Remember those awful Microsoft ads with Jerry Seinfeld and Bill Gates? Well, now you can forget them. Microsoft flacks are desperately dialing reporters to spin them about "phase two" of the ad campaign — a phase, due to be announced tomorrow, which will drop the aging comic altogether. Microsoft's version of the story: Redmond had always planned to drop Seinfeld. The awkward reality: The ads only reminded us how out of touch with consumers Microsoft is — and that Bill Gates's company has millions of dollars to waste on hiring a has-been funnyman to keep him company. Update: In a phone call, Waggener Edstrom flack Frank Shaw confirms that Microsoft is not going on with Seinfeld, and echoes his underlings' spin that the move was planned. There is the "potential to do other things" with Seinfeld, which Shaw says is still "possible." He adds: "People would have been happier if everyone loved the ads, but this was not unexpected." Update: CPB confirms that Seinfeld spots already in the can will not be aired.

BoomTown's Kara Swisher went to Palo Alto’s MacArthur Park restaurant for a luncheon hosted by Germany’s Hubert Burda Media yesterday, the organizers of the DLD conference. A target of her shaky videocam work: Facebook flack Brandee Barker, who hid behind a fern. Asked if Microsoft was buying Facebook, Barker shouted, "Never!" Brave words, if not exactly consistent with Facebook's fiduciary duties to shareholders to consider all reasonable offers. Besides Barker, Swisher captured Silicon Valley figures like nerd chanteuse Randi Zuckerberg; Wired writer Steven Levy, fresh from his fly-on-the-wall writeup of the making of Google's Chrome browser; and layoff-happy Loic Le Meur. The crowd is shown descending into a happy drunkenness, giggling about Wall Street all the way down. After the jump, the full clip and a guide to the best moments:Click to view

Pantless Knights Productions, the folks who brought you last year's sketch rap hit "Mac or PC," have released a new project — the Search Engine Rap Battle. Think Eminem's 8 Mile but with MC avatars for Microsoft, Yahoo and Google. Some of the rhymes, like MSN's takedown of Google at the end of the clip after the jump, are actually hilarious: "You might have users, but they'll soon be leavin ya / Cuz your search results say search Wikipedia." Even better are the costumes: Live Search in a skintight butterfly unitard, the Google propellerhead on a Segway and a rootin', tootin' cowboy from Yahoo. Instead of bribing people to use and promote Live Search or spending $300 million on meaningless television ads to "start a new kind of conversation," Microsoft should just hire these kids.

Cray, the supercomputer company once known for hand-tweaked $8 million machines, now ships a $25,000 model, the CX1, that ships with either Microsoft HPC Server 2008 or Red Hat Enterprise Linux pre-installed. Cray claims its Wintel machine "combines the power of a high-performance cluster with the affordability, ease-of-use and seamless integration of a workstation." Computer-aided simulations estimate that founder Seymour Cray is currently spinning upwards of 162,000 RPM in his grave.

So much for radical transparency. Microsoft's embrace of honest online criticism stopped at VentureBeat blogger Dean Takahashi's insanely long story about how the software giant launched its Xbox 360 game console despite production flaws. The story had one source brave enough to go on the record: Robert Delaware, a contract game tester, who talked about a bug he encountered during testing phases persisting as the Xbox went into production. Now he's out of a job and faces a civil suit from Microsoft for violating a nondisclosure agreement.“I don’t regret it,” he told VentureBeat in a phone call on Thursday. “I’ll fight it. If they want to come after me, bring it on." "This kind of witch-hunt mentality is wrongheaded," writes Takahashi. "When I was thinking about making a difference with our story this isn’t what I had in mind." We're just amazed that Microsoft's legal team made it through all six pages of Takahashi's story.

Valleywag just got forwarded an email outlining Microsoft's latest desperation move in its money-losing effort to catch up with Google in search. Through Florida online marketing company Kowabunga, Microsoft is willing to pay $2.50 per toolbar download to Web publishers who push the search software on users through the month of September, and $1.50 after that. Microsoft has already offered to bribe users through cashback deals on purchases made from advertisements on Live Search. It has signed a deal with Hewlett-Packard to have its Live Search toolbar preinstalled in browsers on new machines shipped by the computer manufacturer. On top of that, Microsoft is probably also paying Kowabunga a finder's fee for each publisher it signs up through the affiliate program. To review: It's paying consumers to use its search. It's paying PC makers to install software that encourages consumers to use its search. And it's paying an agency to sign up publishers to encourage users to download software that encourages them to use its search. Why not spend that cash on building a competitive product? That seems easier. The cold-call pitch from Kowabunga on Microsoft's behalf:

Take-Two Interactive, the marketer of Grand Theft Auto and various sports videogames, has watched its stock price plummet to $16.99 on the news that Electronic Arts has decided to quit trying to buy the company for $26 a share. Much like Yahoo's drop after Microsoft took an offer off the table, Take-Two's shares are headed south of where they were when EA initially made an offer. I'm counting the days until a third company meets the same fate and I get to write the obligatory trend piece.

The new ad campaign from Crispin Porter & Bogusky for Microsoft, which has been rolled out in two parts so far, are "'icebreakers' designed to start a new kind of conversation." Which mean instead of everyone talking about how terrible Windows Vista is, they're talking about how little sense the new ads from Microsoft make. Ultimately, the plan is to get us talking about how Microsoft seems to be screwing up not just Vista and its brand, but "Windows in all its forms." [Windows Vista Team Blog]

When it became obvious over the weekend that investment bank Lehman Brothers would finally fail and that no one was going to rescue it, Merrill Lynch CEO John Thain realized the market's reaction today would tank his company as well. So Thain met with Kenneth Lewis, CEO of Bank of America, and the pair reached a deal to sell Merrill Lynch to Bank of America for $44 billion. Which is, you might recall, around the price Microsoft wanted to pay for Yahoo. Of course, that kind of offer won't be coming for Yahoo again any time soon. While not so severely or directly, Lehman Brothers' collapse and insurance giant AIG's tottering on the brink will affect your tech portfolio today. Before this morning's open the company's stock was already down 3.83 percent on premarket trading. Watch Yahoo and nine other tech stock's continuing destruction or — dare you hope? — miraculous resilience on live stock charts below.Click to view

Shortly after Facebook bought Parakey, the Web-desktop startup cofounded by star engineers Joe Hewitt and Blake Ross, Mark Zuckerberg talked about making his goof-off site the "social operating system of the Web." It was just one of a series of failed big-picture metaphors for the tongue-tied young entrepreneur. Facebook may never be an operating system. But is it such a terrible idea to make it look like one? The latest redesign is a virtual copycat of Windows.As Silicon Alley Insider's Dan Frommer first pointed out, Facebook has removed its applications dropdown menu from the top of the screen and put it down in the bottom-left corner — you know, right where Windows keeps its "Start" button. Just like Windows, alerts pop up in the lower right-hand corner of the screen. Microsoft Windows isn't deemed sexy by San Francisco's Web-designer crowd, who brag about having to launch VMware to test out Google Chrome. But, like Facebook, Microsoft has a user base in the nine digits. Zuckerberg shows he hasn't just taken Microsoft's money — he's picked up some of the software giant's mass-market, commonsense design.

A report by BusinessWeek says "employees in HP's PC division are exploring the possibility of building a mass-market operating system. HP's software would be based on Linux, but it would be simpler and easier for mainstream users." The threat is simple: A sub-$1,000 MacBook would knock a huge hole in HP's own notebook sales. Apple is only $100 away from that goal. The division's CTO insists "it's about innovating on top of Vista." But on top of is a misleading preposition for some of his company's modifications, which bypass Vista's built-in photo and video apps in favor of HP's own. (Illustration by Paul Blow/BusinessWeek)

If you wondered why Google continues to relentlessly gain market share, look no further than Microsoft's boneheaded concept of progress. "Good news," crows Microsoftie Carolyn Miller, announcing the addition of a fourth ad spot above Microsoft's Live Search results. That brings the total spots on Microsoft's search-results page to nine. But the search results and ads on a simple query — say, "flowers 94103" — remain useless. Adding more space for ads means less competition for the spots — and thus less economic pressure on advertisers to only buy carefully thought-out ads relevant enough to perform well. If Microsoft were serious about beating Google, it would show fewer ads, not more. This was a decision made by an accountant, not an algorithm.

It was just last week that Microsoft unveiled their new advertisement featuring Jerry Seinfeld and Bill Gates hanging out in a shoe store. Shockingly, you rubes failed to comprehend what this had to do with computers and PCs remained firmly on store shelves. Well, perhaps this latest opus will change all that. In today’s installment Bill and Jerry deign to hang out with regular people in the suburbs. It may be a little less weird than their previous outing, but it’s certainly longer—in fact, it’s a whopping four and a half minutes! We’ve excerpted a choice 30-second cut, but you can watch the entire thing here. If this baby doesn’t get you to put down that Mac and climb aboard the Vista train, nothing will. [YouTube]

Google's the undisputed king of Silicon Valley — but it's been wooing New York ad agencies nonstop, trying to break into the traditional part of the business, with mixed success. It's almost cute how all of its online rivals are following it. Amazon.com has hired a Microsoft ad sales exec, Lisa Utzschneider, as SVP of national ad sales. What, you thought Amazon sold books, not ads? Exactly the problem Utzschneider's being asked to solve: Amazon has been trying to sell ads for a long time, but they remain a small fraction of the retailer's revenue. A Madison Avenue agency executive tells us her hire is just the latest part in a methodical campaign by Jeff Bezos & Co. to beef up of its New York ad sales staff over the last four months.At Microsoft, Utzschneider managed search sales. The Peace Corps veteran also did a lot of charity work — a description which seems to fit Amazon's advertising efforts at present. Amazon already has products to sell: Clickriver, a self-service sales system like Google's AdWords, and Amazon Product Ads, an ad network like Google's AdSense. It's also trying to sell more ads directly on Amazon.com and IMDB.com. "Amazon has a huge audience that is undermonetized," Greg Smith, COO of interactive agency NeoAtOgilvy, tells us. A second source says, "This move isn't surprising, based on those efforts, because they have a long way to go if they want to evolve into a media company." Memo to Utzschneider: Bring more than just candy.

Boy, $300 million sure buys a lot of storytelling. Microsoft has released two more 90-second ads starring Jerry Seinfeld and Bill Gates, the Laurel and Hardy of... Microsoft ads. More than the first, totally mystifying "shoe store" ad, these new spots flesh out the plan: Bill Gates as lovable icon. He's like Joe Isuzu with a bad haircut! He does the robot! We're still skeptical, but it's progress. You can watch the two official ads here, but we like this version even more: all the footage of the two ads (and some extra that was edited out) in one four-and-a-half-minute long unfolding storyline. Trippy:

Users of Google's Chrome browser account for about 1 percent of the market, reports Net Applications, a market researcher. European browser-maker Opera — which you might have heard had it agreed to make the iPhone's browser, but it didn't, so you haven't — claims 0.74 percent of all users. Microsoft's Internet Explorer still dominates the market, but its latest version, Internet Explorer 8 beta 2, which was released around the same time as Chrome, owns only a third as much market share, around 0.34 percent. [PaidContent]

Before the first iPhone was released, Apple wanted Opera to build the browser for the iPhone, says a source. Negotiations dragged on for six months, the sticking point being exclusivity — Apple wanted it, but Opera was unwilling to commit, seeing a larger market for licensing its proprietary software to multiple handset manufacturers. Eventually, Apple walked away armed with ideas from the negotiations and built a version of its own Safari browser for the popular mobile device. Meanwhile, Opera ended up as the browser of choice for the blockbuster Nintendo Wii, and Opera Mini did much to saturate the mobile handset market. But is the iPhone claim simply a proud boast made by an indiscreet senior manager at a company party? Maybe.The real question is, why would Apple have approached Opera in the first place? Simple. It's not like the Cupertino company has thousands of employees to throw at a browser project — with only a few thousand in corporate and the rest in retail, Apple is actually happy to outsource engineering whenever possible. Especially when the company can ensure an exclusivity deal and enforce some creative control over the interface. But that demand of exclusivity led Opera to bow out, which forced Apple to end up developing its own mobile browser after all. If the source's assertion is true, passing on Apple could prove a miscalculation on Opera's part. Apple is said to have offered it a large piece of then-theoretical iPhone sales. Opera chose a smaller piece of a larger pie in licensing its Opera Mini to multiple carriers and manufacturers, and so far, it's done fine with that strategy. But even with the bugs and lawsuits, the iPhone is set to beat Steve Jobs's public estimates that Apple would sell 10 million units this year. Meanwhile, mobile search partner Google is intent on porting the company's new Chrome browser to the Android mobile software platform and both Mozilla and Microsoft recently upgraded their competing Firefox and Explorer browsers. Four years in, and Opera has big money to blow on a bar tab at the Supper Club in San Francisco's SoMa neighborhood. That will buy a lot of champagne and at least a temporary warp in Apple's reality distortion field. But enough to make up for the iPhone money Opera passed up? That remains to be seen.

It's time for the second spot in the Crispin Porter & Bogusky-produced advertising campaign for Microsoft and Windows Vista. Unlike the last one, there's even a computer! Premiering in two parts during tonight's episode of Big Brother on CBS, the premise posits mundane comedian Jerry Seinfeld and Microsoft cofounder Bill Gates staying in a Seattle home with "real people" (like veteran actor David Costabile) in order to connect with consumers. Cue the hijinx. The question is, will the campaign work?I may well be too far down the rabbit hole to have any idea if the spots are having the desired warm-and-fuzzy effect on the populace. If anything, they serve to remind us of the opposite: That Gates and Microsoft are so out of touch, the company has to pay an advertising agency $300 million (and Seinfeld $10 million) to lend even the thinnest veneer of approachability. "Cool," presumably, would have cost extra.

Microsoft announced plans for new offices in Seattle's South Lake Union area a year ago. They're open now. According to photos from Microspotting — a PR blog for Microsoft human resources written by Ariel Meadow Stallings, who describes herself as "the person you thought would never work at MSFT" — they look pretty Googley. There's a red room and a blue room, for example. And the Microsofties have one trump card over the Googleplex: Minutes from downtown Seattle, South Lake Union is a much better location than an office park off 101. Check out the slide show below.Click to view

What exactly went so horribly wrong with Microsoft's Windows Vista operating system, the one customers waited seven years for only to have a steaming pile of fail land on their laptops? That's the question Maximum PC had for representatives from Team Redmond. After the jump, the key problems a surprisingly candid Microsoft rep admitted hobbled the launch.