In its deal, the books sell for a recommended $8 per, with On Demand receiving $1, Google receiving $1 and the retailer getting whatever is left over. Google will donate its $1 to charity, but if Google is the retailer (as it clearly intends), it can pocket the rest. But let’s be clear: this model will start off with the 2 million out-of-copyright books to which Google has access with the hopes that if/when the book settlement is finalized, commercial publishers will head Google’s way. At that point, the model will look vastly different if Google is the ecommerce partner (as opposed to Amazon, barnesandnoble.com, etc…). As stated in a previous post, Google aims to have its Google Checkout service become a major transactional component in future publishing opportunities. Can Google convince major publishers it has its heart in the right place or, more accurately, can Google convince publishers it is as better partner than Amazon.

There is no clear path here. Google could opt out of becoming a direct retailer and simply offer print-on-demand as an option to companies such as Sony who offers Google-scanned out-of-copyright books in .epub format via its electronic store. Again, another blow to Amazon who, to date, has only offered e-books in its proprietary .azw format. In working with Sony or any of the emerging e-book e-tailers (who generally offer books solely in .epub format) Google still could be the fulfillment agent and transaction clearinghouse. Also, it allows Google to gather that all-important consumer information on reading choices/habits. Marrying that data with other behavioral information pits Google against Amazon. Amazon has tried, in the past, to become a search provider (via A9) with little success.

Even with its murkiness, with this print-on-demand component two things are clear: the evolving mantra of “content over the device” is gaining traction, meaning consumers will have multiple options when making a book purchase and publishers, who are steadfast in maintaining a physical print channel, can do so in a cost-efficient way.

The deal is another chapter in the Yahoo-Microsoft-Google marketplace drama. Various permutations of deals between Yahoo! and Google and Yahoo! and Microsoft have been discussed since Microsoft made a public offer to acquire Yahoo! in 2008. This deal does not include any upfront cash to Yahoo! although, according to Yahoo!, this agreement will provide a benefit to annual GAAP operating income of approximately $500 million and capital expenditure savings of approximately $200 million. Yahoo! also estimates that this agreement will provide a benefit to annual operating cash flow of approximately $275 million.

For Microsoft, the deal is a positive indication that it’s investment in search and launch of Bing in June will pay off. While no solid marketshare numbers have surfaced, Microsoft has created positive momentum and it’s that traction that gave Yahoo! the indication it would need to invest heavily in search to remain competitive with Google and Microsoft. By making the pragmatic decision to cede its search technology to Microsoft, the company effects a potential $700 million swing and shows management is able to make tough decisions.

The fine print on the deal continues to be brought into greater relief, but some key questions have been raised:

Yahoo! has put a significant amount of time and energy into its open search strategy, namely BOSS and Search monkey. According to Microsoft, that platform will fall under its umbrella which leaves developers and publishers to question the future of both efforts as well as their desire to work with Microsoft.

While some contend regulatory issues may not be a major hurdle here, Microsoft is a lightning rod for attention from governing bodies in both the U.S. and Europe. Yahoo! and Microsoft represent the two largest consumer web portals in the world, and portals (as well as their toolbars) are starting points for consumer search queries.

How will Yahoo! sell its search deal to affiliates currently powered by Yahoo’s search engine once the deal in done?

How much time, effort and expense will Google put into throwing roadblocks that stall the deal? Google, the jilted groom in a proposed Yahoo! deal in 2008 has, according to reports, shown some anxiety of Microsoft’s newly found search momentum.

Publicly stating it will be going through a brand refresh in 2009, how will Yahoo! position itself with advertisers, consumers and Wall Street having relinquished one of its key product and services pillars.

What about the future of search-display convergence, which was cited as a key principle in Yahoo!’s rejection of earlier overtures from Microsoft? Search-display convergence, which implies the use of search data to better target display ads, is a key battleground for Google as it seeks to extend its advertising business into rich media and beyond.

One question that’s been raised that may be less important is whether the Microsoft-Yahoo! combination will significantly move needle on search share. Microsoft and Yahoo! together handle about 28% of the world’s searches, as compared with Google’s 65%. However, this question overlooks the strategic challenge that this deal represents. By dividing the search advertising market between premium buyers and self-service “long-tail” advertisers, Microsoft achieves a kind of pincer move around Google, challenging it directly on its home turf of self-service AdWords (it’s primary source of revenue) while empowering Yahoo! to block its expansion into the higher end of the market, the premium advertisers, where search and display convergence (along with mobile and social and online video and next-generation television) are important. In other words, this sharpens the distinction between Microsoft’s “technology company” role and Yahoo!’s “media company” role, making it harder for Google to play both against their alliance.

For advertisers, such escalating competition spells opportunity. AdWords users may now find AdCenter to be a more competitive option, especially in categories where Microsoft has focused Bing’s development like travel and retail, while premium brands and agencies may now find Yahoo! to be more capable of supporting brand campaigns with integrated search and search-related targeting capabilities. The fly in that ointment remains the privacy issues that will impede the flow of search data between the two companies. Watch for this issue to escalate in the inevitable challenge from Google.

The cognoscente’s meme of the day is whether or not harsh words on Twitter cut off Sasha Baron Cohen’s “Bruno’s” U.S. box office hopes at the knees. Time’s noted film critic Richard Corliss believes that a decline in opening day revenue to the following day was due in part to bad cyberword of mouth. That is, a flood of movie going Tweeters expressed less than favorable reviews of the film. Given the fact that the average filmgoer cares less about what professional critics say and more what their friends tell them, bad word of mouth can be especially damaging when it is shared in real time. In the old days (maybe 15 years ago) a crummy movie could make it through the weekend with box office intact until folks met at the water cooler on Monday morning.

Pundits who have an excessive amount of time on their hands are combing through Twitter logs to validate or nullify this theory. I believe even if there is a kernel of truth to the “Bruno” mess, there’s a great lesson to be learned for anyone who has a product or service to market or sell: in the Web 2.0 world, a marketing campaign only starts once a product is released. Understanding social buzz and (more importantly) knowing how to react will give new life to the phrase “expect the unexpected.” All the social media monitoring tools and services won’t do a film studio or soft drink company one iota of good if they are not equipped to respond to bad worth of mouth with some agility.

Anyone can plan for success; planning for disaster is another thing. As Monty Python says, “No one plans for the Spanish Inquisition.” Somehow, I sense “Bruno” may be up there with an inquisition.

While reading books on the Kindle is a delight, diving into your favorite newspaper or magazine is (as they say in Twitterspeak) a total fail. Newspapers render oddly, converting an inherent non-linear read into a stilted, non-interactive session that captures neither the context of print nor the hyperactive richness of the Web. Magazines are not only rendered in the same linear fashion, without color they lose their sense of artistry and personality. The fact that Amazon charges up to $14.99 per month for newspapers and $2.99 for magazines adds insult to an injured concept.

Lo and behold, Amazon watchers announced the company was working on a larger format Kindle that might be ready by Q4 2009 and would address the issue of the device’s current unsuitability for magazines and newspapers. So, does that mean my Kindle 2 becomes a $400 paperweight in less than one year of ownership if I want to add the San Francisco Chronicle and Fortune to my virtual lineup? Meanwhile, the picture gets cloudier (or clearer, depending on your perspective) with the advent of a new device from Plastic Logic which with a larger screen size is, out of the chute, better suited for newspapers and magazines. Hearst, publishers of both newspapers and magazines, has also expressed its intent to get into the portable reading device game, but it’s not clear whether it will build its own or OEM one from…well, Plastic Logic? All eyes will be on Plastic Logic’s upcoming trials with the Detroit newspapers as well as partners such as USA Today.

All of this begs the basic question; are newspapers and magazines well suited for e-readers and is there a business model that will work for publishers and capture the imagination of young, digital consumers? These are topics we will tackle in some upcoming research, with investors, advertisers, publishers, consumer electronics firms and e-warehouse providers (Libre Digital) having a lot riding on this trend. Needless to say, we’re on top of it.

While not a prank, one of the memorable scenes in the film is when Mike and his partner Andy Bichlbaum go to great lengths to compose and print an edition of The New York Times which featured fake stories that focused on “what could be possible.” They printed 100,000 copies and handed then out in front of The Times building and the reactions are priceless.

The film with air on HBO this summer. Do not miss it.

Admittedly, the computer notebook is a wonderful tool for the reporter/content creator. The notebook can be a powerful device with great processing power and the capacity to launch a number of content creation tools from word processing to webcam-delivered video. With a Firewire port and the right videocamera, live video streamed via one of the many socialcasting sites (Now Live, uStream, etc…) can take the place of an expensive mobile broadcast unit. Still, in some situations where space is cramped, the notebook is not ideal.

So, now there is the Netbook, a three-pound mini wonder that has some of power of the notebook with an added dash of true portability which could turn a reporter/content creator into a true “platypus” journalist. (Go here for a definition of a platypus journalist).

With that in mind, the folks from Dell have given me a two-day loaner of a netbook here at SXSW so I can see how it works as a portable content creation device. My goal is to do some blogging, podcasting, live video and “video on demand” creation. I downloaded VideoSpin from Pinnacle to do basic editing of video files.

Stay tuned

Early this afternoon, we saw “Over the Hills and Far Away,” the story of a family who goes to great lengths to find a cure for their son’s autism. A gripping story that proves real life is sometimes more interesting than fiction.