Archive for July, 2009

MicroHoo > Yahoogle

By , 31 July, 2009, No Comment

I’ve spent much of the week pondering Microsoft and Yahoo’s new search deal. Given that Google’s similar offer to Yahoo! last year was deemed anticompetitive, and that the status quo in search based ads may also be anticompetitive, we should at least consider the possibility that this partnership could be a good thing.

Some background: Yahoo! Search has been tanking for a long time. Since the money is in selling ads alongside the search results (whether keyword buys or bulk display), Yahoo! can’t monetize those search pages if the results are no good. Microsoft had a similar problem for a while (see Windows Live, Fiasco That Was) but it was nothing compared to the bigger threat Google poses to them in the application space—if (when) Google succeeds in moving us all to cloud applications, Microsoft’s real money pot, in office software, is cooked. To Google, cloud apps don’t matter as standalone revenue sources but as part of a massive data-mining operation. So as long as Microsoft and Yahoo! continue to lumber along independently, with both losing to Google in search and Google closing in on Microsoft in applications, Google has nothing to worry about.

Does that change with a deal like this? Yahoo! agrees to give up its search technology and let Microsoft, with its new Bing search engine, power search results on Yahoo! sites. Yahoo! and Microsoft then share the ad revenue on the results, except that Yahoo! gets 88% of it. A lot of pundits balked at the whole premise, but I disagree.

Yahoo! beats Google in one category of sites Google offers consumers as a ploy to gather data—media content. Yahoo!’s portal pages—its news aggregators, finance listings and fantasy sports leagues, for example—are more robust and richly developed—than anything Google has on offer. Yahoo! has all these people (myself included) turning up to check on their fantasy teams, but they can’t keep them there and effectively monetize them because the users don’t stick around to use the search bar. If they can outsource the search to Microsoft, they can keep those folks around and make a neat little business as a portal. Maybe it keeps some small fraction of users off Google who would otherwise flit there from the Yahoo! pages, but not enough to unseat Google. It’s not quite pro-competitive in that sense, but it is pro-innovation because it allows Yahoo! to keep developing a competency in something Google doesn’t do well.

Moreover, it may train Microsoft to finally trust the web. Have a look at the character of the experience provided on a Yahoo-powered-by-Microsoft home page: it’s free content with ads, just like Google pages are, but it’s less Googley in tone. Yahoo’s portal sites differ from Google’s (see above) in that they are more developed, more curated. Microsoft’s search technology differs from Google’s in that it’s less crowd-sourced and more directed. Like Yahoo!, it’s designed for and marketed to people who are sick of navigating the web for themselves, who WANT a little direction and intelligent design. The synergy here makes sense.

If it works, it may open Microsoft’s eyes to a broader business in serving those users, which is where Microsoft’s ultimate salvation has to be. Google still hasn’t convinced Microsoft’s big corporate clients to replace Excel with Google Spreadsheets—what Microsoft needs to offer isn’t a copycat product that also spare and barebones, but something a little more robust and only partially open, what I might call cloud-lite. I have no idea what this would look like, but I think it’s something Microsoft has the best shot of anyone at developing and would be a new addition to the space, an actual innovation.

In other words, what these deal actually does is secure Google’s continued dominance in search, Yahoo!’s in curated content and potentially Microsoft’s in office applications—even in the cloud age. It doesn’t end any monopolies but splits the current market of ALL ONLINE CONTENT into three into which each of these firms can dominate a piece. That at least cuts them all down to a focused size and makes them, perhaps, easier for smaller fry to take on in a focused way.

Still Thinking about Google

By , 27 July, 2009, 1 Comment

According to a new libel ruling from the UK courts, Google can’t be sued/fined for malicious falsehoods that appear on its news and blog pages (like this one). That makes legal sense, since no one employed by Google produces the content on the sites.

But here’s the problem: it’d be awfully hard to sue/fine some of the folk with Google blogs for their output either, since most of them consider what they do to be not-quite-published, and more akin to the kind of speech covered under slander law than the kind of published text covered under libel law. Clearly, the web has erased the most obvious divide between slander and libel, but it doesn’t really erase the qualitative one. A falsehood on my friend’s travelog about her summer in Equador is just not the same as a falsehood from Robert Reich.

Moreover, the underlying logic of libel law is based on private profit. You sue the people who make/write/print the falsehoods and if you win, you take back the profits they earned by spreading the lies.

The problem with private blogs on Google’s server is not only that they don’t aspire or try to uphold fact standards that are libel-proof but also that there’s an imperfect overlap between the person who produces the content (and thus might be morally responsible for it) and the person (AKA Google) who profits from that content (and thus might be fined to avenge a wrong).

The UK ruling thus underscores the argument I have been making about Google all along–they aren’t necessarily in open defiance of the laws, but their existence, their business model demonstrates the gap between the structure of our laws and reality of the internet economy. And try as I might, I can’t think of a way to solve this without in some way cutting Google down to size.

Political Capital

By , 23 July, 2009, No Comment

During the first press conference of his second term, George W. Bush famously said “I earned capital in the campaign, political capital, and now I intend to spend it.” Bush meant that his comfortable victory conferred a mandate to pursue his agenda without worrying too much about concessions to the other side. But Bush’s popularity, which was never as pronounced as he liked to believe, collapsed about a year later and he never got around to spending that capital on any new ventures.

Barack Obama seems to have a similar sense of his own popularity. Because he knows he polls high among voters, 44 believes he can get policy changes through a Congress of members eager to latch on to the Obama-geist without having to get his own hands dirty in negotiations. The result is broad directives to ‘get health care reform done’ while members of Congress are left to the details. Then, when they develop two proposals, one more progressive and one more centrist, the President throws his weight behind the one that seems more popular.

Here’s the problem: that proposal will cost a lot more and work a lot less well. And if last night’s press conference showed anything, it was that people are starting to realize that and ask sharper questions (Chuck Todd wanted to know just how many Americans would still be out in the cold after this law passes, Jack Tapper wanted to know what types of care rationing we should prepare for; neither reporter got a straight answer).

But once the President has anointed the progressive bill as “the” proposal, its failure means the failure of health care reform altogether, since no one remembers/wants to go back and recover the centrist alternative. That is my great worry—that this bill will collapse in negotiations sometime later this summer or early fall and Democrats will find that the whole health care issue becomes tainted for them for another decade.

Commentators noted that Obama places all the blame for holding up the bill on Republicans and none on centrist Democrats, who are actually the block on reform right now. Why? Perhaps because the Republicans have no alternative bill, so blaming them is easy. Accepting the battle with the centrist Democrats would require Obama to defend not just the idea of health care reform—he’s good with ideas—but also the specifics of his plan against the specifics of theirs. No amount of political capital can help him there.

The Problem with WIRED

By , 19 July, 2009, No Comment

The August issue of WIRED has an interesting article on the growing antitrust pressure on Google, a pet cause of mine. It’s well reported, and well-written, as WIRED usually is. It more or less lays out the case against Google that I would make: that the individual markets in which it has x or y share are irrelevant, because Google is building a macro-market by aggregating data over all web content. Then it lays out the most common  counter-argument: that regulators shouldn’t be trying to stop companies the public likes/benefits from to protect the fluidity of the market. I disagree with this counter-argument. Other regulatory provisions–like consumer fraud laws–respond to public opinion, but antitrust laws exist explicitly to protect and promote competition.

What struck me about the WIRED piece, however, was its attempt at neutrality and its muted tone. [If you're skeptical, go to the library, find a copy, and see for yourself.] WIRED never does that. It has an opinion about ever tech-related debate, usually an opinion that reflects the views of its editor, Chris Anderson, which I’ve discussed before. Elsewhere in the same issue is an article advising readers to embrace illegal downloads as a form of civil disobedience. [I've got plenty of free music on my computer that shouldn't strictly speaking be there, but I'd never be so presumptuous as to pretend it was anything more than miserliness that landed it there.]

The tone of the Google piece suggests to me the major problem with WIRED. It’s a magazine about the modern technology industry written by people who helped create the modern technology industry, by people who moved out to the Valley before it was cool. Their natural instinct is to explain tech companies to the rest of us, and defend those companies from the big bad economy back East. The folks at WIRED still they think they are writing about scrappy endearing startups, even though those companies aren’t scrappy or small anymore.

Yes, this piece is an improvement over a February article that painted the attack on Google as an evil conspiracy of big bad telecom companies. But even where their own reporting suggests there’s a real antitrust case to be made against Google, their personal sympathy for the GOOG prevents them from giving the piece the kind of umph they give to everything else.

It’s all pretty ironic, since as magazine writers who work for Conde Nast, everyone at WIRED is part of the ‘old’ economy. And while they advocate that everyone else give up their content for free and celebrate that Google will own it, their own website is pretty closely protected. That’s why this blog post has no links to the current issue–it’s been mailed to subscribers in print, but it’s not yet available online.

Apocalypse 29: In Search of Patient Investors

By , 14 July, 2009, 4 Comments

BusinessWeek, my one-time employer, is on the sales block as of today with potential buyers being Bloomberg, Pearson or a private equity fund of some kind. My first reaction is just sadness for all my friends there, a group of sharp-as-nails writers and editors. My second reaction is to pray that a media company beats the LBO boys for the buyout. Here’s why:

The brutal reality of news media is that there’s no business model right now. Our output is divided between ‘old’ and ‘new’ platforms at one ratio, while our revenue is divided at a different ratio. It will stabilize as we create a business model for monetizing online, whether by premium subscriptions, better more expensive advertising, or both. I wouldn’t be entering this business now if I didn’t think so. But I’m betting it will take at least five years.

A media conglomerate ultimately wants to be in whatever new media form emerges in five years. So they will invest—not recklessly, but liberally—in a magazine or newspaper as the industry gets to its future state.

An LBO firm, by definition, buys distressed assets to get profits out of them fast, and then exits the business to try something else. Trying to cost-cut your way into profitability at a time when sustainable profits are years out is a fool’s errand. That’s the lesson Sam Zell learned at the Tribune. I sure hope we don’t have to watch BW go through the same.

Google Grows Up

By , 11 July, 2009, 2 Comments

It was a big week in Google-land, what with un-beta-ing of Google Apps and the subsequent release of Chrome OS. Obviously, this was Google’s shot across the bow at Microsoft as both companies gear up for a battle to control the cloud. To be honest, I think the cloud will ultimately be controlled by some third player none of us can imagine, just as Google scooped Yahoo! and Microsoft scooped IBM. [See disruptive technology].

Still, in the short term, it’s a big play for Google. What worries me is that as larger and larger shares of our economy move online, cloud computing will allow Google or its unknown successor to dominate multiple markets and do somewhat anticompetitive things with that cross-control. I already have misgivings about its search-ad business; it’s too early to tell whether cloud apps will work the same way.

What amuses me about this whole thing is whiplash it should give to those who apologize for Google’s business practices with claims that Google is “not evil,” or not really a business at all. Firstly, this week shows that Google wants big corporate customers just as much as Microsoft. Secondly, this week shows that their success is manifestly not predicated, as some suggest, on turning big business on its head by getting people to embrace beta as a new standard. Instead, they’ve had to give up this image of being frazzled-but-well-intentioned to get the big fish.

That doesn’t really make up for my worries about their broader business, but at least we can now discuss their tactics without the cuddly rhetoric. Or is that asking too much?

David Cameron’s Favorite Journalists

By , 10 July, 2009, 2 Comments

British newspapers have long had a reputation for poor news judgment, but for the last few months, they have really made the cliché come true. Firstly, there’s the way papers on both left and right jumped on to a witch hunt over parliamentary expenses, playing right into David Cameron’s hand as he worked to convince voters that only Labour ministers were abusing their expense accounts. In reality, there was abuse on both sides, but no massive fraud as was sometimes claimed by politicians.

Secondly, there’s the way the News of the World has started paying hackers to get access to the personal voicemails of public figures it wants to expose. This is especially intriguing since one of David Cameron’s cronies, Andy Coulson, is the News’ ex-editor. After Cameron condemned the News’ behavior (“It’s wrong for newspapers to breach people’s privacy with no justification”) but insisted he had forgiven Coulson, lefty commentators jumped on him as a hypocrite who only stands by journos running exposes on his opponents in good times.

This particular critique falls flat because it equates the journalism in the expenses scandal with that of the News. The Guardian, Telegraph and other papers who made a big deal about expenses were following standard journalistic practice by getting access to public documents about public sector agency finances. They made an error of judgment in choosing to publish that information instead of devoting that space to other more important stories, but once they settled on this story, their process was still one of basic newsgathering. By contrast, the News used illegal means to gain access to private-sector information about non-public finances and published that. EVEN WHERE the stories it was obtained for were of real importance, this is a violation of basic newsgathering norms, as well as of the law. Both incidents should be condemned, but not for the same reasons.

I have no special love for David Cameron, as readers of this blog will know, but I think his critics are letting their hatred of Toryism overwhelm their logic.

Chris Anderson Practices What He Preaches?

By , 9 July, 2009, 2 Comments

WIRED’s Chris Anderson has a new book out, making his case for the “economics of free.” By this he means “free lunch,” but the core of the book is trying to dress up “free lunch” as “free markets.” In the new economy, all goods will be digitized, and as that happens, they will obtain a cost approaching $0. Therefore, all companies will make their money by providing auxiliary services atop their free goods, for, Anderson believes, production costs also approaching $0. [Ex: sell ads on free content site]

Here’s the problem: if consumers love “free” goods so much, what makes Anderson confident they will be willing to pay $>0 for services. Moreover, even if they were willing to pay for services, wouldn’t that willingness be undermined by the knowledge that, if Anderson is to be believed, the services also cost $0 to make? Never mind that there are serious doubts about the $0-cost-ness of digital production and distribution. [Malcolm Gladwell pretty effectively eviscerates the whole argument in the most recent New Yorker]

I have long rolled my eyes at arguments like Anderson’s. The more seriously you think about what “free” really means, the more you are convinced that it’s inherently anti-market, that the Internet leads us to a kind of decentralized socialism. Some tech-evangelists are upfront about this being their true goal, and even if I disagree with their values, I respect them for honesty. Folks like Anderson infuriate me because they couch their desire for a universe driven by “non-monetary” rewards for work in a vision of a profit-making economy.

Thankfully, Anderson has been revealed in his true colors: chunks of his book have been liberally plagiarized from Wikipedia because apparently, it was just too much of a hassle to cite properly: “he and his publisher ‘couldn’t agree on a footnote policy for Wikipedia entries’ ” Oh, cry me a river.

According to Anderson’s defense, everything is free online because the Internet makes assigning ownership so difficult that property ceases to exist. I personally believe the Internet necessitates a new definition of intellectual property, not an elimination of intellectual property as a category altogether. Without property, you have no philosophical basis for a market economy. So Anderson’s plagiarism and his cavalier response to being exposed suggest he doesn’t really believe in markets at all.

Double Digits

By , 5 July, 2009, No Comment

For a number of reasons—some chronological, some that I can’t disclose—I’ve been thinking about the parallels between the dot-com bubble burst and the credit bubble burst we’re suffering from now. Easy money leading to reduced scrutiny of financial transactions. Eloquent prognostications about the profitability of free web-only content, but little actual profit to show for it. The list goes on.

One important difference stands out, however. In the 1990s, the bubble could be forgiven, perhaps, on the grounds that the technology was new and misunderstood. New media evangelists today don’t have that excuse—the medium isn’t that “new” anymore. That’s why we resort to euphemisms like “Web 2.0” to give it the veneer of newness. Phrases like this really need to be retired.

The aging of new media was brought home to me last week by the ten year anniversary of the first-ever blog, Kausfiles. Mickey Kaus started this as a website, and while folks like Instapundit and Andrew Sullivan probably beat him to using the name “webblog,” it’s pretty clear that blogging is what Kaus was doing from the start. Some of his stylistic features have been widely adopted, like the strikethrough correction and the anonymous editor. Others, like the stream-of-consciousness writing style keep Kausfiles in a class of its own. Kaus has a nice retrospective post chronicling some of his major coups and gaffes that is worth checking out.

There is one thing Kaus doesn’t touch on, but which gets to the heart of what really has changed in these ten years. In 1999, Mickey Kaus was just a guy blogging from his home computer on a personal website; now he’s a paid blogger at Slate which has itself been acquired by the Washington Post. You’d think it was about time to drop the anti-establishmentarian rhetoric.