The road(s) ahead...

In the world of personal computing, the ball has been for too long in the court of the incumbents--folks in Redmond, etc. So it pleases one to see how the personal computing industry is taking notice, and changes as result, of the challengers--Firefox, Google and their likes. Indeed, Internet Explorer has become stale and heavy long time ago--until recently there had been no developers working on it anymore. Longhorn, the ghost of the operating system once meant to be, will finally be released in 2006.

Meanwhile, public imagination has been set ablaze by a series of pointed actions undertaken by the folks at Google: acquisitions, big name hirees, unconventional business approaches towards product and service offerings, or the $4Bn pile of cash it wants to get by selling its near $300/piece stock.

In charting out Google future, I would ponder the answers to the following questions:

  1. What strategy should Google follow?
  2. What one Google product should have its API public?

Google should make it so that access to its services is less dependent on Microsoft's gates(sic!).

Longhorn, at least initially, was supposed to offer a lot of the functionality Google tries to bring to the desktop and more. Should Longhorn come in a position to do that, Google's days on the desktop would be numbered, and considering the low adherence people have to search websites, Google would have a hard time justifying its multiples. Consequently, an elegant way out of the Microsoft conundrum for Google could be Linux. However, one of the major weaknesses Linux has is its lack of a (novice-)user oriented interface.

How about extending the Google search capabilities to Linux so that the user is presented with an extremely simple point of access to all the local-, and internet-resources? In other words, what would it take Google and Linux to become what Longhorn has struggled for such a long time to be?

To ensure the success of such approach, API's (and developer tools) should be provided so that an ecosystem (consisting of software and hardware applications) may develop.

To sum it all up: make search, discover, and consume the new computer paradigm, and get there, before Longhorn, with the help of the developers community!

During all this time, Google should continue to throw good technologies at the end-user so that the costs of switching off away from it grow.

Microsoft would do well to (re-)learn a lesson in creative destruction and mobilize its resources and developer community.

The end-user customer will finally be the judge, albeit a delighted one!


Anonymous said...

Interesting takes! It's hard to see if Google can topple Microsoft's dominance on the desktop before OR after it gets big!

Anonymous said...

...just moments after I read your price I've found this other one:

August 24, 2005
Relax, Bill Gates; It's Google's Turn as the Villain
SAN FRANCISCO, Aug. 23 - For years, Silicon Valley hungered for a company mighty enough to best Microsoft. Now it has one such contender: the phenomenally successful Google.

But instead of embracing Google as one of their own, many in Silicon Valley are skittish about its size and power. They fret that the very strengths that made Google a search-engine phenomenon are distancing it from the entrepreneurial culture that produced it - and even transforming it into a threat.

A year after the company went public, those inside Google are learning the hard way what it means to be the top dog inside a culture accustomed to pulling for the underdog. And they are facing a hometown crowd that generally rebels against anything that smacks of corporate behavior.

Nowadays, when venture capitalists, entrepreneurs and technologists gather in Silicon Valley, they often find themselves grousing about Google, complaining about everything from a hoarding of top engineers to its treatment of partners and potential partners. The word arrogant is frequently used.

The news last week that Google plans to sell an additional 14 million shares of stock, adding $4 billion to its current cash reserves of $3 billion, will only provide more reasons to gripe.

"I've definitely been picking up on the resentment," said Max Levchin, a founder of PayPal, the online payment service now owned by eBay. "They're a big company now, doing things people didn't expect them to do."

Mr. Levchin, who last year founded a multimedia company in San Francisco called Slide, said Google "still has a long wick of good will to burn off," but he added, "I'm surprised at how fast the company's reputation is changing."

It was not that long ago that Google reigned here as the upstart computer company that could do no wrong. Now some working in the technology field are starting to draw comparisons between Google and Microsoft, the company in Redmond, Wash., that Silicon Valley loves most to hate.

Bill Gates certainly sees similarities between Google and his own company. This spring, in an interview with Fortune, Mr. Gates, Microsoft's chairman, said that Google was "more like us than anyone else we have ever competed with."

Google's success has already spurred Microsoft to develop its own Internet search engine (a project code-named Underdog), but Google has legions of engineers banging away on a range of projects of its own that, if successful, could dislodge Microsoft from the pre-eminent spot it has enjoyed since the early 1980's.

Of course, Silicon Valley has had past pretenders to the throne. Netscape, which went public 10 years ago this month, and its Web browser, Navigator, were supposed to fell Microsoft - but it is Netscape that is no longer in business. And while Google is riding high, those closely following the company caution that it is hardly invincible; an inflated stock price, a desire to compete in too many sectors simultaneously or simple hubris might cause it to stumble, they say. Even Microsoft, after all, has had legal troubles.

Still, similarities between Google and Microsoft are evident to local entrepreneurs including Steven I. Lurie, who worked at Microsoft between 1993 and 1999 but now lives in San Francisco, and Joe Kraus, a founder of the 1990's search firm Excite.

"There's that same 'think big' attitude about markets and opportunities," said Mr. Lurie, who has visited the Google campus in Mountain View many times to see friends who work there. "Maybe you can call it arrogance, but there's that same sense that they can do anything and get into any area and dominate."

To place Google in context, Mr. Kraus offered a brief history lesson. In the 1990's, he said, I.B.M. was widely perceived in Silicon Valley as a "gentle giant" that was easy to partner with while Microsoft was perceived as an "extraordinarily fearsome, competitive company wanting to be in as many businesses as possible and with the engineering talent capable of implementing effectively anything."

Now, in the view of Mr. Kraus, "Microsoft is becoming I.B.M. and Google is becoming Microsoft." Mr. Kraus is the chief executive and a founder of JotSpot, a Silicon Valley start-up hoping to sell blogging and other self-publishing tools to corporations.

Just as Microsoft has been seen over the years as an aggressive, deep-pocketed competitor for talent, Internet start-ups in Silicon Valley complain that virtually every time they try to recruit a well-regarded computer programmer, that person is already contemplating an offer from Google.

"Google is doing more damage to innovation in the Valley right now than Microsoft ever did," said Reid Hoffman, the founder of two Internet ventures, including LinkedIn, a business networking Web site popular among Silicon Valley's digerati. "It's largely that they're hiring up so many talented people, and the fact they're working on so many different things. It's harder for start-ups to do interesting stuff right now."

Google, Mr. Hoffman said, has caused "across the board a 25 to 50 percent salary inflation for engineers in Silicon Valley" - or at least those in a position to weigh competing offers. A sought-after computer programmer can now expect to make more than $150,000 a year.

David C. Drummond, vice president for corporate development at Google, acknowledged that the company was "very competitive" in its pursuit of talent, but added: "We're very sensitive to how everybody is perceiving us. We think the Silicon Valley ecosystem is critical for Google's success."

Google is also making it more difficult for some start-ups to raise funds. In the second half of the 1990's, entrepreneurs frequently complained that the specter of Microsoft hung over their every conversation with venture capitalists. Today, they say the same about Google.

"When I meet with venture capitalists, or if I'm engaged in a conversation about going into partnership with someone, inevitably the question is, 'Why couldn't Google do what you're doing?' " said Craig Donato, the founder and chief executive of Oodle, a site for searching online classified listings more quickly.

"The answer is, 'They could, and they're probably thinking about it, but they can't do everything and do it well,' " Mr. Donato said. "Or at least I'm hoping they can't."

Google has already added free e-mail, mapping, news aggregation and digital-photo management to its offerings, bringing it into competition in each case with two or more rivals. On Wednesday, it will announce plans for an instant-messaging system. And its plans for a new stock issue are fueling speculation that it is preparing to enter any number of other markets, from services for mobile phone users to an online payment service that would compete with PayPal.

Add to that list an Internet-based phone system and several products that would be directly aimed at Microsoft, including a Google browser and a software offering that would compete with Microsoft Office.

"If there's a perception that we're exploring lots of different areas, some of which might not be directly related to our core area of search, that's true," said Mr. Drummond, the Google vice president. "It's part of our DNA to be always innovating and exploring lots of different areas."

Yet so driven has Google been in its pursuit of new markets that at least a few in Silicon Valley are using an epithet to taunt Google that people here once reserved for Microsoft: "The Borg," a reference to an army of creatures in "Star Trek: The Next Generation" that took over civilization after civilization with machinelike precision.

Perhaps an anti-Google reaction was to be expected, given the glowing press the company has enjoyed for several years. Or maybe the carping and complaining is the inevitable reaction to a company so successful that it cannot help stomping on toes, even if accidentally.

"Hubris is an issue at every one of these Silicon Valley companies that are successful," said Peter Thiel, a founder of PayPal who has invested in roughly 15 Internet start-ups in recent years. "I don't know if it's any worse at Google than it's been at other highly successful technology companies."

Aggressiveness is another signal trait among successful companies like Google - something those in parts of the media world are starting to learn.

Google recently announced that it would not talk to any reporter from, a technology news Web site, until July 2006, after a reporter for the site wrote an article raising privacy questions about the information Google collects about individuals.

The company also provoked the ire of many within the blogging world - not to mention snarky comments in Silicon Valley from those thinking Google was behaving like an old-line company that doesn't get it - when earlier this year it fired a new employee who had joked online that the free meals, the on-site gym and all the other perks were a clever ploy to keep people at their desks longer.

"Google is at that inflection point where it's starting to act like an establishment company, and Silicon Valley is a rebel culture," said Gautam Godhwani, a founder and chief executive at Simply Hired, an online employment site.

Microsoft, of course, has its hold on the Windows world - and a market capitalization almost four times Google's. By contrast, switching to a new search engine is as easy as calling up another Web page - if a new company is able to do to Google what Google did to some of the earliest leaders of search, including AltaVista and Excite.

For the moment, at least, Google is aiming for that most coveted position in technology: a platform that, like Microsoft's operating system, is so popular that outside software developers write programs, and Web developers build new Google-related services, that render the Google home page indispensable to the personal computer ecosystem.

"In the day, you'd hear that Microsoft was the evil empire, especially in Silicon Valley," said Brian Lent, the president of Medio Systems, a start-up in Seattle working on mobile-phone-based search. "Google is the new evil empire, because they're in such a powerful position in terms of control. They have potential monopolistic control over access to information."

Mr. Lent, who worked closely with Google's founders, Sergey Brin and Larry Page, when all three were Ph.D. students at Stanford University, helped introduce Mr. Brin and Mr. Page to one of the company's earliest investors.

"I like and respect the Google guys," Mr. Lent said, "but let's just say that their ultimate aim seems to me to be, 'One Google under Google, for which it stands.' "

Anonymous said...

It's Just More Fun Being a Growth Stock

SOME very savvy people may be badly misjudging the prospects for Microsoft's common stock.

When Steven A. Ballmer, the company's chief executive, polled a group of his fellow Microsoft executives recently about whether they were buying the company's shares, he said, nobody raised a hand. ouch, i have to write my best code everday for these guys

On Wall Street, however, a recent tally by Thomson Financial showed that of 34 security analysts following the company, 30 recommended that Microsoft be bought. Only one advised selling.

One of these groups - either the Microsoft executives or the Wall Street analysts - must be wrong. But which one?

As the thousands of stockholders of the world's biggest software maker are acutely aware, Microsoft shares have languished for more than five years. Adjusted for stock splits, at $26.97, they now fetch less than half their peak value, in 1999. At that point, an investment of $10,000 made at the company's initial public offering in 1986 would have been worth more than $7 million.

Is this a case of a mature giant whose very size means that it can no longer be considered a growth company, and whose days of commanding premium valuation are behind it? Many people, predicting a fresh growth spurt, say no. But even if the answer is yes, could the current price still be a bargain? Various other companies, after all, have proved to be good investments well after their best years. Among them, analysts said, are the NCR Corporation (formerly National Cash Register) and I.B.M.

Still, there are plausible reasons for investor reluctance to embrace Microsoft: decelerating revenue growth, the competitive threat of so-called open-source software, delays in introducing new products and longstanding complaints by some customers of heavy-handed practices and lack of design attention to what users say they want. There is also concern that Microsoft's core personal computer business has reached maturity. And even after booking $768 million in March for antitrust claims, the company may face lingering antitrust costs, including possible fines from the European Commission, which is requiring that Microsoft give its competitors information to make it easier for them to write programs that operate with Microsoft's products.

"There's a lot of factors that you can attribute to the underperformance," said Robert K. Becker, senior analyst at Argus Research, also noting the mathematical truism that "it becomes harder and harder to show top-line revenue growth as your customer base gets bigger and bigger."

But he and other analysts, along with Mr. Ballmer and Bill Gates, Microsoft's chairman, contend that the bullish case for Microsoft stock is compelling.

"We expect Microsoft to grow 50 percent faster than the Standard & Poor's 500 next year," said David Hilal, a managing director at Friedman Billings Ramsey in Arlington, Va. "So on a growth-adjusted basis, Microsoft would be actually less expensive than the market multiple. That would probably be the first time that's ever happened."

The optimism derives from the new-product pipeline, the basis for what Mr. Ballmer, at the company's annual session with financial analysts last month, called "phenomenal" growth opportunities.

Jamie Friedman of Fulcrum Global Partners, a research company in New York, said, "The growth of the company oscillates between product cycles, and it has a lot of new product coming to market in the next 18 months."

He cited important entries in three of the four major Microsoft business lines.

First comes Xbox 360, the home entertainment game unit that is due in time for the holiday shopping season this year and will compete with a new version of the PlayStation from Sony.

After that, the company will offer a new version of its data and analysis platform, SQL Server 2005, formally called Yukon.

Finally, probably in late 2006, Microsoft will deliver the new version of Windows, called Windows Vista, also known as Longhorn, with a potential market that includes nearly all of the world's millions of desktops.

"We are now at an inflection point where I think growth is going to start accelerating," Mr. Hilal said. He estimated that revenue would jump 11 percent in the fiscal year ending in June, compared with 8 percent growth in fiscal 2005.

NCR offers one example of a suddenly revived growth company. "They were thought to be dried up and then they came up with the automated cash register, which is the A.T.M. machine," Mr. Friedman said. "And then they found a growth vehicle in online payments." The stock has soared nearly fivefold from a low point in 2003. And I.B.M., which initially relied on huge mainframe computers, suffered acutely from the introduction of personal computers in the 1980's and 90's but has revived since the late 1990's on soaring revenue from consulting and other services.

But some people have serious reservations about Microsoft. Adam B. Rains, a data analyst and programmer at the University of Rochester Medical Center who uses Microsoft products extensively in his work as an epidemiologist, has concerns about Windows Vista, which, he said, seemed overengineered. "Microsoft is putting a really hard sell on Vista," he said, "but as more details materialize, I think that people are going to react much less favorably to it."

And Mr. Friedman of Fulcrum questioned the acceptance and ultimate profitability of Xbox.

Another reason for restraint, he said, is the company's "awkward" cash management stance and the low dividend - now 32 cents a year - it started paying only in 2003.

"This company is classically overcapitalized" with a cash hoard of $37 billion, Mr. Friedman said, even after it paid a $3 special dividend in December and spent $44 billion during fiscal 2005 on dividends and buying back shares.

He estimated that institutional money managers held a trillion dollars or more of assets on which they needed a solid dividend yield and therefore largely avoided Microsoft shares.

The best way for Microsoft to raise its stock price, Mr. Friedman said, "is for them to double their common dividend."

"At 64 cents on a $27 stock," he added, "that would be 2.4 percent." The S.& P. 500 now yields 1.8 percent.

The only flat-out bear on Microsoft stock among analysts reporting to Thomson Financial is Richard T. Williams, senior software analyst at Garban Institutional Equities in Jersey City. He maintains a "strong sell," with a 12-month target price of $20.

"We don't think Microsoft is growing fast enough to justify its valuation," he said, noting that he gauges growth by actual recent performance rather than by projections. He also contends that the introduction of a dividend put the company into a new investment category, one in which its low dividend rate compares unfavorably.

As for the new products, Mr. Williams said that those like Vista that were not absolutely essential to customers often took considerable time for adoption.

Over the longer term, however, he sees spectacular potential in a product still under development, informally called Web channel, which, he said, would provide companies with a streamlined method of conducting various facets of e-business in collaboration with partners, suppliers, credit card companies and others. "The closer we get to Web channel, the more bullish we get," he added.

Mr. Becker, at Argus Research, shares the belief that the growth of the company will accelerate. He has established a 12-month price target of $32 a share.

Speaking broadly about the prospects of Microsoft and its competitors, he said: "Some people are concerned that there isn't a killer application out there in the software world. Well, there is. It's the Internet. The growth of the Internet helps a lot of different industries - software, hardware, telecommunications, you name it." But Microsoft faces formidable competition - from Google, for one - on the expanding playing field of the Internet.

Still, even if many of Microsoft's own executives are apparently not sanguine about the prospects for their company's stock, the dominant sentiment on Wall Street is upbeat, Mr. Friedman said. "The word people are using with Microsoft right now," he said, "is 'renaissance.' "

Anonymous said...

Google says it needs the cash for "general corporate purposes." But it already has $2.9 billion in cash and short-term investments, which is more than 80% of the companies in the Standard & Poor's 500 index, including eBay, Best Buy, and Southwest Airlines, according to Capital IQ data. Adding $4 billion would give Google a savings account bigger than 90% of the S&P 500 companies, including Boeing, Coca-Cola, and Wal-Mart, Capital IQ says. That's why Scott Kessler, stock analyst at S&P, equates Google's follow-on offering to an "arms race" with rivals Yahoo! (Nasdaq: YHOO) and Microsoft (Nasdaq: MSFT). Microsoft has $37.8 billion in cash and Yahoo! $3.4 billion.

Anonymous said...

Google hires Vint Cerf
Seems like a vanity hire on googles part. I breifly looked through his bio on several sites and it didn't seem like he had worked on anything "incredible" in awhile.
Hey, you have a great blog here! I'm definitely going to bookmark you!

fCh said...

Yeah, I've learned about Mr. Cerf, friend of Google CEO's for over 20 years. If you happen to find the characterization of this event as done by Eric Schmidt, there is no more mystery: "He is one of the most important people alive today." Schmidt is just the guy who recalls friends.