Microsoft pops up with surprise deal

Microsoft has been in talks for the past two weeks to buy a private Silicon Valley company, a move that underscores just how eager Microsoft is to catch up with Google, the search and advertising giant.

The company Microsoft has pursued is controversial: Claria, formerly called Gator, is best known for its pop-up ads and software that tracks people visiting websites. The Gator adware has been denounced by privacy advocates for its intrusiveness.

The offer price as recently as yesterday was $US500million ($656.6million), according to people who have been briefed on the talks. But a person close to Microsoft said the negotiations were on the verge of breaking off.

One person briefed on the deal said a group within Microsoft opposed the acquisition , fearing the move could bring an outcry as critics portray Microsoft as a corporate Big Brother trying to track every mouse click on the web and profit from it.

Those in favour of the deal, the source said, believe Microsoft could help clean up the adware field, establish rules to protect privacy and benefit from the anticipated increase in personalised advertising.

Both Steven Ballmer, Microsoft's chief executive, and chairman Bill Gates have been involved in that debate inside the company, said the source.

Neither Microsoft nor Claria would comment on the negotiations.

California-based Claria is moving beyond pop-ups to personalised services, such as delivering local weather information and distributing software that lets web publishers offer personalised pages.

Such software opens the door to personalised advertising. That emerging ad market is of great interest to Microsoft for its MSN websites, as it is for Google, which is testing services such as customised Google home pages and software that stores the web pages a user visits most often, for faster display.

Claria, which changed its name from Gator two years ago, has been sued by web publishers, including The New York Times Company.

The publishers typically have sued pop-up vendors for trademark infringement, for setting adware programs to activate ads inside publications' websites. But Claria has settled nearly all its litigation. It also recently reached out to privacy groups for advice and made it easier for web surfers to reject ads.

This year, according to the person briefed on the talks, Claria approached Microsoft about using a new service called BehaviorLink. The Claria service would track the surfing patterns of the 40 million people who have Claria software installed on their PCs, using that information to buy ads directly from publishers. Publishers would be paid for showing the ads; Claria would be paid by marketers who want to reach consumers; and users would see fewer pop-ups.

The source said Mr Ballmer had been pushing Yusuf Mehdi, the senior vice-president in charge of MSN and Microsoft's search business, to be more aggressive in closing the gap with Google.

And Mr Ballmer gave approval to begin negotiations with Claria two weeks ago.

Analysts said Microsoft would probably be most interested in the long-term potential of Claria's personalisation software rather than its pop-up ads. Responding to customer complaints, Microsoft stopped selling pop-up ads on its MSN websites in May 2003.

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