Thursday, July 26, 2007

Google & the 700MHz Auction

Google has requested changes in conditions for 700MHz auction with the FCC urging the Commission to adopt four types of open platform rules, as part of the license conditions for the upcoming auction of wireless spectrum in the 700 megahertz (MHz) band. In addition, Google stated it would commit the minimum bid amount of $4.6B for the auction if the following four conditions were incorporated into the final license: 1) Open Applications: Consumers should be able to download and utilize any software applications, content, or services they desire. 2) Open Devices: Consumers should be able to utilize a handheld communications device with whatever network they prefer. 3) Open Services: Third parties (resellers) should be able to acquire wireless services from a 700 MHz licensee on a wholesale basis, based on reasonably nondiscriminatory commercial terms. 4) Open Networks: Third parties (e.g. internet service providers) should be able to interconnect at any technically feasible point in a 700 MHz licensee’s wireless network.

FCC Chairman Kevin Martin may incorporate the first two conditions suggested by Google into the final rules of the auction. However, it is unlikely the conditions related to open services and networks would be met, although such conditions would benefit consumers and provide a significant catalyst to innovation within the mobile Internet space. Initial success of Apple’s iPhone (~2MM of the $500+ device sold in 30 days) is proof that demand for easy-to-use and fun mobile devices with open applications is quite high. It appears that Internet usage of the iPhone has surprised many, particularly the use of Apple’s Safari browser, Google Maps + YouTube videos, Yahoo! email, and perhaps, WiFi access (watch for VoIP player Skype).

Google’s willingness to commit $4.6B to the spectrum auction, which could be more if a bidding war were to emerge, is a signal that the company believes the business opportunities derived from an open wireless Internet should be significant over time. Note that Google generated an estimated $29 in annualized gross revenue per unique visitor in Q207 (up from $21 in Q206). About 99.9% of Google’s revenue is derived from the PC-based Internet and it covets the opportunity to more effectively garner clicks / revenue from an even greater number of mobile users.

If indeed conditions are met and Google bids on the auction, it is highly likely that, in spite of its $12B in cash and marketable securities and $3B in 2007E free cash flow, Google would do so in partnership with other companies and / or perhaps in the form of a new entity whereby ownership / maintenance of the network would remain operationally independent. A new network is not expected to be operational before late-2009 or into 2010. Note that the traditional telcos buy and warehouse the new spectrum, i.e. don’t make it available to consumers, which would continue to restrain the development of the mobile Internet market in the US, and widen the competitive disadvantage the US has vis-à-vis this important emerging market in Asia and Europe.
Thanks M O R G A N S T A N L E Y R E S E A R C H, July 2007

Sunday, July 8, 2007

Think Partnership

Think Partnership is an interactive performance-based marketing company focused on delivering value through its Internet ad distribution platform, interactive direct marketing, and online advertising agency model. The company’s patent-pending ValidClick technology is currently the only real-time click fraud protection technology available in the market. Think leverages ValidClick to protect its ad network, penetrate affiliate marketing, and provide a tool for weeding out the risk of click fraud, which is estimated at 13-14% of overall traffic on cost per click (CPC) advertising networks. There is some nice momentum building, as evidenced by’s use of the ValidClick protected platform to operate Further, vendors such as are licensing ValidClick technology for third-party validation of click fraud, while Microsoft has also signed up ValidClick protection for its first affiliate program in its new Microsoft-branded Affiliate Network. The company’s affiliate business products include affiliate management program MYAP and remarketing technology Second Bite.

Think’s network reach served over 118 million searches and witnessed 2.6 billion impressions and 61.5 million clicks in April 2007. Additionally, the company also serves the Internet marketing space through Direct and Advertising segments. Built around innovative technologies and high growth advertising networks, he Network segment provides Think with a competitive advantage. It includes click fraud protection technologies and shopping cart recovery technologies. These proprietary technologies, together with pay per click (PPC) and cost per action (CPA) advertising networks and affiliate management programs, position this segment as the primary growth driver for the company, in our view.

The Direct segment, which recently merged with the Consumer division, offers lead generation services and online dating and education sites. The direct segment provides lead generation services by maintaining registration databases for high demand demographics such as expecting mothers and new parents. It has merged with the Consumer segment to include web properties, offering dating and education services. The Consumer segment was recently available for sale, but management, encouraged by its improving performance, decided to retain it.

The Advertising segment provides traditional and online advertising services, a source of inventory for the company’s network. Its search engine optimitization business under Market Smart Interactive(MSI), earlier, laid the foundation for the company and was the principal revenue earning business until 2005. However, MSI went through a significant decline due to competition in 2006. It has now been combined with the traditional advertising business under Market Smart Advertising. The segment also includes Catamount, Hispanic Unido and the newly acquired Web Diversity.

Think’s client list includes several highly recognizable brand names in the Internet space, including Microsoft, Yahoo!, eBay, Dish Network,, and Intuit. Yahoo! and Intuit have adopted the company’s affiliate tracking software MYAP over products from existing partners such as ValueClick. Think Partnership has built a portfolio of innovative technologies through a selective acquisitive strategy. Going forward, the company’s strategy is to leverage its flagship products to penetrate major corporations in the affiliate marketing industry, and to capture benefits from integration of acquisitions through the creation of differentiated services, cost reductions, and incentives.
Thanks Canaccord Adams, June 2007