Wednesday, December 20, 2006

Windstorm Woes

My neighborhood in Redmond looked like a bomb had gone off last Friday morning, with trees down everywhere and power lines draped on the ground. While the trees have been largely chopped up (including the one that landed on my roof), we're now on Day 6 of no power. We're coping, but it doesn't inspire a lot of confidence about what will happen if we ever face a real disaster here in the Northwest . . .

Thursday, December 14, 2006

Yahoo - Facebook Leaked Docs

Techcrunch posted purported internal Yahoo documents supporting an acquisition of Facebook for up to $1.6B. $1.6B? Are you kidding me? As I've posted before, the child prodigies running Facebook should take the money and run - even if it's "only" $1B.

Anyway, the Techcrunch Yahoo docs include some high level model readouts. All I can say is that I don't think I'd want to explain to senior management that my business case for a $1.6B price depends on believing that a service like Facebook can:

- Be regularly used by 60% of high school and young adult internet users and
- Reach sustainable 58% profit margins (up a tad from today's -33%)

At least they're using a 19% discount rate. I know things are tough at Yahoo, but overpaying for a MySpace also-ran like Facebook isn't the answer.

Wednesday, December 13, 2006

3rd Place Winners

In a recent New Yorker article titled "In Praise of Third Place", oft-praised-in-this-blog writer James Surowiecki profiles the financial success of Nintendo compared to the higher-selling but less profitable games units of Microsoft and Sony. By focusing on units that are really good at playing games - as opposed to the be-all-end-all XBox and Playstation units - Nintendo has made a great business out of third place. Meanwhile, its competitors slug it out for market share leadership, losing money on every unit sold (and no, you don't make that up in volume).

In thinking about mergers, there is often a bias for scale. While it's a fair assumption within certain parameters, there is a point beyond which scale doesn't offer meaningful cost structure reductions - and which can lead you into a bottom-line-punishing race for to preserve a market-leading position. This is why the synergies assumed in large merger financial analysis need to be carefully evaluated, and the strategic questions of whether a larger scope is truly desirable fully vetted.

Back to Nintendo vs. XBox/Playstation: A lot of my Redmond neighbors work at Microsoft, including several in the Xbox group. They ALL want the Nintendo Wii.

Wednesday, December 06, 2006

"Corporate TiVO"

Fascinating article in BusinessWeek Online about Best Buy's approach to working hours at corporate HQ. Trying to embrace what they call "ROWE" ("results only work environment"), Best Buy employees are to eschew "face time" and regular hours in favor of focusing solely on results. As one employee gushes, the ability to work where and when one likes is akin to "corporate TiVO."

I've railed on the topic of face time a bit in the past, and as I noted recently, technology changes over the last ten years have radically reduced the need for many corporate workers to log regular hours in an office. Unfortunately, those outdated notions still hold great currency. It says a lot that the grass roots founders of Best Buy's program had to sharply point out the need to focus on results. Nothing else about one's time in the office matters, of course, but how many of our corporate policies, procedures, rules and attitudes are directed at controlling or measuring things unrelated to results?

Saturday, December 02, 2006

New Corporate Dealmaker Column

I've been writing a regular back page column in Corporate Dealmaker magazine, looking at some of the details and idiosyncrasies of doing deals. I neglected to post the first article before now, so here it is, along with the latest. It's a fun outlet; feel free to e-mail me with any comments or topics you think I should write about.

Friday, December 01, 2006

The Evils of Private Equity?

Excellent analysis from Going Private in response to the increasing spate of journalistic attacks against LBO transactions - she does a nice job dispensing with the muliple "shareholder protection" arguments that are popping up against PE deals.

I would add that there's nothing inherent in LBOs that makes them any less favorable to shareholders than strategic M&A transactions. At root, all of the objections to PE are based on a common presumption of board ineptitude and managerial duplicity. The assumption that evil managers will run their companies into the ground so they can pursue LBOs is comedic (as we've seen, such types prefer the easier work of book-cooking and options back-dating). In any event, there are just as many opportunties for corrupt management to profit via strategic M&A as there are in LBO deals, so why are our PE friends being singled out?