Entrepreneur Watch

Fun with Google phone rumors

My name is Richard and I'm a Google rumor junkie. I admit it. I can't get enough of them. I've tried taking up drinking as a diversion, but it just doesn't overcome that craving for the heady elixir of Google rumor mongering. (Just how does one monger, anyway?)

The Google phone rumors are as tasty as they come. The only thing we know for sure is that it's helping drive Google's stock into the stratosphere. Is this a revolution? Is it just over-enthusiastic hype for what will turn out to be a series of search and email applications?

Here's a sampling. You decide. Then tell me. Addicted minds want to know.

The latest photographic rumors include this photo of the alleged Google phone, courtesy of HT Lounge. The site says the device is made by HTC, and that "HTC is already planning to ship 50,000 Google Phone test units out to developers by the end of the year."

The Wall Street Journal, of course, started the rumors of a new, open cell phone platform. What's a platform? The Journal says it's cell phone software that's "'open' right down to the operating system."

Then it tantalized us with a free sample rumor that Google is "in advanced talks with two top U.S. cellphone operators, Verizon Wireless and Sprint Nextel Corp., about selling handsets tailored to its new mobile-phone operating system, people familiar with the matter said."

Like most dealers, the Journal refuses to give us any more unless we pay up. Subscription? Didn't Dr. Murdoch say it was going to be free?

So we turn to other sources. Bloomberg steps up with its own sources who say "Google is in talks with Verizon and Sprint Nextel about developing mobile-phone software and services."

Software and services? What does that mean? Google Maps and Search? Bloomberg says that "Verizon Wireless spokesman Jim Gerace confirmed the companies have talked." But he won't say what they talked about. Give me more!

OK, it still looks like an OS. "An operating system would give Google another way to profit from sales of mobile phones, which outsold personal computers by more than 4-to-1 last year, according to Gartner," says Bloomberg.

But wait, there's less! PC World says that "Pundits are predicting possibilities ... from a specific phone running a new Google operating system to a suite of applications that work on a wide range of phones."

Damn. No OS. In fact, PCW quotes Ken Dulaney at Gartner saying "Building an OS is the dumbest thing [Google] could do." It doesn't have the experience.

Without an open OS, no universal apps from third parties running on all phones.

Reuters also disappoints with sources that say these talks are Google apps, not an OS. "Verizon Wireless is in active talks about putting Google applications on phones it offers, people familiar with the matter told Reuters."

So are we talking about a Google phone running on just a few cellular networks, with Verizon just taking some Google apps and trying to keep control over its handsets? Could be. 

And CNN/Money speculates that the speculation of a Verizon deal is nothing more than speculation. ”A person close to Verizon says no deal with Google is imminent. Verizon isn't commenting.”

If so, Verizon might find that missing out on the iPhone and the Google phone starts to hurt business, and eventually caves in. God willing.

Red Herring takes that Trojan Horse view, quoting an anonymous analyst. “The search king, the analyst said, has a short-term goal to make concessions to the carriers and gets its products into the market, and it has a long-term goal to pursue spectrum and invest in an open network.” That’s the 700 MHz spectrum that Google is supposed to bid on. 

On ZDNet, Eric Everson, founder of MyMobiSafe.com puts a real buzz kill on the whole idea of an open cell phone platform by noting: “While many of the emerging third-party developments will be pure and safe in nature, the poor state of security throughout the mobile industry will literally put millions at risk.” 

I’ve got to admit, he’s right. What happens when we start buying things through our cell phones? Maybe Google has some new built-in security system. I haven’t found any rumors to that effect. 

Well, let’s keep our hopes up. 

Here’s my speculation: 

However it happens, maybe a new (Linux-based?) OS will emerge and allow apps developers to go cross-platform. 

Google-branded hardware built by third parties is not likely to match the slick design of the iPhone, but it may give us cheaper services and more apps. We’ll all be happy until hackers start breaking in. I don’t know what Google will do about security.

People will be disappointed over what Verizon announces. It’s going to resist this trend as much as possible. It will start off by adopting some of the Google apps, and maybe jump further in later. 

Google will get some smaller carriers to buy in to its platform, which means an OS. Independent apps will catch on. Google will start wrenching cell carriers’ control from them, but it may take years. They’ll fight it by whining to the FCC first. 

Remember, you heard it here first. Unless I’m wrong. Then you didn’t hear a thing.

Today's top story: the Google Phone vs. the iPhone

Don't you hate it when long-anticipated products fail to live up to their advance hype?

When I was a kid, I desperately wanted a chemistry set. I had visions of making incredible new discoveries that would set the field of chemistry buzzing like a bee banging its head against a window -- although I had no idea what they would be. When it arrived, the chemicals included were so mundane I was forced to fantasize about using the ones marked "poison" against any burglar who might enter our home and threaten my family while asking me to get him a cup of tea.

The iPhone turned out to be a great design, but was crippled when Jobs decided to line his own pockets while punishing his customers with an exclusive relationship with AT&T.

Google will have the opposite problem. The Wall Street Journal reports today that the Google phone could be announced within two weeks. The difficulties it will face, says the Journal:  Google "will have to overcome resistance from wireless carriers and deal with potentially thorny security and privacy issues."

Forget the security and privacy issues. Most people just don't worry about those. The Journal is just trying to make sure it mentions all possible difficulties. After all, we don't want to overestimate Google, do we?

The Journal says that Google wants "to loosen the grip wireless carriers have over the software and services consumers can access on cellphones."

Now, that's where it will run into problems. This arrogant company wants to force cell carriers to let us decide what features we want. Mother Bell knows best.

Aside from including the obvious features -- its search engine, Google Maps, YouTube and Gmail email -- the Journal says Google wants to take the "radical" step of making "the phones' software 'open' right down to the operating system ... That means independent software developers would get access to the tools they need to build additional phone features."

Gasp! allowing entrepreneurs to innovate on a cell phone? Not on my overweight monopolistic behemoth phone company! Phone companies bring a whole old meaning to the word "mashup." It's what they'd like to do to Sergey Brin's head.

Steve Jobs had to be kicked in the teeth and dragged to the altar by rebelling customers before allowing outside developers to marry new features to the iPhone.

I say: Bust those monopolies! End the forced two-year contracts just to replace a phone whose planned obsolescence has arrived and whose keyboard no longer works! Let us choose the features we want instead of paying for a host of unwanted features just to get the two we really need! Hang the cellular executives by their thumbs!

But I digress.

Google actually wants its phone to be available to all carriers. But it will have trouble dragging them along. What does it say about the state of  American free markets when, as the Journal reports,  "In the U.S., [Google] has the most traction with Deutsche Telekom AG's T-Mobile USA."

Good old mom-and-apple-pie Deutsche Telekom.

ComputerWorld shows optimism with the headline: Has a wireless upheaval begun? According to industry analysts, says CW, "Google's entry could signal a more open system where a customer buys the Google phone and then chooses a carrier."

What a concept! In my socialist view, carriers should be forced to head in that direction.

CW quotes an IDC analyst who says "It's possible some carriers will work with Google.  AT&T seems to be more open already with its iPhone support and other things, while T-Mobile and Sprint Nextel may be more open than Verizon Wireless."

I refused to get an iPhone because it doesn't work with my carrier, Verizon, which gives me the best signal. That was Steve Jobs's choice.

Now the Google phone probably won't work with Verizon either. That's Verizon's choice. I may have to switch carriers just to make the point that they can't manipulate me that way, just as I avoid the iPhone to let Jobs know he can't manipulate me that way, either.

This is one revolution I support. If only the reality can live up to the hype.

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Crazy Google earnings estimates 3Q 2007

Google's announces earnings today. It will net $1.29 billion ($4.13 per share) on a GAAP basis,  on $4.30 billion gross revenues for 3Q 2007. Assume TAC (traffic acquisition costs) of 30% as usual, and that's net revenues of $3.01 billion.

Those are my guesses. Wild, I admit. Google provides the most fun for playing the earnings guessing game because, unlike virtually every other company, it follows the letter and intent of disclosure laws, which say that you cannot give inside information to any limited group of people. So it gives no guidance to investment bank analysts.

Every other public company has private meetings with analysts to keep them from being surprised. The stock market hates surprises. The companies get away with this because they also put the data given to analysts on their web sites. But the analysts are about the only ones that study the data.

The average estimate from those analysts is EPS of $3.78, with a range of $3.55 to $4.04. Average estimate of net revenues is $2.94 billion, with a range of $2.80 billion to $3.70 billion.

Silicon Alley Insider likes to get anyone to make their guesses for a chance at the honor of being right and beating the analysts. Four estimates on the site range from $3.93 EPS to $4.20, with revenue estimates ranging from $2.984 billion to $3.3 billion. So the public is a little more optimistic than the analysts.

24/7WallStreet.com says "We have recently seen many analysts up their targets on the stock, so this 'earnings estimate' is now going to be a mere lower-end benchmark where many are looking for a blowout number."

That site also warns that hiring might depress profits a little, as it did last quarter. "The company has already tried to warn traders about expense growth exceeding revenue growth, so if any analysts come out with "we are disappointed with expenses growing fater than revenues" then they aren't reading the filings and aren't listening to what the company says. "

SeekingAlpha.com notes that in the last week, a lot of traders are hedging bets by selling calls above the current share price. It says investors are probably hedging "against a downside surprise ... due to general skittishness over the share's current all-time-highs."

Bloomberg gives a nice summary of warnings that the stock could drop today.

David Katz, who helps manage $1.7 billion as chief investment officer of Matrix Asset Advisors in New York tells Bloomberg, "There's very little room for disappointment." The stock is "very richly valued,'' Katz said. "We would not own it."

Investors, the ultimate in crowd wisdom, had bid the stock up $3.63 to $636.80 by 2:49 PM ET today.

Bloomberg says it may be overvalued  because "at 49 times this year's estimated earnings, Google shares are more than twice as expensive as those of Microsoft Corp., Intel Corp. and Hewlett-Packard Co."

Big deal. Google is growing faster than those companies and gives more consistent results.

Here's how I figure it: Last quarter Google  reported revenues of $3.87 billion for the quarter ended June   30, 2007,  an increase of 58% over year ago and 6% higher than the first quarter of 2007.

In the 3rd quarter of 2006, Google's revenues were up 70% from a year ago. So I'm going to randomly guess that Google revenues will be up 60% over last year this quarter. That means gross revenues of $4.30 billion this quarter.

In 2Q 2007, Google's GAAP net margin was 24%, lower than usual. In Q3 2006, GAAP net margin was 35%. So I'm going to guess a 30% net margin this quarter, or GAAP earnings of $1.29 billion or $4.13 per share.

Google's press release on the 2Q earnings was released July 19. Over the next several days after that announcement, the stock dropped from about $550 to $508. That's a GAAP P/E of 173 on the quarter's earnings after the decline. That means the stock should be worth over $700.

Guess it'll go up.

News of the day: Agito Networks' cell/wi-fi hybrid

Computer World reports on Agito Networks' enterprise router "designed to pull cellular phone traffic onto the corporate Wi-Fi network when employees are on-premise."

Notes that start-up DiVitas Networks and carriers Sprint Nextel Corp. and AT&T are also working on such technology.

The router decides whether to switch you from cell to Wi-Fi "based on a number of factors, such as cost, reliability of the network, the network load, delay characteristics and the quality of the session (bit error rates or packet loss)."

Hey, cost is enough for me.

Another bash on the stubborn heads of those overpriced cell carriers? When do we get routers like that for home use? Wi-Fi calls are to cell calls as OJ Simpson's Rolex is to a real Rolex. It probably still tells time.

CW says the router will be out by the end of the year. Cost: $10,000 for 25 users, $25,000 for 100 users.

Network Computing is a little more skeptical of Agito's edge. "Agito's executive team has as a strong background Wi-Fi but little on the voice side, and even less on the wireless carrier." Says DiVitas Networks is also emphasizing the role of the enterprise WLAN.

Telecommunications Online says "There are already dual-mode Wi-Fi-mobile phones on the market and Agito is working with Nokia Siemens Networks and Microsoft in how its product, the RoamAnywhere Mobile Router, will work with those devices."

InfoWorld reported on Divitas in May, which seamlessly hands off the call from the cell to the  "Mobile Convergence Appliance" with less trouble than my cell phone has maintaining a signal when I walk from my bedroom to my living room. But it requires downloading special software to the cell phone.

Network Computing says Agito doesn't require the user "to endure a long software download or tether the phone to perform a desktop install, the end-user only needs to enter a URL to download a small piece of client code." Also notes that "WLAN vendor Aruba Networks has made hints about this in their own FMC solution, still in trials, but Agito's claims are much more extensive."

Joanine Wexler at Network World gives a bit of an overview will all the jargon I don't understand, and also points us to a ,Network World white paper on the topic, but it requires so much registration info I didn't even get to the price.

My summary: Viva la Wi-Fi cell phone!

Total Music = Free Music = Zune? Brilliant!

Reports of the death of the iPod may be greatly exaggerated, but an interesting game's afoot.

Sources seem to be telling select publications that Universal Music approached Microsoft about offering free music downloads on the Zune player.

Free for Zune owners, that is. Supposedly, Universal wants Microsoft to subsidize the cost of the new subscription service, called Total Music.

An article in the Telegraph of London says Universal "is in talks with Sony BMG and Warner Music" about offering their tunes through Total Music as well. The goal is to wrest control of the music download biz from Apple.

Business Week reports that Universal CEO Doug Morris is behind the deal and "has already enlisted Sony BMG Music Entertainment as a potential partner." If all three join forces, 75% of the music sold in the U.S. would be part of the service. This is not only about beating the iPod, but about trying to stem piracy, says BW.

BW also says the cost to Microsoft would be about $5 per month per subscriber. Ex-MCA Records Chairman Irving Azoff, now head of Azoff Music Management Group, claims "The artists are behind him."

It's a fascinating idea, if true. Microsoft has billions in cash laying around, and would really like to smash the iPod. BW says the assumption is that people would upgrade every 18 months, adding $90 to the cost of the Zune player.

I don't know if the math works out. Duncan Riley at TechCrunch questions whether Microsoft can afford to subsidize the price. If it passes it on to the consumer, will they buy a $239 4GB Zune instead of a $149 4GB iPod?

I also wonder: Will Microsoft (or the labels)  accurately keep track of who is actually using the service each month? What if you drop your Zune in the toilet and don't replace it? Does Microsoft go on paying forever? 

Macwolrd notes that it's "unclear how the new service would approach the issue of DRM (digital rights management)." Seems to me if you get the music free, there is no need for DRM.

Another question: How do the labels figure out how much to pay the individual artists? Some people may download 10 songs a month, others 500. How much of that $5 goes to each artist whose song was downloaded?

Still, there is real potential here. 99 cents per song is too much to pay. It's a matter of finding the price that's low enough to make privacy not worth it. I'll bet that, whatever that price is, the artists and labels will make more money because of the volume.

Google phone perspective

Saul Hansell at the NYTimes has an interesting article on the Google phone: "There is a lot we don’t know about Google’s cellphone effort, but this much seems clear from the many reports: Google isn’t making a phone, it is developing an open-source cellphone operating system," he writes.

Google is challenging the cellular industry. The great opportunities in technology now are to use the disruptive force of the internet and open source software to provide low-cost or free alternatives to monopolistic industries that, simply put, charge too much -- simply because they always have.

The mobile phone industry and telcos in general are prime offenders. So there is ample opportunity for Google, a trusted brand name, to make enormous inroads.

The difficulty will be getting the cellular carriers to agree. Steve Jobs made a huge mistake in limiting the iPhone to AT&T's service, when Verizon has the best service. To succeed, the phone should be able to work on ALL carriers' networks. But that means the telcos will make less money charging for new phones, locking us in with two-year contracts, charging to activate features (such as GPS and Web browsing) that is already built into the phones.

Hansell believes that the Google phone may have more success in Europe, where unlocked phones are more accepted.

Low-cost, Open Source phones with free features and smaller monthly fees will happen here. It cannot be stopped. But the telcos own the cell towers and they will fight until they are dead. And once again, other nations will be far ahead of the U.S. in implementing new technologies and better technology infrastructures.

Doesn't this bother anybody but me?

Google phone: It's baaack....

Rumors of the birth of a Google phone have been greatly exaggerated ... to date. But the rumor mill is grinding away again.

Business Week goes into details about the advertising possibilities, noting that it could be a free service, a nightmare for current cell carriers. That's the killer app to me. If so, bye bye iPod, and many cell carriers.

HT Lounge says it will run Linux and will be manufactured by HTC, may be 3G enabled with chips by Qualcomm.

A ZDNet blog has a picture, which appears to be made by Samsung. The pic first showed up on Mobileburn, but no one knows yet if it's real. The image on mobileburn was removed due to high-bandwidth usage.

I hope it shows up soon. I want to check it out, ads and all.

Update: Forbes has a nice article about HTC, the Taiwanese company rumored to be making the handset for the Google phone. I has built smart phones and handheld devices for such companies as AT&T, Microsoft, Dell and Hewlett-Packard, running Windows and Palm software. But the article concludes that HTC could just be one of several manufacturers.

Better search, or more bells & whistles?

So Yahoo adds more features to its search engine. But do they really help give better results?

Better results are needed. The Mercury News notes that Harris Interactive claims only 15 percent of users find what they are looking for on their first search. It also gives a brief overview of what different search engines have added recently: integrating audio, videos and photos into search results.

Fine, but does this stuff really give better search results? What we need is a better understanding of what we're searching for, and I may be looking for lyrics to a song, not an audio snippet.

Yahoo has added a search assist feature that suggests what we're searching for if we type too slowly. Some people just type faster than others, and if I make a mistake in my search term, it's usually because I'm typing too fast and make a type-o.

Plus, Yahoo thinks its a good thing to point people to more of its own content. That's exactly the wrong approach. We want the best results, not those from one particular provider.

When I type in a stock symbol with Google, say GOOG, I automatically get a choice of finance sites that  give info about that stock, including Google, Yahoo, MSN Money, CNN money, Market Watch and Reuters. If I want pure stock data I go to Google Finance because I like its charts. If I want to find financial analysts, I go to Yahoo Finance. Different sites have different advantages.

When I type GOOG into Yahoo, I get Yahoo sites at the top.

Yahoo still doesn't get it.   

Relevant Mind: An experiment in social shopping

Last week I met with a startup that's unveiling a "social shopping" concept at DEMO today. Relevant Mind hopes to make it easier for people to get advice about products they want to buy.

It's an interesting concept. I believe that there is a lot of untapped potential in social networks and discussion boards, information that is not going to be tapped easily by search engines.

Relevant mind is offering an alternative to the product reviews you can already find all over the internet. The problem with product reviews is that there's a lot of "review spam" out there. The phrase was coined by Nitin Jindal and Bing Liu at the Department of Computer Science, University of Illinois at Chicago. Some reviews are written by the people trying to sell the product, or by competitors panning a product, although the researchers were not able to come up with a good method for determining which or how many reviews were false.

But let's face it, the book reviews at Amazon.com, for example, usually start with reviews written by friends of the authors. They're good-hearted but misleading attempts to help friends sell their books. CEO Aaron Mann figures that 1/3 of the reviews on Amazon qualify as spam reviews.

Even sites that let you rate a product, such as Netflix, have trouble getting real results. Every product tends to skew toward average, a rating of 3.7. Sites like Netflix have to tweak their rating algorithms with such techniques as giving more weight to negative reviews.

If you're a real aficionado of a product you might join a discussion or hobbyist group. But how to find such groups when you're first starting out?

Relevant Mind tries to help that problem. You can search for particular products, brands, or just click on a price range. When you find a product you might be interested in, click on it and a tab of "Conversations" will appear. Those conversations are brief excerpts from discussions of the particular product on the internet. Click on an excerpt that looks interesting, and you are sent to the site where the discussion appears.

This takes a lot of work, both in coming up with a comprehensive list of products and in finding the relevant discussions. So Relevant Mind is starting with two categories, road bikes and golf equipment, since those are strong interests of two of the founders.

Other categories -- sports, cooking and musical instruments are on the to-do list -- will be added by hobbyists who want to make money providing information about their favorite pastime. It takes expertise to do this right. Relevant Mind will be seeking out and hiring such people through blogs and user groups. "I'm most looking forward to hiring the Vertical Gurus," says CEO Mann. "They'll be the funnest people at our company."

The company will avoid product categories where there are already good independent reviewers, such as consumer electronics. You can go to CNET or any number of newspapers for that.

The site accepts no ads, but tries to make money by linking to retailers who have affiliate programs paying fees for sending people their way. Click on the "Buy now" tab and you'll get a link to sites selling both new and used products.

You'll also be able to create a personalized page on the site or in your browser to help the company learn your likes and dislikes and give you more relevant results.

Here's the difficulty. Some retailers may have great prices but no affiliate program. CEO Mann says he will send people to those sites anyway in the interest of making the site truly useful to buyers. You can't buy new road bikes online, for example, so the site tends to link to people selling them used. That's the right idea, but it will take a lot of willpower to stick to the ideal.

It's an incredibly labor-intensive business model, which is one of the advantages. As long as Relevant Mind manages to develop comprehensive product categories and link to good discussions, it will have a huge first-to-market advantage. This is not something Google will be able to do.

It looks interesting. The site has some bugs to work out. When searching for the cheapest bikes, the results tend to come up with a lot of components rather than complete bikes. But if the site manages to come up with truly relevant results, including finding good retailers, it has promise.

There's a lot of intelligence residing on the web. It's just a matter of helping people find it.

Steve Jobs: punishing his iPhone customers

That Jobs has made some huge mistakes with the iPhone is obvious. The phone isn't selling as well as he thought, he had to slash the price, then try to mollify angry customers who had already bought the iPhone with a rebate coupon.

ZDNet has a list of what it sees as his mistakes in the form of lessons learned:

Jobs realizes he can’t annoy his flock.
New customers aren’t as easy to win over.
The smartphone market is brutal.

All true enough. But fundamentally, the real problem was the first one. Jobs is used to acting like a monopolist. Monopolies have a tendency to punish their customers in the interest of squeezing every dollar they can out of them.

Cable companies drop the quality of service and raise the price. They create sloppy DVRs rather than letting customers buy Tivos. Cellular providers lock you in to two-year contracts and force you to re-enroll to upgrade your phone without paying absurd prices. We don't even need to mention Microsoft's sins.

Mac enthusiasts don't often switch to PCs, so Jobs can get away with high prices. When he returned to Apple he killed the Mac clone business, keeping short-term profits high but dooming the Mac to a permanent, distant second place to Windows computers.

In all the above cases, customers and the companies would be better off if those actions had not been taken. When forced to face competition, a company becomes stronger. What's surprising to me is that the Justice Dept. hasn't cracked down on any of those monopolists except Microsoft.

But Jobs was surprised when he tried his punish-the-customer-to-benefit-me tactic on a product where he held no monopoly. The price was not the problem. The problem was getting into bed with one monopolist and going up against the monopoly powers of the competition.

Why the hell did Jobs sign a three year contract to make the iPhone exclusive to Cingular, now AT&T? Does that benefit his customers in any conceivable way? No. It punishes faithful Apple lovers using any service except AT&T.

Jobs thought, in hubris, that his product was so insanely great that he could force people to pay penalties to their monopoly providers and switch to a second-rate cellular carrier. It was an insanely great mistake.

It didn't work, and not because of the price. What did everybody complain about? The AT&T service! A great phone with a lousy connection and slow service is a lousy phone system.

I wonder what AT&T paid for its exclusivity. I can just hear Jobs telling Cingular execs that he would  turn the company into the leading cell carrier by forcing people to switch.

If Jobs hadn't been so arrogant and greedy, if he had let the iPhone work on any network, he would not be having this problem today.

Like the monopolists, he sacrificed long term results to boost the short-term. Only this time, the short term did not pay off.

Lesson #1, so simple I shouldn't have to say it: Every time you make a business decision, ask yourself if it benefits your customer. If not, don't do it!