Investing

Google must have been caught off guard last week by the Microsoft-Yahoo bid because they are reacting quite rashly and arguably in a way that is not in the best interests of their shareholders...

First, is it wise for Google to be proactively and angrily  "kicking the antitrust bee hive" in the U.S. and in Europe when their DoubleClick acquisition is still pending with EU regulators?

• Did it ever occur to Google that they could take the close call in the EU over their pending merger -- that previously was trending in their favor -- and give opponents of the deal in the EU -- more ammunition that this market is too concentrated and that antitrust officials should be more concerned about this market?
  • Has Google forgotten that they have 90% search share in Gemany/Spain and 75% share in France/UK? 

Second, in leading the charge against Microsoft-Yahoo in Washington, has it occurred to any adult in Mountain View that this will only accelerate Washington interest and attention to adopt the FTC's (5-0) proposed behavioral advertising privacy principles/regulation, which would require opt-in and "affirmative express consent" before Google could use "sensitive data."?

After last quarter's earnings report by Google, I questioned whether Google was more interested in "empire building" spending than in rewarding shareholders (see point three of this previous post.)

• I've heard lots of explanations why investors have soured on Google's stock:
  • Economic downturn (Google said no on its call)
  • Pay-per-click rates; (Google downplayed this in its call)
  • slowing traffic/searches... (ditto)
• My simple explanation is that the "momentum pixie dust" that Google has been flying on for a long time -- simply came to back to earth.
  • Investors know what fuels "momentum pixie dust" is actual and expected earnings acceleration.

What blew away the "momentum pixie dust" surrounding Google's stock? At least for the time being?

I can't say I'm at all surprised to see Microsoft seek to acquire Yahoo. 

• It makes obvious business sense for both Microsoft and Yahoo -- because it is the only viable and timely strategic option for either company to become a serious and credible competitor to Google-DoubleClick's rapidly increasing dominance of search and Internet advertising.
• And given the FTC's surprisingly-strong consolidation-endorsing analysis of the Google-DoubleClick merger -- a previously-perceived yellow antitrust light to such a merger by Microsoft -- now has a bright blinking green light for approval.
  • Timing-wise it's obvious to Microsoft to get approval now while the getting is so good.

For anyone wanting a good forward-looking perspective about the real challenges facing the Internet, look no further than the great new study "Estimating the Exaflood" by Bret Swanson and George Gilder.

Why this study is so timely and relevant is that the real problem facing the Internet is how to keep up with the exploding capacity demands of migrating to a video-driven Internet.

• The net neutrality utopians want to assume that bandwidth is infinite and free -- magically supplied by others for their p2p bandwidth gluttony -- with no costs to, or no affect on, others.
• The real world does not operate that way...

The report also is an important backdrop for why broadband networks must be allowed reasonable network management.

• Without massive investment and reasonable network management, the quality and the responsiveness of the Internet will suffer as the exaflood surges.

I am on the Congressional Internet Caucus wireless panel Wednesday with Blair Levin of Stifel Nicolaus, Michael Calabrese of the New America Foundation, and Jason Devitt of Skydeck.

The panel is on: "Opening up 700 MHz & White Spaces" What hath the FCC wrought?"

• Should be interesting given that I am the only panelist not under the influence of "openness"...

In a stunningly naive, parochial, and innacurate opinion piece, "Keeping a lid on broadband," Computerworld national correspondent Kevin Mitchell has scathing criticism of current free market communications policies (that by the way were modeled after the computer sector's free market and innovation successes) and calls for government bureaucrats to regulate most everything of import in the communications sector.   

I am stunned that in the journalistic "world of computers" there could be such a naive and parochial view of the real-world ramifications of technological and digital convergence -- the rapidly blurring lines between computing, communications and storage. Mr. Mitchell writes like the tech sector and computing in general is an impregnable and immutable island that should forever be insulated and protected from competitive and market forces occuring outside the tech sector.

We'll soon see if net neutrality proponents are reasonable and responsible. Do they grasp that calling for preemptive, anti-investment, regulation of broadband that would discourage deployment of broadband to all Americans -- is the last thing our Nation needs during this economic downturn?

• The reality is that forward-thinking broadband deregulation has spurred massive investment in broadband and Internet infrastructure in the U.S. and this investment is spurring adoption of broadband faster than any communication service in American history.
• Moreover, an unfettered broadband economy and infrastructure is key to capturing the economic and productivity gains of more universally-adopted broadband.

Broadband deployment, adoption, competition and investment is one of the great success stories of our economy.

• The last thing our teetering economy needs right now is preemptive, anti-investment, net neutrality regulation of our cutting-edge communications sector that would only hurt the overall American economy.
• This is no time for solutions in search of a problem.
• We face real economic problems which require responsible broadband policies.  

The big question for investors is why?

• Why has Google felt the need to rapidly build up a new lobbying operation in D.C. (rivaling Microsoft's in size) and why did Google just unveil, with great fanfare, its new cutting-edge office space in DC with a party that attracted 650 people and many VIPs?
  • What does Google know that investors may not?

Google's Regulatory Outlook:

Federal Trade Commission: 

Antitrust:

I commend the new consumergram by the American Consumer Institute on: "With increased competition, US consumers exert their power over wireless providers." 

• Its a timely overview of all the benefits that US wireless consumers enjoy as a result of the US having arguably the most competitive wireless market in the world.

You wouldn't know that if you only listened to the many wireless and America bashers, organized by Google and the New American Foundation, who are gathering for a wireless/America bash-fest on Capitol Hill next week, January 22nd, called "Free my phone!"

With the Google-DoubleClick merger reportedly in the final decision phase at the FTC, it will be interesting to learn what they ultimately conclude and if they have been monitoring recent market developments closely.  

In my Googleopoly analysis published in July, I explained in detail why the search market had already tipped to dominance and why Yahoo and Microsoft would continue to fall behind Google.

The incoming evidence continues to prove my Googleopoly analysis was dead on.

• Information Week reported that per Hitwise: Google's search market share increased in the last year from 61.84% to 65.1%, while during the same period Yahoo's share fell 1.22% and Microsoft's share fell 2.73%. 
  • To put that in perspective, in the last year alone per Hitwise, Yahoo lost 5% of its overall share while Microsoft lost a whopping 28% of its overall share. Whoa.
  • Not the kind of facts that are easy to ignore.
• Comscore has Google's share at 58.5% and also reports that Yahoo and Google are losing share. To put this in perspective again, Comscore had Google share at only 36.5% in April 2005.

There has been some reporting of Ask.com's new program "search eraser" which is a great new feature to help protect people's privacy that want it.