Chief Executive Steve Ballmer on Thursday defended Microsoft Corp’s need to make heavy investments in its Internet businesses but said the company was “done,” for now, with pursuing Yahoo Inc . “There’s nothing under discussion between the two of us,” Ballmer told investors of how six months of various talks had reached an impasse earlier in July.

“We had a set of principles, we talked about them, it didn’t work out,” he said. “Fine, we’re done. We can move on.”

The message for Microsoft’s annual meeting with Wall Street analysts, an all-day affair at its headquarters in Redmond, Washington, was that it had a post-Yahoo plan to turn around its online services division and a strategy to take advantage of future opportunities, even as its Internet chief departs.

“There is this huge, huge, huge new opportunity around the Internet and online and we have to embrace that opportunity and invest in that opportunity,” Ballmer said.

Shares of Microsoft have fallen 8 percent over the last week since the company forecast an outlook below Wall Street estimates and revealed an additional $500 million investment into its online unit, even as it chalked up further losses.

Charles Di Bona, a software research analyst at Sanford C. Bernstein, said Ballmer’s comments did not give enough details about how that additional investment will be spent and how the company arrived at that decision.

“It’s spending $500 million dollars and then it says we’ll tell you later how we’ll spend it,” said Di Bona, who has an “outperform” rating on Microsoft. “The market’s concern is not about how it is running its core business. It’s about decisions about larger chunks of money that people can’t track.”

Ballmer said Microsoft is willing to endure online division operating losses that amount to between 5 percent to 10 percent of the company’s total operating income, which reached $22.5 billion in fiscal year 2008, until the search and advertising business reaches “scale.

The Senate Commerce Committee will hold a hearing Wednesday to look at the policy issues raised by advertising that is targeted to the online behavior of Internet users. Some of the participants are trying to bolster their positions in advance.

The hottest topic will be proposed systems by which Internet service providers can watch users and sell information about their surfing habits to advertising companies. The Center for Democracy and Technology — whose chief executive, Leslie Harris, will testify — issued a report suggesting that these systems may violate federal law.

On the other side NebuAd, the most active ad-targeting company working with Internet providers in the United States, has introduced two new features to try to tamp down the controversy over its technology. One feature will allow Internet service providers to more prominently disclose to customers that their activities are being tracked. The other will give users a new method to opt out of tracking.

NebuAd â??definitely creates some privacy concerns, so we have bent over backwards to make sure we address all those consumersâ?? privacy concerns,â? said Robert Dykes, the companyâ??s chief executive, in an interview. Mr. Dykes will also testify at the hearing Wednesday.

Privacy advocates worry that NebuAdâ??s business model relies on tracking Web surfers without the surfers being aware of it. NebuAd partners with Internet service providers, uses information from their customersâ?? surfing to amass profiles and then shows the customers ads based on their interests.

Advertising per se is not the evil here,â? Ms. Harris said in a conference call with reporters Tuesday. â??Itâ??s the collection of individualsâ?? information, usually without their knowledge, always without their consent, creation of profiles and the complete inability of people to make choices about that.

NebuAd says its profiles are interest-based, and not personally identifiable. The company says it can create profiles as broad as “someone interested in autos” or as granular as “someone interested in a used German luxury car” in order to serve relevant ads. (My colleague Saul Hansell has written in detail about NebuAdâ??s tracking system.)

Whatâ??s important is we donâ??t have the raw data. Theyâ??re anonymous profiles,â? Mr. Dykes said.

The two updates to NebuAdâ??s privacy standards include an online alert that Internet providers can use to tell subscribers that they are being tracked by NebuAd, and a way that people can opt out of NebuAd tracking even when they are also deleting their cookies.

Mr. Dykes said it was up to the Internet providers to choose whether and when they wanted to display the online notice. Currently, the Internet providers have told users about their use of NebuAd through an e-mail message or a notice in their billing statements.

As for the cookie-based opt-out, he said, â??people are looking for other means to ensure that once theyâ??re opted out, there is really a network-based approach to ensure they stay opted out. While weâ??re not revealing technology details, we are saying weâ??ll be offering users a choice. Theyâ??ll have the opportunity if they want cookie-based opt-out, but also another choice to use a network-based opt-out.â?

The changes come as parts of NebuAdâ??s business have stalled over privacy concerns. Charter Communications said last month that it would suspend a trial of NebuAd due to customer concerns about privacy. Other companies testing the software, including Wide Open West and CenturyTel, have also halted their tests of NebuAd.

Mr. Dykes said the Internet service providers want to make sure the users and public understand how NebuAd’s system benefits the Internet by driving advertising dollars to the more general-purpose Web sites while also operating under very strict privacy rules.

Asked how many ISPs the company was currently working with, Mr. Dykes did not specify the number. â??We are deployed with some Internet service providers, but we are perfectly O.K. for some of our partners to wait until we have a better, more informed education of the public and folks in Washington before they resume their rollout,â? he said.

The C.D.T. noted in a press release â??that Federal law would allow the practice with the consent of the subscriber.” However, CDT added, “that consent should not be obtained through a notice buried in a ‘terms of service’ agreement or inserted in a billing statement.â?

The C.D.T. representatives at the press conference said they had not examined NebuAdâ??s new privacy standards in depth. â??I think itâ??s important to say that theyâ??re still going with an opt-out model,â? said Ari Schwartz, vice president at C.D.T. What is still unclear, he said: â??Are they stopping collection of information when people actually do opt out?â?

Mr. Dykes argued that because NebuAd was not collecting personal or sensitive information, the opt-out procedure (as opposed to opt-in) was appropriate. â??If you do collect personally identifiable information, or if you do collect sensitive information, it should be opt-in,â? he said. â??We have designed our entire company to make sure that we stay on the opt-out side of those laws and policies.â?

Online classifieds site says the minority owner is illegally competing with its own auction site and claims it was marketed as a ‘Craigslist killer.’

Craigslist is countersuing its minority owner, eBay Inc., alleging it is competing illegally, infringing on their trademark and breaching its duty to shareholders.

Craigslist filed its complaint in Superior Court in San Francisco on Tuesday. It claims eBay broke laws by taking a series of actions in relation to its own classifieds site Kijiji, which launched last year in the United States. Craigslist claims in the lawsuit that eBay calls Kijiji the “Craigslist killer.”

EBay (EBAY, Fortune 500) sued Craigslist in April alleging Craigslist founder Craig Newmark and Chief Executive Jim Buckmaster engaged in a series of “clandestine transactions” intended to dilute its stake unfairly.

Hewlett-Packard agrees to buy IT services and pioneering outsource firm Electronic Data Systems, Mark Hurd’s biggest acquisition since taking the helm of Hewlett-Packard in 2005. The deal could spark more consolidation in the technology outsourcing sector.

The companies said Tuesday their boards had unanimously approved the deal, in which EDS  shareholders would get $25 per share. That is a premium of almost 25 percent over what EDS  had been trading on Friday. Word of the talks emerged Monday. 

It would be HP’s biggest deal in six years. 

HP is the world’s largest maker of personal computers, while Texas-based EDS provides technology services to the governments and companies around the world. 

The sale is expected to close in the second half of this year and more than double HP’s revenue from services, which was $16.6 billion in 2007. EDS had $22.13 billion in revenue last year. 

Their combined services business would have 210,000 employees - although some analysts expect HP would trim jobs - and operations in more than 80 countries. 

HP said the business would be based at EDS’ headquarters in Plano, Texas, and led by EDS chairman and Chief Executive Ronald A. Rittenmeyer. 

HP said it expects the deal would produce “significant” cost savings and add to earnings by next year. 

Palo Alto-based HP and EDS had said Monday that they were in “advanced discussions” about a possible combination without providing additional details. 

In Tuesday’s announcement, the companies said the deal would have an enterprise value of $13.9 billion without defining what that included. But based on 502.6 million EDS shares outstanding as of April 25, the acquisition would be worth $12.57 billion. 

HP ended January with nearly $10 billion in cash and has a market value of about $115 billion. 

If the deal is completed, it would be HP’s biggest acquisition since it bought Compaq Computer Corp. for $19 billion in 2002. That acquisition paved the way for HP to supplant Dell  Inc. as the world’s largest PC maker. 

Buying EDS would give HP more tools to challenge IBM  Corp. in the lucrative technology services field. HP already has replaced IBM as the world’s largest technology company, based on revenue. 

The demand for data management and technology consulting services has steadily grown during the past two decades as the automation of corporate America and the rise of the Internet prompted more businesses to hire contractors to help run their computer software and hardware. 

IBM’s technology services division brought in $54 billion in revenue last year, accounting for half of the company’s total sales. Combined, EDS and HP’s technology services division had about $39 billion in revenue last year. 

In one of its biggest previous attempts to expand its technology services, HP attempted to buy PricewaterhouseCoopers’ consulting division in 2000. IBM wound up buying the unit instead. 

HP has been on a roll since it hired Mark Hurd as chief executive three years ago. Propelled by earnings growth that has consistently exceeded analyst expectations, the company’s stock price has more than doubled since Hurd’s arrival. 

Acquiring EDS could yield more government work for HP, which had about $500 million in prime federal contracts in fiscal 2007. EDS is far better connected, with deals worth about $2.5 billion - putting it among the top 10 among government technology contractors. 

Combined, HP and EDS still would lag significantly behind government contractors like Lockheed Martin  Corp. and Boeing  Co. 

As in many corporate marriages, cultural clashes between HP and EDS could ruin the union, said AMR  Research analyst Dana  Stiffler. “Palo Alto versus Plano wrangling will destroy any short-medium term benefit unless there’s a strong integration roadmap,” she predicted. 

HP earned $7.3 billion on $104 billion in revenue last year while EDS made $716 million on $22.1 billion in revenue. 

EDS has been linked with possible deals previously, including a reported interest by Deutsche Telekom late last year and Dell before that. No suitors ever confirmed reports that they were talking. 

Former IBM salesman H. Ross Perot started EDS in 1962 to help run other companies’ computer systems - a specialty generally known as information-technology or IT services. 

Perot sold EDS to General Motors  Corp. for $2.5 billion in 1984 and eventually became so disillusioned with how that deal worked out that he sold his remaining EDS shares to the automaker so he could start a new rival service bearing his name. 

An outspoken billionaire, Perot became even more famous for running for U.S. president in 1992 and 1996. GM spun off EDS as an independent company in 1996 and remained its largest customer. 

EDS was riding high at the start of the decade, despite the dot-com bubble’s bursting. But in late 2002, earnings shortfalls led to investor lawsuits, a Securities and Exchange Commission investigation, the ouster of the chief executive, and a sharp drop in the stock price.  The company lost $1.7 billion in 2003 but gradually righted itself under CEO Michael Jordan , a retired CBS  and Westinghouse CEO. He fixed some money-losing contracts, including a multibillion-dollar deal to build a communications network for the Navy and Marine Corps, and began cutting costs by sending thousands of jobs to low-cost countries such as India. 

Although he has not seen any signs to suggest EDS has been looking for a buyer, Jefferies & Co. analyst Joseph Vafi said the company’s board might have decided a sale would create a quicker payoff for shareholders than continuing to try to grow the company in the highly competitive technology services industry. 

Under Hurd’s leadership, HP bought business software maker Mercury Interactive Corp. for $4.9 billion in 2006 and last year paid $1.7 billion for data management service Opsware Inc., which had sold a large chunk of its operations to EDS in 2002. 

AP Business Writers Jennifer Malloy in New York, David Koenig in Dallas and Dibya Sarkar in Washington, D.C., contributed to this report. 

Palo Alto, California-based Hewlett-Packard says the deal has been unanimously approved by both companies’ boards. 

It is expected to close in the second half of this year. 

 

Data from research firm comScore Inc. showing a drop in the number of times people click on the ads have fueled the jitters, which have already knocked almost $75 billion off Google’s market value since the beginning of the year.

ComScore released new data late Tuesday estimating that U.S. consumer clicks on Google search ads in the first quarter declined 9.3% from 2007’s fourth quarter, and rose just 1.8% from the 2007 first quarter. That compares with the 30% increase in fourth-quarter clicks from the year before that Google reported in January and a roughly 50% average increase during the previous four quarters. This “paid click” volume matters because Google gets paid for the small text ads it shows on Web search results pages only when a user clicks on one of them.

 

Some analysts have concluded that U.S. consumers are clicking on ads less frequently because economic problems have made them less willing to buy things. “It’s very similar to the shopping mall, where it’s full of traffic and you see people window shopping but they’re not buying anything,” says Sandeep Aggarwal, senior Internet analyst at Collins Stewart LLC. He says people are using the Internet for email and reading news, but they’re doing fewer searches for things like “cruise to Bahamas.”

ComScore says its data don’t support the idea that the economy is significantly affecting consumer search-ad clicking. “If it is, it’s to a minor degree,” says comScore Chief Executive Magid Abraham. (Google, like other Internet companies, is a paying client of comScore, though Mr. Abraham says comScore didn’t have any contact with Google during the first quarter to discuss its search-ad data.)

Instead, Mr. Abraham and some analysts cite Google-initiated efforts that are affecting the number of clicks, such as a change that made it harder for consumers to accidentally click on ads. They also note that the click data don’t take into account other factors affecting Google’s revenue, such as the price paid for each click and international activity, which represents close to half of Google’s revenue.

Google declined to comment on the comScore data or its earnings report. When it posted its fourth-quarter earnings on Jan. 31, Google CEO Eric Schmidt said the company hadn’t seen any impact from macroeconomic softening. In public comments since then, Google executives have said it isn’t clear yet whether those problems will hurt its business.

 

Still, some analysts say ad spending is dropping in some industry areas most affected by economic problems, such as financial services. Spending by advertisers in the financial, travel and retail areas declined or grew more slowly in the fourth quarter, compared with a year earlier, Yahoo President Susan Decker told analysts in January, though she said that overall the company had seen “a solid start to the year.”

It remains unclear how online advertising beyond search is affected by any consumer slowdown. Search advertising is the largest category of U.S. online ad spending, expected to account for 40% this year, according to research firm eMarketer Inc. Other forms of online advertising, such as graphic display ads and video ads, are generally priced using different models than per-user clicks.