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According to sources close to the situation, Starbucks Chairman and CEO Howard Schultz and Accel Partners’ Kevin Efrusy will be stepping down from the board of Groupon.

Schultz’s departure will be effective today, but Efrusy — who was critical to the initial funding around the Chicago-based daily deals site — will not be standing for re-election at the company’s annual meeting in June.

The departures are voluntary, but sources said the pair will be replaced by two new directors with significantly more fiscal oversight experience, whom one source characterized as “accounting types.”

(Update: Groupon just posted a press release noting the board departures, with the names of the new board pencil pushers: Daniel Henry, CFO of American Express, and Deloitte Vice Chairman Robert Bass. Henry joins immediately in Schultz’s place. Full press release below.)

It is a move that is critical, given Groupon’s recent series of missteps around its financial reporting that have hurt both its reputation and, more importantly, its stock.

Interestingly, several sources noted that Schultz almost left the board right before Groupon’s public offering last fall, after several ongoing disputes with its management, but stayed on so as not to scuttle its IPO.

The board of the company has not involved itself as prominently in the accounting messes at the company, but it appears as if they will begin to now.

It must, given Groupon shares have been trading at a low of $11. Its stock has dipped to $10.98 today.

As Tricia Duryee wrote recently about the fall:

At that price, it is now worth just over $7 billion, down 57 percent since the company went public last November and well off the more than $10 billion it was valued at as tech’s hottest start-up of 2011.

Ironically, Groupon’s current market valuation is actually not much more than the $6 billion offered for it by search giant Google in late 2010.

The fall of Groupon has been swift, from the honorific of being the fastest-growing company ever to one that cannot keep control of that runaway growth.

That’s perhaps no surprise.

Perhaps most significantly, Groupon went public in just four years, delivering the biggest tech IPO since Google.

The quicksilver move was typical for it. In just two years’ time, the company ballooned from 37 employees to 9,625 and from serving five markets in the U.S. to 175 in North America alone. And that’s leaving out massive expansion abroad. In the past year, Groupon has acquired roughly 17 companies, including many international copycats.

The company also has entered many new segments, expanding from selling lower-priced and simpler deals on restaurants and spas to more complex and pricey arenas, including travel, physical goods and luxury items.

But Groupon is now learning that its original business does not work across just any segment, especially to more discerning customers of its higher-level and more expensive offerings.

In fact, it was those newer and potentially more lucrative markets that forced the company recently to revise the company’s fourth-quarter report after returns skyrocketed on luxury items, such as Lasik eye surgery.

The problems forced Groupon to lower revenue in the period by $14.3 million and net income by $22.6 million. It is now reporting a wider net loss of $64.9 million on revenue of $492 million, pushing it further away from its goal of profitability.

The company also disclosed at the time that independent auditors had noted “material weakness” in its financial controls. In addition, The Wall Street Journal reported that the Securities and Exchange Commission was examining Groupon’s revision. 

With many companies, investors might have shrugged off such accounting issues, but the impact on the stock has been greater since they are only the latest in a string of similar mistakes at Groupon.

In its pre-IPO period, for example, Groupon was forced to restate revenues after counting both its portion of the revenue and the revenue that goes to the merchant together. It also had to dump a controversial accounting metric that made the company look more profitable than it was, because it did not include important costs, such as critical online marketing expenses to attract new customers.

Those came after the company retracted a statement by Eric Lefkofsky, Groupon’s co-founder and executive chairman, who told Bloomberg in an interview that Groupon would be “wildly profitable.”

At least the wild part was accurate.

Much of the blame for these missteps by Wall Street is being aimed at CEO and co-founder Andrew Mason, the iconoclastic 31-year-old entrepreneur who is largely responsible for defining the company’s culture, as well as Jason Child and Joe Del Preto, the chief financial and accounting officers, respectively.

Child joined the company in December 2010, coming from Amazon, where he held several roles over a 10-year period — including VP of finance, international, and director of investors relations. Prior to joining Amazon, he worked at Arthur Andersen as a certified public accountant.

Del Preto has been Groupon’s chief accounting officer for the past year and, before that, he was the company’s global controller for three months. Before Groupon, he was controller and VP of finance at Echo Global Logistics and also served as controller at InnerWorkings, the same company where Mason was a computer programmer in his early career.

Mason, of course, is the best known and the person most responsible for establishing the company’s whimsical culture and managing — or mismanaging, depending on how you look at it — Groupon’s hard-charging growth.

It will also be up to him to turn it all around, as the company sinks in both value and investor regard. Since the restatement, Mason has said little about how he intends to do that. In February, when Mason concluded Groupon’s first-ever earnings call, he said: “Thanks, guys, this was a lot of fun, and I look forward to many more of these.”

It’s not clear fun will be on the agenda at his next outing on Groupon’s first-quarter call in mid-May.

Here is the official press release from Groupon on the board changes:

Groupon Appoints Two Directors to Board Daniel Henry, CFO of American Express, and Robert Bass, Vice Chair of Deloitte

CHICAGO — (BUSINESS WIRE) — Groupon, Inc (http://www.groupon.com) (NASDAQ:GRPN) today announced that Daniel Henry, the chief financial officer of American Express Company and Robert Bass, a vice chairman of Deloitte LLP will join its Board of Directors. Both will serve on the Audit Committee with Audit Chair, Ted Leonsis. Daniel Henry was appointed to the Board on April 26, replacing Howard Schultz, who has stepped down from the Board. Robert Bass will stand for election at the annual stockholder meeting to be held on June 19 following his retirement from Deloitte, replacing Kevin Efrusy, who will not stand for reelection at that time. “With their deep financial, accounting and operational experience, Dan and Bob will provide invaluable expertise to the Board going forward,” said Eric Lefkofsky, Groupon Chairman.

Daniel Henry, 62, has been the Chief Financial Officer of American Express Company since October 2007. Henry is responsible for leading American Express Company’s finance organization and representing American Express to investors, lenders and rating agencies. He has also served as Executive Vice President and Chief Financial Officer of U.S. Consumer, Small Business and Merchant Services and joined American Express as Comptroller in 1990. Prior to joining American Express, Henry was a partner with Ernst & Young.

Robert Bass, 62, has been a vice chairman of Deloitte LLP since 2006, and a partner in Deloitte since 1982. He will retire from Deloitte on June 2, 2012. Bass has specialized in e-commerce, mergers and acquisitions and SEC filings. At Deloitte, Bass is responsible for all services provided to Forstmann Little and its portfolio companies and is the advisory partner for Blackstone, DIRECTV, McKesson, IMG and CSC. He has also previously been the advisory partner for priceline.com, RR Donnelley, Automatic Data Processing, Community Health Systems and Avis Budget. He is a member of the American Institute of Certified Public Accountants and the New York and Connecticut State Societies of Certified Public Accountants.

“I’m thrilled to have been a part of Groupon’s development,” said Kevin Efrusy. “The Company is well on its way to becoming the operating system for all local commerce.”

“Howard and Kevin helped guide us on our journey to becoming a public company and I want to thank them and acknowledge their contributions,” said Groupon CEO Andrew Mason.

“During my tenure on the Board, I was impressed by the game-changing opportunities that Groupon has delivered for both merchants and customers on a global scale,” said Howard Schultz. “Groupon has a strong sense of mission and purpose, and as I move on to focus on my other time commitments, I wish them the very best.”

“We are executing well on our three-year plan to drive earnings faster than revenue. Our operational focus continues to yield positive results — we hit our billion dollar expense reduction a quarter early — and our ongoing innovation enables our customers to solve their critical business needs,” was how CEO John Chambers put it in a statement.

I’m listening to the conference call, and will have a few more highlights. First there’s the guidance for the quarter ahead. Chambers and CFO Frank Calderoni said the company expects revenue to grow in a range between 5 percent and 7 percent year on year, which works out to sales of $11.4 billion to $11.6 billion, which beats the current consensus outlook. Calderoni also said Cisco expects to earn 45 cents to 47 cents a share, the higher of which is two cents higher than the consensus estimate of analysts. Expect some upgrades from analysts tomorrow on that news alone. Gross margins, Calderoni said, are expected to come in between 61.5 percent and 62 percent, which is also a bit higher than the 61.2 percent margin seen this quarter.

During his prepared comments, Chambers also said that while Cisco has been holding back on doing mergers and acquisitions, that may be coming to an end. “We will be more active with mergers and acquisitions in the quarters and years to come,” he said.

Another interesting stat: Chambers said productivity per employee rose 20 percent to $724,000. That tends to happen when the overall number of employees drops — which it has by about 6,500 over the last six months or so. But it’s also an indication that Cisco had some serious operational fat to trim.

Analysts had been calling for Sirius to break even in its fourth quarter on revenue of $740 million. Instead it reported a loss of $81.4 million, or two cents a share, on revenue of $735.9 million. The reason for the miss: An increase in operating expenses and $85.4 million in debt-extinguishment losses.

Unfortunate. Still, the company’s latest financials weren’t without some good news. Sirius added 328,789 new subscribers in the fourth quarter, up from 257,028 in the fourth quarter of 2009. And it ended 2010 with 20.2 million subscribers, 8 percent more than the 18.8 million it claimed at the end of 2009, and well above its target of 20.1 million.

Though it acquitted him on one count of conspiracy, a federal jury on Friday found Reyes guilty on nine counts of securities fraud and making false statements–the same ones overturned last August because of prosecutorial misconduct.

Reyes, as you may recall, was charged in 2007 with “routinely backdating stock options grants to give employees favorably priced options without recording necessary compensation expenses. From 2000 through 2004, prosecutors alleged, he used the virtually unchecked authority given to him to grant ‘in the money’ options to employees by falsifying in the options documentation the date on which the grants were made and thereby granting the options with below-market strike prices.” In doing so, prosecutors argued, Reyes defrauded Brocade shareholders and violated generally accepted accounting rules.

Interestingly, Reyes’s legal team in the former exec’s most recent trial, opted not to call any witnesses in his defense–evidently an unwise idea give the evidence against him, which included testimony about Reyes’s “It’s not illegal if you don’t get caught” attitude toward options backdating.

Reyes will be sentenced on June 24. His attorneys say they plan to ask the judge for a new trial.

The presentation catalyzed a movement. Start-ups everywhere adopted a lean, low-burn, low-investment model. To this day, companies seeking funding at our venture firm, Andreessen Horowitz, proudly proclaim in their pitch decks that they are raising tiny amounts of capital so they can run lean.

On the one hand, it is a fact that capital invested is negatively correlated with returns in the venture capital industry. Pumping too much money into a small start-up is unhealthy for both the company and the investor. On the other hand, Facebook has raised several hundred million dollars and is on track to produce fantastic returns for all of its investors.

So what’s a start-up to do? Much of what has been written and said about lean start-ups makes good sense. However, that advice is often incomplete, and some of the things left unsaid are the least intuitive. In this article, I will articulate some of those things left unsaid in arguing the case for the Fat Start-up.

Here is my central argument. There are only two priorities for a start-up:
Winning the market and not running out of cash. Running lean is not an end. For that matter, neither is running fat. Both are tactics that you use to win the market and not run out of cash before you do so. By making “running lean” an end, you may lose your opportunity to win the market, either because you fail to fund the R&D necessary to find product/market fit or you let a competitor out-execute you in taking the market. Sometimes running fat is the right thing to do.

What the hell do I know?

“Al Pacino couldn’t be no gangsta, DeNiro in ‘Casino’ he no gangsta
Wanna be, wanna see, wan’ get a shovel
dig Tookie up n*&%^!, cause he know gangstas”

–The Game

At this point, some of you are asking yourselves, “What the hell does Ben know? If he were really smart, then he’d know that thin is in.” It turns out that I have some experience in managing a fat start-up through the dot-com implosion of the early 2000s. This chart offers a brief summary of equity market history when I was CEO of Loudcloud and Opsware (click to enlarge):

Note that the Nasdaq index is very highly correlated to the start-up funding environment. During the two years I was CEO of Opsware, the Nasdaq fell 80 percent, far more than it has fallen during the current 2008-10 downturn. So the 2000-02 environment was at least as traumatic as this one for Silicon Valley companies–and arguably much worse.

Here is a brief summary of Loudcloud/Opsware’s fund-raising history during that time:

• September 1999: Loudcloud founded
• November 1999: Loudcloud raises $21 million at a $45 million pre-money valuation (Benchmark Capital is the lead investor)
• January 2000: Loudcloud borrows $45 million from Morgan Stanley (MS)
• June 2000: Loudcloud raises $120M at a $700M pre-money valuation
• March 2001: Loudcloud goes public on Nasdaq, raises $160 million and is valued in the public markets at approximately $480 million. Total funds raised to this point: $346 million.
• August 2002: Loudcloud sells the managed services business to EDS (this was the only actual business we had at the time) for $63.5 million and becomes a software company (and changes its name to Opsware).
• September 2002: Opsware trades for 35 cents per share or approximately a $28 million market cap.
• September 2007: Hewlett-Packard (HPQ) acquires Opsware for $1.6 billion

During this period, Loudcloud/Opsware had over 20 direct competitors. Almost all the competitors from the Loudcloud era went bankrupt, including MFN/SiteSmith, Exodus, LogicTier, Williams Communication, Global Crossing, WorldCom/Digex and Storage Networks. Those that survived got bought with valuations of less than $100 million (e.g., Totality) or still have very low valuations (e.g., Navisite).

How did we do it?

“I had a dream I could buy my way to heaven
When I awoke, I spent that on a necklace”

–Kanye West

So how did we navigate through the great dot-com crash, crush the competition, emerge as the No. 1 company in our space and sell the company to HP for $1.6 billion? Did we “cut spending, cut now, and preserve capital?” Did we make cash preservation our No. 1 priority?

No, we didn’t. To underscore the point, here are Loudcloud’s average monthly cash burn figures for the quarters ending in:

• Apr 2001:  $39 million
• Jul 2001:  $35 million
• Oct 2001:  $29 million
• Jan 2002:  $25 million
• Apr 2002:  $22 million
• Jul 2002:  $19.4 million

As you can see, we were aggressively investing in the business throughout 2001 and 2002. While we did reduce our cash burn, we did not make cash preservation our No. 1 priority. As it was, over the course of the transition from Loudcloud to EDS, we sadly laid off 400 employees and transferred another 150 to EDS. However, we didn’t scrimp and save our way to a $1.6 billion acquisition: Instead, it’s what we chose not to cut that ultimately got us there.

Loudcloud was a Web-hosting business. Today, we’d call it a “cloud services” business, but people weren’t quite ready for the “cloud” in 2001. We supercharged our hosting business with software (called Opsware) that automated our Web-hosting operations. The other cloud services businesses of our day also had software investments. However, as the macroeconomic climate changed, they all “cut deep and cut now.” In the end, they ended up putting their software in maintenance mode and stopped building new features.

As we weighed a decision to make the same deep cuts in our own software R&D efforts (a move advocated by the intelligentsia of the day, as well as nearly every MBA we had working in the company), I faced a hard decision: Cut deep and get to cash flow break-even quickly or continue to invest heavily in software?

In the end, I decided to run fat so that we could continue to invest in the Opsware software. At the end of the day, I realized that much larger companies like IBM (IBM) could hire smart people and train them. But without a lasting technology-based advantage, it would be increasingly hard for us to defeat them and build our customer base despite early wins with Ford (F), Fox Sports, and the U.K. government (to name just three of our early customers).

Running fat meant that I laid off zero software engineers so that we could keep on investing in our technology, find our product/market fit, and build a lasting technological advantage.

Still, we had to reduce costs or we would clearly go bankrupt. With this new view of the world, I decided that rather than divesting our intellectual property, I would divest our business. Now, that may sound logical the way I’ve described it, but consider these facts:

• We were generating $65 million/year from the Web-hosting business.
• We were a publicly traded company with a market capitalization of close to $200 million.
• All of our investors (pubic and private) believed in and invested in the Web-hosting business.
• We had close to 500 employees at the time. Nearly all of them were supporting the Web-hosting business.
• We had no other business. We had software, but we did not have a software product and certainly did not have a software business.

Despite all of this, we sold the Loudcloud hosting business to EDS and became Opsware the software company. It was not clear that this was a good idea at the time. In fact, the market thought it was a terrible idea: Our stock promptly lost 80 percent of its value, putting our market cap at about $28 million. It’s worth pointing out that this was about $40 million less than the cash that we had in the bank.

During the transition, we shrank our payroll from 450 employees to fewer than 100. Even with this massive reduction in expenses, it would take another three quarters to reach cash-flow break-even, a milestone we finally reached in Q2 of 2003.

One could argue–and many did–that we should have cut a lot deeper than we did given that we only had one customer. Although EDS was a very large customer (it generated $20 million/year in revenue), a brand new software company doesn’t need 100 people. We could have taken steps to reach cash-flow break-even immediately (clearly, that might have helped us get above 35 cents per share). In other words, we could have “gone lean” by cutting deep, cutting now, and preserving capital.

But rather than do what seemed obvious, I decided to keep on investing. Here’s why: In an economic boom, cash is great, but not necessarily a meaningful competitive advantage. If every company is well funded, being super-well funded doesn’t help you win. In fact, being super-well funded can actually screw you.

But in a bust (like the one we were in), having a lot of cash can be a huge competitive advantage because you can use that cash to put enormous pressure on your underfunded competitors. And that’s what we did.

We spent aggressively to match our best competitor’s product, feature for feature. And we used our public currency to acquire important adjacent functionality (network, process and storage management) that our competitors did not have and couldn’t acquire because they didn’t have the cash (or the equity).

In doing so, we were able to beat a really high-quality start-up (Bladelogic) that did not have the massive technical and cultural baggage that came from exiting the managed services business. Bladelogic was eventually sold to BMC (BMC) for $800 million. But I’m firmly convinced that had we not spent the money, Bladelogic would have emerged as the No. 1 company in the space and gotten the $1.6 billion exit instead of Opsware.

In the end, by continuing to invest aggressively in our technological advantage despite a hellacious funding environment, we were able to turn a doomed business into a winning one.

That is the very short version of how we won the market during the great tech recession of the early 2000s.

So did we learn?

“Hegel was right when he said that we learn from history that man can never learn anything from history.”

–George Bernard Shaw (1856-1950)

Every start-up is in a furious race against time. The start-up must find the product-market fit that leads to a great business and substantially take the market before running out of cash. As a result, the top two priorities are always to:

1. Find the product that 1,000 enterprise or 50 million consumers want to buy and grab those customers before your competitors do.
2. Raise enough cash and spend it intelligently so that you don’t go broke along the way.

Clearly, you can’t succeed if you don’t achieve both priority No. 1 and priority No. 2. So why is taking the market more important than not running out of cash? Because the only thing worse for an entrepreneur than start-up hell (bankruptcy) is start-up purgatory.

What is start-up purgatory, you ask? Start-up purgatory occurs when you don’t go bankrupt, but you fail to build the No. 1 product in the space. You have enough money with your conservative burn rate to last for many years. You may even be cash-flow positive. However, you have zero chance of becoming a high-growth company. You have zero chance of being anything but a very small technology business (see Navisite). From the entrepreneur’s point of view, this can be worse than start-up hell since you are stuck with the small company.

You recruited all the employees, you raised all the money and you made all the promises. You either see it through or leave–without your good reputation. No one wants to work for an entrepreneur who quits his or her own company. This is start-up purgatory, where you work just as hard, reap none of the rewards, and watch all your best people leave you. It sucks to be you.

The Bottom Line

Spending a little or spending a lot is a means, not an end. Choose the right strategy to win the market or you may end up going straight to purgatory.

As you listen to the virtues of the lean start-up–lightweight sales, light engineering, and so on–keep the following in mind:

• If you are a high-tech start-up, your value is in your intellectual property. Don’t stare at your spreadsheets so long that you get confused about that.
• You cannot save your way to winning the market.
• The best companies can raise money even in this market. If you are one of those, you should consider raising enough to wipe out your competition.

Thin is in, but sometimes you gotta eat.

Ben Horowitz is co-founder and general partner of Andreessen Horowitz. He co-founded Loudcloud, later renamed Opsware Inc., in 1999 and served as CEO of the company before it was acquired in 2007 by Hewlett-Packard. He was most recently vice president and general manager of Hewlett-Packard’s Business Technology Organization Unit.

Sorry for the break in grading Yahoo’s Carol Bartz on her one-year anniversary as CEO.

But BoomTown was swanning around the Sundance Film Festival in Utah this weekend, went partying with those boozy Hollywood types and ended up in Provo with the crazy gals from “The Runaways”!

I wish! Actually, running away from issuing any grade for deal-making for Bartz is a pretty good way to put it.

Because today, after much thought, I have to give the Yahoo leader an incomplete for deal-making.

That’s because the only deal that truly counts–the search and online advertising partnership with Microsoft (MSFT) struck in July–has still not been approved by regulators.

More to the point, no one will really know what it means for Yahoo (YHOO) until the company finally embarks on the biggest bet of its recent history.

And that answer is many, many quarters away.

I began handing out marks to Bartz recently, after she gave herself a B- for overall performance for the year since she took over the troubled Internet giant.

But I decided to be more specific, splitting the grades for Yahoo in 2009 into five categories: Management, financials, product innovation, deal-making and moxie.

I awarded Bartz an A- for management, a C+ for financials and a C- for product innovation so far.

And as much as I would like to give a definite grade for deal-making, she has made no other deals of major consequence on which to base a grade.

The deal to integrate Facebook Connect and Twitter? A catch-up long past due and not as impressive as similar ones by Google and Microsoft. The sale of Zimbra and other assets? Essentially, cleaning up. A few minor acquisitions? No needle-movers in the lot.

Thus, the only deal has been with Microsoft, which is indeed a very big deal.

And it is, as I said, incomplete, although not to everyone.

Some thought the deal, which Bartz said she should have made sooner, was the best that Yahoo could pull off after the disastrous attempt by Microsoft to buy Yahoo for upward of $40 billion collapsed and left egg on everyone’s face.

With Google (GOOG) and Microsoft gearing up for a costly search war and no chance of Yahoo ever regaining any kind of tech advantage, the argument in favor goes, Bartz opted to get some kind of leverage while she still had some.

On many levels, that makes a lot of sense. And if it works, the deal will surely help improve Yahoo’s bottom line, cutting expenses in the search technology arena drastically and, the company hopes, giving it the ability to compete better in the marketplace by combining Yahoo and Microsoft search against the Google behemoth.

Presumably, if Yahoo can innovate in search experience and add to share, all is not lost.

But a lot of people certainly don’t like the deal, citing a variety of problems, especially the fact that Yahoo has essentially turned over all search monetization to Microsoft and traded away a big part of its business with no financial guarantees.

In fact, Bartz said in an interview with me at the seventh D: All Things Digital conference–months before she struck it–that she would want “boatloads of money” in any deal with Microsoft (see that video below).

At the time, most people thought she meant a gigantic upfront guaranteed payment for handing over search to Microsoft, which she did not get in the final deal.

Wrote one Internet exec in a long email to me, expressing a typical sentiment I have heard time and again:

She would have been much better off to simply have sold the current Yahoo search biz to Microsoft along the lines of the deal Carl Icahn tried to broker the summer after the acquisition bid was pulled. The cut over could have happened much faster (just start running Bing results on Yahoo) and Microsoft would probably have given a revenue guarantee that would keep Yahoo whole on revenue per search for the traffic they generated. That would also have eliminated the sales overhead immediately, providing greater cost savings…She chose a middle-ground (classic Yahoo) and will end up with lower returns for the declining search business than she could otherwise have had.

Only reason she doesn’t get the F that [former Yahoo CEO and Co-founder] Jerry Yang obviously earned on this topic is that she did actually make a deal.

And, indeed, Bartz had to play the cards she was handed by her predecessors, and they were not good ones.

Still, Yahoo is now depending on Microsoft to innovate in search technology. If it does not or cannot, look out below in that category, even if Yahoo recovers in its stronger display advertising arena.

So, with Yahoo’s search share declining of late, even as that of Microsoft’s Bing grows, it is right to start worrying and be nervous.

Nonetheless, as much as I like to dole out grades and as much as Bartz’s detractors would like to say it is over, it’s probably fairer to wait and see what happens.

One thing is certain: Bartz has shown either amazing guts or an astonishing lack of foresight here.

But let’s save that particular grade–moxie–for tomorrow, on the day Yahoo’s fourth-quarter earnings come out and Bartz is front and center in the earnings call.

Speaking of moxie–a.k.a. ch-ch-ch-ch-ch-ch-ch-ch-ch-cherry bomb!–here’s the trailer for “The Runaways,” which just opened at Sundance:

]]> http://allthingsd.com/20100125/the-one-year-report-card-of-yahoos-carol-bartz-deal-making-incomplete/feed/ 5 http://allthingsd.com/20091112/apple-builds-massive-glass-jai-alai-court-in-nyc/ http://allthingsd.com/20091112/apple-builds-massive-glass-jai-alai-court-in-nyc/#comments Thu, 12 Nov 2009 20:16:37 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=28871 When it opens Nov. 14, Apple’s new Upper West Side store in Manhattan will be the company’s 280th worldwide, but it won’t be the newest store in the Apple empire for long. The company plans to open 40 to 50 more in 2010, some in locations like London, Paris and Shanghai.

A few of these will be what Apple (AAPL) refers to as “significant stores,” outlets that are striking in both appearance and location. With its 45-foot tall stone walls, vast glass ceiling and beacon that some say is “brighter than anything on Broadway,” the Upper West Side store certainly qualifies as that–as does Apple’s newly opened store at the Louvre in Paris.

Given their architecture and locales, these “significant stores” come with some equally significant expenses. But evidently, they’re worth it. According to Ron Johnson, Apple’s senior vice president of retail, annual revenue per store is now around $26 million. Altogether, Apple’s stores posted revenue of $1.87 billion in the September quarter, nine percent more than last year and their highest level ever.

[Image Credit: Matt Buchanan/Gizmodo, Flickr]

]]> http://allthingsd.com/20091112/apple-builds-massive-glass-jai-alai-court-in-nyc/feed/ 0 http://allthingsd.com/20090922/yahoos-bartz-microsoft-deal-was-very-clever/ http://allthingsd.com/20090922/yahoos-bartz-microsoft-deal-was-very-clever/#comments Tue, 22 Sep 2009 17:35:15 +0000 Peter Kafka http://mediamemo.allthingsd.com/?p=11225 Say this about Yahoo CEO Carol Bartz: She promised to answer any and all questions at a New York press conference today, and she delivered! The event, which was meant to highlight Yahoo’s new $100 million marketing campaign, went on for a good hour, and the Q&A covered a wide variety of topics (and a PG-rated F-bomb).

And when that finished, Bartz agreed to answer yet more questions. Video is below, but here’s a synopsis:

• Should press and investors really compare Yahoo (YHOO) to Time Warner’s (TWX) AOL unit? “We aspire higher than that.”
• Bartz explains and defends her Microsoft (MSFT) search deal yet again. Key point: “I never wanted a big upfront payment,” she says. “What I got was revenue, with my expenses covered. I think that’s actually very clever…cash doesn’t help me. But revenue helps me. Revenue without expenses really helps me.”
• Bartz says major Yahoo investors like Gordon Crawford support her tactics and strategy: “They’re fine. I meet with them a lot.”
• Yahoo is interested in M&A, but “nothing on an epic scale,” says Bartz. “Buying interesting sites and content so we can pull in users or smart people, always a great option for us.” Giant joint merger combinations? “That’s really hard. Small and medium-sized opportunities are really what make sense for us.”

]]> http://allthingsd.com/20090922/yahoos-bartz-microsoft-deal-was-very-clever/feed/ 0 http://allthingsd.com/20090716/google-revenue-in-line-earnings-a-pleasant-surprise/ http://allthingsd.com/20090716/google-revenue-in-line-earnings-a-pleasant-surprise/#comments Thu, 16 Jul 2009 20:45:43 +0000 Peter Kafka http://mediamemo.allthingsd.com/?p=9343 Waiting for the economy to come roaring back? So is Google. The search giant had a decent quarter, but not one that’s going to blow away Wall Street, or convince anyone that the economy is roaring back. But it’s an okay performance for a media company in a recession.

Top line for Google’s Q2 earnings: Net revenue of $4.07 billion and earnings of $5.36. The Street was looking for net revenue of $4.05 billion and earnings of $5.05.

CEO Eric Schmidt isn’t overly effusive: “Google had a very good quarter, especially given the continued macro-economic downturn. While most of the world’s largest economies shrank, Google’s year-over-year revenues were up 3%. These results highlight the enduring strength of our business model and our responsible efforts to manage expenses in a way that puts us in a good position for the economic upturn, when it occurs.”

Meanwhile paid-click growth was up 15 percent, and the company continues to clamp down on expenses: Google’s headcount actually shrank in the last three months, from 20,164 to 19,786 full-time employees.

I’ll be listening in on the call and occasionally updating here.

• Schmidt: “Youtube is now on a trajectory we’re very pleased with.”
• “Too early to tell when the recovery will materialize.”
• CFO Patrick Pichette: Still hiring, but decrease in headcount came from previously announced layoffs.
• Product SVP Jonathan Rosenberg: We’re focusing more than ever on power users.
• Mobile monetization picked up, driven by smart phones. YouTube’s monetized views have tripled in the last year.
• Sales boss Nikesh Arora: Small advertisers have stayed consistent during downturn, and larger advertisers who have been on sidelines are coming back.
• Schmidt on Chrome OS: We’re talking to manufacturers about designing “products that are very, very exciting.” Will Chrome run on existing hardware? Available for download? Still to be worked out.
• Was June soft? Schmidt: We generally don’t parse interquarter trends. On YouTube: Monetizing “billions of views” per months. [Nothing approaching real numbers or real context].
• Arora: “Significant sellthrough” in markets where Google has YouTube homepage for sale. Next phase of YouTube sales emphasis will be preroll ads on short-form videos.
• Arora on YouTube “trajectory” comment: We’re excited about getting pieces in place to drive this forward [i.e., not talking about numbers]. Customers accepting YouTube ads: “It’s becoming accepted user behavior where they’re going to watch premium content that people have invested in, they’re going to watch pre-roll ads.”
• Is YouTube profitable? Pichette: We don’t give out economics. But in the not-too-distant future, we see it being very profitable.

Here again, per Citigroup’s Mark Mahaney, is a crib sheet for interpreting the results (click to enlarge):

And here are the slides from Google’s investor presentation:

2009Q2_google_earnings_slides –

]]> http://allthingsd.com/20090716/google-revenue-in-line-earnings-a-pleasant-surprise/feed/ 0 http://allthingsd.com/20090416/googles-revenue-slumps-but-cost-cutting-pays-off/ http://allthingsd.com/20090416/googles-revenue-slumps-but-cost-cutting-pays-off/#comments Thu, 16 Apr 2009 20:19:27 +0000 Peter Kafka http://mediamemo.allthingsd.com/?p=6386 As predicted, Google saw its revenue decline from the last quarter of 2008 to the first three months of this year. The search giant said it generated net revenue of $4.07 billion, which is down from the 4.22 billion Google notched in the previous quarter, and a it’s tad shy of the $4.08 billion consensus.

But investors are going to be pleased with the non-GAAP earnings number: $5.16 share, up from $5.10 per share in the previous quarter and way, way above the $4.90 per share consensus. Bottom line: Google (GOOG) has cut back on its expenditures, and that’s boosted profits.

Here’s how: “Operating expenses, other than cost of revenues, were $1.52 billion in the first quarter of 2009, or 28% of revenues, compared to $1.65 billion in the fourth quarter of 2008, or 29% of revenues. The operating expenses in the first quarter of 2009 included $774 million in payroll-related and facilities expenses, compared to $890 million in the fourth quarter of 2008.”

And here’s one way to keep “payroll-related expenses” down: Stop hiring people. “On a worldwide basis, Google employed 20,164 full-time employees as of March 31, 2009, down from 20,222 full-time employees as of December 31, 2008.”

Meanwhile, Google is still moving its sales team around following Tim Armstrong’s departure.

Earnings call starting now. I’ll update as we go.

Google CEO Eric Schmidt: “We’re still basically in uncharted territory… users are still searching, but they’re buying less… advertisers are still spending, but they’re spending less.” That’s all appropriate, he says. Google’s auction model is working. Ad dollars are still moving from offline to online.

Apologies: I now have three Google stories breaking simultaneously, and I’m going to have to duck in and out of the live call.

Sorry for the gap. Here’s Schmidt talking about getting long-form content on YouTube: Initial focus will be on advertising, but will add in micropayments and other schemes down the line. Will be announcing additional things in that area “literally very very soon.”

Schmidt asked about Twitter: “It proves that innovation is alive and well in Silicon Valley… it is an incredibly useful thing. The question here is how would you make some money on that… and the logical conclusion would be advertising, and we’d happy to work on that with them.”

]]> http://allthingsd.com/20090416/googles-revenue-slumps-but-cost-cutting-pays-off/feed/ 0 http://allthingsd.com/20090218/hp-a-bellwether-more-like-hellwether/ http://allthingsd.com/20090218/hp-a-bellwether-more-like-hellwether/#comments Wed, 18 Feb 2009 22:24:45 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=13143 With the Dow near its lowest point in a decade and global PC shipments down for the first time since 2002, according to market research firm IDC, Hewlett-Packard (HPQ) reported fiscal first-quarter earnings today, and though they met Wall Street’s expectations, they were not what the market had been hoping for. Shares in the world’s largest technology company slipped in after-hours trading, dragged down by news of a fiscal first-quarter profit that fell 13 percent from a year ago and by HP’s admission that all but one of its divisions suffered sharp year-over-year revenue drops. The company’s somber second-quarter forecast didn’t help matters either. HP estimates that second-quarter FY09 revenue will decline approximately two to three percent from a year earlier. The forecast for the next quarter and the full fiscal year “assumes that first-quarter market conditions will persist,” the company said.

Clearly, the global slowdown in tech spending is taking its toll on the company, though CEO Mark Hurd insists otherwise. Said Hurd, “HP is a market leader executing well in a tough market.”

Analysts begged to differ. “PC revenue declined 19 percent, server storage declined 18 percent, year over year,” Pacific Crest Securities analyst Brent Bracelin told Reuters. “Their printer hardware business declined more than 30 percent, year over year. The pace of the erosion in hardware was more severe than we expected….They did a good job of managing expenses in the quarter, but as you think about the fundamentals here going forward, they lowered their guidance from a revenue and profitability standpoint, and certainly we don’t have a ton of confidence, given the pace of erosion in their business. There could be further erosion from here.”

]]> http://allthingsd.com/20090218/hp-a-bellwether-more-like-hellwether/feed/ 0 http://allthingsd.com/20081212/happy-holidays-from-fairchild-and-alcatel-lucent/ http://allthingsd.com/20081212/happy-holidays-from-fairchild-and-alcatel-lucent/#comments Fri, 12 Dec 2008 19:00:39 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=9575

[ See post to watch video ]

]]> http://allthingsd.com/20081212/happy-holidays-from-fairchild-and-alcatel-lucent/feed/ 0 http://allthingsd.com/20081212/fairchilds-year-without-a-santa-claus/ http://allthingsd.com/20081212/fairchilds-year-without-a-santa-claus/#comments Fri, 12 Dec 2008 18:21:41 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=9559 If life is a cement trampoline, then Fairchild Semiconductor just performed a flat back landing. It’s hand forced by those oft-cited “market conditions,” the company said Friday it is sacking 12 percent of its workforce, or 1,100 people, in an attempt to reduce expenses and spread holiday cheer.

Fairchild (FCS) reduced its guidance as well. It had been expecting $338 million to $360 million in sales for its fiscal fourth quarter. Now it expects just $320 million.

Fairchild is the latest semiconductor company to temper its estimates as demand for the computers and telecommunications gear in which its chips are used contracts. Earlier this week, Texas Instruments (TXN), National Semi (NSM) and Broadcom (BRCM) all cut their projections because of lousy market conditions.

]]> http://allthingsd.com/20081212/fairchilds-year-without-a-santa-claus/feed/ 0 http://allthingsd.com/20081212/fairchilds-year-without-a-santa-claus-2/ http://allthingsd.com/20081212/fairchilds-year-without-a-santa-claus-2/#comments Fri, 12 Dec 2008 18:21:41 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=9559 If life is a cement trampoline, then Fairchild Semiconductor just performed a flat back landing. It’s hand forced by those oft-cited “market conditions,” the company said Friday it is sacking 12 percent of its workforce, or 1,100 people, in an attempt to reduce expenses and spread holiday cheer.

Fairchild (FCS) reduced its guidance as well. It had been expecting $338 million to $360 million in sales for its fiscal fourth quarter. Now it expects just $320 million.

Fairchild is the latest semiconductor company to temper its estimates as demand for the computers and telecommunications gear in which its chips are used contracts. Earlier this week, Texas Instruments (TXN), National Semi (NSM) and Broadcom (BRCM) all cut their projections because of lousy market conditions.

]]> http://allthingsd.com/20081212/fairchilds-year-without-a-santa-claus-2/feed/ 0 http://allthingsd.com/20081205/ces-2009-three-booths-and-a-clapping-toy-monkey/ http://allthingsd.com/20081205/ces-2009-three-booths-and-a-clapping-toy-monkey/#comments Fri, 05 Dec 2008 19:26:02 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=9235 If a global manufacturer of computer hardware like Belkin’s not exhibiting at CES, who is? I posed that question jokingly earlier this morning, but turns out there’s a very real and ugly answer to it:

Not Seagate (STX).

Not Logitech (LOGI).

Not Cisco (CSCO).

Not Philips.

Not Yahoo. Obviously.

And not Sanyo, either.

All six companies have abandoned plans to exhibit on the Consumer Electronics Show floor. Like Belkin, they are all opting for the more intimate and inexpensive floorspace of a Vegas hotel room. Said Seagate spokesperson Woody Monroy, “We haven’t pulled out of CES…we’re just taking a different approach.” Cisco offered this statement on the matter:

On our Q1 FY ’09 earnings call on November 5 we announced that we will be reducing expenses for FY09 by over $1B from our annualized expense run rate, given the challenging macroeconomic environment. We are targeting reductions in travel and discretionary-related expenses, including offsite meetings, outside services, equipment, events, trade shows, prototypes, marketing and other activities. Given this focus on reducing costs, we are modifying our participation in the Consumer Electronics Show in Las Vegas in January 2009.

We have several speakers presenting in the various CES sessions, and Cisco chairman and CEO John Chambers will be delivering a keynote at the conference, as well. We are focusing our CES presence on our direct customers, press and analysts in order to create a more intimate event and reduce expenses. We look forward to an exciting CES 2009 with multiple product announcements that will reinforce Cisco’s consumer strategy. We remain committed to the consumer market, and we believe our cost control focus at this time is appropriate. In support of our CES presence, we will be utilizing Cisco’s world-class Web 2.0 collaboration technologies, such as TelePresence and WebEx, to maintain essential customer and partner communication. Cisco will have compelling demonstration areas and meeting rooms in the Venetian hotel in Las Vegas as we have for the past several years.”

]]> http://allthingsd.com/20081205/ces-2009-three-booths-and-a-clapping-toy-monkey/feed/ 2 http://allthingsd.com/20081204/realnetworks-cuts-130-75-of-workforce/ http://allthingsd.com/20081204/realnetworks-cuts-130-75-of-workforce/#comments Thu, 04 Dec 2008 21:10:14 +0000 Peter Kafka http://mediamemo.allthingsd.com/?p=1705 Next up on today’s layoff parade: RealNetworks (RNWK), which is cutting 130 jobs, or 7.5 percent of the workforce. Standard explanation: The company is trying to “bring expenses in line with revenues in a time of economic turmoil.”

The layoffs are companywide. The company tells us it is not shutting down the New York office of Rhapsody America, the music subscription service that Real runs as a joint venture with Viacom’s (VIA) MTV as Gawker reported this morning. The corporatewide layoffs were first reported by CNET.

Other details relevant to laid-off employees:

• All are on payroll through the end of the year
• Each will be offered a cash severance package based on length of service
• Said severance package will include six months of paid COBRA
• Etc., etc.

Real PR boss Bill Hankes has more details at the company’s blog.

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