Parchayi.com – Personal Finance Simplified

History of Netflix in a nutshell:

1. DVD By Mail
2. DVD By Mail with Streaming Added
3. Streaming with DVD By Mail Added
4. Streaming and DVD by mail separated

This shows how Netflix completely changed their business model from being a DVD by mail company to a streaming company. Step 3 to Step 4 happened so quickly that Netflix pissed off a lot of its customers and investors and wiped out more than half the value of the company.

Here is my take on their logic. Netflix wants to be a streaming company because streaming is the future. But at this time nobody wants to give them content and those who would give them content want to get paid by number of subscribers.

Netflix: We want your streaming content
Content Provider: How many subscribers you got?
Netflix: 25 million
Content Provider: We want $x/subscriber
Netflix: But a lot of our subscribers don’t stream
Content Provider: But they can
Netflix: But they don’t
Content Provider: Not my problem

At this point a bulb goes off in CEOs head. Ooh what if I could cut that number in half?  What if I can get the non-streaming folk out of the equation? Let’s split the business completely.

Some Customers: We like to do both and you’ve screwed us
Netflix: BooHoo
Customers: Your streaming selection sucks and your DVD by mail is worse than blockbuster and I can also go to redbox. Bye Bye Netflix
Netflix: We’re sorry (read – we’re really not).

A link to someone who explained the customer perspective better than I can

My Take: Netflix had something nobody else had – streaming and DVD by mail and both combined at a reasonable price. Now Netflix will compete with Blockbuster (aka Dish) on the DVD by mail front and Blockbuster doesn’t have a stupid 28 day delay on new releases yet and does not charge extra for Blu-ray either. It will compete with Amazon for subscription streaming and Amazon Prime also gets you free two day shipping on products fulfilled by Amazon. DISH plans to announce a new streaming service on Friday too. Then there are Redbox, iTunes and Amazon rentals. So instead of having no competitors, Netflix now is competing with everyone. And some of those have deeper pockets and more resources than Netflix does. At this point in time the only advantage Netflix has is universal device support but that is nothing a few dollars and a few software updates cannot fix. I wish them luck as I stick with my Blockbuster by mail plan and hold off on streaming. So far Blockbuster has grandfathered me in to my plan and rate even though it is no longer available to new customers. Maybe after Friday DISH will have what Netflix customers had – a discount on streaming and discs combined.

LinkedIn priced its IPO at $42 to $45 a share, up from its original planned price of $32 to $35 a share. This would make LinkedIn worth an approximate $4 billion!

Granted LinkedIn is money making but is it worth 4 billion? Last year’s revenues were 123 million with a profit of $15.3 million. That would make it have a P/E of 260 or so.

Update May 19: So the LinkedIn IPO opened at $83 and is currently sitting at around $100. Do people really think LinkedIn is worth nearly 10 billion dollars?!

Today’s headlines:

“Oil falls to near $112 after bin Laden killed”

“Wall Street gains after bin Laden death”

What the.. Bin Laden’s death is somehow magically going to improve oil supply and make companies more profitable?

Nokia, a company that spends more on R&D than most of it’s peers has decided to abandon Meego, it’s next generation smartphone Operating System and semi-abandon Symbian, the heart and soul of most of it’s current phones.

Official Statement about Meego:

Under the new strategy, MeeGo becomes an open-source, mobile operating system project. MeeGo will place increased emphasis on longer-term market exploration of next-generation devices, platforms and user experiences. Nokia still plans to ship a MeeGo-related product later this year.

Official Statement about Symbian:

With Nokia’s planned move to Windows Phone as its primary smartphone platform, Symbian becomes a franchise platform, leveraging previous investments to harvest additional value. This strategy recognizes the opportunity to retain and transition the installed base of 200 million Symbian owners. Nokia expects to sell approximately 150 million more Symbian devices in the years to come.

Huh? What does that even mean? How does Nokia expect somebody to buy a Symbian device with that nonsense about “leveraging previous investments to harvest additional value“.

And for Meego, that sounds like the death knell. I wonder why they are even bothering to produce that oft delayed Meego phone anymore. Are they taking insiration from the Kin?

This is fantastic news for Microsoft though. With Apple and Android quickly taking over the smartphone market, Windows Phone 7′s future was sort of uncertain even though the product itself showed promise. With Nokia’s might behind it, WP7 is here to stay.

I just got this notice from Vanguard in my latest statement:

NEW FEE FOR ALL UVA RETIREMENT PLANS

Beginning in the first quarter of 2011, participants in all University of Virginia retirement plans will be charged an administrative fee of $12 per year. The fee will be deducted from each account on a quarterly basis. The first quarterly deduction of $3.00 will be withheld from your account balance and reflected in your first quarter statement. Please note that if you participate in more than one University of Virginia retirement plan, an annual fee will be charged for each plan.

The administrative fee covers the costs associated with record keeping, account statements, participant education, postage, and other services for the retirement plan and its participants. The administrative fee will be deducted from each of the funds in your account on a pro rata basis. For example, if a fund makes up 50% of your account balance, 50% of the fee will be deducted from that fund.

Also Vanguard who claims to have very low expense ratios also has more low balance fees than Fidelity and T Rowe Price (more details to follow in an update tomorrow). I have both a Roth IRA and all my UVA Retirement plans with Vanguard. I’m thinking of moving my UVA retirement to Fidelity and the Roth to T Rowe Price if Vanguard doesn’t do away with this new fee. Our options at UVA are Vanguard, Fidelity and TIAA CREF and Vanguard is the only one charging these new fees. Also my retirement plan is setup as three accounts and I’m sure that I’ll be charged $12 three times.

The only thing that AT&T iPhones can do over Verizon’s is simultaneous talk and data. Otherwise Verizon has the better offer. Unlimited data, like I currently enjoy on my Droid X, 3G Mobile hotspot available (probably the same deal as the Droids) and Facetime over 3G.

But with LTE devices around the corner, will the iPhone do as well as analysts expect? My guess is it will. I know a lot of people who suffered with AT&T when the original iPhone launched and have been suffering for years as they upgraded their iPhones with bad service. But they wouldn’t give up their iPhones.

Disclaimer: Own AAPL and VZ

I’ve been following all the product announcements at CES and amongst the major players, the most interesting devices are both from Motorola - the Motorola Xoom tablet and The Motorola Atrix phone. Both these are one step ahead of everything else out there.

How or why the Atrix landed on AT&T instead of Verizon first is surprising (maybe due to the Verizon iPhone rumors) but it should hit Verizon soon as the Droid Bionic. Anyway after the split from Motorola into Motorola Mobility, the flaling company is in a lot better shape. Not only that, the company has been doing very well with their lineup of android phones.

And the next two monster devices should keep that momentum going. The iPhone is expected to hit Verizon and that could provide a boost to both Apple and Verizon. It is possible that the news is probably mostly baked into the stocks already and if you are from the buy on rumor, sell on news camp, you might want to be prepared to dump those tomorrow.

I’m holding on to my AAPL holdings for atleast a little while more. I might add some Verizon – the 5.5% dividend looks good even though it is a lot less than the 7% just a few months ago before the fast rise of Verizon stock prices.

Disclaimer: I own no stock in any of the companies mentioned in the article except Apple. I do own a Droid X which so far has been great.

This blog was supposed to be about the basics so let’s get back to that for a change. The S&P 500 is the benchmark index against which many, if not most investments are compared. A common misconception, even amongst financial professionals (I’ve heard some talk about it), is that the S&P 500 is composed of the 500 “largest” or 500 “top” companies in the United States.  That is just not true.

Standard and Poor calls the S&P 500 a “gauge of the large cap U.S. equities market”. That is what it is designed to be. However the selection is not an objective rule based selection. It is selected by a committee based on what they think represents the US economy. The S&P 500 can contain a few non-US companies (currently 5) and it can also contain mid-cap companies. The index is float weighted (float = number of shares available for public trading). The index used to be market cap weighted so larger companies have would a higher influence on the Index values. That still kind of applies to float weighting too but not as heavily as it did with the market cap weight because in general (very high share prices cause problems with float because those stocks are not commonly traded) larger companies will have larger float.

If you would like to invest in the S&P 500 companies, almost every mutual fund company has a  fund that tracks the S&P 500 and you can also buy an ETF (Exchange Traded Fund, basically a fund that trades like a stock) such as SPY to track the index.

The original nook was a great response to the Kindle. It runs Android has a few apps and got hopes really high that it would be the open device that would drive innovation in eBooks. One year went by, BN did nothing to help developers make apps, made new versions that annoyed the nook hacking community for a few months. There was no app store, no developer friendliness, nothing. Let’s hope the next software release that is coming in November is better. The nook is a great device for reading but organizing books on it sucks. For a device that can store thousands of books, that is a very crucial feature.

Yesterday’s Color Nook launch just proves the point that Barnes and Noble just doesn’t get it at all. Us readers don’t want a 7″ tablet, an underpowered one at that with poor battery life at that. There are already lots of those floating around (Archos 70, Cheapo Kmart tablet, Cheapo Walgreens Tablet). We don’t want an LCD based reader either  - see failed ones – Pandigital Novel, Sharper Image Reader -  because thats not a reader, thats just a crappy tablet.

What the Color Nook should have been is something like the upcoming Delta Vivitek  eReader, which has a color eInk screen. Or if they couldn’t manage a color eInk or Mirasol, at the minimum the device should have had a Pixel Qi 3Qi screen.

The current nook is a disappointment and the market has shown that with the lack of reaction to the announcement.

Disclosure: No positions in any stocks mentioned.

Motorola just filed a very important, in my opinion, lawsuit against Apple premtively defending itself from Apple patents. I think this is the kind of lawsuit that needs to be filed agains most companies regularly to try and get as many patents invalidated as possible. The current patent scenario in the mobile world is beyond ridiculous and in most other industries it is getting there. A lot of mostly worthless patents are being awarded for software some of which are not only obvious to people in the industry but to anyone else who uses phones and software.

Apple is suing HTC, Nokia (Phone tech patents)
Nokia is  suing Apple (Phone tech patents), Qualcomm (Anti-competitive practices, phone tech patents), Hitachi, Toshiba, LG, Sharp (LCD price fixing)
Qualcomm is suing Nokia (Phone tech patents)
Motorola is suing Apple (Phone tech patents)
RIM is suing Motorola (Anti-competitive practices, phone tech patents)
Microsoft is suing Motorola (software patents) (also successfully collects licensing from HTC on Android phones too!)
ELAN is suing Apple (multitouch)
Kodak is suing Sony-Ericsson, Samsung, LG, Apple, RIM (patents related to images)
Sony-Ericsson is suing Kodak (patents related to images)
Oracle is suing Google (java patents)
HTC is suing Apple (phone tech patents)

Here is an image from Informationisbeautiful about this:

What does this mean for us. Nothing at all. We get to enjoy new phones which are probably a few cents or dollars more expensive than they should be because some money that should have been exchanging hands between these tech companies is now going to lawyers. So far amongst all the parties sued for something other than price fixing, Google is the only one who has not sued anybody else. Maybe they are really not evil? Maybe since a lot of these lawsuits are being brought against Android providing manufacturers, they should start trying to invalidate worthless patents.

Disclosusre: Long AAPL, GOOG