All Things Digital

The new economy is the Internet Economy. The Internet Economy is reshaping the fortunes of business, countries and people, leveling the playing field for everyone, and driving the most significant economic shift since the Industrial Revolution.”

– Cisco CEO John Chambers, Sept. 24, 1998

When he appeared at our D5 conference in May 2007, Sen. John McCain said that, given the chance, he’d hire Cisco CEO John Chambers for his cabinet. Now, in the run-up to the November presidential election, it looks like Chambers has some competition for that spot. In an interview with Reuters today, McCain said that Chambers–who’s contributed quite a bit to the McCain campaign–is still on his short list of potential Treasury secretaries, but the Cisco (CSCO) CEO has some company. “I think it would be someone that Americans would recognize that would inspire trust and confidence,” McCain said. “There’s people like John Chambers, there’s people like [former eBay (EBAY) CEO] Meg Whitman, there’s people like Warren Buffett.”

Apparently, current Secretary Henry Paulson doesn’t quite cut it anymore. Anyway … it’s curious that McCain would include Buffett among his choices for Treasury secretary since his appointment would almost certainly outrage tax-cutting fiscal conservatives to near-aneurysm. Indeed, it already has. Said Grover Norquist, president of Americans for Tax Reform, “Warren Buffett is a goddamned Democrat and he doesn’t understand that a 28 percent capital gains tax would be a bad thing. He might be a good bridge partner, but he’s awful on policy.”

Incidentally, Barack Obama’s list of potential Treasury secretaries includes no Silicon Valley CEOs, current or otherwise. According to people close to his campaign, it includes New York Federal Reserve Bank President Tim Geithner, former Treasury Secretary Larry Summers and former deputy Treasury secretary Roger Altman.

Add Washington Mutual (WM) to the list of troubled financial institutions felled by the current economic crisis. Thursday night, the lender was seized by federal regulators and sold to JPMorgan Chase (JPM) for $1.9 billion in hopes of preventing further damage to the country’s hard-hit economy. Under the deal, JPMorgan will acquire all of WaMu’s banking operations, including $307 billion in assets and $188 billion in deposits. “This institution was a big question mark about the health of the deposit fund,” said Sheila Bair, chairwoman of the Federal Deposit Insurance Corporation, on a conference call yesterday. “It was unique in its size and exposure to higher risk mortgages and the distressed housing market. This is the big one that everybody was worried about.”

WaMu’s failure is historic–the largest bank bust on record. The company’s assets are equivalent to about two-thirds of those held by the 747 insolvent thrift institutions and sold off by the Resolution Trust during the S&L crisis.

With more than 20 percent of global technology spending coming from the financial industry, WaMu’s failure and the collapse of other institutions are certain to have repercussions in tech. “This is game-changing,” Gartner (IT) analyst Joanne Correia said of the economic crisis recently. “People are going to stop new software deployments. They’ll cut in the applications space. In PCs and servers, everyone will stop putting in new hardware.”

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• Lehman Brothers: $2.5 Billion for a Bankruptcy Well Done
• Here’s $39 Billion in Recognition for Your Hard Work on the Forthcoming Financial Crisis
• Weekend at Bernanke’s II
• Weekend at Bernankes

[Image Credit: Ape Lad/Flickr]

Hewlett-Packard CEO Mark Hurd seems to have managed to cut the fat from the company without hitting any of its internal organs. HP reported a 10 percent increase in third-quarter earnings Tuesday, while profits rose 14 percent to $2 billion. Net revenues at HP (HPQ) were $28 billion, up 10 percent from the same period last year, and earnings per share were 80 cents, which beat analysts’ expectations and the company’s own projections.

Strong results, but sadly ones that don’t suggest much of a change in America’s economic troubles. Nearly two-thirds, or 68 percent, of HP’s revenue came from outside the U.S.

So that ugly downturn facing the semiconductor industry? Not going to be quite so ugly, say the folks at Gartner (IT). After slashing its worldwide chip forecast from 6.2 % growth to 3.4% growth this past March, Gartner raised it by more than 1%.

Seems the slowing U.S. economy hasn’t had as much of an impact on consumer electronics sales as the research outfit had feared. Gartner projects worldwide semiconductor sales to reach $286.5 billion in 2008, or a 4.6% increase from 2007. “It was widely assumed that the slowdown in the U.S. economy that began in mid-2007 would reduce demand for electronics goods and, by extension, semiconductors in 2008,” said Gartner’s Richard Gordon. “However, while we are still forecasting low single-digit growth for the semiconductor market in 2008, this has more to do with supply-side factors than weakness in demand.”

Gartner’s latest metrics, it should be noted, jibe with the latest sales numbers from the Semiconductor Industry Association. Yesterday, the association said that sales of semiconductors rose 6% in April, boosted by strong demand for personal computers and handsets.

If the old media advertising economy is in the toilet, then its new media counterpart is sitting atop it.

According to figures compiled by the Interactive Advertising Bureau, spending on Internet advertising in 2007 rose to $21.2 billion, up 26% from the prior year. That’s a record high and one that exceeds the $20.9 billion spent on print, radio, outdoor and cable TV.

Unsurprisingly, keyword search, Google’s (GOOG) cash-cow ranch, generated the most revenue and claimed the largest market share–41%. Display advertising followed with 34%, classifieds at 16%.

(Image Credit: Tyler Jordan, eVisibility Insider)

Yahoo (YHOO) has replied in kind to the acquisitive saber rattling of Microsoft’s (MSFT) weekend letter–albeit with a less menacing saber rattling of the plastic butter knife sort.

In a public letter to Microsoft CEO Steve Ballmer (addressed “Dear Steve”), Yahoo said it’s not opposed to a deal with Microsoft; it’s just opposed to a deal at the current price. “Our position is simply that any transaction must be at a value that fully reflects the value of Yahoo, including any strategic benefits to Microsoft, and on terms that provide certainty to our stockholders,” Yahoo CEO Jerry Yang and Yahoo Chairman Roy Bostock wrote, adding that the decline in Microsoft’s share price has made the company’s takeover offer even less attractive than it was when Yahoo first rejected it. “As a result of the decrease in your own stock price, the value of your proposal today is significantly lower than it was when you made your initial proposal,” Yang and Bostock argued.

That’s an apt parry to Ballmer’s suggestion that worsening economic conditions have reduced Yahoo’s market value, making the large premium Microsoft offered for the company in January even more significant today. But just how is Yahoo faring in the current economy? That’s the real question here, isn’t it? Yang and Bostock say the company’s “business forecasts are consistent with what we outlined” after releasing its fourth-quarter results. And that’s not really saying much at all, is it, as Silicon Alley Insider notes:

If Yahoo had wanted to torpedo Microsoft’s latest assault, it could have published a revenue figure for the quarter showing that its revenue came at the high end of its forecast range. If it could have done this, we think it probably would have (or at least should have).

“Instead, Yahoo said that its quarter and outlook are ‘consistent’ with previous forecasts. However, the previous forecasts cover such a wide range that this statement is almost meaningless.”

The entertainment and so-called fair-use-dependent industries may be at odds when it comes to issues of copyright, but apparently they’re of a mind when it comes to hyperbolic claims about their contributions to the U.S. economy.

According to a new report [PDF] from the Computer and Communications Industry Association, industries that rely on copyrights to drive their business contribute $1.3 trillion in annual revenue to the U.S. economy. Industries that rely on “fair use” exceptions to those copyrights contribute $4.5 trillion annually.

“Much of the unprecedented economic growth of the past 10 years can actually be credited to the doctrine of fair use, as the Internet itself depends on the ability to use content in a limited and nonlicensed manner,” said Ed Black, president and chief executive officer of the CCIA, who cautioned against “unintended consequences of perhaps well-meaning, but overbroad copyright regulation.”

Which is about what you’d expect from a computer-industry lobbying group whose membership includes companies like Google and Yahoo, both of which have benefited from unlicensed usage of copyright materials. But even discounting for trade group overstatement, the idea that fair-use-dependent industries account for a sixth of the nation’s GDP seems ludicrous, as Nick Carr caustically notes over at Rough Type.

Even by the woeful standards of the bespoke research industry, this study is a crock. It’s not just bad; it’s absurd. What the authors have done is to define the ‘fair-use economy’ so broadly that it encompasses any business with even the most tangential relationship to the free use of copyrighted materials. Here’s an example of the tortured logic by which they force-fit vast, multifaceted industries into the ‘fair use’ category: Because ‘recent advances in processing speed and software functionality are being used to take advantage of the richer multi-media experience now available from the web,’ then the entire ‘computer and peripheral equipment manufacturing industry’ qualifies as a ‘fair-use industry.’ As does the entire ‘audio & video equipment manufacturing’ business. And the entire software publishing industry. And the entire telecommunications industry. And–hey, why not?–the entire insurance industry. Stock markets and commodity exchanges? Sure, throw them in, too. … Can’t industry groups make their points without stretching the truth beyond recognition and, in the process, insulting everyone’s intelligence? Fair use deserves better.”