Wednesday, December 8, 2010

A Lion in Winter

Carol Bartz gave a freewheeling interview at the 92nd Street Y last night. I like her straight forward style and think it was what Yahoo needed to untangle itself from too many weak strategic initiatives which left the once proud company listless. The jury's still out on whether, after two years of clean-up, she can ignite a growth story. I suspect, the answer to this will be her legacy at big purple. Following are selected snippets from the conversation:

Vision- "To be the supplier of the Internet of 1" She went on to explain that, with over 240mm web sites it's impossible for a person or a company to effectively gather information. She views Yahoo's primary mission to be the curator of information and add further value by personalizing it in a format that maximizes the relevance for the user and the value for the advertiser.

Timing- She was a bit defensive on the period of time it has taken for the company to show real positive revenue growth (1.6% trailing 12 month rate) and noted that it took Steve Jobs 7 years to reignite the growth engine at Apple click here to see APPL's chart to see that, outside the '00 bubble, the company was basically flat from '87-'04. Be that as it may, she's optimistic that the initiatives in place should get them back on the growth track shortly.

Competition- She views Facebook as their #1 competitor. I was surprised by this as I don't view FB as a curator of information from other web sites

M&A- She confirmed they did try to buy Facebook 4 years ago. The bid was $1B and the ask was $1.5B. She was not asked, and did not comment on the rumors that they bid on Groupon last year. AOL was mentioned a few times and her dismissive response was "hahahhaha". When looking at transactions, they first look to buy users, content, then advertising technology and finally engineers.

For comparison, here's the trailing revenue and profits for the top 5 public internet companies:

Company Trailing 12 month revenue Profit margin %

Yahoo $6.5B 16

EBAY 9.0 29

AMZN 30.7 4

GOOG 27.6 29

AOL 2.6 NA

Here's a link to an edited version of the interview

Tuesday, December 7, 2010

Conversation with a pirate

I had a chance meeting yesterday with a young lady in the local neighborhood take-out joint. While waiting for my order she saw me playing with my RedLaser barcode reader on my iPhone. She took hers out too and asked me if mine was jail broken. Mine is pure Apple, so I didn't have anything to really contribute as, she enthusiastically showed my hundreds of her free downloaded applications and a customized interface screen (ATT replaced with her name).

I suppose I'm a bit naive as I never realized the pirate infrastructure was so well formed for the device. Of course, I also did not know that Apple provides tools for jail breaking as noted on GigaOM. Cydia is a GUI for jail broken iPhones and an extensive repository (aka a store) for applications (mostly free). It's incredibly popular with 170,000 people liking it on Facebook

One reason for the popularity is free. The other is a spate of really cool hacks, a top 10 list is noted here.

Great Expectations

With all that's being written about investment bubbles, I have been thinking about a key difference between '10 and '00 in New York. The foundation of my thinking is based on a wonderful book on Urban Planning by Jane Jacobs "The Death and Life of Great American Cities".

In this seminal work, she explains how a city's lifeblood is its diversity. She highlights diversity in its broadest sense, diversity of housing stock, income levels, pathways to commute to work, etc. In short the combination of diversity and people density leads to a dynamism that makes cities great. I believe this thinking can be extended to markets too.

In '00 the NY Internet economy was precariously perched, like an inverted pyramid resting on three fragile letters; C P M. We had an advertising centric model that collapsed with the implosion of advertising based metric. Today's market is stunningly different. Of course, we have a host of firms in advertising related businesses, however, it's a diverse group of video, infrastructure, SEO, and PPM oriented technologies. But it doesn't stop there. Complementing the advertising arena are paid mobile applications, free to play gaming, communications and payment firms. Adding to this are destination sites in commerce, banking and pharma. You get the picture, diversity in its broadest sense of business models, customers, technologies and infrastructure.

In the past decade a combination of diversity and density has emerged that's led to a dynamism which is making the NY internet market great. Of course, markets will continue to ebb and flow, but with thousands of young companies, complemented by thousands of GOOG, AOL and Gilt Group employees makes today far different than yesterday.

Wednesday, December 1, 2010

A tale of the tape and the ghost of '06

Groupon is the fastest growing commerce company the world has seen (33mm subscribers, est 2010 revenues $350mm). Similar to Facebook, it has little proprietary technology, yet has emerged as the preferred place people are using to connect with local commerce. Also, similar to Facebook, pundits first denied the opportunity, derided the founder, sniffed at the VC valuation, admired their success, and are wondering how they missed it.

I think Groupon is now, in part riding the 'we missed Facebook wave'. They deserve it as in an environment where demonstrated growth, a dominant market leadership position in a huge untapped market is at a premium, it's no wonder GOOG is rumored to be in deep discussions to acquire the company. I am just surprised that other companies, noted below are not visibly in the fray....especially after they all 'missed' Facebook (well, Yahoo did try in 2006.

Market cap Growth %

MSFT $216B 25

GOOG $177B 22

Amazon $79B 39

Ebay $38B .5 (no typo)

Yahoo $21 2