After reading a piece in the Wall Street Journal yesterday concerning Google's $100MM bet on celebrity channels on YouTube. It reminded me of my old mentor, Gerry Weiss' insights into competition and colliding arenas.
Gerry and his colleagues developed the concept as strategic planners at GE under Jack McKittrick. Essentially, a technology that is at the core of one entity in one 'arena,' or business area, uses said technology to expand into a new business. The entity's technological and/or other business model attributes strike at a vulnerability of existing occupants of the new business, causing a radical upheaval.
That's what seems to be about to occur at Google/YouTube.
I've been writing about the disintermediation of cable television for a few years. Now I realize that Google's recent staking of various media celebrities to $100MM worth of channels for their own creative usage will only speed that disintermediation. The Journal article cites several actors having broken into work on cable television programs via viral YouTube videos.
I've contended for several years that a writer/producer like Larry David would be foolish to bother putting his next series on cable. He could easily go right to streaming video from a website.
Then Glenn Beck departed Fox News for his own website-based media empire.
The Journal piece ended on a cautionary tone, noting that Google isn't likely to be earning revenues from any of this YouTube effort anytime soon. But offered a silver lining that in just three years, its Android cell phone alternative has grown to take half of the smart phone market.
My own sense of Google and YouTube is that, in the simplest case, they get eyeballs on which to earn advertising revenues. Then, over time, as viewers are trained to watch streaming web videos as their natural way of viewing heretofore broadcast- and cable-only frequently-aired (i.e., weekly programs) content, the step to paying for new content from a bankable talent like David or some other writer will be simple.
At that point, it wouldn't be a stretch for Google to be straying into signing and backing new talent, would it?
Even if not, just by migrating more and more viewers to their streaming video, they'll drain the last drops of life from broadcast network television, while accelerating the problems at cable providers.
That's one of the hallmarks of arena competition. Whether it's smart or not, the new entrant can afford to subsidize its intrusion into the new business with profits from its existing businesses. In Google's case, they aren't unconnected. But its targets don't really have multiple revenue sources on which to rely in the coming video content sourcing battle.
Showing posts with label Google. Show all posts
Showing posts with label Google. Show all posts
Tuesday, November 22, 2011
Thursday, August 18, 2011
Google's Motorola Bid
There has, of course, been much discussion of Google's surprise bid to buy Motorola's hand set company with its associated, valuable patent portfolio.
As is often the case, the Wall Street Journal's Holman Jenkins, Jr., in his weekly column yesterday, wrote what is perhaps the best overview of the situation. He characterizes Google's move as wanting to follow Apple into the territory of providing ubiquitous device access of content on a company's software platforms, from PC to cell phone to tablet.
It occurred to me that my equity portfolio selections have routinely included Apple for years, but not Google. Not ever, to my knowledge. Or, perhaps, only briefly.
Initially, the latter was too pricey. Now, it may be too sluggish, both from a revenue and total return standpoint. Consider the nearby price chart of Apple, Google and the S&P500 Index for the past five years.
Coming out of the 2008 financial and market crisis, the two companies' equity price paths began to diverge significantly by the end of 2009. The gap between Apple and Google is, to me, stunningly larger than that between Google and the index. Not surprising, mind you, but stunning, none the less.
Google has been celebrated for its record-breaking growth, and, certainly, the sources of its revenues was a departure from past technology startups. Prospering from selling participation in searches for what became the dominant online search engine was probably outside most strategists' box, as it were.
Now we see it apparently return to earth, actually buying a hardware manufacturer.
Will the senior management of Google be capable of not screwing up Motorola's business? Will they capably handle an actual physical product business? Will said business alter the market performance of Google?
All interesting and important questions.
But I wonder what the Motorola bid says about Google's business strategy, objectives, etc. Do the founders simply view the company as able to do whatever they wish? Do they have financial or strategic objectives?
The firm doesn't seem to have specific product/markets it chooses to enter first, so much as businesses it enters to prevent others, like Facebook or Apple, from expanding their own businesses in ways which could negatively affect Google's.
Thus, so much of what we see of Google's recent moves seem to be defensive. I suspect they just don't have any tangible, solid objectives, so much as a desire to protect their existing businesses from falling victim to other companies' strategies.
Perhaps they've watched the decline of Yahoo and Microsoft, and wish mostly little more than not to let the fates of those once high-fliers become that of Google, as well.
Which probably means, as wireless connectivity and ubiquity is driving so much content access to every platform, that Google's actions may become more frenzied and less integrated as uncoordinated technological advances push it into more frequent defensive moves.
As is often the case, the Wall Street Journal's Holman Jenkins, Jr., in his weekly column yesterday, wrote what is perhaps the best overview of the situation. He characterizes Google's move as wanting to follow Apple into the territory of providing ubiquitous device access of content on a company's software platforms, from PC to cell phone to tablet.
Initially, the latter was too pricey. Now, it may be too sluggish, both from a revenue and total return standpoint. Consider the nearby price chart of Apple, Google and the S&P500 Index for the past five years.
Coming out of the 2008 financial and market crisis, the two companies' equity price paths began to diverge significantly by the end of 2009. The gap between Apple and Google is, to me, stunningly larger than that between Google and the index. Not surprising, mind you, but stunning, none the less.
Google has been celebrated for its record-breaking growth, and, certainly, the sources of its revenues was a departure from past technology startups. Prospering from selling participation in searches for what became the dominant online search engine was probably outside most strategists' box, as it were.
Now we see it apparently return to earth, actually buying a hardware manufacturer.
Will the senior management of Google be capable of not screwing up Motorola's business? Will they capably handle an actual physical product business? Will said business alter the market performance of Google?
All interesting and important questions.
But I wonder what the Motorola bid says about Google's business strategy, objectives, etc. Do the founders simply view the company as able to do whatever they wish? Do they have financial or strategic objectives?
The firm doesn't seem to have specific product/markets it chooses to enter first, so much as businesses it enters to prevent others, like Facebook or Apple, from expanding their own businesses in ways which could negatively affect Google's.
Thus, so much of what we see of Google's recent moves seem to be defensive. I suspect they just don't have any tangible, solid objectives, so much as a desire to protect their existing businesses from falling victim to other companies' strategies.
Perhaps they've watched the decline of Yahoo and Microsoft, and wish mostly little more than not to let the fates of those once high-fliers become that of Google, as well.
Which probably means, as wireless connectivity and ubiquity is driving so much content access to every platform, that Google's actions may become more frenzied and less integrated as uncoordinated technological advances push it into more frequent defensive moves.
Thursday, June 02, 2011
Eric Schmidt Is Wrong- Google Isn't A Social Network Company
I found Eric Schmidt's mea culpa for leading Google to miss business opportunities in social networking to be profoundly misplaced. Perhaps even a touch too egotistical, as if merely spotting the customer needs meant Google would have dominated or even seriously contested the product/market.
On the contrary, I find myself in agreement with a guest who appeared on Bloomberg yesterday. I can't recall his name, but he was a youngish man with a rather hip manner who apparently founded some social-networking-related consulting or other type of firm. He opined that the attributes and skill set which made Google what is is- search algorithms, advertising and some competitive inroads in the area of basic business application software- made it an unlikely candidate to either originate or successful develop social networking businesses.
It's an astute and, I believe, correct assessment. The co-founders of Google were geeks. They recruited Schmidt, after his lost battles with Microsoft while at Novell, to be the adult in charge at Google.
The Bloomberg guest even noted the somewhat disdainful manner in which Schmidt referred to "the friends thing" to describe Facebook's core business focus. If any firm could have pre-empted Facebook, it was, as I have written in prior posts, Yahoo. Yahoo had both information and facilities to set up accounts and connect with people years ago. But Jerry Wang and Terry Semel botched that aspect of the firm's business, leaving the door open for what humbly began as a college picture book migrated to the online world.
If Google had driven heavily into the social networking product/market, it probably would have caused distractions, created a sort of split-personality among the company's business groups, and perhaps have caused more overall harm than good for Google's financial performance.
It's a rare firm that can do more than one major thing, perhaps with affiliated minor things, well. Apple has sort of done it, but not really. Jobs' Apple has become a specialized digital device firm with linking content management via iTunes.
Other than that, no technology firms, to my knowledge, have succeeded in two radically disparate businesses.
There's absolutely no reason to believe Google would have, had Schmidt, or anyone else at the firm, spotted the opportunity prior to Facebook's rise. To think it would have seems rather arrogant on Schmidt's part.
On the contrary, I find myself in agreement with a guest who appeared on Bloomberg yesterday. I can't recall his name, but he was a youngish man with a rather hip manner who apparently founded some social-networking-related consulting or other type of firm. He opined that the attributes and skill set which made Google what is is- search algorithms, advertising and some competitive inroads in the area of basic business application software- made it an unlikely candidate to either originate or successful develop social networking businesses.
It's an astute and, I believe, correct assessment. The co-founders of Google were geeks. They recruited Schmidt, after his lost battles with Microsoft while at Novell, to be the adult in charge at Google.
The Bloomberg guest even noted the somewhat disdainful manner in which Schmidt referred to "the friends thing" to describe Facebook's core business focus. If any firm could have pre-empted Facebook, it was, as I have written in prior posts, Yahoo. Yahoo had both information and facilities to set up accounts and connect with people years ago. But Jerry Wang and Terry Semel botched that aspect of the firm's business, leaving the door open for what humbly began as a college picture book migrated to the online world.
If Google had driven heavily into the social networking product/market, it probably would have caused distractions, created a sort of split-personality among the company's business groups, and perhaps have caused more overall harm than good for Google's financial performance.
It's a rare firm that can do more than one major thing, perhaps with affiliated minor things, well. Apple has sort of done it, but not really. Jobs' Apple has become a specialized digital device firm with linking content management via iTunes.
Other than that, no technology firms, to my knowledge, have succeeded in two radically disparate businesses.
There's absolutely no reason to believe Google would have, had Schmidt, or anyone else at the firm, spotted the opportunity prior to Facebook's rise. To think it would have seems rather arrogant on Schmidt's part.
Wednesday, March 30, 2011
Larry Page's New, Speedier, Leaner Google- Will It Really Recapture The Old Magic?
This past weekend Wall Street Journal edition had a page-one article concerning Lary Page, Google co-founder's aim "to clear red tape." Good luck with that!
Will Google return to the good old days? For some perspective, take a look at the firm's equity price history as compared to the S&P500 Index.
Google, according to the Journal article, had 200 employees in 2001, when Eric Schmidt became CEO. Ten years later, it employs some 24,000, or two orders of magnitude greater.
Will Google return to the good old days? For some perspective, take a look at the firm's equity price history as compared to the S&P500 Index.
Google, according to the Journal article, had 200 employees in 2001, when Eric Schmidt became CEO. Ten years later, it employs some 24,000, or two orders of magnitude greater.No, Larry, you're not in Kansas anymore. And trying to get an idea-themed internet sofware and services behemoth to be as prolific and successful a decade and so many more employees later is, truthfully, likely to be a futile task.
Page is doing what sound like sensible things, i.e., requiring short project descriptions from each manager, making himself and other senior managers physically available during afternoons "on small couches outside a board room in Building 43 at Google's headquarters."
However, a member of a leadership consulting firm is cited in the Journal piece observing that Page is attempting to foster more innovation by adding controlling processes to a very large organization. She describes it as "antithetical."
I agree.
In terms of the average amount of time during which companies' total returns can consistently outperform the S&P, Google may well have already seen its time in the sun come to an end. Let's be candid. Page and Brin are late 30-something engineers who, as far as I'm aware, have zero managerial education or background. Originally exploiting some technological search innovations and combining them with ad sales, the two spawned a successful startup and profited handsomely.
Now, however, Google is in a very different place as a company. The firm's ability to succeed, as evidenced by its recruiting Eric Schmidt ten years ago, will be more a function of management than sheer innovation. Its size dictates that, because the sheer weight of people and activity means that the few breakthrough ideas which occur at Google may not be seen in time to matter or, if they are, may not be capable of carrying the overhead of the rest of the firm.
Management is as much art as it is a discipline or science. That a 37-year-old software engineer, albeit a billionaire, now thinks he can, without any training in the field, simply step in and recreate Google's early days of success is sort of laughable. Chances are better the firm has simply grown and morphed into something that's never going to be capable of recapturing the early days and successes which made it into what it now is.
However, a member of a leadership consulting firm is cited in the Journal piece observing that Page is attempting to foster more innovation by adding controlling processes to a very large organization. She describes it as "antithetical."
I agree.
In terms of the average amount of time during which companies' total returns can consistently outperform the S&P, Google may well have already seen its time in the sun come to an end. Let's be candid. Page and Brin are late 30-something engineers who, as far as I'm aware, have zero managerial education or background. Originally exploiting some technological search innovations and combining them with ad sales, the two spawned a successful startup and profited handsomely.
Now, however, Google is in a very different place as a company. The firm's ability to succeed, as evidenced by its recruiting Eric Schmidt ten years ago, will be more a function of management than sheer innovation. Its size dictates that, because the sheer weight of people and activity means that the few breakthrough ideas which occur at Google may not be seen in time to matter or, if they are, may not be capable of carrying the overhead of the rest of the firm.
Management is as much art as it is a discipline or science. That a 37-year-old software engineer, albeit a billionaire, now thinks he can, without any training in the field, simply step in and recreate Google's early days of success is sort of laughable. Chances are better the firm has simply grown and morphed into something that's never going to be capable of recapturing the early days and successes which made it into what it now is.
Wednesday, September 22, 2010
Is Google A Monopolist?
That was the title of last Friday's Wall Street Journal presentation of two editorials arguing the question.
It's nice to have a topic to discuss that involves more pure business and strategy than government intervention, although, the very question actually begs the latter.
The Google case seems, on the surface, to resemble that of the infamous browser wars in which Microsoft drove Netscape into oblivion. That certainly is the contention of one of the editorialists, Rick Rule, now retained by Microsoft and other firms in an anti-trust action against Google.
However, as I thought about this question over the weekend, I found myself believing that Mr. Rule is engaging in a deceptive and erroneous comparison.
Google offers a free search engine to anyone wishing to use it. But it is not the only search engine available. In fact, so robust is the search engine market that Microsoft re-entered the fray recently with its branded Bing service. And just this past week, a co-anchor on CNBC announced that she had gone back to Yahoo's search engine and found it better than the other two.
Since one accesses Google's search engine as an online service, it immediately begins to depart from the browser example, in that those software programs were coming pre-loaded on personal computers of the day.
If memory serves, one of the major anti-competitive behaviors by Microsoft involved tying its browser to its Windows personal computer operating system when selling the latter to PC producers such as Dell. The argument against Microsoft was that it was illegally using the ability of Dell to sell PCs pre-loaded with the most popular operating system, Windows, to force it to also pre-load the included Internet Explorer web browser, and exclude Netscape's or any other firm's browser.
As such, Microsoft's alleged anti-competitive behavior involved violating the Robinson-Patman Act's provisions involving illegal tying.
Google, however, isn't tying anything to a product for which money is paid.
No, the current argument is really about advertising market foreclosure. Even the debate concerning Google's alleged manipulation of search results is baseless in that nobody pays for searches.
Thus, despite a long-winded diatribe, Mr. Rule's only real well-founded point is that Google's share of online advertising exceeds 70%, which he claims exceeds the Sherman Act's "consensus" threshhold.
However, again, online advertising isn't "sold" to users. It's bought by those wishing to advertise, and they can choose all three search engines, if they wish, on which to advertise their products and services.
It reminds me of my local, freely-distributed weekly 'newspaper.' Many communities have them. A local publisher prints and distributes variants of the same weekly paper to many nearby towns through contracted carriers. Nobody pays for these nuisances, and often they receive multiple copies. Thus, it could be said that the publisher in question has a monopoly, in that every house in a town is given at least one copy of the paper. Companies pay to advertise in the paper, but nobody suggests that these small entities have a harmful monopoly on advertising.
Mr. Singhal, a Google fellow and the Journal's choice to represent Google's viewpoint in the other editorial, argues that Google is always vulnerable to its search engine being eclipsed by a better one, thus upsetting its business model. I wrote a post several years ago contending precisely this case. Everything else that Google has pursued has necessarily been dependent upon revenues from search-related advertising. If search goes down, Google's entire empire is in jeopardy.
As an aside, while I understand that Google's, and other search providers, receive their ad revenues from those wishing to place product and service ads, I continue to marvel that companies do this. My own behavior almost never results in purchasing goods or services directly from an ad on an online search. True, a company purchasing a keyword might get a click-through from me, but rarely a purchase.
In any case, businesses do see value in buying various search words and terms, fueling Google's, Yahoo's and Microsoft's search-related advertising revenues.
But none of those seem to even remotely pass the test of current anti-trust laws which require the guilty party to actively foreclose markets to suppliers or predatorily price goods or services to buyers in order to eliminate competitors.
It seems that, like it or not, existing anti-trust laws do not easily apply to the world of online search and advertising. Google's predominance, when viewed objectively, would not seem to be a result of any illegal activity, whether it is a monopoly, or not.
It's nice to have a topic to discuss that involves more pure business and strategy than government intervention, although, the very question actually begs the latter.
The Google case seems, on the surface, to resemble that of the infamous browser wars in which Microsoft drove Netscape into oblivion. That certainly is the contention of one of the editorialists, Rick Rule, now retained by Microsoft and other firms in an anti-trust action against Google.
However, as I thought about this question over the weekend, I found myself believing that Mr. Rule is engaging in a deceptive and erroneous comparison.
Google offers a free search engine to anyone wishing to use it. But it is not the only search engine available. In fact, so robust is the search engine market that Microsoft re-entered the fray recently with its branded Bing service. And just this past week, a co-anchor on CNBC announced that she had gone back to Yahoo's search engine and found it better than the other two.
Since one accesses Google's search engine as an online service, it immediately begins to depart from the browser example, in that those software programs were coming pre-loaded on personal computers of the day.
If memory serves, one of the major anti-competitive behaviors by Microsoft involved tying its browser to its Windows personal computer operating system when selling the latter to PC producers such as Dell. The argument against Microsoft was that it was illegally using the ability of Dell to sell PCs pre-loaded with the most popular operating system, Windows, to force it to also pre-load the included Internet Explorer web browser, and exclude Netscape's or any other firm's browser.
As such, Microsoft's alleged anti-competitive behavior involved violating the Robinson-Patman Act's provisions involving illegal tying.
Google, however, isn't tying anything to a product for which money is paid.
No, the current argument is really about advertising market foreclosure. Even the debate concerning Google's alleged manipulation of search results is baseless in that nobody pays for searches.
Thus, despite a long-winded diatribe, Mr. Rule's only real well-founded point is that Google's share of online advertising exceeds 70%, which he claims exceeds the Sherman Act's "consensus" threshhold.
However, again, online advertising isn't "sold" to users. It's bought by those wishing to advertise, and they can choose all three search engines, if they wish, on which to advertise their products and services.
It reminds me of my local, freely-distributed weekly 'newspaper.' Many communities have them. A local publisher prints and distributes variants of the same weekly paper to many nearby towns through contracted carriers. Nobody pays for these nuisances, and often they receive multiple copies. Thus, it could be said that the publisher in question has a monopoly, in that every house in a town is given at least one copy of the paper. Companies pay to advertise in the paper, but nobody suggests that these small entities have a harmful monopoly on advertising.
Mr. Singhal, a Google fellow and the Journal's choice to represent Google's viewpoint in the other editorial, argues that Google is always vulnerable to its search engine being eclipsed by a better one, thus upsetting its business model. I wrote a post several years ago contending precisely this case. Everything else that Google has pursued has necessarily been dependent upon revenues from search-related advertising. If search goes down, Google's entire empire is in jeopardy.
As an aside, while I understand that Google's, and other search providers, receive their ad revenues from those wishing to place product and service ads, I continue to marvel that companies do this. My own behavior almost never results in purchasing goods or services directly from an ad on an online search. True, a company purchasing a keyword might get a click-through from me, but rarely a purchase.
In any case, businesses do see value in buying various search words and terms, fueling Google's, Yahoo's and Microsoft's search-related advertising revenues.
But none of those seem to even remotely pass the test of current anti-trust laws which require the guilty party to actively foreclose markets to suppliers or predatorily price goods or services to buyers in order to eliminate competitors.
It seems that, like it or not, existing anti-trust laws do not easily apply to the world of online search and advertising. Google's predominance, when viewed objectively, would not seem to be a result of any illegal activity, whether it is a monopoly, or not.
Friday, January 08, 2010
Google's Misunderstood Android Phone
Since the launch of Google's Android cell phone recently, much discussion has focused on Google vs. Apple. On how big a lead the iPhone has, how many units sold, users, applications downloaded, etc.
This all misses the point.
In fact, the Android provides an example of what my old boss at Chase Manhattan, Gerry Weiss, and his team at GE, in the 1960s, identified as 'arena competition.'
Portraying GE's businesses in arenas, they noticed way back in that era how cable and other entertainment forms could and would have impacts on GE's television and related businesses. The most damaging sorts of competition, they found, were when one company inadvertently entered another arena other than its own, typical product/market, in order to support business strategies in its core areas.
These new entrants often undercut the profitability of the business models of the existing competitors because their main focus was on another sector.
Google is following online eyeballs from PCs to cell phones. In order to control the environment, they want to control the operating system. To do that, they simply added the commodity platform, too. A new cell phone.
Because they don't want to earn all, or even most of their profits from the cell phones, they represent a danger to other cell phone makers. And, as one pundit noted, to Microsoft, by reducing that company's market for mobile operating system sales.
Apple? Google probably doesn't really care that much about the iPhone, per se. Rather, they care about extending their advertising business to the cell phone market.
If they can support healthy growth in ad revenues on cell phones with minimal outlays for Android, or break even, they have probably met their objectives.
In the process, they are reducing the carriers to "operators," teaching people to buy a phone, then choose the network, and disrupting a product/market they don't really even see as central to their profitability, except as it supports and facilitates continued ad revenue growth.
Rather like IBM cannibalizing all manner of products, services and labor as mainframe computing applications marched out of the first areas, into more accounting, inventory and other business processes. How many purveyors of supplies and services to old-fashioned offices of the early 1960s were put out of business by IBM, while IBM only saw rising mainframe and applications software revenues?
It's the same for Google and its Android.
This all misses the point.
In fact, the Android provides an example of what my old boss at Chase Manhattan, Gerry Weiss, and his team at GE, in the 1960s, identified as 'arena competition.'
Portraying GE's businesses in arenas, they noticed way back in that era how cable and other entertainment forms could and would have impacts on GE's television and related businesses. The most damaging sorts of competition, they found, were when one company inadvertently entered another arena other than its own, typical product/market, in order to support business strategies in its core areas.
These new entrants often undercut the profitability of the business models of the existing competitors because their main focus was on another sector.
Google is following online eyeballs from PCs to cell phones. In order to control the environment, they want to control the operating system. To do that, they simply added the commodity platform, too. A new cell phone.
Because they don't want to earn all, or even most of their profits from the cell phones, they represent a danger to other cell phone makers. And, as one pundit noted, to Microsoft, by reducing that company's market for mobile operating system sales.
Apple? Google probably doesn't really care that much about the iPhone, per se. Rather, they care about extending their advertising business to the cell phone market.
If they can support healthy growth in ad revenues on cell phones with minimal outlays for Android, or break even, they have probably met their objectives.
In the process, they are reducing the carriers to "operators," teaching people to buy a phone, then choose the network, and disrupting a product/market they don't really even see as central to their profitability, except as it supports and facilitates continued ad revenue growth.
Rather like IBM cannibalizing all manner of products, services and labor as mainframe computing applications marched out of the first areas, into more accounting, inventory and other business processes. How many purveyors of supplies and services to old-fashioned offices of the early 1960s were put out of business by IBM, while IBM only saw rising mainframe and applications software revenues?
It's the same for Google and its Android.
Friday, July 24, 2009
That's Why We Have Anti-Trust Laws
Holman Jenkins, Jr. wrote a curious editorial in Wednesday's Wall Street Journal.
In the piece, he spent considerable ink asking why Google and Microsoft don't figure out how to collude in staying out of each other's way. By comparing Google's relationship with Apple, on whose board Google CEO Eric Schmidt sits, Jenkins noted the animosity present between the other pair of companies.
Going through various detailed examples, such as Microsoft's new Bing search engine and Google's online office applications, Jenkins contended, probably correctly, that each has less prospect of gaining much revenue from encroaching on the other's turf than they have profit to protect by demonstrating their ability to hurt each other.
Somewhere in the piece, Jenkins noted the likely cross-ownership of Google and Microsoft by many shareholders, reasoning that, because of this, it would be a good thing if the two firms could somehow learn to back off and let each other's businesses alone.
But that is exactly why we have anti-trust laws. Microsoft is already moving to cut prices on Office applications and ready its own free internet version because Google entered the business with its own free online applications.
The two also tangle in search applications.
If Google weren't threatening several of Microsoft's businesses simply by its existence, we'd all be paying higher prices for less productive software from the Redmond giant.
Anti-trust law is a good thing. I don't quite understand Jenkins' contention that if only it were legal, gee whiz, these two large companies could save so much money by not building businesses which antagonize and threaten each other.
If that were so, the entire Schumpeterian dynamics process in the businesses in which Google and Microsoft engage would be slowed to a crawl.
The two firms' mutual pressures on each other to continue to innovate, offer more value for price, and worry about the other's encroachment all serve consumers well.
Why change that?
In the piece, he spent considerable ink asking why Google and Microsoft don't figure out how to collude in staying out of each other's way. By comparing Google's relationship with Apple, on whose board Google CEO Eric Schmidt sits, Jenkins noted the animosity present between the other pair of companies.
Going through various detailed examples, such as Microsoft's new Bing search engine and Google's online office applications, Jenkins contended, probably correctly, that each has less prospect of gaining much revenue from encroaching on the other's turf than they have profit to protect by demonstrating their ability to hurt each other.
Somewhere in the piece, Jenkins noted the likely cross-ownership of Google and Microsoft by many shareholders, reasoning that, because of this, it would be a good thing if the two firms could somehow learn to back off and let each other's businesses alone.
But that is exactly why we have anti-trust laws. Microsoft is already moving to cut prices on Office applications and ready its own free internet version because Google entered the business with its own free online applications.
The two also tangle in search applications.
If Google weren't threatening several of Microsoft's businesses simply by its existence, we'd all be paying higher prices for less productive software from the Redmond giant.
Anti-trust law is a good thing. I don't quite understand Jenkins' contention that if only it were legal, gee whiz, these two large companies could save so much money by not building businesses which antagonize and threaten each other.
If that were so, the entire Schumpeterian dynamics process in the businesses in which Google and Microsoft engage would be slowed to a crawl.
The two firms' mutual pressures on each other to continue to innovate, offer more value for price, and worry about the other's encroachment all serve consumers well.
Why change that?
Tuesday, May 19, 2009
Google's Radio Advertising Gaffe
Last Tuesday's Wall Street Journal carried a lead story describing Google's failed attempt to change and dominate the business of radio advertising.
The tale contained a lot of surprisingly predictable, believable anecdotes concerning the lack of fit between the slick, shallow brothers who ran the ad placement business Google bought, and the larger online firm's own more cerebral staff. Just reading those stories, you could see a crack-up in the works.
But what was perhaps most revealing was Google's steadfast belief that, because they could technically accomplish radio ad placement and effectiveness measurement, buyers would flock to it and simply conform to Google's plans.
Well, first, like every other advertiser since Marconi's day, Google found that they couldn't actually measure the effectiveness of radio ads. They had estimates, models, and surrogates. But their customers, the radio stations and their clients, quickly saw through the charades.
I was rather surprised Google proceeded to even buy the Steelberg's little business without having completely doped out and built the complete feedback-loop of electronic ad placement, measurement and delivery of effectiveness results. Apparently, the firm got caught up in the ability to automate bidding on radio ad time, neglecting to note that, in many cases, prices would fall, not rise. The net effect for most stations was to face a loss of total net ad revenue.
It's hard to believe Google didn't see that coming, because, just reading the Journal article, that's the first thing I began to consider, as the story of the initial implementation of the Google-Steelberg system unfolded.
It's a sobering account. Here's a world class online firm stumbling on one of the oldest advertising challenges, in one of the most basic ways possible. That is, coming in from outside, buying a totally different type of firm, then combining the two to attempt to uproot, by force, the entire radio ad business. There were apparently never any pilot programs, focus groups with those who would be affected, or much of any attempt to design, share, trial, review, modify and re-release a new system of radio ad purchase and effectiveness measurement.
For all of Google's vaunted managerial excellence in its prior forays, it sure stumbled badly on this one.
Probably the silver lining is that Google closed the effort down in reasonable time. They didn't leave people hanging, continue the charade of changing the radio ad business, or redouble the failed effort in a similar fashion.
Instead, they sensibly reviewed the failure, and cut their losses soon thereafter.
Presumably, Google's Eric Schmidt would view this episode as characteristic of the company's philosophy of trying a lot of ways in which to leverage the Google brand and process. Some work, some fail.
You can give the company credit for at least trying and, when obviously failing, moving on.
Too bad our government and GM can't do the same and just file Chapter 11.
The tale contained a lot of surprisingly predictable, believable anecdotes concerning the lack of fit between the slick, shallow brothers who ran the ad placement business Google bought, and the larger online firm's own more cerebral staff. Just reading those stories, you could see a crack-up in the works.
But what was perhaps most revealing was Google's steadfast belief that, because they could technically accomplish radio ad placement and effectiveness measurement, buyers would flock to it and simply conform to Google's plans.
Well, first, like every other advertiser since Marconi's day, Google found that they couldn't actually measure the effectiveness of radio ads. They had estimates, models, and surrogates. But their customers, the radio stations and their clients, quickly saw through the charades.
I was rather surprised Google proceeded to even buy the Steelberg's little business without having completely doped out and built the complete feedback-loop of electronic ad placement, measurement and delivery of effectiveness results. Apparently, the firm got caught up in the ability to automate bidding on radio ad time, neglecting to note that, in many cases, prices would fall, not rise. The net effect for most stations was to face a loss of total net ad revenue.
It's hard to believe Google didn't see that coming, because, just reading the Journal article, that's the first thing I began to consider, as the story of the initial implementation of the Google-Steelberg system unfolded.
It's a sobering account. Here's a world class online firm stumbling on one of the oldest advertising challenges, in one of the most basic ways possible. That is, coming in from outside, buying a totally different type of firm, then combining the two to attempt to uproot, by force, the entire radio ad business. There were apparently never any pilot programs, focus groups with those who would be affected, or much of any attempt to design, share, trial, review, modify and re-release a new system of radio ad purchase and effectiveness measurement.
For all of Google's vaunted managerial excellence in its prior forays, it sure stumbled badly on this one.
Probably the silver lining is that Google closed the effort down in reasonable time. They didn't leave people hanging, continue the charade of changing the radio ad business, or redouble the failed effort in a similar fashion.
Instead, they sensibly reviewed the failure, and cut their losses soon thereafter.
Presumably, Google's Eric Schmidt would view this episode as characteristic of the company's philosophy of trying a lot of ways in which to leverage the Google brand and process. Some work, some fail.
You can give the company credit for at least trying and, when obviously failing, moving on.
Too bad our government and GM can't do the same and just file Chapter 11.
Friday, May 23, 2008
Some Perspective on Yahoo, Microsoft, Icahn & Google
On Tuesday, Dennis Berman of the Wall Street Journal wrote a wonderfully insightful and succinct assessment of the latest chapter of the Yahoo/Microsoft/Carl Icahn/Steve Ballmer/Google dance.
In the piece, entitled "Why Yahoo Should Strike as Iron Is Hot," he noted, in closing,
"But the question for Yahoo's board shouldn't be whether it can increase its cash flow. It is whether it can improve its stock price, over a reasonable period of time, greater than a Microsoft offer. A growing chorus of shareholders think it can't.
So, the basics: AOL can't succeed at being Yahoo; Yahoo can't succeed at being Google; Microsoft can't succeed at being any of them. Nonetheless, Microsoft has the fantasy it wants to be Google. How could Yahoo's board do anything but take a decent offer and bank it?"
Berman makes a key point here. Really, despite the much longer verbiage preceding these final paragraphs, the only crucial points in his article.
Yahoo is no longer an investment equity. Neither, really, is Microsoft. Forget AOL/TimeWarner entirely.
With Carl Icahn prowling about to encourage the Yahoo-Microsoft deal, you know that this is now just about short-term speculative gains. Not long-term strategy.
I haven't owned Microsoft in over a decade, or Yahoo since the 1990s. Now, both have simply become opportunities for arbitrage as Icahn maneuvers to recover the value Jerry Yang kicked away.
As the nearby Yahoo-sourced price chart of the past week illustrates, Yahoo's value has held up nicely due to continued betting that something will eventually happen to realize some of the premium of the original Microsoft offer.But don't bet on any sort of long-term potential for consistently superior total returns from either Microsoft or Yahoo, in any sort of combination, or absent it.
Yahoo's fundamental strategy failed long ago, in terms of consistently superior total return performance. Microsoft's performance stalled before that.
I remain convinced that the only way Microsoft can re-ignite consistently superior return performance is to split itself up into an operating system business, desktop applications, online, and gaming. Then the gaming business can take off and reward shareholders for a few years.
But for now, all of this fuss is about betting that by owning Yahoo, you can benefit from Carl Icahn's ability to recover some value for its shareholders while ringing down the final curtain on Yang.
Tuesday, February 12, 2008
Esther Dyson On Microsoft-Yahoo Deal & Online Advertising
Yesterday's Wall Street Journal featured an excellent editorial by Esther Dyson, a longtime, well-regarded observer of technological trends and developments for nearly 30 years.
Her topic was the proposed combination of Microsoft and Yahoo, and its effect on Google's advertising business. She began her piece with,
"While the big news in the online world focuses on Google, Yahoo and Microsoft, a more profound revolution is taking place on the online social networks: The discussion about privacy is changing as users take control over their own online data. While they spread their Web presence, these users are not looking for privacy, but for recognition as individuals -- whether by friends or vendors. This will eventually change the whole world of advertising."
I've always liked Ms. Dyson for her ability to objectively and clearly explain evolving trends in technology, stretching all the way back to when I worked on digital PBXs and business strategy at AT&T in the 1970s and '80s.
As I no longer specialize in telecommunications, computing or online business, per se, Ms. Dyson provides an easy way for me to catch up on these sectors. Her identification of the differently-developing and increasingly-important social networking area is of interest to me.
She continues in this vein in her editorial,
"The current online-advertising model will become less effective, even as it gets increasingly sophisticated. New players are emerging to devalue the spaces that the ad giants are currently fighting over. Companies you've never heard of called NebuAd, Project Rialto, Phorm, Frontporch and Adzilla are pitching tools to Internet service providers that will enable them to track users and show them relevant ads. This approach (called behavioral targeting and already in service by ad networks that track users through so-called tracking cookies) undercuts traditional online publishers, who employ content to lure users and to sell adjacent ads. Now, the ISPs can sell advertisers direct access to the same users.
Take user number 12345, who was searching for cars yesterday, and show him a Porsche ad. It doesn't matter if he's on Yahoo or MySpace today -- he's the same number as yesterday. As an advertiser, would you prefer to reach someone reading a car review featured on Yahoo or someone who visited two car-dealer sites yesterday? His identity is still private: The ISP and behavioral-targeting networks don't know 12345's name and don't care. They just know what they think he wants.
This market will get more competitive, and users will be barraged by ads to which they will pay less and less attention. Call that public space, a world of billboards and cacophony. Even though the ads will be more "relevant" than ever, users will increasingly tune them out.
Now consider the new world of social networks. Facebook, unwittingly or on purpose, has been teaching people to manage their own data about themselves. Facebook's launch of the Beacon service -- which informs Facebook of members' activities (i.e., purchases) on other sites -- was a PR fiasco. But it still familiarized millions of users with the notion that they can control information about themselves online -- and determine to whom it is visible."
Ms. Dyson provides a clear illustration of why the very prize for which Microsoft is begging to pay a hefty premium is, even now, gradually losing value.
Leave it to Gates and Ballmer to ignore Schumpeterian dynamics and buy the last online trend, while another slowly builds elsewhere.
Ms. Dyson then gets to the heart of the matter- the economic value proposition these social networks offer. That's important because, as Dennis Berman wrote in the Journal a few months ago, about which I posted here, these online sites have traditionally had difficulty making money for anyone but the founder, after he sold out to a deeper-pocketed media or technology firm. In that post, I wrote,
"Aside from the marvelous business strategy expose, Mr. Berman makes it hard for the reader to avoid asking the question,
"If no other, larger firm, had bought, or bought stakes in, GeoCities, or was trying to buy or invest in Facebook, would Bohnett and Zuckerberger realize millions in wealth simply from the profitability of their businesses and business model? Or would they become, like Amazon, long on initial market value gains, but short on realized profits?"
Thus, leading to the ultimate question,"Were/are the acquiring giants of these online social networking businesses the greater fools?""
With this as background, Ms. Dyson, with her wealth of technology sector background as an observer over many decades, writes,
"So what's the business model? I'll "friend" British Airways, which will say, "We see you're going to Moscow next month. Why not fly through London and we'll give you 10,000 extra miles?" I'm no longer in a bucket of frequent travelers, my privacy protected. I'm an individual with specific travel plans, which I intentionally make visible to preferred vendors. British Airways, of course, will pay Dopplr a handsome sponsorship fee to be eligible to be my "friend" (just as a Nike rep might pay to sponsor a basketball game and be part of the community). Someday NetJets may show up, offering to ferry me and my friends to a conference we'll be attending together.
I'm far more likely to respond to BA or NetJets within a trusted site, and for a specific offer, than I am to heed their ad while reading a newspaper article on the troubles in Russia. (As for Orbitz, my old standby: After five years, it still doesn't acknowledge my preferred airlines.)
The new model creates a more trusted environment for reaching high-value, frequent purchasers, whether of airline tickets, electronics, clothes or other items. Where does that leave the less-frequent purchasers? Probably looking to their friends rather than to advertising for advice. I'm an expert on travel; my friends may look to me for hotel choices. When I'm in the mood to buy a book or a new computer, I'll check out what my friends on Facebook are doing.
This does not mean that traditional online advertising will go away, just that it will become less effective. Value is being created in users' own walled gardens, which they will cultivate for themselves in real estate owned by the social networks. The new value creators are companies -- like Facebook and Dopplr -- that know how to build and support online communities."
Thus, Ms. Dyson not only identifies the upcoming competitive forces which will eventually diminish the value of current online advertising models dominated by Google and Yaoo, but explains how and why the new approaches will displace the older ones.
Ironic, isn't it? It's not enough that Microsoft is now several generations old in terms of its basic, profitable technology- single-computer or network operating systems and applications software. Its leaders have now decided to risk a sizable amount of their retained earnings to buy into a fading online technology/firm.
Evidently not content to dividend their earnings to shareholders, Gates and Ballmer, already wealthy in their own rights, are determined to squander Microsoft's legacy cash horde on a business to which they really own bring money. Just as that business model's probably successor is appearing on the scene.
Truly, you can't make this sort of thing up.
Her topic was the proposed combination of Microsoft and Yahoo, and its effect on Google's advertising business. She began her piece with,
"While the big news in the online world focuses on Google, Yahoo and Microsoft, a more profound revolution is taking place on the online social networks: The discussion about privacy is changing as users take control over their own online data. While they spread their Web presence, these users are not looking for privacy, but for recognition as individuals -- whether by friends or vendors. This will eventually change the whole world of advertising."
I've always liked Ms. Dyson for her ability to objectively and clearly explain evolving trends in technology, stretching all the way back to when I worked on digital PBXs and business strategy at AT&T in the 1970s and '80s.
As I no longer specialize in telecommunications, computing or online business, per se, Ms. Dyson provides an easy way for me to catch up on these sectors. Her identification of the differently-developing and increasingly-important social networking area is of interest to me.
She continues in this vein in her editorial,
"The current online-advertising model will become less effective, even as it gets increasingly sophisticated. New players are emerging to devalue the spaces that the ad giants are currently fighting over. Companies you've never heard of called NebuAd, Project Rialto, Phorm, Frontporch and Adzilla are pitching tools to Internet service providers that will enable them to track users and show them relevant ads. This approach (called behavioral targeting and already in service by ad networks that track users through so-called tracking cookies) undercuts traditional online publishers, who employ content to lure users and to sell adjacent ads. Now, the ISPs can sell advertisers direct access to the same users.
Take user number 12345, who was searching for cars yesterday, and show him a Porsche ad. It doesn't matter if he's on Yahoo or MySpace today -- he's the same number as yesterday. As an advertiser, would you prefer to reach someone reading a car review featured on Yahoo or someone who visited two car-dealer sites yesterday? His identity is still private: The ISP and behavioral-targeting networks don't know 12345's name and don't care. They just know what they think he wants.
This market will get more competitive, and users will be barraged by ads to which they will pay less and less attention. Call that public space, a world of billboards and cacophony. Even though the ads will be more "relevant" than ever, users will increasingly tune them out.
Now consider the new world of social networks. Facebook, unwittingly or on purpose, has been teaching people to manage their own data about themselves. Facebook's launch of the Beacon service -- which informs Facebook of members' activities (i.e., purchases) on other sites -- was a PR fiasco. But it still familiarized millions of users with the notion that they can control information about themselves online -- and determine to whom it is visible."
Ms. Dyson provides a clear illustration of why the very prize for which Microsoft is begging to pay a hefty premium is, even now, gradually losing value.
Leave it to Gates and Ballmer to ignore Schumpeterian dynamics and buy the last online trend, while another slowly builds elsewhere.
Ms. Dyson then gets to the heart of the matter- the economic value proposition these social networks offer. That's important because, as Dennis Berman wrote in the Journal a few months ago, about which I posted here, these online sites have traditionally had difficulty making money for anyone but the founder, after he sold out to a deeper-pocketed media or technology firm. In that post, I wrote,
"Aside from the marvelous business strategy expose, Mr. Berman makes it hard for the reader to avoid asking the question,
"If no other, larger firm, had bought, or bought stakes in, GeoCities, or was trying to buy or invest in Facebook, would Bohnett and Zuckerberger realize millions in wealth simply from the profitability of their businesses and business model? Or would they become, like Amazon, long on initial market value gains, but short on realized profits?"
Thus, leading to the ultimate question,"Were/are the acquiring giants of these online social networking businesses the greater fools?""
With this as background, Ms. Dyson, with her wealth of technology sector background as an observer over many decades, writes,
"So what's the business model? I'll "friend" British Airways, which will say, "We see you're going to Moscow next month. Why not fly through London and we'll give you 10,000 extra miles?" I'm no longer in a bucket of frequent travelers, my privacy protected. I'm an individual with specific travel plans, which I intentionally make visible to preferred vendors. British Airways, of course, will pay Dopplr a handsome sponsorship fee to be eligible to be my "friend" (just as a Nike rep might pay to sponsor a basketball game and be part of the community). Someday NetJets may show up, offering to ferry me and my friends to a conference we'll be attending together.
I'm far more likely to respond to BA or NetJets within a trusted site, and for a specific offer, than I am to heed their ad while reading a newspaper article on the troubles in Russia. (As for Orbitz, my old standby: After five years, it still doesn't acknowledge my preferred airlines.)
The new model creates a more trusted environment for reaching high-value, frequent purchasers, whether of airline tickets, electronics, clothes or other items. Where does that leave the less-frequent purchasers? Probably looking to their friends rather than to advertising for advice. I'm an expert on travel; my friends may look to me for hotel choices. When I'm in the mood to buy a book or a new computer, I'll check out what my friends on Facebook are doing.
This does not mean that traditional online advertising will go away, just that it will become less effective. Value is being created in users' own walled gardens, which they will cultivate for themselves in real estate owned by the social networks. The new value creators are companies -- like Facebook and Dopplr -- that know how to build and support online communities."
Thus, Ms. Dyson not only identifies the upcoming competitive forces which will eventually diminish the value of current online advertising models dominated by Google and Yaoo, but explains how and why the new approaches will displace the older ones.
Ironic, isn't it? It's not enough that Microsoft is now several generations old in terms of its basic, profitable technology- single-computer or network operating systems and applications software. Its leaders have now decided to risk a sizable amount of their retained earnings to buy into a fading online technology/firm.
Evidently not content to dividend their earnings to shareholders, Gates and Ballmer, already wealthy in their own rights, are determined to squander Microsoft's legacy cash horde on a business to which they really own bring money. Just as that business model's probably successor is appearing on the scene.
Truly, you can't make this sort of thing up.
Monday, February 04, 2008
Google Weighs In On Microsoft's Takeover Attempt
This morning's Wall Street Journal contains a feature story on Google's self-insertion into Microsoft's bid to acquire Yahoo, about which I wrote here on Friday.
Rather than wax extensively about the various moves and counter moves, I'd like to dwell, instead, on the tremendous amount of bile and misinformation flowing around this event.
First we have Google disingenuously claiming that Microsoft's acquisition of Yahoo would dangerously concentrate 'competition' in the sectors affected. According to the Journal,
"Google identified instant messaging and Web email accounts as areas where a Microsoft-Yahoo combination would have "an overwhelming" market share. In the blog post, Google also questioned whether Microsoft could use its "PC software monopoly to unfairly limit the ability of consumers to freely access competitors' email, [instant messaging] and Web-based services." "
Is Schmidt nuts? How can there be a monopoly of free goods or services? Nobody in their right mind has to pay for 'instant messaging and Web email accounts' anymore. Nobody.
So how in the world could Microsoft and Yahoo somehow collude and monopolize this product/market? Where's the beef? Ad revenues? Google already controls that market. Adding the second and third-rate online advertisers' revenues from their own IM and email systems can't possibly worry Schmidt and Google.
Then we have Ballmer claiming that the combination will bring more 'creativity' to the sector.
Really? How's that going to happen?
Let's think about this. What is 'creative,' in this context? You would think that 'creative' would involve developing a truly new, non-imitative product or service from Microsoft.
Instead, the firm simply proposes to buy a failed quasi-competitor. Nothing created there.
Why isn't Microsoft using the roughly $25B premium it's willing to pay for Yahoo to develop truly creative products or services?
Probably because Ballmer (and Gates) failed at this, post-Office and Windows systems, for the past decade. They've bought businesses, like WebPC, that vanished into the giant maw that is Microsoft. Their MSN network has struggled constantly. The browser war 'victory' was hollow, in that it brought no added revenue, but alerted anti-trust regulators everywhere to Microsoft's predatory approaches.
All that is being 'created' in the Microsoft acquisition of Yahoo is the consolidation of eyeballs into the online websites of one, rather than two, firms. If Microsoft could better ad-related software, wouldn't they just do it, for less than $25B? Or already deploy it to MSN?
If Yahoo's system was so good, would it be in such trouble now?
How would combining two mediocre ad revenue systems, and their creators, magically introduce 'creativity' into that product/market?
Google's supposedly friendly gesture to Jerry Yang is the predictable result of Schmidt's animus toward Gates, Ballmer and Microsoft, as Dennis Kneale theorized, and on whose theory I wrote, here.
Ballmer's (and Gates') Microsoft's bid for Yahoo is, similarly, aimed at their nemesis, Schmidt and Google.
The reality is that Google has already won the online ad revenue and search wars. They really don't need to harass Microsoft anymore, or worry about who would be so bereft of their own ideas to have to buy Yahoo to get new ones.
And Microsoft is simply past its prime. And will stay past its prime. Buying Yahoo won't change that. If anything, I believe it will hasten the software maker's decline.
Simply put, what could Yahoo have, of value, that it can't already monetize? What, of value, could it bring Microsoft that the latter can't get for less than the $25B premium?
The more this deal circulates in the media, the worse it looks for Microsoft. And the worse Google's reaction looks.
The only winners, I maintain, continue to be the suffering current shareholders of Yahoo.
Rather than wax extensively about the various moves and counter moves, I'd like to dwell, instead, on the tremendous amount of bile and misinformation flowing around this event.
First we have Google disingenuously claiming that Microsoft's acquisition of Yahoo would dangerously concentrate 'competition' in the sectors affected. According to the Journal,
"Google identified instant messaging and Web email accounts as areas where a Microsoft-Yahoo combination would have "an overwhelming" market share. In the blog post, Google also questioned whether Microsoft could use its "PC software monopoly to unfairly limit the ability of consumers to freely access competitors' email, [instant messaging] and Web-based services." "
Is Schmidt nuts? How can there be a monopoly of free goods or services? Nobody in their right mind has to pay for 'instant messaging and Web email accounts' anymore. Nobody.
So how in the world could Microsoft and Yahoo somehow collude and monopolize this product/market? Where's the beef? Ad revenues? Google already controls that market. Adding the second and third-rate online advertisers' revenues from their own IM and email systems can't possibly worry Schmidt and Google.
Then we have Ballmer claiming that the combination will bring more 'creativity' to the sector.
Really? How's that going to happen?
Let's think about this. What is 'creative,' in this context? You would think that 'creative' would involve developing a truly new, non-imitative product or service from Microsoft.
Instead, the firm simply proposes to buy a failed quasi-competitor. Nothing created there.
Why isn't Microsoft using the roughly $25B premium it's willing to pay for Yahoo to develop truly creative products or services?
Probably because Ballmer (and Gates) failed at this, post-Office and Windows systems, for the past decade. They've bought businesses, like WebPC, that vanished into the giant maw that is Microsoft. Their MSN network has struggled constantly. The browser war 'victory' was hollow, in that it brought no added revenue, but alerted anti-trust regulators everywhere to Microsoft's predatory approaches.
All that is being 'created' in the Microsoft acquisition of Yahoo is the consolidation of eyeballs into the online websites of one, rather than two, firms. If Microsoft could better ad-related software, wouldn't they just do it, for less than $25B? Or already deploy it to MSN?
If Yahoo's system was so good, would it be in such trouble now?
How would combining two mediocre ad revenue systems, and their creators, magically introduce 'creativity' into that product/market?
Google's supposedly friendly gesture to Jerry Yang is the predictable result of Schmidt's animus toward Gates, Ballmer and Microsoft, as Dennis Kneale theorized, and on whose theory I wrote, here.
Ballmer's (and Gates') Microsoft's bid for Yahoo is, similarly, aimed at their nemesis, Schmidt and Google.
The reality is that Google has already won the online ad revenue and search wars. They really don't need to harass Microsoft anymore, or worry about who would be so bereft of their own ideas to have to buy Yahoo to get new ones.
And Microsoft is simply past its prime. And will stay past its prime. Buying Yahoo won't change that. If anything, I believe it will hasten the software maker's decline.
Simply put, what could Yahoo have, of value, that it can't already monetize? What, of value, could it bring Microsoft that the latter can't get for less than the $25B premium?
The more this deal circulates in the media, the worse it looks for Microsoft. And the worse Google's reaction looks.
The only winners, I maintain, continue to be the suffering current shareholders of Yahoo.
Friday, January 25, 2008
Meg Whitman's Decade At eBay
eBay's CEO Meg Whitman announced her retirement this week, effective later in the year.
How good a job did she do in her decade of leadership at the online auction house?
From the nearby Yahoo-sourced chart stretching back to 1999, pretty well, it would appear.The slope of the blue curve depicting eBay's stock price easily has outstripped the S&P500. More than that, however, it also handily outperformed those of Dell, Microsoft and Yahoo.
Yes, Meg Whitman did a very capable job creating superior amounts of shareholder wealth over more than half of her tenure.
But this chart shows something else, too. I think it provides a snapshot of the reality of Schumpeterian dynamics.
First, look how eBay flattened almost exactly when Google took off as a public offering. eBay has not outperformed the market for the past three years. Google has taken off like a rocket.
But look more closely down near the S&P500's price curve. Yahoo had a brief, sharp rise in value creation from 1999-2001, then crumpled. It ended the time period about even with the S&P.
Microsoft and Dell actually fell below the S&P500, since 1999, in terms of stock price growth.
To me, this picture documents the natural comings and goings of technology companies. Microsoft was a giant in an earlier era, but declined as other computer-related and -based product categories became more important.
Dell led box manufacturing and distribution for a time. But it, too, fell behind as the source of technology-based shareholder value creation.
Instead, the source moved onto the web, driving Yahoo, the internet's first general-purpose information provider.
But, as I've written in many posts (see label 'Yahoo') concerning the firm, it was a mile wide and an inch deep, with no driving central objective.
While eBay was not a direct competitor, per se, the auction site tapped into a new, advanced form of value creation while Yahoo's became less unique.
Finally, as eBay's business model began to reach saturation, Google's search engine model ramped up and, through judicious inclusion of online advertising, shot up above all the one-time technology stars from a shareholder value creation perspective.
Seen in this tableaux, it's much easier to understand why I don't ever expect the older technology names to regain their prior abilities to consistently outperform the market.
Even Meg Whitman, capable as she was at eBay, only managed that feat for a few years.
Of course, the most interesting question isn't what Whitman's replacement will do for eBay- he's actually been dealt a fairly weak hand.
No, it's what and who might wrest technological sizzle, excitement and shareholder value creation capability from the search-ad-tied in online product space now dominated by Google.
Monday, December 03, 2007
Dennis Kneale on Google
Last Friday on CNBC, Dennis Kneale, the network's new main print guest, and managing editor at Forbes, laid out a simple explanation for Google's continuing spreading of its resources across so many areas- search, advertising, telephony and space, to name just a few.
Kneale pointed out that Google CEO Eric Schmidt ran two companies- Novell and Sun- which were heavily damaged from competition with Microsoft. In Kneale's view, Google's many investments constitute a continuing campaign by Schmidt to pulverize his former nemesis.
Call me, well, sceptical- of pure corporate motives- but I think his explanation makes some sense. Some corporate leaders can't let go of old grudges, and begin to use their shareholders' assets to settle personal scores. Or simply advance personal agendas.
I, too, along with Kneale, think Google is courting disaster with its ever-widening business reach. I wrote this post a little over two years ago, shortly after the birth of this blog. In that post, I wrote,
"I think that the two guys who founded google are very smart. They built a better search engine, but they realize the next great search engine is likely to surpass them, just as they dethroned Alta Vista. Yes, there actually were search engines prior to Google. A friend mentioned to me a few months ago for how little Alta Vista was ultimately purchased by some European company. It was pathetic.
I believe that the owners- excuse me, senior executives now- of Google realize that their best hope for continued consistent value, and thus wealth, creation is to become so entangled in the online habits of their customers that Google is no longer perceived as a search engine. Otherwise, they face the ever present threat of rapid decline.
Consider this. The two founders of Google probably don’t spend as much time creating new and better search procedures as they once did. Further, current students at better engineering schools across the country now have something at which to aim. By virtue of its current dominance, Google probably can’t take advantage of the next smart search engine designer’s new twist. And, to be honest, using a new search engine is ultimately as simple as going to a new website.
Thus, the rapid expansion by Google into, well, just about anything online that can tie your behavior into their brand, rather than their search engine, per se. For example, email services, instant messaging programs, a whispered foray into the remains of AOL, wifi rollouts in San Francisco, and, now, a voluminous database of searchable literary content. They must be really worried. Because very little of these enterprises, by themselves, require integrated consumer behavior. Rather, a single company offering all of them hopes they can bend consumer behavior to their version of service packaging.
Not likely in this internet and information age, is that?"
I still believe this to be true. And I think it reflects what Dennis Kneale observes in Google's current environment. They are just throwing resources at anything they believe can bring traffic and make a few bucks. Anything to complicate their business model, so it doesn't appear to all hinge on a search engine which continues to age.
Sure, if someone dreams up a significant advance in search technology, Google may just buy them out. Still, isn't that a sign that a company is already aging? When it can't sufficiently improve its own core technology to fend off competitors, and needs to share its wealth with them?
Which, of course, is an insidious form of trust-forming behavior. Rather than let a competitor get a foothold, just license their technology, which is legal under Sherman and Clayton Anti-trust law. Or buy a firm that is so small that it won't trigger FTC review.
But Google seems to be already so sprawling in its business endeavors as to be unmanageable, in the conventional sense of the word.
Cisco was once deemed to be the ne plus ultra of high-growth tech firms. Then it flamed out in the bursting tech bubble of 2000.
Could Google begin to slow from a gradual inability control/manage itself, and simply fail to appropriately allocate resources among so many competing projects, many of which will have serious competition?
Personally, I think it will. It's just the way businesses mature, irrespective of the content of their industry.
Kneale pointed out that Google CEO Eric Schmidt ran two companies- Novell and Sun- which were heavily damaged from competition with Microsoft. In Kneale's view, Google's many investments constitute a continuing campaign by Schmidt to pulverize his former nemesis.
Call me, well, sceptical- of pure corporate motives- but I think his explanation makes some sense. Some corporate leaders can't let go of old grudges, and begin to use their shareholders' assets to settle personal scores. Or simply advance personal agendas.
I, too, along with Kneale, think Google is courting disaster with its ever-widening business reach. I wrote this post a little over two years ago, shortly after the birth of this blog. In that post, I wrote,
"I think that the two guys who founded google are very smart. They built a better search engine, but they realize the next great search engine is likely to surpass them, just as they dethroned Alta Vista. Yes, there actually were search engines prior to Google. A friend mentioned to me a few months ago for how little Alta Vista was ultimately purchased by some European company. It was pathetic.
I believe that the owners- excuse me, senior executives now- of Google realize that their best hope for continued consistent value, and thus wealth, creation is to become so entangled in the online habits of their customers that Google is no longer perceived as a search engine. Otherwise, they face the ever present threat of rapid decline.
Consider this. The two founders of Google probably don’t spend as much time creating new and better search procedures as they once did. Further, current students at better engineering schools across the country now have something at which to aim. By virtue of its current dominance, Google probably can’t take advantage of the next smart search engine designer’s new twist. And, to be honest, using a new search engine is ultimately as simple as going to a new website.
Thus, the rapid expansion by Google into, well, just about anything online that can tie your behavior into their brand, rather than their search engine, per se. For example, email services, instant messaging programs, a whispered foray into the remains of AOL, wifi rollouts in San Francisco, and, now, a voluminous database of searchable literary content. They must be really worried. Because very little of these enterprises, by themselves, require integrated consumer behavior. Rather, a single company offering all of them hopes they can bend consumer behavior to their version of service packaging.
Not likely in this internet and information age, is that?"
I still believe this to be true. And I think it reflects what Dennis Kneale observes in Google's current environment. They are just throwing resources at anything they believe can bring traffic and make a few bucks. Anything to complicate their business model, so it doesn't appear to all hinge on a search engine which continues to age.
Sure, if someone dreams up a significant advance in search technology, Google may just buy them out. Still, isn't that a sign that a company is already aging? When it can't sufficiently improve its own core technology to fend off competitors, and needs to share its wealth with them?
Which, of course, is an insidious form of trust-forming behavior. Rather than let a competitor get a foothold, just license their technology, which is legal under Sherman and Clayton Anti-trust law. Or buy a firm that is so small that it won't trigger FTC review.
But Google seems to be already so sprawling in its business endeavors as to be unmanageable, in the conventional sense of the word.
Cisco was once deemed to be the ne plus ultra of high-growth tech firms. Then it flamed out in the bursting tech bubble of 2000.
Could Google begin to slow from a gradual inability control/manage itself, and simply fail to appropriately allocate resources among so many competing projects, many of which will have serious competition?
Personally, I think it will. It's just the way businesses mature, irrespective of the content of their industry.
Wednesday, November 21, 2007
Google's Plans To Launch Its Own Network
Today's Wall Street Journal carried a very good editorial by Holman Jenkins concerning Google's prospective plunge into cellular network operations and ownership. The paper's Friday edition of last week featured the actual news story covering the impending development in the communications industry.
The facts, such as they appear to be in evidence, seem to be that Google is worried that evolving trends toward more web-oriented information searches by devices like the iPhone will leave it with a declining share of advertising revenues, and loss of control over free access to its wares by users.
As such, Google is experimenting with a wireless network on its own corporate campus, acquiring various pieces of a putative wireless network, and considering a bid on frequencies over which to run its own new wireless network.
By adding some piece of cellular revenues to its income stream, and potentially using cellular advertising revenues to subsidize its telephone operations, Google is thought to be the only player in a position to turn this industry on its ear and disrupt the current status quo among ATT/Cingular, Verizon, et. al.
Holman Jenkins' piece marks him as sceptical of the whole notion. He is of the opinion that Google is biting off much, much more than it can chew in going after the old Bell conglomerate, in its current two remaining pieces. Specifically, Jenkins believes that the phone companies' historic expertise with billing is an advantage, as is their use of technology which distributes precise content to each user, thus allowing the two phone companies to amass user information at a very detailed level.
Let me state that I don't own Google in my equity portfolio, and never have. It's too recently public for me to have sufficient information on it for investment purposes.
However, it has obviously been a rocket in performance terms, as the nearby Yahoo-sourced chart confirms.
The question, regarding Google's foray into telephony, is whether it will be the fabulous second- or third-act in Google's march across the information services battlefield, or its Waterloo.
I don't have a crystal ball, so I don't know the answer. For what it's worth, I think Jenkins has it partially right, but for the wrong reasons.
I don't agree that Verizon's or ATT's billing systems constitute an 'advantage.' Truth to tell, telcom billing systems have been the butt of many a joke for decades, and, literally, a revenue stream for dozens of consultants who used to make their living off the billing mistakes they would discover for their clients.
But what the two telcos do possess is unparalleled experience building and running far-reaching communications networks with unheard-of uptime performances. It's probably tempting for Google to somehow think that the web makes everybody ultimately rely on a common backbone for transmission, but that's not the case here. Further, designing and operating phone networks to be always available is no mean feat. And the Verizon and ATT folks, whatever their current moniker, have been doing it for a century or so.
That said, there's quite a bit to be said for Google's ability to come in from a different arena and wreck the current telco revenue model.
My old boss, Gerry Weiss, SVP of Chase Manhattan Bank for several decades, acquainted me with work that he and his then-colleagues at GE developed back in the late 1960s. It was called 'arena analysis,' and I was bequeathed the only known physical copy of the GE entertainment arena model by one of Gerry's lieutenants, Donald Heany. Don wrote the famous PIMS articles which appeared in the Harvard Business Review in the mid-1970s, and mentored me in the years before his death.
What Gerry, Don and their colleagues realized, and began to model, was the effects an interloper to an industry sector can have on the fortunes of existing product/service providers who rely on business models built upon different assumptions and technologies. The phenomenon was sufficiently different than in-sector competition to cause them to coin a new term- arenas.
In arena competition, one new competitor enters a sector with a tertiary use of its main technology, distribution system, etc., which happens to be so foreign and competitively-advantaged to the existing business methods, that it simply rips the value right out of the business models of existing competitors in the sector.
TI did this, in a small way, with its early digital watches. Entertainment distribution is a similar example.
Jenkins suspects Google is about to do this. Google's use of advertising to potentially damage the telco business model could be very effective, damaging everyone in the sector, and lowering effective wireless prices to all end users. Permanently.
On one hand, Google may go the way of Microsoft, only much, much more quickly. Rising faster, but plateauing more quickly, as well. Either from a loss of control of the cellular market, or winning control at too high a price, sustaining damage from competition with the telcos.
Or, it may, indeed, march triumphantly over the telcos, seizing the wireless business for use as an add-on to its advertising model.
Given the complexities of wireless network operation, and constantly evolving technologies, and the tendency for Schumpeterian dynamics to work everywhere, I am sceptical that Google will succeed financially, even if it does make substantial inroads into the cellular businesses of Verizon and ATT.
I have tremendous respect for Google's Eric Schmidt. However, wireless communications, integrated media distribution and storage are both complex and evolving. Google's strengths have historically been in software algorithms and the leveraging of those into advertising presence. I'm unsure that these will be extendable, profitably, into cellular.
It's a good rule of thumb that if all you bring to a business is money, you'll probably find those lower barriers allow others to surprise you, as well.
I wrote a post some time ago opining that Google moves so quickly into new areas because they realize, somewhere deep in their corporate consciousness, that a few other garage inventors will inevitably develop a superior search engine.
What happens if Google spends most of its resources and focus on wireless, only to have its core search business become vulnerable to a totally new technology?
Sort of like....Microsoft?
The facts, such as they appear to be in evidence, seem to be that Google is worried that evolving trends toward more web-oriented information searches by devices like the iPhone will leave it with a declining share of advertising revenues, and loss of control over free access to its wares by users.
As such, Google is experimenting with a wireless network on its own corporate campus, acquiring various pieces of a putative wireless network, and considering a bid on frequencies over which to run its own new wireless network.
By adding some piece of cellular revenues to its income stream, and potentially using cellular advertising revenues to subsidize its telephone operations, Google is thought to be the only player in a position to turn this industry on its ear and disrupt the current status quo among ATT/Cingular, Verizon, et. al.
Holman Jenkins' piece marks him as sceptical of the whole notion. He is of the opinion that Google is biting off much, much more than it can chew in going after the old Bell conglomerate, in its current two remaining pieces. Specifically, Jenkins believes that the phone companies' historic expertise with billing is an advantage, as is their use of technology which distributes precise content to each user, thus allowing the two phone companies to amass user information at a very detailed level.
Let me state that I don't own Google in my equity portfolio, and never have. It's too recently public for me to have sufficient information on it for investment purposes.However, it has obviously been a rocket in performance terms, as the nearby Yahoo-sourced chart confirms.
The question, regarding Google's foray into telephony, is whether it will be the fabulous second- or third-act in Google's march across the information services battlefield, or its Waterloo.
I don't have a crystal ball, so I don't know the answer. For what it's worth, I think Jenkins has it partially right, but for the wrong reasons.
I don't agree that Verizon's or ATT's billing systems constitute an 'advantage.' Truth to tell, telcom billing systems have been the butt of many a joke for decades, and, literally, a revenue stream for dozens of consultants who used to make their living off the billing mistakes they would discover for their clients.
But what the two telcos do possess is unparalleled experience building and running far-reaching communications networks with unheard-of uptime performances. It's probably tempting for Google to somehow think that the web makes everybody ultimately rely on a common backbone for transmission, but that's not the case here. Further, designing and operating phone networks to be always available is no mean feat. And the Verizon and ATT folks, whatever their current moniker, have been doing it for a century or so.
That said, there's quite a bit to be said for Google's ability to come in from a different arena and wreck the current telco revenue model.
My old boss, Gerry Weiss, SVP of Chase Manhattan Bank for several decades, acquainted me with work that he and his then-colleagues at GE developed back in the late 1960s. It was called 'arena analysis,' and I was bequeathed the only known physical copy of the GE entertainment arena model by one of Gerry's lieutenants, Donald Heany. Don wrote the famous PIMS articles which appeared in the Harvard Business Review in the mid-1970s, and mentored me in the years before his death.
What Gerry, Don and their colleagues realized, and began to model, was the effects an interloper to an industry sector can have on the fortunes of existing product/service providers who rely on business models built upon different assumptions and technologies. The phenomenon was sufficiently different than in-sector competition to cause them to coin a new term- arenas.
In arena competition, one new competitor enters a sector with a tertiary use of its main technology, distribution system, etc., which happens to be so foreign and competitively-advantaged to the existing business methods, that it simply rips the value right out of the business models of existing competitors in the sector.
TI did this, in a small way, with its early digital watches. Entertainment distribution is a similar example.
Jenkins suspects Google is about to do this. Google's use of advertising to potentially damage the telco business model could be very effective, damaging everyone in the sector, and lowering effective wireless prices to all end users. Permanently.
On one hand, Google may go the way of Microsoft, only much, much more quickly. Rising faster, but plateauing more quickly, as well. Either from a loss of control of the cellular market, or winning control at too high a price, sustaining damage from competition with the telcos.
Or, it may, indeed, march triumphantly over the telcos, seizing the wireless business for use as an add-on to its advertising model.
Given the complexities of wireless network operation, and constantly evolving technologies, and the tendency for Schumpeterian dynamics to work everywhere, I am sceptical that Google will succeed financially, even if it does make substantial inroads into the cellular businesses of Verizon and ATT.
I have tremendous respect for Google's Eric Schmidt. However, wireless communications, integrated media distribution and storage are both complex and evolving. Google's strengths have historically been in software algorithms and the leveraging of those into advertising presence. I'm unsure that these will be extendable, profitably, into cellular.
It's a good rule of thumb that if all you bring to a business is money, you'll probably find those lower barriers allow others to surprise you, as well.
I wrote a post some time ago opining that Google moves so quickly into new areas because they realize, somewhere deep in their corporate consciousness, that a few other garage inventors will inevitably develop a superior search engine.
What happens if Google spends most of its resources and focus on wireless, only to have its core search business become vulnerable to a totally new technology?
Sort of like....Microsoft?
Wednesday, September 26, 2007
Microsoft Tries New Online/Ad Strategies- Again
Yesterday, I wrote this post regarding a Wall Street Journal article which harkened back to GeoCities, the very first online networking site, and discussed today's landscape in that product space.
I suppose the timing of Dennis Berman's piece was no accident, appearing, as it did, as Microsoft is in talks to buy up to 5% of Facebook for a reported $300-500MM.
Tuesday's Journal carried a front-page article describing Microsoft's many, failed attempts to break into online businesses, from browsers to ad placement businesses. As I wrote here, in May of last year, I think the only way Microsoft will realize consistently superior returns for its shareholders is to break itself up into three pieces, each focusing on one business: applications software, operating software, and internet-related businesses. As it stands now, and for some years, Microsoft's diversified structure has simply led the software giant to become a veritable Gulliver, tied down in competition with many, more nimble adversaries in each of the niches in which it does business.
According to the Journal article, this time around, Microsoft is pinning everything on one Brian McAndrews, an executive whom it acquired in the deal to buy aQuantive, Inc., an online ad company, for $6B.
Of course, as the article also details,
"Just 17 months ago Microsoft hired Steve Berkowitz, from Internet search company Ask.com, as a vice president in its online group. Much as Mr. McAndrews is seen today, Mr. Berkowitz was positioned as the outsider needed to lead a cultural change at a company strong on technology but short on experience in the advertising industry.
A lack of political chops in working within the huge company and a clash with a highly respected engineering manager have hampered Mr. Berkowitz, say people familiar with the matter. Several of Mr. Berkowitz's duties were recently ceded to Mr. McAndrews."
So, once more, Microsoft has thrown money at a business in which it lags, without really re-orienting the company to address the fundamental strategic shift such actions implicitly acknowledge.
As I've written before, I don't think Microsoft truly understands, nor is currently capable, of competing totally all-out to win in the online business arena. It's still a software company trying to re-ignite growth by viewing online as a distribution platform, rather than a do-or-die business.
It seems to me, per Mr. Berman's article, that Facebook is the big winner here. Microsoft will, as usual, pay up but cede control. It won't seriously change to address the new business. And Facebook will reap a huge payday simply for carrying Microsoft ads.
If there's any downside for Facebook, it would be these: it's not selling enough of itself while the premium is stratospheric, and; it may, as Yahoo did with its payments from ATT years ago, grow fat and lazy on the passive revenue stream, only to wake up in a few years behind its competitors.
Time will tell. However, I cannot help but think that, once again, Microsoft's unfocused, half-hearted attempts to 'beat Google,' simply to do so, will enrich third parties, further impoverish its own shareholders, and continue the software giant's slide into relative unimportance as a leader in the technology product/market.
I suppose the timing of Dennis Berman's piece was no accident, appearing, as it did, as Microsoft is in talks to buy up to 5% of Facebook for a reported $300-500MM.
Tuesday's Journal carried a front-page article describing Microsoft's many, failed attempts to break into online businesses, from browsers to ad placement businesses. As I wrote here, in May of last year, I think the only way Microsoft will realize consistently superior returns for its shareholders is to break itself up into three pieces, each focusing on one business: applications software, operating software, and internet-related businesses. As it stands now, and for some years, Microsoft's diversified structure has simply led the software giant to become a veritable Gulliver, tied down in competition with many, more nimble adversaries in each of the niches in which it does business.
According to the Journal article, this time around, Microsoft is pinning everything on one Brian McAndrews, an executive whom it acquired in the deal to buy aQuantive, Inc., an online ad company, for $6B.
Of course, as the article also details,
"Just 17 months ago Microsoft hired Steve Berkowitz, from Internet search company Ask.com, as a vice president in its online group. Much as Mr. McAndrews is seen today, Mr. Berkowitz was positioned as the outsider needed to lead a cultural change at a company strong on technology but short on experience in the advertising industry.
A lack of political chops in working within the huge company and a clash with a highly respected engineering manager have hampered Mr. Berkowitz, say people familiar with the matter. Several of Mr. Berkowitz's duties were recently ceded to Mr. McAndrews."
So, once more, Microsoft has thrown money at a business in which it lags, without really re-orienting the company to address the fundamental strategic shift such actions implicitly acknowledge.
As I've written before, I don't think Microsoft truly understands, nor is currently capable, of competing totally all-out to win in the online business arena. It's still a software company trying to re-ignite growth by viewing online as a distribution platform, rather than a do-or-die business.
It seems to me, per Mr. Berman's article, that Facebook is the big winner here. Microsoft will, as usual, pay up but cede control. It won't seriously change to address the new business. And Facebook will reap a huge payday simply for carrying Microsoft ads.
If there's any downside for Facebook, it would be these: it's not selling enough of itself while the premium is stratospheric, and; it may, as Yahoo did with its payments from ATT years ago, grow fat and lazy on the passive revenue stream, only to wake up in a few years behind its competitors.
Time will tell. However, I cannot help but think that, once again, Microsoft's unfocused, half-hearted attempts to 'beat Google,' simply to do so, will enrich third parties, further impoverish its own shareholders, and continue the software giant's slide into relative unimportance as a leader in the technology product/market.
Wednesday, July 11, 2007
About Facebook
Today's Wall Street Journal featured an article on the back page of section C, which has been outsourced to breakingviews.com, concerning Facebook.
It seems that Facebook, having shunned offers to buy it for a reported $1B last year, now believes it is worth in the neighborhood of $8B. According to the Journal piece, it has doubled its current 30 million members in the last year.
The general thrust of the article is to compare Facebook to eBay and Google, in that it should spurn offers to buy it now, self-fund, and reward current owners and, potentially, public shareholders down the road. Yahoo and Google are reported to have considered buying it, thus, the $1B estimate of last fall's value.
Among the upside revenue potentials noted in the article are: Facebook's current lack of charging third-party applications developers for placing their work on Facebook; its failure to collect and sell user information on its college-aged members, and; its growing popularity among 25+ year-olds, as a sort of quasi-business-oriented networking site.
As I noted in this post last March, Facebook's success is yet another indictment of Terry Semel's failure to find a mission for Yahoo. If any company should have built the Facebook concept, it was Yahoo. Google is really in the information business, more than the networking business.
Yahoo, on the other hand, is all about providing themes, games, data, around which to hopefully group people who want to connect to similar people.
What is Facebook, if not this? And, yet, Yahoo was reportedly willing to spend a billion dollars to attempt to buy what it failed to foresee and build on its own.
It's yet another testament to innovation, good management, and Schumpterian dynamics, that amidst various online titans like Google, AOL and Yahoo, plus wannabees like Microsoft, there was, and is, still room for a guy from Harvard with an idea and some chutzpah. He did something which, in retrospect, is so completely obvious that you wonder why at least three senior executives, at AOL, Yahoo and MSN, weren't fired for missing it- converting paper-based people contact information into an online networking system.
Not only did Mark Zuckerberg do it, but he's managed to hang on and be associated with the firm's survival and continued growth in a hotly-competitive sector.
Maybe you don't have to look very far to find the next Google, per Monday's post, because it's going to be a different type of online company, like Facebook. Per Schumpeter, it's not necessary for Google to be competed into mediocrity or older age, merely for it to dominate its sector so thoroughly that innovative people just do something else for their creative, profitable outlet.
Like create really attractive, easy-to-use social networking sites. Like Facebook.
It seems that Facebook, having shunned offers to buy it for a reported $1B last year, now believes it is worth in the neighborhood of $8B. According to the Journal piece, it has doubled its current 30 million members in the last year.
The general thrust of the article is to compare Facebook to eBay and Google, in that it should spurn offers to buy it now, self-fund, and reward current owners and, potentially, public shareholders down the road. Yahoo and Google are reported to have considered buying it, thus, the $1B estimate of last fall's value.
Among the upside revenue potentials noted in the article are: Facebook's current lack of charging third-party applications developers for placing their work on Facebook; its failure to collect and sell user information on its college-aged members, and; its growing popularity among 25+ year-olds, as a sort of quasi-business-oriented networking site.
As I noted in this post last March, Facebook's success is yet another indictment of Terry Semel's failure to find a mission for Yahoo. If any company should have built the Facebook concept, it was Yahoo. Google is really in the information business, more than the networking business.
Yahoo, on the other hand, is all about providing themes, games, data, around which to hopefully group people who want to connect to similar people.
What is Facebook, if not this? And, yet, Yahoo was reportedly willing to spend a billion dollars to attempt to buy what it failed to foresee and build on its own.
It's yet another testament to innovation, good management, and Schumpterian dynamics, that amidst various online titans like Google, AOL and Yahoo, plus wannabees like Microsoft, there was, and is, still room for a guy from Harvard with an idea and some chutzpah. He did something which, in retrospect, is so completely obvious that you wonder why at least three senior executives, at AOL, Yahoo and MSN, weren't fired for missing it- converting paper-based people contact information into an online networking system.
Not only did Mark Zuckerberg do it, but he's managed to hang on and be associated with the firm's survival and continued growth in a hotly-competitive sector.
Maybe you don't have to look very far to find the next Google, per Monday's post, because it's going to be a different type of online company, like Facebook. Per Schumpeter, it's not necessary for Google to be competed into mediocrity or older age, merely for it to dominate its sector so thoroughly that innovative people just do something else for their creative, profitable outlet.
Like create really attractive, easy-to-use social networking sites. Like Facebook.
Monday, July 09, 2007
Google's Aging Process
Before I left on a week's vacation, I grabbed the unread Wall Street Journals from now two weeks ago.
Among the issues were several interesting articles on which I'll write some posts. The first is about the Thursday, June 28 piece on Google's loss of employees to new technology startups.
Google's "People Operations Vice President," Laszlo Bock, alleges that the company's historical rates of attrition of 5%, and offer acceptances of 90%, remain steady. Rather, he says that the company's swollen hiring and size now account for the larger numbers of people rejecting Google employment, or leaving.
Still, the stock price's behavior is not what it was, and this can easily affect those who hope to make a fortune on the company's stock's appreciation from their individual, or partial efforts.
One startup, Facebook, has hired 10 engineers, of 11, who had competing offers from Google. Dustin Moskovitz, a co-founder of Facebook, alleges that a lot of people at Google are now talking about leaving. In one case, a Facebook hire liked Google and its environment, but simply felt that his financial options were better with Facebook. This new employee also described Facebook to friends as,
"the Google of yesterday, and the Microsoft of long ago."
Welcome, senior managers of Google, to adulthood. When you become the titan that employees leave to seek better, more nimble environments, you are nearing a peak.
Frustration, burnout, and, it seems, simply Google credentials, are behind many employees' reasons for leaving.
Whether Google has a "problem," or not, is not the point. The point is, a company known as a predatory innovator in Silicon Valley only two years ago, is now experiencing a brain drain to companies which are smaller, allow for more relative impact by individual employees, and, by necessity, seek innovative, paradigm-shifting solutions.
Google now has a stake in various technical and business approaches to various online technology issues and problems. Having thus become somewhat anchored, it is feeling the effects of Schumpeterian dynamics. As it grew so quickly, it was probably not observed as having had to sink fixed positions down on a number of issues. But it has.
I find it, frankly, reassuring to read that, now, even Google is too large to afford truly "fresh" thinking about various technological approaches, such as a "video-related problem" some recent emigres were working on. They founded a new company7, Ooyala, instead of stop working the problem as they thought best, as Google was apparently having them do.
So, my parting thought here is, when a company known for meteoric sales, profit and market value growth by virtue of its upsetting everybody else's applecart, begins to limit its innovative, free-spirited workforce, in order to manage and coordinate its business and technological positions and strategies, how much longer will it be the same fast-growing innovator?
Schumpeter, nearly 100 years ago, said, 'not long.' I agree. And it won't take another Google to affect Google- simply a lot of individual, innovative smaller firms working their individual parts of various online technological challenges.
Google went public too recently to be in my portfolio selections. Now, I'm wondering if it will ever be selected, due to this portent of flattening growth at the online behemoth.
Among the issues were several interesting articles on which I'll write some posts. The first is about the Thursday, June 28 piece on Google's loss of employees to new technology startups.
Google's "People Operations Vice President," Laszlo Bock, alleges that the company's historical rates of attrition of 5%, and offer acceptances of 90%, remain steady. Rather, he says that the company's swollen hiring and size now account for the larger numbers of people rejecting Google employment, or leaving.
Still, the stock price's behavior is not what it was, and this can easily affect those who hope to make a fortune on the company's stock's appreciation from their individual, or partial efforts.
One startup, Facebook, has hired 10 engineers, of 11, who had competing offers from Google. Dustin Moskovitz, a co-founder of Facebook, alleges that a lot of people at Google are now talking about leaving. In one case, a Facebook hire liked Google and its environment, but simply felt that his financial options were better with Facebook. This new employee also described Facebook to friends as,
"the Google of yesterday, and the Microsoft of long ago."
Welcome, senior managers of Google, to adulthood. When you become the titan that employees leave to seek better, more nimble environments, you are nearing a peak.
Frustration, burnout, and, it seems, simply Google credentials, are behind many employees' reasons for leaving.
Whether Google has a "problem," or not, is not the point. The point is, a company known as a predatory innovator in Silicon Valley only two years ago, is now experiencing a brain drain to companies which are smaller, allow for more relative impact by individual employees, and, by necessity, seek innovative, paradigm-shifting solutions.
Google now has a stake in various technical and business approaches to various online technology issues and problems. Having thus become somewhat anchored, it is feeling the effects of Schumpeterian dynamics. As it grew so quickly, it was probably not observed as having had to sink fixed positions down on a number of issues. But it has.
I find it, frankly, reassuring to read that, now, even Google is too large to afford truly "fresh" thinking about various technological approaches, such as a "video-related problem" some recent emigres were working on. They founded a new company7, Ooyala, instead of stop working the problem as they thought best, as Google was apparently having them do.
So, my parting thought here is, when a company known for meteoric sales, profit and market value growth by virtue of its upsetting everybody else's applecart, begins to limit its innovative, free-spirited workforce, in order to manage and coordinate its business and technological positions and strategies, how much longer will it be the same fast-growing innovator?Schumpeter, nearly 100 years ago, said, 'not long.' I agree. And it won't take another Google to affect Google- simply a lot of individual, innovative smaller firms working their individual parts of various online technological challenges.
Google went public too recently to be in my portfolio selections. Now, I'm wondering if it will ever be selected, due to this portent of flattening growth at the online behemoth.
Friday, May 04, 2007
Microsoft & Yahoo Merge? You've Got To Be Kidding
It's all over the business news today. Microsoft and Yahoo are in formal talks, allegedly via Goldman Sachs, to merge.
The pundits are on the air, waxing eloquently about this putative deal. Per my earlier post, here, nobody whom I've heard has the courage or temerity to bluntly assess just how awful this combination would be.
To clarify, let's state what is supposed to be the obvious: Microsoft and Yahoo have both failed miserably, over the past few years, at competing with Google. The first Yahoo-sourced chart (please click on the chart to view a larger version) demonstrates this. It's a two year view of Google, Apple, Yahoo, Microsoft and the S&P500 Index. Since these are all technology stocks, it's reasonable to view the price chart as a very good approximation of a picture of total returns.
The picture is clear- Microsoft and Yahoo haven't even been able to beat the index over two years, even with the former's pop from releasing the new Office and Vista software systems. Yahoo has actually declined in value. In contrast, Google has been doing much better, with a slight flattening since early 2006. I have included Apple as an example of a transformational technology company's potential performance. This is what one would presume MSFT/YAHOO aims to mimic.
Looking a little further into the past, here's a five year Yahoo-sourced price chart of the same entities. This time, Yahoo looks better, but both it's and MSFT's performances have clearly flattened in the past several years. Neither looks to be an engine of value-creation that is primed to rival Google.
However, to do so, on Google's playing field of online value-added services, several questions need to be considered.
First, doesn't one of the partners usually have to be successful already for this sort of combination to work? Remember the Time Warner/AOL merger? AOL turned out to be more fragile than expected, while TW was stuck in neutral.
In the case at hand, Microsoft still dominates a rather unexciting sector- PC software. Online-based software is the hot item. Oh, right. Google does that already. Meanwhile, as I've written so many times (search my blog for, or click on the label for "Yahoo."), Yahoo is the 'used car' of the internet. It's not a standout for anything. This recent post, just over two months ago, details my views on some of Yahoo's strategic mistakes. With neither MSFT, nor Yahoo in a position of superiority in a relevant product/market which competes with Google, I think this combination fails the test of having at least one partner actually being successful.
Second, why would a merger of these two huge, lumbering companies create more than a more focused, nimbler marketing alliance agreement between the two? The latter would be far more likely to succeed, in my opinion. These two technology giants are already past their prime and too sluggish to have a high probability of combining in a manner that can yield a consistently superior total return performer. The companies are not similar in their product/markets, so there won't be much in the way of cost savings, yet they will spend considerable time and money attempting to mesh and reorganize post-merger. I suspect it is a recipe for disaster.
Third, Yahoo is, in my parlance, the 'used car of the internet.' This is going to be Bill's/Steve's new ride? Hardly an inspiring last act for the software titan. Can't they do better than a bumbling online-oriented hodgepodge of businesses mismanaged by a former entertainment executive?
Fourth, together, these two still probably won't catch Google. It's not about the software....it's about the ideas. Neither has shown themselves capable of generating successful new ideas which have driven consistently superior total returns in the past five years. How will just mashing the two mediocre firms together change that?
Lastly, as one pundit reminded me, there is US anti-trust regulation and the EEC's animosity for all things MSFT. Thus, he felt that perhaps all that will result is some sort of marketing venture.
Actually, that might be a blessing. But I still feel that there's precious little the two can conceive and execute in time to affect Google's hegemony in areas that matter in the next two years.
As a parting view, here's a Yahoo-sourced chart of the five data series over roughly the past decade. While Yahoo is the second-best value creator, it's been sliding for several years, with an overall erratic pattern. Apple, for example, reflects what a radical product/market transformation would resemble, and neither Yahoo nor MSFT remotely looks like this. Instead, MSFT has been flatlining for over six years. Just looking at the chart suggests a dynamism in Google and Apple that Yahoo and MSFT now lack.
If this combination materializes, I will go on record predicting that it will not result in a firm that can regain a pattern of consistently superior total return performance. It will, over time, fail shareholders, relative to their option of simply buying the S&P index.
The pundits are on the air, waxing eloquently about this putative deal. Per my earlier post, here, nobody whom I've heard has the courage or temerity to bluntly assess just how awful this combination would be.
To clarify, let's state what is supposed to be the obvious: Microsoft and Yahoo have both failed miserably, over the past few years, at competing with Google. The first Yahoo-sourced chart (please click on the chart to view a larger version) demonstrates this. It's a two year view of Google, Apple, Yahoo, Microsoft and the S&P500 Index. Since these are all technology stocks, it's reasonable to view the price chart as a very good approximation of a picture of total returns.The picture is clear- Microsoft and Yahoo haven't even been able to beat the index over two years, even with the former's pop from releasing the new Office and Vista software systems. Yahoo has actually declined in value. In contrast, Google has been doing much better, with a slight flattening since early 2006. I have included Apple as an example of a transformational technology company's potential performance. This is what one would presume MSFT/YAHOO aims to mimic.
Looking a little further into the past, here's a five year Yahoo-sourced price chart of the same entities. This time, Yahoo looks better, but both it's and MSFT's performances have clearly flattened in the past several years. Neither looks to be an engine of value-creation that is primed to rival Google.However, to do so, on Google's playing field of online value-added services, several questions need to be considered.
First, doesn't one of the partners usually have to be successful already for this sort of combination to work? Remember the Time Warner/AOL merger? AOL turned out to be more fragile than expected, while TW was stuck in neutral.
In the case at hand, Microsoft still dominates a rather unexciting sector- PC software. Online-based software is the hot item. Oh, right. Google does that already. Meanwhile, as I've written so many times (search my blog for, or click on the label for "Yahoo."), Yahoo is the 'used car' of the internet. It's not a standout for anything. This recent post, just over two months ago, details my views on some of Yahoo's strategic mistakes. With neither MSFT, nor Yahoo in a position of superiority in a relevant product/market which competes with Google, I think this combination fails the test of having at least one partner actually being successful.
Second, why would a merger of these two huge, lumbering companies create more than a more focused, nimbler marketing alliance agreement between the two? The latter would be far more likely to succeed, in my opinion. These two technology giants are already past their prime and too sluggish to have a high probability of combining in a manner that can yield a consistently superior total return performer. The companies are not similar in their product/markets, so there won't be much in the way of cost savings, yet they will spend considerable time and money attempting to mesh and reorganize post-merger. I suspect it is a recipe for disaster.
Third, Yahoo is, in my parlance, the 'used car of the internet.' This is going to be Bill's/Steve's new ride? Hardly an inspiring last act for the software titan. Can't they do better than a bumbling online-oriented hodgepodge of businesses mismanaged by a former entertainment executive?
Fourth, together, these two still probably won't catch Google. It's not about the software....it's about the ideas. Neither has shown themselves capable of generating successful new ideas which have driven consistently superior total returns in the past five years. How will just mashing the two mediocre firms together change that?
Lastly, as one pundit reminded me, there is US anti-trust regulation and the EEC's animosity for all things MSFT. Thus, he felt that perhaps all that will result is some sort of marketing venture.
Actually, that might be a blessing. But I still feel that there's precious little the two can conceive and execute in time to affect Google's hegemony in areas that matter in the next two years.
As a parting view, here's a Yahoo-sourced chart of the five data series over roughly the past decade. While Yahoo is the second-best value creator, it's been sliding for several years, with an overall erratic pattern. Apple, for example, reflects what a radical product/market transformation would resemble, and neither Yahoo nor MSFT remotely looks like this. Instead, MSFT has been flatlining for over six years. Just looking at the chart suggests a dynamism in Google and Apple that Yahoo and MSFT now lack.If this combination materializes, I will go on record predicting that it will not result in a firm that can regain a pattern of consistently superior total return performance. It will, over time, fail shareholders, relative to their option of simply buying the S&P index.
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