Posted on May 19, 2008
Filed Under Bubble Watch |
In my recent post about the absurdity of the predictions and projections frequently promulgated by research firms and analysts, I focused on the amusing dynamic Yahoo-Microsoft predictions offered by Citigroup analyst Mark Mahaney:
Another amusing example of just how foolish it can be to rely on “experts” was provided by Citi Internet Analyst Mark Mahaney. On February 2, the day after Microsoft announced its bid for Yahoo, he predicted that there was a 60% chance that Microsoft would wind up acquiring Yahoo, noting a 20% probability that the original bid would be accepted and a 40% probability that a higher bid would be accepted.
On April 25, he upped the total probability that Microsoft would acquire Yahoo to 90%.
On April 28, it was noted in a TechCrunch interview with Mahaney that Mahaney did not think Microsoft was likely to simply walk away.
The interview, of course, demonstrates that Mahaney, as to be expected, based his predictions on certain assumptions and the best knowledge he had at the time. He appropriately admits when he is unable to answer a question, at two points stating “Sorry Michael, I don’t have a good opinion on that” and “That’s a good question, Erick. I don’t have a well-formed opinion on that.”
Fast forward to today.
Microsoft has walked away and although there remains the possibility that the move will eventually lead to a scenario in which Microsoft and Yahoo get together, Mahaney now says a Microsoft-Yahoo deal is “still 15% likely” according to the TechCrunch headline.
I reiterated the fact that:
Predicting the future is not possible, and the vast majority of the time, numeric probabilities coming from non-mathematical analyses should be avoided like the plague. After all, they try to put a quantitative spin on a qualitative evaluation - something that just doesn’t work. Only numbers derived from a fundamentally-sound mathematical analysis should be (potentially) taken seriously.
Contrary to Michael Arrington’s confidence in Mahaney’s track record, apparently Mark Mahaney is building a reputation for making absurd quantitative predictions that are rooted in nothing but pure qualitative speculation.
Last week, Matthew Ingram published a post entitled “What is Mark Mahaney smoking?” It rightfully questions Mahaney’s rosy prediction that Amazon’s “wireless reading” device will generate $750 million in sales by 2010.
Ingram asks the obvious question and provides the obvious answer:
What actual data is this analysis based on, you ask? Absolutely none whatsoever…since the company has refused to give any details about Kindle sales. In other words, it’s just a bald-ass guess. And as far as I can tell, it’s a howler.
Of course, Mahaney provides the obligatory pretty table that tries to relate Kindle sales to iPod sales, but even Henry Blodget, who not surprisingly thinks these numbers could be achieved despite the fact that the “projections seem aggressive,” unconsciously points out what’s wrong with Mahaney’s “analysis”: it’s based almost entirely on huge assumptions.
Those who consciously recognize the problem with such assumptions rightfully criticize Mahaney on his “analysis.”
Kevin Maney of Portfolio.com calls it “lamest bit of Wall Street analysis that I can recall” and points out the significant flaws with Mahaney’s projections, observing that he has pieced together indirect information to try to determine how many Kindles have been sold thus far and noting that applying “lessons from iPod’s adoption rates” is inherently flawed because “there is no perspective that can lead to solid conclusions about what [initial] sales volume means to later adoption.”
Flawed analysis and irresponsible projections aside, there is a single common sense reason why a prudent analyst wouldn’t want to be on record as predicting that the Kindle will add $750 million to Amazon’s sales by 2010: the company seems unusually coy about revealing sales data, something that you wouldn’t expect if Kindles were selling like hotcakes.
But clearly, Mahaney isn’t concerned about his reputation. After all, Michael Arrington is still apparently a big fan, digging through celebrity photographs to support his favorite Citigroup analyst.
And Henry Blodget that even if old habits die hard, credibility is overrated because memories die far more easily.
I’m willing to make a prediction of my own: once Bubble 3.0 rolls around, there’s a 76.19% chance that Mark Mahaney will be able to make more money running a blog about the technology industry than he will as a technology analyst on Wall Street.
Hopefully Henry Blodget will still be hiring because a Blodget-Mahaney combination is increasingly looking like a match made in hype heaven.
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