Sunday, August 28, 2016
Tuesday, August 18, 2015
As easy as a-b-c...well, not quite
The Harvard Business Review avers that the creation of the Alphabet brand is driven by a desire to avoid diluting the Google brand too far in the consumer's mind. This explanation makes sense, but represents a rather limiting view. The listed entity is now Alphabet which includes all the "far-afield" brands such as Calico etc. and will suffer from the dilution problem in the eyes of the media, analysts and investors anyway. Thus the move needs to be seen thru a wider lens rather than just from a branding standpoint.
At one level, these are to be seen as growing up pangs, as Google transitions from being a hugely profitable tech icon unhindered by mundane pressures of financial disclosure et al to a regular, down-to-earth company. The iconic company hasn't yet been quite able to escape the one-trick pony fate, still deriving the vast bulk of its revenues from good old-fashioned search. Although enormously innovative, the new initiatives haven't begun paying for themselves.
Thus, this reorg has a simple raison d'etre : force Google's multifarious initiatives to grow up by subjecting them to the not-so-gentle pressures of Wall street.
The move may not quite pan out as intended. Google's promise to divulge more financials on the extended brands is both feeble and undesirable - feeble because most of those initiatives are too early-stage without even revenues in most cases, and undesirable because ventures such as Calico thrive best away from Wall street's prying eyes.
However, beneath the logic presented to the outside world, I suspect like most organizational revamps, this too is driven by a somewhat idiosyncratic need - i.e., to please the key individual players rather than a grand design that they're convinced will work well for either customers or investors. The founders wanted to distance themselves from day-to-day operations and focus on "blue-sky" ventures, the new CFO wanted more disclosure and accountability, and they needed to keep key talent from sprinting nimbly off to work for competitors. The leaders have worked out a solution that "satisfices" all of them without actually doing much long-term good for the company or its investors.
Overall, I have to say this is a rather half-baked, poorly-thought out move (to say nothing of the fact that it did not appear to have occurred to them that such a commonplace name as Alphabet would already be trademarked, as indeed it is - by BMW, as well as a host of small companies!**). To their credit, they're probably thinking of this highly sub-optimal structure as a work-in-process that will be fine-tuned as they go on, but they would do well to remember that you don't get too many shots at rebranding and there's the ever-lurking danger that people will run out of patience with too many ongoing changes.
Google has been a marvelous company doing a fabulous job of achieving its mission of organizing the world's information - let's just hope it doesn't trip up in organizing itself .
* such as giving away too much power to the new Google CEO which was perhaps unacceptable to the leadership.
** or more likely, this did occur to them but they forged ahead without buying out the trademarks / domains being infringed - a rank poor strategic move. There's too much at stake in the corporate world to let exuberance trump due diligence.
Tuesday, March 19, 2013
Can the iWatch be more than mere iCandy? (or iWash?!)
Here’s my take: Nobody has yet demonstrated (or even alluded to) some functionality a wearable device can perform that a handheld device can't. Functionality being attributed to wearable computers – monitoring the wearer’s health parameters, keeping track of the user’s life experiences etc. - can be pretty much done by handheld devices. And since there are already over a billion handheld devices (aka phones) out there, it's difficult to imagine what new value a new genre of wearable devices can bring to the world.
I'm not saying wearable devices won't be useful, just that they need to sport some really unique feature - i.e., they must meet a need that cannot be catered to by existing form factors (desktop, laptop, handheld,..) that computing devices come in.
Otherwise, they’ll just be fashionable devices with questionable functional value.
A similar logic applies to the much-hyped Google Glass (although I must say I have greater respect for Google’s more open approach to innovation).
* Personally I am somewhat less than sanguine about Apple’s ability to sustain its vaunted innovative prowess. Historically, the astonishing successes of Apple’s products were essentially driven by the genius of one man. And Steve Jobs did not institutionalize that innovation into the company’s DNA, so there isn’t much reason to believe it can be sustained after him. (Even Jobs’ genius is considerably diminished by the fact that barely a year after his death, his own company introduced the 7.9” iPad mini tablet – a screen size he declared would be “DOA”, and one that Apple would never make !).
Tuesday, January 29, 2013
Could the cloud talk get (even) more loud?
Sunday, January 27, 2013
Sow easy money, reap a crisis
All over the world, stock markets and asset prices in general have begun to boom again. Stock markets in the US, Western Europe and Asia have hit multi-year highs. The last time this happened was during the 2002-2008 period and, as I predicted (quite accurately, as it turned out) in August 2005 and again in March 2007, that boom was a harbinger of a big bust - what we now call the financial crisis of September 2008.
Given how clear the signals of the crisis were, it's disappointing that astonishingly few pundits foresaw it. (Few foresaw the ensuing recovery too, but that's a different story). What should make us sit up now is that similar signals have begun to emerge all over again, in the form of booming asset prices. This boom largely owes itself to the loose and expansionary monetary policies followed by most of the world's large central banks, in a well-meaning effort to help their respective economies climb out of the recession. An unintended, although entirely foreseeable, consequence of this easy policy is that, like a tide that raises all boats, it has steadily been raising asset prices all over the world. When there's too much cheap money sloshing around, guess what - it ends up going into various assets including stocks and property. pumping up those asset values.
While booming stockmarkets and asset prices are quite fun while they last, they have an uncomfortable habit of running out at some stage, as happened with the financial crisis of 2008. And since we've learnt precious few lessons from that crisis, the picnic this time too is likely to end badly. So all the easy monetary policy that's being sown now may just reap a crisis down the road.
How will the technology industry fare?
The low interest rates and easy credit of the past few years have made corporations quite inattentive to cost control, and this happy situation will continue for some time. Business performance has been - and will continue - on the upswing. But when the inflexion point (see above) occurs - most likely within the next 5-6 years, the technology industry will not be immune. The most robust companies will of course pull through - IBM for one. Amazon will continue its disruptive charge and emerge as one of the technology leaders. Others such as HP and Dell will end up on the other side of this disruption, and will almost certainly lose their independent existence over the next few years. Many middle-of-the-road companies such as Google, Sony, Samsung, SAP, Oracle, Apple and Facebook will probably survive but will be unlikely to be considered industry leaders 5-8 years hence. As for the IT services industry, which will be affected not just by this financial phenomenon but also the relentless march of cloud computing that has significant potential to dent its business, several waves of consolidation will be likely to leave just a handful - perhaps 5 or 6 - players of a multi-billion-dollar scale.
And so the cycle of creative destruction will march ahead relentlessly, as it should.
Sure enough, markets around the world have continued their upward surge since Jan 27th (when the above piece was written). In the brief space of 4 months, the Dow Jones Industrial Average, NASDAQ 100 and the S&P index have risen about 10-12%, most European indices by about 8-10%, and the Japanese Nikkei has soared by a whopping 45%. US home prices (as measured by the Case-Schiller Index) vaulted by a staggering 11% in the last one year. As noted, all these rises in asset prices are unsurprising - they're driven by continued loose expansionary monetary policies, particularly by the US Fed. Consumer confidence has hit a 5-year high - a result of booming asset prices creating a 'wealth effect'.
Friday, December 21, 2012
Of fiscal cliffhanging and peace dividends
US lawmakers are in the throes of a budget battle. Amidst all the skirmishes, sparring on tax rates, delicate and protracted negotiation of 'fiscal cliff's and so forth, it is surprising that no one seems to ask one simple question: Why does the US need to spend more on defense than the next 20 countries put together?
It's true that the US is the world's policeman, self-appointed peacekeeper etc. (and the world does need someone to play those roles). However, Americans need to ask, at what price? 4.7% of GDP (most other countries spend in the 1.5-3% range) is a LOT of money. Scaling it back to even 4% (which would still have the US in far and away the first place) would save a whopping $100 Billion - a 'peace dividend', to spend on retraining the unemployed, healthcare, welfare, reducing taxes, investing in education, research and innovation etc., etc...*
The US is hardly in imminent danger of being attacked by any major country, so the reduced defense spending wouldn't exactly be ruinous. In any case, the US would still be spending more on defense than the next 15 countries combined . And as for the world's policeman / peacekeeper, multilateral institutions such as the UN (dysfunctional as they are) are the best bet.
* A brief historical note: US military spending was at a ridiculous peak of 70% of federal outlays in the post-World War II era, and remained fairly high (around 25%) amidst the cold-war rhetoric of the Reagan era. Expectedly, since 1991 when the Berlin wall fell (the presumptive end date of the cold war), this figure has fallen significantly and only rose a bit after 2001, with the war on terror. Since 1991, the US has thus enjoyed a 'peace dividend'.
Saturday, May 05, 2012
A Development with ‘Far-reaching’ Consequences
Wednesday, September 21, 2011
In data we trust...
To counter accusations of unfairness, Google should rely on the most trustworthy ally: Data
Becoming everybody’s prime gateway to the internet has its drawbacks, as Google is finding out. People are bound to suggest that a company that enjoys such a pre-eminent status misuses that privileged position.
In countering this accusation during a US Senate Judiciary Committee hearing scheduled for later today, Google Chairman Dr. Eric Schmidt should rely on the most obvious and trustworthy ally: data. He should display a table that summarizes the results of a few hundred sample searches, and makes it plain that Google serves up results that do not “favor its own content” (as they’re accused of doing).
For dramatic effect, he can actually demonstrate a few searches online during the hearing, that attest to the above. Of course, he should be prepared for committee members to suggest their own searches, and should have verified in advance that there really isn’t any bias in Google results !
On the committee’s part, one hopes they recognize the most basic principle of fairness in justice: the burden of proof lies squarely on the accuser.
Tuesday, August 16, 2011
Google’s Motorola buy: Searching for more robust results…
With its latest acquisition, Google seeks to escape a one-trick pony fate.
Many a rationale has been advanced for Google’s headline-grabbing buy of Motorola Mobility. These attribute the buy, variously, to a defensive move by Google to protect Android from patent litigation, and to Google searching for a more vertically integrated mobile phone strategy a la Apple. While there may be truth to these attributions, I think most people have just forgotten the simplest rationale: a search for revenue streams beyond search-based advertising.
Google is a marvelously innovative company. However, I’ve frequently derided Google for being a one-trick pony (as have many others), deriving more than 95 percent of its revenues from a single source: search-based advertising. And, as I've written elsewhere, such a model is enormously vulnerable to disruption. Which means, the company just hasn’t been able to convert its vaunted innovative prowess into hard cash.But isn't it a terrible idea to become a competitor to your own customers, as Google must now compete with other handset manufacturers who have pitched in their lot with Android, such as Samsung, HTC, and Sony Ericsson? You bet it is. However, Google is adroitly straddling a fine tradeoff here – it seems to have decided that the risk of antagonizing a few customers is outweighed by the benefits. The move derisks Google and makes its business model more robust by creating an entirely new revenue stream.
And for a Google desperate to escape a one-trick pony fate, the $12 billion or so extra revenues from Motorola’s handset sales, even at low profitability, can scarcely hurt. As an added benefit, the integration gives a revenue model for Android, something it has lacked despite obvious popularity. Overall, it must be stated that this is an audacious and welcome move on Google's part as it seeks to become a strong mobile industry player. Google sure has a right to feel lucky with this one.
Friday, August 12, 2011
A standard too poor to judge nations by
Sovereign ratings such as those awarded by Standard and Poor’s are deeply flawed.
The recent downgrade of the US sovereign debt by Standard & Poor’s has three intriguing implications. First, it sends the message that like mere individuals, companies and lesser states, the US government too cannot live beyond its means. Second, S&P’s action suggests that the US is no longer the world’s prime economic mover, a status it has enjoyed for well over a century.
The former message is welcome, but the latter is less so. Just as a bunch of unruly schoolkids needs a strong chaperone, the world’s nations need a strong and credible leader to play an anchor role, particularly in terms of crisis. Institutions such as G7, G20, the EU and the IMF are too weak, too decrepit or simply do not enjoy the widespread trust needed to play that leadership role credibly. An America, however weakened, is better than no leader at all. The world economy without a firm hand on the rudder is not a pleasant prospect.
The third interesting observation from the downgrade and the events that followed is that it’s possible for a private company to take a decision that shakes the world’s most powerful governments. Nations and governments have traditionally enjoyed huge power over the private sector, and until recently it would have been unthinkable that one private company could take one decision that reverberated thru the world economy and left the world’s most powerful government scrambling to salvage it’s reputation.
But just how reliable are the sovereign ratings, and do changes in those ratings merit such mayhem? To see the answer, one has to look no further than the list of S&P’s AAA rated countries. If you could invest a million bucks in Guernsey, Isle of Man or the US, would you choose either of the first two? Yet those countries continue to retain their AAA ratings! Austria, Australia, Liechtenstein, Luxembourg, France and the UK are well-run countries, but would you really choose all of those above the US for your investments?
The US is still the largest, most diversified and most vibrant economy in the world. Whatever it lacks in quality of political leadership, it makes up in terms of these factors. America also has the world's largest private sector (which as observed earlier is steadily gaining importance). Also, America’s political process is fairly transparent so the risk of idiosyncratic or whimsical policy making is low – during the recent debt ceiling negotiations, every move was ruthlessly scrutinized by the world’s media. Many of the countries in the AAA list above have policy-making that’s opaque, run by a few individuals such as a President, Prime Minister or Finance Minister or by coteries. In addition, the US dollar is the world’s reserve currency. So as long as Uncle Sam runs the world’s money printing press, the likelihood of its defaulting is virtually nil.
Let me hasten to add that I’m no fan of the US or any other nation’s economic management – hubris, maneuvering for narrow political ends, lobbying etc. are rampant in America as in most other places. All the horse sense view is saying is, if the US is demoted from the top trustworthiness rating, so should every other AAA country be. If that doesn’t happen soon we can safely conclude that the sovereign debt rating process lacks integrity.
And let’s not forget that these ratings are being awarded by agencies that played a starring role in the financial crisis - by awarding stellar ratings to mortgage-backed securities that nearly allowed financial institutions to bring down the entire financial system, they failed investors and the financial system at large.
So, particularly given the psychological impact of these ratings, it’s incumbent upon the rating agencies to devise much more sophisticated rating methodologies that span a much wider range of factors.
Saturday, June 04, 2011
To market, to market..and don't dally on the way..!
Without a doubt, Facebook is one of today’s hottest internet properties. It's the second most visited website on the planet with 600 million users – a tenth of the world’s population ! The Wall Street Journal places its market value as high as $100 Billion.
Those figures are probably absurd overestimates, but that's beside the point here. The point is, most of that wealth remains on paper until the company actually goes public. While the company has announced plans to do an IPO, it has also shelved those plans until at least 2012. Why do I believe this is a mistake? Two reasons.
1. Facebook, today’s social networking leader, runs a real risk of turning into a social networking also-ran. Facebook has barely scraped the surface of the humongous beast that social networking is. It’s merely the vanguard of an entire new generation of software tools that’ll have social networking at their core. And these next generation social networking tools will automate entire work processes and personal activities - those breathtaking possibilities are barely a glimmer in the eye for even today's most advanced social networking software makers.
So in the emerging social networking universe, Facebook cannot take its leadership for granted – it can easily be overtaken by hungrier rivals and even relegated to being a marginal player. In a marathon race, the runner who leads after the first few meters has no guarantee of winning (and in fact rarely wins). That’s the stage where the social networking race is at right now.
Admittedly Facebook’s huge 600 million user base will be an asset difficult for other tools to replicate. However, they may not need to – many experts believe that the future of social networking tools is in catering to specialized audiences in focused niches.
(This is why, as I’ve written elsewhere, Google Chairman Eric Schmidt is wrong to believe he has missed the boat on social networking. Agonizing in this manner, reconciling to second-best status and taking a narrow view of social networking as being confined to little more than chatting and sharing photos is only likely to discourage Googlers from pursuing the vast unexplored vistas of social networking I've highlighted in that post. But that’s a separate discussion).
2. The markets may lose their exuberance for internet properties soon. We’re in the midst of a bubble as far as internet IPOs are concerned. As an example, Groupon which has a business model that can at best be described as unproven, has an IPO in the works that values that company at upto $30 billion ! (which makes you wonder if Groupon isn’t going to be the next Boo.com – a poster child for a burst bubble). Reality should assert itself pretty soon, and by 2012 that bubble may well be past.
And a time when people are mopping up the remnants of a recently-burst bubble would scarcely be opportune for approaching the markets.
* Facebook's ownership wrangles may be part reason for the delayed IPO.
Tuesday, September 07, 2010
As geography returns to history, capitalism lives on..
Financial crises will come and go, as the world rebalances. But reports of the death of capitalism are greatly exaggerated.
A couple of very intriguing questions: How healthy is the world economy? And how will it evolve over the next several years?
The first question is the topic du jour; the second however is almost wholly ignored in public discourse. I believe both are important; the second perhaps more so, if we are not to repeat the often-nasty and always costly economic surprises of recent years.
Here are my thoughts on both these questions:
How healthy is the world economy (today and over the next 3 years) ?
The basic capitalist fabric upon which the world's economic superstructure is built has been stretched badly by the events of the past 7-8 years, but not torn. The process of recovery from the recession began in July 2009 (as I wrote it would in April 2009, based on these five factors - a view that was markedly against the tide of expert opinion at the time), and is plodding on resolutely. The US recovery has cooled somewhat since March 2010 for a variety of reasons (some enumerated in the blog post below), but the probability of a double-dip in the US, European Union or any other major economic entity is vanishingly small (less than 10%). The world economy will continue to be in rude health (barring any unforeseen cataclysmic event – by definition, an extremely unlikely eventuality).
This doesn't mean the recovery will be painless: Jobs have been marching away from the developed world to
However cries of the Death of Capitalism, another Great Depression, and so forth which we heard in late 2008 / early 2009 (and some of which came from respected Gurus of the establishment) have proven unfounded.
How will the world economy evolve over the next 4 - 15 years?
Capitalism is not decrepit, but it’s been flogged by unscrupulous businesses intent on testing its limits nearly to breaking point. Regulators who were expected to rein in this reckless behavior looked on benignly (or fecklessly). The Gurus and thought leaders who should have sounded warning bells were trapped in ivory towers, rendering themselves essentially irrelevant.
More importantly, No lessons have been learnt from the recent financial crisis. Regulatory changes such as the Dodd-Frank Act are too weak, abstract or low on specifics to deter further recklessness. Cycles are an inherent economic phenomenon (despite what many naively believed during the halcyon dotcom days and the boom of 2003-2007); weak regulation will ensure that some cycles will go far enough to engender full-blown crises. So there will be more financial crises in the next 5-15 years (and we probably won't learn much from those either).
These crises will be most likely to originate in the
A hapless world will reel in response to each crisis. However, while we won’t get much better at preventing crises, we’ll continue to learn to manage these crises better. Crisis responses will (hopefully) be as admirably coordinated and effective as the response to the 2008 financial crisis was.
Few would argue today that the regulatory failures that cause free markets to occasionally plunge headlong into crises justify a switch to the opposite extreme – the abandonment of capitalist free enterprise[i]. However, the lines between Government and free markets will need some redrawing.
Capitalism will continue to thrive, partly because all alternatives have self-destructed. The major bastions of Communism and Socialism – in the Soviet Bloc and
But capitalism will thrive mainly because it has worked (but, it must be admitted, for the occasional crisis). Free-market democracies have emerged as the most effective method to unleash the creative and entrepreneurial energies of the human race. They have promoted widespread wealth and well-being. The new generation’s aspiration for freedom - of expression and enterprise - can only be met by the liberal pluralism that only free-market democracies can provide[ii]. In the annals of ideological battles, the market is the undisputed winner.
So the real battles will shift to social, cultural and technological issues – medical ethics, the propriety of creating clones and artificial life forms, energy security, the right response to changing world demographics, and so forth. These battles will largely be devoid of ideological content, and focus on pragmatic aspects.
Meanwhile, the inexorable forces rebalancing the world will soldier on. The historical anomaly of Western dominance set in motion by the Industrial revolution and the colonial era, and kept in place by the Cold War will be erased. In 2025 the world will look more like it did in the late 19th century (in terms of relative apportioning of wealth between the geographical East-West, not in terms of absolute standards of living or technological advancement) !
Of course this rebalancing will not be painless as the newly emerging nations (
So the world will hardly be devoid of conflict. But the conflicts of the next 15 years – and their resolution – will be guided by the invisible hand of Adam Smith, rather than by the ideological fist of Karl Marx. And we’ll continue to live in interesting times.
[i] The fact that regulatory failure played such a big role in fostering recent financial crises is an argument against, and not for, more government.
[ii] This is why
Friday, May 28, 2010
Drachma drama or Dragon's dance?