Bulls & Bears - An outsider's perspective

Google Wave Will prevail. Here's why!

2009-11-18T13:31:00.000-08:00

A few weeks ago, I wrote my blog post on Google wave titled "Tsunami of twaddle - only time will tell". At the time of that writing, I had only been witness to wave and had not really used it. Since then I have gotten an invite to Google-wave and have used it, but felt that I had to have a critical mass and a reason for starting a wave (a conversation) for it to make sense to me. In the earlier article, I had mentioned that the wave was truly more disruptive to people then constructive because the wave would always bubble up to the top items that were mundane.

The wave is the first real time communication dashboard where the boundaries around instant messaging (IM), email and collaboration merge to allow people to be connected in real time. Real time to a point where your typing on your screen is already being seen by the other person. So in that article I kind of hinted that Google had it's path stacked with obstacles because people who are normally used to email and other forms of communication prefer to be in an environment where they are not in interrupt mode all the time. My argument was that the time spent on collaborating and working independently were mutually exclusive and equally important to people and teams.

I wondered how Google would get the opportunity to build a group of committed first adopters, gain critical mass for the wave to make sense to the users and then continue to have users who would stick with wave while Google tinkered with it. In fact the challenge to Google is to have those first adopters turn into long term users who are comfortable with wave in every sense. It seems Google has found the answer to all of those.

So I was scanning the online Star Ledger (NJ newspaper) at NJ.com and found an article which reported that the Parsippany township school district (Morris County, NJ) had partnered with Google to provide e-mail accounts to all middle and high school students, joining a growing number of schools that switched to the free Gmail. The school district had reached a five-year agreement with Google to offer almost 4,000 Gmail accounts to students at its two middle schools and two high schools. In the past, students had used a slew of private e-mail addresses for school work. By switching to Gmail and one system, it makes it easier for teachers to communicate with their classes and students. Another perk of the deal is that Google will provide access to other Google features that allow students to share documents and to chat. School superintendents across NJ and elsewhere believe that those features fit each district’s Web 2.0 approach to its curriculum, with students using streamed video, online bulletin boards, chat rooms and e-mail to do their assignments. It seems that some other schools in NJ have already adopted gmail and its additional features.

The Google deal is also a death spiral for other email services, because, the report said that other personal e-mail services, such as Hotmail, are slated to be blocked at the start of next year. This may be local to the one school district, however I am inclined to think that Google is putting this into all their contracts. According to Google, thousands of educational institutions, with upwards of 6 million students, have outsourced e-mail services to Gmail over the past three years. Google has said it has seen a surge in schools using the service since the current academic year started.

So why does this spell success for the Wave? The answer lies in the fact that Google's strategic brilliance is to position wave for tommorow's workforce. By marinating middle school and high school children with Google wave and letting them use the tools over the next few years, Google is training an army of patriotic wave users. This assuming that, the children will all adopt it and like it. However I am more inclined to think that the best way to learn something difficult is to do it as a child. It's like learning a new langugage. As children, human beings are more capable of absorbing new things without asking too many questions. In much the same way, Google is seeding today's middle and high school students in gmail, wave and other google services so that they can be users tomorrow.

With already 6 million school children many of who will be exposed to wave, Google has an army of testers for wave which they will fine tune over the next few years. Google is seeding the school systems with wave so as to create a generation of wave-savvy users. Amazing Brillance. This strategy of product proliferation will no doubt be studied as a strategy business case in the years to come. Sorry "email", Goodbye! Welcome Wave.

One "Wave" to rule them all.

Apple's Tablet - A DOA "Dud on Arrival"?

2009-08-10T05:34:00.001-07:00

Apple Tablet - One device to replace them all?

Apple fans are all gaga over the recent news that Apple will be introducing a new touch screen tablet. Piper Jaffray analyst Gene Munster claims he has learned through his sources (An Asian component supplier working with Apple) information suggesting that Apple will launch a tablet device in early 2010.

Munster went on to state that the device will most likely be a larger format iPod Touch, measuring between 7 to 10 inches and be used primarily for web surfing, e-mail and digital media. He expects the tablets to be priced between $500 and $700, positioning it between an iPhone and a MacBook. In addition he expects that the device will include a 3G cellular modem which will be subsidized by a carrier. All this sounds great for Apple fans and some like @stocktwits followers on twitter are abuzz with some (@dasan) expecting this device to open up new markets.

I have a macbook and an itouch and I don't get this new tablet device. (I also have a Blackberry, a PC laptop and a desktop PC). According to some market theorists, this tablet is slated to be the best in class device for web surfing, e-mail and digital media. But does the market really want a "best in class" device for these activities? Most netbooks on the market today fill that need at a much lower price point. I would suspect that Apple expects that the accelerometer in the tablet would get more developers writing custom games for the device. This would mean that the tablet would also compete with devices like the PSP. What I see Apple doing with this device is to give consumers one device that will replace the netbook, itouch, kindle and gaming devices such as the PSP. Can Apple pull it off?

Apple faces tremendous hurdles with the tablet. Here's why. I would say that teens and younger users (PSP type users) would normally not want to carry around a device with a form factor that resembles a netbook. It must slip into their pockets as the form factor of the PSP and other gaming devices allows for that. The PSP has some additional buttons that give it the extra oomph when playing games which the rumored apple device seems to lack. These extra buttons provide the capability to do real time selection of game features using the thumbs. The apple tablet would only be effective as a gaming device replacement if this functionality was available. Apple will have a significant challenge to be able to mimic this feature on the touch screen.

The kindle segment of the market does not incur a monthly charge. The web access is bundled into the purchase price and the reason being that the data usage due to cellular downloads on such devices are limited. However there is no way to limit data usage if it offers direct web access like a netbook using a cellular modem. This would mean that the tablet users will have a monthly recurring charge of a minimum of $40. A current iPhone user will balk at such an additional cost since he already pays close to a hundred dollars per month with his iPhone. So an iPhone user is not necessarily going to buy this tablet. There is a possibility that the carrier may come up with some creative pricing bundles? That effect of that remains to be seen.

As a replacement for a netbook, serious users of the netbook would want a physical keyboard to be able to type. The netbook formfactor (thickness) allows the inclusion of a lot more standard ports which I doubt that the apple tablet will contain given that it rumored to be as sleek as the iTouch. Compare the side view of a macbook air and notice the minimum thickness to accomodate the usb and the MDP ports.
As an iTouch user, I am quite happy with the multi-media capability. I would never want to carry around an apple tablet to listen to music or browse pictures or webpages while on the move. My Blackberry tour (and iTouch where I can find Wifi) allows me to handily do that. Moreover, I can easily carry both the iTouch and the BB. If I have to carry a computer, then I might as well carry a laptop or a netbook (in a bag).

Apple has been very successful with the iPod, iPhone, macbook and the iMac line. But I fail to see who this tablet device is made for? I strongly believe that there is no large market for this device. Gene Muster even goes on to say that Apple will sell close to 2 Million devices. I think he is wrong. If that is true, then it will only cannibalize their iTouch sales. Apple should focus on lowering their cost on the macbooks and offer a 9" or a 10" macbook instead to compete with the netbooks. I think this tablet will be their undoing. It is a "Dud on Arrival".

Google lobs ChromeOS to Microsoft's Bing?

2009-07-07T19:01:00.002-07:00

In recent days we have heard the announcement by Google to introduce their Chrome OS to take on Microsoft's stranglehold on the OS market. There have been many pundits all over the blogosphere who have sliced and diced this story to no end.

Here's my take on it. I don't for a second believe that google is doing this in response to Microsoft's Bing. Some of the blogosphere pundits are suggesting that since Microsoft seemed to get some traction with search, the best way Google could hit back was to announce Chrome OS.

Google has its own challenges. It has a gorilla size market share of the search and the associated ad market. Sooner or later it position there will be threatened either directly by some new startup or indirectly as it has been hit recently due to the economic downtown. Ad spend has been lowered by many companies as they try to recover from this economic storm. But, google's balance sheet is strong, with cash aplenty.

In a mobile ecosystem it is critical to ensure that speed, simplicity and security are addressed and that is what Chrome OS focuses on according to Sundar Pichai, their vice president of product management. Larry Augustin, a prominent Silicon Valley investor said that “Market changes happen at points of discontinuity” and I couldn't agree more.

What I see Google doing with Chrome OS and Android is that it realizes that "mobile has become the mode of first consumption for all information". To this end with the convergence of the mobile device headed to some middle ground between smartphones and netbooks, Google wants to have a greater play in that space. Can they still play with the Windows OS dominating in this space. Yes they can. Can Google's applications (cloud based) be threatened by Microsoft or others? Absolutely.

But the true question is, Do they see an opportunity to grab a chunk of this converging opportunity that is still nascent so that they can play a greater role in guiding the market? Yes, they do. Therefore, In my view, Google is not entering the OS market just to go head to head with Microsoft. They are entering this market for they see a convergence toward mobility which they can leverage better than anyone else right now. Like I said earlier, "mobile has become the mode of first consumption" and if companies are not headed there, then they are headed to oblivion.

CSCO - Omnipresence

2009-07-02T18:52:00.000-07:00

When Cisco (Nasdaq: CSCO) purchased WebEx Communications (Nasdaq: WEBX) for $3.2 billion, it seemed like an impulse buy at overinflated prices. WebEx whose service which allowed customers to share presentations and host video conferences online was paid a whopping $57 for each share. At the time, it seemed that Cisco was trying to expand its market by reaching out to smaller companies and directly to consumers. After all, the 2003 acquisition of Linksys, a homes and small office network gear maker had already pushed Cisco in that direction.

So recently when Cisco purchased Flip-Maker Pure Digital For $590 Million (CSCO), I was really puzzled. It wasn't just merely pushing into the consumer play again. There had to be some long term strategy here. So instead of guessing as to what their play may be, I got the opportunity to ask John Chambers, the CEO of Cisco the question directly, thanks to twitter. So here is his response.

(Jump to the 2 minute mark to see John Chambers answer my question to him via twitter)

Cisco's recent announcement of working with phone and cable carriers on products and services that let consumers hold videoconferences through their televisions shows Cisco's commitment to leveraging their TelePresence corporate-videoconferencing system for the consumer market. This system they say will debut within the next 12 months. In addition to holding video chats, users will also be able to exchange messages and leave videos for friends.

Cisco is well placed to make this happen and successfully as well. They purchased Scientific Atlanta (a maker of cable set-top boxes for $ 6.9B) back in November of 2005. John Chambers, Cisco's president and CEO, commenting on the acquisition back in 2005 said that, "Video is emerging as a key element in the service provider's quad play, In fact, video may be the most critical in this bundle for consumer loyalty."

While demand may be waning for networking equipment from businesses, the peer to peer consumer component represents that largest growth market for services. The set-top boxes can be easily configured to work with the flip video cameras to enable the video conferencing via TV. Now take that to the next level and integrate conferencing capability along with webex type file sharing functionality and voice and Cisco stands prime to take a major chunk of this peer to peer sharing and collaboration market.

Cisco will certainly face challenges to replace voice and video conferencing services from players such as Skype. Cisco will also face competition from consumer brands such as Apple Inc., which has its own iChat service for video conferencing, and Google Inc., which has video chat via gmail. However, I still think that Cisco can prevail and make inroads into video conferencing for the consumer, if they can make the technology easy and simple to use and also open up API's to allow third party players to develop applications as well.

CSCO is now trading at about 15 times earnings at $18.50. It has traded as high as $25 within the last year. Armed with a very strong balance sheet and a strong current asset position, Cisco has enough cash to make key acquisitions to help them bolster their product mix. The key question is can they put this all together in a way that enables them to achieve the very same margins from the enterprise world as they dabble with the consumer directly.

Given market uncertainty for the rest of 2009 and a weaker recovery for the second half of 2009, my personal opinion on CSCO is a buy at an entry point of $16.

Kodak - Can it reattain the "kodak moment" glory days?

2009-06-30T15:08:00.000-07:00

Recently I was at the 140conf and one of the speakers was Jeffrey Hayzlett (Jeff) who is the Chief Marketing Officer at Kodak. He started his talk by saying that Kodak is a turnaround mode for the last 5 years. The points he made in terms of this transformation are;

60% of the company employees are new in the last four years.
70% of the company's business is now B2B where it was B2C before.
19 products drive a 100% of the revenue.
11 of those products are completely digital (& drive 66% of revenue)
1/2 of these digital products did not exist 2 years ago.

Jeff represents the new face of Kodak and some of his initiatives are bold. He said that with the digital transformation of the company, Kodak realizes that it's important to connect with people (product users) directly. A few years ago, they put in a Chief Blogger and now are about to name a new post, get this, a "Chief Listening Officer". They want to get back to the glory days of the "Kodak Moment".

My earliest memories of Kodak always take me back to my childhood days. Taking pictures with the camera a family friend had gifted me and getting the prints developed on kodak paper at the photo studio that he owned. I have always had a fondness for Kodak. The prints on kodak paper came out better than fuji or whatever other japanese product out there. I want to believe Jeff, that Kodak is really turning the corner, but can they?

Here is Kodak's (Eastman Kodak - EK: listed on NYSE) YTD stock ticker. 2 years ago to the date, the stock closed at approximately $28. In march of this year, EK closed at around $2.17. That represents a 92% drop in the stock over 2 years. Yes, EK has taken a direct hit due to the economy at the time of their much needed transformation. As of the end of last year, they had over $ 2B in Cash & Cash Eq's and their current assets were at $5B. Yet earlier this year in april, EK suspended its dividend after posting a wider-than-expected quarterly loss citing a persistent decline in both consumer and corporate demand. This hit the stock hard losing 11% on the day of the announcement.

Kodak's competition is heating up. Kodak's product mix of digital cameras and mini HD video camcorders have competition from multiple fronts. Most people that I know use the Flip video camcorder (myself included). They are all competetively priced. Cisco recently purchased the maker of Flip video, though I am not sure of how exactly Flip fits into Cisco's long term strategy. Mobile phones these days have good cameras built into them and rival some of the standalone cameras. Other camera manufacturers like Canon and Nikon are way ahead of the game in the digital still camera market. On the print side of the business, HP has a great advantage as the incumbent. Their marketing spend seems to currently beat out EK on any given day. I dont really see EK's products on the shelves of any store I visit. Given all this, can Kodak survive this double whammy of competition and recession?

Kodak may have great technology and as much as I want Kodak to survive this, I think that they are going to take a hard hit in the near term. With the dividend cut (Annual savings of $134 Million), maybe they will have enough cash to ride out the storm. For the long term EK will have to make some serious inroads into the competition's business to survive as a company. At $ 3 (closing price 6/30/09) it looks like a good buy. There is the possibility of a significant downside if there are more negative earnings surprises.

My personal take on EK is "SELL". This is purely based on current market conditions, consumer spending trends and the macro indicators. I would pick up the stock at $ 1.50 or lower.