deal architect

The GM IPO: How about some innovation?

Bill Hambrecht makes a persuasive case on CNBC for a Dutch Auction for the GM IPO.

In my book, his bankers David Marcus and Jim Dohonue explain how it works and why it is usually better for the issuer – see excerpt of the book in attachment below. In this case, that would be the US Taxpayer.

Jim Cramer also weighs in on the topic

Download OpenIPO Extract

SAP-Oracle legal moves

Ever wonder why a baseball manager keeps a pitcher deep into a game even when he is getting pounded early on? Unlike us fans, they are thinking of impact on bullpen and rotation for the next week, not just a single game. Having worked with lawyers as an expert witness on a few cases, I have learned to develop the same respect for them. They often make moves that seem very counter-intuitive to us non-legal minds.

That’s my reaction to SAP’s move yesterday basically accepting liability for TomorrowNow and attempting to accelerate the discussion to that of a reasonable damage calculation. My initial reaction– bad move. Oracle is an entity you never show any weakness to. You have to wear them down. Get the bull pen going.

But I assume the lawyers have access to a bigger picture I don’t.  Or, maybe  SAP is counting that the recent US Federal action puts Oracle a bit on the defensive – something about not being able to fight too many battles at the same time.  

So, Game 1 to Oracle. But far from over - look forward to the rest of the series.

Burning Questions: Do telcos understand variable cost economics?

Somewhere from my fuzzy recollection of economics classes, I seem to remember that as products evolved in their lifecycles, you moved from “charge what market will bear” to “variable cost pricing “ – i.e. make sure price covers your variable costs and there is some left over to cover residual fixed costs. If anything, I would have thought this would apply in spades in the telecom sector, with its significant fixed cost network capacity investments.

In the last month, I have been reminded by three instances of why the industry seems to not apply variable cost pricing

• I lost my wallet in Paris couple of weeks ago, so I had to call my card companies. All of them say “call collect” from overseas so the hotel patiently connected me to the AT&T operators (multiple times - most of the AT&T operators are too impatient to navigate the card company IVR and would hang up if they did not get a human voice to accept the toll charge - as we know a human takes a few minutes to find in most card companies). But that experience was a good reminder of the calling card charges we all loved from AT&T in the 90s. Massive charges for minutes persisted even as local stores in various markets were selling prepaid cards for a fraction, and we all steadily quit carrying the AT&T calling card in our wallets.
• I recently wrote about the GoGo wi-fly network on the New Florence blog. What was interesting to read was Aircell was leveraging its experience in airphones we had in most seatbacks in the 90s. It was also a reminder that in spite of a significant investment in infrastructure on the planes and the ground, Verizon and other carriers did not move to variable pricing. They stubbornly kept pricing at almost $ 3 a minute till most CFOs banished them from expense reports. Surely their variable cost pricing could have come down to 25 to 50c a minute. At those rates, many of us would have checked our voice mail boxes 1-2 times a flight and many would have called families for a quick goodnight call.  Too simple - it was a lot easier to strip those phones off planes and take a writeoff.
• While in Europe, Pat Phalan kindly gave me a phone with his MAXroam SIM card which allowed me to stay in touch across the 5 countries I was in and make calls back to the US. My total cost was about 1/5th it would have been if I had used my AT&T mobile service (especially for the intra-European charges they expect with the add-on of a US relay element).  In the meantime, every newspaper was reporting a further decline in mobile roaming rates across the Continent starting July 1. Indeed according to this article, roaming charges have fallen by an average of 73 percent in the EU since 2005. But nobody seems to have told AT&T that. I suspect they will persist with their “charge what market will bear” pricing till their roaming market share drops to nothing.

Readers – should variable cost pricing not apply in that industry?

Immigration policy and the “future of work”

It is tough to ignore immigration talk given all the noise coming out of Arizona and Washington. But I have been thinking even more about it, with a recent trip to Ireland and the GigaOm event last week on the “future of work”.

I wrote earlier about my observations about how internationally mobile my wife’s teenage Irish nieces and nephews have become and about my conversations with Joe Garde and Joan Mulvihill about the Irish diaspora.

An interesting sidebar during that trip was a conversation with an English lady who has moved to Ireland to retire. Her parents were Irish so she could do easily. But what was impressive was her description of the coordination of  social benefits between the UK and Irish governments - how she could pick either plan, and how there were controls to ensure there were no double payments etc.

And it occurred to me, how poorly the US has coordinated matters with our neighbor, Mexico.  The biggest angst in the current divisive immigration US mood is less the jobs they are displacing (trust me few of our young ones offer to go work the strawberry fields not far from us), but the “burden” the new immigrants are putting on our social services structure. Surely, we could work transfer payment mechanisms out at the country level. Why are we letting local politicians and citizens take charge of that conversation and make it so emotional?

But even more interesting was a reread of my book interviews with Francisco D’Souza, CEO of Cognizant as I prepared for the GigaOm event on .

Three points of his in particular stood out

• “With improved telecommunications, we can move work to where the labor is, not require labor to move to where the work is”. Do our politicians realize the huge impact of that statement on white collar trends? Our immigration policy is still very influenced by blue collar labor definitions from a few decades ago.
• “My kids have three passports — United States, Brazilian, and Indian Overseas Citizen. Ten years from now, dual or more citizenship will
  not be unusual.”  There is a sizable chunk of our immigrants who only get our green card “as a back up”. They spend most of the year outside the US. Think of how little we have thought about this next generation of immigrant.
• “Some of the talent will want to travel the world. Some of it will want to work from home.”  Almost as a contra to the mobile workforce in b), the reality is most immigrants who come here want to set roots here, and are bringing spouses, parents over. Previous generations of immigrants could not do that easily, and we certainly do not have a “transfer mechanism” with their native countries to  pay for the cost of these “secondary” immigrants – this is where the UK/Irish model mentioned above would be so useful to study and perhaps adopt.

I am not convinced our politicians are thinking about these conflicting trends and impact on labor and immigration. What is worse is the conversation has moved to talk shows and is being narrowly defined by the focus on Mexican workers.

We need to raise the level of the conversation – and soon.

“Stupid GSA. They should have been able to figure that one out (about Oracle) with a few phone calls.”

Is a comment from a reader on a WSJ article about the US Justice Department suing Oracle for allegedly not honoring what is called the “most-favored nation” clause in most government contracts.

The commenter feels the US General Services Administration (GSA) should have been monitoring the market by making its own checks on average discounts and other terms. Such “in background” benchmarking is pretty common in the private sector – not sure if there are constraints on government agencies doing it.

One thing that baffles me – the Feds and various US States collected a treasure trove of pricing intelligence during the US versus Oracle antitrust suit in 2004. I remember there were detailed price sheets on various accounts on the web site  – which have since been redacted from public view. 

I wonder if the GSA reviewed that publicly shared pricing and discounts   and if so why it has taken the Feds 6 years to move.