May 19, 2008 | posted by Michael Baxter in New Media | comments (0) |

Microsoft has got its fair share of problems, but right now it must be nice to be Steve Ballmer, the company’s CEO.     He made his offer, played true to his reputation of adopting a somewhat confrontational approach to business, and then just sat on the wings while Yahoo’s shareholders seemed to collapse into a kind of corporate equivalent of civil war.

On the one hand you have Jerry Yang, Yahoo’s boss, not to mention co-founder.    Yahoo is his baby, and it does appear, at least from the sidelines, that he is having that age old problem which afflicts all parents, he is not good at letting go.

Then again, when Microsoft turned away from their negotiations with Yahoo, after Yahoo asked for more money than its suitor had offered, Yang said, “We did not say it was a take-it-or-leave-it number in the sense that we would never negotiate any more… We were totally willing to do a transaction, and they walked away.”

On the other hand we have the rebels.    Just under two weeks ago, when the negotiations between the two companies broke down, some shareholders in Yahoo were furious.

The problem was this.  Microsoft offered $33 a share for Yahoo, and after the deal collapsed so did the share price.  Legg Mason, the second biggest shareholder in Yahoo, said that the company should now compensate shareholders for the fall in share price. It wants to see the company buy back shares. “It would be almost incoherent not to do so,” or so the Guardian quoted a spokesmen for Legg Mason. “You can’t maintain that $33 undervalues your company, have your stock trade below that and not buy back stock.”

But Ballmer said that it was all over, Microsoft had no more interesting in buying Yahoo – it was curtains for the deal.

And it was in this environment of shareholder discontent, and Ballmer’s apparent loss of interest – or perhaps feigned lack of interest, that Carl Icahn stepped into the breach.

Mr Icahn is one of those men who seems to have a permanent prefix to his name – in his case, it’s “notorious.”  He is notorious for his corporate raiding, and former bosses at Marvel Comics, Motorola and Time Warner will all testify to that.   With a personal fortune of around $14bn, he has got deep pockets too, and he clearly smelt money at Yahoo.

So he barged in on the dispute, bought himself a stake in the company worth around 2.5 per cent of the business and revealed plans to put his own board in charge. 

His management team would have, it appears, one brief – sell the company.

But who would want to own Yahoo?  Surely, this is not the kind of company private equity would want – so that leaves a business operating in a similar field – so that’s ah, Google, Microsoft or perhaps News Corp.

A merger with Google really would get the anti trust regulator’s goat, and News Corp has apparently nailed its colours to the mast in the Microsoft camp.

So if Icahn is successful, it will presumably be tantamount to lying back and saying to Microsoft, “Take me, darling.”

And throughout it all, Microsoft’s boss has maintained his poker face.

But then yesterday, Ballmer gave some ground.  “Microsoft is considering and has raised with Yahoo an alternative that would involve a transaction with Yahoo but not an acquisition of all of Yahoo.”  The official comment goes on, “Microsoft is not proposing to make a new bid to acquire all of Yahoo at this time, but reserves the right to reconsider that alternative depending on future developments and discussions that may take place with Yahoo or discussions with shareholders of Yahoo or Microsoft or with other third parties.”

The whisper says Microsoft is interested in buying Yahooo’s search engine.  Strange, because not so long ago Steve Ballmer said Yahoo had limited value without its search engine – so why Yahoo would agree to that latest offer is unclear.

What is not unclear is this.  Ballmer, by adopintg his take it or leave it approach, is winning this batttle.

Microsoft needs Yahoo; in combination with Yahoo, and perhaps with News Corp’s My Space thrown in, it may even be able to take on Google.      And Microsoft has got the cash too.

But right now, Ballmer must be watching the conflict at Yahoo with a kind of wry satisfaction.  

PS on May 6 we said “There is only one company in the world that can compete with Google and that company is called Microsoft. Only as a part of Microsoft, can Yahoo hope to have a viable model in the long-term. Microsoft surely knows this, and will surely be back – but when it does return, it will be laying a lot less money on the table.”  We don’t want to say told you so, but…

May 6, 2008 | posted by Michael Baxter in New Media | comments (2) |

And the man from Microsoft, he said “no.” And so that’s it, at the end of last week Microsoft walked away from the deal with Yahoo. Silly old Yahoo, it stuck out for too high a price. Microsoft had warned it was getting impatient, and so it was.

In the end it came down to just a few dollars. Microsoft upped its offer to $33 a share, from $31, Yahoo said it wanted $37, and the giant software company walked. Okay, the difference between $33 and $37 dollars might come down to around $5bn or so, but the two companies were in the same ballpark.

Yahoo’s shareholders are furious. Shares in Yahoo went crashing, falling back to $24, or so, and some are talking about suing the company. Legg Mason, the second biggest shareholder in Yahoo said that the company should now compensate shareholders for the fall in share price. It wants to see the company buy back shares. “It would be almost incoherent not to do so,” or so the Guardian quoted a spokesmen for Legg Mason. “You can’t maintain that $33 undervalues your company, have your stock trade below that and not buy back stock.”

And yet, look a little deeper, and a somewhat different picture emerges. This is what Yahoo CEO Jerry Yang said, “We did not say it was a take-it-or-leave-it number in the sense that we would never negotiate any more,” said the yang to Microsoft’s yin, and added, “We were totally willing to do a transaction, and they walked away.”

Analysts voiced surprise that the two companies were unable to do a deal, when they were so close. And yet, from another point of view, you can argue that Microsoft’s strategy has been totally predictable – and they are in fact playing their cards like a master poker player.

Microsoft’s Chief executive Steve Ballmer is known for his somewhat …, how can we put it, somewhat confrontational approach. Earlier last week he had warned that if Yahoo didn’t accept the offer, he might lower the price. Rumours suggested he was trying to elicit support from Yahoo shareholders. The truth is, Yahoo had been losing its battle. Google seems to be trouncing it at every stage. And then it resorted to canoodling with Google, getting its arch rival to sell some of its advertising. In the long-term, this is a risky strategy. Yahoo was an early investor in Google – and helped the company grow. In the end it turns out that Google was like a cuckoo in the nest, proving far too much of a handful for its earlier mentor.

But Yahoo has not learned from that lesson. Yet antitrust regulators will almost certainly stop the two companies ever coming together. A merger with AOL is on the cards – but, frankly, so what?

There is only one company in the world that can compete with Google and that company is called Microsoft. Only as a part of Microsoft, can Yahoo hope to have a viable model in the long-term. Microsoft surely knows this, and will surely be back – but when it does return, it will be laying a lot less money on the table.

April 24, 2008 | posted by Michael Baxter in New Media | comments (1) |

The High Street might be in trouble, but there is one new fixture that still seems to be bringing in the crowds.  It’s those Apple stores – full of those products that double up as computers and items of furniture. 

Has the Apple store become the coolest place on the High Street.   These stores are not for nerds, their typical customers seem to be trendily dressed – they are pulled in by Apple’s style – it’s become a kind of aspirational shop.

And that in a nutshell tells the story of Apple.  A few years ago there was talk of a halo effect, that people were so chuffed with their iPods they made their next computer purchase a Mac.  But now, the image is promoted by these fancy stores – and oh, yes, there’s another product too, the iPhone.

Yesterday was the occasion of the unveiling of Apple’s latest results.   Once again, the company raised the roof.

This time, profits hit $1.05 billion.  It has done better than that before, but only once and that was in the previous quarter, which included Christmas.

To put the profits in perspective, in the same quarter a year ago it made $770 million.  In 2006 the company was hailed as a wonder company when profits hit $410 million.

It seems like hype – but the fact is Apple’s performance is extraordinary – plain and simple.

It seems a tad churlish to look for negatives – but hang it, let’s be churlish.

There were two downers.    Firstly iPod sales were just 1 per cent up on a year ago – the clearest indication yet that the market could be reaching maturity.    The much heralded tie-in with the Beatles could be the only way the company can lift iPod sales in a hurry. 

The other downer was that the company’s guidance for the next quarter was less than market expectations, so the share price fell.    But then Apple is known for making conservative forecasts, so maybe you can’t read too much into that.

Maybe there is room for slight concern over the iPhone.  The product has only been on sale for three quarters – so it is early days – but, after an impressive start, the sales growth seems to have tailed-off somewhat.    Just over 1.7 million iPhones were sold, compared to 2.3 million in the previous quarter and just over a million in the first quarter the product was available.  More worryingly, reports have recently suggested the product is not quite the hit in Europe that it was in the US.

On the other hand 2,289,000 Macs were sold during the quarter, representing 51 per cent unit growth and 54 per cent revenue growth over the year-ago quarter.

Nothing lasts for ever, and sooner or later Apple’s extraordinary run of growth will slow, but as Internet TV becomes more popular, there are plenty of opportunities yet for the company.

Even so, with a PE ratio of 35.73, shares are expensive – and Apple remains so very reliant on Steve Jobs.  Mr Jobs may be able to walk on water – but he is not immortal, his energy finite.   So looking forward the question still remains as to whether the Apple followers will keep their faith when Mr Jobs is no longer preaching to them.

April 23, 2008 | posted by Michael Baxter in New Media | comments (0) |

“Well, if a picture can paint a thousand words then why can’t it paint you?” said Microsoft when it was trying to woo Yahoo, and spoke sweet nothings in its ears.   Then this morning, Yahoo could respond by saying, “Look at this picture, and you can see why.”

Yahoo’s profits have soared – trebling to $542 million in the quarter just gone. If you want me, it can now say, well, you are going to have to up the price.

Yet, not so fast.  The profits were lifted by a $401m gain from the sale of its stake in Alibaba.com, the Chinese dotcom star.

And once you take that into account, Microsoft’s offer looks like it could be on, after all.

The yang to Yahoo’s yin, is its chief executive Jerry Yang, who said, “Our board and management team continue to be open to any and all alternatives, including a Microsoft deal.”

Microsoft had previously given Yahoo until this Saturday to make up its mind – after that point, warned the Microsoft boss, Steve Ballmer, the offer may be decreased in value.

The latest results are good enough for Yahoo to feel it may be able to call Ballmer’s bluff, but not good enough to put the potential deal off altogether.

Talk is that Microsoft may be teaming up with News Corp in the purchase of Yahoo – so with My Space thrown into the pot, that will make a mighty Internet empire indeed.

Yahoo’s other option seems to sit with a takeover of AOL, in combination with some kind of advertising tie-in with Google.

April 18, 2008 | posted by Michael Baxter in New Media | comments (0) |

It was another stonker for Google. As a result, Microsoft was left cursing, and comScore, the company that provides the definitive statistics on internet advertising in the US, was left with egg on its corporate face.

Profits at the company were up again, this time 30 per cent higher than in the first quarter of 2007, hitting $1.31 billion, a new quarterly record for the company.

Much of the success was down to overseas expansion, with 51 per cent of sales coming from overseas. Mind you, the dollar is down sharply from the euro a year ago.  Last March for example there were around 0.75 euros to the dollar, yesterday there were 0.62.   In fact, Google says the falling dollar had the effect of boosting sales by around $202 million.   So that helped. Then again, total sales jumped 42 per cent to $5.19bn, so even if the dollar had stayed flat, the company would still have enjoyed strong growth.

In fact, the UK is one of Google’s most important overseas markets, and the pound–dollar ratio has not actually changed that much over the time period.

Of course, all those who laughed at Google’s apparently astronomical share price when it was floated don’t look so smart now.    At the time memories of the dotcom crash returned   The cynics argued the share price was grossly overvalued. Yet it appears they were wrong.

The company was floated in August 2004, with a launch share price of $85, giving it a market valuation of around $30bn.  Yet even if the company stops growing, and just matches the Q1 performance for the rest of this year, it will make a total profit of $5 billion in 2008, or a healthy sixth of its valuation four years ago.

The trouble is, of course, the share price has risen sharply since then.  Shares are now trading at $442, so they are up slightly more than fivefold.     Profits have increased 25-fold since the quarter when the company was first listed.    So profit growth has greatly exceeded growth in the share price.  Even so, the company is now valued at $140 billion.  Analysts say its valuation expressed as a ratio of predicted future earnings – that’s its p/e ratio, is now around 34.   So the share price is still high, but easily justified if the company can continue its rapid growth for another couple of years.

So the question then is, how much will the global economic outlook hit the company, and in any case, is the search engine business a mature business, now?

Intriguingly, Google’s top product management executive Jonathan Rosenberg even started to talk about the UK’s property market.  Apparently, Google has noticed “healthy growth” in the UK for terms such as “mortgage rates.”    So it appears the credit crunch is making Google even more important.  As Mr Rosenberg said, “Every foreclosure becomes a home sale to somebody.”   Then again, Mr Rosenberg said that the UK property market has been in a downturn for even longer than the US.    As you know, that is simply not true, so the argument then loses something of its credibility.

But then, talking of credibility, comScore has got a lot of explaining to do.   It had said that it had evidence click-through revenue at Google had stopped growing.  This had created fears that the company was either being hit by the credit crunch, or worse, it had simply moved into a new phase of the company’s development: a mature phase.

Yesterday, Google’s CEO put that to rights. “It’s clear to us that we’re well-positioned in 2008 regardless of the business environment,” said Eric Schmidt. He added, “Paid click growth has been higher than speculated by third parties.”

So that’s pretty clear then, there’s plenty of growth left under the pay per click advertising model bonnet.

Google scored points over the analysts too. The trouble with per-click revenue is that it is open to fraud.    How does a company know that the clicks it is receiving are from people genuinely interested in its products?  Earlier this year Google answered those fears saying it is going to cut down on the volume of ads, so as to improve quality. It expected to be able to up prices as a result, but analysts were not so sure.  As a result the Google share price had fallen from north of $700 to just a few dollars above $400 a few weeks ago.   So once again, Google’s rising profits show that it got it right, the analysts wrong.

And so, Google, IBM, eBay and Intel have all revealed healthy growth recently.  So the omens must be good for Microsoft, then.

Well no. Instead, Microsoft is more likely to be saying “shucks.”    

As you probably know, it has ideas. It wants to own Yahoo, but the number two search engine company is not rolling over and coming quietly.

If Google is doing better than was thought, then Yahoo, which is looking at a tie-up with Google and a merger with AOL as an alternative to the Google offer, must also be looking good.  That means Microsoft might have even more problems getting the company to agree to its offer.

Mr Schmidt made the most of the opportunity to rub Microsoft’s nose in it. “It’s nice to be working with Yahoo,” he said. “We like them very much.”

So what does the future bring?    Google’s big plan for the future is in the mobile phone market, with its product Android - the idea to apply its pay-per-click model to mobile phones?

Will it work?    If it is successful, then the heady growth will continue for many more years.     But up to now, Google’s success has revolved around one product, its search engine.   Other moves have not really been that successful.  And just because Google has enjoyed such phenomenal success in one sphere, it is by no means guaranteed it will enjoy similar success in another, new, area.

April 11, 2008 | posted by Michael Baxter in New Media | comments (0) |

Time waits for no man.  It does, however, wait for regulators.

There has never been an industry that can change so fast.  In any other industry, Yahoo would be seen as an up and coming and dynamic business.    But in the industry it operates in, it is positively old in the tooth, it bestrides the Internet landscape like the ruins of a once-impressive Roman temple.   

And now, for Yahoo, it is decision time.    The next few weeks could determine the power structure for the Internet for the foreseeable future – which in Internet terms, is about 12 months.

The trouble is this.     Anti-trust considerations, regulators, and the complexities of company law could delay things until next year.  And who knows what 2009 will bring.

It is beginning to look like a two-way battle.  On one hand you have Microsoft, and apparently News Corp.    Microsoft with its deep pockets, wants Yahoo.  Frankly, it needs Yahoo.    But it is getting frustrated.  It has even threatened to lower its offer if it doesn’t get a positive response from Yahoo by April 26. 

Yahoo CEO, Jerry Yang says he is prepared to do a deal with Microsoft, but his actions belie his words.  The talk is that Microsoft may go direct to the company’s shareholders – if you like, it is hoping to find the yin amongst these people, to Jerry’s Yang. 

Trouble is, the best time to elicit shareholder support will be at the AGM, not due until July 12.  Once all the complexities are then sorted out, the deal might not be completed until next year. 

Then, curiously, News Corp steps into the midst.  It is all a little ironic.    According to Californian mythology, Rupert Murdoch and Bill Gates used to do lunch, but such was their mistrust for each other, that they used to stare at each other, with long silences the order of the unhappy meal.

But now, apparently, News Corp may throw in its subsidiary My Space, and some cash, in return for a big slice of the action.     And what a threesome that will be.  Not since Caesar, Pompey and Crassus, will the world have seen such a triumvirate.

But on the other side of the mix, is the possibility of a merger with AOL, and a tie up with, the company that should not be named – so we will say it quietly, Google.

Now, a tie up with AOL does not inspire confidence.  The idea of these two companies working together reminds one of the former mighty Western Roman empire trying to stop Attila’s Huns.     But then, AOL’s parent company, Time Warner, will throw in some wodge – although, apparently, Yahoo will use this to buy stock, thus effectively offering shareholders an incentive to say ‘no’ to Microsoft .   So while such a deal may fend off Microsoft, it doesn’t bode well for the future.

The involvement of Google, however, gives the whole saga a new twist.  The idea is to let Google sell the advertising.  Something similar is already being tested, with Yahoo agreeing a two-week experiment with Google, in which the two companies share advertising space.

Mind you, inviting Google to join the party does smack a little of ancient Rome inviting the Goths in, to fight its battles for her.     That policy came unstuck; we are not so sure that Yahoo will retain any kind of hegemony in the longer-term.  Besides, regulators are not likely to be thrilled by the idea of the world’s two leading search engine companies working so closely together.

And therein lies the greatest irony of the whole thing.    Messrs Murdoch and Gates seem to be the Davids in this saga – Google, which has the motto: ‘never do evil’, the Goliath.   Regulators are more likely to side with little old Microsoft and News Corp.

But it does seem that whatever Yahoo does, it is unlikely that the once-mighty empire – which by the way was once offered the chance to buy Google for $3bn, will ever regain its former crown. 

In the battle between Microsoft, Google and News Corp, chances are, Yahoo will eventually be fed to the lions.

April 8, 2008 | posted by Michael Baxter in New Media | comments (0) |

Above, we said how technology provides the hope for the end of the current economic crisis.    Then, right on cue, comes the Interactive Advertising Bureau, in conjunction with PricewaterhouseCoopers (PwC) and the World Advertising Research Centre with their latest report on Internet advertising.

And while doom and gloom hit the property market, Internet advertising continues its run of extraordinary growth.

Online advertising in the UK has grown from being the smallest market sector in 2003 to the third-largest in 2007, with a new high of £2,812.6 millions. This represents a 38 per cent year-on-year like-for-like increase, taking the medium to a market share of 15.3 per cent (up from 11.4 per cent in 2006). Internet advertising spend in 2007 exceeded the most-generous forecasts and is now larger than press classifieds and regional newspapers.
 
“In just three years,” says the IAB,  “online advertising spend has increased by £2 billion. In a relatively buoyant UK advertising market, the Internet was the biggest driver of growth – accelerating nine times faster than the entire advertising sector, which experienced 4.3 per cent growth to reach £18.4 billion.”

“Total Internet display advertising spend saw a 31 per cent  year-on-year increase,” says the IAB, and while paid-for search marketing is maturing, it is “not slowing, as marketers become more sophisticated in their use of the medium. In 2007 search grew by 39 per cent in line with overall growth, to £1.6 billion.”

The IAB says, “Brands are now using search more intelligently, getting a greater return on investment through ‘key phrases’ and more-accurate targeting that reflects consumer behaviour.”

The recruitment sector continued to lead the market with 25.7 per cent market share, up 0.9 points on the second half of 2006. Second was Automotive with 11.9 per cent, while Technology (10.4 per cent) overtook Finance (10 per cent) for the first time, to take third place.

As we have argued many times before, in the world of online retail, position on the Internet takes on a similar level of importance as position on the High Street for a traditional retailer.

The money then that an online retailer spends on online advertising, does not just come out of advertising budget, it should come out of the money that would otherwise have been set aside for rent.

For that reason, we think online advertising has lots more growth to come.

Does  anyone think it is it a tad ironic, that the very thing that created the last major crisis – the dotcom crash, is the very thing that is performing well now;  while house prices, that soared earlier this decade when tech shares were taking a beating, are now taking the hit?

February 28, 2008 | posted by Michael Baxter in New Media | comments (0) |

Investors in Google had a fright this week. A report from comScore found that paid-click revenue from Google has seen a sharp fall in growth. Was the miraculous Google growth story coming to an end? Many shareholders in the company thought it was, and shares fell by a third.

Yesterday, though, a ray of light shone down from Mountain View California.

Google maintains that it has been improving its technology in order to try and reduce the number of accidental clicks.

This would mean that revenue would fall in the short-term, but theoretically, as advertisers’ confidence increases, then rise.

Sanford Bernstein analyst Jeff Lindsay wrote in a note to clients, “We acknowledge that Google’s growth in paid search has to decelerate over time, but we do not believe that the current macro-economic conditions are undermining Google’s paid search business.”

We have argued before, that in the world of online retail, position on Google takes on a similar level of importance as position on the High Street for a traditional retailer.

The money then that an online retailer spends on Google, does not just come out of advertising budget, it should come out of the money that would otherwise have been set aside for rent.

This is why we think the Google story has got more chapters of growth yet.

February 25, 2008 | posted by Michael Baxter in New Media | comments (0) |

Talking of adapting, spare a thought for that old codger Steve Jobs. Poor old Steve. He maybe a one-man hurricane, a creative genius – but is he just too old and busy to get it?

An interesting blog, written by Peter Magnusson, has suggested that the new iPhone falls short, not because the product isn’t in any way a triumph of design, rather because the product isn’t designed for the latest big think – social networking.

Mr Magnusson says, “Apple can only do really interesting products if Steve Jobs understands the end user. And Jobs does not understand the 21st century computer usage paradigm. In this century, people don’t send memos to each other. And that’s what email is – electronic memos.

“Today, people chat; they blog; they share multimedia like pictures, video, and audio; they flame each other on forums; they link with each other in intricate webs; they swap effortlessly between different electronic personae and avatars; they listen to Internet radio; they vote on this that and the other; they argue on wiki discussion groups.

“At its heart, the iPhone is a projection of the original vision of bringing clunky desktop applications like email, contact databases, to-do lists, telephones, note taking, and web browsing to the palm of your hand. Because that is essentially Steve Job’s generation – transitioning from the mainframe office environment to the PC-based office. Jobs can’t quite get rid of the notion that a mobile device is nothing but a really small personal computer.”

Mr Magnusson went on to list the features the iPhone should have, including “location-aware signalling would be built it. The phone would sense if you were in your favourite coffee shop and flag that to friends.” He said the product should have supported dozens of social networking concepts from the get-go. iTunes would have been expanded to take your user name and passwords for major social networking services, and then it would just suck down all the meta data it needs for the corresponding functions to work on your device.”

In a way, though, the problem that Jobs faces is almost identical to the one challenging Bill Gates, described in the article above.

Maybe, you don’t want all your friends to know where you are, maybe all the latest social networking ideas won’t last.

It is not that Steve Jobs doesn’t understand the 21st century computer usage paradigm, rather it’s that he may not understand one possible paradigm that will dominate for the next few years.

Apple’s weakness is that it is reliant on the design expertise and creativity of a handful of very clever men and women.

The company’s challenge is to ensure its latest big products work with the latest fad – and ensuring it gets that right over and over again, is a huge challenge.

iPhone’s missing killer app: social networking

February 22, 2008 | posted by Michael Baxter in New Media | comments (0) |

Nothing lasts for ever, but for a new Internet idea, the long-term seems to be about two years. Facebook, the social net working site that has gone from nowhere to a valuation of around $1bn, is losing users.

According to research from Nielsen Online, there was a 5 per cent fall in the number of Facebook users in the UK in January, from 8.9 million in December to just 8.5 million.

Mind you, its annual growth rate is 712 per cent, so maybe it is a little too early to panic.

European Internet analyst at Nielsen Online, Alex Burmaster, said, “Just as one swallow doesn’t make a summer, so one month of falling audiences doesn’t spell the decline of Facebook or social networking.”

“However, real growth potential lies in the niche networks – those based on a particular lifestyle or interest, such as travel, music, wealth or business.”

Some are saying that Facebook has become too respectable, with corporations and now, even worse than that, Tory MPs putting profiles up on the site.

But actually, whether the fall in numbers represents the beginning of the end, or as Internet analyst Winston Churchill might have said, “Merely an end of the beginning for Facebook,“ there is a very important issue that is worth considering.

In economic theory, the big idea at the moment is adopting the theories of evolution. Natural selection, goes the argument, is the most effective way of finding new ideas that work. The future is uncertain, the factors that make one idea a success, another a failure, can, to an extent, be random.

When one business idea is a runaway success, another a failure, it does not necessarily mean that the management of the successful company were somehow blessed with uncanny foresight, any more than a winner of the lottery can see into the future. The laws of chance say that some ideas will work, others fail. (Is the phrase ‘laws of chance’ an oxymoron; not sure chance, by definition, has laws – Ed.)

And that is the problem for this new Internet era, especially for companies like Microsoft – even Google.

It seems inconceivable that Google can continue to out-innovate the rest, and for Microsoft, never a company which has been known for innovation, the challenge is even tougher.

Maybe the answer, then, is for these established players, with their capital base and captive audiences, to sit on a metaphorical branch somewhere above the business terrain, waiting, and try to swoop down and pick out the winners when they come through.

A risky strategy, of course, because bidding wars can be the result, and even when businesses are quite advanced, there is no guarantee their progress will continue.

Microsoft recently forked out $240 million for a mere 1.6 per cent stake in Facebook. Was this a shrewd move, or one that will leave the company looking foolish? – Right now, you can’t tell.

According to a study carried out by the economist L Hannah in 1999, of the 100 largest US firms in 1912, 29 had, by the time of the study, gone bankrupt, 48 had disappeared, and just 19 of them were still in the US top 100. But, for the current crop of companies, with their extraordinary growth – it seems their expected lifespan may well be a lot shorter even than that. Whether that is allowed for in the share price of these companies, that often see their valuations as a percentage of expected profits of well over 30, is far from certain.

Remember, when companies are valued, there is supposed to be some kind of assumption on future dividend flow. The investor would not only expect to eventually get all the investment repaid – but also get the equivalent of a good healthy rate of interest. Drill down, and look at the basics. It seems questionable whether some companies will actually survive long enough to repay their investors. Only those investors who jump ship, and sell out to someone else, will win. Maybe Internet investing is a negative-sum game.