What the two brands have in common is this : they get the customers to do the work, and to enjoy doing it. Some economists call it “the value of co-production”. Details, in the always-enjoyable column by Tim Harford, “The Undercover Economist” of the online paper Slate.
Not everyone is discounting the value of great newspapers. Take Scott Galloway for instance. He’s leading the fight for a board position at the New York Times after Firebrand/Harbinger LLC, a company created for this offensive, disclosed a 4.9% stake in the capital of the NY Times Company. His pitch : creating more value for shareholders (the usual crap) by a “redeployment of capital to expedite the acquisition of digital assets.” according to the letter sent to Arthur Sulzberger chairman and publisher of the Times and Janet Robinson k the CEO. The fall of the New York Times stock (from $47 to $18 since 2004), shows a true erosion of the “value for shareholders” and it makes the media group tempting for investors such as Firebrand/Harbinger ‘even though the family-controlled board shields the management from outside interference’.
> Read the letter from Gallaway, filed to the Securities and Exchange Commission. A monument of takeover-era rhetoric.
> And the profile of Scott Galloway in Portfolio magazine
> Forbes magazine is detailing the achievements of hedge funds manager Philip Falcone. Not exactly the kind of guy you want at your board for the kind of complicated turnaround the Times is facing.
I know. Such kind of entry looks like the Monday Note’s weekly shot of pessimism. OK, but ignorance does not deflect peril. Then, let’s have a look at the latest data extracted from a recent article in the New York Times about the US market:
- Adjusted for inflation, 2007 ad revenue was more than 20% below its peak in 2000
- Since 2003, the number of copies sold has bee slipping about 2% a year
- Papers like the Boston Globe, SF Chronicle, or LA Times (see Monday Note #20) have lost 20 to 30% of their circulation in just a few years
- Newspapers execs and an analysts said than it could take 5 to 10 years for the newspaper industry to stabilize – also because operating profit margin remain high (often in the 15%-20% range for big media groups) even if the dollar amount is falling. (Money loosing business like steel or manufacturing are much faster to adjust).
- From a revenue perspective, the Internet is not likely to be a substitute : when an advertiser pays $1 to reach a print reader, it pays only 5 cents to reach an internet reader. In other words, newsrooms and journalistic ambition will have to downsize dramatically.
Ten days ago, two undersea telecommunication cables were cut offshore Alexandria, Egypt, causing major disruptions in Egypt and India. Conspiracy theories are blooming. India displayed its vulnerability to such incidents with its huge computer and telecom outsourcing industry. Big call centers managed well, not small businesses.
> story in the Christian Science Monitor
> conspiracy theories at work, and summarized on Australia’s ABC News.
Technology is spreading to emerging markets faster than anywhere else. Soon, there will be more internet users in China than in the United States. In India, the phone subscriptions are growing by 8 million a month, and the country produces more engineers that the US. But outside modern urban centers, the lack of reliable infrastructure, maintains the digital divide.
> the Economist details the latest report from the Word Bank of the issue.
It’s all about advertising! No, it’s applications! No, search is king! No, think new media! No, it’s about freedom and competition!
With such high stakes, $40 billion or so, who’s counting, no wonder the BS flies. The Microsoft propaganda staffel is in full battle order led by their usual henchmen and women at Waggener Erdstrom. See their Corporate motto: You innovate. We communicate. Give your PR career a voice today.
The reality is more like: You innovate, we help Microsoft crush you. So, these days, Microsoft plays the aggrieved party, the friend of free market competition selflessly warning us of the danger of Google’s monopoly. Chutzpah aside, they have a point. Google enjoys a dominant position, no dirty tricks involved as in Microsoft’s adjudicated cases, but problematic nonetheless. Microsoft’s next point is a smoke screen: It’s the advertising market we’re interested in. No, we’re afraid of losing the gigantic profits of desktop applications and Windows licenses. In 1994, we all (yours truly included) dismissed Marc Andreessen’s “The Browser Is The Operating System”. All of us but one, Microsoft. Bill Gates promptly added one word: In. As in “The Browser Is In The OS”. Netscape died. Not quite, Firefox should be called Phoenix. Firefox, based on parts of the old Netscape, runs on Linux, Macintosh and Windows. And Google Apps run on browsers, Firefox, Safari and Microsoft’s Explorer. Google Apps aren’t yet and probably never will achieve the same “rich” set of features available with Microsoft Office. So rich we call it bloatware, obese software that more and more gets in the way of getting most things done.
We’ll always need an operating system of sorts, that’s not the debate. But combinations of Web-based applications such as Google Apps with browsers such as Firefox make the OS argument less relevant. As discussed last week, this is what Microsoft directors see, this is the threat to the real billions, the Windows and Microsoft earnings stream.
But, yes, it is about advertising, really. Not advertising in itself, but advertising as the source of Goggle wealth. What Microsoft would like to do is cut that oxygen, cut Google’s ability to invest their advertising profits into their server farms, their software development, their ability to build the foundation for businesses that threaten Microsoft’s only interesting profit engine: Windows + Office.
With this in mind, things are, I hope, a little clearer.
But what about Search?
A friend of mine at a noble and worthy (and possibly suffering) US business daily newspaper writes, rather convincingly: Google is a brand. He means there is no objective difference between search results at Ask, Yahoo, Live.com (Microsoft) and Google. I beg to differ, they do differ in two ways.
First, in my admittedly unscientific tests, Google gives me better results, more often and closer to the top of the list. Yes, everyone clones the uncluttered Google look, but Microsoft and Ask sometimes completely fail to yield useful results.
Second, Google provides a richer set of functions around search and does this in a fairly discreet fashion. As we say here, YMMV, Your Mileage May Vary, a way to say I realize what I state here is hotly debated. Anecdotal as my position might be, I’ve seen steady improvements in Google’s search. Refinements here, better results at the top there, nothing striking but more than enough to strengthen Google’s lead position. The dog keeps coming back to that dog food, even after trying other brands.
Again, what Ballmer and the Microsoft Board seem to say is this: Search leads to advertising leads to money leads to investments against our Divine Windows and Applications profits. We failed to do anything of value in search and in advertising. We haven’t done much with a confusing (dis)array of so called Live Web applications. Buying Yahoo! at least help us gain combined search and advertising revenue, thus cutting Google’s ability to compete with our traditional business.
Still, many of us here in the Valley fail to see how the two companies can combine their people and business units. Microsoft, with all its money and competent engineers keeps failing to make any gains on Google’s ground. Why? Could it be Microsoft chose to develop very large scale server farms on its own product, Windows Server? That product is excellent in Enterprise applications, well-understood by many, supported by tools, reasonably easy to deploy with a good UI (User Interface). But, it is utterly unable to “scale” (in English: grow) and support hundreds of thousands of interconnected servers. Think of the human skeleton, it can’t support heights much beyond 7 feet. The weight grows with the cube of dimensions, the bone load-bearing grows with the square of it diameter. The same old architecture reaches an unbreakable limit. Today’s gigafarms are at the edge of computer technology and Microsoft is shackled to its past while Google is free to pick and design whatever fits its future. Google has no architecture or applications past.
Speaking of past, AOL is for sale. Netscape was sold to AOL, late 1998, for $4 billion, soon to become $10 billion by the time the announced transaction became reality. In 2000, AOL bought Time Warner in the biggest merger of all times, $182 billion in stock and debt. Things went downhill from there, the synergies, the media conglomerate, the portal to end all portals, the hypergalactic infotainment and edutainment (a despicable concept and conceit) center never worked. Now, finally, AOL is “freed”. Is this the future for MicroHoo ?
Presidential Watch 08 has drawn a dynamic, flash-based, map of the 300 key sites who are shaping the debate. See also graphs of which candidate is making the news of the internet. Great stuff to track the pulse of the campaign.
> click here
Cisco Systems likes numbers. Big and metaphor-rich ones. Here is the latest form last week, when the network giant introduced its new digital switch : the Nexus 7000 can transfer 90,000 movies (the entire library of a big rental company like Netflix) in 38 seconds over the internet. In theory, it solves the question of the network needs for new applications (they’re supposed to grow exponentially). The applications Cisco needs to sell more iron? Well, they’re up to you.
> story in the New York Times
Cisco has been using such a tremendous power and speed for its own development. The company holds 600 telepresence sessions each week. The tools : a 65-inch display ensuring a HD-like quality for videoconferencing. In this story, the company CEO’s John Chambers is “traveling” across the world in 3 1/2hrs.
> article in Fortune.
“The cost of ads per 1,000 viewers “bottomed out” in 2007, averaging $3.31, according to the report. This year, it predicted, ad rates would start to rise, reaching $3.86 by 2011″, says the stock analyst Imran Kahn, in this 312 pages report. One interesting thing : more than 80% of the internet advertising inventory sells for less than $1 CPM….
> download the report here
The Kerviel unit is about E4.9 billion, approximately $7.2bn. This is the amount lost by the n°2 French bank Société Générale. There is also the Kerviel Plus, about E50bn ($72bn). This was the total position taken by the young trader; SocGen felt it had to dump it in the midst of a bear market. It’s a little too easy to call Jérôme Kerviel a “rogue” trader. He’s rather a searchlight suddenly throwing a piercing ray of truth on the the financial system follies. Unfortunately, even if this only about a very narrow sector of the system, Kerviel becomes a beacon for the legion of opponents to the free market economy. Plus, and here’s an interesting surprise, he’s exonerated, even lionized by the crowd . See Le Figaro’s poll last Friday, only 13% think Kerviel bears most of the responsibility in the SocGen mess, versus 27% who say it’s the regulators, and 50% the management of the bank. People are ready to forgive the index rider who went, well, slightly off track. But this new metric turns out to be an interesting tool to compare real and virtual economies. Let’s wonder : how many Kerviels (kvl) is your company worth these days ?
- Yahoo (11,500 employees) : 6,2 kvl (according to Microsoft)
- Google (11,400 emp) : 22 kvl
- Boeing (154,000 emp) : less than 9 kvl
- Total (95,000 emp): 23 kvl
- News Corp (53,000 emp.): 8.3 kvl
- The New York Times Co. : (11,500 emp) one third of a kvl Well, you get the picture. These economic discrepancies don’t make any sense, except that all the companies mentioned above feel the tremors when a market related incident occurs (drop in stocks, increase in interest rates, etc.). -
> A large part of the excesses of the financial sphere is tied to a corrupting compensation system. Read this insightful analysis – written before the SocGen debacle – in the Economist.