Saturday, February 28, 2009

Wasting $50b to lose $170b

In September, NationsBank Bank of America spent $50 billion to buy Merrill Lynch. It’s now lost more than three times that as the Merrill purchase promises to be a boat anchor that will drown the once healthy bank.

BAC common shares have fallen 90% in 5 months, since a 6 month peak of $38.13 on October 1. Most of that fall came in mid-January, after the depth of the Merrill quagmire became publicly known. Today, BofA’s market cap is at slightly less than $20 billion, not counting the $25 billion of TARP money it’s received. So its $50b purchase hast cost it $170b in market cap.

Former bank examiner (and now BU finance lecturer) Mark T. Williams has compiled a list of seven breaches of fiduciary duty by the BofA management, starting with the decision to buy Merrill on 48 hours notice without time for meaningful due diligence. It’s a pretty sorry picture.

Normally, I’d agree with TJ Rodgers that shareholder suits are only designed to extort money to benefit bottom-feeding scum-sucking slimeballs like Bill Lerach. However, in this case I might be willing to make an exception — as someone who’s lost 70% of his investment after buying the shares on December 1.

The only reservations I have about joining the Ken Lewis lynch mob is that Williams’ account leaves out a couple of salient facts. Once BofA discovered its mistake, the Federal government pressured it to stick to the buyout and abetted (if not demanded) misleading shareholders — perhaps laying the fault for errors #4 and #5 at the feet of the Fed or the Treasury.

Williams argued that the BofA CEO should have ignored Federal pressure:

When asked by media why BoA accepted Financial Stability Plan money, Lewis indicated that senior Treasury officials implied that it was in the best interest of the country to close the deal. In making such a decision, it appears he and the board failed to recognize that their loyalty and care should have been to its shareholders, not to the Treasury.
but I suspect that the decision wasn’t that simple. We probably will never really know what’s went on (and is going on) behind closed doors in our semi-socialized banking system, including what kind of pressure the government brought to bear as it sought to stem the collapse of American financial markets.

However, I don’t see how anyone can disagree with Williams’ final analysis:
Regardless of the outcome of investigations into breaches of fiduciary duty, the real loss is that BoA only six months ago was a strong and valuable banking franchise. If it had not quickly jumped into the ML deal, they would have been well positioned to be a dominant player in today's banking sector.

Instead, Bank of America continues to fight for its survival and there is a real chance that it may even need to be nationalized. That would be a dire day for banking, for America and, unfortunately, for BoA shareholders.

Friday, February 27, 2009

Newspaper death watch

This morning, the Rocky Mountain News (1859-2009) reported its own demise — which, unfortunately for its employees, was not exaggerated at all.

The closure was announced Thursdays by officials from its publisher E.W. Scripps Co. (Scripps and United Press were founded by Edward W. Scripps, whose widow Ellen endowed numerous nonprofit institutions in San Diego and one of the Claremont Colleges).

The reporters and photographers will get two months’ severance. No word on the fate of business employees, who work for a joint venture with the rival Denver Post (which is owned by the same company as our own Mercury News).

The News was put up for “sale” in December but of course no buyers were found in a declining industry and a town that can’t support two newspapers.
Just to recap the death watch:

Other newspapers up for sale (perhaps under the threat of death) are the main papers in Miami, Austin, and San Diego.

The publisher of the LA Times and Chicago Tribune is in bankruptcy, as is the publisher of both Philadelphia papers. The debts of the New York Times are now officially junk bonds, while Mark Andreessen has started a deathwatch for the gray lady itself.

I was going to try to make by own newspaper death watch, but there’s already a website of that name by former Computerworld editor Paul Gillin. Also, Seth Hettena has a “Newspaper Bankruptcy Watch” category in his blog. So I’ll leave it to them to track the gory details.

As Gillin notes, the newspaper business model has failed. It was killed by Google (which abandoned promises to help newspapers) and other free sources of online news. Hopes of going advertising only isn’t going to work.

In an interview earlier this month, Ken Auletta said:
And if you say, “We’ll do it all through advertising”--well, what if advertising doesn’t cover the cost? Does Facebook make money? Does YouTube make money? Neither of them makes money. They have a great audience, great traffic, but don’t make money. You can build it, and they may not come; in this case, the money may not come. Now, maybe they will: they’re unbelievable sites, and they provide a great service to people. But they’re not making money. And they’re businesses.
Continuing down this path is Controlled Flight Into Terrain. There are only two fixes. The two-part solution has long been obvious:
As Andreessen (and many others) have pointed out, the current strategy isn’t working, so it isn’t risky to try something else given that the alternative is almost certain extinction.

Photo credit: photograph by Joe Mahoney taken Thursday in the Rocky Mountain News newsroom.

Fatuous Facebook Friends

Jeffrey Shapiro has an amusing column on how he leveraged a few contacts to become a “Facebook Social Climber.”

As an investigative reporter, he was shocked (shocked!) to learn that his friend “Charlie Sheen” is not actually Charlie Sheen. (Apparently they are no longer friends, since Charlie is not among his friends).

There isn’t much there, as with the “Facebook made me do it.” I guess articles like these (or giving up Facebook for Lent) show that Facebook (unlike MySpace or LinkedIn) is such a central part of the culture that almost anything can get published.

Thursday, February 26, 2009

Not enough money to go around

Continuing with outsourced economic commentary:

A Congressional Bonus
Because a $787 billion bonus doesn't cover everything.
Wall Street Journal editorial, Feb. 26, p. A12

More StimulationFresh from passing its $787 billion stimulus, and then attending President Obama's "fiscal responsibility summit," the House yesterday approved a bonus hike in the 2009 budget for most domestic agencies of . . . 8%.

The vote on this "omnibus" bill gives federal programs an extra $32 billion to spend for the seven months left in this fiscal year. And because these increases get added to the spending baseline in setting future budgets, Congress is adding an estimated $108 billion more in outlays over 10 years.

There's another reason Congress wants to pass this omnibus: about 9,000 earmarks. Last year's continuing resolution didn't let Congress pass out cash for the very kind of parochial projects that House Speaker Nancy Pelosi had said she was going to rein in. This bill opens that door. Federal spending as a share of GDP is heading toward 28% -- by far the highest level since World War II.
And this:
The 2% Illusion
Take everything they earn, and it still won't be enough.
Wall Street Journal editorial, Feb. 26, p. A12

But let's not stop at a 42% top rate; as a thought experiment, let's go all the way. A tax policy that confiscated 100% of the taxable income of everyone in America earning over $500,000 in 2006 would only have given Congress an extra $1.3 trillion in revenue. That's less than half the 2006 federal budget of $2.7 trillion and looks tiny compared to the more than $4 trillion Congress will spend in fiscal 2010. Even taking every taxable "dime" of everyone earning more than $75,000 in 2006 would have barely yielded enough to cover that $4 trillion.

Fast forward to this year (and 2010) when the Wall Street meltdown and recession are going to mean far few taxpayers earning more than $500,000. Profits are plunging, businesses are cutting or eliminating dividends, hedge funds are rolling up, and, most of all, capital nationwide is on strike. Raising taxes now will thus yield far less revenue than it would have in 2006.

Wednesday, February 25, 2009

Do you know the website number?

When asked on the CBS morning show this morning, “Do you know the website?” Vice President Biden asked an (offscreen) aide “do you know the website number?”

Apparently the answer he was looking for was 209.225.35.43 or 216.35.173.236, but his aide told him to say “recovery.gov” instead.

SF leads creative destruction

With an influence far disproportionate to its population (744,000) or size (<47 square miles), San Francisco prides itself on being at the forefront of social, political and economics change. Soon it may become the largest city in the US without its own daily newspaper. As Editor and Publisher reported Tuesday night:

The San Francisco Chronicle will be sold or closed unless major cost-cutting measures -- including an unspecified "significant reduction in the number of unionized and non-union employees" -- can be realized within weeks, parent company Hearst Corp. said Tuesday evening.
In July 2007, Business Week columnist Jon Fine wrote:
When Do You Stop The Presses?

Play with me on this one: Which major American newspaper should be the first to throw up its hands and stop publishing a print product?

It's a question worth asking. This could be the worst year for newspapers since the Great Depression. The double-digit revenue declines long forecast by doomsters have arrived.

WHEN, EXACTLY, do you junk something that no longer works? And which major paper should go first—not today, but within the next 18 or 24 months?

San Francisco Chronicle, I'm looking at you.

Killing print requires acknowledging not just that the old mode is dead but also that the future means less revenue and shrunken staffs. This is why it makes sense soonest at a money-losing newspaper already grappling with those realities, and one in a major city that generates enough local ad dollars to support a sizable online business.

On paper, San Francisco is perfect: a Web-centric town, a cash-drain daily, and private ownership. Which does not mean this will happen. San Francisco is the ancestral home of the Hearst empire, the birthplace of William Randolph Hearst and the town where he ran his first paper.
(This is the same Hearst who built Hearst Castle, served as the model for Citizen Kane, and was credited with starting the Spanish-American War.)

The official account at the Chronicle and Hearst Corp. makes it sound more like a threat to the unions than a plan to close the paper. The reports did not give a deadline nor specific requirements for cuts, which are intended to stem chronic Chronicle losses that reached $50m in 2008.

In contrast, when Hearst made a comparable announcement in Seattle on January 9, Hearst announced a 60 day deadline and that (as the NYT reported) “if it could not find a buyer, it would either shut the paper entirely or make it an Internet-only operation with a much-reduced staff.”

The problem is the numbers for converting a newspaper from print to Internet-only work about as well as converting from a computer systems company to an OS company (ask NeXT how well that worked out). As MediaDailyNews noted dryly: “As with most newspapers, online ad revenues are a small fraction of print; the P-I would not be able to support anything on the scale of the current operation.”

Perhaps for these reasons, Hearst did not mention an Internet-only Chronicle. Still, SFGate.com is considered to be a successful newspaper portal, and it’s possible Hearst (or successor) will operate the portal as an Internet-only news site.

It seems improbable that the paper will be saved by a buyer. As others have noted, there are many newspapers for sale right now — including a few making money — but no buyers anywhere to be found. With no buyers in sight, wage cuts would merely forestall the paper’s inevitable end.

If the paper folds, then I expect some publisher to buy the brand name to create an ad-supported free shopper to compete with the Examiner. Ironically, Hearst owned the Examiner until it sold it in 2000 to purchase the stronger Chronicle — but the Examiner’s low-cost, low-quality business model will probably outlive the Chronicle. Other survivors are likely to be hyperlocal papers.

The news was also covered by Public Press, the new startup SF newspaper that is hoping to use an PBS-type business model to support a 501c3-published newspaper.

The Chronicle (20th largest by one ranking) would be the largest printed US paper to disappear, joining the Christian Science Monitor which ends its printed daily paper next month. While the recession is accelerating the inevitable, the bad news will continue for a 10-15 years until the disappearance of most or all of the metropolitan daily papers, marking the end of some 150 years of history in the US.

Tuesday, February 24, 2009

Dead cat bounce

The Dow hit a 12-year low Monday. It closed at 9625.28 — 26.1% below where it closed (7114.78) on Election Day 111 days earlier. The Dow had fallen 14.4% in the previous 111 days, from a closing price of 11239.28 on July 16. More dramatically, the Dow is down 19% (from 8776.39) in the 53 days of 2009.

There was some debate as to whether Tuesday’s 3.3% gain was a turning point or a dead cat bounce. Given consumer confidence and investor fears, it’s hard to see how we’ve reached a bottom.

Among the few stocks to survive the 2008 bloodbath were some of the biotech and pharmaceutical shares. For example, Amgen was up nearly 30% in 2008. Given President Obama’s forceful push Tuesday for “health-care reform” (i.e. universal health care), look for a repeat of the Hillarycare stock swoon.



February 11 cartoon by Chip Book. Bok was the cartoonist for an Akron newspaper until he accepted a buyout in its third wave of voluntary staff reductions.

Pro-Pluto planet political power push

The planet(oid) Pluto just won’t go away. An Illinois state senate panel has voted to support Pluto’s planetary status. (Pluto was discovered in 1930 by Illinois native Clyde Tombaugh who was then working at the Lowell Observatory in Flagstaff.)

Plutonian planetary proponents posted previously to my post (and the latest report) about the process and scientific errors in the 2006 vote. Among other things, only 424 astronomers of 2,700 attending (and 10,000 members) voted on this measure.

In addition to the earlier anti-Pluto book by astrophysicist (not planetary physicist) Neil DeGrasse Tyson, there is also pro-Pluto (but more balanced) book by David A. Weintraub, Is Pluto a Planet? Dr. Weintraub’s expertise includes “planet formation,” which means he’s more qualified to weigh in than someone (for example) who studies black holes or binary stars.

The Facebook group “When I was your age, Pluto was a planet” has gained 58,000 members in the month since I joined it, now holding 1,605,274 members. But still the Pluto injustice continues!

Monday, February 23, 2009

New ways to make old mistakes

There’s an old saying “it takes a computer to really mess things up!”

We had an example of this today in the computer press with a mis-reported story. This problem is best illustrated by CNET:

February 23, 2009 10:41 AM PST
Verizon iPhone around the corner?
by Matt Hickey

There have been rumors buzzing around the Internet for some time Apple is secretly preparing a CDMA version of the iPhone, probably headed to Verizon Wireless, and probably by the end of this year. It's no secret Apple has been advertising jobs that require experience in the CDMA wireless standard, which Verizon Wireless and Sprint both use, and is the competing standard to GSM, which AT&T and T-Mobile use, as well as the standard the current iPhone uses.
An hour later, CNET added this to the story:
Correction 11:56 a.m. PST: We messed up. The 9 to 5 Mac blog we cited below is in fact from September 2008, so it turns out this is an old rumor. Because it showed up in our RSS feed Saturday, we, like a number of other publications, took it as a recent post and went from there. Apologies for the confusion.
So we had snafus before — Dewey defeats Truman, bits dropped on teletype transmissions, missing words (the AP stylebook using an imprecise synonym for “not guilty.”)

Stale RSS feeds are merely just a new way to get misleading data. (It also points out an ongoing problem of bloggers and websites not marking their content with a date.

Happy Birthday, Mike

Driving into work this morning, the drivetime radio show’s list of celebrity birthdays for Feb. 23 included the usual entertainers such as Peter Fonda (70) or Dakota Fanning (15). They didn’t list important historical figures born this day such as G.F. Handel or W.E. B. Dubois.

However, they did mention Michael Dell, aged 44 today — entrepreneur, CEO, author, economic ambassador and philanthropist.

Unfortunately, the news today was not pretty for a man whose fortunes are tied to his eponymous company. When I got back from teaching my entrepreneurship class, I found this AP article in my in-basket.

Sector Snap: PC makers down on report
Associated Press, 02.23.09, 03:06 PM EST
pic

Shares of computer makers fell Monday after Morgan Stanley analysts said that the recession will pull down PC demand further this year than previously forecast.

After visiting Asia, where most PCs are made, the analysts led by Kathryn Huberty, now expect PC revenue to drop 24 percent this year and unit volume to fall 11 percent. They had previously expected a 10 percent revenue decline.
Teasing out the numbers, this means that the average selling price for PCs will fall about 15%.

The article goes on to report that analysts reduced revenue and profits estimates on HP, Dell and Apple, and the corresponding shares were all down about 4-5% on the news. In other words, as I argued last night they expect the entire industry to be hurt, rather than just the high cost producers.

Of course, the 15% is just an aggregate figure. Some people will buy at the same price point they bought last time, while others will drastically shift their demand. And some won’t be buying at all: an 11% fall in unit sales is equivalent to a 2 year replacement cycle being stretched out by 3 months (or 25% of the market delaying by a year).

Note: I couldn't verify if anyone refers to Michael S. Dell as “Mike.” I’m guessing if you’re worth $15+ billion, your inner circle is pretty closely guarded.

Recessionary price sensitivity

We know that consumers are more frugal in a recession, whether due to losing their job, fear of losing their job, or (in this case) due to a decline in asset values. Such fear might be manifest by postponing purchases of big ticket items (cars, homes, appliances, computers) and more aggressively price shopping for those durables and non-durables that they do purchase.

Analysts reported that Apple’s retail computer sales in January were down 6% from last year, while other data estimated that Apple will face a 5-10% decline in sales in Q1 2009 vs. 2008.

The WSJ blamed it on the company’s traditionally effective price gouging differentiation strategy:

The data suggest that Apple's premium pricing, which helped boost revenue when demand was strong, may be hurting the company now that consumers are being more careful about their spending amid the recession.
I am certain that Apple’s sales and profits will be hurt by the recession — as will every other seller of big ticket items.

But — despite the temptation to generalize from other premium price producers — I haven’t seen any evidence that Apple’s premium pricing has anything to do with it, or for that matter that it will do worse than its competitors. Its competitors in music players — like Sony and Samsung — are in serious trouble.

Among its PC competitors, HP’s stock fell 10% last week on news of lousy earnings, including a 19% drop in PC revenues; (unlike Apple) it’s forcing pay cuts on its employees. Dell’s earnings are due Thursday, and right now the expectation is that they’ll be as bad as HP’s.

The consumer-oriented part of the PC industry will face the same recession problems as the rest of the consumer electronics industry, while the B2B part will suffer at least a proportionate share of capital budget cutbacks.

The fate of the car makers is a reminder of what happens in a demand contraction: the strong firms get temporarily weaker, and some already weak firms end up permanently dead. (Or wearing the fig leaf of an acquisition). Apple, like Toyota, will have some bad quarters but bounce back.

Last summer, Siemens bailed out of the PC joint venture with Fujitsu, which probably means a retreat from Europe back to Japan.

Coincidentally, the only possible growth for the PC industry this year will be in netbooks, where branded manufacturers will compete with the Taiwanese ODMs that created the category. Most of this will cannibalize existing PCs — $400 netbooks replacing $1000 or $1500 laptops. If the prospect of growth attracts excess entry, this just means that there will be brutal netbook price wars this year until some firms give up, retreating into tiny niches.

Sunday, February 22, 2009

Economists improving performance

This is a great video (not the first) from Reason.TV entitled “Stimulis: Because all economies have performance issues.”


I loved the punchline:
Stimulus has not been proven successful, so it should not be used in the hopes of achieving actual growth.

Saturday, February 21, 2009

R favorite datamining tool

There’s a new user group in the Bay Area, organizing around the use of the R open source package.

On his blog, Data Evolution, blogger Michael Driscoll talks about Wednesday’s kickoff event on how R can be used for predictive analytics.

The marquee speakers were from Facebook and Google. Characteristically, the Google speaker apparently didn’t say anything at all about why they used the software, only for the mechanics of running the analysis.

The Facebook speaker talked about using R to study customer retention. Also, the Facebook employee and two consultants suggested specific packages within R that could be used to solve specific tasks.

A lesson on self-accountability

I’m spending the weekend at Texas Tech with the two dozen entrepreneurship faculty who run the 2300-member Entrepreneurship division of our academic professional association.

The biggest news here in Lubbock this week was about the contract negotiations for TTU’s unconventional but successful football coach, Mike Leach, signed a five year contract extension. On Thursday afternoon, Leach went mano-a-mano with chancellor Kent Hance, a former congressman and state utilities commissioner high-powered attorney. When the dust settled, Leach signed a contract extension and both sides were claiming success.
In between boring (but essential) meetings, one of the highlights was the visit Friday night to the 8,000 square foot chancellor’s mansion. I had a chance to talk with Hance for about 10 minutes, who (unlike most academic administrators) clearly has what Tom Peters once called a “bias for action.”

In our conversation, the question of the economy came up, including various frauds and scams that have been in the news. Hance quoted some advice he received from late Trammel Crow, who reshaped downtown Dallas on a series of handshake deals. I wasn’t running my tape recorder, but this is a paraphrase of what he said:

Trammel Crow said that if you don’t understand a deal, it’s either crooked, or you’re too dumb to make it work.
We are all socialists nowThis seems like an ideal lesson in individual responsibility — words to live by.

Of course, in today’s economy, with bailouts for every fool, crook and idiot, the idea of accountability has gone out the window (along with the billions of taxpayer dollars being wasted). I guess we don’t have to worry about accountability anymore, since we’re “all socialists now.”

Friday, February 20, 2009

Seven Facebook lies

Newsweek writer Raina Kelley offers an amusing critique of the Facebook generation that she calls “Facebook made me do it: Seven lies we tell ourselves about social networking”. Her list

  1. I Only Friend People I Really Know
  2. Facebook Made Me Do It
  3. Wall-to-Wall Flirting Isn't Cheating
  4. I Use Facebook to Keep in Touch With People
  5. I'm Soooo Over Facebook
  6. And I am Soooo Not Competitive
  7. Facebook is My Friend
Despite this advice, teens show little evidence of learning from the many well-publicized mistakes of their peers. I am not looking forward to the day I have to deal with this as a father — about a decade ahead of Ms. Kelley.

Interestingly, her Facebook page seems to be gone but her LinkedIn page is still there, albeit quiescent. She also does not appear to be among the few dozen Facebook members (profiled in the WSJ Friday) who have joined the largest of several Facebook groups for those giving up Facebook for Lent.

GM: don't slit your own throat!

GM is shedding its peripheral brands in hopes of focusing its resources on saving its core brands: Chevy, Buick, Cadillac and GMC.

It has cut Saab loose, and the Swedish car maker filed for bankruptcy this morning.

However, far more troubling is GM’s decision to spin off Saturn — in response to pressure from its Saturn dealers around the country. Reuters reports this afternoon:

GM said on Thursday it was working to spin off Saturn as a distribution company to source cars from other automakers and sell them through the brand's 420 U.S. showrooms.
This passage in Thursday's WSJ set off my alarm bells:
Some Saturn dealers now hope that instead of closing the brand, GM will spin it off as a separate company. A team of Saturn dealers is spending 60 days working with GM to evaluate the possibility. These dealers would sell vehicles under the Saturn brand made by other manufacturers, possibly from overseas.

"This is going to be somebody's low-cost entry to the world's largest car market," said David Fischer Sr., chairman and chief executive officer of Suburban Collection, which operates eight Saturn dealerships in Florida and Michigan.
The articles don’t say, but my guess is that the interested buyers would be low-cost producers from China or India.

If I could offer one word of advice to GM:

Don’t!

This is exactly like RCA in the 1950s. To gain a small amount of incremental income, it licensed its color TV patents to some small, obscure electronics companies in the Far East. The direct result (as recounted by the late Al Chandler) was that the Sony, Panasonic, Toshiba, JVC and other color TVs effectively put RCA out of business.

GM doesn’t have technology, but it does have distribution. It would be foolhardy to sell some of that distribution to enable additional entry (in the already crowded US market) by a low-cost maker of fuel efficient vehicles.

If GM goes ahead and sells the dealer network, that’s confirmation that it’s less interested in long-term business viability and more interested in scoring short-term political points with its new owners in Washington, DC.

Thursday, February 19, 2009

Breaking the incentives

One of the most important principles in economic policy is “first, get the incentives right.” If you get them wrong, you will discourage behavior that helps the economy and encourage behavior that harms it.

As part of our outsourcing of economic commentary in these tough economic times, CNBC reporter Michelle Caruso-Cabrera applies her bachelor’s degree in economics to critique the new housing plan:

The new Obama housing plan is going to give a break to those who least deserve it: people who bought more house than they can afford. It will reward those who made all the wrong decisions.

I've written about this before, but I have to readdress it here because I'm absolutely gobsmacked.

Think this through for a second. Your home value, along with all your neighbors, has gone down in the last year. But now your neighbor, who bought above his means and can’t make the payments, because of a reset to the REAL monthly cost of the loan, is suddenly going to get a gift. Well what about you? You did the right thing. . You didn’t buy more than you could afford. But you don’t get a break.

The new Obama housing plan is going to give a break to those who least deserve it: people who bought more house than they can afford. It will reward those who made all the wrong decisions.

I've written about this before, but I have to readdress it here because I'm absolutely gobsmacked.

Think this through for a second. Your home value, along with all your neighbors, has gone down in the last year. But now your neighbor, who bought above his means and can’t make the payments, because of a reset to the REAL monthly cost of the loan, is suddenly going to get a gift. Well what about you? You did the right thing. . You didn’t buy more than you could afford. But you don’t get a break.

Wednesday, February 18, 2009

Facebook beats a hasty retreat

On February 4, (the day after its 5th birthday) Facebook stirred up a hornet's nest of opposition with a new policy that members interpreted as “what’s mine is mine and what’s yours is mine.” The controversy even made the local TV Monday night.

Much of the controversy was over what happened to your content if you decided to delete your account (e.g. if you realize you’ve shared too much information and you want to disappear from the scene). An oft-linked summary of the issues is found on the Consumerist.

Because the Web 2.0 is a viral networking site, its members angry with its new policy have been blogging, linking each other, and even forming Facebook groups to oppose the change. More seriously a self-appointed privacy watchdog was filing a complaint with the FTC to force Facebook to revert its privacy policy to its old version.

On Monday, founder Mark Zuckerberg tried to calm the waters with a posting to his blog claiming the change was no big deal. Apparently that didn’t work.

However, Facebook users who logged in last night saw this announcement:

Terms of Use Update
Over the past few days, we have received a lot of feedback about the new terms we posted two weeks ago. Because of this response, we have decided to return to our previous Terms of Use while we resolve the issues that people have raised.
(I haven’t been using Facebook much, but I’m heading a social networking task force for our local MIT alumni club, so I happened to be checking things out last night).

This morning, the website says
Terms of Use Update
Over the past few days, we have received a lot of feedback about the new terms we posted two weeks ago. Because of this response, we have decided to return to our previous Terms of Use while we resolve the issues that people have raised. For more information, visit the Facebook Blog.

If you want to share your thoughts on what should be in the new terms, check out our group Facebook Bill of Rights and Responsibilities.
On Tuesday night, Zuckerberg posted to his blog at 10:17pm (EST?) announcing the retreat.

Customer relations for any company with 175 million customers is going to be tricky. However, it appears that Facebook has less ability (or willingness) to impose unilateral privacy changes than (say) eBay has to impose unilateral price increases.

I’m not exactly sure why. Is it because it has competitors? Is it because the site has no purpose other than to engender a sense of belonging (which requires trust)? Is it because it provides the tools for its members to organize opposition?

It could also be that the young, hip Facebooksters listen better than do the eBay types, or that in this case, they care less about having their way than eBay does about increasing income.

Tuesday, February 17, 2009

Qualcomm's other shoe

Cross-posted from the San Diego Telecom blog.

After 10 years in which Symbian never supported CDMA or any Qualcomm chipsets, why did Qualcomm join the Symbian Foundation last week? As the EE Times reports, the other shoe dropped this morning:

BARCELONA — Both ST-Ericsson and Qualcomm Inc. have revealed partnership programmes with Nokia based round reference platforms that will use the Symbian Foundation's software.

Qualcomm's deal focuses on developing UMTS mobile devices, initially for North America, that will be based on the S60 software on Symbian OS, running on the San Diego, California- based chip maker's latest MSM7xxx-series and MSM8xxx-series chipsets targeting wireless broadband.

The companies, for long arch rivals due to long standing patent infringement law suits that were finally settled last year, say the first mobile devices based on the collaboration would be expected to launch in mid-2010 and be compatible with the forthcoming Symbian Foundation platform.
Nokia currently has a very limited relationship with US carriers. “UMTS … for North America” means selling S60 smartphones either to AT&T or T-Mobile, competing for shelf space with the iPhone or gPhone respectively. Certainly, outside the US the Nokia smartphones are sold side-by-side with the iPhone by the same carriers.

EE Times plausibly argues that this cooperation is because Nokia last summer finally resolved its patent fight with Qualcomm. In November, analysts told EE Times they thought it unlikely that Nokia would go so far as to buy chips from Qualcomm.

It seems particularly odd that Nokia would start its partnership with Qualcomm with W-CDMA phones — given its sells hundreds of millions worldwide — but perhaps it is just trying to prime the pump. Presumably the next step is to use QCOM chips to sell more CDMA phones in the US, although so far Nokia is outsourcing that work to ODMs.

On a somewhat related note, Qualcomm CEO Paul Jacobs was quoted in Barcelona by CNBC as saying demand for smartphones remains strong. However, unlike his predecessor (Jacobs père), Jacobs fils is a perpetual optimist.

Monday, February 16, 2009

Symbian going CDMA

In advance of this week’s GSM Mobile World Congress, Qualcomm has joined the Symbian Foundation (as have HP and MySpace). Qualcomm of course is interested in supporting CDMA around the world, in addition to its dual mode 3G processors.

Rumors of Symbian CDMA support date to at least 2004. Nokia had once sponsored an adaptation of Symbian S60 to work with CDMA – presumably to gain access to the US market and segment where it’s had a relatively weak presence.

Back in 2005, MobileTracker reported that Nokia had won FCC approval for the Nokia 6638:

The FCC has approved (FCC ID QMNRM-18) the Nokia 6638, the first CDMA Series 60 phone. Visually, it looks just like the Nokia 6630 with the addition of a [very long] antenna. Since the 6638 is a CDMA handset, Nokia is most likely aiming for a US release.
The phone was compatible with Verizon’s two CMDA bands, 800 MHz and 1.9 GHz.But the phone apparently never made it to the market.

Qualcomm has already joined the Android Foundation. Apparently Qualcomm has worked on a Windows Mobile prototype that works on Qualcomm chips, and its chips power several BlackBerry models that are dual cdma2000/W-CDMA, including the Storm and the 8830 world phone.

Now Qualcomm has committed resources to the major smartphone operating systems — pretty much everything outside the iPhone. From now on, we’ll see how many operators and manufacturers use Qualcomm chips for their Android, Symbian or Windows Mobile smartphones.

Sunday, February 15, 2009

Best musical -- ever!

Our local PBS affiliate likes to run classic movies on Saturday nights, a clever counter-programming trick to attract the older more educated demographic and build loyalty for the inevitable Pledge Night.

Last night’s pairing was two musical comedies of the 1950s directed by Stanley Donen. The 2nd feature was the 1951 film Royal Wedding, a nice piece of fluff with Fred Astaire pretending to be 10 years younger and the wedding of Queen Elizabeth II providing a backdrop of pageantry in lieu of fancy sets. Apparently it was so unimportant that the owners let the copyright lapse (shades of It’s a Wonderful Life) as there are at least 7 different copies available for sale via Amazon.

However, the highlight of the evening was Singing in the Rain, the 1952 film with Gene Kelly, Debbie Reynolds and Donald O’Connor. At 40, Kelly’s dancing skills were probably at their finest, it was Reynolds’ first major break, and the vast resources of MGM were never better utilized.

I remember watching a documentary on Kelly which explained that — unbeknownst to Kelly — this would be the apogee of his career. Although he had recovered from his artistically ambitious (and commercially disastrous) An American in Paris, both Kelly and the musical would never again be as important with the MGM studio or Hollywood as a whole.

It had been a long time since I saw the movie and I’m not sure I’d ever seen it front to back. It really is as close to perfection as any musical ever was, with memorable songs, terrific dance numbers, and beautiful choreography.

I was thus not surprised to see that it was the only musical in the top 10 films in the American Film Institute’s 1998 compilation of the 100 best films ever. In fact, it’s the only one in the top 30, and one of only two (the other being West Side Story) in the top 50.

My daughter wasn’t home to watch it, but it’s the sort of inspirational fun story — with catchy tunes — that I know she would love. I’m planning on buying it to share with her, in part because I think it might tip her into signing up for musical theater next year in school.

Saturday, February 14, 2009

Clearance sales and pricing power

I went back to Circuit City last night. The liquidators are building gradually to their March 31 denouement. LCD TVs are at 75% of list, only 5% cheaper than they were two weeks ago.

Plasma TVs are at 70%, as is almost everything else. In home audio, there are a lot of specialized or premium products, while the computers, cameras and camcorders are nearly picked dry. In the CD/DVD selection (60%) of list, the old chestnuts are sold out, but newer stuff still remains. Apparently Bruce Springsteen’s Super Bowl appearance sold out his latest album “Working on a Dream” (or it was released after Circuit City stopped ordering) but the sale was not enough to move the (Circuit City exclusive) single CD of the same name.

What was noticeable was the bifurcation of the remaining inventory. Stuff remained in the low end, low quality category, like the Circuit City house brand TV. There were also noticeable inventories at the very high end, like the 40" plasmas. One example of the latter was a glut of speakers from Boston Acoustics — it appears that BA has been increasing its prices with inflation over the past 20 years while the rest of the industry commoditized and moved offshore to produce real price decreases.

One brand that I saw more than any other was Sony, particularly their Wega TVs and their headphones — both priced at a sharp premium.

Several times in the past 6 months I’ve been wanting to write about Sony, which has perhaps the broadest electronics line of any manufacturer — and certainly the broadest, go-it-alone proprietary strategy of any manufacturer, bar none. But I haven’t had time to really dig deep into its situation, only to accumulate impressions here and there.

The big picture is that Sony is going through very difficult times with a quarterly losses and its first annual loss in 14 years to total nearly $3 billion. I don’t see any sign that for Sony (like the rest of the industry) 2009 will be much better.

Part of the problem is the PS3 and losses totaling more than $3 billion as of last March 2008. Sony took a gutsy gamble by bundling expensive Blu-ray players with the PS3 which guaranteed that Blu-ray won and PS3 lost. The PS3 also faced surprisingly strong competition from the Wii.

Rather than see the PS3 as bad luck, I’m inclined to see the PS2 as good luck or perhaps even a fluke. Its competitors were relatively lame, and it also tried an upward-compatibility strategy that seemed to fuel early adoption.

More seriously, the success of the PS2 hid the company’s underlying structural problems that have been festering for years. It’s highly exposed to a commoditized consumer electronics industry that has very few differentiated products (beyond the Wii and iPhone). Since the end of the PS2 era, Sony has been #2 in lots of things but #1 in nothing. And it’s spending lots of money to be #2 (or worse) in lots of things: PDAs, laptops, cellphones, TVs, and so on.

Given the worsening economy, the picture for Sony has become even bleaker. Even though Blu-ray has won and prices are falling, the category is falling below forecasts in competition with old-style DVD players. As the Circuit City closeout connotes, cost conscious consumers are carefully considering CE choices.

Sony has been paying for branding and R&D to support a differentiated product, but consumers don’t see it as differentiated and most aren’t willing to pay a premium. Even when it executes well on things like styling, it fails on other things (like ease of use or performance) while still charging a hefty price premium.

I don’t see the path out, but then 12 years ago none of us saw how Apple would be saved, either. As was true with Apple, a dramatic turnaround is not going to come from its current CEO.

Friday, February 13, 2009

Amazon's freemium du jour

This morning, Amazon asked me to ask you (my readers) to download their free song for Valentine’s Day:

Give the Gift of Music on Valentine’s Day, Courtesy of Amazon MP3

Today and Saturday only (2/13/09, 2/14/09), Amazon MP3 is offering a free download of the quintessential Valentine’s Day song, “Let’s Get It On” by Marvin Gaye. We urge you to pick up one of our newly created banners and delight your online audience with the gift of music on this special occasion.

Free Stuff Drives More Sales!

It’s no secret that “Free” is a big motivator online. Use this free song to entice your audience to click through to Amazon where they are likely to buy more items. It only takes a few clicks to download the free song and begin shopping for more.

To link directly to the song and earn referral fees on subsequent qualifying purchases, use the following link format, replacing “YOUR_ID_HERE-20” with your Associates ID:

We also have newly created banners for you like the ones shown below:



[Promo]
So, as with other freemium models, Amazon wants me (and you) to come get the free thing and hopefully buy one of the premium things.

I’ve been an Amazon Associate since the summer of 2005, and this is the first time Amazon’s e-mailed me offering something free (let alone encouraging me to promote something free). They already have a page offering weekly MP3 deals including $5 albums and $0 songs. If people were bookmarking that page — as I did when I was a regular Amazon MP3 downloader — then they wouldn’t need this promotion.

One possibility is that the economy is soft, and consumers are cutting back, either not getting music or stealing rather than buying. If so, we should get some indication of this with all paid download services, such as Apple’s.

Another possibility is that their 2008 demand was temporarily stimulated by their Pepsi Stuff promo, and once that ended, traffic has fallen dramatically.

Which brings me to something that’s been bugging me. There are signs that the promo did not end as scheduled, but was terminated abruptly by one of the two parties. The termination date was badly publicized to participants. More tellingly, 6 weeks later, the grocery stores are still selling Pepsi 12-packs offering Pepsi Points, suggesting that Pepsi had expected the promo to extend past December 31.

Tantalizingly, the answer appears to be in a Billboard interview with the chief marketing officer of PepsiCo North America Beverages. I say “appears” because the Billboard.biz freemium model gives me answers to two of the six questions they asked, but the only way to get the rest is to sign up for a $25/month Billboard subscription. So I have to hand it to Billboard for effectively using their paywall, but it means I don’t have that extra datapoint on how Pepsi viewed the promotion and (perhaps) why it ended so abruptly.

Outsourcing economic criticism

We’re in difficult economic times. In the private sector, mass layoffs are being announced every day. In California, even public employees are being forced to do the same work with less hours and less money.

Therefore, in these difficult times I’ve decided until further notice to apply the principles of open innovation — specifically, to outsource commentary on economic policy to other sources that provide their content for free.

First up this week is economist Kevin Hassett

Until this year, the biggest countercyclical government-spending program in history was in the 1981–82 recession, when government spending increased by a bit more than 2 percent of GDP. In this recession, the increase will be approximately three times that [to about 6.3%].

The truth is that there is very little empirical support for policies such as these. They will likely provide a small boost, at an enormous cost. When the boost is gone, the cost will remain.
Next is retired finance professor Michael S. Rozeff
[The politicians] offer nothing to encourage saving. In fact, they burden the saver and the productive. Since saving is the source of investment, they offer no fuel for entrepreneurial activity. Since entrepreneurs are the source of employment, they offer no support for jobs that can raise real incomes. Their policies attempt to and may succeed in locking in the ill-made investments of the past while adding new ones.
Last — but certainly not least — are two Chicago economists, Nobel Prize winner Gary Becker and MacArthur Fellow Kevin Murphy:
A very large amount of money will be spent quickly over a two-year period: $500 billion amounts to about one-quarter of the total federal government annual spending of $2 trillion. It is extremely difficult for any group, private as well as public, to spend such a large sum wisely in a short period of time.

In addition, although politics play an important part in determining all government spending, political considerations are especially important in a spending package adopted quickly while the economy is reeling, and just after a popular president took office. Many Democrats saw the stimulus bill as a golden opportunity to enact spending items they've long desired. For this reason, various components of the package are unlikely to pass any reasonably stringent cost-benefit test.

The increased federal debt caused by this stimulus package has to be paid for eventually by higher taxes on households and businesses. Higher income and business taxes generally discourage effort and investments, and result in a larger social burden than the actual level of the tax revenue needed to finance the greater debt. The burden from higher taxes down the road has to be deducted both from any short-term stimulus provided by the spending program, and from its long-run effects on the economy.

Thursday, February 12, 2009

Don't try suing the Russians

While there is a question of culpability, the fallout continues from Tuesday’s collison between the Cosmos 2251 (dormant for the past 10 years).

Aviation Week and Space Technology included this speculation:

James Lewis, a senior fellow at the Center for Strategic and International Studies, said he is “interested to know, does Iridium have a case against the Russians?” Clearly, he said, there was some negligence involved on someone's part. “I don't think we want this one to go away quietly, like ‘Oops, this was just a natural event.’ ”
I would advise Iridium LLC CEO Matt Desch not to file suit, since enemies of Russia have a tendency to be assassinated, even overseas.

Predictably, the Russians are blaming Iridium:
Igor Lisov, another prominent Russian space expert, said he did not understand why Nasa's debris experts and Iridium, the owner of the American communications satellite, had failed to prevent it, since the Iridium satellite was active and its orbit could be adjusted.
Interestingly, a Google news search for the satellite collision brings up a video from the government-sponsored Russia Today. The network promises a Russian perspective, but the Google-indexed report (on its YouTube channel) includes only information from its US correspondent. A second report is also based on US interviews, with only a brief interview with a civilian Russian scientist near the end. People are still asking whether the Cosmos had a nuclear reactor, like other Russian satellites.

So the Russian government isn’t talking, even to its own house organ. It appears that glasnost was rejected as an alien concept by Soviet leaders and their Russian successors.

Ticketmaster trouble ahead

OK, so I was wrong when I said analog TV would end next week (serves me right for believing the government). But it looks like I got one prediction right.

Open IT Strategies, Februrary 8:

The change in administration is also going to bring a change in antitrust policy, something that (unlike economic stimulus) can happen relatively quickly.
Wall Street Journal, February 12, p. B2:
Two Democrats in Congress called on the Justice Department Wednesday to block the merger of Live Nation Inc. and Ticketmaster Entertainment Inc., an early salvo in what promises to be a test of the Obama administration's effort to strengthen antitrust enforcement. …

Christine Varney, President Obama's pick to head the Justice Department's antitrust division, is a former commissioner at the Federal Trade Commission with a reputation for favoring tough enforcement.
The folks at Ticketmaster may be rapacious, but they’re not stupid. Look for them to frantically make concessions — particularly those that these grandstanding politicians can trumpet as helping the “little guy” — in hopes of saving the deal.

Billion-dollar Web 2.0 decline

Facebook, valued at $15 billion at the time of a $240m investment by Microsoft in October 2007, is now worth only $3.7b according to internal company documents discovered by AP in a recent lawsuit. It‘s possible that Mark Zuckerberg is no longer a billionaire.

Some had expressed doubts about the initial valuation. In any event, it’s only funny money as there is no liquidity until an IPO, and Facebook held out too long to pursue that opportunity any time soon. Given how conservative M&A has become, and difficult it’s proven for Web 2.0 startups to monetize their networks, it’s hard to see how they’ll again sustain a $10b market cap.

Mervyns may live again

Mervynsexterior-28Dec2008Longtime clothing retailer Mervyn’s closed December 31. At a bankruptcy auction Tuesday, the various pieces of the carcass were auctioned off to the highest bidder.

The WSJ reported yesterday that the three sons of founder Mervin Morris bought the brand name and the Internet assets:

"It's great to have it back in our family after 31 years," said Mr. Morris, principal of Morris Management, a private-equity and real-estate investment company. "We strongly believe we have a very strong, loyal base of families in the Western states that would support Mervyn's."
Meanwhile, other firms purchased the rights to three of the company’s house brands: High Sierra, Hillard & Hanson and Ellemenno.

The report is sketchy and unfortunately there’s been no original reporting by local newspapers, just wire service and other accounts that paraphrase the WSJ report. Given that the chain was based in Hayward. This is exactly the sort of story that reporters would normally do a day two story on — and the original liquidation got plenty of ink locally.

The only other details come from an online story last night at the local CBS affiliate, KPIX Channel 5. Consumer reporter Ann Werner did some original reporting (a rare decision in TV, particularly in a business story):
"My dad built a fabulous chain of stores which was unfortunately mismanaged in the last few years. We wanted to get the family name back or his name back, see if we could create it again," said Mervin's son Jeff Morris.
Oddly, neither my wife nor I saw the story on the 11pm news.

The KPIX account implies that the reborn Mervyn’s may never come back as a brick and mortar store:
"I don't think you're going to see Mervyn's reincarnated in its original form. I think there will be a Mervyn's name on the horizon somewhere there, just how and when and what the magnitude will be I am not sure. That is going to depend on my boys," said Merv Morris.
With no stores and no house brands, I don’t know what the new Mervyn’s would offer those of us who lamented its passing. On other hand, no one could fault the Morris brothers for building slowly and prudently, only to the degree that they can bootstrap a viable and self-sustaining business.

Wednesday, February 11, 2009

Russians destroy Iridium satellite

On Tuesday, a Russian Cosmos satellite ran into an active Iridium communications satellite, at an altitude of 491 miles over northern Siberia. Both satellites were totally destroyed.

This is not a problem for geosynchronous satellites (22,000 miles up) because they stay in one place. But for LEO (low earth orbit) communications satellites — which provide lower latency and polar coverage — such risk has always been there.

Iridium Satellite LLC (successor to the bankrupt creator of the sat phone network) has some spares so presumably this will only shorten its lifespan slightly. Wikipedia reports that the last failure was July 2008, and that it had 7 spares after that. (As with anything else, take it with a grain of salt).

It's kinda strange how little coverage there is of such an unprecedented event. (Admittedly I’m more into satellite stories nowadays than I was a few years ago). There is nothing on the Iridium website. One story quotes “Nicholas Johnson, NASA's chief scientist for orbital debris,” but there nothing on the NASA website.

It looks like the story was broken by the CBS space “consultant,” who didn’t even put it up on his news page. ABC doesn’t seem to have a space reporter, and nothing is yet on the MSNBC space page.

One blogger ties the space disaster to the imminent bankruptcy of Sirius XM. Certainly both Sirius and Iridium (and Globalstar) have suffered from losses in space.

The Iridium satellite was operational at the time, but the Russian Cosmos satellite was believed defunct. That’s a lucky break for Iridium, which otherwise might face civil or military threats from the Russian regime for destroying an important piece of state property.

Tuesday, February 10, 2009

Charting Google's inexorable march

USC’s Institute for Communication Technology Management is promoting an hour long webcast on Tuesday at 10:30am PST (1:30pm EST). It’s not on their website but below is what the email blast said; interestingly, the banner says more about Google than does the body of the message.

TelecomCrashCourse
Net Neutrality is a really big deal... even if you're not talking about it.

Net Neutrality has some fierce proponents and formidibale opponents.

Do you know where Google stands (and lobbies) on the issue?

Who's going to pay for the video, music and gaming going through the pipes?

The presenters are Steven Shepard and Morley Winograd of USC. The webcast is free with prior registration.

I’m not sure if I can attend, because I have a 10am meeting and teach at noon. I would certainly watch the podcast if there is one.

Monday, February 9, 2009

Kindle: 2 no greater than 1

Amazon has announced the Kindle 2,(due Feb. 24) which features the sort of technical improvements that you would expect from any consumer electronics device. It’s thinner, has a minimalist keyboard but is still over $300. It’s still sending data traffic to Sprint’s underutilized EVDO network.

A few IP lawyers are in a huff because the device has the ability to create derivative works:

Some publishers and agents expressed concern over a new, experimental feature that reads text aloud with a computer-generated voice.

"They don't have the right to read a book out loud," said Paul Aiken, executive director of the Authors Guild. "That's an audio right, which is derivative under copyright law."
What was interesting is what Amazon didn’t announce.

They didn’t announce open content to sell book readers for other platforms, like the iPhone. Google still hopes to rule the world with its own proprietary format, as the NY Times reported
“Our vision is every book, ever printed, in any language, all available in less than 60 seconds,” said Jeffrey P. Bezos, Amazon’s founder and chief executive.
although Amazon is passing on the manufacturing and distribution cost savings (of not killing trees) to the readers, over the objections of the publishers:
Amazon generally charges $9.99 for the digital versions of best sellers, although many publishers still sell the digital content to Amazon for the same price that they sell physical books. That means that for now, Amazon is taking a loss or making a small margin on the sale of some e-books.

“We do not agree with their pricing strategy,” said Carolyn K. Reidy, chief executive of Simon & Schuster. “I don’t believe that a new book by an author should ipso facto be less expensive electronically than it is in paper format.”

Mr. Bezos disagreed. “E-books should be cheaper than physical books. Readers are going to demand that, and they are right because there are so many supply chain efficiencies relative to printing a paper book,” he said.
Amazon also did not announce any sales figures, so everyone is using the speculation of 500,000 units. How do we know how big the market is or how much impact the reader had without sales figures?'

Speaking of speculation, we do have speculation that the shortage was not due to Kindle’s contract manufacturer, but due to Amazon being overly cautious in ordering a key component. As the WSJ reported this morning:
The $359 Kindle, which allows people to read books in an electronic format, has been out of stock on Amazon's Web site since November, which meant it was unavailable over the crucial holiday shopping season. Now clues from the contract-manufacturing industry in China and Taiwan suggest the Seattle company may have been blindsided by demand for the book-size device and that it has since been ramping up production for the launch of its new Kindle.

The maker of the Kindle's special screens, Taiwanese manufacturer Prime View International, says the Kindle shortages came from Amazon's conservative sales forecast for the device. Prime View adds that Amazon is now trying to avoid repeating the current shortage by asking it to pump out more screens, which it is now doing in case orders increase suddenly.

"It wasn't about delivery delay," says a Prime View spokeswoman. "The sales were just faster than expected," The company says the new version of the Kindle is set to have a slightly bigger screen than the first-generation model.
So the data suggests that the Kindle is a modest success so far, and that the new model is slightly enhanced but is ignoring (or forestalling) the Innovator’s Dilemma.

As I recall, the iPod started out as a modest success, and (as they say) the rest was history. The Newton also started as a modest success, but never crossed the chasm to the mass market.

Sunday, February 8, 2009

An easy change to make

In his first month, the focus on President Obama’s policy choices has been his tax and spending policies. Given the fight over the $800? $900 billion in new spending (plus the $300b blank TARP check that Tim Geithner gets to spend) this is not all that surprising.

However, the change in administration is also going to bring a change in antitrust policy, something that (unlike economic stimulus) can happen relatively quickly.

It's not clear how dramatic the change will be, but given that Sen. Obama was clearly to the left of where Gov. Clinton was, it seems likely that this will be the most aggressive regulatory environment since Carter if not LBJ. The contrast will be dramatic, coming after the Bush administration, which next to Reagan was clearly the most laissez-faire postwar regime when it came to economic policy.

Two big test cases are coming up on antitrust regulation (called “competition policy” everywhere outside the US).

The easiest one will be the disposal of the excess licenses that Verizon Wireless acquired in its Alltel acquisition. As has been true with cellular mergers for nearly 20 years, the acquiring party must divest one license (usually choosing the weaker one) in any market where it would significantly reduce competition through the combination.

The WSJ reported last week that AT&T wants to buy the licenses that Verizon is divesting. AT&T has the most money and so would either give Verizon the best price or at least push up the price in a bidding war. (Sprint us unlikely to be able to bid given its problems). The problem is, AT&T has about 28% share and Verizon has about 31% share, so the acquisition would decrease competition more than letting the licenses go to the #3, #4 carrier or some private equity group (which hopes to flip it someday to a big 4 carrier).

So unless some AT&T exec has an insider relationship with the Obama administration (like Bernie Schwartz to Clinton or the Texas oil industry to Bush), this seems like an easy bid for Obama’s antitrust appointees at FCC to reject.

The more problematic — both legally and politically — is the pending merger between Live Nation and Ticketmaster, providing vertical integration in delivering live rock concerts. Ticketmaster essentially has a monopoly in reselling concert tickets, so it would normally be subject to the strictest scrutiny in its actions.

However, Live Nation’s plans to compete with Ticketmaster are only incipient and not fully realized. Plus the vertical integration could deliver some efficiencies. Finally, as with artists vs. record labels or actors vs. producers, Hollywood (and its political donations) are at least somewhat split here and not speaking with one voice.

The Obama administration has yet to tip its hand on antitrust issues, so there are no indications how strict it will be. I would not be surprised if the new administration ends up blocking both efforts — AT&T’s acquisition of Verizon Wireless assets and Ticketmaster’s purchase of Live Nation. I would also not be surprised if the efforts are allowed to proceed with restrictions. About the only thing that would surprise me is if both were allowed to proceed with few if any restrictions, the sort of Bush-like outcome that the president (and his allies) vowed to eliminate.

Saturday, February 7, 2009

Sun bureaucracy rejects alien beings

My friend Matt Asay is reporting that MySQL CEO Maren Mickos is bailing from Sun Microsystems, a year after Sun paid $1 billion for the open source database company. This follows by four months the exit by one of the MySQL founders, and a goodwill writedown of sizable fraction of the purchase price. The other cofounder left last week.

Asay blames the departure on Sun bureaucracy

What Mickos doesn't say in the staff letter, but which I sensed in my conversation with him, is frustration at Sun's bureaucracy. As one of the most foundational personalities in open-source business, Mickos should have been given free rein to change Sun's fortunes. I don't think that he was given that freedom, based on other conversations I've had with Sun executives, and this clearly led to his desire to leave Sun.
There is no doubt that the Sun bureaucracy has been strangling the company since the end of the dot-com bubble, when it was perhaps hidden by Sun’s wild ride. While Asay refers to Mickos (who I met a few times) “the face of MySQL, but also of the rising open-source industry,” it’s clear that Mickos was never going to pull off a reverse takeover the way Steve Jobs did in 1997.

But I’d argue with Asay’s basic premise: Sun’s “open-source rebirth was just given a massive blow.” There was no rebirth and never would be. Exhibit A is Matt himself, who I met when he was the open source strategist for Novell. Novell did an exemplary job of acquiring Ximian and one of the open source industry’s superstars, founder Miguel de Icaza, and he still appears to be a Novell VP.

Linux revenues (from its SuSE acquisition) have grown to 16% of the company’s total in 2008. However, Novell hasn’t had a decent year since 2004, losing money in 2008, 2007, and 2005 (if you exclude the Microsoft settlement), and eking out a 2% profit in 2006 that was lost again in 2007.

If this is the best job of any incumbent in making the switch to open source, what hope did Sun have? (IBM is the exception that proved the rule: they had a senior exec who led a cultural shift nearly a decade ago).

So Sun may find its way out of the wilderness — even if the odds seem long. But MySQL isn’t going to do it, and I don’t think open source will either. Perhaps Sun’s future lies not in showing everyone it does commodity systems better than Dell, IBM or HP, but instead giving CIOs a reason again to pay a premium for its products. Apple’s done it in the consumer space, so perhaps Sun can pull it off for mission-critical enterprise IT.

Friday, February 6, 2009

GoDaddy on top?

What was the most effective SuperBowl ad? It depends on how you measure it.

USA Today used focus groups and concluded that it was the $2,000 “snow globe” Doritos ad, which had won its “Crash the SuperBowl” content for user generated content — in this case user-submitted advertisements. Joe and Dave Herbert from Ohio who made the ad collected $1 million for their efforts, and were on the Tonight Show earlier this week. This is also the most popular ad on YouTube.

2nd and 3rd on the USA Today list went to two Clydesdale ads, 4th to Mr. Potato Head — all ads I thought were effective. Another Doritos spot placed 5th, while three of the next four were ads I thought relatively effective: Cars.com overachiever, Pepsi’s “Forever Young,” and the Castrol grease monkeys.

Citing increases in gameday web traffic, compete.com said Denny’s was far and away the winner, with Cheetos, Pepsi, Bud and Gatorade (the big G?) far behind. ComputerWorld tried to estimate the most popular online ads, and their top three were the CareerBuilder ad (which I though crushed the Monster ad), the snow globe and the Conan O’Brian ad that I said was “funnier than his late night show usually is.”

TiVo measured the most watched ads on its time-shifting boxes, and came up with a slightly different list. The Doritos snow globe ad fell to fourth, and none of the other USA Today top 10 made the list. Number one was “Enhanced,” the slightly more effective and less offensive GoDaddy ad that was buried near the end of the game.

However, rewound ads don’t necessarily mean effective ads. Perhaps they are a measure of attention, but (as TechCrunch argued a year ago), they could easily be a measure of an ad that people didn’t understand. Which means they were of below-average effectiveness for non-TiVo customers.

At least TiVo concluded that the ETrade baby was only a one-year wonder. Since he’s outgrown his usefulness, let’s hope his parents will send the brat to preschool to get socialized.

No fool

Congressional Budget Office, January 26, 2009:

In combining the spending and revenue effects of H.R. 1, CBO estimates that enacting the bill would increase federal budget deficits by $169 billion over the remaining months of fiscal year 2009, by $356 billion in 2010, by $174 billion in 2011, and by $816 billion over the 2009-2019 period.
CNN, April 15, 2008:
Last year Sen. Barack Obama, submitted a laundry list of federal funding requests, known as earmarks, to the Senate Appropriations Committee: 112 earmarks totaling more than $330 million in taxpayer funds.

But that was last year.

This year, as the Senate funding request deadline approaches and the final primaries of the Democratic nomination process draw near, Obama's staff told CNN the junior senator from Illinois will request no earmarks for fiscal year 2009.

The dramatic change is in line with a statement Obama issued last month in connection with an amendment calling for a one-year moratorium on earmarks in the Senate.

The amendment, sponsored by federal earmark foe Sen. Jim DeMint, R-South Carolina, was shot down by a vote of 79-21.

"We can no longer accept a process that doles out earmarks based on a member of Congress' seniority, rather than the merit of the project," Obama's statement said.

"The entire earmark process needs to be re-examined and reformed. For that reason, I will be supporting Sen. DeMint's amendment and will not be requesting earmarks this year for Illinois," the statement added.
MSNBC, January 6, 2009:
On his second day in Washington, President-elect Obama met with his budget team and promised no earmarks will be in the stimulus plan.

"We are going to ban all earmarks -- the process by which individual members insert pet projects without review," he explained. "We will create an economic recovery oversight board made up of key administration officials and independent advisors to identify problems early and make sure we are doing all we can to solve it."

Video: President-elect Barack Obama tells reporters that the massive economic stimulus bill he wants Congress to pass will set a "new higher standard of accountability, transparency, and oversight."

When asked to clarify if some projects could be put in after they are reviewed, Obama drew a harder line.

"We will ban all earmarks in the recovery package," he said. "And I describe earmarks as the process by which individual members insert pet projects without review. So what I'm saying is, we're not having earmarks in the recovery package, period."
MSNBC, February 5, 2009:
In stimulus bills, earmarks by any other name
By Michael Grabell and Christopher Weaver

Lumped together, the House and Senate versions of the economic stimulus plan number some 1,400 pages, roughly the equivalent of the complete works of Shakespeare.

And some of the language is just as artfully crafted.

The package includes an insurance exemption — but only for companies that work on recreational boats longer than 65 feet. Another provision would lift a Medicare regulation affecting only three long-term care hospitals in the country. There’s also language requiring the Transportation Security Administration to buy 100,000 uniforms from U.S. apparel makers.

In theory and publicity, the package is “earmark free.” But it contains dozens of narrowly defined programs that send money to specific areas or cater to special interests, despite President Barack Obama’s pledge to pass “an economic recovery plan that is free from earmarks and pet projects.”

Some — like the yacht workers’ exemption — would take little or nothing from taxpayer pockets. Others, like $3 billion in extra transit money added by the House, are handing ammo to critics who say the stimulus plan, now at about $900 billion in the Senate, has morphed into a Christmas list.

As part of the ShovelWatch project with WNYC radio in New York, ProPublica plumbed the depths of the stimulus bills looking to see how closely Congress is coming to Obama’s stated goal.

What is an ‘earmark’?
In part, the answer hinges on the definition of an “earmark.” Democrats insist they are nowhere in the plan; Republicans see “pork” everywhere. So we cribbed from criteria Congress laid out in a 2007 reform bill: language that aims spending at specific programs, states or localities, often at a member’s request.

Specific location? The Senate stimulus contains $50 million for habitat restoration and other water needs in the San Francisco Bay Area. There is another $62 million for military projects in Guam.

Specific industry? The House bill includes an amendment authored by Democratic Rep. Bruce Braley setting aside $500 million for biofuel makers, which he says, would bring jobs home to Iowa.

Specific program? There’s $198 million to compensate Filipino World War II veterans for their service. Most don’t live in the United States.

In a speech about the stimulus last month, Obama acknowledged that there often are valid arguments for earmarks. At the same time, he called for restraint.

“Many of these projects are worthy and benefit local communities,” he said. “But this emergency legislation must not be the vehicle for those aspirations. This must be a time when leaders in both parties put the urgent needs of our nation above our own narrow interests.”
Ralph Waldo Emerson, 1841:
A foolish consistency is the hobgoblin of little minds.