoft research head Rick Rashid as estimating that 20 percent of all the computer servers in the world are now sold each year to a small number of Internet companies — Microsoft, Google, Yahoo and Amazon were ones he named. Computer industry margins, long in decline, stand to benefit as cloud services are sold as packages rather as boxes. Selling the same capacity repeatedly has benefits.

ELASTIC CAPACITY

Growth in computer servers used to run business operations has flattened out from their spending heyday in the 1990s. Computing is undergoing a transformation as entrenched ways of selling hardware and software as separate products are under attack. Customers are fed up running complicated systems without clear payback, especially as they look to slash costs in the downturn.

The industry is now plowing most of their new investments into cloud services rather than separate computer products. Start-up promoter and conference organizer Dealmaker Media says the cloud is one of the categories still getting funding by Silicon Valley venture capitalists. It charts $150 million invested in 25 firms in 2008 and so far in 2009.

Some clouds will be hosted by established systems integrators, Internet or telecom service operators ranging from EDS, now a unit of HP, to Amazon to BT or AT&T. Other clouds will be built to sit in-house by big companies to maintain complete control of how they work. Hybrids are emerging that mix private data centers with public cloud services to provide spare computing capacity only when needed.

Market research firm Gartner Inc estimates that cloud services revenue should top $56 billion this year, growing 21 percent from 2008, despite the credit crunch. It forecasts the market to reach $150 billion in 2013.

Wall Street is eagerly handicapping the takeout potential of dozens of downstream technology companies that will need to seek allies in the land of giants.

Possible targets range from equipment makers Network Appliance, Brocade or Juniper to storage/virtualization company EMC/VMware to consulting services such as Accenture or CapGemini. Holdouts are likely to be forced to make partnerships with Cisco, IBM or HP, to survive.

The cloud concept has emerged as the best hope for a maturing computer industry. The hope is this will create conditions for a yet to be fully imagined wave of new businesses, run from the clouds.

– At the time of publication Eric Auchard did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. For previous columns, Reuters’ customers can click on — – Eric Auchard is a Reuters columnist. The opinions expressed are his own –

– Eric Auchard is a Reuters columnist. The opinions expressed are his own –

The revolving doors are spinning ever faster in the executive suites of corporations.

CEO turnover has reached an all-time high, according to figures kept by recruiting firm Challenger & Gray. Last year, 1,484 U.S. CEOs resigned, stepped down or were fired — six casualties every business day.

Resignation has outpaced retirement as the leading reason for departure, as the credit crunch has dealt a savage blow to prospects for growth and investors grow restive over share dilution, dividend cuts and shrinking outlooks.

High profile departures stretch from the bosses of the global retailer, Carrefour, to computer maker Lenovo to a succession of financial leaders including those at AIG, Merrill and UBS.

Turnover among top executives may even be accelerating as we descend into 2009. Similar defections appear to be occurring around the world, although no one keeps track of exact totals.

Given the public’s newfound lust for revenge against the CEO class, this exodus may provoke little more than a wry smile among anyone struggling to fend off the effects of the credit crunch in their own lives.

But it presents a practical problem for those boards of directors left to pick up the pieces after a CEO departs with his reputation and strategy in ruins: Where to find the talent and experience to step in and shore things up as well as start to build towards the recovery?

Executive recruiter Heidrick & Struggles has come up with one idea to solve the brain drain. It has lined up hundreds of executives across industries and functions for what amounts to an executive temporary service.

Think Manpower or Kelly Girl, only for former captains of industry — CEOs, CFOs, chief marketing, human resources and information officers. The idea is to place these individuals with companies needing short-term leaders — either to solve a crisis or seize a new business opportunity.

Many of the executives taking part in the Heidrick & Struggles’ Chief Advisor Network have left high-powered positions and are no longer interested in full-time work. But, like many in their baby boomer demographic facing the prospect of retirement, they are unwilling to completely disengage from work.

Executive temping is a natural extension of Heidrick & Struggle’s established executive search and leadership advisory businesses. Tapping the experience and talents of executives with a solid track record of corporate leadership makes sense to fill obvious leadership voids. The idea of bringing back a wise old head, perhaps one that can even remember the last recession, after a disastrous few years under a whiz-kid CEO probably appeals to many shaken boards.

But while the approach may offer a quick fix to companies in deep crisis — and there are plenty of those around right now — it’s not clear that it is the way forward in other situations. And there are even questions about how effective that fix might prove. Bringing in an outsider with no deep knowledge of a company can be a recipe for chaos — especially when things are in flux.

There’s also the risk of bringing in someone who is motivated principally by financial incentives and won’t stay around to see how their decisions pan out over the long term. Wasn’t short-term decision making by managers and directors often what tripped up these companies in the first place?

Lastly, the ability to rely on a temping service may even encourage boards not to take hard decisions on management succession, figuring they can plug the gap if they need to.

Leadership is vital in the wake of an important executive’s departure. But dialing up a CEO is symptomatic of the wider breakdown in corporate governance that has occurred over the past decade. If the practice becomes widespread, such short-term solutions are likely to breed further disillusionment with corporate management.

– At the time of publication Eric Auchard did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. –

– Eric Auchard is a Reuters columnist. The opinions expressed are his own –

Academics, family researchers and even baseball history nuts have noticed recently how some important archives of older newspapers from around the world have vanished off the Web.

The problems have surfaced since PaperofRecord.com, a collection of more than 20 million newspaper pages of papers ranging from the Toronto Star to Mexican village periodicals to newspapers as far as Perth, Australia, merged into Google News Archive.

The problem, researchers discovered, was that Google has had trouble reformatting the newspaper images and gaining rights to display some of the older publications. It has, at least, temporarily removed some of the archives from public view.

There is an idealized view of the Web that sees it as a storehouse of human knowledge, and in the sense of the breadth of what I can find with a random Google search, this is true.

But for all its openness, the Web has proven to be a leaky vessel for historical preservation, with much of its treasure trove lost in a maze of altered Web pages, broken links and deleted sites.

The head of the British Library recently warned in The Observer newspaper that if this digital memory loss is not fixed, we “are in danger of creating a black hole for future historians and writers.”

Archives of The Sporting News, founded in 1886, and nicknamed the Bible of Baseball, is among the publications that has fallen victim in the transition of PaperofRecord.com to Google ownership. Some older Mexican newspapers are also offline, academics complain.

Preserving history on the Web is a struggle even for Google, whose stated mission is “to organize the world’s information and make it universally accessible and useful.”

“We’re doing our best to find a solution to include as much of the acquired content as possible,” a Google spokesman says of the newspaper archive transition.

But as more and more of our collective memory is hosted online, the danger grows that we lose the content and context of events that happened just days ago, let alone weeks, months or decades back.

Try retracing the links to old scandals or unflattering images on the Web, say to Enron or Parmalat or other fallen corporate names. Most of them are gone, despite the best efforts of sites like Wikipedia or Smoking Gun or the combined energies of the blogosphere to ferret out and preserve such history.

Where is the global sense of outrage that followed the looting of Iraq’s National Museum as U.S. troops stood by in the turmoil following the ouster of Saddam Hussein in 2003? While hard to measure, I think it’s a safe bet that the world suffers the loss of a museum full of artifacts every day by depending upon the Web to host our precious cultural memories.

That’s not to neglect the enormous value of the Web as temporal medium for sharing information. The latest celebrated example of this is how independent analyst Alex Dalmady used financial data from the Stanford Group’s own website to uncover the unlikely financial returns promised by the bank.

His Web detective work is the exception that proves the rule. It was all information hiding in plain site and Dalmady simply had the courage to say the emperor had no clothes.

“One does not have to be a detective, or even a financial expert, to spot financial institutions that may prove insolvent, or worse, with the passage of time,” Dalmady crowed in a report he wrote. “As the saying goes, if it looks like a duck…”

Examples like Dalmady’s are, sadly, the exception.

The World Wide Web as it has evolved over the years has made it almost purpose-built for obscuring or deleting uncomfortable facts. That wasn’t the intention of Web inventor Tim Berners-Lee, whose vision was that every address would point to a discreet page of data. Instead, Web designers have found it convenient to create dynamic Web addresses that may make it impossible to find information the next time you return to a site.

Even Dalmady’s work in January is already hard to reproduce. The Stanford International Bank Ltd site informs visitors the company has been put into receivership and provides no links to its past business.

The recent privacy backlash by Facebook users began when the management of the world’s most popular social networking site attempted to address the issue of who owns the history of conversations that occur between Facebook friends if one of the parties leaves the site.

Changes made last month to Facebook user guidelines implied that the company owned the rights to users’ personal data, including message and photos, even after they shutdown their accounts. The company has since back-peddled and assured its 175 million members that, indeed, users control the data they create on the site.

Susan Feldman, an expert on Web search with research firm IDC in Framingham, Massachusetts, says the problem of the disappearing Web is very real and also partly a mirage. The limitations of current search technology that depend on users choosing the right keywords to find what they are looking for is part of the problem.

Help is on the way from improved search tools such as text analytics and concept clustering technology that will help users find more of the information they may think is lost on the Web.

But until the Web’s important information archives are secured in modern libraries and improved search tools are widely available, the sense that we are losing our collective digital heritage will only grow.

Enjoy the Web’s many benefits, while they are still on your screen. Keep copies of anything you want to remember, or risk losing it, perhaps as early as the next time you refresh your browser. We live in a time where the capacity to record and capture our lives has never been greater.

But using the Web to preserve those memories makes it more and more likely that future generations will consider the early years of the Web to be lost decades.

– At the time of publication Eric Auchard did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. For previous columns, Reuters’ customers can click here.  –

– Eric Auchard is a Reuters columnist. The opinions expressed are his own –

Social networking phenomenon Facebook has beaten out arch-rival and former market leader MySpace by most measures of popularity, except the one that pays the bills.

While Facebook has outpaced MySpace in bringing in members — it has 175 million active users at the latest count, compared with around 130 million for MySpace — it has struggled make money from them. While MySpace is closing in on $1 billion in revenues, Facebook generated less than $300 million in sales last year, reports say.

Indeed, Facebook’s efforts to drum up revenue have led to it repeatedly becoming the target of some of the biggest online privacy protests on the Web. Its most recent fight earlier this month followed Facebook’s attempt to redefine its own rules and assert ownership over anything its members posted on the site. The company has since backed off and is rethinking its policies.

Why hasn’t Facebook benefited from the vaunted “network effect” that makes such services more valuable the more its adds members and connections between them? After all, Facebook is spreading quickly in nearly 100 languages, while MySpace has focused on the United States and five other markets where Web advertising flourishes.

The answer may lie in the origins of the five-year-old site started by then Harvard University student Mark Zuckerberg.

Its appeal at the outset was that it was a place where users could share tidbits of their personal lives with selected friends and acquaintances. This blurred the distinction between a private space and a public one. MySpace is more explicitly a public place where friends hang out in the equivalent of a cafe or a club and the aim is often to meet new people. Most of all, MySpace is a place to share music with other fans.

Users tend to view Facebook as a private forum and resent commercial intrusions. The company’s management has responded to these sensitivities by constructing a commercial model that would preserve the intimacy of the site without filling it up with crude banner advertising.

Facebook encourages advertising that seeks to trigger social interaction between members, in effect using networks of friends for viral marketing of messages. The snag is that rewiring how the site works to make such ads more effective, has actually alienated users. Many regard attempts to make money by passing on their information in subtle ways as positively creepy.

While MySpace has been criticized for flooding its member pages with garish advertising, it has never had to rewrite its basic privacy ground rules as a result and is unapologetic for its strategy. The straight ahead commercialism of the site does not provoke mass protests.

MySpace international director Travis Katz says the site always sold advertising, meaning that its basic business model of demographic targeting has had to change little as it grew.

“Our goal and objective is not to be the site with the most users,” Katz told me recently. “Our strategy is to be the site that makes all the money. We want to own the lion’s share of the profits.”

Facebook founder Zuckerberg told a German newspaper in October that making money was not the company’s primary focus and that it was happy to experiment with new ways of advertising over the next three years to discover what approaches will work for its audience.

To be fair, there is no evidence that Facebook has lost members as a result of these experiments. Worldwide, the site added 25 million users alone in January, up from 20 million new members in December.

But privacy eruptions will never end until Facebook clarifies the relationship between its advertising ambitions and safeguards for its users’ personal information. Deepening trust would give it more freedom to target advertising to users and their friends.

Facebook finds itself working upstream to impose this business model in the toughest advertising market in modern memory further complicates its chances. Any other start-up might have run out of time.

So far, its venture and corporate investors have been patient, not wishing to disrupt a company many think as having the best chance to become the next Google in Silicon Valley. And yet, as membership surges and the costs of technology to support those audiences grow, Facebook is under growing pressure to prove that it is not another money-losing, dot-com fad.

– At the time of publication Eric Auchard did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. For previous columns, click here. –

- Eric Auchard is a Reuters columnist. The opinions expressed are his own –

By Eric Auchard

LONDON (Reuters) - With world economies fast running out of steam, it may seem an unlikely time for cash-strapped governments to discover universal broadband access as an urgent national funding priority.

Yet in this financial plague year, the Great Broadband Bailout of 2009 is rocketing up the political agenda as the global economic crisis deepens further.

Massive programs to save the banking sector are failing, so far, to revive business confidence. Instead, governments must stimulate the real economy, creating jobs and income that get the working world moving.

Building faster, more pervasive internet networks creates jobs and opens new avenues for business. It joins traditional ways of priming the economy like ditch-digging and pothole-fixing to save roads and bridges or newer efforts to invest in green energy, health care or education.

The classic complaint against government job creation is that monetary policy is a quicker, more direct way to put money in consumers’ hands. But as interest rates rush to zero percent, policymakers are desperate for alternatives.

The U.S. Congress is negotiating final terms of President Barack Obama’s $800 billion stimulus plan. It includes $6-7 billion to expand broadband networks in rural and other unserved areas and up to $30 billion in tax credits for builders of superfast 100 million bit-a-second networks.

Two weeks ago, Britain’s Labor government said it wanted to make universal broadband access a reality by 2012. Two-thirds of UK households now have broadband. That broader mandate looks designed to frame debate over an eventual stimulus package that goes beyond existing bank bailout measures.

A plan could include funding to push mobile broadband into hard-to-reach rural areas and tax credits for expanding construction of superfast fiber optic cables that would speed up existing broadband networks.

Countries from Australia to Portugal to Finland are investing public monies to build faster networks.

Why now? Because jobs, business and future investments in growth will not happen without networks that efficiently deliver the growing range of text, audio and video services that consumers and businesses demand. Alternative forms of broadband access, including mobile phone networks, only go part of the way to soak up demand for these data-intensive features.

REVIVING BROADBAND INVESTMENT

The communications industry has plowed billions into broadband networks to date, but is strapped to do more. Layoffs have been announced at most major broadband carriers.

Private network operators may be more amenable to government aid following a year in which broadband subscriber growth fell 9.1 percent worldwide after five straight years of healthy growth, according to data from market research firm iSuppli.

Limited government backing at this juncture can provide incentives to private investors to co-invest. Newly government-backed banks could even kick-start the process by freeing up loans for these new infrastructure projects.

An economist at the Communications Workers of America, a union supporting the Obama plan, estimates that each $1 million invested in broadband creates 20 jobs, directly, in terms of construction, installation or network services, or indirectly, from jobs created from money spent by employing broadband workers. A $7 billion grant could mean 140,000 new jobs.

Of course, injecting public money into private industry, even with the best of intentions, is likely to cause its own headaches. No one is talking about outright nationalization, or renationalisation in some cases. Arguments in favor of government intervention depend on speed if they are to have any effect in this economic cycle.

The biggest beneficiaries are likely to be the incumbent carriers — AT&T (T.N) and Verizon (VZ.N) in the United States and BT Group (BT.L) in Britain. Inevitably, there will be issues over who gains rights to broadband network capacity constructed with government funds, especially if tax credits or subsidies are targeted at incumbents.

Rival operators will demand open access to networks built with government funding. Compromises must be reached to avert legal delays. The question of how to structure further financing will have to consider whether private companies pay the money back out of future profits, or work out some sort of regulatory trade-off for shouldering risks at this time.

Brokerage Sanford C. Bernstein has described a more ambitious scenario that could involve the government creating a parallel network by buying up the broadband assets of credit-strapped cable TV and phone provider Virgin Media (VMED.O), the second largest broadband supplier in the UK, then laying new fiber lines.

The argument for bailing out the broadband industry does not rest just on the pressing need to put people to work. New broadband construction is ditch-digging with a purpose. Economists no longer debate whether broadband investments spur follow-on employment and new business prospects. The question now is how much and how soon?

– At the time of publication Eric Auchard did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. –

– Eric Auchard is a Reuters columnist. The opinions expressed are his own –

Outsourcing, Indian-style, is challenged as never before by an erosion in business confidence that makes corporate spending, even to generate quick cost-savings, harder to justify.

“No New Investment” is the order of the day; cost avoidance, the mantra; zero percent, the growth target in the current era of uncertainty.

Software service providers emerged out of the 2000-2002 technology spending bust with sales growing up to 50 percent a year as they won over companies to contract out inefficient operations instead of managing them in-house.

But shocks to the world economy seen over the past 18 months are triggering reassessments of corporate growth expectations, cost considerations and operational accountability. It’s no longer safe to assume that the logic that drove outsourcing in the past will drive it again, once the economy picks up.

Here are reasons why the industry will find it difficult to repeat its past performance in the tough times ahead.

CUTTING BACK ON COST-CUTTING: The paradox at the moment is that spending on services meant to cut costs and save money is itself being squeezed.

Technology Partners International (TPI), a research firm that has tracked the outsourcing industry for 20 years, reported this week that total contract volumes fell 22 percent in the fourth quarter from a year ago.

Just how bad things could get this year is only likely to emerge as corporate customers nail down their 2009 spending plans to vendors in the next two to three months.

“The worst of the IT (information technology) spending slowdown likely remains in front of us as we start the clock on slashed 2009 budgets,” Goldman Sachs warned in a report on the software industry earlier this month.

The conventional wisdom is that companies will eventually need to cost-cut their way out of the economic morass. But as the software services industry has matured over this decade, Goldman analysts say the sector has become more cyclically dependent on overall IT spending, reducing the chances it will be an early winner in any corporate recovery.

Tata Consultancy Services , the largest of the Indian software service providers, estimates that budgets for IT outsourcing will fall between 5 and 20 percent during 2009. Market forecasters predict more declines in store for 2010.

KEY CUSTOMERS IN TROUBLE. One problem is that the $40 billion-a-year industry’s fortunes are heavily linked to the financial sector. Indeed outsourcing started out 30 years ago as a way to help banks automate tangled back-office operations.

But while it grew more diverse in the 1990s, branching into telecom, manufacturing, retail and other industries; banks, brokerages and insurers are still the biggest slice of the market at 20 percent of overall sales, Goldman Sachs estimates.

The finance sector is not just in trouble, it is experiencing a meltdown like no other since the 1970s or perhaps even the 1930s — long before outsourcing itself was invented. And while the credit crisis has left many institutions needing to slash costs, we are seeing a wholesale contraction of the market that will lead to steep reductions in overall demand. Whole parts of the business will disappear and not be replaced.

Moreover, the financial industry’s reliance on governments for bailouts has curtailed the autonomy of bosses. Governments are likely to be dubious should big banks and insurers seek to offshore financial jobs, especially in countries with mounting unemployment. Outsourcers may have to get used to having fewer, and more conservative, financial services customers.

GROWING COMPETITION. Even if volumes hold up, Indian software services may find their market share eroded. After all, Indian firms no longer lay claim to the sort of exclusive cost advantages — lowest cost technical labor — they did.

In recent years, the industry has expanded into other offshore regions such as Southeast Asia, Central Europe and Latin America but promises to handle sensitive work “near-shore” or onsite when customers demand or labour politics require.

Big computer services firms IBM , Hewlett-Packard and Accenture got in on the act by expanding into India or by acquiring offshore companies themselves.

Accenture now has more staff in India than in the United States. Because these firms are agnostic about whether they offer their services offshore or near-shore, they look better placed to navigate global labor politics than Indian rivals.

TRUSTWORTHINESS. Adding to the sector’s troubles is the massive corporate fraud uncovered recently at Satyam Computer Services Ltd , India’s fourth largest software services provider. The scandal has Satyam customers scrambling to find alternative providers.

Other offshore services providers report stepped-up scrutiny from clients of their own corporate governance and financial viability. It has also revived questions about the trustworthiness of Indian accounts and the adequacy of corporate controls.

That’s a big black eye for an industry that sells risk management and corporate governance services as a major client offering. It may raise the risk premium investors require for holding these stocks.

PRICE PRESSURES. Rising competition isn’t the only threat to offshore outsourcers’ margins.
Many of the more profitable, longer-term contracts worth tens or hundreds of millions of dollars are being put on hold as companies scramble to reassess their business strategies.

Customers want more control over projects and are demanding fixed-price deals that are more likely than not to limit margin growth. Infosys, Tata and others say they are doing their best to make up for price cuts by driving greater sales volumes.

The trend is disguised by the long-term nature of many existing software services contracts. Recent reports suggest many customers are scaling back or canceling long-term “mega-deals” until they can get a handle on the impact of economic decline on their own businesses.

The industry is subsisting on short-term, quick-fix contracts aimed at cutting operational costs as fast as possible. These price-sensitive deals are what software services firms had been trying to move away from in favour of higher-value projects to create new businesses for customers, not just manage existing software or customer services.

There is a big cultural change underway in global corporations that may be less friendly to outsourcing. Fallout from the financial crisis is likely to mean far greater pressure on chief executives to run a tighter ship. There’s likely to be less merger activity, less headlong expansion and less resulting need to consolidate organizations using external services.

Chief executives are sure to be more closely scrutinized for the operational choices they make, instead of farming out responsibility to lower level technical managers in order to focus on deal-making.
Inevitably there is a lack of control involved in contracting business operations out around the globe. This more constrained environment could be less favorable for outsourcing than downturns of the past.

– At the time of publication Eric Auchard did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. For previous columns, click here. –

– Eric Auchard is a Reuters columnist. The opinions expressed are his own –

“There’s probably no God” runs the slogan of an advertising campaign humanists are running on buses across Britain. But if the supreme being has his doubters, few question the importance of Steve Jobs to Apple Inc.

In a letter to employees on Wednesday, the Apple co-founder said he would take himself “out of the limelight” for six months after learning in the past week that his still vaguely defined “health issues” are “more complex than I originally thought.”

While Jobs paints his absence as a temporary medical leave — he retains the Apple CEO title even as he steps aside — his departure leaves a spiritual void at a company most people think of as inseparable from the man.

The miraculous career of the prophet of the personal computer revolution, the self-made billionaire known for a career of second acts, draws frequent religious parallels: one biography of him is entitled “The Second Coming of Steve Jobs”.

In the 33 years since he co-founded Apple, Jobs has attracted the fervent devotion of his followers — the Mac faithful, and more recently, iPod and iPhone fanatics. To them, Steve is a secular messiah; to his detractors, a cult-leader.

Apple’s unmatched record of hit products has only been achieved under the famously tyrannical leadership of Jobs, whose obsession with sleek design and the hard to define “cool” factor of his gadgets is unique in the corporate world. Again and again, it is this aesthetic, and Jobs’ commercial success exploiting it, that have distinguished Apple products from so many copycat competitors.

On some level, anyone who has ever admired an Apple product harbors a little bit of the “design Nazi” in his soul. Managers who have endured Jobs’ withering demands to create nothing but “insanely great” products may have absorbed this.

But is culture enough to overcome a vacuum of leadership? Much as Microsoft Corp has become a smaller place since Bill Gates has wound down his role at the software giant and Apple adversary, Jobs can only be sorely missed.

How far can a company, its executives, engineers and salespeople go on the mantra, “What would Steve Jobs think?”

To be sure Tim Cook, Apple’s chief operating officer, is taking over Jobs’ daily responsibilities and Jobs said he will retain strategic oversight of the company’s direction while on leave. The pipeline of product innovation looks well-stocked.

If it’s a question of the man being bigger than the company, then Apple, which popularized the personal computer, the personal digital assistant and the handheld music player and is staking its claim on reinventing the mobile phone and, perhaps even, eventually, the television, is in big trouble.

CONTEMPLATING THE UNTHINKABLE

Inside Apple, the delicacy of Jobs’ planned absence was summed up in the innocuous headline given the company’s most dramatic announcement in years: The bombshell press release was simply entitled: “Apple Media Advisory.”

As if the only interested audience were baying reporters.

The news comes as a shock, but little surprise. It caps more than a year of widespread concern over the health of Jobs, aged 53 and a survivor of pancreatic cancer. More recently, his gaunt appearance and dramatic weight loss have added to the worries.

The immediate reaction to Jobs’ departure notice was a 6 percent decline in Apple stock. But the shares have fallen 60 percent after touching $200 at the end of 2007. It’s difficult to separate the impact of Steve Jobs’ health mysteries from the general decline all stocks have seen since then.

Wall Street analyst Shaw Wu argues that while Jobs deserves a lot of credit for the revival of Apple, “we believe the company has a deep bench and its culture of innovation and execution has more or less been institutionalized.”

Not so fast. Recall the dark years of Apple history starting sometime after 1985 and lasting until he returned in 1997. The famous Apple culture remained in place but product missteps and management in-fighting were the result.

The success of Apple has rarely been its technical innovation or engineering rigor. In that sense Cook is simply a placeholder. The company’s hit products all share a fascination with functionality and beauty that is unmatched in other gadgets. It is Jobs’ taste, his commitment to design and his micro-management of talent that drives Apple.

Jobs has pulled together Apple after the years of drift. That he has done so by being a control freak with a clear vision does not diminish his accomplishments. It’s hard to imagine how his despotism will be replaced.

– At the time of publication Eric Auchard did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. For previous columns, click here. –

— Eric Auchard is a Reuters columnist. The opinions expressed are his own –

In the first global recession of the Internet Age, budget-conscious consumers are showing they no longer have an endless appetite for every new gadget or media service.

Many users are looking to eliminate overlapping services that offer more of the same old formula entertainment in a different package or on another device.

With iPods, digital TVs, video recorders, multimedia PCs and broadband connections in many households, consumers considering their options now find a range of cost-effective online substitutes for broadcast, cable or satellite TV.

TV programming, not just short-form entertainment, is served up on video sites in markets around the globe at Google Inc’s YouTube, Daily Motion, Joost or at Hulu in the United States.

Could 2009 then be the year we seriously ask “What’s on the internet?” rather than “What’s on television?”

A study released last week by the consulting group Deloitte on media consumption habits suggests that this digital switchover may be occurring before our eyes.

The survey, completed in October, of U.S. consumers aged 14 to 75 found that a majority of consumers already see their PCs as more of an entertainment device than they do TVs.

The data is part of a five-country study of nearly 9,000 consumers that found parallel shifts toward online entertainment formats from TV, albeit with a more pronounced focus on mobile phone usage outside the US. In Brazil, consumers spend an average of 19.3 hours online for personal use versus 9.8 hours watching TV.

In the United States, three-quarters of so-called “millennials” — young consumers aged 14 to 19 raised entirely in the Internet Age — say PCs offer more entertainment than TVs.

About half of Baby Boomers agree that PCs offer more. Even a surprising 42 percent of the “Reading generation,” people aged 62 and above, see PCs as more entertaining than TVs.

U.S. “millennials” typically spend 18.8 hours a week online, nearly twice as much time as they spend on TV, the report finds.

They watch DVDs on computers for an average of almost two hours. They are nearly five times as likely to listen to music on a PC, phone or music player than to the radio, the data shows.

This all may come as news to “mature” adults — those over 62 — which the U.S. survey found watch 21.5 hours of TV per week, double the time they spend online.

But the shift has already happened, however long it may take older generations to catch up, says Ed Moran, Deloitte’s director of product innovation in New York, who led the study.

DIGITAL SUBSTITUTES

Forced to consider budgeting their once free-spending media habits, consumers may find getting better connected online to be the best way to cut their entertainment and communication costs.

Market researchers have seen a pick up over the course of the past year in switching behaviors as consumers cut back on premium movie or music packages or video rental subscription services.

For active consumers looking to watch more for less, there are abundant alternatives, albeit ones that may require several hours of battling “customer service” operators to extricate yourself from subscription traps, or in Europe, TV licensing fees.

Savvy consumers are finding “good enough” digital substitutes online that allow them to forego subscribing to pay TV or online video rental services.

That’s true already among the young, but is likely to spread among other age groups as they see the value for money.

To be be sure, only as these older generations with far greater discretionary spending power switch will the trend spell the end of older media models.

Gartner analyst Mike McGuire says young people with newer PCs are increasingly taking over the functions of programming their own media, given the amount of TV, movie and music content they can stream or download.

TV over the Internet is sneaking up on us, slowly, unlike the music revolution set in motion by online file sharing service Napster a decade ago and laid low the music industry. Internet bandwidth limitations probably limit how many can be channel surfing online at any one time.

But Broadcasters are getting into the act. In Britain, the BBC iPlayer lets Web users replay the last week of broadcast TV and radio programs and ranks as the second most popular multimedia site behind YouTube. For now, overseas users can only hear BBC radio on the iPlayer.

True, watching TV on the web will be held back until consumers can pick and choose on what device and when they see any particular program. Regulators could do more to help break down media bundling in favor of a la carte pricing that allows consumers to pick and choose what they watch while freeing up programming for the Web.

While “live TV” is still a work-in-progress on the web, a growing amount of legitimate news and entertainment is free to view, via laptops or on smaller digital TV displays hooked up to computers.

For all but the most premium film or sports content, there is a growing variety of quality online substitutes.

It’s not high-definition on a fat screen but it’s playing when you want, at a price that’s hard to beat.

– At the time of publication Eric Auchard did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. For previous columns, Reuters’ customers can click here. –

– Eric Auchard is a Reuters columnist. The opinions expressed are his own –

Cleantech, with its intoxicating mix of high-tech promise and save-the-world bloody-mindedness, has fallen harder and faster in the destruction that has visited growth stocks in 2008.

Underscoring the sector’s risks, German solar cell maker Q-Cells cut its 2009 outlook on Tuesday, saying slack demand could linger until the middle of next year amid a growing industry price war. The stock lost nearly a fifth of its value in trading and the news sent down shares of rival companies.

But while it’s too early to say when the selling might be over for solar and wind stocks, gems lie in the rubble of collapsed valuations, ready for investors to snap them up when markets recover their appetite for growth and its attendant volatility.

To understand what is possible, take measure of the decline: The WilderHill Clean Energy Index, composed of around 50 renewable energy and conservation stocks, has lost three quarters of its value year-to-date, twice the loss of the S&P 500.

The mea culpas are flowing. “Every stock we cover has performed worse than the S&P 500 year-to-date,” Raymond James analyst Pavel Molchanov confessed recently in a note to clients.

In recent weeks, solar stocks, the global sector’s biggest segment by far in terms of market capitalization, have cracked up — laid low by the sharp fall in the price of oil, the plunge in the euro, the credit crunch and a move to safer havens.

The solar sector is made up of players across the Americas, Europe and China and many stocks are trading at below or close to their book value on the assumption some companies will go out of business.

Deliveries of wind systems have slowed for all major turbine makers, ranging from big diversified companies such as General Electric and Siemens AG, to wind specialists such as Vestas from Denmark or Gamesa of Spain.

Bears say the solar sector faces a future of declining prices and uncontrolled capacity expansion, especially in China.

Spot prices for the polysilicon used in most solar cells have collapsed to below $200 per kilogram from upward of $500 earlier in this year.

PICKING THROUGH THE RUBBLE

But stock pickers say the impact of plunging solar product prices is not being shared equally.

Low-cost technology leaders with strong balance sheets are seeing minor price declines while lesser names, especially from China, are finding it hard to sell their products at any price.

For now, almost everyone’s favorite pick remains First Solar, which has everything going for it except perhaps valuation, they say. The company is often compared to Intel Corp, on which it has modeled its manufacturing strategy for making solar cells.

First Solar produces solar cells used to form photovoltaic panels at a cost approaching $1.00 per watt compared to the $2.50/watt industry average, analysts say. Gross margins remain intact around 50 percent while other players face compression.

“If you want to play one stock in the U.S., Europe or China, it has to be First Solar,” says Mark Bachman of Pacific Crest Securities in Portland, Oregon.

Valuation has long been First Solar’s thorn. But the stock, which traded above $300 earlier this year and at a valuation as high as 140 times forward forecasts, has seen its valuation sink to 17.5 times next year’s consensus profit forecast.

Put off by its valuation previously, Edward Guinness at Guinness-Atkinson Alternative Energy Fund, became a buyer in mid-October once the stock was cut in half.

His alternative energy fund, which has some 40 pure play cleantech investments, has lost two-thirds of its value from a peak of $150 million earlier in the year but Guinness still sees promise relative to other energy funds in his group.

Cowen & Co analyst Robert Stone says Energy Conversion Devices Corp has managed to build backlog while taking advantage of falling cell prices. He sees Energy Conversion shares gaining up to 60 percent.

The company’s secret to withstanding recessionary pressures is the 50 percent of its backlog is from large, well-capitalized customers like Marcegaglia of Italy, which build Energy Conversion’s panels into their own residential roofing products.

Guinness says he is looking to companies that have the scope to become integrated, global players. Pure cell or solar panel plays can only grow so big because roughly 60 percent of industry revenue is in the installation end of the business.

U.S.-listed SunPower has made strides to expand from components downstream into the residential installation market, Guinness says, and Germany’s Q-Cells is in the early stages of such a move and shows promise once its business stabilizes.

Cowen’s Stone sees prospects for SunPower to see a 70 percent gain relative to the market over the next 12 months if the funding crises eases and already approved U.S. utility deals move ahead.

But analysts say that pricing declines must play out before investors are willing to get aggressive about solar stocks again.

American Technology Research analyst John Hardy says solar is likely to be one of the early beneficiaries of a potential loosening up of credit markets in the new year. Once pricing stabilizes in the solar market, survivors could see rapid gains.

“Stocks are at levels where any positive catalyst will move solar much higher in a hurry,” Hardy says.

–  At the time of publication Eric Auchard did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. For previous columns by Eric Auchard, click here.

(Pictured above: Solar panels fill the roof of mausoleums at the cemetery in Santa Caloma de Gramenet, near Barcelona, December 2, 2008. REUTERS/Gustau Nacarino)

— Eric Auchard is a Reuters columnist. The opinions expressed are his own –

For years, Web retailers have touted their convenience and efficiency over conventional retailers, and enjoyed surging double-digit sales growth, especially in the crucial year-end holiday shopping season.

But the steady draining of consumer confidence reflected in recent government data and the latest market research reports suggest the online retail industry is bracing for a humbling first-ever year of flat or even contracting holiday sales.

Ecommerce, for reasons tied to both the global economic crash and Web-specific factors, is poised to fall harder than the much maligned retail store industry, itself struggling with recent high-profile bankruptcies and widespread signs that consumers are looking to sharply curtail their spending.

“Retail spending has not really dropped,” says Gian Fulgoni, chairman of consumer audience measurement firm comScore Inc. “It’s ecommerce growth rates that have fallen off a cliff.”

This week, comScore once again cut its forecast for U.S. holiday shopping, reporting that sales in the first 23 days of November had fallen to $8.2 billion, down 4 percent from a year earlier.

Forecasts for online holiday shopping issued in October or early November took the “glass half full” view of the coming shopping season — predicting low double-digit growth. That would be below prior years, but healthy versus overall retail.

The declining outlook comes after third-quarter U.S. Department of Commerce data showed dismal October growth online. Forecasters who had clung to the notion that online retailers would prove an exception, have changed their tune recently.

Nonetheless, the consumer tracking firm predicted online holiday sales for November and December could end flat at around $29.2 billion, in terms of year-over-year growth, but only if there is no further decline in the economy in coming weeks.

Until recently, comScore had forecast 6 percent growth in U.S. holiday sales, Fulgoni said. Similarly this week, eMarketer cut its 2008 ecommerce forecast to 4 percent from 10.1 percent.

Flat growth this season would compare with a 19 percent rise in 2007 sales, 24 percent in 2006 and 26 percent in 2005.

Overall, the National Retail Federation forecasts total U.S. holiday sales to grow a tepid, but positive, 2.2 percent to $470 billion. The includes both classic stores and Web storefronts.

In statistical terms, online retailers just had farther to fall than their distressed store-based rivals.
Similarly, in Britain, the exception that once applied to ecommerce is losing steam fast. Visits to UK shopping sites this month have declined by 14 percent as of Nov. 24, according to data from online market research firm Hitwise. Declining traffic has come despite heavy Web discounting activity at big retailers such as HMV, Waterstones and Tesco.

CYBER MONDAY: MISLEADING DATA

The gloomy forecasts come out just ahead of Cyber Monday, next week’s symbolic start to the U.S. online holiday shopping season.

Retail industry promoters of the Cyber Monday concept will tell you this coming Monday is a crucial test of the American consumer’s waning appetite to spend at the holidays.

Don’t believe it.

If anything, Cyber Monday is one of the worst days from which to extrapolate year-end holiday sales trends. Rather it’s a day of special, one-off promotional discounts designed to remind consumers they can shop online instead of in stores. A survey by Shopzilla found 84 percent of retailers will have some sort of Cyber Monday promotion this year, up from 72 percent a year ago, with the biggest come-on in the form of discounts.

Despite the media hype that surrounds the occasion, Cyber Monday ranked just ninth among heaviest shopping days in 2007 and is not expected to behave much differently this time around.

ComScore says online shopping has a few remaining bright spots, in categories like video games, sports and fitness products and furniture and appliances.

But apparel is off and “consumer electronics seems to have lost its luster,” Fulgoni said of falling demand for products like big-screen TVs among online buyers.

“When all is said and done, ecommerce is where disposable income is spent,” says Fulgoni, comScore’s co-founder. “Everything has absolutely fallen apart in October and November.”

Some facets of the online industry may be better positioned than others, but none are immune: Not pure ecommerce players such as Amazon.com or eBay Inc, not gift card purveyors, nor multichannel marketers that operate both stores and a Web site.

Major ecommerce companies derive a disproportionate share of their revenue from fourth-quarter sales. Susquehanna Financial analyst Marianne Wolk estimates companies such as Amazon.com Inc or Overstock.com Inc derive just over one-third of their sales in the final quarter of the year.

GSI Commerce, which delivers ecommerce services to retailers who lack their own Web presence, generates nearly 40 percent of its annual revenue and a whopping 83 percent of its annual cash flow in the current quarter, Wolk estimates.

Stifel Nicolaus analyst Scott Devitt says falling sales forecasts have put in peril expectations for many online retailers, who despite their advantages over offline retailers, can’t alter the fact that
consumers are using this holiday season to contemplate all the ways they can pare back spending.

–  At the time of publication Eric Auchard did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund.–