Saturday, July 14, 2007

Yahoo! Continues Its Death Spiral

Yeah, I know - melodramatic title. People have been predicting the demise of Yahoo! for over a decade now, typically without much success. Still, there's something about the company's behavior over the past couple of years which makes me think Yahoo!'s days - at least as a dominant player on the Web - are numbered.

For starters, Yahoo! is barely treading water in their core search business, while Google continues to grow rapidly. At the moment Google's growth is apparently coming at the expense of rivals other than Yahoo! (witness Microsoft's market share decline), but sooner or later Google's going to have to target Yahoo! directly if they want to continue to grow. Since each 1% of the search market is worth about a billion dollars in revenue according to what I've read online, that gives Google a massive incentive to fight it out with Yahoo! for every percentage of the search market they can gobble.

Yahoo! does own Flickr now, which has a great image search engine, but so far at least that engine hasn't been integrated with Yahoo!'s standard image search. Flickr certainly isn't positioned as strongly in the image space as Google's YouTube is positioned in the video space. Yahoo! also purchased eGroups back in 1999, an early web pioneer in what we'd now probably call social networking, but then allowed the property to languish for almost 5 years, giving time for the rise and eventual dominance of MySpace. Yahoo! actually had a lot of the pieces in place to become a social networking powerhouse, including its own Photos and its IM client, but their Yahoo 360 service didn't launch until 2005, by which time MySpace had already been around for a couple of years and had been purchased by News Corp.

With an also-ran search engine and an also-ran social networking site under their belt, Yahoo! is hardly well-positioned for the future. And they continue to make bizarre moves, some of them totally customer-hostile. Their latest is the forced Bataan Upgrade March of users off of the Musicmatch Jukebox application to the (vastly inferior, advertising laden) Yahoo! Music Jukebox (formerly called the Yahoo! Music Engine).

I actually used Musicmatch Jukebox as my primary music player for a couple of years, from 2003 into 2005. I'd purchased a cd3o wireless media receiver, one of the first devices of its kind, and I was using it to stream audio from my PC in the bedroom to my stereo in the living room. With the drop in hard drive prices, it became feasible to rip my CD collection and store it as .WAV files. The cd3o depended upon file tags, and at the time the only lossless format it supported was .WAV. The cd3o could only read the .WAV tags made by Musicmatch Jukebox, so I ended up ripping my entire library to .WAV files using MMJB.

I was never entirely happy with MMJB - the interface had its good points and its bad points, and it was buggy and slow - but the version I used had worked out most of the bugs with CD ripping and supported decent error correction, at least allowing me to get clean rips. MMJB also made it ridiculously easy to batch edit tags on huge groups of files and to move and rename files as desired (in fact it's still far ahead of iTunes or Windows Media Player in this regard). There were regular upgrades being released as well, and although these were frequently buggy at least there was hope that the program would continue to improve.

Then Yahoo! bought Musicmatch. Within a few months it was apparent MMJB had become fossilware, and that Yahoo! was going to concentrate their development efforts on their own vastly inferior Yahoo Music Engine, a primitive music player even by 1995's standards, let alone 2005's.

By this point
cd3o itself seemed to be on its last legs as a company and was no longer supporting their product. Meanwhile, I'd grown tired of gobbling up close to 300GB of drive space to store my library uncompressed. I bought a Linksys wireless media receiver to replace the cd3o. The Linksys worked a little differently - it just streamed the audio output of your computer to your stereo. It didn't offer a remote control like the cd3o's, but that was OK in my new apartment since the PC is in the same large room as the stereo. Since the media receiver was no longer decoding any audio files, I was free to use lossless compression (I chose FLAC) and whatever software on my PC I wanted for playback.

There was one little problem, though - all of those tagged .WAV files created by Musicmatch Jukebox. Musicmatch didn't support any lossless compression formats, so I couldn't use it to convert my files, and none of the other packages out there (including Yahoo!'s own Music Engine) supported Musicmatch's oddball .WAV tags. I sent a few pleading e-mails to Yahoo! Music Engine's developers, along with a few other users, asking them to at least support reading Musicmatch's funky .WAV tags, but we never received any reply. I started to contemplate re-ripping my entire library in some other program, and then going through the arduous process of fixing all of the metadata all over again. Ugh.

I was finally able to convince the developers of a rival media player called MediaMonkey to support reading MMJB .WAV tags, in conjunction with a few other users fleeing Yahoo!'s latest display of incompetence. Since MediaMonkey also supports file format conversion, I was then able to convert my 300GB library of .WAV files to a 150GB library of FLAC files with literally just a couple of mouse clicks, freeing up a hard disc in the process and making my files fully compatible with at least half a dozen other media players. MediaMonkey is so vastly superior to either Musicmatch or Yahoo!'s lame Jukebox it's positively embarrassing. In fact it makes iTunes and Windows Media Player look pretty pathetic as well.

This anecdote is emblematic of what's wrong with Yahoo! - they're sort of King Midas in reverse. They purchased Musicmatch, then stopped updating Musicmatch's flawed but popular and feature-rich Jukebox in favor of their own vastly inferior, in-house developed Music Engine. They couldn't even be bothered to get their Music Engine to support custom Musicmatch features, like its oddball .WAV tags, that tiny third party developers like Ventis Media (the guys behind MediaMonkey) were able to support within weeks of receiving the request. Pathetic. Yahoo! essentially paid tens of millions of dollars to piss off and subsequently lose most of Musicmatch's customers, including folks who'd paid $50 for a "lifetime" license to MMJB.

This is precisely the kind of customer hostile behavior that dot bomb companies like RealNetworks exhibited just before they imploded. Right now this is only a small example from Yahoo!'s backwaters, but I think it's indicative of the kind of cluelessness and laziness which seems to predominate at Yahoo! these days, and it certainly doesn't inspire confidence in their ability to rally against rivals like Google and MySpace.

Thursday, February 8, 2007

Peasants and PCs

There's been a bit of hype in the media lately regarding Michael Dell's return to running the company he founded. It brings up memories of the whole Compaq merger mess, which was Carly Fiorina's "me, too" response to the rise of Dell Computer. Fiorina, with her degree in medieval history, set out to out-Dell Dell and was instead undone by her own shortsighted ignorance. It's a classic example of how you should be careful what you wish for, because you just might get it.

Dell became a giant in the PC world by manufacturing customized PCs out of standard components, like electronic Lego sets. Dell sourced the cheapest components it could get from vendors, then relentlessly optimized the assembly process, driving out costs. Forgoing the traditional bricks and mortar retail channel and its associated margins and overhead, Dell sold its wares directly to customers, first via telephone and later on the Internet.

Back in those days the average new PC cost in excess of $2000. Dell's model shaved literally hundreds of dollars off the cost of a computer, while allowing users to customize the machine to meet their specific needs. The resulting custom machines still cost less than comparable non-custom systems from Compaq, HP and IBM. Dell's business grew exponentially, and as the market softened toward the end of the dot com boom, they ate everybody's lunch.

Carly's strategy was to merge with Compaq, cut redundant PC employees, trim product lines and adopt the same Lego-like approach to PC manufacture as Dell, using industry standard components. In addition, Carly decimated HP's costly research and development operations and bowed out of the expensive microprocessor market, where players like Intel and IBM routinely spend billions designing a new processor or building a single chip factory. HP threw away its own PA-RISC processor architecture, as well as the Alpha processor architecture it inherited from Compaq, instead teaming up with Intel to develop a new processor called the Itanium (which promptly tanked in the market upon its oft-delayed debut). They also began producing commercial hardware based on the same Intel chip architecture found in desktop PC's. Such systems are relatively cheap to design and produce, and can be clustered together for performance rivaling that of old style "big iron" mainframe systems.

The hope was to turn HP into kind of a combination of Dell and IBM. HP would churn out commodity PCs at the lowest possible price, while making a fortune in the commercial space by providing service and support for the existing installed base of HP, DEC and Compaq servers and mainframes (the way IBM makes its money). Unlike Dell, they'd be able to offer a soup-to-nuts range of products to large commercial clients, from mainframes down to desktop PCs. Also unlike Dell, these efforts would be well-supported by the cash that pours in from their lucrative printer business, where HP printer ink sells for more per-ounce than gold.

Carly's smash and grab strategy was, surprisingly, not even a short term success. The dot com boom imploded, trashing demand across the board. HP barely kept its head above water, in spite of laying off thousands and essentially destroying its position as a technology developer and leader. While revenues have since increased, what remains of HP is essentially making all of its profit off of selling printer ink and providing support for legacy products. Neither of these is a viable long term strategy for growth.

HP is however doing well these days compared to Dell. With PCs selling for roughly half of what they did a few years ago, shipping costs can add up to as much as 10% to the price of a Dell – comparable to the retail margins HP deals with on machines sold at your local BestBuy. Customization is far less important today too, since most PC's now come with a dizzying array of features satisfying virtually any user's needs. And consumers like dealing with a local retailer who will handle any issues they have, as opposed to shipping boxes back and forth to Dell or trying to converse with a support engineer in Bangalore. Combined, these factors make HP's retail PCs price competitive with Dell's offerings for the first time in a decade.

But the writing is on the wall for the PC market in general. HP may be doing better than Dell, but margins for both are abysmal. The bean counters at IBM already foresaw this development, selling their entire PC business to Chinese manufacturer Lenovo and retreating to the lucrative corporate service and support market. IBM is so convinced the PC market is a profit-free zone that they've even begun unloading their shares in Lenovo.

The only company making decent margins off of personal computers these days is Apple, and their design-centric approach is notably different from HP's or Dell's. Now that they're leveraging standardized components (manufactured by Intel, the same as in Dell's and HP's boxes) to lower costs and improve interoperability with Windows software, they stand poised to seize much of the high end retail PC marketplace, and hence the lion's share of the remaining profits in that business.

Meanwhile, the clock is ticking for HP's remaining profitable businesses. It's only a matter of time before those old high-maintenance commercial HP systems are replaced with new commoditized beasts built around the same standard technology that powers desktop PC's, eroding both hardware margins as well as HP's service and support business. Likewise, it's also only a matter of time before the printer market is invaded and conquered by Chinese manufacturers, who will easily be able to undercut HP's inflated prices and rob the giant of its remaining profits. In fact Kodak just announced they're entering the market with Chinese-made printers selling for the same or less than comparable models from HP and other rivals. Worse, they're claiming the ink for their printers will cost less than half as much. If they succeed, they'll drive the margins out of the printer business the same way Dell drove them out of the PC business.

Whatever longterm "victory" Carly and her sycophants may want to claim over Dell is liable to be a pyrrhic one at best. HP may end up being the last American giant in the PC playground, but that playground is looking more and more like a worthless quagmire that nobody wants to inhabit. By crippling HP's research and development and destroying the company's iconoclastic culture, Fiorina left behind an empty castle that's rapidly sinking into a treacherous swamp. But then, that's a position that describes much of corporate America these days, and indeed the nation as a whole following over two decades of smash and grab, kleptocratic mismanagement.

In that light, having a technology company run by a woman with a degree in medieval history makes plenty of sense. Our kleptocracy is rapidly turning America into a feudal society, erasing several hundred years of social and economic progress. This does not leave us well-positioned to compete in the global economy with societies across the globe that are rapidly modernizing.

Wednesday, February 7, 2007

Welcome to Careless Notions

For years I've found myself writing little mini-essays dealing with various subjects, either as part of an e-mail chain between friends, or in the occasional comment form on sites scattered about the net. I've finally decided to consolidate all of that writing here at Careless Notions. As the name implies, a lot of these posts are likely to be half-baked and not entirely thought out, but hopefully some kernel of truth will always rest at their center.