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    Sunday, December 23, 2012

    Reuter site - RIM shares dive as fee changes catch market off guard

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    RIM shares dive as fee changes catch market off guard

    Fri, Dec 21 16:37 PM EST

    By Allison Martell and Chandni Doulatramani

    (Reuters) - Shares of BlackBerry maker Research In Motion Ltd plunged more than 20 percent on Friday on fears that a new fee structure for its high-margin services segment could put pressure on the business that has set the company apart from its competitors.

    It was the stock's biggest, single-day, percentage price drop since September 2008. But shares were still nearly 80 percent above the year's low, which was reached in September. They started to rally in November as investors began to bet that RIM's long-awaited new BlackBerry 10 phones, which will be unveiled in January, would turn the company around.

    The services segment has long been RIM's most profitable and accounts for about a third of total revenue. Some analysts said there was a risk that the fee changes could endanger its service ecosystem and leave the Canadian company as just another handset maker.

    The fee changes, which RIM announced on Thursday after market close, overshadowed stronger-than-expected quarterly results. The company said the new pricing structure would be introduced with the BlackBerry 10 launch, expected on January 30.

    RIM said some subscribers would continue to pay for enhanced services such as advanced security. But under the new structure, some other services would account for less revenue, or even none at all.

    Chief Executive Thorsten Heins tried to reassure investors in a television interview with CNBC on Friday, saying RIM's "service revenue isn't going away".

    He added: "We're not stopping. We're not halting. We're transitioning."

    Since taking over at RIM in January, Heins has focused on shrinking the company and getting it ready to introduce its new BB10 devices, which RIM says will help it claw back ground it has lost to competitors such as Apple Inc and Samsung Electronics.

    But the new services pricing strategy came as a shock to markets, and some analysts cut their price targets on RIM stock.

    RIM will not be able to sustain profitability by relying on its hardware business alone, said National Bank Financial analyst Kris Thompson, whom Thomson Reuters StarMine has rated the top RIM analyst based on the accuracy of his estimates of the company's earnings.

    Thompson downgraded RIM's stock to "underperform" from "sector perform" and cut his price target to $10 from $15.

    Forrester Research analyst Charles Golvin said the move was likely about stabilizing market share: "At the moment, they need to stem the bleeding."

    He said the tiered pricing might line up better with RIM's subscriber base as it expands in emerging economies.

    RIM's Nasdaq-listed shares closed down 22.7 percent at $10.91 on Friday. The stock fell 22.2 percent to C$10.86 on the Toronto Stock Exchange.

    COUNTDOWN TO LAUNCH

    The success of the BB10 will be crucial to the future of RIM, which on Thursday posted its first-ever decline in total subscribers. Heins said on CNBC that the company expected to ship millions of the new devices.

    He cautioned that this will require heavy investment, which will reduce RIM's cash position in its fourth and first quarters from $2.9 billion in its fiscal third quarter. He said, however, it would not go below $2 billion.

    Still, doubts remain about whether RIM can pull off the transformation. Needham analyst Charlie Wolf said the BB10 would have to look meaningfully superior to its competitors for RIM to stage a comeback.

    Canaccord Genuity analyst Michael Walkley said it was highly unlikely that the market would support RIM's new mobile computing ecosystem, and he remained skeptical about the company's ability to survive on its own.

    "We believe RIM will eventually need to sell the company," said Walkley, who cut his price target on RIM shares to $9 from $10.

    Baird Equity Research analysts said BB10 faced a daunting uphill battle against products from Apple, as well as those using Google Inc's Android operating system, and, increasingly, phones with Microsoft Corp's Windows 8 operating system.

    Baird maintained its "underperform" rating on the stock, while Paradigm Capital downgraded the shares to "hold" from "buy" on uncertainty around the services revenue model.

    "RIM has gone from having one major aspect of uncertainty - BlackBerry 10 adoption - to two, given an uncertain floor on services revenue," William Blair analyst Anil Doradla said.

    RIM will have to discount BB10 devices significantly to maintain demand, Bernstein analyst Pierre Ferragu said.

    The BlackBerry, however, still offers the security features that helped it build its reputation with big business and government, a selling point with some key customers.

    Credit Suisse maintained its "neutral" rating on the stock, but not because it expected BB10 to be a big success.

    "Only the potential for an outright sale of the company or a breakup keeps us at a neutral," Credit Suisse analysts said.

    Separately on Friday, ailing Finnish mobile phone maker Nokia said it had settled its patent dispute with RIM in return for payments.

    ($1=$0.98 Canadian)

    (Reporting by Chandni Doulatramani in Bangalore and Allison Martell in Toronto. Additional reporting by Sinead Carew in New York; Editing by Ted Kerr, Dale Hudson, Janet Guttsman,; Lisa Von Ahn, Peter Galloway and Leslie Gevirtz)

    Reuter site - Analysis: Amazon, Google on collision course in 2013

    This article was sent to you from bombastic4000@yahoo.com, who uses Reuters Mobile Site to get news and information on the go. To access Reuters on your mobile phone, go to:
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    Analysis: Amazon, Google on collision course in 2013

    Sun, Dec 23 12:33 PM EST

    By Alexei Oreskovic and Alistair Barr

    SAN FRANCISCO (Reuters) - When Amazon.com Inc CEO Jeff Bezos got word of a project at Google Inc to scan and digitize product catalogs a decade ago, the seeds of a burgeoning rivalry were planted.

    The news was a "wake-up" call to Bezos, an early investor in Google. He saw it as a warning that the Web search engine could encroach upon his online retail empire, according to a former Amazon executive.

    "He realized that scanning catalogs was interesting for Google, but the real win for Google would be to get all the books scanned and digitized" and then sell electronic editions, the former executive said.

    Thus began a rivalry that will escalate in 2013 as the two companies' areas of rivalry grow, spanning online advertising and retail to mobile gadgets and cloud computing.

    It could upend the last remaining areas of cooperation between the two companies. For instance, Amazon's decision to use a stripped down version of Google's Android system in its new Kindle Fire tablet, coupled with Google's ambitious plans for its Motorola mobile devices unit, will only add to tensions.

    The confrontation marks the latest front in a tech industry war in which many combatants are crowding onto each others' turf. Lurking in the shadows for both Google and Amazon is Facebook with its own search and advertising ambitions.

    "Amazon wants to be the one place where you buy everything. Google wants to be the one place where you find everything, of which buying things is a subset," said Chi-Hua Chien, a partner at venture capital firm Kleiner Perkins Caufield & Byers. "So when you marry those facts I think you're going to see a natural collision."

    Both companies have a lot at stake. Google's market capitalization of $235 billion is about double Amazon's, largely because Google makes massive net earnings, expected by analysts to be $13.2 billion this year, based on a huge 32 percent net profit margin, according to Thomson Reuters I/B/E/S. By contrast, Amazon is seen reporting a small loss this year.

    Amazon shareholders have been patient as the company has invested for growth but it will have to start producing strong earnings at some stage - more likely if it grows in higher margin areas such as advertising. Google's share price, on the other hand, is vulnerable to signs of slowing margin growth.

    AD CLASH

    Not long after Bezos learned of Google's catalog plans, Amazon began scanning books and providing searchable digital excerpts. Its Kindle e-reader, launched a few years later, owes much of its inspiration to the catalog news, the executive said.

    Now, Amazon is pushing its online ad efforts, threatening to siphon revenue and users from Google's main search website.

    Amazon's fledgling ad business is still a fraction of Google's, with Robert W. Baird & Co. estimating Amazon is on track to generate about $500 million in annual advertising revenue - tiny, given it recorded $48 billion of overall revenue in 2011. By contrast, 96 percent of Google's $38 billion in 2011 sales came from advertising.

    But Amazon's newly developed "DSP" technology, which taps into the company's vast store of consumer purchase history to help marketers target ads at specific groups of people on Amazon.com and on other websites, could change all that.

    "From a client's perspective, the data that Amazon owns is actually better than what Google has," said Mark Grether, the chief operating officer of Xaxis, an audience buying company that works with major advertisers. "They know what you just bought, and they also know what you are right now trying to buy."

    Amazon is discussing a partnership with Xaxis in which the company would help Amazon sell ads for the service, Grether noted.

    Amazon did not respond to an email seeking a comment.

    STARTING POINT

    Amazon can bring in higher-margin revenue by selling advertising than it can from its retail operations. By showing ads for products that it may not actually sell on its own website, Amazon establishes itself as a starting point for consumers looking to buy something on the Web.

    Research firm Forrester reported that 30 percent of U.S. online shoppers in the third quarter began researching their purchase on Amazon.com, compared with 13 percent who started on a search engine such as Google - a reversal from two years earlier when search engines were more popular starting points.

    Amazon now sells ads that show up to the side of product search results on its website. There were 6.7 billion display ad impressions on Amazon.com in the third quarter, more than triple the number in the same period of 2011, according to comScore.

    That early success is a "huge concern" for Google, whose business relies heavily on product searches and product search ads, said Macquarie Research analyst Ben Schachter.

    Partly in response, Google recently revamped its product search service, Google Shopping, by charging retailers and other online sellers a fee to be listed in results.

    Founded four years apart in the late 1990s, Bezos has long worried about Amazon's reliance on Google for traffic, according to people close to the company, while also being dubious about Google's high market valuation.

    "He'd say: 'This is the first time in the history of the world where the map maker is worth more than the territory that it's mapping,'" recalled the former Amazon executive of Bezos' comments about Google's popular online mapping service.

    TENSIONS BUILD

    Google's Android system is thriving but still has not cracked the nut of how to make money from mobile search ads and sales of digital goods like games, apps, music and video.

    "If they can figure out mobile ads, that would truly be Google's second act," said Forrester analyst Sucharita Mulpuru.

    But Amazon launched a broadside against Google in 2011 with the creation of its own version of Android for its Kindle Fire tablets that replaces key Google money-making services, such as a digital music and application storefront, with its own.

    Not unlike Apple, "Amazon wants to control the experience on their devices," said Oren Etzioni, a University of Washington computer science professor. "That doesn't make Google happy."

    The two are also clashing in cloud computing software.

    Amazon started its cloud business more than six years ago, providing data storage, computing power and other technology services from remote locations. Google only launched its cloud computing business this year, but the market is growing so quickly there is still room to grab share, Etzioni said.

    "I would not write Google off," he added. "Amazon has the early lead but it's very early."

    TRANSACT OR DIE?

    Still, mobile gadgets and cloud computing are currently tiny businesses compared with the multibillion-dollar opportunity presented by advertising and online commerce.

    Google recently acquired BufferBox, a company with a network of lockers that shoppers can use to receive packages. It is also testing same-day delivery in San Francisco, hinting at growing interest in a larger role in online retail.

    It is not talking about its full plans for retail, but some analysts think features such as same-day delivery or "pick-up" lockers, are valuable features it can use to enhance its existing online ad business. An ad for shoes, for example, might also make the shoes available for pick-up in a locker nearby, said Needham & Co analyst Kerry Rice.

    If Google can own the search and the delivery, it will be able to provide the same experience as Amazon, with no inventory - "a higher margin, more efficient model," Chien said.

    Earlier this year, Google launched a new certification service highlighting merchants that ship quickly and reliably and backing it with up to $1,000 in "purchase protection."

    Google could create a database of products and send shoppers to a page that has a way to buy quickly through the company's payments service Google Wallet, Forrester's Mulpuru said.

    Google could then send that transaction to the retailer who would ship the product to the consumer. That ability is critical, according to Schachter, who said if consumers lack the ability to purchase items through Google it will lag Amazon and eBay Inc.

    (Editing by Edwin Chan, Peter Lauria, Martin Howell and Maureen Bavdek)

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