Facebook filed for IPO earlier this month. It is planning to raise $5-$10 billion from the market at a company valuation of $75-$100 billion. While the IPO has been long awaited, what surprised many was the size of the IPO. In US, the largest technology IPO till date has been a $5.2 billion IPO for Infineon Technologies, my previous company where I worked for 5 years. In fact, at $10 billion, Facebook will be worlds largest technology IPO ever. So that begs a few questions. First, what is Facebook’s valuation? Second, what is Facebook raising $5-$10 billion for? And third, why now? I have been planning to write a post on this subject for quite sometime and I realized that if I didn’t write it today then it will be too late. So, in this post I will at least try to answer the first question and hopefully reveal some interesting facts and useful techniques to value a firm such as Facebook.
Is Facebook worth a $100 billion?
Facebook filed for IPO earlier this month. It is planning to raise $5-$10 billion from the market at a company valuation of $75-$100 billion. While the IPO has been long awaited, what surprised many...
Is Kindle Fire a threat to iPad
I recently read couple of articles where Amazon Kindle Fire has been described as a huge success and a threat to Apple iPad. One of the articles on BusinessWeek went as far as recommending Apple to...
iPhone sales forecast for the period 2012-2016
Products sold by Apple have very similar characteristics – they are all personal computing products, have premium perception, have innovative design and are based on widely accepted technology....
Why is Amazon selling Kindle Fire at a loss?
Earlier this week Amazon launched its tablet computer – Kindle Fire priced at $199. The first question that everyone asked was how much Amazon is making on these devices. Sure, the price looked...
Why do retailers offer credit cards?
A few weeks back while checking out at Target, I was given an attractive offer by the cashier. If I signed up for their Red Card, I would get 5% off my current and subsequent purchase. All I need...
When does outsourcing make sense?
Wikipedia defines outsourcing as the process of contracting a business function to someone else. The definition is fairly straight forward without much room for misinterpretation. However, when you talk about outsourcing, the image that most often comes to mind is moving jobs from US to developing countries in Asia. While in some cases it can be outsourcing, in other cases it might just be offshoring and the two terms are not interchangeable. But if we ignore the technical differences, the idea behind both the concepts are quite the same. They are both geared towards making a company more competitive by lowering costs or reducing risk. And in this post, I will describe a simple framework to analyze the decision of offshoring and outsourcing without missing any important factor or getting lost in nuances that often don’t matter.
Can brick-n-mortar retail survive comparison shopping
In my previous post named “The new trend of comparison shopping apps” , I talked about how comparison shopping apps such as RedLaser (eBay) and Price Check (Amazon) are enabling customers to make price comparison while shopping in brick-n-mortar stores and often make purchases online at that very moment. I further argued that while these trends in m-commerce indicate increasing significance of online retailers, it also presents an opportunity for brick-n-mortar retailers to regain control of the situation. In this post, I present my ideas on how brick-n-mortar retailer can respond and use new technologies and developments in m-commerce to fight back. In fact, it is now or never for them. And given the fact that brick-n-mortar retailers can see this ultimatum written on the wall, I will not be surprised to see radical changes in the way we shop in these retail stores in 2012.
Technology companies defying rules of corporate finance
Financial theory on capital structure suggests that a company should have debt to benefit from debt tax shield. Further, cash over and above what is necessary to maintain working capital must be either deployed in projects or returned to shareholders through share repurchase or dividend. However, if you look at technology sector, you will find a large number of companies that defy all the standard, universally accepted capital structure rules. They not only have no debt, they also have billions of dollars of cash. To make matters worse, the cash is invested in securities that give the same return as what you get by hoarding the cash under your mattress. So it leads us to a very important question – What is the rationale behind such an action. There has to be a reason and my intention is to shed some light on it.
Pricing Strategy vs Pricing Stupidity
It is shopping season. And just as everyone else, I am spending a considerable portion of my weekends out in the mall. While looking around I cannot help but notice the fact that while pursuing pricing strategy to extract maximum value out of consumers, companies often go a little too far. And the question I ask is at what point the strategies of branding and pricing lead to consumers losing faith in the brand.
Before I show a bad example, let me first talk about a good example. Gap Inc owns the three brands – Old Navy, Gap and Banana Republic. These brands have very distinct image in the consumers mind. Old Navy caters to price sensitive consumers by offering value products on one end whereas Banana Republic caters to a segment looking for premium products willing to pay a premium price.
The new trend of comparison shopping apps
Comparison shopping is not new. It has been around for a while online. Shopping.com, Shopzilla.com and Nextag.com are all well known. Even Yahoo and Google provide comparison shopping feature which is convenient because you can do it from the search window itself. However, a new breed of comparison shopping tools is now becoming popular. These tools are at your disposal when you need them the most – in the retail store while shopping. The most popular is RedLaser from eBay. I have been using it for a very long time and I consider it a very well designed product. It serves a very specific purpose and it does that very well. It lets you scan the bar code of the product and find the best price for the same product in the stores around you and online instantly.
Recipe for pricing a new product
Pricing is the single most important factor in the success of new products. Pricing too low can ruin profits for your organization and possibly for the entire industry. Pricing too high can result in very limited demand and a failed product. Product managers find the pricing lever most convenient and effective because it is not only the easiest of 4P’s to change but also has the most immediate effect. And quite often, pricing is the only option available because the product design decisions and marketing budget are finalized well in advance. In such situations, taking the right decision is an absolute must and a framework to think about the problem and support intuition is often handy. In this article, I will provide a framework that will help answer questions related to pricing a new product.
Is Kindle Fire a threat to iPad
I recently read couple of articles where Amazon Kindle Fire has been described as a huge success and a threat to Apple iPad. One of the articles on BusinessWeek went as far as recommending Apple to come up with a challenger device priced to compete with Amazon Kindle Fire in order to defend its turf. While many of the reasons cited for such an action were plausible, I do not find them sufficient to make a conclusion. I was further not convinced with the line of reasoning because it either lacked a deeper understanding of how the two businesses are different or completely missed how the companies would think from a strategic point of view. So, I thought of doing some of my own analysis that would not have these shortcomings hopefully.
How eBay’s acquisitions stack up
In my previous posts, I talked different building blocks of the Online-Offline commerce and how we can use it to evaluate the current competitive position of a company. We then looked at Amazon to understand what pieces are currently missing for it to be competitive few years down the line. In this post, I will look at eBay which is a much more interesting case to analyze. Unlike Amazon, eBay has accumulated various pieces of the stack primarily by acquisition over time. What is spectacular about eBay is that it has meticulously planned most of these acquisitions over time in order to have a strong competitive position tomorrow. I understand that many consider eBay left behind in competition with Amazon and other retailers but I would argue otherwise.
Progressive Snapshot Device–using analytics to offer better price
Everyone knows that auto insurance premium varies from person to person. For similar insurance coverage, the price varies based on a number of factors such as the vehicle, zip code/city/state, your driving history, what you use the vehicle for, the distance you drive and how often you drive. Insurance companies use this data to identify how risky you are (the probability of you getting involved in an accident resulting in a claim) and accordingly calculate your monthly premium. In order to maximize profit, they need to maximize the following equation:
Profit = Total Premium Collected – Total claims paid + Return on investment of premium
It’s easy to see that they need to increase premium collected and reduce total claims paid to improve profitability.