Lagardère acquiring Doctissimo

Groupe Lagardère is acquiring the majority of the health specialized website Doctissimo. Lagardère Active Digital will get 53% of the capital and 58% of the voting rights of Doctissimo for about E70m that valued the company at E138m. By paying a 7.4% premium over the share price, and a multiple of 12 times the 2007 sales, the transaction seems way more reasonable than a year ago when Springer coughed up 21 times the sales for the French portal AuFeminin.com. Lagardère and Doctissimo agreed for a valuation in the low end of the E130m-E165m range set by analysts.
> story in Bloomberg
> and in Le Figaro

Murdoch’s competitive metabolism

On the same subject, Howell Raines, former editor of the New York Times, reminds us of the true drive of the new owner of the Wall Street Journal: competition. In 2002, in a discussion about how to compete against the WSJ, Murdoch gave Raines a piece of advice : “You ought to hit them where they live,” he said of the Journal. “Go after hard business news and beat them on their strength.” Times people know what to expect from someone who reportedly send a handwritten note to Arthur Sulzberger after the acquisition saying : “let the war begin”.
> story in Portfolio

Truce at the NY Times

The New York Times Company has reached a deal with Harbinger Firebrand, the hedge fund that was knocking (hard) on its door. For the first time since it became public in 1967, the Times will open its board to outsiders. The two new directors will advocate asset sales (the Boston Globe for instance) as well as aggressive investments in the Internet. The Sulzberger family retains the supervoting shares, but board meetings won’t be as comfy as they used to be when “we all were family”.
> story in the New York Times and as seen by the rival, The Wall Street Journal

Infrastructure — Oil price vs. Moore’s Law

The Internet runs on a simple equation: bandwidth and computer power are growing exponentially as their price keeps falling. Which is fine, since the demand is also surging the same way. There is one glitch though. More Internet traffic means more data centers across the globe and more electricity to power and to cool millions of overheated processors. Problem is : energy supply can’t follow the same trend. The cost of electricity consumed by data centers doubled between 2000 and 2006 and could double again by 2011, as mentioned in this Business Week article. This trend is about to become the main problem of the Internet sector. Especially with oil at $110 a barrel (one analyst even sees spikes at $150 ).

To address the question, two simultaneous races have begun. One is to use new technologies to lower the energy consumption of data centers. The other is to find the best locations, regardless of where the traffic demand resides, since the expense of transmitting data is small compared to the processing cost. A worldwide scouting operation is underway: Iceland or Siberia are on the radar-screen of data-hungry companies such as Google or Microsoft. Over there, energy is abundant, and cooling is natural. Political problems can be natural as well… No one wants a Putin-like dictator cutting the supply of bits coming from Northern data centers the way he does with Ukrainian pipeline.

It will be years before research for energy efficiency or Siberian computer farm will yield any result. In the meantime, content could take the heat. YouTube is said to account for 10% of the entire Internet traffic. This raises questions about YouTube economics : a free service, consuming so much bandwidth/energy, yielding very little ad revenue ? Can’t go for ever. In the media business, we were used to think that digital costs of distribution were negligible. That might be true compared to a newspaper, but certainly not in absolute, future terms.

Social networks — Possible and fatal flaws

How long for the social network bubble to burst? Market forces are working on it. First, last year’s fiasco of Beacon — Facebook’s behavioral advertising system, massively rejected as soon as introduced. Then, audience numbers reach a plateau, at least for MySpace, still the leader of the pack. Now, uncertainties about the business model are looming, with the increasing suspicion of a triple flaw.

One is the tendency to replicate ill-fated online models: Compuserve, early AOL, Prodigy. They were walled gardens, not interconnected systems. They simply died of it, as recalls this opinion piece in The Economist (the business magazine is not exactly embracing the social network frenzy). That’s why platforms like Open Social, the setup conceived by Google poses a threat for current social network players that won’t adopt it. An example: Facebook applications must be written specifically for the platform, using its own markup language, its own query language (see here a demo on how Open Social works ).

The second question addresses the notions of network / applications / features. See what Charlene Li from Forrester Research says in the Economist: The destiny of most services embedded in social networks is to become simply web-based and no longer be tied to a specific network. “We will look back to 2008 and think it archaic and quaint that we had to go to a destination like Facebook or LinkedIn to be social. [Future social networks] will be anywhere and everywhere we need and want them to be.”

The third flaw is simply time allocation. It is a fact that the use of a social network tends to drop fairly quickly after the discovery phase. Only the flow of newcomers helps to sustain growth in pageviews. But as the web is becoming deeper and richer, who wants to spend hours a month to have a virtual beer with a pal? How long will last the novelty effect?

That leads to the business model questions: if the users, in a flash of common sense, reject the behavioral-powered ads; if the applications tend to work outside the proprietary platform; if the click-through rates keep falling… How sustainable is the bizmodel?

Smartphone: Huge market – but where are the business models?

This was an important week for carriers: first the $19 billion spectrum auction announcement and then Verizon opening its network. Great, the trillion dollar market is in sight! But do we see any good advertising business models in there? Today, I’m optimistically embarrassed to admit, I don’t.

The market:
John Sculley was right, after all. Shortly before his ouster in a palace coup, Apple’s CEO is ridiculed for predicting a trillion dollars PDA market. This is in 1993 when launching the Newton. In the space of 15 years PDAs gradually become smartphones. In 2008, with more than 3.3 billion cell phone accounts, we’re approaching the magic trillion dollars, $25/month ARPU and we’re there. And that’s just network revenue — which gets us to today’s question: smartphones enjoy a cornucopia of new applications, but do they run any good advertising business models?

The dream:
Let’s yield to the breathless enthusiasm for a moment. Not all phones are smart today but look at the Blackberry and the iPhone, they’re the trendsetters, sure to be followed by legions of imitators. As we wrote here a few weeks ago, cell carriers are going the way of the landline ISP: flat fee regardless of carried content. And, just last week, Verizon embraced its fate instead of fighting it: it will no longer dictate what phone you use or what application you run on its network, mostly. This is a cultural revolution and is likely to force everyone (AT&T, Sprint…) to follow. Add the $19 billion spectrum auction. Smartphones are hot. They are the new PC, only smaller, in size, and bigger, in numbers, precisely because of size, mobility and rising computing power, and applications, and…

iPhone for later:
We’ll leave the study of the iPhone business models for another week, they are very… Apple, they may set widely imitated examples or they may be unique or insular, depending on your views of Steve Jobs ways.

Smartphones advertising dollars? Back to today’s mundane world: Google proves the value of Web advertising. Does this translate to smartphones?

A possible answer comes when we replace Web, The Cloud, by PC. Today’s Web advertising billions are PC advertising dollars. Does that money flow to smartphone? Not today. The small screen doesn’t show much. SMS? Users are asked to pay for the ad, they’re upset. So much so there’s legislation afoot to ban SMS spamming. This leaves most everyone, and that includes us VC philanthropists, some call us visionary sheep, looking for ways to replicate the PC advertising bonanzas. Original thinkers that we are, we forget what happens at every turn of the techno-cultural wheel. Yes, the new generation borrows from the old but it actually is a new genre with new rules. The mini, in spite of its name, wasnt a small mainframe. The PC was wrongly called a micro before the P in Personal won the day. We know, the natural tendecy is to first see the smarphone as a PC, only smaller. Yes, it now navigates the Web and does e-mail like a PC, but its mobility, size, ubiquity, proximity to our body makes it a different genre. Different rules we don’t understand yet. Being the optimist, I expect happy surprises. I just wish to be among the first one to have a retroactive flash of the obvious…
–JLG

Is the e-book reader a product or a feature?

November 2007, the Amazon’s Kindle is born, rivers of ink flow — electronic and conventional. Today, the riverbed is dry: a Google look at “Kindle sales” shows no new stories since January, highly unusual. Amazon itself has gone quiet and doesn’t brag about Kindle sales.

What is the problem: the e-book reader concept, or the execution, the Amazon Kindle?

My opinion: the flaws in the Amazon execution mask the problem in the concept of a specialized e-book reader. All factors peeled apart , I think of the e-book reader as a feature of smartphones and ultra-mobile PC — as it already is on personal computers.

Why?
Sony has been making e-readers for more than 15 years now, one commercial failure after another.

Amazon comes to the scene with strong advantages: The on-line book seller, a strong customer service reputation. Kindle is a wireless device, independent of a PC.Sony requires a PC to download the ebook, and a cable to move it to your eReader. Amazon has the most titles, more than 100,000. You walk down the street, search a title, click, you turn the street corner, bing, avoid the lamppost, and the ebook came through the wireless (Sprint) network, no connection fee. Speaking of the street, the display technology (shared with Sony) allows reading outdoors as well indoors.

The bad news start with the high price: $399. How come Amazon doesn’t follow the classical model: inexpensive razors and high-margin razor blades, like HP with its inkjet printers and cartridges? $399 is the price of a smartphone or an eeePC, the Kindle-size UMPC. Then we have the gazillions of free e-books available for download on smartphone or browsers. Or I can buy books e-books for smartphones, including my Blackberry. Surprise, one source is Mobitext, an Amazon company… Next, Kindle’s design: the clumsy suede cover, the keys, the user interface all have a “Made In Seattle” feel, say Silicon Valley critics. Microsoft and Amazon live there. But Valley wags are wrong, the Kindle was designed in Cupertino, Apple’s hometown. Neighbourliness is no holiness…

So…Consumers are either cats or dogs. The cat disdainfully tiptoes around the new cat food and, after trying your patience, may condescend to sample it. Dogs joyously stick their nose into the new and improved chow. But does the dog come back the next day? This dog isn’t going back to the Kindle. After reading a three books, Le Monde and the NY Times for two weeks, uploading a Word book manuscript, I stopped using my Kindle.

Back to the question: what’s wrong, idea or execution?

This dog doesn’t mind reading mail, news and blogs on two smartphones: Blackberry and iPhone, this after years of Psion and Palm. I used to religiously read four newspapers everyday, much less now, also because of my laptop. I still love books, they’re here for a long, long time but they no longer hold the same place in our hearts, minds and… wallets.
This said, Amazon can come back with a more elegant, colorful and less expensive Kindle. More likely, the iPhone and its competitors will include e-readers and offer several screen sizes. In other words, smartphones and pocketable tablet computers (UMPC) will dominate e-book reading.
-JLG