Did the Tech Bubble Create This Mess?

Blogs.com takes a look at the role that Tech companies have played in the current economic situation.

Did the Internet bubble of the late 1990s create today’s Wall Street meltdown? How badly will the payback hurt the tech industry? And how do you melt a bubble? Dartmouth professor John Vogel tells Beet.tv yes, the tech implosion started it, alrighty (it was that damned sock puppet!).

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Why Carly Fiorina is Wrong

A lot of people in Silicon Valley have been talking about former Hewlett-Packard CEO Carly Fiorina’s recent comments that neither of the presidential candidates or their running mates could run a major corporation.

Many criticize her comments as being elitist and perpetuating the belief that, business executives have a halo around their heads and can do anything from running a company to a country. Given that her HP employees toasted champagne glasses when she was fired, it is fair to say many at HP, including the board of directors, thought Fiorina was not qualified to run a major corporation either.

The fact that Fiorina replaced the pictures of HP founders with pictures of herself is just one example of how she may want to take a look in the mirror before critiquing others’ leadership. If her actions at HP were any indication, one could only imagine what her first move as president would be—replacing the Lincoln Memorial with a statue of herself?

Numerous politicians (whether you like them or not) have made successful CEO’s after careers in politics. After a long career in public service, Dick Cheney took over a Fortune 500 company in Halliburton and was extremely successful. Donald Rumsfeld, after spending his entire life in politics, took over as CEO of G.D. Searle & Company– a global pharmaceutical company. During his time as CEO, Rumsfeld led the company’s turnaround and was named as the Outstanding Chief Executive Officer in the Pharmaceutical Industry from the Wall Street Transcript (1980) and Financial World (1981). Even Al Gore has done a decent job of transforming himself from a career politician to a business executive, acting on the board of Apple, as an advisor to Google, and as founder of Current TV.

That is not to say that every politician would make a good CEO, but leadership and having technical operating experience in an industry are two different things. Fiorina is correct to argue that none of the candidates have the technical operating management experience necessary to understand the computer industry, but is wrong to imply that these candidates do not have the leadership traits necessary to run a corporation. Still, her criticism does make one wonder about the transfer of leadership from one occupation to the next.

As governor of Alaska, Sarah Palin—perhaps the most criticized of the candidates—is responsible for the state budget, the board of education, the National Guard, the state police, the taxing of its citizens, the appointment of judges, and a number of other responsibilities. In addition, Palin has to be knowledgeable about issues such as drilling in Alaska and its impact on the environment. Yet, Fiorina thinks Sarah Palin is not fit to decide what model laptop to release next Christmas.

Leadership is the ability to find the right people and then motivate, organize, and direct them to the accomplishment of a common objective. While having operating experience in an industry is a major plus, without strong leadership skills, no amount of experience matters.

For example, if either John McCain or Barack Obama were to run Spock.com, each would bring a distinctive style of leadership. With Spock’s objective to create the best people search on the Web, it’s safe assume that neither Obama nor McCain would be familiar with the challenges and technology surrounding people search. However, there are other areas in which they each would excel.

If Obama ran Spock, I am sure he would do a great job of fundraising for the company and getting the message out to millions of people about how Spock is attempting to bring about change in the way people can locate each other and find information. Similar to his choice of an internationally experienced VP—Joe Biden—Obama would most likely hire a competent COO to help direct the company and to aid in understanding the inner workings of a search engine.

McCain, on the other hand, could be just as successful. With a maverick style of leadership and his “us against everyone else” attitude, McCain would appeal to many investors and employees. Should something go wrong, such as a server going down, I could picture him sticking around the office overnight until the site was back up and running (as Meg Whitman did with Ebay a while back). Additionally, McCain would do a good job of seeking to partner with other companies.

While they may not agree on the same issues or lead in the same way, it’s fair to say that both Obama and McCain would bring a unique quality of desirable leadership, whether to the presidency, a corporation or a start-up.

Microsoft and Yahoo Losing Search in a BIG Way

The latest search numbers were recently released and it appears that for the month of August once again Microsoft and Yahoo lost market share to Google. What’s worse is that not only are they losing market share in a growing market, but they are actually losing the number of raw searches done on their properties.

It’s one thing for Yahoo and Microsoft to claim that although Google is growing at a faster rate, the overall search market is growing and their search volume has actually been increasing (which has been a case in the past). It is a whole other issue to have to proclaim that not only are they losing market share in an expanding market, but the number of searches being done on their sites is decreasing as well.

Looking at the latest data from Compete, which aggregates all of Microsoft’s search properties (Live, MSN, etc); the picture looks bad for both Microsoft and Yahoo.

At the end of the day, the numbers and results do not lie. With Microsoft and Yahoo putting a lot of spin on their search stories of late, the bottom line remains that neither has a compelling enough product to stop Google.

For Yahoo, they’ve been talking up their new ad platform called APEX, which focuses on content and display ads. While APEX actually has very little to do with search, this may be the right direction for Yahoo. They are still the leading content site on the web and display ads are something they can compete and win in. Google has traditionally had a hard time winning with display ads, and the DoubleClick deal has yet to pay off. Google does not allow display ads on Google.com and publishers have consistently found display ads from Yahoo and other ad networks to be better and more profitable than similar offerings by Google Adsense.

If Yahoo’s recent actions are any indication, then they are slowly giving up on Cost Per Click (CPC) ads and going to let Google monetize text ads on Yahoo search properties. If the Department of Justice were not in the way, I could imagine Yahoo letting Google power all of its search technology as well as search ads. That would enable Yahoo’s Jerry Yang to instantly remove the huge overhead of a search organization, and make more money via Google powering its search ads. In addition, it would give Yahoo the time, capital, and manpower needed to maintain its lead as the number one content portal and content ad network on the web. Furthermore, it would give Yahoo the resources needed to take its portal to the next level by integrating all of Yahoo’s various web properties into a cohesive and unified consumer experience. Realistically, Yahoo can remain successful without search. There is enough demand for content and content ads in the world that Yahoo could thrive by just focusing on its portal and letting Google take care of the rest. Jerry Yang could do shareholders well by saying that Yahoo will rule the world of content, media and display ads and let Google tackle search technology and text ads.

For Microsoft, its focus of late has been touting their Cash Back program and natural language processing via the PowerSet acquisition. Neither focus has resulted in any significant change, as Microsoft search properties actually did 40 million less searches in the month of August than in July (Google had nearly 100 million more searches over the same period). If I were Steve Ballmer, this would make me flip and throw a chair at my search team. Unlike Yahoo, Microsoft does not have the luxury of handing over their search to Google. Maybe Ballmer should stop saying “I am a PC” and start saying “I am going to learn the Internet and I love Search.”

Without search, Microsoft does not have a platform from which to win the web. It’s ad network, which is still smaller in comparison to Google and Yahoo, cannot afford to keep losing search share, as fewer and fewer advertisers will consider going to Microsoft AdCenter. A Microsoft executive once told me how worried he was at Live Search share going below 10%. If it dropped to that point, he figured a drove of advertisers would leave and not waste their ad spend on a network with such low traffic. For Microsoft this is not a good sign, as Live search share is now at 7%.

Many tech writers like Garett Rogers of ZDNET say that Microsoft should forget about search and focus on its core products like Windows and Office and sign a deal with Google. I believe this to be a recipe for disaster. Many people do not understand just how core search and the web are to Microsoft’s future. In order to remain relevant, Microsoft has to compete in search, it has to compete in online advertising, and it has to compete in enabling online utilities like e-mail, spreadsheet, word, and PowerPoint. They cannot afford to allow Google to obtain 90% of the search engine market share, and become THE operating system of the web. Should that happen, every developer and site will be designed to rank on Google and nothing else (as they are starting to do anyways). The amount of commerce that would flow through Google via ads, SEO, and organic clicks would rival that of most countries. If the leading way people get to your site is through Google.com and Google Chrome, you can bet everyone will design their site and spend their dollars on Google. Ultimately Google has similar opportunity to do what Microsoft did in the 80s and 90s when every developer and application went through Windows.

The reality is that Microsoft cannot be left out of online advertising. The market is too big and growing too fast for Microsoft to just stand by and watch others make billions on the Internet. With consumers less willing to spend money on software online, and becoming used to “free” software on the web, online advertising may become the primary way for companies like Microsoft to make money on the web. Even more important, Microsoft cannot let Google Apps replace Microsoft Office. There are already stories of small businesses using Google Apps to power their email and collaboration and canceling their licenses to Microsoft Exchange and Microsoft Office. If you’re wondering why Microsoft is so concerned about Google, and Ballmer so determined to win the search battle, it is exactly because Google threatens Microsoft’s future and its historic cash cow in more ways than one. At this point, Google is by far Microsoft’s toughest competitor. They have the market share, brains, and capital to give Microsoft a run for its money.

Ultimately Microsoft has to be competitive with Google in search, online advertising, and web utilities offered. It doesn’t need to be the leader in this space, but must remain relevant. Similar to how Pepsi is a good counter to Coke, Microsoft’s future depends on it being strong presence in the search industry and an alternative to Google.

How the financial meltdown affects high tech

Having worked in the financial sector before moving out west to start-up land, I have been asked several times over the past few days about the impact the financial meltdown will have on high tech.

At first, people may think the sectors are so far removed from each other that the impact would be minimal. I mean, come on. What in the world does Merrill Lynch, Lehman Brothers, AIG, and Bear Sterns have to do with the fate of start-ups in Silicon Valley and established giants like Oracle and Microsoft. Plenty when you take a closer look.

The big players like Oracle, Sun, Microsoft, and SAP – These guys will feel an immediate impact. Financial Service firms are some of the biggest spenders of IT budgets around. I can imagine memo’s coming from the top to CIOs at banks telling them to cut costs ASAP. Naturally, they will start to push back on upgrades to new software (sorry Vista), ask for greater concessions on license pricing, and in some cases, abandon plans for new technology deployments such as new hardware or new ERP applications. This will impact the bottom line of many established high tech firms. Given all the layoffs at these banks, you will see a lower number of Microsoft Office seats, Oracle seats, Laptops purchased, and less server side hardware and software bought over the next 18 months.

Still, companies such as Microsoft are large and diverse enough to absorb the storm without too much turmoil. Yet, I would not be surprised if I heard Sun report: “We did not meet our numbers this quarter due to decreased spending and turmoil in the financial sector….”

Why Green Technology may be in for a scare – I can see the biggest impact happening on Green Tech Investments. Green Technology requires a LOT of capital (wind energy is not cheap, have you seen how big those turbines are?). Most software start-ups can be funded in under $20 million and get to profitability or an exit with that investment. However, in Green Tech, the amount of investment needed in many cases go well past the billion dollar mark. With congress taking a close look at wasteful spending on green technology (remember corn), many VCs and Green Tech CEO’s were looking to the private markets for later stage capital. However, with hedge funds imploding, private equity shops dwindling, and banks going out of business, who will be left to write those billion dollar checks for a high-risk high-reward technology in Green? Not Uncle Sam!

I can see a lot of VCs taking less of a gamble on technologies that will require significant later stage capital. Instead, they will probably make investments in Green Tech companies that have lower capital requirements. No VC wants to pour $20 million into a company, and when it comes time for that company to raise $500 million for wind turbines, they will find it harder to come by people willing to foot the bill. It’s sad, but the financial meltdown may also cause an ozone meltdown.

More traditional start-ups in the valley are also being impacted. When hedge funds were popping up all over the place, they needed a new place to invest their money. One of the investments they started looking into was high tech startups. Entrepreneurs welcomed this with joy. It gave them another outlet to get funding outside of traditional VCs (just look at the private investments made in Facebook less than a year ago). However, with hedge funds now reverting back to their traditional channels and many closing shop, a lot of funding that entrepreneurs were expecting may never surface. This is a shame in my opinion. There are more great ideas in the Valley than ever before and a lack of funding will prevent many would be great companies from getting off the ground.

The Effect of the Web on the Presidential Race

The internet is fast becoming a vital battleground that has had a powerful impact on the political process. Spock examined some of the people search figures surrounding the presidential campaign.

Spock has found that people are not only researching the candidates and issues online, they are researching their wives, husbands, parents, children, and other members of the family.

In the past month, over 92% of the searches for McCain have been for family members such as Cindy and Meghan, while only 8% for John McCain. In contrast, about 60% of the searches for Obama have been for Barack, and the remaining 40% for family members.

The data shows that in order to connect with a candidate, people want to know more about the family members who do not get as much coverage in the traditional media. Of the candidate searches on Spock.com, the majority for Michelle Obama, Cindy McCain, and Meghan McCain have been directed towards finding pictures.

On August 24th the search term “Jill Biden” sky-rocketed to #1 searched term on the Web compared to #30 on the previous day, again illustrating how the web is a power research medium that helps voters learn more.

Spock has also recorded a significantly greater number of searches for “Obama” compared to “McCain”. In the last month Obama searches have been 200% greater than McCain. This data shows the greater internet effectiveness of the Obama campaign.

It is therefore no surprise that Spock finds twice the number of people on the web claiming to be Obama supporters as compared to McCain. On Facebook alone, Obama supporters out number McCain by 20 times (630,000 Obama, 37,000 McCain).

To counter the Obama web supremacy, the Republican campaign is finally waking up and stepping up web presence especially in the area of paid search – where ads are placed when you search for a term. Today, searching for terms like Democrat, Obama, and even Hillary Clinton shows a predominance of Republican McCain ads. This was not the case 60 days ago when it was the complete opposite. At that time the Obama camp was purchasing all the ad space for keywords like democrat, “presidential candidate”, election, etc.

This shift will probably benefit the McCain campaign. However, it will still be very hard for them to catchup to the ground swell of support for the Obama camp that has already taken root and growing fast.