JordanHudgens.com

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They don’t call their articles blogs, they call them Editechials, so they are editorials for the tech industry.  Hence the name:

http://www.editechial.com

Best,

Jordan

Of course having a key differentiating point is vital for success in any industry, however Microsoft is not positioning themselves to take users away from Google or even Yahoo! Since the launch of the “pay to search engine” I still have no reason to go to Live.com when I’m looking for any web related item.  As much as we love to hate Google, they are still head and shoulders above everyone else in the industry when it comes to finding what I’m looking for online.  And as far as I can see there are only two ways that either Yahoo! or Microsoft will be able to gain market share in the search engine wars.

1. Wiki search
There is only one thing users love more than ease of use and speed, and that is control.  If Yahoo! or Microsoft could effectively enable users to control search criteria, they would finally have a service that would have enough of a differentiating factor to gain market share.  Early adopters would being the migration toward this type of platform just as they did with Wikipedia, Twitter, et al.  The process would not be quick, however in my opinion there would come a time where either of these two companies would be able to be a true #2 in the search market.  This is, of course, assuming that Google would not be able to develop and come to market with this same type of product offering.

2. Semantic Search
This second option would be easier to execute upon, however it may now create enough differentiation to be considered a an enhanced alternate solution.  For those of you not familiar with the Semantic Web, here is a quote from Wikipedia:

The Semantic Web is an evolving extension of the World Wide Web in which the semantics of information and services on the web is defined, making it possible for the web to understand and satisfy the requests of people and machines to use the web content.^[1][2] It derives from W3CTim Berners-Lee’s vision of the Web as a universal medium for data, information, and knowledge exchange.^[3]

^{The continued stranglehold Google has on the search market is going to force whoever decides to compete to offer a very dynamic service.  If you want a prime example of the difference between the search engines, type in: Jordan Hudgens into Google, Yahoo! and Live.com.  The accuracy of the results are so drastic it is amazing that Yahoo! and Microsoft even consider themselves in the search industry.}

Ichan has been one of the most successful takeover artists for decades, the mere mention of his name brings shudders to any publicly traded management team.  However, the blanket statements he has made regarding how he will “fix” Yahoo! prove his ignorance of the online industry.

I understand completely that his intentions are based solely on the short term goal of raising Yahoo! shareholder value, however if he gets his way, his overflowing naivity will have an extremely negative effect on the online advertising industry as it relates to innovation.

By removing Jerry Yang and selling to Microsoft, as Icahn demands, he is throwing the baby out with the bath water.  Let’s not forget the reasons why Yahoo! is in their current predictament (and remember that Jerry Yang did not have control of the company while many of these missteps occurred):

- Being tight with their purse strings and NOT ACQUIRING GOOGLE WHEN THEY HAD THE CHANCE!

- Keeping Terry Semel at the helm for too long

- Trying to become a “Hollywood” enterprise instead of enhancing their search and advertising platform (something Google has never lost sight of)

- Launching an inferior PPC engine: Overture

- Not acquiring Doubleclick, which would have given them a complete and total dominance in the display advertising market and possibly the online video advertising industry if Doubleclick’s Motif reaches ubiquity

These bullets above were the true missteps by Yahoo!  Icahn’s view on the severance package, or as he calls it: ‘the poisoned pill’, is simply a way to bring the battle to his playing field.  He would be run out of the space if he even attempted to address anything relating to technology, so instead he focused on something he could understand.

Individual’s paradigm in regard to the Microsoft<>Yahoo! situation needs to shift, in a brick and mortar mindset it makes sense that merging Yahoo!’s search platform and Microsoft’s Live search program will result in creating a legitimate competitor to Google.  However that mindset is 100% wrong.

What will make Yahoo! or Microsoft a true competitor to Google in regard to search? There is only one way to make that dream a reality: CREATE A BETTER PLATFORM!

1. If Yahoo!’s search queries had the same level of relevancy as Google they would begin re-capturing marketshare.

2. If Overture was even comparable to Adwords, they would increase PPC search revenues.

3. If they were as “open” and user friendly as Google they would be a much more vibrant and successful portal.

4. And the list could go on…

None of this will occur as long as Icahn is calling the shots.  His assumptions are both laughable and disturbing, to say the least.  If he believes “Eric Schmidt’s“ are readily available, he is naive; if he believes Microsoft will even want a leaderless organization, he is mistaken; and if Ichan believes that he understands the tech industry, he is simply ignorant.

I was a very big fan of the Silicon Alley Insider’s conclusion on Icahn’s involvement:

Carl is running out of bullets. The clear articulation of a plan is good, but we still doubt we will vote for his slate if it comes to that. If Carl takes control and fires Jerry, Microsoft will have no incentive to pay $33+. Carl’s use of a Google search threat as a club is smart, but Yahoo’s already doing that now, and it doesn’t seem to be working. Bottom line, other than “publicly offering the company to Microsoft”–which we feel Yahoo has already done–there’s not much new here. 

I’ve pasted the entire letter that Icahn publicly sent below:

Dear Roy:

While you may take issue with the content of my letter, I take issue with your oversight of Yahoo! Again, I stand by my characterization of your “poison pill” severance plan and I find it humorous to see you attempt to defend it.

Roy, it is you who “misrepresents and misstates the details” of the plan. Much like the rhetoric in many well known political campaigns, you keep repeating misstatements in the hopes that by repeating misstatements enough times it will convince your shareholders that these misstatements are valid. For example, you repeated, “the plan was fully disclosed at the time of its adoption and should be no surprise to anyone at this point.” This is simply not true. The egregious magnitude of the dollar amount cost of the plan was never fully disclosed, nor was the email from your compensation advisor calling the plan “nuts.”

While you keep repeating that the severance plan was in the “best interests of shareholders,” you neglect to mention that the financial cost of the plan could be immense. The documents obtained during discovery and released in the shareholder complaint show that Yahoo! estimates the maximum change in control severance expenses to be a staggering $2.4 billion if Microsoft bids $35 per share for Yahoo! You neglected to mention that the true cost to an acquirer may be even higher as the perverse change in control severance incentives may diminish the work effort of Yahoo! employees. In case you do not understand the plan, in addition to the $2.4 billion of severance expenses, I believe the plan will negatively impact employee behavior and degrade the ability of an acquirer to successfully integrate the acquisition. In the event of a change of control, the employee may decide not to work as hard in the hopes of cashing in on a robust severance package that awards up to two years salary and benefits, $15,000 of outplacement expenses, and accelerated vesting of stock options and restricted stock units. To make matters worse, it is not just the acquirer firing the employee that can trigger the severance package but the employee who may decide on his or her own to resign for “good reason” at any point within two years of a change in control. It is quite obvious to me that this plan impacts the price an acquirer would pay. Is it any wonder than an acquirer, once fully comprehending this plan, might not wish to negotiate any further? I again call upon you to honor your fiduciary duty to your shareholders and rescind this “poison pill” severance plan.

You asked, “what exactly would happen to our Company if you and your nominees were to take control of Yahoo!” I will give you my perspective on that.

– First, I would work to have the board replace your “poison pill” severance plan with an acceptable alternative.

– Second, I intend to ask our new board to hire a talented and experienced CEO (attempting to replicate Google’s success with Eric Schmidt) to replace Jerry Yang and return Jerry to his role as “Chief Yahoo.” Indeed, it was much speculated that Jerry would serve in the CEO role temporarily until a permanent CEO was hired after the board asked Terry Semel to resign.

– Third, I intend to ask our new board to inform Microsoft that unless any alternative transaction can insure a $33 or higher stock price (of which I am skeptical) all talks of alternative transactions are over.

– Fourth, I will ask our new board to offer publicly to sell Yahoo! to Microsoft in a friendly and cooperative transaction.

– Fifth, to the extent Microsoft does not want to make a proposal, I will ask our new board do a deal on search with Google, but only if it contains termination provisions that would in no way impede a subsequent acquisition by Microsoft.

Now let me ask you a couple of questions, Roy:

– Why don’t you, now that you have the opportunity, remove the “poison pill” severance plan that I find to be ridiculous and thereby remove a major obstacle to a Microsoft acquisition?

– In my opinion, Microsoft does not believe you will ever sell the entire company on a friendly basis. So why don’t you stop dancing around the subject and publicly offer to sell the company to Microsoft for $34.375 per share and promise to cooperate completely?

– Why are you still giving hope to Microsoft that there is a possible “alternative deal”? As long as there is the possibility of an “alternative deal,” isn’t it obvious that Microsoft will not make a bid for the whole company?

Sincerely yours,

CARL C. ICAHN

1. Youtube doesn’t generate anywhere close the advertising revenue to even pay for the bandwidth costs to stream their videos, much less the ability to payout their licensed content providers on a per stream basis.  And since user generated videos are by nature inconsistent, Google has a daunting task ahead of them to take Youtube to profitability.

2. Twitter is the microblogging service that allows users to share quick snippets of information either about themselves or something they wish to discuss.  As of now there is no revenue at all for the company and I doubt there will be for the near future.  Last week they finalized a $15 million dollar round from Spark Capital, however in order to generate revenue, Twitter will either have to add a monthly subscription charge for certain services or start placing SMS ads in the text messages they send out.  Either of these actions would hurt their market share since users have become spoiled by using 100% of Twitter for free and also with any advertisements.

3. The final example of a popular consumer focused web company we will look at is FriendFeed.  Even though their burn rate is much smaller than Youtube or Twitter, it still has no revenue model built into the service and now any attempt to inject either ads or charging for services would dramatically decrease the traffic to the site.

Now let’s talk about some companies that are actually the backbone of the online world, social enablers.

1. Brightcove is the leader in online video enablement.  With sites such as Wall Street Journal and the Weather Channel using their service it is no surprise that they have easily raised $115 million in the past few years.  But Brightcove is not a charity, they generate sizable revenues either by charging websites bandwidth fees or streaming ads inside each video played.  This allows them to responsibly expand their business without having to rely solely on VC funding.

2. Vidshadow is an online distribution company that allows third party websites to host its media player, and stream licensed content to their respective online viewers.  Vidshadow is a publicly traded company (VSHD) and therefore is a revenue focused company.  Each video that is played on the Vidshadow Network is paired with an in-stream advertising unit.  This enables third party sites to augment their online revenues while adding a social feature on their site in order to both retain and increase traffic.

3. Ning was founded with the mindset of enabling third party individuals or companies to create their own social networks.  Instead of attempting to create another Myspace or Facebook, Ning wanted to allow ANYONE to form their own social portals.  This can be a very effective tool for corporations to connect their customers in a fully controllable enviroment.  In other words comapnies that create a social network on Ning do not have the same contstraints that they would face on Myspace or Facebook.  And Ning has two revenue models.  They either place ads on these social networks with no revenue share and thus earn 100% of the revenue the ads generate, or the social network can choose to control the ad invntory and pay Ning premium fees.  Either way, Ning is a very intelligent business model.

4. The last company I will discuss is Jive Software.  You most likely have never heard of them, however they are the social network enablers behind sites such as Bank of America’s Small Business Social Network along with CNN’s iReport portal.  But don’t try to ask them to do anything for free, Jive is very good at what they do and they know it.  You can be assured companies like Bank of America and CNN paid handsomely for the services rendered.

In summary, we have come a long way since the bubble burst.  And the potential that is currently available online for marketers, product manufacturers and communication companies has never been stronger.  From powering online entertainment and media to enabling communication, the non-techie should feel secure knowing that the backbone of the Internet is in the hands of companies that know the #1 rule of business: generate revenue.

News.com reported on April 8th, “For more than a decade, Web site operators have enjoyed a broad legal shield against lawsuits filed over material posted by their users, which has let user-driven sites like YouTube and MySpace.com flourish.  But a pair of recent rulings by federal district judges has chipped away at that protective shield. If those decisions are upheld on appeal, and if more judges follow suit, Web site operators and Internet service providers may find themselves compelled to police what their users post-or face the unsettling prospect of being held liable for the contents.”

Everyone in the online industry has known this day was coming and it is finally here; the US courts are finally taking note of the fact that certain online companies are earning literally billions of dollars by distributing illegal content.  With the majority of all computer users making a daily habit of visiting sites such as YouTube, Myspace, and Facebook; the US Government is beginning to take action in order to protect the rights of content producers who have been getting robbed for the past decade along with protecting users from online predators.

So how did we get to a point where companies believed that the Internet was the equivalent of “International Waters” in regard to content ownership and security?  It all stems from a court ruling dating back to the early World Wide Web days of 1996.  You will hear the social networking and online video site executives quote from a section of the 1996 Telecommunications Act on a regular basis, stating that websites are not liable for their users’ posts or other content they upload.  Attempting to deflect the blame of copyright infringement on users has become modus operandi for the past decade, however that could all be coming to an end shortly.

The decision points out that websites are ultimately responsible for the content placed on their sites by end-users.  Recent court rulings have expanded this controversy beyond just malicious content, and will likely begin targeting sites that endorse the posting of copyright and brand infringements, racially charged content, and many of the other genres popular in the user generated market. This is clearly a major blow to those heavily visited sites whose principal business model depends on user-generated postings, and what I have long believed to be illegally distributed content.

This is a very positive development that not only reinforces content owner rights, but it also opens the door for the next generation of online video and social media companies that have a sense of responsibility to content providers and their respective user bases. The future rightfully belongs to those companies who focus on professionally produced content and its legal distribution.

Are these rulings going to change the way the Internet treats user-generated content? Probably not immediately, however it is the initial legal action that is required in order for Internet companies to realize that the status quo of online content is about to change.  The courts were surprisingly strategic with their decision; notice that they did not directly attack copyrighted or illegal online content.  Instead they simply are pushing for Internet Service Providers (ISP’s) and social communities to begin policing every piece of content uploaded by users.  This may not seem like an impossible task until you realize that YouTube boasts over 100,000 video uploads daily.  To have employees review 100% of the daily uploads would be an impossible task.  And this does not even touch upon the other types of content that the court ruling talked about such as fake user profiles.

Therefore, this ruling could be a Trojan horse to the online industry, by compelling community websites and ISP’s to start becoming responsible for monitoring content, the courts will be forcing these companies to change their business models in order to avoid lengthy and expensive legal battles.  Up to this point the Internet social networking and video sites have feigned ignorance and simply said they are free hosting locations and that the site members were accountable for their content submissions.  However, that same argument was repeated again and again from the former free music downloading powerhouses.  In the online business world when a month equals a traditional year, how soon we all forget the not so distant past.

This move towards online responsibility is not simply a domestic anomaly, the website: www.tv-links.co.uk was a site that linked to sites such as Google Video, YouTube, Dailymotion, Veoh and a wide array of others which host illegally distributed TV shows, movies, music videos along with many other illegally uploaded videos.  The Gloucestershire County Council, in association with a group called the FACT, raided the site’s servers and arrested the 26-year-old man from Cheltenham who ran the site.  Stories like this are typically the foreshadowing of much larger scale targets; the most probable that is at high risk is Google, due to their $1.6 billion dollar acquisition of the leader in online video, YouTube.

When the record labels started to attack companies like Napster they would state the millions of dollars they were losing in record sales due to the fact that users were able to download the songs they wanted for free and therefore had no need to buy a $20 CD.  TV and Movie studios have just as much if not more in lost revenue from the online video revolution.  Licensed content from providers such as FOX, NBC, Viacom and CBS, to name a few, receive and average of $25-$150 in advertising revenue for every thousand times their videos are watched online.  Meanwhile, YouTube hit the 100 million daily video stream mark in July of 2006, with a very large number of copyrighted videos being viewed.  It was because of this activity, and the large-scale acquisition by Google, that Viacom made the first sizable move on the legal front, with the serving of a $1 billion dollar lawsuit against YouTube on Mar 13, 2007.

The decisions from the courts are simply the first and very necessary step in legitimizing the online video industry.  This will work heavily against the highly trafficked sites that have built their businesses on distributing video content illegally.  With these laws now being enforced, there will start to be a steady migration to websites that aggregate professionally produced content.  We’ve seen this exact scenario played out previously in the music industry, with the rise and fall of companies like Napster, which was replaced by the current industry leader iTunes.

And very similar to the music migration, once the courts definitively force websites to be accountable for the material they distribute, we will see a steady move from sites like YouTube to companies that solely offer licensed and professionally produced content.  And for those of you who believe that Google’s ownership of YouTube makes it an impenetrable force, please remember the very recent decline of Microsoft at the hands of the domestic and International courts.

Looking into the future of the online social media industry, you will see the increasingly media savvy Internet users begin spending their time on websites that provide high quality content that is both entertaining and legal.  And don’t worry, YouTube and MySpace are not going away anytime soon, they have a clearly defined choice in front of them where they can decide to become responsible companies that have long-term perspectives or alternatively go fighting to the bitter end with their original business model in hand.