P) a better long play than Facebook. Practically every take you read or hear on mobile monetization includes the same meme: ... As Facebook and Pandora struggle to monetize growing numbers of mobile users ... It gets repeated so often that, in short order, recipients of the information uncritically accept it as fact. That's how a meme rolls. It's at this juncture where an understanding of what Pandora is actually doing can come in handy for investors. Simply stated, Pandora is going after ad budgets historically dedicated to traditional radio. It's doing this on the national level; however, the real disruptive power comes at the local level. Pandora will see more success than Google ( GOOG) at the local level because Pandora enjoys a relatively clean and targeted sell. When it pitches a local advertiser who has traditionally spent his or her money on local radio, Pandora needs to sell the prospect on why it is a better choice than terrestrial radio. It's hardly about selling the value of mobile to this type of advertiser; instead, it's all about getting this person to move some portion of the business ad budget away from terrestrial radio and to Pandora. Examples showing this transition is well underway continue to roll in. The latest evidence comes from the nation's third-largest radio market, Chicago, where Pandora has just expanded its sales team. In Chicago, Pandora already counts advertisers as diverse as local car dealers, restaurants and the Chicago Cubs as clients. As a local agency ad buyer told the Chicago Tribune: "We've utilized
Pandora ... from the audio side and from the mobile display side. But the money for Pandora is absolutely coming out of the radio budget."
It does not get much more disruptive than that. Investors misunderstand Zynga ( ZNGA) almost as much as Pandora. If you foolishly believe in the notion of a so-called Web 2.0 bubble, do yourself a favor, do not include ZNGA within its soapy confines. I'm not a big P/E ratio guy but, looking out 12 months, with the stock trading under $6 per share, ZNGA's forward P/E is just under 16. That's low for an Internet growth stock of Zynga's ilk. I am all over it at under $10 a share, let alone $6. But, as usual, you can find the investment case in the narrative, not the numbers. Zynga CEO Mark Pincus -- cut from the Jobs/Bezos/Zuckerberg/Westergren visionary mold -- could not have been more clear when asked about his company's apparent "reliance" on Facebook at the recent All Things D conference. Allow me to paraphrase what Pincus said. (And, contrary to popular belief, he danced around nothing.) We "doubled down" on Facebook because we grew like a weed thanks to Facebook. We would have been complete fools to take any other approach. And while Facebook will always be huge, we owe them nothing. We're focused on capitalizing on the mobile revolution because "Mobile lets you play in your cab or on the train. And it's growing very quickly." Pincus said everything in quotes. I simply read between the lines in the rest of the passage. He also did say, and this is the key, that Zynga views Facebook as a platform, just like iOS and Android. Expect Zynga to take the approach Reed Hastings executed so well at Netflix ( NFLX). It's all about getting Zynga included on as many consumer electronic devices as possible. That's the best way to rely less on Facebook. I anticipate Zynga making a move in that direction. I am aggressively buying the stock at anything around $6. While Zynga views Facebook as a platform, many critics think of it as "just an app." I do not concur. However, when you compare Facebook's challenges to Microsoft's ( MSFT) emerging mobile/entertainment dominance, the assessment holds some water. Simply put, Microsoft has more control over its own destiny than Facebook does. While it might be late to the party -- count on this -- Microsoft is about to take it to Google and give Apple ( AAPL) a meaningful run for its money. We all like to pick on Microsoft for coming late to the party. It's fun. And, without doubt, they dropped the ball on mobile. But they're quickly picking it up. Plus, Microsoft already has a massive lead over both Google and Apple in the living room.
I expect Windows to blow the doors off of Android by 2013, if not sooner, and provide a long overdue challenge to Apple's mobile (particularly tablet) dominance. Consider the way Microsoft introduced Xbox SmartGlass (in what might be a dig at Google): What if your tablet or phone knew what you were watching on TV and presented bonus features without you having to lift a finger? What if you could use your tablet to draw up a play in EA SPORTS' "Madden NFL" and then perform it to perfection on your TV? What if you could control your favorite websites on the TV with a simple swipe, pinch or zoom on your tablet's touchscreen? It's all about connecting the screens, seamlessly integrating the entertainment experience involving the PC, the television set, the smartphone and the tablet. Clearly, Microsoft is watching consumer behavior. A recent study by Nielsen shows that an overwhelming majority of Americans use mobile devices at the same time as watching television at least once a month. Almost half do so daily. About 25% do it multiple times per day. It's incredible how far ahead of Google and Apple Microsoft is in the living room. This might be just the edge it needs to help not merely play catch-up, but disrupt the mobile space. In any event, fewer questions surround Microsoft than Facebook. That, along with a dirt cheap valuation and a nice, reliable dividend, makes it a better buy.