A Strange and Wonderful World

I am tempted to buy one of these just to have it around in the hopes of someone asking, "what's that?"

Why, it's a left-handed Veeblefetzer. Duh!

As Goes BusinessWeek...

When BusinessWeek starts to agree with me, I start to doubt myself.

While I do think that Google faces some very steep challenges over the next 24 months, I'm starting to feel that the stock price reflects the negatives more than sufficiently. Last I checked they are at a forward P/E of ~19, which is by no means exceptional for a company still very much in growth mode.

The most interesting comment I heard about search in a long time was something Bill Gates said at a conference a year or so ago. When asked how he felt about Microsoft having 'lost the search war to Google,' Gates responded that MS had 'only lost the first battle, not the war,' and that "we are still in the command-line era of search." Those of us who use search a lot know its shortcomings very well, and they are even more acute (though in some ways different) for those who do not use it a hundred times daily. The implication is clear: Google's core business remains vulnerable to being innovated around and over.

I no longer believe this to be the case.

The most fundamental feature of a search engine is the volume of content it gives you access to. An engine that gives the ideal result on page 5 is better than the one that gives you nothing because it never spidered that item in the first place. The volume of information on the Web is growing at such a rate (something like ten hours of video are uploaded to YouTube every minute) that simply keeping up with it, even in relatively specialized niches, is a capital-intensive operational challenge.

On the flip side, getting people to pay attention to your wonderful specialized search engine is in many ways an even costlier nut to crack. Going direct to consumers means spending bazillions on branding. Other companies have tried to create "professional" versions with much more specialized tools and deeper data mining, and sell them on a subscription basis, which requires spending a lot of cash on sales and marketing, though break-even will arrive sooner than in the previous option.

Some have done well for a while--ZoomInfo comes to mind--but they feel brittle to me, like Indiana Jones scampering through a tunnel ahead of a boulder. Only in this case the tunnel probably ends only if the boulder wants it to, i.e., buys them out. Google is reaching a point where, like Microsoft in 1995, mediocrity is enough. Indy has to be an Olympic sprinter and gymnast to stay ahead--the boulder just needs to keep rolling downhill.

And therein lies the question--is Google today the Microsoft of 1985, 1995, or 2000--while mediocrity at the top may make for an interesting career choice, it's not a rewarding place to invest. My bet is on 1995.

Paging Hollywood

The beginning of a screenplay for an Iraq War movie that would probably gross a few hundred million, minimum. It even has the obligatory female.

Sane Dogs, Mad Englishmen

The economy is presently in a troubled state, has been for some times, and I will be the first to say that I do not know whether we are closer to the beginning of the end, or the end of the beginning, or anywhere in between. Nobody else knows, either, or if they do, they're keeping their mouth shut (see previous post) and placing their bets.

That being said, I do feel confident of a few things:

1. It has been a long time since this many people were praying for a recession. Call it the Bush Factor: well over half of our own chattering classes, and probably north of four-fifths of Europe's, will happily seize upon any grim event with which to club the U S of A and its hated Bush regime. Quite simply there are too many people eager to grind too many axes to take seriously coverage such as that seen to the right.

2. As uncertainty grows towards infinity, all possible outcomes are not equally likely. Events do not take their direction from the spinning of a cosmic roulette wheel. The economy is the aggregate of billions of small decisions cascading their way up and up, and in hindsight, clear patterns can always be discerned. Just because we cannot say for certain that a dollar collapse will not occur and precipitate a general unraveling of the current economic order, does not mean that this is anywhere near as likely as a recession of average duration and severity.

3. When the map fails, follow the compass. Every recession of my lifetime has included its own set of utterly unprecedented events: the 70s featured stagflation and the collapse of Bretton Woods, the 80s the S&L crisis, the 90s the amazing runup in stock prices and mass ownership of equities, and now, the subprime debacle. During every bubble, the bulls say there will never be another bear market, and when the bear comes, all the erstwhile bulls say it will be twenty years before anyone is dumb enough to let a bubble like that happen again. It's all bullshit.

The same things were being said in late 2001, with the added uncertainty of the 9/11 attacks still very fresh in our collective minds. Forget speculative investing--we would be lucky to still be alive in five years' time. Google's IPO was still over two years away*, and the conventional wisdom held that it would be a decade--or more--before any company bought computer hardware or software again.

And yet we can see now in the perfect clarity of hindsight that even as the dumptrucks were carting the still-smoldering wreckage of the Twin Towers out of Manhattan's financial district, the helium tanks for the Great Residential Real Estate Bubble were being trucked back in. We moved from one bubble to another almost without pause, but of course, this was totally different because these were houses people lived in, so it would be Nothing Like It Was the Last Time.

Anyway, the point here is that trying to keep up with the headlines is almost sure to lead you to complete and utter panic and insanity, while steering a steady course that assumes that the economy will recover, and that quality assets will return to their long-term values, is as close to a sure thing as this crazy life offers.

* Which happened just under four years ago, in case you need a reminder of how quickly things have been moving.

Sitting Pretty

There are life lessons to be learned from the actions of Deval Patrick and Al Gore right now. Both men are widely considered to be contenders for a big career move, depending on how the Democratic primary plays out. Patrick continues to deny what is almost a certainty, that he would take a cabinet post in an Obama administration if offered, while Al Gore declines to take time from polishing his halo to address silly rumors concerning his non-candidacy.

Naturally, no one believes Patrick and everyone wants Al Gore to take a stand, meaning, rule it in or out. But as is almost always the case in life, the people demanding answers don't have their subjects' best interests at heart when they make the demand. It's not just that some answers are better than some others when these sorts of questions arise. It's that nothing is almost always a better answer than anything.