Don Dodge on The Next Big Thing

Google, Verizon & Microsoft on 700MHz wireless spectrum auction

The battle for the 700 MHz wireless spectrum has begun. It is both a business and political battle, while the issues are very technical. The US governement is holding an auction in January to sell off the most valuable wireless spectrum ever available, raising as much as $10 Billion dollars. It is a once in a lifetime opportunity for several reasons. The 700 MHz issue was raised at the CTIA conference.

More powerful and cheaper to deploy - The 700MHz spectrum is more powerful than the current cell phone spectrum, can go through walls much easier, and it is cheaper to deploy. Because the spectrum is more powerful it requires fewer transmitters and towers, making it much less expensive to build out a nationwide network. We are talking 50% less, ore eveen 70% less.

Why is this political? The government decides what gets auctioned, when, and under what rules. The incumbent wireless carriers (Verizon, AT&T, etc) want to own the spectrum and use it the same way they currently do for other cell phone spectrum. Google and others want in on the action, and want to change the rules of the game.

Why is Google interested? Google wants to buy the spectrum for up to $5 Billion dollars and make it available in much the same way that the Internet is available today. Everyone can access it, but you do need to pay. Here is how The Register describes Google's intentions;

"Google doesn't want to run its own wireless network. It wants to sell spectrum to third-party ISPs, hoping to finally create some competition in the broadband internet market. That's the broadband market as a whole, not just the wireless market. Remember, the likes of AT&T and Verizon control not only the airwaves, but all those wired lines as well."

What will Microsoft do? Microsoft is interested in seeing the Windows Mobile OS on as many cell phones as possible. Microsoft is a software platform company, not a wireless infrastructure company. In response to a question at the CTIA conference, eWeek reported that Steve Ballmer said

"No, we don't have plans to participate in the spectrum auction," said Ballmer, to audience applause. "We may be broader in what we do than any company, but we have a core competency. And we think the telecom industry has a core competency. It takes a real expertise to set up networks, to invest in capital expenditures, to provide customer service 24/7—that is a core competency. What would it buy us to own a piece of the spectrum? It would probably alienate us."

How much will it cost? Buying the wireless spectrum will cost at least $5 Billion. It will cost another $4 Billion or so to build out the network infrastructure, transmitters, etc. Then it will cost another $1 Billion or so to build the network services and control infrastructure. So, we are talking at least $10 Billion to make this spectrum available to the public. With that much invested any company will need a pretty good business model to get a return on investment. This is a complicated issues with lots of business and political ramifications. TechMeme has aggregated lots of stories on the subject.

John Doerr of Kleiner Perkins has been working hard to make this wireless spectrum available to anyone...just like the Internet. If you look at the rate of innovation on the Internet compared to the rate of innovation on the cell phone network you can see why this is important. US government regulation and monopoly ownership of the wireless spectrum is the single biggest reason why the US lags behind the rest of the world in cell phone technology and usage. Maybe the rules do need to change.

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Why Google will fail in enterprise software

Google has done a great job with web search for consumers, but what about enterprise search? Will Google Docs and Spreadsheets succeed in the enterprise? I don't think Google will succeed in the enterprise. Why? Customer Support.

Have you ever tried to call Google Customer Support? Hmmm...have you ever tried to find the phone number? I can't find one. Have your ever tried to email someone in customer support? Good luck. Google's famous 24X0 support is all self service. Search for an answer in the Help database or submit a question to the discussion forum and hope someone else answers it.

Google acquired FeedBurner, the RSS feed service. As you may have read in my previous post "Google Reader RSS feed messed up?" some of my readers are having problems reading my feed in Google Reader. I have searched for solutions to the problem and have tried to submit help requests. Very frustrating. Will enterprise customers put up with this? No way.

Can Google fix their Customer Support problem? Yes, Customer Support isn't rocket science, but perhaps that is why Google doesn't value it. Google will need to change its attitudes and values to embrace customer support as an important service. Will they? They haven't yet. Take a look at these two examples of poor customer support.

Feedburner Support? Here is what you are faced with if you need help on Feedburner. Note the "neat-o" help form, their words, not mine. Great if your problem fits into one of those three areas. If not?...good luck.

OK, so they don't offer telephone support, and if you want to use their "neat-o" form...you have 3 choices; transfer your feed, complain that someone else is using your feed, or cancel your account. What do you do if you need help with a feed problem? Go to the discussion forum and hope someone else will help you.

Google Reader Support? Next I thought about getting help from the Google Reader team. Hmmm...self service anyone? Again, I don't think corporate customers will put up with this lack of support. Here is what I found. "We will not necessarily respond to your message". OK, we are off to a great start here :-(

   

Google Reader RSS feed messed up?

I have heard from many readers the past few days that my feed to their Google Reader is messed up. They are getting the posts with all kinds of HTML tags and other indecipherable gibberish making them unreadable in the reader. However, they tell me if they click on the link and visit my blog in a browser everything looks fine. Has anyone else seen this problem?

I haven't changed anything about my blog, the feed, or how I compose the posts so I am a bit perplexed at why this started happening a few days ago. Some readers sent me screen shots of what they were seeing. I did notice that on a couple of the posts the first thing they saw was a href="..." for a picture, or an href= for a hyper-link. So, I intentionally wrote this post with no pictures and no links to see if that makes a difference. It shouldn't because I have written lots of posts that begin with pictures or links...but you never know.

Anyway, I am working on it. Trying to debug what has gone wrong. Let me know if you still see the problem with this post, or have any clues as to what might be happening.

Thanks,

Don

Google and Sun release StarOffice in Google Pack

The New York Times shouts "Google goes after Microsoft again" by distributing Sun's StarOffice for free in Google Pack. Mary Jo Foley says "At long last, it looks like Microsoft Office, with its 90+ percent market share,  may get some serious competition."  Dan Farber at ZDNet has a more balanced reaction saying "Over a decade, OpenOffice/StarOffice has not challenged Microsoft’s supremacy, and a free, unsupported version from Google won’t have much impact."

What has changed? Star Office has been around for 8 years and has gained no traction. Sun even made it available for free as open source in the form of OpenOffice. That was 7 years ago. Google will be distributing the same StarOffice that Sun now sells for $70, and OpenOffice distributes for free. Oh, BTW, StarOffice is a 200Mb download...or more depending on your OS.

Microsoft is not standing still. Microsoft Office 2007 is an amazingly powerful product. Microsoft Office is the gold standard for word processing (Word), spreadsheets (Excel), presentations (Powerpoint), and personal databases (Access). The applications work together seamlessly (XML) and the user interfaces are very similar and easy to use. Microsoft Word supports all the popular file formats including save as PDF, OpenXML, and even a plugin for ODF. The new Office 2007 User Interface presents all the features you need in a ribbon format, no more drop down menus.

Microsoft Works is another alternative. It is a fully functional office suite that has shipped on home edition personal computers for years. Works compares favorably with Google Docs or any of the new Web 2.0 office competitors. Microsoft is now experimenting with a free (advertising supported) version of Microsoft Works.

Software + Services - Microsoft has been working hard to leverage the best of client software and web based services into one seamless user experience. Users want to take advantage of the computing power on the desktop for compute intensive tasks like creating large documents and spreadsheets, multimedia presentations, and video editing. There are other times when you want a more lightweight, collaborative, and interactive environment where a web browser is a better choice. Why not create on the desktop and share on the web? Why not collaborate and edit documents on the web and save the changes back to your desktop? Creating a great user experience that is intuitive yet powerful, available online and offline, and synchronized across all domains, is the goal of Software + Services. There is lots of work left to do, but that is the direction.

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Google YouTube copyright infringement filtering system - How will it work?

Google / YouTube was in federal district court in New York on Friday defending a lawsuit brought by Viacom and several other media companies. The New York Times story says "Google hopes technology will be in place in September to stop the posting of copyright-infringing videos on its YouTube site, a company lawyer told a judge presiding over copyright lawsuits yesterday."

This is like Lindsey Lohan saying, OK so I did drive drunk a couple times, and did drive with a suspended license, but I am in rehab now and I won't do it again. So, everything is OK now. Lets just drop this and move on. Hmmm...not so fast.

Lets think about a few questions; How will the filtering system work? How will users subvert the systems? What if the system actually works? Will advertisers be interested in a YouTube without the good stuff? Even if it does work will the advertising economics work? First a little more background, then lets take those questions one at a time.

C/Net News story says "If in fact Google puts this (system) in place, it is obviously way too late," Solomon said. "But we encourage Google to come forward and do what other companies have already done and treat all the content providers fairly. Not just the favorite few who have agreed to share advertising revenue with YouTube."

During the court proceeding, lawyers from both sides estimated that pre-trial discovery could take more than a year. That means there's a chance that YouTube's copyright issues may not be resolved until late next year.

Viacom is suing for $1 Billion for past copyright infringement. What Google/YouTube does in the future is irrelevant to the facts of this case. The laws against copyright infringement are strict and the penalties are stupendously large...$250,000 per instance. Viacom only needs to document 4,000 instances of copyright infringement to collect $1B in damages. YouTube probably does 4,000 streams of "The Daily Show with Jon Stewart" in one day.

How will Google's copyright filtering work? I haven't seen it, but based on what I have read it works by creating a "digital fingerprint" of the original video or music, and comparing it to every file uploaded to YouTube. Music and video uploaded to the Internet is converted to a digital file which is basically a series of ones and zeros. Digital fingerprinting simply records the series of ones and zeroes, then uses pattern matching technology to find instances of matches, even small sequences found in short clips.

What does this mean for music and video producers? It means they must submit to Google an original copy of every piece of content they own. They also must provide proof that they own the copyright. Then they need to trust Google to screen out any offending uploads. The copyright owners will still need to monitor YouTube to make sure the system is working...and serve Google with "take down" notices when it fails.

How will users subvert the system? People who upload music and video are usually pretty tech savvy and take delight in beating any system. They will do the obvious things; change the name of the file, chunk it up into short clips, add characters, sound, or other video to confuse the system, stretch or wave the video to make it appear different, and a bunch or other tricks. Think about the bot filtering technology on blogs and web sites that require you to type in a series of letters to confirm you are a real person. A computer bot can't read the squiggly lines and waves in the letters but humans can easily read them. The same sorts of techniques can be applied to music and video to fool algorithmic filters.

What about "sampling" and "fair use"? The copyright law allow for "sampling" and "excerpts" under the "fair use" provisions. These laws are very imprecise and open to interpretation. No computer generated filter will be able to determine what is "fair use" and what is copyright infringement.

What if the copyright filter system actually works? Will YouTube be interesting if there is no "good" content? How many videos of college kids drinking and dancing will you watch? Will the power users bother to upload music and video if they can't put up the good stuff? Will YouTube viewers care about watching it?

Will advertisers be interested in a YouTube without great content? YouTube is very expensive to operate. The hosting costs, bandwidth, infrastructure, and people cost millions. Advertising is the only real source of revenue. Will advertisers be willing to pay for placement on YouTube? Will they be comfortable displaying their brands next to random, perhaps raunchy, content? Even if they do, will the economics work? Low ad rates against expensive content don't work no matter how you scale it.

There is a great future in Internet video...at some point. YouTube may be the early pioneer that makes all the mistakes and clears the way for a "fast follower" to come in and do it right. Or, YouTube may figure it all out and make the necessary changes fast enough to survive and thrive. There is a long history of early innovators being eclipsed by fast followers. Some of the issues discussed above are reasons why it happens so often. The jury is (literally) still out on YouTube.

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Why Google and Microsoft are building $500M data centers

San Francisco experienced a power outage yesterday that caused the 365 Main data center to go down. DataCenter Knowledge has all the details about why the backup generators failed. Techmeme is flooded with blog posts about the failure that affected sites like CraigsList, Technorati, LiveJournal, TypePad, AdBrite, Second Life and Yelp. Millions of users were not able to use these services.

Business users demand 24 X 7 X 365 uptime. This is why Google and Microsoft are building massive data centers costing $500 million each all over the country. There are only a few companies in the world that have the financial resources to build multiple data centers, and that have the technical skills to keep them running efficiently.

Free services and social networks can get by with some power outages and a few data losses. Users will complain...but life goes on. Not so with business users. There are huge impacts, both financial and legal, when service is interrupted or data is lost.

Software is increasingly moving towards hosted services. Microsoft is working hard to deliver "Software + Services" to give users the best of both worlds. Keeping data synchronized on clients and servers, and delivering a great user experience while on-line and off, is a big challenge.

The San Francisco data center crash may make people stop and think about who they want to trust with their data and services. That is why Microsoft and Google are spending billions on data centers.

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Powerset - Open Source approach to beat Google

Powerset is slowly coming out of stealth mode. Dan Farber at ZDNet has an excellent in depth story on Powerset and PowerLabs, their approach to including the community in developing and QA'ing the Powerset search engine index. It is a novel idea, empowering of the open source community to join the fight to beat Google. Open Source contributors love to join a crusade, contribute their skills, and change the world.

Steve Newcomb, co-founder of Powerset, said in the ZDNet story; “We want as many people in Powerlabs (as possible) to help us build and test the product. Powerlabs tells us when we are ready to go. We could have 50,000 people QAing our product,” he added. So far Powerset has 10,000 Powerlabs users. “Imagine how many widgets that could sit inside of Facebook, MySpace and even Second Life. It gives us the ability to launch with an extremely passionate set of people.”

Powerset is using linguistics and Natural Language Processing (NLP) to better understand the meaning and context of search queries. But the real power of Powerset is applied to the search index, not the query. The index of millions of web pages is indexed in the traditional way but they also analyze the pages for "semantics", context, meaning, similar words, and categories. They add all of this contextual meta data to the search index so that search queries can find better results.

Who is the best ballplayer of all time? Powerset breaks this query down very carefully using linguistic ontologies and all sorts of proprietary rules. For example, they know that "ballplayer" can mean Sports. Sports can be separated into categories that involve a "Ball". Things like baseball, basketball, soccer, and football. Note that soccer does not include the word ball, yet Powerset knows this is a sport that includes a ball.

Powerset knows that "ballplayer" can mean an individual player of a sport that includes a ball. They know that "best of all time" means history, not time in the clock sense.

Why hasn't this been done before? Powerset uses all these rules and linguistic approaches to analyze millions and billions of web pages, and adds "meta data" hooks into each word on each page. As you can imagine this is a huge scaling problem, that has been impossible to solve economically. With Moore's Law applied to constantly reducing the cost of computing, storage, and bandwidth, it is now possible to solve this problem, and within a few years it will be economically viable. Powerset may sustain some losses in the early years but economics and scale are on their side.

Remember, "Why 1% of search market share is worth over $1 Billion" This is a huge market with staggering growth. Powerset is banking the lowering cost curve and the growing revenue curve. Both curves are moving fast. Grabbing 1% of market share can pay for a lot of early costs.

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Powerset, Hakia, and Mahalo taking on Google

The New York Times, Sunday Edition, has a story "The Human Touch That May Loosen Google's Grip".  The NYT writer sets up the notion that Google can be toppled by using a quote from my earlier post "Why 1% of search market share is worth over $1 Billion" 

Even gathering the crumbs of business left behind by Google could generate a lofty market capitalization. Don Dodge, a Microsoft manager who works outside of the company’s search group, made this argument in a post on his personal blog last month: “Why 1% of Search Market Share Is Worth Over $1 Billion.” Mr. Dodge reasoned that 1 percent of the 7.3 billion searches performed in the United States in March, multiplied by 12 cents in advertising revenue per search, would yield annualized revenue of $105 million. Assuming a market cap that is 10 times revenue, his arithmetic leads to a billion-dollar company.

The story mentions Hakia and Powerset using Natural Language Processing to produce better results. The human touch is represented by Mahalo, a new search engine that uses humans to prepare search results for common queries.

Engines like Hakia, Accoona and Powerset are trying to grab market share by writing a more sophisticated algorithm. A growing number of entrepreneurs are placing their bets, however, on a hybrid system that puts humans back into the search equation. They are grouped under a newly coined rubric, “social search,” and it is becoming a crowded field.

Newcomers like Squidoo, Sproose and NosyJoe offer search results based on submissions or votes by users. Bessed also relies on users to suggest the best Web pages for a topic, but then has editors refine them. ChaCha gives customers the opportunity to have an online chat with a human being who can provide search assistance.

Mahalo now has pre-prepared pages for 5,000 terms related to entertainment, travel, health, technology and other subject areas. The company plans to expand its coverage to 10,000 terms by year-end, and eventually to provide results for one-third of the most common search terms.

There are hundreds of alternative search engines out there and more coming on everyday trying every imaginable approach to delivering better search. Charles Knight maintains and constantly updates a list of the top 100 alternative search engines. Here is a review of those companies and their approaches. Read these links for more in depth reviews of alternative search engines and new approaches to search.

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Why 1% of search market share is worth over $1 Billion

ComScore released their April 2007 search market share numbers showing that Google increased its market share lead to about 50%. Yahoo has about 27%, Microsoft 10%, AOL 5%, and Ask.com has 5%. That got me thinking. Should AOL and Ask just give up...hopelessly behind with only 5% market share? In a word...NO!

Each 1% of market share is worth at least $1 Billion in market cap. Google has 50 points of market share and a stock market cap of $150B, or $3 Billion for each 1% of search market share. Other competitors don't win the same revenues and market multiples, but even at the low end, 1% of market share is worth over $1 Billion.

Lets do the math - That was easy at a macro level, but there is more to it. Lets dig deeper. First lets look at the ComScore data for total searches performed (USA) in the first quarter of 2007.

• January 2007 - 6.9 billion searches - Google did 3.3B of them
• February 2007 - 6.9B searches - Google did 3.3B
• March 2007 - 7.3B searches - Google did 3.5B

So, Google did 10.1 billion search queries in the US in the first quarter of 2007. Now lets look at Google revenues of $3.66 Billion for the first quarter of 2007. The simple math is $3.66B in revenue divided by 10.1B search queries equals $0.36 per search. But, that would be comparing US searches to total revenue, so we need to do a little more math gymnastics.

Breaking down Google revenues

International revenues were $1.71B or 47% of the total. So, US revenues can be estimated at 53% or $1.95 Billion. OK, we are almost there. We also need to break out the AdSense advertising revenues.

AdSense serves ads to other web sites. When a user clicks on an ad the advertiser pays Google a CPC fee and Google splits the revenue with the site owner. Google’s partner sites generated revenues, through AdSense programs, of $1.35 billion, or 37% of total revenues. Here we need to make an assumption that AdSense revenues were evenly distributed across the US and international markets.

US Search related revenue - We know that US revenue was 53% of the total, or $1.95 Billion, and we know that AdSense accounted for 37% of total revenues, leaving 63% related to search. So, search accounted for 63% of the $1.95 Billion US revenues or $1.23 Billion.

Revenue of $0.12 per search query - Now we can compare total US search revenue of $1.23B to total the 10.1 billion US searches, which yields $0.12 for every search performed. You could argue that all of Google's revenues derive from search. If they didn't have search they wouldn't have ANY of the other revenues. Taking that approach and comparing US revenues of $1.95B and dividing by total US searches yields $0.19 in revenue per search.

Each 1% of search market share is worth over $100M in revenues - Here is the math. There were 7.3 billion searches performed in March of 2007. One percent of that is 73 million searches times $0.12 revenue per search or $8.76M per month. That translates to $105.1M in annualized revenue.

The stock market values 1% market share at over $1 Billion - Google (NASDAQ: GOOG) stock sells for more than 10 times revenues. There have been several acquisitions over the past few months that have also been valued at in excess of 10 times revenues. Using this multiple, that 1% of market share that generates $105M in revenues is worth over $1 Billion in market cap. Google gets a higher market multiple, so their 1% of market share is worth $3 Billion.

So now we all understand why Yahoo, Microsoft, AOL, Ask, and a host of others are fighting hard for every 1% of search market share. The search business generates huge revenues and profits...even for competitors with just a small market share.

VCs are investing big bucks trying to find the next Google. New comers like Powerset and Hakia would be quite happy with 2 or 3 percent market share although they have aspirations of much bigger things. Do the math...it is staggering.

UPDATE: Be sure to take time to read the comments to this post. Readers have contributed lots of interesting points and insights. Please join the discussion and add your comments too.

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Google Hot Flashes - Hot today, cold tomorrow

Google announced a new service today called Hot Trends...which is really just hot flashes of the day...not really trends. They list the top 100 search terms of the day measured by their deviation from the norm. So, terms like sex, MySpace, etc don't show up unless they are abnormally high that day.

What is interesting about Hot Trends is that it points out how fickle search users are. There are no trends...they search for everything. My guess is that only a handful of the hot search terms today will show up on the Hot Trends list tomorrow.

However, that doesn't mean there isn't a way to optimize the search index for popular search terms. There is indeed a way to do that, and Google Zeitgeist provides a view into what terms should be optimized. Analyzing the Zeitgeist changes you can identify trends and shifts in popularity.

Web search is a tough business - After 10 years and billions of dollars spent the web search scorecard reads; Google 70%, Yahoo 10%, MSN Live 4%, AOL 2%, Ask 1%, and everyone else less than 1%.