Apple's restrictions-free music balances consumer rights with accountability

People seem to be surprised by the fact that Apple is tagging its iTunes Plus, DRM-free music with the user name of the person who bought that music. The truth of the matter is that Apple has been tagging all music purchased from the iTunes store with the purchaser's user name for as long as I can remember. Why? Because it needs to live up to its contractual obligations to the record labels, and those contracts say Apple will take measures to ensure that it does not aid and abet wide-spread file sharing of music files.

Apple's DRM implementation seems to precisely mirror what I had suggested back in March 2006, and that Yankee Group reiterated this year. Specifically, it:

1. Raises the bar on quality, yet includes tracking metadata to provide accountability to the labels should widespread copyright violations occur.


2. Allows use on nearly any music player, and thereby complies with most if not all European interoperability laws.


3. Permits casual sharing and viral promotion with friends to grow the music market overall.

Remember, iTunes licenses, which everyone agrees to when they use it, say that these purchases are for personal use only, not public use. So people who feel like their privacy is being violated by this tagging have to ask themselves how their account information is being made public, given they have bought no rights for public use. And for anyone who is truly concerned, the tracks can still be burned to CD and re-ripped without the meta-data.

In short, Apple's DRM-free music strikes a balance between freedom and accountability, AND between consumer rights and convenience. If consumers don't like that balance, they can still buy CDs and enjoy them on their iPods. But for the vast majority of consumers, the convenience of one-click purchasing will vastly outweigh the potential downside of having their user name put on the music, just as most consumers prefer trackable credit cards to the anonymity of cash. In my opinion, Apple's move to DRM-free music may not please everyone with its strategy, but it will satisfy enough consumers to grow both its own business and the music business at the same time. And in marketing, that's a home run any way you slice it.


Full disclosure: the author owns Apple stock at the time of writing.

Technorati Tags: Apple, Digital Rights Management, DRM, iTunes, Music, Yankee Group

Apple TV will be able to show YouTube video in a few weeks

One of the announcements Steve Jobs just made from Walt Mossberg and Kara Swisher's D5 conference is that Apple TV will get a software upgrade that will allow it to show YouTube videos. Cool. But no high-def -- yet.

Technorati Tags: Apple TV, Walt Mossberg, YouTube

Apple market cap now exceeds $100 billion

According to today's stock market, Apple now is worth more than $100 billion. For those of you keeping score at home, that's about 0.34 Microsofts, 0.83 Hewlett-Packards, and 1.7 Dells at today's market prices.

As a side note, market reaction to Microsoft's Surface Computing announcement today has been muted, with MSFT stock up 0.14 or about 0.5%.

Technorati Tags: Apple, Dell, Hewlett Packard, Microsoft

Apple's answer to Microsoft's Surface Computing initiative: real products

Microsoft is announcing today a new direct-manipulation concept and user interface targeted at the gaming and hospitality industries. The system uses projectors and cameras beneath a translucent flat surface to give user the appearance of seamlessly manipulating both real and virtual objects in the same environment. As an example, a user might put down a loyalty card for a casino, and have the system recommend restaurants and shows for the user to go based upon their prior preferences. In another demonstration application, a user put down a WiFi-enabled digital camera and was able to shuffle through and manipulate the pictures in it.

Make no mistake: multi-touch and direct manipulation interfaces like Milan (Microsoft's development code name for surface computing) are very cool. In fact, that's one of the reasons the consumer market is so excited about Apple's iPhone: it will be the first multi-touch direct manipulation device available to consumers. But as with many concept demos, the devil here is in the details, and Microsoft's surface computing initiative is very different from -- and probably will never compete with -- the technologies Apple is introducing in the iPhone. Microsoft's technology:

1. Depends on cameras and projectors for its magic. This isn't a touch-screen technology, but an optical one. That has some huge advantages, like the ability to use brushes to paint, but also has some disadvantages, like the need for dim lighting to avoid washing out the screen and the need to put bar codes on objects for the system to recognize them.


2. Focuses on large interactions instead of small. Despite claims Microsoft has been shopping this technology to Windows Mobile phone makers, this technology is clearly designed to work primarily in large kiosk-like settings than mobile phones. You need large empty spaces for optical projectors and cameras -- that's why you can't hang projection TVs on your wall like you can a plasma or LCD display. There's no room in a mobile phone for the optics needed to implement this type of surface system there -- and using a multi-touch enabled touch-screen would undoubtedly run afoul of Apple's patents on that technology.


3. Doesn't fit in the PC ecosystem. Even if consumers were OK with the many-cubic-foot bulk of these surface systems, Microsoft says in its press release that it will distribute this technology largely through a distribution and development agreement with International Game Technology. That means you're much more likely to see this technology in your next video poker machine at the Venetian casino than you are in the PC you get from Best Buy.

So surface computing isn't the iPhone or a PC technology. Does that matter? After all, Apple isn't doing anything with multi-touch for computers, is it?

Well wait a few weeks and you may be surprised at how much Apple is doing with multi-touch. We've already seen small applications of multi-touch on Apple MacBooks and MacBook Pros, where two-finger scrolling has become the norm. But as we've noted before, multi-touch gestures combined with a new 3D finder have the potential to revolutionize the PC user interface -- and we believe that that interface will be part of Apple's next OS Leopard. And given that Apple has recently cut its display prices to reduce inventory and has several multi-touch gesture and flat touchscreen patents already filed, we may see touchscreen-supporting flat-panel displays and notebooks introduced along with Leopard too.

Our bet is that Steve Jobs won't spill the beans on Apple's multi-touch efforts at the D Conference today -- he'll just show off the iPhone and leave it at that. But make no mistake: Apple has similar technology in its development queue. But in Apple's case, we won't see it as a demo. It will come in actual products you can buy.





Full disclosure: the author owns Apple stock at the time of writing.

Technorati Tags: Apple, Casinos, Gaming, iPhone, Marketing, Microsoft, Multi-touch, Surface computing, Windows Mobile

Differentiating Marketing, PR, Advertising, and Branding

A Tuesday morning chuckle: Ads of the World has visually defined marketing, public relations, advertising, and branding via cartoons. Handy if you're unclear which types of marketing are which, especially after a long weekend.

Technorati Tags: Advertising, Branding, Humor, Marketing, PR, Public Relations

Rumor: iPhone manufacturing contracts now up to 17 million

Forbes has a report this morning that cites a rumor in a local Taiwanese newspaper that Taiwan's Quanta Computer has received an order to build 5 million iPhones with deliveries starting in September. If we add that to Hon Hai's rumored 12 million iPhone contract, that brings us up to 17 million contracted through 2008, or nearly double Steve Jobs' desire to grab 1% of the global cell phone market.

Blackfriars' speculation: this makes a ton of sense to us. It's not that Hon Hai isn't doing a great job manufacturing iPhones (at least so far as we know), but rather that Apple is planning for strong holiday demand and ramping up manufacturing capacity to serve it. No matter how good your manufacturing partner is, there are always unexpected glitches in production, so having multiple manufacturers reduces supply risk.

Full disclosure: the author owns Apple shares at the time of writing.

Technorati Tags: Apple, Hon Hai, iPhone, Manufacturing, Mobile phones, Quanta

It's Memorial Day weekend; are iPhones browsing your Web site?

A tip of the hat to Anders Brownworth, who noted that he has seen the tell-tale signs of iPhones browsing his site in his web logs. Mac Rumors appears to have broken the story about 6 pm yesterday, noting that you should look for the following signatures in your Web logs:

Mozilla/5.0 (iPhone; U; CPU like Mac OS X; en) AppleWebKit/420+ (KHTML, like Gecko) Version/3.0 Mobile/1A538a Safari/419.3

I took a look through the last few days of logs, but was disappointed not to find any telltale traces. But when I looked back at the whole month of May, bingo! I found 23 accesses to our site from iPhones.

Some quick observations: the software version does change over time, as does the IP address. Combine the fact that many Mac Web sites are now reporting logs with iPhones browsing them and the fact that some iPhone pictures are showing up on the Web, and you get some pretty convincing evidence that a few Apple employees (and the President of West Texas A&M University, Dr. Patrick O'Brien) have working iPhones and are actually using them.

Technorati Tags: Apple, iPhone, Web logs

A fashion-forward laptop -- from Intel?

BusinessWeek has an exclusive look at a prototype Intel laptop that looks so good, it could have come from Apple. They say that amateurs imitate, but professionals steal. If that's true, then Intel may be moving into the pro ranks from its earlier efforts in 2000 that looked like footstools. After all, doesn't that sideways laptop view come right off the MacBook Pro box?

All this said, though, there's still some work to be done. While the 2.2 pound laptop hardware is cool, the outer folder-concept that looks like a purse, but sports an eInk screen has got to go. No fashionista wants to wear her email on her Gucci-like bag -- and geeks who like external screens aren't going to carry a folder that looks like a purse. Maybe Intel still has a bit to learn about design after all.

Technorati Tags: Apple, Fashion, Intel, Laptop, BusinessWeek

The new corporate event: think globally, do business locally?

[Events spending over the last three years; click the image for a larger version.]

Yesterday, one of our customers asked us to look at some trends in events spending -- that is, conferences, shows, and private business get-togethers -- so I thought I'd share the results with readers. While the data isn't conclusive, it does show an interesting divergence.

The big question was, how have US companies changed their event spending over the last few years? Well, the chart above shows you the answer using our Blackfriars Marketing Category Indices. What's a Blackfriars Marketing Category Index? It's a measure of spending that compares quarterly spending on a marketing category against the same spending in 2003. The 2003 value is artificially set to 100, you can just add a percent sign to a Blackfriars Marketing Category Index, and you'll know how that quarter's spending stacks up against one 3 years ago.

Now there are two numbers on the chart: a budgeted value in blue and an actual value in red. The budgeted number is, as its name suggests, the amount that senior executives budgeted to spend in a quarter. And that means that the actual number is, you guessed it, the actual amount they did spend. The interesting bit about this chart is that actual spending on events was above the budgeted values in 2005, but then dropped to less than half of budgeted values in 2006. Those actual values also were below the 2003 level for three out of four quarters too. Our conclusion: companies got a lot more cautious with actually spending their events money. And this makes perfect sense given the overall decline of marketing budgets at the start of 2007.

But you know what? This seems to line up pretty well with what we're anecdotally hearing in businesses. We don't hear so many companies saying, "We have to have a 150-foot, two-story booth at the big Vegas show," any more. We're hearing a lot more people opting for targeted, more focused shows instead of the big budget-busting mega-exhibitions.

In some ways, I see the events business suffering from a tyranny of too much trend as much as a declining spending trend. If executives feel overwhelmed by events and event choices, they become a lot more selective with their time. So they decide to spend their time at intimate interactions like the < a href="recently-noted unconferences and less for big, rah-rah events. I see focused events like Walt Mossberg's D conference, which is hosting Steve Jobs and Bill Gates on a single stage, winning out over giant exhibitions like CES. I see people I respect and admire choosing the TED conference in Monterey over jetting off to Davos conference in Switzerland. And frankly, air travel is such a hassle nowadays, that I don't think anyone is regretting staying closer to home. So ironically, companies may be spending less, but getting more from their event dollars.

Some consumers have recently started buying more locally grown food (I've heard local food called "the new organic"), noting that shipping food half-way around the globe costs us all freshness, money, and energy that get in the way of sustainable food sources. Perhaps this declining spending on events spells a similar trend in business. Think globally; do more business locally. It has a nice ring to it.

Technorati Tags: Bill Gates, Blackfriars, D, Events, Marketing, Davos, Steve Jobs, TED, Trends, Unconferences

Thinking of flipping Apple stock around WWDC? Think again

Gene Munster at PiperJaffray has done a very interesting analysis of Apple's stock price around major announcements, including the World Wide Developers Conferences (WWDC). He had expected to disprove the old saw of "buying on the rumor and selling on the news" as an investment strategy, but got a surprise:

"But instead, we found that historically it has been beneficial to own shares of Apple heading into and out of launch events," the analyst explained. "Apple consistently delivers, and investors respond positively."

Specifically, by using the closing price the day before events as a base, Munster found that shares of Apple have risen an average of 1 percent the day of an event, and rise 3 percent in the week after the event. Using the closing price the week before events as a base, shares of Apple have risen 6 percent on average between the week before and the week after an event, he said.

Sounds like a good plan for next month's WWDC on June 11-15, right? Well, actually, his data makes that a dicier proposition than you might guess. WWDCs seem to be the exception to the stock rise rule, with AAPL stock actually declining 12% and 4% during WWDCs in 2005 and 2006 respectively (see the graphic above). Hmmm. Never mind.

But there's another factor this year too. WWDC is likely to be all about Mac OS X 10.5 Leopard. But we also know that the iPhone launch is on target for June as well. Won't that boost the price too?

Well, let's put some numbers around that. Let's pretend that Hon Hai has been running iPhone production around the clock. They could have a million iPhones in warehouses, ready to be sold as soon as the iPhone hits the street in late June and just in time to close out Apple fiscal Q3. Would that have an impact?

Sorry, even with a million iPhones sold in June, which we are most emphatically not predicting, the effect is small. While the sales figure would be over half a billion dollars (roughly about $529 million, given a 70-30 split between the lower priced iPhone and the higher capacity one), that half a billion gets spread out over 24 months, as we noted in our April Analyzing Apple report. So for the Q3 results, we'd only see 1/24th of the $529 million sales value or $22 million added to Apple's revenue statement. So while the PR effect will be big, the actual business value in Q3 will be tiny.

Bottom line: we don't expect to see a huge spike in Apple share prices across WWDC. The stock has appreciated more than 20% since the earnings release on April 25, 2007, and that means that there are a lot of investors with some hefty gains on the books going into summer. I do think the positive press around both WWDC and the iPhone launch will bring buyers into the market, but I also think that our target price of $112 -- a price to earnings ratio of 30 times 2007 earnings -- remains right. But expect a lot of volatility, both up and down, in June with some upside above our goal if the Leopard announcements are particularly revolutionary, as we expect they are.

Technorati Tags: Analyzing Apple, Apple, Deferred revenue, Financial analysis, iPhone, Leopard, PiperJaffray, Gene Munster, WWDC

Motorola's press release is a symptom of bigger problems

I was reading various news streams this morning, and came across this press release from Motorola titled, Motorola Announces its Convergence Ecosystem: Applications come to life in an IMS environment. I encourage everyone to go read it and come back to this page.

Ready? OK, pop quiz: answer the following three questions without going back and looking at the press release:

1. What is IMS?


2. What industry is this aimed at?


3. What benefits can customers expect from this Motorola offer?

If you are an ordinary, mortal business person, you probably can't answer any of those questions. The problem isn't you; it's the press release. It has a Flesch reading ease score (excluding the boilerplate at the end) of 14. To put that in perspective, Reader's Digest has a readability score of about 65, The New York Times about 42, your average auto insurance policy about 10-15 (although the government has been trying to get those higher over the years), and the US Tax Code at about -6. So while the press release is more readable than the US Tax Code, it still has a way to go if it wants the New York Times to cover its announcement.

Oh, and all this assumes you are a native English speaker. The lower the readability score, the less likely it is that the document will be translated accurately and understandably into other languages. Said another way, Motorola can expect a lot of readers in Asia and Europe to be going, "Huh?" when they read the versions of this press release in their native languages.

I'm making light of this, but this illustrates a real and serious business problem. How do companies expect to convince prospects to buy their products if they can't understand them? The biggest problem with Motorola's press release is that it is fully buzzword-compliant, yet deigns to define only a few of them. I read it, and the words that come into my mind are from Shakespeare: "It is a tale told by an idiot, full of sound and fury, signifying nothing."

I've written about Motorola's product and management challenges previously, but this press release says something deeper. It says that Motorola doesn't know how to communicate. And for a company that makes communications products, that's not a good sign. Not a good sign at all.

Technorati Tags: Communication, Motorola, Press release, Flesch reading ease

Google Finance redesign

Has anyone else noticed that Google Finance now has a completely new layout? The recent quotes have moved up to the top left of the page, and the market summary is now over on the top right. And the drill down pages are different too. This is all probably just part of the redesign for Google Universal Search, but it's a welcome change. From my point of view, the information seems better organized and tighter now.

In addition, Google has added a new real-time meme capability called Google Trends. It's no threat to Techmeme.com yet, but it's something to keep an eye on.

Technorati Tags: Google, Google Finance, Google Universal Search, Google Trends

Apple booms in the spring, tra la

Apple stock broke $111 a share yesterday on the strength of .... no news. Well, maybe not no news. There was the story we reported that the iPhone got FCC approval, but that was four day old news. So what's up with the stock taking a run at our projection of $112 a share about three months too early? As a side note, anyone who took our report recommendation and bought Apple stock on its publication day, April 25, has seen their stock appreciate about 21% in less than a month.

With June just a couple weeks away, many investors are just now coming to realize internalize that the iPhone hits stores in about a month, and it's going to hit big with AT&T stating that the iPhone is going to be a big part of its rebranding from the old Cingular jack-in-the-phone. And given that the school buying season will be getting underway in about a month, we should see iMac updates soon as well, fulfilling our prediction in the Analyzing Apple report last month. Finally, in just three weeks, we're going to learn how all those megabits inside Leopard are going to blow out our windows, one way or another.

As someone once told me, the most likely reason that Apple stock price is rising is that there are more buyers than sellers (Doh!). But despite the tautology in that statement, that increased interest in Apple is driving new business opportunities to cater to Apple investors and enthusiasts. After all, Blackfriars just launched our single-company Apple analysis series last month, and we're still selling copies of it, despite it being nearly a month old now. Medialink Web Ventures has just launched AppleInvestorNews.com today to become a one-stop consolidation portal for Apple investor news. At this rate, Disney/ABC will launch a new all-Apple iTunes video, satellite TV, and cable channel next year hosted by Amanda Congdon. The name? Appleboom, of course.

Still, even with Apple stock at an all-time high in May, it's quiet out there. Too quiet. But just wait until after Memorial Day, because June is going to be anything but.

Full disclosure: the author owns Apple shares at the time of writing.

Technorati Tags: Amanda Congdon, Analyzing Apple, Apple, Appleboom, AppleInvestorNews.com, at&t, Cingular, Medialink Web Ventures, Stocks

Blackfriars marketing, now in quadruple digits

I hadn't looked at the blog statistics for a week or two, but I did happen to notice today that we've posted 1,019 articles to Blackfriars Marketing over the last two and a half years, putting us firmly into four digits worth of articles. Over the past 12 months, those articles have attracted just shy of a million visits to the site, a milestone I'm hoping to pass later this year.

I hope everyone has noticed a shift in our topic coverage over the past five months. By looking at our reader statistics, I found that interest in our marketing articles paled in comparison to the articles we wrote about Apple, media, and finance. As a result, we've re-oriented much (but not all) of our writing to those topics. And as people have seen with our Analyzing Apple research series, we're even focusing some of our product development efforts on these topics as well.

I want to send a big "Thank you!" to all of you who stop by, read, and comment here. We take your comments and suggestions seriously, and what say here to us is driving some of what we do as a business. If there's a topic or feature you'd like to see here, please leave a suggestion in the comments. For those of you looking for in-line comments, those are coming with the site re-design, so consider that one in process.

Again, many, many thanks, and here's to the next thousand articles.

Carl

Technorati Tags: Analyzing Apple, Blackfriars

The harsh light of Monday morning shines on Microsoft's aQuantive deal

I wrote about Microsoft's aQuantive deal on Friday saying that it made no financial sense. Well, apparently, I have company. Both the infamous Microsoft mole, Mini-Microsoft, and Kevin Kelleher at GigaOM are verbalizing what I think is everyone's astonishment at Microsoft's six billion dollar deal from last Friday. I think Kevin does a nice job of putting this in perspective:

I’ve been trying to find a way to illustrate just how screwy Microsoft’s $6 billion bid for aQuantive is, and here it is: For $6 billion in cash, Microsoft could have hired, in a single day, 60,000 engineers and salespeople (plus managers to make sure they earn their pay) - paying each one of them a $100,000 salary.

Of course, if Microsoft did that in one day everyone would think its executives had gone mad. After all, it already employs a modest 71,000 people around the world. Instead, it’s paying out $2.85 million for each of the 2,106 employees who work for aQuantive.

Combining the two articles, we could go even further down this road of making the $6 billion all-cash deal price concrete: For the same price, Microsoft could have given every employee who now works at Microsoft an E-class Mercedes Benz and had money left over. Alternatively, it could have just given every Microsoft employee a $85,000 bonus. It could have bought Salesforce.com outright, which would have certainly put a crimp in the alliance Salesforce is negotiating with Google and would complement Microsoft's existing former-Great Plains Software group nicely. Or, it could have given away 20 million XBox 360s to seed its video game market. Instead, we're going to have more Microsoft-branded banner ads. Oh joy.

Yeah, I think Microsoft might have overpaid for aQuantive a little.

Technorati Tags: Advertising, Deals, Google, Microsoft, Online advertising, Salesforce.com

International iPhone users: you're on your own according to the FCC

OK, so here's a very geeky observation about the iPhone and its FCC certification. Non-geeks may keep moving; you probably don't want to read this.

Apple's iPhone specs say that the iPhone is a quad-band phone, operating using the international GSM standard on 850, 900, 1800, and 1900 MHz. I always assumed that the FCC tested cell phones for safety and proper transmission in all bands of operation. So why does the FCC certification published yesterday only list 850 and 1900 MHz?

The simplistic answer: the FCC didn't certify anything other than 850 and 1900 MHz because those are the only US GSM frequencies. The other two bands are only used in other countries (where, by the way, GSM dominates the cell phone standards). The US doesn't use them, so the FCC didn't have to certify them. End of story. Well, not quite.

See, the FCC certification is supposed to guarantee that FCC-certified devices don't generate harmful interference to other radio services. While the US mobile phone companies don't use those frequencies, other services may be using them. So hypothetically, suppose the iPhone had a design defect and were continuously beaconing somewhere in the 900 or 1800 MHz bands at its full rated 600 milliwatt output, wouldn't that be a problem? Not according to the FCC. Oh well; that's just something for companies to keep in mind they are bidding to spend $10 billion on US radio spectrum in the 900 and 1800 MHz bands.

There's another odd bit too. A big part of the certification is ensuring that the phone won't cause radiational harm to the person using it. And the certification as filed does that; geeks can read the report in gory detail here. The only problem: it only tested for 850, 1900, and 2400 MHz WiFi emissions. International users of 900 and 1800 MHz bands? Sorry, that's out of scope.

Product certifications protect consumers in mysterious ways. If this certification is any guide, FCC cell-phone certifications are more mysterious than most. Just don't complain if your iPhone accidentally fries your brain or interferes with airline navigation when you're using the GSM phone systems in France. That's just not the FCC's problem.

[Extra credit geeky note: the WiFi and Bluetooth 2400 MHz certification is actually more relevant to safety no matter where you live because that's the frequency at which water absorbs radio waves and heats up. Said another way, it's the frequency of microwave ovens. 2400 MHz safety certification is rather significant because the last thing you want is your cell phone doing the microwave oven thing with your head, which, coincidentally, has a lot of water in it. The fact that the WiFi section of the iPhone was certified to be safe in the 2400 MHz band is, in our opinion, a very good thing, and we're glad the FCC requires it, no matter what country you live in.].

Technorati Tags: Apple, Certification, FCC, GSM, iPhone, Safety

Microsoft buys aQuantive: the bubble is back, this time with ads

Not to be outdone by Google in overpaying for online advertising companies, Microsoft will pay $6 billion for ad company aQuantive, corporate parent of Avenue A / Razorfish (link is to the Wall Street Journal article, subscription required). To put that in perspective, aQuantive's revenue last year was $442 million, so Microsoft is paying almost 14 times revenue for the company. Compare that with the Doubleclick acquisition by Google, where Google paid only 10 times its $300 million revenue. Microsoft's own Don Dodge even called even a $2 billion acquisition of Doubleclick out of line.

If anyone needed proof that the online ad business is in the middle of a bubble of valuations, this is an excellent data point. Blackfriars' survey of US businesses says that senior executives in US companies plan to spend less on marketing and advertising this year than in any quarter in the last three. With that as a backdrop, it will take Microsoft more than a decade to recoup the $6 billion it is investing in aQuantive, if ever. And with Microsoft already tapping deferred revenue assets to deliver numbers that Wall Street likes, throwing billions more at opportunities like this isn't going to help its stagnant stock price.

Said another way, while this deal may have strategic value to someone at Microsoft (clearly someone forgot to send the memo to Don Dodge), it makes no financial sense. And when we start seeing merger and acquisition deals that make no financial sense, that's when we know we're in a speculative bubble. And like all speculative bubbles, investors shouldn't be surprised when it pops.

Full disclosure: the author has no positions in the companies mentioned in this article.

Technorati Tags: Advertising, aQuantive, Google, Microsoft, Online advertising, Doubleclick

Cupertino, you are go for iPhone launch

It's official: the iPhone now has FCC certification.

Technorati Tags: Apple, iPhone, FCC

Sony/Club Penguin purchase in the works?

Paidcontent.org says that Sony is in talks to purchase kid-friendly virtual reality site Club Penguin for about $450 million. Club Penguin is in my opinion one of the most wholesome kid-friendly Web sites on the planet today. BusinessWeek called it "MySpace for the sandlot set", and I think even that description sells it short. This is an Internet property that both kids and parents can love, makes a profit, and uses some of its profits to improve the lives of children in places like Uganda and Romania.

If I were Club Penguin, I'd be talking to Disney and Viacom (owner of Neopets.com) as well as Sony, because $450 million for a one-of-a-kind company like this is a steal. But while we are eager to see the Canadian founders profit from their hard work, we'll be sad to see it come under the corporate umbrella of a large media company. Somehow, we don't think the snowstorms and Pirate Parties will be the same with a Sony logo, even if it doesn't show.

Technorati Tags: Club Penguin, Deals, Paidcontent.org, Sony

Apple bears the brunt of Wall Street's new secret weapon: disinformation

Yesterday, Engadget published a now-refuted Apple email claiming that both the iPhone and Leopard were delayed. Today, the game is figuring out who was behind that email and why. Who cares? Well, when 60% of the normal daily volume of Apple stock trades in 23 minutes, we all should care.

Paul Kedrosky actually was the first person I saw to wonder if the email was actually a disinformation tactic in the service of market manipulation. He also notes that hedge fund D.E. Shaw cut its Apple holdings in Q1 by a third. Kevin Kelleher at GigaOM echoed the sentiment and tied it to the Microsoft/Yahoo boom and bust we implied was driven by Rupert Murdoch and his New York Post article last week. And the AAPL finance boards over at The Mac Observer are buzzing with rumors that some hedge funds with short positions in Apple may have not been very happy with the strong upward move of Apple stock over the past week and decided they had to do something about it. And as the New York Times noted last weekend, suspicious trading overall is on the rise, with the SEC fielding only about 160 analysts to police all US insider financial activity, including overseas investors.

This trend of using disinformation for competitive advantage has been building for more than a decade. Microsoft used astroturf campaigns -- fake grass-roots letter writing initiatives -- to sway public opinion in its US anti-trust case. The Vietnam Veterans for Truth successfully used a disinformation campaign about John Kerry's Vietnam War record to derail his campaign for US president. Similar techniques referred to as "fomenting" now are showing up in the financial arena, documented in public interviews by authorities such as TheStreet.com founder Jim Cramer. These activities are hugely illegal, but when there are billions of dollars at stake, many traders just don't care. To quote Jim Cramer in the New York Times:

What’s important when you are in that hedge fund mode is to not do anything remotely truthful, because the truth is so against your view, that it’s important to create a new truth, to develop a fiction.

Apple stock quickly recovered yesterday after the false email was revealed. But no one should be fooled into thinking that disinformation will die nearly as quickly. Disinformation is the new secret weapon in financial markets, and with hedge funds having few filing, disclosure, and regulatory requirements, we may only find out about how this weapon is being used after some serious damage gets done to investors.

Full disclosure: the author has a long position in Apple shares, but has no positions in the other companies mentioned in this article.

Technorati Tags: Analysis, Apple, Disinformation, iPhone, Jim Cramer, John Kerry, Leopard, Paul Kedrosky, Rupert Murdoch, SEC, Stock manipulation

Microsoft and subscription sites lose big in Amazon's move to DRM-free music

We said that Apple's move to DRM-free music was smart. Well, Amazon today announced that it will join the party. And in the Wall Street Journal article quoting Jeff Bezos, Amazon intends to offer "millions of songs" from "more than 12,000 record labels." Sounds like those labels that thought EMI's Digital Rights Management (DRM)-free music deal with Apple was just an aberration might want to re-think their approach.

Who is are the big losers in this change in the digital music market? We believe that there are a few companies that are seeing their business models flash before their eyes, including:

• Microsoft, whose billions of R&D dollars invested in music digital rights management are about to go down the drain. Who is going to want to pay for a PlaysForSure or Zune music license when the world is moving to the open MP3 standard?


• Subscription music sites like RealNetworks and Yahoo! Music, who can't revoke your music when you don't pay your subscription fees without DRM. No record label is going to sign a subscription deals any more given that 1) they earn less from subscriptions than from music sales, and 2) subscription sites won't be able to guarantee their ongoing revenue stream.

Technorati Tags: Amazon, Apple, Digital Rights Management, DRM, Microsoft, Music, RealNetworks, Subscriptions, Yahoo

Macs rule at two security conferences

Andrew Jaquith of Yankee Group recently attended two security conferences out in California, and did a little surveying of the computer landscape there. His stats are quite telling, particularly the one that said that Macs made up 55% of all computers at the general session, and that 90% of those were less than a year old. Even at the Microsoft-sponsored session on CardSpace, 42% of the computers there were Macs.

All I can say is that this is a dramatically different environment than when I was covering security from 1996 to 1998. At that time, I was lugging around my Forrester-issued IBM Thinkpad, and there were approximately zero Apple computers at big security conferences. While we hear all the time assertions that Windows computers can be just as secure as Mac OS X ones, security professionals seem to be voting otherwise with their wallets. Sounds to me like the recent observation that Apple has captured 10% of the total US retail notebook shipments in March may be undercounting the cumulative numbers of Windows switchers.

Oh, one little bit of 10-year-old inside baseball that may or may not still be true today. That one guy counted in Andrew's post as being from the "Department of Defense"? That used to typically be the guy representing the National Security Agency (NSA, or as we used to call them, No Such Agency). The CIA guys who attend security conferences have badges that read "US Government".

Technorati Tags: Andrew Jaquith, Apple, MacBook, MacBook Pro, Macintosh, Notebooks, Security, Yankee Group

Forrester: Paid video is just supported by pockets of dead-ender media junkies

[iTunes sales through April 2007 on a log scale]


With echoes of Donald Rumsfeld's famous dead-ender quote in 2003, Forrester yesterday released a report saying that there is no future for paid video downloads. While I haven't been able to get my hands on a copy of the full report yet, the major data point cited in the press release is that only nine percent of online adults have ever paid to download a movie or a TV show. Arguing that this nine percent constitutes largely media junkies (the media-driven segment of Forrester's Technographics segmentation of US consumers), Forrester dismisses the trend as missing the mainstream video viewers who have been raised on free TV. The report also appears to argue that consumers will greet media companies who supply content with required viewing ads as liberators from the hell of actually paying for content.

Shades of deja vu, this reminds me of last year when Forrester predicted that iTunes sales were collapsing.

Quick, someone should tell the DVD business that no one will pay for video, especially not video of free TV shows! Tell Blockbuster to sell off those boxed DVD sets of Lost, Sex And The City, and Heros. And tell Disney to give back that $20 million they made on downloaded movies in the past six months -- it will never work!

OK, pop quiz time. How long have legal digital movie downloads been available to consumers? Your choices are:

• a) One week
• b) One month
• c) Nine months
• d) Twenty-one months
• e) Movies have always been available for paid downloading.

The correct answer is c) nine months (as you may have noticed from the chart at the top of the posting). If we changed the word "movie" in the question to "TV show", the correct answer would be d) 21 months, or less than two years. Yet, we already have nearly 1 in 10 online consumers that have bought such a show. Sounds to me like fairly rapid adoption, not an experiment in its death throes.

But I think the biggest factor that Forrester misses is the fact that consumers are willing to pay for the one thing that they can't ever get more of: time.

See, a lot of people think that ad-supported TV is free. But the consumer pays for the content with time. Today, a one-hour TV show is actually 43 minutes -- the other 17 minutes is commercial content. If I want to watch two one-hour shows in an evening, say both Desperate Housewives and Studio 60, I can either pay the half-hour of commercial time or I can pay $4 for those two TV shows from the iTunes store and get 34 minutes -- more than a half-hour -- of my evening to do something else with my family. Is my evening time with my family worth $8 an hour? You bet it is.

In my household, we have video-on-demand cable TV, a TiVO digital video recorder, and several iTunes enabled computers. We use them all to watch video content. We don't watch commercials unless we're bored or lazy. Life is too short for commercials. Yet, we aren't what Forrester would call video junkies -- our TV time per week is less than 10 hours. Given the trade-off between time and money, eliminating video commercials is money we think is well-spent.

The history of TV is filled with people predicting that free would eradicate new video businesses. For nearly 20 years, the TV industry thought cable and pay TV were completely ridiculous business propositions when TV was available for free over the airwaves. Today, you'd be hard-pressed to convince HBO and Comcast of that point of view. Others thought that DVD movies could never compete with those same movies being available on the networks, yet DVD sales now are a greater source of income to movie studios than theatrical box office sales. And don't forget that many originally claimed that iTunes could never succeed against free (and illegal) music sharing services like Napster. And now Forrester has joined the chorus claiming that required-ad-viewing "free" TV will kill the paid video download business. Forrester is in good company -- but it is just as wrong as Donald Rumsfeld was.

Full disclosure: the author is an ex-Forrester analyst himself and also has a long position in Apple shares, but has no positions in the other companies mentioned in this article.

Technorati Tags: Analysis, Apple, Apple Movies, Apple TV, Forrester, iTunes, TV, Video, Video iPod

Blackfriars launches ad-supported Analyzing Apple report series

Back in April, Blackfriars Marketing readers told us that they would like to see financial analysis of Apple Inc.'s business. About 50% of readers said they would pay for that analysis, while another 50% wanted us to find some way of providing the information for free. On April 25, we launched our paid report series with our first report, Analyzing Apple: Beyond the Computer, to satisfy the first half of those readers. Today, we're aiming to satisfy the other half by launching the Web version of that same report here. We plan to provide direct links to the report from the Blackfriars home page as well as well as tweaking some of layout of the material over the next few days.

Here are some notable differences between the online version and the paid version of the report:

• The online version features ads; the paid version has none.


• The online report is broken up into twelve different pages of content; the paid version is a PDF that is easily printed out for convenient reading.


• Online viewers only see JPEG graphics; paid subscribers receive Keynote, PowerPoint, and PDF presentations as well as an Excel spreadsheet of Blackfriars projections.


• The online version of the report is posted two to three weeks after the paid version of the report is available.

There is no commenting capability on the report itself, so we hope that readers who have feedback will either leave comments here on this posting or send them to us at feedback@blackfriarsinc.com. We hope you enjoy the report and will consider purchasing our research. We plan our next report to be released the week of June 18 after Apple's World Wide Developer's Conference, followed by the Q3 report a few days before Apple reports earnings on July 18.

Technorati Tags: Advertising, Analyzing Apple, Blackfriars, Earnings, Financial analysis, Projections

Why the music labels have to dance to Apple's iTunes

A little-noted article in MacWorld UK last week presented some most interesting data regading iTunes versus the rest of the online digital music stores. While largely citing Digital Music Group data saying that 89% of digital music revenue comes from iTunes versus 5% for all subscription services combined, I found this quote added much-needed color to the discussion:

Speaking on condition of anonymity, one independent label owner praised iTunes because the service hands over the most of the 79-pence per track sale price directly to the label – but is furious at the kind of revenue he's generating through other online services.

The label head's comments don't consider the slice of income that's handed across to music publishers, but he's pretty clear that iTunes offers his acts the better deal.

"For everything sold on iTunes, we get the majority of the 70-79p per unit sale price," he said, then added: "But for everything sold on the Ruckus Network we receive the princely sum of £0.005 per unit. That's half a pence. My distributor then takes their 25 per cent off of that, leaving myself and the artists to dish up the remaining fractions of a penny between us."

It's not much better through Real Networks, he informed – for sales through that service, his label receives a penny per track, he claimed. The thousand tracks sold so far have accrued £10 to the label (to share with the artists) rather than, "the £790 or so we'd have got for the same amount of sales through iTunes."

What this says to me is that despite music label griping about their needs for variable pricing and subscription services from iTunes, those services would, in fact, make less money for both artists and labels, despite iTunes larger volumes of sales. It also speaks volumes about why Universal Music demanded a payment on every Zune sold -- it knew it was going to only make pennies from Microsoft's music store if it didn't.

Despite what the likes of RealNetworks and Microsoft say, the digital music business has turned into a very simple marketing proposition. With Apple now the fourth largest retailer in music in the US, and the largest digital music distributor, if a label wants to earn the most money for their music, they need an Apple deal, pure and simple. It's not a technology or Mac-versus-PC religious argument; it's a distribution business decision, similar to decisions about selling through Wal-Mart or Amazon. And that business decision is measured in the difference between pounds and pence.

Technorati Tags: Apple, Digital Music Group, DMG, iTunes, Music, RealNetworks, Zune

Marketing spending: the canary for the US economy

When Blackfriars published our March marketing report, we noted that the three-year low for the Q1 Blackfriars Marketing boded ill for the US economy. Our reasoning is that when companies dramatically slow down spending on marketing, their sales fall over the next one to six months, since they aren't spending to bring in new business. Well, today's Wall Street Journal (subscription required) has sad confirmation of that theory, noting that retail sales overall fell 0.2% in April.. That may not seem like much of a drop, but given the large role consumer spending plays in propping up the US economy nowadays, it's an important change in direction from the 1.0% growth in spending in March.

Our prediction: with fuel prices rising and consumer spending falling, a lot of businesses are going to feel stretched thin this summer, and many businesses cut marketing spending at the first sign of trouble. Marketers should polish up their their quick return-on-investment slides for summer pitches -- we think they are going to need them.

Technorati Tags: Blackfriars Marketing Index, Consumers, Marketing, Retail, Spending

Leopard's secret: the end of windows?

When Leopard was recently delayed until October, the reason given was that the iPhone was taking up more time and resources than expected, but with the "borrowed engineers" from the Mac OS X team the iPhone would at least still make its June launch target. The press picked it up and ran with it like a well-trained dog, or perhaps more succinctly, an innocent but ignorant puppy.

As Carl noted in our previous post, Apple's most recent developers connection email announced the immediate availability of a series of Coding Headstart videos for Leopard. They want developers to be fully prepared and already familiar with Leopard when WWDC hits us next month, which is still more than three months before Leopard will actually hit the shelves. Why the rush?

That Leopard was delayed seemed like a logical and obvious thing to do to us at Blackfriars, even if the product was secretly on schedule to launch in June. Pitting Leopard against the iPhone and having the two products fight each other for media attention just didn't seem like something Jobs would do, certainly not after making "Business School 101" jokes in his Keynote presentations.

Yet, there could be more to it all, and the Coding Headstart announcement gives us some clues.

If the only reason Leopard was delayed was to give the iPhone its fair chance — after all, this is Apple's most significant product launch since the original Macintosh — there would be no reason to rush developers into learning how to code for Leopard. It would be the opposite, as it would give developers a good reason to breathe and relax a bit.

Thus, it's reasonable to believe that there is an ulterior motive. A good motive would be that developing apps for Leopard is going to be very different from developing apps for Tiger, and by "different" we really mean different in every sense of the word.

It's already known that Leopard will introduce a series of new APIs, many of which will replace existing ones to optimize performance, increase flexibility and generally just make the life of a developer much easier. There will also be several new APIs that have tremendous impact on application development – Core Animation is not just an API to add some sexy animations to your app, it's something that can easily revolutionize the way applications work and exist entirely.

In fact, Core Animation opens up the possibility of a brand new user interface. Time Machine is an example of an application that breaks a lot of conventions about window management, application windows and general user interfaces. Core Animation is what makes it all possible.

When you think about it, we've been using the traditional windows-based interface for over 20 years now. Apple made windowed interfaces mainstream with the Macintosh in 1984, it created a vastly simpler interface for music players in its iPod in 2001, and it appears it will reinvent mobile phone interfaces with the iPhone in 2007. Apple is a company that specializes in great user interfaces, so why shouldn't Leopard itself gain some of the experience gleaned from Apple's consumer electronics successes of the last seven years?

The trend we're identifying here has been underway for a while. Think about it: how many of Apple's new applications actually use traditional, overlapping windows for anything other than a frame around a unique interface? Garageband doesn't. iTunes barely does except for video. All the Pro Apps like Final Cut, Motion, Aperture, and the like all trend toward paned, not overlapping window, interfaces. And new products like the iPod, iPhone, and Apple TV don't use windows at all, relying instead on vastly simplified buttons and interfaces. Further, consumers are gaining experience with interfaces that rely on transparent panes instead of windows on new HD-DVD and Blu-ray movies. Between transparent overlays and Apple's Spaces feature to allow multiple virtual screens, Apple has eliminated many of the needs for overlapping windows cluttering up desktops. And just as Apple first recognized that computers no longer needed floppy disks any more, ridding consumers of overlapping windows may be the first step in a radical simplification of user experiences again.

Such a radical new "feature" in Leopard would more than justify Apple's efforts to rush developers into learning about the new APIs and preparing them to make some serious changes to their applications. For that, 3-4 months may not even be enough, but it will give them a pretty good head start. And the newly launched and readily available Coding Headstart resources allow developers to get a one-month jump on WWDC as well.

One more thing: doing away with overlapping windows in most of the OS would give Apple a marketing bludgeon to use against Microsoft. In the marketplace of ideas, it would paint Microsoft's six-years-in-the-making Vista as a completely old school effort. It would take Microsoft's best-known and recognized brand -- Windows -- and make it appear as tired as DOS. It would be a marketing shot heard round the world -- and it would be one that would take Microsoft years to copy.

We might be looking for something that isn't there, and that Leopard was delayed for the purely innocuous reason that developers were needed on the iPhone. But when was the last time that something this significant happened at Apple for an innocuous reason?

Aric Winton and Carl Howe

Technorati Tags: Apple, Aric Winton, Leopard, Mac OS X, Macintosh, Marketing, Windows

Apple's annual meeting today: option plans and hints of things to come

Apple shareholders meet today in Cupertino for the company's annual meeting.. Stock options, grant dates, and board of director elections will undoubtedly overshadow more traditional Apple topics such as iPhones, Leopard release dates, and Mac upgrades. But who knows, maybe Steve Jobs will drop some hints of what we are going to see next month. After all, Apple just released a set of Coding Headstart videos for Apple developers in an email last night. Here's a list of the videos they are offering:

• Coding Headstart - Calendar Store Framework
• Coding Headstart - Coding Smarter with Objective-C 2.0
• Coding Headstart - Getting Started with Cocoa Bindings
• Coding Headstart - Polishing a Quick Look Plugin
• Coding Headstart - QTKit MyRecorder Sample
• Coding Headstart - Carbon and Cocoa Integration Introduction
• Coding Headstart - Creating a PDF Viewer with PDF Kit Introduction
• Coding Headstart - Enhancing a Widget with Dashcode Introduction
• Coding Headstart - Introduction to Scripting Bridge
• Coding Headstart - Resolution Independence Introduction

But even more intriguing in the email message was the fact that Coding Headstart Lesson guides and Sample code is now available IF you buy a WWDC ticket today. Clearly, Apple is looking to get coders coding for Leopard pronto. Our suspicion: Developers are going to have their hands full after WWDC getting their code modified to properly support the Leopard look and feel before October. We'll have more details on this theory in a subsequent posting.

Technorati Tags: Annual meeting, Apple, Coding headstarts, iPhone, iTunes, Leopard, Mac OS X, Options, WWDC

Apple: 8,000 points of Mac distribution goodness

According to ZDNet, UBS analyst Ben Reitzes says that Apple has ramped up its Mac distribution this year to 8,000 from 5,800 last year. That's one whole heck of a lot more places to buy Macs than there used to be.

In other Apple news that I'm only just catching up on from two weeks ago, Cingular claims that smart phone sales have dipped in advance of Apple's June iPhone launch. All I can say to that is wow. If that's true, the demand for the iPhone is going to be absolutely huge.

Technorati Tags: Apple, Ben Reitzes, Cingular, iPhone, Macintosh, Distribution, UBS

Unconferences take aim at the traditional events business

User generated content is everywhere from blogs to YouTube. We shouldn't be surprised that it is
taking aim at the traditional conference industry. Having made my living as a paid conference presenter for several years, I must say I am of two minds on this trend.

Mind #1: Conferences need to be more participatory, and this seems like an exciting way to make that happen. Attending a conference becomes less death by PowerPoint and more an event attendees shape and mold. Done well, these would be incredibly exciting. Imagine sitting in a room and getting to bounce ideas off designers of the caliber of Jonathan Ive or business ideas with entrepreneurs like Guy Kawasaki, and I'd be there in a heartbeat. The big question: if you hold an unconference, will people of that caliber come? Which leads to.....

Mind #2: I have no idea how the conference organizers are going to guarantee any type of quality experience for the attendees. When I was at Forrester, I was given literally years of facilitation and presentation training before I was deemed "Keynote speaker ready". You're not going to get that level of craft and polish at an unconference where anyone and everyone is going to be part of the flow. Yes, you get to interact and shape all the content, but you have to be prepared to sit in sessions that just don't work at all. Think of all the bad YouTube videos you've ever seen, and then imagine those experiences live for two or three days. That's the nightmare scenario.

All that said, the conference industry needs shaking up. According to Blackfriars' Sizing US Marketing 2006, US businesses spent $77 billion on events in 2006, yet too many conferences today are sponsor-funded sales pitches that waste attendees time. And the truly great conferences like the Wall Street Journal's D conference and the TED conference are nearly impossible for ordinary people to attend. So there's room for innovation here. My suspicion though, is that even in unconferences, there will be a few good ones and a lot of bad ones. In today's economy where productivity is king and attention is scarce, the challenge will be knowing which are which.

Technorati Tags: Events, Presentations, Unconferences, Sizing US Marketing

Motorola's blah-blah doesn't help its story

Alan Murray in today's Wall Street Journal cites a study done by Laura Rittenhouse that
ranked Motorola's shareholder letter 94th out of 100 letters from big companies last years in terms of candor and information provided. We could have told Alan that (and in fact did last week), but we aren't ex-investment bankers like Ms. Rittenhouse. Regardless, I loved Rittenhouse's citation from the 2005 Motorola letter:

"Motorola's going to own Seamless Mobility, where today's hottest technology is converging -- where the Mobile Me lives -- where mobile broadband means everything everywhere and anything anywhere."

If that isn't blah-blah, I don't know what is.

To be fair, though, Zander probably is suffering from the "Curse of knowledge", a malady nicely articulated in the book, Made to Stick by Chip and Dan Heath. They define it after describing a psychology experiment where "listeners" struggled to guess songs whose rhythms were tapped out on a table by "tappers". The problem: the tappers already had the tune in their head and the listeners didn't. And CEO's have the same problem:

Once we know something, we find it hard to imagine what it was like not to know it. Our knowledge has "cursed" us. And it becomes difficult for us to share our knowledge with others, because we can't readily re-create our listeners' state of mind.

The tapper/listener experiment is re-enacted every day across the world. The tappers and listeners are CEOs and frontline employees, teachers and students, politicians and voters, marketers and customers, writers and readers. All of these groups rely on ongoing communication, but, like the tappers and listeners, they suffer from enormous information imbalances. When a CEO discusses "unlocking shareholder value" [or "where the Mobile Me lives"], there is a tune playing in her head that the employees can't hear.

It's this curse of knowledge that makes communicating hard. Let's hope Motorola gains a little more knowledge -- namely that they need help to communicate their story better -- before the shareholders stop listening at all.

Technorati Tags: Communication, Motorola, Wall Street Journal

Who profited from the Yahoo/Microsoft merger hoax?

The more I think about the rumor last Friday that Microsoft would merge with Yahoo, the more it seems like a very strange coincidence. After all, it was the second big media deal of the week. The story started in the New York Post on Friday morning, May 4, yet it was dismissed by the end of that business day by the Wall Street Journal. All the sources cited by the New York Post were anonymous, so the story was hard to refute without someone doing a lot of research. And with Yahoo stock soaring nearly 20% on the rumor during the day, someone could have made a lot of money.

If this were a large investor in Yahoo (i.e., one that owns more than 5% of Yahoo shares), we'll see a Securities and Exchange Commission 13G filing within 10 days or so showing that someone liquidated their shares. For example, there's a 13G filing from February 15 showing that Legg Maison Capital Management, Inc. controlled more than 5% of Yahoo shares on that date -- if they disposed of them on May 4, we'd see another filing in a couple of weeks.

But more likely, someone looking to profit from a quick bump in Yahoo shares could so so without actually owning them. They could buy call options, which would provide even more profit potential for the same amount of capital. Or, they could spread their ownership out among several unrelated corporations or hedge funds. It would be worth doing to make 20% or more on your money in a day.

Regardless, we're still left with the question, "Who would and could do this?"

Here's a theory. Earlier last week on May 2, Rupert Murdoch launched an unsolicited bid for Dow Jones & Co. The Bancroft family that controls Dow Jones rejected the offer. Yet Dow Jones has the potential to be a premiere brand for News Corp that would make all of Murdoch's other properties more valuable overnight. And Murdoch isn't the type of man who quits when he hears the word, "No." He also has access to a large number of dealmakers and investment bankers.

So imagine you are Rupert Murdoch on Wednesday morning. Dow Jones has rejected your offer, and you're looking for what to do next. You want to find a way to convince the Bancroft family to sell. You need to create urgency among the family, a feeling that they're missing out on a big opportunity. You want them to sell for $5 billion -- so what better way to make them feel like they are missing out than to create a rumor of a $50 billion media deal for one of their competitors? And if you bought enough Yahoo options and stock ahead of the story, selling those options on the breaking news would allow you to sweeten the Dow Jones bid later. All you would need to do is to find a place to print such a story.

Perhaps, the fact that Rupert Murdoch's News Corp. owns the New York Post -- the newspaper that broke the Yahoo-Microsoft story -- isn't such a coincidence.

Full disclosure: the author has no positions in any of the companies mentioned in this posting.

Technorati Tags: Marketing, Merger, Microsoft, Rupert Murdoch, Speculation, Yahoo

Tuesday musings on Motorola, Sun, and Apple

[Sun's JavaFX phone to be announced today]

Well, it's Tuesday, the traditional announcement day for most of the high-tech world. Three things struck me today as I looked through the headlines this morning:

• Motorola dodged a bullet by rejecting Carl Icahn. At the end of the day, shareholders in Motorola decided that no matter how much they disliked Motorola's current business performance, they disliked the idea of Carl Icahn as a board member more. That said, the virtual beatings of CEO Ed Zander will continue until morale and business improves.


• Sun seems to have stolen a page from the iPhone design book. Touch-screen phones appear to be all the rage nowadays, and Sun will announce its own today at its Java One conference. I admit there are only so many ways to arrange touch icons on a screen so that you can actually hit them accurately, but this picture certainly screams, "Imitation is the sincerest form of flattery." I suppose Apple had better get used to it -- rumor has it that the ever-rumored-and-denied Google phone has similar characteristics.


• Apple's deferred iPhone revenue tees up possible dividends.. The last paragraph of a Macinstein article about Apple stock split possibilities got me thinking. Apple's decision to accrue revenue from iPhone sales over 24 months says to me that it would like more ways to smooth out its annual earnings curve. But that more consistent revenue stream also would make it easier for the company to pay dividends to shareholders. Such a move could increase Apple's holdings among both institutional and individual investors. I don't see this happening at this week's Apple annual meeting, but if iPhone sales exceed expectations as we've predicted, this could be an extra added sweetener to shareholders at next year's.

Technorati Tags: Apple, iPhone, Java, Macinstein, Motorola, Carl Icahn, Sun

Motorola needs to sell a story its story as much as its phones

Today, Motorola holds its annual meeting to decide whether Carl Icahn will join its board. The Wall Street Journal today advises shareholders to reject Icahn, claiming he is overbooked and lacking new ideas. That's an interesting point of view for a newspaper purporting to provide objective news.

The real issue at Motorola today is not its board makeup, but its failure to sell a vision of its future to prospects and shareholders alike. It's no accident that the company has foundered after the loss of its Chief Marketing Officer, Geoffrey Frost, who was the architect behind the branding program that made Motorola cool again. When Frost was in charge of Motorola's marketing, "Hello, Moto" was on everyone's mind. Today, I'd be hard-pressed to echo any concept being promoted by Motorola other than, "We really don't want to be bought out." And with the insane buzz surrounding Apple's iPhone today, that just isn't enough to keep Carl Icahn at bay.

We'll know the results after the annual meeting today. But if Ed Zander wants to keep his job, let's hope he has amazing products and even more remarkable marketing campaigns to show stockholders today. What he does today will shape the future of Motorola, either with or without Carl Icahn.

Technorati Tags: Apple, iPhone, Marketing, Motorola

Yahoosoft numbers just don't add up

OK, I am going to join the chorus: This rumored merger between Microsoft and Yahoo doesn't make sense to me. My rationale is from the point of view of Microsoft shareholders: They are losing $0.13 in earnings per share -- just about $1.4 billion that could be paid as a dividend -- with nothing to show for it but a questionably-nicer market position in advertising. And that's the best case I can come up with.

So here are the numbers from my simple-minded, back-of-the-envelope calculation. I'm assuming Microsoft would exchange 1.5 billion of its shares to acquire all of its 1.4 billion shares in an all-stock deal valued at around $50 billion. All the figures below are from Yahoo! Finance, ironically enough:

	Microsoft	Yahoo	Yahoosoft
Revenue	$49.56 billion	$6.53 billion	$56.09 billion
Net Profit	$13.86 billion	$0.73 billion	$14.59 billion
Shares	9.57 billion	1.36 billion	11.07 billion (assuming MSFT paid 1.5 billion shares for Yahoo!)
EPS (calculated as profit/shares)	$1.45	$0.54	$1.32

Now this falsely assumes that 1) there's no real cost to the merger other than the shares, 2) that every dollar now paid to the two companies will continue to get paid to them, and 3) that there's no overlap in customer base that might cause these numbers to go down. But bear with me and look at that right hand column as a best case scenario.

The numbers say to me that this is a great deal for Yahoo stockholders, who suddenly see their shares turned into much more profitable Yahoosoft shares. But for Microsoft shareholders, their shares are going to be valued about 16% less because of dilution, and their earnings on those shares decreased about 11%. All this to grab about 27% of an online advertising market that Google commands 65% of. Doesn't sound like a market where they're going to command monopoly-type profits. With apologies to Geoffrey Moore, Yahoosoft continues to be a chimp in a market dominated by the Google gorilla.

This rumored deal reminds me of when AOL decided it wanted to merge with Time Warner to bring Internet business smarts to the old and staid world of media. That merger nearly killed both companies. While that doesn't seem a likely outcome for a company as powerful as Microsoft is today, people said much the same about powerhouse AOL in the mid-1990s.

Mergers are usually more about ego than about actual synergies and results. Looking at these numbers, I'd have to say that this one is no exception. Too bad the shareholders will be the ones paying for it.

Technorati Tags: Time Warner, Yahoosoft, Finance, Google, Financial analysis, Advertising, AOL, Microsoft, Yahoo, Earnings, Mergers, Internet