The Week in Geek – Sept. 5, 2006
The Empire Strikes Back
Little ‘ol NetFlix cleaned Wal-Mart’s clock last year, causing the then Fortune #1 to withdraw from the subscription DVD market. But the world’s biggest retailer isn’t done dabbling online. Sources suggest Wal-Mart will soon launch its own net-based DVD download service. Meanwhile, Apple is expected to launch movie downloads via iTunes (and roll-out a wide-screen video iPod) any day now. Many in the press have received an invitation to a ‘special event’ on Sept. 7th at the Moscone center with the teaser “1,000 songs in your pocket changed everything. Here we go again“. Prices for iTunes movie downloads are assumed to be $14.99 for new releases, $9.99 for old titles. Apple pushed for under $10 across the board, but Wal-Mart pushed back. Wal-Mart has clout because its stores provide an astonishing 40% of all DVD sales. In addition to pushing up Apple’s price, Wal-Mart is strong-arming the studios for price discounts as well as marketing & e-commerce expertise. Remember the Porter article a few years back pooh-poohing channel conflict online? Forget about it. The big dogs rule the channel. iPod fans may also enjoy BusinessWeeks’ slideshow of 10 Oddest iPod Accessories, featuring the iPod toilet paper holder & the Nano belt buckle.
MySpace Cowboys
The cover-story praise of MySpace continues, with Fortune serving up the latest front-page profile of Tom Anderson and Chris DeWolfe. Tidbits from this piece: P&G, Honda, Unilever, and Wendy’s are hosting advertising on MySpace for $100,000 and up. Ads run cheaper than Yahoo’s $600,000 rate, but the service is exploding. MySpace has a record label and efforts are rolling out for film, comedy, sports, VoIP, and video distribution. Helio allows mobile phone-based posting to MySpace, but MySpace will surely seek a broader audience now that the Helio exclusive ends this month. There are 100 million MySpace members, but here’s the most shocking stat in the article – 52% are 35 or older.
Don’t Touch that Dial
YouTube made Saturday Night Live hot again by running the hilarious “Lazy Sunday” rap, but the folks at 30 Rock made the Net outfit pull the clip. Now NBC has seen the error in its ways and has struck a distribution partnership with the profitless but popular TV alternative. 20 somethings Steve Chen and Chad Hurley’s YouTube now serves 100 million videos a day – 57% of all video watched online. The site does face a landmine of copyright issues and questions about whether it remain popular with creative types who want to make money for their work. Consider the most popular of the DietCoke Mentos Experiments videos. The video was seen 5.5 million times on YouTube rival Revver and made creators Grobe and Voltz $30,000. But Voltz estimates they lost another $30,000 to web-pirated copies, including a version that appeared on YouTube. What’s next for YouTube? Profits, a big buyout, or a crush of litigation?
Google & eBay’s Connection
Google and eBay have waded into each other’s waters recently. Google Checkout looks suspiciously PayPal-esque, Google Talk’s VoIP competes with Skype, eBay has launched an ad service, and Google Base is considered an eBay alternative. But the two absolute leaders in their respective markets have now paired in a joint venture. Google will serve ads on eBay’s international sites and the two will collaborate on click-to-call ads. Why? The still mega-profitable eBay needs Google ad revenue to placate Wall Street, which has grown accustomed to freakishly high growth. Google needs Skype’s 100 million Net phone users for Click-to-Call to become viable. The international scope of the deal is key. In the high-potential but highly competitive Chinese market, eBay has been forced to lower or eliminate fees, so Google ad-coin will help ease the pain of such brutal competition. The deal is a surprise to many who, just a week ago talked of ehoo or Ybay, following the Yahoo-eBay ad pact. For the past year, the WiG has been writing about the impending Internet ‘battle royale’ where cash-rich Net giants duke it out as they encroach on eachother’s space. It’s on, but the alliances are making it tough to predict the winners.
Google Office Suite – Here at Last
The search giant is increasingly poking at Microsoft’s Office business, having recently introduced Google Apps for Your Domain, a software bundle aimed at small and midsize companies. The free, ad-supported package combines Google’s E-mail, calendar, and instant messaging with Web site creation software. It will be hosted in Google’s data center, branded with customers’ domain names, and packaged with management tools for IT pros. Word Processing with the firm’s Writely acquisition, and the home-grown Google Spreadsheet are sure to follow when they’re fully baked & out of beta. Also a bit of curious news – Google CEO Eric Schmidt has joined Apple’s Board of Directors. Ads on iTunes? Ads in Podcasts?
The LBO Gang Storms the Valley
Tech is a deeply cyclical industry that has enormous influence on world markets. So the pressure to meet quarterly numbers is brutal on tech company CEOs. The environment is plagued with hot-cold buying cycles, mo-mo-momentum investors chasing and shorting hyped stocks, and R&D heavy but profit-draining periods of innovation incubation. One option gaining more attention – go private via LBO (leveraged buy out). Firms that are no longer listed on public exchanges gain time to shine up assets or break up undervalued units. Executives can become fabulously wealthy (typically a 20% stock premium, with options grants). And going private means the bogyman of SarbOx regulation goes away. LBO firms have amassed $40 billion+ in cash, meaning battered, but potential-rich giants like Sun, AMD, EMC, and even Dell may be in play. In the extreme speculation department, some have said even Microsoft is LBO bait. Verifone is the biggest recent LBO success. The firm was sold by HP for $50 million in 2001 and went public at a value of $1.5 billion last year. Yowza!
Texas Instruments’ Lunatic Fringe
Texas Instruments (TI) was once known for consumer calculators, cheap home computers, and wristwatches. But these days the firm is on a tear. Open an iPod, Nokia phone, Dell Laptop, or Samsung HDTV and you’ll see TI inside. The firm (a BC employer) has seen its stock more than double since ’03, revenue has grown faster than any other chip company, and profits last year were $2.3 billion. Innovation is at the heart of the firm’s success, with TI fostering a ‘culture of ideas’ sometimes called ‘total chaos’ by champions. This allows wild, optimistic thinkers to prototype devices like medical scanners that work ‘Star Trek’ style when waved near a patient. The ideas have created tech like the SmartReflex technology, a breakout success developed in months by a team of ‘crazies’ goaled to create a power-management chip that could cut battery consumption 1,000 fold, yet still enable juice-draining tasks like video & audio downloads. That chip is partly responsible for TI’s success in the mobile phone market, and it was nurtured by global teams collaborating outside the scope of their existing jobs. 40% of TI’s revenue comes from another ‘Lunatic Fringe’ product, the DSP (digital signal processor), which evolved from the old Speak & Spell kid’s toy. Fortune’s look at the global innovation incubator is fascinating.
Watch, Click, Buy, Amazon Goes Video
This is definitely the year of Net video. In addition to the YouTube, iTunes, and Wal-Mart efforts mentioned above, Amazon has concluded a 12 week run of perhaps the biggest web-based episodic effort yet, with Amazon Fishbowl featuring Bill Maher. The show is clearly about the sell. With the arrival of each new guest, an animated banner ad below the show’s “TV” screen displays a picture of the product in question – the author’s new book, the actor/director’s new DVD, or the musician’s new album – along with a link to the appropriate page on Amazon.com. Amazon has regularly experimented with ways to make the online shopper more informed & engaged. AmazonConnect has over 7,000 blogs written by Amazon-marketed authors.
Microsoft’s Zune Plans Revealed
Apparently unsatisfied with partners that haven’t been able to crack Apple’s 80%+ stranglehold on the portable media player market, Microsoft will offer its own device under the Zune brand. FCC filings revealed that the device will sport WiFi, a 30 GB hard drive, and an FM tuner. At least one analyst seems under whelmed by Zune, calling it a repackageed Toshiba Gigabeat, a product that hasn’t received much success in the market. Hopefully the product is better than the confusing and kinda-creepy website teaser at comingzune.com. Microsoft marketing efforts have been widely ridiculed, and Zune marketing will need to be sharp if it’s going to take on best-in-class marketers, Apple.
Google Knows I’m Bald! (screen shot – note ads on right)
The website of the NY Post once ran an article about hacked up body parts found in suitcases. That story was framed with Google-served ads for luggage. Not exactly the association eBags was hoping for. The gaffe happened because Google chooses which AdSense ads to run based on keywords it identifies on the web page. Well, looks like the first AdSense issue of the Week in Geek fell victim to the same thing. Google picked up on the acronym “WiG” on the page’s first posting and led with an ad for the “Hair Club for Men”, a hair-weave outfit known for cheesy late-night commercials. This ad was followed by promos for wigs and hairpieces. Since I’m a guy who’s been bald since 19, the choice may seem rather appropriate to some. While I’ve never had dreams of Michael Arrington’s $60,000/month take (see the Business 2.0 cover story, Blogging for Dollars), my first week of AdSense revenue barely brought in enough cash to pay for a latte, let alone hair plugs. It was good for a laugh, though.
“Mad Money” Coming to BC, Sept. 20th
CNBC’s financial freak show featuring TheStreet.com founder and celebri-vestor Jim Cramer will run from The Heights on Sept. 20th. Cramer chooses just one school each year for his show & the Eagles nabbed the 2006 spot. Should be great fun!