D-on-Net

Google jumps on FIFA World Cup train

Google's homepage is now showing a link to add "World Cup live scores and schedules" to your Google personalized homepage.  Although Yahoo looks to be the real World Cup winner with its long standing partnership with FIFA and its joint effort with FIFAworldcup.com, Google has tried to stay relevant to the World Cup by attaching its name to the social networking soccer site, Joga.com, with Nike.  Soccer/Football remains the most popular sport in the world, so it is a natural move strategically for companies to try and appeal to the fans during this monumental tournament.  Yahoo is offering live mobile SMS updates for the avid soccer fan, and it appears Google is too late to the game in offering such features.  Attaching ones brand to such a highly popular sport and tournament could provide long standing brand recognition and only aid in building out a stronger presence internationally.  Since Yahoo is likely responsible for serving and brokering the advertisements on FIFAworldcup.com it is conceivable the popularity of this event could garner greater than anticipated site traffic and lead to unexpected upside to revenue. 

eBay taking joint venture route in Taiwan

eBay [EBAY] announced it has decided to no longer go after the online auction market in Taiwan alone.  Instead, eBay is forming a joint venture with Taiwan

’s PChome Online, the number two internet portal and number one e-commerce platform (23% share according to Market Intelligence Centerdata) in the country.  There are two possible reasons for the decided partnership, but more likely it is a combination of the two.  Either eBay’s platform is struggling to gain traction in the country due to increased local competition or given that PChome Online has had a co-branded partnership with Skype since 2004 the two companies decided it also makes sense to collaborate on a co-branded online auction site.  Although the new co-branded site will be managed locally by PChome Online and will replace both PChome online’s existing auction site and the eBay Taiwan site, the new joint venture does not appear to be as large in scope as the Yahoo [YHOO] and Alibaba agreement.  That said, T1R does not believe this partnership would entail eBay injecting a material amount of cash into PChome Online.  The release states the agreement “is subject to various closing conditions and is expected to be finalized by the end of the year.”  eBay also stated the joint venture is not anticipated to have a material impact on net revenue or EPS or any other financial guidance issued to date.  eBay stated they continue to see “increasing local competition, especially in Asia” during its Analyst Day, but eBay remains the number one e-commerce site in Korea.  Despite the fact they are lagging local competitors in China, the country continues to aid in driving eBay’s overall growth in Asia.  That said, I believe there will be success and failures within Asia Pac for all of the large internet players and believe forming joint ventures and perhaps acquisitions with the stronger local competitors is a trend we will continue to witness for the foreseeable future. 

More proof business in Asia is a tough nut to crack:  Yahoo was the first major internet player to decide to go after the opportunity in China by forming a joint venture with Alibaba.com.  While eBay has yet to do this in China, and is a move I am not anticipating they will make, eBay is trailing the e-commerce and online auction leader in China, Alibaba’s Taoboa.  eBay also made the strategic decision to pull out of Japan a few years ago due primarily to Yahoo’s dominance in the country.  Government regulations and cultural differences (online interests, shopping habits, and payment/transaction trust) is much different than in the U.S. and in Europe and a challenge that all internet companies with hopes of expanding into Asia continue to face.  In fact, during eBay’s Analyst Day, Matt Bannick, president of eBay International presented a slide describing Asia as a country with “unique local challenges, but strong long-term potential.”  Again, it is likely the partnership stems from a variety of issues, but it is fair to say eBay must have been facing difficultly gaining traction with the local e-commerce community, which is something PChome Online has a foot hold on.  The release stated “eBay and PChome Online will share best practices to develop a new shopping experience that offers enhanced features to the Taiwan Internet community.” 

Strong C2C classifieds presence in Asia:  During eBay’s Analyst Day, the company presented a slide showing it currently holds the #1 or #2 position in C2C classifieds (taking a page out of the U.S.

dominator Craigs List) in 21 countries.  In terms of its C2C classifieds presence in Asia, they have a footprint and either the #1 or #2 presence in China, Japan, Korea and Taiwan. 

PChome Online overview:  PChome Online was founded in 1998 and became the first internet company to go public in Taiwan in January 2005.  The company is an ISP with more than 10M subscribers and offers an internet portal, e-commerce platform and telecommunications offerings.  PChome Online is reportedly the number two internet portal in Taiwan and the number one e-commerce play with approximately 23% market share according to data from Market Intelligence Center.     

Skype slapped with patent infringement suit by Net2Phone

The WSJ reported Skype has been slapped with a patent infringement lawsuit by IDT Corp's Net2Phone division.  The report states the U.S. District Court in Newark, NJ filed the suit Thursday, however, Skype has yet to comment because the company hasn't received any of the documents.  The suit claims one of the patents on "Internet calling" Net2Phone holds was infringed by Skype.  Net2Phone is taking the classic stance of trying to immediately stop Skype from further infringement and seeking financial compensation for damages to date. 

In the case of Skype, it is only a matter of time for a company who demonstrates the kind of massive growth and scale they have that they are hit with these kinds of lawsuits.  Assuming the claim is valid this will be another classic fix settled with a chunk of change to make Net2Phone go away while adding additional capital to the already hefty price tag paid for Skype.  It is likely patent attorneys have been lining up at the doors of smaller VOIP players to go after the big guns in hopes of getting a piece of the pie and is a sign similar suits are likely to follow. 

Amazon denied motion to stay by New Jersey Supreme Court

Amazon [AMZN] just released an 8K filing stating the New Jersey Supreme Court has denied the company's motion to stay on its appeal regarding a courts previous decision to terminate Amazon's contract with Toys R Us.  As a result of the denial, the company's release goes on to state it is now likely to suffer a $25M hit to its 2Q06 operating income and a total of $50M in 2006 due to Toys R Us no longer paying on its contract.  Amazon goes on to say "we believe we will prevail on the appeal and that Toysrus.com’s claims lack merit", but I personally believe the company has a shot in the dark at winning this case, which will likely lead to the $50M impact in 2006.  However, I also believe this loss is already priced into the stock given the courts previous ruling.  Regardless, this is another hit to a company that is already scrambling to bring leverage to its operating margins and something to get the Street back in its favor. 

Yahoo Video enhancements merely playing catch-up

During Yahoo’s [YHOO] Analyst Day management’s comments centered on improving its existing platforms by enhancing customer/community engagement through better and more personalized content.  The company said this would be its foundation for building “the next Yahoo” and just unveiled its newest version of Yahoo Video with this strategy at the forefront.  Unfortunately for Yahoo, video sharing sites such as YouTube, VSocial, and Grouper have been gaining in popularity at unprecedented rates and the new offerings integrated into Yahoo Video are merely playing catch-up to the competition.  Said differently, Yahoo is once again trailing in the innovation game and not offering anything that doesn’t scream “me too.”  Yahoo cleaned up its UI and stuck with its strategy of community and personal engagement through several customization features such as enabling users to subscribe to specific video channels/categories, search by tags, create favorite lists and upload their own content to be discovered and shared with the masses.  However, given all of these features are already available on other sites, which have a loyal and engaged community of users, I am skeptical the wave of user generated content will spill over to Yahoo Video.   While Yahoo’s 200M registered users provides a large existing base to build on and perhaps some reasoning why it has yet to acquire any of the competition (and the amount of copyrighted material illegally posted on the sites), it is likely a large percentage of its users are already attached to an existing online video sharing platform.  That said, if Yahoo is serious about building a brand associated with video sharing/search, its next release needs to differentiate and provide a wow factor, which is something the company has successfully failed at delivering. 

Yahoo needs to innovate:  The Company’s latest attempt at innovation through Yahoo Video wasn’t much of an attempt at all.  Yahoo is becoming too well known as an innovation laggard, which is a practice that allowed Google [GOOG] to zoom past them and become the dominant leader in online search.  Although Yahoo is making strides to begin enhancing its existing suite of offerings at a more rapid pace, the improvements to-date have yet to do anything more than to say “me too.”  It is as though Yahoo has lost its innovation gusto and is settling into becoming a mature online media company.  Despite the fact the enhancements made to Yahoo Video were the right ones to be made these releases lose credibility and have a shorter shelf life when there is nothing setting the offering apart from the competition.  If Yahoo wants to create a sea change in online video they must innovate and think beyond what is already available in the market.  One potential differentiator to-date for Yahoo, which is still in the early adopter phase, is its Yahoo Go for TV initiative, which enables Yahoo users to access their Yahoo accounts and thus, would enable users to access and view their Yahoo Video library on their TV.

How can user generated online video sharing sites monetize the opportunity?:  The number one question surrounding the hoards of user generated online video sharing platforms is how they will be able to make money on the service.  Although the obvious answer centers around advertising it remains a question how much of a role advertising can play in monetizing existing platforms.  For example, YouTube users reportedly watch 50M videos/day on its site and upload more than 50,000 videos daily, which are astonishing numbers.  Additionally, YouTube allows users to create a profile asking for details such as gender and age, which is likely to be extremely valuable to potential advertisers.  Assuming all 50M of the videos watched per day were original user generated content and didn’t include any illegal copyrighted material (although this is policed today it is far from 100% accurate and up to the responsibility of the content owner to report and have the material removed from the site), if YouTube were to insert 10-20 second advertisements before viewing the content at $0.10 per viewing the company could net $5M/day in ad revenue equating to $1.8B in revenue per year.  However, this is obviously much easier said than done.  These platforms don’t want to damage the user experience and are likely tip toeing around the idea of inserting ads directly into the user generated content, which are likely to takeaway from the viewing experience, especially considering the advertisements would likely be as long as many of the actual videos.  I believes if the ad insertion strategy were to be adopted, users would likely seek incentives to continue participating on any given online video platform through a revenue sharing model, much like the affiliate networks of GOOG, YHOO, MSN etc.  Additionally, given the traffic YouTube generates its homepage alone should generate a kings ransom in display advertising should the company decide to monetize its real-estate.  MySpace reportedly garners $750K/day on its homepage in ad revenue, equating to approximately $270M a year in revenue.

Google Earth to the rescue...for Bird Flu virus

Reuters just released an interesting article that mentions U.S. poultry experts have been using Google Earth to aid in pinpointing the location of various chicken farms, feed mills etc. in the anticipated arival of the bird-flu virus in the U.S. expected at some point this year.  Google Earth first received a lot of press after rescue teams in Hurricane Katrina began using the mapping technology to identify neighborhoods etc.  Lucky for us, Google purchased Keyhole and gave it to the masses for FREE.  "Twenty years ago we had to drive around the countryside and find the chicken farm that reported a disease, but now everything is on a mapping system," Davison told Reuters in a recent interview.

Google does Dell and...Gateway

After messing with the http://www.google.com/ig/dell URL, T1R just discovered Google is also partnering on a homepage with gateway to do a branded bundled and personalizable homepage...ck it out...this may have legs http://www.google.com/ig/gateway.  We tried this for other PC manufacturers, sony, toshiba, apple, and HP, but no cigar...yet!!!

Google has not released details on pricing of the deal with Dell, but has been rumored at $1bn over 3 years. Excluding any expenses associated with this, the $1bn would equate to $0.43/share of EPS for Dell, or equivalent to $0.04/share per quarter. This is decent, but not huge for Dell considering other factors. However, for Gateway, even if their deal with Google is a mere $100mn over the same 3-years, this would equate to $0.33/share of EPS for Gateway, which is equivalent to nearly $0.03/share per quarter for a company that has negative EPS right now.

If the Department of Justice says Microsoft can, so can Google thanks to partnership with Dell

An alliance between Dell and Google is no longer speculation, but was confirmed by CEO Schmidt at Goldman’s Internet Conference.  CEO Schmidt acknowledged it is a multi-year deal and on a “worldwide basis”, but would not divulge any of the financial details.  The strategic partnership is much deeper than I previously anticipated.  Dell will pre-install Google’s toolbar, Desktop 4, and set the homepage of the PCs browser to a co-branded Google and Dell site.  However, the most interesting part of the agreement is also a direct shot to the response of the DOJs recent ruling that Microsoft is allowed to set MSN as the default search engine for IE7.  Since the DOJ said Microsoft was in the clear, Dell will be setting Google as the default search engine of choice for every Dell consumer, small, medium and large enterprise PC they sell amounting to tens of millions of computers a year.  CEO Schmidt also confirmed the two companies have been in a trial period for approximately six months and stated “we understand the value that it provides and we really understand the economics well.”  This is a big win strategically for Google in that it puts them directly on the PC out-of-the-box and will enable them to better position themselves against the upcoming release of Windows Vista and IE7.  Given the six month trial period of the arrangement, Google must clearly like the amount of search queries and ROI they are witnessing on the initial sample and is betting on this being a large opportunity on a global scale.  I am a believer that gaining presence on more PCs out-of-the-box will correlate to search query growth and thus incremental revenue for Google.  That said, there are many unanswered questions surrounding the economics of the deal.  Is Google really paying $1bn up-front for the agreement?  Nobody seems to know for sure.  Regardless, I can't help but believe given they were in a trial period for six months, Google would have continued with a formal alliance if the economics didn't make sense.  Sure there are arguments out there that this could be a negative for Google's near-term cash flow depending on the amount of the upfront payment etc., but I can't believe a company with the minds at Google would move forward if they didn't like what they have seen thus far. 

Amazon launches POD for publishers

Amazon's [AMZN] announcement of its print-on-deman program for book publishers bears the question if this is a retaliation towards Google's Book Search efforts or if these programs could potentially compliment one another. Amazon's POD efforts enable authors to sell less popular titles by enabling them to be printed as they are ordered, which is a compelling value proposition to any author.  The press release states "For a limited time, BookSurge will provide discounted book scanning services with no upfront investment to the publisher and free setup for titles with POD-ready digital files.  Publishers participating in POD will also be provided the option to enroll these titles into Amazon's Search Inside the Book and Amazon Upgrade programs at no additional cost."  I believe Google's Book Search program is actually complimentary to Amazon's POD program and is likely to aid in driving sales to Amazon.  Google's Book Search program is really a marketing opportunity for authors enabling them to expose the topics of the book to a larger user base.  Authors have the opportunity to provide paragraph teasers, full sample pages, or the entire book through Google Book Search.  The value proposition Google provides is a larger audience base intent on searching for information relevant to their query and more importantly "links them to places where [searchers] can buy them immediately."  This is where Amazaon and its POD program can come into play.  Authors who don't have the financial ability to print large quantities of their books and perhaps are not gaining much traffic on their own website now have a two-headed monster they can set in motion in hopes of driving sales.  By authorizing portions of your book to be searchable on Google Book Search and entering Amazon's POD program, an author can market its work to a larger user audience and point them in the right direction to purchase the book without risking additional upfront capital in mass production. 

Amazon's POD efforts also resembles the wildly successful business model of Digital River [DRIV].  Digital Rive helps companies who sell through CD-Roms, but don't want to invest in large CD-ROM inventories.  DRIV creates this efficiency for companies by running a CD-ROM creation studio that makes copies as they are ordered. 

Google + China Mobile = huge opportunity

Several publications have reported Google and China Mobile are in talks.  The talks are reportedly around Google getting its search engin on China Mobile's phones, which could be a huge opportunity for GOOG.  Google has said over and over they believe the mobile opportunity is large and all internet players continue to point to the fact there are 2x the amount of cell phones than pcs in the world.  Google is already serving mobile ads in Japan and is using the country as a kind of test market.  A potential partnership with China Mobile could be significant for GOOG considering they are China's largest cell phone provider with approximately 260M subs.  While Baidu [BIDU] is currently the leader in search in China, they have yet to make any strides in the mobile arena.  A partnership wtih China Mobile would immediately provide GOOG access to a large audience and catapault GOOG's brand awareness in the country.  Given the popularity of mobile phones in China, I believe a strategy focused on developing as many partnerships in the mobile arena is the right one and expect many mobile partnerships in ASIA PAC to be announced in the coming months.

Google also announced a mobile partnership with KDDI in Japan today who will integrate Google's search engine into its mobile offerings. 

Alibaba, who now owns Yahoo!'s search engine, stated they are not currently focused on the mobile opportunity in China, which could be a mistake for the company.  They are currently focused on taking share from Baidu, but I believe given the massive amount of cell phones in China relative to PCs, this strategy is the wrong one to take.  Although Alibaba has three very popular brands in China with Alipay, Taobao and Alibaba, all of which can be used to promote Yahoo! Search on PCs, I still firmly believe given the 2-1 cell to pc ratio globally and actually larger in china, both Baidu and Alibaba are setting themselves up for failure over the long-term if they continue to ignore the mobile search opportunity.  I believe China is a market that in many ways is the opposite of the U.S. in the sense that what we use on our PCs we also prefer to have access to on our cell phones.  However, given the dynamice in China, I believe it makes more sense that users will likely use the products and services they have access to via their cell phones on their pcs.  This is a dynamic I will continue to follow and report on in the future.