Category Archives: investments

Google Gorg replacing Microsoft Borg? Don’t be P/E vil?

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Chris “Factory Joe” Messina of Flock has a provocative post about how Google is …. continuing to take over the internet world.

Although I’m more concerned about the virtual monopoly on search rather than Google’s assualt on Microsoft’s virtual monopoly on operating systems and office applications, everybody is well served to start thinking, as Voltaire sort of suggested hundreds of years ago “Is an all-Google world the best of all possible worlds?”

The answer, of course, is NO. Google’s brought great stuff and should keep on bringing great stuff. Google’s been rewarded with almost unimaginable riches and that’s fine. It may even be true that the Google juggernaut has some juggernauting to do before it needs to be brought in check. Sometimes it’s great to let super clever people just run with things until they run out of steam.

But like Chris I think it’s now clear that stock prices and commercial considerations have considerable influence on Google and their decisions and operations. You don’t have to think Google is running around intentionally doing monopolistic things to worry that if the going gets tougher and they no longer have so much of the search market and are fighting to maintain the stock Price Earnings ratios and options values the “don’t be evil” mantra may be interpreted more as “don’t be P/Evil-keep Google on top”! Wait. I think that Mantra change is already under way.

Google is a great company, but as Chris suggests that doesn’t mean we should stop keeping our eyes on them.

Disclaimer: I’m hardly a market mover but should say I do have stock in Google competitor Yahoo and puts on Google because I thought it was overpriced.

Prediction: Google will buy Facebook for about 1.1 billion

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Irrational exuberance in the dot com shopping aisles?

No, it’s a chess game and Google’s winning….again.

I’m really starting to understand what seems like irrational exuberance on the part of Google and the major players. A Google aquisition of Facebook would be consistent with what Robert Scoble suggested is happening: Google is building a moat around it’s advertising business.

Steve Ballmer also suggested this notion in his recent BusinessWeek interview, ironically fretting that Google could monopolize the media business. Yikes, Steve would really run out of chairs then?

I can almost hear Ballmer to Schmidt:
“Hey Cowboy, there’s only enough room in this here internet for ONE monopoly you, you, you dirty monopolistic sonofabitch BASTARDS!”

Schmidt to Ballmer:
“HEY! DROP that chair and step AWAY from the Vista Browser!”

Google, with tons of cash to burn and a staggering market cap, has far less to lose in the high stakes internet poker game than Yahoo, Ebay, or even Microsoft. Microsoft is bigger than Google and theoretically richer, but unlike Google Microsoft has yet to figure out good ways to monetize their (improving) search services and (not improving) content services.

Ballmer’s juggling how to preserve his big ticket MS Office and Vista projects. Yahoo’s worried about plunging valuations and people leaving and the fact that a billion represents a lot more to them than it does to Google.   This is almost certainly complicating the Yahoo Facebook negotiations right now.  Ebay’s pretty fat and happy where they are. Meanwhile, Google can focus in laser-like fashion on keeping Google in the driver’s seat with it’s superb contextual advertising monetization.

The best defense is a good offense, so they are buying up properties to increase their control over the advertising space and keep those hundreds of millions of eyeballs out of the hands of MS and Yahoo.

Will this work? I say probably not for similar reasons it was stupid for Yahoo to buy Broadcast.com years ago. Video is junky and won’t monetize well. It’ll be more of an encumbrance to Google’s core competencies than an asset. But … things change, and in the meantime it’s fun to watch this high stakes game of chess unfold.

It’s a show you won’t see on YouTube.

Got a few *billion* lying around? Buy an internet company!

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Here’s a nice list of internet purchases over the past few years. I’m starting to come to grips with the fact that even if you create a great company the payout is not that spectacular unless it’s the one in a hundred deal like a YouTube, Skype, Broadcast.com, etc. As one of the VC’s down at Mashup Camp pointed out those are the exceptional exceptions to the normal rule of deals worth millions, not billions. Even in those deals only a handful of people make more than a few million.

In a 20 million deal once you’ve paid off the VCs and generously dealt with other key employees I wonder what the average “founder payout” would be?   The average VC funded buyout is about 47 million.   This sounds high, but there are many, many VC fundings that end up dying.    Thus the ‘average value’ of a VC funded company would be way below the average buyout price if I read that number correctly.
As my old pal Rick likes to say “A million dollars isn’t what it used to be!”

Google to buy Youtube for 1.6 billion

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It’s now almost official that Google will buy Youtube for a whopping 1.6 billion. They’ll announce it after the close today.    Here’s the NYT take on things. I’d have listened to Mark Cuban because it seems to me he’s in a very unique position to analyze the prospects here, but they didn’t and soon Google will have a huge video footprint. Google Video has about 1/4 the traffic of Youtube. Combined I think they’ll dwarf the competition – at least initially, though this market, which should really be called “American’s stupidist and most mundane home videos” is still in it’s infancy.

It’s not clear to me that people will continue to spend hours and hours surfing and watching for the few gems in an ocean of crappy short clips but Google seems to think so, and it’s also true that there is an enormous amount of advertising money now spent on network TV that may flow to this venue. Google’s recent talk about NOT producing their own content and moving into offline advertising venues may relate to this decision – they want to become a key source to soak up as much of the dumb money now spent on extravagant, low ROI offline campaigns.

Yahoo! …. I finally bought the company….well…I bought a little piece of Yahoo!.

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I’ve been watching Yahoo the company and Yahoo the stock for over a year, and finally put my money where my mouth is and picked up 600 shares at 25.31

I feel the stock is really undervalued due to what should soon be a huge wash of new cash that Yahoo will get next spring from the launch of the publisher network to a wider audience.    This is Yahoo’s version of Google’s adsense which nets Google about 43% of their revenues and growing.     This is the long tail money and I think the smart money says the long tail money will eventually be the big money.   In the old days I would have thought “Wall Streeters MUST understand this process and thus the price MUST already reflect this”, but after the internet stock meltdown it was clear that Wall Street did not understand many aspects of the online economy and didn’t care about them much anyway.

Also important to my decision was that Yahoo’s been doing the best 2.0 stuff for some time.    For example today’s Yahoo Hack Day, a special event open to developers from all over, is a brilliant example of how Yahoo! wants to take back their old reputation as the coolest company and may just do it.

They deserve to be treated much better, both by online commenters and by Wall Street, because Yahoo!, far more than Google or MSN, is coming up with both simple and complex developer tools to facilitate the new internet, which is shaping up to be a monstrous, layered, interconnected, cross referenced and community-fied ocean of information where distinctions between websites and even businesses are broken down along the lines of what people need to learn and need to do.    That’s cool.

Action Buy
Symbol YHOO
Description YAHOO INC
Quantity 600
Order Type Market

If you are in it only for the money you won’t get as much … money.

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When he’s not coming up with self serving pseudo communities like Squidoo, (am I too harsh? maybe…) , Seth Godin has lots of excellent marketing insights such as this one that suggests the big innovations come from passion about the topic and not from the quest for the holy big buck, which Seth suggests forces people to *stop innovating* too early.  He cites Apple Computer, Google, and others that really do support the hypothesis.

I don’t think this is the *main* story of success however.  I still prefer to view success as an evolution of ideas where 99.9% become “extinct” and .01%  survive due to forces outside of the control of the company – forces like global economics, weather, personalities, lucky timing, zeitgeists, etc, etc.

We tend to look only at “survivors” and forget that an analysis of corporate success would take a large number of company starts and follow them to their demise or success and then look at the factors that led to their fate.

Flickr  even suggests an evolutionary model both as idea and within the company.   Flickr started as a game maker rather than a photography sharing community.   Flickr’s evolution seemed to be a combination of luck, serendipity, brilliance, and (Caterina Fake might say most importantly) her realization of the potential of the “little idea” that became a huge online community.   Also important is that from Yahoo’s perspective Flickr probably needs to generate a LOT more cash before it’ll be considered worth the $20-30 million they paid for it.      Hmmm – I wonder if founders Caterina and Stewart are eyeing Yahoo’s possible 1 billion dollar offer for Facebook with any envy?

“Dear, we should have held out for a hundred million more!”

But as Seth suggested these innovators are not in it for the money so no worries there I’m sure…. hmmmmmm……

Opportunity Cost is Knocking

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I like to think I’ve got a good intuitive sense of optimizing my investment dollars, but when people ask me how to apply sound investment principles to their potential investments I find it hard to give more than simple equations I do in my head or scratch out on paper. I also caution people to “review your opportunity cost”.

I think the notion of opportunity cost is critical to investment success. Namely, what opportunities from “plan B” investment are you foresaking to invest in plan A?
My favorite investment shortcut is to simply look at the cost of borrowing X dollars vs the expected return on the investment over a very short and a medium term (5-10 year) horizon. If the expected return is close to the cost of the money (or less than that cost which is now about 8% via equity lines) I generally see it as a bad deal.  However, if the expected return is immediate with long term prospects even brighter, such as a rental property with positive cash flow in an appreciating market, then I’m inclined to sign myself up.

Vastly complicating matters are taxes, which vary so much by person, state and circumstance that a great investment for me may be a terrible one for you, and it can even be true that a great investment on December 31 is a poor one on January 1. Due to progressive taxes you need to accurately predict future income (hard) and future tax rates (impossible) to know how all the money will shake out even after a few years.If you are reasonably solvent and can borrow reasonably large sums of money the number of potential investments is enormous, though I generally operate on the assumption that “great investments” are few and far between and bad investments are as common as junk emails. I’m amazed by how many people are sucked into the type of investments (e.g. real estate timeshares) that involve high priced sales staff and expensive pitches, because these generally offer some of the *worst* returns on your money, often even negative returns. Those salespeople need to eat, and in many cases they just ate your lunch. The silly charts that show these as good investments usually avoid the concept of the “present value” of your money (money today is worth FAR more than future money due to interest compounding) and inflate the appreciation rates.

In Hawaii we dragged the kids to a Maui timeshare presentation so I could save $175 on some tickets and I was floored by the intensity of the presentation, which would have included a flight over to Maui had we let it continue (a “free” flight if you bought the timeshare, otherwise we’d have been charged).

We did the same thing in Tennessee timeshares in the Gatlinburg area to save a large amount on Dollywood tix and they were not quite as intense but still had the funny charts which, by ignoring present value and opportunity cost fundamentally distort the investment analysis.

wow, this post got too … long…

Bill, Warren, Carlos, Ingvar, and Lakshmi

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It’s interesting that only the top two of the world’s richest people are household names.
I’d never even heard of the other 3 dudes. From CNN Money

“Hey Slim, can I borrow your truck? Oh, and 157 million dollars for gas?

1 William Gates III United States Washington 50.0 Microsoft 50
2 Warren Buffett United States Nebraska 42.0 Berkshire Hathaway 75
3 Carlos Slim Helu Mexico 30.0 telecom 66
4 Ingvar Kamprad Sweden 28.0 Ikea 79
5 Lakshmi Mittal India 23.5 steel 55