Hulu Online

Big news for online media came on Monday with the launch of Hulu. Couched early on as a response to YouTube and an effort to grab the attention of online media viewers, Hulu represents a joint effort of NBC and Fox. According to Wired, "Hardly impressed with YouTube's attempts to placate copyright owners like themselves, the two media giants set out to create their own online distribution platform, called Hulu, which launches to a limited audience today." Hulu will offer video streaming of full-length television shows, both new and old, as well as some full-length movies. All will be available on the Hulu site as well as via sites of distribution partners.

Of the endeavor Dan Fawcett, president of Fox Digital Media, said "We think our content will be available broadly, and hopefully monetized in a fashion that makes money for us and makes it a good experience for viewers." As for the first part, being broadly available, that is off to a good start thanks to Hulu's distribution network which includes big names such as AOL, Comcast, MSN, and Yahoo!. In regard to the latter part, being a good experience for users, some reviews note that this is already a success. Bloggng for CNET Greg Sandoval writes, "a review of a test version of Hulu, which launched Monday, reveals that Hulu nailed the basics." Wired and Salon both agree with that assessment, "Based on our test drive, it seems like Hulu got most of the formula right," states Terrence Russell of Wired. From the Salon review, "But look, Hulu is here, on time! And it's excellent." However, it is the middle part of Fawcett's comment, that Hulu will make money, which has yet to be seen.
Prior to the launch much was made about Hulu being largely an attempt to woo users away from YouTube where clips are watched for free. To a certain extent this is true; though some see YouTube as a path to exposure the large content providers see YouTube as at best a sinkhole and at worst a thief. Viacom has already sued YouTube for $1 billion alleging copyright infringement. What is closer to the truth is that Hulu creators are after the advertising dollars. The Interactive Advertising Bureau estimates that the online advertising market for the first half of this year was $10 billion dollars. To make a grab at that cash Hulu will run advertisements similarly to the way they appear on television, primarily in 15- and 30-second spots during full-length shows. (It works out well for Hulu that the shows are already edited for television to accommodate this.) At the moment there are not plans to add third party ads.

As for the comparison to YouTube, it pretty much falls flat. The two sites may be after the same demographic, users comfortable viewing online video, but the content they will provide to those users is completely different. For the most part, YouTube is user generated clips, Hulu is much closer to television: full-length shows (complete with the advertisements), and movies. Aram Sinnreich, managing partner with Radar Research, says, "They're competitors in the sense that they have video content online, they want to sell ads and they want to capture user minutes and eyeballs, but other than that, they're completely different kinds of ventures." Though not a direct competitor, YouTube does have a few things going for it which are noted as challenges Hulu will need to deal with. For one, YouTube faces no cost barriers for its content, it is user supplied. YouTube also does not need to share its advertising revenue, unlike Hulu which will split it with content owners and partners.

Hulu will also face itself in the arena. Both NBC and Fox will continue running the same content on their previously existing sites. This is making people ask if users will feel the need to visit Hulu when they already watch programs on Fox.com and NBC.com. What the two companies are trying to do by coming together and creating Hulu is become the one place users go for online programming. However, while much is being made about the content it has available, Hulu is not the only place to go. In addition to the sites of the two parties involved, their major competitors, the other networks, also offer streaming broadcasts. While its owners want Hulu to become the destination, whether or not users feel they need one is still being debated among analysts and commentators. In addition to facing the competition of other sites Hulu is strapped by not having more content. As the New York Times points out, "If it wants to become the true destination site for professionally made TV shows and movies, it must attract other major content providers like Viacom and Disney. Those media companies reportedly rejected previous offers to participate in the service." The same is noted by InformationWeek, "Although Hulu has some big backers, it won't have content from some of the biggest entertainment companies, such as CBS, Viacom, and ABC, which is owned by Walt Disney."

While much is being made of what the new venture is up against, Hulu not only faces challenges, it poses them as well.

Some say Hulu is already a threat to cable television. TheStreet.com states, "Hulu.com has been billed as a rival to YouTube, but Google's popular video site has nothing to worry about. The real victim here will be cable TV." "As consumers get more access to their favorite TV shows and movies through their Internet connection, they're going to start asking themselves why they're paying their cable bills," says Forrester Research analyst James McQuivey. "It's time for cable companies and telco TV providers to go on fear watch," McQuivey adds. These cable companies should be wary, not just of the potential loss of viewers, but the (accompanying) loss of advertising dollars. "When you have TV-style advertising on the Internet, suddenly these people on Madison Avenue are Internet enthusiasts. They are going to accelerate the move of budgets from TV to the Internet because they are so whole-heartedly jumping in," McQuivey noted. If that proves correct, Hulu could start to see a piece of the TV advertising pie which Forrester estimates at about $70 billion a year.

Hulu will be an interesting experiment to watch. It may succeed, it may fail, or it may morph into something else altogether. But whatever happens next Hulu will likely be a catalyst.

A more complete version of this post, including links to market research, can be found at the website of Analyst Views Weekly.

More information on this topic can be found in the Electronic Content & Media section of Northern Light's Internet & Information Services Market Intelligence Center.

And in the following articles:

NBC Looks for Ways to Put Its Shows Online Profitably
Boston Globe, October 30, 2007
NBC Universal is trying to find profitable ways to make its TV programs available online after discontinuing sales of new shows on Apple Inc.'s iTunes, chief executive Jeffrey Zucker said. NBC yesterday started testing Hulu, its online video joint venture with News Corp. The website is an experiment for NBC, along with NBC.com, Zucker said at an event in New York.

Hulu Readies Its Online TV, Dodging the Insults
New York Times, October 29, 2007
Hulu is the new-media creation of two old-media rivals, NBC, which is owned by General Electric, and Fox, owned by the News Corporation. Since March, when the broadcasters announced their joint effort to bring free, ad-supported television shows to the Web, critics have pounced, predicting the venture would be doomed by diverging agendas, technical challenges and an all-powerful enemy: YouTube.

Hulu to Hurt Cable, Not Google
TheStreet.com, October 29, 2007
Hulu.com has been billed as a rival to YouTube, but Google's popular video site has nothing to worry about. The real victim here will be cable TV. Hulu, an online video site that went live with a test version on Monday, was developed in a partnership between General Electric-owned NBC Universal and Rupert Murdoch's media empire, News Corp. Unlike YouTube, Hulu offers free viewing of full-length films and TV shows from the media giants.

First Look: Hulu Combines Ease of Use, Content, Advertising
Wired, October 29, 2007
Broadcasters can't deny that video-sharing sites like YouTube have promotional potential, but NBC Universal and News Corp. have had enough. Hardly impressed with YouTube's attempts to placate copyright owners like themselves, the two media giants set out to create their own online distribution platform, called Hulu, which launches to a limited audience today.

NBC, News Corp. Threaten Apple with Hulu
InformationWeek, October 29, 2007
NBC and News Corp. on Monday launched in beta an online video service that offers ad-supported video and feature films, a model that undercuts the buying of TV shows and movies through services like Apple iTunes.

Apple's Halo

Originally published October 25, 2007

It may be that the visual definition of Apple at the moment is the iPhone or perhaps the new iPod Touch, gadgets with touchscreens, but Apple is at its core a computer company. And while the company's other products have taken the spotlight, Apple's core business is doing more than well. According to reports, sales of the Apple Macintosh are growing at more than two-and-a-half times the rate of the PC industry as a whole.

The price of Apple stock has more than doubled in the past year, and Apple soundly beat analyst expectations with their most recent earnings report. The New York Times sums up the financials, "Apple reported fourth-quarter profit of $904 million, or $1.01 a share, up from $542 million, or 62 cents, in the quarter a year ago, an increase of 67 percent. Analysts had predicted profit of 85 cents a share." But with the image of the touch screen still so present, it may be assumed that these numbers reflect a move away from Apple's original core competency.

It may have been the iPod that gave the company a leg up, and that followed by the iPhone, but the joy of the gadgets has now spread. The New York Times states, "Driven in part by what analysts call a halo effect from the iPod and the iPhone, the market share of the company’s personal computers is surging." Steve Jobs told the New York Times in an interview, "The Macintosh has a lot of momentum now," he said, "It is outpacing the industry." The surge alluded to by Jobs is noticeable in the company's market share: Apple now ranks third in U.S. PC sales, behind IBM and Dell. To support that channel Apple is releasing its new operating system, Leopard, this week.

Prior to the iPhone's release Apple took a gamble, it moved developers away from Leopard and placed them on the iPhone project. While the delayed release does reveal that Apple is not perfect, it appears the gamble paid off. The halo effect is creating a whole new generation of Mac users. "One of the company’s strongest indications that it will see continued growth is its report that more than 50 percent of those who purchased Macintosh computers in its chain of 197 stores during the quarter were first-time Mac buyers," states the New York Times.

At the very least the company looks a lot better than Microsoft which put off its OS delivery only to present a dud. (According to IDC analyst Richard Shim, Vista lags behind even Apple's current-generation OS, Tiger, which debuted in April 2005.) Unlike Microsoft, whose Vista delay was overshadowed by the weak response to the final product, the delay in Leopard is overshadowed by the overwhelming reception to the product which threw it off schedule. The true failing of Vista might turn out not to be its flat sales, but that it pushed users over to the Mac platform. Vista flopped just as Apple was ramping up. Analyst Roger Kay says, "Apple has a real chance to play off Vista unsatisfaction."

The gamble showed that Apple can set, or reset, its priorities and succeed. Indeed, it seems almost as if things should have been scheduled this way from the start. Just as the excitement of the iPhone is waning, Apple is in the headlines with its new OS. This might be just what is needed to woo potential converts.

Keeping the pressure on, Apple has suggested that it will continue the pace of releasing a new operating system on an average of once a year. Unlike Vista which was built from scratch, subsequent releases from Apple will use the existing platform. Though this may make them a bit less of a feat, it should allow them to keep to the schedule and further distinguish themselves from Microsoft which took almost seven years between its last two releases. Though Microsoft anticipates its next OS, Windows 7, in two years Apple will in that time already have released two new ones.

The numbers show that Apple is on a roll. However, they are rolling in a number of areas, and this, while working for them now, may present challenges. The question to ask at this point is: Can Apple sustain its growth in all the markets it used to create the wave it is now riding?

A more complete version of this post, including links to market research, can be found at the website of Analyst Views Weekly.

More information on this topic can be found in Northern Light's Software, Computers, & Services Market Intelligence Center.

And in the following articles:

Record Mac Sales Help Apple Earnings Climb 67% in Quarter
New York Times, October 23, 2007
Apple reported earnings on Monday that leapt ahead of analysts’ already optimistic expectations on record sales of its Macintosh computers. The numbers showed that the company was slowly climbing back into the league of the dominant personal computer makers, Hewlett-Packard and Dell.

As Apple Gains PC Market Share, Jobs Talks of a Decade of Upgrades
New York Times, October 22, 2007
It may have dropped the word “computer” from its name, but Apple is certainly selling plenty of Macs. Driven in part by what analysts call a halo effect from the iPod and the iPhone, the market share of the company’s personal computers is surging.

Apple to Ship Leopard Server This Week
Network World, October 22, 2007
While the improvements to Mac OS X Leopard desktop are said to be evolutionary rather than revolutionary, the enhancements to Apple’s Mac OS X 10.5 Leopard Server are impressive and include features ordinarily reserved for large enterprises.

Apple Sets Leopard Launch
TheStreet.com, October 16, 2007
Mac computer users will soon be able to get their hands on the latest operating system from Apple, which analysts say could boost the company's computer sales. Apple said on Tuesday that Mac OS X Leopard will go on sale Oct. 26. Apple had delayed Leopard's release by several months so that engineers could support the iPhone's development and keep its launch on track.

Oracle Goes for BEA

Originally published October 17, 2007

Last week Oracle made a $6.7 billion $17 per share bid for BEA. If the deal were to go through it would be Oracle's 35th acquisition since 2005 and bring the total of those acquisitions in that three year period to over $31 billion. It is clear why Oracle is interested. As BusinessWeek puts it, " BEA brings valuable assets, including a huge customer base, a large revenue stream, and a reliable set of products centered on middleware, the software that helps glue together disparate programs." Technology Business Research analyst Stuart Williams, quoted in BusinessWeek's piece wrote, "Oracle can integrate the BEA technology directly into the core of the Oracle stack, strengthening it, while at the same time removing a competitor and adding close to $1.4 billion in annual revenue to its coffers." What is unclear is if the deal will go through. The offer was rejected.

After the news was announced speculation immediately began about whom, if anyone would make a counter offer. At the top of the list was SAP, the world's largest maker of business-management software. Though not making the leaps in acquisitions that Oracle has, SAP showed its interest in high dollar acquisitions earlier this month when it agreed to buy Business Objects, the world's largest maker of software used to track corporate databases, for $6.8 billion on October 7. However, SAP says it is not interested in BEA. Bloomberg refers to SAP spokesman Frank Hartmann and states, "SAP won't make a counter-offer because of the overlap BEA would create in enterprise service-oriented architecture." Furthermore, SAP has stated they are more interested in organic growth. "We believe in complementary deals. We’re not interested in a classic consolidating of markets," Henning Kagermann, SAP Chief Executive Officer told the Financial Times. It should also be noted that while the purchase of Business Objects demonstrated the SAP's ability to pull off a big money deal, it was by far the company's largest deal. SAP's second largest deal was in 2001 when it purchased TopTier Software Inc. for $400 million. Some are suggesting that for the time being SAP's hands are tied.

BEA says the offer was rejected because Oracle's bid was significantly below the company's value. In a letter sent on Friday to Oracle’s president, Charles E. Phillips Jr., William M. Klein, BEA’s vice president for business planning and development, wrote, "BEA is worth substantially more to Oracle, to others and, importantly, to our shareholders." The company's stock price may be evidence to that point. TheStreet.com notes, "That BEA continues to trade above $18 suggests that the market views Oracle's offer of $17 a share as too little, too early." On the flip -side, however, is the thought that the current stock price could be, as Bloomberg suggests, due to "speculation rival suitors will emerge." SAP may have been the first thought of many analysts, but it was not the only one.

Carl Icahn, whose 13.2 percent ownership makes him BEA's largest shareholder, believes that Oracle's offer was too low and that rival bids should surface. Icahn thinks BEA should be looking for a suitor and has suggested that companies such as Hewlett-Packard and IBM would be interested. Thomas Curlin, an analyst with RBC Capital Markets, also sees others, including HP, as possible candidates, "We believe HP has the greatest strategic need of any of the large suite vendors." As far as a price, Curlin suggested, "a strategic acquirer may be willing to pay $25 a share." Forrester analyst Ray Wang concurs, "There are a number of vendors, including SAP, IBM and H-P, that need BEA more than Oracle does. It's definitely not over."

Not all analysts are in the same camp. "While there could be other potential bidders for BEA, we do not believe it is likely that they will aggressively step forward in this case," writes Andy Neff, of Bear Stearns. Citigroup analyst Brent Thill wrote, "HPQ has publicly stated they are not interested, although a deal would make strategic sense."

Though Phillips stated that, "Our proposed price is a substantial premium to an already-inflated stock price," there is also the possibility that Oracle will raise the offer. The New York Times writes, "Oracle has shown a willingness in the past to raise offers, and analysts expected it to do so again." As evidence the Times refers to Oracle's 2004 acquisition of PeopleSoft. The initial offer in 2003 was $16 per share; by the time the deal was closed they paid $26.

It may take some time to see who goes home with the prize, but it is unlikely the game will end here.

A more complete version of this post, including links to market research, can be found at the website of Analyst Views Weekly.

More information on this topic can be found in Northern Light's Software, Computers & Services Market Intelligence Center.

And in the following articles:

SAP Rules Out Bidding War with Oracle for BEA Systems
Bloomberg, October 15, 2007
SAP AG, the world's largest maker of business-management software, won't enter a bidding war with rival Oracle Corp. for BEA Systems Inc. and will focus on making "complementary" acquisitions.

BEA Awaits Sweeter Deal
TheStreet.com, October 15, 2007
Shares in middleware developer BEA, which has been revisiting its earnings reports from the past several years, have been stalled this year by the company's limbo status. And as BEA prepared to wrap up financial restatements, Oracle jump-started what still may become a bidding war, trying to force BEA's hand while the stock still looked cheap.

SAP Says It Won't Make a Counterbid for BEA Systems
InformationWeek, October 15, 2007
The United Kingdom's Financial Times reported Monday that SAP CEO Henning Kagermann said in an interview SAP would not make a counteroffer for BEA following Oracle's bid last week to buy the company for $6.7 billion. An SAP spokesman told InformationWeek later Monday: "Yes, this statement is true and confirmed. SAP is not planning a counterbid for BEA."

Oracle Bids $6.7 Billion for Rival BEA, Whose Officers Say It’s Worth More
New York Times, October 13, 2007
The Oracle Corporation, the business software maker, said on Friday that it had made an unsolicited bid to acquire a rival, BEA Systems, for $6.7 billion, an offer that BEA executives rejected as too low.

Bagging BEA Systems Won't Be Easy
BusinessWeek Online, October 12, 2007
Oracle has every reason to go after BEA Systems, judging from the reaction on Wall Street to news that Oracle Chief Executive Larry Ellison wants to spend $6.7 billion for the smaller software maker. BEA brings valuable assets, including a huge customer base, a large revenue stream, and a reliable set of products centered on middleware, the software that helps glue together disparate programs.

BEA Rejects $6.7 Billion Oracle Offer, Rival Bids Seen
Reuters, October 12, 2007
Business software maker BEA Systems Inc. rejected a $6.7 billion takeover bid from Oracle Corp. on Friday, throwing the company into play by saying the unsolicited offer was too low. Shares rose 38 percent, above a five-year high, and activist investor Carl Icahn, BEA's biggest shareholder and a vocal critic of management, said he was pleased by Oracle's offer but called for higher bids.

Google & DoubleClick

Originally published October 11, 2007

In an effort to further expand its advertising empire, or to defend it from encroaching competition, Google intends to acquire DoubleClick, for $3.1 billion. The move is similar to that of Microsoft's acquisition of aQuantive, a DoubleClick competitor, for $6.1 billion in May. (Microsoft was forced to take aQuantive when it lost out to Google on DoubleClick.) It is also similar to purchases made by Yahoo!. Two weeks after Google announced their deal Yahoo! bought the 80 percent of Right Media it did not own already for about $650 million and just last week agreed to pay $300 million for the online advertising network Blue Lithium. Google's deal differs significantly from those of its competitors in one key way: it has come under far more scrutiny. Google recently found itself in a U.S. Senate hearing where it defended its stance against competitors and consumer advocacy groups.

While both are trying to stop the deal with their own interests in mind, the premise of the campaigns is the same. Google, they say, knows too much already and adding DoublClick to the mix would be a dangerous arrangement.

Competing companies argue that if the DoubleClick deal is allowed to go through it would grant Google a monopoly. With the company's existing dominance in search, and the extended advertising reach from DoubleClick, opponents of the deal say it would create a single pipeline with Google at the controls. According to BusinessWeek, "The reason, they argued, is that Google's ability to reach the majority of U.S. Web surfers on the most highly trafficked Web sites would be so great that advertisers would be forced to work with the company." Similarly, publishers of Web content would feel the need to work with Google. This would add to the company's reach and create a vicious and ever-expanding circle. While there is truth to the scenario that is being put forward, it will likely be only time that reveals its degree.

Interesting at the moment is the source of the comments, and what that reveals. What is being seen now in the Google-DoubleClick debate is in some ways very similar to what was seen in the lead up and aftermath of the recent Microsoft EU debacle. That is, it appears companies may be trying to use the legal system as a tool to block the competition. Injecting a bit of humor into this issue is the fact that one of the most vociferous opponents is Microsoft, which, as stated, just bought a similar company for similar means. Perhaps Microsoft is angry that they needed to take their second choice but had to pay twice as much. More likely Microsoft is trying to seize the day and just slow down the relative newcomer that has arguably become one of their biggest competitors. Forbes quotes Danny Sullivan, "I think it reflects that this is all a lot of political grandstanding. Microsoft is really just trying to slow Google down." With Yahoo! in the ring, despite their two recent acquisitions, one cannot help but see at least a little humor.

On the other side of the campaign against the deal are consumer advocacy groups which feel that Google will end up retaining far too much data about users for anyone to feel safe. According to one group, the Center for Democracy & Technology, "the same companies that provide search services, store emails, support online personal calendars, and run chat applications may begin to engage in behavioral targeting, dramatically increasing the amount and types of data that can be brought together to create consumer profiles and the ease with which such information can be shared." This scenario will only get worse, they argue, as more consolidation occurs in the space.

In its defense Google points out that DoubleClick is not in the advertising business, they are in the advertising delivery business. According to David Drummond, Google SVP for Corporate Development and Chief Legal Officer, "DoubleClick is to Google what FedEx or UPS is to Amazon.com." Furthermore, in the months since they let the deal be known, Google has stated that they welcome regulation to aid user privacy and that they have already taken more steps than others in this direction. While competitors may not wish it to surface in the current context, it must be recalled that Google stood its ground against the Department of Justice when it was asked to submit information on its users. Earlier this year when the request went out, both Microsoft and Yahoo! (and AOL) willingly complied.

On another level something else is revealed in the situation. It is the change of color of the spotlight on Google; it is no longer rose colored. It is questionable, given the changes both Yahoo! and Microsoft have made to their search platforms whether or not Google would have made it out of the lab today. However, they did that nearly a decade ago; now Google is growing up and that growth is presenting them with a new set of challenges. Will Google be able to face the challenges of a major-leaguer while retaining the identity which has helped it get this far?

A more complete version of this post, including links to market research, can be found at the website of Analyst Views Weekly.

More information on this topic can be found in Northern Light's Internet & Information Services Market Intelligence Center.

And in the following articles:

Microsoft's Right to Fear a Google/DoubleClick
TheStreet, October 2, 2007
Microsoft is terrified of Google's plans to buy DoubleClick. As well it should be. Last week, the Redmond, Wash., software giant's push to block Google's proposed acquisition of ad-serving firm DoubleClick reached a fevered pitch. Microsoft's lawyers told a Senate subcommittee investigating the deal that a combined entity would violate antitrust laws and would make it that much harder for anyone to take on Google in the online ad space.

Google Defends the DoubleClick Deal
BusinessWeek Online, September 28, 2007
Google is watching you. But you already knew that. Every time you conduct a search using its search engine, Google keeps tabs—and uses the information to send you ads tailored to the interests and tastes suggested by your searches. Here's something you probably didn't know: The company may let you close the blinds, digitally speaking. Google Chief Executive Eric Schmidt told legislators on Sept. 27 that the company is exploring whether to let users keep Google from tracking the sites they're visiting.

Google Fights to Save DoubleClick Deal; Microsoft Fights to Kill It
InformationWeek, September 27, 2007
Google Thursday defended its planned acquisition of online ad company DoubleClick, even as a Microsoft-funded think tank, AEI-Brookings Joint Center for Regulatory Studies, released a report arguing against the deal. Google announced that it would acquire DoubleClick for $3.1 billion in April. The deal has raised antitrust concerns in the U.S., the E.U., and in Australia. It is being reviewed by the Federal Trade Commission and was the subject of a Senate hearing on Thursday.

Google's DoubleClick Purchase Questioned by Senator
Bloomberg, September 27, 2007
U.S. lawmakers questioned whether Google Inc.'s $3.1 billion purchase of DoubleClick Inc. will give the Internet search company a "stranglehold'' in the online advertising market. "Once these two companies have joined forces and combined their gigantic information resources, will the barriers to entry for a new entrant into the marketplace simply be too high?'' Democratic Senator Herb Kohl of Wisconsin said at a hearing today in Washington.

Is Search Too Smart?
Forbes, September 26, 2007
Google's proposed $3.1 billion acquisition of the ad-serving company, DoubleClick, is slated to come under the spotlight on Thursday during a hearing in the U.S. Senate. Although Congress is unlikely to create major roadblocks for the deal, privacy advocates hope to use the opportunity as a soapbox for discussing controversial privacy practices throughout the online ad industry.

The EU Slaps Microsoft

Originally published October 4, 2007

A blow to Microsoft usually garners a wide round of applause. However, the upholding of an earlier antitrust verdict against Microsoft by the European Union's (EU) second-highest court, handed out on September 17, has instead raised questions and skepticism. Many feel the premise that such legal action was called for in order to encourage competition and innovation is false and that the decision will embolden the court to go after other technology companies. Though it has denied its actions against Microsoft are an attempt to regulate the industry as a whole, the EU Competition Commission has already opened up another case against a market leader, Qualcomm. The names of other market leaders, such as Google and Apple, have also surfaced as possible next-in-lines.

One organization speaking clearly on behalf of Microsoft is the Association for Competitive Technology (ACT), "an international grassroots advocacy and education organization representing more than 3000 small and mid-size information technology firms from around the world." ACT expresses the view that the landscape of the PC has significantly changed since Microsoft first faced legal action in 1998 and that the innovation the EU commission seeks to stir up has already happened despite Microsoft's legally unchecked presence.

ACT points out that PCs and laptops, in contrast to the era in which the Microsoft debacle began, are now shrinking due to the move of many applications to online delivery. (Most recently this includes IBM and Adobe which are offering online counterparts to MS Office, and even Microsoft which is taking large strides towards offering online versions of its Office products.) This switch, they argue, is lessening the importance of the desktop and the operating system. Also, Linux and other open source options have been growing for the last decade according to ACT. Interest in such products is evident given that IBM's online Office rival was downloaded one hundred thousands times in the first week alone, and that Dell, Gateway, and Sony are offering Linux-based PCs. Finally, ACT notes that "Apple now ships one of every six laptop computers in the U.S., moving up to a third-place tie with Gateway."

In arguing that the ruling is in support of big business and not consumers ACT suggests many small and medium sized enterprises (SME) will actually be hurt by the it. These SMEs depend on innovations from Microsoft ACT argues. "A large platform such as Windows creates a kind of ecosystem for thousands of developers. While a few of these developers view Microsoft as a competitor, the vast majority view the company as an important supplier to their business. While adding to that ecosystem can be bad for a few companies, the benefits outweigh the costs far more often and consumers are the beneficiaries." According to ACT, many SMEs would also be hurt due to the requirement they reveal their intellectual property on demand. The organization questions whether Google, hardly even in its infancy a decade ago, and Skype would have managed to innovate had they had to turn over relevant intellectual property? Both companies, ACT notes, have managed to find a niche and achieve large market share even in the shadow of Microsoft. But it is not just organizations of indiscernible allegiance such as ACT, which are questioning the stance of the court.

In a somewhat ironic twist, the U.S. Department of Justice, which settled with Microsoft years ago, has vocalized dissent. After the verdict was delivered, Thomas Barnett, assistant attorney general at the U.S. Department of Justice's Antitrust Division, commented that the ruling, "rather than helping consumers, may have the unfortunate consequence of harming consumers by chilling innovation and discouraging competition." Needless to say the EU courts did not take kindly to the comments. European Competition Commissioner Neelie Kroes stated that, "When we observe a situation where one producer has a share of 95 percent of the market, it's a monopoly. It's not just a monopoly-like situation," and that, "A significant drop in market share is what we would like to see." Jonathan Zuck, president of ACT, seems to think this mentality is harmful. "What the court is basically saying is that if you develop a successful product and get too big, the European Commission is going to force you to give away your intellectual property," he said. Others agree and suggest the court may begin to go after other technology companies with large market share or which allow limited access to intellectual property.

The headline The New York Times ran after the verdict makes its point clear, "Microsoft Ruling May Bode Ill for Other Companies." That article states, "Software and legal experts said the European ruling might signal problems for companies like Apple, Intel and Qualcomm, whose market dominance in online music downloads, computer chips and mobile phone technology is also being scrutinized by the European Commission." The Times quotes David B. Yoffie, a professor at the Harvard Business School, "If you end up handicapping a major player in new markets, you may actually not enhance competition but hinder it, and help create new monopolies." As example Mr. Yoffie uses Google in Internet search and Apple in digital music. The Times, and those it chooses to quote, are not the only ones floating these names. Blogging for ZDNet Dan Farber & Larry Dignan ask, "Now that the EU has given the concept of interoperability priority why wouldn’t a broader battle with Apple be opened?" They point out Apple's large iTunes market share, that it does not share its DRM protocols with others, and its prior regulatory run-ins with regulators in France. As for Google, "Interoperability may not be an issue, but market share could be . . . When Google closes its DoubleClick deal don’t be surprised if the EU whips something up." ComputerWorld states much the same, "With Microsoft Corp.'s antitrust appeal now decided, the next U.S. technology company to get a place on the European Union (EU)'s regulatory hot seat may be Apple, an antitrust expert said." The expert referred to is Herbert Hovenkamp, a professor at the University of Iowa College of Law who also holds that the commission, "now has a license to go ahead, and they have a pretty aggressive posture. I think this bodes ill for some companies."

It is interesting to note that just two weeks after the verdict was delivered formal antitrust proceedings have been opened against Qualcomm. The commission is investigating the San Diego-based chip maker for possible abuse of their dominant market position. Reuters reports that the move had been anticipated but that, "European Commission spokesman Jonathan Todd said there was no link between the cases." However, Reuters does acknowledge the proximity in time to the Microsoft verdict.

"I will not look for fights, but where interventions will make consumers better off, I will not shy away from them," stated Comissioner Kroes in a commentary run in the Wall Street Journal. Microsoft is also not one to shy away from a fight, indeed it was their stubborn refusal to back down to the EU's initial requests that led to the current situation. But while much of the talk is about the impact on the future of technology companies and technology in general there has been less print given to the impact on Microsoft. Shifting attention in that direction gives some interesting perspective.

The fine is a bit more than a drop in the bucket for the Microsoft machine, but not much. And it is likely that they will make what little rebound is necessary from the decision. According to the Economist, "Microsoft’s pride may have been hurt by the court, but its dominance is hardly under immediate threat." For Microsoft, more important than planning a comeback against the court is planning how to survive in the current and rapidly evolving arena. Facing the growth of applications delivered online, the rise of Linux and open source options, and even a little pressure from Apple is more of a foe than the EU. As the Times notes, "The real challenge to Microsoft, after more than a decade of dominating the technology industry, is coming not from the government, but from the marketplace."

A more complete version of this post, including links to market research, can be found at the website of Analyst Views Weekly.

More information on this topic can be found in Northern Light's Software, Computers, & Services Market Intelligence Center.

And in the following articles:

EU Opens Antitrust Proceedings vs Qualcomm
Reuters, October 1, 2007
The European Commission has launched antitrust proceedings against U.S. chip maker Qualcomm after mobile phone manufacturers complained it charged far too much for vital technology licenses. Nokia, Broadcom Corp., NEC Corp., Texas Instruments Inc., Matsushita Electric Industrial Co Ltd and Ericsson complained in 2005 that Qualcomm's license fees for its third-generation technology were far too high.

EU's Kroes Calls U.S. Govt Reaction to Microsoft Ruling 'Unacceptable'
Forbes, September 19, 2007
EU competition commissioner Neelie Kroes said the criticism by the head of the US justice department's antitrust division of the EU court ruling against the US software giant Microsoft Corp was 'totally unacceptable'. In a strongly-worded response, Kroes, speaking to reporters here, said: 'It is totally unacceptable that a representative of the US administration criticises an independent court of law.'

Microsoft Ruling May Bode Ill for Other Companies
New York Times, September 18, 2007
Europe’s second-highest court delivered a stinging rebuke to Microsoft Monday, but the impact of the decision upholding an earlier antitrust ruling may extend well beyond the world’s largest software maker to other high-technology companies. Software and legal experts said the European ruling might signal problems for companies like Apple, Intel and Qualcomm, whose market dominance in online music downloads, computer chips and mobile phone technology is also being scrutinized by the European Commission.

Microsoft's EU Loss May Set Precedent for Intel, Apple, Others
InformationWeek, September 17, 2007
Though Microsoft lost an appeal on European Commission antitrust claims Monday, the approximately $1 billion fine for which Microsoft remains liable doesn't close the issue, either for Microsoft or the rest of the technology industry. The outcome of the case could influence the very nature of competition among the dominant players in the technology industry, forcing players like Intel, Apple, and others to share or open their technology to outsiders or refrain from certain competitive practices.

Microsoft's Big European Defeat: What Now?
BusinessWeek Online, September 17, 2007
The Sept. 17 ruling by Europe's second-highest court affirming a landmark 2004 antitrust order against Microsoft is no mere bump in the road for the software giant. None other than Brad Smith, Microsoft's chief counsel, put the decision into the sweeping context it merits. The case, he said, will have an "extraordinary impact" that will occupy "the thoughts and discussions of many people, not just in the weeks ahead, but in the months and years to follow." The company hasn't yet decided whether to appeal.

Microsoft Loses Appeal against EU Antitrust Order
Bloomberg, September 17, 2007
Microsoft Corp. lost its appeal of a European Union antitrust ruling, forcing the world's biggest software maker to pay a record 497 million-euro ($689 million) fine and help rivals connect their products to the Windows operating system. The European Court of First Instance in Luxembourg today backed the EU's 2004 decision that ordered the U.S. company to disclose proprietary data and strip music and video software from a version of Windows. The judgment can be appealed to the European Court of Justice, the EU's highest court.

Key Dates in EU Antitrust Action
International Herald Tribune, September 17, 2007
This article presents a timeline of key dates in the European Union's antitrust proceedings against Microsoft Corp.

Malicious Cyber Acts

Originally published September 6, 2007

"As the world has flattened, we've seen a significant amount of emerging threats from increasingly sophisticated groups attacking organizations around the world," CEO of anti-virus vendor McAfee David DeWalt said. DeWalt also stated that cybercrime is now a $105 billion business and is more lucrative than the illegal drug trade. DeWalt's latter comment was heavily scrutinized Kevin Poulsen of Wired. "The $105 billion figure has been bouncing around the media like a bad check for two years, being quietly debunked by security experts and the tech press," he wrote in his blog. Speaking in his defense DeWalt responded, "Let's not lose sight of the main point. Cybercrime is becoming increasingly organized, targeting everyone from individuals to business to governments." Recent reports leave little room for argument with DeWalt's rebuttal. According to reports from companies such as IBM, Symantec, and Computer Associates, cybercrime is going strong.

While IBM notes that for the first time in the history of its data collection there has been a decrease in the number of disclosed vulnerabilities, it reports that the severity of the vulnerabilities has increased. IBM states that the percentage of high impact vulnerabilities has risen from 16 percent in 2006 to 21 percent in the first half of this year. A report from the Computing Technology Industry Association (CompTIA) indicates the same: "Among organizations that reported a security breach in the past 12 months, the average severity level of the breach stood at 4.8 on a 0-10 scale, where 0 is not at all severe and 10 is very severe. The corresponding severity level rating for the past two years was at 2.3 and 2.6." Reports also concur that the United States is a focal point for malicious cyber activity.

According to IBM's data, the U.S. is the spam capital of the world. Thirteen and a half percent of the world's spam originates from within the U.S., more than one third of spam-related Web sites are hosted in the U.S. and, "the U.S. continues to lead the world as the final Web destination for products promoted through spam e-mail messages." Furthermore, IBM notes that, "Almost half of all fraudulent phishing Web sites are hosted within the U.S." Symantec also found that the U.S. topped the list of the country from which most malicious activity was spawned. For the first half of this year the U.S. made up 30 percent of worldwide malicious activity according to Symantec's reporting. (The U.S. held the same position for the second half of 2006 as well.) Not only was the U.S. the number one source, but "For each of the malicious activities taken into account for this measurement, the United States ranked number one by a large margin with the exception of bot-infected computers. It ranked second for that criteria behind only China." If it could be any consolation, Symantec also observes that the U.S. is the victim of the majority of attacks.

The Symantec report suggests that the reason for America's dominance is that 18 percent (more than any other country) of Internet users reside in the U.S. and its established Internet infrastructure is well known enough to be exploited with relative ease. "As a result, not only are there a lot of attackers there, but they have had a long time to understand the technologies and to hone their skills. Attackers in countries that have less well established traditions of Internet usage or that are still experiencing rapid growth in their Internet infrastructure may not have the same level of user sophistication." While this may seem, with hindsight, to be obvious, it actually represents a shift in Symantec's opinion. Earlier the company suggested that as Internet infrastructure becomes established and Internet users become more sophisticated and knowledgeable of computer security issues, overall network and end user security should improve. "However, the prominence of the United States in this discussion, and the attendant level of malicious activity originating there, indicates that this is not always the case." In fact, Symantec now concludes that, "the United States will likely remain number one for malicious activity for some time because of this."

Aside from agreeing that the U.S is a key factor in the continuing threat of malicious cyber activity the reports each have their own tale to tell. But among all the points to be made there are some worth pulling out for general consumption and which help to color the overall picture.

A McAfee publication from April entitled, The Future of Cybercrime states, "The largest enabler of cybercrime today is the 'botnet,' a network of robot-infected PCs centrally controlled by an attacker, or bot herder." Symantec notes that the number of bot infected computers has dropped 17 percent from last year, down to an average of 52,771 active bot-infected computers per day. Symantec suggests that the decrease in bot-infected computers is due to several factors including the introduction of default firewalls in popular operating systems, increasing awareness of computer security issues among organizations and computer users, and law enforcement initiatives targeting bot-networks. Though the drop in bot-infected computers is a positive sign in that it shows such methods can be deterred, it is not a sign of victory. The report notes, "the exploitation of network-based vulnerabilities to spread bots is being slowly abandoned for methods that are more likely to succeed." One of the methods deemed likely to succeed is the use of Trojans.

According to Symantec, "During the first half of 2007, Trojans made up 54 percent of the volume of the top 50 malicious code reports, an increase over the 45 percent reported in the final six months of 2006." Symantec also reported that, "Trojan activity increased from 60 percent of potential infections in the last half of 2006 to 73 percent in the current period." CA notes the increase in Trojan activity as well. Their reports states that, "Trojans now dominate the landscape." They reported that in the first half of 2007 65 percent of malware submitted by customers were Trojans. IBM says that Trojans are the "largest threat category of malware so far in 2007." They account for 28 percent of all malware and, "2007 figures reveal that the amount of Trojans is nearly double the next closest category."

What all the collected data seems to reveal is that cybercrime is not going away. Whether the $105 billion estimate posited by DeWalt is accurate or not, cyberspace is fertile ground.

A more complete version of this post, including links to market research, can be found at the website of Analyst Views Weekly.

More information on this topic can be found in Northern Light's Software, Computers, & Services Market Intelligence Center.

And in the following articles:

Fake Factoid Virus: 'Cybercrime More Lucrative Than Drug Trade'
Wired, September 22, 2007
If you've been reading Slashdot, you're probably stunned to learn that cybercrime has just now ballooned into a $105 billion industry, making it more lucrative than the global trade in illegal drugs. This from David DeWalt, CEO of anti-virus vendor McAfee, who dropped the billion-dollar bombshell at a conference in Tucson.

Cyberthreats Outpace Security Measures, Says McAfee CEO
InformationWeek, September 18, 2007
Despite the increase in government compliance requirements and the proliferation of security tools, companies continue to underestimate the threat from phishing, data loss, and other cyber vulnerabilities, new McAfee CEO David DeWalt said Tuesday.

Report: Four Percent of E-Crime from Fortune 100
Washington Post, September 17, 2007
Roughly four percent of all spam, malicious software attacks, phishing Web sites and other cyber crime activities detected in the first half of 2007 emanated from the networks controlled by the world's 100 highest-grossing companies, according to a new report from anti-virus company Symantec.

U.S. Government Prepares for Cyber War Games
ars technica, July 5, 2007
In May, the nation of Estonia suffered a massive distributed denial-of-service (DDoS) attack on that country's major web sites, an attack that Estonian officials believed was ordered by the Russian government in response to the removal of a statue of a Soviet soldier. Russian officials denied involvement, and third-party investigation could not determine the source of the attacks, but signs were pointing towards Russian involvement on some level.

WiFi: Not So Fast

Originally published September 20, 2007

Not so long ago the idea of municipal WiFi services delivering wireless broadband to the masses was all the rage. Leading the charge was Internet service provider EarthLink, which partnered with numerous cities to deliver the future. That future is now not nearly as certain as it appeared. At the end of August EarthLink stated it would be laying off 900 workers and was pulling out of the headline-making contract to lay a WiFi blanket over San Francisco. Though EarthLink is not the only municipal WiFi provider to be taking a hit, it is remaining in the spotlight it grabbed when it announced a number of high profile deals, and is representative of the current state of muni WiFi. As Chicago, St. Petersburg, Florida and Alexandria and Arlington, Virginia are added to the list of cities which have put off plans to build WiFi networks many sources say muni WiFi is on the ropes. "Muni WiFi has become a victim of flawed business plans, slow user adoption, technology problems and political delays," says the Financial Times. Of course some, including the analysts which view now as a time of restructuring and providers of WiFi alternatives, see a light at the end of the tunnel.

The August 28th announcement that almost half the company's employees were being let go, including the position of president of municipal networks, and the one a day later that the San Francisco contract was off was not all the bad news from EarthLink. In Chicago another much touted WiFi network is to be delayed by nine months at a cost to EarthLink of $5 million. All this on the heals of a $16.3 million loss and revenues that have been flat or down for three consecutive quarters. The best synopsis of what happened to EarthLink might be this frank statement from blogger Om Malik, "Fighting the cable and phone company duopoly, it was one of the few companies willing to spend dollars and build out MuniFi networks. But given that it’s been hemorrhaging dial-up customers — while at the same time spending money like a drunken sailor — EarthLink had no option but to scale down its MuniFi efforts." EarthLink was founded on dial-up, and as that base deteriorated the company sought a way out. Muni WiFi seemed like it might be the answer and the company jumped in. However, while it may have looked good on paper, the page has turned.

By trying to be too much to too many too fast it could be said that EarthLink (and other early movers) was asking for trouble, however, a certain amount of the company's woes are just due to bad luck. Often first-to-market is a winning ticket, in EarthLink's case the opposite proved true. Rather than getting there first and showing what works Earthlink got there first only to realize a host of flawed assumptions. (Assumptions widely shared in the industry, not held exclusively by EarthLink.) While Craig Moffett, an analyst at Bernstein Research says that, "All the problems encountered in muni Wi-Fi thus far can be summarized as higher cost, lower performance," that can be distilled even further to "unrealistic expectations." Expectations about cost, technology and user adoption just did not pan out, and, as these are the bricks and mortar, it has turned what was seen as the perfect solution into the perfect storm.

For starters the idea that municipal WiFi networks would be a relatively cheap build were off, largely for reasons having to do with the technology involved. Initially the thought was that a network could succeed with 30 or 40 access points per square mile, in reality operators found they might need as many as 100. Furthermore the signal put out by the transmitters is not always powerful enough to penetrate walls and other barriers, leading to the need for expensive equipment inside homes. Misconceptions about low cost led early movers to believe they could shoulder the expense of building the networks themselves; this has proven a fatal flaw. Roberta Wiggins, analyst with Yankee Group said in the Financial Times, “For a while, cities thought they could get everything for free, but somebody has to pay for it. The vendors focused on getting the technology to work and didn’t pay attention to how they were going to pay for it. Now its viability is coming under heavy scrutiny.”

The second brick and mortar assumption proving wrong is that users would be signing on. Glenn Fleishman, editor of the industry blog Wifinetnews.com is quoted by both BusinessWeek and Wired. According to Fleishman only one to two percent of an area's population have signed up so far; that is a long shot from 10 to 25 percent that were expected by cities and network providers. Furthermore there is competition, not from other wireless providers, but from landline companies. BusinessWeek points out that cities which announce WiFi networks often see phone and cable companies drop access rates to keep their customers on board.

Though the vultures may be circling, not all are proclaiming the death of municipal WiFi. The Register and the Christian Science Monitor have both run stories suggesting that just as the initial praise for WiFi providers was overstated so is the news of their demise. The Monitor refers to Joanne Hovis, president of the Columbia Telecommunications Corporation, a public-interest consulting firm when they write, "But as these cities floundered, analysts swung from being too exuberant about Wi-Fi to being too dismissive." The Register writes, "But just as the wilder theories that municipal Wi-Fi would sideline the telcos and kill the cellular business case were patently unrealistic, so talk of the death of municipal networking and non-viability of alternative service models is also exaggerated." Sally Cohen, an analyst with Forrester Research says, “I think muni WiFi is evolving and the various players in the market are rethinking the business model.” Datamonitor predicts that as local governments and ISPs recognize the economic and community benefits of municipal WiFi spending will increase, in their estimation from $900m this year to $6.4bn in 2012. Not quite as optimistic, is In-Stat, “Cities will continue to deploy municipal mesh networks, but the rate of new deployments after 2008 will slow, due to concerns over the business model."

Despite the news and numbers, some say Earthlink could come back (again). According to BusinessWeek, "The restructuring should help the company generate $135 million to $145 million in cash from operations this year, and $200 million in cash from operations in 2008." If properly used, this capital could help the company turn around. In the meantime the company will spend time doing some serious thinking about its next steps and will be stepping cautiously. “Until we’re confident that we can build new networks and get an acceptable return, we will delay any further new build-outs,” said Rolla Huff, chief executive.

The impact of delayed build-outs by EarthLink and others will be worth observing.

A more complete version of this post, including links to market research, can be found at the website of Analyst Views Weekly.

More information on this topic can be found in the Wireless Data & Internet section of Northern Light's Telecommunications & Equipment Market Intelligence Center.

And in the following articles:

Municipal WiFi Continues to Struggle
Vnunet.com, September 13, 2007
Wireless internet provider The Cloud has only signed up an average of 20 users for each of its WiFi hotspots. And with municipal networks across the world struggling to break even, questions about the commercial viability of such schemes remain unanswered.

Muni WiFi Collapse a Boon for WiMAX
Red Herring, September 6, 2007
The apparent collapse of municipally-supported plans to build WiFi networks in several U.S. cities has backers of rival technologies breathing sighs of relief. The prospect of having municipal governments as competitors in the most lucrative urban markets could significantly reduce demand for commercial wireless data services based on rival technologies such as WiMAX and EV-DO, said Joe Nordgaard, director of wireless consulting firm Spectral Advantage.

What Now for Muni WiFi?
Unstrung, August 30, 2007
EarthLink Inc. 's long-anticipated pullout from the San Francisco municipal WiFi mesh network project this week is just a signal more tough times to come for this market. Some industry commentators and vendors are now suggesting that a major rethink of the free citywide WiFi dream will have to be undertaken if muni networks are to survive into the future.

Why Wi-Fi Networks Are Floundering
BusinessWeek, August 15, 2007
The static crackling around municipal wireless networks is getting worse. San Francisco Wi-Fi, perhaps the highest-profile project among the hundreds announced over the past few years, is in limbo. Milwaukee is delaying its plan to offer citywide wireless Internet access. The network build-out in Philadelphia, the trailblazer among major cities embracing wireless as a vital new form of municipal infrastructure, is progressing slower than expected.

Costly Errors in the Free Internet Experiment
Finicial Times, August 8, 2007
The sun glints off open laptops on an August day in Union Square. Their users, few in number, are accessing the internet, taking advantage of a free wireless hotspot in the San Francisco public space. Not many of them will be aware of the difficulties the municipal wi-fi service has faced. Getting the business model right for an evolving technology has been a challenge for the companies and authorities behind the scheme.

Online Time

Originally published September 13, 2007

According to a report released this month by the Online Publishers Association (OPA) online content has trumped communications and now takes up more of users' online time than anything else. Communications, via email and instant messaging, is still the second most popular online activity, but time spent doing it has dropped significantly. Coincidentally, there is an increased interest in measuring more precisely how users' online time is spent; both comScore and Nielsen/NetRatings are adjusting their metrics. Nielsen/NetRatings will be taking into account the amount of time users spend on sites rather than looking simply at the number of page views, and comScore will be offering an expanded view of search to include more detailed activity outside of the five major U.S. search engines.

The OPA's report examines a four-year period of the organization's Online Activity Index, "a monthly gauge of the time being spent with e-commerce, communications, content and search." (Incidentally, Nielsen/Net Ratings conducts this work.) Pam Horan, OPA president said, "The index indicates that, over the last four years, the primary role of the Internet has shifted from communications to content." This shift has been, "fairly steady in the last several years, growing 10 percent from 2003 to 2004, remaining even between 2004 and 2005, growing 13 percent from 2005 to 2006, and growing 13 percent from 2006 to 2007." Overall the report says that users now spend 47 percent of their online time with content; communications is at 33 percent and is followed by commerce and then search. These numbers represent a virtual flip from the snapshot four years ago when 46 percent of users’ time was spent with communication and just 34 percent with content. Contributing factors to the change include wider access to a faster Internet, more content, and the rise in use of instant messaging which is seen as a more efficient means of communication. Two other factors which bear special note are the rise in online video and improved search.

That online video has contributed to the increased time users spend with content may seem obvious; video is everywhere. But what the video users are turning to may be a surprise. Net users are well aware of YouTube and Media companies are working toward digital distribution for their programming. (Both ABC and CBS have recently made headlines in this area.) However, while growth in both user- and studio-generated full-length content are on the rise they do not define 'content', or even video content for that matter. Another report, by Optigence, states that, "Study results indicate that the majority of consumers are viewing video online, at 62 percent of survey respondents. Contrary to popular opinion, these viewers are not simply young adults viewing user-generated videos, but are in fact comprised mostly of those ages 35 and older viewing news clips online." The relevance of news, both in print and video format, to the increased time spent with content is also noted by the OPA, "The dominant role of content is driven by several important factors. The first is the online transition of traditionally offline activities, such as getting news, finding entertainment information or checking the weather." While the news, entertainment information, and the weather may be delivered via online video, the report suggests that the shift is somewhat attitudinal. Users may turn to the Web for video, but they must first turn to the Web; and in turning to the Web the first stop is often search.

Simply put content requires search: in order to engage with content online, text or video, it must first be located. Therefore, search continues to ride on the coattails of content. According to the OPA report, while communications dropped significantly (and commerce shrank) time spent with search grew. "The 37 percent gain in share for content is followed closely by a 35 percent gain in share for search." At the same time, while content mandates search and thereby secures its existence, search is not without challenges. First of all, stating that time spent searching has jumped 35 percent over four years ago makes the growth in this sector seem on par with that of content. However, search growth in some ways has pretty much remained flat; the time users spend searching only moved up by 2 percentage points and now only accounts for 5 percent of online time. Also, of the four channels the OPA looked at, search came in last: 80 percent of the time market still belongs to content and communications. Search with its five percent comes in fourth, after commerce's 15 percent.

Furthermore, while the OPA notes that search is getting better, "The improvement in search allows consumers to more easily and quickly find the exact content they are looking for," this is cited as a reason for the increased time spent with content. Improved search results increases "the likelihood they [users] will engage more deeply with that content." Interestingly enough, search's increased effectiveness may end up being somewhat of a detriment. In addition, while search may be required in the online landscape, visits to search sites are typically of short duration. Search companies, such as Google, could see their rankings slip with the introduction of Nielsen/NetRatings' new metric which will measure how long users spend at a site. "It is not that page views are irrelevant now, but they are a less accurate gauge of total site traffic and engagement," says Scott Ross, director of product marketing at Nielsen/NetRatings.

A more complete version of this post, including links to market research, can be found at the website of Analyst Views Weekly.

More information on this topic can be found in Northern Light's Internet & Information Services Market Intelligence Center.

And in the following articles:

New Web Metric Likely to Hurt Google, Help YouTube
PC World, September 7, 2007
In a nod to the success of emerging Web 2.0 technologies like AJAX and streaming media, one of the country's largest Internet benchmarking companies will no longer use page views as its primary metric for comparing sites. Nielsen/NetRatings will announce Tuesday that it will immediately begin using total time spent by users of a site as its primary measurement metric.

The Hubbub over Hulu
BusinessWeek Online, August 30, 2007
In March, News Corp. and NBC Universal made an announcement akin to an end-of-season cliffhanger. The media titans were teaming up to bring the best of prime-time TV and other high-quality programming to a new Web site they would develop together. The site didn't have a name. The shows it would feature were not yet known. The launch date was to be determined. But, if all went according to plan, executives promised the site would change the online video landscape. Just stay tuned, they said.

Half of Web Time Spent Viewing Content: Study
Reuters, August 13, 2007
Content online is king. Internet users spend nearly half their time online viewing news or entertainment content, surpassing activities such as sending e-mails, shopping or searching for information, according to a study released by the Online Publishers Association on Monday.

OPA: Web Users Spend More Time with Content Than Communication
MediaWeek, August 13, 2007
Despite the ubiquity of e-mail and instant messaging, and despite the huge growth in social networking, surfing the Web has become more about reading and watching than it is about staying in touch with friends and co-workers. Based on a four-year analysis of consumers’ Web activity conducted by the Online Publishers Association, users now spend 47 percent of their time online with content, versus 33 percent of their time with communications.

Microsoft's Cloud

A piece this week in the New York Times stated that Microsoft plans on, " making available free software that connects its Windows operating system to software services delivered on the Internet, a practice increasingly referred to as 'cloud' computing." Some see this as Microsoft trying to head-off Google, which has a similar product in it Web Apps, in a race they are losing, others question Google's ability to compete against Microsoft in this arena. However, both companies are moving into somewhat untested waters, and each has challenges.

"Microsoft is still very much a thick-client software company," says Matt Rosoff, an analyst at Directions on Microsoft. The company's sales reflect this, "The groups that sell Windows, Office and server software accounted for $42.5 billion, 83 percent of the company's revenue in the last fiscal year. These three offset losses in Microsoft's other three business segments -- including online services," according to Knight Ridder. Losses in online services may be one reason Microsoft is making its move. The New York Times article notes that, "With this new approach, Microsoft hopes to shield its hundreds of millions of software customers from competitors like Google and Salesforce.com, which already offer software applications through the Internet." In doing this Microsoft must be careful of its core business. The Times reports, "The release, though it includes the Windows Live Writer blogging application, carefully avoids cannibalizing two of Microsoft’s mainstays, the Word and Excel programs."

Rather than just putting its Office products on the Web, Microsoft says it is attempting to connect browser-based applications to the desktop. Knight Ridder states, "The company is clearly aiming to connect its profitable desktop and server applications with its emerging services in the cloud to give users what it calls the best of both worlds, and to maintain the relevance of its highly profitable franchises." Likewise, the Times states, "The initiative is part of an effort to connect Windows more seamlessly to a growing array of Internet services." Microsoft, according to Brian Hall, general manager for Microsoft’s Windows Live services puts it this way, "We’re taking the communications and sharing components and creating a set of services that become what we believe is the one suite of services and applications for personal and community use across the PC, the Web and the phone." By taking this tact, and holding off on presenting online versions of its mainstays, Microsoft may avoid the cannibalization effect; it also puts on hold a direct challenge to Google's offerings.

While not directly going after Google may have some merit, it also puts Microsoft further behind in the race. (Google recently acquired two companies that allow for online slide presentations and the company has plans to rollout a product similar to Microsoft's PowerPoint.) Though the roughly $40 million made from its Web Apps may not make up a huge chunk of its overall revenue, Google is moving ahead. Already the company has signed General Electric and Procter & Gamble as corporate users and expects to add more names to this list. Dave Girouard, general manager in charge of Google's business products notes the relative infancy of the product, "Over a five- or 10-year time period, we think there's potential for this to be an enormous business that would be material to Google." In this area, what may become material to Google could challenge Microsoft. Bloomberg quotes Bill Whyman, of International Strategy and Investment, a Washington-based investment advice firm, "Google is clearly a threat to the Microsoft core business.'' To some degree this thought is mirrored by Kenneth Wasch, president of the Software and Information Industry Association, who said of Google "To the extent that the industry is moving toward an on-demand business model, it poses a threat to Microsoft."

However, the question of to exactly what extent the industry is moving in the 'on-demand' direction is still unanswered. In a piece from the Software Development Times, "With Google offering an entire office productivity suite through the Web, it's becoming harder to make a case for not building applications there." And the applications are not just sitting there, they are being utilized. Jeffrey Hammond, senior analyst with Forrester said, "I'm surprised at how rapidly these technologies are being adopted by what I would consider to be mainstream firms . . . Typically you see a crossing-the-canyon type of uptake. I'm seeing interest from large insurance companies, and any company that feels like it needs to win with its customers. The adoption curve here is going to be shorter than most people expect.

"There may be a shorter than expected adoption curve, but there are still questions and challenges; the need for the power of the desktop and Internet access are well noted. BusinessWeek notes, "Despite the convenience of accessing Google's Apps from any computer with a Web browser, the company does see a need to borrow something from traditional software's playbook: It plans to enable users to work offline with the suite, a nod to the reality that workers don't always have Internet access." There is also the fact that the desktop is seen as premier real estate. "Everybody wants to be on the desktop . . . People tend to forget about Web sites," Martin Kay, chief executive of online music site Finetune, told BusinessWeek. "Perhaps most important for developers, the desktop's advantage is that it is still the first thing users see when they turn on their computer. If your icon is there, it's more likely that a user will opt to use your product—rather than the myriad other programs on the Web," states BusinessWeek. Of course the possibility exists that the two platforms will simply co-exist. Coach Wei, CTO of Nexaweb, says that there is, "fundamentally a difference between what you can do in your browser versus what you can do in your desktop." He notes that, "Obviously, we all believe browsers will become more powerful going forward, but browser makers should not expose the hard drive to Web applications, because that's a serious security problem. There have to be some limitations for Web applications."

Quoted in the Times is Shane Robison, executive vice president and chief strategy and technology officer at Hewlett-Packard, "I think Microsoft is going beyond search to a more sophisticated set of services . . . It will be a race, and who knows who will get there first?" And who know what the winner may find.

A more complete version of this post, including links to market research, can be found at the website of Analyst Views Weekly.

More information on this topic can be found in Northern Light's Software, Computers, & Services Market Intelligence Center.

And in the following articles:

The Desktop Takes Center Stage Again
BusinessWeek, September 4, 2007
Rumors of the demise of the desktop have been greatly exaggerated. In recent years, bloggers, reporters, company executives, and others have exulted in the apparent obsolescence of the vast space on computers set aside for software. Why clutter a desktop with pricey programs for word processing, spreadsheet creation, and the like when many of those tools are becoming available, often at no cost, over the Web—or so the argument ran.

Software via the Internet: Microsoft in ‘Cloud’ Computing
New York Times, September 3, 2007
In 1995, Microsoft added a free Web browser to its operating system in an attempt to fend off new rivals, an effort ultimately blocked by the courts. This week, it plans to turn that strategy upside down, making available free software that connects its Windows operating system to software services delivered on the Internet, a practice increasingly referred to as “cloud” computing. The initiative is part of an effort to connect Windows more seamlessly to a growing array of Internet services.

Microsoft-Google Showdown Heats Up as Court Rule Ends
Bloomberg, August 30, 2007
That doesn't necessarily mean a bonanza for Microsoft shareholders, analysts said. "Google is clearly a threat to the Microsoft core business," said Bill Whyman, of International Strategy and Investment, a Washington-based investment advice firm. "The big challenge for Microsoft is to move from the PC to the Web."

The Trouble with Web Apps
PC Magazine, August 1, 2007
Google and Apple recently made big bets that we're all going online for our applications. But we aren't, we won't, and we shouldn't. "Web-based applications" are at best kludges; more often the term is just a gussied-up way of describing the way Web pages should work in the first place—but too often don't.

Apps vs. Office: Google Ups the Ante
BusinessWeek Online, July 17, 2007
Noah Sachs, general counsel, business development director, and resident computer expert at a biotechnology startup named Enzymatics, has one word for the holdouts who still use Microsoft Office to create documents and spreadsheets. They're "curmudgeons," he sniffs.

Acer’s Gateway

Acer announced on Monday that it will acquire Gateway for $710 million. By most accounts the purchase will place Acer third in global PC market, behind Hewlett Packard and Dell. Of the deal Acer chairman J.T. Wang, said "The acquisition of Gateway and its strong brand immediately completes Acer's global footprint, by strengthening our U.S. presence. This will be an excellent addition to Acer's already strong positions in Europe and Asia. Upon acquiring Gateway, we will further solidify our position as No. 3 PC vendor globally."

Those who agree with Mr. Wang say the move will create a larger company, placed firmly in third place worldwide, and grant it leverage in regards to pricing. Others see it as a dangerous step, one that it could easily backfire due to the current state of the PC market. Both sides have something to offer: While the acquisition will move Acer into third place it may not do so by much and it could bring with it new challenges for the company, on the other hand the possible risk involved may be justified as a requirement to remain competitive.

Lenovo, the company Acer is expected to replace as number three, was in a similar position two years ago when it purchased IBM’s laptop business for $1.75 billion. This similarity has served as the subject of comparison, "The deal carries hallmarks of earlier acquisitions such as Chinese rival Lenovo’s successful 2004 purchase of IBM’s PC business," states the Financial Times.

Lenovo may have succeeded in leveraging their IBM acquisition, but has only begun to actualize this after two years. This, according to the Financial Times, could indicate a problem for Acer, "One concern is that U.S. PC sales could slow this year just as Acer steps up its push into that market." Citing similarities in their and Gateway's operations, Acer shirks off the comparison and says that Gateway will be easier for them to digest than IBM was for Lenovo. However, The Street points out that merely purchasing a higher ranked company may not be a ticket to the top, or even to third place. "Gateway, after all, is only No. 3 in America, which is a rock skip from No. 6. Besides, Gateway is troubled, and integrating a PC company ain't what it used to be, even if the company does have experience."

The fact also remains, as The Street alludes to, that for some time Gateway has been losing market share for its U.S. brands. According to MarketWatch, "despite remaining one of the top sellers of PCs in the U.S., Gateway's sales have declined dramatically compared to the overall market and the performance of its competitors." MarketWatch goes on to refer to technology research firm IDC, "Gateway's second-quarter PC sales in the U.S. fell 7% from a year ago." The InfoWorld blog references that slide, "the acquisition gives Acer a 'foothold' in the US market, say various analysts. Maybe so, but it's one with cow manure beneath."

Ratings reports have not all been kind either. In reporting on Fitch Ratings in regards to Acer Forbes says, "it has placed its ratings on the Taiwanese PC vendor Acer Inc on watch negative," though the rating may be only temporary, "Fitch said the negative watch will be resolved upon clarification of the price Gateway is going to pay for Packard Bell, the possible restructuring costs on Acer's acquisition of Gateway, and the proceeds from the sale of Gateway's US-based professional business unit." The Financial Times also remarks that despite Wang Jen-tang, Acer’s chairman and chief executive, appearing triumphant, "a 7 percent drop in Acer shares on Tuesday, the maximum daily movement on the Taiwan Stock Exchange, poured cold water on the enthusiasm." To keep things in balance, there are rays of sunshine from the other side of the fence.

Blogging for eWeek Eric Lundquist states, "Acer has grown to be neck and neck with Lenovo to claim the No. 3 slot as the world's largest vendor. The Gateway acquisition should put them into a few percentage points ahead of Lenovo. By gaining the Gateway name . . . Acer gets to take a strong run at the U.S. market at a time when the market is in flux." Lundquist also believes the acquisition will put pressure on Dell, "Acer acquiring Gateway means that Dell has to look over both shoulders at the same time," over one shoulder at HP which capitalized on Dell's past mistakes and now over the other at Acer. BusinessWeek goes along with that, "For a company on the ropes, PC maker Gateway will probably go a long way in helping its new owner take a swing at bigger rivals Hewlett-Packard, Dell, and Lenovo. By snapping up Gateway for $710 million, Taiwanese PC maker Acer gains a bigger toehold in the U.S. market dominated by HP and Dell and is poised to expand in Europe, where China's Lenovo Group has been eager for growth."

Perhaps the most notable view is that while it may not be a winning ticket, the Gateway acquisition may be vital for Acer's survival. The Wall Street Journal notes, "The banding together of Taiwan-based personal-computer maker Acer Inc. and Gateway Inc. of the U.S. underlines how crucial scale is in the consolidating global personal-computer market, where margins are thin and competition is increasing." The scale on which Acer will now operate will allow it to purchase components at lower prices which amount to savings to be passed along. According to the Journal executives said, "The combined company would have had total revenue of more than $15 billion for 2006 and expects to ship about 25 million PCs this year."
In any case, the battle is still for a number three position, and even that may be only by a few percentage points. The acquisition may make for a combined 25 percent of the U.S. retail market (roughly 18 percent for Gateway and 6.5 for Acer), but that is still a far cry from HP's 41 percent.

A more complete version of this post, including links to market research, can be found at the website of Analyst Views Weekly.

More information on this topic can be found in the Software section of Northern Light's Software, Computers, & Services Market Intelligence Center.

And in the following articles:

Hysteria over Acer-Gateway
TheStreet.com, August 29, 2007
If anything, the coverage of this merger is a departure, because we usually get instant consensus marked by so much agreement across different media outlets that it comes at investors like thick, choking smoke. Here, strangely, there are different interpretations by the wagonload.

Acer Looks to Gateway for a Brighter Future
Financial Times, August 28, 2007
Wang Jen-tang, Acer’s chairman and chief executive, appeared triumphant this week over his company’s deal to acquire Gateway, the US personal computer maker. But a 7 percent drop in Acer shares on Tuesday, the maximum daily movement on the Taiwan Stock Exchange, poured cold water on the enthusiasm.

Acer's Gateway to the U.S. Market
BusinessWeek, August 28, 2007
Speculation that Acer would make a play for Gateway—and later concern that it wouldn't—fueled the share-price swings that are helping Acer nab its target on the cheap. Gateway's stock hit a 52-week high of $2.44 in March after Acer Chief Executive J. T. Wang said he was interested in buying a PC. The shares languished, falling as low as $1.13 on Aug. 7, when it appeared that a deal wasn't in the offing, and Gateway showed little evidence of turnaround from years of slumping sales. Acer agreed to pay $1.90 a share, 57% higher than Gateway's Aug. 24 closing price of $1.21.

Acer, Lenovo Deals Just the Beginning?
eWeek, August 28, 2007
A rash of acquisitions and near-acquisitions by Asian PC manufacturers may signify that companies dedicated to design and development of low-end PCs have greater ambitions and are interested in moving up the food chain. In the past week, Taiwanese PC manufacturer Acer purchased U.S. PC manufacturer Gateway, while Chinese computer maker Lenovo is strongly rumored to be interested in purchasing hard disk drive manufacturer Seagate Technology, also based in the United States.

Taiwan's Acer to Buy Gateway for $710 Million
MarketWatch, August 27, 2007
Gateway Inc., once one of the highest fliers of the personal-computer industry but in recent years reduced to a niche player, said Monday it would be acquired by Taiwanese PC giant Acer Inc. for $710 million. Under terms of the deal, Acer will pay $1.90 for each share of Irvine, Calif.-based Gateway, the one-time Wall Street star that's struggled mightily since the end of a high-tech boom in 2001.

Overcoming the Broadband Divide

A month after the Pew Internet & American Life Project released its Report on Home Broadband Adoption, it released a memo entitled, U.S. Lags Behind: Why It Will Be Hard to Close the Broadband Divide. Jim Horrigan, the report's author cuts through the politicking and points out that despite the efforts of those with much invested in the effort to sell broadband, time may be the best salesman.

"Non-internet users as a group are disproportionately old and poor. The median age of non-internet users is 59, and 25 percent report having household incomes under $20,000 per year." Furthermore, "Non-internet users do not have very positive attitudes about information technology." The poor and elderly, particularly those with concerns about IT will not be an easy group to woo.

Faced with the challenge of that group, it may be seen as a more surmountable obstacle to convert dial-up users to broadband. Dial-up is seen as a starting point for users who, as they are drawn in, eventually find the need for higher speed and make the switch. However, Horrigan says that that process takes time and he notes, "that 29 percent of dial-up users have high-speed access in the workplace, suggesting that, for some, workplace broadband may substitute for a home connection."

Finally, "The usability and relevance of the internet are additional speed bumps for dial-up users." Roughly one quarter of adult Americans frequently need help getting information and communication technology (ICT) to work, close to half state that such technologies have not improved their productivity, and "sizable numbers" report ICTs either give them less control over their lives, or make no difference. "The vast majority of these Americans are dial-up internet users, and their indifferent posture toward ICTs may make them reluctant to incur the costs of upgrading to broadband at home." Horrigan goes on to mention a few possible strategies that those with vested interests could adopt, none of which are likely to put much of a dent in broadband adoption. Only 4 percent of respondents to an earlier Pew poll said that price was a reason for switching to broadband; so lowering those won't help much. And "Improving infrastructure availability will help, especially in rural areas, but not by enough to alter the U.S. position in the world. Even, "Assuming most of the gap is concentrated in rural areas and that closing the gap would bring rural broadband penetration in line with the national average, America’s home broadband penetration would rise by only 3 percentage points. That will not vault the U.S. to the top of OECD’s rankings."

A more complete version of this post, including links to market research, can be found at the website of Analyst Views Weekly.

More information on this topic can be found in the Online Access section of Northern Light's Internet & Information Services Market Intelligence Center.

And in the following articles:

Towns Left Scrambling for Touch of Broadband
Boston Globe, July 18, 2007
On any given day in this rural town of about 1,000, a few people park their cars in front of Town Hall while they log onto the Internet. But they aren't typical WiFi poachers. They are dial-up refugees.

Global Broadband Adoption Grows
Vnunet.com, July 16, 2007
Broadband is becoming the dominant global medium for IT service delivery on both fixed and wireless networks, according to new research. The Organisation for Economic Co-operation and Development (OECD) report shows 60 per cent of member countries' web users are now on broadband.

Nearly Half of U.S. Homes Have Broadband, But Adoption Rate Slows
InformationWeek, July 5, 2007
The U.S. continues to fall further behind other countries in terms of broadband penetration, but broadband usage in the U.S. is increasing, according to a report released this week by the Pew Internet & American Life Project. Nearly 50% of Americans have broadband connections in their home, Pew said. But the overall rate of growth is slowing.

Broadband Internet Adoption Rate Slowing
Chicago Tribune, July 5, 2007
More Americans than ever have broadband Internet access at home, but the adoption rate is slowing, suggesting most of those who want broadband now have it. High-speed Internet access, of course, is key to taking full advantage of Web video and understanding all the fuss over the modern Internet.

Experts: Better Broadband Stats Needed
PC World, June 28, 2007
The U.S. government needs better ways to measure broadband availability and adoption in order to develop policies that focus on ways to use broadband to improve the economy, several telecom experts said Thursday. "As policy makers, we need to have an eye to the future," said Beth Shiroishi, senior director of regulatory policy and planning for AT&T Inc. "Where do we want our country to go, and where do we want our citizens to go?"