With less than a week to go before Alibaba’s expected IPO, the company has decided to make a little more cash by charging a higher amount for its shares.
Quibb, a startup that offers an exclusive content-sharing network for professional users, is experimenting with crowdfunding via an Alphaworks widget that allows users to join in a VC round directly from the company’s website
As part of its ongoing quest to beef up its central and eastern European operations, Deutsche Telekom(s dt) has bought up the 39.23 percent of shares in T-Mobile Czech Republic that it did not already own. The shares, purchased from a private equity–led consortium, cost the carrier group €800 million (USD $1.1 billion). Deutsche Telekom bought GTS Central Europe in November last year, partly for its fixed-line infrastructure in the Czech Republic, and now that plan is coming together. “T-Mobile Czech Republic is on a clear strategic path to enhance its fixed-line capabilities and foster its market position in B2B,” a Monday statement read.
The online video sector is growing fast, and advertising forecasts point to a boom. So why is one of the leading companies’ share price sliding in the other direction?
Amazon published “disappointing” earnings this week, and the market responded, slashing up to 12 percent off the company’s value. It’s a market that’s preoccupied with fast returns, and so Amazon’s investments in data centers and cloud computing don’t necessarily translate to short-term profits. In other words, the company’s ups and downs highlight contradictions between companies investing to support long-term objectives and running a business to ensure analyst-pleasing growth each quarter.
Amazon has been here before. A BusinessWeek cover story from 2006 captured widely shared sentiment regarding the company’s then-recent foray into building data centers; about Elastic Compute Cloud, the piece found that “Eleven of 27 analysts who follow the company have underperform or sell ratings on the stock — a stunning vote of no confidence.” In September 2011, Forbes painted a different picture, noting, “Amazon shares have defied gravity, jumping 55% year-to-year.”
Those analysts were wrong in 2006. And they’re probably wrong this week. Amazon is not in a high-margin business, where profits come easily. Amazon is dominant in business areas where profits come from achieving massive volumes of extremely low-margin sales. Books, consumer electronics, data center compute cycles: None come close to the 30–40 percent profit margins Apple enjoys.
Nevertheless, Amazon continues to invest in data centers — and to reduce prices — in order to retain its position as the dominant provider of public cloud infrastructure. All of these investments position the company for future growth, with data centers being fundamental to Amazon’s existing cloud business. But all of them hit the bottom line in the latest earnings report, and that has clearly spooked investors once again.
Writing for Forbes before Amazon’s earnings report, CFA Institute‘s Robert Stammers asked whether Amazon’s valuation might boil down to a “cloud bubble,” in which hype and investor exuberance artificially inflate perceived value. Stammers goes on to ask, “Is the cloud a profit opportunity for investors or a product opportunity for companies” (my emphasis). This may be the heart of the problem. Investors are looking for a return that is either large or predictable, and ideally both. Figures such as the $3.2 billion spent by CenturyLink to acquire Savvis make the cloud infrastructure space look like one in which large sums can be made. Maybe they can, but hardware and operations also cost a lot to procure, deploy and maintain. Investors used to software, where profit margins can be 90 percent or more, struggle to adapt.
As Henry Blodget argues at Business Insider, Amazon’s long-term approach to building a business should be welcomed. It is, however, difficult to align with the market’s obsession with short-term growth. Buying into Amazon, or competitors such as Rackspace and CenturyLink, is certainly not a bad idea. You’re not likely to lose money (note: GigaOM Pro is not offering investment advice here). But you’re also not going to see significant returns in the short term.
One of the biggest advantages of cloud computing — for a user — is that providers are able to scale resources in line with demand. But for the user to get that experience, the cloud infrastructure providers (Amazon, Rackspace, etc.) have to spend. Machines have to be bought and maintained in massive data centers, so that they are ready when demand arrives. That spending is expensive, risky and recurring. Amazon has a slight advantage over its rivals because of its scale, and because it can subsidize activities with revenue from other areas of the business. But it still has to upset Wall Street by investing.
Question of the week
August 2009 will be remembered as something of a mixed bag for Apple (s aapl). There was Google Voicegate, and the backlash it generated from the tech press and public alike, culminating in questioning from the FCC. On the other hand, Mac OS X’s latest big cat was released, and that gave almost everyone something to be happy about.
But now, as August finally draws to a close, there’s news that some investors might have been a bit naughty in their dealings with Apple shares. And the Securities & Exchange Commission is very keen to get to the bottom of it. Read More about SEC Suspicious, Opens Investigation
FairSoftware, one of the TechCrunch 50 finalists, is up and running and accepting alpha participants (although it’s marked as alpha, registration is open to anyone). The company hopes to give entrepreneurs yet another function they can outsource: that of actually providing a corporate and governance structure. It’s an interesting notion, though I’m not 100% convinced that it will make sense for the average small software project (though in theory you could use their structure for any company, right now it’s tuned for those selling software online).
After you set up an account with FairSoftware, you can create as many projects as you like. Each project has participants, and you assign shares to them to indicate their share of the profits. There are mechanisms for share vesting and voting on proposals, as well as payroll and sales tracking – the idea is that you form your team, you build your product, and you sell it via FairSoftware: you can have a purchase button on your own site, but all sales must go through FairSoftware, who take a cut (9.9%) of each sale to cover their expenses and profits.
Over the last six months Bebo and Endemol have whittled down the entrants to six young people who will be sent on six-month trips around the world. Sounds like a pretty spectacular deal to me. The chosen six set off tomorrow. They get a per diem allowance based on what guides like Lonely Planet recommended for the country they’re in. Each person travels individually, accompanied by a cameraperson/director, and will send in one 3- to 5-minute video per week. On Sunday Bebo will run compilations. The show currently disables embeds for its videos, but you can see some samples here.
The coolest mobile device on the market today is definitely the OQO Model 02. I played with one at the CES early this year and while I don’t know if it would serve me as a daily machine I would still love to get one for a good look. I had been following Hugo Ortega (GottaBeMobile & Uber Tablet) since he first got his OQO as I know his insights will help me figure out if the OQO will work for me. Hugo’s blogging about the OQO fell silent a few weeks ago and I was about to reach out to him to ask him (anxiously) why when I saw this post on his blog:
So I posted a video about the OQO model 02 and had thousands of hits – literally. I was lookingforward to a great experience. When my first OQO 02 died (just beofrethe Video) I received the replacement and got back on the road quickly(kudos to OQO) when the second one died OQO did the right thing and gota new one out to me again – I was upset but looking forward to a greatseason ahead, and then when the third one arrived I lost all motivationand it is in my garage unboxed.
Iwas upset and have decided to move away from it for a little while.Sorry guys. We’ll see what happens in the future. Migration of all mydata – twice – has been a headache I do not want to deal with on athird occassion.
Hopefully this is just an aberation but I remember hearing these stories over and over again when the first generation OQO shipped. I corresponded with more than a couple of early OQO adopters who were on their 3rd (or 4th) unit. Ouch.
“You can always tell whether you’re on a Mac or on a PC…Just stick your applications in there and see whether they’ll run.” Bill Gates in a chat with Dawn Chmieleski, of San Jose Mercury News. How about if we change it to: “You can always tell whether you’re on a Mac or on a PC…. just check for a spyware clean-up program…. oh wait you don’t need to do that on a Mac.”