The Verdict

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February 22, 2007

More Disruptions: Google and RIM

Google is going one further in taking on Microsoft:

Mountain View, Calif. - February 22, 2007 - Google Inc. (NASDAQ: GOOG) - today introduced Google Apps Premier Edition, a new version of Google’s hosted services for communication and collaboration designed for businesses of all sizes. Google Apps Premier Edition is available for $50 per user account per year, and includes phone support, additional storage, and a new set of administration and business integration capabilities.

It's about time. Recently I've noticed that as most of what I write is usually for e-mail anyway, and my gmail has an in-built spell check, I'm using Word less and less. As a result, I've become so comfortable with the font in Google's e-mail that when I gravitate back towards Word I tend to change it to simulate my gmail font, rather than sticking with Times New Roman. This is not something I had previously envisaged happening; at one point I never wanted to type in anything but Times New Roman. It's a classic example of a disruptive technology in action: it's technologically inferior, but it's cheaper and just more convenient so you end up making it a standard. Google however still has some way to go in terms of catching up with the full sophistication of a Word package, and the "docs and spreadsheets" application on the gmail is still just a basic extension of gmail itself, so it will be very interesting to see how this new application fares.

While on the subject of gadgets, I've noticed a lot of scathing criticism of the Blackberry phones - namely the Blackberry Pearl and the Blackberry 8800. "... Well done overall ... but this device's keyboard, a highly important feature, left me frustrated no matter how many e-mails I typed," wrote Katherine Boehret in yesterday's Wall Street Journal, in a product review of the Blackberry 8800. I've heard the same complaints elsewhere: principally that "the keyboard is too small", and "I don't like the trackball" (the blackberry's 'mouse'). Journalists have come down on Research In Motion (RIM) with no shortage of criticism for making these stylistic changes.

I have a Blackberry Pearl, and I find it very easy to use, so at first the criticism surprised me. But then I began to notice a common feature: all the lambasting was coming from people over the age of 35. What no one has succeeded in noticing is that the Pearl and the 8800 are not blackberries designed for existing blackberry users: rather, they are blackberries designed for the under-30's who want to step up to a blackberry from a smart phone but find the old model just too bulky. This demographic - of which I am a member - has been conditioned since the age of 15 on increasingly miniaturized hand-held devices, and therefore expects the same thing from a blackberry. Neither do we have a problem using tiny devices.

It's a great coup for RIM, which now secures a new, and younger, market segment - and one which practically lives through e-mail.   

November 06, 2006

$35.1 Million for Instapundit.com

With all this interest in social networking sites around, and creative new private equity concepts in general, it's about that time in history again when leaving your prestigious investment banking job to go and start a private equity venture capital or buy-out fund focusing on overlooked online assets doesn't seem like such a bad idea if you have the contacts and a bit of chutzpah.

On top of that list of overlooked online assets are perhaps the big blogs. With increasing numbers of readers who demonstrate great brand loyalty, clicking on hundreds of links a day and even taking time out to blog on their own smaller platforms what the 'A-listers' have to say and offer up, the big blogs offer some lucrative potential cross-promotion and marketing concepts. Plus, as an increasingly sizeable number of readers turn to the big blogs for political news before any other source, the potential for search can even be expolited down the road. That's a whole pile of growth. And at considerably less risk, one could argue than other newer social networking sites offer too; most big blogs like Glenn Reynold's Instapundit have been around for at least five years - middle age by online standards, especially in light of My Space, You Tube, Facebook and the rest which haven't even tested their brand stickiness for half that time.

With this in mind, I e-mailed Glenn Reynolds earlier today, asking him how much he'd be willing to let his blog go for, either including or excluding him in the package. "I dunno," he replied. "Make me an offer! Er, a big one ..." Well, after some valuation calcs, it appears the law professor is right to ask for piles of cash, and this indeed is exactly what he may well find himself with in the next couple of years.

There are several ways to calculate the value of Instapundit, but the most accurate one would be based on growth versus current private market value for similar sites offering the same growth features. There's the traditional link-based blog calculator, which puts Instapundit at just under three and half million dollars, but there's a lot wrong with this. Principally, it's based on a formula developed from the AOL-Weblogs Inc. deal several years ago, when the private market for new online tech wasn't nearly so bullish. It's also based on links and their individual component values, but we now know that VC's are less interested in links and current ad revenues than they are in potential market share maximisation (You Tube has very little outside links and doesn't make any money at all).

Let's start with the News Corp-MySpace deal, then. Earlier this year News Corp paid $580 million for My Space, which then had a core subscriber base of around 18.5 million. That's a value of about $31 a head per subscriber, based on forward growth so far of about 25%, meaning News Corp's My Space nominal valuation model peaks at just under $40 per subscriber. Based on those figures, let's assume that Instapundit's average CORE daily readership are the subscribers, which is about 150,000. That's a valuation for Instapundit of $5.87 million. But this figure doesn't take into account the fact that that deal created a wave of private equity deals for online subscriber bases which led to an instant industry growth in valuation of about 250%. Basically, that's what you could have bought Instapundit for just right after the News Corp/MySpace deal. In a minute you'll wish you had.

Next to follow suit was Facebook, for which a private venture capital firm paid for 25% of the company on a valuation of $550 million for a subscriber base of only 7 million. That put the price of subscribers at $78 a head (and in all honesty, Facebook's subscribers probably had less than that in their bank accounts); for Instapundit, that means a valuation of $11 million. Using the Viacom's previously outright rejected offer price of $750 million, Instapundit's value rockets to $16 million.

But then Google got in on the act and paid $1.65 billion for YouTube. Here is a company that hasn't even turned a profit yet, and has less than 10 million subscribers so far. So that's $165 per subscriber, or a value for Instapundit of $24.7 million. Using these recent deals as the basis for blog calculations are sensible: blogs are interactive, they are essentially 'hang-outs' for online communities, and could certainly be developed that way if the owners wanted them to be. Plus, Instapundit's subscriber base is considerably more sophisticated and wealthy than any of the above social networking sites, which means more demand for search and higher margins on subscribers.

Now, Instapundit has an annual subscriber growth of 50%, and valuation growth for online sites is about 100% excluding the YouTube deal. Using those stats alone, we can estimate Instapundit's readership to reach a conservative 225,000 average in the next 18 months, at an industry average of growth to $156 a head (and what's more, the average Instapundit reader has considerably more than that in his/her bank account meaning plenty of ad/cross promotion bucks and elite education which is good for search habits). That puts Instapundit at a current valuation of $35.1 million.

Assuming Glenn Reynolds stays for another five years (as is the case with most PE buy-outs), that's not bad at all for ten year's work.

*UPDATE* Welcome back Instapundit readers who came by for the recent Dow and NASDAQ (links are to posts) analysis last week, and welcome to those who have never visited here before! This is a blog about the economy, which is really to say it's about everything from politics to the arts to technology too, because that's really the jist of the economy. There's also a greater analytical scope on markets here than you'll find in most places. As always, please feel free to take a look around, comment and of course, come back.

**UPDATE** For some good election news and opinions, go and see Brian over at Iowa Voice.

September 22, 2006

All The News That's Fit To Debate

Another debate between the blogosphere and the main stream media (MSM) seems to be surging up again. These altercations centrally concern the validity of news put out by what the bloggers perceive as biased and sloppy press corps, acting on their own political agendas rather than with a geunine desire to report the facts.

It's a good thing for the press to have critics, just as it's a good thing for everyone to have them - after all, it is through criticism that we principally polish and progress our skills in whatever we do.  But when criticism becomes both argumentative and personal in nature, it often misses the point and ends up confusing an already complex issue rather than clarifying the issues which need to be addressed. It is with this in mind that we should approach this latest squabble.

Yesterday, Michelle Malkin reported that the Associated Press is now covering - five months later - the capture and detaining of press photographer Bilal Hussein by the U.S. military, whose work, she claimed in an August 12 post on her blog, has "raised serious, persistent questions about his relationship with terrorists in Iraq and whether his photos were/are staged in collusion with the enemy." It's quite a long and complex story so I'll boil it down: the allegation is that Hussein was working alongside terrorists in order to grab exclusive photos for Associated Press. Michelle Malkin's response to September 19's AP release on the story was that "it's spin time. The Associated (With Terrorists) Press is now waging a p.r. campaign against what it calls the "so-called blogosphere" over detained photographer Bilal Hussein." She went on; "After five months of stonewalling, the "so-called reporters" at AP finally reported what this blog reported on April 12--that Hussein had indeed been captured by the US military in a Ramadi apartment building where bomb-making materials were found...along with an alleged al Qaeda leader. Hussein reportedly tested positive for traces of explosives." Her big problem with AP was two-fold: why so late, and why the continued insinuous defence of their photographer rather than the acceptance that they got it wrong?

Then there's Brendan Nyhan. Mr. Nyhan was asked by American Prospect to write a column criticising the media. As he notes in yesterday's  homily, the idea struck him as rather odd given the U.S. media's bias towards the left and the fact that "the Prospect is a liberal magazine ... but I assumed they knew who they were hiring.  I was wrong." As he goes on to explain, he "slammed two liberal blogs for using an airline employee's suicide after 9/11 to take a cheap shot at President Bush." The piece he found question with, which appeared on the popular left wing blog Atrios, commented that "The American Airlines ticket agent who checked in Mohammed Atta on 9/11 later committed suicide - unlike the man in charge who, being briefed on the potential threat, told his briefer, "Okay, you’ve covered your ass." Mr. Nyhan's point was that this was the loss of a human life, and that the post was "politicizing a suicide". Regardless, pressure from left wing bloggers and letters of complaint to American Prospect prompted the editor to order the columnist to stick to criticising only right wing blogs, an offer Mr. Nyhan declined along with handing in his resignation.

These are two quite different, but nevertheless prescient examples of the emotions so prevalent in the debate over the blogosphere vs. the media. One concerns the reporting of hard facts, the other is about 'opinion journalism'. Nevertheless, both show a disappointing flavour of personal - rather than objective - attack which only undoes the real goal.

It's worth bearing in mind here first what the real goal in journalism is all about, be it opinion or fact: an honest and upfront package of news-delivery, in a format everyone can understand. On the first count then, Michelle Malkin has good reason to be angry: cooperating with terrorists in order to get an exclusive - and a staged exclusive at that - is at its best, ethically conspicuous. But due to her personalisation of the attack, her partisans are incentivised to go one further; they would have journalists make no ethical judgement calls at all. This is just counter-intuitive. Every profession which serves a crucial role to society, be it banking, medicine, law or journalism, involves at times making judgement calls based on a limited knowledge of the facts and which may turn out to
be for the worst, and by which by fat the bulk of which the professional has to go by is his or her own ethical assesment of the situation and the inherent trade-offs. It's not that Michelle Malkin is wrong to lambast AP for this fiasco (which admittedly they've dug themselves into) - her fine reporting skills do a justice to clarifying the facts in a complex situation, for sure. But by making her attacks so personal, and by bringing the blogosphere vs. media debate into the fray, she undoes much of the constructive work she has set out to achieve by beginning a whole new - and arguably less worthwhile - polemic.

And there's a vague sense of hypocracy in Michelle Malkin's criticism of the main stream media, too, for it was exactly there that she learned all the skills which have equiped her with the means to attack this story on her blog.

Wall Street Columnist and author Jeremy Wagstaff today writes on his blog, loose wire, "Media companies (itself shorthand for mass media) are no longer about content, and all about the medium. For the past 80 years the mass media has been about leveraging the technologies available to deliver standardized content over as large an area/population as possible. Now it’s about using the technologies available to enable as large a population as possible to swap their own content." This is disappointing to hear from a seasoned columnist, indeed. For, to continue with the example above, it is not the fact that Ms Malkin is writing this report on her blog that is the most important thing here, it is the fact that she is a good reporter with a strong sense for when something does not add up, and has the ability to deliver on it. Whether she publishes on her blog, in The New York Times, or in a fanzine is irrelevant - in other words, quite the contrary to what Mr. Wagstaff is saying, it is misleading to get side-tracked into a debate on medium, when content is what it's about.

The medium is changing, but this is nothing new. One hundred years ago most newspapers did not have pictures; now they do. So what? The act of news reporting and delivery is what the economics of journalism is about.

Here, Mr Nyhan's story is particularly disheartening news, for both the main stream press and for the blogosphere. For the media set, it is sad to see a logically valid and justifiable attack affect their strategy to criticise and seek the truth. What Mr. Nyhan was saying was completely defendable, after all: remark about how the flight attendant who let the terrorist responsible for one of the 9/11 attacks onboard committed suicide whereas President Bush did not is, whatever your view, politicising a suicide (i.e. making an inherently political point by using the example of a suicide). Atrios and left wing bloggers' criticism of the piece should have been water off a duck's back to the chiefs at American Prospect, but instead, they chose to withdraw and alter their original, admirable and truth-seeking strategy.

But it's also bad news for the blogosphere, more than anything because it shows one pivotal fault with bloggers: they are often unable to accept forms of criticism constructively or lightly. One of the strengths which news reporters are forced and trained to aquire early on is to accept and digest criticism in a way which can continue to improve their work, largely through having to re-work countless versions of the same piece until their editor is content (which in itself is rare). Those that do not acquire this skill don't stick around for long; it's usually as simple as that. If bloggers intend to become a widely-received outlet for news reporting, criticism and humility are qualities they mjust learn, and this story is a classic example of that. You can't always get it right - not as a trader, not as a doctor, not as a judge, and not as a journalist. Because of the intensely personality-driven nature of blogging, many bloggers become emotional about criticism that would be best received thoughtfully.

It is unclear exactly what the aim of bloggers who denounce the media is, too. Would they have us a society with multiple 'citizen journalists', all running around with their cell phone cameras and writing from their laptops in wireless internet cafes as and when they are on-site? I don't mean this derogatorally; after all, I write a blog, and I sometimes use it to report events which I think are interesting to others. But a world without newspapers, without magazines, without television would derive us of much of the rich cultural and linguistic development we have today and have had for centuries, for all these mediums provide one unified platform for their expression.

Certainly, the world is changing, and technology is bringing with it an empowering force to the individual. But the individual can still monitor, criticise and scrutinise the corporation and live in harmony with it. That's what the media, science, politics, the courts, and the democracy we have fought for are all about. Let that be the case, not the more violent alternative.

September 20, 2006

Somone Has To Pay For It All

It's not always just consumers who can't pay their bills. At least, according to a Reuters newsflash today on Zimbabwe, this seems to be the case. "Internet traffic in Zimbabwe has come close to a standstill after an international satellite firm slashed its bandwidth because the cash-starved government failed to pay the bill," the wire reports.

Government-owned TelOne, which owns the country's main satellite Internet link, said satellite firm Intelsat had cut its international bandwidth because it failed to pay the $700,000 fee.

"The link is slow because they reduced the megabits on our satellite link until the payment is made," TelOne spokesman Phill Chingwaru told Reuters on Wednesday.

... "It is a nightmare because of the congestion and we are getting calls from desperate clients, some of them who can't even access the Internet," said an official from a private ISP, which uses TelOne's satellite link.

As the report further points out, Zimbabwe's 1200% rate of inflation and 70% unemployment are the principal drivers behind such calamaties. The story is a great reminder that technology - and indeed any scientific development - is not free of charge, even when its infrastructure has already been implemented. Too often in developed economies we tend to think that no matter what happens, as long as we remain relatively protectionist and guard our assets sufficiently, the chances of any kind of real reversion of development is minimal.

Zimbabwe is a great counter-example to this over confidence. It is precisely liberalised trade that has brought us the technological developments which improve our lifestyles, and all asset guarding tends to do is create a barrier towards growth of commerce. Granted, Zimbabwe is also run by a dictator who hoards many of the country's assets himself, but even then, was the country open to foreign trade it is highly unlikely it would be in the kind of mess it finds itself in now.

The key difference between the world of the twenty-first century and the one of the centuries before is our high degree of interdependence. Intelsat - the company which cut off Zimbabwe's connection - is a Bermuda-based global providor of satelite communication, a whole two oceans away from Africa. It's a story worth remembering - especially in light of current talks of protectionism in response to other fast emerging  powers, which again, are a couple of leaps of the pond away.

April 29, 2006

Is E-Bay spinning off negative PR?

WSJ columnist and writer of Loosewire Andy Wagstaff questions the number of users E-bay-owned VOIP mega-brand Skype claims to have signed up:

Internet telephony folks Skype today says that it now has 100 million registered users. A press release (free registration required) says that this was achieved in “just two-and-a-half year's time [sic], and has nearly doubled in size from September 2005 when it had 54 million registered users.” This is truly impressive. But if this is the case, where the hell is everyone?

My Skype currently shows 3,633,607 users online. Admittedly this is during the Asian day, when traffic is not as high as when the Europeans and Americans wake up. But that’s less than 4% of registered users actually online ... I can’t help wondering whether the 100 million figure is a) a wild exaggeration, down to people registering twice, b) people registering and then ditching it or c) the number of users that appears in the Skype program is just not reflecting reality.

This sounds like a classic dot-com era piece of PR hardball: not exactly fictitious, but a little misleading. Considering that, according to parent company E-Bay's website, E-Bay's total number of customers is only 181 million, the likelihood of 100 million regular Skype users certainly sounds like an exaggeration. Those figures, put in perspective, mean that more than a third of E-Bay's customer base is not from their own sui-generic brand, but from that of a recent private acquisition. If this was the case then Skype executives would surely be playing a much more prominent role in the E-Bay boardroom than they do now, and it's unlikely VOIP would have come as such an easy acquisition. Butthen  the question begs: why the need to exaggerate? Skype was an impressive purchase, is an impressive brand in a disruptive industry: why imply that 100 million people are regularly using Skype?

A quick glance at the Reuters newswire might help to explain a few things. First of all, E-Bay's just gone and spent 365 million Swedish Kroner - about $60 million - on Tradera.com, a Swedish online auction site. In other words, E-Bay, despite its enormous global customer base, is having trouble cracking the Scandinavian marketplace and needs to acquire a competitor in order to establish market entry. Then one sees that E-Bay might "increase ad spending with (a) chosen partner (such as Yahoo! or Microsoft in a collaborative effort against Google) and provide access to the data it has collected about its consumers". Translate this piece of flamboyant PR into "E-Bay wants to justify more advertising to it's shareholders" and it makes more sense. To cap it all off, however, not only is E-Bay increasing it's spending on advertising and buying new competitors because it's brand isn't strong enough to penetrate certain regional markets, but it's second quarter earnings are expected to be below analyst's expectations this year. The press release even goes as far as to cite non-GAAP (generally accepted accounting principles) figures in the statement, an inclusion that quite frankly begs disbelief  as it tells investors nothing meaningful about the financial state of the company.

E-Bay's conundrum then is how to sell what by all accounts could be quite reasonably construed as negative PR by shareholders and the market as positive signals of growth. Boasting about extensive customer bases is an obvious way to do that.

April 01, 2006

Alcatel Lucent Finalising

Scott Moritz over at the Street.com is a little unimpressed with the Alcatel Lucent deal:

The postboom era hasn't been all that fruitful for Lucent. The stock has been stuck below $5 for more than three years. And at this point, Lucent is facing a wall rather than a lot of encouraging options.

True enough, Lucent stock has not exactly flown over the past five years, but then again, neither has that of any telecoms company. And getting together in the capacity of a merger with a company whose market cap is 40% higher than your own is a pretty soft wall to face.

March 29, 2006

Apple

The latest developments at Apple Computer, as featured on Google News and Google Finance:

... if the radical New Economy/NewMedia giant can sustain a sufficiently high equity price and snub combative parties in the courtroom over the next few months, it will send a clear signal to the market and to traditional competitors such as the ailing EMI that the franchise over the music industry has now changed hands.

My hunch is that Apple will pull through victorious: the industry platform is changing, and this is the last fight to hold it back.

February 25, 2006

Is Technology Working In Today's World?

Wired Magazine on technology in the workplace:

""Most U.S. workers say they feel rushed on the job, but they are getting less accomplished than a decade ago, according to newly released research.

"Workers completed two-thirds of their work in an average day last year, down from about three-quarters in a 1994 study, according to research conducted for Day-Timers, an East Texas, Pennsylvania-based maker of organizational products.

"The biggest culprit is the technology that was supposed to make work quicker and easier, experts say.

""Technology has sped everything up and, by speeding everything up, it's slowed everything down, paradoxically," said John Challenger, chief executive of Chicago-based outplacement consultants Challenger, Gray & Christmas.

""We never concentrate on one task anymore," Challenger said. "You take a little chip out of it, and then you're on to the next thing. It's harder to feel like you're accomplishing something.""

This sounds more like a call for different working skills than it does for less technology. Whining about how technology provides disractions and blaming it for poor performance is just ridiculous: for decades, there have been numerous distractions, most notably the drinking lunch. I have yet to meet anyone who still regularly drinks alcohol at lunch on a working day these days, and yet twenty years ago it was the norm.

Trends and social habits change: the pace or momentum of change, however, has little to do with whether one can aptly focus or not. That's down to education, and this is where the problem lies: most of Generation X and before were educated without technology and have had to adapt it into their working habits - for tomorrow's executives, however, combining the two with maximum effectiveness won't be an issue at all.

February 22, 2006

The Online Tabloid Effect

More insightful news from Editor's Weblog:

The famous financial daily, The Wall Street Journal, may be thining itself from a width of 15 to 12 inches and the globetrotting newspaper designer Mario Garcia may be pushing for a compact, but it doesn't appear that the Dow Jones' flagship will be cut down to tabloid size.

Garcia is currently working on a redesign after having helped the Journal add color to its front page in 2002.

But despite having switched its European and Asian editions to a compact format, it is doubtful the Journal itself will adopt the design that Garcia predicts will soon be standard.

"In five years, you will hit a generation of readers who don't remember life without the Internet," said Garcia. "People who are coming from . . . the screen of the Internet are used to reading within the confines of a smaller place and transfer more quickly to the tabloid.""

This should be required reading for anyone who still claims that newspapers are going to be the dominant medium for news distribution in twenty years time. Once printer developments catch up with the pace of online and software developments too, it is difficult to believe that anyone will make the trip out to purchase a newspaper or magazine when they can stay in and print their own at home.

Garcia's observation that the next generation will think differently is prescient: far too often, businesses tend to think in terms of the habits of today's customer base, and when they do talk about tomorrow's, they do so without thinking of the habits and practices of those customers now.

Long-term business effectiveness depends upon thinking about what everyone who is not your customer is doing instead.

February 20, 2006

The New "Idols"

From TheStreet.Com:

Published reports indicate that Amazon is close to launching its own digital music service that would compete with Apple's industry-leading iTunes store. In conjunction with the move, Amazon also will apparently offer its own line of Amazon-branded digital music players that would work hand-in-hand with the service, according to the reports.

As the leading e-tailer with lots of experience in selling music online, Amazon has significant advantages that could help lift its service above other digital music also-rans such as RealNetworks' Rhapsody service.

Include Myspace, and it is clear that traditional record companies are conspicuously absent from all the talk about developments in the digital music market. What has happened, of course, is that record labels have found that, since they make the bulk of their cash on in-store retailing, they would be leaving too much money on the table by abandoning that business model in favour of an online strategy. In the meantime, technology companies and web sites have found that they are perfectly positioned and have nothing to lose by trying to start out the first kind of real online record company, and it's starting to pay dividends.

In 20 years time, EMI, Sony Music and the rest of the traditional record company camaraderie may well be a thing of the past. The hardest loser so far, however, has been Time Warner, which with subsidiary AOL, should have taken much better advantage of its market positioning in rolling at least a Beta module out.