June 25, 2008 | posted by Michael Baxter in New Media | comments (1) |

It is difficult to think of more a formidable product in the consumer electronics arena than the iPhone.    It combines Apple’s superb knack for design, a proper Internet browser,  the iPod, the video iPod, and one more thing, what was it? Yes, that’s right, a mobile phone.

Can you think of a product, or a company, that could possibly outgun Apple’s iPhone?  Well, how about this one: Microsoft; keen to promote its Windows operating system onto mobile phones, and is prepared to put an awful lot of bucks behind it.   Microsoft’s’ big advantage over Apple, is that its operating system is for all.  It is not a proprietary product like the iPhone.  So Apple might have the coolest piece of kit in the world, but can it really take on everybody?

But even Microsoft has got its work cut out. How about this for formidable opposition?  Google, the world’s most valuable brand.  Google isn’t all about a specific phone either; like Microsoft, it’s a standard it wants.  It wants the world’s consumer electronics makers to make phones supporting its standard.   Google has one big advantage over Microsoft, it gives its operating system away for free.  And what is more, its operating system is Linux based.

What’s good about Linux is this: it is an evolving product.  There are hundreds, maybe thousands, of programmers out there working on Linux features – only the best are accepted. 

Google, of course, has the big advantage that it makes money on advertising, so it has a wonderful business plan; give the product away for free, and still make billions of dollars.

So that’s the three titans then: Apple, Microsoft and Google.   There’s a fourth player, little old RIM with its Blackberry.  Such is the following this product has that it is a possibility it will win out, but surely it is more likely to get drowned by the cacophony from the big three.

But, wait a moment.  Did you hear that?  There’s another tune playing, and this one could even outgun the west-coast of America trio: for the fifth player is made up of Nokia, Vodafone, Sony Ericsson, Motorola, NTT DOCOMO, AT&T, LG Electronics, Samsung Electronics, STMicroelectronics and Texas Instruments. That is a group which must have even Microsoft and Co quaking.

Mind you, it all boils down to Nokia, really. For the Finnish company has bought out Symbian Limited, the mobile phone operating system initially launched by Psion. Why buy it out? Well, Nokia wants to turn Symbian software into a kind of Linux basher – free, open and everywhere.

This is what Nigel Clifford, CEO of Symbian, had to say: “Ten years ago, Symbian was established by far sighted players to offer an advanced open operating system and software skills to the whole mobile industry.  Our vision is to become the most widely used software platform on the planet and indeed today Symbian OS leads its market by any measure. Today’s announcement is a bold new step to achieve that vision by embracing a complete and proven platform, offered in an open way, designed to stimulate innovation, which is at the heart of everything we do.”  Ummm, heavy stuff.

Nokia says that mobile devices based on Symbian OS account for 60 per cent of the converged mobile device segment, and to date, more than 200 million Symbian OS based phones have been shipped, over 235 models, from 8 vendors and on more than 250 mobile networks around the world.  More than 4 million developers are engaged in producing applications for Symbian devices. 

Or to put it another way, Symbian has got off to a good start.

It all smacks a little of Isaac Asimov, because Nokia has started talking about a Symbian Foundation, made up of all those formidable players listed above. “Establishing the Foundation is one of the biggest contributions to an open community ever made,” said Olli-Pekka Kallasvuo, CEO of Nokia. “Nokia is a strong supporter of open platforms and technologies as they give the freedom to build, maintain and evolve applications and services across device segments and offer by far the largest ecosystem, enabling rapid innovation. Today’s announcement is a major milestone in our devices software strategy.”

It is an interesting thing but Nokia wasn’t always like this.  Time was when it was a manufacturer of gun boots.  Its decision to diversify seems to have paid off handsomely.  Now it is gunning for the world – or at least gunning to stop dominance by any of the big three US firms.

Joseph Schumpeter, the Austrian economist who was Keynes’s main rival for the epitaph of greatest economist of the 20th century, used to talk about Great Gales of Creative Destruction.  Schumpeter was a fan of monopoly.  He used to say only a monopoly, or a company with designs to become a monopoly, has the money to innovate in the modern world.  But, he said, monopolies fall, in waves of creative destruction.

Microsoft is an obvious example of a monopoly under threat from this new wave of creative destruction.

To the victor goes the spoils of becoming a new monopoly.  The thrills of dealing with anti-trust regulation, and the challenge of fending off the next wave of creative destruction.

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.

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 12, 2008 | posted by Michael Baxter in New Media | comments (1) |

And from things that lurk in the dark places of the earth, to evil empires.

As you know, Google has this motto, “Don’t do evil” – and yet in this era of Google-dominated search engine advertising, an era in which the advertising bucks sit with the companies which know the most about us – Mountain View California seems to be taking on the air of Mordor.

The likes of Microsoft and Yahoo, on the other hand, are increasingly looking as if they are a forlorn force of lightness, if you like, a fellowship, desperately trying to break the ring of Google’s domination.

But when forces come together to take on a common enemy, the union is not always so sweet.

A year ago, Microsoft and Yahoo had flirted with the idea of a merger. In fact, back during the latter days of 2006 and early 2007, the bosses of the two companies put their heads together – but at the time Yahoo said, “Now is not the right time from the perspective of our shareholders to enter into discussions regarding an acquisition transaction.”

At least that’s what Microsoft claimed when it made its offer to Yahoo last week. In its letter to Yahoo detailing its offer, Microsoft referred to this previous rejection. Yet once again, yesterday, Yahoo rejected its suitor.

Yahoo said the Microsoft bid “substantially undervalues Yahoo! including our global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential as well as our substantial unconsolidated investments”. And it said it “carefully reviewed Microsoft’s unsolicited proposal . . . and has unanimously concluded that the proposal is not in the best interests of Yahoo! and our stockholders”.

If these two companies were to come together, there is little doubt who the yang would be to Microsoft’s yin. For Yahoo boss, not to mention co-founder, is Jerry Yang, and yesterday he told staff at the company he heads, “The global online advertising market is projected to grow from $45bn in 2007 to $75bn in 2010, and our more-focused strategies position us to capture an even larger share of this market…Our global brand is a tremendous base from which to build leadership as the starting point for Internet use: Yahoo is one of the most recognisable brands in the world. We have some 500 million users (one out of every two Internet users worldwide). In the US we are number one in personalised home pages, mail, music, news, sports, shopping and travel.”

And yet, robust though this defence was, the fact is, Microsoft’s $40bn offer valued Yahoo shares at $31 a share, that is 62 per cent up on the share price before Microsoft’s overtures were first made.

Yahoo’s performance has not been so good of late – during the last eight quarters, year-on-year profits fell no less than seven times. In the last quarter, profits at $206m were not only lower than in the same period the year before, they were lower than the year before that, too.

Shareholders in the company must find this a tad frustrating – and while Mr Yang is making lots of noises about big plans, the company seems stuck in the slow lane of growth – at least in comparison with other dotcom firms.

It seems that a merger with Microsoft will at least create a company with a good chance of taking on Google.

In this case, however, neither the eyes of Google, Yahoo or Microsoft can see that far.

Google’s rise to power has been extraordinary – but it can reverse – who knows what other companies are out there sitting on new ideas which will enable them to jump in. And let’s face it, as Google, MySpace and Facebook have all shown, this is an industry that, for companies with the right product, has very low barriers to entry.

Mount Doom exists in all companies. According to a study carried out by the economist L Hannah in 1999, of the 100 largest US firms in 1912, 29 had by then gone bankrupt, 48 had disappeared, and just 19 of them were still in the US top 100. And that was over a relatively short time frame.

History appears to tell us that most of the world’s firms fail eventually – but for companies operating in the field that Yahoo, Google and Microsoft call their own, failure is likely to be more-rapid.

February 4, 2008 | posted by Michael Baxter in New Media | comments (0) |

Do you mind if we pucker up and blow our own trumpet for a second? Last May, we reported talk that Microsoft may be working on a bid for Yahoo. Microsoft, we said, seems to have no answer to Google, which was why a purchase of Yahoo could be just the company’s panacea.

Well, last Friday it was official. For that was the day when the world’s largest software company put its hands in its pockets, pulled out $44bn, and left it there on the table as an offer to buy the company with the world’s most popular web site.

It’s quite surprising, but Yahoo is still the most visited site on the Internet. The snag, though, is that Yahoo’s area of strength is not in the area where the money is. Instead, the bucks are with search. And you can see why. The strength of the Internet is that it allows advertisers to target their ads in a way that wouldn’t have been possible before. You sponsor a key word on Google, and you know that the people who click on your ad will already have typed a word into Google that you consider to be relevant to you.

This idea is not new to Yahoo. In fact it was offering customers the opportunity to sponsor searches even before Google, It’s just that in the battle to dominate search, Google has been walking all over Yahoo.

It’s shown up in the bottom line. Last week, Yahoo announced its latest quarterly results. Profits in its fourth quarter were not merely lower than its profits in the same quarter a year ago, but actually it even raked in more bucks in the fourth quarter two years ago too.

In fact Yahoo has now announced four successive falls in year-on-year quarterly profits.

Back in the fourth quarter of 2003, Yahoo’s profits were 2.7 times greater than Google’s. But within a year, Google had caught up. But, in the latest round of quarterly profits, Google’s profits came in at $1.2bn – no less than 5.8 times greater than Yahoo’s.

No wonder, then, that Yahoo is looking anxious. Its CEO, Jerry Yang, was appointed last year, but really, in making Yang the boss, the company was doing little more than an attempting to recapture past glories. For Yang also happened to be one of the company’s founders.

Then, there’s Microsoft. Sure, its latest profits came in at $4.71bn, dwarfing even Google’s profits, but then this does not quite tell the tale of the dominance it is used to. Three years ago, for example, Microsoft was making ten times more money than Google, Yahoo and Apple combined. Now, the ratio is more like two to one.

But what is really quite interesting about the whole saga, is the way many people seem to be portraying Microsoft and Yahoo as little more than two Davids coming together to take on the mighty Google.

Blog entries across the Internet are full of comments such as “down with Google”, while Google is seen by many as the home of the new evil empire.

Microsoft, for so long the whipping boy, for so long on the losing side of antitrust cases, and for so long seen as the evil empire, to be jeered at with every opportunity, is now the hero of the piece.

And even if Microsoft was to buy Yahoo, the new company’s share of the search engine market would still be around half of Google’s share. (And by the way, there would hardly be any pickings left over for anyone else – at least that would be the case in the US.)

But not everyone sees it in those terms. Not everyone sees Google, the company whose motto is “Don’t do evil”, as the bully.

Here is one argument put forward against the Microsoft–Yahoo coming together. One industry expert said the merger “raises troubling questions” and asked “could the acquisition of Yahoo allow Microsoft – despite its legacy of serious legal and regulatory offences – to extend unfair practices from browsers and operating systems to the Internet?”

So at last, Google has an ally. Well, alas not so. For the person who made those comments was David Drummond, Google’s senior vice-president for corporate development and chief legal officer.

It seems, though, this battle will come down to who the authorities are most worried about. Are they most worried about Microsoft’s strength, or do they see it as essential that Google is given tougher opposition?

The truth is, in the battle for Internet dominance, it is essential that there is no clear winner. And in choosing whether to allow the Microsoft–Yahoo merger, the authorities will really be looking at which company they consider to be the lesser of two evils.

February 1, 2008 | posted by Michael Baxter in New Media | comments (0) |

Profits soared at Google in the last quarter, but investors were nonplussed.         In the final quarter of last year, Google produced its best performance ever, posting $1.2bn worth of profits – that was an impressive 17 per cent up on the same quarter the year before, yet investors did a passing impersonation of a spoilt child, screaming in fury because Santa only brought him one games console for Christmas.    

And as the company’s profit reached heights that the most-bullish of analysts would only have dreamt about when the company was floated three years ago, a shadow appears over the Google horizon.  Is the mighty wonder of Mountain View California seeing an imminent end to its era of heady growth?

The problem, of course, is that analysts are used to seeing more-rapid growth from Google.      A year ago, for example, profits were 176 per cent up on the previous year.

 There are two clouds that hang over the company, at least they are clouds from Wall Street’s perspective – we have a sneaky suspicion management at Google don’t see it that way. 

The first cloud relates to the credit crunch and the all-round feeling of gloom.    They are asking, is even Google feeling the heat from the economic downturn?  If it is, then that’s a tad worrying, because it somehow makes Google seem normal, it makes its management seem mortal, and their veneer of invincibility suffers a nasty scratch.

The second cloud, though, is altogether more worrying, and it concerns fears that the company is approaching some kind of market saturation.  Maybe the scope to eke out many more dollars from online advertising is fast receding.   You can see the rationale behind this second fear.  After all, Google is now enjoying more revenue from advertising in the UK than ITV – surely there just isn’t much more scope for expansion.

The fears, though, seem overdone.   Cynics fall into the trap of seeing advertising as a cake. To begin with, Google’s slice was so tiny, the company could expand without impacting by very much on the overall cake.     But then, as the slice starts becoming the one that has the cherry on it, a really big stomach-filling slice, analysts start saying, well, the cake just isn’t big enough to facilitate much more growth from Google.  But this analysis is wrong. 

Thanks to the Internet, the advertising cake is changing, it is becoming more like a soufflé, before it was set in the oven.    

There is more than one reason for this. 

Firstly, for the online retailer, advertising takes on a level of importance that just does not apply to the traditional retailer.  They say that three key ‘Ps’ determine success in retail:  position, position, and position.  That’s why rent, position on the High Street and, for some retailers, ownership of prime retail space, are so important.  A retailer that can point to a balance sheet brimming over with property ownership, is seen as a business based on solid foundations.    

But in the Internet sphere, it’s position on Google that counts.  A Google ranking is more important than ownership of land.    

No doubt you know this Christmas was a record for Internet shopping, and most predictions say we have many more record Christmases to look forward to.     And thus, there is plenty of scope for the advertising soufflé to rise and rise again.   

Secondly, there is this new era of carefully targeting ads.   How much more successful would advertising be, if it was only pushed in front of people who are inherently interested in the products being sold.?  How much more effective would an ad for a restaurant be, if the advertiser could somehow know who would be in the region of its restaurant that evening.    

But as you know, this kind of advertising targeting is highly controversial, and it will take quite a while, two or three years, maybe longer, before it gains acceptance.    But when this new type of advertising finally takes off, the advertising soufflé will rise to unprecedented heights.   

Right now, Google is surely doing no more than pausing for breath.    Sure, its management is mortal, sure the company is not invulnerable, but there is no reason to assume the advertising growth phase is near an end.    

As Google co-founder Sergey Brin said about fears that the economic downturn was affecting the company, “We have not been able to detect any such effects from macroeconomic trends.”