Google Preparing to Neuter Microsoft Monopoly

A couple of years ago, MSFT's browser market share was better than 90%. Today, MSFT holds a 67% share. The problem for MSFT is that it behaved like monopolist do. It stopped discovering what its customers wanted and instead soaked them for excess profits. Google is preparing to serve-up a much better...

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Exciting Times! Read Your Snoogle!

Sony Corporation is the grand old name of transistorized sound machines.  Sony did not invent the transistor or the transistor radio, however, Sony was an early licensee of the transistor and the first to sell transistor radios at a profit. From 1955, until recent years, Sony was the sound machine leader.  The Sony Walkman was the portable music device of choice, until Apple took a dominating lead in both Internet enabled phones and music sales.  Sony still has almost double the revenues of Apple, but Apple's growth rate has been huge.  Since the top of the Internet 1.0 bubble, shares in SNE have fallen in price by 80%; shares in Apple have climbed 520%!

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Buy Yahoo!

The Big Internet Seven in my book are:

Google

Facebook

Yahoo

Amazon

Apple

EBay

Microsoft

I have listed them in order of investment attractiveness to me. Of course, any guess at what the future holds is always an iffy proposition. There are obvious problems with this list.

1) Facebook is the clear leader in the fastest growing sector of the Internet. It has grown so fast that it has knocked MySpace halfway to the moon, but the shares are not publicly traded.

2) Apple is a heck of a company. It is selling 25% of all music!!! A single Apple store in Manhattan has revenues of 350 million dollars and it sells $35,000 per square foot, compared to the $18,000 per square foot of Tiffany's. Apple is expected to announce a market leading tablet computer soon. It is expected to jump into the lead of the Internet 2.0 mobile computing race. A common problem for Apple and Google is that the market is discounting rapid growth for many years into the future. Apple and Google sell at high price to earnings, sales and cash flow. They both enjoy very high profit margins past growth is huge for Google and off the chart for Apple. The market values Apple more than Google. But give me the choice of owning all of Google or all of Apple and I will take Google, keep the change and be in a safer position. Google has a big ditch to jump in regard to Google Wave. If it is successful, it will give Facebook, Apple, Yahoo and many others a bad case of heart burn. Google's position in regard to reading eyeballs is also a potential huge winner as Youtube is starting to be. Google has been first on my list for four years and I don't see it getting knocked off.

3) Microsoft has all but lost the mobile computing war after just the beginning battles of Internet 2.0. Microsoft's recent successes was the retaking of the netbook Operating System hill, but Google will release its netbook OS next year. Based on the rapid adoption being enjoyed by Android, I believe Chrome OS is going to take a major share of market. Today, Blackberry joined the mobile webkit browser development team. Nokia, Apple, Sprint, Google and many others are on this team. Microsoft continues to offer smart phones but the others have the scale to knock Microsoft out.

4) Picking Amazon over Ebay was a tough call but Amazon is another heck of a company selling at high multiples. Amazon has a big lead in the electronic reader business but, today, details of the new wireless Sony reader came out. The initial price is $399, but I suspect it will be offered with a few hundred dollars worth of best sellers and a few thousand dollars worth of classic books free of charge. One blogger has written about how one would need to buy 30 books to save the reader price. He is missing the boat entirely. The Sony Reader includes the ability to wirelessly check out selected works from selected libraries. The convenience of easy book downloads will make the readers compelling devices to own. Ebay is not just an auction site for household collections. Ebay is an online retailer much like Amazon. I simply like Amazon better than Ebay.

5) Yahoo, in my book, has taken a major leap forward. I believe the new CEO knows what she is doing. I have never stopped liking Google but Yahoo has been favored and unfavored at times. When Microsoft was trying to buy Yahoo, it traded at $43.21 per share. Today, after Microsoft has agreed to do a lot of work for Yahoo free of charge and to give it the bulk of advertising revenues for the next 10 years, Yahoo sells for $15.07! Yahoo is another heck of a company. It has over 100 million email clients! It is the leader in a number of web site markets, including the financial area. During this Bull Market, Yahoo is going to be visited a few zillion times, over and above the times it will be visited as a result of Bing searches.

The businesses of Amazon and Ebay are lower margined businesses than the others. I recommend that you pick two or even three stocks out of the Google, Yahoo, Apple and Microsoft group and one out of the Amazon, Ebay group.

Bookmark this page and comeback a year and five years from now to see how good my educated guess proves to be. My expectations are for rapid growth over the next 5 years. Here are the symbols and prices as of today's close:

Goog 471.37, Yhoo 15.07, AAPL 169.40, AMZN 84.19, Ebay 22.31, Msft 24.64.

A Chicken in Every Pot -- A Bank in Every Pocket

Herbert Hoover promised "continued prosperity" during his 1928 presidential campaign.  His handlers advertised "A chicken in every pot and a car in every garage".  The slogan quickly became a joke, but a painful one.  

In the latest presidential campaign, Obama promised "Change", but, so far, the changes are not the ones advertised.  Perhaps, Obama's slogan should have been, "A computer and a bank in every pocket."    

Every day, there are another dozen good reasons to put a computer in your pocket.  The battle for portable GPS navigation systems is a case in point.  One vendor has offered its software and service, including turn by turn directions, for $10 per month; another vendor played oneupmanship by offering software and service for a one time payment of $100 before the third vendor came to the party with a one time price of $70.  At $70, the cost/benefit ratio is compelling for hundreds of millions of people and the price will continue to fall!      

The music business is one of many other businesses traveling the same road.  Apple's iTune "store" now accounts for 25% of all music sold and Apple is building a 1 billion dollar server farm in Maiden, NC!  All the major music companies are switching to Internet 2.0 systems-- offering free software and low priced music through pocket computers.  

The "gales of creative destruction" have never produced such sustained wind speeds.  Every job and every life has been or will be changed in multiple ways by these winds.  The "ride" is like sailing in gale force winds; great fun for most but scary for others.    

Without spending time thinking or talking about it, we have all been life long participants in social networks.  Today, these relationships are being digitized.  For example, travel to a store to buy a video game is being replaced with the act of joining a social network where one can play against friends for a moment, an hour or a day.  There are specific digital social networks for almost every activity, from prayer groups to motorcycle clubs to praying motorcyclist.  Employers and college recruiters increasingly make decisions only after reviewing ones "social network body of work".  Historically, applications for jobs or school entrance have been quite detailed, but nothing like the total amount of information people are sharing via social networks.  Believe it or not, the sooner you start building your "social network portfolio", the better off you will be! Think bout it in terms of your digital resume.    

Many of these digital networks are independent from one another, however, the trend is for them to be linked.  Once a person signs in to his "home base network", Facebook, Tweeter, Picasa, Reader, Blogger or whatever, he is automatically signed into all his networks.  Under this process, the person who wants to switch from blogging to viewing friend and family photos does not need to log-in separately.        

In late May of 2008, when Obama was locking up the democratic nomination, the S and P 500 traded at 1425.  The market discounts future events by an average of 6 months and late May was 6 months before election of Obama, which implied massive increases in government taxing and spending activities.  On March 6, 2009, the day after Obama officially announced that health care reform would be his top, the index traded at 683.  Today,  August 24, 2009, the index trades at 1035.  There are many cross currents at work here but the "Obama market decline" of  52% is without precedent.  Furthermore, the market "knew" that the most onerous provisions of Obama's proposals would not pass the day they were announced.  The climb over the past 6 months has been spectacular.  The average dollar invested on March 6, 2009 has grown to $1.51!  Again, the market discounts many things but the numbers posted are for real.

During the years of Internet 1.0, "Online banking!" was the frequent response to: "What is the Internet going to do for me"?  Today, many people use ATM networks to withdraw funds from their accounts, but there seems to be as many bank branches as ever.  Internet 2.0 offers the opportunity for you to put your bank in your pocket, for deposits and withdrawals.  Invest with knowledge and care and you will put a lot of money in your pocket.  

Internet 2.0 has years to run.  Over the next several years, one institution after another is going to metamorphose from an "independent social network" to an "online connected social network".  To avoid the "out of sight, out of mind -- kiss of death", most plain vanilla web sites are going to become interactive.  One small example of why web sites and institutions must connect is the calendar.  If an institution wants its events to be automatically posted to its members calendars, it must be "socially connected".  Consumers will increasingly subscribe to calendar links.  A subscribing consumer will never have to enter the date and time of a meeting or event again.  If the meeting time is changed or postponed, the change will be made by one person for the benefit of many people.

You face a nice opportunity.  You can make use of Internet 2.0 to play video games, to connect socially, to reduce the strains of every day work and life or to laugh all the way to the bank.  Those who invested early and often in Internet 1.0 made multiple fortunes.  Internet 2.0 is going to be more pervasive and powerful than we can hardly imagine.  

Soaring Real Incomes! Why?

Real incomes are leaping off the tops of charts as consumer prices fall. In 1995 it took more than 30 weeks of average pay to buy the average new car. Today, it takes 22 weeks of average pay to buy the average new car. The Producer Price Index just fell by the largest amount in 60 years! The home affordability index hit an all time record level a few months ago (still at very high levels).

Why are real incomes rising so fast? I've said it before and I'll say it again that the law of substitution is far more powerful than is commonly understood.

Tough times cause people to cut unnecessary expenditures. Some of the things they cut become permanent savings. When an expensive item is cut, a less expensive thing is typically added.

"There is an app for that" is the iPhone slogan. There are 65,000 software applications available for the iPhone. There are fewer Google Android apps but the growth rate of Google apps has averaged 50% more per month for the past 6 months! Listen to an iPhone commercial carefully and you will hear that there is a massive amount of substitution taking place all around the world.

The buzz this week has been about the TOM TOM GPS iPhone app. For $100, iPhone owners can acquire a sophisticated turn by turn GPS system that would have cost $3,000 a five or so years ago. But, it is not the substitution of software for hardware that is most significant. The real savings comes in the miles driven due to better directions. The avoidance of wrong turns saves huge amounts of time and money. As the cost of owning a GPS system falls, the number of owners will increase dramatically and the cumulative miles saved will become a huge number. The price of gasoline will be lower than it would be otherwise because so many miles were avoided.

A research report sent out last week details the savings environmental savings achieved by the downloading of a CD versus the physical production and purchase of a CD. The savings is estimated to be 40 to 80% of the cost of the product! Apple has plans to build a new one billion dollar solar farm because the demand for downloads (apps and media) is so large. Every time Apple builds a billion dollar server farm, I believe Google will build at least two.

US mail volume declined by 20 billion pieces year over year; while Google saw a 46% increase in email users! Yahoo, which has 106 million email customers, saw a 22% increase! Clearly a large quantity of electronic delivery is being substituted for a large quantity of physical delivery. When one listens to advertising supported music on Pandora, instead of driving to a store to buy a CD, the savings achieved are perhaps two or three times the price of the CD.

Electronic delivery has become a huge snowball with a lot of hill left. Electronic delivery is scooping up all the snow, leaving our government in the position of trying to roll the US Mail snowball up hill. The bigger the electronic snowball, the fewer the customers to help push the US Mail snowball. In two or three years, US mail delivery will be down to 3 days a week and postage stamps will cost 64 cents each, making all the more customers leave.

What is difficult for many to see is that spending on postage is falling not rising. The move from 44 cent stamps to 64 cent stamps will be a nominal increase of 45%. But if the volume of physical mail falls by 60%, there will be a net decline in spending. A few days ago, a friend suggested that we would be better off paying extra for mail because good postal jobs would be eliminated. If that philosophy had won in the 1700's, women would still be working long hours spinning thread.

Another amazing thing is how much substitution is now taking place "up the line". AOL, ATandT, Comcast, Incredimail and others are losing email customers to Google and Yahoo. AOL is now the fourth largest email provider after falling from 45 million users to 36 million users. AOL is king of dial-up but dial-up is the Stanly Steamer of the car business. The Stanly was the best of more than 100 steam powered cars but the internal combustion engine replaced them all.

Did the largest wholesale price decline in 60 years make it into your consciousness? Do you appreciate how big the Economic Tech Boom is going to be? All the money saved on fuel will go somewhere; much of it will go into spending on new electronic gadgets and services.

Dave Ramsey has a growing cadre of fans. His disciplined saving approach has merit, however, the investment opportunity available today is huge. Put $5,000 into the right investment today and it will be worth $2 million or more in 10 years. Put an extra $5,000 into saving today and it might be worth $10,000 in 10 years.

"My Dad Will Never Buy a Computer" -- Heart Monitor

Seven years before my Dad passed away, he said he would never buy a computer. The last 5 years of his life, he delighted in using his computer to follow stock prices, his bank account and his grand children. Yesterday, two friends told me that their parents would never buy a computer. My immediate question was "Do they have a cell phone?" This inquiry was quickly discounted because it is hard to appreciate how cheap, different and useful the cell phone of next year will be when compared to the cell phone of today.

Last night, I struggled to come up with the key reason that "no computer people" will succumb. My first idea was that they will ultimately have no other choice. For example, an avid newspaper reader will ultimately face the question, do I get an electronic reader or do I stop reading the newspaper; or, since my eyesight is not so good anymore, do I get a reader with the font dialed up or do I fiddle with a magnifying glass; or, since my eyesight is virtually gone, do I get a reader and let it read to me.

My second idea was the use of a mobile device to watch ones favorite TV programs. It seems that while no one watches "much" TV, everyone watches a lot of TV. Sports fans say they seldom watch TV but, when pressed they admit to watching many games.

If TVs were light weight portable tablets and if one could touch a player on the screen to immediately learn his batting average and all other details, the avid fan might want such a TV. The avid fan of soap operas might appreciate the ability to touch a "story line button" and get a recap of shows missed. And, wouldn't it be nice if mobile TVs were also automatic TV recorders, making all the shows missed available anywhere and everywhere.

This morning, while I was thinking about the difficulty of convincing people that the underway Internet BOOM is huge and compelling, I read about a new app that puts Tom Tom GPS software, including turn by turn instructions on the iPhone. The software costs an extra $100 but three years ago it was common for folk to pay an extra $3,000 to get this feature on a car!

The incredible truth is that there really is going to be an "app for that", where "that" is almost everything. The fellow who is into local weather will install a few instruments in his backyard and download a weather app to his phone. He will know every detail about the weather, including a special notice of significant changes in the barometer. He will be able to share the local weather with others such that very precise TV maps will show exactly where the rain is falling.

One person will succumb for a different reason than the next but all of the reasons will be aided by the reduction in cost. The cost of data delivery has been falling rapidly for decades and the rate of decent has been accelerating. New systems, being deployed this year and next, will cut the cost of delivery by 40% or more. New systems are even cutting the amount of electricity used to send data by 40% or more!. The combination of a falling electronic delivery price and rising physical delivery price is a powerful combination. It means that one person after another is seeing their indifference curve broken through. The person uninterested in acquiring an electronic reader for $199 might be very interested in the product at $49. The secret that the product sellers have no reason to share is that the readers will ultimately be free of charge, in exchange for advertising eyes and subscription revenues.

Lightening Strikes

Just after I concluded that "no computer people" will succumb for hundreds of individual reasons, the thought hit me that the long held dream of most every man is suddenly at hand, the super duper extra powerful remote control. Sure enough, one can find screen shots at Gizmodo.com of the app that turns your phone into the most powerful remote control ever built, including TiVo functions!

The remote control idea is tongue in cheek, but how about the most powerful video baby monitor ever produced? Or, how about the heart patient who wears a Bluetooth connected heart monitor? Indeed, since we are talking about the elderly and since there are scores of health care applications being written, the probability is high that many people will buy their first computer phone for health reasons. There was a time when the idea of mandatory seat belts was anathema to liberty; can you imagine a time when all heart patients are required to wear transmitters? I submit that a lot of people who say they will never buy a computer will wear a computer!

Please, do not immediately think the above is pie in the sky, thirty years from now, stuff. There are 65,000 applications already written for the iPhone and 1,000 new iPhone app projects were started in July and Google Apps are gaining on Apple Apps. Many applications are being completed in 2 months or less. Only a couple of weeks ago, a study showed that an implanted blood pressure monitor/transmitter saves lives. With this new technology, the patient, doctor and EMT will all know that the patient is having a heart attack immediately; prompt treatment often being critical to survival.

So, the reasons to buy a computer phone range from: 1) I want a super duper remote control and baby monitor, to 2) My old phone is dead and all they sell are computer phones, to 3) My life depends upon it.

The "I Love Apple" Price Premium

This morning 24/7 Wall Street notes that the market value of APPL is now greater than the market value of Google.  But, I ask the question, if you had the option to buy all of APPL for 148 Billion Dollars or if you could spend 143 of billions to buy Google and retain the other 5 billion, which would you do?

The ultimate conclusion of the writer was that the "market knows".  How silly!  If he believes in EMH (efficient market hypothesis) then why bother to express an opinion?

His logic is that since Google sells for less, it must be because AAPL is worth more.  It must be worth more because Apple has a lock on the iPod, iTune markets and is taking browser share from Microsoft and because Google's business of selling desk top software is a lousy business.

Some of the above is the shooting of a rifle at where the target is rather than where it is going.  The targets in question are moving like doves, not like deer.  It is difficult to shoot a dove with a rifle.

Google will begin the roll out of Google Wave next month but the hype is about the pending announcement of an Apple tablet computer.  Google Books and later Google Wave will make the Apple tablet a compelling device to own but these Google products will not be limited to operating on the Apple tablet.

The 24/7 article (http://247wallst.com/2009/08/12/apples-aapl-market-cap-passes-googles-goog/) notes that Google's profit margin is 60% of revenues!  It notes that the margins for hardware are much lower.  Still, Apple manages to make about 30%!

My take is that the reason people are willing to pay more for 30% profits than for 60% profits is "The I Love APPL" premium.  Apple has without doubt produced some neat gadgets.  People are in love with Apple Gadgets.

But, if you want to see market share growth in the cell phone business, you have to take a look at Google.  There were no Google phones 15 months ago.  Today, cozens of manufacturers, including HTC, Motorola and Samsung, are in the process of rolling out Google phone models.

Why is Google having such great success getting phones made?  They are making Apple an easy target for dozens of competitors.  And, while it is true that Google is giving manufacturers "free" software, that is not the biggest of the financial incentives offered by Google. Consumers will save $20 or more per month for life by buying Google phones.  AT&T, Verizon and others do not want their cell phone services to be "dumb pipes".  They want to be the gatekeepers, where consumers are charged extra for no cost services such as text messaging.  A significant percentage of the population is holding out to have access to the web without paying extra fees for proprietary services.

Ralph Waldo Emerson gave us the adage that if you build a better mousetrap the world will beat a path to your door.  Google and Apple are both trying to build mousetraps.  Apple wants us to buy iPhone's because iPhone buyers are likely to buy apps, music, videos and more.  Google is willing to give away software in order to gain access to eyeballs.  Google is a technologically advanced advertising company.  It's products tend to be better but especially better for FREE!

Apple, Sony, Amazon and many others are going to offer some really nice reading tablets.  Apple's tablet will be first rate.  However, the longer term question relates to what media is purchased via the tablets.  If a significant number of consumers read some of the millions of free books that will be made available via Google, these consumers will be exposed to millions of dollars worth of advertising.

Besides, the price history of devices is a story of decline.  Calculators that once cost more than $1,000 are routinely sold for $7.  Pitiful cell phones once sold for $2,000 or more and better ones are now given away free.  50 inch flat screen TV's that once sold for $10,000 can now be had for $900.  Very large hard drives that once sold for $10,000 or more have been replaced by hard drives that hold many times the data, are many times as fast and sell of under $100.  Apple makes good hardware but there is a flood of good hardware coming to market.

The time to buy Google shares is now.  The time to sell Apple shares will be around the time the greatly hyped tablet comes to market.  (The reason to hold Apple as a long term core holding is because of Apple's success in the iTunes market.  Rumor has it that iTunes is about to be made available across multiple platforms, that it will add social networking features and that its payment system will be made useful for buying other "stuff").

Google, Apple and Amazon shares all carry premium prices because the rapid growth in Internet use is about to shift into a gear we have never seen before.  In some ways, the Internet was kicked into reverse by the bursting of the Internet 1.0 bubble in 2000.  It has taken 9 years for the market to recover.  The next 9 years will be a remarkable time in the history of the world.

A Flurry of Activity in the Paradigm Shift!

Dear Friends, you are living through one of the most significant paradigm shifts of all time. Before writing, knowledge was easily lost. After writing took hold, knowledge was kept, but mostly by the few. After the printing press was invented, knowledge was more easily retained and acquired, but it has remained far more expensive than necessary. Internet 2.0 will make knowledge instantly available and cheap to acquire. The world will never be the same.

The early moves up a sigmoid growth curve are slow. Later, various "teams" start to "break away". For example, cars were built for decades before Henry Ford changed the world forever when he started his assembly line in 1914. Before long, other teams joined the chase. Car teams, truck teams, motor teams, tire teams and transmission teams all climbed the product distribution curves together; many a fortune was made.

Flurry, a mobile analytics company, just delivered a detailed report about one of the Internet 2.0 break outs that occurred this year. In the area of application software for mobile devices, over 200 Google Application projects and over 1,000 Apple projects started during the month of July. The compounded monthly rates of growth were 30% for Apple 50% for Google!! In January the Apple/Google distribution was about 90%/10% and in July it was about 78%/22%. Google is catching up quickly even though the current start rate is 5 to 1.

The Apple head start includes millions of handsets in place and more than 65,000 applications. Indeed, Apple sold more than one million 3G handsets the first weekend they were available. The Google phone is only a year old, but version 1.5 is being deployed around the world at break neck speed. China has proven to be a difficult market for many vendors but Google recently made a deal with the largest phone company in China.

The power of some of these applications is incredible. In some instances, a modified iPhone with software can be taken to the hinterlands where it can do the work of million dollar medical machines and transmit the results to where they are needed! Many an American is using their iPhone for multiple mundane uses, but real benefits are being received. I am among the 97% who has not upgraded to a smart phone. I am biding my time. Verizon has announced that it will offer a Google (Android) phone soon. I hope to have an Android 2.0 phone within a few months. While I like the family plan I am on with Verizon, I will switch if necessary.

Facebook--FriendFeed Breakaway!

Another break away has been in progress at both Facebook and FriendFeed. A couple of years ago, analyst Liz Gannes wrote that FriendFeed is a "Facebook news feed for the whole web". Since then, FriendFeed's developers have been in hyper drive. They have proven their ability to innovate at break neck speed. Facebook, which now has more than 250 million users and which is hosting more than 1 Billion new photos per month, just bought FriendFeed!

Marilyn and I will never forget a day back in the 1990's when we mailed a $10,000 payment on a condo. It was just when people were most upset with AOL because extraordinary growth made it almost impossible to get connected from about 3 in the afternoon until 10 at night. Marilyn and I realized that we should put the $10,000 into AOL shares. Instead we made the required payment and entered a fictitious $10,000 purchase in a pretend portfolio. A year or two later we spent $11,000 upgrading our office computers and realized that we should have bought Dell shares instead of Dell computers. By this time the $10,000 of AOL shares had split and risen, risen and split and was valued at over $600,000. We felt that we had to have the computers in our business and once again made a fictitious purchase. After the account valued exceeded $3,000,000 we deleted it. The account was worth over three million dollars long before the big spike run-up that occurred before the crash.

Facebook and Friendfeed are seeing AOL/Dell growth rates. The reason Facebook purchased Friendfeed, lock stock and barrel, was to acquire their software engineers! Facebook is facing off against Google. While Facebook has been adding social network "customers" at hyper speed, Google has been putting together a series of huge puzzles. Recently, with the frames in place, Google has been filling in the centers of the puzzles. Tools are rapidly being added to allow the millions of users of free Google Blogging software to connect with their readers and fellow bloggers in a "social network" way. At the same time, tools are being added to allow millions of users of free Google Reading software to connect with their friends in a "social network" way. More importantly, Google has already announced its planned replacement for email.

The Internet growth over the next few years is going to be similar to what happened with AOL, Yahoo, Dell and others during the 1990's. For example, when the mail service is cut significantly, there will be a stampede into electronic payment systems. PayPal, Google Checkout, Amazon Payments and Apple iTune will all see huge rates of growth.

The All Purpose Reader

The all purpose tablet will be at the front and center of the paradigm shift. Keep your eyes peeled, there are many devices well past the drawing board stage. Due to price considerations, specialized readers are leading the way, but many more sophisticated machines will follow. The flurry of activity is going to last for probably 5 years or more.