Code Benders

Posted by Taus June 21, 2005

As a follow-up to yesterday’s blog, see Bambi Fransisco’s commentary on MarketWatch.com… Google listings, now that hurts.

Bambi agrees that the Google Wallet is not a real threat. Google classifieds? Hmm, now that could be interesting. Although, I am still a believer that a pervasive and efficient electronic marketplace is nearly impossible to beat.

Posted by Taus June 20, 2005

Leave it to the financial press to — once again — miss the boat completely. Do they practice missing the target or does it just happen naturally for them. On Friday, the WSJ reported that Google is coming out with a new payment system — Google Wallet. Since, the fools at The Fool have posted their insights in Google Gunning for eBay?. The article suggests that Google, the newly crowned king of category killers, could pose a significant threat to eBay’s prized PayPal unit.

As I sit here now, eBay’s shares have gapped-down about 4% — the markets are reacting!
Take a moment with me now to pause and consider this foolish theory. Google, which generates in excess of $1 billion per quarter in revenue, according to The Fool is not only targeting, but a real threat to PayPal and eBay. No mention is made of the fact that virtually all of Google’s revenue is generated by search-based ads. And, there is no reference to Google’s complete absence in the product sales environment — including auction and online stores — that eBay thoroughly dominates — both domestically and in many cases internationally.

I suppose the theory goes something like this. If you can provide a payment system to 70 million users, then they will use it. And, if they use it, they will stop using PayPal. Forget about the fact that all the stuff they are buying is being bought and sold on eBay. Forget about the fact that Yahoo, which had a robust store front community, tried it and failed. Forget about the fact that Google’s shopping tool, Froogle, is an elementary knock-off of so many other shopping bots.

In fact, let’s just forget about all of it, because Google is still the next big thing to hit Wall Street. And next big things to deserve a chance to be all things to all people, no matter how unlikely.

So, what does this announcement really mean?

What it really means is that they guys and girls at Google are smart enough to realize that ALL of the billions of dollars in revenue they generate flow through the bank association networks — Visa and MasterCard. These discount fees can add up to 1-2% of Google’s total revenues or roughly $50 million dollars annually. Multiply that $50 million by a P/E of 100+ and now you are talking about real money — not that virtual online wallet stuff.

Chances are, Google is focusing on a way to keep more of that revenue flowing through its own systems. That is, they would rather plug-in an electronic checking system in to their system to allow for a deeply discounted fee structure — just like PayPal did. Once this e-wallet is in place, they can offer promotional benefits — say, $50 in free click-throughs — to their advertisers to switch from the credit card to the Google Wallet.

Certainly over the long-term, Google would love to expand deeper in to online shopping. Google will try to be all things to all people. They will try to get a foothold in the payment systems arena. They will (and should) try to improve Froogle. But, for now, eBay controls the marketplace. And just like every other sovereign with a robust marketplace, their currency will remain highly-valued because it is the quickest way in and out of the marketplace.

This is not to say that the announcement should go unnoticed. The real threat is not to eBay, the 900 pound gorilla of online shopping. However, if I were sitting at the helm of Visa or MasterCard, I would certainly be taking a close look at Google AND eBay’s continued expansions in to payment systems.

Posted by Taus June 13, 2005

If you haven’t read Robert Cringley’s recent commentary on Apple’s decision to switch from IBM to Intel as it’s CPU, it’s worth the read. While there has been much speculation about this move in the financial community and the Mac’ommunity, Cringley’s stands out from the crowd as one of the least plausible explanations.

Cringley asserts that this move by the two companies foreshadows a merger of the two. Although no time frame is indicated, one must assume that at the very least he expects the event to happen within the next year or two, which is the time it will take Apple to transition CPU platforms.

Without question, Cringley is an extremely knowledgeable industry pundit who has observed and foretold twists and turns. But this time, he must have been smoking something.

Why in the world would either of these companies want to merge? The fit is terrible.

For Intel, the world’s largest supplier of computing’s core technology, the move would be a disaster. Why would the Dell, HP and others continue to support Intel’s platform, if Intel/Apple is promoting a competing platform. Said differently, Intel is not going to anger its largest customers by promoting a platform that they do not sell. One could argue that perhaps Dell and HP would start selling Apple’s too — a not inconceivable notion considering the fact that HP already sells iPods. More likely, however, is that HP and Dell would prefer to sell Apple’s OS as an option on any of their machines. That is, why bother building a unique Apple machine, when ALL computers could be designed to run either or BOTH operating systems.

From Apple’s standpoint, the move is equally uncompelling, especially for an egocentric company like Apple. After surviving some very dark days, Apple is now experiencing phenomenal growth in a wide array of digital venues with a significant focus on well-polished, well-designed consumer products (unlike Intel’s “inside” focus).

To me the combination seems unlikely. Not in possible, of course. Years ago, industry watchers predicted that Intel would try to “GE” itself. They suggested that, not unlike GE that transformed itself from a narrowly-focused product developer into one of the most diversified financial powerhouses, Intel should move beyond its “parts” mentality. In fact, Intel has expanded its focus, but nothing as risky as this move. Nope. It’s not gonna happen.

So, why else would Apple make this decision. Two simple reasons.

First, compared to the current and expected IBM chips, Intel has plenty of processing power. In the past, Apple needed to more processing power, so that it could compete within its graphic-intensive user community. Today, and more so in months to come, there is plenty of processing power in a high-end Intel chip to run graphically intensive apps. And, with dual-core, hyper-threading and 64-bit processors rolling off the Intel line, the gap will continue to shrink (if not disappear completely).

Second, Apple needs to move to Intel so that it effectively compete with its future product lines. This is likely the key behind the move. If you look at Apple’s product lines today, there are a number of key devices missing from menu, not the least of which is an Apple PDA and an Apple smart phone. And, which processors are powering the majority of the world’s PDAs and smart phones? Intel, of course. And, if these products are to be seamlessly compatible (and converged) with the Apple’s computing product line, then switching to Intel just makes sense.

To me, this is a far more plausible scenario. But, I suppose we’ll have to wait and see.