Tag Archives: Google

Contrasting styles of CEO: Google and the Fed and their signals

Posted on by

Maybe a study has been conducted to measure the correlation between the time a CEO spends marketing to shareholders and the value of the company’s stock. I haven’t seen such a study, but am beginning to suspect an inverse relationship. Whether this is counterintuitive or makes perfect sense, whether a CEO should be busier working on results than describing prospects, this is all debatable. And anyway, the balance between the two will vary with circumstance. Based on my own unofficial survey, however, I see a pattern worth noting.

Here is Larry Page of Google fame, descending to the presence of shareholders for about three minutes, to read from a prepared statement before bailing out, at the company’s quarterly analyst call. In contrast, here is Fed Chairman Bernanke, who lately can’t stop mingling with the crowd for any extended period. After 60 Minutes, next there was an unprecedented press conference at which the head of the (normally) tight-lipped, highly controlled and choreographed central bank – each published word of which is scrutinized by economists for meaning, context, symbolism, pattern, inconsistency, and all manner of scholastic methods that border on the Talmudic – went on to explain and describe and justify and so on. We can reasonably assume he will not pause for breath soon.

Granted, there are extenuating circumstances to the Chair’s chattiness, such as for example the pre-approval requirement of questions from the press, a courtesy that he is unlikely to be shown otherwise, such as at, say, Congressional hearings. Nevertheless, Congressional hearings have been a constant for the Fed and its Chair, but it is precisely at this time that a press conference has been called, and it is precisely at this time that the U.S. dollar – the value of which falls squarely under the Fed’s purview to protect – has deteriorated like no other global currency. The equivalence between a currency standard and a corporate stock is in no way pure, but if you accept my poetic license and the contrasting styles of Google’s CEO and the Fed’s CEO in the face of respective constituencies, it does seem as though one of these executives is more comfortable than the other with the prospects of the asset he is managing, and feels it is less necessary to have to explain.

The contrast between execution and explanation – which, by the way, is in no way intended to diminish the communication aspect of the CEO’s job description (so, I should rather say, the proportion or disproportion of execution and explanation in the two examples depicted) – is reminiscent to some extent of the contrast between operators (principals) and investment bankers (agents). The latter are often hired by the former to tell the story, so that the former can stay focused on value creation. Sometimes, though, the value is the story, or vice versa, and that’s when the CEO may find him or herself on a continuous roadshow with the investment banker alongside. For very early-stage companies, the two roles are combined into one because, in fact, these are the projects where the story is pretty much all there is. These are the highest-risk investments, which I am pointing out not to state the obvious but in keeping with other analogies drawn herein.

So, when I see the Fed’s operating head take time away from his busy day-to-day to focus on investor relations, I can’t help but wonder if this has something to do with operations slowing down. In particular, I am thinking about QE2 and its approaching end. Time flies – it seems like only yesterday that the S&P and other asset-valuation indices began an ascent that has been difficult (almost impossible) to explain by pure business fundamentals – but the monthly liquidity added to capital markets by artificial means will soon have to come from more natural sources in order for the pattern to sustain itself. Unless there is a QE3, which there may yet be, perhaps the Fed’s job function must thus expand to sell-side investment banker?

Anyway, there is a great deal of speculation and imagination run wild in the above, which makes for one or two entertaining moments, if that, or at least to myself. In the next article, following up from here, I will try to show how Fed policy, the U.S. dollar, and Google, all come together t0 influence the existence of startups, venture capital and entrepreneurship in immediate and practical ways.

Share

Innovation is not only technical

Posted on by

Invention, which is to say, innovation, is dealt with in entrepreneurial circles all the time. It’s dealt with so much, it borders on singularity. It has gotten to the point, in fact, where innovation and entrepreneurship have become synonymous, at least in some of these circles. This is understandable, because enterprise must always introduce new things – even if these are merely improvements of older ones – in order to grow, or, to begin with, get noticed. Less understandable, however, is the relative scarcity of discourse around a subject that is as important to entrepreneurs as that of invention: the context in which invention occurs, which is to say, the human experience. One could argue, just to be argumentative, that in the past several years the most successful new ventures in digital media and related technologies have been quite light on innovation. One could argue, just to raise the point, that these companies have, on the contrary, excelled in a most untechnical field: the humanities.

For example, there is Zynga, whose consumer-facing platform is, on the surface, uniquely un-innovative; the company almost takes pride in this. That Facebook launched and thrived at a time when MySpace and Friendster had already introduced the social networking idea and its general framework is well known. For the hundreds of millions of Twitter users, that platform’s technical weakness has become a feature (i.e. the Fail Whale). Yet these companies became enormously valuable because they hit home where it most matters, and where hitting home is the most difficult to do: with people and their fickle ways.

An even clearer illustration of the point may be the contrast between Apple and Google, both technologically ultra-superior but approaching the market from diametrically opposite directions. Apple, on one hand, uses its technical prowess in a highly controlled, highly designed, almost artistic style of product creation, with emphasis on popular appeal through esthetic form. Google, on the other hand, is a rapid-fire new-product launching pad, brimming with features and dazzling functionality. Apple has turned media, telecommunications, and entertainment on their respective heads through a handful of sector-defining innovations. Of Google’s dozens of product launches, we still mainly use it for search (and email). Almost all of the popular others, such as YouTube, Earth, Analytics, were acquisitions, and Android is a platform rather than a product per se. Google famously emphasizes engineering above all else, while Apple’s CEO prizes his study of calligraphy and has, in addition to Apple (more than once), also created a movie company called Pixar. The relative stock charts of the two competitors illustrate their respective trajectories.

To be clear, the argument is not in favor of the arts (or the humanities) at the expense of technology, but in favor of the combination and against either one alone. The argument can, in a certain sense, be distilled to Groupon Now versus the myriad ad placement and filtering platforms that presently populate the world of web media. The Internet ad networks, exchanges, and other intricate targeting mechanisms are built on highly complex algorithms that seek to improve the efficiency of contextual placement through demographics, time sensitivity, page location, click-through functionality, and a variety of other nuances designed to extract the additional fractional penny from a low-margin advertising product. This is pure technology. Groupon Now, undoubtedly complex behind the user interface, is built on two consumer-centric options – “I’m hungry” and “I’m bored” – which, come to think, summarize the human condition absolutely. Groupon has grown to $1 billion in net revenues in less than two years, although it has invented little.

What Groupon, Apple, Facebook, and others mentioned or unmentioned in this article seem to grasp, is that human nature can’t be understood by algorithm. And even if it could be – although it can’t – but even if it could, the builder of the program would first have to understand human nature.

Share

Can’t reconcile openness and business fundamentals in half-measures

Posted on by

Back in the day when broadcast media was radio and television, it would have been interesting, although at the time unthinkable, to see a station perfectly mirror another – without compensation – and build a successful business on the basis of differentiated features: Say, more entertaining ads, or voiceovers with commentary, or free hardware units to secure proprietary traffic. It would have been even more interesting to see the broadcaster encourage that sort of behavior – gratis – in order to boost distribution of its content through diverse channels. Such notions were unthinkable at the time for a variety of reasons that for the most part can be filtered down to this: closed systems.

The closed system of traditional broadcast was manifest in ways that impacted revenues, expenses, capital investments, financing risks and their mitigating factors – all these and others often interrelated. For example, there was the proprietary nature of spectrum allocation, which was a unique asset with value derived from spectrum quality and signal strength and market size and such issues that made media something like a real estate business, in which advertisers were like tenants paying rent, subject to the quality of the premises and location. As there are multiple buildings and options in given territories causing property owners to compete on features and price, so too broadcasters competed on proprietary content and otherwise syndicated this out for a fee. The closed system was in this environment both a defining technical quality and a way to protect one’s investment. Giving the asset away at no charge would have been, as previously stated, unthinkable.

That was a while ago, and the broadcast mechanism is different now. The closed system described has been opened up by the Internet, in which – net neutrality confusions notwithstanding – the quality of signal and its ubiquity have been equalized for all. The original broadcasters have adjusted to this revolutionary change in incremental steps such as Internet radio and Hulu – both of which are still works in progress – while the new media entrepreneurs have gone straight to the outer limit without caution. What used to be unthinkable for broadcast at its origin has become thinkable indeed, and we are watching a fascinating development to illustrate this very point in the rise to prominence of UberMedia.

With Twitter as the original broadcast mechanism, UberMedia has accumulated a portfolio of the top Twitter apps – mobile and otherwise – that leverage Twitter’s broadcast content (in a manner of speaking) to improve on Twitter’s user experience. For this, Twitter derives no compensation, directly or indirectly, despite having made UberMedia possible. What’s worse, the critical mass of users that UberMedia has accumulated – users that are arguably more loyal to the UberMedia app than to Twitter as the underlying platform – is almost as though UberMedia has conducted a hijacking of Twitter’s traffic, and in so doing is transforming Twitter from content broadcaster to “dumb pipe.”

The issues to which the Twitter and UberMedia dynamic gives rise are so multiple that one wouldn’t know where to begin. The dumb pipe question already posed, for example, in turn gives rise to questions not far removed from net neutrality itself, especially if Twitter should see fit to close its openness and set limits on its API, or even – gasp – start charging for it. Barring such actions, there is the question of Twitter’s valuation and, more specifically, its defensibility. There is as well the list of ramifications outside of Twitter, for other open platforms that may be similarly subject to audience manipulation. And at the heart of these and many other issues, of which we are now only starting to catch a glimpse, is this:

As the Internet matures and as platforms are forced to become actual businesses, the ideology of openness will have to be reconciled with economics. Unless one owns the Internet – as Google and Facebook are aiming to do – such a reconciliation could prove highly problematic in half-measures.

Share

Time for Google to embrace its role and thrive

Posted on by

To make a point, we will consider the case that follows on the basis of generalities and absolutes. This won’t be a pure mirror of reality, because in reality there are differences in nuance, shade, overlapping definitions, and all manner of other murkiness that keeps most arguments from ever truly transcending theory. Nevertheless, there is sometimes a bit of truth in theory, and we rely on it when reality is difficult to pin down due to its complexities.

First point: It is increasingly possible to segment the new media landscape into three categories – information, entertainment, and social, (leaving aside for purposes of the present discussion the more recent manifestations of transactional, the subject of a previous article here). Second point: It has also become accepted that Apple, Google and Facebook are now the dominant forces in the industry. Third point: It follows, I believe, that we should be able to assign each of these three a leadership position to correspond with one of the three sub-segments, in such a way as to preserve their individual dominance without overlap and establish a boundary around their leadership domains.

For the sake of simplicity, we can start with the most obvious designation: Facebook is the lead in social media, and this statement requires no belaboring. The next case is perhaps less straight-forward, because there is more overlap between the subject competitors in the entertainment segment. We give the lead, however, to Apple on account of its iTunes and App Store prowess, the iPod/iPhone/iPad trio that deliver the entertainment possibilities of iTunes and the App Store in a way still unmatched by any other platform, and Apple TV, which, among its peers in web-television hardware-software combinations, is the front-runner of the pack.

This leaves Google with information media, the remaining chair in the game. But it is more than process of elimination that brings us to this point, because Google – synonymous with “search” – really is about information. This is a notion that should be as obvious, on reflection, as Facebook’s synonymity with social media. If such a conclusion is not always automatic and maybe even at times debatable, that’s because Google has made efforts in the last few years to expand out of its natural zone and define itself broadly. It has tried to compete with Facebook in social, it has tried to compete with Apple in entertainment (and other things), and it has tried to enter a variety of new fields even. Despite all these attempts and their mixture of results, Google remains the lead in information, almost without trying.

Now, while Google has been restlessly seeking to branch out every which way, its co-leads in industry domination have for the most part stuck to their core. Apple did put forth a half-baked attempt to enter social media, but Ping is really an adjunct feature of iTunes – an entertainment product. And, yes, Facebook has talked about search, but really as a social media tool and most notably in partnership with Microsoft. All the while, both Apple and Facebook have worked diligently to perfect their respective cores and foremost to explore new angles and new areas within these.

Can the same be said of Google? Has Google made an honest effort to explore all the possibilities of information media – a field that extends far beyond search – and has it sought to redefine what information media means… that is, in a similar way that Apple and Facebook have done in their fields of entertainment media and social media? These questions are asked rhetorically, because on the surface the answer seems to be in the negative. Now with new leadership, or with the same leadership in a new format, perhaps there is an opportunity for Google’s approach to change. Maybe a focused segment vision, as described, can unlock enormous potential and tap into untapped value yet.

Share

Apple, Facebook, as they age

Posted on by

It has been a week of large and unexpected change in digital technology. The week began with Apple’s announcement about the departure of Steve Jobs and his temporary replacement by Chief Operating Officer Tim Cook, and it is ending with Google’s announcement about the departure of Eric Schmidt from his Chief Executive Officer position, to be replaced by Larry Page, who will be focused on execution. A COO emphasis at Apple, and execution focus at Google. Such perfect bookends for a week to kick off earnings season.

These themes taken together serve to remind us that the sector is entering a season of maturation. In one way or another, we talk about maturity and mature issues when we talk about operations, execution, big changes at high levels, and for that matter very sizable cash balances that continue to accumulate. To be clear, maturity in the context of this article does not imply diminished growth, but a diminished rate of acceleration, at least in contrast with the 10-15 years past. Attention to detail and competitive positioning, in this context, takes on paramount importance, and a COO background for the CEO may be the ideal calling card. (The subjects of innovation and execution were covered in a previous article here already.)

And when we talk about such mature issues involving Google and Apple, we really should not leave out Facebook from the discussion. Because just as Google may be challenged to find a substantial growth area outside of its core search business, and as Apple may not be able to continue its 10-year roll of disruption much longer (iPod, iPhone, iPad, etc.), so too Facebook is at some point going to test a few limits. For example, December data shows that Facebook’s U.S. growth has probably plateaued, with the U.S. contributing only 5% of new users during the month. Applications supported by Facebook are arguably only beginning to crystalize, but revenue growth will always be closely linked to user growth, and the subscriber statistic referenced is not insignificant.

All of the above notwithstanding, it’s too soon, undoubtedly, to throw around maturity labels – especially in any financial sense – in a discussion about Apple, Google and Facebook. Nevertheless, it may not be too soon to speculate and to think about next steps for these three sector giants. Projecting out a few years… what? And what, especially, given market valuations predicated on growth for a long time to come, (in the case of Facebook most of all)? In mature industries – say, like digital technology and consumer media in a few years, when Zuckerberg’s like 30 – participants begin to consider consolidation possibilities or other strategic combinations. (In the media industry more recently, the cable segment consolidated, and then Comcast bought NBC.) Projecting out a few years… what will Google, Apple and Facebook muster up?

Oh, I don’t know, but it is great fun to speculate, and as I play around with permutations and combinations among the subject trio of this article, my conclusions seem always to point to one likely outcome: Apple and Facebook. I usually begin my speculations with the idea that Facebook’s vulnerability will always be the sources of its revenue, which will always create an internal conflict with Facebook’s source of popularity – private user information. Were Facebook not under pressure to make money, this conflict would not exist. By extension, Facebook can only reach its full product potential when advertising revenue is eliminated from its business picture.

A combination with Google will not resolve this issue, but will in fact aggravate it, and for this reason (among others) any strategic combination between Google and Facebook is likely to face some regulatory obstacles. Apple, on the other hand, does not sell advertising. Apple, moreover, quite possibly never will. Apple sells product as a hardware vendor, and Apple sells software as an app retailer. In neither of these cases is the use of private data of any consequence or advantage. What Apple does not have, however, is a network with a network effect, and this adds pressure to the company to keep creating new products that are better than last year’s, every year.

Now, we’re talking about a maturation scenario, remember, in which Apple at some point in the future may no longer be able to keep this up. And we’re talking about Facebook in a scenario in which subscriber and advertising growth are in a natural state of tension. Would it not make sense, at such a point, for Facebook and Apple to combine in a unified business model that does not require advertising or use of private data, and that is based off a unified content distribution platform? Considering the emphasis on operations, execution, and sundry subjects of maturity for all parties involved, maybe this point arrives sooner than one would expect. And anyway, why wait?

Share

A deal surge in media, which is actually commerce

Posted on by

Upon the report of a major Facebook financing, registering third after Groupon and Twitter had also announced spectacular funding rounds in the space of one month, the question was asked: What about Zynga and LinkedIn? Where are they in this spectacle? Such a question implies that there might be an indiscriminate craze for the best names in media, and that the popular names absent from festivities may soon arrive upon the scene as well. This could certainly be the case, and perhaps even beyond Zynga and LinkedIn there are other spectacular rounds being planned as we speak, some of which may well provide the “bubble” chatter with all sorts of additional nourishment. There is, however, a different way to see recent events, so that the particular selection of three names – Facebook, Groupon, Twitter, (in size order) – no longer seems incomplete but rather very particular. And by the same token, the absence of Zynga and LinkedIn and others would come across as less of a lapse than a different grouping entirely – one that does not belong in the pattern at all.

Putting size order aside for the time being, and forgetting relative valuations and the appropriateness or inappropriateness thereof, the key to the question is one of definition. Because Facebook’s is the largest and most recent of the three deals, we may be inclined to see it as the defining event, the anchor transaction by which the other two are to be taken in. By that standard, the three deals are milestones in social media involving the most outstanding names in the field, and by that standard it is correct to wonder where the others are, (for example, Zynga and LinkedIn). But what if the defining event, the anchor transaction, is not Facebook at all but instead Groupon? Seen in this light, from the special angle of what sets Groupon apart, then the trio of situations is not anything like popular media at large, or particularly even social, but three unique platforms that facilitate retail and online commerce in specific ways, and that may find themselves at the start of a massive industry evolution. Seen in this light, Zynga and LinkedIn simply don’t belong, but Yelp or Foursquare or Gilt well might.

From such a perspective, the eye-popping surge of Facebook, Twitter and Groupon in the world of private investing, may have fewer public market parallels at, say, Google, Microsoft, Aol, or even Apple, than they might at Amazon and eBay. Out of the first-mentioned group, Apple (also surging) is closest to e-commerce (ref. iTunes and the app store), and Google is, for a variety of competitive reasons, most anxious to get in. (I note, by way of evidence, the effort made by Google to acquire Groupon, and I suggest, by extension, that Twitter may not be a terrible second choice.) This being neither here nor there, I would nevertheless put forth, and with confidence, that the notion of Apple, Google and Facebook dividing the world between them – a notion that among industry observers has for some time become a standard rule of thumb – is a flawed and antiquated notion. We should not rule out the commerce plays: Increasingly the distinction between commerce and media is being blurred. (I note, by way of evidence, that Groupon has begun to direct much attention to editorial quality and is providing organized training to its copywriters, as though it were a real content shop.)

Share

Not quantity but pinpoint quality in M&A ahead

Posted on by

It has been argued by some that the enormous cash balances held by the largest corporations – for example, Google, Apple, Microsoft, Intel, and a host of other dominant figures in technology – bodes well for large-scale M&A dealmaking in the months and years ahead. The argument is that cash will eventually have to be put to use. This is true: cash must be put to use, cash exists in order to be spent. But what is also true is that cash is spent even when this is not overtly happening. For example, cash is spent when it sits “idly” in “cash equivalents,” or when it is distributed through dividends, or used to buy shares of one’s own corporate stock, or, by its very presence, it underpins one’s own stock value. All these are legitimate ways to spend cash, and none of the listed examples have anything to do with mergers or acquisitions.

To be clear, this counter-argument is in no way a bearish view on deal making, but presented as an offset to the binary notion that big cash necessarily equates to big M&A while small cash equates to lackluster deal activity. There is much simplicity in such a perspective, and current realities are nothing if not nuanced. Fundamental economic risks are only the tip of the iceberg, while underneath that tip there are issues of rapidly evolving technology and consumer behavior. All of these variables present uncertainties (and opportunities) that can’t be reduced to a straightforward discussion of liquidity and money supply. We can, however, strip away the layers, and pare down the issue to its most fundamental. What does M&A accomplish, and why does it exist?

At its most basic, M&A occurs for two principal reasons: to consolidate a field that warrants consolidation, or to expand the strategic capabilities of combined entities. For large scale M&A to occur – as a trend – one of the two possibilities, or both, must exist. Historically, M&A has been known to follow cyclical patterns in which extended periods of consolidation or conglomeration are followed by periods of separation or spinoffs. We have not seen extensive spinoff activity in the past decade, but consolidation in a variety of fields has been prevalent for some time. My perspective is tainted, admittedly, by a narrow focus on media and technology, but this also happens to be the segment in which the referenced cash balances are frequently observed, and pointing to these cash balances as the rationale for massive M&A will be difficult to support on the basis of consolidation alone.

The case for strategic expansion, on the other hand, tells a different story and is much more convincing. Particularly in the context of a technology dynamic that is in flux and consumer behavior that is evolving, the strategic acquisition of new applications, new innovations, newly opened doors, can make a great deal of sense. In this, however, we must be careful in our conclusions. Such acquisitions are likely to be smaller than those marked by consolidation opportunity, and must be increasingly pinpoint sharp. Not all technology expansion is strategic, and in an environment of continuous innovation new technology becomes old fast. In short, unlike the purchase of a large revenue base or an existing operation that can facilitate the spreading out of costs over a wider base (i.e., a consolidation play), the acquisition of technologies is more like buying options and is accordingly priced.

For an illustration of what may continue to lie in store for M&A in months and possibly years to come, Google seems like a very good case study. A company with operating cash flow of $7.5 billion in its latest quarter, and concurrent cash balances of $33 billion, has in the past twelve months completed 26 strategic technology acquisitions, aggregating some $2 billion in transaction value. Its recent attempt to buy Groupon for $6 billion, the only true example of Google M&A worthy of its fabled liquidity, was (arguably) a consolidation transaction that has for now at least fallen apart. Rumor had it that regulatory approval would have been difficult to obtain. Prognosticators ought to take careful note.

Share

Because it is a media company, Google would buy a path to local merchants

Posted on by

As much as consumers and creators of media may like to believe otherwise, media is not as much about the distribution of content as it is about the distribution of product. Advertising does not fill empty spaces around an article; but rather, entertainment is an excuse to advertise. Any content that has ever been commercially viable has conformed to this cold reality, and has allowed itself to be utilized in such fashion. Some content creators have understood the requirements of the marketplace, and others have been starving artists. This isn’t a commentary about culture or esthetics, but about business fundamentals. In short, if media is now perceived to be increasingly intertwined with commerce, this is not a new development. These realms have never been far apart, and are now, as always, codependent.

There has lately been much rigmarole about Google’s allegedly pending acquisition of Groupon. At the time that this is being written, the transaction has been reported through the grapevine and scrutinized by punditry on vague information, but not in actuality announced by either buyer or seller. Assuming that the rumor materializes, the jury’s verdict will have been mixed. In one part of the room, the technorati are questioning the value contribution to an engineering powerhouse by a band of door-to-door salesmen, while in another the more financially inclined are wondering about the multi billion-dollar price-tag incurred by a digital media company to branch out into uncharted terrain. As these and other theorists are browbeating their respective points into submission, the practically inclined marketplace is reacting in a practical manner. And in action, nowhere else, is reality.

Where others may have missed the point, Amazon and eBay are chiming in. The former, with less fanfare, has completed a strategic investment in Groupon’s largest competitor, LivingSocial. The latter has announced a smaller acquisition in the segment, for Milo.com, a shopping search engine that allows users to peruse the local stores’ current inventory. What both Amazon and eBay perhaps understand is that Google’s acquisition of Groupon would not only be a direct threat to their core operation, but would really follow the inevitable path that media is always bound to follow. Because, as already stated, media is not the distribution of content, but of product, and advertising is not space filler but media’s sole purpose.

Whenever Google does anything – even inventing a car that drives itself – I always ask, how does this increase search activity? That, after all, is the advertising business that is at the core of Google’s other media toys and trinkets. In the case of Groupon, the issue is not necessarily one of increasing Google’s existing search business as much as one of defending it from future erosion. When shoppers conduct searches on Amazon, or eBay, they do so outside of the Google ecosystem. They do so offline, as it were, and with increased shopping variety all the time at Amazon, and eBay, they do so more and more. Compounding Google’s worries, no doubt, has been Facebook’s increasingly adamant predictions about commerce and the social graph and Facebook’s prominent place in this long-term vision. Here again, for Google, this spells fewer “captive” search customers ahead.

While it is true that much of Groupon’s traffic is already Google dependent – from which Google already benefits – taking control of this rapidly growing franchise is not an illogical safety precaution, especially with Amazon, eBay and Facebook all well-funded and on the prowl. While it is true that Google is not technically in the business of knocking on local doors for local sales, there is nothing wrong with a media company getting into that line of work. As has been previously mentioned, media is only incidentally about content, but quite purposefully about advertising. Advertising, in one way or another, tends to be local.

Share

New banks for a new economy with old strengths

Posted on by

It is said that America is good at technology innovation, and it is easy to understand why this is said. Companies like Microsoft, Oracle, HP, IBM, Intel, and a host of others have established a firm competitive foundation dating back decades or longer. It is also said that we are good at media and entertainment – fields that have straddled with technology to form an integrated segment – and major innovation by Apple, Google, Netflix, and for that matter Facebook and Twitter and countless advertising networks and related platforms, have provided ample basis for saying so. Lastly, it used to be said, before the financial turbulence of 2008, that we are good at finance. Say what you will about Wall Street, but it’s had a solid run and has been at the forefront of global money flows for more than a century. Let’s hold on to these thoughts, to which we will soon return.

A couple of financial trends have been observable lately, which warrant attention: While on one hand certain businesses are unable to tap into capital markets for being too small, others, at the opposite end of the size range and with ample access to funding of all sorts, have been hoarding their profits and preserving cash. This latter trend – particular to the present time – appears (interestingly enough) most pronounced in the assortment of sectors identified above, and especially within the group of afore-named technology and digital media titans. (The hundreds of billions of dollars on the balance sheets of these corporations are of special significance, moreover, for being relatively unencumbered: these are all companies with clean and comparatively debt-free finances.)

And so it seems strange – doesn’t it? – almost counterproductive and a missed opportunity, that while important parts of the general economy are in distress on account of either inadequate capital access or too much debt, there is perfectly good cash without offsetting liability just sitting there, and continuing to pile up. This cash, moreover, is being hoarded by corporations with a substantial vested interest in the well-being of our economy.

Where this collection of observations and economic considerations is leading to, is the following suggestion: It may behoove the listed cash-rich technology and media behemoths (and others) to use portions of their cash piles to establish finance companies. In so doing, our national skill set, our strengths in innovation and financial product, would be combined for optimal economic benefit. The subject entities could use their massive excess capital to make loans to small businesses that can support such loans, or equity investments into businesses that need to deleverage or to finance growth but are limited in their access to financial capital, or venture investments in startups that may be constrained by a shrinking venture segment.

It could be quite lucrative for the described companies to pursue such tracks – financially, if the return exceeds that of idle cash, and strategically, if the targeted counterparties represent vertical integration or other expansion opportunities (including local manufacture of technology) or potential customers for end-product. (The model described, incidentally, was implemented with good results – until excesses proved detrimental – by GE Capital for three decades. Excesses don’t negate the idea or model, but may serve as a cautionary tale moving ahead.)

Of course, there is at least one imperfection in the argument laid out, notably in regard to the proposition of idle cash that is hoarded. There is no idle cash, technically speaking, as long as this is not stored in safety-deposit boxes and under mattresses in Silicon Valley. Rather, large quantities of such cash are invested in Treasury securities, and the tech segment is thus already a banker of sorts, only not to the private sector. This is a major issue that needs to be addressed, because competition for private capital from public sector demand does not bode well at all, for any of the parties concerned. But that is a whole other can of worms that would exceed the scope of this narrow article.

Share

Unity: the next stage of Apple’s value proposition

Posted on by

The rare and much publicized appearance by Steve Jobs the other day, during Apple’s quarterly earnings call with analysts, was falsely interpreted by tech punditry as a rant. More likely this was, in keeping with Apple custom, choreographed. The point of the so-called rant was not to vent or complain or to do any of the emotionally charged mischief commonly associated with ranting, but rather to set the stage for the more obvious choreography that would be on display two days hence. The central subject of Mr. Jobs’s monologue on the analyst call was unity, (in opposition to fragmentation). The most important announcement made during Apple’s new product rollout that followed was a new OS X operating system that is set to unify the Apple desktop and mobile experiences. For the consumer, the two will move towards each other in appearance as well as functionality.

The direction that Apple is thus pursuing – a direction that its CEO alluded to quite strongly in his impromptu visit with the spreadsheet scribes – is to create a universal standard, rather than keep building mobile and desktop products separately. Carrying the Apple imprint, this standard will not only be recognizable from afar by the consuming population, but should as a result of its consistency be easier for developers and publishers to populate with content. Regardless of the Apple device that we would choose to utilize at a given time and for whatever purpose – iPhone, iPod, iPad, Macbook Air, Macbook Pro, iMac, or Apple TV box – the home screens will interoperate. No readjustment required, no translation necessary, no settings to get used to. That the interface, moreover, happens to be beautifully designed and functionally sleek surely won’t hinder enjoyment.

In the mass market, as in many things, unity has its advantages and a record of success. Consider the keyboard, the remote control, the website layout with horizontal headings on top and finer print at the bottom, the menu bars of web browsers and email clients that resemble the menu of any Windows product. Regardless of individual peculiarities, the form factors are largely the same. Consider the layout of newspapers, of magazines, of city traffic. There is a comforting quality about steadfast repeatability and consistency. In a media consumption environment, variety is rendered through fragmented content selections, so that inconstancy in the viewing interface can be a counterproductive excess.

If Apple’s principal market alternative, Google’s Android platform, will ever come to boast any kind of universality, it will have been purely accidental – offered as it is through a multitude of independent vendors, each customizing and altering the product until there really is no Android per se for the consumer, but only, really, for developers and other techies. Openness, Android’s principal differentiator, may have been advantageous if there was a shortage of customized content in the marketplace. But this hasn’t been the case for some time. If Apple’s closed system makes it difficult to procure an app that counts the bristles on a toothbrush, this in itself is hardly a wide enough window to push an opportunity through.

Share