Entrepreneur Watch

Google "paying off" media companies?

I'm not sure that I really want to help perpetuate the rumor that as part of its YouTube acquisition Google is paying off media companies. Mark Cuban published the anonymous source's claims on his blog.

If this "experienced veteran in the digital media business" wants to make such bold claims, he should NOT do it anonymously. It's a cheap and dirty trick, expecially since he admits that some of his claims are "speculation based on my experience working in the industry, negotiating settlements and battling in court." He doesn't say WHICH allegations are pure speculation.

No doubt some are true. After the acquisition was announced, it came out that several media companies had made an investment in YouTube, so they get some of the stock. Mr. Anonymous claims Google is holding out half a billion in stock to fight copyright suits and offer settlements. Sounds reasonable to me.

Then Mr. A says that Google gave the media companies equity in lieu of royalties so that big media would not  have to share royalties with the artists. That could be the media companies' choice, but it does not mean google had this intent. Why not give them equity to keep them from suing?

After this, Mr. A makes some really bold claims. google got them to agree to "look the other way" and ignore copyright violations for six months. I'd like to see the language of that agreement. Then Google convinced them to sue YouTube competitors. Maybe the media companies did decide to sue others but leave YouTube alone, which makes sense because they have a deal with YouTube and not the others. But to say this was part of Google's agreement is an outrageous claim from an anonymous source. My speculation is that this is part of Mr. A's speculation. He implies this was Google's "request" without citing any evidence this is so. It's based only on the fact that Universal sued Bolt and Grouper.

Without facts and without sources, this is a sleazy accusation. I'm rather disappointed in Cuban for letting this source include "speculation" in his claims.

I'm waiting for Google's response.

Google vs. France

Google is increasingly being treated like Microsoft in the old days. The decision by French publishers to sue Google for the Google Book Search project, joining U.S. publishers, is reminiscent of when U.S., then European, governments sued Microsoft for anti-trust practices. Everybody seems to think Google is evil.

These suits are almost humorous. when Google first announced its Library project, digitizing books in several major U.S. libraries, French officials complained that google was focused only on English-language books, ignoring all the wonderful texts in French. Now the publishers are complaining that Google is paying attention to them.

I don't want to perpetuate the idea of French arrogance, but it's tough when Le Syndicat National de l'édition (SNE) complains about Google's efforts with "large Anglo-Saxon libraries" shows "contempt for fundamental intellectual property rights." I think the suit shows contempt for the way the Internet is changing the world.

SNE says it is trying to "defend the collective interests of the profession." I'm in the profession, and my current book project is Google. The publishers are not defending MY interests.

Publishers and Google seem incapable of getting across the point that Google is only publishing full texts of out-of-print and public domain books. For current books under copyright, Google is signing agreements with publishers to provide excerpts only. It will help sell books, including books that publishers have taken out of print.

But there's an interesting parallel. When the Ptolemy clan of Egypt create the Great Library of Alexandria, they tried to get the oldest versions, preferably the original, when possible. They collected everything from cook books to the great masters. Ptolemy III decided he wanted the scrolls of Aeschylus, Sophocles and Euripedes in an archive in Anthens , placed there so copying errors and editors would not alter the works. So he asked the Athenians if he could borrow the books to make copies for the Library. He paid an enormous deposit, the equivalent of  millions of dollars today. But Ptolemy III sent back the copies and kept the originals, forfeiting his deposit. It was the biggest library fine ever paid.

That record will probably be broken by the time modern publishers get through with Google.

Collecting books for the world to see is a ruthless business.

Google and VoIP

The site VoIP Lowdown cites 33 reasons why VoIP is destroying traditional telecoms. It's a good overview of the ways in which telcos have neglected the service in a tenacious and futile attempt to keep their old business models. They have left an opening for entrepreneurs.

Many of the 33 reasons are different VoIP companies with an overview of their strengths. Also a good overview.

Of course, the telcos are fighting back by trying to get permission to charge companies (read: competitors) to use their lines, thus destroying the economics of VoIP. Will they succeed? Probably.

Richard Bennett argues that the network neutrality debate is stupid, that the telcos should be allowed to charge for services. He argues that Lawrence Lessig, one of the leaders of "the Pirates’ Rights lobby" is an idiot because he's just advocating illegal file sharing. He ignores Lessig's arguments that copyright laws, which have become exceedingly strict over the last few decades, stifle innovation, and that Lessig seems to just feel network neutrality is the way to go because it is "virtuous," ignoring business neutrality.

Since the telcos are traditionally "bad guys" and net neutrality has been "good," Bennett claims that the arguments are based on the past, not the future. That's a dumb argument.

Bennett also quotes a NYT piece by former FCC William Kennard, who says Net neutrality is merely a fight between the "extremely wealthy" like Google and Amazon and the "merely rich" like the telcos. Kennard says the real debate should be over how to extend the Universal Service Fund to ensure rural regions get high speed Internet access. True. Kennard notes that "Since 2000, the United States has slipped from second to 19th in the world in broadband penetration, with Slovenia threatening to push us into 20th."

But the thing about network neutrality is that opponents argue that ending it would give the telcos the money to expand and improve broadband service. These are the same folks who prevented ATM from happening years ago. They don't WANT universal hi-bandwidth access. It destroys their existing business model.

Government regulations are the only way to improve the dismal state of broadband access in the U.S. That's how other countries have done it. The free market doesn't work because it is not really free. Telcos and cable cos enjoy too much of a monopoly.

Aside from new regulations, we need the VoIP companies and folks like Google to help make it happen, with video as well as voice. Google is trying to push free wi-fi in San Franciso and Mountain View in order to get other cities to offer the same thing. We also note that the more people online, the more Google stands to make money. You have to be online to use Google services.

I think Google is going to continue to push for universal hi-bandwidth, VoIP and free video. That will break the telco and cable monopolies, although they will cause a lot of damage as they go down fighting.

I also think google will expand its VoIP services by buying companies dedicated to the service. The  more companies it buys, the more they can be integrated together. Same with video, hence the YouTube acquisition. This will, however, create more lawsuits from companies with markets to protect.

But I think Google is poised to become the leader of next-generation telephony and TV. It will probably use its own fiber network plus wi-fi to help bypass the telcos and cable companies.

Isn't that kind of virtue a good thing?

The start of Google video ads?

A posting out of the UK, http://post.ikstore.co.uk/story1.html (I don't know wht this is) says that Google appears ready to launch video ads. It just shows a black screen with the words
"A sneak preview" since the ads have not actually launched yet. It will be interesting to see how Google handles video ads. I'm not sure it's necessary. Why not the usual text boxes accompanying the videos? Except, of course as an experiment to see if video ads work.

YouTube to help Google figure out TV advertising??

Fortune mag's David Kirkpatrick, a really smart and well-informed guy, wrote an article that points out that Google's purchase of YouTube is not just an indication of the importance of user-generated content, but may be a way to figure out what kinds of ads work in TV.

This is a good analysis. Kirkpatrick notes that Google "wants to get into the business of placing ads in print, radio and television," and that YouTube can try out different video ads.

Google advertisers often try out a variety of different ads to see what works, and refine them to increase user response. Now advertisers should be able to try out different video ads to see what catches people's attention.

That may help Google and video advertisers decide what kinds of ads would work for TV, feedback that TV advertisers can't get now. "Buying YouTube will give Google a platform on which advertisers can experiment with TV ads in different forms," says Kirkpatrick.

Still, I wonder if this will also help figure out what kinds of TV programs those ads should accompany. Relevancy is important. Kirkpatrick suggests that finding ads that go well with certain types of YouTube videos may help this.

And, of course, as the Internet takes over all media transmissions, this will give Google a head start. Maybe this is a really smart acquisition after all.

And perhaps it will help keep media companies from suing Google. Bambi Francisco at Marketwatch thinks that Google and YouTube are signing so many deals with big media companies that the media giants will be more reluctant to sue.

Maybe, but all the major book publishers are signing deals with Google Print, but are still suing the company over books not covered in the deals.

Francisco also thinks that the Digital Millennium Copyright Act (DMCA) protects YouTube even from mashups that people might make with copyrighted material.

I'm not so sure about that. You have to keep in mind that not only the studios file suit. Studios may realize that mashups and unauthorized postings help publicize video programs, but directors do NOT like losing creative control. George Lucas sued over the Phantom Edit that cut Jar-Jar Binks out of Star Wars. These guys have big egos, and they think people should only see programs the way the director created them.

I talked with Lawrence Lessig at Stanford recently, who was pessimistic about mashups being accepted. Copyright laws keep getting stronger, and courts are favoring the copyright owners in their lawsuits. He doesn't see any change in this trend (although he thinks there should be.)

Still, maybe these deals will teach media companies how to accept the changes the Internet is forcing on them.

Google earnings estimates: What are these analysts smoking?

Google reports its earnings tomorrow, and Wall Street analysts seem clueless. Google refuses to give them advance guidance, on the theory that everyone should have the same information, including big investment bank clients and poor individuals like me. So analysts guess. And they guess wrong.

Here's my guess:
Google will earn $2.54 per share
Revenues will be $2.7 billion

Here are the analysts' guesses:
Analysts polled by Thomson Financial expect earnings of $2.42 per share on $1.81 billion in revenue (from AP via Business Week)

I don't know where those analysts get their ridiculous revenue estimates. Google's revenues each quarter have been higher than the previous quarter. Last quarter Google's revenues were $2.46 billion, so analysts seem to be assuming that revenues will drop  by $650 million this quarter. 

These numbers would also put earnings way out of whack relative to revenues. Google's earnings tend to be between 24% and 29% of revenues. These numbers put Google's earnings at 41% of revenues.

Maybe the revenue number is a type-o, although I've seen the estimate published in two places, with Henry Blodgett estimating $1.83 billion. Maybe all the analysts are repeating the mistake because they all copy each other.

BW does add that     Jeffries analyst Youssef Squali, in an Oct. 12 note to investors, says he expects Google's revenues this quarter to be $2.65 billion, in line with my estimate. He must come up with his own estimates.

I get my numbers this way:

Sequentially over the last year (from Sept 2005 to June 2006,) quarterly revenues were up 14%, 22%, 17% and 9% over the previous quarter. So, being conservative, I picked the lowest increase, assuming revenues will be up another 9% this quarter. Revenues $2.7 billion. I'm probably guessing too low.

Over the same periond, earnings were up 11%, down 9%, up 59%, and up 20%. The two middle numbers were skewed because in the Dec 2005 quarter Google gave $90 million to the Google Foundation and had an unusually high tax bill. So I'll assume that earnings increase will match the revenue increase, 9%. So earnings of $2.54 per share. But I wouldn't be surprised at $3.

There is no indication Google will have a bad quarter. eMarketer.com is saying that Google continues to gain in share of online advertising against its competitors.

Google will beat the analysts' estimates and the stock will go up on the news.

We'll see how it all comes out tomorrow afternoon.

DISCLAIMER: I am NOT a stock analyst or advisor. Do NOT take my predictions seriously.

Why I love Google News

The political site Daily Kos, has written a rant about Google News, criticizing it for including blogs in its news feeds. Kos has asked that its blog be removed from Google News. I couldn't find the posting on the site, so I linked to a story about it on WebPro News.

There is something to be said for the concept. Standard news sites maintain higher standards and strict ethical guidelines that blogs may not. there may be a lot of junk in some of the blogs it links to.

But I like including the blogs. There are sometimes leaks that go through the blogs. True, if the leaks turn out to be real, then official news sites quickly pick up on them, and you still get the interesting stuff. News sites act as a filter. But some people don't necessarily want their news filtered.

Remember that Google News picks up on the most popular postings. That means the Internet public is choosing what's good. Google believes strongly in the Wisdom of Crowds. Get enough people voting, and the best tends to come out on top. It's up to us to decide what to believe. Saying that blogs should not be included in order to "get rid of the no-name sites, the conspiracy sites, and the rest of that crap," means you have no faith in the ability of the public to think for themselves. You want to "protect" them from finding bad information.

By linking to blogs, Google News helps legitimate reporters find out what else is being said. Believe me, reporters use it all the time. (eWeek, CNET News and Technology Evangelist all picked up on the Kos story. Which of those are "legitimate" news sources? Tech Evangelist has the best coverage of the issue.)

Blogs are changing the news business. By offering competition to established news sites they make
those sites perform better. Censorship is never good, and Google tries not to censor (in China, it has no choice.)

Who's to say what's crap and what is not? A disturbing number of Americans get all their news from Fox News, which is anything but a high quality, unbiased news source. But that doesn't give Google the right to block Fox News from its service.

Google News helps spread information. In any society, that is good, even if some of the info and opinions are crap. It's why the U.S. gives everyone the freedom of speech. I'm sure King George didn't like the propaganda pamphlets put out by some of our Founding Fathers, either.

Yes, some blogs cheat and get in undeservedly. It's the price we pay for greater freedom of information. But the blogs in google News don't muck it up to the extent that I find it hard to get the "real" news. I get more and better information, from around the world, than I do through my local newspaper.

BTW, I found the stories about Koz through Google News this morning.

More corporations need to take some ethics lessons from Google

Has anyone noticed the glaring exception in all the stock option back-dating scandals? Google is absent from the discussions. No company has been more fair about stock options than google.

If anyone has a "reason" to back-date options, it wouold be Google. During the years when its stock was rocking the market like an earthquake in Hawaii, new employees never got the option prices they expected. Between the time when their options were promised and when they were awarded, they had to be approved by the board. By then the price had gone up. They thought they were getting a certain price, and when they came through they found the price was higher. I spoke to one source close to the company who said that it Google had to essentially start "forward-dating" the options. It would have been easy to give them the price at the time they were hired.

But the company knew it was wrong.

So why did so many other Silicon Valley executives not realize it? Apple Computer's own "internal" investigation to its back-dating is a farce. It revealed that Steve Jobs knew about them, but he was exonerated because he didn't know there was anything wrong with it. Since when is ignorance of the law an excuse for breaking it?

No one in the press seemed to take Jobs to task for this. They love him too much. They woud have pounced on Google execs for the same thing. I expect an independent investigation will come down harder on him. I doubt if he will be forced to resign like so many other executives recently.

When Google's stock receded for a while, the company also failed to back-date options. Employees had to have faith that their efforts would be eventually rewarded. Instead, stock pundits keep criticizing Google for insider sales of stock. What do you expect them to do? There is no indication that anyone at Google is worried about the stock's collapse. Back-dating options is a huge indication that the companies are worried their stocks won't continue to rise. They don't even have the guts to reserve executive rewards for actual performance.

It's also telling that in an age of gross overpayment of executives, Google's top three, Larry, Sergey and Eric, have cut their salaries to $1 per year, and are taking NO further stock options. They have been compensated enough. How many billions of dollars do you have to be paid for your work? There is no executive in the world who is worth thousands of dollars a day in salary and stock awards.

Google management considers further milking the company for added riches would be evil. It's too bad that other executives don't feel the same way.

Google rumors

I decided to do a Google search on Google rumors to see what peoducts might be coming up. It's funny that such a secretive company's main product is so good at helping to disseminate the rumors out there.

First up is a site called Google Rumors, which offers these upcoming products (posted July 28):

    Google Events - Might actually launch inside of Google Calendar, but event planning seems fairly straightforward
    Google Real Estate Search - Real estate is probably one of the biggest verticals that Google doesn’t have a play in (yet).
    Mobile Marketplace - G’s been making more and more mobile plays as of late, this would seemingly bring some monetization to it."

From other sites:

Goobuntu -- The Register in the UK is the first site Google pulls up talking about Google working on its own version of Linux, based on Ubuntu. The OS for a Google PC? Posted January 2006. What about Google's work with the folks at Firefox?

Google to buy Sun Microsystems? -- Blogcritics.org likes perpetuating the rumor that Google will go beyond its relationship with Sun and actually buy the company. Sounds like a stretch to me.

Google to buy Monster.com? -- CNN/Money.com reported in January that some people like the idea of Google buying the job posting site.

Let me know if you have your own favorite rumors.

More leaks on Google Platypus

Philipp Lenssen over at Google Blogoscoped has managed to find more screen shots about Platypus, or G/Drive from google. This looks like the client side of the program, the way you get access to Google's free online storage site.

So far, this seems to be just running internally at Google, a service for Google employees. Don't know if they want people to use it internally to work out the bugs, or if they're waiting to be able to offer everyone enough storage capacity before releasing to the general public. The folks at Blogoscoped are disappointed that G/Drive only offers 500 MB so far.

Note that Google does not yet want to use it for storing sensitive info--probably security is one of the things they have to nail down first. One of the caveats google puts on it for employees:

"We encourage you to keep all of your files with us, including your Office documents, photos, and personal notes, except for sensitive data (including electronic protected health information) and other files inconsistent with the internal user agreement."

Or maybe this is not intended for sensitive data, because the idea is that this is not only a backup for you, but something you can share with everyone. There's a service called "Connect Share," whereby you can give others permission to access your G/Drive.

The interesting thing is that everything appears to be stored both on your computer's own hard drive as well as the remote G/Drive. When you have an account set up, if you change the data in either your computer or on the G/Drive, everything is automatically synched up so the data remains the same on both.

Very cool. Most of the Blogoscoped folks can't wait to get access to this service.