This morning, when I read the headline “Microsoft is Dead,” indeed I shrugged it off and said: “good linkbait.” I had no idea who Paul Graham was, turns out he’s a successful bloke (then again, as ironic as it might be, I also did not have any clue who Dave Winer or what Scripting.com was for a good 2 years after I started blogging. Of course, when you operate 5000 miles away from Silicon Valley, you are allowed not to know some basic facts).
Point of the story is: Mr. Graham’s post did the trick: people came out on both sides, sending the post straight atop TechMeme’s main page. This goes to show just how popular TechMeme has become: we (bloggers and writers) sometimes seem to write for Techmeme and not for writing’s sake. Mr. Graham - an essayist - could have been less flash and more substance, but he chose more flash to get others excited. That’s actually a trait of a good writer, I suppose, I do the same occasionally and in no way is this a critique of Mr. Graham, rather, a critique of the blogosphere, and mainly, the massive drinking of the Web 2.0 koolaid and the forgetting of the crash of 2000-01.
Frankly, hearing “MSFT is dead” is akin to thinking that Amazon.com will buy Walmart in 1999. It was foolish then, stupid now. Saying MSFT is dead is ludicrous. I don’t even think MSFT is all that boring. I do think that there’s merit in MSFT spinning MSN.com into Yahoo!, but that’s another post.
Amongst those coming to MSFT’s defense is Chief Blogger Don Dodge, a few things caught my attention:
Microsoft is growing revenues at over $4 Billion a year and is on track for $50 Billion this year. I had no idea. I sold my MSFT shares last year after a nice 20% gain, thinking, the stock will be flat. That might be the case, but any technology company that can grow revenues by $4B is impressive, especially when it’s growing them to $50B. Google, for all of its swagger, has $10B in revenue, 99.9% from paid search ads. Over time, if Google’s P/E and P/S ratios will go down, that means its stock has considerable downside, whereas if MSFT can continue to boost revenues even slowly, it can better defend its market cap. Who will be dead then? Do note, that in the past, I have asked: will Google take over MSFT in market cap by 2010?
More importantly, Mr. Graham’s assertion that Google and Apple are “killing” MSFT might be plausible at face value, but Mr. Dodge does point out something worth touching on: “Microsoft is a software company. Apple is a hardware company and Google does consumer web search.”
What’s fascinating about that is that indeed, these three companies are in different core markets, but by the same token, increasingly they do compete head to head, be it Zune vs. iPod, or Live.com vs. Google.com, etc.
This leads me to wonder: over the next decade, will technology companies compete with one another more or less? In other words, will tech companies divest some units and focus, or are we seeing massive conglomerate type companies who essentially operate in numerous segments.
Now that’s the kind of topic I’d like to see go up on TechMeme.
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WatchMojo NewsletterThere’s a tremendous amount of pressure on TV networks as advertisers flock to the Web, according to WPP Chairman Sir Martin Sorrell.
Earlier this year, NBC Universal and News Corp. announced a new, yet to be named venture that will reach 96% of homes and aggregate premium content from the major TV networks and film studios.
In other words, the TV companies will try to seize audiences’ attention to secure ad dollars. Great. There’s only one problem, the economics do not really justify it.
TV advertising is huge: $75B per year. Web advertising, which includes search, display/banners, classifieds, listing, sponsorships and video, is a $20B advertising, set to become a much larger.
eMarketer pegs the industry at $25B, Morgan Stanley at $32B, Piper Jaffray at $60B. Indeed, no one can wrap their arms around it, particularly TV execs.
Breakdown of Web Ads by Format/Type:
Of course, in the next few years - the short term future - display/banner ads will grow at the expense of search ads.
But as video viewership rises on the Web, TV execs are scrambling, because their protected fiefdom is being attacked.
When YouTube went from $0 to $1.65 billion in eighteen months, TV executives felt shafted. Sure, YouTube generated but $15M in ad revenue in all of 2006 (and none of it from video ads), but the future was proving ominous for television, hence headlines like TV is Dead, Long live TV.
A deeper look at the figures, however, make me scratch my head and wonder what the hell are these folks thinking.
Admittedly, I should be tooting the online video will kill TV horn loudly. I am the founder and executive producer of WatchMojo.com, an online-only producer of video programming for the Web and wireless markets. I break down the video content market as follows:
WatchMojo.com is in the middle: we’re not user generated content, we’re not - at least not yet - in the top tier where the TV networks are. I have written quite a bit in the past about why I think the middle spot will win in terms of online video… but that implies online. Offline, I think TV needs fixing but it ain’t broken. But judging by the fate of newspapers and classifieds, TV companies must worry because the fundamentals are stacked against them.
How so? Let’s look at some figures from a May 2006 article in Fortune on News Corp.’s FOX:
As you can see, TV made $185 billion in 2005 and is set to make $230 billion by 2009. Advertising alone will make $73 billion. Of course, under the most bulllish scenarios, online advertising will be within striking distance of TV advertising, but that will include search, display, classifieds and video. As bullish as I am about video advertising, I think many of the analysts and soothsayers are getting video advertising wrong. But that’s another post, another day. Oh wait, here’s the post, today. Here’s one more.
My argument here is that when I hear Mr. Peter Chernin and Mr. Jeff Zucker demonstrate GooTube envy and want to create NewTube and give away content, I wonder: is this really wise?
Sure, content will move towards digital distribution, but should it if it means cannibalizing your lucrative TV revenue streams? Ultimately, the 25/5 divide - now almost the 25/10 divide - in other words, the discrepancy between people spending 25% of their time online whereas marketers spend more than 5% but less than 10% of their advertising budgets online means that content will migrate online, it will remain free, ad-supported… but even under the wildest, most bullish estimates, will a company like NBC and News Corp. really benefit from cannibalizing TV revenues - be it filmed entertainment, tv networks or tv distribution - for online advertising?
Who knows. I know, Google today makes $10B from online advertising each year, it boasts a market cap of $150B, but that’s from search, not video. In other words, GooTube envy is not alone immoral, but misguided. No matter how much old media firms try to emulate the new media model of free, ad-supported, it won’t even really help them, it might just hurt them.
There’s also mobile advertising, which implies wireless entertainment in general, but do you know anyone that wants to watch 24 or Star Wars on a handheld device? The content that will win on a cell phone will not look much like the content you see on TV or the big screen. Mark my words.
A decade ago, the newspapers and print magazines put their head in the sand and overlooked the Web. They made so much money from traditional lines, that they never wanted to embrace the Web. As a result, the value was seized by startups like Yahoo!, Google and company.
But the simple, sobering truth is that even if they had embraced the Web, they would have simply cannibalized offline revenue and not made it up online. They would be well positioned for the Web today, but they would be much smaller companies. This is problematic.
TV companies today face the same dilemma. Slow web connections made broadband programming a non factor for the first decade, today that is not really the case. What are Mr. Chernin and Zucker to do?
If they put their heads in the sand, they are screwed in 5 years or so (if that). If they fully embrace the Web, they will cannibalize sales, and suffer on Wall Street. And do not for one second think that TV networks will embrace the Web, they see these very same numbers, and they don’t like it, despite the bravado. Why else do you think that cable companies cut off eBay’s ad marketplace idea, even though major advertisers like HP allocated substantial sums to the project?
The simple fact is that TV executives have seen this story unfold: that same Fortune article mentions:
The Hollywood studios have had an uneasy relationship with technology ever since. They hated television. They went to court to try to outlaw the VCR. These days, they have to contend with digital piracy, Internet distribution, and TiVo boxes.
Indeed. In other words, just because TV executives have seen what has happened to newspapers and magazines does not mean that they will fully embrace the digital revolution.
And, given the absolute revenue figures on TV vs. those online, the TV companies have little incentive to embrace the Web, much the same way that newspapers and magazines didn’t. But because they did not, they are suffering today. Yet had they embraced the Web, they would have hurt themselves sooner. It’s not a rosy scenario.
A few months ago, people thought I was crazy to launch an online TV station in WatchMojo.com. Today they all understand what we’re doing, and why we’re doing it.
They can understand, more importantly, where we will be in a few years. It’s pretty ballsy to say what I am about to say: but a couple of months ago, I thought one day, if we played our cards right, we’d be eventually integrated into a larger media company’s operations. Today, things are changing so quickly, that I do not doubt that we can grow very quickly and become - much like the Yahoo!s, Googles, CNETs, IGNs, etc. - a company that took advantage of this “doomed if you do, doomed if you don’t” reality of old media firms that we indirectly compete against now to become a massive thorn in their side. Maybe that is why new and old media companies are coming to us to forge partnerships. They understand, given these numbers, that we have an insurmountable cost and economic advantage. The fact that we have set up numerous other units in search, classifieds, display/banners etc. only means that once we get to where we need to be, expanding horizontally and vertically will be considerably easier. Like I said, mark my words.
Disclosure: I own Yahoo! shares. News Corp. was my employer for 3 months after they bought the company that bought my old company… They then kicked me out. Of course, that’s water under the bridge.
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