Microsoft (MSFT) announced much better than expected results for its first quarter of fiscal 2010–led by strong Windows and Xbox demand and cost discipline.

While revenue and net income were down, the results were a major surprise given more lackluster estimates.

Here are the software giant’s slides on the financial results, which you can enjoy all weekend long, as well as BoomTown’s liveblog of the Q1 earnings conference call.

Thanks, Bill Koefoed!–but who are those smiley folks on the front slide?

Here are the slides:

FY10 Q1 Slides MSFT –

Well, well, well, that financial imp at Microsoft–CFO Chris Liddell–pulled a fast one on Wall Street and turned in first-quarter earnings that blew away all estimates and even the whisper numbers.

While revenue and net income were down for the third consecutive quarter, they were not as bad as investors had expected.

Perhaps those Microsoft (MSFT) financial predictions were no good, but the results were a strong sign of recovery at the software giant.

BoomTown liveblogged the morning conference call with Liddell, which took place at 7:30 am PT–thanks for the Kiwi-laced wake-up call, Chris!

(You can see the financial slides of the Q1 performance here.)

7:34 am: “It might have been the bottom of the economic reset,” said Liddell in the opening. “I’m very happy.”

Still, Liddell, who has been a glum goose for many quarters now, could not quite do cartwheels, noting that the economy was “still challenging.”

He also still repeated his favorite term for the market, calling it: “The new normal.”

7:38 am: Other investor guy, whose name I always forget (and who is Bill Koefoed, by the way), got on and went through the numbers. He also sounded deeply relieved and noted that it looked pretty good out there.

Liddell returned and said Microsoft was “well-positioned” to exit the econalpyse stronger than competitors.

Not so bad, although he expected personal computer and hardware sales be weak still and was not promising anything.

The online and search and advertising partnership with Yahoo (YHOO) was also on track, said Liddell.

“In summary, I feel great about how we are executing,” said Liddell, who made sure to give credit to “cost discipline.”

It was nowhere near the strong performances of Google (GOOG) and Apple (AAPL) recently, but allowed Microsoft some much needed breathing room.

7:51 am: Question time!

The first was about when the launch of Windows 7 would start bringing home the bacon.

The next was about “channel inventory build,” which was like asking Liddell to be a soothsayer. “Net positive,” he opined.

The third question was about costs from the transition of the Yahoo deal and the contribution.

Costs will up front and there will be a contribution in the “hundreds of millions.”

Next: The future of cost cuts.

“I see that as the journey that never ends,” said Liddell.

Memo to PR head Frank Shaw: Cancel the truckload of caviar for a big honking party in celebration of these results. Stat!

7:58 am: I missed one question, since it was so boring, as was the answer.

Then a good one came about the deployment of Windows in corporate environments and elsewhere.

“All of the feedback we get so far is positive,” said Liddell, not that he is bragging or anything. “The sales in retail, we are expecting to be very good.”

Another cost question, this time about whether more investments are coming in the years ahead.

No ramping back, thank you very much!

The next question was about the impact of netbooks on the bottom line.

Not bad, but not huge, said Liddell.

What about display advertising online? In line with the weaker market, said Liddell, but it should improve.

8:09 am: PC demand? Liddell notes the “robustness” of the PC, which Microsoft has actually been pooh-poohing over many quarters.

Liddell said he saw better days ahead, perhaps because past ones had been weak, especially business PCs. “That can’t continue forever,” he noted.

A question about Europe. “Relatively weak,” said Liddell, while emerging markets were stronger.

“This calendar year is transition to next calendar year,” said Liddell.

A query about Windows 7 revenue recognition, which comes when Microsoft sells to OEMs.

8:14 am: More on OEMs, who are the big buyers of Microsoft’s operating system software.

Next up: Another question about outlook.

“Generally speaking, we are seeing good adoption of our products,” said Liddell, but the true rebound is coming next year.

The last question is about Windows Live.

It’ll get better, but next year, folks!

Translation, if you imagine Liddell channeling “Annie”: The sun’ll come out tomorrow. Bet your bottom dollar that tomorrow, there’ll be sun!

Enjoy this lovely video of the classic song:

Yahoo and Microsoft are still seriously talking about a search and partnership deal, never-ending discussions that might or might not come to fruition. But most investors will be focused on real results this week, as both tech giants report quarterly earnings.

But, after a ho-hum performance last week from Google (GOOG), Wall Street is not expecting much from either, as the econalypse continues to take its toll on financial performance.

Yahoo (YHOO) will report its second-quarter earnings at 2 pm PDT tomorrow, while Microsoft (MSFT) will report on Thursday at 2:30 pm PDT.

The last quarter was weak for Yahoo, due to the depressed online advertising market, which is its biggest business.

And Wall Street is expecting more of the same, although perhaps with some signs of recovery and improvement after major cost cuts at the Silicon Valley icon by CEO Carol Bartz.

According to a round-up averaged by Thomson Reuters (TRIN), analysts think Yahoo will have revenue of $1.14 billion and earnings of eight cents a share, not including special charges due to recent layoffs and taking out commissions paid to advertising partners.

A search deal, if struck, could have a dulcet impact on Yahoo’s stock, which has been up strongly in the quarter.

And the industry is also hoping for some bump from the introduction of Yahoo’s redesign of its front page, code-named Metro, which it has been testing for a dog’s age now and will debut soon.

Shares of Microsoft have also been doing well recently, although it is not expected that any search deal will have much impact on its stock or, really, its actual business.

Search is a very small part of Microsoft’s portfolio, despite all the focus on its innovative new Bing search service. Instead, as always, the Redmond, Wash.-based company is squarely dependent on the performance of its dominant software products, Windows and Office.

Last quarter, Microsoft CFO Chris Liddell was very grumpy about the economic outlook and it is likely to be a repeat performance on Thursday, albeit with some encouraging signs of the lessening of the decline.

Still, analysts expect Microsoft to get hit from the continued weak sales of personal computers, which are chock full of its software.

On average, according to Thomson Reuters, analysts think Microsoft will have revenue of $14.38 billion in its fourth quarter, earning 36 cents a share. That’s off just over 10 cents in earnings from last year’s 48 cents per share.

After running one of the more successful Silicon Valley acquisitions by Microsoft for several years, Tellme Networks founder and GM Mike McCue (pictured here) will be leaving the company at the end of June.

As part of the transition, Zig Serafin, who has been running a lot of the speech technology efforts for the software giant at its Redmond, Wash., HQ, is taking over the voice services subsidiary and all the other related units.

They will be made into a single, yet-unnamed, team with about 400 employees in total.

McCue and Serafin are now meeting with Tellme staff at its Mountain View, Calif., HQ about the changeover.

“It was time to move on, after a long and really successful time at a big company,” said McCue, in an interview with BoomTown two weeks ago. “Voice technology is an area that I think Microsoft is committed to excelling in and the new configuration will help ensure that.”

Serafin (pictured here), a 10-year Microsoft veteran, said as much in another interview yesterday. “This is an opportunity to bring together the group to allow it to innovate across Microsoft,” he said. “We really want to advance this user interface for computing.”

Serafin said he would be spending four days a week in Silicon Valley, as part of that effort, using Tellme as the center of a “whole new speech center of excellence.”

Microsoft (MSFT) has long been aiming at differentiating itself from the popular iPhone from Apple (AAPL), which has revolutionized the mobile market via its innovative touch and movement technology, by drilling down on making speech recognition technology a popular consumer application.

It bought Tellme in 2007 for $800 million as part of that effort. Competitors in the space include Google (GOOG) and Nuance.

For example, Tellme recently announced “one-button” voice access for Windows-enabled mobile phones, as well as some new technologies to improve call automation for customer service centers.

McCue has been a pioneer in the use of speech in the mobile arena, founding Tellme in 1999. Previous to Tellme, he was VP of technology at Netscape, the once-dominant browser company.

McCue said he will be taking some time off after he leaves Tellme and then plans on working on another start-up and advising companies.

Below is a picture from a 1999 board meeting at Tellme, when it was private. It includes McCue, as well as former Netscape execs Peter Currie and Mike Homer (click on image to make it larger).

And, below that, are two video interviews I did with McCue in March of last year.

One is a tour of the Tellme HQ and another is a longer chat with McCue–whom I once called the “Patty Hearst of Silicon Valley” for being so dang sunny in an Associated Press story about what life was like after a takeover by the software giant, in the midst of Microsoft’s failed attempt to buy Yahoo (YHOO).

In it, I noted that he displayed “the cheeriness of someone with acute Stockholm syndrome and $800 million in Microsoft money.”

Tellme HQ Tour:

McCue Talks About Mobile Devices:

Tellme, the voice services subsidiary of Microsoft, is announcing a “one-button” voice access for Windows-enabled mobile phones, as well as some new technologies to improve call automation for customer service centers.

Aiming at smartphone users who might prefer to use voice over the Apple (AAPL) iPhone’s popular touch, tap and swoosh features, Microsoft (MSFT) is trying to differentiate its mobile offerings.

“Unlike other voice-based services, Tellme is the first to allow people to press one button, say what they want and get it, whether that is to send a text, make a call or search for information,” said the company in a press release, which noted the service would be available in the fall on WIndows mobile phones.

Here is a video of Tellme GM Mike McCue, showing off the new one-button service:

And, here are the full press releases:

MICROSOFT’S TELLME ANNOUNCES ‘ONE BUTTON’ VOICE ACCESS TO MOBILE COMMUNICATIONS AND INFORMATION

More than 75% of Smartphone Users Prefer Voice and Would Buy Phones With Tellme; Free to Carriers and Handset Manufacturers for Windows Mobile 6.5 Phones

APRIL 29, 2009–Mountain View, CA–Today Tellme®, a subsidiary of Microsoft Corp. and pioneer of voice services, announced the first mobile voice service to combine content and communications, simplifying how people interact with their phones every day. Unlike other voice-based services, Tellme is the first to allow people to press one button, say what they want and get it, whether that is to send a text, make a call or search for information. Tellme has designed a unique version of this experience specifically for Windows phones due out this fall.

The new service puts many of the most popular phone functions behind a single button. Windows phone users just press the side button of their phone to:

- Send a text by saying “text” to open a text box, then speak the text message and send to call anyone in their contact list

- Initiate a call simply by saying “call” and then the name of anyone in their contact list

- Search the Web with Microsoft Live Search by speaking your request, such as “weather in San Francisco, California”, “Pizza in Kansas City” or “mother’s day gift ideas”

“Because it’s so intuitive, we believe there is a real opportunity for voice to materialize as the leading user interface for the phone,” said Dariusz Paczuski, senior director of consumer services at Tellme. “By bringing voice access to calling, texting and searching together we reduce ‘menu surfing’ on phones and make the convenience of voice more tangible for everyday needs.”

In a head to head comparison, it’s clear why people prefer voice over touch. For example, it requires four touches and more than 20 keystrokes to find a business with the Apple iPhone, while it only takes one button push and one verbal command to find the same business with Tellme. Tellme’s research shows similar results for other tasks, such as making calls, sending text messages and searching for content like traffic, movies, news and sports.

“For example, Sprint has integrated our voice access to the Live Search application on Sprint Instinct phones and subscribers love it,” continued Paczuski. “In fact, we’ve seen impressive adoption of voice with 3 of every 4 search queries being initiated by voice.”

Finally, in a recent study conducted by Sanderson Studios, more than 70 percent of respondents said that voice is superior to keypad or touch-based methods to perform some of the most popular mobile tasks. This includes looking up a business listing or location (78 percent), sending a text message (72 percent), placing a call (79 percent), getting information such as movies, weather, traffic or sports (77 percent) and getting directions (81 percent).

For the past decade, Tellme has been pioneering voice services for businesses and consumers, answering billions of calls every year and helping millions of people get the information they need simply by speaking a request. Now the convenience of voice is coming to Windows phones, bringing people closer to the things they want by providing easier access to more of the phone’s functionality. With Tellme, people using the latest Windows phones will be able to simply say what they want, such as “call mom” or “text Jim” or “pizza,” and results display on the screen.

Tellme will be available for free on Windows Mobile 6.5 phones in the Fall 2009 when the phones hit store shelves. Initially available in the Windows Marketplace for Mobile store, Tellme will also make the service available for free to mobile operators and carriers to embed ‘on-device’ for a voice experience right out of the box.

MICROSOFT AND TELLME DELIVER BENEFITS OF VOICE IN THE CLOUD TO CONTACT CENTER CUSTOMER SERVICE

Speech Innovations Improve Call Automation, VoIP Infrastructure Shrinks Telecom Costs

APRIL 29, 2009–Mountain View, CA –Tellme®, a subsidiary of Microsoft Corp., today announced three core speech and network innovations that advance its platform for cloud-based voice services. The new technologies significantly reduce costs for enterprise customer service while enabling a faster, smarter caller experience. These advancements include the roll-out of a VoIP carrier service that reduces customer transport costs, advanced speech services that improve automation of customer service calls, and a new ‘voice font’ technology that delivers a more natural text-to-speech experience.

The new speech services area a result of collaboration between Tellme and Microsoft’s Speech Components Group. These jointly designed technologies will be leveraged to advance natural user interfaces across Microsoft products to benefit billions of customers worldwide. Because Tellme operates as an on-demand service, the new capabilities are immediately available to enterprises across Tellme’s platform. In addition, Tellme is now using these technologies to power its mobile services, including the Windows Mobile 6.5 application announced today.

“Providing quality customer service is a top priority for E*TRADE. Tellme’s flexible platform has helped us unify our customer service experience across multiple channels and deliver improved performance year over year,” said Hartley Caldwell, Senior Vice President, Software Engineering at E*TRADE FINANCIAL Corporation.

“Our goal is to provide enterprises with technology that improves their customers’ experience but also affords them the ultimate financial flexibility when deploying voice services. From initial deployments we’re seeing impressive cost savings and results that we’re sure our customers will be excited about,” said Jamie Bertasi, senior director of Business Solutions at Tellme.

Saving Money on Operating Costs

Handling customer phone inquiries represents a multi-million dollar expense for many Fortune 1000 companies, with telecom being one of the largest technology costs. Now with carrier VoIP service, enterprises can extend their VoIP strategy to customer service calls and eliminate transfer fees, lowering the average per-minute cost 60% per call and reducing transfer fees by 100%.

Additionally, Tellme enterprise customers have another option to save significant money on telecom beyond the expensive maintenance of toll-free numbers: local number service. With the rising, widespread use of mobile phones, nation-wide caller plans lessen the need for consumers to use toll-free numbers. With the benefit of toll-free numbers diminishing, having an alternative local number can save costs without affecting the consumer experience. Now, Tellme’s VoIP service makes it possible for enterprises to use less expensive local numbers for their customer service.

Getting the Right Answer More Often, Increasing Automation

One of the biggest frustrations of speech services is that they don’t always understand the caller. Increasing the odds of getting it right makes the overall customer experience better, improving their confidence in using the system, and lowering the total cost per call to the enterprise.

Partnering with Microsoft’s speech team, Tellme provided tuning data from its billions and billions of calls and design expertise to develop new acoustic models, phonetic dictionaries and grammar products that increase the accuracy of every response. The teams built an “online adaptation” capability where the system can adapt to a caller’s acoustic patterns within the first three seconds of speaking. These new platform features make it possible to get the right answer to the caller more often.

Results in early deployments are impressive. With an average of $3 per customer service call handled by a live agent, a phone service handling 200,000 calls per day would save nearly $6 million per year for every 1% improvement in call automation. Trials of the new services with customer applications that handle millions of calls every week indicate an up to 2% increase in automated task completion, which translates to millions of dollars in savings every year.

Creating a Faster and More Natural Experience

Both the way customers request information and the way they hear the answer have been improved with two new technologies: expanded multi-slot recognition and a new ‘voice font’ called Zira.

Multi-slot technology makes it possible for callers to ask for information in a full sentence or phrase, such as “I wanna buy five thousand shares of Coca Cola” and the system listens for the relevant words, in this case “buy,” “five thousand shares” and “Coca-cola.” Then, if any information is missing or not understood the system can ask just for the specific word clarification without re-prompting for the entire answer, making the call faster and increasing the customer’s satisfaction.

In addition, Tellme, leveraging the Microsoft Text-to-Speech (TTS) engine, has developed a new custom TTS service with its ‘voice font’ called Zira. Zira has been created with a patented technique designed for consistency in voice quality and delivery that provides a more conversational experience. The Zira voice talent was coached by audio engineers to record popular phrases and words used in customer service requests. The Zira technology benchmarks close to actual human pronunciations–delivering the industry’s highest quality TTS service and reducing the expense of custom audio recordings for enterprise IVR.

Well, despite the news being as bad at Microsoft as it was at Yahoo (YHOO) earlier this week, the conference call after the software giant released its third-quarter earnings was 100 percent less naughty and 200 percent more glum.

In other words, while there were no F-bombs dropped, there were lots of E-bombs–as in econalypse.

Microsoft’s earnings and revenue took a big hit in its third quarter, with profits down 32 percent from a year ago on a six percent sales decline.

It was the company’s first-ever year-over-year quarterly sales drop.

There were also more than $700 million in charges from layoffs and investment declines, both a result of the weak economy. The culprit for most of the bad news was the decline in consumer and business spending on computers.

And Microsoft CFO Chris Liddell did not even bother to act as if there was any hope, painting a semi-apocalyptic picture of the business landscape that he predicted was not going to get better anytime soon.

Here’s BoomTown’s liveblogging of the call:

2:34 p.m. PDT: The call starts after some very stern marshal music was played. This turns out to be the perfect mood-setter.

First up, the investor relations guy who talks about all the rules, like those folks who come on after, say, a Viagra commercial and quickly list the scary side effects.

But scary was what Liddell was serving up from the get-go, as he pretty much spent the entire conference call talking about just how bad the economy has been, is and will be.

What’s most disconcerting perhaps is the fact that he was delivering the bad news in a cute-as-a-kiwi New Zealand accent.

Nonetheless, Liddell said the company had had to “adapt to a new reality” and that Microsoft was “more cautious than most about the state of the world economy” and–let’s not forget–the “economic pressures are both broad and deep.”

Liddell also noted that the recovery will not happen quickly, but be “slow and gradual.”

Perhaps this is not the right time to mention that both Google (GOOG) and Apple (AAPL) essentially killed in their recent earnings reports.

2:38 p.m.: Microsoft’s investor relations head Bill Koefoed–without any jaunty inflection whatsoever–delivered the numbers in that droning way that all financial types who deliver numbers on calls like this do.

My assistant, Ed, actually fell into a temporary coma from across the room.

Basic message of numbers: Bad.

2:54 p.m.: Back to Liddell for some forward-looking stuff.

Also not good, with consumer sentiment and spending weak, he said, there would be “significant pressure until market conditions improve.”

“In summary, it was a tough quarter,” reiterated Liddell, restating what he already stated and stated again. And then restated.

2:59 p.m.: Now to questions! Maybe things will look up here.

But…nope!

Thus, more worries about Microsoft’s growth, a weakness in sales and even some clucking over renewal rates of its operating system software licenses.

Then someone noted that it seemed as if Microsoft at least had its “arms around” the problems.

Would Liddell show any glimmer of hope?

“I guess we are all learning… how do I feel about the shape of the quarter [to come]?” he pondered.

Wait for it, wait for it, wait for it. Said Liddell, the sad-sack CFO: “I do not see anything that gives me any encouragement.”

Big, big sigh.

3:16 p.m.: Someone asked about one remark Liddell made about some “countercyclical” products, which might be bright spots in the Microsoft empire.

Indeed, new versions of the Windows operating system, Office, Exchange and its search offering are all set to come out in the next year.

Will they be gamechangers? Liddell was not saying, of course.

Finally, at the end, after a question about stock repurchases, there was some light at the end of the tunnel.

No matter what, Microsoft is still a cash-spewing engine.

“One of the great positives,” said Liddell was the company’s free cash flow of $20 billion, at an annual rate.

In other words, there is nothing like money stuffed under the mattress in times like these.

Microsoft’s earnings and revenue took a hit in its third quarter, as expected, with profits down 32 percent from a year ago on a six percent sales decline.

Before one-time charges, the software giant earned $2.98 billion, or 33 cents a share after one-time charges, on revenues of $13.65 billion.

The weak results were relatively in line with analysts’ estimates of 39 cents a share on $14.1 billion in revenue.

It was the company’s first-ever year-over-year quarterly sales drop.

But Microsoft stock was up in after-hours trading, after also rising today before the market close by 14 cents, up .75 percent, to $18.92.

Costs from layoffs of $290 million and a $420 million impairment charge on investments also hit the bottom line at Microsoft (MSFT).

The company announced those first-time mass layoffs in the previous quarter. No further layoffs were announced today, despite rumors that they might be.

The culprit for most of the bad news was the decline in consumer and business spending on computers, since half of Microsoft’s operating income comes from sales of its Windows operating system.

But its online services also got hit badly, with a 14 percent decline in revenue from a year ago to $721 million. Losses doubled to $575 million. Oof!

Thus, Microsoft execs better hightail it down to Yahoo (YHOO) some more to strike that long-simmering search and advertising partnership deal.

BoomTown will be liveblogging the earnings conference call soon, but until then, here is the Microsoft press release:

REDMOND, Wash.–Apr. 23, 2009–Microsoft Corp. today announced revenue of $13.65 billion for the third quarter ended March 31, 2009, a 6% decline from the same period of the prior year. Operating income, net income and diluted earnings per share for the quarter were $4.44 billion, $2.98 billion and $0.33 per share, which represented an increase of 3% and declines of 32% and 30%, respectively, when compared with the prior year period.

The financial results for the third quarter ended March 31, 2009, included $290 million of severance charges related to the previously announced plan to reduce up to 5,000 positions and $420 million of impairments to investments. Combined, these two charges reduced earnings per share by $0.06.

Revenue in Client, Microsoft Business Division, and Server & Tools was negatively impacted by weakness in the global PC and Server markets. Revenue from enterprise customers remained stable during the quarter.

“With our continued R&D investment and our broad suite of products and services, we remain in a great position to compete and gain share in the marketplace,” said Kevin Turner, chief operating officer at Microsoft. During the quarter, Microsoft released the beta version of the Windows 7 operating system, which remains on track for a fiscal year 2010 launch. Development milestones were achieved on other products including Microsoft Office 2010, Windows Server 2008 R2 and Windows Mobile.

“While market conditions remained weak during the quarter, I was pleased with the organization’s ability to offset revenue pressures with the swift implementation of cost-savings initiatives,” said Chris Liddell, chief financial officer at Microsoft. “We expect the weakness to continue through at least the next quarter.”
Business Outlook

Microsoft offers updated operating expense guidance of $26.7 billion to $26.9 billion, including severance charges, for the full year ending June 30, 2009.

Management will discuss third quarter results and the company’s business outlook on a conference call and webcast at 2:30 p.m. PDT (5:30 p.m. EDT) today.

That’s not to say it’s a particularly good or bad idea to hire a former Dreamworks and Wal-Mart (WMT) exec named David Porter (pictured here) as vice president of retail stores to create Microsoft-branded stores–or as the company announced yesterday, “to create a better PC and Microsoft retail purchase experience.”

While Microsoft (MSFT) sells most of its consumer products via big-box retail stores like Best Buy (BBY), and the retail market for just about everything is weak, Apple (AAPL) has definitively proven that a well-designed retail store can be a powerful marketing tool.

The visually stunning and infectiously fun Apple stores, in fact, have been an important part of its recent surge in mainstream consumer appeal, becoming hubs of activity and even social life in its mostly big-city locations.

In fact, that was just the idea behind microsoftSF, which was located in San Francisco’s Metreon Sony Entertainment Center.

The huge 8,500-square-foot store, with 160 Microsoft products and related software and hardware from 30 partners, was billed in a June 1999 press release as “an interactive, hands-on retail environment in which people of all ages, from all walks of life and at all levels of technological expertise can explore the benefits technology can bring them. Far more than just another computer store, microsoftSF is a showcase for the latest technology from Microsoft and the hardware and software companies with which it collaborates.”

The microsoftSF store, which I visited several times (but bought nothing, although I was mostly a PC user at the time), was very attractive and the only such store in the world, with a “Road Warrior” arena, a lounge, a gaming area and more.

Said the press release: “To make all this possible, microsoftSF deploys Microsoft Windows and more than 100,000 feet of copper cable, 60 Sony PCs, 18 laptop docking stations, four dual-processor servers powered by Hewlett-Packard Net Servers, a Cisco Systems network, and an array of hidden audio speakers that create 16 individually controlled sound zones.”

And Microsoft CEO (then President) Steve Ballmer weighed in enthusiastically:

“We are delighted to be able to showcase in this one-of-a-kind retail environment the entire range of Microsoft software and hardware, as well as the technology of other companies who share the vision of how the PC and the Internet can empower people any time, anywhere. San Francisco and the Silicon Valley are home to the world’s largest and one of the most sophisticated high-tech audiences, so this was the natural place to create this site–dedicated to showing, in an interactive environment, the way technology can enhance our working, learning, living and playing.”

Not so much, as it turned out. The store closed in 2001.

But that does not necessarily mean that the new and much expanded efforts will have the same experience. The Metreon, which was sold off by Sony, was an odd mall then and still is, although its movie theater is successful.

And, in this effort, Microsoft will have control of the whole enchilada.

Plus, if well done, it is not such a bad idea to have a place–perhaps only in highly-trafficked locations in big cities–to show off its consumer wares, especially its popular Xbox 360 and other products (please, not the Zune!).

More importantly, given the disaster that has been the Windows Vista experience, it is probably a good idea to have a place to get people interested in Windows 7, especially its touch capabilities, when it rolls out this year.

Also, I still like the Surface interactive table, even if it is mocked in a popular video as a “big-ass table.”

Of course, only Apple stores have done well so far in this genre, as everyone, from Gateway (GTW), Sony (SNE), Nokia (NOK), Helio and Palm (PALM), has had rough retail experiences.

So, Porter certainly has his work cut out for him, at least judging from the press release from Microsoft yesterday:

“Defining the time frame, locations and specifics for planned Microsoft-branded retail stores will be Porter’s first order of business. The purpose of opening these stores is to create deeper engagement with consumers and continue to learn firsthand about what they want and how they buy.”

Said Porter: “There are tremendous opportunities ahead for Microsoft to create a world-class shopping experience for our customers. I am excited about helping consumers make more informed decisions about their PC and software purchases, and we’ll share learnings from our stores with our existing retail and OEM partners that are critical to our success.”

He’ll have to wait to see if the second time is a charm.

Microsoft, moving up its second-quarter earnings release from this afternoon to right now, said its financial performance took a major hit, with revenue up only two percent, to $16.63 billion, about $900 million below earlier guidance.

Net income was even worse for Microsoft (MSFT), off 11 percent to $4.17 billion, or 47 cents a share, from year-earlier earnings of $4.71 billion, or 50 cents a share.

Microsoft whiffed badly on Wall Street’s expectations of earnings of 49 cents a share on sales of $17.08 billion.

In addition, the software giant said that it would cut 5,000 jobs across many divisions over the next 18 months, starting with 1,400 today, pegging operating cost savings at $1.5 billion annually.

It will also make other cuts, including trimming salaries, travel, marketing and even office expansion costs, all over the company.

Perhaps most ominously, Microsoft said it would not give profit and revenue guidance for the rest of the year, because of the economy’s turmoil. Apparently, even the smartest of techies have little insight to this very foggy financial situation.

Microsoft blamed “PC market weakness and a continued shift to lower priced netbooks” for some of the declines, as well as the economy for lower IT spending.

“While we are not immune to the effects of the economy, I am confident in the strength of our product portfolio and soundness of our approach,” said Microsoft CEO Steve Ballmer. “We will continue to manage expenses and invest in long-term opportunities to deliver value to customers and shareholders, and we will emerge an even stronger industry leader than we are today.”

Here is Ballmer’s full memo to Microsoft employees about the layoffs and weak results.

Microsoft will talk to analysts at 8 a.m. PST this morning, which BoomTown will liveblog. The company was supposed to report after the markets closed, at 2:30 pm.

Here is the full press release below:

Microsoft Reports Second-Quarter Results
Modest revenue growth despite difficult economy; announces cost management initiatives.

REDMOND, Wash.–Jan. 22, 2009–Microsoft Corp. today announced revenue of $16.63 billion for the second quarter ended Dec. 31, 2008, a 2% increase over the same period of the prior year.

Operating income, net income and diluted earnings per share for the quarter were $5.94 billion, $4.17 billion and $0.47, declines of 8%, 11% and 6%, respectively, compared with the prior year.

Client revenue declined 8% as a result of PC market weakness and a continued shift to lower priced netbooks. However, strong annuity licensing drove Server & Tools revenue growth of 15%. Entertainment and Devices revenue grew 3% driven by strong holiday demand for Xbox 360 consoles with a record 6 million units sold in the quarter.

During the quarter, Microsoft showcased significant new product innovations by debuting Windows 7, Windows Azure, Office Web applications, Windows Server 2008 R2 and Office Communications Server 2007 R2. Microsoft also announced general availability of Silverlight 2, Exchange Online, SharePoint Online, Windows Small Business Server 2008, Windows Essential Business Server 2008 and a new release of Microsoft Dynamics NAV.

“While we are not immune to the effects of the economy, I am confident in the strength of our product portfolio and soundness of our approach,” said Steve Ballmer, chief executive officer at Microsoft. “We will continue to manage expenses and invest in long-term opportunities to deliver value to customers and shareholders, and we will emerge an even stronger industry leader than we are today.”

In light of the further deterioration of global economic conditions, Microsoft announced additional steps to manage costs, including the reduction of headcount-related expenses, vendors and contingent staff, facilities, capital expenditures and marketing. As part of this plan, Microsoft will eliminate up to 5,000 jobs in R&D, marketing, sales, finance, legal, HR, and IT over the next 18 months, including 1,400 jobs today. These initiatives will reduce the company’s annual operating expense run rate by approximately $1.5 billion and reduce fiscal year 2009 capital expenditures by $700 million.

Business Outlook

“Economic activity and IT spend slowed beyond our expectations in the quarter, and we acted quickly to reduce our cost structure and mitigate its impact,” said Chris Liddell, chief financial officer at Microsoft. “We are planning for economic uncertainty to continue through the remainder of the fiscal year, almost certainly leading to lower revenue and earnings for the second half relative to the previous year. In this environment, we will focus on outperforming our competitors and addressing our cost structure.”

Due to the volatility of market conditions going forward, Microsoft is no longer able to offer quantitative revenue and EPS guidance for the balance of this fiscal year. Microsoft offers operating expense guidance of approximately $27.4 billion for the full year ending June 30, 2009. This information supercedes the fiscal year 2009 guidance that Microsoft provided on Oct. 23, 2008.
Management will discuss second-quarter results, and the company’s qualitative business outlook on a conference call and webcast at 8 a.m. PST (11 a.m. EST) today.

Webcast Details

Steve Ballmer, chief executive officer, Chris Liddell, senior vice president and chief financial officer, Frank Brod, corporate vice president and chief accounting officer, and Bill Koefoed, general manager of Investor Relations, will host a conference call and webcast to discuss details of the company’s performance for the quarter and certain forward-looking information. The session may be accessed at http://www.microsoft.com/msft. The webcast will be available for replay through the close of business on Jan. 22, 2010.

Besides getting, well, the whole country to run today, President Barack Obama is now taking a geek-tastic new ride down Pennsylvania Avenue to his new home, which should more than satisfy his clearly gadget-loving persona.

Obama, who has an ongoing obsessive relationship with his BlackBerry, much as the rest of us do, just got a spanking new presidential limo (pictured above), which the Secret Service is calling the “Beast.”

The last time General Motors (GM) improved on the car was at outgoing President George W. Bush’s 2005 inauguration, which means the struggling automaker is faster at upgrading than Microsoft (MSFT) is with Windows!

But, let us just say, it’s not very Prius-like, despite Obama’s speech today about focusing on the environment.

Indeed, the Cadillac limo has heavy armor five inches thick, run-flat tires, bullet-proof glass, an interior that seals, in case of a chemical attack, and other stuff that is too top secret to apparently reveal.

BoomTown is thinking, um, working Wi-Fi?

Refrigerated cup holders (and more of them, please!)?

A food machine that makes pizza from thin air like on “Star Trek”?

Or, miracle of miracles, that giant Apple (AAPL) iPod embedded in the steering wheel?

Post your suggestions as to what gadgets should be in the President’s new ride below.

In the wake of the changes at Microsoft’s online division, a senior advertising sales exec, Bill Shaughnessy (pictured here), is set to leave his post, the company confirmed.

The departure was first reported in Ad Age, which said Shaughnessy’s future plans were undetermined and, in fact, noted it was unclear why the longtime Microsoft (MSFT) staffer of 15 years was leaving.

BoomTown found the answer looking at the very bottom of the press release announcing the hiring of former Yahoo (YHOO) tech exec Qi Lu as head of its online services group:

“As part of today’s announcement, several teams will move to further align resources. The field sales organizations in the Online Services Group will move to Microsoft’s centralized Sales, Marketing and Services Group led by chief operating officer Kevin Turner. This group, called Consumer & Online, will be led by Corporate Vice President Darren Huston and will include the Global Advertising Sales and Services organization, led by vice president Bill Shaughnessy.”

The move to centralize, according to sources, has been controversial within the company, since that means all sales are being lumped into one mega-group.

Shaughnessy has worked on a range of MSN properties, as well as for the Windows group.

In his most recent job, he worked closely with Brian McAndrews, the top online ad sales exec at Microsoft, who announced he was leaving the company on the same day Lu was hired.

McAndrews had been a contender for the digital head job.

According to a Microsoft profile of him, Shaughnessy was global VP of sales, marketing and services, “responsible for the business leadership and management of its international business operations outside of the United States, including the Greater Asia region. His responsibilities include sales, marketing, business development, programming and regional and country management.”

With all the information Microsoft is releasing at its launchtastic Professional Developers Conference in Los Angeles this week, CEO Steve Ballmer sent out a honking long missive to customers who have opted into the software giant’s “Executive Email” program (who knew?).

Along with the Azure–finally, a lovely and apt brand name from Microsoft–cloud services offering, it also outlines the inevitable and unavoidable path for the company, which has long struggled in getting its digital strategy right.

That includes cloudy browser versions of Word, Excel, PowerPoint and other of its powerhouse software products.

Of course, as with any Microsoft (MSFT) exec you talk to, software is still the plodding workhorse of this airy new cloud world, part of its “software plus services” mantra that the company dearly hopes will stave off the inevitable end of its mainstay business.

Ignore the top about transformation Tourette’s blah-blah-blah at the start to get to the money quote:

“What’s missing is the ability to connect these components in a seamless continuum of information, communication, and computing that isn’t bounded by device or location. Today, some things that our intuition says should be simple still remain difficult, if not impossible.”

Ballmer does sound good here, although–as the cliché goes–the proof’s in the pudding.

(And who doesn’t love a good cup of pudding?)

But, I digress–here’s the entire email:

From: Steve Ballmer
Sent: Tuesday, October 28, 2008 2:37 PM
To:
Subject: A Platform for the Next Technology Revolution

Steve Ballmer

While the very quirky ads recently rolled out by Microsoft to tout itself–starring Microsoft Founder Bill Gates and comedian Jerry Seinfeld–got a ton of hype, it turns out there will be no more than than the three already released for now.

It seems the churros have gone cold.

According to a Microsoft (MSFT) spokesman, the Seinfeld advertisements were apparently just a warmup for more to come tomorrow, though the new ones will not use Seinfeld in any significant way.

But they might still feature Gates and Seinfeld could return.

But the main Seinfeld/Gates pairing was, said Microsoft, just a “teaser” for the next phase of the $300 million campaign to tout its beleaguered Windows Vista operating system.

[UPDATE] Said Microsoft in an official statement: “We will be executing the second phase of our advertising campaign tomorrow, as planned from the start.”

The company said upcoming personalities in the new ads will include feel-good author Deepak Chopra, television star Eva Longoria and musician Pharrell Williams, and they will also use Microsoft’s own version of the dumpy PC guy character to attack Apple’s hugely successful Mac/PC ads.

BoomTown is dubious, to say the least, that Microsoft can be more clever than Apple (AAPL) in the marketing arena. And by dubious, I mean its chances are as good as Lehman Bros. rising from its financial grave.

News of the development was first reported by Valleywag, which said in its post title that the ads were canceled, which is untrue.

But Microsoft’s rep stresses that this was the plan all along, to jump-start the marketing conversation, even though the ads have, in fact, not gotten a lot of praise.

You be the judge. Here are the three ads. The first with the churros joke and the second and third visit with a family, combined:

But–as many readers have requested–they will all be available in their entirety in this column.

In the less contentious spirit of DEMOfall and TechCrunch50, two demo conferences taking place simultaneously this week, we’re happy to bring you all the demos we had onstage at D6.

First up is TransMedia’s Glide, an operating system that cuts across all operating systems.

There are two videos showing the whole demo below.

In the first one, TransMedia Chairman and CEO Donald Leka walks Walt and Kara through Glide on Mac OSX, Windows and the iPhone.

In the second, Leka demos the engaging kids’ version of Glide, shows how the OS runs in a browser on an iPhone and talks about the company’s business model.

There will be a lot of different reactions to the first of Microsoft’s newest series of commercials, featuring Founder Bill Gates playing straight man to comic Jerry Seinfeld.

Set up as a discount shoe-buying skit, Seinfeld helps Gates purchase a pair called “The Conquistador,” and for some Seinfeldesque reason, it’s churros all around.

Actually, it feels a lot like the frequent and excellent Microsoft internal spoof videos Gates does with various celebs.

I have always liked them a lot and I like this one too, as it is quirkily charming (or is it charmingly quirky?).

But I am not sure the Gates-Seinfeld kibitzing will really get a lot of people talking about Microsoft (MSFT) products, as is the marketing goal.

And they surely are no where near as spot-on as Apple’s famed PC-Mac guys commercials, which are memorable and witty and deliver the message that Apple (AAPL) products are better.

What might be more effective, of course, at least in the Internet arena, is for Microsoft to get off the stick and lay out its next Web strategy clearly, especially in the wake of its failed attempt to acquire Yahoo (YHOO), and name the digital chief it said it planned to.

Several sources with knowledge of the situation expect an internal choice to helm the part of the business that was run by former Microsoft exec Kevin Johnson, who left after the software giant’s bid for Yahoo failed.

Although an external star coming in would be CEO Steve Ballmer’s top choice, I would guess, top internal contenders are Brian McAndrews, who came to the company via its $6 billion aQuantive acquisition, and longtime exec Yusuf Mehdi, who was Johnson’s strategy guy.

(BoomTown votes for a combination of both to make it extra complex!)

In any case, if it is serious about taking on rival Google (GOOG) in the online ad space and becoming at least the No. 2 player in the market, Microsoft has to move sooner than later and definitely much faster and it has a lot of options.

With Yahoo’s stock circling the drain, closing yesterday at $17.75, will Microsoft think about another bid for even a part of the Internet company?

Or will it try, as it claims, to get truly serious about building its business organically with programs like Live Search cashback, a deeper focus on vertical search improvements in places like video, images and mapping, and more content on its MSN sites?

Or should it be aggressively looking around for other properties to purchase to bolster its Web assets, such as the company that owns the Ciao price comparison and online shopping sites in Europe, for which it just forked over $500 million?

Of course, Microsoft will likely keep trying all of these, although I hope not in the muddling way it has behaved for far too long.

Johnson was entirely right in his internally controversial concept that being one of the top players on the Web is key to Microsoft’s future, even more than its lucrative Windows software hegemony.

(If you want to read an interesting take as to why, don’t miss New York Times columnist Joe Nocera’s “Does Windows Still Matter?” post yesterday).

And with Google’s new foray into the browser business this week, Microsoft surely has to be certain that it does not lose in the one place it does dominate.

In other words, Microsoft has a lot of work ahead of it, well beyond amusing us with Gates doing a thankfully hands-free adjustment of his boxer shorts.

In any case, you should see that, so here’s the first Gates-Seinfeld commercial: