News of the finance

Ashlee Vance has an interesting article on the future prospects for Sun Microsystems now that its market cap is $7.7B.

Sun needs to maintain at least a $10B market cap to remain a potential holding of large cap funds.  If Suns market cap slips below $10B for too long, large cap funds holding Sun will have to sell and thereby cause a further drop in Suns market cap.  With short interest growing from 25 million shares to 57 million shares over the past month, compared to a 3 months trading volume of 17 million, the sharks are definitely circling.

On the other hand, Sun has over $2.5B of cash on hand which should allow them to ride out the storm.  This is especially true when you consider free cash flow has ranged from $137 million to $467 million over the past year.  (i.e. Sun is making more from operations than they are spending, so they wont burn through the $2.5B in cash just yet.)

Ashlee suggests that Fujitsu would be a good candidate to merge with Sun. I wouldnt have considered Fujitsu. But Ashlee makes great points about the R&D culture of Fujitsu & worldwide reach and customer preference of the combined company.

But what about the other leading IT players? Would any of them make a move for Sun?

In the end, my money is on Sun remaining independent. But, rumors of Sun seeking a replacement for Jonathan (as per Ashlees article) concern me enough not to put my money on any outcome.

What about you? What do you think lies ahead for Sun?

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Figures released by UK record company trade organization BPI show that label revenues other than physical or digital sales increased 13.8%...

...to 121.6 million in '07 from 106.9m in '06. These additional revenues now account for 11.4% of UK label income. 360 deals with newer artists helped grow additional income by 13.8% to 121.6m as these new business models begin to generate returns..

While new revenue streams are still in their developing stages. they provide hope for a beleaguered label sector. I was unable to find similar figures for the US. but suspect we're behind the UK particularly in 360 revenues.

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If youve forgotten, just nine months ago, Microsoft purchased a 1.6% stake in Facebook for $240 million. Doing the math from that...

...the total value of Facebook last October was $15B.

But apparently this possibly-soon-to-be-recession-(though-technically-still-not,-people!) has really hurt the social utility. Rumors are circulating on Silicon Alley Insider and TechCrunch that Facebooks current value is less than $5B"and as low as $3 or $4 billion.

SAI cites rumors appearing in their comments for weeks that Facebooks value is plummeting"and, more importantly, a source who was offered a 0.25% stake for $12.5M just two months ago. Once again turning to our trusty, rusty algebra, that gives a more recent total value of $5B.

Even more damning, Mike Arrington says that Bill Dagley, the managing director of a fund of high value investors (you know, VCs), is rumored to be shopping around some discount Facebook shares as well:

This news comes just days after a court ruled in the ConnectU settlement that the Microsoft deal valuation was different than the valuation disclosed in the press release"ie Facebook was never worth $15B.

While a valuation of $3-5B is a much more reasonable figure than $15B for a network thats still struggling with monetization, its also still a pretty mind-boggling figure. What do you think? Is $5 billion asking too much for Facebook?

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We recently reported on Google being sued by Viacom and it seems that the search giant has come under attack again, but this time...

...over stolen trade secrets.

LimitNone, a small Chicago- based software company, claims Google has taken trade secrets from the company and violated consumer fraud law.

The dispute centers around a LimitNone-developed tool that allows people to move Microsoft Office calendar items and email to the Google platform. LimitNone claims it showed this tool to the Google Apps team in early 2007 and were repeatedly assured that Google would not roll out a competing product.

They allege that Google stole trade secrets from LimitNone and violated fraud law by coercing LimitNone to share confidential information. Information which Google later used to develop its competing product, Google Email Uploader.

Ray Glassman, LimitNone CEO said in a prepared statement that "Google claims its core philosophy is 'Don't be evil' but, simply put, they invited us to work with them, to trust them -- and then stole our technology,"

Google is yet to make any comment regarding this lawsuit but when they do we will certainly let you know.

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...and Raises 12.5 Millions in Venture Capital. Congratulations to the Funambol team for raising 12.5 millions of funding in a series B financing...

...led by mobile-focused venture capital firm Nexit Ventures, along with Castile Ventures (new investor) and was joined by existing investors, Walden International and HIG Ventures.

Investors are banking in a long term perspective, while Funambol is cash flow positive from the beginning of this year, so I asked my friend Fabrizio Capobianco, CEO of Funambol, the following question:

How is this money going to be spent?

Sometimes easy questions are a valuable tool to get interesting insights. Open source ISVs facing the turning OSS users into customers are likely to meet Lead Users - a term coined by Eric Von Hippel referring to users of a product experiencing needs actually unfulfilled and who could significantly benefit from the solution to those needs - from all over the world. If thinking global is the natural choice for open source firms, acting locally requires individualization and customizations to your customers needs, yet a local structure to effectively implement such needs.

As mentioned in my first interview to Fabrizio, Funambol addresses only the top of the pyramid (carriers, large ISP, etc), enabling also the base of the pyramid - the free Customers - to generate value for Funambol, as it is happening with AOL who just selected Funambol to help with synchronization of its own online and mobile mail.

In the meantime Funambol ignited also a partnership with SpikeSource, in order to address through SpikeSource and their partners other layers of the pyramid. Fabrizio himself commenting the partnership said:

Funambol besides fostering its community and delivering its wireless sync application for the iPhone, is creating an open source (mobile) ecosystem around its platform, as every open source firm should do.

Kudos to Fabrizio and his team!

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...Powerset Acquisition to Save the Day? Just six weeks after its coming out parade, natural language search engine Powerset is the subject...

...of two rumors about its acquisition by Microsoft.

VentureBeat kicks things off, by telling us the deal has been done, and the purchase price $100 million.

"Microsoft, the software giant flush with billions of dollars in its warchest, has agreed to buy Silicon Valley semantic search engine Powerset, weve learned."

"The purchase price is rumored to be slightly more than $100 million. An announcement is expected next month."

As if annoyed that VentureBeat might have gotten the scoop, TechCrunch reports the deal is not actually final.

"Our sources have been saying this deal is highly likely since May, but hasnt actually been signed yet and could still be disrupted by the ongoing Microsoft-Yahoo negotiations."

Keep in mind that neither VB or TC have any official confirmation or announcement.

But, lets assume for a moment that Microsoft has indeed bought Powerset for $100M. That means that despite all of the huffing and puffing by Powerset execs, $100M is all it takes to sell out? Didnt they just predict 2008 is the year that semantic and linguistic technologies cross over into widespread consumer use?

$100M is probably the amount of interest Microsofts warchest earns in a day, so its not a big acquisition for the company. What the price tag does tell us is that perhaps my previous concerns are valid:


Of course, weve not event looked at whether or not Microsoft would even know what to do with Powerset. From my experience, Microsoft doesnt lack in the technology department, it lacks in the branding and execution department. Powerset doesnt change that.

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The world's wealthiest and most iconic tech geek will devote his years to a massive philanthropic effort aimed at eradicating childhood diseases.

---

If you're going to think about the Internet and finance this week, it's hard to imagine not mentioning Microsoft co-founder Bill Gates heading for the exit. The rapid evolution of the World Wide Web, first ignored by Gates and company, led to Microsoft being outpaced by Google in what turned out to be the dual prize: dominance in search share and contextual advertising.

Catching up, or even just keeping pace, will be Steve Ballmer's problem at Microsoft now, not Gates. He'll have his hands full, and it isn't much of a stretch to think that Ballmer could follow his old friend Gates off the Redmond campus, should shareholders decide a change is needed.

All through the years, even up to today, Gates looked like the guy who would be the first one to pick up all the new Dungeons & Dragons 4th edition books and show up on your doorstep after a marathon session working on DOS.

On his way to DOS, and then Windows, Microsoft became the biggest technology company in the world. One can summarize Gates' fortune by noting his admission that the IRS maintains a separate computer system just to calculate what he gets to contribute to the national treasury.

We'd be remiss if we didn't recount the feisty, hyper-competitive side of Microsoft's exiting leader. Microsoft has been a vicious competitor in technology, to the point where, to this day, Microsoft toils under the auspices of antitrust regulators at home and abroad, all eager to hit the company with massive penalties should it go back to its bare-knuckle days.

Gates occupied the center of much of those operations. An episode of The Simpsons cheekily mocked the Microsoft chief's tougher side, as goons working for Gates wreck Homer's Internet business. "Oh, I didn't get rich by writing a lot of checks!" Gates (actually Hank Azaria) cackled amidst the destruction.

He did get rich, and now Gates is giving it away. Someday, Gates's bridge partner Warren Buffett will leave billions to the Gates Foundation, with Bill and wife Melinda charged with using it to improve the world.

Gates may be leaving the office, but he's heading to work nonetheless.

...Chase the Build Now, Add Revenue Later Model. On Tuesday, I explained why chasing the "free" start-up model was killing...

...many business ideas. How can you build a company when your business model consists of "get acquired, before we run out of funding?"

Today, we see exactly why the "get acquired" model is so attractive to start-ups. According to VentureBeat, Glam, an online publisher aimed at women, turned down an acquisition offer worth, wait for it, $1.3 billion!

Heres the kicker, just this February Glam raised $85 million in capital, bringing its total funding to over $100 million. Glam has yet to make a profit!!!

Sure, its selling ads, building optimized sites, and as of today, planning a new video ad network, but its reportedly yet to make a profit.

Is it any wonder that start-ups"and VC firms"are enamored with the build it first, find a business model later never strategy?

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...Now Will You Believe Its the Leader? Despite the recent bumps in the road, comScore still claims to be the leader in online measurement.

In fact, with the announced $44.3 million acquisition of mobile research firm M:Metrics, comScore really thinks its the leader.

comScore actually uses "leader" eight times in its press release, so who says you cant create the perception of your brand by using blunt repetition?

Teasing aside, this is a good acquisition for the company, especially with all the hype surrounding the iPhone and Googles (now on display) Android.

With the substantial growth of 3G devices and Internet friendly handsets, we believe we are now at an inflection point in Internet usage on mobile devices, said Dr. Magid Abraham, comScores president and chief executive officer in a statement.

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... Premium to Keep Dissenting Investors Happy. CBS is paying a 45% premium in order to buy CNET for $1.8 billion!

Why?

Why would they offer up a 45% premium for a company thats seen its stock slump recently? Lets speculate shall we?

My vote is on option 3"with maybe a little of option 1. CBS will clearly benefit from CNETs vast footprint in online media, but I believe the premium is likely an attempt to avoid any conflict with CNETs dissenting investors.

Had CBS offered a single digit premium for CNETs stock, Jana et alwould have likely complained it wasnt enough, tried to fight the acquisition, and perhaps confused investors with talk of the need for alternative bids.
While Jana Partners spokesman did not have a comment yet, I suspect that the 45% premium is designed to ensure the only comment they make is woohoo!

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