Category Archives: Google

Thoughts on the Microsoft / Yahoo Deal

The New York Times ran an interesting story today about the impact on Silicon Valley startups of the proposed $45B Microsoft / Yahoo deal. The main thesis is that continuing second-level consolidation might create a dearth of acquirors for the hundreds of startups who have take the $35B in venture capital invested in 2007.

“From a start-up and investor perspective, if there are more companies trying to vie for the same businesses, there are more exits,” said Bismarck Lepe, a former Google employee and now chief executive of Ooyala, a year-old video host and advertising company. “It’s not great for competition if there are only two acquisition targets instead of three.”

I, like many Silicon Valley strategy types wonder if the Microsoft / Yahoo deal is the final salvo in the last war. In many ways, Yahoo’s problem was they couldn’t get past the fact that Google stole Internet search out from under them. So the company was obsessed with re-catching Google, instead of — in classic Silicon Valley style — trying to beat them to next big thing. Most strategy types think Yahoo should have said: “We screwed up. We lost search. Deal with it. Now, let’s go find the next big thing.”

Much as Steve Jobs might have said: “I screwed up . I lost the PC market. Deal with it. Go find the next big thing. (In the “irony can be pretty ironic” department, the iPod is actually dragging Mac sales behind it. So the best way to improve the Mac’s market position was to focus on something else. How’s that for perverse?)

One more example of this “can’t let go” phenomenon because it’s so popular: SPSS. I got to know SPSS pretty well at one point about 6 years ago and I couldn’t help but feel the company had an unhealthy attitude about SAS. For SPSS, the same advice applies: “You screwed up. You lost enterprise stats / analytics to SAS. Deal with it. Let it go. And then figure out how to beat everyone to the next big thing.” (I don’t follow SPSS anymore so I have no idea if they’ve done that in the intervening six years. Hopefully they have.)

Somewhere there’s a probably job opportunity for “corporate strategy therapists” to help companies deal with this sort of anger and loss. But I digress.

Quoting a related Times article:

A Microsoft-Yahoo merger would give Web publishers and online advertisers “a more competitive and compelling No. 2” to Google, thus enhancing competition and consumer welfare, said Bradford L. Smith, Microsoft’s general counsel.

Here’s a good tool for corporate development VPs everywhere: if the best your $45B acquisition can do is create “a more compelling #2” than perhaps you should consider doing a different deal.

The question I have is simple:

  • Will this help Microsoft slow down Google by modestly wounding the advertising engine that provides all the funding for Google’s attack on Microsoft’s core businesses? (Think: the best defense is a good offense.)
  • Or, will this simply enlist Microsoft in Yahoo’s Sisyphean quest to catch Google in Internet search, infecting the acquiror with the acquiree’s disease?

My personal take is if they can execute it correctly it might work, but it needs to be part of a broader strategy. Effort 1: counter-attack Google’s core, not hoping to win, but simply to slow them down. Effort 2: Stop Google Enterprise from attacking Microsoft in on-demand apps and beat them to the cloud computing world of the future.

Ironically, you’ve got two huge companies and neither one is terribly good at selling to the enterprise. Perhaps while the behemoths are duking it out Oracle will step in and steal the enterprise-cloud computing market.

Google and Autonomy Spat, Round II

Autonomy and Google are at it again. Per this InformationWeek story:

For the second time in six months, Google has publicly challenged a white paper from enterprise search rival Autonomy, claiming the latest document contains “significant inaccuracies.”

For customers with demanding needs, the Google appliance lacks the necessary security and connectivity models,” Mike Lynch, chief executive of Autonomy, said in an emailed statement. “It is not possible to make successful high-end enterprise search solutions without mapped security and productized connectors to repositories.”

I’ve not yet had time to dig into the detail of this, so I’m sharing it more as a news item for now and will — if it proves interesting — come back with analysis later.

Google’s rebuttal is here on the Google Enterprise blog.

My free PR advice for Google is to avoid a spat and simply create a low-key white paper that responds to any claims they believe are incorrect. In my experience, in PR wars the big guy never wins. Sometimes the little guy wins. Sometimes both companies lose. So when you’re the leader the best strategy is not to fight. Much as you want to.

Google as Publisher: The Grassy Knol

On December 13th Google took its first step from organizer and indexer of the world’s knowledge to supporting-creator of it with the announcement of a new free tool called “knol” (a cutesy-ism which stands for unit of knowledge).

The folks at publishing industry watcher Outsell were quick to use the announcement as validation of their predictions that Google would eventually enter the publishing market:

While it was debatable in the past whether or not Google’s actions constituted those of a publisher, there can be no doubt about it today.

Outsell takes a broader view of the announcement than most, who generally see it as a clear, direct shot at Wikipedia. (For an example of the consensus viewpoint, see this Newsfactor story entitled Death Knell Sounds for Wikipedia, About.com. I’d add that lesser known and poorly named Freebase seems squarely in the cross-hairs as well.)

Outsell points out that once a large knol-base (phrase coined by me, you heard it here first!) is created, then Google can tweak its search algorithms to favor its content over competing sites such as Wikipedia, which currently enjoys great organic search rankings; About.com, which doesn’t; and Answers.com which was a casualty of an algorithm change in August, resulting in a 28% traffic drop and a nearly 20% drop in their stock price.

There has been plenty written about knol so I won’t add a deep analysis here. For more, I’d go to the official Google blog post that launched knol and scroll down to see the list of blog postings that refer to it.

Techcrunch has a great write-up here:

Google is moving away from simply indexing the worlds content to being a content provider itself. Of course Google in response would argue that it is simply facilitating user generated content (like with Blogger), that ultimately they are the host as opposed to the creator, but it still competes with existing content providers, many of whom rely on Google search results for their living.

If you thought publishers were uncomfortable partners with Google before, things just got a lot frostier.

To me, despite billions of R&D investment and boatloads of hype, Google remains, as Kris Tuttle at Research 2.0 says, “a one-trick pony (but it’s one darn good trick.)” So no new initiative can be presumed successful simply because Google is behind it. Consider the defunct Google Answers, or the perennially weak comparison shopping service, Google Products, nee Froogle.

Is knol a gimme just because Google’s its dad? No way. The poor choice of name will hinder it as will Wikipedia’s entrenched position, positive karma, and what I sense is a growing Google fatigue in the market.

(Like a boyish 40-year-old suffering from Peter Pan Syndrome, I think Google is increasingly out of touch with its perception. They’re not cute and cuddly techies who everybody loves anymore, so they should stop trying to do cute and cuddly things.)

So, should this make publishers uncomfortable? Yes.

Is it (another) warning shot for the information industry? You betcha.

Do I have three words of advice for publishers regarding Google? Watch your back.

Google Research from Outsell and Stephen Arnold

Information industry market researcher Outsell, working together with search guru Stephen Arnold, has been producing some excellent research on Google.

I wanted to highlight one piece, entitled Google as Publisher: Is Google Poised for a New Push into the Information Industry, which looks at how Google’s infrastructure and technology could be leveraged for a major push into the publishing business. In addition to pages of excellent analysis, the report concludes with four action items for publishers in managing this threat/ opportunity:

  • Come to grips with the impact. I think many publishers have their heads stuck in the sand when it comes to their “partnerships” with Google. Yes, the relationship is inherently co-opetition and it’s “cutting off your nose to spite your face” to not leverage Google’s spider and search volume. But make no mistake, you’re dancing with a partner who could decide to become the devil in an instant.
  • Adopt agile publishing processes, quickly. To me, this includes (1) “agile content” in an XML repositories like MarkLogic (cleaned up using lazy XML enrichment) and (2) agile software development processes. I’m amazed by how many publishers still do waterfall-based product development.
  • Use Google technologies in your own products. It’s best to both know and leverage your (potential) enemy.
  • Mobilize and modularize content. XML is also a great means for doing this, because of its presentation independence.

Postini Snatched Off IPO Track By Google

This just hit the wires this morning at 8:00 AM Eastern: Google to buy Postini for $625M in cash. Here’s the official press release.

Google will add Postini’s on-demand “security” (nee anti-spam) offering to its stable of Google Apps. Judging by the fact that Dave Girouard, VP and general manager of Google Enterprise, is the spokesperson in this Register story, and given the nature of the following quote, it seems clear that Google is attempting to build a base in small and medium business (SMB) on-demand productivity apps and then work their way up into the enterprise in the much same way that Salesforce.com did with on-demand sales automation apps.

Girouard’s quote:

The response to Google Apps has been tremendous, with more than 1,000 small businesses signing up for the service every day. At the same time, large businesses have been reluctant to move to hosted applications due to issues of security and corporate compliance. By adding Postini products to Google’s technology, businesses no longer have to choose,” said Dave Girouard, VP and general manager of Google Enterprise.

My guess is that Postini was tracking towards an IPO within the next 6-12 months, which suggests that they were doing somewhere between $80 and $100M in revenue this year (my take on the new IPO entry bar). This suggests a valuation somewhere between 6-8x sales. Salesforce.com, the king of the on-demand sector, trades for 9x TTM revenues (see here), and the industry and sector trade for 5-6x revenues.

Some simple math (assuming 40% growth and 40%/60% 1H/2H revenue linearity — both are standard assumptions and neither of which I have any specific reason to believe true) says that current year revenue is 1.2x TTM revenue, suggesting a 7.5 to 9.5x valuation for Postini, in-line with the premium you’d expect to pay for snatching the IPO dream from a company that could see it within reach.

Here’s the Google Blog commentary on the deal. Here’s their FAQ. Finally, here’s the Google Enterprise Blog commentary as well.