Monday, April 9, 2012

Let’s Spend a Billion Dollars…

              Two huge, billion dollar pieces of tech news today; both with giant implications for all parties involved. First off was Microsoft’s acquisition of some 800 patents from AOL for just over one billion dollars. Second was Facebook’s acquisition of popular photo sharing app Instagram for one billion dollars as well. Much like the Hollywood red carpet “Who Wore It Best”, let’s play a game of “Who Spent It Best”


Right now, the jury is still out on what exactly Microsoft got in its package of 800 or so patents from AOL. It appears likely that AOL sold patents that are no longer useful to their core business of display advertizing and content. These patents are related to social networking communications (from AIM), mapping technology (from AOL’s ownership of Mapquest), streaming technology and other miscellaneous patents. However, these appear to be incredibly helpful to Facebook in its patent lawsuit against Yahoo, since Microsoft owns a small part of Facebook and will be willing to defend Facebook in this and many lawsuits that are sure to follow. Perhaps secondarily, these patents will help Bing mount a greater challenge to Google’s dominance of the search market, namely in maps. With Google Maps beginning to charge high volume users for the use of the service, there is a void that has been filled in the most part by OpenStreetMap. With mapping patents in hand, Bing can be a refuge to companies who have been displaced by the rule changes from Google and make its maps more prevalent. With the increased number of patent lawsuits occurring in tech today, having multiple patents is becoming a necessity rather than a luxury. While the price may seem large, it breaks down to an average of 1.25 million dollars a patent, which is a small price to pay when the Oracle/Google lawsuit and the Yahoo/Facebook lawsuit are seeking damages of amounts in the billions of dollars.


Perhaps the one glaring weakness in Facebook’s mobile offering was the photo taking and sharing mechanism. By purchasing one of their greatest mobile photo competitors, Facebook is able to kill a few birds with one stone. Firstly, Facebook gets an incredibly innovative app and a huge user base to boot with over 30 million registered users (and continuing to grow thanks to the release on Android phones last week). While acquiring an app of this sort would be a huge asset to any company, it takes Instagram out of direct competition with them. Secondly, Facebook gains a creative team of new developers who are able to help enhance the Facebook photography experience. Thirdly, while Mark Zuckerberg promised that Instagram will be run independently from Facebook, he made no mention of the massive amounts of data that Facebook now gains the rights to everything from locations of where the picture was taken to the actual photos themselves. If this acquisition gets more people to share and display their Instagram photos on Facebook, Facebook gets more photos to be displayed and as such gets more places to put their ad inventory. One of the biggest issues in this acquisition is the fact that Instagram has no revenue whatsoever to its name. While Facebook is already profitable, throwing a billion dollars at a company is a huge risk when it has revenue at all.

Winner, Winner, Chicken Dinner

                While both acquisitions are great for their acquiring company, the bigger winner in today’s spending spree appears to be Microsoft. It gets a whole bundle of patents that are bound to come in handy at some point in the future both offensively and defensively. While Facebook’s purchase of Instagram comes with great engineers to help retool the Facebook photo experience, leaving Instagram as a standalone app, poses the problem of cannibalization of Facebook’s photo options. All things being considered equal though, the biggest winners are Instagram and AOL in these sales.

                Instagram was an app that had no way to generate revenue at the moment and was trying to build up traction by increasing its user base. It was last valued at $500 million, a huge amount for a company with no revenues, or actions to begin to generate revenues. With the sale to Facebook, investors in Instagram get a huge profit on their initial investment and Instagram ends up attached to a company who is willing to put long term goals over short term profits.

The biggest winner of the day has to be AOL by a wide margin. Not only did it get much more for its patents than it was supposed to have gotten, it gets to keep them as well. When AOL began the shopping of the portfolio, analysts suggested that the value was much less than the $1 billion that AOL was suggesting it was worth, with some estimates of a quarter of a billion. By selling these patents that are no longer core to their business, AOL is able to free up value and gain much needed cash. AOL also signed an agreement with Microsoft that allowed them to continue to use the patents that Microsoft had purchased for defensive purposes, much like getting to continue driving in a car that you sold to someone else. Finally, this move is tax neutral, meaning that AOL gets to keep all of the money as profit, since they were able to sell some assets at a big enough loss to offset the income from the sale of the patents.

Wednesday, April 4, 2012

Through The Looking Glass+

     In case you missed the announcement, Google announced that they were releasing information about their new Project Glass which was the showing of what their hypothetical new glasses could do, as seen above. Predictably, everyone freaked out about the privacy ramifications, and allowing Google to see your every move. However, most bloggers have not been looking at the obvious cues and tips that Google has been signaling, either intentionally or unintentionally. 

First things first, Google+ is going to be the engine beneath this entire project. Or rather, Android isn't going to be running the glasses. Throughout it all, all the programs run are either primary Google services (Google Calendar, Google Maps, Google Tasks) and Google+ social tools (Google+, Google Hangouts, Google Latitude). No Gmail nor is there Google Play (née Android Market) were shown off. The guy checks in on Google+, shares a picture with his Circles, and has a hangout with a girl who he is trying to impress. Google is leveraging their ghost town of a social network to be the adhesive of the Google Glass products. Getting people to use Google+ with the Glass will make more people want to be on Google+, creating a positive network effect (a key example of this was Blackberry phones and BBM being a deciding factor in getting a Blackberry over another phone).  Without people on Google+ the Glass will be utterly useless, as it does not have a useful network that everyone can use. Google is truly going all in on Google+ and is willing to create other products just to get people to use it. 

If Google+ is the engine beneath the Glass, could the rumored Majel be the glue that holds everything together and a true knockout punch to Siri. From the video alone, the Glass is able to take a voice command  from the onboard microphone, and set a reminder to his calendar to pre-order tickets to a show. Surprisingly, this is already a feature that Android phones offer,   however, the video seemed to hint at a much tighter integration between Google services with voice commands performing all of the tasks. The sign that this may be some stronger type of personal assistant, is when, coming upon the 6 train, the glass warns that the subway service is suspended (not an uncommon occurrence in NYC) and offers to show alternate routes by walking or bus that can be used. This seems to hint at a location aware component that can react and advise the wearer alternatives when certain plans do not go as planned. Potentially, the Glass could see that you have a 5:30 meeting uptown in your Google Calendar and need at least an hour to take the train, alerting you that you need to begin to leave in order to catch the train and make it to your destination on time. 

While everyone has been calling them the new Google Glasses, they have been overlooking a key semantic wording in the release: it is called Project Glass, not Project Glasses. While Google has only shown the concept for glasses, the wording seems to hint at something much more grandiose that just designer eyewear. The naming of the project as Project Glass seems to hint that Google will try to make full scale glass screens that can act as full screens much like that in Minority Report. Imagine your entire Google universe tied together in a full screen display that can show you your full day and map out your plans. By not pigeon holing themselves into being forced to make just glasses, they are now able to create a new set of products of all shapes and sizes. Furthermore, the fact that this was revealed today seems to not be a total coincidence, as it has been one year since Larry Page took over, and Page has been one to emphasize  huge projects as well as pushing Google+.

    While only a two and a half minute video and a few shots of what proposed glasses might look like, there are several concerns that might doom this to quirky idea rather than complete game changer in the tech field. First is the 8 billion pound gorilla in the room in regards to privacy and location awareness. In order for these glasses to work, you need to be able to allow it to share and track every move that you do. With people becoming more and more concerned about privacy and the lack of clarification they get in regards to it, a product that takes every detail of their lives and broadcasts it to their social network 24/7 is potentially off-putting and could doom it from the beginning. Also, Google is under 20 year supervision from the FTC for its many lapses in privacy and will be hard pressed to justify this total expansion of taking customer data to be used. Secondarily, the glasses appear to be always connected, requiring a 3G/4G connection at all times, making the glasses like a second phone that you have to shell out a monthly data bill for turning off many people. Thirdly, there is no real way for Google to directly monetize these glasses after sale. Assuming that Google sells these at cost, the glasses were not able to search Google and be served up hyperlocal ads based on what they were looking up and where they were. Rather, since the glasses are held together by Google+, the increased populating of your social feed will provide Google with more data that they can use to better tailor the advertisements that are shown. 

   These glasses look incredibly useful but a long time before their release and perhaps even longer till they gain widespread consumer traction. As the year progresses, expect Google to announce more on this project, as well as many initiatives that help coalesce Google into one big integrated company held together by social and Google+.