# Tuesday, February 19, 2008

Today Toshiba announced the death of HD DVD saying that it will no longer produce HD DVD players. While a standards war between Toshiba's HD DVD and SONY's Blu-Ray was in full swing, Blu-Ray emerged today as the winner. The death of HD DVD was very quick, here is how it happened:

  • Popularity of SONY Playstation 3 at Christmas
  • Warner Brothers pulling out of the format leading to limited Selection of HD DVDs titles
  • Netflix going Blu-Ray exclusive

I think the tipping point was Netflix going exclusive. With Warner Brothers out and Paramount rumored, the writing was on the wall. It took 8 days from the Netflix announcement to the actual tossing in of the towel by Toshiba. Score one for the power of the people. Once Netflix spoke on behalf of its members, HD DVD died.

Blu-ray will have to compete hard against high-def Internet downloads. With a lot of the public not willing to pay over $30 for a new Blu-ray disk movie (compared to a $10 DVD) and new players being expensive;  hard drive space being super cheap and broadband also ubiquitous and cheap, Blu-ray will have a major fight on its hands. Expect a repeat of the MP3 Napster debate from 10 years ago.

Business models will have to change. Will the movie/DVD industry learn anything from the music/CD industry? I doubt it.

posted on Tuesday, February 19, 2008 5:12:05 PM (Eastern Standard Time, UTC-05:00)  #    Comments [0] Trackback
# Wednesday, February 13, 2008

According to the Alley Insider, Yahoo's second largest shareholder, investor firm Legg Mason, has met with Steve Ballmer and supports a bump in the price and thinks that Yahoo should take it. Legg Mason outlined in a letter to shareholders that Microsoft will offer better value than Yahoo can deliver on its own. If you remember Microsoft offered $36 last summer. Expect them to go at least this high, if not higher. (They most likely were prepared to pay this high already.) The Google-Yahoo deal has went cold according to the Wall Street Journal, so Yahoo has very little in the way of options.

Brilliant strategy by Microsoft. Come in at a low point when Yahoo is laying off 1,000 workers with a low bid. Get the shareholders excited, have the board reject the offer and then up the bid. Not the board of directors is stuck between a rock and a hard place. Or between a Google and a Microsoft.

When it looks like this deal will go through, I will post why I am such a strong supported of it and counter all the anti-deal.

posted on Wednesday, February 13, 2008 8:03:41 AM (Eastern Standard Time, UTC-05:00)  #    Comments [0] Trackback
# Tuesday, February 12, 2008

Over the weekend Yahoo! board members leaked to the Wall Street Journal that they felt that the Microsoft bid of $31 a share is "massively undervalued." Yahoo then officially rejected Microsoft's bid on Monday. What happened is that Yahoo's management convinced the board of directors not to sell at $31. But Yahoo shareholders want to earn that $31 or more. So Yahoo said the offer was "massively undervalued" and that $40 is what they want. Microsoft responded by saying that $31 is a full and fair deal and that Yahoo's counter offer of $40 is "Absurdly High." This is the classic negotiation tactic know as anchoring.

Microsoft is not backing down. Steve Ballmer said he is willing to go higher. Negotiation statistics say that in cases like this firms usually "split the difference" and would settle for around $35 a share. But Microsoft is also pulling no stops, they are hiring a proxy firm to start a hostile takeover. This is knows as Microsoft's BATNA or "best alternative to a negotiated agreement." It is the stick to the upping the price carrot.

Microsoft is offering Yahoo a solid premium over its true valuation. Since there are no other bidders and Yahoo's financial position is weak at the moment, Yahoo has very little leverage. Yahoo's only other option (BATNA) is to have massive layoffs (some scenarios put it at 33% of the company) and potentially outsource search and advertising to Google. (We all saw how that worked for AOL, moving from 20% to 5%.) Actually according to the Alley Insider, Microsoft's premium is rather large: RBC's Jordan Rohan has said: Yahoo is valued at about $24. That would put Microsoft's bid at an approximately 30% premium. Shareholders like 30% premiums. They also don't like when board of directors let pride get in the way of a fail deal to earn 30% on their money (epically with the Dow down 14% this year.) They tend to have shareholder revolts when board of directors do that. Microsoft is already talking to large investors to get them on their side. According to the Alley Insider:

  • Mutual fund giant T. Rowe Price, which owns 18 million shares of Yahoo! said yesterday that it would be "very vocal" if Microsoft raises its offer and Yahoo! rejects it again.
  • Capital Research and Management, Yahoo!'s largest investor with a recently raised stake of 11.6 percent, is said to favor a deal as well.

Once again, my prediction is that the deal will go through. Yahoo has nowhere to turn. Its large shareholders are going to be angry if the board rejects another offer. Microsoft has to fight the new evil empire Google and will up the ante. This is going to be fun to watch.

posted on Tuesday, February 12, 2008 11:13:31 AM (Eastern Standard Time, UTC-05:00)  #    Comments [0] Trackback
# Friday, February 8, 2008

Yahoo!'s board of directors is to meet today to decide the fate of the company. There is a lack of an alternative suitor since the only viable one, Softbank, bailed out today. Microsoft CEO Steve Ballmer said in Business Week that the Yahoo! brand will "live on" which means the death of MSN and possible the Live! brand as well.

Yahoo!'s only other option is a deal with Google and try to stay independent. They would have outsource the search and ad functionality to Google and shut down that operation, laying off thousands (some estimates are 33% or more of the company) and focusing on the portal/content side of the business.

AOL did that. It did not work out well for them, they lost drastic market share and have never recovered. If Yahoo! did the same and lost market share, then they would be ceding eyeballs to Google.

My gut tells me that Yahoo! is not going to make the same mistake twice. It is Yahoo! that put Google on the map. Yahoo! outsourced their search to Google in the early days of Google and Google eventually took all the market share away. Why would all those smart people make the same mistake twice? My gut tells me that Ballmer has assured them of independence and they will swallow their pride and take the deal.

As a Microsoft watcher, I am excited about the deal. Here is my message to Microsoft: Don't mess this up! The whole world is watching. Microsoft is the "evil empire" in Silicon Valley. Everyone hates Microsoft there. If Microsoft handles Yahoo! right it is a historic opportunity for Microsoft to win the hearts and minds of the Valley. If they mess up the brand (think of this: Microsoft Yahoo! MSN Live! Messenger for Workgroups Professional Edition 2008 Service Pack 2a) and come in all arrogant and have tremendous layoffs, then why bother? If Microsoft handles this in a great way and wins over the hearts and minds of Yahoo! employees (who all hate Microsoft) then it is the first step in repositioning itself in the Valley. The new new evil empire in the Valley will be Google.

posted on Friday, February 8, 2008 10:46:07 AM (Eastern Standard Time, UTC-05:00)  #    Comments [0] Trackback
# Thursday, February 7, 2008

Let’s say that you are an American software company and are doing some custom consulting work for a company in the UK. They agree to pay you £ 1,000,000 in six months when you deliver the source code. (Great work if you can get it!)

Today the £ is trading at: $1.9438/£, this means that each £1 will get you US $1.94. This puts the value of your contract at $1,943,800. So we have seen the US dollar fall over the last few years and you want to protect yourself against fluctuations. If the dollar gains 10% for example in six months, you will get less dollars in six months when the UK company pays you. You want to lock into today's exchange rate.

There are many ways to do it, but here is a cool one. According to today’s WSJ, the UK prime rate is 5.5%. In the US, E*Trade’s 6 month CD rate is 3.38%.

So what do you do? Borrow £ and invest them in $. Here is what you do in specifics:

You know you are going to have a payment of £ 1,000,000 in six months. So take out a 6 month loan in the UK which you will pay back with your £ 1,000,000 payment.

How much of a loan? Not £ 1,000,000. But £ 1,000,000 minus the interest you will pay. You find that like this:

The UK prime rate is 5.5% per year. You will borrow for 6 months. So 5.5/2= 2.75%. (You divide by 2 since you are doing it for 6 months of ½ a year. If it was for 3 months you would divide by 4.)

Now get the 2.75% to a multiplier, so 1 + (2.75/100)= 1.0275

So £ 1,000,000 / 1.0275 = £ 973,236

So you will borrow £ 973,236. In six months you will owe £ 1,000,000.

Now take that £ 973,236 and convert it to US dollars.

£ 973,236 x $1.9438/£= $1,891,776.16

Now invest that in your E*Trade 6 month CD at 3.38% (We don’t have to divide by 2 since this is the published rate for 6 months, E*Trade did the math for us.)

Now get the 3.38% multiplier, so 1 + (3.38/100)=1.0338

In 6 months you will receive: $1,891,776.16 x 1.0338=$1,955,718.19

When you have to pay off your loan in six months in the UK, it is £ 1,000,000, just hand over your £ 1,000,000 check your customer gives you. Who cares what the £ is trading at-up or down. You also made about $12,000 over your estimate of $1,943,800 by investing the money at a higher annual rate (closer to 6% than your borrowed at 5.5%). Of course you will have to pay taxes on this amount but then again you can deduct the interest on your taxes of the UK loan!

Now, let's return in 6 months and see if the £ went up or down against the $!

posted on Thursday, February 7, 2008 10:26:28 AM (Eastern Standard Time, UTC-05:00)  #    Comments [2] Trackback
# Wednesday, February 6, 2008

Google is afraid of the potential of a Microsoft acquisition of Yahoo. On Sunday, Google posted a reaction on the takeover deal. Google's reply is well, amusing.

They cry wolf.They say that the deal is uncompetitive. I find that hard to accept when Microsoft+ Yahoo= a tiny fraction of Google's market share in ad and search traffic. They are also crying foul saying that Microsoft is the big evil machine. This is an easy thing to do in the valley. Everyone hates Microsoft in the valley. Flickr even has a protest group. The valley is home to the anti-Microsoft camp: Oracle, Sun, Apple, and Google. Lots of people in Silicon Valley will automatically say "Microsoft is Evil!" when prompted just as people will automatically say "Down with Bush!" when promoted at a Clinton rally. Why do they hate Microsoft? They are the "evil empire" of course. Microsoft is big, owns too much market share, and is arrogant according to the valley faithful.

But Google has to look in the mirror. They are the big 800 lb gorilla everyone is afraid of! Not Yahoo, not Microsoft!

Google is the reason that Yahoo has failed as a company and is a takeover target. Yahoo use to be the sizzle of the Internet, now Google destroyed them. Google is the reason why the most profitable company of all time, Microsoft, is scared and doing such  a bold move. Yahoo may be Microsoft’s last hope to be a meaningful player on in a Web.20 world. Who's to blame? Google. Google is the big bad machine nowadays.

Back to the deal, Yahoo has three choices.

First they can ride out the offer and try to stay independent. That is unlikely since the company is in such deep trouble. They may also face shareholder lawsuits if they reject Microsoft's offer. Maybe they can take hedge fund money or be acquired by an European telecom or take money from a sovereign wealth fund.

Second they can outsource their search and ads to Google and focus on being a portal. They may raise their revenue by 25% in doing so according to the Wall Street Journal. This would be a total surrender. (Remember it was Yahoo that put Google on the map!) The DOJ may get involved in this case since Google would own search except for smaller players like MSN and Ask.

Third option is to take the Microsoft offer. This is the most likely outcome.

There is likely to be some DOJ action on this case, however, a Yahoo-Microsoft deal would make an actual attractive competitor to Google. Absent of the deal, Yahoo has to do something, most likely outsource the search and ads to Google. Google could be a very dangerous company without any real competition (Microsoft's AdCenter is a poor competitor) in the search advertising space. They would be more evil then Microsoft on the desktop.

Google knows this. This is why their CEO phoned Yahoo and said that they will give Yahoo any "help" they need to fight off the takeover. The status quo suits Google well. That is why they are arguing for it.

But there is no more status quo. If the DOJ blocks the deal and Yahoo remains independent, Yahoo will not remain independent for much longer. Someone else will acquire them, Yahoo is in too much trouble.

Google is afraid. They should be. Their world is about to change drastically. Their share price dropped almost 10% since this deal was announced. If the deal goes through, Microsoft will eventually lose the evil empire title and Google will be crowned the new king of evil. Funny since their motto is "do no evil."

posted on Wednesday, February 6, 2008 4:41:31 PM (Eastern Standard Time, UTC-05:00)  #    Comments [1] Trackback
# Friday, February 1, 2008

At TechEd Developers in Barcelona, Spain last November, I did an interactive session on ASP.NET Scaling tips. It was such a hit they had to move it to a large room-very difficult to make an interactive session. I took tons of questions and just had a conversation with the audience-and even had some rebel rousers in the back who I had to mock publicly. It was a great session (at least I think so).

Turns out that they filmed it behind my back. That is cool since now it will be published on MSDN Spotlight. You can see it here.

posted on Friday, February 1, 2008 7:29:12 PM (Eastern Standard Time, UTC-05:00)  #    Comments [0] Trackback
# Wednesday, January 30, 2008

After watching Facebook's popularity jump with the release of its applications and API, MySpace is releasing its own API for developers on February 5th. Developers can sign up here.The platform will be interoperable with Google’s OpenSocial platform, so applications written for OpenSocial will work on MySpace.

This is a smart move for MySpace. The next version of the Web, Web 2.5, is all about making your site/network as a platform. Think of MySpace and Facebook as MSDOS back in the day. Now that data interoperability is starting to happen (Microsoft is the latest to join the Data Portability Group), sites will compete on the quality of their APIs and ability to attract developers to their platform, not how many users data they keep locked up.

I can see in the future more data/infrastructure sites providing backend social networking services (profile and login via OpenID, storage, social networking software, etc)via web services for front-end sites that focus on the user experience, API and attracting developers. One day Facebook and MySpace may even outsource their storage, profile, and social networking pieces and focus on their API.

posted on Wednesday, January 30, 2008 12:33:58 PM (Eastern Standard Time, UTC-05:00)  #    Comments [0] Trackback