Amidst all of the Microsoft-Yahoo hubbub, business carries on at the world’s biggest software company. Today, Microsoft is set to announce a series of updates to the Zune, its answer to Apple’s wildly popular iPod.

The biggest news for Zune fans - Microsoft claims 2m of them - is that they will now be able to buy some of their favourite television shows through Microsoft’s online Zune store.

The shows, priced at $1.99, come courtesy of new content deals with NBC and other popular studios. They will add 800 TV shows to the 3.5m songs, 4,800 music videos and 3,500 podcasts already available through Microsoft’s iTunes equivalent.

Microsoft had its work cut out when it launched the Zune in November of 2006 and is still playing catch-up to Apple, which launched TV shows on iTunes two years ago. But Jason Reindorp, Zune’s marketing director, says the Zune is beginning to carve out a niche for itself among consumers looking for an iPod alternative.

“We are rushing to get to parity with the iTunes offering,” Mr Reindorp says. “But at the same time sowing the seeds of our key differentiators.” For Microsoft, this means a focus on the social aspect of music. Tomorrow’s announcement will also include new social features designed to make it easier for users to share playlists.

Noticably absent from Microsoft’s announcement is any indication whether a content deal with film studios is in the works. Apple unveiled a push into film rentals in January after it admitted that its a-la-carte business model for film downloads had failed to perform as well as it had hoped.

Mr Reindorp says movie rentals are something that would be “very easy” for Microsoft to do eventually technologically but that the company was focused on download-to-own TV content for the time being.
Microsoft declined to specify the terms of its new content deals, but hinted that it was willing to accommodate studios in ways that Apple was not. “Increasingly we’re seeing that studios want flexibility, and iTunes has a one-size-fits all, give us your content and we’ll distribute it in this way [approach],” Mr Reindorp says. “I’m not sure that’s sustainable going forward.”

What happens to all those logo-festooned tote bags, pens and other pieces of corporate schwag that get handed out ad-nauseam on the convention circuit? Sure, some of it eventually goes on to serve some useful purpose. But much of it goes straight into the bin.

Enter the Schwaggin’ Wagon. Born just ten days ago over lunch in LA, the Schwaggin’ Wagon has cut a high profile at this year’s Web 2.0 expo.

“I was having lunch at a Thai restaurant and I brought up the fact that there is a lot of waste in this schwag game,” says Michael Liskin, an LA-based social media consultant who is one of the group’s six founders.

Schwaggin’ Wagon’s mission is to raise awareness about wasteful schwag practices and, eventually, to find a better use for the mountains of conference bric-a-brac that would otherwise end up in landfills.

In just ten days, the Schwaggin’ Wagon crew has built a website, procured a van, and attracted more than 150 followers on Facebook. They plan to collect schwag from conference-goers and donate it to Innerkids, an LA non-profit that hosts after-school programmes local youth. 

Eventually, the group hopes to act as a bridge between conference producers and a number of charities who can distribute things like leftover t-shirts and pens to people who really need them. 

It is still early days, but judging by the reaction among conference-goers, Schwaggin’ Wagon has struck a nerve. Several Web 2.0 companies have lent their support to the project and organisers are looking for more sponsors.

Mr Liskin stresses that the group’s goal is not out to eliminate schwag altogether -  a potentially Sisyphean task. Rather, it is to make everyone involved think twice about what happens to their wares once the party ends.  “It’s not about putting anyone out of business in any way,” he says. “It’s about streamlining and giving it more thought.”

It has been more than a year since we flagged Twitter as the most buzzworthy social application in Silicon Valley. Thirteen months later, the micro-blogging site, which allows users to follow each others’ short online updates, has become an indispensible tool for the online cognoscenti who have gathered at San Francisco’s Moscone Center for this year’s Web 2.0 expo.

Jenn Van Grove, a social media consultant, says Twitter helps her follow the latest online buzz and keep in touch with hard-to-reach people. “If I need to get in touch with someone, Twitter is much faster than email,” she says. 

Ryan Kuder, a former Yahoo who is working on a new web startup, assured me that time invested keeping track of contacts on Twitter returns dividends.  ”People ask if you can spend too much time on Twitter,” he says. “I say you can’t spend enough.”

Sceptical journalist that I am, I signed up for Twitter in March of last year but never really got into the service. Intrigued, I dug out my Twitter ID and passed it along to Jenn, Ryan and a few other bloggers seated at our table inside the Web 2.0 blogger lounge. I have now been Twittering for all of two hours, and thanks to my new Twitter friends, I’ve managed to attract more than 50 followers.  Better late than never, I suppose.

Along with positive earnings reports this week by IBM and Intel, the latest figures on PC shipments pubslihed on Wednesday by Gartner and IDC should offer some relief to technology investors who have been trying to assess the likely impact of a US slowdown on sales of IT equipment.

Both groups found that the US slowdown had begun to hit PC shipments in the US. But they also found that slower US growth was more than made up for by a stronger-than-expected preformance overseas.

Still, investors would be wise not to breathe a sigh of relief just yet. For one thing, it’s likely that PC makers were forced to cut prices significantly to counter sagging demand in the US - a move that is likely to eat away at the industry’s already thin margins. We’ll know more about that next month, when the big PC companies report their latest results.

In the meantime, investors trying to sort out their investment strategies will have plenty to chew over, particuarly when it comes to Dell and Hewlett-Packard, the world’s biggest PC makers.

Gartner’s latest figures showed that HP’s US shipments shrank in the first quarter. The decline was a slight one, but potentially worrying given a strong improvement by Dell, which is a year into its own turnaround.

Unfortunately for investors, it’s unlikely that the PC industry’s muddled picture will clear up anytime soon.

News that Apple is in talks with record labels about a possible ‘all-you-can-eat’ model for iTunes is making the rounds on the blogs this morning following last night’s story in the FT.

Over at TechCrunch, Erick Schonfeld asks whether music companies would be willing to go along with a subscription model. We think the answer is clearly yes.

Consider this: Steve Jobs himself pointed out last year that the average iPod contains just 20 iTunes songs. Our own back-of-the envelope analysis shows that the number at this point (4bn iTunes songs sold, divided by 140m iPods and 4m or so iPhones) could be closer to 28 songs per Apple device. Either way, given Apple’s 70-30 revenue split with record labels, that means the music companies are making a paltry $14-$20 per iPod, even though many iPods can hold thousands of songs. Meanwhile, Apple banks hundreds of dollars per iPod sold.

Compare that $14-$20 with what record labels could make on an all-you-can eat deal, and it’s easy to see why music companies would be interested.  Music labels are thought to be pushing for a $100 up-front payment over the two-year life of an iPod, with the markup to be split between the music companies and Apple. The lowball $20 per iPod figure being floated by Apple suggests that Steve Jobs is determined to drive a hard bargain, if he agrees to such an arrangement at all. But even if the record labels were only able to get Apple to come up to $40 per device, they would be almost doubling what they have been getting under the current a-la-carte model.

 Update: Peter Kafka at Silicon Alley Insider has a good analysis of the economics of an iTunes subscription service here.

Facebook’s users are bound to be excited by news that the social network is planning to roll out its own chat service in the coming weeks; Facebook developers, perhaps not so much.

There are dozens of developers offering chat applications designed to run on the Facebook platform. Facebook’s decision to get into the chat business for itself means those developers will now have to grapple with an 800 lb gorilla in the room, sucking up all the air

As revealed to reporters on Tuesday, Facebook’s new chat service looks to be a no-frills affair. The service doesn’t allow group chats, and users will only be allowed to chat with other Facebook friends. Still, Facebook’s decision to make its chat service a full-fledged feature of the site means that it will be in pole position to capture users from rival applications that sit on the Facebook platform.

The situation is reminiscent of that faced by developers writing applications to run on Windows in the 1990s. Back then, if a particular application market got big enough, the chances were that Microsoft would move in to try to capture it for itself. That is why Microsoft muscled its way into the highly profitable market for word processing and other office productivity software, where it was able to gain a huge advantage by tying shipments of Office to Windows.

None of the third-party chat applications on Facebook have met with huge success yet. But there are signs that chat could become an important feature on social networks as it has on the rest of the internet, where usage is widespread. AOL, for example, has said that close integration with its AIM messaging service is one of the chief rationales behind its $800m acquisition last week of Bebo, a Facebook rival.

In addition to its new chat feature, Facebook already has applications that let its users share photos, video, and other information with their online friends. The question vexing Facebook developers is, what other popular applications does Facebook plan claim for itself?

Mark Zuckerberg scored a coup on Tuesday by recruiting one of Google’s top stars to take the number two spot at Facebook, the fast-growing social network.

Among other things, Sheryl Sandberg’s appointment as Facebook COO will bring some adult supervision to a company that, for all the buzz and excitement,  manages every so often to remind the world that it is being run mainly by twenty-something computer geeks.

Sandberg, 38, graduated near the top of her class from Harvard College and Harvard Business School before serving as chief of staff to US treasury secretary Lawrence Summers during the Clinton administration. She joined Google in 2001, where she was responsible for developing the search giant’s wildly successful ad sales programmes. She also played an important role in launching Google.org, the internet group’s philanthropic arm.

Having captured the attention of millions of internet users, Facebook’s biggest challenge over the next year will be to deliver its own equivalent of AdWords - a technology capable of turning all those eyeballs into a reliable revenue stream.

Facebook tried to do just that last year with the launch of several new ’social’ ad technologies, including Beacon, a messaging service that broadcasts purchases made by users on outside web sites to their Facebook friends.  Mr Zuckerberg hailed the new technologies as a once-in-a-hundred-years innovation in advertising, only to see them overshadowed by a user revolt over privacy.

With Ms Sandberg on board, Facebook has an opportunity to move beyond this somewhat ham-fisted attempt and find a sustainable revenue model that takes advantage of the social connections between the site’s millions of users. There is no doubt that the raw materials are there. It may just take an experienced hand like Ms Sandberg to make things fall in line.

The downbeat report on click-through rates that sent Google’s shares down 4.6 per cent on Tuesday is sure to rub salt in the wounds of shareholders who were already stinging from a sharp drop in the search group’s share price this year. Many will be anxious to determine whether the data from ComScore, which showed flat growth in the rate at which web surfers click on Google’s ads in January, is merely a blip or a sign of something more ominous.

Setting aside the very real possibility that ComScore’s report was a statistical anomaly, there are two scenarios that might explain a fall-off in the click-through rate for Google ads. Neither of them is encouraging.

The first scenario is that the apparent drop in click-through rate is due to Google’s recent attempts to boost ad quality by cutting down on the number of ‘accidental’ clicks made by users. Google said earlier this month that its crackdown on unintentional clicks had contributed to its disappointing results last quarter. But the magnitude of the drop reported by ComScore - from 27 per cent growth in November to 13 per cent growth in December to decline of 0.3 per cent in January - suggests that the trend could be more severe than previously thought.

A second - and probably less likely - scenario is that the decline was caused by a change in the shopping habits of online consumers. The reasoning is that consumers who are worried about a recession might be less inclined to click on Google’s ads because they have decided to delay online purchases. If this were the reason behind the flat click through rates, it would suggest that Google is more vulnerable to a recession than some have predicted.

With Google’s shares already off almost $300 per share from their November highs, investors are surely hoping there is another explanation for the ComScore numbers - one that leaves them a little more room for optimism.

MySpace has confirmed that Josh Berman, COO, will leave the social networking site to take on a ’senior role’ at Slingshot Labs, a new venture backed by News Corp, whose mission will be to incubate internet startups. Rumours of the move had been circulating since last week when Chris DeWolfe, the MySpace founder, told the New York Times about the incubator.

MySpace also said it would brief reporters next week on details of its bid to open up to outside developers. The FT revealed in June that MySpace that the popular social networking site hoped to take a page from Facebook, its smaller rival, by launching its own equivalent of the Facebook Platform. In November, MySpace announced that it had joined forces with Google on OpenSocial, an open alternative to Facebook’s platform.

Now that MySpace is preparing to launch its platform, internet-watchers will be looking for further details about the kinds of incentives it will offer to developers. Facebook set a high bar by allowing its developers to advertise freely within their apps - just not on the Facebook home page. The pressure will be on MySpace to follow suit.

One of the most striking things to emerge from Apple’s quarterly results on Tuesday was the fact that the iPod and iPhone maker is sitting on an $18bn cash hoard. Even more interesting is what Apple suggested it might do with it. Fortune picked up these comments by Peter Oppenheimer, Apple’s CFO, during the company’s earnings call:

Our preference continues to be to maintain a strong balance sheet in order to preserve our flexibility to make strategic investments [and/or] acquisitions.

Apple hasn’t made a big acquisition since 1997, when it paid $400m for NeXT, the computer company founded by Steve Jobs during his years in exile. Since his return as CEO, Mr Jobs has preferred to keep most of Apple’s innovation in house.

Could this year be different? Mr Oppenheimer’s comments would seem to suggest so. But there are other reasons to believe that Apple could soon be on the prowl for potential deals. With the market now off nearly 13 per cent from its 2007 highs, there are deals to be had for a company with cash to throw around. Apple may also be facing a product gap this year, as the law of large numbers causes iPod sales growth to slow. Mac sales remain strong, but while the iPhone is of to a decent start with 4m units shipped so far, some analysts believe it may take until at least 2009 for the handset to emerge as a revenue driver for Apple. A savvy acquisition could help make up for any revenue growth gap in the near term.

There is another, perhaps more compelling use of all that cash, however: buybacks. With Apple’s stock price now off more than a third from its 2007 high, Apple may find the most compelling use of its cash is to invest in its own shares.