Andrew Melcher

http://theofficialblog.com

15 Comments

    • Salesforce Stock Jumps; Google Acquisition Rumors Playing A Part [view article]
      As I said in my SeekingAlpha article in January 2007:

      "It's hard to imagine a way that Microsoft will harm Google at this point in time, but the best defense is to make free [ASP] network software that renders node software financially untenable as an industry. Some journalists ridicule Google for rolling out embryonic ASP applications in Beta form. But the ridicule will probably not last long. Each of these ASP programs will adapt in cycles measured in weeks, not years as with desktop applications forced to run on Windows 95,98, ME, XP and now Vista, and forced also to be compatible with 1000 other applications. Google’s policy of hatching embryonic live young that will be constantly upgraded by small development team is actually a very wise way to do things in a network centric environment.

      Soon, I suspect that the oxygen will be removed from Microsoft’s environment by Google’s higher order technology – a technology that will give users access to any major type of software application (faster adapting ASP software) for only the price of the information users enter and the ads they view."

      seekingalpha.com/artic...
       Apr 24 10:17 AM
    • Sears Holdings' Lewis: Worst CEO of 2007? [view article]
      New Sears did well because it was mostly a real estate play. As well, the economy was strong enough to keep the retail business out of too much trouble.

      Now, new Sears is no longer a real estate play due to market conditions. So Mr. Lewis and the core retail business come to the center of the stage. Here we see Mr. Lewis for what he is, a brutally honest reporter of the war of attrition at Sears retail. It is a war that will get especially bloody for Sears in this downturn, because of its focus on consumer durables.

      Also, the Citi and restoration purchases say that Lampert's delusions about real estate's long dismal path remain quite total and complete.

      Lewis took on an impossible long term task when he signed up with respected money manager Lampert.

      I am short SHLD       Nov 29 08:48 PM
    • The Lawsuit That Could Cripple Google: Will American Airlines Ruin Everything? [view article]
      Rebuttal

      1. Even if AA prevails, extending trademark protection to keywords is only an annoyance to advertisers. -- All they will have to do is find other keywords to use.

      2. AA is a weak plaintiff in this particular legal action. AA has a trademark that is a descriptive term, and as such is not protected. Searching for +"American Airlines" is actually searching for all airlines that fly in America. In this context, the trademark "American Airlines" is clearly fair use and the legal action seems destined to be thrown out.

      3. Even for powerful trademarks like GEICO, the argument against trademarking search terms is weak. We live in a business society that worships open and fair competition. We only have trademark protection insofar as it helps foster open and fair competition.

      So we have developed the concept of fair use that limits trademark protection. Some uses are covered by the trademark, some are not. For examples, you can't pretend to be GEICO, but you can say "we have lower rates than Geico." You can also list the trademarked term Geico in a printed business directory without GEICO's permission. You can also sell ads to other insurance companies on the same page as this printed GEICO listing. -- Which is functionally very close to what Google is doing.

      In other words, how is it different if you search the yellow pages for GEICO and find competitors ads on that page... or you use a search engine? No difference. Fair use.

       Oct 31 11:59 PM
    • Will Hulu Finally Shift TV Ad Dollars To the Web? [view article]
      The broadcasters completely misunderstand the threat posed by a video internet. This is seen in how they are trying to do their own video website Hulu.com. However, the problem isn't somebody else's video website, it is online video as a medium of communication in general. Foolishly, the more Hulu succeeds, the more it undermines the continued franchise value of its backers.

      Why would the broadcasters want to push broadcasting to the web? On the web, all their monitization infrastructure becomes largely irrelevant. Sure, the content productions aspects of the networks will thirve. But the ad slot networks are about to become worthless.

      Soon broadcasting will face competition from multiplexed keyword matched video ads. The nexus then shifts to the content owner and the ad matching/serving machine. The broadcast franchises become redundant. Why throw money away trying to hasten that event?

      I guess television really DOES make you stupid. ;-)


       Oct 31 03:45 AM
    • What Will Come Out of Google's News Response Method? [view article]
      Your argument is smilar to one used to regulate the free press. What is the harm if a little subtext mis-information gets added to a story? What is the downside of having article message boards where even 98% of the entries are rubbish? For example: messages.finance.yahoo....

      The upside is having a diverse range of oppinion that could prevent some costly mass mis-information. Besides, the other posters will rate comments, and the trash will get a consensus 1-2 star rating and get ignored.

      The world needs more tools like this to help make journalism more accurate.       Aug 11 12:45 AM
    • No Housing Bottom in Sight - Barron's [view article]
      Tightened lending standards matter much more than interest rates. As with previous real estate cycles, the nominal interest rates will not change very much. The big changes will happen with lending standards and to a lesser degree lending fees.

      Here is how it always seems to work. When market conditions start to weaken, lenders (or their regulators) decide to get conservative on their lending practices. This creates a cycle where good financing gets harder to obtain. That drives lower demand for properties which drives more conservative lending.

      If the economy is strong, it recovers after a while. If the economy is weak, this is the beginning of the end of the cycle.       Jul 08 11:31 PM
    • Is a Google Brain Drain Inevitable? [view article]
      Gee, imagine if Google talked up all the great things they were working on and the stock price reflected the true value of the company. Do you think defections would be any worse?

      Maybe this is why Google's management is almost negative about the company's future. Maybe they have to be for purposes of employee retention and the long term health of the company.

      And I think that the incentive to leave Google is far worse than Kevin Delany and Roger Ehrenberg discribe. This is because once someone is hired by Google, they become solid gold as a hire. Heck, I would imagine that some companies just want one Googler for bragging rights. I can just hear how it would go, "Yea, we are definitely going places here at xyz startup, we even poached a guy away from Google."

      What is amazing actually is that attrition is so low given the intense pressures to leave. I mean, would you rather hire the great programmer with a PHd., or the one with only a BS that worked at Google? What about the high school drop out that worked at Google? The job offers from would-be poachers must be insane.       Jun 29 09:00 AM
    • Why Google Will Always Dominate Its Peers [view article]
      Recently I was looking for tips on doing a road trip in mexico (driving Baja California actually) and no internet guides were needed. Google worked excellently. The first page taught me that I probably wanted to buy a cheap Mexico registered "beater" car and sell it/ give it away of it at the end of my trip. For this micro-subject, I had no need a guide site like Mahalo. People like to help out and they post all sorts of useful information without being official guides... modesty aside ;-)

      I think that the future of search involves a more robust function like the "this is spam" button in Gmail. Maybe a new Google browser will have some sort of rating feedback mechanism. Maybe there should be five buttons that rate all URL's whenevery you want. 1) Total spam garbage, 2) spammy, 3) neutral, 4) informative, 5)fantastic. The URL's that get a statistically significant number of IP's selecting 1's or 5's get driven to the top or bottom. This would go a long way towards combating search engine spam for popular subjects.

      There probably is a place for guides somewhere, but I believe in democracy and "the wisdom of crowds" (a terrific book) . I believe (thanks to this book) that well aggregated large group opinion is nearly always as smart and usually smarter than the smartest individuals in a group... but the group opinion has to always be aggregated properly.

      It may take some tweaking, but eventually, Google will figure out how to get you good information on subjects that are now are profitablely jammed with spam.

      Also, perhaps the social networking sites are doing so well now because they are sort of hitching a ride on Google's coat tails as mini networks of "artificial" popularity. When Google starts to distinguish this sort of social network popularity from general popularity, there may be a harsh reassessment of the value of these sites. To clarify, user generated content will always be great, but the value of search popularity per user/contributer may be near a zenith.       Jun 28 01:14 PM
    • Microsoft Search Request: Is Google a Monopoly? [view article]
      What about how Microsoft is trying to slow access to other search engines in Vista? This seems clearly anti-competitive. It seems akin to a railroad cutting off access to a steel company because it wants to get into the newly profitable steel business.

      The fundamental premise of all anti-trust regulation is that the interests of the public are best served by free competition. The public benefits when Google allows free competition in/through search, while Microsoft allows it on/through its PC network.

      Google buys Doubleclick, while Microsoft buys Aquantive. Valueclick, Yahoo and a host of other small companies remain un-attached. How can Microsoft complain that Google's acquisition?

      Also, believe it or not, being a monopoly is not illegal. Abusing that monopoly power is however illegal. Microsot was convicted of abusing its monopoly power, not of being a monopoly. Microsoft is obviously a monopoly.


      funny post Barry       Jun 27 12:12 PM
    • Is Google the Next AOL? [view article]
      1. AOL the "world beater?" Maybe for a year or two as the HTML Internet was comming into existance because of Netscape. But by the time Microsoft introduced Internet Explorer, AOL was only lots of market share. Narrow band marketshare in a soon to be broadband world.

      2. When Steve Case suckered Time Warner into that infamous merger of inequals, he was selling the promise of future earnings. He was not selling actual earnings. Google is earning over a billion dollars a quarter now and has a market cap of $165 billion. That comes to a PE ratio of 40 -- Hardly bubble territory for a company growing earnings at around 70% year -- And a company on the upward slope in an investment binge.

      3. Google is not priced to perfection (see above). To the contrary, Google has one of the cheapest PEG rates in its industry, despite being THE industry leader...or perhaps more accurately the hourglass of the Internet.

      4. A more apt comparison is AOL to Yahoo... Both are legacy 90's era internet companies. Both have anemic-to-negative growth. Both technology companies have no convincing technological plan for the future and are focused it seems only on maximizing income. Oh yea, perhaps neither company would be started now.       Jun 27 09:24 AM
    • Google’s Video PlusBox: Most Disruptive Feature Ever? [view article]
      Google's targeted text ads sell for anywhere from 10 cents to a few dollars. Contrast this with untargeted ads either online or in print that sell for around a penny per "viewer." Google seems to be intent on doing targeted ads with streaming media.

      When the content owners start earning AdSense revenue, they will stop complaining. This is because the Google revenue will easily exceed the broadcast revenue: as it does with text ads.

      In fact, because the Google revenue will be higher than the broadcast revenue, the content owners will do everything they can to get more Google views. This will result in the newest content appearing on Google long before it is broadcast. Such a practice will be devastating for the owners of broadcast franchises. Meanwhile, the content producers will experience a gold rush because the money available for producing quality content will grow many fold.       May 24 01:47 PM
    • April Online Search: Yahoo Gains, Outpaces Google [view article]
      As mark Twain said, "There are three kinds of lies: lies, damned lies and statistics."

      According to the statistics above, the market share pie for search engines changed as followed:
      Google added 1.4% of the entire pie
      Yahoo added 0.7% of the entire pie
      AOL, MSN, and ASK collectively lost 2.1% of the entire pie.

      Yahoo only outpaced Google because it is slightly less than 1/3 of Google's size and it picked up exactly 1/3 of of the business lost by AOL, MSN, and ASK as they implode. And Yahoo's out-performance is only for the month of April. Over the preceding November, December, January, February, and March, Yahoo lost over 20% of its business to Google.

      How does Jeremy justify a headline that suggests a horse race? Yahoo's green market share trend line on the graph above clearly shows Google creaming Yahoo. A more accurate title would be, "April online search: Yahoo finally eeks out a gain."

      Also, Jeremy extrapolated from a one month trend. -- A meek one month reversal on Yahoo's staggering 25% market share losses over the past year. From one month's statistics, Jeremy implies that the trend has reversed and that Yahoo will eventually overtake Google. This extrapolation is unbelievable and sensationalistic and not worthy of being on Seeking alpha.


      *I think this post is deceptive and should be deleted by the admin.*       May 13 02:28 PM
    • Why Does the Market Hate Google? [view article]
      At 466, if we take away the $9 billion Google has in "cash" the company's market cap is around $136 billion. The company had net income of over $1 billion in each of the last two quarters. That gives an annualized PE ratio of 34, or about half the 67% rate the company is growing not net income, but REVENUE.

      And that 67% growth rate is not really Google growing, it is simply increasing monitization of the internet. Google is in this great position where it owns the biggest profit sponge on the Internet. -- Allowing it to capture more than its share of profits. Perhaps twice as much as it should. So Internet spending grew at 33% last year and Google grew revenues by 67% Q1/Q1.

      Maybe a recession will slow the adoption of the Internet. Maybe it will accelerate it. Either case can be argued.

      But even if Google's top line growth rate was cut in half to 34%...and the company had to forever invest so much that net income could never grow faster than revenues...even then, at a 34 PE ratio, would Google be overpriced?

      Where's the downside?       May 02 05:05 PM
    • Google's Billion Dollar Quarter: A Closer Look [view article]
      Is Google’s slowing slowing?

      Google grew revenues 24 fold over the past 4 years. ($440 million in 2002 to $10.6 billion in 2006.) There are two reasons for this. 1) Google started small and dislodged existing large search providers. And 2) search is by far the fastest growing segment of the Internet advertising industry, which grew 34% last year.

      But by the end of 2005, Google had captured nearly 2/3 of the search market. It then ran out of market share to easily poach from competitors relative to its new larger size. This is why in 2006, Google increased its market share of searches by only 5.6%, which accounted for perhaps only 9% of 2006 revenues.

      One way to view this trend is that the 90%+ revenue growth days are probably over for Google. Another way is to understand that poached business is now only 9% of Google’s earnings — and its winding down can’t affect growth much anymore.

      In other words, almost all of Google’s revenue growth now is from the broader demographic shift towards Internet advertising and search. These rates have been constant over the past couple years (and have even been accelerating a bit). Therefore, Google’s revenue growth now looks like it should at hold firm in the 60% to 70% range for the coming few quarters and possibly beyond.

      There is also the possibility of revenue upside. Google’s growth will enter a whole new phase if any of the company’s new initiatives like IP video, or G-radio stop being accounting liabilities under development and instead become income-producing assets. Just bear in mind that combined radio and television advertising revenues are about 8 times the size of Internet advertising.

      One more thing. I have previously used the word “revenue,” 9 times to emphasize that I am talking about top line growth. I want to point out that Google increased revenue by 2,415% over the past 4 years, while it only increased operating income by 1,904%. This deserves comment because fast growing companies tend to grow profit quite a bit faster than revenues — That is, unless they are ramping up capacity.


      And ramping capacity/expenses is exactly what Google warned about last year. That is when the company announced that future operating income would not grow by 2005 levels because it would be increasing spending on new business. In fact, Google even said that 2006 spending growth might exceed revenue growth in a push to develop new initiatives.

      So Google is growing revenues with no end in sight and investing aggressively, and Mr. Market could not care less. As a long term Google shareholder this did not bother me. On the contrary, it made me happy that I could increase my position in Google cheaply. You see, I know that: 1) Google will continue to grow revenues in the 60% range because its growth is based on a demographic shift. 2) Earnings are effectively understated because Google’s high level of investment in future growth is not broken down or clearly presented. And 3) This high level of investment will eventually have an high level of payoff.

      I know what the guys at Google can do with a few billion dollars — They can (and did) build a Google. With all the new and promising add-ons now under development, at least one of these initiatives is bound to be another hit. Google earned $1.03billion in Q4 2006. The company is capitalized (net of cash on hand) at $140 billion. That comes to an annualized PE ratio of 34… and earnings come out later today.

      View a copy of this article with graphs under the same title at watchmojo.com

      Andrew Melcher TheOfficialBlog.com       Apr 21 08:32 AM
    • How Google Slips To $100 a Share - And Stays There [view article]
      Why Google really has a network

      Anybody can build a search engine. And anybody can take a pen and draw a crude map of the world in a few minutes. But guess what? The most precise free map/ search engine of the Internet gets most of the queries. And the search company with the highest viewership makes more profits and can afford a higher level of search engine improvement. Google has the leading search map now, and can profitably spend the most money on map improvement.

      But this virtuous cycle of search engine development and financing only points to a high barrier to entry for the paid search business -- It does not explain why Google’s search network is probably invincible. Google’s invincibility stems from its market share of humans doing searches.

      In other words, the biggest network of roving software robots only finds the biggest set of possibly valid websites for your search. And improved indexing algorithms only give a preliminary machine-based preference for these search returns. It is ultimately the gleaned preferences of the humans that have gone before you that give human meaning to the robot searches. Without the human network, the robot index is still only as smart as a bunch of dumb computers. That is to say, it is easily tricked by cleaver humans.

      The human user network lets Google understand among other things, which search results are the last ones that people click on (ie. The human found what it was looking for). The search network with the most humans searching gets the most accurate search returns in human terms -- And the search engine with the most humanly accurate search returns maintains its dominance.

      Some people argue that a breakthrough method of obtaining greater statistical accuracy with half of the sample size would unseat Google. They argue that Yahoo may find some way to obtain as much search accuracy from a particular search by 50,000 customers as Google generates from 100,000.

      With large sample sizes, the idea is at least theoretically possible. If we compare this situation to a public opinion survey, the difference in survey methodology could easily matter far more than increasing the sample size from 50,000 to 100,000. However, this idea falls apart when only say 2 people undertake highly specific searches in that particular day. With small samples, the methodology (within reason) is less critical than the sample size. And perhaps half of all searches could be considered small sample size searches.

      If Google has seen 2 people searching for something, Yahoo with its 2nd place market share might not have had any customers at all doing that search. And Yahoo might not be able to draw any up to the minute customer inference, no matter how many thousands of pages of websites Yahoo’s robots turn up.

      In order to make any serious headway in search, Yahoo and MSN must stop losing human market share and start gaining it. And in order to do that, Yahoo and MSN must prove to the public that they are not merely equal to Google, but superior. And they must now do so while overcoming the handicap of a smaller human user network to sample and base their search returns on. Absent that miracle, Google will simply continue to return more accurate search returns, and its reputation will continue to spread. Eventually, even the folks who barely know the difference between an email address and URL will know of Google’s superiority. That point will be the end of the other search engines. There is only room for one dominant search engine... a machine that measures human intentions just like there can only be one consciousness in a person and one common language to among people.       Nov 28 12:31 PM
Loading...
Symbols:
Authors:
Quick Links:
Contribute an Article Become a Seeking Alpha Contributor

Transcripts

More Transcripts»