Paul: May 2008 Archives

There's been much hype around FriendFeed recently as users get frustrated with constant outages from Twitter. According to Compete.com; Twitter is getting over a million users per month compared with Friendfeed with less than 150,000. Sites like Friendfeed have potential and gain early interest because they offer data portability. You can migrate easy access to your other accounts such as YouTube, flickr, twitter and yelp for example. Some early complaints about distributed identity and social sphere openness have been addressed by some of the newer sites. What's not understood very well is that fact that these sites perform very well when they are small. When their user base grows up to over a million or more, they start running into infrastructure brick walls. These sites are not designed for scalability up front and have to cross the chasm in terms of monetizing their assets so they can invest in real data center and web performance capabilities. Everyone wants to have Amazon or Google class performance but that's not something that can grow from a second bedroom server farm. Outages and service interruptions are becoming more commonplace, even with larger operations such as Google YouTube or Blackberry networks. Microsoft Live has suffered outages too. This is the only business where you can be the victim of your own success.

Jellyfish, an online shopping cash-back service purchased by Microsoft last year forms the foundation of a new search engine advertising model the company is expected to announce at its Advance08 conference this week. The new MS LIVE platform, called "Live Search Cashback," will enable allow users to get cash back from purchases made by participating advertisers on a variety of merchandise. In contrast to Google's virtual monopoly on the pay-per-click model, Microsoft will share part of the fee collected from the advertisers to incent users to move forward with a purchase. Conceptually, this is no different than a manufacturer offering rebates at the retail point-of-sale level through the channel and to the end customer. Microsoft takes the risk of running the ad by changing the model to CPA (cost-per-action) from CPC (cost-per-click, aka PPC, pay-per-click). Microsoft's recent re-engagement with Yahoo, specifically its search business, potentially provides advertisers enough inventory to make this a viable service. Maybe these "stimulus checks" from Microsoft will keep our economy going this year!

Carl Ichan is moving ahead with a Yahoo proxy battle and a new slate of 10 board seats including Mark Cuban.  He's shaken up things at Motorola and Time Warner so he's not the person you'd want to come knocking at your investor relations door. He picked up 50 million shares last week and has said he will buy up more shares ($ billion + shareholder already). All he needs to Gordon Crawford (with Capital Research & Management) and Bill Miller with Legg Mason who owns 80 million Yahoo shares and is the company's second largest shareholder to pull this off. He does not have Microsoft's commitment, but with a new board and willingness to accept the last offer, the deal may go through. Yang will have trouble blocking the Power Play shots on goal as Ballmer, Ichan and Cuban crash the net and head for the onion bag.

This acquisition is HP's largest since its $19 billion purchase of Compaq in 2002. Combining market share of both EDS and HP in the computer services segment pegs them at 5.2% versus 7.2% for IBM according to Gartner. Still, they will be much smaller than IBM with its $54 billion in services last year versus $38 billion for HP/EDS. There may be some potential channel conflicts as some of HP's competitors such as Xerox, Dell and Sun sell products through EDS. This hurts Dell the most since now HP will have a much larger channel to sell its servers and desktops. Plans are to keep the EDS headquarters in Plano, Texas. That's great because now HP can use the cool executive briefing center that Ross Perot disliked so much known as the "God Pod." It's located in that center section spanning the two buildings. It has a cutout in the floor that reminds you of the Ghost Bar on the 55th floor of the Palms Casino in Las Vegas. Don't stomp on it too hard!

Sprint is merging its WiMax Xohm business with Clearwire in a $3.2 billion investment backed by Google, Comcast, Intel, Time Warner Cable and others in a move to save the technology in the U.S. The deal originally fell apart last November but we thought some investors would come forward. Craig McCaw is bringing together some of his early day pioneers such as John Stanton (from Western Wireless, later became VoiceStream, then T-Mobile) and Dan Hesse of Sprint. So far Sprint has only shown it can lose money and faces rapid extinction to Verizon and AT&T. WiMax has already lost momentum to spectrally efficient LTE (4G), I'm still not sure they can gain market traction.  The real winner is Clearwire and a small pay day for McCaw. Google wants to ensure it has a home for Android handsets and put up $500 million. That's plenty of Zeros for the venture, but I don't think they'll win.

Back in February I warned to stay out of technology stocks for a while. Last week we saw the unwinding of the commodities trade and the rotation move into tech and financials. The four horsemen have traditionally been referred to as Apple (AAPL), Google (GOOG), Research in Motion (RIMM) and Amazon (AMZN). I personally think we can replace Amazon for another strong big-cap tech name. While I'm not wandering into financials at the moment, I still like Goldman Sachs (GS) and have enjoyed the run-up in Visa (V) and MasterCard (MA). The Nasdaq has found nice support above 2400 and the S&P has closed consistently over 1400. At this stage, I'm calling the bottom here but expect to see more volatility in retail, financial and energy sectors. We were thinking last week the Agricultural (Potash POT, Monsanto MON and others) were done but not quite so fast. The world still needs food and as long as we burn corn for ethanol, this sector still looks good. Don't forget to mix in some Natural Gas plays and the oil drillers (CHK, XTO, APA). Good Cisco earnings would signal the official "all-clear" and tech should do fine into the summer months. Watch for resistance at 2550 for the Nasdaq and a bump on the S&P around 1440. Next stop will be 1500 (along with Google over 630 and Apple over 200).

Meanwhile, Microsoft made the right call walking away from Yahoo. The Yahoo shareholders are going to be coming out in full force like the animals who through Horton in a cage in "Horton hears a Who." Maybe Jerry Yang's heard something no one else has but Ballmer glibly said, "Talk to the hand" this weekend. Ballmer's public letter should make it open season for the Yahoo shareholders to either unseat the board or get them to back to the emerald city. Meanwhile, the Yahoo employees must be thinking "Hoo will save us?"

Zenbe has taken a different approach to innovation than other companies such as Xobni or Xoopit who have provided add-ons or complementary services to popular email clients. Zenbe sports what beta users say is "a beautiful interface."  It has tabbed viewing and organization of emails and file types through "ZenPages" and supports widgets for YouTube, Flickr, Google Chat/Maps. It tries to take email and make it a socially collaborative tool. Personally, I'd rather see someone introduce a product that improves Microsoft Outlook's performance, that's a dog that will hunt. It's difficult for users the change email systems and some set up auto forwarding of multiple mailboxes and collect them in one system. Most users have at least 3 email accounts - work/corporate, webmail and an ISP/POP email client. The webmail choice is always up for grabs but with ever increasing storage from Yahoo or Google, it doesn't make sense to move. Besides, all these companies have access to the same development tools and technologies so new UI features from startups can easily be added.