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September 18, 2004

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Lieutenant Commander Data

Posted by dymaxion at 01:09 PM


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Is Google Froogle?

As Google (GOOG) hits its all time high today, of over $117 a share, the updraft is likely to suck a number of punters sitting on the sidelines into the game. For many of these investors, there is no rational argument; for them its enough that Google emerged from nowhere to become one of the world's most recognizable brands in a few short years, to become everybody's favorite search tool and that it has now established market "momentum". If you bet this way, you will be tempted to jump in now and ride it up to say 150, picking up your profits along the way. Good Luck!

Hidebound value investors will see the activity at GOOG as the kind of bubble folly that brought billions of losses to investors in AOL, Yahoo, Amazon, Nokia, etc. who jumped in for a ride in irrational exuberance. No company, they argue, can sustain a P/E of 160 or a market capitalization 33% higher than venerable General Motors. Folks who poohed-poohed that kind of sage advice in the past, will listen with one ear, as they might when getting admonished by a rich and comfortable uncle, all the time looking forward to visions of laughing all the way to the bank.

From where we stand, Google has proved itself an amazing company and certainly deserves the success it has received so far. Unlike, EBAY, perhaps the greatest Web success story, GOOG relies strictly on intellectual property, or sheer brainpower. This is the source of our great respect but can you make an economic case for a company that makes its living by weaving its presence into what is actually a dynamic cloud, the great information pool that is the World Wide Web?

So first, the economic arguments: does Google meet the fundamental economic criteria, a marketplace big enough to sustain huge profits over a long period of time and a sustainable position of dominance within that market? To the first question, we can respond, unequivocally, yes. Here's why Google's potential market towers over that of EBAY and even Amazon, two companies that have also both successfully multiplied their presence across Cyberspace. But EBAY's and Amazon's limitations, to a certain point, are mainly physical. Certain items, like Pez boxes, lend themselves to shipment purchases. Other larger items, and big ticket items bring much greater hurdles to an EBAY transaction. What do you do with the 500 lb. home gym set you just bought on EBAY if it turns out defective? So the dealer agrees to take it back. You're still stuck with repacking, shipping and the hassles involved in any returned transaction. Of course, you can tarnish the vendor's reputation and thereby protect future folks like yourself but still. So, EBAY, as great as it is, has some limitations.

Amazon is also terrific at what they do. By teaming with used and rare book sellers, home reviewers, etc. they provide a powerful service and for a lot of items, Amazon beats going to the local bookstore. Amazon has also been quick to take advantage of the dynamic Web in profound ways that range from sophisticated software that makes recommendations based on purchases by other people who match your eclectic tastes to affiliate programs on various special interest web sites to services like Alexa which attempts to determine interest movement as it pulses through the dynamic web and, oh, by the way, match that interest with items that can be purchased on Amazon.

The power of Google is different, and in our estimation, degrees above that of the two successful companies that emerged from the last wave, should Google dominate. That's because Google has inserted itself into wired peoples' lives in a more profound way. Because of the absolute simplicity of its user interface --often just a point on a bar at the top of your browser-- Google takes almost no effort to access. It has become as simple as turning to somebody, perhaps a bit opaque but amazingly wide-read standing next to you and asking whatever it is that you need to know for that moment.

"Okay," some of you ask: "I see the power and reach but where's the economic model?" The answer, of course, is apparent: much of what people want to know determines how and where they will spend their money. In other words, if you can ask Google where you and your friend might find a restaurant that serves traditional Iranian food and that is located within 10 blocks of the SoHo bar you are sitting in, and it gives you via survey result, a review and some pleased customer comments something that sounds reasonable, your mind just might get made up. Along with the results, which may or may not be satisfactory (since, often the information you looked for, may not exist in a way that GOOG can understand it) you will get advertisements by restaurants that match the profile of your search. Google will pass those paid advertisements along with the list of hits.

We will, sooner rather than later, all carry around cell phones that allow web browsing. It's already part of the Cybersphere and will only get more ubiquitous. Meanwhile, those of us at our desk tops will use that time to do our research though a few degrees away from real time. We'll continue to want to know as much as we can about what we plan to consume. Is it any wonder that companies like Verizon are quietly selling off their still extremely profitable Yellow Pages businesses?

Google's power, as we said, is purely in the algorithms buried in its software. GOOG can take what were once called natural language queries and turn them into sophisticated results. To be accurate the software needs to be constantly crawling the web looking for updated information. The real magic at Google occurs in it's evaluating the relevancy of the site information it points you to. For this, the engineers at GOOG constantly fiddle with algorithms designed to measure that relevancy. Roughly speaking, Google software measures, for instance, the value of a particular source using its knowledge of how many sites point in and out of a particular Website, thereby calculating the relevancy and topicality of those sites as part of the weighting. The evolving thinking that goes into these measurements represents, of course, the crown jewels, of the company.

In other words, that's the great caveat emptor of this equation. With so much at stake and with GOOG so clearly ahead in a multibillion dollar advertising business where the sky is the limit, will somebody cut it off at the pass?

That's why companies like MSFT, YHOO, and AMZN et al. will put huge resources into this space. The real question for the long run is whether Google can keep its lead. The history in high tech is that when a company reaches a certain dominant position it becomes nearly impossible to dislodge it. When it comes to search, has Google crossed that threshold? That's a question only time will tell.

Posted by dymaxion at 12:58 PM


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September 11, 2004

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Posted by dymaxion at 11:49 AM


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Bush's No-Hedge Strategy


The Washington Post survey has Bush up by around 8 percentage points coming out of August. The bump was the result of a concerted attack first to undermine Kerry's record in Vietnam by the Swift Boatees and then a pile on by McCain, Giuliani, the batty senator from Georgia, Zell Miller, Cheney and the President himself. What they all said was that the present Iraq War, despite some pre and post attack mistakes, was succeeding in bringing the attack (in the War on Terrorism) to the enemy over there and hence was making us all safer over here.

The double pounding worked for much of August as the media took its eyes off the real story on the ground in Iraq, the anemic economic situation at home and focused on the spectacle of a smear campaign working its corrosive magic. For days the Kerry folks seem stymied by an attack that they should have fully anticipated. Our guess is that Kerry's emphasis on his Vietnam War record at his convention that overshadowed any political agenda he might have presented, was designed to preempt attacks that his campaign must have known were coming.

But by going for the jugular Bush has put his own campaign at great risk. For Kerry the only good news is that the election is not going to be held this week and there are still over 7 weeks left before voters actually go into the booths and cast their votes. A lot can happen. Here's Bush's major problem as we see it: He has now virtually wrapped himself around his Iraq War strategy and this presents him with major potential pitfalls, mainly the truth as to what the situation on the ground in Iraq really is.

Humpty Dumpty

Everybody in Washington, including John McCain and the brass at the Pentagon knows that the Iraq strategy is becoming a catastrophic failure. Given enough time and media focus the reality on the ground in Iraq will be revealed to the American people who will then have to face a much graver choice than the one offered in the turmoil of 1968 when Nixon managed to get elected. The strategic importance of the Vietnamese War hinged on what was called the Domino Theory that promised that any Communist expansion would lead to a cascade of falling neighboring countries. We all know now that there was no such catastrophe after the abandonment of Saigon by the Americans and an entirely different dynamic occurred in the region as Hanoi played off Moscow against Beijing. The second factor, of course, was lost American blood, treasure and prestige. All those deaths, all that hard feeling at home, all that loss of innocence and swagger in the jungles of Southeast Asia; is it any wonder that we are still trying to sort this out?


The blowback for W may occur before the election. Since he has so tightly bound his premise for re-election to results on the ground in Iraq and Afghanistan, there is always the possibility that major attacks on US and Iraq and Allawi-led government forces will re-inflame what is already a knawing feeling among a majority. But, more significantly, whether it's Bush or Kerry who gets elected, the victor will be faced with a much more difficult situation than Nixon and Kissinger had: Iraq is not Vietnam. It festers at the heart of the world's energy supply zone, an area that has been newly put in play by Osama Bin Laden. There is no Iraqi nationalistic movement that might emerge victorious as did Hanoi. Instead there is a newly resuscitated mullah-led government in Iran that will become the major backer of the Shiites in the South, militias on the ground, break-away Kurds in the North and a determined group of Sunnis and Mujahadeen in the center --all the makings of a failed state.

Notice that J. Paul Bremmer, the erstwhile Proconsul has been put into the witness protection program never to be seen again. Notice that neither Rumsfeld nor Powell were anywhere in view at the Republic Convention. Cheney would have been gone too, if they could have thought up an excuse. Instead, he was nicely positioned right after crazy Zell who would make anyone, even the Vice President look reasonable by comparison. And notice most significantly, the total absence of any mention of Osama Ben Laden and the head of the Taliban, Mullah Omar.

And so goes our little drama. Can Carl Rove and company continue to dominate the news cycle with distractions right up until Election Day? Take the argument over whether the letter that CBS showed the other evening was created on a word processor and thus a forgery. Could CBS have been set up or will we find that IBM had a proportional font wheel for its electric typewriters that allowed for the questionable "th"?

So far so good for the Bushies who couldn't have asked for anything better than seeing Clinton's heart operation grab the oxygen for a day or two or even another 5-day hurricane cycle. But one thing is for sure: whatever we see on the big tube is not going to be a palliative for what is happening on the ground.... ironically, though, it will determine who ends up in the White House and in place for the day the shit (of a failed policy) really hits the fan.

Posted by dymaxion at 11:42 AM


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September 04, 2004

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Posted by dymaxion at 05:49 PM


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