If you found the idea of corporations mining your Internet browsing habits to target creepy, than you won't welcome Microsoft's foray into brain reading. Microsoft wants to know exactly how people interact with computers, so it's developing a way to directly read a user's actions by recording the brain's electrical signals so it can develop better user interfaces. Guess they've seen the jagged EKGs of users trying to install Windows Vista.

John Markoff at the New York Times is reporting that Microsoft will be making a product announcement Tuesday in San Francisco. As far as announcements go, this one looks to be a snoozer — Bill Gates will be on hand to announce "unified communications" — which is corporatespeak for "we upgraded our IM client." To make the announcement more palatable, it seems that Gates is taking a cue from Steve Jobs's Apple keynotes and bringing in some musical accompaniment. Want to know the difference between Microsoft and Apple? Bill Gates's idea of cool is 62-year-old guitar hero Eric Clapton. Sad when the "surprise" of your "surprise performer" is that he's still alive.

By all rights, Facebook CEO Mark Zuckerberg ought to be feeling drunk with power right now. He has, I'm told, term sheets in his hands from the three giants bidding for a small piece of his startup: Microsoft, Google, and Yahoo. All three, I understand, meet his demands for a staggeringly high valuation on the company — $10 billion or more. Piled up behind them are countless offers from venture capitalists and private-equity players who would be content merely to have their funds' names attached to the untouchably hot social network. So who will Zuckerberg choose?

First $150, then $129. Now, Woot, the deal-a-day online retail site, is selling the first-gen Zune for $99 to any suckers who overpaid the first two times. No refund this time either. [Woot]

MENLO PARK, CA. — It's hardly a secret that Microsoft and Facebook are negotiating over the purchase of a high-valued stake in the hot social network. But why would Facebook CEO Mark Zuckerberg and Microsoft CEO Steve Ballmer be so foolish as to pick the Stanford Park Hotel as their meeting place for a final round of negotiations? The hotel, practically at the intersection of El Camino Real, the Main Street of Silicon Valley, and Sand Hill Road, the center of venture capital, is as public a spot as one could choose. And hotel-staff gossip, according to a Valleywag informant, has it that Ballmer and Zuckerberg were set to meet there this afternoon. A manager, when asked, said "important people" were meeting in the hotel's boardroom. Another source says that Ballmer was so eager to clinch the deal that he offered to head straight from the airport to Facebook's Palo Alto headquarters — an option dismissed for the more-private hotel. Oops.

Doug Morris, head of Universal Music, the most powerful of the four major record-label groups, thinks he has a plan to reclaim the music industry from Apple, maker of the iPod and iTunes. There are scant details and the plan is in flux, but the basic idea, dubbed Total Music, is this: All of the studios will pool their content for online distribution and share in the revenue. The service will be a subscription subsidized by any form of provider: device manufacturers, music stores, cellphone carriers, whomever. The consumer doesn't have to pay for a music service because it's baked in, the music industry finally gets the revenue stream that they've been missing. But we're skeptical.

With all the fuss over Facebook's traffic, people aren't paying attention to the stat that really matters: Advertising spending. Spending by the 10 largest online advertisers is down, Silicon Alley insider notes. The first half of the year was a record-setter for online ads, with $10 billion sold in the U.S., but the fourth quarter could get ugly. Mortgage ads, the annoyingly dancing mainstay of many sites, have been dropping faster than Countrywide's stock price. Retailers, too, are feeling the pinch. A real drop in ad spending could halt Google's runaway hiring, Yahoo and AOL's turnarounds, and Microsoft's fumbling attempts to get in the game. All of which serves as a reminder: Follow the money. That's the only metric that ultimately counts. (Photo courtesy of avlxyz)

"In world search and advertising, Google is the leader; we're an aspirant. We have a lot of work to do in search and advertising." — Microsoft CEO Steve Ballmer states the obvious at the Gartner Symposium/ITxpo expo in Orlando. Gosh, Microsoft executives have been noting how they have their work cut out for them for years. Here's an idea, guys: How about actually doing some of that work, instead of just talking about how much there is? [News.com]

Everyone wants a piece of Mark Zuckerberg's baby: Microsoft, Google, and now Yahoo, according to Kara Swisher. It's widely known that Zuckerberg, CEO of the hot social network, and his backers are asking for a high price on a small stake — selling 3 to 5 percent of the company at a valuation as high as $15 billion. But what no one seems to understand is the hold Microsoft has on the company, through an exclusive advertising deal that runs through 2011 — and how eager Facebook is to get out of that deal.

A British member of Parliament thinks that the U.K. government uses too much Microsoft software. John Pugh charges that Microsoft is involved in "predatory pricing and stultifying competition." He also wants the government to transition to more open-source software. I know nothing about John Pugh, but he sounds like a British cross between Ralph Nader and Richard Stallman. [CNET]

Vudu, the set-top box rumored to single-handedly topple both Netflix and digital video recorders, has, in reality, failed to impress. Katie Boehret, the Wall Street Journal's Walt-Mossberg-in-training, reviews the movie-downloading box which aspires to win over those too lazy to traipse over to the video store. The only problem is that Vudu has its own set of not-inconsiderable inconveniences. One needs a hard-wired Ethernet connection — no built-in Wi-Fi — to make it work. The service charges above market rate for movies. And the selection, tragically, is poor. Except for its on-screen ease of use, little separates it from Microsoft's Xbox 360 downloads or Sony's planned Playstation 3 store. Until Netflix puts its own box on the TV console, stick to mail-order DVDs, we say.

Michael Wallent, a general manager at Microsoft, will return to work in January as Megan Wallent. He came out to colleagues as transgender last month, first in person and then by email. Wallent says he encountered nothing but support — mixed, of course, with some awkward curiosity. That's unremarkable. Microsoft is located in the progressive Pacific Northwest, where one's less likely to raise an eyebrow at Wallent's self-discovery and more likely to worry about the politically correct term to describe it. (For the record, "sex change" is considered derogatory by many; the preferred word is "transitioning.") He's unlikely to encounter blatant transphobia on the job. He should worry instead about plain old-fashioned sexism. How will Wallent's developers react when they come to work on January 2 and it hits them: They're working for a girl?

Finally, Google has done it: They've made a fundamental change to their search results that could drive me, and a host of other bloggers, to rival search engines. If you blog, you know the routine: Looking for a relevant link, I type a few keywords into Google, and copy and paste the link into a post. More often than not, it's a link to a page I've already visited, so there's no need to click through to the page. Except that now, Google is forcing me to click through; instead of displaying a copy-and-paste friendly link, Google's using awkward redirects that look like this:

With time running out on an advertising deal with Google, Barry Diller's Ask.com is facing bigger issues than the company's painfully unmemorable advertising. The IAC-owned search engine is dependent on Google-brokered text ads for a large portion of its revenues — but Google, which now sells ads on MySpace, among others, is not nearly as dependent on Ask.com. Fortunately for Diller, Microsoft and Yahoo are stupidly eager to prove themselves in the search-advertising market. If Google does end its ad deal with Ask.com, both companies would be happy to sign on Ask as a partner. One small problem: Neither Yahoo nor Microsoft make as much money per search as Google, which means that they have less money to split with Ask, even if they give it a more generous share. And a deal with either one would still leave Ask dependent on a rival search engine. Save for building its own advertising system, at considerable expense, Ask has no easy way out of the Google deal.

Microsoft CEO Steve Ballmer slams Google because they "read your email" to provide contextual ads in Gmail and Microsoft's Hotmail doesn't. Oh Steve, you're just bitter because Google got away with something you never could. And its ad-targeting software is smarter than yours. [CRN]

It's the kind of stat that leads to all kinds of foolishness: The market for placing commercials in videogames, also known as "in-game advertising," is projected to hit $732 million by 2010. That, in turn, has turned obscure executives into hot commodities. Darlene Kindler, a former VP at Google-acquired in-game ads startup Adscape Media, is helming Sony Computer Entertainment America's foray into the field. In-game advertising is also the main focus of Sony's Second Life-like Home platform, a virtual world meant to connect PlayStation users. In addition to greed, there's also fear as a classic motivator: Microsoft, Sony's archrival in videogame consoles, recently bought Massive, another in-game ad startup. Of course, Sony and Microsoft's push is based upon one key assumption — that in-game advertising is actually worth something, a very debatable point.

The latest installment in Microsoft's Halo franchise is a runaway success — already toppling sales charts with $300 million in sales in its first week. Halo 3 is so popular among youth that hundreds of churches have adopted it as a recruitment tool. Hosting violent, mature-rated gaming parties hasn't been the most popular of decisions. But at least 12-to-14-year-olds are fragging each other in a church basement, supporters might point out. Youth ministers use the game's plot as a way to discuss good and evil. One Georgia pastor uses Halo to draw parallels between God and the devil. As any teenager could have told you: Master Chief is God.

At least Microsoft owns up to its inferiority. Early next week a band of dejected Microserfs from across the company, from chief software architect Ray Ozzie on down, are meeting to discuss the company's floundering Web services like Windows Live Search and Hotmail. During the two-day powwow, they'll be discussing strategy and trying to figure out how to get Google addicts excited about the Microsoft's Live offerings. To help fuel discussion, Larry Hyrb, director of Xbox Live programming and official videogame-community spokesperson (who posts under the alias Major Nelson) asks Xbox users, "What do you think we don't get? I know Google may be better in some areas, but what makes them better? What makes us not as good?" I'm sure the minds at the Googleplex are resting easy to learn that Microsoft is still trying to figure out how to even copy Google well, let alone out-innovate it.

Having finished the fight to bring out hot new shoot-'em-up videogame Halo 3, and in the process helping Microsoft rake in $300 million in sales, Bungie has, as rumored, reclaimed its independence from Microsoft, which acquired the studio in 2000. As part of the deal, Microsoft is holding onto a small equity stake and will continue to churn out Halo titles with the aid of Bungie. Meanwhile, the studio will be free to develop new titles and publish games with Microsoft Games Studio — so there's really no need to overreact. Sure, Bungie put Microsoft's Xbox videogame console on the map — but as the Xbox morphs into a set-top box for the living room, bringing Internet music and video downloads straight to your flat-screen TV, it's not clear that hot videogame titles are what's going to drive sales in the future.