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Google as a utility

Andrew Parker, an associate with Union Square Ventures, had an excellent post a couple of weeks back that I just found. While the bulk of the post was discussing Google’s metric-driven design process (e.g. testing 40 different shades of blue to determine which one garners the most traffic), he made a point at the end of his post that really struck me: Google is, for all intents and purposes, a utility:

Google is making the right choice by being so metric-driven in their design decisions. Not only is it the right financial decision, but additionally, Google is a *utility.* It’s a means to an end, not an end itself.  It should be optimized for usability (think: efficiency) over user experience (think: fun).

There’s more than a bit of truth to this, and it’s a fantastic insight. Google is a platform more than anything. While Google does offer many different products that could in themselves be considered an “end” (e.g. Google Reader, Google Docs), they all ultimately serve to do one thing: sell more and better advertisements. This requires a different approach–it’s less about the singular, rock-star brilliant mind, and more about carefully and logically adjusting to incrementally increase traffic.

Andrew’s blog is a great read–he shows uncommon insight into business and technology. I can see why USV hired him (and why they are sad to lose him to Boston).


Google TV–Show me the content

I was in the midst of writing a post about Google’s recent announcement that they are coming to a TV near you–and then found FastCompany has just published essentially the same post that I was writing. So in lieu of going into depth about it, I’ll simply summarize my thoughts–and they are pretty straightforward:

It’s all about the content. Everyone so far has been talking about the technical specs of the device, whether it will run Android or ChromeOS, what chip it will have in it, etc. They are all missing the point. There is no shortage of other people building settop boxes that bring the internet to  your TV. Boxee is my current favorite (and based here in New York, to boot!). The trick here is that it has to be more than that–to really succeed, users need to be able to quickly watch their favorite shows on the device. Unfortunately, content creators and the networks that own the content have not been enthusiastic about this (for good reason–they get paid better through their existing distribution agreements). If Google can convince them to license their content to the box, it could be a smashing success–as well as wiping out Boxee and its competitors. If not? It’s just one more box attached to the TV.

Now, I’m a believer in the power of Google to do things that mere mortal companies cannot. Do not underestimate them. But quite frankly, this plays more into the hands of Apple, who has existing relationships with the content owners and networks. Apple has yet to be able to get them to adequately license the content for Apple’s own settop box. Will Google be able to do so? Given Google’s current lawsuit with Viacom over YouTube, I’m not sure–but like I said, never count them out. I’d love to see them break the stranglehold of cable television, and if they can, I’ll be one of the first subscribers.

eCommerce Version 2.0?

Josh Kopelman recently had a fascinating post about eCommerce models and how little has changed in the online shopping market since 1999. His key findings:

  • More than half of today’s top 15 most trafficked websites today did not exist back in 1999.  That is not a surprise, as Facebook, Youtube, Wikipedia, Myspace, Blogger, and Twitter are all new — and are representative of the massive amount of innovation and disruption that has occurred in the last decade.
  • Yet, of the top 15 most trafficked eCommerce websites today, just one of them did not exist back in 1999 (NewEgg – which launched in 2001).  Which means that over 90% of the top eCommerce websites are over 12 years old!  That is pretty remarkable to me — and reflects an amazing lack of external innovation (and disruption).

While this at first seems strange, I think that it actually makes a lot of sense. There is a tremendous first-movers advantage to being one of these pioneering eCommerce sites (e.g. Amazon, eBay, NetFlix, NewEgg). These brands have huge mindshare and have become ingrained into the customer mind. When you want to buy a book online, the first place you look is Amazon. Customers have dealt with these companies, and by and large, they trust them. Add to this that these companies are already so good at smoothing out and just-in-time-ing their supply chains to squeeze out every penny of savings and pass this on to the customer, and it becomes just about impossible to beat them on price as well, leaving competitors with little way to materially compete with them.

Josh (as well as Fred Wilson, which is actually where I first read about this) believes that the place where disruptive innovation is likely to happen is in totally new models of shopping:

As I said in my last post, I believe we’ve seen more innovation (and potential for disruption) in eCommerce in the last 10 months than we have in the last 10 years — with group buying, demand aggregation, game mechanics, flash/group sales, leveraging the social graph for customer acquisition and mobile.

I’d have to agree with this–companies such as JetSetter, Gilt Groupe, and Groupon will be the new disruptive models. Fred Wilson takes it one step further, asking who the next YouTube or Facebook of eCommerce will be–but I’m not sure that these alternative models will necessarily ever take over to the extent that Amazon or eBay have. I think their specialized, exclusive models better serve the long tail, and there is more likely to be a multitude of specialized competitors here rather than a few behemoths. Certainly there will be some consolidation, with winners and losers, but I’m not sure we’ll see one stop shops like we did with the first wave of eCommerce sites.

Regardless, the statistics behind it are fascinating, and I thank Josh for doing the research behind this. I’d have to agree with him and Fred–the industry certainly seems to be ripe for shaking up, and it’s fun watching it unravel (not to mention watching the sales on JetSetter and Groupon!).

Weekly Economic Summary

If you’ve ever wondered where all the seemingly random statistics that make up the financial news come from (housing starts, capacity utilization, initial unemployment claims, etc), what they mean, and when they come out, one of the best resources I’ve found is Calculated Risk’s “Weekly Summary” posts. Every week, they post the upcoming statistical releases, what they mean, and what the expected values are. Even better, they then recap the last week’s releases, giving you a good platform for making sense of the upcoming numbers and where they fit in the overall picture.

This week’s upcoming releases for example: Industrial production and capacity utilization, housing market index, Empire manufacturing survey, housing starts, an FOMC statement, mortgage applications index, producer price index, initial weekly unemployment claims, and the February consumer price index. Quite a handful, and yet they’ve done a great job of summarizing it all.

It’s a great resource for those looking to get a better understanding of the numbers behind the economy. Their other posts are great as well–Calculated Risk is a great resource in any case, and they’re one of my “must read” feeds in my Google Reader.

Things just got interesting: Google launches App Marketplace

Well now, things just got interesting. Google just released App Marketplace, a centralized app store for cloud-based applications leveraging the Google Apps platform and framework. It also allows developers to very tightly integrate with existing Google apps (i.e. calendar, email, and document editing) and to utilize the Google apps authentication and login scheme, streamlining the user experience and creating a common framework for cloud-based applications.

Google plans to charge developers 20% of revenues, a decrease from the 30% agency revenue market that has become standard (e.g. iTunes, iPad books, Amazon).

This has the potential to be a game changer in the cloud-based/SaaS market. It’s no secret that Google is a big fan of applications in the cloud, and has been one of the largest supporters of technologies like HTML5 that will allow them to move even more functionality to the cloud. This latest move could centralize the market and make Google the arbiter and central party for a huge subset of the SaaS market.

The most obvious advantage for Google here is that if widely adopted, which isn’t a stretch, it makes them the de-facto standard platform for cloud-based development. It’s much like what Apple did with the App Store on the iPhone. While the revenue isn’t likely to supplant Google’s traditional advertising business, it grants them tremendous mindshare in the marketplace and allows an additional platform for Google to leverage.

Another, and perhaps just as key of an advantage is the tight integration with Google’s existing cloud applications. By creating a stable of third party applications that tightly integrate with Google’s calendaring, email, and document offerings by default and out of the box, it further cements Google’s lead in this space. Microsoft, already lagging behind in the online-office space, has even more to worry about now.

Finally, this creates another platform Google to leverage to increase it’s lead in Big Data and online advertising. The more data Google has, the better the targeted ads they can create, and the more they can charge for them. No one is better at crunching this data to come up with usable information than Google, and this is playing to their strengths.

Of course, it remains to be seen if this will stick. Personally, I’m optimistic–consolidation is a good thing in this space, and allows developers a broader audience. If it works out, it could be a very good thing for Google.

It’s also interesting to watch Google get it’s fingers into so many pies. Just yesterday, there was an article in the New York Times about how Google has used its computing power and Big Data expertise to create one of the best computer translation services. It’s well worth Google’s effort to expand into as many spaces as possible. The more data, the more platforms, the more ads Google can sell. It keeps them at the forefront of technological advancement–and frankly, there’s no one else that can do much of what they’re doing. If nothing else, it’s fun to watch.

Edit: More reading about the Apps Marketplace:

Is gold the next asset bubble?

Rick Bookstaber has an excellent post up discussing gold, whether or not it is a bubble, and most interestingly, what this tells us about the market.

It’s not much secret that the price of gold has been rising steadily in the markets. What’s more interesting about this however is the very public discussion by many hedge fund managers about how large of a position they hold in gold (or a gold ETF more specifically) and how confident they are that prices will continue to rise.

Bookstaber’s point is this, and it’s well worth considering: given how secretive hedge funds normally are about their investments, why are so many of them publicly pushing gold? It gets even more interesting when you consider that they have been acquiring these positions in ETFs, which have to be reported in their 13-F filings–and with an asset like gold, there are plenty of ways to take a position that doesn’t require public disclosure.

That they are taking a highly visible route to their positions suggests the game that is being played is one of leading the herd. The 13-F reports positions with a big lag, so no one will notice if they quietly slip out the side door while the party is still hopping. And how about when the view is backed up by none other than Goldman Sachs? Will they let everyone know when they think it has gone too far before they get out. Or before they go short? Maybe they already have.

It’s an interesting thought, and worth considering. He’s done a great job summarizing it, so I won’t add anything more than this: when someone speaks, it’s always worth considering where their true interests lie.

Via Rick Bookstaber.

Investment Gold from Warren Buffett

As I’ve said before, I love reading investment outlooks and letters. Warren Buffet’s is without a doubt one of the most famous, and for good reason.

Take this quote from his latest letter for instance:

“Charlie and I avoid businesses whose futures we can’t evaluate, no matter how exciting their products may be. In the past, it required no brilliance for people to foresee the fabulous growth that awaited such industries as autos (in 1910), aircraft (in 1930) and television sets (in 1950). But the future then also included competitive dynamics that would decimate almost all of the companies entering those industries. Even the survivors tended to come away bleeding.

Just because Charlie and I can clearly see dramatic growth ahead for an industry does not mean we can judge what its profit margins and returns on capital will be as a host of competitors battle for supremacy. At Berkshire we will stick with businesses whose profit picture for decades to come seems reasonably predictable. Even then, we will make plenty of mistakes.”

The insight and discipline shown here is incredible, and is certainly one of the reasons why he has been so consistently successful.

Quote originally found here.

Updated Volcker Rule Published

Last night was a fairly news-worthy evening. In addition to Greece and Spain’s surprise bond issues, the text of the much discussed Volcker Rule was sent to Congress by the White House.

So how does it differ from the initial proposal that has been discussed endlessly, including on this blog?

  1. The bill does regulate non-bank holding firms (hedge funds, private equity, and probably sooner rather than later, Goldman and Morgan Stanley) by imposing “capital and quantitative limits” on these firms, but does not go so far as to allow them access to government funds in the event of systemically-risky collapse.
  2. Firms are prohibited from assuming by acquisition more than 10% of all liabilities in the system. This is a change from current rules which prohibit firms from owning more than 10% of deposits, and is a reflection of the move towards retail deposits being a smaller and smaller piece of the funding that banks use to do their business.

I made it clear in an earlier post that I was not a huge fan of the proposal as it was initially laid out. For an even better write-up of some of the issues, see Economics of Contempt’s excellent writeup.  However, I do feel that while the addition of these two rules do make the Volcker Rule stronger, it still leaves critical holes unplugged.

The largest hole here is that it still implicitly assumes that non-retail banks are not systemically important. Lehman Brothers conclusively proved that they in fact can be. The updated Rule imposes some restrictions on these firms (though what the specific “capital and quantitative limits” will be has yet to be clarified), but doesn’t go so far as to acknowledge that 1) these firms most certainly can be systemically important and 2) in the event of collapse of a systemically important investment bank or hedge fund, it’s going to need to be bailed out anyways lest we have a repeat of Lehman.

Furthermore, the moral hazard has already been breached, and I think that the market generally understands that these firms will be bailed out in the event of another meltdown. Why not codify this, put into place resolution authority, and make it well known the process by which these firms will be wound down?

I also have yet to see a good definition of what will constitute proprietary trading. This is a hard nut to crack, as the firm can trade onto it’s own book for many a legitimate customer transaction. It’s hard to separate this out. Making broad statements about banning it is fine, but actually enforcing it can get hairy when regulators try to determine what was legitimate vs what was not. I imagine that defining this will be an ongoing process, but it still needs to be addressed.

My final issue, and one common to almost any law, is that the language appears to be less than clear. Dealbook has quotes from several business and finance professors confirming what many have feared–that it will likely be easy to circumvent the rule through loopholes. I’m not an expert on the legal text by any means, but systemic financial regulation is too important to pass cursory rules that can easily be circumvented.

In the end, my feeling is still the same–the bill’s heart is in the right place, but it just doesn’t get it. It’s a good first start, and includes some solid points, but I haven’t yet seen enough that says to me that Congress and the White House are doing much more than making cursory attempts at regulation that address the symptoms, not the causes of the financial crisis. I hope to be proven wrong.

Changing the game of NYC apartment hunting?

This post will be somewhat unrelated to the fields of finance and technology, but is something no doubt of interest to anyone who has lived in New York.

As anyone who has lived here can tell you, there’s not much worse in this city than trying to find an apartment. Not only are prices astronomical, but you frequently have to pay a very large “brokers fee”, typically at least one month’s rent, to a broker who does nothing more than open the door of the apartment and ask you if you want it. They don’t help you search for a place, they don’t offer you advice, they don’t help fill out the paperwork–they do nothing more than turn the key, and for this are rewarded handsomely. Add to this that 9/10 of the listings they tend to place are grossly misleading and filled with enough grammar and spelling mistakes to make a kindergardener blush, and you begin to get some idea of the dread that fills New Yorkers when they think about the prospect of finding a new apartment.

Which is why I love the idea of Naked Apartments. Their idea is to essentially let renters post a profile of their income, preferred neighborhood, amenities, bedrooms, etc, along with an optional credit score and other data to establish your credibility as a renter, and to let the landlords come straight to you. This could work as it filters out a lot of the noise to both parties, renter and landlord. It’s something of an online dating site for apartments, and should help both parties more easily find an ideal match.

I wish them the best of luck, and hope that they can get enough traction to succeed. Luckily I am happily in a great apartment, but if I do need to find another place for some reason, I would certainly give them a shot.

I do see one downside here–it shifts some of the burden of finding an apartment onto the landlord. Currently, this is fine–the market is down enough that there is more supply than demand. However, this is not normally the case–apartment hunting here is an incredibly fast moving, aggressive experience, with many people competing for every decent apartment. Generally if you find a place you like, you’ve got about an hour to commit to it before someone else takes it out from under you. I’m worried that when the market returns to something of an even keel, that landlords won’t be willing to put in the effort and will revert right back to their old ways, where demand outstrips supply and lets them get away with just about anything.

In the interim though, best of luck. I do hope that they succeed.

Bill Gross’ March 2010 Investment Outlook

I absolutely love reading some investors’ investment outlooks. It’s a great way to get an insight into what some legendary investors are thinking about the markets and the economy, and can go a long way to expanding your knowledge and thinking about some key issues.

Bill Gross, co-founder of PIMCO, one of the world’s preeminent bond firms, has published his March 2010 investment outlook, and per usual, he’s got some great insights. Somewhat unusually, he makes quite a few irreverent jokes, complete with hilarious charting, but that only serves to make it an even more interesting read.

The subject is on the ability of sovereign governments to issue more debt to get themselves out of a debt crisis. It’s a very prescient read given the current issues in Greece. If you’ve any interest in the structure of the debt markets, it’s worth checking out.