Why isn’t the iPhone in China?

Good question!  But I think the better question is, why isn’t the iPhone in China YET?

After months of failed negotiations between Apple (Nasdaq: AAPL) and China Mobile (NYSE: CHL) – the largest mobile service provider in the world in terms of subscribers – the companies parted ways.  And since then we haven’t heard much from Apple with respect to moving the iPhone into China.  Some may have assumed, incorrectly, that Apple was just going to ignore the issue for the time being.

But after Apple’s announcement on Monday, I think it’s clear that while negotiations between the two companies may be at a standstill, they won’t stay that way for long.

The Chinese wireless market is by far and away one of the most desired mobile markets on the planet.  This is a country with roughly 1.4 billion citizens and not even half of them have a mobile phone yet.

There’s a tremendous opportunity for growth here and Apple knows it.

So while a deal hasn’t been reached to bring the (genuine) iPhone to China yet, Apple’s definitely gearing up for it.

At Steve Job’s keynote the other day he presented the world with “iPhone 2.0”.

Aside from the widely covered feature additions like 3G wireless technology, GPS, reduced price point, etc., Apple unveiled a feature that I personally jumped out of my seat for, and it’s geared directly for the Chinese market.

Texting and E-mailing in China

Having lived in China for a period of time I can attest to the difficulty in sending Chinese text messages and e-mails from a mobile phone.  Typically you’ll have to type the message using a spelling system known as pin-yin.  Pin-yin is the transliteration of Chinese words into westernized spelling.

So if I wanted to type “hello” in a text message, I’d have to type “ni hao” using a western keyboard and that would then be translated into the appropriate Chinese characters.  Obviously the use of a stylus would make things much easier.  In fact, that’s exactly what Motorola (NYSE: MOT) had in mind when they launched the Motorola Ming in China two years ago.

And that’s precisely what Apple had in mind when they launched their Chinese character recognition software on Monday.

With the latest version of the iPhone I can use my finger to write out Chinese characters directly on the screen.  This will make writing text messages and e-mails dramatically faster.

So the real question becomes, what would it mean for Apple’s business if it secured a significant share of the Chinese handset market?

Well, let’s look to the Motorola Ming for an indication of what may be in store for Apple.

The Ming and Market Share

Estimates vary but the consensus is that the Motorola Ming had roughly 1% of the entire Chinese handset market at the beginning of 2007.

Given that China has a mobile subscriber base of 583.5 million people now, that would mean 5.8 million phones by today’s numbers.  It would be easy to make the argument that the iPhone has much more hype, demand, functionality, etc. built around it and therefore could reasonably capture more of the market than the Ming, but let’s be conservative here.  Let’s assume Apple is able to sell 5.8 million iPhones in China.

If Apple sticks to their $200 price point for the 8 GB model – which is certainly realistic considering the Ming’s price point was in the upper $400’s – then that would equate to roughly $1.16 billion in additional top line revenue for Apple.

And if you consider the “halo” effect Apple’s products tend to have (sell one product, you sell more of the others), then it’s easy to see how substantial adoption of the iPhone could turn China into an increasingly important source of revenue for Apple overall.

So when I saw this question on TickerHound the other day, my wheels began to turn right away:

Are there any publicly traded Web 2.0 companies?

For the most part the Web 2.0 “bubble” has been isolated to private transactions.  Meaning, we haven’t seen a serious tech bubble in the public equity markets like we did the last time around in the late 90’s.

There really hasn’t been much of an increase in the public markets at all.  If you look at where we were at the market peak in 2000 (Dow at 11,700 and the Nasdaq at 4,900) the Dow is pretty much even and the Nasdaq is still way off its high.  We haven’t seen any monstrous technology IPO’s since Google and there aren’t any gargantuan IPO’s on deck at the moment.

This might lead many to wonder what all the “Web 2.0 fuss” has been about?

Well, to be sure, there have been several high profile private and public transactions over the last few years that have certainly caused many investors to take notice.

For example, according to the National Venture Capital Association, 2007’s private equity and venture capital equity investments rose 10% from 2006 to reach $29.4 billion – the largest amount invested since the bubble popped in 2001.

And we’re seeing some serious activity in the public M&A markets as well:

• News Corp.’s (NYSE: NWS) $500+ million acquisition of MySpace
• Google’s (Nasdaq: GOOG) $1.6 billion acquisition of YouTube
• Yahoo!’s (Nasdaq: YHOO) has acquired multiple companies (Flickr, Del.icio.us, etc.)
• Time Warner’s (NYSE: TWX) $860 million acquisition of Bebo.com

Obviously some of these companies overpaid while some of them were probably great values.  MySpace’s $500 million buyout has already paid for itself due to a $900 million ad deal the company secured with Google.

So while these Web 2.0 companies eventually became part of larger, first-generation internet businesses, it’s clear that there has been some serious growth and profits being generated in this space for those that got in early.

But back to the original question, are there any publicly traded Web 2.0 companies?

Well, I think that question is slightly flawed.  It should be:

“Are there any publicly traded Web 2.0 companies AND are they worth investing in?”

The Answer:  Yes and No!

The pure play Web 2.0 companies out there are few and far between at the moment:

• Foldera, Inc. (FDRA.OB)
• VOIS, Inc. (VOIS.OB)

are probably the only 2 publicly traded stocks in the US that are pure play Web 2.0 companies.  However, you’ll note that neither company is traded on a major exchange.  You’ll also notice that neither company went through an actual public offering of its shares, or an IPO.

Both companies are the result of some crafty financial engineering known as a “reverse merger”.  This tactic is when a privately held company acquires a publicly held company and then merges itself into the existing publicly traded stock.

Typically, however, the publicly traded company isn’t much of a company at all, but more of a “shell” (as they’ve come to be known).  Meaning, the public stock has no real following, no real business to speak of behind it, etc.

There were a few Web 2.0 plays that were on deck to go public but have since been pulled.  United Online’s (Nasdaq: UNTD) Classmates.com spin-out was supposed to be a testing ground for web 2.0 IPO’s, but they pulled the plug on that one last year.

Another company, Synacor of Buffalo, NY, filed to go public last year but we haven’t heard much out of them either.

So the moral of the story is, while there might be a couple of publicly traded, small-cap Web 2.0 companies, I still don’t see any real investment opportunities there just yet.

If you’re looking for exposure to the sector your best bet is to follow the Google’s, Yahoo!’s and News Corp’s of the world.  But don’t think we’ve seen the last of technology IPO’s in this space.

In fact there are a few privately held companies that I’ve been watching for IPO announcements lately.

If Facebook or LinkedIn happen to go public, you could bet your bottom dollar that there would be TREMENDOUS demand for those shares.  Up until now, both companies have been closely held and limited to major institutions and Venture Capitalists for investment.  So be on the lookout, you still might have a chance to get in on Google-like profits again in the near future.

But what if I told you I was looking at a bulletin board stock that had:

• A $76 billion market cap
• Was the leader in its industry
• Has been breaking new highs all year
• AND could be the buy of the year!

Well, that’s EXACTLY what I’m saying to you today.

When many people think about video games they tend to say, “Oh, that’s just kid’s stuff”.  But I bet those are the same people who didn’t know that a game released only several short weeks ago – Grand Theft Auto IV – did more sales in 1 week ($500 million+) than Spider Man 3!

This Isn’t Kid’s Stuff Anymore

Now please understand, I’m not the biggest gamer in the world.  I’ll play some quick computer games once in a while and I’m addicted to Brick Breaker (game on my Black Berry), but I’ve never gotten into some of the bigger gaming trends like World of Warcraft, etc.

That is until I received the Nintendo Wii as a gift last summer.

And that’s why when I saw this question on TickerHound, I just had to write this article:

Which video game stocks would you buy right now?

Until I played the Nintendo Wii I wouldn’t have given this topic a second thought.  It just wasn’t an industry I was into, even though it was pretty clear that something big was going on.

But after seeing the Wii in action and watching how friends and family – many of which have NEVER played video games before – got into playing with the system so much, I knew there was an opportunity here.

So I started to dig deeper into Nintendo’s stock and to my surprise the Japanese company had never done a public offering here in the States.  Sure, the stock trades under the symbol: NTDOY, but it’s traded on the OTC bulletin board — typically the domain of less reputable companies.

Nintendo is certainly NOT one of them.  But, truth be told, it wasn’t always a double digit stock with a monstrous market cap.
In fact, only 5 years ago this company was trading under $10 per share – today, it’s over $67!  That’s a 635% profit for the patient investors out there who had the savvy to buy and hold Nintendo stock.

So Where’s the Opportunity Today?

Like I said, Nintendo’s new console, the Nintendo Wii, is blowing the doors off the gaming industry right now.

In April of 2008 the company sold more consoles than its top 2 competitors combined:  Sony’s (NYSE: SNE) PlayStation and Microsoft’s Xbox (Nasdaq: MSFT).

Not only that, but Nintendo is continuing to release games and pursue a strategy that isn’t solely directed at the typical gaming market, boys and young men.  This company is going after women and seniors as well which is opening up some major opportunities for growth in the years to come.

The stock is pulling back a bit right now but I’d take a second look as soon as the stock begins to move to the upside again.

Reason being, Buffett’s looking to start buying up “family owned, privately held” businesses on the cheap overseas.

It’s difficult for him to find “Buffett-sized” deals in the US anymore, so it only makes sense that he’d look for greener pastures elsewhere.  However, Buffett also gave another reason for why he might want to start placing his bets in other parts of the world…

My friends and I have been debating the “recession” topic for a while now:  Are we currently in one?  Will we run into one this year or next?  What will the effects be?

But when I read that Buffett thinks the US is already in a recession and it will be “longer” and “deeper” than any we’ve seen for quite some time, I definitely began to think less about “what if we go into a recession” and more along the lines of “What should I do with my money now?”.

There are dozens of questions (and even more answers) on TickerHound about which sectors hold up the best during a bear market, but a recent question is what inspired me to write today’s article:

“Will certain retailers do well during a recession?“

Traditionally, most retailers won’t do well at all during a downturn – consumers start to curtail their discretionary spending as times get tougher, and items like clothes, cars and all the other little “extras” aren’t ranked very high on the “purchasing priority list”.  However, if you really think about it, there are some retailers that “should” do rather well during a protracted downturn.

The fact of the matter is, people aren’t going to completely stop buying the little extras, they’ll just be more selective about where they buy them.

While I’ve come a long way since my childhood, I still remember what it was like when times were tough around my house.  We were a blue collar household, 3 kids, my parents were always hustling at the end of each month to make ends meet – so when one of us needed new clothes, school supplies, etc, we’d take a trip to the closest discount store and bargain hunt.

Without doing a survey of every household in the US, I’d bet that when times are tough and a recession is imminent, most of America behaves the same way.  In fact, if you take a look at a 10 year chart for some of the discount retailers, you’ll immediately see that their stocks do better when the market is doing worse!

So here are a few discount retailers that I think are worth digging into if you’re looking for some “Retailers for a Recession”:

1.  Dollar Tree (Nasdaq: DLTR)

• Market Cap:  $2.99 Billion
• P/E:  15.67
• Dividend:  N/A
• 12 Month Price Gain (Loss)%:  (19%)

2.  Family Dollar Stores (NYSE: FDO)

• Market Cap:  $2.76 Billion
• P/E:  13.5
• Dividend:  2.5%
• 12 Month Price Gain (Loss)%:  (40%)

3.  Fred’s (Nasdaq: FRED)

• Market Cap:  $438.65 million
• P/E: 41.13
• Dividend:  .7%
• 12 Month Price Gain (Loss)%:  (25%)

4.  99 cents Only Stores (NYSE: NDN)

• Market Cap: $538 million
• P/E:  85
• Dividend:  N/A
• 12 Month Price Gain (Loss)%:  (46%)

As you can see from this list, these stocks show a wide range of market caps and P/E ratios.  But the one thing they do have in common is that all of their stocks have taken a beating since the 2001 – 2003 bear market ended.

However, during the bear market these stocks were hitting new highs while the rest of the market was going down the toilet…is there a theme here?  You betcha!

Now, this isn’t to say you should run out and start buying discount retailers tomorrow – some of these companies are still working out some operational issues, over expansion problems, etc.  But for the most part, if you’re going to take a position in retail as we head into Buffett’s “long and deep” recession then these are the companies you want to be looking at!

Click here to suggest some of the retailers you think will do well during a recession.

Google is announced that it would be opening up its content network (AdSense) to display ads from 3rd party advertisers and networks.

That means other advertisers can now tap into Google’s publisher network and start serving up display ads.  The advertisers have to be certified by Google, of course, but this is a fantastic move for Google even with a limited number of certified ad networks.

Here’s why:

1. The move diminishes the possible effects of a combined Microsoft-Yahoo! display ad business.  Any type of closed ad network Micro-hoo would’ve created has just become much less valuable.
2. By Google giving its publishers more ways to make money the company stands a better chance of being the primary ad platform used by millions of web publishers (why go to the ad networks if the ad networks are already coming to them?).  This is makes me think of Warren Buffett’s ideal investment: “a toll booth in a one bridge town”.
3. I haven’t seen any details about monetization yet but this could also be a monster revenue driver for Google, especially when you look at it in the context of the Double Click deal.

In any case, it’s a major move for Google and I think the implications are going to be huge for Google and especially for Microsoft and Yahoo!

Some industries go through very long and drawn out cycles – the “maturity” stage could last decades and never show signs of a significant decline (as we’ve seen in the automotive sector). Others flare up and burn out quickly…one such industry is the Internet Service Providers sector. More specifically, the dial-up internet access companies.

Once upon a time these guys ruled the online world…well, at least one of them did. In the late nineties America Online was the “king of the hill” and got so big that they acquired one of the most well known media companies in the world, Time Warner. We all know how that story ended.

Fast forward to today and Time Warner is in the final stages of completely divesting its dial-up access unit. But what about the “other guys” that used to compete with AOL? Companies like EarthLink (Nasdaq: ELNK) and United Online (Nasdaq: UNTD), whatever came of them?

After seeing the following question on TickerHound this week:

What’s going on with EarthLink and United Online? Are these guys going to survive or are they just going to fade into oblivion?

It really got me thinking about business cycles, potential strategies these companies could take and even more importantly, potential strategies investors could take to profit from the current climate in the dial-up access market.

The Rise and Fall of Dial-up

This sector almost fizzled out as quickly as it bubbled up.

At one point in time, everybody that was on the internet was using a phone line to connect. But with the proliferation of broadband and the accompanying decrease is bandwidth and computing costs, it became fairly easy and inexpensive for the majority of web surfing Americans to make the leap from dial-up to high-speed internet access. Once that started to occur the revenues and profits of the dial-up access providers began to plummet…and so did their stock prices.

In January of 2000, United Online’s stock was at $110 per share. At its peak, EarthLink’s stock price (split adjusted) was trading over $80 per share. Today, United’s stock is trading under $12 and EarthLink is trading below $10 a share.

These companies were both multi-billion dollar stocks at one point in time – today, they’re falling rapidly into small-cap territory.

Facing Reality

Now, if a company goes through a tough period it might just take some clever managers a couple of years to turn things around…no big deal. But things are quite different here, an ENTIRE industry is crumbling and United and EarthLink are looking like the last couple of drunken people stumbling around a party that ended hours ago.

These guys have been trying everything (short of entering the adult content business) to get their mojo back.

EarthLink tried to launch a mobile phone initiative with SK Telecom, Helio, that has produced lackluster results. And its municipal Wi-Fi initiative proved to be a fat waste of time and money.

United Online tried to spin out one of its subsidiaries, Classmates.com, as a “social networking” play. But that ultimately failed because no matter how popular the “web 2.0” moniker has become, there’s no putting a silk dress on a tech-pig anymore.

So What Could They Do?

Well, there are a few answers to this question…

According to “text book” competitive strategy, there are 2 options for companies in declining industries:

• Harvest
• Divest

“Harvesting” is when a company cuts all marketing for a particular product, thus increasing profit margins. This will eventually mean cutting the product line entirely, or “Divesting”

In any case, it’s clear that these companies need to get out of their core business or they’ll simply be forced to do so due to lack of customers.

What Have They Been Doing?

Well, EarthLink hasn’t been doing much in the way of positive maneuvers in this space. Their Helio joint-venture isn’t looking too hot at all and they’ve pulled the plug on much of their municipal Wi-Fi business. I really don’t see how investing in “start-up” ventures is a smart use of cash given the current environment they’re operating in.

The most meaningful thing I’ve seen from either company has been from United Online – they recently acquired FTD Group (NYSE: FTD), the online flower delivery service. I don’t quite see how this fits with United’s core business but at least they’re purchasing a profitable company with decent financials (not trying to pull off a risky joint venture in mobile).

Unfortunately, United hasn’t taken any dramatic steps to cut back on its marketing costs. If I were a shareholder I’d really need to see management drastically slash marketing budgets and start to shore up cash or distribute it back to the shareholders.

EarthLink has certainly been cutting back on SG&A expenses which has put the company back in the black for now, but its top-line results have been getting weaker at the same time.

For now I’ll be content to sit on the sidelines and wait this one out.

I don’t have much faith in EarthLink at the moment but the market certainly doesn’t agree; the stock’s been in a solid uptrend for the last couple of months and I’m not one to fight the trend.

United is definitely the more promising of the two but until they make a firm decision to start harvesting cash from the dial-up business and focus more on expanding other divisions, I just wouldn’t be comfortable taking a position here either.

For now it’s just a waiting game – but one thing is clear: in the market, stocks can go from large caps to small caps and back to large caps very quickly. So keep your eyes peeled because UNTD and ELNK might see their share prices in the triple digit range again one day.

“BlackBerry or the iPhone?”

In the details of the question he goes on to reference a blog post by the New York based venture capitalist, Fred Wilson, where he openly asks for feedback on what people think of the iPhone versus the BlackBerry. There’s some great insight in Fred’s post (and the comments to it) so I recommend you read it.

But I thought I’d share some of my own thoughts on the iPhone vs. BalckBerry issue here:

The iPhone is unequivocally the most beautifully designed mobile phone I’ve ever seen. The web browsing experience is like nothing I’ve ever used on a handheld device and through the flawless marketing effort on the part of Apple (Nasdaq: AAPL) and AT&T (NYSE: T) it has already become somewhat of a status symbol in the geek-chic crowd.

But for those of you who have used one for any period of time, you’ve obviously noticed some of the flaws in this “flawless” product.

1. Sending a text message or an email becomes an exercise in finger tip precision and dexterity. Basically, you must have the most narrow and most accurate thumbs in the world to try and type a message longer than 2 words on this phone. For business users or active text’rs (read: teenagers), this is certainly NOT the phone to have.
2. I’ve dropped my BrickBerry more times than I can count and it’s still tickin’ – it’s like the little energizer bunny. The same can NOT be said of the iPhone. From what I’ve seen, heard and personally witnessed a strong breeze causes this phone’s screen to shatter.

   In fact if you check out Fred Wilson’s blog post, you’ll see what his daughter’s phone looked like, post-drop.

3. Even though there are “hacks” out there, you’re still locked into using AT&T/Cingular as a carrier. While the service is good, I’m always one for having more options. The fact that I can use my BlackBerry with my T-mobile account, and be able to keep the phone if I decide to switch carriers (or if my company switches carriers) makes me very comfortable.

And I’m obviously not the only one who feels this way – it’s a sentiment I’ve heard from many of my peers for quite some time now. The most reliable text and e-mail friendly phone on the market today is the BlackBerry from RIM (Nasdaq: RIMM)…no contest!

But the story isn’t that quite cut and dry…

There’s a rumor going around that Apple has a new version of the iPhone coming out on June 9th. Apple’s a popular company in tech circles, and therefore the rumor-mill is usually in full effect whenever Mr. Jobs gets up to speak. Most of the time the hype falls far short of the real announcement, but this time I think the rumors are going to turn out to be true.

I think on June 9th we’ll get the announcement that Apple is launching a 3G enabled iPhone. Essentially what that means is that the iPhone will now let its subscribers download data faster than ever before.

However, given the serious flaws the company has with the phone design, I’m not sure what impact (if any) this will have on subscriber numbers. Especially when we take RIM’s announcement into account…

Last week, RIM announced the upcoming BlackBerry Bold phone – the first 3G phone from the CrackBerry maker. I’m personally looking forward to this one and it seems like the rest of the market’s feeling the same – the stock is up 6.35% as I write this article.

But that isn’t to say Apple won’t see some serious benefits via its 3G initiatives. I just don’t think those benefits will be solely in the form of an increase in iPhone subscribers. I think Apple could see a serious increase in iTunes sales as well.

Picture this: when you hear a good song and want it on your iPod immediately, all you’ll have to do is login to iTunes with your 3G phone and you’ll be listening to the song in seconds.

So if Apple’s strategy is to secure more iTunes purchases, I think they’re still executing their marketing efforts flawlessly. If the company really wants to compete with RIM, however, they’ll really need to do something about the phone’s design. Touch screens are “cool”, but certainly not functional.

Regardless of who gets the most subscribers, I think both announcements will be great for RIM’s and Apple’s stock prices.

Yahoo!’s stock price promptly tanked by 15% on Monday, while Microsoft stock continues to tread water.

So the question becomes, where does Microsoft go from here?

In fact, that’s precisely what a TickerHound member asked this weekend:

“Microsoft withdraws bid for Yahoo - who might they go after next?“

In situations like this it always helps me to list the top realistic options and the pro’s and con’s for each.  So what are Microsoft’s options?

AOL

Time Warner (NYSE: TWX) is likely going to spin this division out at some point in the near future, so they might as well get a bit of a premium for it if they can.

Pro’s:

• Several high trafficked sites – reported a 15% increase in March traffic, reaching 55 million visitors across all of the AOL properties.
• Diverse focus on editorial content and social media – remember, AOL recently acquired Bebo for $850 million not too long ago.  This would give Microsoft a major presence in two large social networks.
• AOL’s Platform A division gives Microsoft some great advertising platforms in the display ad business, which is exactly where Google (Nasdaq: GOOG) just planted its flag with its acquisition of DoubleClick.

Con’s:

• For all of AOL’s traffic, it has yet to effectively monetize much of it.
• Google  is currently serving all of the company’s search ads.  Could that add a layer of complexity to the deal?  Would it make AOL less valuable if they no longer used Google?
• Even with 55 million unique visitors, the company is still about half the size of Yahoo!.  This might not be enough to give Microsoft the boost it’s looking for on the web.

MySpace.com

If you had asked me a few months ago I probably would’ve laughed at the idea of Microsoft buying the News Corp. (NYSE: NWS) owned MySpace.  But after all of the Yahoo! shenanigans combined with the rumors of a joint Microsoft-News Corp. bid to buy Yahoo!, I think this might be a deal worth writing about.

Pro’s:

• Fastest growing and largest social network in the world – it’s almost tied neck-and-neck with Yahoo! for the most highly trafficked site on the web.
• The sector that it operates in is one of the hottest on the web right now and is attracting a ton of positive attention – something Microsoft desperately needs as it becomes an increasingly irrelevant participant in this space.
• The deal would give Microsoft a dominant position in social network advertising as the company has already cemented its arrangement with Facebook via its $250 million investment in the company.

Con’s:

• On the opposite side of the same coin, this deal could conflict with Microsoft’s Facebook investment – I can’t imagine “Zuck” would be too happy seeing one of Facebook’s largest shareholders in bed with its largest competitor.
• Social networks have been proven to be notoriously difficult to monetize.  Does Microsoft need to climb over 9 foot hurdles right now?  Or should it be looking to walk over 1 foot hurdles?
• This company won’t help Microsoft increase its share of the search market…social networks may be great, but search engines capture customer intent and that’s what makes the advertising space around it so valuable.

Facebook

Given that the company already has a major stake in Facebook, it’s not outlandish to think Ballmer wouldn’t pony up some more Microsoft money to buy the rest of it.

Pro’s:

• The company already owns a piece of Facebook and serves its ads.
• Like MySpace, Facebook is playing in an extremely attractive sector right now.  An acquisition will certainly make Microsoft’s presence felt on the web again.
• Facebook’s platform could be very compelling to Microsoft.  Microsoft Windows effectively did the same thing for the desktop as Facebook has been doing for the web – giving developers an open set of API’s to develop, market and monetize applications on top of.

Con’s:

• As with MySpace, Microsoft would run into monetization issues on this social network as well.  Until they figure out a way to capture intent-to-purchase on a social network, it’ll never become as effective of an ad platform as search is.
• Facebook, like MySpace, gives Microsoft no additional traction in the lucrative search engine advertising market.
• Culture shock – even more so than Yahoo!, how would Facebook’s younger, less polished and less corporate employees mesh with the old guard at Redmond?

A Game of “Imagine If”…

Given that none of the options above seem extremely compelling, let’s play a little game of “imagine if”.

Imagine if Microsoft hasn’t really given up its desire to acquire Yahoo!.

Now, imagine if Microsoft were really smart and instead of walking away from the deal or overpaying, they decided to step away temporarily to manipulate the situation in their favor.  Here’s what I mean…

Microsoft had to know that if they withdrew their bid that Yahoo’s stock price would crack – as it did on Monday.  They’d also know that Yahoo! shareholders and executives would throw a fit – as they did on Monday.  This would help Microsoft in a couple of ways:

1. Now the company could scoop up shares on the cheap.
2. They’d also have Yahoo! scrambling to put out any internal fires the whole situation might’ve caused.  A distracted enemy is a weak enemy.
3. It would give Microsoft time to court large Yahoo! shareholders – who are rumored to be less than pleased with their CEO – and build support for another bid.

Now this all might sound a little “conspiracy theory-ish”, but we’ve looked at the alternatives already.  None of the other girls at this dance look quite as pretty as Yahoo! does and everybody knows it.

The Bottom Line

The bottom line is Microsoft wants a bigger presence on the web.  They also need a bigger slice of the search advertising market if the company hopes to remain competitive with Google.

They don’t have many alternatives and Yahoo! is looking pretty desperate at this point as well.  This half-baked “test”/partnership they have going with Google will NEVER make it through anti-trust, so that’s not even something worth considering.

My money is on a Microhoo! deal before the end of the quarter.

“Hey Wayne, what do you think about Hershey now?”

I wrote an article about 2 months ago on Hershey’s Chocolate (NYSE: HSY). In the article I discussed a merger that Hershey had arranged a couple of years ago with Wrigley (NYSE: WWY), which ultimately never went through due to Hershey’s largest shareholder, The Hershey Charitable Trust, deep-sixing the deal at the last minute.

At the time, I felt the door to doing a deal between these two companies was still wide open.

But now, that door has officially been shut and has put Hershey in a very awkward position.

As of Monday morning, Mars, Inc., the largest candy maker in the world, agreed to acquire Wrigley for $23 billion…that’s a 28% premium to last Friday’s closing price. The company had a little help doing this deal too…

A long time admirer and someone who was very vocal about his desire to own Wrigley’s, Warren Buffet, will provide some of the financing for the deal.

So back to the question, where does this leave Hershey now?

Well, it obviously leaves Hershey in a much more vulnerable position than it has ever been before.

Mars-Wrigley is a virtual powerhouse in the candy market with distribution on almost every continent and some of the most valuable brands in the world – I mean, who hasn’t eaten a Snicker’s bar or M&M’s?

At the conclusion of my last article I put forth two scenarios – Hershey would either:

1. Merge with Wrigley – That’s obviously out of the question now.
2. Merge with Cadbury (NYSE: CSG) – a situation that’s looking more and more likely.

The company could also stay independent but as they try to compete on a global level with Mars, I think even the hard-headed Hershey’s Trust will agree that they’ll need a European distribution partner in order to gain traction overseas.

But a few things have changed between now and when Hershey was first engaged in talks with Cadbury in January of 2007:

1. We’re in a bear market and Hershey’s stock has gotten hit hard over the last year. To put it in perspective, Hershey’s is off almost 25% since they began talking to Cadbury and Cadbury’s is up about 8%. That gives Cadbury a lot more leverage in this situation.
2. Due to the fact that Cadbury has a lot more leverage and Hershey’s business is going to increasingly come under assault in the US and abroad by Mars-Wrigley, Cadbury could get Hershey at a much lower valuation and close the deal under much more favorable terms. Originally Cadbury agreed to spin-off its beverage unit in order to get the deal done. That might not be a concession Hershey has the ability to push for this time around.
3. Most of the top dogs at Hershey are no longer there. The company was effectively taken over by the Hershey Charitable Trust; an organization that has very little operational or strategic experience in the candy market. To say that these guys are going to be able to come in and cut the best possible deal for Hershey’s shareholders is wishful thinking.

And if that weren’t enough, Cadbury obviously knows one of the only other possible merger candidates is out of the picture entirely now, thus putting them in a MUCH stronger negotiating position.

But at the end of the day, in this writer’s opinion, this deal has to get done one way or the other. It would just be too difficult for Hershey to remain independent.

So while I might’ve argued that Hershey could’ve been the value play of the year 2 months ago, I’d be a little less optimistic in my profit projections now given how dramatically things have changed for the company.

“If Microsoft can’t get Yahoo! then what’s next for the company?”

Normally I might’ve shrugged my shoulders, suggested another acquisition candidate and considered the conversation over.  Microsoft (Nasdaq: MSFT), while still a very successful company, hasn’t yet shown me that they really “get” the web.

That is until Tuesday night!

Let me explain…

Now when I first heard that Ray Ozzie was joining Microsoft I was thrilled, to say the least.  Ray Ozzie has been innovating in the tech space for decades and has really been one of the few consistent hitters when it comes to emerging technologies.

But after watching (quite frankly) a series of disappointing product launches come out of Microsoft for the last few years, I began to lose faith in Oz.

Had he lost his touch?

Did being stuck in the confines of Microsoft rob him of his mojo?

Well he must’ve taken some notes from Austin Powers, because as of the other night, the “Great and Powerful Oz” has finally gotten his mojo back!

Lately, much of my focus has revolved around web-based services.  For example, a couple of weeks ago I wrote about Google’s new web application platform (Why Microsoft Should be Shaking in Its Boots): App Engine.

This is was a HUGE move for Google and one that I think will serve the company very well in the future.

At the end of the article I asked if this was “check or check mate?” for Microsoft.  Well, I think Microsoft just answered my question…and it is most certainly NOT the end of the line for the boys in Redmond.

On Tuesday evening Microsoft announced its most ambitious plan since the launch of Windows 95 – Microsoft’s upcoming “Live Mesh” service.

Similar to Google’s application platform, Microsoft hopes developers will make use of its toolset in order to develop robust web-enabled applications.  But Microsoft is taking the vision a bit further.  Instead of giving people a backbone to host their web-centric software on, Microsoft is providing a fully integrated platform that connects web applications directly to a user’s device(s).

Ozzie’s vision is to have a service in place where Microsoft’s products – and anyone else who wants to develop applications for the platform – can be synchronized across all devices (phones, PDA’s, game consoles, etc.)

How About an Example?

Ok, let’s say you have your trusty camera phone out at a ball game and decide to snap a quick photo of your favorite New York Yankee, Derek Jeter.  Instead of just saving the photo to your phone, Microsoft’s Live Mesh will instantly beam it to your PC back home and your online photo album (along with any other connected device).

Then when you get home, you decide you want to edit the photo a bit because it’s a tad blurry (i.e. you can’t see the ball flying over the Red Sox outfielder’s head clearly).  So you touch the photo up on your PC and instantly, the photos on your PC, your phone and your online photo album are all updated at the same time with no other action on your part.

And that’s just a silly example with photos…

Now imagine what that means when it comes to calendars, contracts and other business documents?

The array of services and solutions that can be built on top of a holistic platform like this are endless.

Microsoft’s also launching community features into Live Mesh, which in my opinion, makes it dramatically more powerful than anything else taking shape on the web right now.

Imagine you’re working on a team with several other people and you’re trying to edit a Power Point presentation or a Word document.

The Old Way:

• You make a change to the file
• You email it to everyone and wait for feedback
• Then you realize that somebody else changed a part of the file that doesn’t quite match  yours and now you have to work their changes in on top of your own

The New Way:

• Everybody makes changes in real time, regardless of what type of device they’re using
• Everybody’s copy is synchronized
• There’s a record (visible to everyone in the group) of every change that was made so it’s easy to rollback and clean things up

Think about the productivity gains here!  Think about the types of services that can be built on top of this platform.  Think about the amount of commerce that this will drive – and not just for Microsoft, but for every web, desktop and mobile application developer out there!

Plenty of people would argue that this isn’t a direct competitor to Google’s platform, but I think if we examine the implications of a universal application platform, that bridges the device-to-internet gap in a seamless way, we’ll see that this is definitely Microsoft’s best move yet!

So even if Google’s platform is the foundation that the cities of the web are built upon, then Microsoft’s Live Mesh will be the roads that bind them together.