Internet Outsider

Time for Google to Try Links

Google's religion about keeping its homepage "clean" is now getting in the way of its product development.  The site need not look like a NASCAR hood, but the hyperlink is a useful invention, and Google should start using it.

Remember Google Finance?  Half a year ago, Google Finance debuted to rave reviews, startling the snoozing market leader, Yahoo, into action.  Rumor has it that in the past six months the Google Finance team has even launched more impressive innovations.  But have they?  Who knows?  To check out Google Finance, you have to type "Finance" into the search window (or stumble into the Finance section by searching for something else that happens to be contained within it).  And who wants to bother to do that when you can stay on Yahoo and just click a link.  Who can even remember to do that?

Google Real Estate?  Seemed mighty cool when they launched a while back, what with those neat mash-up balloons and property maps.  Does Google Real Estate still exist?  Who knows?

Google Answers?  Another neat idea, one immediately copied by Yahoo (or maybe Yahoo had it first).  Either way, Google Answers is now no more.  Why?  According to Forbes, because Yahoo Answers had 24-times as much traffic.  And no mystery why that is: Yahoo promotes Answers on its front page.

In an attempt to explain why Google axed Answers, Forbes quotes Sergey as saying, “What we are concerned about is that if we continue to develop so many new individual products … you will have to essentially search for our products before you can even use them.” 

Okay, but is the problem really that there are too many products--or that users don't want to bother (or can't remember) to search for them?  Before Google shoots services that users went gaga about and then promptly forgot, could the company at least experiment with another solution--links?  Although the status-quo zealots will scream (they always do), the rest of Google's users will just say, "thank you" and click right through.

On Barrons' Analysis of Google $500

Pretty good, actually, although it's hard to be agog and appalled about a 37-times-forward earnings multiple (43-times if you include the stuff that analysts should be including).  The key point in the article, which many Google boosters miss, is that continued deceleration will lead to continued multiple compression, regardless of how amazing a company Google is. 

40-ish times earnings/cash flow for a steady-state 40%-plus grower is fine, but in the face of ongoing deceleration, the 40x could easily go to 30x or 25x--or, worse, if Fred Hickey and others are right and American consumers are finally deciding not to buy everything they see.  Even a 30-times multiple would put Google under $400 again.

New AOL CEO: Be Afraid

For those who missed it, Time Warner stuck the final knife into the back of the old AOL last week, when AOL's interim CEO, Jonathan Miller, allegedly hand-picked by the outgoing Steve Case, was axed and replaced with a career TV/old media executive.  Miller wasn't an Internet expert, but he'd worked with Diller, who is (now), and he quickly illustrated that he was willing to learn.  And he did a good job, all things considered.  But now he's gone, and so is the final vestige of the original AOL, which once utterly dominated Internet-land--and, later, so mortified the old guard at Time Warner that they've spent the last five years trying to erase the nightmare.

In the short history of the Internet, few old media executives have quickly grasped the ways the new medium is different. Untold thousands, however, have charged into the fray, ready to teach the Internet kids how a real media business works, only to learn, the hard way, that the Internet really is different (not better, just different). 

So what can we expect from Randy Falco, the new head of AOL?  I won't rush to judgement, but the early signs aren't encouraging.  If today's AP summary and Falco quotes are anything close to reality, AOL is about to resume its rapid slide into oblivion:

The incoming head of AOL said Tuesday he left a 31-year career at NBC for the chance to transform the online business into a formidable rival to television and other traditional media, AP writes, suggesting that Falco has yet to notice that ONE Internet company, Google, has long been worth more than the entire television industry combined (and justifiably so). 

''I'm fascinated by the Internet space,'' Falco told The Associated Press. ''I see it as a very exciting environment to be in. It reminds me a lot about network television 30 years ago. It's a little bit like the Wild West. There aren't a lot of rules. That's what excites me about it.''

A "fascinating environment"?  Yes.  And I guess it's good that Falco's excited about his new job.  But given that the next six months will determine whether AOL lives for a decade or dies in a year, one hopes that Falco's gee-whiz attitude is quickly replaced by an understanding that the Internet's wild west days are long gone and that there are crystal-clear Internet rules--one of which is that if you're not No. 1, No. 2, or, at worst, No. 3, you're toast.  And AOL fans should pray, hard, that Falco doesn't follow in the footsteps of some of his transitioning brethren and spend his first six months on the job enthusing about a new commitment to "original programming" and "shows."

Congratulations to Google at $500

Expensive?  Yes.  Ridiculous?  No.  And when describing the company's accomplishments over the past eight years, even "awesome" falls short.

How to Fix Yahoo: Fortune (and I) Weigh In

Fortune columnists Adam Lashinsky and Tim Arango have thrown their hats into the how-to-save-Yahoo ring, citing four options: 1) buy AOL, 2) sell to Microsoft, 3) merge with eBay, 4) stay the course.

Buying AOL makes sense, I think, but it won't fix anything.  Selling to Microsoft would be a disaster (Microsoft can't fix MSN--how would it fix Yahoo?).  Merging with eBay doesn't make strategic sense to me, although I do think eBay should sell Skype to Yahoo, for equity and a long-term traffic deal.  Staying the course, meanwhile, would be as successful as strategy as it has been for the US in Iraq.

What should Yahoo do to get out of its current mess?  I'm with IO reader "Still Inside."  It should FIX SEARCH. 

Search is where the money is.  Yahoo is still a big player in search queries (30% market share).  If Yahoo can figure out how to jack its search monetization up to near-Google levels--a challenge that, given the appropriate focus and resources, should not be consuming the two years that Yahoo's invested so far (and counting)--the cash will roll in, the stock will soar, and the company will be in a prime position to get fat and lazy again.

Bottom line?  No deals required.  Just get the darn cash-register working.

Garlinghouse Backlash Begins. How-To-Save-Yahoo Debate Ongoing

A few days after Brad Garlinghouse's "Why Yahoo Sucks" memo hit the Internet, the blogosphere has chimed in.  And the verdict is...

1. Terry should go.  Theory: He parachuted in, stabilized company, got everything headed in the right direction--then cashed in a few hundred million-worth of stock options and hit the Barca-lounger. 

2. Garlinghouse should go.  Theory: Not only has he publicly insulted his bosses, he's produced crappy products.  Yahoo Mail?  Lots of people seem to hate it.  Dialpad?  What's Dialpad?  This memo was just a Garlinghouse power-play...

3. Dan Rosenzweig should go.  Theory: He's the weak link, and Terry's just playing loyal boss by protecting him.

4. Sue Decker should be CEO.  Theory: Almost universal agreement that she's the strongest of the bunch. 

I have some personal loyalties here, so I'll maintain an editorial distance.  As a Yahoo shareholder, however, I'm just happy that the company has gotten a good swift public kick in the posterior.  It's time to get the fire burning again...

Yahoo's Garlinghouse Speaks Truth / Rolls Dice

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It will be interesting to see how Terry Semel reacts to Brad Garlinghouse's "peanut butter manifesto," which was essentially open letter accusing Terry of incompetence.  Garlinghouse took pains to note that Yahoo's problems come "straight from the top."  He also obviously either leaked the memo himself or knew that it would be leaked (little difference).  Regardless of what happens, Yahoo shareholders should thank him.

According to the Journal, Yahoo! COO Dan Rosenzweig has embraced the memo--sort of.  Specifically, he has assembled a task force to look into Garlinghouse's observations "over two months."  Given that most of the complaints/recommendations can be grasped in 0.2 seconds, this two-month-rumination period seems an example of exactly what Garlinghouse is complaining about.  It is also probably a way for Rosenzweig to hedge his bets (protect reputation with troops by listening, protect job by not jumping wholeheartedly on board).  No word from Terry, as yet, but he will have to respond, if only internally.

How aggressive a move was this?  Imagine if one of Sumner Redstone's senior lieutenants had written the same memo, suggesting that the company's problems come "straight from the top."  There might be something left of him in the morning, but not much. 

In any case, the Garlinghouse attack demonstrated exactly what Yahoo desperately needs more of: 20/20 vision, passion, and balls.  Garlinghouse is right: Yahoo has amazing assets.  And he's also right that the company has gotten fat and lazy.  Whether Garlinghouse survives his own grenade blast remains to be seen, but he's done the rest of the company (and its shareholders) a favor.

Update on MSN: Still Going Nowhere Fast

It's ancient history by now--and certainly not news--but it's worth noting that Microsoft still hasn't made any headway in the search-and-portal game and, in fact, is falling farther and farther behind.  As a result, it is not surprising that Steve Ballmer is now warning media companies that Google is the Evil Empire--because no other competitive tactic has worked.  Microsoft is at least no longer embarrassing itself by suggesting that Google and Internet domination are only a matter of time.  Instead, perhaps, it is marshalling its energies to fight a far more critical battle: protecting its crown jewels from Google-hosted web apps that threaten to pick off low-end users of Outlook, Word, Office, etc. one by one.

How badly is MSN/Windows Live doing these days?  In Q3, advertising revenue rose only 5%, once again the slowest rate of growth of the big four (even lagging Yahoo's pathetic quarter).  Display advertising on portals, email, etc., was up, but search revenue was down again, despite AdCenter having been rolled out to the entire U.S. market. 

Just as bad, the division's operating income/loss fell from a gain of $68 million last year to a loss of $130 million this year--despite a change in accounting for search revenue from net to gross (MSN used to record its net revenue after sharing a portion with Yahoo, et al).  Microsoft is cranking up the R&D and marketing spending to try to compete with Google, but thanks to Google's now 4X revenue advantage (ex TAC), this is a losing battle.  Google spent more than $300 million on R&D in the quarter, about half of MSN/Live's total expenses for the period, and it still generated a massive profit.  As Google continues to grow, this disparity (or MSN/Live's losses) is only going to become greater.

Is Google Checkout a Dud?

Yesterday, Google announced that it was making its new payment service, Google Checkout, free for merchants through the end of the year.  Upon hearing this news, some commentators jumped to the usual Google conclusion: another brilliant move by an infallible company that will soon put Microsoft, Yahoo, and eBay out of business.  But is this really the right conclusion?

Last summer, you may remember, when Checkout was finally announced (after months of rumors, speculation, and denials that reduced eBay/PayPal shareholders to quivering jello), analysts almost universally concluded that the AdWords/Checkout combination was so potent that PayPal was toast.  Yesterday, while suggesting that the PayPal obituaries were a bit premature, the WSJ noted that Google Checkout had signed up "a few hundred merchants." 

A few hundred?  Unless that number is at least two orders of magnitude too low, the reason Google is making Checkout free is not that it wants to finish eviscerating PayPal, but that Checkout has been an unqualified disaster.  Google has hundreds of thousands of advertisers, the majority of which have web sites that could presumably benefit from Checkout.  Can it really be true that, six months after the PayPal killer was announced, Google has only managed to persuade "hundreds" of these advertisers to try the service?

I don't know the answer--I'm hoping some of you do.