Category Archives: investments

Wal-Mart for Nobel Peace Prize!

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Wow, this clever article by John Tierny  in New York Times Op-Ed (what a great news source now that the paywall is down!) suggests maybe the Nobel Peace Prize should go to Wal-Mart for lifting more people out of poverty than pretty much any other organization on earth.  He notes a notion that the best route out of poverty for the developing world is to make stuff for Wal-Mart to sell to … those of us who live in the developed world.

This is a provocative piece but it cleverly *should* get people to realize the complexity of economics, and the fallacy of ideas that prosperity in the developed world comes from exploitation in the developing world.  This last notion is one of my pet peeves because it is a very naive and inaccurate view of the way international economics works.   Systems that avoid capitalism and avoid interacting with capitalism don’t thrive.   In fact they perform abysmally as indicated by the experiences of early communism, and present conditions in North Korean and Cuba.    Prosperity comes from becoming part of the developing world through economic interactions.    This is not the whole solution to poverty, but it is an important part of that solution.   If well intentioned people would work to understand the importance of getting poor folks *involved* with the globalized economic experience  it would be easier to bring the billion+ in extreme poverty to a higher standard of living.     It does NOT end there of course.   I’m happy to see organizations try to force corporations to greater levels of worker responsibilities.  But that needs to happen *after* workers and countries show that they want to play the big game.   

As Tierney suggests, making stuff for Wal-Mart is probably one of the fastest ways an Indian or Chinese guy can feed their family.  What’s wrong with that?  (I’m serious – there are some problems with that approach, but I’ve gone on long enough here for now ….)

Microsoft v. Yahoo. They can’t seem to make an offer Yahoo can’t refuse.

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The big tech story remains the Microsoft offer to buy Yahoo, and on Wednesday a meeting at the Yahoo’s HQ in Sunnyvale, CA may seal the deal, though it’s more likely that negotiations will continue for some time after that meeting.

Microsoft may be wondering about the wisdom of the aquisition given how hard the market appears to have punished them for the offer.   Although other tech stocks were down last week, Microsoft’s 13% drop amounted to a loss in capitalization equal to almost the entire value of the Yahoo deal.   ie you could argue that even if Yahoo sold themselves to Microsoft for $1 on Wednesday, the boost in the merged company value would not make the two any more valuable than *Microsoft along* was worth before all this began.     That’s a lot of financial simplification but Microsoft must have at least somewhat more skepticism about all this than they did as they made this offer.

So, what are the likely strategies here?     It is clear Yahoo will reject the current Microsoft Offer which amounts to about $30 per share, and they are strongly rumored to be asking Microsoft for $40 per share.   I’ll eat my keyboard if Microsoft agrees to $40, but I do think they may immediately counter offer at about $34 per share.     Of course unless the inclinations of the Yahoo board change they’ll reject this as well.    I’m growing somewhat suspicous that the unreasonable $40 amount is not really an attempt to boost the sales price – it may be the best way for the Yahoo board to send negative signals, try to wait things out, and give Microsoft more chances to back out.   If Microsoft gets cold feet from the share price drops or Yahoo’s chilly reception of the merger idea, and then backs out of the deal, shareholder lawsuits against the Yahoo board are less likely and weaker.  The Yahoo board will simply say the $40 was a negotiating tactic that went wrong rather than a tactic to kill a good deal.

However I don’t think Microsoft is going to go softly into the night on this, and that will make all this very interesting.    They’ll offer more, and at even $34 per share Yahoo would be getting an amount approaching a 100% premium over their recent 52 week low of about $18 per share.  This is the price YHOO traded at following the bad guidance from the recent earnings call.  

It strains the credulity of this shareholder to see how the Yahoo board can argue that Yahoo has a realistic shot at being “twice as valuable” as they were last week in a reasonable time frame.   In short, we all know they can’t.    This may be a defect of market forces or employee attrition or lazy management or low morale or Google defections or whatever, but left to her own devices Yahoo is pretty much going nowhere fast.   I’ve been bullish on Yahoo for several years now and remain convinced that the company can eventually turn things around.  However I think this aquisition may be 1) part of that turnaround process and  2) presents an offer far too good to refuse without risking a share price meltdown.

So, looks to me that on Wednesday the Yahoo board will turn down the current offer, Microsoft will up the offer to about $34, and Yahoo board will turn that down too (probably the following week).  This will lead to nothing short of a Yahoo shareholder revolt as anxious investors watch a company throw away tens of billions of birds in the hand arguing they are seeking a few more birds in the internet bush.

Ha – even Mini Microsoft hates the deal.   An interesting salary debate over there along with the normal absurd whining from developers over their already very large salaries. 

Disclosure:  Long on Yahoo (but not for long!?)

Wall Street Journal is largely free … online via Google

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Thanks to Danny Sullivan for picking up a clever way to access WSJ articles without a subscription (and perfectly legally as well) by using Google News to find the articles and then clicking through to the stories.    

As TechDirt reported a few weeks ago Dow Jones had decided not to follow the New York Times and drop the WSJ’s paywall.    The revenue considerations are tricky, if not impossible to figure out in these situations.   NYTs has seen an explosion of traffic but I think modest increases in online revenues which were never a big source for them anyway.     The battle between print and online continues to rage and I think now everybody knows the inevitable conclusion – online will win, but won’t necessarily create a lot of profits for the winners.  

Microsoft and Yahoo

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I’m still digesting all the Yahoo Microsoft commentary but it seems to shake out as tech folks thinking it will not work and investment folks loving the deal.    Hmmm – the comments seemed favorable, but Microsoft lost a huge chunk of value in stock trading so clearly the “market” is skeptical of this.

One of the things I’ve noted in Silicon Valley is how popular Google has become and how poorly regarded Yahoo and Microsoft have been with respect to internet stuff, though part of this may be that I’m involved with mostly search related online events and conferences and Google clearly rules that roost.   I think the Google success and mystique has probably kept tech folks from focusing on the huge potential of a combined MS / Yahoo empire.    Where both Google and Yahoo have succeeded in capturing online traffic Microsoft has conspicuously failed.   Yet Microsoft has continued to pull very expensive enterprise computing rabbits out of its hat, with even the most recent earnings reports suggesting they still are a dominant and profitable force in the software market.     What better way to smooth the transition from old to new than to buy Yahoo?      Pitfalls?   Sure, but the cultural differences will be happily overlooked by Yahoo employees hungry to see their stock pulled out of the sewer.      If Microsoft is smart they won’t merge the brands – rather inject life and some cash into the flailing Yahoo search and affiliate system.    Microsoft could strongarm online affiliate publishers in a way Yahoo could not – by essentially bribing them to move over from Google via 100% revenue sharing.    The extra total traffic and buzz would be well worth the sacrifice of some of the publishing money.     

As a Yahoo stock holder I’m obviously happy to see the offering price pull the stock up, and positive attention focused on this deal, but I also think it’s a good ideas for the reasons I’ve discussed over the past year.   Most notably MS internet failures, Yahoo’s internet successes in Web 2.0, and the huge combined traffic footprint of a combo-company.

Henry Blodget, who helped me in an oblique way with his rumor that pushed me to buy more Yahoo on Tuesday, now is reporting that there may be other parties interested in Yahoo.   This would make sense given the companies clear potential to be as successful as Google while it languishes at a Market capitalization of about 20% of Google.   I’ve never understood the huge pessimism about the company – clearly the “number two” online behemoth.     We’ve got dozens of major automakers, oil companies, etc.  Why is there an assumption that only Google can succeed online?

Disclosure:  I’ve got Yahoo, and finally don’t have to say that hanging my head in shame.

Why Microsoft+Yahoo>Google

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The Yahoo Microsoft Merger is a very good idea.   Although Yahoo is in some ways a different culture from Microsoft, It seems to me that both of those corporate cultures have become bureaucratic, sluggish, and uninspired when compared to Google’s freewheeling yet very productive approaches.    Yet very importantly, the thousands of Yahoo and MS employees are very impressive, and certainly capable of great things as the online world is reinvented on a regular basis.

If Microsoft can pool the innovations of the LIVE project with Yahoo’s superb developer support programs, and hire and inspire more people to have the evangelical zeal of Googlers, it could be a whole new online ballgame.

The big reason this makes sense is actually very simple, yet is seems to be missed by many analysts now ranting about this as a bad idea.    It’s a mathematical reason.    The traffic from Yahoo+ Microsoft is very substantial.    Yahoo had more total traffic than Google before the merger – it just didn’t have as much of the lucrative search traffic and did not monetize the traffic as well.  With Microsoft traffic, the combined Yahoo Microsoft company will still initially lag Google in search traffic, but it will have *far greater* total web traffic.    This is hugely significant, especially if Microsoft begins to focus more on how important it is to drive potential searchers to search portals inside their own network.    Fear of lawsuits and lack of interest in what for Microsoft was a small revenue source led them to failure in the search business.     Although the LIVE project was inspired, search share still lags so far behind Yahoo and Google that rolling all this into Yahoo search makes a lot of sense.       The combined company would control an enormous share of  global web traffic, and it won’t take too much imagination or innovation to redirect this far more profitably than now.  

Microsoft remains the overwhelmingly huge legacy player in the information technology space.    Google is the clear leader as the new  player.   Can Yahoo inject enough energy into the monstrous Microsoft machine to compete effectively in the online space?    I think there are many potential pitfalls, but on balance  you need to do the math, which says that in online footprint, content, and market capitalization:

Microsoft +Yahoo > Google.  

News release from Microsoft

Disclosure:   I have Yahoo shares.  In fact I doubled them on Tuesday!  Yippee!

Microsoft offers to buy Yahoo

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I’m feeling kind of smart today after feeling stupid *yesterday*.    I had doubled my Yahoo stake before the earnings call, wrongly thinking that a good report was in store.     However just fair earnings and poor guidance knocked the stock back a few dollars the next day.     But it’s surging today as Microsoft has offered 44.6 billion for Yahoo, effectively making it worth a lot more than yesterday.

Perhaps the price hit after earnings drove Yahoo to some sort of strike point for Microsoft.    At CES I  think I may have been right to suggest there were high level meetings between Gates and Yang regarding a Microsoft Yahoo Merger , clearly MS must have been thinking about this for some time.  Rumors have been swirling for over a year.

Yahoo carnage coming at conference call.

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As a Yahoo enthusiast and shareholder it’s been hard to watch the company struggle so hard over the past few years only to lose ground to Google, especially because Yahoo’s social networking efforts and web 2.0 initiatives have in most ways been superior to Google’s.    Flickr is the best example of a superb Yahoo application that is more used than Google’s Picasa (which is also excellent but was late to the scene so most early adopters are sticking with Flickr, which is somewhat better anyway in my view).  

Henry Blodget at Silicon Valley Insider is reporting that Yahoo will proceed soon with the drastic layoff scenario – rumored to be some 1500-2500 people.

Human issues aside, this will likely be very good for the stock price and company’s future prospects.    Google learned early on that the key to profitability was scaling up systems without comparable scaling up of staff.   Google thus leveraged the incredible efficiency of computers to generate more profits.   Yahoo, on the other hand and especially with Terry Semel in charge, sees themselves as more of a media and content producer with all the labor intensiveness and lack of internet efficiency that approach entails.    Google was right, Yahoo was wrong.    Even Google’s own Youtube, a masterpiece of creating cheap content without staff, is struggling to monetize all the content and traffic.    

I’m oversimplifying the relationship of content production to profit here, but in general terms I continue to believe that the expression “content is king” was *never* true on the internet, and that in many ways sticking to this mantra cost Yahoo a big part of the ballgame.    Yahoo actually used Google search as Yahoo’s search tool for many years, and could certainly have aquired Google in the early days for millions of dollars rather than becoming eclipsed by Google which now has a market capitalization of about five times Yahoo.   Why didn’t they do it?    Google was “search”, not “content”, and Yahoo foolishly believed content was king.    

Content is a pawn in the big online chess game, and don’t forget it.    

Firefox IPO? Blodget says to bet on it.

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Market watcher Henry Blodget’s bullish on the prospects of Firefox and for good reason.   Firefox has 15% of the potentially *extremely* lucrative browser market with most of the rest resting in the hands of Microsoft.

Blodget goes so far as to suggest a merger with Netscape, leading to a mega browser company that would then partner with many and build a more aggressive marketing plan.

It’s a very good idea and something to watch carefully.

Why not Flock?

I’ve wondered why Flock has flailed away in the browser market, so far without much success.  It’s  a great product with very sharp folks behind it, and it rests on a great idea – socializing the browser.   But I think Flock was ahead of it’s time.  In the meantime websites used mashups and widgets and such to socialize themselves, leaving Flock less valuable than it would be in a world where you could not easily get cross-website activity within your existing browser.    

 Even early adopters (well, maybe not Scoble, who seems to try a new application every 15 minutes) are pretty stubborn about changing applications.     Google’s been the biggest beneficiary of this tendency which many wrongly attribute to superior search results.     Results matter, but not as much as “momentum” which kept us all using MS Office products well past their prime.

But this factor probably won’t inhibit Firefox adoption any more than it already has – Firefox is a popular application and has enormous positive buzz, and as Blodget notes they’ve done little to hype or promote it yet.

Trickles of web content to become floods, sweeping away the cable industry? Maybe.

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Henry Blodget at Silicon Alley Insider has a good insight about the threat to cable from online feeds, which are now a trickle but could become a flood.    Blodget notes about the agreement between Yahoo and CNET:

… cable companies, meanwhile, depend on monopoly access to networks like CNBC and cannot afford to be circumvented by, say, a live CNBC web feed (lest a web trickle become a flood)…

I think Cable still has a viable future for at least the next 5 years because convergence of media is going to take a lot longer than most think, and if Cable is smart they’ll find ways to be the key broadband conduit into the home as they already are for millions of American homes.    It seems to me that the internet is more threatening to information driven media like newspapers than it is to entertainment driven media.   The is partly just a bandwidth issue – currently it’s not realistic to expect people to buy, configure, and use the fledgling broadband movie services.     How soon will this change?    5+ years in my estimation.   Of course eventually super high bandwidth streaming into most homes will be the likely main paradigm for home entertainment, but this won’t happen for some time.   We are too stubborn to innovate nearly as fast as technology allows.

Venture Capitalism – luck or science?

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Over at his excellent blog, A VC, Fred Wilson is bearing his Venture Capitalist soul and offering a lot of insight into his very successful VC firm.     Today, his analyses of why some startups fail sounded really compelling to me in the same way many stockpickers sound compelling.    Yet in the stockpicking world it’s common knowledge that past performance is no measure of the future.   In fact a lot of the ideas about “good” vs “bad” analysts are bogusly based on after-the-fact analysis of records.    Predictions, not after the fact stuff, are what we need to test hypotheses about what works and what does not.

Fred also has this post suggesting VC is not like stocks, but I’m not seeing data to support this.  In fact if he’s right – that the top VC funds can pick a lot more winners than losers – then why doesn’t *all the startup biz flow to them immediately?*.

My working hypothesis is turning into the following ideas:

Winning VC firms are like winning stock pickers – they for the most part are the firms  hat were at the right place at the right time.   The winning record is NOT the product of conscious, clever, consistent application of any sets of rules.    It is simply the product of math – you’ll have a top tier by definition.  

I also apply this rule to my own successes and failures in biz and life in general, though I always catch myself thinking I can “outwit” chance.    I think egos get in the way of good analysis about the world, which suggests a lot less control over things than we’d like to think.    This is still in the working hypothesis stage and I have not reconciled that fact that I can predict with enormous accuracy that, for example, I’ll be drinking coffee tomorrow morning, yet I can’t even tell you if Google stock will be up or down tomorrow.

NO – you can’t time stocks either, and I’ve got huge money to bet you if you think you can predict stock up and downs even slightly better than chance. 

With stocks when you use a performance record you don’t find good predictive relationships between the past and the future.   Many people think they *do* understand those past to future issues, but in the stock world this does not hold up to scrutiny.  If it did, staggeringly huge returns await anybody with even very modest  level of long term predictive power and a modest initial stake.   How?   

If you could predict the daily up or down movement of any stock  with even a modest level of accuracy you could use options (or buying short and long) to quickly turn a buck.  If the stock was highly volatile and options were available your leverage would turn a few thousand into a few million in a year thanks to leveraging of your success percentage predicting the up or down movement.   If you could predict things with high accuracy – well above chance – you could turn thousands into millions every month.    This does not happen.  

I’m open to a disproof or alternative hypothesis for VC firms.   But don’t tell me about successes and failures  – I want predictions.   There will  *always* be a top tier of winners.   What supports my hypothesis is that those winners change over time and past does not predict future (in Stocks – I’m really not up on VC stats except that the average returns are negative).  

I think VC may have more of a schmoozing human component than stock picking so that may play a role here.   I’ve noticed from the few Venture Capital folks that I know how they tend to be very bright and personable.    Yet even this is somewhat conspicuous given that average VC return is negative, where the average bright personable person is doing well.