2009 Jul 30

Unprofitable Prophets - Part II

This article is a short follow-up to our discussion of the low profitability of Israeli firms. I recently had the pleasure of sitting with the Chairman of a very well-established Israeli firm, not one of those discussed explicitly in the previous article. I raised the issue of Israeli profitability with him. His perception was that Israel, being a small country, is subject to an excess of information. You could almost name it the "

2009 Jul 5

Here Comes the Sun - Part II

In the prior article, we analyzed the likelihood of Oracle meeting their comment, at their fourth quarter 2008 results conference, of having Sun add $1.5BN in operating profit to their bottom line within one year of closing the acquisition, essentially in fiscal 2009. The conclusion we reached was that it was a highly aggressive target, and unlikely to be reached by half. Nonetheless, if Oracle could get Sun halfway to Oracle's gross margins and fixed costs as a percentage of revenues by 12 months from acquisition, they would get fairly close.

2009 Jul 3

The value of promotions - a case study from a colleague

A colleague of mine in Israel, Yishai Boasson, recently wrote an article analyzing the perceived and actual value of a "special promotion." This article, available here, is only in Hebrew. As it is an interesting analysis and an excellent example of the importance of distinguishing between sales and profits, it is worth translating here for the larger English-speaking audience. It is also, in itself, an example of how numbers can trip you up.

2009 Jul 1

A Tale of Two Businesses: Sales Channels and Profitability

As any manager of a (successful) business will tell you, the two most important factors are: Cash - as in "cash is king". You need cash to pay your payables. If you do not have enough cash, you cannot meet basic obligations, let alone invest in expansion. Cash generally comes from sales, particularly from converting receivables to cash. Never confuse the accounts receivable asset with the cash asset. Although there are receivable-based financing options, most of which are quite expensive, you normally cannot pay your bills with a receivable.

2009 Jun 29

Prophets and Profits

No, this article will definitely not be a Bible sermon. However, it will look at the success levels of two fairly well to-do Israeli companies, and try to get a bit of understanding as to why the land of the Jewish Prophets is not as successful as it might be with Israeli Profits. Before we begin, it is important to note that this article will not delve into macroeconomic policy.

2009 Jun 27

Advertising vs. Sales - Why Free is Very Expensive

In the years 2006-2008, Google earned, respectively, $10.5BN, $16.4BN and $21.1BN in advertising revenues. With net income of $3-4BN each of those three years, it is hardly surprising that "free supported by advertising" became the model of choice for many an aspiring startup, as well as many non-startup businesses. During the latest mini-bubble of venture investing, it was nearly impossible for an online company to get an investor's meeting if your business plan was not based on the presumption that your services would be free and paid for by advertising.

2009 Jun 25

Here Comes the Sun

On Tuesday, 2009.06.24, Oracle posted its fiscal fourth quarter results for the period ending 2009.05.31, as well as the "guidance" for future earnings. We won't get into the value of this guidance, and the impact it has on running the business. However, an interesting nugget - perhaps a daydream - was buried in the announcement. Oracle stated that the current guidance does not include expected revenues from its pending acquisition of Sun Microsystems.

2009 Jun 23

Is the iPhone Camera Really a Threat?

The photo-sharing site Flickr, owned by Yahoo, is one of the top online photo-sharing sites. It hosts at least 3BN images, and has over 24MM unique visitors. One of the interesting elements about Flickr is that it tracks the cameras from which each image is uploaded. Thus, it has important insight into the camera market. It is important to note that this is a subset of the camera market - those that use Flickr.

2009 Jun 22

The Value of Scalpers - Why Ticketmaster Has It All Wrong - Part II

In Part I of this article, we analyzed Ticketmaster's operations, particularly over the last several years. The conclusions we came to were: Ticketmaster appears to be increasing its staff at a rate that is too fast for its growth, and thus causing its gross margins to drop. Ticketmaster is acquiring businesses with a lower gross profit than its own, making inefficient use of its capital. Now, it is entirely possible that both of these are actually acceptable, each for its own reason.

2009 Jun 19

HIPAA vs. PCI - Compare and Contrast Security Standards

For the last several years, data privacy and security has received a significant amount of press coverage. To be fair, this is for a good reason: most entities - private, non-profit, governmental or otherwise - due an absolutely abysmal job protecting data. In this case, data refers to all types, hardcopy and digital. However, in most cases, it is the digital that is the primary focus. This is for several reasons: