Digital Review Blog

AOL Pays Too Much for TACODA

2007-07-24T19:52:00.000-07:00

Although not publicly disclosed, insiders close to the deal indicate AOL payed $275MM to purchase the behavioral targeting firm TACODA. That's a big sum of money for a 100 person company, and an unprofitable one at that. Apparently, AOL isn't confident they could build the technology in-house, which makes sense given their track record. Nonetheless, I still think it was a smart move by AOL, who is basically selling off their customer base to the Telcos/MSOs as they can no longer compete as an ISP, and is putting all their eggs in the Advertising basket. According to eMarketer, Advertisers will double their spend on targeted display advertising to $1 billion, and then nearly triple to $3.8 billion by 2011.

TACODA was financed by Union Square Ventures, and you can read their response to the acquisition here.

technorati tags: AOL, advertising,
TACODA

From Wireless to Print: Can Google Master All Platforms?

2007-07-23T19:43:00.000-07:00

Google's Q2 earnings release was the least interesting of the three press releases they issued last week. Their first release announced the expansion of their online advertising platform, Google Print Ads™, for offline media buying. Google serves as a middleman between Advertisers/Agencies and traditional print publishers, connecting the former with the latter in an easy to use Web interface. This is an offline extension of Google's bread-and-butter programs Adwords and Adsense, with a key difference: pricing is not based on an auction system. Advertisers submit what they are willing to pay to publishers for the advertising space, and publishers either accept or reject the offer. Publishers benefit by tapping into the large audience of online Advertisers already working with Google, many of which have never purchased traditional media, and Advertisers benefit by improving the effectiveness of their overall marketing spend: Covad reported a 20% lift in their online impressions for their purchased keywords following their print advertising. "I am a big convert," said Simon McIver, Director of Marketing at Covad. The programs has grown from 50 participating newspapers to more than 225 newspapers representing 32 of the top 35 DMAs. Google rings the cash register again.

The third press release was well covered in the media and no need to recap the details here, but Google announced their intent to participate in the January 2008 government auction of the wireless spectrum in the 700 megahertz (MHz) band. That is, if the government is willing to adopt the four types of "open" platforms outlined by Google as part of the license conditions. Not happening, no way, no how, but at least this marketing stint was more effective and more professional than Sergey Brin's previous attempt to directly lobby lawmakers clad in jeans and sneakers, a rookie move if there ever was one.

technorati tags: google, advertising,
Sergey Brin

Happy New Year!

2006-12-31T10:45:00.000-08:00

Wishing everyone a happy, healthy, and prosperous new year! My browsing habits have changed a lot in 2006. I discussed this with some friends and they said the same thing -- it seems the communal nature of the internet was unleashed this year. I hope 2007 continues with this trend. Email me some of your favorite sites that changed your internet experience in 2006 and I'll compile the list.

Google Announces Acquisition of YouTube for $1.65B

2006-10-09T18:35:00.000-07:00

As predicted, Google announced acquisition of YouTube for $1.65 billion in an all-stock deal, making the transaction tax-free for YouTube shareholders. You can listen to the Webcast here. It would be difficult to exaggerate the impact this acquisition will have on the Internet landscape, especially the impact on Google's chief competitors' Yahoo! and Microsoft. The acquisition is expected to happen in Q4, and the number of Google shares to be issued in the transaction will be determined based on the 30-day average closing price two trading days prior to the completion of the acquisition.

YouTube has a 45% marketshare of online videos, and the acquisition will dramatically improve Google's video-sharing service. Approximately 100 million videos are available on YouTube on any given day, with 65K new videos added every day. According to Nielsen Net Ratings, YouTube enjoys 20MM unique visitors per month.

The acquisition leaves Microsoft and Yahoo! in a more precarious position to compete with Google in the online space. It was rumored both were considering acquiring YouTube, but both passed in favor of starting their own video-sharing service. Microsoft launched their own video service called Soapbox in beta on September 16th, with little success. In reaction to today's announcement, Whitney Burke, a spokeswoman for the company stated:

"We are excited about the potential we are seeing in the beta of Soapbox on MSN and believe building our own solution is a more cost-effective way to compete in this new space."

It is good that Microsoft is excited about its own service: apparently no one else is. Microsoft has more cash in its war chest than Google, but emphasizes they are taking a "more cost effective way" to compete, but how well does this serve the company and shareholders when they are losing the war. Pathetic. But then again Microsoft has always been followers, and not innovators, and that may have worked in the past, but the disruptive nature of the Internet will ultimatetly prove that approach unsuccessful.

However, the scope of this acquisition goes beyond the Internet, and affects the media space in general. Tom Brokaw lamented tonight on "NBC Evening News" in response to the acquisition "They don't build media companies like they used to." No they don't Tom, so you might as well get used to your declining viewership. You may not get it, but your employer apparently does, as NBC folded in its request that YouTube pull its clips of "Saturday Night Live," and instead cut a deal with YouTube to allow users to post content from NBC programs.

One of the reasons I love working in the Internet industry is that it is so disruptive, and although Google is now benefiting from this, it could one day become the victim of it. What is good for the goose, is good for the gander, and I look forward to writing about the company that first disrupts Google. I'm not holding my breath.

technorati tags: google, youtube,
microsoft

Google in Talks to Aquire YouTube for $1.6B

2006-10-07T09:42:00.002-07:00

WSJ reported on Friday that Google and YouTube are in early acquisition talks. The rumored price tag is $1.6B. Founded in February 2005, YouTube has experienced phenomenal growth: they are currently ranked in the top 20 trafficked sites in the U.S.: 15 months ago they were not even in the top 100K:

Here is an Alexa Chart comparing traffic trend of Google and YouTube:

Prediction: This deal will get inked, and sooner rather than later.

technorati tags: google, youtube

Internet Titans Take Different Approaches to Content Generation

2006-10-01T09:03:00.000-07:00

I dislike the often repeated phrase "Content is king" when referring to the internet. It's a tautology that conveys no real meaning, kind of like saying oxygen is important for life. What is interesting is how the major internet companies approach content. The Internet titans are each taking a different approach to content generation, with Google stating last week that it is sticking to its mission statement to "organize" and "make accessible" information, not to create it.

"We don't really have a ton of serious conversations about creating content," said Tim Armstrong, vice president of advertising sales, said during a panel discussion at an Interactive Advertising Bureau event in New York. Instead, he said, Google would prefer to stick with "getting users where they want to go."

Yahoo! has a much bigger stake in content generation, and went through some internal in-fighting this year in regards to the best approach to take. Lloyd Braun, former chairman of ABC Entertainment Television Group whom Yahoo hired in November 2004 to head their Media and Entertainment division, wanted to take a traditional television model to the Internet: create a series of one-off hits to attract and sustain large audiences supported by advertisting. His original strategy was to create sit-coms, talk-shows and similar television-like content for the Internet. Other Yahoo! executives, in particular CEO Terry Semel, disagreed with this approach, and instead favored acquiring content through partnerships and licensing deal as well as through user-generated content. Mr. Braun lost the battle in typical corporate fashion: his budget was seriously cut. Rumors circulated that Mr. Braun was going to leave Yahoo! over the dispute, but he stated back in March that he had has seen the error of his ways:

"I didn't fully appreciate what success in this medium is really going to look like," he said. "This is not about creating one-off hits like in my old business. That is not going to create a sustainable competitive advantage over the long term."

However, another Internet titan is taking the opposite approach, and the one originally championed by Mr. Braun. Ironically, it is from a company that was one of the first to bring user-generated content to the internet in a large scale through customer written book reviews: Amazon.com. Amazon now seems intent in creating highly produced original content on a grand scale: Amazon has hosted a series of short films, video streamed its 10th anniversary concert featuring live performances by Nora Jones and Bob Dylan, and most recently, Fishbowl, the 12 episode talk-show hosted by Bill Maher. Amazon has publicly stated that Fishbowl is just the first of many 12-episode programs that it plans to air. Amazon has also purchased the rights to turn the best-selling novel "The Stolen Child" into a feature-length film.

I won't speculate as to which approach will be most effective, although Google is probably in the most enviable position by simply side-stepping the need to create original content and still make money in volumes that Yahoo! and Amazon can only hope to do so. I guess it really is good to be the king.

technorati tags: google, amazon, yahoo

Toolbars: Big Business

2006-09-28T20:25:00.000-07:00

Search but you will not find toolbar adoption rates, but assuming just a few percentage points among internet users, and the numbers are huge. Toolbars are primary real estates for both advertisers and search companies: they are persistant across every Web site you visit: if you are a fortunate enough company to have a placement within a toolbar, you will receive hundreds, in some cases, billions, of impressions per year. In an effort to extend their market share, search companies not only release their own branded toolbars, but also negotiate co-branded deals with companies to be the default search engine for third-party toolbars.

Yahoo! announced today a deal with Hewlett Packard for a co-branded toolbar in which Yahoo will be "set as the default search engine in Microsoft's upcoming Internet Explorer 7 on HP consumer desktop and notebook PCs." Yahoo! will pay $$$ HP for the privilege of being the default search engine within the built-in toolbar that will come embedded within all HP computer units sold with I.E. Yahoo! makes money every time a users conducts a search using the toolbar and clicks on a sponsored link.

A big source of income for internet browsers and toolbars are from the money make by integrating third-party search services or advertisers into their browser bar. For example, Firefox users will notice the drop down menu in the search bar that includes companies such as Amazon and eBay. Every time a user does a search across Amazon or eBay and makes a purchase, Mozilla Corporation, a taxable company, makes money by sharing in the revenue generated. This is significant money considering the feature is built into every Mozilla browser.

Interactive Advertising Bureau Reports Continued Growth in Online Advertising

2006-09-25T20:53:00.000-07:00

Interactive Advertising Bureau (IAB) released first half of 2006 internet ad revenues, and the numbers continue to rise. Below is a chart comparing year-over-year growth rates by ad channel:

Overally, internet advertising revenue grew 36.69% YoY, with revenue exceeding $4B for the first time in a single quarter in Q2. There are a confluence of factors at play here: consumers are spending more time on the internet, traditional media outlets no longer have the reach they once had, and the overall tivo effect of increased adoption of DVRs. Internet advertising also enables marketers to measure the impact of their ad dollars unimaginable in a few years ago which traditional media simply can't replicate. This is evident in where advertisers are spending their internet dollars:

Search has the biggest share of the pie underscoring the effectiveness of keyword bidding in driving qualifying traffic to online businesses. However, the largest percentage growths are in lead generation and classified ads, indicating that local advertising on the internet is quickly emerging. I suspect Craiglists is having a very good year, and we'll see more competition in online classifieds over the next year.

Although marketers are definitely spending the majority of their online ad dollars in direct response channels, the increased spend in display advertising suggests that marketers still value branded advertising in a medium perfect for direct response. This is good news for the major portals, especially for AOL who's betting their future on online advertising.

technorati tags: advertising, IAB

eBay Express: A Threat to Amazon?

2006-09-17T13:39:00.000-07:00

If you're located in a major DMA and watch TV, no doubt you've been subjected to the media blitz by eBay promoting their new fixed fee shopping service, eBay Express. eBay first announced
eBay Express in April of this year, and have begun a broad marketing campaign in time for the peak holiday shopping season. eBay Express is a more direct challenge to Amazon that its Auction business, as its model takes a more traditional retail approach with fixed fee pricing and selection.

eBay Express is in part a defensive move by eBay to Amazon's success in growing its Marketplace business. After failing to compete with eBay with Amazon Auctions, Amazon has enjoyed success in attracting third party sellers to its platform, allowing merchants to offer their products on Amazon product pages. According to its Q2 2006 financial report, third party sales now represent 30% of all units sold at Amazon. That's huge. Amazon's courting of third party merchants is a direct threat to eBay, who relies on third party sellers for nearly ALL of its sales. There's an undeclared war going on for third party sellers, and eBay Express is just another battle front for that business.

Of course, merchants benefit no matter the outcome of the battle between Amazon and eBay: after all, its a battle for their business. eBay Express represents just another distribution point for their wares, and sellers can peddle on Amazon, eBay, or any other seller platform without penalty. Merchants will simply devote more of their time growing their business on the platform that generate the most sales, and profit, for them, and eBay and Amazon want to ensure they are the preferred platform. The question is, can eBay do to Amazon's retail business what Amazon could not do to eBay's auction business?

technorati tags: eBay, Amazon

eBay To Launch TV Advertising Marketplace

2006-08-05T20:12:00.000-07:00

eBay will launch a new pilot program in Q2 2007 that will enable advertisers to bid for TV Ads in an electronic marketplace. Advertisers participating in the pilot program include Microsoft, Wal-Mart, Toyota, Hewlett-Packard, and Home Depot. No announcements were made as to which TV networks would offer their advertisement spots to be claimed by the highest bidder. I'm not sure who this is meant to benefit most: the networks who feel uncertain about the long-term prospects of the 30 minute spot or the advertisers who want more transparency in the buying process. Apparently both: the pilot program is being endorsed by the Association of National Advertisers and the American Association of Advertising Agencies.

"As you look at the existing media buying and selling process, there is a level of perceived inefficiency in the system," says Bob Liodice, president of the Association of National Advertisers. "The marketers believe there may be a more transparent approach toward the buying and selling of advertising."

It's looks like old media is taking a lesson from new media which made bidding on advertising popular on the Internet, but it looks like Google was left out in the cold on this one. Here's a link to the pilot program http://www.admarketpilot.com/.

technorati tags: eBay, Advertising

Flock Social Browser due to Launch in September

2006-08-03T21:35:00.000-07:00

I downloaded the beta version of the Flock browser today, and like it very much. Flock is a "social browser" that is integrated with sites such as del.icio.us, Flickr, Photobuck that makes it easy to comment, share, tag, and post photos and Web sites. It also has a built in blog editor that works with most major blogging services, including Blogger, Drupal, LiveJournal, MoveableType, Typepad and WordPress. I am writing this entry using their editor to see how well it works with Blogger. One problem is that you cannot easily align images, so I'm not sure how this will look after posting. You can read more or write a review about the browser here. Love the concept, but sure is buggy - hope they can resolve in time for the launch in September.

technorati tags:Flock, Browser

Blogged with Flock

Gracenote: Ripe for the pickin'

2006-08-01T20:23:00.000-07:00

I've done business with many companies, and one that always sticks out of my mind is Gracenote. Gracenote is a privately held media recognition company based out of Emeryville, CA with a satellite office in Tokyo Japan. Gracenote has a very deep and extenstive meta-data catalogue on media products which they've coupled with recognition technology. Their database includes 4MM albums, 55MM tracks, 8MM audio wave fingerprints, and 17K DVD titles, with all media regionally segmented with 80 countries supported and 15K licensees. Their core markets are portable audio, car audio, and home audio. Who uses Gracenote technology: you do.

Own an Ipod or Creative audio product? Which digital music service do you prefer: I-Tunes, Yahoo! Music, AOL Winamp, Real Rhapsody, or Napster? Own a Sony Vaio? Listen to music in the car or at home using Alpine, Clarion, Panasonic, Samsung, Sanyo, or Sony product? If yes to any of these questions, you're using products with Gracenote technology. Gracenote has recently completed deals with cell phones and PDA manufacturers to embed their technology into handhelds. Imagine being at the club and hearing that killer new tune and not knowing who the artist is. You hold up your cell phone and it immediately recognizes the artist, album, track, and then you just click "Download now." That's super cool, and why they have 8MM wave fingerprints and are continually expanding that number. The market for media recognition technology is expanding, and they control most of the major patents in this area. Competition: little to none, which is why all the major digital media companies use them.

Gracenote was recognized this year at CES with an Innovations Award Honoree, Software and Embedded Technologies, and was named Top 100 Private Companies in 2005 by AlwaysOn and Red Herring. I have no expertise in M&A, but it seems to me this little gem would be a valuable asset to any company in the digital media space, and wouldn't be surprised if someone like Apple acquired them. I'm just surprised that no one already has.

Internet Explorer 7 Automatic Upgrade for Windows XP Users

2006-07-30T10:31:00.000-07:00

Microsoft announced last week they will automatically push Internet Explorer 7.0 to Windows XP users when the browser is ready in Q4. It has been 5 years since Microsoft has released a major upgrade of Internet Explorer, and all I can do is breathe a sigh of relief. Not because I use or even particularly like Internet Explorer, but as anyone who publishes on the web can tell you, it is a pain in the rear to make your html compatible with the browser. I have many hacks I have to use to make sure my pages render correctly with Internet Explorer, and I'm hoping I can findly stop trying to support I.E. 6 (I already gave up on trying to support earlier versions). Thankfully, readers of my blog use Internet Explorer much less than the general population, which I take as a sign of their high I.Q. Below is a chart detailing the percentage of my blog visitors by browser type.

If you're using Internet Explorer right now, please do yourself and others a favor, switch to Firefox, Camino, or Opera. You'll have a much more enjoyable Internet experience, and after all, isn't that what life is really about?

The Upcoming Payment Wars

2006-07-29T09:09:00.000-07:00

2007 will be the year that the payment wars begin, and it won't be limited to papal and Google. The groundwork is being layed for the upcoming payment battles, with many emerging companies entering the market, especially in the mobile payments space. Visa USA recently conducted a consumer survey, and 61% of participants between the ages of 25 and 34 said they were interested in using their cell phone to make purchases. Respondents also indicated they are twice as likely to carry their mobile phone than cash; this jumps to 4x for consumers in the 25 - 34 age range.

"These numbers indicate that mobile phones for U.S. consumers are becoming more a part of their everyday lives," said Michele Janes, Director of Product Innovation at Visa. "The new technology lets them do more with their phones. For banks, I think this means consumers will start demanding more applications designed for their phones."

The ecosystem of technology, financial systems, and consumer demand are now in synch, making the conditions ripe for a lucrative emerging market. "Over the past six to 12 months, we've seen a drastic increase in interest among [card] issuers in mobile payments," she relates. "Several of our issuers are asking about this."

There are several start-up companies well-positioned to take advantage of this emerging market, including Obopay, MobileLime, Get Scoot, and KushCash. These companies are raising significant amount of VC funding. Obopay received $10MM in March from Redpoint Ventures, Onset Ventures, and Richmond Capital and KushCash recently raised $12MM in private investment.

The competition is fierce and it is too early to tell who will emerge as winners or losers, but one company that I find particularly attractive is TextPayMe. This Redmond, WA based company was founded by two former Microsoft employees. The service is extremely easy to use: simply send a text message with amount and recipient's phone number and within minutes you receive an automated confirmation call confirming the funds were transferred.

Although I disagree, there are those who think mobile payments doesn't offer a strong value proposition compared to conventional payment methods.

“I think what needs to happen is that there needs to be a compelling reason for why I want this,” said Julie Ask, a wireless analyst at JupiterResearch. “What are the scenarios that I need to be traveling so lightly that I don’t need to take my wallet with me? It’s got to be more convenient than paying with cash, coins, or credit cards today.”

CNet Experts in Stock Backdating, Offers FAQ

2006-07-26T19:13:00.000-07:00

I have no idea why I'm on this CNet kick, and I'm probably boring the few readers I do have, but I found it funny that CNet posted today an FAQ on stock backdating. The upshot: we're in good company (Apple does it too!), the tax laws incent the behavior, and at any rate, as long as you're up front with shareholders, it's not illegal. Well guess what CNet, shareholders won't care if the current SEC investigation finds your practices of backdating executive stock options illegal or not, they will still sue you. If it's such a benign practice, then why haven't you still announced your Q2 financial results? See you in court.

CNET Sales Rise, Delays Net Income Report

2006-07-24T20:26:00.000-07:00

CNet Networks, Inc. reported revenue results today, but delayed earnings report until the previously announced investigation into the backdating of executive stock options is completed. Revenue jumped 14% YoY to $92 million, compared to 80.4 million in revenue for the same period of 2005. Revenue exceeded analysts expectations of $90.4 million, according to a survey tracked by Thomson First Call. CNet attributed the growth to their expanding overseas markets, which now account for 19% of their revenue, compared to 17% the year prior. In China, CNET acquired xcar.com.cn, an online automobile destinations that provides reviews and information for consumers considering car purchases. In Europe, the company launched localized versions of some of its popular U.S. sites.

"We are pleased with the growth of our business during the second quarter," said Shelby Bonnie, chairman and chief executive officer of CNET Networks. "We continued to expand our audience and customer base across the U.S., Europe and Asia by growing our core brands and adding new ones, enhancing our position as Internet ad spending continues to increase."

CNet forecasts revenue of $93 million to $96 million for Q3, and between $386 million and $403 million for the full year. Despite the lack of net earnings results and the potential damage from the on-going investigation, shares rose slightly in after-hours trading following the report.

As I mentioned in my previous post on CNet, I think it is a good time for CNet to be aquired, and I can't think of a better company to benefit from such an acquisition than Yahoo!. Both Yahoo! and CNet have positioned themselves as media companies, and CNET has many assets that Yahoo! needs. Yahoo! already uses CNet for much of the product information in their shopping engine, and needs professional editorial support in other verticals as well. The timing is right with CNet's stock down nearly 45% this year, yet they have growing revenues with a solid balance sheet that includes a cash balance of $143.3 million. What can I say, the synergies and the price are right.

Internet Earnings Preview

2006-07-16T21:13:00.000-07:00

Google, Yahoo! and eBay all report earnings this week, followed by Amazon next week. Competition among the Internet Titans has been heating up dramatically over the last year as they increasingly enter into each others core business (search, ecommerce, content & advertising) and fight for market share and global expansion. The fundamental drivers of growth in internet sector remain strong, as consumers increasingly use the web for communication, research, entertainment, and shopping. Investors will be closely watching the financial reports to see which companies are best able to take advantage of the increased time spent on the Web.

"Strong secular growth and fundamental trends remain intact for the Internet sector, despite some company-specific controversies," Goldman Sachs' Anthony Noto wrote in a recent note to clients.

According to comScore Networks, total U.S. Internet traffic rose 4% in June from a year earlier. Media and retail sites grew considerably faster, rising 15% and 8%, respectively, according to an analysis by Merrill Lynch. Web-page views on Google reached 10 billion in June, up 71% from the same month last year, while Yahoo's page views reached 40 billion, up 23% from last year, according to comScore. Traffic to e-commerce sites was healthy as well, with eBay's June user numbers rising 21% to 78 million and Amazon's up 22% to 49 million.

First up is Yahoo! who reports on Tuesday. Yahoo! is in the best position of all the Internet Titans to take advantage of the resurgent growth in brand & display advertising, and should report towards the top end of their revenue guidance of $1,080-$1,160 billion. Wall Street is looking for the company to report earnings of 11 cents a share, down from 13 cents a year earlier, on $1.14 billion in revenue.

During Q2, Yahoo! continued to focus on social media with offerings such as Yahoo! Answers and Yahoo 360! that rely heavily on user generated content. They also updated their homepage and formed a broad strategic partnership with eBay that includes advertising, online payments, Web searching and a co-branded toolbar. Yahoo! also announced that it will begin rolling out a completely redesigned search advertising platform (code name "Panama") in the third quarter to help businesses more easily connect to Yahoo!'s vast audience.

eBay reports on Wednesday and investors are looking for some good news from what has proven to be a very difficult year for the Internet auctioneer. Stock is down 30% this year and eBay recently experienced a series of executive departures, including PayPal President Jeff Jordan.

Analysts are expecting earnings of 24 cents a share, up from 21 cents last year, when the company wasn't expensing stock options. Revenue is expected to be $1.41 billion, at the high end of eBay's guidance of $1.37 billion to $1.42 billion.

Microsoft using Amazon for Storage

2006-07-12T21:38:00.000-07:00

Amazon has hit a home run with their Simple Storage Service (Amazon S3). Amazon S3 enables companies and developers to store and retrieve any amounts of data from the web inexpensively. Amazon announced today that companies are storing 800 million data objects using S3, including Microsoft Corporation. The fact that a company with the resources Microsoft has at its disposal is using S3 for storage underscores the economic advantages S3 offers:

"We needed a storage and delivery solution that made it simple, fast, and dependable for students in hundreds of countries around the world to download our software at any time," said Joe Wilson, Director of Academic Initiatives in the Developer Marketing division at Microsoft Corp. Microsoft wanted to scale the program up without any upfront or increased ongoing expenses, which is why it chose Amazon S3. Microsoft expanded the program while managing to cut storage costs by more than 90 percent since switching to Amazon S3. "In addition to being easy for our users, Amazon S3 allows us to deploy and scale up in a very cost-efficient manner," said Wilson.

Amazon has invested over a billion dollars in their technlology platform, and is now leveraging the scalability of that platform to extend their business model beyond e-tailing. Although Amazon doesn't break-out the financials of their Web Services Group, over time these efforts should be a much needed boost to their slim operating margins.

CNET to Restate Earnings

2006-07-10T19:04:00.000-07:00

CNET Networks, Inc. announced today that it will be restating financial results for 2003, 2004 and 2005 earnings because it back-dated stock options granted to executives. The first signs of trouble came on May 24th when they issued a press release that the SEC was conducting an informal inquiry into its stock option grants:

On May 16, 2006, the Center for Financial Research and Analysis issued an analysis of stock option exercise prices relative to stock price ranges for certain companies during the period 1997 to 2002. The report identified CNET Networks as having granted stock options on four occasions between 1998 and 2001 with exercise prices that matched or were close to a 40-day low for its stock price. On May 22, 2006, CNET Networks announced that its Board of Directors had appointed a special committee of independent directors to conduct an internal investigation relating to past option grants, the timing of such grants and related accounting matters. The Special Committee is being assisted by independent legal counsel.

Today's press release states the preliminary conclusion of the investigation indicates that the measurements dates of some stock options grants between 1998 and 2001 "differ from the recorded measurement dates." That is fairly vague, but my guess is that the measurement dates gave the executives a better strike price than the recorded date. As anyone who's been granted stock options can tell you, you make the difference between the strike price typically determined by the average stock price of the grant date, and the market price at which you sell. The dates indicated covered a few years during the internet boom, and modifying the grant day by as little as one day could be very significant depending upon the number of shares involved. At any rate, c|net explicitly states "these charges are material."

C|NET's stock is already down 45% this year, and this is not the type of news that will provide much comfort to shareholders. Nonetheless, I doubt that the restatements will have much impact on their current balance sheet, but the real risk for C|NET comes in the form of litigation from shareholders. Might be a good time for C|NET to be sold.

Slave to the Box

2006-07-05T20:33:00.000-07:00

I took a fresh look at the variety of tools and services Google now offers: news, maps, email, IM, calendar, in addition to the 19 different flavors of search they offer, and it's not clear there is a grand master plan behind all of this, but they're smart folks, so lets give them the benefit of the doubt and assume there is. However, what is clear is that Google has yet to figure out how to integrate the puzzle pieces into a complete picture. What do I take as evidence of this? Their homepage.

Their homepage is beautiful in its simplicity, but in what they gain in simplicity, they lose in promotional opportunities. Their homepage is all about the box, as it should be: that's a multi-billion dollar box centered above the fold, and it's clear that nothing should distract from it. The opportunity costs are simply too high, and none of their complimentary services comes close to competing with the cash cow that is the box.

So among all the services and products Google now offers, how do they decide what to put on their homepage? As an outsider, I can only speculate, but I do so by considering 1) What they've actually put there, their mission statement, and their sources of revenue. In reviewing these three, I've come up with the following criteria:

1. High revenue and profit potential

2. Directly related to their mission statement to organize the world's information and make it universally accessible.

3. User demand.

If you look at the 5 text links (excluding "more") placed directly above their search box, they all fit neatly into two or more of the above.

1. Images: Google first launched image search in the summer of 2001, and is second only to web search in the number of queries submitted. Meets requirements 1 & 2.

2. Groups: The new Google groups leverages what they began in 2001 of integrating the huge volume of data in the Internet's largest Usenet archive into a searchable format. You can search and read more than 1 billion postings in the Usenet archive, and create your own groups, mailing lists, and email newsletters. Meets requirements 2 & 3.

3. News: Google news launched in beta in September 2002, and came out-of-beta on January 23, 2006. They currently do not monetize news with ads, but I expect this will come eventually. Meets requirements 2 & 3 above.

4. Froogle: Google currently monetizes Froogle with sponsored links, but with the recent launch of Google Checkout, this could get interesting. The internet company that can dominate online search, shopping, and advertising wins. Google already dominates search and search advertising, and with recent enhancements to Adwords (image & video), they have a chance at dominating display advertising as well. I doubt that Google can dominate e-commerce - that's Amazon's domain, and what Amazon does is just too difficult to do and requires an infrastructure that Google would never invest in. However, Google Checkout is a huge threat to eBay, as eBay is simply a venue for sellers and consumers to exchange goods, which is a much simpler space to enter. If Google enable buyers to directly buy from sellers on Froogle using their Check-out, you could see a mass exodus of sellers from eBay to Froogle. That's a big if, and Google needs to figure out how to make the economics better for sellers than it is for eBay. I'll be watching and reporting on this closely as it unfolds. Meets requirements 1, 2, and 3.

5. Google Maps: Google maps is just too cool and even if they never monetize it, it's a feature that deserves space on their homepage. Meets requirements 2 & 3 above.

Adding in G-mail and calendars, it's easy to imaging Google redesigning their home page by a robust integration of these features into a portal-esque page that is completely personalized. Google's homepage could become the ultimate gateway into the internet, and could unseed Yahoo! as the #1 internet destination. As it is, they remain a slave to the box, and there is too much real estate they are foregoing to maintain this simplicity. Perhaps they are still waiting to create all the pieces of the puzzle, and then one day like magic they'll put all of this together and offer us a homepage worthy and reflective of the products and services they offer.

What will that puzzle look like when it's complete?

Google Warns Broadband Service Providers

2006-07-04T15:37:00.000-07:00

As much as it was expected, it's still sad that the net neutrality provision didn't make it out of committee last week. It's time for the Internet Titans to start playing hardball, and Google indicated it's ready to do just that. Internet Pioneer and Google VP Vint Cerf said in a news conference in Bulgaria, that if they lose the legislative battle - which is like the case - they will take any abuse by the Telcos and MSOs straight to the Justice Department anti-trust division. On this Independence Day, let's hope our legislators in D.C. have the foresight to keep the Internet free and independent.

Will Microsoft Buy Yahoo!?

2006-06-23T15:38:00.000-07:00

Justin Post, a research analyst at Merrill Lynch, issued a report today indicating that Microsoft should consider buying another Internet Titan, specifically Yahoo! or eBay. The report, entitled "MSFT/Yahoo! combination: theory...for now," indicates that the current valuation of Yahoo! and eBay makes the acquisition attractive for Microsoft, and would immediately enhance their own internet offerings. "Worst case, an acquisition of eBay or Yahoo could cost Microsoft $5 a share if completely unsuccessful," wrote Mr. Post. With $34 billion in cash on hand, Microsoft could easily afford such a large acquisition. Post indicates that the likely acquisition scenario would be Microsoft paying $20 billion in cash, and funding the rest with debt.

The acquisition of Yahoo! would put Microsoft in a much stronger position to compete with Google in the online search and advertising markets. A combined Yahoo! and MSN would give Microsoft roughly a 41% marketshare of all U.S. search queries and 29% of worldwide search queries. Today, Google has 44% marketshare for U.S. search, and 61% share worldwide. Additionally, acquiring Yahoo! would eliminate one of Microsoft's largest Internet competitors. Post writes "We think the combined entity would realize operating synergies in product development, content licensing, S&M and G&A."

This all sounds well and good, but it is worth calling out the following:

Post doesn't own shares of Microsoft, Yahoo!, or eBay, but Merrill Lynch intends to seek an investment-banking relationship.

So what does this mean? I don't know, but a few possibilities come to my mind:

1. Discussions between Microsoft and Yahoo! are further along than what has been reported, and Merrill Lynch is releasing this report to see what type of reaction Wall Street and the public have to this type of acquisition.

2. Merrill Lynch is publicly courting Microsoft's business by providing data points that indicate this is a sound business move, and are, of course, ready to provide the investment-banking services if and when Microsoft is willing to proceed with this acquisition.

3. Merrill Lynch has no real evidence that Microsoft is interested in acquiring Yahoo! and this is just a publicity stunt.

I do think that Google is arguably Microsoft's biggest threat, and it is unclear if Microsoft has all the assets to compete effectively. The research I've done indicates that Google is having another strong quarter, and shows no signs of slowing growth.

Paul Misener: My Hero

2006-06-19T20:22:00.000-07:00

As an agnostic, it is extremely rare that I use the phrase "Thank God for...," but I'll say it anyways, "Thank God for Paul Misener." Paul Misener is Amazon.com's Vice President for Global Public Policy. This guy is super smart, and has the ideal background for this position: he earned a B.S. degree in Electrical Engineering and Computer Science from Princeton University (as did his boss, Jeff Bezos) and a law degree from George Mason University School of Law, from where he also received the 2001 Distinguished Achievement Award. He is responsible for Amazon.com's public policy positions worldwide. He is also President of the Internet Commerce and Communications Division of the Information Technology Association of America and a member of the ITAA Board of Directors. Rest assure this guy is not cladding jeans & sneakers while sitting behind some door desk in Seattle pondering how to improve Amazon's public image: he lives and works out of Washington D.C. battling the good fight against the Big Boys. Or at least he's out there promoting Amazon's best interest, as he's paid to do, but in this case our interests are aligned, and we should feel very fortunate to have someone of his caliber as a key leader and defender of net neutrality. Listen here as he debates Mike McCurry, co-Chair of the telecom-backed Hands off the Internet campaign on net neutrality.

Compromise on Net Neutrality Introduced

2006-06-18T17:38:00.000-07:00

It's been interesting watching the showdown between the Internet Titans and the Telco Titans over net neutrality in Washington D.C. The telcos and MSOs have held the upper hand not least of which because their other hand has been stuffing the pockets of politicians for decades, not just years like the Internet companies. Most of the expert communication lobbyists in D.C. have already been bought up by the Telcos, and the ones who haven't are too afraid of lobbying on the behalf of internet companies out of fear they will be punished by the loss of future business. Business Week does a good job of describing the situation on the ground. The Internet companies' inexperience in the ways of Washington is underscored by Sergey Brin's feeble attempt to directly lobby lawmakers clad in jeans and sneakers: a rookie move if there ever was one. No doubt the internet companies will become more sophisticated in their lobbying efforts, and lets hope sooner rather than later, but until then, a compromise is needed. Fortunately, a compromise may happen soon that will enable legislation to be passed this year.

Senator Ted Stevens of Alaska has amended his proposed bill that includes language preserving consumers' ability to surf anywhere on the public Internet. According to Reuters:

Stevens' compromise would also create a complaint process through the FCC if consumers believe their access rights were violated and the agency would be authorized to adjudicate complaints with penalties, according to the draft. However, the FCC would be barred from issuing any regulations under the new law that would add to the obligations on Internet service providers.

You can read more about the story from C|Net here.

AT&T Now Offering Naked DSL

2006-06-18T11:05:00.000-07:00

AT&T is now in compliance with a key government requirement for the merger with SBC: offer stand-alone DSL for a minimum of 2 years. The price is $44.95 per month. The price of bundled phone line with DSL: $45.95. Obviously, this is not much of an incentive for customers to drop their phone line, which is precisely the point I suppose. Speaking of DSL, you can now find all high-speed internet options for your home at Amazon.com. I have 3 different options: lets hope for more broadband competition, as only this will cause the telcos and MSOs to start doing what's best for consumers, and not just for themselves.