Paul: February 2008 Archives

Ballmer rolled out the big credibility guns by introducing Tom Brokaw to speak at the Microsoft Windows Server 2008 launch event last night. Microsoft announced the long awaited Visual Studio 2008, SQL Server 2008 and Server 2008, aka Longhorn. A master at the sound bite, Brokaw said, "Technology alone is not the answer, it will do little good to wire the world if we short-circuit our conscience." I'm not sure it would have mattered who they chose to speak, the techies were wondering what the former NBC anchor was doing there; Whoppi Goldberg would have been a good choice too. From a marketing perspective, you get the developers fired up with free software and bring Tom to woo the empty suits who pay the bills. Makes sense to me.

A recent comScore report showed a decline in the number of consumer clicks on Google search ads during January. They released data showing a 7% decline in the times U.S. consumers clicked on ads appearing with Google search results in January vs. December. There was a 7% decline in December 07 vs. November 07. Part of this might be attributed to January being a slow consumer spending month after the holidays. Nevertheless, Google's stock took a hit on the report (hint - don't take the bait!). The article tries to draw a correlation between the number of ad-clicks and overall consumer behavior. I do not believe the much ballyhooed "consumer slowdown" has contributed to the decrease in click-throughs. This is very simple in my opinion. People are tuning out these search result ads. Good search engine marketing (SEM) stems from having a good balance between paid SEM and organic search engine optimization. In SEO terms, the Golden Triangle is the top left area of search engine results that is considered by usability experts to have the highest click-heat where over 45% of real clicks occur. New players are emerging that will lower the value of traditional online advertising too. Companies like Phorm, Frontporch, NebuAd, Adzilla and Project Rialto are selling new tools to ISP's that will enable them to track users and push them context-specific ads. This approach (behavioral targeting - ever heard of cookies?) undercuts traditional online publishers. Now, the ISPs can sell advertisers direct access to the same users via a private unique user identifier that protects their identity. Come to think of it, the definition of ISPs will change too as the FCC opens up more competition over the Internet from incumbent service providers. Facebook's Beacon service and sites like Dopplr where you can log your travel plans will become more prevalent. Facebook has proven users want more granularity of control, not less. In your face billboards will become less effective over time I'm afraid.

In Howard Schultz' memo to employees (Transformation Agenda Communication #8), he outlined the reasoning behind closing all the stores today for three hours. While I'm all in favor of an employee "stop down," I scratched some figures on the back of a recycled Starbucks napkin. Let's see, divide $9.8 billion in annual revenue by 7100 stores by 360 days you get $3841 per day. Multiply that by 3 hours/16 hours times 7100 and I come up with $5.114 million - all "to teach, educate and share our love of coffee..." I believe they already have a very good barista training program and I rarely see them make mistakes. Even though the stock was up today I'm still bearish on SBUX. Howard's come in to set things straight and I wouldn't bet against a maniacal returning CEO. Even if you buy it under $18, you may be sitting a while to see any kind of move upward, just like your Apple and Google - these are out of cycle. As Starbucks cuts jobs, and gives away free wireless Internet, I still believe people will scale back on what most consider a luxury purchase. I'm not a daily Starbucks drinker but rather visit once or twice a week as a personal treat. They could have used the $5 million to pay for nearly 2 months of high-speed T1 service for WiFi at all their locations and had a podcast instead.

MetaRAM, a new startup recently announced new technology to produce less expensive DRAM by packing four times the number of 1 Gbit DRAM chips per module. To give some perspective, a high-end PC server with 256 Gbytes of RAM in a four-socket server can cost up to $500,000. Fred Weber, the CEO was the former CTO from Advanced Micro Devices. The cost savings by some manufacturers of 8 Gbyte DIMMs, such as Smart Modular, are significant. They expect to ship new modules using MetaRAMs chips for $1500 vs. $5000. This can cut the price of an end system by a factor of 10. An eight-way super PC server with 256 Gybtes of RAM can be had for about $50,000 vs. half a million. Why is this interesting? As you can affordably pack and dense real memory, you can run an entire enterprise database in RAM versus from a storage device. You reduce the latency and performance issues of data access between the microprocessor and the I/O device. What the processor is looking for would be held in memory. This also makes virtualization a better value proposition because you can increase the amount of virtual machines running various applications side by side within the same physical platform. This reduces power consumption, heat and maintenance from a data center perspective.  These chips are made at TSMC in their 180nm technology (huge by nm standards). Sun recently announced they picked TSMC to build the SPARC chips they design. Sun joins TI in the move away from internal fabrication of chips. Historically, this was seen as a major disadvantage as merchant semiconductor manufacturers were always one or two generations behind U.S. semiconductor companies, if we were sub-micron, they were 1 micron or more.

My illustrious CEO at one time, Jerry Sanders from AMD once said, "real mean have fabs." The wafer fab has long since gone offshore now along with contract manufacturing and other services. Intel's new ultramobile microprocessor are 45 nm, TI stopped advancing at 65nm. Many analysts believe the foundries can achieve large production volumes quickly by serving multiple chip designers. TMSC is down the 45nm learning curve today. The only problem is that learning insights from process technology accrue to the manufacturer, not the designer. Chip design used to be a closed-loop, fully end-to-end design process where the nano-world belonged to the designers. The transistor logic, lithography, steppers, reticles, wafers etc. all came together in a beautiful process that began with taping out the first silicon and testing the output of a once sophisticated wafer fab process. Has the wafer fab gone the way of refineries? No one wants to build one here anymore.

There's been more live broadcasting of streaming video in the blogosphere lately. As networks become more robust, I expect that video will continue to drive demand for fatter pipes, better end-user devices and an always-on expectation  - unwired. The company YouCastr has a beta site focused on sports where you can try your hand at color analysis and play-by-play action. I have deep respect for broadcast journalists who have had years of education and training to master their art. However, on the web, perfection is the enemy of the "good enough."  People are getting used to low video & audio quality, unpolished performance and scatter-brain content - as long as it's funny, it gets popular. It also quickly dies away, what happened to my "Don't Taze me" guy?  Last year at one our kid's football games we began recording the games and streamed them with a play-by-play performance by one of our high school alums. It was actually pretty good. You can see a good example of a decent podcast from YouCastr here. The site has many aspiring "webcasters" and I find if you have someone who really likes their topic, like sports, they tend to do a decent job. I don't think John Madden has to worry yet.

My only big issue is how do you make money with this? Even though there is a lot of interest in live format with rumors that Yahoo wants to buy Ustream, I still don't see the business model. Last time I checked Ustream, they only had 160 viewers from the entire Internet watching TPS Radio. Oh Microsoft was talking to Ustream too, maybe they'll get both and they can get a talk show of their own.

Yahoo plans to reject Microsoft's offer of $31 per share for the company according to developments over the weekend. Yahoo is seeking something closer to $40/share. Looks like Jerry Yang is going to man-up and take on Steve Ballmer. Even though Steve is a newbie to big takeovers, my money is on Mr. Softee getting this deal done. Yahoo does not have a staggered board meaning that all of its directors are up for re-election at once. They also do not have preferred shares or any other class of supervoting securities to protect them from hostile takeovers.  March 13^th is the last day to nominate competing directors at Yahoo. According to Yahoo's by-laws, it is easy to push directors out if they do not get majority shareholder approval. The problem is if Microsoft mounted a proxy fight, that provision doesn't apply because Microsoft will provide more nominees than available director seats. The Wall Street Journal suggests that Yahoo may be betting that Microsoft does not want to go "hostile" since it may cause deep resentment among the rank-and-file engineers it still needs to continue the company's success. I don't see any other option for Yahoo at this point, either way some of the yahoos are going to have to start cleaning out the desks.

The Year of the Rat is often associated with "a time of hard work and renewal in many ways," and most would agree that is what we need this year. I believe we will see many positive things over the horizon -but first we have to get through some rough waters. That brings me to technology. I like Tech, but not Tech stocks right now. I know they look real tempting here and after Microsoft's announcement, Cisco's earnings call and disappointment in Google's results - the whole sector is down. Who would have thought you could buy Apple and Google at these prices a couple of months ago? These are not going to lead the momentum in the first half and after the Goldman Sachs tech conference later this month, watch out as all the tech investors (big funds) unload the rest of their positions and get in the early cycle recovery stocks (retail, banks, financial). Last November, Chambers said the next few quarters are going to be 'lumpy' and this week he gave guidance of just 10% growth for the current quarter. The growth in B2B this year will come from applications and services. Hardware-focused suppliers will continue to suffer declining margins and channel issues. Look at Motorola shedding its handset business. Dell is focused on growing their services to compete with HP and IBM. From the consumer perspective, Apple's MacWorld and introduction of their new iPod and iPhone failed to excite and it has fallen significantly over the past month. Content and social networking growth will continue to drive Web 2.0 adoption among consumers and will spill over into the enterprise. CBS and Facebook recently teamed up to offer NCAA March Madness coverage. CBS, like Microsoft, needs to figure out how to monetize these types of deals. They haven't sold any ads tied to this site yet. According to a Wall Street article, they only sold about $10 million last year related to their online digital advertising, TV is still king. This will be a good year for those who are resourceful and well prepared to take advantage of the opportunities that arise. The Rat is a courageous, clever and an adaptable "person" - just don't take the bait.

Yahoo cannot survive on its own. Microsoft needs a search technology boost. The companies have been talking for over a year. Last February, the deal could have been $60 billion vs. $41 billion on Friday.  Yang is calling in the big guns by reaching out to Google to see if they can "work together." Google could try to cloud this deal by crying anti-trust foul. Ballmer today in their analyst call said that Microsoft acquiring Yahoo would do more for competition than some arrangement with Google & Yahoo. This makes sense for Microsoft and I would expect this to go through this year. Microsoft could use this as a platform for MS Live, think getting more business eyeballs using Microsoft software as a service technology. Yahoo has some good relationships from a content provider to major carriers and is a top destination site - much more than MSN.  It would be important to get the Yahoo software team on board because many new graduates choose to work for a Google or eBay rather than a mainline software company such as Microsoft. This could add some pizzazz to Microsoft's offerings. The only problem I see is that Microsoft will most likely drop the brand altogether within 2 years.