Web 2.0: most likely to crater

A regular topic on this blog is the problem of Web 2.0 business models, and in particular that these emperors have no clothes.

To this same end, on Friday CNET published a list of 11 Web 2.0 companies most likely to run out of money and die:

• Twitter
• Meebo
• TripIt
• Zillow
• Pandora
• Skype
• Ask
• DailyMotion
• Netvibes
• MySpace

Some of these make sense, as with Pandora, which has one of the top iPhone apps but has publicly said that (due to onerous record label royalties) that its end is near.

Some of the others I don’t get. Why list MySpace (with a rich sugar daddy) but not Facebook (with neither a sugar daddy nor a business model)? Skype and Ask may have troubles, but they each have a sugar daddy.

As with any other prediction, it will be a year or two before we see how prescient columnist Rafe Needleman was.

Where has the Moto gone?

Last weekend, I remarked on the disproportionate representation of LG and Samsung as suppliers to Verizon, the largest US CDMA carrier. Earlier I’d assumed that LG and Samsung were taking Verizon by storm because the Europeans don’t make CDMA phones (or good ones).

However, in the succeeding week, I made some more visits (to do repairs at the Apple Store) and the pattern was nearly the same at the Cingular AT&T store. I decided to count available handsets at the Verizon kiosk in the mall and the AT&T stand-alone store in the strip mall across the street. I tried to exclude duplicates (like the four Samsung Blackjack II phones at the AT&T website).

After looking at these retailers representing 54% of the US market, what was striking was the lack of handsets by Motorola. According to the Q2 figures, Motorola still leads the US market, while LG has slipped past Samsung into second. But you wouldn’t know it from looking at the phones in the mall.

Global (2007)		U.S. (Q2 2008)			# of handsets
Rank	Share	Rank	Share	Mfr.	AT&T	Verizon
3	13.9%	1	25.8%	Motorola	2	3
5	7.0%	2	21.0%	LG	5	7
2	14.1%	3	18.6%	Samsung	5	5
		4	10.6%	RIM BlackBerry	3	2
1	38.2%	5	9.5%	Nokia	2	-
4	9.0%			Sony Ericsson	1	1
				Apple iPhone	1	-
				Other	2	3

Clearly LG, Samsung and RIM are benefitting from product proliferation, while Apple is getting more share out of their one model than Palm. LG has clearly leveraged that product proliferation (and other point of purchase push) into US market share gains.

Razr is not a business telephone but a consumer phone, and supposedly the best-selling phone in America. So if they're not being sold in the malls or strip malls, where are people buying them? Costco? Office Depot? Of course, Motorola has a monopoly on the iDEN phones sold for the Nextel half of the Sprint Nextel network, but this is clearly a declining and troubled business.

So should Sanjay Jha get Motorola to create more new models (ala LG) or should he creating more compelling point products (ala Apple)? It seems unlikely they squeeze a higher sales rate out of the Razr, and so the issue is the popularity of #2 or #3 Motorola models (or perhaps adding a #4 or #5 model). The Razr is a cool slim flip phone, but do people want different form factors, operating systems, feature lists?

One major growth area is increasingly important and increasingly competitive smartphone segment, where RIM and Apple dominate North America and Motorola is a distant fifth. The Motorola smartphones don’t seem to be attracting buzz, visibility or tire-kickers, whether the Symbian-based Moto Z10 or Windows-based Moto Q (or its Q11 successor). Is this the hardware design? Is it that Symbian isn’t designed for the US market? Is it that Motorola is splitting the Windows Mobile market with Palm (#3 in US smartphone sales with its 750w and 800w) and Samsung (#4 via the BlackJack II)?

Rather than make better Symbian or WM phones, it appears that Motorola has placed its huge smartphone bet on Android. But the gPhone is far from a certain success, either as a platform or as a series of handsets. As long as Motorola has Symbian and WM development teams, it seems as though they should continue to develop successor projects until the verdict on Android comes in.

Facebook don't need no stinkin' business model

Interviewed by Germany’s leading newspaper, Facebook CEO and founder Mark Zuckerberg explains why his current lack of a business model is no big deal:

…what every great internet company has done is to figure out a way to make money that has to match to what they are doing on the site. I don't think social networks can be monetized in the same way that search did. But on both sites people find information valuable. I'm pretty sure that we will find an analogous business model. But we are experimenting already. One group is very focused on targeting; another part is focused on social recommendation from your friends. In three years from now we have to figure out what the optimum model is. But that is not our primary focus today.

I loved the comments, including this one (even though it’s an obvious shill for selling a $400 report);

In the oblivious parallel universe, growth has nothing to do with revenues, and so it is for Mark Zuckerberg, CEO of Facebook,

Facebook is the quintessential Web 2.0 startup, and thus epitomizes the indifference of Web 2.0 startups to making money.

Hat tip: Good Morning Silicon Valley, Oct. 9, 2008

Has Apple surpassed 10m iPhones?

Seeking Alpha authors Andy Zaky and Turley Muller estimate that 9 months into 2008, Apple has already surpassed Steve Jobs’ widely quoted (and oft-ridiculed) projection of selling 10 million iPhones this year. In particular, they calculate that Apple sold 7-7.5 million units in Q3, the final quarter of the Apple fiscal year, building on the strong sales spurt with July’s release of the iPhone 3G.

They use a clever strategy of tracking serial numbers (IMEI) as a way to estimate how many phones have been built, and use convergent numbers from web browser stats.

Apple’s FYQ4 earnings release is due a week from Tuesday. If Zaky and Muller is right, Jobs will proudly proclaim that Apple has blown past the 10 million figure in hopes of supporting the stock.

So far the stock is in freefall, off even more than Google due to worries about consumer spending. Next week’s rumored announcement of a sub-$1K laptop won’t turn that around, but perhaps unexpectedly strong iPhone earnings could provide support for the stock.

More importantly, if Apple is lucky the announcement will correspond to a shift in the overall macroeconomy. In a rare example of local TV actually interviewing someone who knows something about the economy, our local NBC station tonight ran an interview with a really smart Chicago school economist who also happens to be a former Congressman and business school dean. Tom Campbell says the economy will keep falling until the Feds start spending the bailout money, hopefully in a few weeks.

Local Android skepticism

In a part of the world where everyone is either praising or fearing every move of Eric Schmidt and the Monster of Mountain View, Merc columnist Chris O’Brien this morning had a very skeptical column about Google’s new cellphone operating system, entitled “Why we'll all soon forget about Google's Android.”

Citing a Chinese VC’s indifference to the T-Mobile G1 announcement, O’Brien concludes:

[His] response provides a little perspective on the immense hype Android has generated in Silicon Valley. Around the globe, Android is barely a blip on the radar. And that's unlikely to change.

Instead, expect Android to remain the latest in a long list of Google curiosities introduced amid great fanfare, only to quietly fade into the background.

…
But there are several challenges I don't see Android overcoming.

First, it starts off way down the list of operating systems for smart phones. At the top of the heap are BlackBerry, Windows Mobile, the iPhone, and Symbian. This last one is produced by a consortium of the largest cell phone manufacturers in the world, including Ericsson and Nokia.

And it was recently announced that Symbian will become open-source. Throw in the fact that a group called the LiMo Foundation is developing a Linux-based operating system for mobile phones, and Android becomes just one of three open-source options.

Yes, you say, but this is Google. To which I say: Yes, but this is Google.

The company has been churning out countless initiatives in every direction, but they seem to have no coordination. A year ago, it launched the Open Social initiative to counter Facebook. Heard anything about that lately?

Another factor cited by O’Brien is Google’s lack of focus. Quoting CNET, O’Brien notes that in the near future Android will not use Chrome (proving my earlier speculation false). Instead, Google funded two separate WebKit-based open source browser efforts, one for the mobile phone Linux stack and one for personal computers. I read this as Google allowing decentralized innovation without concern for synergy or even code reuse.

O’Brien is now our most provocative local tech columnist, and he raises some excellent points. Still, there’s no way to prove (or disprove) his thesis today. We don’t know if this is the next Maps or News or Gmail — building on its search dominance — or whether this is the latest unsuccessful, loosely related diversification effort ala Google Answers or Froogle or Lively.

Of course, as Nick Carr observed, Google still gets ad revenues off of failure. All those gPhone users will be using Google.com and Google Talk and Google Maps rather than their Yahoo or MSN equivalents.

O’Brien is bearish on Android, and some of his larger indictments imply he’s bearish on Google too. I’m not sure the markets yet agree. I don’t normally speculate on stock values, but in this case, Google’s stock is certainly the #1 indicator of industry and financial market sentiment about its prospects for growth and perhaps Total World Domination.

Google’s shares are off 52.5% this year, versus 55.2% for Apple (perceived as a luxury brand) and only 38% for the NASADAQ as a whole. Google (according to Yahoo Finance) still has a trailing 12 month P/E of 21.6 vs. 17.4 for Apple. IBM (with a great quarterly earnings and forecast) has a P/E of 11.0 and is only off 17.7% this year, while P&G sports a P/E of 16.7.

Google is no longer priced as invincible, but do the fundamentals justify its growth P/E? Or is the price price sustained by an unwillingness of Google zillionaires and stock speculators to lock in this year’s 50+% paper loss and sell at prices not seen in three years? I think the real test will be on Dec. 31 — if the stock is below 300 (or even 350), money managers may cleanse the shares from their public portfolios to avoid embarrassment.