bizzXceleration: Performance, Value and Profit

1. First off this is a battle of business models. As you look over the history of the B2C industry notice that it evolved from dial-up access and text interfaces to proprietary databases to GUIs, dedicated content and more user-friendly interfaces.Both Yahoo and MSN eventually evolved the portal model while Google came up with an entirely new approach based on embedding context-driven advertising in ANY on-line source. In a very ecological fashion one change begat another.

• It's particular worth noting that at each stage of this evolution the prior dominant company locked itself into a culture, business model and operating processes that led it to freeze in place. 

2. As MSN and Yahoo evolved the portal model they became, rather than a few key services, attempts at becoming central locii for ALL possible services, e.g. Finance, Movies, Music, communities, etc. etc. etc. And as a result became to a large extent hodge-podges of different services with a) no common thread or targeted user-base and b) saw each community fail to recieve the dedicated marketing and sales support it needed to nurture both the user-base AND the folks paying for the portal thru advertising. The theory of portal-based advertising is display advertising based on attracting viewership.

3. At the same time both have recieved numerous complaints from their customer bases about slowness, lack of response, inattentiveness and over-bureacratic processes which made them slow, unresponsive and non-adaptive. 

4. If you were to break down both MSN and Yahoo into, what in effect, the myriad seperate businesses supposedly built on a common platform you'd find that many of these businesses have deep failures and structural flaws on their individual models, marketing, sales and service capabilities and operational capabilities. For either to recover a better position each business they choose to keep must be effective - however one chooses to define that.

5. Operationally each business and general platform is founded on entirely different technical bases that are mutually incompatible; even contradictory. Merging the two will be a nightmare of monumental proportions. 

6. Culturally not only are each non-adaptive and non-innovative but each is also antithetical to the other. 

7. Finally each has failed to both maintain, nurture and grow their existing portfolio of businesses but each has also failed to find a path forward;i.e. they've failed to innovate and become stuck in their own complacenies. Going back to #1 they let themselves be trapped by their histories. There is early evidence that Google is so trapped in it's engineer's mindset that the same level of cultural blindness and idiosynchtratic arrogance is driving their decisions. Note for example that the original context-based search continues to be a monumentally successful business but the vast majority of new business initiatives have failed to yield new successes.

A perfect example of Yahoo's failures of imagination, innovation and execution is implicit in this video interview of Susan Decker from the Davos conference (if it's still available):

 

Friends and Enemies:Insight on transforming Yahoo, with Susan Decker, Yahoo! president and CNBCs Becky QuickYahoos

Any senior officer of a major company should be able, at a moment's notice, be prepared with the "elevator speech" outlining the vision, strategy and operational execution plans & capabilities. IMHO this brief interview proves that such was and is totally lacking at Yahoo. And won't be provided by a merger with MSN/MS. In other words a disaster in the making !

 

Key Readings

Deal will never consummate A Microsoft-Yahoo deal would be a corporate culture nightmare and an admission by both companies to defeat at the hands of Google, writes John Dvorak.

The Google Enigma But business executives have at least two reasons to think twice before leaping aboard the Google bandwagon. First, for all its success, Google is still a young company, and it has yet to be tested by adversity. We don’t even know whether its approach to management, and in particular its approach to innovation, is a cause of its success or a product of its success — a crucial distinction. Second, we don’t know how well Google’s example applies to other businesses. Google is certainly a different sort of company, but is it so different as to be anomalous? Is the company an exemplar or a freak?

B2C Company Readings

Amazon's outlook 'cloudy' Amazon.com saw its earnings more than double in the fourth quarter thanks to strong holiday sales, but the shares took a hit in after-hours trading after the online retail giant issued an operating income forecast that was below Wall Street's expectations. Amazon shares dropped more than 11% in after-hours trading after closing the regular session up 26 cents at $74.21. The stock had already lost nearly 23% of its value since New Year's. However, Amazon's results also renewed worries about profitability that have long hung over the company. \

For the fourth quarter, Amazon said operating income grew 38% to $271 million. That equates to an operating margin of about 4.8% - lower than the 5.3% analysts were expecting for the period. Amazon has launched several new businesses in the last year. Among the most notable are online stores selling downloads of music, TV shows and movies that, in many cases, offer prices below that of rivals, including the popular iTunes online store offered by Apple Inc.. In addition, the company now sells an electronic book reader called the Kindle that allows reader to purchase electronic copies of best-sellers at prices of $9.99 or less. "My guess is the digital initiatives are gaining [sales] traction, but they're not making any money on the service," said Tim Boyd of American Technology Research. Amazon still draws a majority of its sales from media products - books, CDs, DVDs and video games. Media sales grew 33% to $3.33 billion for the quarter, accounting for 59% of total revenue.

If Google misses The search giant could send shock waves across the industry if it delivers an earnings surprise. Tech stocks have had a wild ride so far in January, with the Nasdaq swooning dangerously close to bear-market territory. But it could get even wilder when Google weighs in on Thursday. That’s because Google (GOOG) was a darling of the tech run-up that effectively ended in November. Like Apple (AAPL), Google inspired hope that its strong brand and innovative technology can thrive in a downturn. So just as Apple’s disappointing earnings projections spooked Wall Street, if Google delivers a surprise — negative or positive — it could send shock waves across the industry. Unlike Apple, Google will at least have a lower bar to clear when it reports earnings. Investors fear Google’s growth will be hindered by a global economic slowdown, so its valuation has already been punished along with Research in Motion (RIMM), VMware (VMW) and other high-growth tech stocks. Google’s shares have dropped 25 percent from its mid-day high of $747, which it reached 12 weeks ago. But despite the fall, Google stock isn’t necessarily cheap. Google’s price-to-earnings ratio is still above 40, which suggests that investors expect the company to post encouraging numbers Thursday. (Analysts’ five-year annual growth projections for Google are in the 35 percent range, though, which suggests the stock could still be expensive.) To measure up, Google will have to turn in revenues of about $3.5 billion, and earnings per share close to $4.50. Google Profit Trails Estimates as Advertising Slows

Microsoft Offers to Buy Yahoo for $44.6 Billion After Talks in 2006, 2007 Microsoft Corp., the world's biggest software maker, made an unsolicited offer to buy Yahoo! Inc. for about $44.6 billion, or $31 a share. The offer is 62 percent more than Yahoo's closing stock price yesterday, according to a Microsoft statement distributed by PR Newswire. Yahoo shareholders can choose cash or stock, Microsoft said. Microsoft and Yahoo explored ways to work together in late 2006 and early 2007, according to a letter Microsoft Chief Executive Officer Steve Ballmer sent to the Yahoo board. Yahoo rejected the idea of being taken over by Microsoft a year ago, the letter said. Microsoft Offers $44.6B for Yahoo, Fighting the new evil empire - Google, Microsoft and Yahoo: Some pieces won't fit

Time's running out for AOL Two years ago, AOL was the belle of the Internet ball as its owner, Time Warner, entertained teams of suitors hoping to cozy up to the once-dominant Web portal. Microsoft offered to buy half of AOL, but the board of Time Warner demurred. Yahoo offered to acquire the company with stock, which was also a non-starter. In the end Time Warner settled on a deal under which search giant Google invested $1 billion in AOL in exchange for running its search business. At the time, it seemed like a savvy move because Google's investment gave AOL a value (on paper at least) of $20 billion and kept the company's options open for a better deal down the road, most likely with Yahoo. Now, AOL may be looking like a wallflower at the prom as Microsoft seeks to swallow Yahoo.

Microsoft's seismic shift Microsoft Corp.'s $44.6 billion bid Friday for Internet rival Yahoo Inc. is a radical departure for the storied Redmond, Wash., firm in terms of financial scope, ambition and fundamental strategy. The bid, made in the wake of a poor financial report from Yahoo that pared its share price, represents a break from Microsoft's long-standing tradition of growing its businesses from within, and of making smaller acquisitions that are easily covered with stock or cash on hand. It also comes at a time when Microsoft has begun increasingly hiring its top executives from outside the company, and when co-founder, chairman and predominant influence Bill Gates is poised to step back from its day-to-day operations. The online services unit that Microsoft aims to revamp with Yahoo remains a relatively small and unprofitable part of its business, despite repeated assertions by the company that it is investing heavily to change that. For its fiscal second quarter ended in December, Microsoft said the online unit posted a widened loss of $245 million. That sort of performance hasn't been a pressing concern to date, as Microsoft has been able to fall back on its sheer dominance of the PC software industry. The units containing Microsoft's Windows and Office software franchises, for example, reported a combined profit of $6.5 billion for the December quarter. Still, the company wants badly to push further into an online services industry that is rapidly growing as advertising budgets shift to the Internet from more traditional media. The online services industry's growth has only been highlighted by the runaway success of rival Google Inc.

• Microsoft-Yahoo talk draws mixed reactions Analysts vary, with some doubting software giant's bid to acquire Yahoo would help companies take market share from Google.
• Yahoo could drain MSN coffers

Unified Ad System Is Key to Making A Merger Successful Microsoft's game plan for making a merger with Yahoo work would likely focus first on the computer systems and services that advertisers use to place ads on Yahoo and Microsoft Web sites. While the deal could be upset by any number of factors including regulators or a rival bid, Microsoft's game plan for making a merger work would likely focus first on the computer systems and services that advertisers use to place ads on Yahoo and Microsoft Web sites. The key would be to connect all or parts of the two companies' ad-delivery systems as quickly as possible, to compete better with a comprehensive set of technologies that rival Google Inc. is also assembling. Lower on the priority list would be integrating such high-profile services as Yahoo's email with Microsoft's Hotmail offering, said people familiar with Microsoft's thinking. Those services would likely continue separately under their existing brands, at least for some time, these people said

• Ballmer Makes Big Bet To Get to 'Next Level' Microsoft CEO Steve Ballmer answers questions about the software giant's $44.6 billion offer to buy Yahoo.