Comments on Google’s Q3 2013 Earnings Report

I’m interested in the online advertising business. When I read about Google’s performance for the 3rd quarter, 2013, exceeding analyst estimates, and noted more than a 12% follow-on appreciation in the per share price of Google’s stock by Friday, October 18, 2013, I decided to take a look at the quarterly earnings report.

I found a couple of the sectors of revenue production, depicted in a bar graph on Google’s Q3 2013 Quarterly Earnings Summary to be interesting and worth a comment. While Google’s overall advertising business for the quarter grew substantially, year-over-year, the portion of revenue coming from the “network” (meaning the Display Network, Google’s AdSense Affiliates), actually contracted by a full percentage point.

I’m wondering if this revenue contraction for the Display Network business is the result of advertisers demanding better results from their campaigns, and, subsequently dropping network campaigns for Google Search campaigns, only. I’ve worked with my own clients on these campaigns (my clients are SMBs), and have to say the results have been poor, especially where we experimented with building “brand awareness”. Brand awareness campaigns are charged on a basis of 1000s of impressions, rather than per click. We’ve experienced very few successes with these campaigns.

If I’m correct, and today’s SMB online advertiser is much more demanding than was the case in the past, then the online advertising business is certainly trending even more towards a “volume-centric” business. Any drop in volume in subsequent quarters will likely hit Google’s results hard.

I was also taken by the growth in Google’s “other” revenue segment. In Q2 2013, this set of products (likely to include Google Apps) produced $1.046 Billion. But in Q3, production grew by 17.5% to $1.230 Billion. If this “other” set of products includes Google Apps, then it’s safe to say Google is taking some business away from Microsoft’s Office product line.

Finally, I liked the highlighted sentence on Page 2 of the summary: “Our infrastructure continues to be a key strategic area of investment”. A lot of what’s working in the cloud business as we proceed through Q4, 2013 is infrastructure. Enterprise businesses and large organizations in the public and not for profit sectors are, apparently, very keen on Infrastructure as a Service (IaaS) offers.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved


A Serious Vulnerability is Exposed in the Wi-Fi Protocol

On October 29, 2013, the New York Times published an article written by Nicole Perlroth, titled “New Vulnerability Found in Apps Using Wi-Fi”. This finding ought to add a heightened level of risk to activities average consumers consider for their online communications needs.

This vulnerability is specifically linked to the iOS O/S, and Apps built for it. There isn’t much new about the technical objective behind this exploitation method. It amounts to another attempt to insert a “man in the middle”, between App users and their data sources and servers. If successful, this exploit can masquerade as a legitimate data source. If successful, this exploit can be used to serve erroneous, misleading information to users engaged in financial transactions — like stock trading — with potentially disastrous results.

Hopefully the revelation of this new serious risk will prod App consumers to put the breaks on some online activities actually fraught with very dangerous risks. Further, whereever possible, App consumers should use a hard wired connection to the network. This is not to say a hired wired connection is inherently more secure than a wireless one, but the extent of risk is more limited and, of most importance, more manageable.

One would also hope Apple would take steps in the aftermath of these findings to quickly contribute to a method of patching this vulnerability. While the Wi-Fi protocol is a data communications standard maintained by the IEEE, it, nonetheless, can plague any/all manufacturers building solutions around it, should vulnerabilities like this one arise. One would imagine Apple will move very quickly to repair this issue.

The upside, if there is any to be found here, lies in an opportunity for resurgence of interest in a multi-protocol networking environment. Certainly, in a world where there were more options for mass market consumption of data services offered with dissimilar protocols, users would have an added layer of security to depend upon.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved


Apple’s Q4 2013 Results Point to a Peak in Tablet Sales

Along with a lower operating margin, a miss on gross revenue estimates for Q4, 2013, and weaker Mac sales, Apple’s Q4 2013 quarterly report included mention of a substantial miss of 6% against estimated iPad sales. Analysts estimated 15 million units sold for this product, but Apple sold 14.1 million units. Q4 2013 marks the second consecutive quarter of a miss on this product line. In Q3 Apple sold 14.6 million iPads.

What bearing, if any, do weaker iPad sales have on the market for PC computers? While I don’t want to veer into an attempt to correlate sales of these two products, I do have some thoughts on the topic. The lower than expected drop in PC chip sales reported by Intel, Microsoft’s report of better than expected sales of their PC O/S, together with this reported drop in tablet sales are worth strong consideration. I’m confident there is a floor for PC sales (there are some applications requiring PC computing power. These applications cannot be replaced, at least for the near future, so they can safely be considered part of the “flooring” below PC computer sales). I wouldn’t be surprised to see some reports of an uptick in PC computer sales in coming quarters.

As I wrote earlier, supporting the iPad with a 64 bit O/S is, in my opinion, overkill. There is no need for a 64 bit O/S when most consumers will use the device to watch video, or to listen to music. One can argue there is a rationale for 64 bit O/S for gaming, but the proportion of the consumer market buying tablets to play high end video games is not likely to be substantial. So I do not hold the opinion the 64 bit O/S will make for a substantial improvement in sales of these products anytime soon.

I would look more favorably on Apple opting to service the lower end of the tablet market with a device at a price accessible by consumers in emerging markets. But this type of move doesn’t look to be in the offing anytime soon.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved


Apple Shows More of Its Appetite for the High End Market for Smart Phones

On Wednesday, October 15, 2013, the online edition of the Wall Street Journal published an article written by Lorraine Luk and Eva Dou. This article, titled ‘Apple Cuts iPhone 5C Orders’ reports substantial reductions in orders placed by Apple, with its suppliers, for components for Apple’s iPhone 5C smart phone. This information confirms a now widely held analyst opinion about Apple’s plans for its portion of the world wide smart phone market. Apple is ceding the majority portion of the “pie” over to competitors with offers at a lower retail cost to consumers.

These reductions are entirely consistent with the change in senior management of Apple’s brick and mortar retail store business to an executive with an extensive background in successfully operating ultra high end women’s fashion stores — namely the ex head of Burberry’s retail store effort.

So if any one still had any doubt as to where Apple is headed with its most important product, namely the iPhone, it should now be clear they are tightly focused on capturing as much of the market for very high end smart phones at very high retail prices as they can. Certainly they will make absolutely best efforts to deliver the most attractive value to these customers, but the opportunity represented by the enormous market for smart phones for emerging markets is not on their list.

I think Microsoft has a unique opportunity, at this point, to not only take market share from Apple at the high end (with the Nokia Lumia 1020 and 925), but to also rev up their new Nokia engine to go at the low-mid market in these emerging markets against Android smart phones. After all, Nokia produced more mobile phones than any other business as recently as 6 years ago. The sales apparatus is likely still in place. So an “affordable” smart phone for the emerging markets might be a real winner for Microsoft.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved


Do Intel’s Q3 2013 Results Indicate an Approaching Bottom in PC Sales?

Intel reported Q3 2013 earnings today, October 15, 2013, after the market close. Despite earning an impressive $3.0 Billion in net income, sales of key chips for desktop and mobile PC computing reflected year over year declines from the same fiscal period of fy 2012.

But the declines, in my opinion, are comparatively minor, given the declines, year over year, from previous quarters. Intel sold approximately 5% fewer desktop PC chips than it did in Q3 2012, and approximately 3% fewer mobile PC chips for the same time period. If this trend continues, for another couple of quarters, it may be safe to say we’re approaching a bottom in the market for these devices.

If we are approaching a bottom, then sales of small, smart, mobile devices (including tablet computers and smart phones) may have already peaked. I think this is likely the case given two big moves on Apple’s part:

  1. The new iPhone 5S and 5C models do not address the mass market represented by emerging economies. Apple is making its satisfaction with top rank clear. Instead of developing more affordable products for these larger markets, they appear to be fortifying their position as the number one brand
  2. The recent executive change at the top of the Apple retail store apparatus reinforces the likely veracity of pt 1). Hiring the former head of the ultra chic woman’s fashion Burberry brand is likely to mean a lot more branding at the top of the market and not much attention to what’s below

Turning back to Intel’s quarterly performance, if their chips start to cut into ARM Holding’s dominance of the tablet markets, and, at the same time, they start to power a lot of Google Chromebooks, then it might be safe to project a resurgence for Intel, and, in all likelihood, its principal competitor — AMD.

PCs will always be in demand for a proportion of the market that needs more than simply a portable entertainment device.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved


Why do Tablets or Smart Phones Need a 64 Bit O/S?

On October 22, 2013, Apple unveiled its newest tablet computers, the iPad Air, and the latest generation of the iPad Mini. The iPad Air was touted as being a very advanced type of tablet computer, especially given its 64bit operating system. But why do table computers need a 64bit operating system? I don’t think they do, and here’s why:

The biggest obstacle to computing speed, in my experience, have little to do with a lack of 64bit operating systems. In the 1990s, the most nagging impediments to efficient end user computing were PCs lacking the right amount of Random Access Memory (RAM) to expeditiously process computing tasks, and generally slow data communications networks. On this last point, even the fast processors in hardware systems equipped with the right amount of RAM, would still leave users unsatisfied.

Now, in 2013, very high speed networks are widely available, and RAM is still relatively inexpensive. Most smart phones ship with at least 8 Gigabytes of memory, and are capable of connecting to the fastest available cellular data networks here in the United States. So what, precisely, will a 64 bit operating system do to speed up tablet computing? Not much.

So the Apple announcement amounts to some very creative hype. In fact there isn’t any need, today, for a 64bit operating system, neither for phones, nor for tablets. Perhaps, in the future, there will be a legitimate need for 64bit computing architecture, but not in 2013 or 2014.

Are Apple competitors likely to rush out to add 64bit operating systems to their products? I don’t think so, especially since consumers are not likely to experience any material difference in the quality of their computing experience as they switch between chip architectures.

I do applaud the success of the PR team at Apple. This announcement, along with their decision to eschew making money from software and just writing it to push hardware sales (another rather nonsensical decision in my opinion), were transformed into brilliant gestures by the alchemists in the PR team in Cupertino.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved


Track Website Visits by eMail Campaign Recipients to Improve Efforts to Rank Leads by Quality

Small businesses often operate at a disadvantage when it comes to the range of options available to them for generating leads from online communications opportunities. Rarely will one of these lead generation systems include a ranking component. But a lead ranking component is an important tool sales teams can use to prioritize time to allocate the most attention to the most promising leads.

But with the latest version of VisualVisitor, a truly low cost system may finally be available to these businesses to add this missing piece to the tool set of their sales teams.

I use VisualVisitor and have one client using the system, as well. The most valuable feature of this product for small businesses is the information it provides about the otherwise anonymous visits of business prospects to their websites. My client and I have successfully used the product to close sales. These sales matured faster than would have been the case without the information about website visits by these prospects to our websites.

I’m pleased to note a substantial improvement in the performance of this product. A tagging system has been added to the feature set. These tags can be used to add information about email campaigns to specific leads already identified by the VisualVisitor system.

The tagging system can add a lot of power to efforts to rank leads. For example, it certainly makes sense for sales people to spend more time on website visitors also included in email campaigns. Further, the website visitors with the highest frequency of visiting websites should receive the most attention. VisualVisitor’s new tagging system can certainly be used, successfully, to identify this specific group of website visitors.

I also like the set up of the tagging system. All of the work is performed via the VisualVisitor control panel. Therefore, there is little chance of a system malfunction as the result of the email campaign method. No need to worry about setting up tags in Constant Contact, iContact, MailChimp, or any other email campaign management tool.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved


Digital Stakeholders Should Better Understand CEO Reluctance to Change

In a presentation designed by the MIT Sloan School Management Review, and Capgemini Consulting, Embracing Digital Technology (the 2013 Digital Transformation Global Executive Study and Research Project), CEOs of businesses with over $1 Billion in annual sales are admonished to ” . . . achiev[e] digital transformation . . . within the next two years”. The authors of this presentation, Michael Fitzgerald, Nina Kruschwitz, Didier Bonnet, and Michael Welch, argue the urgency, for CEOs, is to embrace this imperative.

Presumably the points made in this presentation are credible. After all, the positions taken in it are based on the results of a survey of ” . . . 1,559 executives and managers in a wide range of industries.” But somehow the points echo very similar points made over the years about office automation. The old themes (really cliches) pop up again in this piece. Businesses failing to embrace new technologies (in this case social media and online transaction processing) will lose ground to competitors who successfully make the required transitions.

What’s missing is any real depth of detail about why the recalcitrance evidenced by a full 62% of companies surveyed, may make sense. For these respondents ” . . . digital transformation . . . [has not become] a permanent fixture on their CEO’s agenda”. Surely there must be a compelling reason for these CEOs to take this position about whether or not the “urgency” of technological change makes sense this time around?

Perhaps the reluctance of these CEOs is understandable if one chooses to consider the substantial increase in the success rate of malicious attacks on websites, or the growing divide between successful IT projects, and the more common variety of IT projects which are prone to substantial cost overruns and disappointed users.

While we’re at it, let’s not forget the quagmire of “user adoption strategies.” There are few CEOs willing to simply digest the cost of these campaigns, which are designed to achieve little, if anything, more than persuading end users to change one method of successfully performing daily computing chores, for another.

An adoption strategy, for better or worse, should be a mandatory component of any “modern” office automation project, regardless of whether the type of computing is “digital” computing online, or a legacy on-premises computing solution. After all, any changes in computing, at this point in the development of information technology, is really a matter of abandoning one method of office automation for another. But do most IT project plans include this strategy? From the results of this survey, perhaps not. CEO reluctance, when considered in this light, becomes understandable and certainly worth exploring. Pity this article did not dive into it.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved


New Publication Policies Implemented by Prominent Online Social Media Test Consumer Commitment

On Thursday, October 10, 2013, Google published its plan to provide its advertisers with an opportunity to include consumer testimonials in their ads. I recommend reading this article by Joshua Brustein as published in BloombergBusinessWeek, Google Is Going to Include Your Face in Its New Ads, to get an idea of where they plan to take this new notion of just how far they can go with your content if you opt to publish it on one of their products.

Broadly speaking there’s little new about this announcement. Advertisers routinely include real life success stories and other types of testimonials in campaigns. But what is very new about the announcement is the treasure trove of endorsements Google plans on exposing to its advertisers for their use. All of the blog posts, alerts, status updates, and, perhaps, even emails produced by Google consumers are now fair game for these advertisers.

This decision is not likely to be well received by Google consumers. When this tactic is put together with very similar announcements from facebook (and, I believe, LinkedIn, as well), the average consumer of these services should be able to clearly see the boundary, perhaps for a first time, between online social media with attractive offers, versus online social media to be avoided.

The catalyst for these new positions, in all likelihood, is yet another round of efforts by Google, and other online social media hosts hungry for profits, and revenue growth, to monetize the enormous amount of content published by consumers.

Click advertising efforts have not been producing the profits of the past. Plans like the one Google announced will likely provide them with a new set of products they can offer to online advertisers at a premium, over and above normal click ad rates. The plan also serves as a tacit acknowledgement that more of the market for click advertising opportunities is after a method building brand awareness, and market exposure, than in the past. The “bread and butter” segment of these click advertisers used to be after an opportunity to sell products and services directly to the consumer. But those days are long gone.

These tactics may create an opportunity for paid media to offer completely private venues where consumers of these services can publish, in privacy. It’s hard to envision a large proportion of social media publishers simply accepting these new policies and continuing “business as usual.” It’ll be interesting to observe just how consumers actually react to these new tactics.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved


Consumers Should Carefully Consider the Security Risks Accompanying Home Automation Solutions Built for Broadband Networks

If a report recently published by Infonetics Research, Infonetics: Over-the-Top Home Automation Services Gaining Popularity with Service Providers, on the condition of most of the market for home automation solutions, can be trusted as a reliable indicator of consumer interest in these services, then an inescapable conclusion is the market is red hot. “‘Our latest home automation study supports this trend: By 2015, the percentage of operators offering OTT home automation services more than doubles,’ Heynen reports. ‘With Verizon functioning as the guinea pig for out-of-market and over-the-top home automation services, other operators clearly believe these services can be delivered outside their incumbent markets.'” (quote is excerpted from the Businesswire Press Release, a link to which has been published earlier in this paragraph).

I should explain a couple of points about this press release.

  1. “Over the Top” refers to services offered ontop of another vendors services. In this instance, the Home Automation solutions operate over a broadband Ethernet network managed by a separate vendor.
  2. The home automation services, for the consumer, discussed in this article, operate with a thin client, meaning a web page browser, from any device capable of supporting browser clients. These devices include desktop PCs, laptops, tablets, smart phones and even game consoles (XBox/PlayStation/Nintendo)

I’m not sure the average consumer is aware of the risks accompanying use of these types of services. These are, indeed, serious risks, including, but not limited to malicious individuals accessing otherwise restricted information (for example, the geographical location of one’s home). Certainly all of these services are built for encrypted data communications sessions via browsers, but as the public has recently been informed, encryption standards are no longer impenetrable. Further, the recent exploit at Adobe Systems creates even a larger threat, as some of these services use flash for video. If the flash code has been compromised, there is little to say who may be able to access information.

The best vendors in this market can hope for is a slow moving public, likely too disinterested to take the time to research the risks. Nevertheless, any “horror stories” emerging from consumers purchasing these services will likely bring everyone up to speed on the risks yesterday

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved