Saturday, December 17, 2005

8 Year Old Love Affair With Yahoo! Is Over - Part 4

Therefore I finally sold my Yahoo! shares at $42,72 a piece Friday the 25th of November when the company had a market cap around $60 billion. It made a nice 10 times my money back. The reason that I am no longer just keeping Yahoo! as a defensive investment is because I fear that it might stay below this $42,72 level for quite some time. There might even come opportunities to pick it up at a nice discount compared to this $42 ballpark. There are several reasons that Yahoo!'s shareprice might suffer substantially in 2006-2007:

  • Google could surpass Yahoo! in number of users - making the last Yahoo! optimists (that they could catch up to Google) become realists instead - and realize that Yahoo! Can not just convert their larger portal audience to the world's largest search audience (where the money is). When they no longer have this hope to clinch on to, they might become Google investors and at the same time start selling out in their Yahoo! holdings
  • When Google might be added to the S&P 500 Index, Yahoo! no longer has this blueprint advantage over Google - which is an important factor in the placement of funds from institutional investors
  • Investors might start questioning if it is worth paying an EBITDA P/E of 37,5 on Yahoo! when the growth of the company is slowing fast towards 30-40% yearly, while Google EBITDA P/E at only 45,8 is only 22% above Yahoo! although the company is growing more than twice as much and sees a slower decline in it's growth rate than Yahoo!

The height of my Yahoo! love affair was probably when I got hired by Yahoo! Nordic in 2001 and it was two great years with a lot of learning and insight into global Internet businesses. I left the company two years later afraid, that Yahoo! International would shut down the small and money loosing Nordic entity, which also happened 9 months later. That gave me 1½ years of even more learning and insights at MSN, but that is another story. The point is - my love and belief now lies with Google instead of Yahoo! Right now it seems the most likely candidate to reach world domination and the title as "Most Valuable Company in The World".

Tuesday, December 13, 2005

8 Year Old Love Affair With Yahoo! Is Over - Part 3

If only I could have gotten into Google ownership back in January 1999, when they were around 12 people, the meteoric rise that would have been.

Instead of being clever and buy straight into Google when they first went public on August the 19th 2004 I kept my believe in Yahoo! Being able to catch up with the quality and usage of Google. No doubt a mestake since the clear market leader Google still today is gaining market share on search from both MSN and Yahoo! However, I made up for my initial mestake by getting into Google when it was below $200 per share.

Google is now above $400, but still has a long way to go up the stock chart I believe. It is a matter of time before Google will surpass Microsoft's market cap and also a matter of time before Google will be the first company ever to reach the magic market cap of US$1000 billion. I could be wrong, but this is my strong believe. Also I think that passing Microsoft will happen before 2010 (which means a maximum of four years from now). Being the first company at US$1000 billion will happen no later than 2015. Buying Google is on your own risk and I will not be responsible for that. However, the way I see it, Google is where I thought Yahoo! was going to be - Google is the company about to be the most valuable in the world. One of the reasons is that they deliver massive value both to consumers and businesses plus the fact that they can capitalize on this value.

Finally having tracked on the key figures on both Yahoo! and Google since April this year I felt very strong about Google! I always thought that I would keep my Yahoo! investment as a defensive investment to my Google holdings, but the recent more than 30% runup in Yahoo!'s shareprice since September this year to above $42 Friday a few weeks ago, made me think, that Yahoo! has become to expensive compared to Google. I am not talking about their share price, which you can not use for arguing a share price is high or low - since that argument is useless without talking about the amount of outstanding shares, and people often tend to leave this number out of the equation. What I am talking about is Google's EBITDA P/E being only 22% higher than Yahoo!'s and Google is after all growing more than twice as fast as Yahoo! on EBITDA. Plus they more than anything has the momentum on a range of key areas much more than both Yahoo! and MSN.

Sunday, December 04, 2005

8 Year Old Love Affair With Yahoo! Is Over - Part 2

I remember that Yahoo! was a company with just a little over $2 billion in market cap. I was certain that world domination was just a decade or two down the road. So from that day in October 1997 I think I was the biggest Yahoo! evangalist in Northern Europe (probably far from true). Luckily for me I got in before the Internet bubble started to gain momentum and therefore still was OK after the serious burst. Still believing in the fundamental changes that the Internet and Yahoo! would bring about I kept my Yahoo! shares. Even though they had come down to about one 36th of their value during the bubble and basically equaled my initial investment in October 1997. One lesson I learned was to actually take a little profit if you own a company that you feel is over valued. I was just afraid of loosing out on further increases and also would have to leave 40% of the profit with the Danish tax system, and in this way reducing my funds for reinvestment.

I kept my focus on and believe in Yahoo! although I did start getting a little anxious about the popular startup Google. Actually this started before the bubble years. Google launched in September 1998 and got a lot of press about the revolution it brought about to the quality of search results. Knowing that search was the most widely performed activity by far by people using the Internet, it was a little disturbing to my Yahoo! investment that someone else was getting so popular on this very most popular activity. This led me to in retrospect my proudest moment: On January the 10th less than five months after Google launched I wrote an email to the approximately 12 person company asking if I could invest in the company or in the owner of the rights to the company. That answer - the oldest email in my Yahoo! Mail inbox was from Sergey Brin:

"Thanks for your interest in investing in Google. Currently we have
funding to last us some time. I will let you know when investment
opportunities arise in future rounds of funding.

As far as the possibility of going public, we are not allowed to
speculate about that.

Also, I recommend you sign up for the google-friends mailing list off
our home page.


Sergey Brin

No doubt my proudest moment, but it did not leave even 10 cents more in my pocket :)

Saturday, December 03, 2005

8 Year Old Love Affair With Yahoo! Is Over - Part 1

When someone first showed me this new thing "Internet" in 1995 one of the first pages I saw was My friend showed me this page and told me, that it was the biggest site and like a guide to the rest of the Internet. I was sold..

Seeing the Yahoo! site back then my initial thought was: If these guys just keep executing and delivering - they could become the most valuable company the world has ever seen. I didn't know much about the Internet, but I was very certain, that this new media with all its capabilities once broadband would be more widespread would change the world. Internet has already changed the world a lot, but I still believe that we are still just on step 2 of a long journey.

Yahoo! was not a listed company on the stock exchange, so there was no means of buying into what I thought would become a real powerhouse and extremely valuable company. In the meantime I stopped thinking about Yahoo! (since there was no money for me to be made there). Instead I sort out any opportunity to learn more about the media in general and started to work on different projects, that could give me some valuable insights into Internet. Basically so I could position myself well for a job with Internet, where I saw the future, once my bachelor and masters would be finished.

Just started my masters in the autumn 1997 I read an article in the Danish business paper Børsen about the early success on NASDAQ of the first and largest portals: Yahoo!, Excite, Infoseek and Lycos. Being a believer in economies of scale and firstmover advantages there was no doubt in my mind but to buy into Yahoo! of the four. I was an extremely strong believer in the Internet and a very strong believer that Yahoo! could and should pull of a formidable growth. I sold all other shares I had (not as much as I would have liked) and gathered all the cash I could and put everything into Yahoo! shares.

Thursday, November 17, 2005

CNET: Google blankets city with free Wi-Fi

It is all set. Google has won its first city over on free Wi-Fi. Not San Francisco yet, the jury is still out on that one, but its home town of Mountain View, California. This will provide free wireless Internet access for the approximately 70,000 residents in the Silicon Valley.

It must be just a matter of time, before cities in the rest of the world is offered the same Wi-Fi blanket. The potential for Google to gather more users and information about them is huge. It could prove very helpful in expanding and monetizing local search for Google. This could turn out to be one of those strategic advantages, that competitors will find very hard to compete with.

Saturday, November 12, 2005

Microsoft Is Hilarious

I love Microsoft's sense of humor. Especially because they are making fun of themselves without knowing it. They have for quite a while now run ads, where employees that haven't changed to newer versions of Office are starring as dinosaurs. Like they live in the old world not utilizing the features of the new technology. When in fact, it is Microsoft which is the real old school dinosaur.

Microsoft is clinging onto the desktop model still wishing that Internet had never arrived. And now they are launching Office Live to do online ad ons to their software. Ad ons are just not going to make it. If you don't use the Internet from the core of your business strategy, but merely trying to do some enhancements - mainly because your competitors are very online and you are not - its not going to work.

Microsoft, you have had your years in the sun, but you are the true dinosaur about to become if not extinct then really unimportant.

Sunday, October 30, 2005

NYTimes: Google Wants to Dominate Madison Avenue, Too

A long but really good article on the rise of Google's business model, and where it might be headed in the future. Reading for those that are serious about their investments in Google, otherwise you might find it too long.

Saturday, October 29, 2005

Google Growth Compared To Yahoo! Growth

Both Google and Yahoo! posted Q3 results last week. I don't compare with Microsoft here, because I generally believe, that Microsoft won't succeed with its current plans. I don't think that Microsoft will become a larger player online, in fact as Henry Blodget recently did a piece on (see my post the 7th of October), Microsoft is still after ten years of trying falling behind the current two leaders Yahoo! and Google. Also I believe that Microsoft's software domination will diminish, as more and more software will be served over the Internet. Especially now where Google is planning to offer free Internet, first in the sense of Wi-Fi in San Francisco, but I am sure that it will offer this across North America and then later the rest of the world. If they can make a business out of it in San Francisco (local ad + other ad sales > cost of delivering access) I am sure, they can make the same business model work elsewhere. Especially when access costs will be working their way towards zero cost. Eventually free wireless Internet to the civilized world will dramatically change the desktop model for software usage. As I earlier wrote: Microsoft has never been an innovative company, it has just had a strategic advantage in owning the operating system - the rest is sloppy business they still have made a fortune out of, since they could hold competitors out. This old school monopoly will not stand the wind of change brought about by Google, Sun Microsystems, Yahoo! and a lot others.

Maybe I am being too hard on Microsoft, but I just don't believe in their future, and neither does the stock market. Alright that was Microsoft out of the equation, lets have a look at the last few quarters growth in Yahoo! and Google.

EBITDA (Earnings Before Income Tax Depreciation and Amortization) is generally a good way of looking at a company's current and future ability to generate revenue and profits. That's why I focus on this number. Also I find it very reliable at determining the development of the share price of a company. Let's have a look at the quarterly EBITDA numbers for Google and Yahoo! in 2005.

It should fairly be mentioned, that Yahoo! last Q4 had a Q over Q growth from Q3 on 25,8% while Google "only" grew 17,8%. So apparently Yahoo! grows faster than Google during Q4. However, since then Google has shown significantly higher momentum during 2005 than Yahoo! so this might change in Q4 2005.

When this is said my personal conclusion is, that obviously both companies high growth is coming down. But very importantly: Although Google is growing faster than Yahoo! - Yahoo!'s growth is coming down faster than Google's. From Q1 to Q3 Yahoo!'s YoY growth came down 16 percent point (64% -> 48%), while Google's only came down 6 percent point (115% -> 109%).

Then when you compare the EBITDA P/E (Price/earning, how much you as shareholder pay per dollar of EBITDA when purchasing the stock) of the two companies, I must say, that the premium you pay on Google as the faster growing company with today the far superior R&D budget and probably also brand value - I think that Google turns out to be a better buy. With last Fridays share prices the EBITDA P/E for the two companies is as follows:

Yahoo! EBITDA P/E: 32,6
Google EBITDA P/E: 37,2

Google is growing more than 100% - Yahoo! is growing less than 50%. Google might actually also have the better brand value today. Would you rather own shares in Yahoo!? I mean Yahoo!'s YoY growth one year from now might be 30%, while Google might still be around 80%-90%. That is three times Yahoo!'s growth. The gap in finances for R&D is just going to be staggering. Yahoo!'s investment in Alibaba in China might keep Yahoo!'s growth a bit higher though.

Personally I invested in Yahoo! October 1997 and have kept my investment. I invested in Google in April 2005 - when the share was at $193 just before Q1 results. Although I think that Google is a better buy I am keeping my Yahoo! investment, as it is a defensive investment of my Google investment. Yahoo! is after all the 2nd best search engine today, and they are trying hard to get better than Google.

Wednesday, October 26, 2005

Google Is Not A Search Engine

Some journalists, brokers and analysts are still afraid that Google is diversifying too much away from a search company by:
  • Offering free Wi-Fi
  • Building Gmail/email
  • Creating a payment service
  • Developing a classified feeds format
  • Making a news site
  • Building a messenger client (by the way with superior Voice over IP quality)
  • Creating Google Maps
  • Etc etc

I don't agree! Google is no longer a search engine - its primarily a user aggregator. Its all about making a lot of products, some are brilliant but not all. But those that are brilliant and catch on, gain a lot of eye balls. As Yahoo!'s former CEO Timothy Koogle once said: "Dollars follows eyeballs". That is exactly what Google is all about these days. The difference with Google is:

  1. They started out with a superior search engine gaining by far the largest amount of search queries
  2. Which generated the largest base of advertisers of any of the online media
  3. Which generated the largest online revenue stream ever
  4. Which in turn created the largest online R&D budget on the planet (yes even more than Microsoft) (And due to the high growth of the revenue -> high growth of the stock price -> Google being the most attractive place to work financially due to the more attractive employee stock options compared to the lackluster flat no growth shares of Microsoft)
  5. Which again leads to the fact - that unless Google get arrogant about their products quality and fail to be humble and paranoid about competitors product innovations - well then they will rock this online planet for a looong time

So my point is: Don't be afraid that Google will get confused and loose focus because they build other products - they are just aggregating users, and with their superior advertiser base, they can capitalize on these products far better than any of their competitors.

Friday, October 21, 2005

FT: Lex: Google

This article pretty much says it all. Google is riding the wave.

Thursday, October 20, 2005

Fantastic Q3 from Google - outgrowing Yahoo!

What an excellent result - what I hoped for - YOY EBITDA growth on 109% compared to yahoo!'s 48%. Google for sure has momentum. More comments next week - but really positive!

Wednesday, October 19, 2005

Yahoo! Q3 2005: Growth Slowing Down

Yahoo! did okay but are not really blowing anyone away. To me the most important thing is the fact that growth is slowing. It is expected to slow, but the question is where the long term level of growth is for Yahoo!? This of course partly will be determined by Google's doings.

Yahoo! grew YOY (Year Over Year) EBITDA (Earnings Before Income Taxes Depreciation and Amortization) by 48%. That is a nice yearly growth rate for most companies. However, for Yahoo! it is the slowest YOY growth since Q4 2001, which was the time when everyone was still licking the wounds after the bubble burst. I believe that the growth rate will fall further. A 30% growth rate does not seem far ahead.

Since new years Yahoo! is up on EBITDA with 48% (same as YOY as it includes the four last Q reports) but about 12% down in share price. This means that Yahoo! has been getting a lot cheaper on P/E (Price/Earning - the price you as investor pay for one dollar in earnings). The reason is that Google keeps adding momentum and keeps outgrowing Yahoo!. Its just more fun as an investor to own a share in a faster growing company. I am still an investor in Yahoo! and I will stay that for a very long time I think. But I do think that Google Thursday will show more momentum and that they will be the more fun company to have stocks in. Their P/E is only slightly higher than the one of Yahoo! so there should be sufficient room for it to grow even more, as Google should be rewarded for the significantly higher growth - almost double the growth. Lets see what happens Thursday when Google reports Q3.

Please feel free to comment on Yahoo!'s result or my assessment of it.

Sunday, October 16, 2005

Yahoo! Q3 Tuesday - Google Q3 Thursday

Four weeks a year I hold my breath - the weeks when Yahoo! and Google report quarterly earnings. I expect to see EBITDA quarter over quarter growth in both companies. Also I expect a higher growth from Google than from Yahoo! That is the way it has been since Google went public last August.

For both companies the result will determine the direction of the shares in the months ahead. Yahoo! has been pretty flat since Google really left Yahoo! behind earning and growth wise since the turn of the year.

Yahoo! Q3 can be heard live here on Tuesday 5 PM ET / 2 PM PT(after market close):

Google Q3 will be webcasted here on Thursday 4.30 PM ET / 1.30 PM PT:

Friday, October 14, 2005

Yahoo! and MSN the new alliance?

Yahoo! and MSN have created a partnership on instant messaging so the two former competitors' products will be able to communicate with each other. This means two things. First of all it is a recognition of AOL's clear leadership on this product in USA. The other very interesting fact is that it recognizes the strength that Google has gained - not in messaging - but generally. It is interesting to see two such big players make an alliance against AOL that just doesn't include small time messenger client Gtalk from Google. Google could easily have been part of this alliance against the AOL messenger, but they are not! It seems that Yahoo! and Microsoft really are acknowledging the Google threat.

From comments the 24th of September:

I agree Google seems to be making the right moves and everyone else is doing catch-up. Is a merge between MS and Yahoo possible? They would have a better chance of slowing the growth of Google then by working separately. My enemy's enemy is my friend?

My answer:
I don't think that a merge between MSFT and Yahoo! is likely, although you are making some very valid points! MSFT has been offering to buy Yahoo! since they were much smaller, but Yahoo! has always been wanting to do it on their own. I guess partly because they also have the chance of beating MSFT and then partly because MSFT has become a slow growth business, while Yahoo! still is growing 57% a year on EBITDA (Earnings Before Income Tax Depreciation and Amortization). Yahoo! shareholders would loose out on this growth, if they were to become part of MSFT. So I don't think, that Yahoo! shareholders would like it - even though MSFT most likely would.

I guess the anonymous reader was a bit more foreseeing than I! Its really interesting! Two main competitors are joining up. Not totally on all products, a merger or anything like that, but just the fact that they are cooperating is interesting. They use to be head on and still are on many areas. But along came Google and surpassed Yahoo! as the online wonder child with capabilities to rewrite the tech industry rules. So now Yahoo! and Microsoft are starting to cooperate. Question is how far they will go? Maybe Google will become so strong that they will eventually get a lot closer - basically because they have to?

Google will have the capability to distribute online software currently from Sun. Microsoft will need to continue to distribute software be it offline or online. Most likely they will also need to distribute software online, and here Yahoo! could be a formidable partner in the competition against Google. An interesting new direction in this game!

Tuesday, October 11, 2005

Microsoft is old school

Or you might even say "slow school". Microsoft got their one big break about 30 years ago, when IBM thought it was a great idea to outsource the production of an operating system for their new computers. What turned out to be a grave mistake by IBM was also the greatest thing that ever happened to Microsoft. It gave them their glory days, but these are over now.

The operating system turned out to be the largest strategic advantage the next thirty years in computing history - period. This and mainly this made Microsoft what it is today, or what it was 6 years ago (the stock price has been flat since then). The strategic advantage gave Microsoft the ability to dominate almost all other applications related to the personal computer. They were not necessarily the best, but they could either price their way into the market like they did with Office and Explore or muscle their way with better knowledge of upcoming features in the operating system than their competitors. Office was very cheap when there was still competitors around, and Explore remains free till this day. But what about Open Office - its free - isn't that competition? No not yet! It doesn't have the distribution, but that's what we will see through Google most likely.

So where does that leave Microsoft today - a lean mean customer oriented machine ready for the ever changing future? No not really. They did great because of their strategic advantage, but they were never great and profitable because of superior products. Bill Gates was a great strategist, but never a great innovator. Explore is a copy of Netscape. Office is a copy of Wordperfect, Lotus 1-2-3 and more. Even Windows graphical interface was originally a copy of Apple's interface.

Internet changes the landscape. Power is shifting away from Microsoft due to one single very important fact: The most lucrative business in Internet and fastest growing area of matter in the IT world is NOT under influence by the operating system: Search. Microsoft can't control this - but have to fight their way into it, and be chosen by the consumer for once (first time?) and they are not doing all that well. It might come with a heavy integration into everything in the Vista operating system due for launch late next year, but it remains to be seen. That would be the old muscle approach.

Microsoft has never been competitive beyond their strategic advantage of the operating system and the next 5 years or so will show this. Its a large, heavy, slow, non-innovative, old school company of the time before Internet. This is a new playing field - Microsoft you don't belong here - or prove us otherwise!

Sunday, October 09, 2005

Popular to down play Google-Sun alliance

Surely Google and Sun didn't get all that concrete last Tuesday when they announced their joint efforts. But why does everyone influential have to jump the "Yeah - I can't really see what's gonna come from this either" boat? So GS (Google-Sun) wanted to let everyone know that they were going to cross promote before a lot of products are ready to be shipped. Well its not that bad. The potential here is really amazing. Don't worry smart people - the products are going to come!

There is one major reason that the free Office from GS will come: Microsoft's best chance to gain share in Search (which is so extremely lucrative) is with money from Office (41% of their operating income) and with integration of Search into office. This leaves Office as the most powerful weapon MSFT has in its arsenal to compete with Google. This naturally leaves Google with a desire to gain market share in Office - not necessarily for themselves - but for Sun is fine, as long as its share taken from Microsoft. At the same time Google can get and will get the same integration into Open Office that Microsoft is planning for MSN Search in their coming operating system Vista's Office.

But hasn't it been tried so many times before - attacking MSFT Office? Yes it has. But every single time without proper distribution apart from people being able to download it from somewhere. This time around it is backed by mighty popular Google, where Open Office can be integrated into many of the functions of Google Toolbar, Gmail, Gtalk etc. etc. Also Google has build the world's largest parallel computer covering no less than "earth". With this extraordinary power Internet based software actually becomes possible. Expect Google to support it by free broadband. If they can supply free Wi-Fi, then why not free broadband? It will be paid for by Adwords of course. If Yahoo! in their new beta mail have changed everything to feel as easy, quick and nimble as a desktop application, although it is just online - then it must be a matter of time, before Google can do the same.

So don't worry - you didn't hear those vast product launches last Tuesday, but you can be sure, that they will come! Its probably the most important priority for Google the next 2-3 years.

Friday, October 07, 2005

CHR: The Web War Is Over - And Microsoft Lost

The most important 9 pages you have to read, if you are an investor in Google, Yahoo! or Microsoft or if you are considering to be one! Fantastic reading and great analysis from Cherry Hill Research (CHR) which has former Top ranking Wall Street equity analyst Henry Blodget as President. This is really the essential reading on the battle between the three contenders.

If you don't have Adobe reader - get it here:

Conclusion from the analysis:
"There will be no great war between Microsoft and Google/Yahoo!, because despite Microsoft's vast resources, Google/Yahoo! have already left MSN far behind. There will be skirmishes, of course, but these will be irrelevant. Microsoft is as far behind in the web business as it was when it launched its online effort ten years ago, and short of disastrous mistakes by Google and Yahoo! nothing Microsoft does on its own is likely to change that. Microsoft's best chance to make MSN the industry leader is to spin off, most likely in a merger with AOL. This won't guarantee success-the combined entity would still be in third place-but it would create a company far stronger than either AOL or MSN on its own.

Some of the most important points from this paper in my opinion:
  • All the other "battles" that Microsoft has won was software battles - this is not software, its media
  • MSN might be trying to play catch-up - but they are still today loosing ground on Yahoo! and Google (fast)
  • Google's 2005 operating profits will most likely exceed MSN's 2005 revenue
  • Most industries tend to have three large players and a group of niche players - MSN and AOL are fighting to be the third - one will most likely dwindle unless combined

Have a great weekend!

Thursday, October 06, 2005

Google has more buying power than Microsoft

Before I comment the Google-Sun alliance further, I just want to make one point. People keep saying, that Microsoft has more cash - hence they can "buy" their way to victory. I strongly disagree.

No doubt MSFT has a large supply of cash - $40 billion I think it is. But as I know from one of my former colleagues now working at Yahoo! Search, then you can't just buy your way to the best search engine. It takes skilled engineers/developers and they don't come in huge supplies. Google has the advantage here compared with Microsoft. Because those that choose to work with Google, also get options in Google. These options can become extremely valuable and make the employee economic independent. This doesn't happen at Microsoft anymore.

At MSFT you get shares instead of options. Amongst other reasons simply because the company isn't growing the way it used to. Surely Microsoft still grows, but the share price has been flat for 3 years. It has been flat for several reasons: The antitrust threat, slower growth than earlier, the threat of Linux and especially the threat from new competitors like Google, that has the capability to produce software, that threatens Microsoft's core revenue streams.

This all means, that although Microsoft has a ton of cash, they can't compete with Google's far more attractive options packages. If Microsoft wanted to compensate its programmers at the same financial level as Google, but in cash, it would severely hurt their financial statements and further send the share under pressure.

As long as Google's shares keep going up (and they will if they keep growing like that), its almost "free" for Google to compensate employees with options, since the market is paying for the show. I think this is one of the fundamental reasons that a growth company like Google can get the better brains, and thereby possible beat stagnate companies like Microsoft.

Tuesday, October 04, 2005

Reuters: Sun, Google in office software distribution pact

Apparently it is happening! A Java Desktop and Open Office from Sun will be distributed by Google. I will follow up with more comments later. Just had to pass the news on!

Well I have now seen the webcast and read about 30 news stories on the topic. Before I write a longer comment - which I will within days - then I must say, this is GOOD news for any Google or Sun investor. Personally I am long in Google, and I certainly will stay that after this. This is history changing. One paradigm being replaced by another, it will just take 2-3 years to be fully happening, but it will happen. Good luck Microsoft, it will be uphill for you from now on!

Link to Google and Sun Live Conference Webcast

Click above for a link to the Live webcast at 10.30 am PT.

NOTE: I have changed the link to the replay of the webcast, as it is no longer live.

Monday, October 03, 2005 Sun Rises on Google Talk

"Sun announced on its Web site that CEO Scott McNealy and Google CEO Eric Schmidt will hold a news conference at 10:30 a.m. PDT Tuesday at the Computer History Museum in Mountain View, Calif., to "discuss joint activities." No additional details were provided." Source:

EXCELLENT!! It looks like it is happening already! I am extremely excited about tomorrows joint news conference held by Google and Sun Microsystems! Sun - the company I used to love for the potential to challenge Microsoft with Java based software. It never really happened - Sun didn't have the distribution that Microsoft had. But today Google has that on the Internet. Combined it could be a real challenge to Microsoft. No one outside the two companies know, what the news conference is about. However, it could be that big moment, where official plans that could shift power from ever dominant Microsoft actually are released. It could be the single most significant event since the launch of graphic Internet in 1993.

What do I mean by "It looks like it is happening already!"? Well it is only nine days ago, that I wrote this post - "Will Google hurt Microsoft with free software?"

I thought, that it might happen some where down the road 1-2-3 years from now. But now it might actually happen already tomorrow. We don't know, but we can certainly speculate.

Techweb: Google's Patents Reveal Strategy To Beat Microsoft

This article reveals some truly great points from the new book "The Google Legacy" by author Stephen E. Arnold. I must say once again.. I totally agree! The article is a really good read! The two below passages are from the article:

In placing Google’s patents under microscopic scrutiny, Arnold said he believes Google is not so much protecting its past technology innovation, but is positioning itself for the future with the first stop targeting Yahoo!’s Web advertising. Microsoft will come into its gun sights later.

“These patents suggest that Google is looking beyond search, possibly targeting such companies as Microsoft, as Google tries to become the leading info tech company of the 21st Century,” he said Tech titans ready to brawl Google, Microsoft look to square off on Net and desktop

A must read article, if you are interested in the "Microsoft muscling for search - Google gunning for software" topic!

Microsoft is doing everything they can to gain share in the search market, but are far from succeeding yet. I don't think that positive change, will happen before the launch their new operating system Vista. And since that is 1-2 years into the future, it might be to late to stop Google from gaining sufficient momentum to potentially dominate software served online.

Google really has the advantage of surprise and momentum. Yahoo! was surprised when Google ventured beyond search. Microsoft was still just waking up at this time - unfortunately for them to a nightmare called Google.

USA Today: Google morphs into multifaceted juggernaut

A truly great article summarizing some of the many exciting initiatives from Google!

I am really sorry, that I haven't had time to write more original posts this weekend! I owe some thoughts on Wikipedia, which should be posted next weekend. In the mean time, there has been a lot of great articles out there, on the matter that I have so much passion for: The battle between the online giants for world domination. Why? Well there are two reasons:

1) First of all the strategic game itself is soooo exciting!

2) The "winner" will be the largest revenue generated that the world has ever seen. So if you pick the right horse, you could have a lot of fun as an investor.

Sunday, October 02, 2005

Fortune: Google, Yahoo, and eBay: Next-Generation Conglomerates?

Nothing less than a fantastic article from David Kirkpatrick! To read it click the title on this post.

My thoughts on this article:
I totally agree! I see Google as the company that will prevail, and will eventually reach "World Domination". Yahoo! will be a runner up and MSN has a small outside chance, as they are backed by wealthy Microsoft. Especially if they succeed in getting people to use MSN Search more by integrating it cleverly in Microsoft's other products. But MSN is running out of time, as Google probably eventually will deliver free software products competing against Microsoft's expensive software.

Also if you look at Google's recent offer to free Wi-Fi service in San Francisco. They can do this, because they have a superior ad model with far more clients. Expect the free Wi-Fi to be sponsored by local ads, which probably will generate enormous value for both the local advertiser and Google. Who else can do that?

Friday, September 30, 2005

Google in S&P 500?

Google was up today 2,2% or $6.14 to close at 316.46 at rumors that they will be added to S&P 500. Colgate has been bought by Procter and Gamble, which leaves potential room for Google. Being in the S&P 500 means, that a lot of fund managers will need to buy Google shares for their massive portfolios, since a lot of them track their fund towards the S&P 500. So what most of them do is basically own whatever is in the index, and then just make some different investments that they believe in. This way there is a lot of buying of a share, when it enters the index, because the managers need a certain level of the stock for their fund. Apparently the rumors that Google could be added to the index has spurred some buying, which has led to the higher price.

Does the fact that Google in after ours trading is down to 312.40 mean that it did not get in S&P 500? I'll get back on this!

Yes (or no), Google didn't make it this time. Believe me, its just a matter of time. Google will enter the S&P 500. Some say within a year, some guess between Christmas and New Years. But when it happens, you can be sure, the stock will go up.

Thursday, September 29, 2005

Motley Fool: 3 Giant-Killers to Watch

I tend to be optimistic about Google's future and therefore also positive about Google as an investment opportunity. However, no good decisions are made without considering both sides of a story. This also goes for investment.

That's why I want to quote this great article from Motley Fool, which mentions a possible threat to Google. You can be sure, I am going to spend some time checking out Wikipedia in the weekend!

To read the whole article - click the title of this blog post.

"Giant No. 2: Google
Once upon a time, a search engine with an odd name seemed to come out of nowhere. Suddenly, the word "Google" became part of common speech. It's a giant now with a capital G. At my last check, Google shares were trading at about $300 a pop, giving it a market cap of a whopping $84 billion. At the moment, most people view it as a clear Internet winner, expected to win in just about every area it touches.

Is Google invincible? Of course not -- no company is. However, given Google's search expertise, its killers may not be Internet heavyweights like Yahoo! or Microsoft. I had a recent chat with David Gardner, and he theorized about a candidate that could possibly cripple Google in search, where it is strongest: Wikipedia -- the information clearinghouse run by the nonprofit Wikimedia Foundation.

Quietly, stealthily, private Wikipedia has amassed a wealth of information through the power of community, becoming an "open source" answer to traditional reference material. People pull from their own expertise to update Wikipedia's entries, making it the major Internet encyclopedia -- and it's free of charge. It recently became the most popular reference site, with traffic up 154% in one year, according to Internet monitoring firm Hitwise.

Indeed, when you're looking for a specific answer to a specific question, a definition of a term, or such, Google searches can at times feel like looking for a needle in a haystack, whereas Wikipedia doles out instant answers. Ouch."
Source: Motley Fool

Wednesday, September 28, 2005

Motley Fool: Has Microsoft Lost Its Mojo?

A really good article if you are an investor in Microsoft or are considering to become one. Melanie Hollands covers Microsoft's development of OCF (Operating Cash Flow) since 1999, which hasn't changed much. In the same period MSFT shares are down 40%.

Personally I think, that their OCF might increase when the new operating system Vista is shipped late 2006, but if it is enough to start calling Microsoft a growth company again is hard to tell. Also their success with their search engine will be of influence to this.

Tuesday, September 27, 2005

Happy 7th G-day!

Happy 7th G-day Google! Wauw - the things you have accomplished in your short life! Already the worlds most valuable media company. Just imagine the next 7. What will you look like at 14th? What will the web look like? Could Google be the most valuable company in the world by 2012?

How will Yahoo! Google and Microsoft be competing in 2012? Who will be the top dog by then? Still Google, one of the other players or an entirely new competitor?

More posts this upcoming weekend!

Saturday, September 24, 2005

Will Google hurt Microsoft with free software?

Google relies on its search ad model to drive huge revenues from its widely used search engine. The same business model is used when expanding into new areas like Gmail. When you use Gmail you often get some rather relevant text ads next to your emails. Are these intrusive ads? Well it depends on who you ask. Personally I see them as relevant content, a really nice feature actually!

This business model binds everything that Google does together. So when Google is launching new products and tools, they are not just diversifying the business away from search. No, they are just creating new ways to expose their clients ads next to relevant content. The search algorithms make sure, that it is the right ads shown at the right and relevant places. This keeps clients happy, because they get relevant business leads. It keeps the users happy, because they get relevant ads instead of being exposed to boring or annoying mass communication. Some of these ads actually give you exactly what you were looking for - the way ads should work!

No doubt it is a really good business model. The same model that made Google buy, so that content like this blog, could have Google's ads next to them. The ads can vary a lot from who is looking at them. The country you are in is just one of the factors, that determine which ads you get. Google is already gunning for Microsoft. Sidebar is aiming at the desktop - Microsoft's very domain. Or so it used to be. Google is getting closer to the holy grail of Microsoft - no doubt it has Microsoft scared big time. And Microsoft should be scared. This is the first company that really has a good chance at hurting the software giant big time, and Microsoft knows it.

Without the dominance in Windows and Office and the revenues from these - Microsoft would be crippled. Its the cornerstone of the cooperation's success, and its capabilities of leaping into other product areas like mobile, online and gaming. But what happens, if Google decides to distribute free software, because they actually could make a profit from it? Surely software is extremely expensive to produce, but Google also make an extreme amount of money on their ads. If Google were to hand out free software, surely many would neglect paying Microsoft. Also if Google were to make it open source, they would actually get a lot of free help in producing this. It could even be based on Linux or some of the other alternatives to Microsoft today. Imagine the impact on Microsoft! Imagine the impact on the software industry!

Google and Microsoft are both making sure, that the software and the online industry are merging, because both are working their way into the other industry. Google is currently dominant in the online industry, Microsoft is in the software industry and has been for decades - one player will be dominant in the new merged industry in a couple of years from now. I think that free software is Google's chance of gaining leadership, it certainly would hurt Microsoft severely. Microsoft's chance is gaining leadership in search, before Google can finance free software. But with the current status of market share and product quality in search, I wouldn't be betting my money with Microsoft.

Thursday, September 22, 2005

Free Google Wi-Fi sponsored by local ads?

Activity in San Francisco Bay Area and several pages on the Google homepage indicate, that Google is going into Wi-Fi in one form or another. Some analysts suggest that this is far from their original search focus and potentially also a quite expensive area to get into. No doubt, it will take some investments, but I don't necessarily see Wi-Fi moving Google away from search. Search is in Google's core, and I believe in everything that management considers. Just like Gmail, where the whole business model is serving up relevant ads next to your personal emails. Yes, mail didn't initially have much to do with search, but when Google crawls your messages and serves ads next to it, they are using their search technology - capitalizing on both the technology and the sponsored links bought by advertisers.

In my opinion Google won't necessarily be planning Wi-Fi spots to compete for the dollars, that people pay for access. More likely Google is planning to integrate their local search efforts - one of the new big areas of search - and more than anything else their local search ads. This could turn out to be such a rich revenue stream for Google, that they will offer the Wi-Fi access for free.

Monday, September 19, 2005

Forbes: Potential AOL-MSN deal wouldn't hurt Google much

There has been rumors lately, that MSN would merge with AOL to create a larger online unit with more search queries and more market power in general. I never liked Time Warner merging with AOL in the first place. I Always preferred Yahoo!s open approach to all potential content providers compared to the "forced marriage" type of deal of AOL Time Warner - where they did combine eyeball owners with content - but also excluded themselves from worker with the vast majority of content owners. But the fact that AOL and Time Warner weren't a perfect match, doesn't mean that AOL and MSN is.

Combining MSN and AOL would hold some advantages but also disadvantages. Merging cultures and mindsets are never easy. AOL is on the defensive with other type of Internet Service Providers gaining market share. I just don't see these two already challenged businesses in a merged unit being able to compete with the dynamics and aggressiveness of Google and their superior product - or Yahoo! for that matter.

Check out the article - it is a quick read. Amongst others they mention, that AOL replacing Google with MSN would only impact 2-3% of Google's operating profit.

Saturday, September 17, 2005

Yahoo!'s position in the search wars

Yahoo! now doubt is number two in search usage after the clear leader Google but nicely ahead of Microsoft's MSN. Back when I was working for Yahoo! around 2001 the company realized that Google was a threat. Something had to be done.

Google had found the formula for monetizing their widely used search engine after looking Overture over the shoulder. Overture invented the paid search links, but more and more people were using the widely popular and superior Google. Overture had the paid search technology and the customers and Inktomi, that before Google had supplied Yahoo! with search results, had some of the technology. Both companies amongst others were bought by Yahoo! to rampen up their search efforts, and start competing head on with Google. Yahoo! now also became a search company. The year was 2002.

No doubt Google has a clear lead in many areas especially in usage. However, people who really understand the technology say, that Yahoo! has made more hard core advances than Google the last year or so (mentioned in an earlier post). From an investment point of view, my point is, that if Yahoo! can leap past Google in search PLUS have so many other profitable business areas as they do, then Yahoo! could once again become a Wall Street darling and post great gains to their investors. But before this can happen - Yahoo! needs to get ahead of Google and the public needs to experience/perceive this as well. Also Yahoo! is running out of time. Two years ago they were making more than Google, now Google is making almost twice as much as Yahoo! on EBITDA and Google is growing faster. So in the not far foreseeable future, Yahoo!s research and investment funds are going to be far behind Google. In that scenario, it should not be difficult for Google to further secure their by far number one position in search usage.

So can Yahoo! do it? Well, it is going to be one of the focus areas of this blog, so that we can make the right choice as investors.


A great blog written by a frustrated Microsoft Employee. The blogger wants Microsoft to once again become a lean, mean, customer pleasing profit making machine. As you can read though, this is far from the truth today. The blog also holds links to great current articles written about Microsoft.

Happy reading!

I will also make a permanent link to this blog.

Wednesday, September 14, 2005

Yahoo! let Google in the game

Unfortunately for Yahoo! they slept during class just like Microsoft, when talented young Google showed up on the search scene in September 1998. Maybe that's the wrong term, it was actually more like they were awake and invited the new classmate welcome. Back in those days, search was just something you should enable as a portal, but not really so important, that you would necessary create it inhouse.

Yahoo! bought search in town, I believe it was Inktomi back then, which was later acquired. Google came along and were setting new standards. Yahoo!s legendary founders David Filo and Jerry Yang liked what they saw in Google's search quality and even encouraged Google's founders Sergey Brin and Larry Page to start up Google as a company and expand their search engine. Yahoo! even helped finance the two search engine founders with venture capital. As a Yahoo! shareholder I just didn't quite get it. Since search was the number one activity on Internet from the very beginning of graphical WWW around 1994 and still is, it just seemed dangerous to let someone else become a leader in this category. Not that Yahoo! was doing search themselves, as mentioned they were buying the service in town, but why help someone, that could become a big name and potentially expand to other areas? Obviously easy to say today, but I remember that specific feeling and a sense of fear for my Yahoo! investment.

Google now has a market capitalization of $84 billion, while Yahoo! stands at $47 billion. Google has exactly expanded to other areas - Gmail, Froogle, Google News, Google Desktop, Google Earth and many more (Google is King Of Beta;) putting Yahoo! under a lot of pressure. It really must feel bad having helped Google to start out, and then be overtaken. Google however, was also clever and lied about intentions. Eric Schmidt kept saying that Google would solely focus on search - always - yeah right ;). Maybe you can tweak it and say, that all their products are in fact search related - Gmail searching through your mail and serving relevant text ads. This way everything soon becomes search related.

Today these two search players are #1 and #2 in the game - with Google as a clear #1. Yahoo! is trying hard to catch up, and people familiar with the technical aspects of search say, that Yahoo! has made more hardcore advances than Google the last 1½ years. Amongst others:
  • Enabling RSS and XML
  • The recent announcement of 20 billion odd webpages indexed while Google is at 8 billion
  • Audio search
  • Video search
  • Personalized search

Google has spend a lot of their time going into the usual "portal products", which might have taken focus of some areas of search. Apparently they still spend 70% of their time improving their core search, but it will be interesting to follow. More important than true search quality is though perceived quality. As long as the public perceive Google to be the best - they will use Google. However, long term perceived quality should follow true quality.

Tuesday, September 13, 2005

Forbes: Microsoft's Midlife Crisis

I read this article on today. Great insight into Microsoft's challenges as a large cooperation. Having worked at Microsoft for 1½ years I do recognise several of the issues.

Before I go any further, let me say, that I have great respect for Microsofts achievements, its challenges and their CEO Steve Ballmer. His live performances is something everyone should experience at least once in their life. Steve Ballmer is FANTASTIC on a stage. The same enthusiasm you hear about, when he throws chairs through offices and wants to "reduce" competition (knotch knotch) - the same ausumn enthusiasm just in a much more positive way he delivers when he gives a speach - respect Steve Ballmer! However, the large cooperation calls for a lot of administrative tasks - any 90.000 employee company without that demand?

This is where Microsoft's challenge is - its still dynamic, but not as dynamic as say Google or Yahoo!. They have a much smaller focus area, which means that top management is a lot more focused. Maybe Google and Yahoo! will have this problem at a later stage.

Monday, September 12, 2005

Google back above 300, options and valuation

Lets not forget why we are here. This blog is about how to invest in the so lucrative search industry. Therefore it is nice to see Google back above 300 - welcome back! When the share goes up - so does the options. It depends which options you are looking at. I only consider call options, which is the right to buy the share at a given strike price before a given date. The opposite is a put option - the right to sell, also at a given strike price and before a given date. You would normally buy put options, if you think a company is going to fall in value. Call options are when you believe the share is going to go up.

Options trading is highly risky and should be done with great care. You can be right about a stocks direction, but wrong in your timing. If your timing is off - you loose everything. If you buy a share instead of an option - you only need to be right about the direction - you have better time. However, with the risk comes a reward, when you make the right calls. Today when Google shot up 3.56%, certain january 2007 options went up with 15%-20%. That is a nice return on investment for a single day.

A lot of people say that Google is overvalued. Is it? Personally I don't think so. You have to look at the value behind the company. How much are they generating in revenue are they growing? I like to use EBITDA (Earnings Before Income Tax, Depreciation and Amortisation) on a quarterly basis. It says something about the companys ability to generate current and future revenue. In growth areas like the search industry the quarter one year ago don't mean much to me. Instead I take the last quarter and time it with four. This is how much the company is making EBITDA on a yearly basis. You take the valuation of the company (market capitalisation) and divide it by the EBITDA and you have how much you are paying for $1.- EBITDA in the company - also called P/E (Price/Earning).

Certainly Google has gone from an IPO $85 to $309. In the same time Google quarterly EBITDA have risen from $255 mio to $590 mio. Yes, the stock has gone up more than EBITDA, however, at the same time Google has really made a gap to Yahoo!s EBITDA, which currently is at $368 mio. This rightfully puts a premium on Google, since its the top dog in the industry. Top dogs have more money for research and improvements etc. Even before Google existed - do you remember how Yahoo! left Excite, Lycos and Infoseek in the dust? Also rather important Google is currently growing EBITDA at a rate of 112% yearly, while Yahoo! is growing the same number with 57% per year.

Google P/E at the moment is 36,5 while Yahoo! is 32,5. So you are almost paying the same for one dollar in earnings in the two companies - despite the fact, that Google is growing almost twice as fast. Wouldn't you rather want to own a piece of the faster growing company?

When this is said, Googles CEO Eric Schmidt has mentioned, that current quarter might not excactly hold the same growth as earlier quarters.

Sunday, September 11, 2005

Top Dog Google

I am new to the blogging sphere, but feel I have a lot on my mind. Today I will give my thoughts on the leader in the game - Google.

Google - the aggresive gazelle.. lots of ambition.. lots of balls and with a superior product. What I really like is the fact, that they have the guts to aim directly at Microsoft with their guns. Its courages - and personally I believe they can and will win the battle. Their great advantages today are:
  • The best and most popular product in the most profitable area on the web by far - search
  • A superior, more clean and extremely strong brand
  • More search revenue hence more money for research and product improvement than any of the others (but can't Microsoft just take lots of their millions and outspend Google? No - its not just a money game - top engineers don't come easy and recent events clearly show, that talent would rather Google than MSN (more on why later). Also a lot these top search engineers are working at Yahoo! But hey - if you (Google) have the best product, and more product specific revenue to improve it than your competitors - you are pretty well of - and that is excactly what Google is today!
  • An organizational mindset saying search first - all other products are build around this - to place the most profitable ads of them all - sponsored links. Having this in the managements attitude in everything they do just make them that more clean cut and focused on the task. A task which is necessary to create the greatest revenue stream of them all - sponsored links next to the most widely used products in the world. These products right now webbased but certainly moving into software, and thereby becomming an even greater threat to Microsoft
Possible threats:
  • Arrogance - Both buyers of Google's product Adwords, media using Adsense and other interest groups have experienced Google's arrogance. It probably comes with the territory of being the worlds most valuable media company and only 7 years old. Plus probably being the company with the biggest chance of outgunning Mighty Microsoft. Also they have never experienced crisis and hard times - it is probably hard not to be arrogant at Google. However, arrogance has crumbled many.. I believe The Roman Empire was one.. just a small example ;)
  • Yahoo! has made many advances in search and are not that far behind Google in many areas and in front in some - if only the public knew ;)
  • Microsoft certainly have a lot of products to integrate MSN search into

Personally I see Google as the leader and most likely "winner" of the Search Engine Wars. Winner defined as the future market leader. There will always be several important players in the search engine industry. The money is too great not to have several contenders and human nature and different tastes will help several engines to have enough market share to be profitable. Google is where I recomend people to invest their money today, and it is where I personally is most aggresive.