Is Groupon really more valuable than Twitter?

I was surprised by the values placed on two of the hottest closely held companies -- Groupon and Twitter -- both for their sheer size and the fact that Groupon is worth more.

Groupon, a gimmicky coupon site, was valued at 50% more than Twitter, which has become core to the lives and marketing strategies of millions of people.

All Things Digital, the Wall Street Journal-affiliated Web site, is reporting that Google will pay up to $6 billion for Groupon.

And TechCrunch reports that VC giant Kleiner Perkins wants to invest in Twitter at a valuation of $4 billion.

Those are eye-popping numbers -- reportedly ten times Groupon's anticipated revenue this year, and nearly 30 times the Twitter revenue for 2010 that was projected in some stolen documents a year ago.

Groupon has a lot of revenue for a two year old company. But it only has 12 million users, and it already has a lot of competitors. As a happy user of Groupon, I can't differentiate it from the other coupon sites I use like EverSave. Setting up a local couponing site would seem to be easy to do for anyone who can inspire a sales force. Yellow Book salespeople, whose jobs would seem to be in jeopardy now, would seem like obvious competitors.

Twitter has 175 million users and it has a huge role in the social-media zeitgeist. In terms of mindshare it's already the equivalent of Facebook and YouTube. It's going to be very hard for anyone to compete for its niche. Even better micro-blogging technology wouldn't give many people a reason to shift away or add another service.

Obviously, the Groupon valuation is based on real money. Twitter's value is much more conceptual. Still, if I had the opportunity to own 1% of either company, I'd opt for Twitter.

O'Reily shouldn't Joke about beheading reporters

I'm horrified by Fox host Bill O'Reilly's "joke" about beheading Washington Post columnist Dana Milbank. Dana's alleged sin was failing to acknowledge that Fox had more than one Democrat on air on election eve as it celebrated the Republican victory.
Dana is a good friend and former colleague in the WSJ Boston bureau. Because he's hilariously funny and understated, he's a perfect foil for the overheated, angry Fox commentators. Dana writes about his feelings about O'Reilly's attack on him in the Washington Post today. http://www.washingtonpost.com/wp-dyn/content/article/2010/11/09/AR2010110906643.html
He notes that jokes about beheading reporters are especially painful for those of us who worked for the Wall Street Journal when our colleague Danny Pearl was beheaded by militant Islamists in Pakistan. It's ironic that WSJ reporters and Fox commentators are all part of the News Corp. family.
O'Reilly is probably also miffed about Dana's terrific new book on his Fox stable mate, Glenn Beck: "Tears of a Clown." In the book, Dana describes the histrionic Beck, whose weepy monologues are enhanced by smearing mentholatum gel under his eyes, with devastating accuracy. Using Beck's own excuse Dana says he can't be misrepresenting Beck if he quotes his own words.
The book will tell most people far more than they want to know about what Beck says without ever really answering the question of whether he believes all of it. It struck me as a brilliant examination of how a propagandist can use innuendo and subtle misstatements to create a world that is very different from the one most of us live in.
Dana has succeeded in writing an exhaustive case study of how the paranoid mind can spin and spread conspiracy theories. Some 9 million people listen to him every week on TV and radio, so in a country of 300 million, he's only reaching a tiny fringe. But those folks scare Congressmen in conservative districts, and many of them go to tea party rallies. Unfortunately, Beck's technique and his world view matter.

Google suit over Microsoft contract hurts U.S. Gov operations

Google is stepping up its game in office software with a lawsuit against the Interior Dept. for picking Microsoft Office for a $59 million upgrade. http://online.wsj.com/article/SB10001424052748704141104575588641430182832.html?mod=WSJ_hps_sections_business
I'm not sure of the merits of Google's case. But I know the resulting delay won't be good for governement operations.
The endless litigation over government IT contracts is a big reason the government IT systems are so antiquated. Every effort to upgrade IT in government agencies requires months or years of writing RFPs followed by public comments, followed by amendments, followed by bids, followed by selections, followed by litigation. This is further complicated by quadrennial turnover of agency heads and deputy under-secretaries requiring the new leader to be updated on everything that went into the contract RFP and its aftermath.
The goal, of course, is fair competition for government procurement that will result in the best systems and the lowest price. The alternative would probably be companies lobbying congressmen with campaign contributions which isn't good either. But the game for bidders now is to get into the RFP process and put in criteria that make your company's product the only one that can fulfill the RFP. That's what Google says happened at Interior.
There's also a game of pulling together many competitors into consortia with different ones taking the lead on different contracts.
Maybe the Google lawsuit will result in a better system in 2012 or 2013. But Interior will lose a couple of years of enhanced productivity, and Microsoft may end up winning anyway.

How Google Avoids U.S. Taxes and How to Prevent It

My old colleague Jesse Drucker had a fascinating Washington Post article last weekend on corporate taxes. http://www.washingtonpost.com/wp-dyn/content/article/2010/10/30/AR2010103004613.html
It explains how one of the world's most profitable companies, Google, managed to virtually eliminate international taxes and minimize taxes paid anywhere by transferring its intellectual property to an Irish subsidiary. It then turned the profits of that subsidiary over to a Bermuda unit, via a Netherlands subsidiary.
You can get mad at Google for doing evil by ducking taxes. But that's unrealistic. Every company will do the most it can to cut its taxes. The U.S. 38% corporate tax rate is the highest corporate tax rate in the world, next to Japan. There will always be countries that see a benefit by having low corporate taxes. Ireland's tax-friendly laws resulted in the gainful employment of 2,000 Google workers in a shiny building in Dublin.
To me, the worst consequence of this is that the profits Google shelters from taxes have to stay overseas or be subject to the U.S. tax rate when they're brought back to the U.S. That gives Google an incentive to invest the money overseas either by buying foreign companies or building its business in Ireland and elsewhere. The Obama administration wants to force U.S. companies to pay taxes on some of their foreign profits. But that will put them at a big disadvantage against European and Asian companies that have lower tax rates. That, in turn, will hurt U.S. exports.
It seems to me that we'd bolster the U.S. export economy and the competitiveness of U.S. business a lot if we lowered the corporate tax rate to 15%. Then many companies will bring their profits back to the U.S. and invest where it makes the most economic sense rather than the most tax sense.

I just saw that Megan McArdle at Atlantic blogged on this issue advocating a zero-corporate-tax rate. http://www.theatlantic.com/business/archive/2010/10/why-we-should-eliminate-the-corporate-income-tax/65351/

Admire Greg Mankiw's sense of humor

Check out Mankiw's blog. http://gregmankiw.blogspot.com/

At the top is a parody by Harvard Econ students complaining about Stephen Colbert's mocking of Mankiw. About four posts down is Colbert's takedown of Mankiw. I suggest you watch the Colbert Report first (which Mankiw was classy enough to post on his blog) and then the econ students' parody in which Greg participated.

Rich people have hormone to live longer?

Check this out: ">http://www.myfoxdc.com/dpp/health/hormone-found-in-rich-people-linked-to-longer-life-ncx-102110

It seems to me that long life by itself leads to wealth accumulation -- at least in a stable society where compounding of interest comes into play. A wealthy widow dying at age 75, would leave an estate to children in their 40s who would likely spend it on education for their children and perhaps a summer cottage. But if she lives to 94, surviving through the 1980s and 1990's with a bunch of pharmaceutical stocks, a thrifty, Depression-bred attitude and small financial needs she has accumulated a significant estate, even while helping fund grandchildrens' educations.

The theoretical wonders of compounding have been available for a long time. But very few societies have been stable enough ( until 1930, I suspect that bank failures affected most rich people in the world at some point in their lives) for people to realize them. Today, long life is likely to fuel financial accumulation.

Obama blows an environmental issue

I'm disappointed that Obama sold out African children, U.S. auto owners and the world environment to placate Archer Daniels Midland and the corn lobby. http://bit.ly/a9er5i
Boosting ethanol demand when corn supplies are tight will force up food costs in poor countries. Growing corn requires more carbon emissions than it saves. And car makers say it will shorten engine life. I'd hoped that Obama's EPA would be better than this.