BUSINESS BLOGS
BUSINESS BLOGS
category: business
04 Feb 2008

Google is publicly concerned about the MSFT/YHOO deal.

Google is to search and online advertising what Microsoft is to operating systems and productivity suites. You can come to your own conclusions, but I think both are successful monopolies, and I don’t even mean that in a bad way. Google stole Yahoo!’s lunch in search and in advertising online, because of that, Yahoo! became vulnerable.

Look at this graph, as you can see,

Yahoo! had started to stage a comeback after the dot com crash, but then once Google IPO’d and began to outgrow Yahoo!, then all investors looking for exposure to online advertising and search took their capital and invested in Google.

Over time, Yahoo!’s operational weaknesses combined with a lowered demand for Yahoo! stock made it vulnerable to a takeover. I had long stated that so long as investors handicap Yahoo! to Google, it will look like the ugly stepsister and before long, its stock would be so deflated that it would be bought out.

All in all, Google is right and allowed to take this position, but Google now realizes more than ever that they can no longer remain a one-trick pony.

The timing of it all is pretty interesting: Google’s no-can-do-wrong investment track record finally came to an end. I wonder looking back if Google’s stock trajectory will follow Microsoft’s in the 21st century: essentially flat.

Incidentally, Mark Cuban - who sold Broadcast.com for $5.7B to Yahoo! - argues the same point: that Google’s day of using Yahoo! as its whipping boy comparable are over, and as such, represent a bad omen for Google stock.

category: business
03 Feb 2008

Henry Blodget can sometimes be wrong, though no one is always right with forecasts and what not. Sometimes he’s right. But even when I disagree with him, he is one compelling writer who can argue his points quite succinctly.

Today he argues that Yahoo/MSFT will be disastrous. His main reason (he lists a few) is that:

There is a fundamental difference between the way Google and Microsoft approach the Internet:

  • Google wants to use the Internet to build a huge business (and, in the process, kill Microsoft)
  • Microsoft wants to use the Internet to protect its already huge Windows and Office businesses.

And so he concludes that:

Google has built its entire business around cloud computing. Microsoft is trying to transform its entire business to avoid being killed by cloud computing. Yahoo or no Yahoo, the history of business (including Microsoft’s) makes it crystal clear who’s the favorite to win this war.

I don’t disagree that integration will be challenging (note to MSFT: feel free to hire me as a consultant to help with the post-merger integration, but that’s a separate point) and that there is an inherent culture clash with how each firm views the Web… but the conclusion is off:

Google’s growth is starting to slow, but even in the high-growth period up to 2008 where Google has built its fantastic franchise in online advertising, Microsoft has continued to grow and build its business.

Windows and Office are really not in any short, mid or even long term material and actual danger of going anywhere or being destroyed. Yes, there are risks; yes, there is a low probability that it will go to 0, but in all likelihood, it won’t (just to be clear: I am NOT saying there is no risk, I’m just saying this is more about online advertising than cloud computing).

Why? Because only the hippie love crowd thinks that everything - and we mean everything - will be cloud-based.

And, here is the key, even if everything does go into the clouds, there is nothing - and we mean nothing - that suggests that Google will walk away the winner.

Google is just as likely to become a victim of the innovator’s dilemma curse as it focused on retaining its grip on online advertising revenue and misses actually doing much tangible in cloud computing.

Looking at MSFT’s revenue breakdown [from MSFT via MSFT VP Don Dodge]:

All Microsoft business units reported strong results. Here is a breakdown by division:

  • Windows Client (Vista/XP): $4.3 Billion, up 68%
  • MBD (Office/SharePoint): $4.8B, up 37%.
  • Server & Tools (SQL Server/Visual Studio): $3.3 Billion, up 15%.
  • Entertainment (Xbox & Zune): $3.1 Billion
  • Online Services (MSN/Live): $863M, up 38%.

Other Highlights:

  • Windows Vista has sold over 100 Million licenses
  • Xbox 360 has sold 17.7 Million units
  • Xbox Live - over 10 Million subscriptions
  • Windows Live - over 420 Million accounts

Ultimately, buying YHOO has everything to do with duplicating Office and Windows with regards to online advertising. The NYT calls this yesterday’s war, I disagree, since online advertising is only starting to kill the vestiges of yesterday’s marketing ways. But, that’s a separate post.