Cell Life

Gosh.. this does not seem to end. I wish this went one way or the other and we were spared the glut of news around this on every tech board. Microsoft needs Yahoo to be anything in the internet space and it is as simple as that. For Yahoo it is a good exit plan. But for consumers and internet users, a merger is not good news. We want more competition rather than a few monopolizing the net. Regardless, I wish this would end and we can move onto some more interesting tech happenings and some new ideas in hot areas like mobile.

MT

Microsoft is trying to buy your searches. The new program, dubbed Microsoft Live Search Cashback, sounds like some sort of cash rebate program similar to what you see in loyalty programs at retail stores or credit cards. Is it a wise move for Microsoft ? Will it turn the page for Microsoft vis-a-vis Google’s overwhelming market share in search business ?

We think the idea has some merit but for the most part it is an act of desperation. After all, searches are not for sale. People search in the hope to find good matches for their searches and advertisers go to search engines where they see consistent scalability and return on ad dollars. Microsoft has to do better on various other aspects of search like better searches, better ROI to advertisers, more relevant ads. Today, a small number of folks use Microsoft Live search - roughly 9.1% of US searches are done via Microsoft Live vs 61.6% for Google. Simply buying searches is not going to do it. This is classic Microsoft, if you can’t win on business model or innovation, use financial muscle to buy your way in. This may work but only in large partnership customers of Microsoft who will be hounded by Microsoft’s aggressive sales personnel to replace Google search box with MS Live search. For the vast majority of consumers and businesses however, their Google search box isn’t going away anytime soon.

MT

Activist investor Carl Icahn is forcing Yahoo to re-discuss a merger with Microsoft. Mr Icahn believes that Microsoft had an attractive offer which Yahoo should take. This is classic Wall Street influence on tech-centric Valley. When firms mature, they sometimes need to submit to stock market behemoths and can’t go their own way. Microsoft is interested as Yahoo might otherwise create a search outsourcing relationship with Google which would be not too pretty for the Redmond giant. Yahoo just concluded a test launch of Google search outsourcing which was a great success. Using that as a bulwark, CEO Jerry Yang of Yahoo declined the Microsoft offer earlier this month. Yahoo remains hot property and both Google and Microsoft want to keep it in their camp. Makes sense. Whichever camp Yahoo joins would get strengthened relative to that party’s prior position. The irony is that Microsoft is fighting so hard for a No 2 spot in an area (online advertising). Historically our friends from Redmond never settle for less than no 1.

MT

Google is very friendly with Yahoo these days. That is incredible, to say the least. These are cut-throat competitors in mobile advertising and search arena. Interestingly, the common enemy from Redmond is bringing these two firms together to drop the advertising competitiveness and try to work in complementary fashion. If it passes US anti-trust scrutiny, Yahoo is discussing a long term partnership with Google to source ads from Google and place them alongside Yahoo search results and emails. It seems Google ad leads to a much better pattern match and hence higher profitability than Yahoo model could achieve on its own.

If Google can sign a long term partnership with Yahoo, then Microsoft will be discouraged to make further bids. After all, Microsoft is interested in Yahoo with its intrinsic properties and search facilities (Yahoo’s internal search initiative is called Panama). A Microsoft bid for Yahoo which uses Google search technology in its search platform would not make any sense.

Both Google and Yahoo bottomline will benefit from the said partnership between the two, though, by going this route, Yahoo would essentially validate that Google is indeed the pre-dominant search technology platform. Yahoo will become more of an aggregator at that point in the search space rather than a search firm itself.

With a Google-Yahoo alliance, Microsoft will probably go after Facebook or other smaller social network portals to boost its internet offerings. There are rumors that Microsoft has discussed an acquisition with Facebook, the fast growing social network. Will Mark Zuckerberg at Facebook sell or should he sell to Microsoft ?

MT

WiMAX got a new lease of life yesterday in the developed world. Sprint announced a breakthrough agreement with ClearWire of Kirkland, Washington to create a joint venture under the name ClearWire but with 51% stake owned by Sprint, 27% by ClearWire investors and the remaining by some other high profile investors. Sprint is the third largest US wireless operator and is betting on WiMAX in 4G race as opposed to AT&T and Verizon, the two biggest US mobile operators, who are betting on GSM version of 4G called LTE or Long Term Evolution. WiMAX has the unique advantage over LTE as WiMAX equipment is available now and LTE is 2 years behind WiMAX.

The deal with ClearWire is a complex transaction with an alpha-soup list of investor firms participating including Comcast, Intel, Google, and cable operator Bright House Networks. Why are these firms interested ? Intel needs a new chip wave now that Centrino is everywhere already. Plus Intel has been investing in WiMAX chip development as the next evolution of the WiFi enabled chip. Google is the preferred search provider on ClearWire WiMAX devices and its Android platform will find a big network partner. Comcast and Bright House are looking for a way to expand into high speed mobile services and wireless broadband - now that AT&T and Verizon are beginning to erode cable market share with their own high speed TV offerings and innovative quad-play bundling of wireless, wireline, TV and internet. Essentially bundling is the new mantra for getting customers and cable providers need a wireless channel partner to cover this one missing piece in the cable package.

With this WiMAX deal, Sprint has one less thing to worry as it was coming from low cash liquidity position and needed money to launch a 4G offering - it got its wish fulfilled by getting some partners with big pockets to invest in its nascent 4G endeavour. Now it can go back to focusing or investing in its core CDMA business and in time make it attractive enough to sell to interested parties, eg Deutsche Telekom at a good price. Sprint Xohm service, its WiMAX trial launch service, is all but dead or in essence, will be merged into ClearWire. Sprint is taking a non-operating role in ClearWire and is talking about having ClearWire manage itself independently with separate wireless assets and separate management structure.

Well - the ClearWire deal looks interesting on the face of it and Sprint does have one less thing to worry about now that its WiMAX / 4G path is clear. But in reality, the challenges remain. With an alpha-soup combination of ClearWire investors, this firm will be chauffeured by multiple backers with sometimes varying agendas. Historically speaking, such complex deals have a high failure rate. Plus it remains to be seen if Sprint core CDMA service ends up competing with its WiMAX offering. We think success of ClearWire depends on letting it be a truly independent company with dedicated management and letting it compete openly.

In any case, WiMAX got a new lease on life. Now with this announcement, it will trigger a chain reaction and network equipment vendors like Nortel, Samsung, AirSpan, Lucent etc will make hay by selling WiMAX equipment. Intel will sell chips for WiMAX - PCs with WiMAX-enabled chips will be hot. More PC software will be sold.  Google gets a mobile momentum on next generation wireless network. Cable firms have a high speed mobile partner. Nokia and other device makers will sell high end WiMAX phones. Consumers get truly personal mobile broadband everywhere, on their cellphones and laptops. They can potentially ditch their wired DSL or cable modems and replace it with wireless broadband. Everybody is happy at the end of the day. Lets see if this theory works or not. Regardless, the ClearWire announcement may trigger a larger WiMAX adoption in other developed countries. So far WiMAX growth story was limited to developing countries in Asia, Sprint announcement is a big boost to this technology in the western hemisphere.

MT 

Microsoft withdrew its $47.5 billion bid for yahoo this past weekend. Microsoft came out a winner on this one. It saved them from a messy merger and one which was disliked by the rank and file of Microsoft employees. They left a top online competitor in limbo state searching for answers and responding to lawsuits, criticisms from shareholders and employees alike. $47.5 billion was the appreciated offer based on Microsoft raising the bid from $31 to $33 a share in last few days. That’s a lot of money left on the table for Yahoo team and shareholders. It would have been a great exit strategy for an iconic internet firm which revolutionized the portal concept.

Can Yahoo do it alone ? Sure. But with no new breakthrough business models and powerful Google capturing it all in the online ad space, Yahoo faces an uphill task. The likely outcome of this saga is that Microsoft will swoop in later and get the Yahoo prize at a much lower valuation; if not that, Yahoo will loose further market share to Google and the team in Redmond will shift its focus elsewhere eg forming alliances with AOL or FaceBook etc. Yahoo is discussing a deal to outsource the ad display to Google - that will essentially validate Google’s dominance as the pre-eminent search engine with most bang for the buck. That is the reason we feel Yahoo should have taken the bait even though we feel any combination of Microsoft or Yahoo could not dethrone Google from its leading perch. As stated before, innovation does not happen in a box however you assemble that box.

MT

AT&T Vice President of Legislative Affairs, Jim Connoni, warns that by year 2010, internet will hit full capacity. Says Connoni : “Eight hours of video is loaded onto YouTube every minute”. Whew. That sounds almost ominous. How will internet traffic flow - countless businesses, corporations not to mention daily lives of people would be effected. Well may be, I am exaggerating a bit. By that time, the truth is that our capable internet backbone providers would have added tremendous amount of bandwidth firepower in preparation for this coming internet congestion. Firms like Cisco are busy churning out heavy duty routers which will allow heavier and heavier load to be carried on the IP network.

Point is that firms like AT&T want to use such arguments to overcome the network neutrality camp led by likes of Google, Microsoft, video transmitters, user-generated content (UGC) and other high bandwidth hogs which run large amounts of video and content on the internet. These firms and individuals would not want to see backbone providers like AT&T charge a premium to carry their bandwidth gobbling content like YouTube videos, online gaming etc. Whereas backbone providers want to prioritize the internet where higher bandwidth users have to pay more to use the IP backbone. Internet firms like Google which thrive on high bandwidth applications like YouTube would like legislation which bans such prioritization arguing that such priority access control is against the tenets of a free internet and that all traffic must be considered equal and should compete for bandwidth. Vint Cerf, co-inventor of Internet Protocol, supports a light legislation to ensure net neutrality. Of course, Google’s preferred solution would lead to bulk of the internet capacity being utilized by few high usage firms or individuals causing slowness or lack of service for bulk of the population.

What is the right answer. Depends on whom you ask. We feel this issue still needs some analysis before one take sides on this. We feel that backbone providers deserve some way of ensuring that internet continues to provide a reasonable QOS (Quality of Service) for the larger population instead of being jammed by a few big network hogs. On the other hand, internet was founded on the premise of true democracy and free flowing content and its sheer growth is attributable to lack of regulation and control. Hence one has to tread a delicate balance between a “managed internet” and a “Free-use internet”.

Your thoughts are welcome.

MT