Apple’s market cap is currently $119 Billion, at the beginning of the year it was around $175 Billion.

Google’s market cap is currently $158 Billion.

The economy looks fragile: housing is a bust and banks have hemorrhaged cash, insurance companies are teetering, employment looks dubious, gas prices are high and consumer confidence weakening.

But in SF and Silicon Valley people are partying like its 1999, because VC money is buying the drinks again. Should they be?

You would think that tech stocks would do well in this market, of cheap exports and Web 2.0 hype, but the reality is quite the opposite.

Amongst the best performing stocks this year, are Walmart and General Motors . Among the worst are tech stocks like Apple.

Even with all the infrastructure requirements of gazillions of video ‘bits’ flying around the Internet, Akamai and Cisco are lackluster.

But the biggest worry of them all is that Google, the company that looked like it would become bigger than Standard Oil (and it still could be) and which sits right at the top of the Web 2.0 food chain, has lost a third of its value in a few months.

To put it in perspective, Google, the company that for many people IS the Internet economy is worth less than a computer manufacturer, Apple, with less than 10% market share, was worth a month ago.

It may recover quickly, but only after confidence in funding Internet startups has waned, in which case the alcohol fueled, party phase of Web 2.0 will be over and many companies will be running on fumes.

Apple share price

Google’s Google’s official reaction to a Yahoo/Microsoft deal is that it must be stopped to preserve competition, and it comes its lawyers, while the founders keep schtum.

This reaction is bad PR:

1. It gives the impression the company is run by bureaucrats.

2. It makes them look scared and defensive (and it could spook stock holders who will second guess the reasons)

3. Google has demonstrated it can beat Microsoft, their best weapon is innovation not legal knots, which will slow their own innovation down.

A Microsoft/Yahoo deal is good for the software industry, it will guarantee at minimum, a Coke vs Pepsi style duopoly rather than either a Google or Microsoft Monopoly.

Google’s reaction is not a conspiracy, but a function of what happens when you hire lots of lawyers – they start doing lawyer stuff all over the place, even if you hired them for another battle.

Having lived in the US for nearly 10 years now, I have come to the conclusion that the whole place operates pretty well, except the legal system requires a complete reboot, from the Supreme Court down.

America’s broken legal profession is the reason why health care costs twice as much as most other countries (pro bono work), why free markets are hampered (lawyer lobbyists) and why democracy is imperfect (Supreme Court).

It is also the reason why Google was hiring an army of top lawyers when the rose tinted, public perception was that Google’s hiring policy revolved almost exclusively around getting the best engineers.

Google needed these lawyers in a society where a big company will attract hundreds of opportunistic legal challenges from people hoping to get at some of its money and from the inevitable anti-trust action that will eventually come its way.

Unfortunately, expensive lawyers won’t just sit around fiddling their hourly sums, waiting for anti-trust action. And being lawyers they are very difficult to argue with.

Until now Google have maintained the image of a confident company with founder vision and a mantra of “don’t be evil”. With their Chief Legal Officer now issuing company statements has that now changed?

My guess is that they have been temporarily bamboozled by Chief Legal Officer, David Drummond and followed his tactically sophisticated but strategically naive advice.

From watching this PR gaff, Drummond is clearly not qualified to act as company spokesperson and perhaps Google’s lawyers need to be reigned in.

The best challenge to any Microsoft threat is innovation, something which Google can be confident about shouting from the hill tops.

May 2007: Microsoft Yahoo is a done deal even if they don’t know it yet

This is a great move for Microsoft, but if RIMM stock drops to a reasonable earnings multiple, it would be an almost necessary buy for MSFT too.

The reason:

Smartphones have become an essential business tool, like the desktop computer in the 80s.

In a downturn, in particular, if you buy 500 employees an iPhone you look spendthrift, buy them a Blackberry and you look plain thrifty. Buy them anything else and you might look stupid.

The Apple Mac OS may have been more like the OS that powers business computers today, but the less innovative DOS is what made Microsoft dominate. An overlooked reason is purely psychological, and predated the raft of software that made it a rational one: DOS looked more business like.

DOS succeeded at a time when command line computing seemed like the real deal compared to cartoon-like mouse and icon interfaces.

Similarly, a device like the iPhone looks like a luxury consumer device, while a Blackberry is less innovative and more boring. Like conservative office furniture, it looks right for business and is the best of breed. Smartphone alternatives like Palm increasingly look like also rans. A Blackberry will be the de facto business standard smart phone and therefore it competes on Microsoft’s home turf.

Microsoft need Blackberry, because its the right kind of crappy.

If the reviewers of the Macbook Air are right, then people don’t really care about Apple design.

Above is a commercial for an original Pentium, it promises movie quality films, amazing computer graphics and instant number crunching.

A Pentium had around 3 million transistors, 2 year old Intel processors today have 1.7 billion.

You would need six hundred Pentium based computers, in an office the size of a hangar, to equal the processing power of a single Macbook Air that fits in an envelope.

Yet if you would believe what you read, the Macbook Air, is under spec’ed, when the vast majority of professional computer users use exactly the same software as we did when we had Pentiums.

And this opinion, that the Air is under powered, is according to the leading technology journalists in the country, not mad people with tin foil hats.

Pentium’s were first made when the applications that people most used were spreadsheets, word processors and presentation software. A tiny minority pf people did things like 3d graphics and high resolution photo retouching.

In fact the most notable new entrant in software, the browser, would potentially reduce client computer requirements.

Today not much has changed, more people do photo retouching but often at lower resolution. More processing is done on servers, and most people still use things like word processors and spreadsheets in similar ways.

In fact the extra demands on computing power are largely for consumer applications, so you could argue that ‘professional’ computers need something else than computing horse power.

The initial reception of the Macbook Air proves that the current process of designing, marketing and selling computers has nothing to do with ‘specification’ requirements, but everything to do with specification lust.

If the critics are right, they show that above all that despite Apple’s great designs, people don’t really care about design, unless its lathered on top of tech prowess.

But what if the problem was with the critics themselves. Perhaps they are out of touch and way too geeky for a world where computers are not sold like self assembly amateur electronics projects.

Meg Whitman is to step down at Ebay after 10 years.

Anyone who has worked in Silicon Valley will have heard rumors of what an inefficient shambles Ebay is internally and how it is devoid of any creative inspiration.

But before dismissing Whitman, consider that she grew a company from 30 people and $4m revenue, to the behemoth it is now.

Like all things in life, the Ebay story is complicated, but here is a stab at a simplified version.

Ebay’s model was very clear when Whitman took over, they needed an executor not tempted by innovation or distraction, a John Sculley type not a Steve Jobs type.

As Ebay grew, it remained focused and held on to its monopoly by building a reputation system that created a switching cost for its users. Ebay performed financially.

Like all monopolistic companies there is a time when the growth starts to slow as it saturates its market and creative input is required to develop new products and explore new markets.

For Ebay, its weaknesses started showing with the PayPal acquisition and the tipping point was the Skype purchase.

Ebay had no option but to buy Paypal, because a fleet footed startup was potentially hijacking their business by inserting its payment system into their own transaction flow, as Ebay users were having to sign up with Paypal, in flagrante.

Paypal could have been a threat to the entire retail banking industry, rather than Ebay. With Ebay’s purchase Paypal’s ambitions were scorched and its efficacy demolished. It was a good deal, however, coming in the middle of the dotcom crash where the premium for Paypal’s potential banking play didn’t show too much.

Paypal’s founders had no place in a company run by management consultant types, they left and the product calcified while the team swelled, several people doing the job that one person had previously.

If Paypal was a way of acquiring innovation, where the company had been unable to innovate internally, the Skype purchase was a somewhat creative acquisition itself.

Sure there was a potentially hijacking threat with Skype, but it hadn’t yet manifested itself, and the asking price was more than the value of buying it just to kill it. Paypal was about banking and Skype about telecoms, big ideas that command big prices when you have lost of users.

Ebay doesn’t do creative, so this was a mistake. Skype wasn’t yet part of the Ebay transaction flow, and its price wasn’t cheap. To justify its price it needed to continue to innovate, something that Ebay is not setup to do.

This is where Ebay is now, a very successful business woman is leaving a company at the time where it needs a visionary.

The amazing thing, is that Ebay has some obvious and profound visionary potential:

1. Ebay is all about Green, the biggest angle any company can have, currently, and yet it has ignored this. As the largest marketplace for second hand goods, it is the worlds largest recycler.

2. Ebay contains a collective memory of the worlds stuff. How we interact with the world is largely through this stuff, yet Ebay throws away this memory by deleting its archives from the web. If you don’t think this is of profound importannce, William Gibson says it much better, here.

What is needed is a visionary to take what Whitman has built and let it flourish again, by building products and services based upon fundamental concepts, like those above. Ebay needs a Steve Jobs.

Ironically, and against all consensus, I suspect that Steve Jobs’s are actually less rare than Whitman’s, they just don’t often get a chance to run a company.

eBay’s Whitman To Retire; Donahoe As Leading Candidate | paidContent.org

A great article on why Japan still leads the US in terms of Gadgets.

There are a variety of reasons posited, but the main one is that gadgets are not dominated by males in Japan.

I couldn’t help but be reminded of the fact that Myspace’s growth came from its male/female balance, caused by teenage girls attraction to alpha males in bands.

Perhaps this gender symmetry helps achieve viral growth since hubs and key influencers are more likely to connect male -> female -> male etc.

Thanks to Keith for the article.
ASIAN POP The Gadget Gap / Why does all the cool stuff come out in Asia first?

Julien ‘Spike’ Galbraith born 21:12 on Jan 11.
I am so, so happy.