Monday, July 30, 2007

Another Whole Foods Environmentalist…

I recently financed an $18 salad at Whole Foods in Mountain View. Nothing else could have made me feel more ill. No, it wasn't the day-old arugula, or the fact that those vegetables were sitting there all day, being bombarded with the germs of hovering faux environmentalists. I didn't even eat the salad. What bothered me that day about the Austin-based grocer wasn't the food, but the insincerity of the entire operation.

Does Whole Foods really care about my health, that of the environment, and greater society? They don't…and I don't believe they are obligated to either. Some call Whole Foods a grocery store, but I think it is much closer to a religion or even a cult. They have organic soy milk on the shelves but what Whole Foods really sells is absolution. The sacrament of faux environmentalism can be fulfilled by merely making a purchase at your local Whole Foods. It doesn't matter that you drove an SUV all day to get there, because at Whole Foods you can buy fair trade coffee, put it in a recyclable knapsack, and feel good that you bought something from what is supposed to be one of America's best companies to work for. That's the perfect antidote for years of spewing carbon indiscriminately into our atmosphere. The consumer drives away with a clear mind, only waiting for the next opportunity to absolve himself on his next shopping trip. Whole Foods is much like organized religion—it's a way to feel better about your misdeeds, and psychologically erase external costs imposed on others and the environment.

The Whole Foods website boldly proclaims, "We earn our profits every day through voluntary exchange with our customers." Wow, that's a really profound idea—but I kind of remember Adam Smith saying something like that in 1776. Their website also touts their enlightened environmental practices and commitment to some form of social responsibility beyond economics. There seems to be some disagreement between Whole Foods and the Austin Chronicle on the social issues. The Chronicle has repeatedly documented cases of supposed "union-busting" and rocky employee relations. Whole Foods is not the earth-loving-sustainable grocery store that you might think, and never was intended to be from the day it went public.

Next time you shop at Whole Foods, do so because they offer great products and a comfortable atmosphere, not because they “really care” about the environment or social responsibility.

Thursday, July 26, 2007

Life After Search?

Over the last week, three web giants reported earnings. The business press typically focused on the Yahoo! vs. Google battle over the enormously lucrative search market. Yahoo! once again posted lackluster results and a relatively stagnant share of the search market, while Google pushed forward with decent revenue growth, but failed to exceed expectations of profits as hiring costs increased slightly. This seems to be the story of the last several quarters: Google is growing more quickly than Yahoo! and even a management shake-up at Yahoo! hasn't inspired much investor confidence in the company. What's wrong with this story? Well, it completely ignores another web giant, Amazon, which has climbed a stunning 113% since January. This week Amazon reported great earnings and the market value shot up 26%. Amazon's results are impressive seeing that Yahoo! is down 6% and Google is only up 10%. What's going on here? The paradigm is changing. Search is the bread and butter of the internet companies now, but the battle for the search market has largely been won, and it is only one small battle in the war for web dominance. In the near future the battle will be about infrastructure, services, and high-quality content.

Is Google a search company? The obvious answer is yes, as nearly 99% of their revenues come from search advertising. A more astute and informed answer, is no. Google is not a search company--it is an infrastructure and web services company. Their superior search technology and the creative thinking of Bill Gross (Bill Gross invented textual search advertising with Overture, which Yahoo! subsequently bought) has provided Google with a phenomenal profit driver over the last several years, enabling them to amass a war chest of cash, amounting to $12.5 billion in liquid assets, just over half of Microsoft's cash and short term investment position. Make no mistakes, Mr. Schmidt, Google is rivaling Microsoft by encroaching on its traditional operating system and productivity applications turf. The Google infrastructure has created what will be a web operating system which will render Microsoft's costly and complicated line of operating systems ancient history. Google has created an infrastructure for web applications that will rival the Redmond giant. The game is not only about search, but about the web operating system of the future and all the applications that are built around it.

What about Yahoo!? While Yahoo! learned how to monetize search well before Google, they have failed to capture hearts and minds. From the day Yahoo! began, it has been a portal, or a place to explore interesting areas of the web, editorialized by humans. There is no doubt that there is a plethora of valuable information contained in the Yahoo! directory, but their approach to the web is much different than Google's. Rather than taking the bottom-up approach and letting others be responsible for content and its organization, Yahoo! has taken the top-down approach to organize and provide content. Yahoo! is akin to an online newspaper or distribution platform in this way, as it prints third party content and hopes to make a profit on the difference between the cost of content and what advertisers will pay. See this post for more background on the importance of owning content in the media business.

The third major and often overlooked player in the consumer web space is Amazon. With Amazon's presence as one of the first most successful etailers, it doesn't receive the same credit that Google or Yahoo! do because much of their business is based in the terrestrial form, requiring shippers and inventory accumulation. Recently CEO Jeff Bezos has transformed Amazon into a web services and content hub. Amazon's web services strategy includes selling data storage and computing power to developers through the S3 program and Elastic Compute Cloud. What is important about S3 and web services is that Amazon is building the future of the web as more and more applications moving online through the software-as-a-service model. Additionally, Amazon's foray into high-quality content rivals iTunes as a destination for media. With the Unbox initiative consumers can download video directly to their machines, bypassing trips to the store and restrictive iTunes device management strategies.

Conclusion: Despite the hype and cheerleading surrounding Yahoo!'s Panama upgrade to their search monetization, it's unfortunate for the firm that the game is no longer exclusively about search. What is relevant is web dominance through a web operating system and building infrastrucutre to host future web-based applications. Along with this is high-quality content available on demand, something that both Amazon and Apple's iTunes seem to understand very well.

Wednesday, July 11, 2007

iPhone Hype

Almost two weeks ago, Apple launched what has been proclaimed to be a revolution in mobile telecommunications. Since the January announcement of the device, the media blitz surrounding the iPhone created such hype that it was impossible to exceed expectations. My guess is that those who shelled out as much as $800 for the phone and accessories may be experiencing the classic winner’s curse. While there is no question that the phone has created a new paradigm for mobile creators and employs an exceptionally intuitive user interface—my issues with the iPhone are that it is difficult to use from a physical standpoint and most critics appreciate it for the wrong reasons.

The virtual keyboard / keypad makes the phone a hassle to use. Did Apple completely ignore the anatomy of the human phalanges? The keys are far too close together for rapid typing or even punching in a phone number. The result is frustration and frequent use of the backspace button. I am not an iPhone owner because I am not willing to sacrifice keypad input speed for style.

Lastly, the reason the iPhone is interesting isn’t because it’s a sleek looking must-have device. With a fully-equipped web browser, Safari, Apple may reignite the browser wars, and has the power to change the tremendously lucrative world of search. With control over the search box on the iPhone, Apple could feasibly challenge major search providers, or sell the exclusive search rights for the device for a hefty sum.