The Innovation Index four-peats – four week of back-to-back gains. The Innovation Index added 1% last week, and is now up 17% for the year. The Innovation Index has already surpassed the 2006 performance of 13.2%, and we are only in May 2007. The Innovation Index easily crushes the major U.S. indices including the S & P 500, NASDAQ and Dow Jones. S & P 500 added 1% point, and is now up 7% for the year; NASDAQ was unchanged, and is up 6% for the year; the Dow Jones Index gained 2% points, and is now up 9% for the year. This is the fourth week in 2007 where The Innovation Index is having double-digit gains.

The Innovation Index closed at 81.00 on May 18, 2007, up 17% from the closing price of 69.31 on December 29, 2006.

What caused The Innovation Index to add another 1% in one week? Three innovators caused the jump, the largest increase coming from America Movil ( NYSE: AMX) that went up 7% in just one week on strong economic reports from Mexico and Brazil.

10 of the Top 20 Innovators showed positive gains (compared to 9 in the previous week), 7 of the Top 20 Innovators showed negative gains (compared to 9 in the previous week), and 3 Innovators were unchanged last week (compared to 1 in the previous week).

Can The Innovation Index five-peat, and have another week of gains? We will find out next week.

Weekly Advances

The news of the week was Microsoft’s ( NASDAQ: MSFT) acquisition of AQuantive ( NASDAQ: AQNT). Microsoft shares were unchanged last week, and are up 4% for the year. Microsoft hits a walk-off home run with Aquantive acquisition.

Besides America Movil, Amazon.com, Inc. ( NASDAQ: AMZN) went up 3% last week, and is now up 60% for the year.

“Amazon.com ( NASDAQ:AMZN) announced it will launch a digital music store later this year offering millions of songs in the DRM-free MP3 format from more than 12,000 record labels. EMI Music's digital catalog is the latest addition to the store. Every song and album in the Amazon.com digital music store will be available exclusively in the MP3 format without digital rights management (DRM) software. Amazon's DRM-free MP3s will free customers to play their music on virtually any of their personal devices -- including PCs, Macs(TM), iPods(TM), Zunes(TM), Zens(TM) -- and to burn songs to CDs for personal use.” – This will be in direct competition to the market leading iTunes music store. Several analysts and investors believe that Amazon will be successful in this endeavor based on its market leading online music sales (CD) and customer base.

Amazon.com ( NASDAQ:AMZN) also announced “it has acquired www.dpreview.com, the web's most comprehensive site for digital camera information and reviews. Founded in 1998 by Phil Askey, dpreview.com provides unbiased reviews and original content regarding the latest in digital cameras, and offers a host of features and forums designed to make it easy for consumers to find the camera that's right for them. With its unique voice and in-depth technical reviews, dpreview.com draws millions of unique visitors each month.” – This acquisition will allow Amazon to lure more digital camera buyers to the electronics store, and will ultimately provide Amazon valuable reviews of digital cameras. This is a great example of marriage between online content and catalog. Expect Amazon to create more acquisitions along these lines.

The Board of Directors of The Procter & Gamble Company ( NYSE: PG) announced “some business unit realignments and associated changes to its executive management structure effective July 1, 2007. The company's three global business units will be: Beauty Care, Global Health & Well Being, and Household Care.

"We are making these moves to realign our business units and top leadership structure to meet the changing needs of our larger, more diverse, faster-paced global business," said Mr. Lafley – Chairman and CEO of P&G. "These changes are designed to help P&G's businesses consistently win at both the first (in-store) and second (at-home) moments of truth with consumers.

"Our business has nearly doubled since 2000. We've had three major acquisitions including Clairol, Wella and Gillette. And, we have tripled the pace of our business initiatives over this same period," said Lafley.

P&G also announced full conversion of Liquid Laundry Detergent Portfolio to New 2X-Concentrated Formulation in North America in 2007-2008.

"Concentrated laundry products represent another example of how the cleaning product industry, through groundbreaking research, collaboration with ingredient and packaging suppliers, and innovative manufacturing practices, is living out its commitment to deliver valuable products to consumers while reducing their environmental impact," according to The Soap and Detergent Association (SDA).

P&G shares were up 3% last week, and are only down 1% for the year.

Weekly Declines

eBay India launched eBay Blogs and My World for the Indian market. These two new services would allow India users to express their personality and increase their engagement with each other according to TechWhack, India. eBay Inc. ( NASDAQ: EBAY) was down 4% last week, and is now up 9% for the year. I attended TiEcon 2007 over the weekend, and was inspired by Meg Whitman’s keynote presentation, President and CEO of eBay. Check out: Innovation and Leadership lessons from Meg Whitman, eBay CEO and President, and top Innovator
Cisco Systems Inc. ( NASDAQ: CSCO) declined 2% last week. Cisco announced that it has received foreign regulatory approvals for the WebEx acquisition ( NASDAQ: WEBX).

Yearly Leaders and Laggards

Who sits on the top of The Innovation Index? Amazon.com, Inc. ( NASDAQ: AMZN) gained 3% last week and leads all innovators with 60% gains for the year. Apple Inc. ( NASDAQ: AAPL) is next with 30% appreciation for the year. America Movil ( NYSE: AMX) notched 7% points to rise to 30% gains for the year. There are five other innovators with double-digit gains for the year, including: 3M Company ( NYSE: MMM) at 10%, Intel Corporation ( NYSE: INTC) at 13%, IBM ( NYSE: IBM) at 11%, RIM ( NASDAQ: RIMM) at 19% and Yahoo Inc. ( NASDAQ: YHOO) at 16%.

Starbucks Corporation ( NASDAQ: SBUX) is down 18% for the year.

About The Innovation Index

The Innovation Index introduced in December 2006 is a weighted stock price index of the top 20 Innovators in North America.

The Innovation Index has returned 119% over the last five years. This assumes an investment in each stock of The Innovation Index (buying each stock). An average of $100 invested in The Innovation Index on December 31, 2001 returned $219 as of December 29, 2006. By comparison, $100 invested in each of S & P 500, NASDAQ and Dow Jones Index returned $124. The Innovation Index beats the S & P 500, NASDAQ and Dow Jones Index by 77% over the last five years.

The Normalized Innovation Index has returned an impressive 174% over the last five years. This assumes equal investment in each stock of The Innovation Index as of December 31, 2001.

Alphabetical list of the top 20 Innovators of The Innovation Index and their stock ticker symbols:

3M Company - ( NYSE: MMM)
Amazon.com, Inc. - ( NASDAQ: AMZN)
America Movil - ( NYSE: AMX)
Apple Inc. - ( NASDAQ: AAPL)
Cisco Systems, Inc. - ( NASDAQ: CSCO)
Dell Inc. - ( NASDAQ: DELL)
eBay Inc. - ( NASDAQ: EBAY)
General Electric Co. - ( NYSE: GE)
Google Inc. - ( NASDAQ: GOOG)
Hewlett-Packard Co. - ( NYSE: HPQ)
Intel Corporation - ( NYSE: INTC)
International Business Machines Corp. - ( NYSE: IBM)
Microsoft Corporation - ( NASDAQ: MSFT)
Research In Motion Limited - ( NASDAQ: RIMM)
Southwest Airlines Co. - ( NYSE: LUV)
Starbucks Corporation - ( NASDAQ: SBUX)
Target Corp. - ( NYSE: TGT)
The Proctor & Gamble Company - ( NYSE: PG)
Wal-Mart Stores, Inc. - ( NYSE: WMT)
Yahoo! Inc. - ( NASDAQ: YHOO)

The Innovation Index will analyze the positions and standings of the top 20 Innovators at the end of each year. For 2007, there will be no further changes in The Innovation Index.

Disclaimer: I invest in the stocks comprising The Innovation Index.

On the same evening of the record quarterly earnings announcement, preceding a week which included the huge acquisition of DoubleClick (was DoubleClick a Smart Buy?), Google Inc. ( NASDAQ: GOOG) coyly announced the acquisition of Marratech's Video conferencing software on the Official Google Blog under the title: Collaborating with Marratech. No press release. No analyst call. No interviews. Just a simple announcement through a blog post by Google's VP of Engineering Douglas Merrill:

"As a company, we thrive on casual interactions and spontaneous collaboration. So we're excited about acquiring Marratech's video conferencing software, which will enable from-the-desktop participation for Googlers in videoconference meetings wherever there's an Internet connection.

We look forward to learning from the extraordinary ingenuity of Marratech's engineers as they focus on desktop conferencing research and development in Sweden, where they will continue to be located."

Why would Google do this? Why buy a company's video conferencing software when you are not going to go all out and talk about it? After all, Google is a key marketing innovator providing an advertising and search platform to tens of thousands of businessess worldwide. Why even put an update on the official blog afterwards that says: "To clarify some confusion, we acquired Marratech's software, not the company itself."

Contrast this particular Google acquisition with Cisco's acquisition of WebEx. Both Marratech and WebEx play in the same web collaboration and web conferencing market place. WebEx has over 2,000 employees; Marratech has 10, albeit a solid engineering team (as per Wikipedia). WebEx has industrial strength proven web conferencing and web collaboration technology used by thousands of corporations; Marratech has good technology that is used by tens of organizations.

For starters, Marratech has good software that include:
* High quality voice for groups with private audio feature
* Interactive group whiteboard including application and document sharing
* Multi party video

and provides support for:
* 256 bit Advanced Encryption Standard (AES) end-to-end encryption
* Support for Windows, Mac OS X and Linux on the client and server side.
* Support for bandwidth saving clusters
* Support for IP Unicast, IP Multicast or both
* Support for H.323 (dial in and out, E.164) and SIP
* H.264 video

Here are my top five reasons on why Google chose to acquire Marratech's video conferencing software and did not make a huge splash:

1. Google quite possibly entertained acquiring WebEx Communications Inc. ( NASDAQ: WEBX), but did not go over the top as it did with DoubleClick, and essentially gave way to Cisco Systems, Inc. ( NASDAQ: CSCO). WebEx would have been a smart play for Google in the enterprise market.
2. Google then decided to simply acquire video conferencing technology that it can essentially mold and embed it deeply within the Enterprise applications and Desktop. Google thus was looking at acquiring technology fast and for a small price.
3. Google will likely integrate Marratech into Google Talk, Chat, Google Apps, Google Desktop, and other Google collaboration products in the future. Marratech may even provide a superior audio solution than what Google has today. Google is only buying the software; it is not clear on whether Google will create a new team of engineers to work on the new solution, or outsource the development to Marratech.
4. Google may provide "Live Video Conferencing" powered by Marratech as an add-on to YouTube customers. This could be huge. YouTube has been a runaway hit with on-demand Video; combine this with live Video conferencing, and suddenly, Google can be powering the world's Video conferencing solution through the Google network.
5. Google will possibly use Marratech as a launchpad in Sweden and create a larger technology presence in the future.

Google Inc. (NASDAQ: GOOG) purchased DoubleClick for $3.1 billion in cash from San Francisco-based private equity firm Hellman & Friedman along with JMI Equity and management. Google is one of the Top 20 Innovators of The Innovation Index.

According to Google Press Release

"The combination of Google and DoubleClick will offer superior tools for targeting, serving and analyzing online ads of all types, significantly benefiting customers and consumers:

-For users, the combined company will deliver an improved experience on the web, by increasing the relevancy and the quality of the ads they see.
-For online publishers, the combination provides access to new advertisers, which creates a powerful opportunity to monetize their inventory more efficiently.
-For agencies and advertisers, Google and DoubleClick will provide an easy and efficient way to manage both search and display ads in one place. They will be able to optimize their ad spending across different online media using a common set of metrics."

According to Marketwatch story, "DoubleClick had been the subject of speculation about a possible acquisition. In late March, the Wall Street Journal reported that DoubleClick's owners were entertaining offers in the range of $2 billion from a handful of companies, including Microsoft."

Why would Google pay such a steep price for DoubleClick when DoubleClick was having revenue of only about $150 million in all of 2006 and was unprofitable as of April 2005? The acquisition puts DoubleClick's valuation at an astonishing and unheard of 20.66 times gross revenue. In comparison, Google's valuation is 13.7 times 2006 gross revenue. At 13.7 times gross revenue, DoubleClick would have been worth just over $2 billion. Compare this to recent acquisition of WebEx Communications (NASDAQ: WEBX) by Cisco Systems, Inc. (NASDAQ: CSCO) worth $3.2 billion, or 8.4 times 2006 gross revenue. The acquisition also puts tremendous pressure on Google's cash reserves that will deplete from $3.54 billion as of Dec. 31, 2006 to only $440 million. This means Google will not be able to invest freely in people and resources during all of 2007 and possibly 2008, until it rebuilds the cash reserve.

When Google CEO Eric Schmidt was asked about the large price being paid for DoubleClick in the conference call, Schmidt stated: "Google's board of directors felt after a detailed financial analysis (that) it's a very good deal for Google and our shareholders."

Bottomline:

Simply put, DoubleClick's innovative technology and ad platform provides Google an ability to provide display ads from agencies and advertisers. DoubleClick provides a ready-made platform, advertisers and agencies, publishers and relationships that have taken over ten years to build. However, some of these relationships could churn after Google completes the acquisition (case in point, YouTube acquisition and Viacom).

With Google's muscle power and market leading AdWords and AdSense platform though, DoubleClick business will see an incremental growth of possibly 50% to 100% year-over-year in the near future. At least this would be the expectation from Google Board.

This means, Google will see potential incremental revenue of $225 million to $300 million in 2008, $390 million to $520 million in 2009, and $675 million to $900 million in 2010 - so in essence, Google is paying about four times optimistic 2010 potential revenues through DoubleClick acquisition. Is Google being a bit carefree with the cash and money in the bank it has generated with the core business? Or is Google being bold and bullish by staking a key position in online display ad business? Should Yahoo! worry even more about Google? Why wouldn't Microsoft, AOL or Yahoo! pay $3.1 billion for DoubleClick, much less even $2 billion? It appears that a bidding war ensued between Microsoft and Google, and Google rolled the dice and placed a huge bet - perhaps Google did not want to come second in this particular bidding game. Microsoft could have benefited more from the acquisition. However, Microsoft must have found the price tag a bit too much to swallow, and decided to bow out.

On the other hand, DoubleClick acquisition is much closer to the core online Ad business that has made Google. It provides Google a real play against Yahoo!. And Google has the potential to further its marketshare in search advertising through inroads in display advertising. It also means that Google couldn't build out a display ad platform to rival Yahoo! within a given time and budget, and hence chose the acquisition route. Only time will tell on whether Google's lofty acquisition of DoubleClick for $3.1 billion is a Smart Buy. For now, the Google investors could be wary with all the questions, and may prefer a "wait-and-watch" mode until the dust settles. On the other hand, DoubleClick investors are having a big ball.

Global businesses strain across datelines to manage, collaborate and grow. Online communications innovator WebEx's (WEBX) response? Raise...