Category Archives: Digital Media

Brief Note on Bartz’ Yahoo Ouster

I haven’t had much to say on Yahoo for a while, and I won’t be prolix in discussing the ouster of Carol Bartz as the company’s CEO yesterday. She apparently was relieved of her executive duties on a telephone call from the company’s chairman, Roy Bostock, and she promptly shared that fact with Yahoo staff in a brief, presumably valedictory email message.

As I noted nearly two years ago, Bartz seemed lost at Yahoo. She provided lots of sound and fury, not to mention abundant theatrics, but her reign was more sideshow than focused leadership. Yahoo didn’t need a sideshow. There’s not much money in that.

To be fair, though, Bartz was miscast in her role. Before she came to Yahoo, she made her name and reputation as the chief executive at Autodesk, a company that specializes in the development of 3D-design, engineering, and entertainment software.

As you might imagine, Autodesk’s software was (and still is) sold to and used by design professionals and engineers,  not consumers. On the other hand, Yahoo is a content, media, and communications company that serves a broad-based consumer market. They’re very different companies, and it’s not clear why the Yahoo board thought Bartz’ previous experience made her the ideal candidate to reverse the dimming fortunes of one of the Internet’s brightest lights during the wild 90s.

Anyway, the whole Yahoo saga of the last decade has been an unremittingly sad story.  Yahoo retains some valuable assets, but nobody there seems to know how to get the most from them.

Advertisements

Pondering Intel’s Grand Design for McAfee

Befuddlement and buzz jointly greeted Intel’s announcement today regarding its pending acquisition of security-software vendor McAfee for $7.68 billion in cash.

Intel was not among the vendors I expected to take an acquisitive run at McAfee. It appears I was not alone in that line of thinking, because the widespread reaction to the news today involved equal measures of incredulity and confusion. That was partly because Intel was McAfee’s buyer, of course, but also because Intel had agreed to pay such a rich premium, $48 per McAfee share, 60 percent above McAfee’s closing price of $29.93 on Wednesday.

What was Intel Thinking?

That Intel paid such a price tells us a couple things. First, that Intel really felt it had to make this acquisition; and, second, that Intel probably had competition for the deal. Who that competition might have been is anybody’s guess, but check my earlier posts on potential McAfee acquirers for a list of suspects.

One question that came to many observers’ minds today was a simple one: What the hell was Intel thinking? Put another way, just what does Intel hope to derive from ownership of McAfee that it couldn’t have gotten from a less-expensive partnership with the company?

Many attempting to answer this question have pointed to smartphones and other mobile devices, such as slates and tablets, as the true motivations for Intel’s purchase of McAfee. There’s a certain logic to that line of thinking, to the idea that Intel would want to embed as much of McAfee’s security software as possible into chips that it heretofore has had a difficult time selling to mobile-device vendors, who instead have gravitated to  designs from ARM.

Embedded M2M Applications

In the big picture, that’s part of Intel’s plan, no doubt. But I also think other motivations were at play.  An important market for Intel, for instance, is the machine-to-machine (M2M) space.

That M2M space is where nearly everything that can be assigned an IP address and managed or monitored remotely — from devices attached to the smart grid (smart meters, hardened switches in substations, power-distribution gear) to medical equipment, to building-control systems, to televisions and set-top boxes  — is being connected to a communications network. As Intel’s customers sell systems into those markets, downstream buyers have expressed concerns about potential security vulnerabilities. Intel could help its embedded-systems customers ship more units and generate more revenue for Intel by assuaging the security fears of downstream buyers.

Still, that roadmap, if it exists, will take years to reach fruition. In the meantime, Intel will be left with slideware and a necessarily loose coupling of its microprocessors with McAfee’s security software. As Nathan Brookwood, principal analyst at Insight 64 suggested, Intel could start off by designing its hardware to work better with McAfee software, but it’s likely to take a few years, and new processor product cycles, for McAfee technology to get fully baked into Intel’s chips.

Will Take Time

So, for a while, Intel won’t be able to fully realize the value of McAfee as a asset. What’s more, there are parts of McAfee that probably don’t fit into Intel’s chip-centric view of the world. I’m not sure, for example, what this transaction portends for McAfee’s line of Internet-security products obtained through its acquisition of Secure Computing. Given that McAfee will find its new home inside Intel’s Software and Service division, as Richard Stiennon notes, the prospects for the Secure Computing product line aren’t bright.

I know Intel wouldn’t do this deal just because it flipped a coin or lost a bet, but Intel has a spotty track record, at best, when it comes to M&A activity. Media observers sometimes assume that technology executives are like masters of the universe, omniscient beings with superior intellects and brilliant strategic designs. That’s rarely true, though. Usually, they’re just better-paid, reasonably intelligent human beings, doing their best, with limited information and through hazy visibility, to make the right business decisions. They make mistakes, sometimes big ones.

M&A Road Full of Potholes

Don’t take it from me; consult the business-school professors. A Wharton course on mergers and acquisitions spotlights this quote from Robert W. Holthausen, Nomura Securities Company Professor, Professor of Accounting and Finance and Management:

“Various studies have shown that mergers have failure rates of more than 50 percent. One recent study found that 83 percent of all mergers fail to create value and half actually destroy value. This is an abysmal record. What is particularly amazing is that in polling the boards of the companies involved in those same mergers, over 80 percent of the board members thought their acquisitions had created value.”

I suppose I’m trying to say is that just because Intel thinks it has a plan for McAfee, that doesn’t mean the plan is a a good one or, even presuming it is a good plan, that it will be executed successfully. There are many potholes and unwanted detours along M&A road.

RealD’s 3D Promise and Peril

I should have an opinion on RealD’s IPO today. Fortunately, I do have one, and I will share it with you now.

If 3D goes big, RealD will scale right along with it. The company is the leading purveyor of 3D projection systems for digital cinemas. By its own estimates, it owns more than half of that market, holding off competitors such as Dolby, Laboratories, Inc., IMAX Corporation, MasterImage 3D, and X6D Limited.

It’s interesting to see Dolby among RealD’s primary competitors. In many respects, RealD is emulating the approach Dolby used to dominate the stereoscopic sound market in cinemas worldwide. RealD has read Dolby’s playbook, and heretofore it’s done better applying it to 3D cinema than Dolby has done.

You can peruse RealD’s prospectus yourself, but here’s an excerpt to whet your appetite:

As of December 25, 2009, there were approximately 16,000 theater screens using digital cinema projectors out of approximately 149,000 total theater screens worldwide, of which 4,286 were RealD-enabled (increasing to 5,966 RealD-enabled screens as of June 1, 2010). In 2009, motion picture exhibitors installed approximately 7,500 digital cinema projectors, an approximately 86% growth rate from 2008, and in 2008, motion picture exhibitors installed approximately 2,300 digital cinema projectors, an approximately 36% growth rate from 2007. Digital Cinema Implementation Partners, or DCIP, recently completed its financing that is providing funding for the digital conversion of up to approximately 14,000 additional domestic theater screens operated by our licensees AMC, Cinemark and Regal. We believe the increasing number of theater screens to be financed by DCIP provides us with a significant opportunity to deploy additional RealD Cinema Systems and further our penetration of the domestic market.

The salient point is that the addressable market is large, the overall penetration rate for 3D projection systems is relatively low, and the market stage is nascent. Moreover, this is worldwide opportunity, not one restricted to the North American marketplace.

That’s a good thing, too, though RealD — like everyone else with valuable intellectual property — is concerned about the fate that might befall it in China. Among noted risk factors in the company’s prospectus, we find the following:

Our business is dependent upon our patents, trademarks, trade secrets, copyrights and other intellectual property rights. Effective intellectual property rights protection, however, may not be available under the laws of every country in which we and our licensees operate, such as China.

Even though that’s a legitimate concern, it isn’t RealD’s biggest worry. The real worries in my view are industry dynamics (namely, 3D’s spread from cinemas to consumer electronics such as televisions, PCs, cell phones, and game consoles), the quantity and qualify of 3D entertainment fare (also known as content), and the ability of the industry ecosystem and consumers to foot the 3D bill.

3D has proven marketable in cinemas, but now it is trying to expand its empire into consumer electronics. That’s an opportunity and a threat for RealD, which obviously wants to extend its hegemony beyond the three-dimensional silver screen.

RealD will have to rejig its business model and its technologies to capture consumer-electronics markets. It will have to enter into new relationships, build or buy new products and capabilities, and market and sells its wares differently. And that’s presuming that 3D makes a successful commercial leap into living rooms, mobile devices, and other display-bearing devices. Much remains to be done on that front.

Then we come to the content issue. You might have noticed that not all 3D films have the box-office wallop of Avatar. Movie exhibitors like the premium they charge consumers for watching 3D movies (though they are less enamored of the added cost of 3D projection systems), but the willingness of the masses to pay more per view is contingent on cinemas offering them experiences they deem worthy of the 3D surcharge.

I’ve scanned the lineup of 3D films slated to hit theaters over the several months. I am noticing — how shall I say? — the pungent whiff of ripe schlock arresting my olfactory senses, even though, incredibly, RealD has not entered the “Smell-O-Rama” business yet.

Sadly, a lot of cheesy horror movies are queued up for the 3D treatment. That’s not good. I’m of the aesthetic view that ostentatious protrusive effects, used to goose the shock value of severed heads and buzzing saws, aren’t the best utilization of 3D technology. I like the immersive depth 3D can bring to quality entertainment and live sports, but I’m not sold on the viability of cheap gimmicks, or of 3D as ornamental gossamer for bad content. Look, a crap movie is crap movie. A 3D turd is still a turd.

And a proliferation of 3D turds will not do the 3D industry any good. Does anybody in Hollywood remember the 1950s . . . or perhaps read history?

Anyway, presuming that 3D is used naturally, that it is applied to good movies rather than as a decorative wrapper for bad ones, RealD still will have to contend with the nasty array of macroecoomic uncertainties that beset all us all.

There’s considerable risk in RealD as an investment vehicle, and there’s also a commensurate measure of promise. Today, on their first day of trading, RealD shares were snapped up eagerly by investors who see more promise than peril. The stock was up sharply from the open, and the company was able to price its offering well above expectations.

That’s an important consideration, by the way. Earlier in this post, I mentioned that RealD intends to take its 3D technology to consumer electronics. As part of that foray, the company is also looking at developing autostereoscopic (3D without glasses) technologies to eventually supersede its stereoscopic (3D with glasses) technology.

All things considered, I don’t think the glasses are going to cut it for casual television viewing in living rooms; nor do I think anybody but the geekiest of geeks will want to be wearing 3D glasses for extended periods while using a mobile device or playing a game console. The company that does autostereoscopic 3D right stands to reap massive rewards. RealD wants to be that company, but it’s not alone — Sony, Samsung, Dolby, 3M, Nintendo, and many others are in the mix, and their advances are closely monitored by HP, Dell, Apple, IBM, Cisco, and other major players.

RealD needs a warchest to fight that battle. Today’s IPO delivers it, as the company makes clear:

We will continue to develop proprietary 3D technologies to enhance the 3D viewing experience and create additional revenue opportunities. Our patented technologies enable 3D viewing in theaters, the home and elsewhere, including technologies that can allow 3D content to be viewed without eyewear. We will also selectively pursue technology acquisitions to expand and enhance our intellectual property portfolio in areas that complement our existing and new market opportunities and to supplement our internal research and development efforts.

Today’s IPO will help RealD pursue its strategic plan. Numerous external factors, however, are beyond its direct control.

Google’s “New Approach” to China Search More Like Raised Finger

A blog post earlier today by David Drummond, Google’s SVP of corporate development and chief legal officer (CLO), seems to have engendered some confusion in certain media circles. I am here to elucidate.

Titled “An Update on China,” the relatively brief blog post explains why and how Google will attempt “a new approach” to the delivery of search results to Chinese users.

Google is considering this new approach because China has forced its hand. As Drummond explains:

We currently automatically redirect everyone using Google.cn to Google.com.hk, our Hong Kong search engine. This redirect, which offers unfiltered search in simplified Chinese, has been working well for our users and for Google. However, it’s clear from conversations we have had with Chinese government officials that they find the redirect unacceptable—and that if we continue redirecting users our Internet Content Provider license will not be renewed (it’s up for renewal on June 30). Without an ICP license, we can’t operate a commercial website like Google.cn—so Google would effectively go dark in China.

Okay, got that? After Google and China exchanged unpleasantries over Chinese hacks and theft of Google intellectual property, Google relocated its search servers from China to Hong Kong. Chinese users who visited Google.cn automatically were redirected to the Google.com.hk.  Ostensibly this approach enabled Google to avoid having to provide filtered (as in censored) search results to its Chinese users. However, as I’ve mentioned before, the Google-China conflict wasn’t primarily about censorship, notwithstanding Google’s protestations to the contrary.

Just to recap, if I may speak freely, Google eventually came to believe that the China market was fixed, rigged in favor of China’s Internet players, including Baidu (more on which later). It wasn’t a fanciful deduction. Google had been subject to hacking, IP theft, aggressive state-sponsored corporate espionage, and an official government  policy of “indigenous innovation” that actively promotes the interests of Chinese companies over those of foreign rivals. All the while, of course, those foreign companies are invited by the Chinese government to do business in China, primarily so that their IP and trade secrets can be transferred to Chinese firms.

Anyway, getting back to Google’s blog post of earlier today, let’s consider the “new approach” Google is implementing in place of the automatic redirect from China to Hong Kong. What Google will do now — and it already works from North America — is provide a landing page at google.cn, from which Chinese visitors can click on a link that will take them to Google’s Hong Kong site (google.com.hk).

Incredibly, CNN, among others, is portraying this move as some sort of capitulation. Nothing could be further from the truth. In the face of official China’s strong disapproval of the automatic-redirect approach, Google has chosen to make the redirect manual, requiring that users merely click once before arriving at the Hong Kong search site. It’s a cheekily clever attempt  to circumvent China’s restrictions while adding just one step to the process of Chinese visitors availing themselves of Google’s Chinese-language services. Nothing substantive has changed, and Google has made no meaningful concession.

Obviously, China will see right through the maneuver. Google not only instituted “a new approach” that isn’t really a new approach at all, but it irreverently announced it  — in a public blog post, no less — to the entire world. Google has thrown down the gauntlet, and raised a middle finger for good measure. I don’t see how Google expects China to do anything other than reject its resubmitted application for an ICP license.

Meanwhile, we have news from Baidu (I told you I’d come back to them). Starting next month, Baidu will be hiring 30 “mid-to senior-level software engineers from Silicon Valley at a job fair on July 10 to drive new technology projects, its first direct hiring from the United States,” according to a Reuters report.

If Google won’t bring talent and trade secrets to Baidu in China, then Baidu will have go to California to get them.

Juniper’s Prudent Ankeena Play

A few commentators have opined that Juniper’s recently announced acquisition of Ankeena Networks was a me-too play, a means for the company to catch up with Cisco Systems in video-delivery infrastructure for mobile and wireline networks.

There’s an element of truth to that assessment, but that’s why I like the deal, said to be valued at less than $100 million. This wasn’t a speculative, damn-the-torpedos, high-risk acquisition, pursued by a vainglorious executive team intoxicated by delusions of grandeur.

To the contrary, this deal fills an identifiable gap in Juniper’s solution portfolio, provides software-based value that enhances the JUNOS profile, and responds to actual customer requirements relating to cost-effective, reliable, scalable, and high-quality video delivery. What’s more, the companies had a prior JUNOS-based technology partnership, giving Juniper added confidence that the deal would work.

Finally, the price was right. Juniper could derive considerable long-term benefits from ownership of Ankeena’s video-delivery software, and the price it’s paying for that opportunity is not prohibitive. The downside to the deal, presuming post-acquisition integration sputters and Juniper fails to leverage what Ankeena offers, is not debilitating, though Juniper is motivated to make this deal work.

This transaction looks like a tuck-in acquisition for Juniper. Risks have been mitigated, and the upside is promising.

Mystery Surrounds Acquisitions by Motorola’s Home and Networks Mobility Business

In November, the Wall Street Journal published an article quoting sources who said Motorola was preparing to sell its home and networks mobility business for as much as $5 billion.

Since then, as noted by Billing and OSS World, Motorola has not been behaving as though it’s inclined to sell the business, which is its largest. To the contrary, Motorola has gone on an acquisitive tear, buying three small companies that are being folded into the group.

The latest purchase involves SecureM, LLC and its wholly owned subsidiaries, which together operate as SecureMedia, a developer of software-based digital rights management (DRM) and security systems for IP video distribution and management. SecureMedia develops and markets software systems for securing the distribution of digital entertainment over multiple platforms to multiple devices, including set-top boxes, wireless handsets, PCs, and portable entertainment devices. Its products are apparently approved by all major film studios and TV broadcasters.

Quoted in a press release announcing the acquisition, John Burke, senior vice president of Motorola Home & Networks Mobility business, said the following:

“Motorola continues to invest in our video infrastructure solutions as our customers evolve their networks to handle the explosion in consumer demand for video. SecureMedia has superior expertise in IP-based video security and digital rights management — critical capabilities for the emerging Internet Era of Television, where video content is mobilized across the three screens of TV, mobile phone and PC.”

As with the two preceding acquisitions — of Israel-based BitBand, involved in content-delivery networking and IPTV, and RadioFrame Networks’ iDEN business — terms were not disclosed. Doubtless these were not bank-breaking transactions, but one wonders how they are consistent with Motorola’s reported desire to sell the business into which they are being integrated.

It’s certainly possible, as I mentioned in a previous blog post, that Motorola might intend to sell the business in pieces, with part of it to be sold earlier to one buyer and the rest to be kept or sold later to a different acquirer.

The report that appeared in the Wall Street Journal was relatively detailed, with sources providing the identities of prospective acquirers and the names of the investment banks, J.P. Morgan Chase & Co. and Goldman Sachs Group Inc., said to be advising Motorola on the sale. I suspect there was some fire behind the smoke, but it’s difficult to know whether we’re dealing with a cigar stub in a wastebasket or a five-alarm blaze.

One presumes there’s some method behind the ostensible madness, so stay tuned.

Apple’s Uncharacteristic Acquisitions Speak Volumes

Although Apple has nearly as much cash on hand as Cisco Systems, it is not a company known for acquisition-fueled growth. Instead, Apple has grown organically, through its own research-and-development initiatives. Apple has a flat, lean corporate structure and unique corporate culture, both of which militate against acquisitions.

Lately, though, Apple has been going against form. In December, it bought Lala, a digital-music service, for an undisclosed sum. A year earlier, it bought PA Semi, a designer of low-power microchips, for a reported $278 million.

Admittedly, that’s not a blazing pace of acquisitive activity. Still, while some companies are more casual with their acquisition strategies, Apple only pursues such deals as a last resort. When Apple buys a company, you know it’s because the folks in Cupertino felt they had absolutely no chance of building a viable alternative within a reasonable timeframe. You also know that Apple must have genuinely and strongly believed it needed to play in a particular space.

All of which brings us to today’s news, brought initially to light by AllThingsDigital. According to Kara Swisher, Apple will acquire Quattro Wireless, a mobile-advertising company, for approximately $275 million.

Launched in 2006, Quattro had received about $28 million in aggregate venture-capital investment from Highland Capital Partners and GlobeSpan Capital. Based in Waltham, Mass., Quattro was on a revenue run rate of $50 million, according to the Boston Globe. Quattro has about 150 employees, who are expected to remain in Waltham.

The Boston Globe reports that the deal closed before the end of 2009. It says Quattro is expected to notify its partners and customers of the transaction today, though there’s no word on when Apple will make a formal announcement.

In the wake of this deal, many observers will immediately point to the increasingly adversarial relationship between Apple and Google, formerly on friendlier terms, even with cross-pollination at the board level. While that’s an aspect of the story that bears notice, it’s also important to maintain a broader perspective, to resist seeing everything that happens in the industry as a cartoonish cage match between bloodthirsty foes.

Yes, Google recent announced an agreement to buy AdMob for $750 million, outbidding Apple in the process. Now Apple has responded by acquiring Quattro, an AdMob competitor.

However, Apple didn’t bid for AdMob or acquire Quattro because of a vendetta with Google. Apple doesn’t do acquisitions on a whim, and it doesn’t pursue them just to keep a property away from a competitor. Apple pursued both deals for reasons of its own, reasons having far more to do with its own strategic plan than with a preoccupation with Google.

Still, both companies see the same opportunities in mobile advertising. Each company has its own strengths it can leverage. For Google, the predominant player in search advertising, mobile advertising is the next frontier. It developed its Android mobile operating system as a platform for that push. For Apple, mobile advertising is an untapped source of potentially rich revenue in mobile communications and entertainment, realms in which it has established market leadership with its iPhones, iPods, iTunes, and AppStore.

While Apple and Google have intersected in competition, they’ve taken very different paths, with very different motivations and rationales, in reaching this juncture.