On the Internet

Recently a few loose threads have come together on the Internet and some “old school” high tech companies.

Yahoo! – Yahoo! (I guess I need the exclamation mark) has a value that is less than the sum of its component parts. The market capitalization of Yahoo! comes in the fact that it owns a significant portion of two Asian internet companies. Per this pithily titled article “How Is Yahoo So Worthless“:

Yahoo is huge. It is the fourth-biggest Internet domain in the United States. It is the fourth-biggest seller of online ads in the country. It is the most popular destination for fantasy sports, controls one the most-trafficked home pages in news, and owns the eighth-most popular email client. In the last three months, it collected more than $1 billion in revenue. It’s very rich.

It’s also totally worthless.

Technically, it’s worse than worthless. Worthless means without worth. Worthless means $0.00. But Yahoo’s core business—mostly search and display advertising—is worth more like negative-$10 billion, according to Bloomberg View’s Matthew C. Klein.

The math: Yahoo’s total market cap is $37 billion. Its 24 percent stake in Alibaba, the eBay of China, is worth an estimated $37 billion (Alibaba hasn’t IPO’d yet, so this figure will vary), and its 35 percent stake in Yahoo Japan is worth about $10 billion. That means its core business is valued around negative-$10 billion.

This isn’t just a random business article; there is some actual financial science behind this analysis. At my trust fund site Yahoo! is one of the stocks I selected since I believe that their new CEO Marissa Meyer is a badass but according to the math she is still losing the battle.

At one point in my career I worked for a public company that had $300M in cash on hand and a market value of $200M. Your business plan could be to fire everyone and drink in a bar all day and you’d be much closer to $300M than $200M (after all, how much can you drink). The market is anticipating that bad things are going to happen or that Yahoo! won’t be able to successfully sell and repatriate the cash for these investments. It is like that famous postcard my relatives in Montana had that said “If I won a million dollars I’d just keep ranching until it was all gone.” That is what the market today thinks of Yahoo! – even if they successfully extracted the cash from these investments, they’d invest it into something of less value (by $10B or so, apparently).

The Death of the Web – Another interesting view is that 1) everything is now mobile 2) mobile is really a lens through which either IOS (Apple) or Android (Google) dominate. We’ve basically given these two companies the gateway path to the internet.

Per this article, 84% of the time on your mobile you are on apps and only 16% of the time are you on the open internet. I have seen similar discussions elsewhere, although the numbers are always a bit different (and vary by country). This article by an Andreesen Horowitz venture capitalist talks about the potential pitfalls of this approach:

[Apple and Google] reject entire classes of apps without … allowing for recourse (e.g. Apple has rejected all apps related to Bitcoin). The open architecture of the web led to an incredible era of experimentation. Many startups were controversial when they were first founded. What if AOL had controlled the web, and developers had to ask permission to create Google, Youtube, eBay, Paypal, Wikipedia, Twitter, Facebook, etc. Sadly, this is where we’re headed on mobile.

This is something to think about when you look at your own information consumption; are you working through an application or on the open web? And how much of your time is spent on a desktop vs. Laptop vs. Tablet vs. Mobile. The trend is definitely towards apps across these platforms and almost no one uses a desktop for much besides work anymore.

AOL Had the Future in their Hands, But Dropped the Ball – in the wake of Facebook’s purchase of What’s App messaging service for $19B, it is interesting to consider what “might have been” had AOL realized the power of instant messaging when they had that market mostly locked up. AOL could have built Skype or some other sort of calling application, or it could have just bet on messenger entirely and moved it onto the phone. People often talk of “first mover” advantages and AOL definitely had that, along with a large installed base that could have jump started a messenger only approach. While people remember AOL for their disastrous merger with Time Warner and other illogical items such as paying hundreds of millions for the Huffington Post and pouring millions into the “patch” local internet effort (with real human reporters, no less), these items should also be stacked against the lost opportunity of the enormous IM app that “could have been”. While it is hard to top the Time Warner merger (one of the dumbest mergers, ever), the lost tens of billions of opportunity for messaging is another giant air-ball.

Silicon Valley TV Show – there is a show on HBO called “Silicon Valley“. It was written by Mike Judge who created the famous “Office Space” and after seeing the first two shows I think it is great. While I am not an expert I know enough about these internet companies to recognize the stereotypes of executives, engineers, wealth, and the entire tech industry. Highly recommended, and only a half hour long to boot. This article explains how they created the milieu and over-the-top ethos of the office layouts and even the extremely narrow car that one of the big VCs drives.

Cross posted at LITGM

16 thoughts on “On the Internet”

  1. Once it became a large high tech company, Yahoo seems to have been a very poorly managed company. With the right management, they should have been where Google is. In fact; Sergei and Larry probably offered to sell them their search algorithm before deciding to start Google.

    Even with Google now dominating search engines, at one time Microsoft wanted to buy Yahoo(!) (perhaps the explanation point could be considered a double entendre here ;-) ) – and the wise management turned it down.

    Yahoo – the Packard of our era.

  2. This is something to think about when you look at your own information consumption; are you working through an application or on the open web? And how much of your time is spent on a desktop vs. Laptop vs. Tablet vs. Mobile. The trend is definitely towards apps across these platforms and almost no one uses a desktop for much besides work anymore.

    Virtually all of my time at work is spent in application software. When I do use the web at work I’m usually searching for specific information. I fit the model here.

    At home, I use my old fashioned desktop to browse the web, search the web or watch videos. I don’t own an iPhone or similar device (yet). Maybe I will soon, but I don’t seem to need one. My cell phone is so old fashioned it has a spin dial, records contacts in the format ‘Longwood-3-6763’ and has a jack for a party line. I don’t fit the model here, at all. I can’t remember the last time I used Yahoo! for anything.

  3. The saddest phenomenon that never happened, in my humble opinion, was the closing of the Sears catalog store the year before Amazon was started (as Cadabra). Amazon went online the next year as Amazon.com. Sears had the infrastructure that Amazon has built over the ensuing years. Imagine if Sears had had an executive with the imagination that, say, Don Estridge had. We could have seen the transformation of another great American company.

    I worked for Sears for a while when I was in college and saw the terrible management first hand. Some Sears people funded my scholarship to college in 1956. I had a cousin who worked for Sears all his life and was crushed by the changes and arbitrary management decisions in the 50s. Still, someone with vision could have pulled it back from the brink.

    Before being the leader of the team to develop the IBM PC he had been the lead manager for the development of the IBM Series/1 mini-computer. After this project was unsuccessful, he was said to have fallen out of grace with IBM and was reassigned to headquarters staff – a position that IBM employees often considered a form of penalty.[1]

    His efforts to develop the IBM PC began when he took control of the IBM Entry Level Systems in 1980 (and was later named President of the newly formed IBM Entry Systems Division (ESD) in August 1983), with the goal of developing a low-cost personal computer to compete against increasingly popular offerings from the likes of Apple Computer, Commodore International, and other perceived IBM competitors.

    He also realized that he had to get away from the IBM corporate culture in Armonk and set the PC program up in Boca Raton Florida. There is a good book about how the did it, called Blue Magic, which describes the unusual structure of the team and the race to produce the PC in one year from start to the first exhibit.

    Don Estridge and his wife were killed in 1985 on Delta flight 191 in Dallas in the famous “Clear Air Turbulence” case. The trip was a reward from IBM for a job well done.

    Sears closed their catalog division in September 1993 as the internet was really getting started. Amazon went online in 1995.

  4. Michael – I too just use a desktop – and still running XP. Have a flip phone. But I too don’t fit the model.

    Had an epiphany a few weeks ago when traveling to San Diego – and the motel I stayed at – admittedly not the Hotel del Coronado – but a nice clean inexpensive family run motel along the water – I suddenly realized there were no phones there.

    Then I realized that there was no reason for phones, with everyone having at least a cell phone.

    But they offered free wifi and the use of their laptop.

    A few days later I am looking for a motel in Studio City – and looking the old fashioned way.

    Driving up and down Ventura Blvd.

    I then realized how handy a smart phone would have been.

    Mike – one of the problems with IBM – and the Series 1 – I learned first hand. It wasn’t a computer problem, but a management problem.

    My father was looking to buy a new mini computer after our Burroughs B700 – this is the late 70s when mini computers had gained a foothold. Naturally we called IBM as “nobody ever got fired for choosing IBM”.

    Well, there were 2 divisions, one selling the System 34 and the other selling the Series 1 – and each salesman from his respective division was telling us why his machine was the best and ignore the other one. One division (forget which – General Systems Division)? sold the Series 1 and the other, which was responsible for the mainframes, sold the 34. Or it was the other way around. In our minds they cancelled each other out.

    But the Series 1 was a wonderful design – very modular.

    We ended up getting an HP 3000.

    About Sears – it would be a great book someone could write about mammoth business opportunities lost – and there is enough bad management to go around. IBM had the perfect opportunity to demand of Bill Gates a share of Microsoft – after all it was IBM who put them on the map.

    And Sears – what a wonderful vision of alternative tech history. If only Sears management had the vision.

  5. In 1993, it wasn’t obvious to most people that the Internet would be the runaway success it became…it was largely still regarded as something for the research community. There existed numerous “walled garden” on-line providers targeted at consumers, such as AOL, CompuServe, and GE’s Genie service. Teletext was being much discussed in the US and actually implemented in some other countries. So it should have been obvious to Sears management that *something* would happen to create a platform that could broadly enable electronic shopping, even if it wasn’t clear what that platform would be—especially given the success of France’s Minitel system…and the distribution/logistics capability that Sears had developed as part of its printed catalog service would have been totally applicable, not to mention the customer based and the brand.

    Michael, do you know….did Sears maintain some sort of vestigial mail order service, maybe to purchase things which were out of stock in your local store, or did they just completely wipe out the infrastructure?

  6. I think it all went away over the next year. The irony is that Sears now has Sears.com but it is 22 years too late.

    I spent 1994-95 at Dartmouth after I had a complicated back surgery in December 1993. I retired after that surgery and decided to spend a year indulging an old interest; how to measure quality in health care. There, I had plenty of opportunity to get familiar with the internet and the rudimentary functions available that year.

    While I was still in practice, I subscribed to a service called BRS which were the initials of a publisher that provided access to the National Library of Medicine Index Medicus. At first, it required BRS, then the American College of Surgeons made it a member benefit, then in another year or two, it was free. I used to use it to look up literature on cases that came up. I would often print copies of abstracts, which all three services permitted, and give a copy to patients who were interested. While at Dartmouth, I used Archie and Veronica and Gopher, all text search engines that used FTP to download text files. I think Amazon went online while I was still at Dartmouth. The college had Blitzmail, an e-mail service for students and faculty. The whole Valley (Upper Connecticut River Valley) was pretty well wired due to Dartmouth. You could reserve a book at the local library online.

    For years, alumni could keep a Blitzmail account but it it has now ended for reasons I don’t know. Maybe too many white people subscribed. I have watched with horror the deterioration of Dartmouth.

    On April first, the “Concerned Asian, Black, Latin@, Native, Undocumented, Queer, and Differently-Abled students at Dartmouth College” acted on their promise of “physical action” and remained in President Phil Hanlon ‘77’s office overnight. Before they rolled out their sleeping bags, the protesters attempted – ultimately in vain – to glean from President Hanlon some kind of point-by-point response to the Freedom Budget.

    Anyway, the what-ifs of Sears and the internet are interesting. After I worked there, I got a job at Douglas Aircraft programming an IBM 650 one of the original mainframes that still used a decimal system and not hexadecimal. That experience, and my recent experience at Sears made something click but I was on my way to medical school and wasn’t interested at the time. I doubt anyone at Sears would have been.

  7. There is the Internet as technology and the Internet as business. If you don’t like the Internet, take the old rules and build out your own network. It’s getting cheaper all the time and I predict that people will fork off the Internet as soon as it serves their purpose.

  8. It’s the old problem exemplified by the 1800s railroads not thinking of themselves as “transportation companies” – but railroads – allowing airlines to take hold.

    Sears management saw themselves as offering a catalog – not a vehicle for reaching millions of people who didn’t/couldn’t reach a store.

    In fact Mike – you probably know Sears history far better than me, at first didn’t they primarily do business via the catalog?

    You could even buy a house kit there, delivered and ready to put together.


  9. Regarding apps vs web,
    this video was making the rounds last week:


    The head of Android design at Google declared ‘mobile is dead’ and the reverberations could be felt throughout Silicon Valley (well not really).

    His point is that there will be a new architecture different from either that will need to provide a seamless experience across different platforms – desktops, phone, tv, wearables, etc –
    that will put the focus on designing for the users rather than a specific device.

    One warning, the video is long and the first third consists of his distressingly banal views about Android’s suspiciously mundane design process. It occurred to me that Silicon Valley has succeeded in commoditizing everything, including enterprise architecture.

    The part about the future of apps & web starts about at 11:00 & runs around 10 minutes.

  10. “Then I realized that there was no reason for phones, with everyone having at least a cell phone.”

    I have both, one to screen the spam calls since I never give out my cell number to organizations, very clear, reliable calls and so if I call in a home emergency they know where to show up (if they ever do) and the cell (without GPS, texting, internet or other tech) for my personal use, traveling, away from home errands and indeterminate location snooping. I don’t say things my Mom wouldn’t like to hear, so they can meta-data all they care to. Not near adequate, but the best I can do for now.


  11. I got an iPad Mini today and spent an hour trying to set it up, then went to the apple store, and by the time I got there, it had fixed itself. Medical students use these iPads in place of lap tops and I decided I had to learn to do it, too. I haven’t decided if I will each next year. I am 76 and getting short winded but, if the students want what I have to offer, I will do it again. They seem to like the curmudgeon approach. I have them see patients and then present each patient to me at the bedside. That way, if they get the history wrong, the patient will correct them in front of the group. That has a wonderful effect of concentrating the mind, sort of like being hanged in a fortnight.

    I examine the patients with them and we talk about any findings. The past two years we are dealing with a new County Hospital that I am very disappointed with. Patients are scattered all over instead of being concentrated by diagnosis. It is ridiculous to have ortho patients, medical patients and surgery patients all on the same nursing station. How are the nurses to handle that ? How are the residents supposed to make rounds ? It disrupts teaching, which is what university hospitals are about.

    Anyway, the students will tell me if I should continue. I am learning to use an iPad just in case.

  12. Mike – my family got my 90 year old mother, who always lamented not “learning the computer” – an iPad. So I am trying to teach her and before I teach her, I am learning it.

    It does have some limitations over a notebook or desktop – you don’t have nearly the storage – but for a portable device it is great.

    I have learned that it is a big iPhone minus the phone capability. But if you have the Facetime app – Apple’s version of Skype – you can talk with another iPad or IPhone user and see them.

    And I learned not all wifis are created equal. Tried to download the newer OS and at Starbucks it told me it would take 18 hours.

    So I drove to the Apple Store and it took about 30 minutes.

    BTW you can take free classes on learning your iPad at an Apple store.

  13. Good for you for getting an iPad. I bought one for my mother recently who is over 80 and she is getting the hang of it bit by bit. She is already pretty computer savvy and does a lot on the laptop.

    One item that you may not think it that important but is fun is iMessaging. This is a text messenger you can do through your iPad. You can also get a keyboard and type up texts a lot faster. It only works with people on IOS (Apple) not Android but is fun and this is how all the younger people communicate.

  14. Google’s bread and butter is search, and selling keywords/ads through it. I switched to google years before their IPO, when it became obvious their search was superior. Yahoo’s search sucks, and hasn’t been addressed in a serious way in years. It’s all about that. They should scrap everything they are doing and pay big money to bring in the smartest guys in the room. FIX YOUR SEARCH.

  15. Robert – remember alta vista? I remember years ago doing a search and you had 9 garbage urls – absolutely nothing remotely relevant – to every 1 decent return.

    Google changed all of that.

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