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Google Fails the Dogfooding Test

Alex Faaborg, a Google designer with a background in cognitive science and machine learning, talking at Google I/O last week.

This photo makes a mockery of the argument that Google is "beating" Apple. It seems Wall Street analysts and tech journalists put too much stock in their concocted narratives. Would Apple presenters use a Dell laptop at the keynote for the Apple WWDC in June? Unlikely.

[source: VentureBeat]

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Please, don't get tax advice from tech journalists (even if they write for Forbes)

Tim Worstall, writing for that passive-aggressive professional troll site known as The Register, says he knows the "The real reason Google bought Motorola". He links to a Reuters article, which has the following quote:

"The tax benefits of the deal make what was a good deal into a great deal," said Robert Willens, a New York accounting and tax expert. He estimated that through the acquisition, Google can expect to reap $700 million a year in tax deductions [my emphasis] from future profits each year through 2019. Google also will be able to immediately reduce its taxes by $1 billion due to Motorola Mobility's U.S. net operating loss, and by a further $700 million due to its foreign operating loss, he said.

According to Mr Worstall, Google will therefore get $700 million in tax savings each year, until 2019. Unfortunately, he doesn't seem to have a grasp of tax accounting. A deduction of $700 million is only worth the tax saved, i.e. the amount of the deduction multiplied by the company's effective tax rate. Apparently, Google's Income Tax Rate Was Only 8 Percent (don't worry, they're not being evil). Therefore, the value of the carried forward losses needs to be adjusted to reflect this. 8% of $700 million is only $56 million – not much of an annual tax saving for the $12.5 billion outlay for Motorola (works out to be a net present value, NPV, of $396 million). This basically blows a hole in the argument that Google's purchase of Motorola can be partially justified as giving Google great tax benefits. Nice try.

Mr Worstall also writes for Forbes – this says a lot about the quality of journalism these days.

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A few days ago, the value of all the bitcoins in the world blew past $1 billion for the first time ever. That’s an impressive achievement, for a purely virtual currency backed by no central bank or other authority. It’s also temporary: we’re in the middle of a bitcoin bubble right now, and it’s only a matter of time before the bubble bursts.

Bitcoins were designed to be – and, in many ways, are – the perfect digital currency: they’re frictionless, anonymous, and cryptographically astonishingly secure. For anybody who’s ever suffered the incompetence of a bank, or bristled at the fees involved in just spending money, either domestically or abroad – that is to say, for all of us – the promise of bitcoin is the holy grail of payments. Especially since, to all intents and purposes, bitcoins are invisible to law enforcement and the taxman.

Those strengths are also weaknesses. No one wants to risk losing millions of dollars worth of currency overnight, just because they were outsmarted by some computer hacker.

Still, for the time being, bitcoin is in many ways the best and cleanest payments mechanism the world has ever seen. So if we’re ever going to create something better, we’re going to have to learn from what bitcoin does right – as well as what it does wrong.

[T]he biggest difference between bitcoin and other virtual currencies is that bitcoins are the only one which have speculative value. What’s more, because they’re not tied to a corporate parent, bitcoins appeal to the web’s anarcho-libertarians in the way that no other virtual currency can. Bitcoins hold exactly the same gleaming promise for techno-utopians as gold does for Glenn Beck. They’re a scarce resource, and there’s no government or corporation which can control that resource.

This [press coverage of the phenomenon] is actually a serious problem, if you’re trying to put together a currency, rather than a vehicle for financial speculation. If the currency of a country ever fluctuated as much as bitcoins did, it would never be taken seriously as a medium of exchange: how are you meant to do business in a place where an item costing one unit of currency is worth $10 one day and $20 the next? Currencies need a modicum of stability; indeed, one of the main selling points of bitcoin was that it couldn’t be destabilized by government institutions. But that comes as scant comfort to people watching the value of a bitcoin behave like some kind of demented internet stock during the dot-com bubble.

In reality, then, bitcoin doesn’t really behave like a currency at all. In terms of its market value, it looks much more like a highly-volatile commodity. That’s by design: bitcoins were created to be the most fungible commodity the world had ever seen – to the point at which they would effectively erase the distinction between a commodity and a currency.

Inflation is bad, but deflation is worse. The reason is that in a deflationary environment, no one spends money — because whatever you want to buy is sure to become cheaper in a few days or weeks. People hoard their cash, and spend it only begrudgingly, on absolute necessities. And they certainly don’t spend it on hiring people — no matter how productive their employees might be, they’d still be better off just holding on to that money and not paying anybody anything.

The result is an economy which would simply grind to a halt, with massive unemployment and almost no economic activity. In a word, it would be a Depression. In order to have economic growth, you need monetary growth as well — and that’s something which is impossible to achieve in a bitcoin-based system. Currencies such as the dollar, with a central bank which can print money at will, have succeeded for a reason. As economies grow, the money supply has to be able to grow with them. And that’s why bitcoin can never really succeed over the long term.

[source: Money & Banking]

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The Google Store Experience

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The reality of Google Glasses

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ADmented Reality - Google Glasses Remixed with Google Ads

When I saw Google had somehow forgotten to include any ads in their Project Glass promotional video I just couldn't resist fixing that oversight for them. So here is my slightly more realistic version of Google's augmented reality glasses - now featuring contextual Google Ads!

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From "The Places You’ll Go" (The Atlantic):

Effectively, people are about 20 IQ points smarter now because of Google Search and Maps. They don’t give Google credit for it, which is fine; they think they’re smarter, because they can rely on these tools. It’s one reason they get so upset if the tools are inaccurate or let them down. They feel like a fifth of their brain has been taken out.

That's what Michael Jones, "chief technology advocate" at Google, says.

Right. He seems to have a selective view of history. Search engines existed years before Google. And other mapping options exist. So Google doesn't deserve all the credit itself. We need not shed a crocodile tear for Google, since it makes money from mining other people's data, serving ads and riding roughshod over privacy concerns.

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Even some commentators who have supported the austerity program appear dejected. “This is a truly desperate state of affairs that demands swift and decisive action,” the Daily Telegraph’s Jeremy Warner wrote in his column following the release of the report. And he went on: “We seem to have the worst of all possible worlds, with nil growth, some very obvious cuts in the quantity and quality of public services, but pretty much zero progress in getting on top of the country’s debts.”

In short, the U.K. experience shows how austerity policies, when applied without regard to the state of the economy, often lead to more government borrowing and debt creation, not less. In the past few years, we’ve seen pretty much the same thing happen in other European countries: Greece, Ireland, Portugal, and now Italy and Spain. Still, though, many proponents of austerity refuse to acknowledge their errors.

However, there are some signs of glasnost—or weaselling, anyway—on the part of the austerity hawks. “If growth significantly underperforms expectations over the coming months,” the statement from the O.E.C.D. continued, “the flexibility of the fiscal framework should be utilised.” That appears to be code for refraining from further cuts in spending (especially on unemployment benefits and other so-called automatic stabilizers), borrowing more money in the bond market, and allowing the deficit to balloon further. A shorter way to put it: when you are in a hole, stop digging.

[source: The New Yorker]

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The finding: Even though a company’s success at innovation can be predicted by looking at its track record, investors don’t favor the stocks of firms that have proved they’re effective at R&D.

The research: Chris Malloy and his colleagues mapped 30 years of U.S. corporations’ R&D expenditures against their sales revenues, ability to generate patents, patent citations, and new product launches. They found a simple pattern: Companies that had large R&D budgets as well as a history of converting innovation into growth were likely to continue that strong performance. Yet in the short term their shares didn’t command a premium over those of companies that spent the same percentage of their sales on R&D but had a poor record of generating value from it.

[T]he findings indicate that the past is a very good predictor of future performance for companies that spend a lot on R&D. There are some firms, like Apple, that are consistently better than others at translating that investment into strong sales growth. My coauthors on this study, Lauren Cohen of HBS and Karl Diether of Dartmouth’s Tuck School of Business, and I showed that this might be due to the influence of a founder, like Steve Jobs. Now we’re looking at other potential explanations, like culture or human capital.

Are you saying that a company with a good R&D track record won’t screw it up, and one with a bad track record can’t turn it around?

No. But on average, that’s the case. Seventy percent of the time, if you’re good one year, you’ll be good the next. One consistently good R&D company in our analysis was Texas Instruments. But, of course, they didn’t make it every year. You move in and out of the good bucket based on your R&D spending and your recent track record. Even Apple was in the bad bucket for one or two years.

[source: Harvard Business Review]

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It's not too much of a stretch to conclude that the lack of fact-checking applies to the rest of the tech industry. Throw in the ability to monetise such "news" via ads, and you could see people actually profiting from passing on made-up information. And that means ad networks like Google can make money, for example, from rumour-mongers doing targeted "hits" on its rivals. I hope someone in Google is on to this and reporting such fraudulent misbehaviour.

I am a gamer. I don’t work for Microsoft.

I, like most other gamers, am sick of seeing endless rumours and speculation citing “anonymous sources” or “insiders” with no evidence, no proof, no guarantee that they’ve been fact-checked or can be relied on.

The games industry is the only one I can...

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Why I Don't Trust the Stock Market (or Any Financial Market) Anymore

Google misses estimate (and struggles to monetise mobile) … stock price rises more than 5%.

Apple misses estimate (despite record quarterly results) … stock price gets hammered.  Apple's track record of innovation continues to be dismissed by Wall Street.

Meanwhile, Amazon barely makes a profit, yet is valued at 3830 times its annual profit (Jan 23, 2013).

I studied Finance as part of my Accounting degree in the early 1990s. Earnings per share values exceeding 20 were seen as causes for concern. Real revenue models and proven track records of profitability were good guides to the valuation of companies.

When the internet stock bubble formed in the late 1990s, the tech press wanted us to believe that the internet changed the way stocks should be valued. No longer were actual revenue streams and consistent profitability important. Then the dotcom bubble burst.

Once again in the 2010s we're expected to believe that profitability and revenue models are not as important in the "attention economy". After the finance gurus got it so wrong in the bond market in the global financial crisis of 2007/8, how can we be sure that we won't be facing another stock price bubble burst in the near future? No wonder the real smart money appears to be in gold.

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Samsung vs Google:

Samsung is, by far, the biggest promoter and the best advertisement for the Android platform. Not only does the Korean giant dominate the Android market in unit volume — about half if we believe the company’s necessarily imprecise numbers — it also sets the standard for quality with handsets such as the Galaxy S III. And when you consider the huge amount of money Samsung has spent promoting their devices (about $13B — see Horace Dediu’s chart, below, from yet another of illuminating posts, The Cost of Selling Galaxies), you would think that the two companies would be close allies.

But as Samsung dominates ever more of the Android market, one has to wonder: Who controls whom? Is Google really in charge, or is Samsung so strong it can now set the rules in the Android game?

So on one side, we have Samsung, an extremely capable and determined Korean giant with huge technical and financial resources — and little regard for niceties.

On the other, we have Google with its unparalleled infrastructure, full control of the Android ecosystem through its Google apps (think Maps) and services, very strong finances, and real long-term vision. As for niceties, Google’s style may be more “polished” than Samsung’s, but it isn’t a pushover. Google can stand toe-to-toe with anyone.

In the end, ownership of the ecosystem should tip the scales: Google will win the undeclared war with Samsung. The Mountain View company will help itself to the higher value of vertically integrated products and, at best, degrade the Korean giant’s margins or, worse, drive them into a PC-like race-to-the-bottom with other handset makers.

This isn’t an outcome Samsung will take lightly.

[source: Monday Note]

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Samsung Electronics Co. (005930) and LG Display Co. (034220), the world’s biggest makers of flat panels, were among six companies fined by China’s government for participating in a price-fixing scheme.

The six companies held 53 meetings in Taiwan and South Korea between 2001 and 2006 to agree on prices for the liquid- crystal-display panels, mainly used for TVs, and shared other confidential information, the commission said today in a statement. The U.S. and European Union previously fined panel makers -- including Samsung, LG Display and Sharp Corp. -- for fixing prices through similar cartels.

[source: Bloomberg]

Standard operating practice for some companies.

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The top 15 spenders on influence peddling (cough, lobbying):

1. Google Inc ……… $13,130,000

2. Microsoft Corp ……… $5,656,000

3. Hewlett-Packard ……… $5,390,000

4. Oracle Corp ……… $3,768,000

5. Entertainment Software Assn ……… $3,578,367

6. IBM Corp ……… $3,560,000

7. Intel Corp ……… $2,720,000

8. Facebook Inc ……… $2,590,000

9. Yahoo! Inc ……… $2,110,000

10. Intuit Inc ……… $1,990,000

11. Cisco Systems ……… $1,970,000

12. Amazon.com ……… $1,890,000

13. Dell Inc ……… $1,800,000

14. EMC Corp ……… $1,650,000

15. Apple Inc ……… $1,430,000

Throw in another $1,260,000 by Google subsidiary, Motorola Mobility, that makes it over $14 million in "special donations" from Google to US lawmakers.

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In an interview in New York Eric Schmidt, Google’s Chairman, confirmed the company had no intention of paying more to the UK exchequer. Documents filed last month show that Google generated around £2.5 billion in UK sales last year but paid just £6m in corporation tax.

The Californian based search giant has also been revealed to have sheltered nearly $10bn of its revenues in Bermuda allowing it to avoid some $2bn in worldwide income taxes in 2011.

[source: The Independent]

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Over the weekend, Henry Blodget had a good experience with Amazon that cost them some money, a tendency he declared makes them one of the best companies in the world. Amazon, he says, is like Rick's Cafe in Casablanca in that it "constantly sacrifices short-term profit in the interest of serving other constituencies and values, including customers, employees, and the community," so "it's certainly no mystery why Amazon continues to take over the world."

I agree with all of that, but I insist that it actually is a mystery. After all there's a reason why most companies don't employ the "provide a great service at such a great price that we don't actually earn any profits" business strategy, namely that shareholders typically want to own shares in profitable companies.

It would be a wonderful world. But it's not the world we live in because these are publicly traded companies in a capitalistic economy. They don't just want to make money; the broader dynamics of the marketplace mean they have to make money or the managers will lose their jobs. Amazon is special. Wall Street has essentially granted Bezos the right to operate an extremely forward-looking charitable venture on the theory that at some future point it will acquire monopoly pricing power and start screwing us all. Personally, I'm skeptical that theory makes sense, so I'm just going to enjoy the ride. But don't hate on Amazon's competitors for not offering as good a value proposition. Pity them. I'm sure the bosses here at the Washington Post Company would love the opportunity to just deliver products regardless of profit, never pay dividends, and get hailed as geniuses for figuring out that the key to running a great media brand is for expenses to be unrelated to costs.

[source: Slate]

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Maintaining this attitude must have come in useful that same year when journalist Lee Sang-ho published recordings of Samsung vice-chairman Lee Hak-soo talking to the Korean ambassador to the United States, Hong Seok-hyun. The conversation revealed plans for Lee and Hong to funnel around 3 billion won (roughly $3 million) to South Korean presidential candidates and implicated Samsung in the bribing of senior prosecutors. Lee Sang-ho claimed Samsung consistently tried to silence allegations of corruption, leveraging its ownership of the major Joongang Daily newspaper — which was published by Hong Seok-hyun. Hong was forced to resign as US ambassador and Lee Kun-hee received a suspended two-year prison sentence for bribing former presidents in a separate incident (later pardoned by president Kim Young-sam), but the general fear around reporting negative coverage of Samsung remains.

A 2010 book called Think Samsung by the company's former chief legal counsel Kim Yong-chul has made the largest waves since. It revealed alleged shocking details of Lee Kun-hee's personal corruption, claiming that he stole up to 10 trillion won (about $10 billion) from Samsung subsidiaries, destroyed evidence, and bribed government officials to ensure the smooth transfer of power to his son. Reaction to the book was divided in Korea, with the vast majority of mainstream media refusing to cover it or run advertising, and many local people viewing Kim's allegations as little more than sour grapes; the result of unsettled grudges with the company. But affection for Samsung runs deep in South Korea, and an assault on the company's culture can almost be seen as an attack on the country itself — even when the man in question is a convicted fraudster.

Sounds like a decent chap.

Fighting within the Lee family, too, threatens to disrupt the company's future. Lee Kun-hee's older brother and sister have both sued him over the ownership of inherited shares, and for the first time this year the family split to hold separate memorial services for their father. The Samsung chairman has claimed that his brother, Maeng-hee, was "kicked out" of the family, and raged over his sister's marriage to a son of rival chaebol LG's founder. Questions also remain over how power will be transferred to Jae-yong, with the older Lee's conviction still fresh in the mind of many.

Interesting how Apple-watchers describe analysing Apple as an exercise in Kremlinology.  Looks like analysing Samsung is closer to the real thing.

[source: The Verge]