Category: business

SCO Loses to Novell: UNIX Code Belongs to Novell

Many of you may not read about this until Monday (it’s Friday now), but in the case between Novell and SCO regarding the copyright of some UNIX code, the court ruled in favor of Novell. The ruling also (explicitly) destroys SCO’s case against IBM. The court denied SCO’s motions regarding slander, breach of contract, and other bogus claims. Lastly, SCO owes Novell a ton of money for the cross licensing deal they made with Microsoft (to be worked out later).

For those of you who don’t know, SCO started threatening companies and even sued Novell and IBM over it’s supposed mystical ownership of key UNIX source code, the foundation of the now-popular Linux. Had SCO won here, it could have been major legal black eye for the open source community, probably eliminating any major corporation from wanting to take up UNIX out of fear of being sued.

But, Novell won, and buried SCO in the process, shattering any lingering doubts that open source code is safe. I was looking forward to IBM firing its cannons too (that would have been fun). 🙁

Proof of a Bubble: Success of Myspace is Pretty Overrated

How much yearly profit would you expect from a $500 million purchase? How about a profit of just $10 million equating to a profit margin just under 2%. That’s right, the world’s largest social networking site, constantly in the top 10 web sites in the world, managed to make only $10 million on $550 million in revenue!

I’m not an expert, but a 1.9% margin is pretty low. For example, the average profit margin for a company in the technology sector is currently 14%. It’s insane to think Myspace is worth “20 billion.” Even at a billion dollar valuation and revenue increased five fold, it would take 20 years to repay the purchase price while assuming social networking stays hot the entire time!

The most important distinction to make is that Myspace is in the notoriously fickle and very untested social networking market. It must recruit a completely fresh batch of users every few years as people grow older and move on. It must fight against social stigmas that come from the younger generations that might sound something like, “Ew, Myspace? My mom is on there.” For all we know, social networking as we know it may fade out of prominence in the next three years. Or even more likely is that another new competitor will eat into Myspace and take away its page views.

I have been observing signs of a significant bubble re-emerging, and this is the straw the breaks the camel’s back. Worse yet, when professional analysts throw out insane multi-billion dollar valuations on Myspace without sound financial reasoning, it’s time to be scared. Valuations are always relative, but I disagree with this valuation without having access to some more impressive metrics. Myspace is already at the top of the web — it doesn’t have opportunities to grow 1000% in the next few years.

Let me frame this in a more understandable way, if I told you this blog makes $200 a year in profit, would you be willing to buy it for $10,000? That’s the same ratios used assuming Myspace’s original valuation ($580M). But if Myspace is worth a little more than $5 billion as some people seem to believe, it would be like selling this blog for $100,000 on the $200 a year profit. Granted, maybe you could improve the profit margins by a factor of ten to $2000 a year (20% margins) — good luck.

Doesn’t seem like such a sound investment now, does it? The top social networking site in the world is barely profitable and there’s talks of it being worth 20x its purchase price. There’s a bubble, folks.

Google’s New Mobile Empire – The Beginnings

I guess I was wrong… Google really is going to release a phone in the coming year.

This news comes only days after Google tried to get the FCC to change how the wireless spectrum could be used by would-be bidders in the upcoming spectrum auction. Google accomplished some of its goals when it managed to get half of its proposals approved.

Anybody with half a brain can see that the next phase of the Internet will live on our phones. Google finally beat down Microsoft during the Internet Explorer era only to be introduced to a new competitor: cell phone carriers. Google sees this and is doing its best to ensure that round won’t be another David vs. Goliath.

It’s actually rather surprising, in this context, that Microsoft isn’t doing more to fight for its share in the mobile age. If everybody begins to use the phone to browse the Internet, where exactly is Microsoft’s “MSN is IE’s homepage” edge? It seems as if Microsoft might end up becoming less relevant in the coming years.

All this still irks me since Google’s CEO is on Apple’s board of directors. I guess they see it as pals fighting together against the carriers rather than real competitors (for now).

While the article (stupidly) focuses on the ad supported nature of the Google phone, if the execution is done right, it could be a godsend. The idea of “free” goes a long way, and perhaps Google’s market is the direct opposite of Apple’s iPhone: go after everybody and anybody who can’t otherwise afford a phone.

The Streisand Effect Helps Ron Paul?

This post is less about politics and more about the Streisand Effect. Lately, I’ve noticed that the Ron Paul campaign seems to be benefiting from the Streisand Effect:

The name Streisand effect comes from a 2003 incident in which Barbra Streisand sued photographer Kenneth Adelman for $50 million in an attempt to have the aerial photo of her house removed from the publicly available collection of twelve thousand California coastline photographs, citing privacy concerns. Adelman was photographing beachfront property as a way to document coastal erosion. The picture of Streisand’s house that previously carried almost no interest to anyone suddenly spread all over the Internet.

In short, an attempt to cover up a piece of information leads directly to its rapid ascent in the consciousness of Internet users.

By my observation, the mainstream (especially the conservative) media has been playing down Ron Paul because they dismissed him as a long-shot candidate. Despite this, he has numerous accomplishments that are impressive for a candidate with only 1% of the national polls: #1 recipient of military donations, winner of the first Republican debate, and more money on hand than Giuliani. And yet you will have a very hard time finding main stream articles that cover these successes (go ahead, try to find them). Of course, Ron Paul supporters have been very active in pointing out these information deficiencies, creating an “outrage” against biased reporting.

As result of these facts being pointed out, we are seeing a massive interest in his candidacy on the Net – A.K.A. the Streisand Effect. Many times, I have wondered how much worse he would be doing right now if the media simply reported his accomplishments instead of omitting them in related articles. I can tell you right now, if it weren’t for the Streisand Effect being in action, I would have never written about this candidate (text book example of the Streisand Effect).

For example, when Ron Paul came in second at the FOX Republican Debate online poll, one of the anchors claimed that getting 10,000 people from the Net to vote is “not that tough.” (Prove him right by getting this article Dugg 10,000 times!) The video contains a humorous segment of the anchors insisting at how impossible it is to send a text message using a phone.

Or another example was when FOX dismissed the news that the top recipient of military donations was Paul by claiming he used some kind of “mailing list” that clearly no other (bigger) candidate could top…

I believe that as a direct consequence of videos such as these being spread, the Streisand Effect is dramatically helping the Paul campaign. When these videos were circulating about a month ago, the search term for “Ron Paul” on Technorati (a very popular blog search engine) was #1. As recent media attention has begun to recognize Paul in recent weeks, his rank has sunk to #3 (no other candidate currently appears in the top 10). In other words, the active suppression of his accomplishments may have contributed to his skyrocketing popularity online.

What makes this particular instance of the Streisand Effect so interesting is that its effect is not limited to online, which has been the case with most other popular instances of the effect. This makes sense given the state of the Internet as compared to a few years ago: it is now even more mainstream than ever. A staggering 1/3 of young adults get the news exclusively from the web (I am one of those people). So unlike previous incarnations of the effect, this instance is manifesting itself into “real life” in places like the debate polls.

So now that I have thrown this theory out there, keep a watchful eye on the media’s effect on his popularity. While it is possible that he is gaining popularity regardless, my theory is that his popularity grows much faster while the media continues to ignore him. This will hold especially true so long as his most loyal supporters continue to call the media out on their omissions.

Anyway, in closing I’d like to post this humorous video of Ron Paul owning a kid at some kind of talk show. It’s from 1988 and widely circulated, but it’s very funny if you haven’t seen it yet.

All this (plus the YouTube debates) just goes to show just how much the 2008 elections may be influenced by the Internet.

2007 Democratic CNN/YouTube Debate

In case you missed the news, the latest Democratic presidential debate was hosted by CNN and YouTube last night. YouTube users were invited to submit questions, which were played live at the debate.

This was the first big step YouTube needed to break out of the “online only” mold. If all goes well, we should see YouTube grow even more as the mainstream world becomes aware of the site through the debate. It’s likely that many of the candidates never even saw a video on YouTube until last night, as with much of the audience watching them.

Anyway, the questions were fresh in the way they were presented, although there were a lot of regular fluff answers. Some of the questions asked were definitely tough. We should look forward to the CNN/YouTube Republican debate on September 17th. Now that this debate has been aired, I hope to see a new twist at the Republican debate after people saw what sort of questions would make it on the air.

You can find all of the questions here.

Digg in Between a Rock and a Hard Place

Pardon my pun, but it’s true: Digg.com is at a crossroads that’s making it hard for them to grow. Here are the issues at hand:

  • Digg is trying to go mainstream and thus alienating their current audience (who are not mainstream)
  • Digg’s core users joined when it was about finding niche articles
  • People try to game Digg every day (and succeed)

Combine these three factors, and you have a lot of unsatisfied “customers.”

Digg no longer serves a niche. When I first found Digg a year ago, it was amazing: you could always find new hidden treasures of the Internet on the front page. But nowadays, it has swerved dramatically “mainstream”, constantly covering the same anti-Iraq or pro-iPhone stories or spammed with links to funny pictures.

Digg’s hot topics have evolved into more mainstream dialog (inevitable as more users join). This alienates well-informed readers who first began at Digg looking for cutting edge articles not to be found anywhere else.

And of course, there is daily garbage that manages to reach the front page. With the increased exposure that Digg has, it is no wonder that people are now learning how to better game Digg. This has caused (at least for me) a noticeable drop in the quality of articles that hit the front page of Digg. This, combined with the influx of new “mainstream” users further lowers quality.

In short, Digg isn’t growing stronger due to its increased exposure: it is actually growing weaker. Proof? How about Digg’s traffic graph for the past six months:

graph

In six months, Digg’s daily reach has fallen over 10%! How else can this be explained?

Kevin Rose talked about introducing a pictures or reviews section; these are not the solutions to this problem. The problem is that Digg is trying to appeal to everybody. It is trying to be the jack of all trades in news. It’s impossible.

What does Digg cover well? If you answer with “everything,” you just fell into the trap that Kevin Rose did. It covers nothing well. It doesn’t cover celebrity news as closely as tabloids. It doesn’t cover business development as closely any industry publication. It doesn’t cover Apple news as closely as Apple rumor blogs. It doesn’t cover politics as closely as the thousands of newspapers across the country.

The point is, Digg has scaling problems in the social sense. If it grows, it only covers more topics in less depth since front page space is always limited. As more users join, the collective opinion continues to “average out,” allowing more quality to slip through the cracks, especially on niche topics.

And this is why Digg is stuck between a rock and a hard place. Digg’s competitors are best to leave their news sites in their respective niches rather than branching out.

PS3 Price Drop: What Happens If They Don’t Sell Fast Enough??

If Sony’s goal is to introduce a new PS3 model in the coming months, and it can only happen once the old one sells out, what happens if that takes too long?

It was big news yesterday when the PS3 topped Amazon electronic sales for two days straight after the $100 “price drop.” But then there was a huge uproar today when SCEE president said that the 60GB PS3 was being discontinued and that there would be a new 80GB model introduced at the $599 price. Lots of people cried foul, saying that Sony was basically dumping their inventory to make room for the new expensive model.

But I must ask, what happens if Sony can’t sell the remaining inventory fast enough? No. Really. Think about this.

Sony wants to introduce a new PS3 model as early as possible to regain a competitive “we have a big hard drive too” foothold against Microsoft’s Xbox Elite. Unfortunately releasing this new upgrade would completely destroy demand for a 60GB PS3.

We saw this once before when the 20GB model was discontinued. This meant a PS3 could only be purchased at $599 (since the $499 ones were gone). History is repeating itself and the 60GB is going next.

This means that this price drop is only temporary!

This was a fine plan so long as nobody realized there was a new PS3 coming. Sales were doing great yesterday as proof. However, now that everybody knows the 60GB is soon outdated, and with rumors flying that the 80GB will have rumble, what will happen now?

There are approximately two million unsold 60GB PS3s right now sitting in stores (calculated by comparing the sale vs shipped counts). Sony can’t introduce the 80GB without seriously harming its retailers. It took Sony nine months to sell four million PS3s. Assuming the sales rate doubles, they would sell out in two or three months (October). Their master plan could have been to cut the top-end price by $100 in November. That is, so long as the 60GB sells out fast enough.

So long as there are major retail inventories left, Sony can’t launch a new “upgrade” without seriously harming (angering) their retail relationships. Brushing aside the new rumor that the Xbox is seeing a permanent $100 price drop in two weeks, I wonder what happens if PS3 sales slow down because everybody decides to “wait for the 80GB with rumble?”

The leak of this news may have caused serious harm to Sony. I still can’t believe how Sony executives keep saying insanely stupid things without getting fired. After their impressive showing at E3, all they had to do was stay quiet!

PS3 Price Drop – Your Turn, Microsoft

Okay, so the rumor is confirmed: the PS3 is dropping its price. Some even say the rumble feature is returning (my money is on there being no rumble for the PS3, ever). But it has long been anticipated that Microsoft would steal Sony’s thunder by immediately following with a price drop of its own.

However, here’s what’s interesting: you still can’t get a PS3 for cheaper than $500.

You see, even though Sony “dropped” the price, they eliminated the $499 20 GB model. Thus, the 60 GB model is the new 20 GB model. The 20 GB model is gone forever (instead of cutting its price to a more affordable $399? Idiots!). And in the end, it costs just as much money to buy a PS3, except now you get a bigger hard drive. Will this spur sales? Initially, I’m sure any perceived price cut will help. But as the dust settles and people realize the PS3 still costs exactly what it cost when it launched, I highly doubt this price cut will be any revolution. So what’s Microsoft’s next move?

Microsoft has positioned themselves for a price cut for a few months now. They even released a high end Xbox (Elite) so that they could pull the exact same stunt the PS3 did. Now that the rumored PS3 price cut is not really a price reduction, it’s very likely that Microsoft will hold off on the price cuts — for now. There is simply no point in destroying the little thunder (more like a hum) that Sony has generated.

Rather, Microsoft, like the sly fox it is, will wait until October to slash its prices. It will slash its prices right before the holidays and create a renewed buzz. If Sony caves, they will have to follow with a cut of their own, forcing them into two price cuts in a six months. Of course, if the past is any indicator, Sony won’t follow Microsoft’s Q4 price cut, and Microsoft will gain a ton of new money conscious customers who have been waiting for a machine that doesn’t cost them as much as an iPhone (wait, that really puts the iPhone’s price in perspective, but that’s for another post).

I could also mention that Nintendo is a factor, but with the Wiis still selling out, I highly doubt they have any need to cut their prices for the time being.

Wii Dominating PS3 in Japan

The Wii is out-selling the PS3 6:1 in Japan! It’s selling just over 15:1 to the Xbox 360.

There seems to be a trend: the Wii was ahead of the PS3 4:1 in April, 5:1 in May, and now 6:1 in June.

Nintendo has sold – not shipped – 5.84 million Wiis world wide in the first five months after launch. Sony hasn’t stated how many they’ve sold, but they have shipped (as in, shipped to stores) 5.5 million PS3 units, world wide since launch (seven months). Japan accounts for just under half of all Wii console sales.

That either means PS3s are selling far better in other countries to make up for this huge difference, picked up a lot of slack in the 5th, 6th, and 7th month, or there is a lot of unsold stock sitting around, all over the world. I won’t pass judgement here without the facts so I don’t upset some of my Sony fan readers…

As always, I’m impressed with the Wii. It might be a cheap gimmick (maybe?), but it certainly hasn’t stopped it from dominating the crap out of the console market.

They’re still going for above retail on eBay (approximately $300 right now) – after seven months!