Though Steve Lohr’s long piece in Sunday’s New York Times didn’t include much that hadn’t already been reported on Ray Ozzie’s role at Microsoft, it did feature an intriguing reference to Google’s discussions with Wyse Technology about co-developing a low-cost Google-branded PC.
Google has desktop search software and a Web-based e-mail service, two offerings aimed at parts of Microsoft’s stronghold. How much further it plans to go in providing alternatives to Microsoft’s software is uncertain, though it certainly looks interested.
Google was among the companies that attended a meeting last month at I.B.M.’s headquarters in Armonk, N.Y., of the Open Document Foundation, a group formed to agree on freely available formats for word processing, spreadsheets and other office documents; the idea is to come up with alternatives to Microsoft’s proprietary Office formats. And for the last few months, Google has talked with Wyse Technology, a maker of so-called thin-client computers (without hard drives).
The discussions are focused on a $200 Google-branded machine that would likely be marketed in cooperation with telecommunications companies in markets like China and India, where home PC’s are less common, said John Kish, chief executive of Wyse. “Google is on a path to developing a stack of software in competition with the Microsoft desktop, and one that is much more network-centric, more an Internet service,” Mr. Kish said. “And this fits right into that.”Posted by Mitch Shapiro at 10:45 PM | Print | Comments (0)
An interesting debate has been brewing in the blogosphere about the implications of recent comments by Bill Gates, which were reported by John Ribeiro of IDG News Service.
Microsoft Corp. will share a part of its advertising revenues from its search engine with users, the company’s chairman Bill Gates said in a panel discussion on an Indian television channel…”Google’s business model is not based on free software,” Gates said. “Their business model is based on advertisements from which they make a lot of money.” But they don’t share these advertising revenues with the end users who help them get the revenue, Gates said. “Google keeps all of the money with itself,” he added…In its bid to share revenues with users, Microsoft may give free software or even cash to users, said Gates, who did not discuss further details.
Picking up on Gates’ comments, Nick Carr says “there’s too much profit right now in online advertising” and “the wide profit margins Google enjoys on internet advertising are unsustainable.”
Competition, from Yahoo and Microsoft as well as others, can be expected to reduce the profits that flow to the owners of Internet ad-serving mechanisms, while also making pricing more transparent. Moreover, advertising is a cyclical business, and at some point we’ll see a stemming of the flood of advertising dollars to the web. Combine greater competition with advertising cyclicality, and you end up with a Google that operates with a considerably lower profit margin than it enjoys today. Then add in the company’s free-spending culture, and, well, you’ve got a problem.
The online ad market is going to become more efficient. Much of the profit that now goes to the operators of the ad-serving technology will be redistributed. Some will go to the advertisers, in the form of lower rates, and some will go to the publishers, in the form of higher commissions. And if Gates is serious - and I’m betting he is - some will go to the internet users themselves, whose clicks, after all, make the whole system work. In the battle for eyeballs, bribery can be a powerful weapon.
Umair Haque acknowledges that the idea of Microsoft paying consumers for clicking on ads “may sound cool,” but he sees “three big problems which render it strategically meaningless.”
1) It’s fraught with moral hazard = click fraud^1000000. 2) It’s a very nice market for adverse selection. That is, the guys that will pay you the most to click on their ads will be exactly the guys you never want to see ads from. 3)Google can imitate it overnight.
Umair also takes issue with Gate’s assertion that Google “keeps all the money,” claiming that the search giant shares more than 50% and as much as 70-80% of revenue, which he says creates “huge incentives for competitors…not to compete, but to cooperate.”
Though he acknowledges that Umair makes some “good points,” Michael Parekh believes they are “not show-stoppers from a Microsoft perspective.”
1. Click fraud as a moral hazard exists in the current model as well. Not clear if sharing revenues with users INCREASES it. If anything it may DECREASE it, since end-user click fraud is likely to be more penny ante compared to the organized, institutional click-fraud that exists today in the “House” favored model. Alternatively, the model does not have to rely on end-users’ getting a piece of the pie, but rather tweaks in how the revenue pie is shared with the paid search industry.
2. See point number 1 above…existing problem not necessarily exaggerated.
3. Google can imitate it, but at the COST OF SHAREHOLDER CONFIDENCE. The stock and valuation would take a meaningful hit, which from Microsoft’s point of view is much of the battle. Decline a competitor a high stock valuation with which they can fuel additional competition for their core software OS and application model.
…In a trillion dollar plus world of global advertising, direct marketing and promotion, it’s not unreasonable for peers to collectively ask for a piece of the pie. Especially when there’s SO MUCH of it to go around.
Henry Blodget appears to side mainly with Nick and Michael:
When your mere click on a link generates a couple of dollars of pure profit, it’s easy to see how you might come to believe that getting paid something for your decision/attention is fair…Without a true network effect, there is no free-market justification for incremental profit margins in the 90%-plus percent range, as Google’s are now. And if MSN, Yahoo! et al can’t compete on functionality and user experience, then perhaps they can lure Google searchers away with other incentives. Especially because even the most ardent Google fan may someday begin to resent the fantastic amount of money that they make for Google each time they click—an amount that, arguably, vastly exceeds the value of search results Google is providing.
Commenting on Blodget’s post, Jope questions the extent to which Google’s search ad business would be threatened if Microsoft did go down this road. “Nothing would stop me,” he says, “from doing the search on MSN for the reward and on Goggle for the actual relevant results.”
Phil is skeptical that such a Microsoft strategy would fly with advertisers:
So let’s see, I get paid to click on paid search links? Hmm, wonder what the conversion rate (to sales) will be for this kind of traffic. I presume this is a way for Microsoft to buy seach share. How do you think the advertisers would view this kind of gambit?
And Anonymous Coward predicts it would attract serious efforts to game the system:
As the plan is currently described, I’d expect to see, not just a wave of entrepreneurial individuals flooding MSN to make a quick buck, but also networks of machines specifically programmed to game the system. (Eastern European and Asian hackers will see to it).
Rishi Khaitan sees ways for Microsoft to keep click fraud from getting out of control:
MS could possibly rely on an IE plugin or MSN toolbar that tracks the searcher’s behavior pattern to distinguish between valid searchers and bogus money-making bots (either automated or human slave laborers)
And Salim suggests a “Cost Per Acqusition Model” as a means to address click-fraud:
This could be a very good idea but I’m not sure how you prevent click-fraud…unless you shift it from a CPC model to a Cost Per Acquisition Model (affiliate program) model. Which means, if I click on a paid-search link and then actually buy something, the merchant treats Microsoft as an affiliate (paying them around 4-8% of the sale) and then Microsoft splits that check with me. If they go that route, it would be the same user model as eBates.com, except MSN has far more distribution.Posted by Mitch Shapiro at 6:12 PM | Print | Comments (0)
Update: Steve Case will online for a live chat to discuss this op-ed at the Washington Post web site Monday, December 12 at 11 a.m.
An extraordinary essay appears in tomorrow’s Washington Post: the former high-profile, and later ousted, leader of AOL Steve Case makes a detailed and reasoned (if not always right) argument for breaking up Time Warner. Sure to give fuel to Carl Icahn’s efforts to do the same thing — although Case says he hasn’t spoken to Icahn at all — the op-ed piece basically argues that because Time Warner and AOL were never integrated into a synergistic whole in the first place, better to scrap the merger and start over again.
Case made the argument for “integrate or liberate” last year, he contends.
By early 2004, it was clear that Time Warner had to “integrate or liberate”: make the divisions work together or set them free on separate paths to pursue their own opportunities. This past July, having concluded that integration would never happen, I proposed to the company’s board that it was time to “liberate” and split the conglomerate into four freestanding companies — Time Warner Cable, Time Warner Entertainment, Time Inc. and AOL — each with its own strategy, stock, balance sheet, management team and board.
This splintering would not only give each division within Time Warner the ability to pursue its own relative strengths, but would give investors the chance to buy shares in their own favored and discrete part of the company. Attracting outside investors such as Microsoft won’t work to help AOL, which Case contends is a victim as much as victimizer in the notoriously derided merger.
Any half-hearted move toward “liberating” AOL is no more likely to succeed than the half-hearted effort toward “integrating” AOL over the past six years. Given that Time Warner failed to capitalize on AOL’s potential during a period when it owned 100 percent of AOL, it seems doubtful that a scenario in which it has a lesser, but still controlling, stake will work better.
(Here Case is engaging in a little bit of revisionist history. He claims Time Warner failed to capitalize on AOL’s potential, but in truth it was AOL that acquired Time Warner. For at least a good year following the merger, the AOL-ites were calling the shots at the merged company and none too smartly either. Part of the reason Time Warner Cable, for example, didn’t race to embrace its new corporate parent and hurry to integrate AOL into its high-speed service was the dismissive attitude emanating from Dulles toward Road Runner and the cable guys.)
Case, currently CEO of another innovative young company, Revolution LLC, thinks if set free, AOL could capitalize on VoIP and the growing trend toward social networking. He likens AOL’s potential rise from the ashes to Apple and its reemergence as a hot tech star.
Could a stand-alone AOL stage a comeback? Five years ago, most people thought Apple was a tarnished brand destined for declining market share and irrelevance. But some (including its co-founder Steve Jobs) saw the potential there, and a spirit of innovation has returned to the company to produce breakthrough products. Apple is now more valuable — and more relevant — than ever. Liberated to pursue its own future, AOL could have an Apple-like renaissance.
Update: Steve Case will online for a live chat to discuss this op-ed at the Washington Post web site Monday, December 12 at 11 a.m.
Posted by Cynthia Brumfield at 9:02 AM | Print | Comments (1)
The RIAA was handed a victory yesterday in its battle to stamp out file-sharing via litigation. A three-judge panel of the U.S. Court of Appeals for the Seventh Circuit in Chicago threw out the appeal of Cecilia Gonzalez, who claimed that she had downloaded unauthorized music in order to “sample” it prior to making CD purchase decisions and that, moreover, she was only doing what everybody else does.
The court, rightly, scoffed at her arguments.
“A copy downloaded, played, and retained on one’s hard drive for future use is a direct substitute for a purchased copy,” the judges wrote. They said her defense that she downloaded fewer songs than many other computer users “is no more relevant than a thief’s contention that he shoplifted only 30 compact discs, planning to listen to them at home and pay later.”
The RIAA is sure to make much ado about this victory, one of the earliest appeals court cases in the wake of the record industry’s stepped-up ligitation against file-sharers. But, no judge in his or her right mind would have bought Gonzalez’ lame arguments. This case bears little resemblance to those in which the targeted individuals are being held accountable, and held up, by the RIAA for actions not of their own making.
Posted by Cynthia Brumfield at 12:36 AM | Print | Comments (0)
Comcast scored a mini-PR coup with a relatively fawning front page piece in the Washington Post’s business section today (too bad for Comcast that it’s the Saturday edition of the Post’s business section). The gist: Comcast is coming to town with its cheaper-than-Verizon VoIP service. And it’s better than Vonage’s service too!
Comcast said its new voice service is better than that of VOIP providers such as Vonage because calls travel chiefly over its proprietary network, which it controls, before typically connecting to local phone lines that carry it into homes. Most VOIP providers send their signals over the Internet, rather than their own networks, and have less control over quality of service.Posted by Cynthia Brumfield at 12:22 AM | Print
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