Liberty

http://www.fxstreet.com/fundamental/analysis-reports/gold-investments-market-update/2011/07/11/

Buffett on bloomberg: http://www.bloomberg.com/video/72140684/ Also, this: http://www.bloomberg.com/news/2011-07-08/berkshire-spends-4-billion-on-equities-as-combs-adds-stocks-buffett-says.html

All right, after a (too short) night of sleep, here's the outline of how I see this for GOOG: How does Google prefer to make money? Where have they the highest margins and biggest moat? -Search ads are extremely profitable because 1) They are targeted. You know the intention of the user because they just searched for "stainless steel fridge" so if you show them ads for stainless fridges, you'll get a lot more value than if you show fridge ads on facebook where people's intention is mostly to check up on their friends. That's why some keywords are worth many dollars per click while less targeted ads are often worth fractions of pennies. 2) Ads shown on the Adsense and Doubleclick networks are also profitable, but google has to share money raised in the auction with the publishers. Ads on Google's own sites don't share any of the money. Another reason search is preferable for them. -So how does Android fit into all this? 1) In 2007 when the Google guys saw the iPhone and realized that in the future a lot more of the web was going to be consumed on mobile devices, and that they had to make sure their products were well positioned for that and that those who controlled that mobile platform couldn't harm them, they could have said: "all right, we're going into the phone business and we'll compete directly with Apple" and maybe a year later they could have had a phone like the Nexus One. They could have tried to make money from the hardware and the apps, but the problem would've been: 2) They're a software company. They don't have tons of industrial designers, they don't have a large distribution network and retail outlets, they don't have supplier relationships, etc. So they could have tried to turn the ship around and become a whole other kind of company to compete with Apple, but the problem is, chances of success would be low, and if they became a phone maker they wouldn't just be competing with Apple, they'd also be competing against RIM, Samsung, Motorola, HTC, etc. 3) Maybe they could have licensed their OS to some of these companies, but when you want to make money from the hardware, you don't want to give your secret sauce to everybody. That's why Apple will never license iOS. But maybe GOOG could have skipped the phone and just tried to license a phone OS. Maybe that could have worked, though phone makers up to that point hadn't shown too much interest in licensing other people's OSes. And if you sell it to them, you can't price it too high or they'll go in-house, and you always have to worry that someone else will try to undercut you with a cheaper OS (windows for phones, etc) and that your phonemakers will jump ship, etc. 4) I think Google looked at that kind of business and they decided they'd rather go for maximum scale instead. When you give a quality OS for free, you know you'll get the maximum number of partners possible because you can't be undercut on price and they won't feel you are competing with them, they're partners and if they do well, you do well. I'm sure Google decided that what was most valuable was to have hundreds of millions of devices with a button on the front that took you to search and/or a prominent search bar on the home screen. The only thing more valuable than a search ad is a geo-targeted search ad... and this way they have a lot of influence over how the mobile platform develops and what users expect from phones. Otherwise we might have gotten phones that go "oops, sorry, Microsoft paid us so this phone can only search the web with Bing!" or "sorry, web apps don't work on this phone, only paid downloaded apps work" or whatever BS like that. And trust me, more of that stuff would be plausible if Google was a phonemaker and other phonemakers felt directly in competition with them. 5) So I say without hesitation that Apple is the king of smartphones and tablets. But Android is a solid #2 that might not have happened if Google had taken another strategy, and while I think Apple is a better business right now, I agree with Buffett and Munger that Google has a great moat, and I think that their 'infrastructure' play is stable over the long term. Apple is kind of on a product treadmill, and they need to keep producing great products that people want (they also have some nice infrastructure stuff like iTunes and the App Store, but it's a much smaller part of their business). Meanwhile, Google benefits (via search, adsense or display ads) from every Android, iPhone, RIM, Nokia, Windows phone, iPad, etc... So I wouldn't have any problems investing in AAPL, and I think those here who invested in MSFT probably will also do well over the long term, but GOOG at $482 fit my personal criteria better, so I got in. I'm going to cross-post this in the Google thread because this doesn't have much to do with MSFT anymore. Feel free to continue the discussion over there: http://cornerofberkshireandfairfax.ca/forum/index.php?topic=4442.120 Update: I also forgot to mention that if Google hadn't made Android free, chances are they couldn't have used the Linux foundation because of the GPL license (though I'm not 100% sure, maybe there's a workaround), so it would have been a lot more work to build the OS from scratch rather than on top of an existing foundation.

That's correct. It's the part about Google that wasn't. I don't dispute that compared to Apple, they're far behind. But they're not trying to out-Apple Apple. And I'm not a short-term kind of guy, and I think they're on a great trajectory. I'm on a lot of forums and sites where programmers are, and Android is definitely getting more attractive to them and more talked about. Will the average Android user ever spend as much as the average Apple user for apps? No, because Android will go downmarket as well as up. But will the sheer number of users be enough to make the store attractive and for most of the best quality apps that people actually use to be ported there? Sure. It's late and I need to get to bed, but tomorrow I'll try to find some time to write more about how I see each company's strategic position.

The number of questions you want answered in a day and the number of searches you do are two very different numbers. The more convenient it becomes to search, the more the number of searches will approach the number of questions you want answered -- people might not want to go to their computer or open up their laptop everytime they'd like a search, but it might be easy enough to check on a phone (especially with voice search). The search pattern that google showed was the one that they've been seeing for years (makes sense, no: When people aren't at their desk, they use internet search less). But now mobile is being added into the dips of when people aren't at their desks (some mobile searches will replace desktop ones, but many will be searches that wouldn't have happened otherwise). I see it all the time. Group of friends talking, a question is asked, people whip out their phone to search google. Apple is definitely the dominant player there and monetizes hardware and apps much better than anyone else, no question. But I believe Google is in this for the long haul and they are positioning themselves in a way that nobody would have foreseen a few years ago (I mean, Google making OSes? for phones?), and it's going to help them a lot in their core ad business, which is very profitable. Of course they are going for marketshare. They said it themselves. Do you see any other strategy out there competing with Apple? They wouldn't have that many hardware partners and software developers if they weren't running an open platform with very good terms compared to Apple. But now the product is rapidly getting better, the hardware is getting better, and the apps are getting better, and they've pretty much ensured that mobile devices will use open standards (HTML5, etc) and that they're not taken hostage by competitors that control the platform between them and their customers (directly and indirectly -- now that Android offers the open web, it's harder for others to lock things down too much). It's a tradeoff; they could have tried to maximize direct revenue per phone, but that could have meant a much smaller marketshare and influence because of fewer partners, slower development, less ad dollars spent by partners, fewer developers, and over time much smaller revenues. They did it the smart way, IMHO. What matters is where they'll be in 3-5 years, not next quarter. And right now the landgrab for mobile has two winners: Apple and Google. Controlling a platform is extremely valuable. It could easily have been Apple and then everybody else far behind...

http://www.reuters.com/article/2011/07/07/us-buffett-gates-idUSTRE7667HS20110707

Forbes on the ancient art of patent trolling: http://blogs.forbes.com/timothylee/2011/07/07/microsofts-android-shakedown/ And some discussion of the article at a site full of programmers (it's where I found the link): http://news.ycombinator.com/item?id=2738628

Time will tell, but in general having some control over what separates your customers from your products and encouraging an internet with open standards can only be good. And in the same way that search helped make ads more targeted, and thus more valuable, mobiel will make ads more geo-targeted and nicely profitable. Depends how they broke it down. But what matters most is the speed at which that number is growing. They've shown their stats about this at I/O 2011, you can see it in a video on their site. Basically, people search at work when they're at their desk, and then they leave for lunch, and mobile searches spike, and then desktop searches spike again, and then in the evening mobile spikes again. Weekends also show a spike when desktop searches would normally be down. Seems to be very complementary. Totally, but by helping drive the mobile revolution (and having some control over how it's done), it'll pull a lot of ad dollars to mobile advertising. If the capability isn't there, the ad spending won't be. And once they have hundreds of millions of devices running Android, they can figure out new ways to monetize them more (Eric S. said so at the annual meeting). Right now they're more focused on marketshare than anything else in mobile.

You're right, I misread and thought you mean the carriers. My bad. But you were wrong, the money goes to the app maker (70%) and the carrier + payment processors (30%). I'm not sure I trust those numbers (guesstimates from research firms have a habit of turning out to be numbers pulled out of a hat), but there's no doubt that the Android app market is still much smaller than the Apple store. That's because Apple had first mover's advantage, and that headstart kept it much more profitable to publish apps there than anywhere else. But now that Android is selling more than iOS, more and more developers and either moving over or writing for both platforms, so that store should be quite healthy in the future.

I wouldn't be surprised if MSFT did better in mobile than it did so far, but it could also very well to turn out to be the second coming of the Zune. Year zero was 2007, and since then both Google and Apple have shown they can execute. I'm still waiting for MSFT to show that (getting good reviews isn't enough - I don't know a single person who would choose a windows phone over the alternatives). But the fact remains that Google makes money from internet usage, whatever the device, while microsoft makes money from selling OSes and software applications. Google will make cash from Windows phones too, but if MSFT can't sell phones, they might still make nice money from patents, but they'll be irrelevant to consumers and developers, and eventually software can be rewritten around patents or patent reform for software can change the game.

We don't actually know if that's true. Google hasn't reported any definitive profit/loss numbers on Android. Indeed, I don't have any hard numbers. But I think I can still be approximately right.. The more internet-connected devices are out there, the better Google will do. They are very dominant in search on the two biggest platforms (iOS and Android), and devices with full browsers show people sites with google Adsense and Doubleclick ads. They have a terrific brand and even on devices that have other defaults, a large fraction of people will probably switch back to Google.

Thanks, always good to hear from uncle Warren ;D

Either way Microsoft will make tons of profit from this. Indeed, though not as much as Google (directly and indirectly).

Your facts are incorrect: http://en.wikipedia.org/wiki/Android_Market#Priced_applications As for the size of the market, I don't have the latest numbers (not sure if they're released), but it's growing quite fast, with over 3 billions apps downloaded. Not at the level of Apple's store, but the trajectory is quite solid.

Handset makers make a lot of money form the Android app market, and Windows Phone is nowhere near that. Also, as long as consumers prefer Android to Windows phone, it'll be worth going with what sells and what has the best developer ecosystem (both for the OS and the apps). 500k Android phones are being activated every single day. How many Windows phones are being activated?

The same thing happened with Google Buzz. As part of Gmail, it was HTTPS. They fixed that with Google+ by first redirecting outbound clicks to a non SSL URL.

Whoa, paying people to use your products? Reminds me of what Bing did for a while... http://www.winbeta.org/?q=news/microsoft-pays-university-250000-adopt-office-365

For an individual yes, but for an index fund or ETF to set this up there would actually be less transaction costs than a low cost index. All they would have to do would be copy every holding/transaction in the S&P 500 (or the Russel, or the Wilshire, or any index they are tracking) except for the airline stocks. Since they omit the airline stocks there would be less stocks and therefore less ongoing friction costs once the fund is set up. Even if it would add just 1% long term, it would be worth it as there is really no extra work once the index is set up. I was thinking about individuals, but yes, if an index was set up, that could work.

He answers that in the interview. ETF rules mean he would have to report his transactions too often and he feels that this would make his funds lose some of their added value.

Apple cares about video calls because it helps them sell iPhones and iPads, so they'll probably interoperate their protocols with Google (hasn't Apple said it'll use open protocols? Can't remember). I doubt Microsoft will open Skype, though, but the free competition will certainly make it harder for them to make money directly with it.

That would definitely be interesting to do, but in the real world, friction costs would probably make this a lot less practical than a low-cost index.

I'm surprised that video calling is just 50% of skype's traffic. Voice calls are a few kb/s (depending on which protocol it uses, between 3 and 10) while video is probably at least an order of magnitude more than that, and even more for high-rez video.

So I did a bit of math and I'm at -7.30% YTD, but I feel very good about everything I own and am buying more of the stuff that went down. Update: And one day later I'm at -4.65%. Things are changing fast these days...

Unfortunately, group video calling isn't available in the free version of skype: http://www.skype.com/intl/en-us/prices/premium-table-5?intcmp=gvcCS-prem Google+ Hangout will probably benefit from this (up to 10 people in a videocall, all in your browser).

I have Klarman's book (in PDF) and liked it a lot, but didn't learn too much from it because I was already familiar with Graham and Buffett. Always good to refresh your memory, but the Greenblatt book taught me a bunch I didn't know about spinoffs, so that's got to count for something.