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Sunday, October 22, 2006

Don't Be Gevil

Investors were euphoric last week as Google released quarterly earnings and announced nearly a 100% surge in profits. Brokerage houses responded by lifting share targets to well over $500. Does anybody remember 2000?

There is no question that Google does search well, evidenced by their hefty share of the market and dominance over Yahoo! (exclamation included) in the area. The prospect of paying 70x earnings for Google and expecting profits to continue their upward trajectory of 80% YoY seems ridiculous. Are any of Google's other products really that good? (Ok--Maps is good and Reader is just allright) After all, the company generates nearly 100% of its profits from online search advertising. Why does Google dominate search? They are certainly more profitable because of their ad placing algorithms which optimize revenue and click throughs. But this still doesn't explain why people prefer Google over other search engines. The truth is that results are fairly equal.
Check out http://www.gahooyoogle.com/ for a comparison.

My view is that search will become commoditized in the long run and Google's advantage will dissappear. Other sources of revenue are in dire need.

Widow Meta Search does a good job of showing the commoditization in the search area: http://www.widow.com/

Friday, October 20, 2006

New IE Web Browser

Today's WSJ reported that Microsoft is releasing a new version of its web browser. Its no surprise that a company like Microsoft is slow to introduce new products--they have significant monopoly on the operating system because of the strong network effects of the software. Why are they wasting their time with IE unless it has an exclusive built in search bar for the MSN network? Good question, and the answer may be that they didn't spend much time at all. Having a search tool bar drives traffic to a search website and MSFT has lost out on this potential benefit with the old IE, most of which run with the Google or Yahoo add-in. Monopolistic behavior may be an issue in the courts if they stack IE (and Vista, which works with Netflix login) with MSN search, but with more browsers on the market, the arguement has less substance.

Why even bother with a new browser if you can't monetize it?
No doubt MSFT has contemplated this question and figured it out--the result is a weak browser.

In my view, a Google browser is on the way.

Microsoft UpgradesInternet Explorer -- But Not Much Is New
"Microsoft's Internet Explorer Web browser is one of the most-used software products in the world. It is the main tool through which most computer users view the entire Internet. But IE hasn't had a significant overhaul in five long years. That has allowed competitors like Mozilla's Firefox and Apple's Safari to leap ahead in terms of features. In fact, many of the savviest Web users have abandoned IE in recent years, partly because of the growing feature gap and partly because of IE's persistent security problems."

Wednesday, October 18, 2006

Dow 12,000


The Dow neared 12,000 as tame CPI and PPI data was reported by the gov't. In the last FOMC meeting there was one vote for an increase in the funds rate, so a relatively hawkish outlook is correct. Inflation still looms and Bernanke's reputation is on the line. It looks like rates will stay at 5.25% for the next few months and even drop. Dow 12,000 and an impending rate cut over the next few months seems to be a conundrum: As the bond market predicts falling prices and a recession, equity markets see robust growth. Let's wait and see. I'm buying puts on the S&P given the recent rise and going long on retailers with the cold weather view.