Subba’s Serendipitous moments

October 28, 2010

Extrapolating the past Vs Inventing the future.

Filed under: Business,Innovation,Leadership,Learning,Perspective,Strategy — Subbaraman Iyer @ 10:41 pm
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Vinod Khosla –a co-founder of Sun Microsystems and its first Chairman is a highly respected Silicon Valley investor as the general partner of Kleiner Perkins. Over the last few years, he has moved away from technology to Energy and Greentech.

Yesterday he delivered an interesting talk at Caltech on Extrapolating the past Vs Inventing the future. The talk was peppered with some brilliant statements, some philosophical musings and scenarios for the future. I found the talk scintillating The entire talk can be viewed here. (The audio quality at the beginning of the session is poor quality, but when Vinod begins his talk, the audio quality is excellent)

Here are some of the excerpts:

Extrapolating the past is ridden with mistakes starting from forecasts:

On why forecasts go wrong (he talks about a number of forecasts that’s gone completely haywire:

Assumptions get embedded in our system. We don’t question our assumptions. Forecasting is about our embedded assumptions not explicitly stated.

On quantitative modeling:

Chasing the false precision, chasing the 3rd order effects

Input the measurable, ignore the immeasurable

Obscured embedded assumptions.

He concludes the section after giving several instances by saying that “The more rapid the change, the less likely are the assumptions to be right”.

On why inventing the future is absolutely critical:

He starts by explaining the Black Swan effect giving several examples and declares that much of what we assume to be true is retrospective predictability. Some great statements that he makes:

Improbable doesn’t equal unimportant and the only thing that’s important is the improbable.

No matter where you look, there’s room for innovation, however unlikely it looks

Bring me the ideas that has a 90% chance of failure!

If you take enough shots at the goal, failure doesn’t matter; it doesn’t exist.

“Imagine the possible”.

His final words in response to a question from the audience sums it all: “The talk is just to give a perspective; but most importantly is to convey an attitude”.

Well said, Sir !

April 22, 2010

Facebook wants to be the Internet

Filed under: Business,Competition,Leadership,Strategy — Subbaraman Iyer @ 12:01 pm
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Facebook’s f8 conference yesterday is a significant event. The Facebook juggernaut seems unstoppable. It will go down in history when Facebook revealed its intent to revolutionize not just the Internet, but act as the default Internet.

Facebook launched 3 major “features”, all of which may seem pretty much innocuous but that could have a dramatic and profound impact. Though I had referred to some of the implications in my talk on How Facebook will impact us and Why CIOs should meet the Facebook at the CIO conference in Singapore, I didn’t expect it would come to us so soon.

Becoming social is default: Facebook repackaged the Social graph as Open graph. With this it is not only possible to see social connections between people, but also connect people with the interests – be it books, movies, places, brands and the list is endless. As Mark Zuckerberg  said: “The web can can become a series of personally and semantically meaningful connections”. There’s nothing more sticky in the world than a Social graph.

This will surely accelerate the move to search becoming more social. I am quite sure that the “social search” phenomenon will be something that will gain preference over the normal search in many product categories. Businesses and brands will perhaps consider shifting marketing campaigns to leverage this in lieu of the traditional web page.

As a corollary, the Web which has been defined by hyperlinks (which Google exploited to its advantage), will gradually morph into social connections – with likes, dislikes, interests, behavioral patterns etc. that could become increasingly machine readable and all social interactions get assembled in a large database which Facebook can exploit.

Social plugins:The social plugins may be viewed as mere widgets, but again the impact is far reaching. The LIKE button offers not just “instant personalization” but enables to create a persistent and continuous relationship with the entity – be it a book, music album, food, almost anything. It feeds into the Open graph seamlessly. Any user who searches for the book will immediately bring it to the Open graph from Facebook’s search engine and with another click can take it to any book site.

Mark mentioned in his address that he expects to have 1 billion LIKES within 24 hours of the launch.  Quite possible given that Facebook now has over 30 major partners like CNN, ESPN, IMDb and others. With about 30 billion LIKES a month, in addition to over over 25 billion shares a month (without LIKES), Facebook will become the largest sharing site in the world.

The social plugins will be the much needed catalyst for viral marketing or buzz marketing. Nothing else comes close. It will take a while before marketers learn to exploit this, but the tools are already there.

There are other features targeted a t developers and its implications will become clearer soon.

Other interesting developments:

Growing numbers:Facebook is approaching 500 million subscribers and close to 100 million subscribers access this through the mobile. In fact my view is that the killer application for the smartphone is Facebook quite serendipitiously. The Facebook Connect itself has close to 100 million. With the social plugins and open graph, Facebook Connect has become unassailable.

Microsoft alliance:One clear application that may not strictly qualify as social plugin, could be Microsoft’s Docs.com which enables users to share, edit, view web based documents with their Facebook’s friends. Obviously this is a frontal attack on Google Docs.

The implications of Facebook’s initiatives promise both unparalleled benefit and great risk depending on one’s worldview. While on the one hand it will make sharing and connecting a snap, it will enable Facebook to own every activity on the Internet. If people were scared of Google’s power and influence, Facebook takes this fear to new heights – it will become the Web itself from the big glue that tied the Web itself.

In that role, Facebook will have to be the most trusted entity in the world. It is awesome but on second thoughts leaves me scared.

February 10, 2010

SAP faces the moment of truth

Filed under: Business,Competition,Leadership — Subbaraman Iyer @ 10:58 am
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In a surprise move, SAP announced the resignation of Leo Apothekar as CEO of SAP and instituted a co-CEO model. In retrospect, the problems at SAP has been in the making for a number of years.

SAP’s financials fell in 2009, like many others but it was in a recovery mode. In the full fiscal year 2009, total revenue was down 8% to €10.67 billion ($15 billion) and net income was down 5% to €1.83 billion (€2.57 billion). Q4 revenue was down 9% to €3.19 billion or $4.8 billion. Net income decreased 12% to €727 million ($1.02 billion) or €0.63 per share.

Software revenue in Q4 declined 15% y-o-y to €1.12 billion but doubled from €525 million last quarter. Software and software-related service revenues were down 4% to €2.57 billion but up from €1.94 billion last quarter. For the full year, software revenues declined 28% to €2.61 billion. Software and software-related service revenues were down 3% to €8.20 billion.

In the SME segment, SAP has just  73,000 customers globally despite making multiple product offerings like Business ByDesign, SAP Business One and SAP All-in-one.  SAP defines SME as business with 100-500 employees and revenue of less than $500 million. This was a clear under-perform given that Oracle managed to penetrate this segment.

SAP failed to execute the SME strategy effectively, something that I clearly foresaw about which I commented here.

The moment of truth was not just the revenue decline, but the impact of the lack of strategy both internally and externally.

This can be attributed to SAP’s lack of commitment to the SaaS strategy despite making public announcements about its willingness to offer the SaaS model. SAP’s strategy that Business ByDesign would essentially serve as an ‘on-ramp’ to its on-premise customers rather than be a distinct separate offering is a flawed one. This created huge confusion in the minds of the customers (something I had told them in 2007). Further it seems that this confusion spread amongst the internal staff who never understood how to position the SAP’s offerings in the market place. Hence I am not surprised that 50% of the internal staff didn’t express confidence in the executive board.

SAP’s decision to increase maintenance fees in the midst of the economic slowdown didn’t win any friends amongst the customers. It has shaken customer confidence about SAP’s customer orientation.

Is the co-CEO model the solution to the leadership challenge amidst such strategic and operational challenges? I am not so sure. SAP has had several leadership challenges in recent times as listed here.

Hasso Plattner was his usual candid self when he said “ But to be profitable, we will have to be a happy company and our customers have to be happy as well”. .

So expect Hasso Plattner to be not just visible but with his hands firmly on the wheel.

October 21, 2009

The Apple juggernaut rolls on

Filed under: Business,Competition,Leadership,Strategy — Subbaraman Iyer @ 1:23 pm
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Apple’s juggernaut continues unabated going by the latest results. Thanks to the iPhone’s game changing play that’s elaborated here. A blow out quarter.

Record shipments:Apple sold 7.4 million iPhones this quarter (ending Sept 2009)which is a 7% growth from last year. It sold 3.05 million Macs in this quarter up 17% a year ago. Both of these are milestones in Apple’s history. Sales of iPod touch were up 100% year over year. iTunes store is now in 23 countries and has become the world’s largest retailer.

Cash: Apple has $34 billion in cash this quarter compared to $31 billion last quarter. There’s a hint that there could be a share buyback soon. No debt. And to put this in context, this cash hoard is greater than that of Microsoft and more than the market cap of Dell.

Profit: A quarterly profit of $1.67 billion on revenues of $9.87 billion. It is the most profitable quarter ever in Apple’s history.

Future outlook: The future outlook seems still better with iPhone making an entry in on of the largest markets in the world — China, followed by Korea and a few other additional countries.

New accounting rules: Apple can recognize revenues from its subscription devices immediately rather than spreading it over a 2 year period.

Competition: Apple’s competition is actually languishing. Nokia the largest mobile device vendor reported a $834 million loss — the first in a decade due to falling mobile sales. Its smart phone sales saw a huge decline in market share as well. Sony Ericsson also suffered losses.

I am wondering whether Nokia or Sony Ericsson will make a bid to acquire Palm.

October 16, 2009

Will India ever emulate Finland?

I moaned about the state of broadband in India here. Based on some more research I found that the performance of broadband even in metros are poor. Reliability is an issue, committed performance are not delivered, and getting premium performance to test high bandwidth applications is impossible.

Let’s see Finland which has a small population, but has always had a strong, liberal telecom sector.

Finland introduced laws which guarantee broadband to every resident living in the country. This is the first such guarantee anywhere in the world. Starting July 2010, every person in Finland will have the right to a one-megabit broadband connection as an intermediate step, says the Ministry of Transport and Communications. By the end of 2015, the legal right will be extended to an impressive 100 Mb broadband connection for everyone.

Will India ever introduce such a guarantee? It would be mind boggling to see what the innovative entrepreneurial Indians will do with powerful broadband access!

We could just catapult to world stage as Korea did in this decade and the way China is poised to do in the next decade. And honestly, I don’t understand what’s holding them back!

October 2, 2009

Cisco’s brilliant acquisition of Tandberg

Recent acquisitions by Dell and Xerox have something in common. Both acquired companies which are far away from their core competencies in an effort to find stable growth. They acquired predominantly U.S. centric IT services firms. I explained my disappointment with Dell’s acquisition of Perot Systems here. Xerox recent acquisition of ACS also evoked a similar thinking in me. It is very difficult for a pure play product / technology organization to blend well with a pure play services organization. The organizational DNA are too different, growth trajectories are quite different, organizational processes lend itself to little synergy. In short, I am not very high on such acquisition moves.

Cisco is different.

Cisco announced an all- cash offer to acquire Tandberg for $ 3 billion. Tandberg — a Norwegian company sells smaller and less priced video conferencing systems. This is a perfect fit for Cisco’s more expensive TelePresence systems which has been a great success. I think this is a brilliant acquisition since Tandberg’s gross margins is 66% and has clients in US and Europe. This acquisition would enable Cisco to sell the Tandberg products to companies which cannot afford the TelePresence. With this acquisition, Cisco would dominate the video conferencing systems for some time. More importantly the acquisition came in quite cheap since Cisco just paid 11% premium over Tandberg’s closing price.

Cisco has always acquired companies that in some way or the other generated more Internet traffic creating in turn demand for its core business — the networking hardware business. The way it is going to unleash its Unified Computing strategy will of course be interesting and one has to wait and see how it provides the synergy to the networking hardware business. Cisco’s ability to shake off entrenched players in fairly established market segments will also be evident in a couple of years.

Over the last 5 years Cisco has acquired 40 companies — both big and small and they have helped Cisco plug the gaps in the technology and product roadmaps admirably well. They also have had little problems integrating them into the Cisco model.

Cisco has $35 billion in cash which means further acquisitions are on the way. I only hope they don’t go with the flavor of the month and acquire another U.S. based IT services firms !

September 30, 2009

BlackBerry’s opportunity is now.

I was taken aback when I saw the RIM’s stock suddenly drop 17% last week. By all accounts, it had a strong Q2 results: Q2 revenue was up 37% y-o-y and 2% q-o-q to $3.53 billion on shipment of 8.3 million units. Net income was $475.6 million or $0.83 per share versus $495.5 million, or $0.86 per share last year and $643.0 million, or $1.12 per share in the prior quarter. Gross margin improved to 44.1% from 43.6% last quarter due to reductions in raw material costs and shifts in the product mix. The company ended the quarter with $2.5 billion in cash, up by $78.5 million over last quarter.

It gave a conservative forecast for the quarter ahead. I think the analysts were expecting bigger revenue growth. And this explains why the stock got beaten.

Looking beyond the immediate quarters, RIM faces several strategic challenges and threats — iPhone getting entrenched within the corporate enterprise which was RIM’s sweet spot, imminent price wars with Apple and Palm and the emerging Android phones likely to hit the market anytime.

Unlike Apple, RIM hasn’t made much strides with the App Store. Apple’s success is highlighted here. RIM’s App Store was launched only in April and has seen about 20 million downloads compared to Apple’s 2 billion downloads. It needs some serious work here and may be a cutting edge application. It also needs to pay serious attention to building an application eco system for business applications.

I think their deal with Verizon will be watched with interest as Verizon already has deals with Palm and Motorola’s Android. RIM is apparently coming up with several new models, but the competition is hotting up.

I think the next 2 quarters would be key for RIM to regain the momentum it seems to have lost. The opportunity is now.

September 23, 2009

Netflix’s “crowdsourcing” approach is a success

I have been following Netflix unique experiment to improve its Web site’s movie recommendation system. This week Netflix announced the winner of a three year contest with the winner BellKore comprising of statisticians, computer scientists, data mining experts netting a cool million dollars.

The rules of the competition was fairly straightforward. The qualification for the prize was that the winning team has to improve by at least 10% the prediction of what movies customers would like as measured against the actual ratings. The teams were grappling with a huge data set of more than 100 million movie ratings.

Over the past three years there have been 44,014 entries from 5,169 teams in 186 countries vying for the top prize

I think with this experiment and with Google’s experiment with crowdsourcing described here, there will be a significant shift towards innovation management. The fact that there exists more intelligence and wisdom and the collective effort outside the company’s eco-system has gained credibility. I expect many such organizations embarking on the contest mode to solve intractable problems.

There are a number of lessons that this contest brings about.

First, it indicates that there can be a marketplace for innovation where companies could post their product development challenges and for an interesting contest, the best brains are willing to compete. It sharpens their own abilities.

Second as the BellKore team and other teams demonstrated there is a willingness for disparate people to actively collaborate. While cooperation and collaboration within many organizations has been challenging, I wonder how such disparate people could come together and collaborate easily for a bigger goal.

Third, for people who believed in having an inhouse R&D and saw that as a competitive advantage, this experiment seeks to blow that myth away.

Note: Netflix Prize 2 would challenge competitors to recommend movies based on demographic and behavioral data.

September 20, 2009

U.S. Federal government to use the cloud and the App Store

Vivek Kundra — the Federal CIO and who is actively promoting the innovation agenda announced Apps.Gov. It includes a variety of business applications, hosting and social applications all housed in a cloud.

All the federal agencies will be able to buy the cloud computing applications and services and this will surely bring the cost of IT services in the federal budget. It is also a very innovative way of standardizing applications.

What Apps.Gov also ensures is that the government enjoys the same benefits that technology changes and pricing models have to offer to the consumer. The government also can reduce the cost of IT infrastructure like building data centers a, servers, storage. Some applications may even be free.

I do not know how he is going to handle the privacy and security issues, but I guess given the size of the federal IT budget, many vendors will come forward to build the standards needed for the Government to be their customer. Google has already responded by announcing that it would dedicate a part of its computing infrastructure to serve the federal government.

Sure, other vendors will follow.

All in all, this is a great initiative and something that other Governments should also consider.

September 10, 2009

Steve Jobs with a new liver and astounding numbers.

Steve is back with a new liver. He’s back and his unexpected presence at the Apple event got him a long standing ovation. He mentioned that he now had the liver of a person in their mid-20s who died in a car crash. He talked about the significance of organ donation. He ended by telling everyone to think about organ donation, as it saved his life.

That’s wonderful Steve. But would you create a charity organization for organ failures, do something to encourage more organ donation and set an example. When can we see Steve the philanthropist?

That way Steve you would have put your wealth, creativity, charisma and presence to a great cause.

Steve went on to mention Apple’s great successes:

iPhone:

30 million iPhone have now been sold worldwide in a little over 2 years.

There are now over 75,000 apps in the App Store

There have now been some 1.8 billion App Store downloads

The 3.1 update for iPhone and iPod touch will launch today.

iTunes:

     iTunes is now the #1 music retailer in the world

     8.5 billion songs have been downloaded from iTunes

  There are now 100 M accounts on iTunes, making it one of the largest stores on the web

     iTunes 9 is launching today, with a revamped look and feel

     An easier way to organize apps on the iPhone and iPod touch

     iTunes LPs (this is the “Cocktail” feature)

iPod:

     Apple has sold over 220 million iPods to date

     It’s one of the most successful products in history

     In the U.S., the iPod has 73.8% market share

     The next biggest MP3 player is “other” with 18%

     “Microsoft pulling in the rear with just about 1%”

     There have been over 20 million iPod touches sold.

     So combined that’s 50 million iPhones and iPod touches.

     21,178 games and entertainment titles in the App Store now

     Compare that to 3,680 on the Nintendo DS and 607 on the Sony PSP

Amazing mind blowing results and again Steve at this best !

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