Apple's Year Ahead: Slashing Mac Prices To Boost Market Share? (AAPL) [Silicon Alley Insider]

After nailing its third-quarter earnings last night, Apple left investors with a funny taste: The company issued a surprisingly weak outlook for its fourth-quarter revenues and gross margin, and said margins would be even thinner next fiscal year. Shares tumbled 10%.

It's hard to imagine that people are simply going to stop buying Macs and iPods. So what is Apple hinting at? New products, no doubt. But also, we think, slashing prices to rapidly grow market share.

First, the specifics: After reporting $7.46 billion in Q3 revenue -- 38% year-over-year growth, Apple guided to $7.8 billion of Q4 revenue -- just 26% year-over-year growth. Finance chief Peter Oppenheimer said he expects Q4 margins around 31.5%, down from 34.8% last quarter, and down from 33.6% during Q4 2007. He also said margins would continue to fall to around 30% in fiscal 2009, which begins in October.

But Apple's Mac business is firing on all cylinders, the iPhone 3G is in short supply, and even the iPod is selling better than expected. So what could cause that drop? New toys, of course, which require spending on R&D, components, marketing, etc. But unless Apple is building a spaceship, it's hard to see how a few new products alone would decimate Apple's margins to rates the company hasn't seen since 2006. And increased spending on new products wouldn't explain the slower projected revenue growth.

More likely: Apple is also going to slash prices to accelerate the rate it's stealing market share from rivals. Oppenheimer even said so:

"We're delivering state-of-the-art products at price points that our competitors can't match, which has resulted in market share gains in each of our products. We plan to continue this strategy and to deliver great value to our customers while making a reasonable margin but not a margin so high as to leave an umbrella for our competitors."

This would have been unthinkable just a few years ago, but now it seems like a great time to make a real run against Windows-running rivals like Dell (DELL) and HP (HPQ). Microsoft's (MSFT) Vista has a tiny fan club, PC manufacturers continue to churn out uninspiring machines, and as more software moves to the Web, companies (and individuals) have fewer reasons not to buy a Mac.

Except for their price tag. Yes, Apple's computers are pretty much as cheap as they've ever been, especially relative to comparable PCs. But you can still build a PC workstation for a few hundred dollars. And you can still buy a PC laptop for less than a grand. You can't do that with a Mac.

So we can't think of a better time for Apple to go on a market-share land grab. Cut the Mac mini to $400 as a toy for home-theater enthusiasts. Come out with a new, all-purpose "Mac" workstation for $600. And/or knock a few hundred off the MacBook and iMac, and keep the MacBook Pro and Mac Pro as high-end workhorses. Sell more computers to companies, and in turn, get their employees to buy Macs, iPhones, and Apple TVs at home.

Apple managed to steal 2.1% of the U.S. PC market in the last year with its current prices, ending up with 8.5% of the U.S. market at the end of June, according to Gartner. Imagine what it'd be able to do after knocking a few hundred bucks off its price tags.

Glue and Comments [Feld Thoughts]

Since last summer I've been talking about comments as the Dark Matter of the Blogosphere.  I use Intense Debate* for the comment system on my blog and have learned a lot by experimenting with it. 

In the past six months comments have moved to the forefront of the discussion around user generated content.  While the various new commenting systems that have emerged have played a part in this, I think the broad activity around systems that enable small bursts of user generated content (Twitter, BrightKite*) and systems that aggregate a wide variety of user generated content (FriendFeed, SocialThing*) are playing a huge role in this and more "comment-like" data is being generated all over the Web.

One of the investment themes I'm most fascinated with right now is the one we call "Glue".  We've made a handful of investments in the Glue theme at Foundry Group including Gnip, AdMeld, and Topspin.  We've also been working with our good friend Eric Norlin - the creator of the Defrag Conference - on a Glue Conference.

I'm always looking for great, simple examples of Glue and I found one accidentally the other day.  I put up a blog post titled Brilliant Op-Ed Crushing McCain On The Economy.  I posted it on Sunday morning and then went out for a two hour run.  I came back to about 20 comments on it in my inbox.  Even though the post was done on my blog, I noticed the comments were from FriendFeed accounts being emailed to me by Intense Debate.

Here's what happened.  My blog is one of my FriendFeed services.  A vigorous debate broke out on FriendFeed between a couple of people.  I wouldn't have noticed it until Monday when I checked my FriendFeed ego feed (I only do this once a day.)  However, Intense Debate is "glued" to my FriendFeed account so any comments that show up on a blog post of mine on FriendFeed automatically show up in Intense Debate on my blog.  It's a small feature, but a brilliant one, as it brings the overall conversation associated with my blog post back to my blog where I actually want it.

There are now 46 comments on this particular blog post (unexpected - I don't write that much about politics and it was a Sunday post.)  Most of them are from the FriendFeed discussion, but some are from my blog readers.  They are intermixed where I want them - on my blog.  Even though they are coming from multiple sources, they persist permanently on my blog due to a tiny feature in Intense Debate.

Now - this is all much too complex still, but it's why the Glue is so interesting to us.  We are continually looking for unnecessary complexity in the metaverse and ways to build really large companies that (a) take advantage of the complexity, (b) simplify the complexity, or (c) both.  If you make glue, email me!

More Globalization Thoughts [A VC]

So I was thinking about the stats that I posted yesterday about global internet users. North America makes up about 20% of all Internet users. But the Internet revenues in North America are certainly greater than 50% of all Internet revenues, although I say that without the benefit of any numbers.

I would like a chart of revenue/user in each major geography. I suspect that North America would be the highest, followed closely by Europe. After that, I suspect Latin America. Then Asia and Middle East/Africa.

Maybe there's a proxy out there we can use. Maybe it's Amazon. Maybe it's eBay and the other major online auction sites (Mercado Libre and a number of asian services).

As investors like us start thinking about how to allocate capital to a global internet, it would be very useful to focus on revenue/user instead of just global audience.

Of course, that's already happening because North America is only 20% of the global internet audience but it attracts well over 80% of the investment capital. And that will change. It already is.

So I was thinking about the stats that I posted yesterday about global internet users. North America makes up about 20% of all Internet users. But the Internet revenues in North America are certainly greater than 50% of all Internet...

I'm Speculating About The Speculation About Oil [Feld Thoughts]

Having just finished reading George Soros's latest book The New Paradigm for Financial Markets: The Credit Crash of 2008 and What It Means my brain is now full of his theories around reflexivity.  I have always instinctively agreed with Soros's philosophy even though I find it incredibly difficult and chewy to work my way through (but that's true of all philosophy for me.)

I'm a great fan of the Heisenberg Uncertainty Principle which, according to my friend Wikipedia, "is the statement that locating a particle in a small region of space makes the velocity of the particle uncertain; and conversely, that measuring the velocity of a particle precisely makes the position uncertain."  Wikipedia suggests that this is often conflated with the Observer Effect (when you observe a phenomenon, you change it), but I think the intersection of the Heisenberg Uncertainty Principle and Soros's Theory of Reflexivity reduce nicely in my brain to the Observer Effect. 

That leads me to the real point of this post, which is the great short article in the New Yorker by James Surowiecki titled Oily Speculations (thanks Amy.)  In the last month a new class of villain has emerged in the rapidly escalating price of oil - the "speculator."  Surowiecki calls bullshit on this (not on the involvement of the speculator, but why this is both irrelevant and why the speculator is not the villain.)

The key sentence in the article is "Speculation has been a favorite target of politicians looking to mollify anxious voters since the time of ancient Greece, when the orator Lysias protested that wheat traders had reduced Athens to a state of siege.” 

The conclusion, which Surowiecki bashes us (appropriately) over the head with is "The difficulty for Congress, of course, is that none of the problems that have driven up the price of oil lend themselves to a quick fix, and most, like the boom in global demand and the inaccessibility of certain oil fields, aren’t under our control at all. That’s what makes speculators a perfect target: by going after them, Congress can demonstrate to voters that it understands their pain, and at the same time avoid doing anything that might require real sacrifice from Americans. Our dependence on foreign oil, together with the fiscal fecklessness that has helped reduce the value of the dollar, means that there is no easy way out of where we are. But in an election year that’s hardly a message that anyone in Washington is going to deliver."

If you net it all out, it's the Observer Effect writ large.

The New York Times Gets LinkedIn: Targeted Headlines And Ads [Silicon Alley Insider]

The New York Times' (NYT) latest effort to add more features to its Web site: A new partnership with business-focused social networking site LinkedIn, announced today. LinkedIn members visiting the Times' business and tech pages will see a new section of headlines tailored to the industry they work in, as determined by the information in their LinkedIn profile. They'll also get their ads further targeted that way, too.

A targeted headline feature will highlight the five latest Times articles for LinkedIn members based on their non-personally identifiable attributes. For example, LinkedIn members who work in the energy sector will have the option to receive relevant, targeted Times stories that cover the energy business.

Times readers will also be able to share and discuss stories with LinkedIn members in their networks. This feature will be incorporated into the share tool on all article pages of NYTimes.com.

Sounds useful enough and can't hurt. Note that this won't affect the Times' homepage -- as of now, Times editors are still in charge of that.

For ad targeting, the Times will harvest parts of your profile -- industry, job function, seniority,
company size, gender and geography -- in a non-personally identifiable way. Readers can opt out here; see link at bottom.

Adobe Updates Media Player, Adds 'Ghostbusters', '90210' (ADBE) [Silicon Alley Insider]

Adobe's (ADBE) newish Adobe Media Player is about to get an update that'll make it cleaner-looking and a bit more useful:

The new version delivers a clean, more intuitive user interface, a new home screen, and improved navigation. Additional enhancements include notifications that update users about new content and the ability to download content in the background while working on other tasks, making Adobe Media Player more user-friendly than ever.

And it's getting some much-needed, new content: Sony Pictures (SNE) is adding Men in Black, Ghostbusters, Underworld Evolution, The Fifth Element, and Jerry Maguire to Adobe Media Player. Adobe says the app now has more than 25,000 pieces of content with more than 600 shows; content partners include Food Network, Viacom, and CBS:

CBS and Showtime Networks, a CBS Company, are also adding new content to the catalog in Adobe Media Player. CBS is delivering full episodes of 48 Hours, Beverly Hills 90210 (Seasons 1, 2, and 3), Danny Bonaduce: Life Coach, Family Ties (Seasons 1 and 2), The Love Boat, and The Price is Right, as well as clips from the Late Show with David Letterman. Showtime Networks is offering clips of some of its most popular shows, including The Tudors.

We're not quite sure what to think of Adobe Media Player. It's not as impressive (or as well-watched, we assume) as Hulu, but it's kind of a freebie for Adobe. The app itself couldn't have taken much to build, Adobe gets to evangelize its Flash video and AIR technologies, doesn't have to pay a dime in video streaming costs, and gets to share in some ad revenue, too. Can't hurt, can it?

Lesson From Divorce Saga: Don't Take Revenge On Spouse By Ranting On YouTube [Silicon Alley Insider]

Rememer that 15-minute YouTube celebrity who mortified her elderly ex-husband-to-be by monologuing on YouTube about his huge cache of porn and viagra? Well, her divorce case has finally been resolved. And not well, from her perspective. In fact, the judge socked it to her. AP:

A Manhattan judge gave Philip Smith a divorce from Tricia Walsh-Smith on the grounds of cruel and inhuman treatment. Walsh-Smith lashes out against Smith in the tearful and furious YouTube video, which has attracted more than 3 million hits. She makes embarrassing claims about their intimate life and then calls his office to repeat those claims to a stunned assistant..

Judge Harold Beeler blasted Walsh-Smith for her video stunt, which he called "a calculated and callous campaign to embarrass and humiliate her husband" and to pressure him into settling the divorce case on more favorable terms than were stated in their prenuptial agreement.

"She has attempted to turn the life of her husband into a soap opera by directing, writing, acting in and producing a melodrama," the judge said.

Bottom line: the prenup is valid. Tricia Walsh-Smith has to move out of the Park Avenue apartment in a month, and she only gets $75,000.

"I'm happy with the decision of the judge, and I'm happy with the outcome," [the husband] said.

Walsh-Smith, a former actress and playwright, didn't see the decision the same way.

"I think it's disgusting," she said.

Hedge Fund Job: Must Understand Benford's Law [Paul Kedrosky's Infectious Greed]

Another guest post

The folks over at Valleywag are having fun with a Craigslist posting for a hedge fund job. In addition to looking for someone with all the typical quant skills, the ad asks applicants to do the following

1) Prepare a cover letter.
2) Flip a coin 50 times. Record the results on your resume as a sequence of heads (H) or tails (T) symbols.
3) Email your cover letter and resume to us.

Dr. Theodore P. Hill asks his mathematics students at the Georgia Institute of Technology to go home and either flip a coin 200 times and record the results, or merely pretend to flip a coin and fake 200 results. The following day he runs his eye over the homework data, and to the students' amazement, he easily fingers nearly all those who faked their tosses.

"The truth is," he said in an interview, "most people don't know the real odds of such an exercise, so they can't fake data convincingly."

There is more to this than a classroom trick.

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