Monday, December 26, 2005

 

Switching Partners in 2005

In Strategy 1.0, partnerships were for the long-haul and called for tight-coupling. The end of a partnership often is seen as a failure.


Look at three of the recent changes in partnerships.

1. Apple-Intel link (the erstwhile tight coupling between Microsoft and Intel that created the Wintel platform is no longer contraining Microsoft or Intel to pursue new avenues)

2. Microsoft-IBM for Xbox (IBM is no longer grudging Microsoft for its launch of Windows and is supplying the chips for the new generation of videogames).

3. Palm Treo with Microsoft Smartphone (remember Palm software? it's now owned by Access--a Japanese company).


There may be more but these are big shifts that show that companies understand the requirements of loose-coupling and reconfiguration of capabilities in Strategy 2.0. Dell appears to be running an experiment to include Firefox browser instead of Microsoft's IE in the UK.

In Strategy 2.0, partnerships are dynamically adapted to suit changing market conditions and calls for loose-coupling. Sticking to old partners may not always be the best course of action.

 

Mashups:An Early Indicator of Web 2.0 Growth

I have often wondered what could be some of the lead (early) indicators of tracking the growth (and acceptance) of Web 2.0. First indicator to look at the number of mashups. Second indicator is to look at the degree of use of these mash-ups (beyond serving as showcase of cool applications on the web).

Programmableweb is a goos source for tracking the number of mash-ups. I have not yet seen good statistics for the degree of use of these mashups but my guess is that it will be forthcoming.

A useful mash-up, in case you have not seen it is: mapsexoffenders.com.

Here is another idea that could widespread commercial appear all over the country--realtime information on parking availability. The Bay Area Map is in beta now and worth taking a look at now.

 

Realtime Ecommerce!

If you like to feel in control of your online shopping and your packages are delivered not by one logistics company but by the top three (UPS, USPS and FedEx), you can still have an integrated look by using mash-ups at PackageMapper.

 

Personalization through Google_Modules

We all know that one of the key distinguishing characteristics of web 2.0 is end-user customization--or the ultimate personalization--of homepage. Modules are beginning to appear that may change hoe people 'pull' information for their specific purposes.

Take a look at Google as well as Googlemodules and Widq.

Sunday, December 25, 2005

 

Google-AOL: Pursuing a Market Referent for Valuation

During the euphoric days of Web 1.0, dot-com companies used their inflated valuations (paper currency) to make outrageous deals--AOL-Time Warner is an exemplar.

Now Google is explicitly valuing AOL at $20 billion and has paid $ 1 billion as its share of the value. How will it 'realize' the financial value from AOL? Details are emerging from the deal that provide some clue to how Google (and AOL) may work to unlock value in 2008.

NY Times on December 24, 2005 reported that: "The filings say that starting two and a half years into the five-year agreement, Google will have the right to force Time Warner to register its shares in AOL with the Securities and Exchange Commission. This would allow Google to sell the shares on the public market. Time Warner has the option to buy the shares back for cash or Time Warner shares at an appraised value."

AOL is not yet a separate tracking stock--but could well be. At least, Google is not buying Time Warner just to get AOL!

Strategy 1.0 was about ownership of assets; Strategy 2.0 is about relationships in networks. Minority investment is one option for orchestrating these relationships.

 

Microsoft-Google Settle Kai-Fu Lee Lawsuit



Microsoft and Google have settled their much publicized dispute over Kai-Fu Lee (former Microsoft employee, now works for Google in China). Microsoft said that the three parties entered into a: "private agreement that resolves all issues to their mutual satisfaction." Google confirmed the settlement and released a statement from Lee saying he was "pleased with the terms of the settlement agreement."

The real victory should be in the marketplace and not in the courts. So, this is good news for all-especially Microsoft. Notice that they have been steadily settling disputes--Real Networks and Sun--in recent months.

Now, Microsoft--hopefully-can focus on winning consumers to its new strategic direction and initiatives and their value proposistions.

Will 2006 be the year that we see uptick on MSFT stock?

Friday, December 23, 2005

 

Value Co-Creation in Web 2.0: NY Times and Google Maps

A major principle in Strategy 2.0 is consumer as an active participant loosely termed as value co-creation.

NY Times invited readers to contribute their stories about the transit strike and created a mash-up with Google Maps. It is here.

Wednesday, December 21, 2005

 

Amazon's Alexa: a serious contender in Web 2.0?

Amazon's market capitalization is no where near the stratosphere occupied by Google. It's seen as a serious online e-commerce player.

It has been developing a few tools that hint at broader play in the web 2.0 space.

http://pages.alexa.com/company/index.html

The Alexa Web Search Platform provides public access to the vast web crawl collected by Alexa Internet. Users can search and process billions of documents -- even create their own search engines -- using Alexa's search and publication tools. Alexa provides compute and storage resources that allow users to quickly process and store large amounts of web data. Users can view the results of their processes interactively, transfer the results to their home machine, or publish them as a new web service.


The second one is a9.

A9.com, Inc. researches and builds innovative technologies to improve search experience for e-commerce applications. A separately branded and operated subsidiary of Amazon.com, Inc., A9.com opened its Palo Alto, California, doors in October 2003. A9.com’s technology will power search on Amazon.com and other web sites.
since I am signed onto a9, thyey can trace my micro-moves (what I call as digital footprints on the web).


Since you are signed in to A9.com, you get access to several tools that personalize your search experience. Get the A9 Toolbar to take full advantage of these tools (you can easily uninstall it later). These include:

Your History: We allow you to record a trail of all sites you have seen. You can search that trail at any time. A9 Toolbar users can turn this feature on and off with one click.
Your Bookmarks: We provide you with server-side Bookmarks that will always be available (and searchable) from anywhere.
Your Diary: We let you create notes as you browse the web. We store them for you and allow you to search them later.
Discover: We recommend sites that may be interesting to you based on what you have seen in the past and what people like you are seeing now.

If you do not wish to see these tools here, you may hide them by clicking the "Hide Tools" link above. Even if your tools are closed, you can still search Your History, Bookmarks, and Diary by selecting the appropriate search results box.



Amazon is also clarifying the payment model that underlies the robustness of Web 2.0 as a business infrastructure. Amazon Web Information Service

Amazon.com tests on-demand payment model by ZDNet's Phil Wainewright -- Amazon's Alexa Web Information Service has come out of beta and revealed its usage-based charging model - a vital step towards proving the financial viability of Web 2.0.



___________________________________________

Will Amazon get the premium of a search company in the near future? Will Amazon be able to parlay these developments to become a serious player in the web 2.0 space?

 

AOL-Google Link: a Critical Step in Strategy 2.0 Landscape

Four Actors in Strategy 2.0: AOL, Google, Microsoft and Yahoo

Critical steps in how strategy 2.0 will shape up in 2006.

--------------------------------------------------------------------------------

December 21, 2005
AOL and Google Formalize Partnership to Include Shared Selling of Ads By SAUL HANSELL
America Online formally announced a revived partnership with Google yesterday, a deal that affirmed AOL's value less than a year after a chorus of calls for its parent, Time Warner, to shed the division as a lost cause.

Google said it had agreed to buy 5 percent of AOL for $1 billion and to provide advertising credits for AOL to promote its Web sites on Google's search service. Those advertising credits total $300 million over the five-year term of the deal, according to an executive involved in the negotiations.

In return, AOL agreed to continue to use Google as its Web search engine and to display its search-related advertising, as it has since 2002.

Richard D. Parsons, the chief executive of Time Warner, said the deal would help accelerate AOL's shift from selling Internet access subscriptions to running free advertising-supported Web sites.

"By sticking with our current partner, we have the best partner, the most technologically sophisticated and powerful company in the ads space, and we have deepened our relationship with them," he said. "We are aligned around the opportunities to drive more revenue in this fast-moving space than either of us could do separately."

Eric E. Schmidt, Google's chief executive, said the deal offered a way to accelerate its goal of expanding from simple text ads associated with search to a broader range of advertising formats including graphical display ads. Under the arrangement, AOL's sales force will be able to sell both search advertising and display advertising on Google's own Web site and the many sites on which Google places ads.

"We have not offered a complete advertising solution until this point," Mr. Schmidt said. "This is about expanding the network of our revenue and partners and advertisers, and we couldn't do that by ourselves."

Google beat out Microsoft, which had made an aggressive bid to win AOL as the premier outlet for its new search and advertising services. Microsoft had offered a large guaranteed payout for America Online and a joint venture to sell ads.

The Google-AOL deal involves a range of other forms of cooperation. Notably, AOL will allow users of Google's new Google Talk instant messaging system to chat with users of AOL's messaging network, the largest in the country. Until now, AOL has resisted linking its system with those run by its major rivals - including Yahoo and Microsoft, which recently agreed to link their own. It does connect to Apple Computer's message system and several services aimed at corporate users.

There will be a somewhat complex procedure to link the two systems, however. Google Talk users will need to add an AOL screen name to communicate with other AOL users.

Google will help drive users to AOL's Web sites by giving it the free advertising and by highlighting AOL's video programming in its growing video search service.

"If AOL is going to become a powerhouse again, it needs to return to growth," said Jordan Rohan, an analyst with RBC Capital Markets. "This is a first step. By partnering with Google, maybe some of the Google magic will rub off." But Mr. Rohan said the likelihood of this deal restoring AOL to its former pre-eminent position online is low.

So far, AOL's effort to promote its Web sites have hardly produced significant results. In November, 70 million people, or 41 percent of the Internet audience, visited AOL.com, the company's lead Web site, according to comScore Media Metrix. That is down from 48 percent of Internet users a year ago, before AOL started moving much of its better content from its paid service to the free AOL.com.

Time Warner investors appear not to be impressed by the deal. The company's shares have trended down since word that it had selected Google emerged on Friday. Time Warner formally announced its deal about 6 p.m. Tuesday. In after-hours trading, its shares rose by a penny, to $17.75. Google's shares reached $431.25, up $1.51 after hours.

Mr. Parsons has long made a priority of bolstering Time Warner's lagging stock price. Carl C. Icahn, the financier who has assembled a group of investors who own 3 percent of Time Warner's shares, has endorsed Mr. Parsons's goal, but sharply criticized his methods. Mr. Icahn has called for Time Warner to be split apart and has objected to the Google deal as an impediment to a potential spinoff of AOL.

Mr. Parsons said Google's investment in AOL did not reduce Time Warner's flexibility.

"Google's investment has nothing to do with setting the stage for a further action regarding the ownership of AOL, and it doesn't prevent it," he said.

Mr. Schmidt added that Google had made the investment largely because it expects to profit from it.

"AOL is going to do really well as a result of our partnership," Mr. Schmidt said, "and this is a way for us to share in the gain."



Copyright 2005The New York Times Company

The Wall Street Journal story provides further details:



December 21, 2005



Bumpy Road Led to Alliance Of AOL, Google

By JULIA ANGWIN
Staff Reporter of THE WALL STREET JOURNAL
December 21, 2005; Page B1

Two weeks ago, when Time Warner Inc. was on the cusp of signing a sweeping online deal with Microsoft Corp., a team of executives from the media company's AOL unit traveled to Microsoft's headquarters in Redmond, Wash., to make sure everything was in order.

When the executives returned, they reported back to Time Warner's top deal negotiator, Olaf Olafsson, with some less-than-satisfactory findings. They had found some of Microsoft's technology to be clunky, while the contemplated joint venture with the software king contained what they thought were financial pitfalls.


Mr. Olafsson dismissed their complaints as irrelevant -- a stance that infuriated some at AOL's campus in Dulles, Va. "Nothing in the fundamentals changed on that trip," he said in an interview.

Mr. Olafsson ultimately switched horses and instead reached a deal with Google Inc. That pact, which the two companies formally announced yesterday, appeased AOL. But the process that led up to it is just one more sign of the rocky relations between the online service and its corporate parent.

Although the decision about whether to partner with Google or Microsoft was critical to AOL's future, Time Warner took the negotiations out of AOL's hands and put them under the control of Mr. Olafsson. Negotiators from Microsoft and Google noticed tensions between the AOL camp and the Time Warner camp led by Mr. Olafsson, and occasionally received conflicting messages from AOL executives and Mr. Olafsson, according to people familiar with the situation.

Mr. Olafsson said AOL executives were involved in the talks all along.

Ever since AOL bought Time Warner in 2001, trading the online service's outsized stock price for Time Warner's top-tier media assets, relations between the two sides have been difficult. After the merger, AOL's business began deteriorating as many customers switched to high-speed Internet services offered by cable and phone companies, dragging down Time Warner's share price and ruining the retirement savings of many Time Warner employees.

Since then, nearly all of AOL's executives -- who had hoped to inject AOL's new-media ways into Time Warner's magazine, movie and TV operations -- have been swept out of the company. Richard Parsons, Time Warner's chairman and chief executive, has stabilized the overall corporation's operations, pared down its massive debt and invested in AOL's turnaround plan, which involves transforming AOL.com into a free "portal" site to compete with Yahoo, Google and others.

But many at AOL believe that Time Warner hasn't been a good parent, most prominently AOL co-founder Steve Case, who made his feelings public after he left the Time Warner board in October. Chief among their complaints is that Time Warner has only recently taken steps toward merging AOL's Internet service with Time Warner Cable's high-speed Internet service. In the intervening four years, AOL has lost millions of subscribers to Internet competitors -- including Time Warner Cable. Similarly, AOL hasn't rolled out its Internet telephone service in Time Warner Cable's markets, to avoid competing with that unit's own Internet phone offering.

AOL officials also weren't pleased when Mr. Parsons publicly floated the idea of selling or spinning off AOL, just as the division was launching the centerpiece of its turnaround plan, the revamped AOL.com.

In addition, they perceived Mr. Olafsson, who is Mr. Parsons' strategy chief, as an outsider. Mr. Olafsson, a 43-year-old physicist and novelist from Iceland, heads a group of 30 strategists. The former longtime Sony Corp. executive, whom Mr. Parsons calls "the Mighty O," had helped hammer out an agreement in 2003 under which Microsoft paid Time Warner $750 million to settle an antitrust lawsuit waged by AOL's Netscape division.

The new negotiations with Microsoft began in January, when Microsoft approached AOL about what it would take to get AOL to switch to using Microsoft's search technology on the AOL site instead of Google's search service.

Mr. Olafsson was aware of the anti-Microsoft feelings at AOL, where referring to Microsoft as the "Evil Empire" is not uncommon. But he found the attitude ridiculous. "Religious wars with companies are not something I subscribe to," he said. After negotiating the Netscape settlement, Mr. Olafsson became Microsoft's primary point person at Time Warner and shepherded the collaboration between the two companies on ways to fight digital piracy.

When he took over the Microsoft negotiations in the spring, Mr. Olafsson helped craft a plan that would have merged AOL and Microsoft's MSN online unit into a joint venture. The plan was contingent on the idea of separating AOL's online-subscription business from its advertising business. Microsoft declined to comment on the talks.

But many in the AOL camp felt the idea of splitting AOL into two was unworkable. Mr. Case felt so strongly about it that wrote a newspaper article opposing it after he quit Time Warner's board. Mr. Case believes AOL should be spun off as a separate company since Time Warner isn't willing to integrate AOL into its other businesses.

Mr. Olafsson then essentially scuttled the joint-venture plan, and instead helped Microsoft put together smaller-scale joint venture proposals, while talking with Google about options as well. In between, Mr. Olafsson received and rebuffed overtures from News Corp. Chairman Rupert Murdoch and Yahoo Inc. Chairman Terry Semel.

As the talks with Microsoft seemed to be nearing a conclusion two weeks ago, Mr. Olafsson changed his mind after receiving what he described as a renewed sense of commitment from Google. During a phone call with Google Chief Executive Eric Schmidt on Dec. 12, Mr. Olafsson said he heard for the first time some commitments about deepening the partnership beyond just using Google's search technology. "It turned it into a strategic arrangement instead of a commercial arrangement," he said. "We said to ourselves, 'This is the element that was missing.' "

Under the terms of the deal, Google will buy a 5% stake in AOL for $1 billion. AOL will continue to use Google's search technology and to share the revenue generated by ads that are displayed with search results. But in a change important to AOL, the online service now will have the right to sell those ads directly to advertisers instead of directing advertisers to Google. AOL also will be able to sell some ads that appear on Google's network of affiliated Web publishers, and Google will promote AOL's content when it displays search results to its users.

Write to Julia Angwin at julia.angwin@wsj.com1

URL for this article:
http://online.wsj.com/article/SB113512960036228044.html



Copyright 2005 Dow Jones & Company, Inc. All Rights Reserved This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.

_____________________________________

The Washington Post article provides additional thoughts and perspectives on it..



$1 Billion AOL Stake For Google Approved

By Yuki Noguchi
Washington Post Staff Writer
Wednesday, December 21, 2005; D01



Time Warner Inc. approved Google Inc.'s $1 billion investment in its America Online Inc. unit yesterday, a deal aimed at giving both companies a greater share of the burgeoning online advertising business.

Company executives also characterized the deal, which gives Google a 5 percent stake in Dulles-based AOL, as an opportunity to cross-pollinate Time Warner's vast media library with Google's highly profitable online advertising business.

As part of the deal, Google also will tap AOL's instant-messaging customer base of 43 million users, integrating it with Google Talk, a recently released product with far fewer users. That pits AOL and Google against rivals Microsoft Corp. and Yahoo Inc., which next year plan to integrate their instant-messaging systems.

Google will also be able to access more of AOL's content, such as music videos and television shows, through its media services.

"There are a lot of aspects of this deal that will have big impact," Google chief executive Eric E. Schmidt said in an interview. "What I like about this deal is that it has an end-user component and an advertising component" with benefits for both, he said.

For months, AOL was courted by Google and Microsoft, both of which wanted to capitalize on AOL's strong consumer brand and its affiliation with Time Warner.

Time Warner chairman and chief executive Richard D. Parsons said yesterday that the company chose to partner with Google because it was more familiar with how AOL's and Google's businesses could dovetail.

"We knew more about how to tease out the opportunities for both sides," Parsons said. Over time, the Time Warner-Google partnership may include digitizing Time Warner's television shows, movies and print news to make them searchable and usable by online viewers, he said.

AOL is already Google's most lucrative advertising partner, because it uses Google search on AOL Web sites viewed by millions of users.

AOL, which built its business in the 1990s selling basic Internet access to consumers, this year shifted gears and -- like Google -- is trying to capture a huge audience for free products so it can make money by selling advertising.

Jonathan F. Miller, chairman and chief executive of AOL, called the deal a "broader alignment" that in the short term will help AOL expand its audience and advertising market share.

The deal gives AOL more freedom in how it sells advertising that appears on its own sites, as well as on tens of thousands of Google-affiliated Web sites. The instant-messaging partnership will also drive more traffic to AOL sites, he said.

Billionaire financier and Time Warner shareholder Carl C. Icahn has criticized the Google investment, which was first reported last week. Icahn, who has been lobbying Parsons to spin off AOL, said the expanded partnership with Google would limit AOL's ability to merge with another partner later.

Parsons flatly disputed Icahn's claim: "Well, you know, he's wrong."
© 2005 The Washington Post Company
_________________________________________________________________

Only the first moves have been played out...
Strategy 2.0 is heating up.

 

Best of Web 2.0

Hinchcliffe's List is a great summary of what web 2.0 has accomplished so far. From social bookmarking to online to do lists to peer production and image storing, there have been so so many new applications.

I am reminded of trying to classify websites in 1995 when there were so few and everyone wanted to know how Amazon was different from Yahoo and AOL. Remember B2C, B2B (also C2B and C2C) and other combinations of alphabets? That seems so so far back (so web 1.0!). And remember, bricks and clicks? offline and online? etc.etc.

But the main business challenge remain: how to leverage the functionality of the web (whether it be 1.0 or 2.0 or later) to create robust business models?? So, as you see web 2.0 applications, think about the main challenge:

How will these dynamic interlinkages--especially tags and mashups--change the revenue model and profit models?

 

Reuters: Positionig for Web 2.0?

I have been wondering about Reuters for a while. A venerable company in the information age that collects massive amounts of data globally that many many decisionmakers rely upon.

Looks like Reuters has taken a page from Google, Yahoo and Amazon to create a public face on their innovations to make Reuters more central to the network era.

Reuters Video through Affiliate Network

Create a more compelling user experience by adding Reuters video to your site. Our news video player has up to 20 of the latest breaking stories from around the world - updated throughout the day so the content is always fresh. The player is Windows and Macintosh compatible and takes just a few minutes to integrate into your site. Visitors can watch full news stories right in the context of your page; there are no pop-ups or software installs. Player features include fast forward, previous video, next video, play all and volume control with mute capability. During this pilot period, our player is free of charge to any site and may contain advertising.


Reuters Dashboard

Running on Windows (through Yahoo Widgets) and Mac (Apple Dashboard widget), Reuters instruments make it easy for you to access Reuters News, Quote an dother information.


Reuters Audio


A powerful entry into the audio segment of Web 2.0 with world news, podcasts and latest from news channel. I think this is worth watching to see how they compet against Apple and Yahoo.

Overall: I will be watching Reuters to see how well they make the shift to strategy 2.0. Afterall, they have huge amounts of data prime for mash-ups and dynamic personalization.

Tuesday, December 20, 2005

 

Web 2.0 in 2005

1995 will be remembered for Netscape IPO and Windows95.

2005 will be remembered for Google, podcasting and may be Web 2.0. Clearly, a lot of attention is on the developments in Web 2.0.

Top Ten Web 2.0 Moments of 2005 by ZDNet's Richard MacManus -- It's been a huge year for the Web! A time of renewed optimism in Silicon Valley and an incredible number of new web applications. In a sense it all started with Google's IPO in August 2004, the success of which was a positive and affirming lead-in to 2005. We then witnessed a renaissance of startup activity, acquisitions and intense VC interest in the Web throughout the year. Here then is my list of the top ten defining moments for the Web in 2005. [...]



I hope it does not turn into another frenzy over inflated stock valuations but as am important step in the creation of the global business infrastructure for growth. I think 2006 will be a defining year to see how robust web 2.0 really is.

 

Too early to think of web 3.0?

What to expect from Web 3.0 by ZDNet's Phil Wainewright -- Web 2.0 is just a staging post. Web 3.0 is coming, and it's going to recreate our notion of the application as well as upsetting a few applecarts along the way.




The topology of Web 3.0 is based on three (and a half) distinct layers:

API services form the foundation layer. These are the raw hosted services that have powered Web 2.0 and will become the engines of Web 3.0 — Google's search and AdWords APIs, Amazon's affiliate APIs, a seemingly infinite ocean of RSS feeds, a multitude of functional services, such as those included in the StrikeIron Web Services Marketplace, and many other examples. Some of the providers, like Google and Amazon, are important players, but there is a huge long tail of smaller providers. One of the most significant characteristics of this layer is that it is a commodity layer. As Web 3.0 matures, an almost perfect market will emerge and squeeze out virtually all of the profit margin from the highest-volume services — and sometimes squeeze them into loss-leading or worse.

Aggregation services form the middle layer. These are the intermediaries that take some of the hassle out of locating all those raw API services by bundling them together in useful ways. Obvious examples today are the various RSS aggregators, and emerging web services marketplaces like the StrikeIron service. I'll have a lot more to say about these emerging platforms in several of my posts. There will be some lucrative businesses operating in this layer, but in my view it's not where most of the big money will be made.

Application services form the top layer, and this is where I believe the biggest, most durable profits will be found. These will not be like the established application categories we are used to, such as CRM, ERP or office, but a new class of composite applications that bring together functionality from multiple services to help users achieve their objectives in a flexible, intuitive and self-evident way. I'll have much more to say about these applications when I write about some of the companies I've mentioned in more detail. But an interesting example just surfaced in Swivel, Halsey Minor's new venture, which Dan Farber has been covering in his blog this week. Dan quotes one enthusiastic early user who describes the 'wow' moment of starting to use an application and discovering that it delivers utility he barely even knew existed. To me, that's a fundamental characteristic of a Web 3.0 application.

Serviced clients are the 'and-a-half' layer I mentioned earlier. There is a role for client-side logic in the Web 3.0 landscape, but users will expect it to be maintained and managed on their behalf, which is why I've chosen to call these clients 'serviced'. Whether those clients are based on browser technology or on Windows technology is moot point that I shall also be returning to. After all, everyone will want to know what role Microsoft might play in Web 3.0.


What is clear is that the Web is becoming the powerful global business infrastructure. I am keen to map the implications of these for business model changes in the different industries that may be hugely impacted by these shifts..

 

Icahn Wants AOL--Google Agreement Derailed?

NEW YORK, Dec. 19 /PRNewswire/ -- Carl Icahn today announced that he has
written an open letter to the board of directors of Time Warner Inc.
(NYSE: TWX). The text of the letter appears below.

To the Board of Directors of Time Warner:
Like all shareholders, I am not opposed to Time Warner entering into an
AOL transaction that creates long-term value. However, I am deeply concerned
that the Time Warner Board may be on the verge of making a disastrous decision
concerning an agreement with Google if this agreement would make it more
difficult in any way or effectively preclude a merger or other type of
transaction with companies such as IAC/InterActive, eBay, Yahoo!, or Microsoft
etc. etc... I believe there are and will be major opportunities to enhance
Time Warner's value in future combinations. However these transactions might
not be achievable if Time Warner enters into long-term arrangements that
preclude future flexibility such as an agreement regarding search
functionality. I also question whether Google is the best partner for
unlocking the value of the AOL asset. Indeed, a recent Goldman Sachs report
concludes, "In contrast to the conventional perspective, we believe that eBay,
followed by InterActive Corp, would provide greater incremental benefits to
AOL's option value with fewer conflicts of interest than Yahoo! while MSN and
Google would provide the least incremental benefits."
On the eve of a proxy contest, I believe it would be a blatant breach of
fiduciary duty to enter into an agreement with Google that would either
foreclose the possibility of entering into a transaction that would be more
beneficial for Time Warner shareholders or make such a transaction more
difficult to achieve. If, as is my belief other suitors interested in
transactions predicated on receipt of control of AOL have been foreclosed from
entering into negotiations, the Board's actions would be even more
questionable. The real risk for Time Warner shareholders is that a Google
joint venture may be short sighted in nature and may preclude any
consideration of a broader set of alternatives that would better maximize
value and ensure a bright future for AOL.
Once again, I am not opposed to the Board using its business judgment to
enter into a transaction with Google or another suitor so long as the
transaction does not destroy or impede Time Warner's flexibility to unlock
shareholder value in the near and long term. However, I want this letter to
serve as notice to Time Warner's directors that if they enter into a
transaction that has that effect, shareholders will seek to hold directors
responsible.

Monday, December 19, 2005

 

Google-AOL: $ 1 Billion Downpayment?


--------------------------------------------------------------------------------

December 17, 2005
Time Warner to Sell 5% AOL Stake to Google for $1 Billion
By SAUL HANSELL and RICHARD SIKLOS
Rebuffing aggressive overtures from Microsoft, Time Warner has agreed to sell a 5 percent stake in America Online to Google for $1 billion in cash as part of an expanded partnership between AOL, once the dominant company on the Internet, and Google, the current online king.

At stake in this battle was leadership in Internet advertising, which is a growing threat to other media companies. The loss is a blow to Microsoft, which had sought AOL as a partner in its advertising venture to undercut Google, its potent rival.

Though Google is only seven years old, its lucrative search advertising business and its technical prowess could enable it to offer consumers free software and services that would directly attack Microsoft's core software business.

While the terms of the proposed five-year deal are largely set, it will not be final until it is ratified Tuesday by the Time Warner board, an executive briefed on the talks said.

Google has agreed to give AOL ads special placement on its site, something it has not done before. Until now, Google prided itself on its auction system for ads, which treated small businesses on an equal footing with its largest customers.

By agreeing to change its business practices for this deal, Google fends off what could have been a significant challenge from a combination of AOL and Microsoft and cements its position as far and away the largest seller of search advertising.

"This is Google's first test as a chess player in a major corporate battle," said John Battelle, the author of "The Search: How Google and its Rivals Rewrote the Rules of Business and Transformed Our Culture."

"They are saying, 'We will take some of our pawns and block the move to our queen by Microsoft,' " he said. "Until now, Google has said, 'We don't think about our competitors. We spend all our time building better products for our users.' "

Negotiations among the companies reached a fevered pitch Thursday night, executives briefed on the talks said, when teams from Google and Microsoft were in separate conference rooms in the Time Warner Center in New York and executives from the media company walked back and forth between them.

At the same time, Time Warner was holding its corporate Christmas party at the Mandarin Oriental Hotel, which is also in the Time Warner Center, overlooking Central Park.

At 9 that evening, Richard D. Parsons, the chief executive of Time Warner, left the party to tell Eric E. Schmidt, Google's chief executive, who was leading its negotiations in another part of the complex, that he would accept Google's recently sweetened offer.

According to one executive, Mr. Parsons called Steven A. Ballmer, Microsoft's chief executive, at 10:30 a.m. Friday to tell him that the deal that Microsoft had so eagerly sought - and had thought it had won - was going to Google.

Microsoft had proposed that it and AOL form a joint venture to sell advertising on their own sites and eventually on other sites. Now Microsoft will compete in the search business as a distant No. 3, behind Yahoo.

Representatives of Time Warner, Google and Microsoft declined to comment about the negotiations.

The deal is a coup for Mr. Parsons because less than a year ago, Wall Street and even people within the company were treating AOL as a declining asset and a drag on Time Warner. The deal is meant to confirm Time Warner's claim that AOL is worth $20 billion, a number many had said was too high.

Yet investors did not immediately see a Google investment as a sign that Time Warner's stock was greatly undervalued, as Mr. Parsons had hoped they would. Time Warner closed yesterday at $18, up 34 cents. Google closed at $430.15, up $20.95. Microsoft ended at $26.90, down 81 cents.

In the last year, Time Warner has pursued a new strategy to replace its declining profits from its Internet access service with advertising revenue from AOL.com and other free Web sites. It has enjoyed enough of a resurgence to attract the courtship of not only Google and Microsoft, but for a time Yahoo, the News Corporation and Comcast.

Time Warner ultimately chose to go with Google because its proposal was simpler than the Microsoft one. Moreover, the lucrative offer promised to help drive more traffic to AOL's Web sites.

Google has been providing Web search and search ads for AOL since 2002. In the new arrangement, Google will offer promotion to AOL in ways it has never done for another company, two executives close to the negotiations said.

If a user searches on Google for a topic for which AOL has content - like information about Madonna - there will be a special section on the bottom right corner of the search results page with links to AOL.com. Technically, AOL will pay for those links, which will be identified as advertising, but Google will give AOL credits to pay for them as part of the deal. They will also carry AOL's logo, the first time Google has agreed to place graphic ads on its search result pages.

Google will also provide technical assistance so AOL can create Web pages that will appear more prominently in the search results list. But this assistance will not change computer formulas that determine the order in which pages are listed in Google's search results.

Google will also make a special effort to incorporate AOL video programming in its expanding video search section and it will feature links to AOL videos on the video search home page. These links will not be marked as advertising.

An executive involved in the talks said Time Warner asked Microsoft to give AOL similar preferred placement in advertising and in its Web index and that Microsoft refused, calling the request unethical.

Mr. Battelle said that while each of Google's accommodations to AOL could be seen as consistent with past practices, "each of them represents a step closer to a slippery slope."

He added, "What they are giving away is the perception in the market place that Google isn't for sale."

An executive involved in the talks said that as recently as two weeks ago, Mr. Parsons told Microsoft executives that he preferred their bid. Still, that executive said, Microsoft had the impression that executives in the AOL unit preferred to work with Google. Yesterday, several AOL executives said that was true. A source close to Mr. Parsons said his only goal was to do the best deal for AOL's future.

But. a turning point, in Microsoft's view, was an article that Stephen M. Case, AOL's co-founder and the architect of the deal with Time Warner, wrote in Sunday's Washington Post calling for the company to be split up, two executives involved with the negotiations who were familiar with Microsoft's views said.

Mr. Case's argument was timed specifically to encourage a Google deal, said one person close to him. Mr. Case's longstanding animosity toward Microsoft played a part, this person said, but his main reasoning was that Google has proved itself far smarter about the Internet than Microsoft. That person said that Mr. Case thought that a deal with Google was the best of all the options other than spinning off AOL. Carl C. Icahn, the financier who, like Mr. Case, has been pressing Time Warner to split up the company, was not mollified by the Google deal.

"I don't want them doing anything that could preclude them from selling or spinning off AOL in the future," Mr. Icahn said. "But the real point is that Parsons shouldn't be running AOL, and I shouldn't be running AOL, either. As Parsons says, 'We're two guys who grew up in Queens 40 years ago.' Neither of us understands the digital world." Then he added, "But I could do infinitely better."

Edward I. Adler, a Time Warner spokesman, said: "We're not going to comment on every little thing Mr. Icahn says. The management team running Time Warner knows AOL's business in great depth and any potential transaction that we may or may not do will be done in the interest of all the shareholders."

While AOL's deal with Google is not as complicated as the proposed joint venture with Microsoft, Google is offering several ways to help AOL enhance its advertising sales business, executives briefed on the negotiations said.

Under the current arrangement, Google sells all the search ads that appear on AOL's sites. This year, Google's revenue from ads on AOL will be roughly $500 million, estimates Jordan Rohan, an analyst with RBC Capital Markets. Of that, Google will pay AOL about $430 million.

Under the new deal, AOL's sales force will also have the ability to sell search advertising that appears only on AOL's sites, even though those ads will compete for placement with those sold by Google. AOL's sales force will also have the right to sell some display advertising that will be placed on the vast network of Web sites for which Google sells ads.

AOL executives are attracted to the idea of offering marketers a full range of Internet advertisements, from splashy ads on the home page of AOL.com to text ads.

Larry Haverty, a fund manager with Gabelli Asset Management, a Time Warner shareholder, said the deal with Google was "very reinforcing to the idea that Parsons is doing what he can to highlight the values."

For Google, he added, "there are two good reasons to do this deal: one, it's chump change; and, two, it really makes life difficult for Microsoft."

Andrew Ross Sorkin contributed reporting for this article.



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Tuesday, December 13, 2005

 

Webwar 2.0: Microsoft as a Serial Adapter

One of the biggest challenges in the business world is to successfully adapt to business discontinuities.

Bill Gates has successfully adapted his business model twice so far (in my count).

Adaptation 1: Shift from supplying MS-DOS for IBMPC to creating the Windows platform. This marked the shift from IBMPC era to the Wintel (Windows-Intel Era) circa..1985.

Adaptation 2: Shift from Desktop to the internet (Web 1.0). This marked the battle with Netscape. circa..1995

Adaptation 3: Embracing Web 2.0. circa 2005. The coming battled with Yahoo, Google, eBay and Apple.

Bill Gates memo to the employees makes this point clear.

From: Bill Gates
Sent: Sunday, October 30, 2005 9:56 PM
To: Executive Staff and Direct Reports; Distinguished Engineers
Subject: Internet Software Services

Microsoft has always had to anticipate changes in the software business and seize the opportunity to lead.

Ten years ago this December, I wrote a memo entitled The Internet Tidal Wave which described how the internet was going to forever change the landscape of computing. Our products could either prepare for the magnitude of what was to come or risk being swept away. We dedicated ourselves to innovating rapidly and lead the way much to the surprise of many industry pundits who questioned our ability to reinvent our approach of delivering software breakthroughs.

Five years ago we focused our strategy on .NET making a huge bet on XML and Web services. We were a leader in driving these standards and building them into our products and again this has been key to our success. Today, over 92% of the Fortune 100 are utilizing .Net and our current wave of products have XML and Web services at their core and are gaining share because of the bold bet we made back in the year 2000.

Today, the opportunity is to utilize the Internet to make software far more powerful by incorporating a services model which will simplify the work that IT departments and developers have to do while providing new capabilities.

In many ways this is not completely new. All the way back in 1998 we had a company meeting where we outlined a vision in which software would become more of a service over time. We've been making investments since then -- for example, the Watson service we have built into Windows and Office allows us and our partners to understand where our users are running into problems and lets us improve their experience. Our On-line help work gives us constant feedback about what topics are helping our users and which we need to change. Products from MSN like Messenger and Hotmail are updated with new features many times throughout the year, allowing them to deliver innovations rapidly. Our Mappoint service was a pioneer in letting corporations connect up to a web based API on a subscription basis.

However, to lead we need to do far more. The broad and rich foundation of the internet will unleash a "services wave" of applications and experiences available instantly over the internet to millions of users. Advertising has emerged as a powerful new means by which to directly and indirectly fund the creation and delivery of software and services along with subscriptions and license fees. Services designed to scale to tens or hundreds of millions will dramatically change the nature and cost of solutions deliverable to enterprises or small businesses.

We will build our strategies around Internet services and we will provide a broad set of service APIs and use them in all of our key applications.

This coming "services wave" will be very disruptive. We have competitors who will seize on these approaches and challenge us – still, the opportunity for us to lead is very clear. More than any other company, we have the vision, assets, experience, and aspirations to deliver experiences and solutions across the entire range of digital workstyle & digital lifestyle scenarios, and to do so at scale, reaching users, developers and businesses across all markets.

But in order to execute on this opportunity, as we've done before we must act quickly and decisively. This next generation of the internet is being shaped by its "grassroots" adoption and popularization model, and the cost-effective "seamless experiences" delivered through the intentional fusion of services, software and sometimes hardware. We must reflect upon what and for whom we are building, how best to deliver new functionality given the internet services model, what kind of a platform in this new context might enable partners to build great profitable businesses, and how our applications might be reshaped to create service-enabled experiences uniquely compelling to both users and businesses alike.

Steve and I recently expanded Ray Ozzie's role as CTO to include leading our services strategy across all three divisions. We did this because we believe our services challenges and opportunities will impact most everything we do. Ray has long demonstrated his passion for software, and through his work at Groove he also came to realize the transformative potential for combining software and services. I've attached a memo from Ray which I feel sure we will look back on as being as critical as The Internet Tidal Wave memo was when it came out. Ray outlines the great things we and our partners can do using the Internet Services approach.

The next sea change is upon us. We must recognize this change as an opportunity to take our offerings to the next level, compete in a manner commensurate with our industry responsibilities, and utilize our assets and our broad reach to reshape our business for the benefit of the users of our products, our customers, our partners and ourselves.
Bill


Few companies have successfully adapted across distinct waves of change. The ultimate leadership success is to win under massive changes and guide the corporation through discontinuities.

One of the main reasons for the rarity of serial adaptation is what management scholars call as the competency trap--continued reliance on routines that made a company successful in the past with the assumption that it will work reasonably well in the future.

Bill Gates and Microsoft have shown that they can overcome the competency trap. His memo makes it clear. It's not for lack of recognition of the shifts. The question will be can Microsoft execute on their recognition: can they effectively respond?

Time will tell..

 

Making Live Real: Microsoft forges wide variety of links

Look at what Microsoft has been doing quietly in adapting to the new marketplace..

1. Link with MTV for a new music service named (or codenamed) Urge.

MTV, Microsoft team up for digital music service
Tue Dec 13, 2005 11:28 AM ET



NEW YORK (Reuters) - Viacom Inc.'s MTV Networks and Microsoft Corp. on Tuesday said they would join forces to design and develop a new digital music service.

The service, to be called Urge, is due to launch in 2006, the companies said in a joint release, and will be integrated into a new version of Microsoft's Windows Media Player.

Plans call for the service to offer more than 2 million songs for download from major labels and independents, as well as original content and MTV Networks programs.


2. Link with MCI



REDMOND, Wash., and ASHBURN, Va. — Dec. 12, 2005 — Microsoft Corp. and MCI Inc. (NASDAQ: MCIP) today announced a global, multiyear partnership to provide software and services that enable customers to place calls from a personal computer to virtually any phone. The solution, MCI Web Calling for Windows Live™ Call, will be available through Windows Live Messenger, the upcoming successor to MSN® Messenger, which has more than 185 million active accounts around the world. The solution combines Windows Live software, advanced voice over Internet Protocol (VoIP) capabilities and the strengths of MCI’s expansive global network to give consumers an easy-to-use, convenient and cost-effective way to stay connected.

MCI and Microsoft are testing the service as part of a Windows Live Messenger limited beta with subscriptions initially available in the United States, and expect to jointly deliver the PC-to-phone calling capabilities to France, Germany, Spain and the United Kingdom in the coming weeks. Once subscribed to the service, customers can place calls to and from more than 220 countries with rates starting at $.023 per minute to the U.S., Canada, the U.K. and Western Europe during the beta testing period. Upon sign-up, MCI Web Calling customers will receive up to one hour of free calls. Final pricing will be determined when the product officially launches in 2006.

“Our new Windows Live PC-to-phone voice feature requires a partner that shares our vision for connecting people globally. We are thrilled to work with a proven global technology provider like MCI to provide the bridge between PCs and phones with high-quality voice services that enable people to communicate more easily, conveniently and inexpensively,” said Blake Irving, corporate vice president of the MSN Communication Services and Member Platform group at Microsoft. “Our customers are going to love this.”

“MCI Web Calling harnesses the power of MCI’s expansive global network with VoIP technology to support high-quality, cost-effective PC-to-phone voice connections around the world,” said Patty Proferes, senior vice president of Mass Markets and Corporate Advertising for MCI. “This is a terrific example of the expanded MCI and Microsoft strategic relationship as the two companies continue to develop and deliver next-generation services for our customers.”

Instant Messaging: More Than Text

The ability to see a contact’s presence information and send real-time text messages has spurred the growth of instant messaging (IM) services. Today, MSN Messenger customers can communicate with those people that matter most to them through text IM and free PC-to-PC voice and video features, and augment their communications with rich personal-expression features and activities.

The Microsoft and MCI technology builds on Microsoft’s PC-to-PC voice investments, and will enable customers to call from a PC to phones around the world, including mobile phones, by simply clicking on an entry within their contact list in Windows Live Messenger or typing a phone number into the Windows Live Call softphone, taking the instant messaging experience to a new level. Windows Live Messenger builds on MSN Messenger to help people develop even deeper connections with the people they care about through a variety of experiences — from communication to sharing information. Interested parties can learn more about Windows Live Messenger at http://ideas.live.com.

Customers will be able to sign up for MCI Web Calling via the Windows Live Messenger client. MCI will manage customer registration, terminating calls, customer account management, customer support and billing for the PC-to-phone voice service, and will work closely with Microsoft on delivering a high-quality software service and customer experience. Customers will purchase prepaid calling time from MCI in $5, $10 or $25 blocks for use with the service.

 

WebWar2.0 Continues with Yahoo Widgets


The following from Yahoo is a good overview of Yahoo Widgets

The Yahoo! Widget Engine (formerly known as Konfabulator) is a JavaScript runtime engine for Windows and Mac OS X that lets you run little files called Widgets that can do pretty much whatever you want them to. Widgets can be alarm clocks, calculators, can tell you your WiFi signal strength, will fetch the latest stock quotes for your preferred symbols, and even give your current local weather.

What sets Yahoo! Widget Engine apart from other scripting applications is that it takes full advantage of today's advanced graphics. This allows Widgets to blend fluidly into your desktop without the constraints of traditional window borders. Toss in some sliding and fading, and these little guys are right at home in Windows XP and Mac OS X.

The format for these Widgets is completely open and easy to learn so creating your own Widgets is an extremely easy task.

For the "skinning" crowd, Yahoo! Widget Engine is a dream come true. You can easily change the look, feel, layout, even functionality of a Widget so that it matches your lifestyle, your desktop, or the pants or skirt you have on that day.

A Little History...
Some time in early 2000 Arlo Rose came up with an idea for a cool little application. It would use XML to structure images, and a scriptable language, like Perl, in such a way that someone who knew the basics of Perl could put together cool little mini-applications. The goal was that these mini-applications would just sit around on your desktop looking pretty, while providing useful feedback.

All he ever really wanted was to have a cool looking battery monitor and something that told him the weather, but he knew the possibilities for something like this could potentially be limitless.

Fast forward a couple of years when Arlo began working with Perry Clarke at Sun Microsystems. Over lunch one afternoon Arlo gave Perry the basics of this dream app. Perry suggested that JavaScript would be far easier for people to digest. He was right. It's the basis for Flash's ActionScript, and Adobe's scripting engine for Photoshop. Of all the choices, JavaScript made the most sense. Shortly after that lunch, the two began to spend their nights and weekends making this thing a reality.



It looks a lot like Apple Dashboard and Google desktop. Clearly it is a complementary offering on operating systems (WindowsXP and Macintosh OS) but increasingly taking over important parts of the operating system. Making it cross-platform across Windows and Mac, Yahoo is seeking to be the bridge (platform agnostic) and competing against Google.

WebWar 2.0 continues..

Monday, December 12, 2005

 

Steve Case Wants to Unleash AOL from Time Warner

Steve Case has made his case clear in his Washington Post article on Dec 12, 2005.

My own research is about how companies need to rely less on vertical integration and explore more of virtual integration. In other words: instead of ownership of assets, corporations should rely on accessing complementary capabilities through relationships. This is particularly true in the context of fast-changing conditions.
So, what does it mean for AOL and Time Warner. In early 2000, Steve Case used inflated stock market valuation of his dotcom company to acquire tangible assets hoping to create cross-business synergies between content and channel. That never materialized.

Now, as we end 2005, we are at a point where dynamic web companies like Google, Yahoo, eBay, Amazon and MSN (part of Microsoft) are jockeying to win in what is now loosely called as Web 2.0. Interestingly, AOL could be a significant player if they can reposition to offer some of the services that we have seen come from Google, Yahoo and MSN recently. Indeed, the famous leaked memos from Microsoft show the importance of services on the web. AOL has critical assets that may be stymied by being part of Time Warner. So, Steve Case wants to unleash the full value potential.

Why has Steve Case changed his tune? The business characteristics have changed from 2000. It's no longer about bundling content and channel and locking-in customers. It's more about tailoring content and services to consumers based on knowing more and more (and much more than ever before) about consumers based on massive amount of individual data and search behavior on the web.

Web 1.0 was about vertical integration; Web 2.0 is about virtual integration.

Strategy 1.0 was about ownership of assets; Strategy 2.0 is about relationships in networks.

Leaving aside the Carl Icahn angle to the news, the real story from a business innovation point of view is as follows:
1. if AOL is carved out and sold to either Google or Microsoft, AOL as a brand may disappear and subsumed under Google or Microsoft over time (remember Hotmail? it will be Microsoft Live Mail in the near future!).
2. Whoever gets AOL will win in the short-term; so the winning bid may overpay to get it because each does not want the other to get it; so, AOL may fetch a premium in the short term.
3. If AOL is not for sale, then AOL needs to structure a very good business partnership agreement with either Google (with whom they have a current relationship) or MSN (who has been their competitor for sometime).

Choosing Google means continuing and evolving the historical relationship but with a more fierce and aggressive company; it may mean losing AOL's brand identity perhaps. Selecting Microsoft means working with an erstwhile competitor (MSN). But, Bill Gates has made friends with his erstwhile enemies before (look at Real Networks, Apple, Sun and others!). and the new management team at AOL can do as well. Both Microsoft MSN and Google have the technology to serve up personalized ads and content to AOL customers.

The stakes are high. The upside potential is clear. The downside is inaction. AOL managers would have failed if they do not to capitalize on their strong customer base now and simply let the customerbase defect elsewhere.

Meanwhile, Yahoo is waiting on the sidelines (It is officially out of the race)....wondering its strategic options and examining its competitive moves against both Google and Microsoft--knowing whoever the winner is will be stronger after forging new links.

See also John Hagel's edge perspectives blog on this--as usual quite insightful.

Thursday, December 01, 2005

 

Times UK and Blinkx


http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/12-01-2005/0004225807&EDATE=

Search is big part of news media industry transformation. Will efforts by individual news media companies ever have the scale or reach or depth to be a strong threat against Google News?

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