Google Says Employees First Shareholders Second

Google (GOOG) released there earnings this week and had a couple of surprises. First their revenue was stronger than expected due to the economic meltdown. Good news for investors, it looks like Google is more recession proof than most. But here comes the bad news. Google took a $1 billion charge to write down bad investments in AOL and Clearwire. Second, Google is repricing their stock options for employees costing shareholders almost $500 million. This is nothing more than corporate charity for Google employees. Eric Schmidt, Google CEO, said that, “At least 85% of employees have stock under water.” That certainly makes for a lot of unhappy employees.  This really makes a mockery of the “align employee interests with shareholders” argument. What this tells me is Google is saying we don’t care about shareholders and our stock is not going to be going up anytime soon. It also says we will do just about anything to keep our employees.

Microsoft Misses Earnings and Cuts 5,000 Jobs

The economy must really be going down the tubes. Microsoft announced today it missed its revenue and earnings targets and plans to cut 5,000 jobs.  Amid slow PC sales, revenue for the quarter came in at $16.6 billion for the second quarter, up just 2 percent from a year ago. Microsoft’s revenue was $900 million less than the company projected.

For Wall Street, this was a big surprise given IBM and Apple had strong quarters. People were expecting Microsoft to perform well given its diversified business. I think Microsoft performance is a result of a broader economic downturn that could become much worst before  it gets better. And a growing problem with the effect of netbooks and losing share to Apple. With the economy in more of a reset mode than a recession I think we are in for a long downturn and IT spending will be impacted broadly.

 With this news Steve Ballmer announced that Microsoft would cut 5,000 jobs and reduce other costs across the company. You can read his whole email below. Read more

Google Kills Print Advertising

More bad news for newpapers. Google is exiting the printed advertising business. Today Google announced on their blog that they would be cutting the project entirely, Spencer Spinnel, Director of Google Print Ads, writes:

 

In the last few months, we’ve been taking a long, hard look at all the things we are doing to ensure we are investing our resources in the projects that will have the biggest impact for our users and partners. While we hoped that Print Ads would create a new revenue stream for newspapers and produce more relevant advertising for consumers, the product has not created the impact that we – or our partners – wanted. As a result, we will stop offering Print Ads on February 28. For advertisers who have campaigns already booked, we will place their ads through March 31.

Bloggers Rebel Against Federated Media

Over the last year John Battle’s Federated Media (FM), which sells advertising for some of the most popular blog sites has been shrouded in controversy. First FM was trying to raise capital or cash out on a crazy valuation of $400 million. They eventually rasied $50 million from Oak Investment Partners on a valuation of $200 million. But In November Giga Om canceled their advertising deal with Federated Media and went with IDG. Last week Federated Media announced layoffs and said they were going to move away from display advertising.

Perhaps the dagger in the heart was when FM’s crown jewel TechCrunch gave a hint that they are considering alternatives. Michael Arrington wrote in his blog post, “I’m nervous about our ad partner Federated Media, which supplies about a third of our total revenue. They’re going through layoffs and payments from them have dipped substantially in recent months.” He goes on to say that they give FM a 40% cut on their advertising revenue. For one of the leading tech blogs this seems like a steep price to pay for driving a bulk of FM’s revenue. If TechCrunch bolts from FM like Giga Om and Digg did then I would say that FM’s days are numbered.

Michael, I think you deserve to keep more of your money and I think FM is getting greedy. FM will soon find themseleves going out of business if they don’t keep their best partners happy.

Windows 7 Makes Netbooks Fly

If you want to see how much progress Microsoft has made with Windows 7, try it on a Netbook. I have been testing an ASUS Eee netbook with Windows 7 Beta 1 for the last couple of weeks. The netbook sports an Intel Atom processor and only 1 GB of RAM.

We have seen the netbook PC category explode over the last two years and Microsoft was forced to make a key decision. Give up market share to Linux or lower the price of Windows. With the average price of a netbook selling for around $400 Microsoft made a smart business decision and sold Windows XP at a discount. Microsoft now has over 80% of the netbook running Windows. But Windows Vista would never be a credible alternative on netbooks. It required too much hardware to run optimally and Microsoft was worried about cannibalization.

 In comes Windows 7, when I first booted Windows 7 the first time I could tell something was different. It was snappier and more responsive. Applications loaded fast and even with the minimum hardware requirements the Windows Aero interface was enabled and performed like my desktop running Vista. After using it for a while I can only describe it with one word, solid. There are not any flashy features but several enhancements that you quickly become accustom to. Microsoft has clearly taken a different approach with the design of Windows 7 and it shows running on netbooks. Windows 7 is by far the best Windows beta I have ever seen come out of Redmond. It looks like Microsoft is starting to get its mojo back.

Google Cuts Projects and People

Google is human and not immune to the downturn in the economy. Google announced that they are cutting 100 recruiters and ending deals with several contractors. Now they are cutting several projects like Dodgeball, Jaiku, Mashup Editor, Notebook, Catalog Search, and Google Video. 

I am sure this is the start of a bigger trend to re-focus and prioritize engineering resources across the company. Some of the lavish perks I am sure will also be on the chopping block as Google positions itself to weather the tough economic storm ahead. Google’s quarter looks to be under pressure according to Piper Jaffray analyst Gene Munster, who said in a research note that “Google’s paid clicks are tracking down in December, and that may put pressure on the fourth quarter.”

Regardless of what happens anyone who is in the advertising bsuiness will suffer in this economic down turn. The easiest thing for a CEO to cut in tough times is the marketing budget.

Steve Jobs Takes Medical Leave

Today Apple (AAPL) CEO Steve Jobs announced that he would be taking a medical leave of absence. Apple’s stock was halted from trading after the news broke. There has been a lot of speculation over the last month on his health, especially since he bowed out of MacWorld.

Many thought his pancreatic cancer had come back. But two weeks ago he tried to quell rumors about his health and said his weight loss was due to a hormone imbalance. Now he is being more definitive about how serious his health condition is. Below is the full text of his email.

 

Team,

I am sure all of you saw my letter last week sharing something very personal
with the Apple community. Unfortunately, the curiosity over my personal health
continues to be a distraction not only for me and my family, but everyone else
at Apple as well. In addition, during the past week I have learned that my
health-related issues are more complex than I originally thought.

In order to take myself out of the limelight and focus on my health, and to
allow everyone at Apple to focus on delivering extraordinary products, I have
decided to take a medical leave of absence until the end of June.

I have asked Tim Cook to be responsible for Apple’s day to day operations, and
I know he and the rest of the executive management team will do a great job. As CEO, I plan to remain involved in major strategic decisions while I am out. Our
board of directors fully supports this plan.

I look forward to seeing all of you this summer

Motorola Phone Business Continues Nosedive

When Dr. Sanjay Jha took over Motorola’s handset division he made some quick decisions to standardize on fewer platforms. One platform he took a huge bet on was Google’s Android operating system. Sales have been declining and Motorola continues to lose share in the market. They have failed to have a real blockbuster product for several years. PhoneScoop reported that they expect Motorola handset business to announce a massive layoff soon. This could mean bad news for Microsoft and Windows Mobile. The rumor is Motorola might bet everything on Google’s Android. This would be a really desperate measure especially since Motorola has yet to release an Android phone. Mr. Jha is motivated by pure greed. If he succeeds in rebuilding the mobile business for Motorola, he gets about $100 million over three years and 3 percent of the independent handset business. If he fails — he walks away with about $30 million.

LG Adds Netflix to HD TVs

Netflix and LG Electronics announced that LG will soon introduce TV sets that can stream Netflix movies directly from the Web without an external box. “It’s hugely symbolic,” said Netflix’s chief executive, Reed Hastings. “The holy grail has always been to give the TV an Internet jack in addition to the cable jack. It’s an early glimpse of the long-term future.”

Netflix has been hard at work practically equiping every consumer electronic in the home with the capability of instant movie viewing.  From Tivo and DVD players to Xbox 360, Netflix has been fast to lock up as many devices as it can. This partnership with LG is really significant because it is a big step forward in making the TV become a connected device in the home. Read more

Race For A New Game Machine

Sony’s PlayStation 3 is nothing short of a greek tragedy. There haven been many companies before it suffer similar fates, Magnavox, Atari, and even Nintendo but none have squander their opportunity like Son.  But now David Shippy, the “brains”  behind the cell processor which powers the PlayStation 3 tells the story of how Sony was part of one of the biggest business failures of all time.  

In a new booked called The Race For A New Game Machine, he describes how the project went off the rails, ending up with IBM engineers creating the processing chips for two rival video game consoles. In the process IBM sold parts of the cell processor design to Microsoft for their Xbox 360 and Microsoft benefited from over $400 million in R&D funded by IBM, Sony, and Toshiba. The R&D teams worked in the same building and in some cases Shippy met with Microsoft engineers right after meeting with Sony engineers. Ultimately Microsoft benefited a great deal from Sony’s work on the cell processor. Microsoft launched their Xbox 360 a year before Sony launched their PlayStation 3 and the rest is history.

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