Posted on Techdirt - 10 September 2007 @ 6:35am
The obvious response to folks complaining about the iPhone price cut is that of course the price was going to be cut, because it's a tech item, and the cost of technology invariably marches lower. Yes, technology is a constant deflationary force, not just because prices of it keep dropping, but because the quality of any given item tends to rise over time. We've made this point in the past, that inflation statistics have a hard time dealing with tech items, because the measures only look at price and have a difficult time adjusting for quality improvements. As economist Russ Roberts notes, the new iPod Classic is not just $50 cheaper than the original, it holds 40 times as much data. In other words, doing a like-for-like comparison between the original iPod and the new one vastly understates the amount of progress that was made in such a short time. What's more, while it's easy to note the data storage comparisons, how do you quantify the addition of video playback or pictures? It's pretty difficult. So while inflation statistics serve a purpose, it's important to recognize that there's often a lot more at work than just price changes.
27 Comments | Leave a Comment..
Posted on Techdirt - 7 September 2007 @ 12:30pm
It's been said by many that bond ratings agencies are to the credit bubble what the tech analysts were during the dot com bubble. Whereas guys like Henry Blodget got dinged for touting IPOs for no other purpose than to move stock, many are wondering whether firms like S&P and Moody's inflated debt ratings so as to help move more business. It certainly seems plausible, and now it looks like regulators are going to delve deeper into this question, as they look at whether repeat customers tended to receive better ratings for the securities they were floating. Regardless of what regulators determine, it seems likely that the reputation of these firms will be permanently tarnished. Nevertheless, there would still seem to be a need for third parties to rate debt, so that the market can determine the appropriate interest rate. Of course, it's not like nobody saw this coming. For years now, people have been warning about the oligopoly in bond rating, and the potential for conflicts of interest. Perhaps the key is pursue a more decentralized system of disseminating information, although it will take some work (and regulatory flexibility) to figure out exactly what this model would look like.
1 Comments | Leave a Comment..
Posted on Techdirt - 6 September 2007 @ 7:36pm
Because a company can only be as strong as its customers, there's no way for tech companies to be completely insulated from broader economic events. Companies with a lot of exposure on Wall St. are going to be particularly susceptible to a slowdown, as some companies, like Cisco, have already stated that they're seeing weakness in this market. The latest to sound a similar warning is Tibco, a software provider with a lot of customers in finance. The firm described the financial sector as "notably weak" blaming it for an overall earnings shortfall. It should be noted that Tibco hasn't had a particularly stellar few years, so the company was already struggling a bit. Still, what's affecting Tibco is likely to affect a host of other related companies. Right now, there's a lot of concern about the health of the financial sector, but if troubles continue to persist, then the malaise is likely to spread elsewhere, potentially leading to spending slowdowns in other sectors.
3 Comments | Leave a Comment..
Posted on Techdirt - 6 September 2007 @ 11:29am
eBooks have been touted as the next big thing for quite some time now, but invariably, each new generation of the new technology fails to win over consumers. Of course, that's not going to stop the publishing industry from pursuing them in their belief that they'll be the savior of the industry. The latest iteration comes from Amazon.com, and for $500 it offers the ability to connect wirelessly to an eBook store, meaning you won't have to plug the device into a computer in order to make a purchase. For eBook aficionados, this might be a nice convenience, but it's pretty hard to imagine this feature proving pivotal to winning over the broader population. Of all the problems people have with eBooks, the fact that you have to connect them to a computer probably isn't a significant one. The above article also mentions Google's planned foray into digital publishing, as it intends to sell digital versions of books from select publishers. But it's not clear why Google thinks that customers will be particularly interested in this service. After Google's previous foray into selling digital content, with its now-defunct video store, you'd think the company would stay away from this kind of business.
34 Comments | Leave a Comment..
Posted on Techdirt - 5 September 2007 @ 5:35pm
Fears of a credit crunch have put a chill on fresh private equity activity, while several pending deals are thought to be in trouble. But there are still signs of life in some parts of the industry. There continues to be strong interest in medium-sized media deals, as funds that specialize in this area continue to raise money and make moves. Considering the challenges facing many media companies, it makes sense that private equity investors would think there's an opportunity to pick up assets at a bargain, reformulating them into something of more value. Obviously, the private equity industry isn't going to grind to a halt. Deals that are predicated on nothing more than cheap credit will become rare, but investors will always be on the hunt for undervalued companies that can be turned around.
1 Comments | Leave a Comment..
Posted on Techdirt - 4 September 2007 @ 3:46am
Since the first X-Prize competition, we've seen more and more interest in this model as a way to spur innovation. However, there are still a lot of questions about the competition model, in terms of efficacy and utility for private industry. While businesses are interested in the concept, the exact model remains unclear. Economist Alex Tarbarrok relates an interesting point about how the X-Prize was funded. Apparently, the group behind it didn't actually raise the prize money, but rather it bought an insurance contract that would pay off in the event that someone actually won. And who wrote the insurance contract? None other than the established experts in the field: Boeing and McDonnell-Douglas. It just so happened that these companies thought the prospect of a successful launch was basically nil, so they gave the organization a very generous price on this insurance contract. The fact that the prize was ultimately claimed is a good indication that even the established leaders in a field don't always have the best grasp of what advances are just around the corner. It also suggests a possible business model, whereby middlemen attempt to arbitrage the disparity between what the establishment deems possible and what individual inventors think they can accomplish.
17 Comments | Leave a Comment..
Posted on Techdirt - 30 August 2007 @ 12:08pm
Will all of the turmoil in conventional credit markets spur greater interest upstart peer-to-peer lending exchanges? It seems possible, since, in a way, sites like Prosper and Zopa are the antithesis of the highly impersonal, securitized industry that's facing so many problems right now. From the outset, these P2P lending sites have emphasized diversification, manageable risks and direct relationships between lenders and and borrowers. Whereas traditional loan brokers are closing their doors left and right, these sites continue to do brisk business. Lenders aren't seeing mass defaults, because the standards have been high since the beginning. Of course, the scale is different. You still can't finance a house through one of these sites, but for other needs, they may work just fine. Between the lack of available credit to consumers and a desire to diversify investments on the part of individuals, this moment in the business cycle offers these sites an excellent chance to really prove their worth. Update: A number of commenters make some interesting points about default rates, suggesting that they may be higher than these sites would have you believe. Also, it's pointed out that there are a number of users playing both sides of the game -- borrowing at one rate only to lend out at a higher rate, which is not so different than traditional financial institutions.
11 Comments | Leave a Comment..
Posted on Techdirt - 29 August 2007 @ 9:29pm
The market for PCs and PC components continues to give off mixed signals. Earlier this month, there were reports that the PC makers would enjoy comfortable profits, as component prices were looking soft. Then, barely a week later, the opposite view came to prominence, as analysts and chipmakers alike called for good times. Now things are flipping once again, as DRAM prices are expected to collapse, with weakness continuing through the end of the year. Meanwhile, hard drive maker Seagate is upping its forecast, citing strong PC and mobile volumes. With all of these markets flipping around on a week-to-week basis, it should be pretty clear that there are very few significant trends here. In the long term, you can predict that component prices will continue to decline in price, just as all technology does, but it's not particularly worthwhile to read deeply into short term price and volume changes.
7 Comments | Leave a Comment..
Posted on Techdirt - 29 August 2007 @ 1:03pm
Back in June, the launch of Avvo, a site for rating lawyers, was met with a lot of controversy. Lawyers aren't used to being rated as if they were any other good on the market, and it didn't take long before the site was sued by one lawyer unhappy with his ranking. Now a similar site is getting set to launch, except this time it will focus on financial advisors, another group which isn't used to much scrutiny. It's not clear whether or not this will prove particularly useful, but hopefully the site has some money socked away for legal fees, since it's only a matter of time before one disgruntled advisor sues after a bad rating.
29 Comments | Leave a Comment..
Posted on Techdirt - 29 August 2007 @ 10:32am
As we've noted several times, the tech IPO came back in a big way this year, most recently evidenced by VMWare's meteoric launch out of the gate. While this is good news for companies and their investors, Kevin Kelleher argues that we're seeing a disturbing trend in the way these deals go down. In many instances, the terms of the deal are such that the general public shareholder has little power in the newly-public company, with most voting power concentrated in the hands of a select few insiders. What's more, in many instances, the companies have sold stakes in themselves to certain outside investors at a price below what was available to the public. It's easy to argue that such moves represent greed and a desire to keep the spoils concentrated, but there may be other reasons for these actions. As the rise of private stock exchanges suggests, public shareholders are increasingly seen as a liability, whether it's due to the threat of shareholder lawsuits or activist investors. Kelleher's concern is for the "little guy", as he puts it, but it's not clear that most investors actually care about things like voting rights. As long as investors understand where they're at, and can weigh the risks accordingly, certain trends in governance structure shouldn't be particularly worrisome.
8 Comments | Leave a Comment..
Posted on Techdirt - 27 August 2007 @ 10:44pm
Last week, Morgan Stanley internet analyst Mary Meeker was embarrassed when it was revealed that a math mistake on her part caused her to vastly overstate (by a factor of 1000x) the revenue potential from YouTube's new ad overlay system. After having her mistake pointed out to her by none other than Henry Blodget, Meeker went back and fixed the report. But she did more than just correct the math. She also tweaked some of her original assumptions so as to boost the significance of the new advertising scheme. Whereas she originally predicted that ads would be shown on approximately 1% of streams, that number has now been boosted to yield a greater revenue impact. Meeker's new model now has the company garnering an additional $75-$189 million in net revenue over the coming year, as compared to the $720,000 that her original model predicted. This whole fiasco is quite revealing about the way Wall Street analysts sometimes operate. Rather than start out with a fixed set of assumptions and then figuring out what that will result in, they come up with an end result and then figure out what reasonable assumptions will get them there. While we're sure that this sort of thing happens all the time, it's rare to get such a stark glimpse into the way it happens.
12 Comments | Leave a Comment..
Posted on Techdirt - 27 August 2007 @ 4:35pm
Last November, radio broadcaster Clear Channel announced that it would be taken private by a group of private equity firms for $19 billion. But the deal is just one of many such deals whose status is currently in doubt, as financing and credit have significantly dried up of late. As part of the preconditions for the sale, Clear Channel agreed to dump nearly 400 local stations across the country. Now, however, that's proving to be a significant snag, as buyers of the stations are now going back on their agreements (via Deal Journal), due to the same financing issues affecting everyone else. Assuming that agreements can't be worked out, the company may be forced to slash the prices on these stations or risk imperiling its own plan to go private.
4 Comments | Leave a Comment..
Posted on Techdirt - 27 August 2007 @ 10:07am
At one point, news that Gateway had been acquired by Acer would have been a significant development in the computer industry. But it's a sign of how far the company has fallen that the move isn't expected to have any material impact on the company's competitors. Basically, Acer, based in Taiwan, is looking to expand its footprint in North America and Europe and it was able to pick up the distant #4 in the US computer market for just $710 million. Because margins are low across the industry, every player is in a desperate race to keep volume high. At one point, Gateway tried to break out of its core business with an ill-conceived foray into consumer electronics, but it was eventually forced to return to its roots. However, things might not change much from the perspective of customers. Owing in part to Gateway's recognizable brand (the cow print boxes), Acer plans to continue, if not expand, the Gateway line.
20 Comments | Leave a Comment..
Posted on Techdirt - 24 August 2007 @ 3:40pm
As evidence that Sarbanes-Oxley has made it too burdensome for small companies to go public, many have pointed to the rise of London's Alternative Investment Market (AIM), where several American companies have chosen to list. This market is basically a haven for shakier companies that can't list on more established exchanges. A new academic paper suggests that AIM itself represents a model of financial market regulation that warrants exploration. The basic idea is that if you have a system like Sarbanes-Oxley in place, you could also have a market that is exempt from the regulation. Smaller, shakier companies would flock to this market, but investors would know to be wary about investments in these firms. Such a market might resemble the NASD-owned OTC BB market, which trades penny stocks, except that even that market is currently subject to SOX. You can see this concept in place to some extent in the private stock exchanges being established by Wall Street banks, which offer companies a place to list without being subject to regulation. But these are off limits to most investors, and for smaller companies, listing on them doesn't make much sense. One possible objection is that if a SOX-less market were to exist, companies of all sorts would try to list on it, but they'd be imperiling their reputation by doing so. Most likely, the majority of companies would opt to remain on established, reputable exchanges. Seeing as the SEC is actively looking for ways to reform Sarbanes-Oxley, it might be worthwhile to explore the possibility of allowing for the establishment of such an exchange.
17 Comments | Leave a Comment..
Posted on Techdirt - 24 August 2007 @ 11:20am
Rock star involvement in the venture capital industry is old hat (see: Bono), but there aren't many examples of the opposite, VCs getting into rock. The Wall Street Journal reports on one UK VC firm that's taken to financing comeback albums from has-been rock bands, like UB40 and Prodigy. The firm sees itself as filling a funding gap brought on by the tough times facing record labels these days. It also believes that these albums offer steadier, more predictable returns than those from unknown bands. What's funny is that this is exactly the opposite of the typical VC strategy, which typically involves placing bets on lots of losers, with a few winners accounting for all of the profits. So far, it sounds like the fund isn't doing particularly well, though for now it's sticking with the strategy. There is certainly a lot of room for improvement in the record label model as it relates to funding bands, but it seems doubtful that simply replicating the traditional model with washed-up bands will yield great results. From VC guys, you'd hope to see something a bit more innovative, perhaps something along the line of Bowie Bonds. Peter Gabriel Bonds anyone?
2 Comments | Leave a Comment..
Posted on Techdirt - 23 August 2007 @ 5:16pm
For a long time, Google insisted that it had no intention of competing directly against Microsoft in its core business areas, but as the company started to expand its online office suite, it became clear that the two companies would form a rivalry. That being said, few have argued that Google's office apps actually offer a substitute for MS Office (at least not yet), but rather that they work well in certain key areas. Nonetheless, one analyst is warning that deploying Google apps could be a potentially "career limiting" move for any enterprise architects. In other words, don't throw out your Office licenses just because you can save money going with Google. That might be good advice, except that it's basically just knocking down a straw man, as it's hard to imagine there are many people out there actually considering such a drastic course of action. What's funny is that the analyst then goes on to describe the 'limited' areas where Google's service might be useful; they include startups, small businesses, collaborative projects, and enterprise non-power users. It sure sounds like a large swath of the market could be well served by these tools by the analyst's own admission. Simply warning of dire consequences for anyone who puts too much confidence in Google doesn't really address the question.
39 Comments | Leave a Comment..
Posted on Techdirt - 23 August 2007 @ 12:40pm
YouTube's new ad overlays continue to engender a lot of discussion about their potential impact on the online video market. One person who is quite optimistic about the program is the infamous (but still employed at Morgan Stanley) Mary Meeker, who estimated that the new system would add a staggering $4.8 billion to Google's top line. But, as none other than Henry Blodget points out, there's a little problem with Meeker's analysis (via Valleywag). She mistakenly took CPM to mean 'cost per impression' rather than 'cost per thousand', meaning that her estimate was off by a factor of 1,000. In other words, by her own logic, the new ad system will contribute lead to a modest $4.8 million revenue bump, which is nothing compared to the $1.65 billion Google paid for the site. Meeker has been covering this space for a long time, so it's hard to imagine that she really didn't know what CPM meant. Perhaps she was just trying to rush out a quick report on the topic and didn't take the time to look it over. But you'd still think that such a huge figure would give her some pause and make her question some assumptions before coming out with such a bold pronouncement.
12 Comments | Leave a Comment..
Posted on Techdirt - 22 August 2007 @ 6:11pm
Earlier this month came the surprising news that little-known search engine Accoona had filed to do an IPO, hoping to emulate the public market success of Google. Of course Accoona is nothing like Google, as its search engine is not widely used, with most of the company's revenue coming from dodgy e-commerce sites that it has acquired. Well, it looks like the company may have to wait another day for its invitation to the dance, as the planned underwriter, Maxim Group, has pulled out of the deal. Considering the company's shaky financials as well as the checkered past of its founder (in the past he was a penny stock promoter), it seems highly unlikely that any reputable investment bank will get behind the deal. So unless Accoona actually starts drawing users to its search engine (highly unlikely), the company wouldn't appear to be going anywhere soon.
3 Comments | Leave a Comment..
Posted on Techdirt - 22 August 2007 @ 3:08pm
It's being reported today that two companies closely associated with the last stock market bubble, TD-Ameritrade and E-Trade, are in talks to merge. Both companies have evolved to become comfortably profitable established firms, but throughout their history they have been dogged by steep price competition and high customer acquisition costs (as evidenced by the constant stream of TV advertising from both firms). Furthermore, active management of individual stock portfolios has never again reached the heights experienced during the bubble, as investors have turned to things like ETFs and other index funds, which don't lead to as many commissions. A merger could help both sides reduce costs, although there's still a lot of competition in this space, which would make it hard for them to raise prices too much. That being said, Dealbook points to some reasons to doubt the significance of these rumors. The two sides have said in the past that they'd be interested in exploring a combination, but there's nothing new now to suggest a deal is imminent. Furthermore, any deal would be beset by organizational challenges, as TD-Ameritrade is a unit of the larger Toronto-Dominion Bank, meaning E-Trade management would have to step out of the way. So, most likely, the two sides are likely to remain separate, and you can expect a continued flood of annoying brokerage ads (until the next time the market nosedives, that is).
1 Comments | Leave a Comment..
Posted on Techdirt - 22 August 2007 @ 11:30am
Back in May, Google announced the release of Google Gears, a set of tools for enabling offline access to web-based apps. Although the trend in software is towards web-based delivery, which Google has embraced wholeheartedly, the inability to access or edit documents when not connected to the internet, remains a concern. Now, one of the first offerings to embrace Gears comes from Zoho, which makes an online office suite that rivals Google's own. As we noted when Gears was first announced, Google was clearly interested in advancing the whole area of web-based software, not just in pushing its own apps. Just as Microsoft seems hesitant to give even the slightest endorsement of this model, Google recognizes that it will benefit, regardless of which offerings users choose in the short term.
10 Comments | Leave a Comment..
More posts from Joseph Weisenthal >>