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.

Chris Wilson to Google – If You Can’t Beat ‘em, Join’em

Chris Wilson, a 15 year veteran Microsoft employee, one of the principal architects of Internet Explorer, and the Principal Program Manager of the Open Web Platform in Microsoft’s Developer Division, (working for the team that built the Chakra Javascript engine for Internet Explorer 9, currently in beta)  has resigned from Microsoft. He is joining Google in November 2010 as a Developer Advocate. This news comes courtesy of The Register, which points to Chris personal blog. Here’s why he says he’s joining Google: “I’m very excited to work for a company that invests so much in making the Web platform better for developers and consumers, and I hope that I can use this as an opportunity to not only do no evil, but to actively do good.”

The GoogleGazer would not be surprised to see Chris on the Chrome team once his non-compete agreement expires, but mean time, those of us developing for Google platforms, enjoy all that Chris can offer as an evangelist, as long as you can.

Protect the Poor Monopolist, Begs Microsoft

In 1998, Microsoft was found guilty of monopolistic practices in the US. Ditto in the European Union in 2007.

Undeterred, the pot is now calling the kettle black.

Microsoft, through its attorney, is accusing Google of monopolizing the search market. It begs the government to come to the aid of this poor $60 plus billion dollar company.

On September 17, 2010, The Wall Street Journal ran what it styled a “debate” between Amit Singhail, a Google Fellow, and Charles F. Rule, an antitrust attorney representing Microsoft and others in antitrust litigation against Google.

A debate it wasn’t.

Singhail mostly explained how Google Search works, and its new “Google Instant” feature.

Mr. Rule, obviously a hired gun, was on the attack. He wants the government to intervene, reasoning thusly: “the Justice Department and Federal Trade Commission have concluded that search advertising is unique and constitutes a separate market. In the U.S., Google commands a share of search advertising well in excess of 70%—the consensus threshold for monopoly under the Sherman Act. Google’s share in most places around the world is even higher.”

How such a conclusion was reached and by whom is a mystery. Certainly it was not reached in any transparent forum.

So allow me to translate what he said into what he really meant:

“I was a government bureaucrat (head of the Antitrust Division during the Reagan era). I figured out that if I meddle in well-regarded companies and accuse them of monopoly practices (justifiably or not), I will get famous, and then be able to trade in my government salary for a really lucrative job.” He now is a partner and head of the antitrust practice at Cadwalader, Wickersham & Taft LLP, undoubtedly earning well into seven figures (Cadwalader employs an “eat what you kill” system of for compensating partners based on what is euphemistically called “their business-generating prowess”). Now, I’ve got a tiger by the tail. If I can make enough noise to generate an antitrust suite (despite the rhetoric, none has been filed), I’ll be set for life. ” “I can probably bill at least $100 million, and who cares what is the outcome? Eventually, this nonsense may become a big enough thorn in Google’s side, that Google will decide to placate the bureaucrats with a very watery ‘consent decree’ that will allow the government to claim victory. Depending on how I feel then, I can either find another victim to go after, or go off and sit on the beach. Maybe I can invest some of my millions in some exciting start-ups and turn them into billions, if I’m lucky.”

Buttressing Rule’s non-argument about Google’s supposed monopoly is an invidious comparison to Microsoft. “Like Microsoft, Google claims ‘competition is just a click away”, he writes.

What rubbish.

Microsoft garners its revenue from its monopoly of the desktop and in-office servers (Windows and Office licenses accounted for most of Microsoft’s $4.5 billion of Net Income in its latest quarter, the three months ended June 30, 2010.

Mr. Rule tries to conflate migrating away from being locked into the Windows desktop and Microsoft Office, condemned to paying ongoing “taxes” to Microsoft to merely typing “bing.com” into your browser.

What a fallacious comparison.

Why does Mr. Rule argue that what couldn’t be more different is really the same?

Let’s see what he says. “Google is where the queries are and more than 70% of all ad-supported queries flow through Google’s search engine. Yahoo once provided a choice, and Bing is still hanging on. But there’s reason to believe that Google’s strategy has been to deprive any rival—big or small—of the queries and advertisers necessary to create real alternatives for users.”

So now Mr. Rule wants the folks that brought you record unemployment, Obamacare, TARP, and other disastrous examples of government meddling to interfere in the free market for search based on the imagined argument (because they are clueless) that if 70% of the public chooses of its own free will to go to Google for search, then “there’s reason to believe that Google’s strategy has been to deprive any rival—big or small—of the queries and advertisers necessary to create real alternatives for users,” (a McCarthy-era kind of statement), made without offering a scintilla of proof.

In case you have been hiding under a rock and haven’t been to Google’s website lately, let me briefly explain the basic facts of life there. There are two parts. You type in a query, and as you type it in, Google automatically and instantly starts to give you the most relevant results for you. By the way, this means it takes into account your own search history, and ranks higher results from those places that you personally like to visit. You and I may well get different results for exactly the same query. Then, on the right side, it selects, based on relevance and “ad sense” bids, in an open auction, who is willing to pay the most for their ad to appear alongside the results. All of this is done entirely free. Google only makes money when someone chooses, of their own free will to click on an ad. And naturally, those relevant potential ads willing to pay the most to appear alongside the specific query appear highest in the ad listings.

So can anyone please explain to me why there is anything wrong with this picture?

How do Google’s actions “deprive any rival—big or small—of the queries and advertisers necessary to create real alternatives for users?” (I assume in making this allegation, that by “alternatives” he refers to his own bill-paying clients, keeping him in the lap of luxury)?

And arguendo, even if Google’s popularity offers stiff competition to other search engines (such as the one Microsoft bought in 2004 when it decided there was easy money to be made competing with then small Google, then since Google built the business organically (they bought technology but never bought out a search competitor), what exactly is wrong with that? Asked by a student at a public meeting held in March, 2010 whether Microsoft is being reactive, Steve Ballmer, Microsoft’s CEO responded, “All companies have their mix of proactive and reactive muscle; I’m keen on increasing hit rate in terms of early and often. Yes, Microsoft is following Google in search, but [he said] Google itself wasn’t first to that market.”

So pay attention, Mr. Rule. Your primary client has admitted publicly that Microsoft was late to the search market, and that its future is in cloud computing.

Google got where it got by listening to its customers – search engine users, whom it serves better and better through relentless innovation, and its advertisers, who like its business model, and get results. They each vote in favor, one click at a time.

Mr. Rule has chosen to ignore the timeless and famous words of Hank Rearden, the hero in Atlas Shrugged, the great novel by Ayn Rand (1957), “I work for nothing but my own profit — which I make by selling a product they need to men who are willing and able to buy it.”

There is a reason Microsoft’s stock has barely budged in the last five years. Its monopolistic domination of the desktop only could take it so far. It was extremely late in recognizing the Internet, open source, search, and cloud computing (Amazon has already built the cloud into a billion dollar a year business). Overall, its bureaucratic internal approach stifles innovation, and repels the smartest, brightest, and most innovative potential recruits, who flock to Google or to start-ups. In short, its gotten to be middle-aged and has developed a paunch. Its lack of innovation is simply making them more and more irrelevant. Steve Ballmer, Microsoft’s CEO essentially admitted as much, declaring in March, 2010 that his software firm was “all in” on cloud computing,” saying, “70% of [Microsoft] employees are doing something cloud-based or cloud-inspired. That will go up to 90% in a year. “We’re all in,” he says. “This is the bet for our company.” I guess when your gross sales exceed $16 billion a quarter but you see the handwriting on the wall, you stop at nothing, not even trumped up charges pursued noisily by your shill to try and slow things down while you try and reinvent yourself, and hope the Cloud will save you.

Mr. Rule begs the government to come to Microsoft’s aid. Maybe next, he’ll ask for TARP funds to aid his beleaguered client who can’t even figure out how to spend all its profits, and has nothing more innovative to do with its money than increase its dividend and buyback its shares.

For shame.

The History of Google – Through Acquisitions

We all recognize that Google is an innovative company, and it hires the best and brightest right out of school. Its recruiting process is arduous. Sometimes it misses, but usually it is on target.

But check this out.

Look how Google has grown through acquisitions.

Google Acquisitions.

Research by Scores.org

The chart already needs one addition. The visual search engine Like.com is now part of Google too.

One way that Google gets the best and brightest is by buying their companies.

Intel Becoming a Software Powerhouse – Whither Google and the Rest?

Chip maker Intel Corp. agreed to buy computer-security software maker McAfee Inc. for $7.68 billion, or $48 a share, according to a press release dated August 19, 2010.

Intel said current security doesn’t fully address mobile, television, ATMs and other Internet connected devices. McAfee will become part of Intel’s rapidly software and services division.

This is the latest in a series of developments that upset the established order.

Let’s review what’s been going on lately with the big guys.

  • Enterprise software titan Oracle bought Sun, primarily a hardware vendor, but also a major player in the open source software field, and the developer of Java. It is now busy suing Google over alleged patent infringement
  • Microsoft has continued its decline, with Microsoft Azure, its cloud-based offering being one important but still tiny bright spot.(
    Tami Reller, Microsoft vice president and CFO, Windows and Windows Live said earlier this month that there are 570 million business PCs worldwide, and 422 million of them are running Windows XP); the Wintel duopoly is obviously beginning to run out of steam. It’s certainly not gaining ground in its war against Google.
  • Dell is having a hard time. ‘Nuff said.
  • IBM has been chugging along. It’s doing well in its traditional hardware strongholds, in cloud computing, especially private clouds, and increasingly in services.
  • HP, under deposed CEO Mark Hurd, slashed R&D expenditures; and excessive focus on short-term results will obviously hurt HP down the road.
  • Intel is increasing its investment in software, such as Intel Ct which bridges the gap between productivity and performance languages through the concept of metaprogramming, in cloud computing, internally, through acquisitions, and investments by Intel Capital. It continues to develop innovative hardware.
  • Apple and Google, once buddy-buddy are now fierce competitors.

The landscape, it is a-changing.

As the Googlegazer, my task is to try and figure out how industry developments affect Google. One development to watch is Intel’s partnership with Google to bring the Web to TV. I guess the enemy of my enemy is my friend. While some suggest that Google will fail in the future, the GoogleGazer won’t count them out at all. Android has far outstripped all smartphones, outpacing Apple and Blackberry (Microsoft was never a significant factor, and still isn’t). Chrome, its other open source operating system will first hit the market in November, when HTC is set to release a tablet-style computer running Chrome. Rumor has it that a Chrome OS-powered slate made by HTC will run on the Verizon network go on sale in the US on November 26.  Quite possibly it will be sold subsidized. The hardware could include a 720p multitouch display (1280×720), a speedy Nvidia Tegra 2 chip with 2GB RAM, 32GB of SSD storage, a multi-card reader, a webcam and GPS, as well as WiFi, Bluetooth, and LTE connectivity.

Notice what’s missing?

Intel.

Pundits: these development are sure to keep you in ink over the next couple of years and the market better clarifies and distills winners from losers.

What Keeps Google’s Eric Schmidt Awake at Night?

Google chief executive Eric Schmidt says that the experience of reading news will move to digital devices quite rapidly – and that it will involve personalised and local news which will be alert to your interests and existing knowledge.

Speaking at the Activate 2010 summit held at the Guardian, Schmidt also warned that organisations should think of their mobile strategy ahead of their internet strategy – but that the two were intertwined so deeply that it was impossible to think of one without the other.

“The internet is the most disruptive technology in history, even more than something like electricity, because it replaces scarcity with abundance, so that any business built on scarcity is completely upturned as it arrives there,” Schmidt said. “You have to plan your corporate strategy around what the internet does.”

There are now three fundamental technology trends, he said: the growth of mobile internet connectivity, the growth of cloud computing and networking.

“Mobile is the hottest area of computer technology,” Schmidt said. “The smartest developers now are writing apps for mobile before they write for Windows or Apple Mac desktop operating systems. Part of that is because these devices are hugely personal to us when we use them.”

But he said that newspapers faced real challenges because “they’re replacing analogue dollars with digital cents, and a lot of people are losing their jobs as a result. It’s much less bad here in Britain, perhaps because of the history of newspapers here, but in the US there are unhappy people who are losing audience at a faster and faster rate.”

Asked what keeps him awake at night – and what will eventually kill Google – Schmidt, an industry veteran, replied: “Almost all deaths in the IT industry are self-inflicted. Large-scale companies make mistakes because they don’t continue to innovate. For example, ‘nowness’ – real-time information – is a new concept that wasn’t around when Google started, or even a few years ago. Now we integrate it into our searches.

“My fundamental fear about Google is that we have the same feature as other companies, which is that we lose that edge. If you lose that edge… But I think that will be a long, long time from now. External threats are likely to come from a truly innovative company that builds itself a big enough business quickly enough that we can’t catch it. It’s not different from other industries in that sense, except that in IT it happens so fast.

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