Ballmer Gives Nokia Billions in Microsoft Shareholder’s Money; Both Stocks Lose Billions in Market Value

After losing $2.5 billion on misbegotten online ventures last year, Microsoft is poised to give billions more to Nokia, as inducements for Nokia to go with Microsoft instead of the free Google Android software that it had been considering.  According to the Wall Street Journal,

“Microsoft agreed to pay Nokia billions of dollars over the course of their multiyear agreement to help Nokia market and develop Windows Phone devices, according to Mr. Elop. It is unclear how much Google may have offered Nokia.

Incidentally, Nokia Chief Executive Stephen Elop used to work for Mr. Ballmer.

Intel Corp. CEO Paul Otellini said Mr. Elop went with the highest bidder. “Between Microsoft and Google he was getting incredible offers, money, to switch,” Mr. Otellini told investors Thursday. Microsoft bid more, he said.”

According to the same article, “[While] Windows Phone has gotten positive reviews since the first handsets came out with it last November, the software hasn’t made a dent in the mobile market. Microsoft software ran on only 3.1% of smartphones shipped in the fourth quarter, compared with 32.9% for Google and 30.6% for Nokia, according to research firm Canalys.”

The market reacted to this news as you might expect.  Nokia’s stock dropped from $11.50 to $9 , continuing a long slide from a peak of $60, as the market concluded that Nokia’s phones will become irrelevant. Microsoft’s stock dropped from $27.37 to $26.91 to account for its giveaway.  The market likely already values Microsoft’s phone business at zero. With 8,570 billion shares outstanding, a drop of $.46 a share reflects a drop in market capitalization of $4 billion.

And Google? Its stock jumped from 620.28 – 627.25 in the same period, reflecting approval of  its handling of the situation and continued strength in its businesses.

Who says market prices are a random walk?

Eugene Fama.

And he was wrong.

I’ve said it before and I’ll say it again. Waste a billion here, a billion there, and pretty soon you’re talking about real money,  a thought attributed to Sen. Everett Dirksen (1896 – 1969).

Taking a leaf from the White House, perhaps, Mr. Ballmer proposes to spend Microsoft’s way out of its current funk, by giving away its cash.

The results will likely echo the Federal Deficit, which increased by $3 trillion so far under President Obama’s watch.

Google vs Facebook: The War That Isn’t

With all the snow in the East (and elsewhere), pundits are apparently staying inside, and are bored with themselves.

So they need to write “provocative” columns to garner headlines.

James B. Stewart’s piece in the Wall Street Journal reminded me of this need to be provocative to garner attention.

Like so many others, he wants to set up a David vs. Goliath story. He writes,

“What is shaping up is a monumental Google-Facebook showdown to win the hearts, minds and wallets of Internet users world-wide.”

It simply ain’t so.

I thought about the things I use Google for the most:

  • Search (in all its permutations), and including browsing (on my desktop, Blackberry, and Android Tablet)
  • Email
  • Maps and Directions
  • Translation
  • Calendar
  • Document, book and video storage and viewing
  • News
  • Application development using Open Source

None of these is a strength of Facebook.

None.

Yes, in the sphere of social networking, Facebook is wildly popular, and for business networking, so is Linked-In.

So what?

Why does Google have to be all things to all people for it to have value?

As we reported earlier, Google earned $2.5 billion for its shareholders in the last three months. Microsoft, in its much, much smaller online business lost.

True, Google does not want to see anyone garnering large numbers of visitors on the Internet without competing. An it may or may not succeed with the innovative produce that are keeping Sergey Brin and thousands of Google employees working flat out.

To buttress his argument, Stewart offers the following anecdotal comment:

How will Google and Facebook compete? The goal of each is to be the point of entry for Web users, the theory being that whoever controls the gateway will deliver the most effective advertising platform. As I discovered in reporting last week’s column, Facebook is so important to some users that it is on their computer screens 24 hours a day, seven days a week. I feel like I’m constantly using Google, but I don’t sleep with it.

Who says that Google wants to be or should be the the “portal” to the Internet?

AOL tried that and failed. Yahoo tried that and failed.

Information wants to be free. Google wants to help make that so.

Stewart Brand, is credited with originating the phrase. He founded the Whole Earth Catalog with main idea that technology could be liberating rather than oppressing.[2] The first modern recorded occurrence of the expression was at the first Hackers’ Conference in 1984, in the following context:

On the one hand information wants to be expensive, because it’s so valuable. The right information in the right place just changes your life. On the other hand, information wants to be free, because the cost of getting it out is getting lower and lower all the time. So you have these two fighting against each other.[3]

Brand’s conference remarks are transcribed in the Whole Earth Review (May 1985, p. 49) and a later form appears in his The Media Lab: Inventing the Future at MIT:[4]

Information Wants To Be Free. Information also wants to be expensive. … That tension will not go away.[3]

According to historian Adrian Johns, the slogan expresses a view that had already been articulated in the mid 20th century by Norbert WienerMichael Polanyi and Arnold Plant, who advocated the free communication of scientific knowledge.

If you don’t believe me, go back to Google’s IPO and re-read these statements:

Google is not a conventional company. We do not intend to become one… .

Sergey and I founded Google because we believed we could provide a great service to the world—instantly delivering relevant information on any topic. Serving our end users is at the heart of what we do and remains our number one priority… .

Sergey and I founded Google because we believed we could provide a great service to the world—instantly delivering relevant information on any topic. Serving our end users is at the heart of what we do and remains our number one priority…. .

Don’t be evil. We believe strongly that in the long term, we will be better served—as shareholders and in all other ways—by a company that does good things for the world even if we forgo some short term gains. This is an important aspect of our culture and is broadly shared within the company.

We aspire to make Google an institution that makes the world a better place. With our products, Google connects people and information all around the world for free. We are adding other powerful services such as Gmail that provides an efficient one gigabyte Gmail account for free. By releasing services for free, we hope to help bridge the digital divide. AdWords connects users and advertisers efficiently, helping both. AdSense helps fund a huge variety of online web sites and enables authors who could not otherwise publish. Last year we created Google Grants—a growing program in which hundreds of non-profits addressing issues, including the environment, poverty and human rights, receive free advertising. And now, we are in the process of establishing the Google Foundation. We intend to contribute significant resources to the foundation, including employee time and approximately 1% of Google’s equity and profits in some form. We hope someday this institution may eclipse Google itself in terms of overall world impact by ambitiously applying innovation and significant resources to the largest of the world’s problems.

Wealth has not changed the founders’ view. And if Silicon Valley gossip can be believed, one of the forces that impelled the founders to take back the reins was their unhappiness with how CEO Eric Schmidt was more willing than they to have China censor information.

To his credit, Stewart also quotes Google’s founder Larry Page as saying,

“Social Search, Google’s social-networking feature, is “just the tip of the iceberg” and represents only “one percent of the capabilities that can be deployed in that realm.”

I acknowledge that due to my being way over the hill, at 62, I use Facebook a lot less than my children.  I do use Facebook and my kids use it more than I do. But none of us use it anywhere near as much as we use Google’s many products.

It’s no surprise that most pundits ignore principles.

They also ignore the fundamental fact that Google and Facebook are nowise “competitors” any more than eating and sleeping compete for your time.

The GoogleGazer believes it is unlikely that Google will ultimately simply mimic or “me too” Facebook. They will attempt to further integrate finding,  using, and disseminating  social information in creative ways.

I agree with Stewart’s closing remarks, which in many ways fight the balance of his essay:

As I said last week, I wish I were a Facebook shareholder, but I’m not a member of that exclusive circle. I have been a Google shareholder since its public offering, and in my experience, widespread doubts about Google often have been an opportunity to buy.

 

 

Microsoft Lost $2.5 Billion Online in Last 12 Months; Google Earned that in Just Three Months

Business Insider, which keeps track of such things,and prepared the above chart,  noted that while slightly down from the previous quarter, Microsoft lost $543 million in the quarter just ended, and over $2.5 billion online in the last twelve months. With division sales of $691 million and losses of $543 million, that’s about $.79 in losses for each $1 in online sales.

A great business.

$2.5 billion in losses is staggering.

“A billion here, a billion there, and pretty soon you’re talking real money,” the late Senator Everett Dirksen famously said on the Johnny Carson Show.

Microsoft is also caryying $6.37 of Goodwill on its Online division’s balance sheet, which may yet need to be written down.

That loss is about equal to what Google made in the quarter just ended on quarterly sales of $6.37 billion, up 29% from the year before. See here for details.

As the world moves to cloud computing, the Wall Street Journal has defined Cloud Computing as:  “selling processing power, data storage and software hosting services over the Internet.”

As Microsoft continues to bleed, the competition is getting steeper and stronger. Verizon just agreed to buy Terradata for  $1.4 billion. Amazon has now entered the bulk email business, and has added AWS Elastic Beanstalk, which it calls “an even easier way for developers to quickly deploy and manage applications in the AWS cloud.” Elastic Beanstalk automatically handles the deployment details of capacity provisioning, load balancing, auto-scaling, and application health monitoring. Amazon says, “The first release of Elastic Beanstalk is built for Java developers using the familiar Apache Tomcat software stack which ensures easy portability for your application. There is no additional charge for Elastic Beanstalk – you only pay for the AWS resources needed to store and run your applications.” While Amazon does not break out segment earnings,  AWS is believed to be profitable and to account for more than most of the $953 million in 2010 sales that Amazon calls “Other,” and which grew 50% from  $653 million in 2009, suggesting that AWS will exceed $1 billion in 2011.

We would be remiss if we did not note that Google announced a passing of the CEO baton to Larry Page.

Clint Boulton opined in e-Week that the change ” raises questions about the future of the company effectively marketing Google Apps for businesses. Google’s slip here would make Microsoft, with its enterprise clout, the prohibitive favorite for cloud collaboration software.” While noting that Dave Girouard and his team have, “quite impressively, tacked on 1 million business customers a year since the product’s inception as a business platform in February 2007,”  he then opines that he predicts that Larry Page will cede the business market to Microsoft as he doesn’t think Page cares about business and so Boulton sings the praises of Microsoft 365,  which he finds “polished.”

The GoogleGazer thinks that is exceedingly unlikely to happen, and views the notion of ceding Google’s business markets to Microsoft and its social markets to Facebook as nothing more than sour grapes and wishful thinking on the part of the dying but still breathing coterie of Microsoft Forever cheerleaders.


Greed, Groupon, Google, the Rabbis, and Alexander The Great

First, a confession. When it comes to my writing  interests, I have a split personality (more properly called Dissociative Identity Disorder. For the technically mined, details of this disorder are spelled out in section 300.14 (dissociative disorders) of the DSM-IV.  In practice,  having this illness means I write about Greed and also about the latest comings and goings of Google (this blog) and cloud computing (Eye On The Cloud). Amir Efrati of the Wall Strret Journal is the only fellow I know who shares these interests. He recently gave us the skinny about how Google’s discussions with Groupon failed to yield a transaction. AllThingsD had previously reported that Google offered $5.3 billion to buy Groupon, with a further $700 million as an earn-out to be based on Groupon’s ability to hit certain performance milestones.  Groupon showed Google the door.

Back in February 2008, Yahoo’s board famously turned down a $44.6 billion offer from Microsoft, demanding much more. But as of  December 3, 2010, less than two years later, Yahoo’s market capitalization (share price time number of shares outstanding) had fallen to $21.3.  A total of $21.3 Billion in market capitalization had gone whooshing out the door. And that’s after Carol Bartz, Yahoo’s new CEO did her magic and founder Jerry Yang was booted out of the CEO’s seat and relegated to being “Chief Yahoo” and a Director. Earlier this year, before all the recent changes, Yahoo reached a 52-week low of 12.94, 21%  or $4.5 million lower after bottoming out lass November 2009 at 9.39, 42% below its current price.

Amir’s article which explains that Groupon’s “business model [works] by mobilizing a force of more than 1,500 sales and customer service employees to call and deal with restaurants, tanning salons, and helicopter tour guides,” rather than dreaming up complex and innovative software written by the “best and brightest” engineers.

It reminded me of a story I tell in my book, History of Greed

Alexander the Great Visits Jerusalem

“Alexander the Great, King of Macedonia,  visited Jerusalem in the year 332 BCE, as recouted by Flavius Josephus in Antiquities of the Jews, (xi. 8, §§ 4-6). The Talmud records (B. Talmud Tamid 32b), that he asked for a souvenir of his visit. “The Rabbis presented him with an orb (an eyeball). Alexander weighed it against all his gold and silver, but the orb was not out-weighed. ‘What is this?’ Alexander asked. They said, ‘It is the orb of an eye of a flesh and blood man, that is never satisfied with any riches.’  [Alexander] said to them, ‘What proof is there that this is so?’ ‘Take a little bit of dirt and cover (the eye), so it can no longer see,’ they said.’ It will be outweighed immediately.’ It was.

Commenting on this story, Rabbi Judah Loew, known as the Maharal of Prague (1525-1609) explains that an unceasingly hungry eye was the defining characteristic of Alexander. Even after he was an emperor of historic stature, even after he was “the Great,” he was not satisfied and sought to conquer new frontiers. Following his desire to reach the “ends of the world and the Great Outer Sea”, he invaded India, but was eventually forced to turn back by the near-mutiny of his troops, who had tired of war. Alexander died in Babylon in 323 BCE, before having the chance to realize a series of planned campaigns, beginning with an invasion of Arabia. In the years following Alexander’s death, his empire was torn apart in a series of civil wars, which resulted in the formation of a number of states ruled by Macedonian nobility.

As the Rabbis warned, Greed eventually did him in.”

My point in relating this tale is to disagree with Shira Ovide who cheered on Andrew Mason. She notes, “Facebook was weighing an acquisition offer from Yahoo that could have been worth $1 billion, and Zuckerberg also was being wooed by Microsoft, Viacom and others.” According to TechCrunch, Facebook’s pre-IPO valuation stands at $50 billion in the secondary market. She implies that Groupon could be worth the same or more if they wait it out, and that Mason was smart to wait it out.

She could be right.  But personally, and I realize that my age may be showing, think that a few years down the road,  Andrew Mason and his merry band of greedy investors will regret turning down Google’s offer and will find themselves, like Yahoo today,  being valued at far less than the “big guy” was willing to pay today, to solve an immediate problem.

Right now, feels the heat from Facebook and wants to catch up in local search and in social networking, where it feels inadequate.  But even if Groupon’s running rate, as rumored, is $2 billion in the last quarter is it really worth three times sales? Is its technology and sales force so unique that what they accomplished in two years someone with Google’s resources cannot emulate in two?

I bet that when Steve Ballmar goes to bed each night he says a special little prayer thanking God or whatever Higher Power he believes in, for being turned down by a greedy Jerry Yang.  Saved him billions and billions. He did a simple revenue-sharing with Yahoo on ads, and kept all the money he would have needed to pay out.

Lucky Man.

I think Eric Schmidt, Google’s CEO deserves kudos for knowing when to talk away from the car table. The stakes just got to high, and the gamble wasn’t worth it.

Watch. He’ll skin the cat another (much cheaper) way.

Let’s see who turns out to be right.

Google’s “Inevitable Ruin” – Not

John C. Dvorak, enjoys being a contrarian. Dr. August Dvorak and his brother-in-law, Dr. William Dealey developed the Dvorak Simplified Keyboard, patented in 1936. Dvorak proponents claim the Dvorak layout uses less finger motion, increases typing rate, and reduces errors compared to the standard QWERTY[1] keyboard. It did not catch on and is little used. It too was contrarian.

I don’t know if the good doctors and John Dvorak are related. What I do know, is that Mr. John Dvorak has been pretty unitormly wrong in his contrarian predictions over the years. For example,  in 1984 as a writer for the San Francisco Examiner, he wrote “The Macintosh uses an experimental pointing device called a ‘mouse’. There is no evidence that people want to use these things.”[6]

So his latest column in PC Magazine, entitled, “Google’s Inevitable Ruin Begins” needs to be taken, how shall we say this delicately, with a grain of salt. His subtitle is, “Google image search and page preview mode are omens to the beginning of the end, trust me.”  What is his objection? Google improved its image search capabilities. Dvorak says, “Now when you do an image search, Google loads up one massive page with apparently every image it could find, most of which are not remotely what you were interested in. Instead of the single page of thumbnails, you get over 20 pages of large thumbnails all on the same huge page.” So I put Google to the test. I typed in John C. Dvorka, and clicked in “Images. ” Instantly, I got loads of images of Mr. Dvorak. Here’s one:

He dubbed the widely-used and much lauded Creative Commons license developed by Prof. Lawrence Leesing “humbug.” ” He also called it, “one of the dumbest initiatives ever put forth by the tech community.” Mr. Dvorak also doesn’t like page preview mode, calling it “basically stupid.”

He also rants about  hating the cloud.

And so on.

You get the idea.

He reminds me the advice I often give to people. I tell them, “I can make you a lot of money in real estate. All you have to remember is, whatever I advise, do the opposite.”

Same for Mr. Dvorak’s advice on computing.

Pay attention. Listen carefully, and do exactly the opposite.

TEA Party for the Data Center Threatens Microsoft’s Pocket

The TEA Party (Taxed Enough Already) is all about citizens concerned with the encroachment of government into their lives, and about the high taxes exacted to support “big government.”

For years, data centers the world over have chafed at the large taxes that Microsoft exacts. Of course, Windows is part of that. However, few corporations (Google being a notable exception) have shucked Microsoft on the desktop. But more and more, they are being shucked from the data center.

An interesting report by Joe ‘Zonker’ Brockmeier in Linux.com confirms the trend.

“That’s the word from the Linux Foundation’s report on adoption trends. The report was conducted by the Yeoman Technology Group, and surveyed nearly 2,000 users picked by the Linux Foundation End User Council. The results released yesterday were culled from 387 respondents that are from the largest organizations — companies with more than 500 employees and/or more than $500 million a year in revenue.”

The report continues:

companies are putting Linux in more mission-critical areas, as opposed to the edge use that Linux enjoyed in its early adopter years. Linux has moved beyond the platform for Apache, Perl/PHP, and MySQL and into a starring role in the server room — 60% of respondents say that Linux is going to be used for more mission critical workloads.

More than 66% of the companies are deploying new applications on Linux, 36% are migrating from Windows, and 31.4% are migrating from Unix to Linux.

And it’s not just because companies want to cheap out. CIOs see Linux as more strategic, and less as a way to just cut costs. Features and technical superiority came in at 67.5% as the primary driver for adopting Linux. Though cutting costs still factors in, 65.4% said lower TCO is a factor, it’s not just about money — it’s about control, and being part of the community.

It’s not just the taxes payable to Microsoft, it’s the “big daddy knows best” mentality.

Open Source allows everyone to contribute. And contribute they do.

More than a third of businesses say that they test and submit bug reports, and 13.4% actively contribute code. That’s less than one-fifth of businesses actively submitting code, but it’s 13.4% more than are actively contributing to Windows or proprietary Unix. Testing and bug reporting are also active contributions, so well more than one-third of businesses that do more than $500 million in business per year are contributing to Linux.

For the full scoop, read the report. The bottom line? The future is very bright for Linux in large.

It’s also very big for data center TEA partyers, who are inching ever closer to ridding themselves of  Microsoft’s taxation without representation.

The days of Microsoft’s tyranny in computing and drawing to a close.

Just wait to see what happens as Open Source Android tablets are delivered in quantity later this year.

And then wait to see what happens as ChromeOS starts to hit its stride.

 

effrey Hammond,  principle analyst with Forrester Research told LinuxCon attendees: , “congratulations, you’re on the winning team. Open source has crossed the chasm.”

And so they have.

 

Blodget Disses Google Over Development of Robot-driven Cars

The world has been mesmerized over recent revelations that a small team at Google has made major progress in developing a car that drives unaided or with minimal human intervention. In fact, Google has logged over 140,000 miles in their robotically-controlled cars. It’s obviously a phenomenal achievement, tackling a hard problem that car-makers have spent enormous sums on but failed to achieve much.

Kudos to Google, right?

Not according to Henry Blodget.

He rants that Google, which earned nearly $2 billion (net) in the last three months alone shouldn’t spend $10 million a year on this project (Blodget’s estimate).

Why?

He sees no value, for maybe decades.

So he writes:

But we do have to ask:

Why is Google developing this technology?

Why is Google spending the $10+ million of shareholder money per year the project consumes (15 engineers, plus drivers, plus the cars).

Isn’t there something closer to its core business that Google could spend this money on?

Well, Mr. Blodget. I have some news for you. It was Google’s technology that made the robotic car possible, As Google said in the release that you quote:

Our automated cars use video cameras, radar sensors and a laser range finder to “see” other traffic, as well as detailed maps (which we collect using manually driven vehicles) to navigate the road ahead. This is all made possible by Google’s data centers, which can process the enormous amounts of information gathered by our cars when mapping their terrain.

Google goes on to note:

According to the World Health Organization, more than 1.2 million lives are lost every year in road traffic accidents. We believe our technology has the potential to cut that number, perhaps by as much as half. We’re also confident that self-driving cars will transform car sharing, significantly reducing car usage, as well as help create the new “highway trains of tomorrow.” These highway trains should cut energy consumption while also increasing the number of people that can be transported on our major roads. In terms of time efficiency, the U.S. Department of Transportation estimates that people spend on average 52 minutes each working day commuting. Imagine being able to spend that time more productively.

So let me think about this. Google is spending about four hours’ worth of earnings a year advancing a project that can save maybe 600,000 lives a year, and open up billions of dollar in new markets for Google. Mr. Blodget is whining that this is bad use of the shareholders’ money?

Mr. Blodget, I hope you did not short Google’s stock. I noticed that it gained 18% since September 1  (from $454.98 on September 1, 2010 to $532.77 on October 8, 2010 the most recent trading day).

Mr. Blodget warns us:

“We,” says Blodget, using the plural of majesty, “continue to worry that the company’s focus is spread too thin.”

Mr. Blodget’s solution to this supposed problem?

Larry [Page] should just found another company to make robot-cars. He can fund it himself. He can hire a CEO and management team and also take outside investors if he likes.  The company can focus one hundred percent of its energy and resources on perfecting robot cars.  And Google, meanwhile, can stay focused on its core business and other related businesses.

What a great solution. Deprive Google shareholders of the value of that technology. Distract Page from spending 100% of his time building Google. What an amazing way to add value to shareholders.

Mr. Blodget: There is a reason that you are a journalist and Mr. Page is one of the richest men in the world. He is very, very smart, works hard, honest, sees far into the future, is not afraid to tackle hard problems and has the good sense to trust his own judgment and not to listen to you.

I would put my money on Google over, Silicon Alley Insider, Inc., the parent of your company, The Business Insider,  any time.

Go ahead. Prove me wrong.

 

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