Guest Post: Sridhar Vembu

How do you plan to compete with Google, or why do you compete with Google? Those are questions we get asked very often. It is better to ask why Google is interested in the business software market.

Source: Yahoo Finance - 8/15/08

Note: The most recent financial year numbers were used for revenue. The employee count is as of most recent quarter. This may understate the revenue/employee numbers for fast growing companies but does not change them materially.

Focus on the revenue per employee and profit per employee metrics. I have grouped the business software industry and the consumer internet industry separately. Notice how very successful companies with mature business models like Oracle or Intuit don't even pull down half the revenue per employee of Google, and perhaps surprisingly, they pale in comparison with the supposedly struggling Yahoo. eBay also towers over every software company except Microsoft. Finally, even Microsoft falls short of Google's revenue/profit per employee metrics — and Google isn't even milking a mature monopoly.

Salesforce.com is very instructive. Though it likes to pass itself off as an internet giant, its revenue per employee is only in the range of its business software peers and is a fraction of the real internet giants — I know an internet giant when I see one, and you ain't no internet giant, Salesforce! This, I must add, despite their out-of-this-world pricing for their CRM subscriptions. They pull in almost $1 billion in revenue on the backs of — those are some really overloaded backs — a little over 1 million users, leading to almost $1000 revenue/user/year.

Now it is clear why we compete with Google. We simply don't believe Google has the rational business incentive to go deep into the business/IT software category. The lower revenue and profit per employee figures would be tolerable if there were huge growth opportunities there; but when very successful companies like Adobe and Intuit pull in revenues well shy of a Yahoo, when even the enterprise software leader SAP is only a little over half the size of Google (Google makes more in profit per employee than SAP makes in revenue per employee), it is fairly clear this market is not going to make a material contribution to Google's growth and profitability objectives. So what is Google's plan here? It is fairly obvious they are in it to put Microsoft on the defensive on its home turf, so that Microsoft's offensive capability in the internet is diminished. It is also perfectly clear why Microsoft wants to be an internet player — as Google has shown, it is a higher margin business even than its monopoly-profit core business.

So why is business software so much less profitable than the internet? I can think of two reasons: a) purchasing departments that know a thing or two about supplier margins and specialize in putting on the squeeze, and b) sales and support costs, particularly support costs. When you sell software to businesses, they have all kinds of support expectations, which add to headcount. A search engine or a news portal isn't expected to provide any customer support.

This analysis explains why we are happy to compete with Google. When push comes to shove — and there is a lot of very messy push and shove in the business software market — their resources are going to flow into figuring out how to monetize the humongous traffic of YouTube or compete in online auctions, rather than figure out a way to squeeze a bit more margin compared to Oracle or Adobe.

Biotech stock expert

A. Reza Saadat has over 13 years of experience in the pharmaceutical industry as a scientist and in finance/business development capacities. He is the managing partner at Centius, a life science consulting firm located in Boston, Massachusetts.

The Biotechnology Stock blog contains his opinions about inesting in publicly traded biotechnology and pharmaceutical stocks. He combines a strategy of fundamental and technical analysis in order to make recommendations. He also keep track of the performance of my picks as a portfolio.

Check out his blog for great tips!

Invest in Germany - energy advances forecasted

Germany has made massive cuts in CO2 emissions as well as leaps in energy efficiency. This isn't all they are doing; the German cabinet has approved a plan to slash CO2 emissions by 40% by 2020. This ridiculously ambitious plan is sure to create some disruptive technology. Sometimes, living in America we feel like California is at the forefront of being green - but somehow European countries (usually lagging a little on technology) have outstripped their American competitors in terms of being green. The EU cut its energy consumption by nearly 2% whereas America, China, and India all increased. Germany dropped a staggering 5%.

Germany, rather than counting on more oil, is realizing that the era of cheap energy is over and the way to economic stability is sustainable energy. Arguable, energy problems are the bane of the American economy, its only weakness.

The business opportunity here is that Germans (already famous for their engineering skills) are now 100% on the energy saving bandwagon. Their research and development firms will globally lead energy reduction initiatives making them a solid investment. Additionally, look to the top German researchers for technologies to emulate and promote here in America (or wherever else you all may live!).

Statistics from BusinessWeek.
Image from The Energy Collective.

Intermec Supply Chains Solutions Review

For those of you starting a new business, be sure to consider Intermec for your supply chains solutions. Their inventory includes the following:

rfid tags: These are getting more and more common. Asset tracking is made easily possible. It may be another expense, but the cut down on human labor could be substantial. They also sell barcode scanners for the RFIDS. All of their products are network ready; a deep level of integration allows for more simple communication and Automated Data Collection.

What I loved most about Intermec is that they cover all aspects of supply chain needs; they sell computers, printers (to print the barcodes and RFIDS), scanners, and the software to implement it all. When you get it all from one place, you KNOW it will integrate and work seamlessly. One of the major problems I had when I worked with a startup locally was that their supply chain software was not integrating with their database, and the hardware was always crashing. You won't have this problem with Intermec.

One last thing I would like to say is that Intermec has a solid client base. They handle supply chain solutions in all sectors - industrial goods, consumer goods, retail sales, logistics, health care, field service and the public sector.

Another hot biotech stock pick

Mannkind has developed a new type of insulin called Technosphere Insulin for diabetics. This is a big deal because it is inhaled rather than injected and in test trials its rate of hypoglycemia is far lower than other competitors. The biggest factor is most likely that it does not promote weight gain which is common for most insulin drugs out there right now. Mannkind's stock has take a hit recently with news of Pfizer narrowing in on their market share with other products, so in my opinion it's a good time to buy Mannkind.

Some more article about Mannkind if you want some background info:
From September 2007, in the New York Times
Mannkind as an overlooked biotech stock in Seeking Alpha

Pfizer rejected them back in 2007 after weak sales, but people are more confident and stronger test trials could propel them to success as a lot of people are betting. The buzz around this stock is also huge right now.

Biotech stock picks

Here are a few hot biotech stocks, will post more later.

Nymox: Introducing phase III trials for its benign prostatic hyperplasia (BPH) treatment. People are speculating that it may become the market leader for treating BPH and this could really transform the company. It is currently at $3.98.

Sequenom: This is a possible good idea to short sell. It was announced 6 hours ago that they are being sued. Currently $12.93.

Some more I will post later will try to be more neurologically based as this is where the future boom will occur. As I posted earlier, as the middle class grows, non life threatening illnesses such as ADD, ADHD, autism, etc will be treated more vigorously.

Be sure to subscribe to keep up with the biotech stock tips!

Future of the American economy

Today Ben Bernanke had some optimistic remarks about the future of the American economy. He said that the risk of the "massive downturn" so many predicted in the recent past is now negligible. This lets the Fed shift focus from preventing a recession to mainly stimulating growth and slowing inflation. However, for you investors out there, keep in mind that this implies a rise in interest rates which really hurts the value of Treasuries, especially 2 year.

Invest in mobile phones

The release of the Iphone scared other high end mobile phone maker such as Blackberry (Research in Motion) and Palm, but surprisingly, they both experienced huge surges in sales during the Iphone release. Why? Because people saw the iphone as perhaps too expensive, too much funtionality or business innapropriate. The upcoming release in the second version of the iphone is a great opportunity to capitalize on this surge. Investing in Palm stock is especially a good idea as it has gained a solid market share on Apple in mobile devices. Palm is currently at $6.70 a share.

Blog business model

Publisher advertising revenues are still increasing at a ridiculously fast rate; a rate that shows us that internet property values are either inflated or really are valuable revenue streams. Because of this, I am writing a brief post on how to earn money from a blog. This is a simplified post, feel free to comment or email me for further clarifications. Think of your blog as a magazine - maintain high standards of grammar and functionality.

There are 3 major sources of revenue from blogs. The first is CPC ads, such as Google Adsense and Yahoo Ads. The second is affiliate programs such as Amazon and Chitika. Lastly, there are private ad sales, much like the little blurb you see on the side of my blog offering a 125x125 button or text link for a certain monthly fee. I personally earn the most amount of money from sold links. Generally, most people earn the most amount of money from CPC ads, the best network being Google Adsense. Affiliate programs usually yield high revenues only for high traffic blogs because conversion rates are lower. A very good resource going more in depth on how to make money blogging is ProBlogger.

But lets not get ahead of ourselves. Before this, the long process of building traffic must take place. The best way to do this is to write meaningful content and search engine optimize. This is a long and slow process, but consistent posts (at least once every three days) if not more (daily posts will substantially speed up the process) and enjoying what you do make it bearable.