en-us http://www.keithwatanabe.net/index.php Keith Watanabe's Website http://www.keithwatanabe.net/blogs/2007/7/27/db65d28d4d93058d9c9aac4201804c8a.html Fri, 27 Jul 2007 21:28:22 -0600 http://www.keithwatanabe.net/blogs/2007/7/27/db65d28d4d93058d9c9aac4201804c8a.html http://www.keithwatanabe.net/blogs/2008/2/6/1a1d65403b0f49c4df6050b66a9b9810.html Facebook's finances as indicated by TechCrunch. I'm certain many readers found the note to be of shock. They key point for me was that Facebook operates at a negative value. Not just a negative but roughly $150 million in losses.
How can you go from being valued at $15.7 billion to -$150 million?????????

Some people talk about projections when it comes to these types of numbers. Currently, Facebook sees growth at over 100% (I forget the exact number). That's great because it seems that people are simply migrating from places like Myspace to Facebook (all my friends are doing this). Right now, they have a user base of over 63,000,000 registered users according to Wikipedia. According to the TechCrunch article, they are generating $300 million in revenue for 2007. These numbers are fairly impressive for such a young company run by a 23 year old college drop out.

Still, I have to ask how do you achieve the value of $15.7 billion?

I'm not a big fan of projected growth. We've seen the dot com ludicrous valuations from people like Henry Blodget. Heck, I've coined my own term the other day calling these numbers "Blodget Values." Remember the whole Amazon at $400/share? Was that simply the wrong company and Blodget talking about Google in 2006-2007? (Now, he's calling Google at $2000/share). Again, where do these numbers come from?

Is it market cap? If market cap were to determine a company's intrinsic value, then we'd all be paper millionaires. I mean, isn't Facebook just another form of the portal site? That's what Myspace became, except that News Corp/Murdoch focused on media content with a target demographic of 13-35. But going by that philosophy doesn't Facebook belong in the same market cap as Yahoo? I mean, I must be missing something when it comes to these numbers.

For myself, I'm someone who looks at the fundamentals of a company. Reading a book like the Intelligent Investor helps you realize where to look for some of these numbers. In my case, I look at things that go beyond simple market caps. I look at things like overall revenue, operations cost, debt, and market behavior. When I see things like negative operations cost, it tells me that a company is desperate for money and needs to go to other sources like VC (i.e. Microsoft). I've been through this before and it's made me incredibly cynical, causing me to look at theoretical valuations as inside political hype or certain people with agendas.

I like looking at the bottom line. For instance, Google is a very smart company. While their stock price is outrageous, one key fact is that they have tons of money in their piggy bank. This is important because when it rains, they can grab some of that money and deploy it strategically.

According to this report, Facebook has no money. The VC money that companies like Microsoft, etc. are giving them are the only factors driving the company's ability to grow. Perhaps, one day Facebook can be worth $15.7 billion, but many agitated investors have to go beyond projections and find out when they're going to get their money. That's the bottom line that I look at.

The thing is that I don't believe a lot in SNS business models. It's a massive fad. I do understand why it's important in the world of online advertisement. But I completely disagree that these companies can make significant money purely off these models, especially with so many duplicate/me-too companies around.]]> Wed, 06 Feb 2008 17:11:46 -0700 http://www.keithwatanabe.net/blogs/2008/2/6/1a1d65403b0f49c4df6050b66a9b9810.html http://www.keithwatanabe.net/blogs/2008/2/9/6a7c0e83310d0523b497ce3f2940c9d5.html
I've stated it before that the whole deal is just nasty. I'm certain many on the inside of Yahoo and other companies certainly fear, detest and want to avoid this deal at all cost. However, because this involves purely money, shareholders, being the sheep that they are, probably are thinking of the short term value that they can from such a deal. Some are calling this move from M$ a hostile takeover, since it's basically a bribe to Yahoo's shareholders in order to lay claims to the company. And of course, I'm just against the idea completely.

Some writers, like Arlington from TechCrunch, feel otherwise in terms of turning around the company. While I'm not certain if Jerry Yang is the person that can do this enormous job after the damage Terry Semel caused the company, I do think that Yahoo has to plan for the long term. I think writers like Arlington are "stuck in the valley" and don't view things from a global perspective, nor from a wider perspective. He did write up a better analysis of the theoretical acquisition which would cause the company to bloat and reduce near term action. But his position still is in this mystical long term view of the value of Yahoo.

To me, big mergers just don't work out and there are many cases in history to demonstrate where these incompatibilities disrupted and destroyed the foundations of some good companies. My coworker and I discussed this issue and pointed out how companies like AOL-TimeWarner really fell apart, and that now AOL is just losing money. Or think about the HP-Compaq merger done by Carly. It simply hindered the old engineering corporate culture that HP was famous for by adapting the HR practices put forth by Compaq. Or in Japan, look at the disaster that came out from the whole Mizuho banking merger of three major banks. It did position Mizuho higher than many other companies, but they went through their own disasters initially when they rushed the roll out of their combined ATM systems.

I think acquisitions work far better on a smaller scale. Certainly, M$ is indeed larger than Yahoo. Look at the market cap, the amount of money in the bank, their annual gross and the number of employees they have. But Yahoo is still a large, powerful company with a strong culture and sense of identity. This isn't a situation where you have M$ buying out a limited player like Facebook, or ebay purchasing StumbleUpon. This is clearly a threat and everyone in the industry, minus those shareholders, know it.

I've emphasized what Yahoo needs to do to succeed. Becoming community oriented, opening up their data APIs for developers, becoming a company to act as a technological venture company for young businesses and re-utilizing their infrastructure so that existing businesses don't have to re-invent scalability and reliability each time. These are Yahoo's strengths but they have yet to monetize them in a sensible way. Becoming a WebOS/creative platform for people to build the next generation of internet properties are what these giants should leverage their technology for. And it makes a lot of sense to me.

For instance, I was talking to my friend who works at my previous company. They have a VERY poor (global) support model. The local infrastructure particularly is setup incredibly poor that there's no good ways to handle things like VPN, mass software installation, server maintenance, etc. The chief problem is that the company had piss poor people who are of the lowest caliber. A company like this who wants to have the killer applications running efficiently and doing seamless deployments is someone who would make a great candidate for a company like Yahoo to host their applications. DBAs, System administrators, network support people, security administrators, etc. are practically a dime a dozen. Getting solid versions of these types to build up a killer infrastructure are rare compared to the number of these out there. But truthfully, the types of infrastructure that most companies want are not too dissimilar. They want the three tiered architecture, the app servers, the web servers, etc. Most companies spend needless amounts and probably would be better off spending their money on pure development, since development requires a high degree of creativity that implements the business ideas (whereas support are not really related as closely by comparison).

So having Yahoo handle the infrastructure setup right down to the deployment methodology would solve a lot of companies' IT problems. You wouldn't need to perform due diligence against a shady consulting company claiming that they can handle some top down solution, especially if their track record is hidden from view. You'd also avoid getting those so-called "shadow IT" departments where business people end up setting up their own infrastructure because the core IT team is either too restrictive, too backlogged or just too dumb and lazy to give the business what it wants.

With a Yahoo, imagine what you'd get. A trustworthy name containing all the solutions a business needs. You'd have your email, your single sign on, your chat, your APIs, your 24/7 up servers, your global support, the raw network speed, etc. It makes perfect sense.

Jerry Yang, this is my gift to you. My view of what Yahoo should focus on. Call it Yahoo Enterprise Business.]]> Sat, 09 Feb 2008 11:09:46 -0700 http://www.keithwatanabe.net/blogs/2008/2/9/6a7c0e83310d0523b497ce3f2940c9d5.html http://www.keithwatanabe.net/blogs/2008/2/9/5ff7691a596840ed7ad265af06d8c08d.html
My feeling about this deal is that it's a personal agenda item from Steve Ballmer. It's been well documented on Ballmer's personal attacks against Google and his desire to put an end to them. It's kinda strange because I don't think a lot of businesses are quickly converting over to Google in terms of their office software. A lot of companies still employee and will probably continue to employee M$ Office just for compatibility in sharing documents between other businesses. I mean, Open Office probably does a better job than Google's Apps for handling M$ Office compatibility issues. And by the time Google can rival M$ on these areas, M$ just has to create further incompatibilities. In other words, M$ will continue to make a boatload of money from their desktop products and can mutually survive with Google in the playing field.

So why would M$ fear Google?

I don't think that M$ honestly fears Google at all. I think the reason for this mess is that Steve Ballmer is fearing for his position as CEO of M$.

M$ in the past few years has been for the most part a joke. Some items on my list to ridicule M$ on are:

• Vista. Bloated, people are asking for XP. Not a good sign.
• XBox. At one time, M$ was losing money for each XBox produced. Other companies are excelling in the game industry and M$ isn't the only one in the field.
• Zune. iPod holds the better product and M$ was just far too late to get into this playing field.
• MSN. It just sucks. Face it.
• Live/Spaces. M$ doesn't understand the web and never will.
• Ads. Google owns with Yahoo being the closest second.
• Firefox catching up in terms of market share compared with MSIE. IE is a terrible product and is a cause for many viruses on the web with its insecurities.
• Security. M$ has the worst record for security.

And so on. M$ has just an awful track record in the past few years. And who's at the helm?

Steve Ballmer

What does that say? While Google made headway as the fastest and largest growing software company around (and it's funny calling them a software company), M$ has been nothing but the biggest butt of jokes. Steve Ballmer hasn't done a thing to take M$ ahead of the game because he's just a pointy haired boss. He's not a visionary like Gates, he never was a tech guy. He's just an operations fellow who managed to move up because of his past relationship with Paul and Bill.

With such a list of failures, I'm certain numerous people within the company and shareholders alike are calling for Ballmer's head in the near term future, kinda like how people wanted to impeach George Bush for his failures. Well, their product line ups have failed in not being able to copy as successfully as their competitors. And bullying is no longer an option at this point because they lack the market share in the internet compared with Yahoo and Google. So their last resort in M$'s typical business tactics is to buy.

If the deal went through, Ballmer might initially look like a star. He'd have his place in M$ history as being the guy who had slain the ancient dominant dragon of Yahoo sitting on a mound of global shares of wealth and connections. He would get his 2-3 year extension as CEO and probably receive renumeration in shares from the deal with Yahoo, making him one of the most powerful CEOs around.

It's purely ego driven.

What it isn't is solid business sense.

This is the deal that will honestly kill M$ in the long term. I think Ballmer will promise Yahoo and M$'s shareholders of being able to reorganize and turnaround both companies in being able to compete in the market place against Google. Initially, shareholders thrilled at hearing news will become emotional, not really seeing that this ploy is simply a tactic to buy time for Ballmer's lack of vision. Heads will roll at both companies, more likely Yahoo's than M$'s. Products will be deactivated or slashed out of existence. Fights will occur between teams. There might even be a stupid notion of trying to migrate the entire Yahoo platform onto Windows. That would definitely destroy everything Yahoo has built. Look at Hotmail when they tried to migrate it to NT. How can either company do anything productive while organizational battles go on to survive within both companies? How can innovation thrive in a big re-organization?

Look at the HP-Compaq merger. It took them about 3 years before things came about. In the meantime, other players like Gateway/Emachines and Dell surged. The HP-Compaq merger offended a lot of veteran HP employees. Certainly, the policies between Yahoo and M$ would differ enough to cause cultural clashes between both companies.

But I think that the market in the internet is far more competitive and more agile than the PC hardware market. Applications can be built faster and better than selling a PC at lower cost. In the internet market, you have to blast out applications at a rapid pace and innovate where your competitors are not focusing their strengths. Google has a culture of the 20% rule. With the threat of M$-Yahoo, this rule might be the key for Google's survival.

And probably some of the most valuable employees that Yahoo will lose are their engineering team. I can easily see engineers leaving by the dozens while Google offers them a safe haven. You gotta think about how an engineer inside Yahoo might react. I'm certain many Yahoo engineers love Linux, love open source and hate Windows. The very thought of having to use a restricted proprietary system would make them want to leave. And I'm certain many of these people are highly motivated and extremely bright, wanting to get their chance at their own 20% rule that probably was killed off when Terry Semel took hold of the reigns in Yahoo.

Either way, this deal only has one benefactor: Ballmer. But he's not going to be the star he believes he's making himself into. He's going to be another Carly, and at the end of the day, he's going to have a miserable farewell and will be ridiculed as a visionless, do-little CEO.
]]> Sat, 09 Feb 2008 11:40:23 -0700 http://www.keithwatanabe.net/blogs/2008/2/9/5ff7691a596840ed7ad265af06d8c08d.html http://www.keithwatanabe.net/blogs/2008/3/11/64090cef6aabb3b0e72925b57135b2fa.html Tue, 11 Mar 2008 09:28:52 -0600 http://www.keithwatanabe.net/blogs/2008/3/11/64090cef6aabb3b0e72925b57135b2fa.html http://www.keithwatanabe.net/blogs/2008/5/5/c754305e6ffcfeca02acfb884f5faf7d.html
At this moment, I think that only the most conniving investors would end up suing Yahoo. But at the same time I think Yahoo should make a move to re-purchase their shares to prevent another move like this from happening for a while. Maybe Mr. Yang can dip into his deep pockets and grab back his shares too so he can regain at least some control over his company.

In my viewpoint, the chaos is great for investment. Low stock price at a highly valued company means great return later. Just use investors' sheep mentality against them to win in a situation like this.]]> Mon, 05 May 2008 09:21:44 -0600 http://www.keithwatanabe.net/blogs/2008/5/5/c754305e6ffcfeca02acfb884f5faf7d.html