Replies to post #1883 on Alphabet Inc (GOOG)

[SeriousMoney]

Online: Where The Growth Is
BusinessWeek Online, DECEMBER 26, 2005
2006 INVESTMENT OUTLOOK -- THE BEST PLAYS

New Media are luring eyeballs and ads -- and the market is betting big on Google and Yahoo!

More than 220 years ago, when the British surrendered to the colonials at Yorktown, Va., legend says Lord Cornwallis marched out to a tune called The World Turned Upside Down. Today, a media investor knows just how the defeated commander must have felt. Media's collisions and revolutions are upending our notions about which companies and technologies matter in the $1.3 trillion industry. Downloads are transforming the music business, and pay-per-view is looming for movies and cable TV, while advertising is sprinting to the Internet. The media pie is growing faster than the economy, about 7% a year, according to PricewaterhouseCoopers' most recent forecast. But what we spend the money on, and who gets it, is changing enormously. And that means the media world will see plenty of winners and losers.

The market is betting hard on Internet companies such as Google (GOOG ) and Yahoo! (YHOO ) at the expense of big conglomerates because New Media are where all the growth is. Consulting firm Parks Associates forecasts that the Net will double its share of the U.S. advertising market, to 10%, by 2010. And that's a conservative estimate. It assumes Web advertising, now a $12 billion market, grows just 14% a year, about half the current pace. More aggressively, Piper Jaffray analyst Safa Rashtchy, one of the first to spot the potential of advertising tied to Internet search results, says the growth will be more like 20% a year in the U.S. and 40% abroad. If he's right, the global Web advertising market will hit $55 billion by 2010, up from $19 billion now.

The big losers are likely to be cable companies and others that distribute programs over expensive pipes. Pricing in that business is becoming cutthroat as phone companies such as Verizon Communications (VZ ) and SBC (SBC ) Communications follow satellite-TV outfits such as DirecTV into competing with cable. Legg Mason Value Trust (LMVTX ) manager William H. Miller III says he acted on this trend in 2004 by selling shares of Comcast and using the money to add to his Yahoo holdings. "Value is migrating to new media," Miller says. "We think content is getting more valuable and distribution is getting less valuable."

If you want to bet on the New Media age, the first place to look is Google. Granted, the search engine was an easier pick eight months ago, when it traded around $200. Google now trades at 48 times the earnings Wall Street analysts expect for 2006. Is that too much? Maybe, but not if you think influential Citigroup (C ) Smith Barney analyst Mark Mahaney is right. On Dec. 9 he sharply increased his estimates by nearly 60 cents a share. Now he says Google will earn $8.84 a share in 2006, in part because it gained 10 points of market share in 2005. That puts Google's price-earnings ratio at 48. "We are removing what was an overly conservative bias in our estimates," Mahaney says...

http://yahoo.businessweek.com/magazine/content/05_52/b3965432.htm

[SeriousMoney]

Giant Google is in 'sweet spot'

Buoyed by reports of taking a stake in AOL, shares surge to $131.9B, surpassing IBM's market cap of $131B briefly.
Ron Day / Bloomberg News, December 20, 2005

Google Inc., the Internet search company founded seven years ago by two college friends, briefly surpassed International Business Machines Corp. in market value Monday on reports of a deal to take a stake in AOL.

Google surged to $131.9 billion when its shares rose 3.7 percent to $446.21 on the news, topping IBM's market cap of $131 billion. Google shares closed down 1.3 percent. At day's end, IBM was worth $130.7 billion and Google had fallen to $125.5 billion.

Google's shares have more than doubled since Jan. 1 on analysts' expectations that profit will rise four-fold to $1.62 billion this year. IBM shares have declined 15 percent on estimates of 11 percent profit growth and a 4 percent sales drop. A stake in AOL would help Google, the world's most-used search engine, fend off competition from Microsoft Corp.'s MSN search.

"There are some big shifts going on and Google is in the sweet spot," said Michael Halloran, an analyst with Allegiant Asset Management Co. in Pittsburgh, which owns Google shares among $12 billion under management. "Since their IPO they've done nothing but surprise on the upside. If you look at Google, it has totally different growth characteristics" than IBM, he said.

IBM, founded in 1911 with roots dating to 1880, according to its Web site, is also the world's second-biggest software company after Microsoft. It has 329,000 employees.

Google's market cap earlier this year passed that of Cisco Systems Inc., the biggest maker of equipment to direct Internet traffic. Google is attracting advertisers who are spending more to reach its 400 million monthly users.

Shares of Mountain View, California-based Google rose earlier on reports that Time Warner Inc.'s America Online chose to sell a stake in itself to Google instead of Microsoft Corp.

Google shares, after reaching a high for the year, fell $5.55 to close at $424.60 in Nasdaq Stock Market composite trading. Shares of Armonk, New York-based IBM fell 61 cents to $82.76 in New York Stock Exchange composite trading.

Google, which has 4,138 employees, was founded in 1998 by Stanford University students Larry Page and Sergey Brin.

Last week Google agreed to pay New York-based Time Warner $1 billion for a 5 percent stake in AOL, according to a person familiar with the matter.

The accord snatched AOL away from Microsoft, which had been in partnership talks for almost a year. Aside from winning a victory against Microsoft, Google will retain its largest search customer and will also gain access to AOL's content and video search features.

http://www.detnews.com/apps/pbcs.dll/article?AID=/20051220/BIZ04/512200343/1001/BIZ

[SeriousMoney]

Plug me in, Sparkey!

Click and get plugged in...

[SeriousMoney]

Bumpy Road Led to Alliance Of AOL, Google

By JULIA ANGWIN
Staff Reporter of THE WALL STREET JOURNAL
December 21, 2005; Page B1

Two weeks ago, when Time Warner Inc. was on the cusp of signing a sweeping online deal with Microsoft Corp., a team of executives from the media company's AOL unit traveled to Microsoft's headquarters in Redmond, Wash., to make sure everything was in order.

When the executives returned, they reported back to Time Warner's top deal negotiator, Olaf Olafsson, with some less-than-satisfactory findings. They had found some of Microsoft's technology to be clunky, while the contemplated joint venture with the software king contained what they thought were financial pitfalls.



Mr. Olafsson dismissed their complaints as irrelevant -- a stance that infuriated some at AOL's campus in Dulles, Va. "Nothing in the fundamentals changed on that trip," he said in an interview.

Mr. Olafsson ultimately switched horses and instead reached a deal with Google Inc. That pact, which the two companies formally announced yesterday, appeased AOL. But the process that led up to it is just one more sign of the rocky relations between the online service and its corporate parent.

Although the decision about whether to partner with Google or Microsoft was critical to AOL's future, Time Warner took the negotiations out of AOL's hands and put them under the control of Mr. Olafsson. Negotiators from Microsoft and Google noticed tensions between the AOL camp and the Time Warner camp led by Mr. Olafsson, and occasionally received conflicting messages from AOL executives and Mr. Olafsson, according to people familiar with the situation.

Mr. Olafsson said AOL executives were involved in the talks all along.

Ever since AOL bought Time Warner in 2001, trading the online service's outsized stock price for Time Warner's top-tier media assets, relations between the two sides have been difficult. After the merger, AOL's business began deteriorating as many customers switched to high-speed Internet services offered by cable and phone companies, dragging down Time Warner's share price and ruining the retirement savings of many Time Warner employees.

Since then, nearly all of AOL's executives -- who had hoped to inject AOL's new-media ways into Time Warner's magazine, movie and TV operations -- have been swept out of the company. Richard Parsons, Time Warner's chairman and chief executive, has stabilized the overall corporation's operations, pared down its massive debt and invested in AOL's turnaround plan, which involves transforming AOL.com into a free "portal" site to compete with Yahoo, Google and others.

But many at AOL believe that Time Warner hasn't been a good parent, most prominently AOL co-founder Steve Case, who made his feelings public after he left the Time Warner board in October. Chief among their complaints is that Time Warner has only recently taken steps toward merging AOL's Internet service with Time Warner Cable's high-speed Internet service. In the intervening four years, AOL has lost millions of subscribers to Internet competitors -- including Time Warner Cable. Similarly, AOL hasn't rolled out its Internet telephone service in Time Warner Cable's markets, to avoid competing with that unit's own Internet phone offering.

AOL officials also weren't pleased when Mr. Parsons publicly floated the idea of selling or spinning off AOL, just as the division was launching the centerpiece of its turnaround plan, the revamped AOL.com.

In addition, they perceived Mr. Olafsson, who is Mr. Parsons' strategy chief, as an outsider. Mr. Olafsson, a 43-year-old physicist and novelist from Iceland, heads a group of 30 strategists. The former longtime Sony Corp. executive, whom Mr. Parsons calls "the Mighty O," had helped hammer out an agreement in 2003 under which Microsoft paid Time Warner $750 million to settle an antitrust lawsuit waged by AOL's Netscape division.

The new negotiations with Microsoft began in January, when Microsoft approached AOL about what it would take to get AOL to switch to using Microsoft's search technology on the AOL site instead of Google's search service.

Mr. Olafsson was aware of the anti-Microsoft feelings at AOL, where referring to Microsoft as the "Evil Empire" is not uncommon. But he found the attitude ridiculous. "Religious wars with companies are not something I subscribe to," he said. After negotiating the Netscape settlement, Mr. Olafsson became Microsoft's primary point person at Time Warner and shepherded the collaboration between the two companies on ways to fight digital piracy.

When he took over the Microsoft negotiations in the spring, Mr. Olafsson helped craft a plan that would have merged AOL and Microsoft's MSN online unit into a joint venture. The plan was contingent on the idea of separating AOL's online-subscription business from its advertising business. Microsoft declined to comment on the talks.

But many in the AOL camp felt the idea of splitting AOL into two was unworkable. Mr. Case felt so strongly about it that wrote a newspaper article opposing it after he quit Time Warner's board. Mr. Case believes AOL should be spun off as a separate company since Time Warner isn't willing to integrate AOL into its other businesses.

Mr. Olafsson then essentially scuttled the joint-venture plan, and instead helped Microsoft put together smaller-scale joint venture proposals, while talking with Google about options as well. In between, Mr. Olafsson received and rebuffed overtures from News Corp. Chairman Rupert Murdoch and Yahoo Inc. Chairman Terry Semel.

As the talks with Microsoft seemed to be nearing a conclusion two weeks ago, Mr. Olafsson changed his mind after receiving what he described as a renewed sense of commitment from Google. During a phone call with Google Chief Executive Eric Schmidt on Dec. 12, Mr. Olafsson said he heard for the first time some commitments about deepening the partnership beyond just using Google's search technology. "It turned it into a strategic arrangement instead of a commercial arrangement," he said. "We said to ourselves, 'This is the element that was missing.' "

Under the terms of the deal, Google will buy a 5% stake in AOL for $1 billion. AOL will continue to use Google's search technology and to share the revenue generated by ads that are displayed with search results. But in a change important to AOL, the online service now will have the right to sell those ads directly to advertisers instead of directing advertisers to Google. AOL also will be able to sell some ads that appear on Google's network of affiliated Web publishers, and Google will promote AOL's content when it displays search results to its users.

http://online.wsj.com/article/SB113512960036228044.html?mod=yahoo_hs&ru=yahoo

[SeriousMoney]

Search Marketing After the Google, AOL Deal
ClickZ News, By Pamela Parker | December 22, 2005

The expanded alliance between Google and America Online brings new possibilities for search marketers; both the potential to add graphics to paid listings and buy ads from AOL directly. It also keeps Microsoft's MSN in the also-ran position at a time when many had been rooting for a stronger third player in the marketplace.

Search marketers who spoke with ClickZ News felt the most important aspect of the deal was what it left out: MSN.

"Microsoft not winning this is a huge setback for the uptake of [ad management platform] adCenter," said Andy Beal, president and CEO of Fortune Interactive. "So while they'll still move forward with their plans, and I'm sure they have other avenues to explore for expanding their PPC product and distribution...Winning this would have been a double whammy."

MSN's loss was particularly hard felt in a community that would welcome a strong alternative to Google and Yahoo!, which currently dominate search.

"We think this market has needed a legitimate number three," said Peter Hershberg, managing partner of SEM firm Reprise Media.

Hershberg and others note MSN has raised the stakes in search marketing by adding demographic targeting and tracking to its adCenter product. But, so long as MSN remains an also-ran, Yahoo! and Google may not feel pressure to ante up their own new targeting features.

But should Google, or AOL, choose to follow MSN's lead, Impaqt's Melissa Burgess notes the partnership puts them in a good position to offer demographic capabilities.

"If they're going to open that vault [AOL subscriber data] up in a way to look at specific demographics," she said, "that's going to be a huge run on what MSN is doing right now in their adCenter program."

One of the more surprising aspects of Google's deal with AOL, adding graphic elements such as logos to paid listings, drew little interest from search marketers. Though Google says it may offer such logos to all advertisers, some wonder if such a feature would improve listings' effectiveness.

"I don't think that would have any impact whatsoever. My gut feeling is that people already associate the logo or image with the brand," said Impaqt's Burgess. "I don't know if there's going to be any incremental gains from having a logo there, that would have an impact on click-through rate."

Some search marketers question whether adding such logos might represent a step away from what's made Google successful with consumers thus far.

"As an advertiser, my initial reaction is, yeah, let's have that opportunity. But I need to be conscious of what has made Google great over the last five or six years, and that is the clean interface," said Beal. "It could be the demise of a very stable and profitable model."

Marketers see a bit more promise in the prospect of buying search inventory from AOL directly. A 2003 study by FutureNow and WebSideStory found 3.04 percent of traffic from AOL's search engine converted, making it the highest converting search engine studied. Meanwhile, traffic from Google.com only converted at a 1.74 percent rate. The data suggest that buying AOL inventory directly could be a bargain, or perhaps worthy of a higher bid.

"For most, it will be a good investment," said Bryan Eisenberg, co-founder of consulting firm Future Now, "and for some it'll be incredibly more powerful than they've seen beforehand."

http://www.clickz.com/news/article.php/3572781

[SeriousMoney]

Google's AOL Investment May Lead to '08 IPO
AP, Friday December 23, 4:28 pm ET
By Michael Liedtke, AP Business Writer

SAN FRANCISCO (AP) -- Google Inc.'s $1 billion investment in America Online could lead to an IPO in 2008, giving the online search engine leader and AOL parent Time Warner Inc. an opportunity to capitalize on an Internet advertising boom that they hope to fuel through their partnership.

The possible timeline for an initial public offering by AOL emerged in a Friday filing with the Securities and Exchange Commission. The documents provide additional details about a deal announced earlier this week that extends the business ties that Google and AOL formed when they began working together in 2002.

Although Google will hold only a 5 percent stake in AOL, it retains the right to demand an IPO beginning in July 2008, according to the SEC documents. If Time Warner doesn't want to pursue an IPO then it could buy back Google's stake based on a fair market appraisal, the filing says.

Time Warner has been under pressure from a group of shareholders led by hedge fund investor Carl Icahn to lift its stock, which has fallen by 9 percent this year to continue a prolonged slide.

To help get the stock moving, AOL co-founder Steve Case said he proposed pursuing a spin-off three months before his October resignation from Time Warner's board of directors.

In an interview earlier this week, Time Warner Chairman Dick Parsons declined to discuss whether the Google investment might be paving AOL's path toward an IPO. He described the Google alliance as the best way to increase AOL's market value, which stands at $20 billion, based on the Google investment.

Google has had a golden touch since its own August 2004 IPO, raising investor hopes that it can help AOL become more valuable. Google's market value has increased from about $23 billion at the time of its IPO to $125 billion today.

AOL was among the biggest beneficiaries of Google's IPO. When the two companies first became business partners in 2002, Google awarded AOL stock warrants that were later converted into 7.4 million shares -- a stake that Time Warner sold for $1.1 billion.

Google's shares fell $1.11 Friday to close at $430.93 on the Nasdaq Stock Market and Time Warner's shares dipped 2 cents to close at $17.68 on the New York Stock Exchange.

Under the new five-year deal announced earlier this week, AOL will now have the right to use Google's search technology on its own and also will receive a $300 million credit to advertise its content and services through Google's vast marketing network.

Google in turn is depending on AOL to sell more graphical ads to diversify the search engine beyond the text-based ads that generate most of its profits. Google also will be able to draw upon AOL's huge video library -- a resource that could help boost traffic to its own Web site.

AOL's Internet-leading instant messaging service will become compatible with Google's 4-month-old service next year, but Google's users will have to register with AOL to gain access to the expanded network, according to Friday's filing.

While most analysts have applauded Google's investment in AOL, the response among some search engine users has been less enthusiastic.

Web logs, or blogs, are filled with comments expressing fears that Google will begin giving preferential treatment to AOL content in its search engine. Those concerns have been exacerbated by a provision of the deal requiring Google to help AOL make its material easier to index.

Marissa Mayer, Google's vice president of search products and user content, sought to reassure the search engine's users in a posting on the company's own blog.

"Business partnerships will never compromise the integrity or objectivity of our search results," Mayer wrote. "If a partner's page ranks high, it's because they have a good answer to your search, not because of their business relationship with us."

http://biz.yahoo.com/ap/051223/google_aol.html?.v=2