M&A and Religion

In the book "Ideas: A History of Thought and Invention, from Fire to Freud," the author Peter Watson reveals how religions have been consolidating rituals and customs of other religions to convert believers into their own religion.

The book touches on thousands of historical facts but the one that interested me the most was the fact that the religions of today are based in past beliefs from older religions. Even more astonishing, we celebrate rituals todays that came from old celebrations from religions around the world. Those old celebrations are based in certain cases to a physical event (e.g. solstice) and not to the historical facts that are religions try to sell us (e.g. birth of Christ).

The consolidations of beliefs and celebrations into very few religions nowadays makes me belief that the first industry to be consolidated in the world was relgion. The first consolidator and "multinational" was Catholicism.

Don't blame the oil 'speculators'

[Interesantemente despues del ultimo articulo que les mostre quede mas intrigado con el movimiento del congreso estadounidense por tratar de controlar la especulacion en el mercado de derivados del petroleo. Hoy me cruze con este articulo que aqui les comparto]

A campaign in Congress to punish traders for record oil prices reveals a fundamental misunderstanding of how futures markets work.

By Jon Birger, senior writer
Last Updated: June 27, 2008: 9:11 AM EDT

NEW YORK (Fortune) -- "Make no mistake about it," U.S. Rep. Bart Stupak, D-Mich., said Monday while chairing a meeting of the House Energy and Commerce subcommittee on Oversight and Investigations. "Excessive speculation in commodity markets is having a devastating effect at the gas pump that is rippling through our entire economy."
Here's a suggestion: The next time a Congressional committee wants to hold a hearing on how "speculators" are driving up oil prices, each committee member should first be required to demonstrate - preferably in their opening remarks - a basic understanding of the mechanics of futures trading.

Even better, they should be required to explain in detail how it is that investors who never take delivery of a single barrel of crude - and thus never remove a drop of oil from the open market - are causing record high oil prices.

If there were such a requirement, I guarantee we'd never again see a circus like the one Stupak presided over Monday.

"Do I think [Washington politicans] understand the role of futures markets - how they facilitate price discovery and the transference of risk?" asks former U.S. Commodities Futures Trade Commission chief economist Gerald Gay. "No, they're clueless - at least most of them."
Bad public policy

If our representatives did understand the oil markets, they'd know that the true telltale sign of a speculative bubble is not rising trading volumes but rising oil inventories. Speculators would be hoarding oil - building up inventories either in anticipation of higher prices or as part of a scheme to drive prices there. Yet according to the Department of Energy, U.S. oil inventories are now at below-average levels. U.S. oil stocks stand at 309 million barrels, versus 330 million in June 2005.

So far, lawmakers have introduced nine different bills targeting oil speculators, though for the most part their prescriptions have been milder than their over-the-top rhetoric .
Bashing futures traders may well be good politics, but it's stupid public policy. By providing a mechanism for locking in prices, the futures market makes it easier for oil companies to make costly investments in new production - which is the key to lowering prices at the pump.
Futures trading also discourages hoarding in an otherwise tight market. Without speculators willing to take the other side of so many futures contracts, oil refiners and other end-users might be inclined to ramp up their spot-market purchases and store more oil as a hedge against further price increases.

And, of course, any increased draw on current supplies would lead to even higher oil and gasoline prices. Indeed, without a futures market, I believe we'd be decrying oil at $200 a barrel oil instead of oil at $135.

A more basic misconception in Washington involves what these so-called speculators are really buying. They're not buying oil, they're buying futures, and this is a crucial distinction. A futures contract is an agreement between a buyer and a seller to deliver a set amount of oil - typically 1,000 barrels - at a specific price on a specific date. The value of that contract rises and falls, depending upon market conditions, right up until the date of delivery.

Thing is, the pension funds, index funds, hedge funds and other so-called speculators almost never take delivery of any oil. The typical investment fund will buy, say, the August oil future and then sell it days before it comes due - typically rolling over the proceeds into the next month's contract.

"For speculators to be propping up the price of oil, they somehow have to be taking physical oil off the market," says energy markets expert Craig Pirrong, a finance professor at the University of Houston's Bauer College of Business.

Pirrong points out that when the federal government decided to bolster cheese prices in the 1970s, it did so by purchasing warehouses full of cheese and keeping it off the market. "Well, where's the cheese now?" Pirrong asks. "Where's all the oil that the speculators have held off the market?"

Even if you believe there's no way that oil trading volumes could be soaring without influencing oil prices, remember that influence then has to run two ways.

If an index fund is indirectly driving up spot oil prices every time it buys a future, then the converse must be true, too - there must be an equal and opposite downward push on spot prices every time that future is sold. In other words, futures market critics can't have it both ways.
There's something else politicians conveniently overlook: futures trading requires two to tango. For every investor who is betting oil prices will go up, there also needs to be an investor willing to take the opposite side of that bet.

In the past, there have been times when the overwhelming majority of speculators were "longs" betting on higher prices, while their commercial-trader counterparts - i.e. traders working for oil refiners, airlines, and other end-users of oil - were the "shorts" betting prices would fall.
But as New York Mercantile Exchange Chairman James Newsome explained to Stupak's Congressional committee, today's speculators are evenly split between shorts and longs. Moreover, the percentage of futures contracts held by speculators (as opposed to commercial traders) "actually decreased over the last year," Newsome told the subcommittee, "even at the same time that [oil] prices were increasing."

It's time to find a new scapegoat. My own nominee: Congress. But that's another column.
Your voice: Is Birger right? Tell us what you think.

First Published: June 27, 2008: 8:30 AM EDT

Oil Bubble

[Recientemente he pensado mucho sobre lo que se discute en el mercado respecto al 'oil/commodity bubble'. Es un tema relativamente interesante y probablemente un poco complejo. Por esa razon me encanto cuando un amigo me envio el siguiente articulo que explica un poco la interaccion entre derivados y spot prices]

Econbrowser: Oil bubble (May 17, 2008)

How speculation may be contributing to the most recent moves in oil prices.
An important recent trend in management of pension and hedge funds is the increasing allocation of investment dollars to commodity speculation. There are lots of ways you can do this. Perhaps the simplest is to purchase, say, the July NYMEX oil futures contract. If you'd bought that contract Friday, it would enable you to take delivery of oil in Cushing, Oklahoma some time in July for $126/barrel. As a pension fund, you don't actually want to receive that oil, so in early June you'd plan on selling that contract to someone else and using the proceeds to buy the August contract. If oil prices go up and you can sell the contract for more than $126/barrel next month, you will have made a profit. By rolling over near-term futures contracts in this way, your "investment" will earn a return that follows the path of oil prices.

For the rest go to: http://www.econbrowser.com/archives/2008/05/oil_bubble.html

Commodity Bubble

Billionaire George Soros said the boom in commodities is still in a "growth phase'' after prices for oil, wheat and gold rose to records."You have a generalized commodity bubble due to commodities having become an asset class that institutions use to an increasing extent,'' Soros said today at an event sponsored by the Centre for European Policy Studies in Brussels. "On top of that you have specific factors that create the relative shortage of oil and, now, also food.''Commodities are in their seventh year of gains, with oil rising to a record $115.54 a barrel today as the dollar plunged to an all-time low against the euro. Rice has more than doubled in a year, while corn has advanced 68 percent and wheat 92 percent. Investments in commodities rose by more than a fifth in the first quarter to $400 billion, Citigroup Inc. said April 7 . . . Soros's comments echo those of Jim Rogers, a fellow founder of the Quantum Hedge Fund in the 1970s. Rogers is best known for being a commodities bull since the late 1990s, before the market started to rally in 2001. His Rogers International Commodity Index has more than quadrupled since its start in 1998.
Taken from: http://bigpicture.typepad.com/comments/2008/04/soros-says-comm.html

FARC Article in the WSJ

A FARC Fan's Notes
March 25, 2008; Page A22

A hard drive recovered from the computer of a killed Colombian guerrilla has offered more insights into the opposition of House Democrats to the U.S.-Colombia Free Trade Agreement.

A military strike three weeks ago killed Raúl Reyes, No. 2 in command of the FARC, Colombia's most notorious terrorist group. The Reyes hard drive reveals an ardent effort to do business directly with the FARC by Congressman James McGovern (D., Mass.), a leading opponent of the free-trade deal. Mr. McGovern has been working with an American go-between, who has been offering the rebels help in undermining Colombia's elected and popular government.

Complete article at: The Wall Street Journal

FARC Article in The New York Times

March 30, 2008
Files Suggest Venezuela Bid to Aid Colombia Rebels
By SIMON ROMERO

BOGOTÁ, Colombia — Files provided by Colombian officials from computers they say were captured in a cross-border raid in Ecuador this month appear to tie Venezuela’s government to efforts to secure arms for Colombia’s largest insurgency.

Officials taking part in Colombia’s investigation of the computers provided The New York Times with copies of more than 20 files, some of which also showed contributions from the rebels to the 2006 campaign of Ecuador’s leftist president, Rafael Correa.

If verified, the files would offer rare insight into the cloak-and-dagger nature of Latin America’s longest-running guerrilla conflict, including what appeared to be the killing of a Colombian government spy with microchips implanted in her body, a crime apparently carried out by the rebels in their jungle redoubt.

The files would also potentially link the governments of Venezuela and Ecuador to the leftist guerrillas of the Revolutionary Armed Forces of Colombia, or FARC, which the United States says is a terrorist group and has fought to overthrow Colombia’s government for four decades.

Complete Article at: The New York Times

Facebook: Democracy 2.0

Mauricio Ardila
March 5, 2008

(AP Images)

On January 4, 2008, a small group of friends created a Facebook group whose sole purpose was to promote a peaceful, non-partisan march in Colombia to stand up against the Revolutionary Armed Forces of Colombia (FARC). What these unsuspecting individuals had not counted on was the massive, worldwide response their message would elicit.

Exactly one month later, millions of people around the world marched in 163 cities, from Washington to Dubai, to call for an end to this terrorist organization. According to police estimates, in Colombia alone, an estimated 4.8 million people turned out for 387 different events.

This unprecedented mobilization was lauded because of its universal message and its ability to bring together a worldwide protest of concerned individuals. Facebook, the social network utility site, is often used as a tool for raising awareness of global issues and collecting donations for numerous non-profit organizations. However, the momentum and outcry of the February 4 events were unparalleled.

More impressive than the size of the march was its humble origins. Soon after creation of the Facebook group, inquiries started pouring in from around the world, some to request information, others to offer gestures of support. Within weeks, complete strangers had formed a worldwide logistics network using Facebook, email, websites, blogs, and Skype, an Internet-based phone service.

Coincidentally, three days after the march, Facebook, with more than 2.8 million active users in Latin America and Spain, launched a Spanish platform—the first step in internationalizing the site. Like the anti-FARC march, users—almost 1,500—took the lead in ushering in the change. Working across borders, people of all ages translated the site in less than four weeks, with the top translator responsible for 3 percent of the new Spanish content.

Democracy is defined as “a form of government in which the supreme power is vested in the people.” If Facebook can serve as a means to make a person’s voice heard then it and other networks should be recognized as a tool of democracy.

The face of the Internet hardly resembles that of 10 years ago. Originally dubbed the “information superhighway,” the Internet has evolved into far more than just a source for information, giving birth to new, virtual communities. Many of these communities, such as gaming centers, file sharing networks, blogs, and forums, can, in part, attribute success to allowing individual web presence to remain completely anonymous. Facebook, on the other hand, puts a real identity and “face” to its users, helping it to function as a democracy-spreading arsenal.

As evidenced by the February 4 march, the Internet can play an important role in helping to engage entire populations at a time—a feat unimaginable just a few years ago. Critics may say the demonstrations were initiated by a small, elite group with exclusive access to the Internet. However, Facebook and other social networking sites are free and globally available.

For social networking to become a true tool of democracy, we must boost the number of people with access to the Internet. From 2000 to 2005, the number of Internet users in Latin America jumped from 3.8 percent to 15.6 percent of the population. Nonetheless, we still have a long way to go. Without access, participation in this new age remains a distant goal.

Mauricio Ardila studies international business at George Washington University and works part-time at the Council of the Americas in Washington, DC.

A Million Bucks by 30

by Frugal Trader (Million Dollar Journey)

Alan Corey, young author and millionaire, contacted me after visiting MDJ one day. He told me about his story/book where he set a big financial goal at the age of 22 to become a millionaire before the age of 30. Not only did he reach his goal on average income (below average in NYC), he did it before the age of 29.

He didn't win the lottery, have a high salary job, or an inheritance. When it comes down to it, Alan Corey's success evolved from his frugality, bargain hunting real estate investing style and his bigger than life determination.

Some people will finish the book and say that Alan Corey was lucky to have hit the real estate jackpot in his transactions. It's true that luck may have had some part of it, but the sheer desire and drive to be a millionaire is what really made this young fellow succeed.

Who is Alan Corey?

Alan Corey is a regular guy who graduated with a business degree who had big aspirations to be a millionaire before the age of 30. He admits in the book that "he's not particularly good at anything" but he has the drive to save and make money. I know that I'm frugal, but I spend money like Michael Jackson compared to Alan Corey. He cut his expenses so much that he lived on 29% of his gross salary (in NYC) which was $40k at the time.

What are the main points made by the book?

• The book is a true story of how Alan Corey became a millionaire before his 29th birthday by simply making a goal for himself, and sticking to it regardless of the sacrifices he had make along the way.
• Alan Corey's method of obtaining wealth is extreme frugality, investing the saved money in equities and real estate. Most of his wealth was made from real estate transactions of his primary residences. Alan Corey has a keen eye for "up and coming" neighborhoods, which made up a bulk of the cash he made along his journey.
• His smartest moves in my opinion were buying houses in an up and coming neighborhoods, renting out the "good/high income" rooms while keeping the "bad/low income" room to live in himself.

What I liked?

• I enjoyed the frugal tips highlighted throughout the book
• I respect that Alan Corey describes every frugal technique that he could think of to reduce his expenses to next to nothing.
• I enjoyed reading about his challenges and the risks that he took (borrowing from family/friends) to secure his real estate transactions. He's a model for the old saying "No Risk/No Reward".

What I didn’t like?

• Even though Alan Corey implemented an extremely frugal lifestyle, I didn't agree with some of his highlighted frugal strategies. For example, creating a fake magazine company just to get concert tickets isn't ethical in my books, but to each their own.

Final Thoughts:

• I personally really enjoy reading success stories of young people achieving their goals through determination and hard work. Once I started reading, I couldn't put the book down and finished the book the same night. I would recommend "A Million Bucks by 30" to everyone for it's entertainment and financial value.

For those who have read the book, I've been in contact with Alan Corey recently and yes the millionaire still lives in the cramped, windowless closet he calls a bedroom. Nope, he's not letting his cash savings go to waste, he's currently working on other real estate deals.

Source: http://www.milliondollarjourney.com/book-review-a-million-bucks-by-30.htm

Google Analysis (Part 4/4) by Ana V. Ricaurte

GOING AFTER THE NEXT BIG THING

Google has still too much to worry about. With growth CAGR of +100% it needs to keep improving every day and penetrating additional markets every second.

To obtain such an audacious goal, Google has several strategy, two of the main strategies are: (a) Penetrating China, and (b) Expanding its service to the Mobile arena.

Developing Economies Strategy - China Penetration

For Google the developing markets are very different from what they are used to in the US and UK. Given that paid search in the international markets is immature, Google needs to change the name of the game.

For example in China, Google needs more than just a CPA strategy. Google have been playing in the China market since it established a Chinese-language version in 2000. Nevertheless Google have had great problems with its services in China.

Chinese government have put in place since the inception of the industry era in China, a technological “firewall” that restricts access to prohibited or banned information.

The government provided a blacklist of banned IP addresses and URLs featuring information and news about politically or culturally sensitive topics and required operators to block access to them. Users who attempted to access blocked sites would receive a non-specific error message, such as “the page cannot be displayed.” [i]

Google services has been affected by this firewall that impede its systems to run smoothly. On the contrary it services seems erratic and poorly managed, given space for local competitors.

Google’s own research showed that the company was perceived in China as an international brand and technology leader, but “a little distant to average Chinese users.” More than half of Internet users who knew about Google could not spell the name correctly, and more than half thought the company should have a Chinese name. By contrast, Baidu was perceived as being a Chinese brand with good technology, “friendly,” “closer to average Chinese people’s life,” and as having entertainment products. [ii]

Given that Google do not work closely with the Chinese government on terms of internet censorship, Badu –Google’s top competitor and local player in China— that does work closely with the Chinese government has been able to capture most of the Chinese market.

Baidu works with the government more closely than other search companies. Baidu launched a more aggressive system to censor their key words. They started to censor their search service earlier and more extensively than others. That’s why the government likes Baidu.xⁱ

In this case Google has two possibilities. (a) Follow Baidu game book and work with the Chinese government to censor its services from the beginning, and (b) Improve its search services inside China and extend its entertainment service to target China heavy internet users.

For China as well as for other developing countries, Google needs to change the name of the game. On one side Google needs more traffic and on the other side it needs to improve its monetization of this services. To attract more traffic to its Chinese search engine it needs to provide a more extensive service. To better monetize it services it needs to change the way it does business with advertisers (to overcome the immature online advertising market)

An analogy to the problem that Google faces in the developing economies where the paid online advertising market is still immature is what happened in the mobile phone industries more than a decade ago. When penetrating new markets mobile phone service providers changed the way they provide services. In the U.S. it is accustom that both receivers and callers pay for the mobile phone service. This idea never worked outside the U.S. It was too expensive just to carry a mobile phone per se that to have the user pay for the receiving calls it was unconceivable. In Europe and some developing economies the caller is the one that pays for the call. In Europe and Latin America, mobile phone service providers were really successful at penetrating the market when they changed the name of the game. Something similar has to occurred with the online advertising market in developing markets. I believe that advertisers in developing economies would wait until a successful CPA effective cost per action) platform is functioning to fully participate in this online industry. Until then you are going to see an ‘inmature’ industry in these regions.

An step towards changing the name of the game was the partnership that Google signed with Western Union in November 2007.

The Western Union Co. announced a program that allows Google AdSense(TM) Website publishers to receive payment in cash in nine countries via the Western Union Quick Cash®service. The Google AdSense advertising program enables Website publishers to serve Google AdWords(TM) text, image and video ads that are precisely targeted to their Website's content. When visitors to the site click on the ad, the AdSense publisher earns revenue. Before the launch of this program, Website publishers using Google's AdSense program received payment through paper check or electronic funds transfer (EFT) into a bank account[1].

Developed Economies - Mobile Focus

Google strategy in developed countries should focus on expanding its technology to new channels. One particular channel that I believe would be the future is the mobile space. I’m not talking only about cell phones but anything that would be describe as mobile (i.e. PDAs, portable game consoles, smartphones, etc).

Few analysts believe that the mobile focus would bring big advertising dollar for Google. The street believes that the big ad dollar would come from Google’s penetration to traditional media (TV, Printed and Radio). On the contrary I believe that the advertising market would continue to shift away from traditional media towards new media.

Forrester’s 2005 Benchmark Study, although consumers spend 32% of their time on the Internet, advertisers currently only spend 7% of all ad dollars on online advertising. Google believe that over time, this gap should shrink, with more dollars continuing to move online where consumers are. The parallel increase in the number of Internet users with broadband connections will also help stimulate growth and demand for online advertising. Much of the growth in the coming years is expected to come from the emerging markets regions as the online advertising market is relatively more mature in the United States and Western Europe.[2]

Google has recently focus on acquiring or developing a mobile platform that allows them to capture this new nascent market. In recent weeks, Google announced the world that it is going to release its own mobile platform in 2008 and it is already seeking partnership with wireless operators. The Google mobile platform (Android) would make Google applications and services as easily accessible on mobile phones as PCs, allowing Google to capture more ad business from the more than three billion users of cell phones and other wireless devices. On top of that other companies (e.g. Artificial Life Inc) have announced plans to develop games and applications for Android.

Interesting enough this new platform would be less costly than others (i.e. iPhone), attracting new opportunities for low cost providers and new solutions for developing countries. Google anticipates that this emerging platform will soon attract handset manufacturers because of the lower costs for the operating system and expects Android to be successful especially in China due to its Linux base.

Google is also exploring other alternatives to improve its mobile platform:

v Google has also developed plans to acquire mobile phone spectrums in both the U.S. and the U.K.

v Acquired (Oct 2007) Jaiku that operates as a conversational microblogging community that enables users to post thoughts from Web and mobile applications, and comment on the posts of friends and family.

v Acquired (Sep 2007) Zingku that provides mobile text and picture messaging services.

v Acquired (July 2007) GrandCentral Communications that provides a Web-based voice communications platform to manage phones and phone numbers.

v Developing (Nov 2007) a technology that will find the location of people using its mobile mapping service, even if the phone making the connection isn't equipped with a GPS receiver.

CONCLUSION

Google needs to constantly innovate and growth to be able to manage its investors expectations. The new goal in the future would be its expansion to the mobile and traditional media platforms, and its path to penetrate new markets (China being the most relevant of all those).

It seems that Google is accomplishing in each step of the way the relevant milestone to fulfill this audacious goal of organizing the information of the world. Only time will tell.

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[1] Capital IQ News Run

[2] Google Inc. HBS Case 9-806-105 by Thomas R. Eisenmann and Kerry Herman (Nov 9, 2006)

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[i] Google – Figuring Out How To Deal With China. Babson Case BAB131 by Anne T. Lawrence (August 2007)

[ii] Google – Figuring Out How To Deal With China. Babson Case BAB131 by Anne T. Lawrence (August 2007)

Google Analysis (Part 3/4) by Ana V. Ricaurte

OVERALL STRATEGY

Google strategy can be describe in five main efforts:

v Market Strategy – Differentiate product and service with high quality, accessibility and easy-to-use motto

v Innovation Strategy – Create the best technology available to perform the best service out there (i.e. PageRank)

v Human Capital Strategy – Bring the best of the best to create a knowledge base that can preserve the level of innovation necessary to continue serving its clients with the best products/services

v Management Strategy - Create flat structure (anti-bureaucracy) that fosters cooperation, flexibility and fast pace

v Don’t Be Evil Strategy – Create an environment where people love to do the ‘the right thing’

BUSINESS TRENDS[i]

Top Line Related

Google top line growth in the past 5 years has mainly come from Developed Economies. In the future, Google expects that a big portion of its top line growth would be related to current offerings in Developing Economies (i.e China) and to the Mobile Platform in Developed Countries.

The growth in international revenues in the three and nine months ended September 30, 2007 compared to the three and nine months ended September 30, 2006 resulted largely from increased acceptance of Google advertising programs, increases in Google direct sales resources and customer support operations in international markets and Google continued progress in developing localized versions of its products for these international markets. [ii]

Domestic and international revenues as a percentage of consolidated revenues, determined based on the billing addresses of its advertisers, are set forth below: [iii]

	Year Ended December 31,									Nine Months Ended
	2004			2005			2006			September 30, 2006			September 30, 2007
United States	66	%		61	%		57	%		57	%		53	%
United Kingdom	13	%		14	%		15	%		15	%		16	%
Rest of the world	21	%		25	%		28	%		28	%		31	%

Besides the increase in revenues from international sources, Google U.S. region has been affected by the relative weakening of the U.S. dollar. Nevertheless, it is clear from the online traffic numbers that the future of Google resides outside the U.S. While international revenues in each of the periods presented accounted for less than half of Google total revenues, more than half of its user traffic during these periods came from outside the U.S. [iv]

Another recent trend that could potentially affect Google’s top line and margin is the debate between Cost-per-Action (CPA) vs. Cost-per-Click. Where cost-per-click means someone pays Google (or another entity) each time a user clicks on a particular piece of advertising, cost-per-action means that someone pays when a user completes a potentially larger and more involved transaction[1]. Advertisers will migrate in the future to CPA models, in that scenario Google not only has to guarantee that its ads are well targeted but also guarantee that the user would take action.

Margin Related

When advertising dollars go through the Google Network (user-owned website), Google needs to share the ad revenue with them. For that reason it is more profitable if the ad dollars go through Google-owned websites. Since the beginning of the Google Network in 2002 through the first quarter of 2004, the growth in advertising revenues from its Google Network members’ web sites exceeded that from Google-owned web sites. Beginning in the second quarter of 2004 this changed, growth in advertising revenues from Google-owned web sites exceeded that from Google Network members’ websites. i

INDUSTRY OVERVIEW & COMPETITIVE LANDSCAPE

Google potentially competes with nearly every company in the information technology industry. The problem for companies outside the advertising world is that Google for the most part doesn’t compete for part of the business (i.e. revenues), it competes for what I call ‘purpose’ (maybe purpose that can be later monetize). Google is not planning to charge for some services or products. It seems that it wants to expand its platform and later develop a way of monetizing its reach.

For ‘purpose’, Google has a product that quasi-competes with Microsoft Office (i.e. Docs & Spreadsheets), a product that kind of competes against eBay or Amazon (i.e. Froogle), a product that competes against Mapquest (Google Maps), Snapfish and Kodak Photos (Picasa), Cable providers (Google Video and YouTube), and Free email providers (Gmail). For revenues, Google competes head to head with Yahoo! and Microsoft. These three mega players (Google-$215B in market cap, MSFT-$315B and YHOO-$35B) seemed lock in arm race to obtain part of the advertising budget.

On top of that, Google could also be a future competitor to other media companies (i.e. cable providers, TV channels, newspapers, radio station, etc). Google has been constantly exploring how to expand to other media channels without any proper incursion. So far it has products that provide some related services (Google Video and YouTube) but it doesn’t have a mechanism to exploit in full extent its technology. Google is providing its clients with access to its technology to place ads in different media channels but it is sharing the revenue with those media channels (Google Video, Audio, Print, and TV Ads). In the future, I expect that Google will move to buy or develop technologies that would close this gap. This channel has a similarity with what happens in the Online space and the difference between Adwords and Adsense. I believe Google will give priority to developing its own channels to improve its margins. If Google has done it for Online Searches, I don’t see why it wouldn’t do it for the other media channels.

FINANCIAL ANALYSIS[i]

Google has grown from $86.4 million in revenues in 2001 to $10,605 million in 2006 (expecting $16,598 million in 2007). This grown is explained by the increase of ad revenues due to an increase in effectiveness (Google technology) and an increase in online advertising spending (overall market).

Return on Equity (ROE) has been between the 20-25% range, but return on capital (ROC) has decreased from a high 54% in 2003 to a 17% in 2007 (LTM). This proves how Google moves away from a strategy that focus on bringing ‘business’ to a strategy of bringing ‘purpose’. In other words, Google goal is not only improve its shareholders value but also the world by organizing the information available.

Most of the liquidity and liability ratios do not make sense with Google given its zero debt level.

On the balance sheet side the most important number here is the increase in cash & equivalents for the past years. This allows Google to not have any debt and to have money to acquire new companies (i.e. new technologies).

Margins at an operating level had improved since 2004 because of the focus on Adwords strategy more than an AdSense strategy. Previously in this paper it was explained how these two strategies affect Google margins.

A company comparison (comps analysis) against Microsoft and Yahoo! it’s almost unfair. Google is growing so fast in top line without penalizing its margins that any comparison would leave the other two competitors at the bottom. Stock performance for Google has been a magnificent story (going from $100 at in 2004 to almost $700 today) only comparable to the earlier MSFT days.

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[i] Capital IQ, Analyst Reports (Bear Stearns & Credit Suisse) November 2007

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[1] Google deems cost-per-action as the 'Holy Grail', by Stephan Spencer (August 22, 2007)

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[i] Google Inc SEC Fillings (10K – Feb 2007)

[ii] Google Inc SEC Fillings (10K – Feb 2007)

[iii] Google Inc SEC Fillings (10K – Feb 2007)

[iv] Google Inc SEC Fillings (10K – Feb 2007)

Google Analysis (Part 2/4) by Ana V. Ricaurte

BUSINESS DESCRIPTION[i]

On its own words, Google is a global technology leader focused on improving the ways people connect with information. Google first product and core advantage is its search engine platform. Google maintains an index of websites and other content, and makes this information freely available to anyone with an Internet connection. Its search technology allows people to obtain nearly instant access to relevant information from its online index. For the common users it is unclear where Google index finishes and the internet starts. Google seems to be searching the internet instantly but what it is actually doing is searching in its indexed part of the internet. Google generates revenue by delivering online advertising.[ii]

BUSINESS UNITS[iii]

Google.com—Search and Personalization

Google first product and the key to its success is its search engine. Nevertheless, Google continue to expand its product portfolio. Other products now included are:

v Google WebSearch . Lets you search inside a website.

v Google Image Search . Lets you search for images.

v Google Book Search . Lets you search for books.

v Google Scholar . Lets you search for relevant scholarly literature

v Google Base . Lets content owners submit content that they want to share on Google web sites. Google Finance . Provides an interface to navigate complex financial information

v Google News . Gathers information from thousands of news sources worldwide

v Personalized Homepage and Search . Allows personalization

v Google Co-op and Custom Search . Google Co-op extends the power of Google’s search technology by combining its algorithms with the context, knowledge and expertise of individuals. Google Custom Search allows communities of users who know a lot about particular topics to build customized search engines.

v Google Video and YouTube . Google Video and YouTube let users find, upload, view and share video content worldwide.

Communication, Collaboration and Communities (Online Products)

Google wants to allow its users to share content so it has developed tools that have this ability.

v Google Docs & Spreadsheets . Word-like and Excel-like products, offered by Google without any cost. Accessible with an internet connection and a web browser. Next year Google would see Presentations, a Powerpoint-like product. All of these lets you share the file with others.

v Google Calendar and Gmail . Google’s free webmail service combined with a free calendar that lets you share your events and post with others.

v Google Groups . Helps groups of people connect to information and people that interest them.

v Orkut . Enables users to search and connect to other users through networks of trusted friends.

v Blogger . Allows users to publish their blobs (weblogs)

Downloadable applications (Desktop Applications)

Google wants to bring essential applications to its users for free (e.g. antivirus, photo organizers, media players, office-like solutions)

v Google Desktop . Lets people perform a full-text search on the contents of their own computer.

v Google Pack . Free collection of safe, useful software programs from Google and other companies that improve the user experience online and on the desktop. It includes programs that help users browse the web faster, remove spyware and viruses and organize their photos.

v Google Toolbar . Search box to web browsers.

Google GEO—Maps, Earth and Local

Google wants to provide geographic information at all levels.

v Google Earth . Lets users see and explore the world from their desktop.

v Google Maps . Helps people navigate map information (i.e. MapQuest competition).

v Google Sketchup . 3D modeling tool.

Google Checkout

Google Checkout is a service for users, advertisers and participating merchants that provides a single login for buying online and by helping users find convenient and secure places to shop when they search.

Google Mobile

Google Mobile lets people search and view both the “mobile web,” consisting of pages created specifically for wireless devices, and the entire Google index, including popular products like Image Search. Users can also access a variety of information using Google SMS by typing a query to the Google shortcode. Google also offers Google Map, Blogger and Gmail Mobile.

Google Labs

Google Labs is the tech lab where google creates all its new products. Users can try prototype versions.

GENERATING REVENUE[iv]

Google generates revenue primarily by delivering relevant, cost-effective online advertising. Google has five channels to distribute its advertising:

v Online . With AdWords, an auction-based advertising program that enables advertisers to deliver relevant ads targeted to search results or web content. There are two channels inside the online space:

o AdWords: Delivers online ads inside Google owned websites. Online ads placed in the right side of the site, next to the search results.

o AdSense: Delivers online ads inside Google network (user owned websites). Google recruits million of users that use its AdSense platform to provide online ads in their website. The users get a share of the profit.

o Interesting enough Google doesn’t disclose separately its revenue from the Mobile effort and platform.

v Video . With Google Video Ads, user-initiated click-to-play video ads that run on its web sites and the web sites of its Google Network members.

v Television . With Google TV Ads, an automated online media platform that schedules and places advertising into TV programs.

v Radio . With Google Audio Ads, an automated online media platform that schedules and places advertising into radio programs.

v Printed Media . With Google Print Ads, a web-based marketplace for placing ads in print media.

Google derives most of its revenues from fees Google receive from its advertisers through its AdWords and AdSense programs.[v]

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[i] Google Inc SEC Fillings (10K – Feb 2007)

[ii] Reuters

[iii] Google Inc SEC Fillings (10K – Feb 2007)

[iv] Google Inc SEC Fillings (10K – Feb 2007)

[v] Google Inc SEC Fillings (10Q – Oct 2007)