Como se combate o populismo? "Com eleições", responde Fukuyama

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moneybox
The Not-So-Fantastic Four
Why Yahoo!, eBay, Amazon, and AOL are tanking.
By Daniel Gross
Posted Wednesday, July 26, 2006, at 5:08 PM ET

From the ashes of the 2001-2002 crash there emerged four horsemen of the dot-com apocalypse: Amazon.com, Yahoo!, eBay, and AOL. This quartet of iconic companies, wounded but not destroyed in the crash, survived the plague years and flourished when the market recovered. But in recent weeks, at a time when online advertising and e-commerce are enjoying strong growth, all four have pulled up lame. The group that once led the Nasdaq's resurgence has generally lagged the tech-heavy index over the past year.

You can't blame it all on Google. Each of the horsemen is still a leader in its core business, Google or no Google. But each derives the lion's share of its revenues from a maturing U.S. market, each is finding profit margins slipping as it tries to diversify, and each has foolishly reached back to tried-and-failed ideas of the dot-com era for salvation.

On Tuesday afternoon, Amazon, the leading e-tailer, announced its quarterly earnings. The top line was good: Revenues rose 22 percent from the year before. The bottom line? Not so much. Operating income fell 55 percent to $47 million from $104 million in the year-earlier quarter. Why? Amazon ramped up spending on technology and content, slashed prices, and offered more free and reduced-rate shipping. In other words, it had to work a lot harder for the money, especially in its mature and massive U.S. market. Amazon announced that operating income would at best rise 2 percent for all of 2006, and at worst, fall 28 percent. Meanwhile, investors haven't been enthused by the back-to-the-future efforts Amazon launched this month to diversify and boost margins: an online grocery store and new online baby and toy stores. (Because it worked so well for Webvan and eToys?) Investors bolted for the exits. By midday, Amazon's stock was off more than 20 percent, and it stands at a three-year low.

eBay also took some lumps when it reported earnings last week. (The release can be seen here.) Net revenues at the auction giant were up 30 percent year over year. The core auction business, which accounts for about three-quarters of revenues, was up 22 percent, while the payments unit (PayPal) was up sharply too. (Good!) But the amount of money eBay spent on administration, sales and marketing, and product development was up by a much larger amount. The result: Operating income fell 18 percent in the quarter. (Bad!) eBay's stock fell after the earnings announcement and sits at a three-year low. And, like Amazon, eBay, faced with competition and a maturing U.S. market, has reached back to the 1990s playbook, spending a ton of cash and valuable stock to buy an Internet-based business that gives away its product for free. That would be Skype, the Internet telephony company eBay bought last fall for $2.5 billion. This quarter, eBay's communications unit (aka Skype) reported $44 million in sales. It's possible that Skype could one day be a huge contributor to eBay's bottom line. But for now, it looks like an enormously expensive way to add a small amount of revenue.

eBay's earnings announcement came a day after Yahoo! reported a similar story. Revenues, 88 percent of which came from advertising, rose a very healthy 27 percent. But operating income fell 12 percent, in part because of a significant charge for employee stock compensation. At the same time, as Bambi Francisco noted on MarketWatch, Yahoo! dampened expectations for the rest of the year and "delayed the release of a new search-advertising technology" that investors thought would help it catch up to Google. The stock fell in response to the report and has lost more than a third of its value since the beginning of the year. In addition to competing head-to-head with Google by pushing engineers to build a better search engine, Yahoo! has been pursuing growth by developing more proprietary content. Like too many 1990s-era content players—Inside.com, Salon, and, yes, Slate—Yahoo! has found it difficult to turn excellent content into short-term profits, and the effort has been scaled back.

Finally, take AOL. Please. AOL's parent company, Time Warner, won't announce its second-quarter earnings until next week. But the first quarter was pretty lame. Unlike its fellow horsemen, AOL saw revenues fall by about 7 percent, as 3.1 million Americans stopped subscribing. Like its fellow horsemen, AOL saw operating income fall—by about 14 percent, from $314 million to $269 million. And on July 11, the Wall Street Journal reported that AOL might soon adopt a new business strategy: It will morph from a subscription-powered Internet-access provider to an advertising-supported portal. The subscription business is declining anyway. So, the prospective plan goes, AOL should stop charging subscription fees to AOL users who have high-speed Internet access from cable or telephone companies, thus forgoing up to $1 billion in operating profit through 2009. But if it can keep people using AOL for e-mail (and hence as a launching pad for the Internet), it might be able to capture more of the Internet-ad-sales market, which is growing at a rate of 25 percent a year. AOL's 1990s flashback? Its plan rests on the assumption that recent trends in ad-spending growth will continue unabated for several years into the future!

Daniel Gross ( www.danielgross.net ) writes Slate's "Moneybox" column. You can e-mail him at moneybox@slate.com.

Article URL: http://www.slate.com/id/2146541/

Copyright 2006 Washingtonpost.Newsweek Interactive Co. LLC

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The alliance against Google

Aug 10th 2006 | SAN FRANCISCO
From The Economist print edition

What today's internet firms can learn from 19th-century history



PRINCE KLEMENS VON METTERNICH, foreign minister of the Austrian Empire during the Napoleonic era and its aftermath, would have no trouble recognising Google. To him, the world's most popular web-search engine would closely resemble the Napoleonic France that in his youth humiliated Austria and Europe's other powers. Its rivals—Yahoo!, the largest of the traditional web gateways, eBay, the biggest online auction and trading site, and Microsoft, a software empire that owns MSN, a struggling web portal—would look a lot like Russia, Prussia, and Austria. Metternich responded by forging an alliance among those three monarchies to create a “balance of power” against France. Google's enemies, he might say, ought now to do the same thing.

Google announced two new conquests on August 7th. It struck a deal with Viacom, an “old” media firm, under which it will syndicate video clips from Viacom brands such as MTV and Nickelodeon to other websites, and integrate advertisements into them. This makes Google the clear leader in the fledgling but promising market for web-video advertising. It also announced a deal with News Corporation, another media giant, under which it will provide all the search and text-advertising technology on News Corporation's websites, including MySpace, an enormously popular social-networking site.

These are hard blows for Yahoo! and MSN, which had also been negotiating with News Corporation. Both firms have been losing market share in web search to Google over the past year—Google now has half the market. They have also fallen further behind in their advertising technologies and networks, so that both make less money than Google does from the same number of searches. Safa Rashtchy, an analyst at Piper Jaffray, a securities firm, estimates that for every advertising dollar that Google makes on a search query, Yahoo! makes only 60-70 cents. Last month Yahoo! said that a new advertising algorithm that it had designed to close the gap in profitability will be delayed, and its share price fell by 22%, its biggest-ever one-day drop.

MSN is further behind Google than Yahoo! in search, and its parent, Microsoft, faces an even more fundamental threat from the expansionist new power. Many of Google's new ventures beyond web search enable users to do things free of charge through their web browsers that they now do using Microsoft software on their personal computers. Google offers a rudimentary but free online word processor and spreadsheet, for instance.

The smaller eBay, on the other hand, might in one sense claim Google as an ally. Google's search results send a lot of traffic to eBay's auction site, and eBay is one of the biggest advertisers on Google's network. But the relationship is imbalanced. An influential recent study from Berkeley's Haas School of Business estimated that about 12% of eBay's revenues come indirectly from Google, whereas Google gets only 3% of its revenues from eBay. Worst of all for eBay, Google is starting to undercut its core business. Sellers are setting up their own websites and buying text advertisements from Google, and buyers are using its search rather than eBay to connect with sellers directly. As a result, “eBay would be wise to strike a deep partnership with Yahoo! or Microsoft in order to regain a balance of power in the industry,” said the study's authors, Julien Decot and Steve Lee, sounding like diplomats at the Congress of Vienna in 1814.

The alliances are already being struck. Last year Yahoo! and Microsoft announced that they would connect their instant-messaging systems—both of which are much more popular than Google's alternative—and in July they said that they would extend this co-operation to “voice chat” (formerly known as “calling”). In May, Yahoo! and eBay struck an alliance in which eBay will use technology from Yahoo! to place advertisements on its auction site. On the other side of the bargain, Yahoo! will use PayPal, eBay's online payment mechanism, for transactions from Yahoo!'s pages. (Google recently launched a rival payment system of its own.)

The strongest alliance, of course, would be a merger or takeover. MSN and Yahoo! both wanted to buy some or all of AOL, a big, troubled internet-access company owned by Time Warner, a media conglomerate. But Google pre-empted its rivals last winter and bought a defensive stake in AOL. It still has its search and advertising technology stationed on AOL's site. Google may also make its instant-messaging service interoperable with AOL's, the most popular in the world.



Ally or annex?

With AOL lost to the enemy, what of a deal between Microsoft and either Yahoo! or eBay? Justin Post, an analyst at Merrill Lynch, said recently that Microsoft's “acquisition probability” is now so high that it may soon start pushing up the share prices of eBay and Yahoo! Mr Post thinks that Microsoft is most likely to bid for Yahoo! This would help Microsoft strategically, he says. Others are not sure. “I don't see it as a terribly good merger,” says Mr Rashtchy. There would be big cultural differences between a media company and a software firm. He thinks that a merger of Yahoo! and eBay, on the other hand, might make sense because both live mainly from serving online communities.

Paul Saffo, a Silicon Valley analyst and a fellow of the Institute for the Future, a research group, thinks that any merger between the three middle powers would be a “grand dramatic gesture” that would only hasten their decline. AOL's merger with Time Warner in 2000 is the relevant warning from recent history. Big mergers also run counter to a number of other trends on the internet today, which are collectively known as “Web 2.0”. “This is the age of mash-ups not mergers, open over closed,” says Mr Saffo, referring to the open internet standards that allow users to combine, or “mash” services.

Another argument against full-blown mergers is that the bigger and more self-absorbed the established powers become, the less likely they are to spot new insurgencies—start-ups such as YouTube, an online video site, for instance, or MySpace. Their equivalents in Prince Metternich's day were the nationalist and liberal movements that troubled the continental monarchies, and erupted in the revolutions of 1848—forcing Metternich to resign and flee into exile in Britain.