Subba’s Serendipitous moments

October 26, 2010

Ray Ozzie’s new memo to Microsoft

Filed under: Business,Model,Strategy — Subbaraman Iyer @ 3:58 pm
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Ray Ozzie is a legend. Bill Gates rated him as one of the five best programmers in the world. Ray created Lotus Notes – the popular email and collaborative workspace solutions in the world. Ray succeeded Bill Gates as the Chief Software Architect when Bill decided to leave Microsoft. He is truly a visionary and I had found his earlier memo The Internet services disruption very interesting

Now as Ray prepares to leave Microsoft, he has penned a farewell memo titled Dawn of a new Day. It makes interested reading as he explains several new shifts about where the “post PC world” is headed.

When I read both the memos I get a feeling that despite the 5 years that he spent there and his exhortation for changing, he hasn’t been effective enough. After his routine praise of Microsoft, he makes a subtle but pointed criticism of Microsoft’s business model when he says:

Yet, for all our great progress, some of the opportunities I laid out in my memo five years ago remain elusive and are yet to be realized.

Certain of our competitors’ products and their rapid advancement & refinement of new usage scenarios have been quite noteworthy. Our early and clear vision notwithstanding, their execution has surpassed our own in mobile experiences, in the seamless fusion of hardware & software & services, and in social networking & myriad new forms of internet-centric social interaction.

There is also a veiled pointer to Microsoft’s seemingly glaring weakness of not being able to conceive the future when he says:

In our industry, if you can imagine something, you can build it.  We at Microsoft know from our common past – even the past five years – that if we know what needs to be done, and if we act decisively, any challenge can be transformed into a significant opportunity.  And so, the first step for each of us is to imagine fearlessly; to dream.

The one irrefutable truth is that in any large organization, any transformation that is to ‘stick’ must emerge from within.  Those on the outside can strongly influence, particularly with their wallets.  Those above are responsible for developing and articulating a compelling vision, eliminating obstacles, prioritizing resources, and generally setting the stage with a principled approach.

But the power and responsibility to truly effect transformation exists in no small part at the edge.  Within those who, led or inspired, feel personally and collectively motivated to make; to act; to do.

In taking the time to read this, most likely it’s you.

At times, it almost seems that he is endorsing Google’s strategy and technology approach.

August 17, 2010

Google wants to find the next winner in search – Maybe Search 2.0!

Over the weekend, the Wall Street Journal published an interesting interview with Eric Schmidt – CEO of Google and a great tech visionary. Disclosure: I am a great admirer of Eric Schmidt.

The interview comes at an interesting juncture when Android seems to be on a roll powering 200,000 devices a daily and slated to be the dominant operating system on the mobile platform. Yet, of late, the media has been critical of Google, probably taking the cue from a weak stock price. Add to that the mindshare belongs now to Facebook.

Notwithstanding the negative media reports on Google, Eric in this interview shares several new insights about where Google is headed. Some of his insights and quotes are interesting:

Asked to comment on Android being given free as compared to the fat margins made by Apple he says:

"You get a billion people doing something, there’s lots of ways to make money. Absolutely, trust me. We’ll get lots of money for it."

"In general in technology," he says, "if you own a platform that’s valuable, you can monetize it." Example: Google is obliged to share with Apple search revenue generated by iPhone users. On Android, Google gets to keep 100%.”

That difference alone, says Mr. Schmidt, is more than enough to foot the bill for Android’s continued development.

Google’s real challenge though it dominates the search business:

The real challenge is one not yet on most investors’ minds: how to preserve Google’s franchise in Web advertising, the source of almost all its profits, when "search" is outmoded.

The day is coming when the Google search box—and the activity known as Googling—no longer will be at the center of our online lives. Then what? "We’re trying to figure out what the future of search is."

Now that’s what being visionary is all about – not reacting to Wall Street but figuring out the future before Wall Street has had the chance to position you. Maybe he’s taking the cue from Andy Grove’s philosophy of Only the paranoid survive.

 Google’s intriguing aspect of Search 2.0 can be summed neatly as he says:

"We know roughly who you are, roughly what you care about, roughly who your friends are." Google also knows, to within a foot, where you are.

Mr. Schmidt leaves it to a listener to imagine the possibilities of this social search and what its implications could be. In fact, Google is acutely aware that we are on the cusp of a new phenomenon called “Social search” which may be powered by the Facebook phenomena.

Google the creator of targeted advertising believes that it will dominate the category raises the bar:

"The power of individual targeting—the technology will be so good it will be very hard for people to watch or consume something that has not in some sense been tailored for them."

Finally, Eric presents the most intriguing and scary possibility of the future when he says:

"I don’t believe society understands what happens when everything is available, knowable and recorded by everyone all the time," he says. He predicts, apparently seriously, that every young person one day will be entitled automatically to change his or her name on reaching adulthood in order to disown youthful hijinks stored on their friends’ social media sites.

"I mean we really have to think about these things as a society," he adds. "I’m not even talking about the really terrible stuff, terrorism and access to evil things."

July 6, 2010

Google goes vertical to thwart Bing

 

In a very typical low key move Google acquired ITA Software, a 14-year-old company that makes software that organizes flight and pricing information, for $700 million in cash.

The significance of this acquisition is far reaching. With this, Google now becomes the critical intermediary between the provider of flight and pricing information and all their users including all the travel websites, airline websites and travel search engines. With this acquisition, Google now does not want to just send the search to another website, but also want to process the information for you in a meaningful and relevant way by organizing results (by giving flight options, price options etc.) As it goes into the “deeper search” and organizing information, it inevitably marginalizes the value being created by other travel web sites and travel search engines.

From here, Google could pursue 2 clear directions:

  1. It could become a travel portal itself, which is unlikely since it could attract regulatory action because ITA Software is being used by airlines and travel portals. It may not want to be seen as a “Big Bully”.
  2. It could add a new revenue stream to its well known advertising business – moving from cost per click (CPC) to cost per action (CPA) which definitely will be premium priced.

One thing is certain though: Bing (Microsoft’s search engine) which was headed in the area of vertical search will face more competition.

I believe that this acquisition is merely the beginning. Google can easily replicate the vertical search model in many areas including real estate, automobiles and other areas where the current Google search doesn’t give relevant results and where the potential for CPA exists.

April 14, 2010

Is Apple rewriting history?

Filed under: Business,Competition,Model,Perspective,Strategy — Subbaraman Iyer @ 12:27 pm
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Recent moves by Apple clearly indicate that Apple seems intent on rewriting history. Time will tell whether this is a brilliant move or a move that is just more than a misstep!

First, the attempted lock in of developers into its walled garden. The garden may be beautiful, but it is walled; not open. So far Apple has defied the odds of making its  walled gardens innovative and “developer friendly”. Now it is offering a mixed bag.

The iPhone and iPad is becoming a closed system which Apple only can control. Its current rift with Adobe is well known. The fight with Adobe is not about Flash but Apple’s fundamental approach to developers . Apple is insisting that all apps be developed using Apple’s proprietary tools with its SDK and discouraging porting of apps developed on other platforms based on its most recent license agreement. It clearly is an affront to all developers alike. It is clearly a move to limit developers from building apps for other platforms (read: Android)

Second, as a sop to developers, than as a new line of business, Apple offered the iAds an advertising platform for developers and offered to share advertising revenues. Advertisers can place ads in apps and when clicked direct users to a web site without leaving the app. Apple would serve up the ads and offered to give developers 60% of the advertising revenue to developers.

Just another way to keep the developers of more than 180,000 apps happy and help them make some money in the process!

As much as the media portrays this as yet another battle between Apple and Google, I do not see this way! The entire market for mobile advertising is less than U.S. $ 500 million accounting for just 2% of the total U.S. online advertising market. The revenue stream for Apple is insignificant. It is clearly a battle for keeping the developers firmly in the Apple fold and trying to deprive Google to build the developer community for the Android platform.

So make no mistake: It is not Apple taking on Google for advertising dollars, it is about developers!

Will the walled garden work or will open systems succeed or will both co-exist? Time will tell!

October 3, 2009

Salesforce.com into financial applications

Unit 4 Agresso has now teamed up Salesforce.com — the poster boy of SaaS to create FinancialForce.com that will produce SaaS based accounting, and financial management applications.

Well SaaS has been growing, but CFOs are mostly conservative and would not want to the data to be in the cloud. Hence the success of Financialforce.com will be keenly watched.

Now there are several interesting issues that come about with this joint venture.

For a start, it seems that Salesforce.com is a minority investor. Salesforce.com’s presence will undoubtedly create higher visibility for SaaS based financial applications. Hence other vendors will follow suit giving the SaaS proposition a greater momentum. Enterrpise software vendors who offer products in the mid market space like Oracle, Microsoft and SAP will have to respond quickly to this trend.

But with this association, Salesforce.com also seem to be sending mixed signals to its App Exchange partners who use the Salesforce.com’s Force.com platform to build new applications. Well, they could build an application only to realize that Salesforce.com might one day compete with them. Recent acquisitions by Salesforce.com in many of the App Exchange parnters’ businesses have not made Salesforce.com popular with many of the partners. Yet, there’s no compelling SaaS platform currently.

It looks like Salesforce.com needs to clearly clarify its positioning, strategic goals and its partnering model.

September 30, 2009

Vodafone takes the battle to the mobile phone vendors

A few months back one of analyst friends asked me whether it is possible for the mobile service provider to create their own App Stores and be successful. My opinion to him was they can do it or rather they should do it, else they have not even joined the battle for customer loyalty. The talk turned to Singtel which is one of the largest operator based out of Singapore and it has a global presence due to its joint ventures and acquisitions in many countries. I remember telling him that it should be one of the large operators who will have the reason to do it.

Now Vodafone has done it. Vodafone 360 is a mobile web service that provides music downloads, integration with Facebook and Twitter, and supports several handsets. In a way it is competing with Apple’s App Store, Nokia’s Ovi and other App Stores created by the mobile phone vendors.

Now Vodafone’s Telco 2.0 model (called efficient pipes) is nothing new. A lot of mobile service providers thought about that but shied away from taking the plunge. Now Vodaphone which has over 300 million consumers in over 30 countries has taken the challenge.

As Apple and Nokia increase their emphasis on the App Store and have made a success of it (Apple’s App Store’s success is chronicled here), the mobile service providers can’t afford to be silent spectators.

But whether the service providers with their current competencies would have the ability to build an App store and an application eco-system is a big question.

September 23, 2009

Dell seeks growth in Perot Systems

Dell made a surprise announcement to acquire Perot systems for close to $4 billion. Perot Systems in a IT services firms, predominantly US centric with government and the health care verticals accounting for over 70% of its revenues. By acquiring Perot Systems, Dell is just trying to follow the footsteps of IBM and HP by being a player in the IT services organization.

In my view, this is not a great step for Dell and I am disappointed. Here are the pros and cons:

Vertical presence: Perot Systems may have a great presence in the U.S. government and healthcare but outside of these verticals and outside U.S. it is a very marginal player. The healthcare sector may see some headwind thanks to the impeding reforms but the healthcare sector has been slow to innovate and have less appetite for new IT technology and services.

Margins: First Perot Systems doesn’t have great margins; in fact its margins are lower than industry standards and the last 6 months the results have been disappointing. For the 6 months ending June 2009, Perot made $59 million on a sales of $1.3 billion, which translates to a net margin of just 4.5%. Last year Perot Systems earned $117 million on sales of $2.8 billion.

Synergy: It is likely that Dell’s plan is to use Perot Systems to undertake IT services within its enterprise customers. This looks tough, as both the organizations have a different sales/engagement model. There is no significant synergy, and no integration issues as well. Dell is a $60 billion business and the Perot IT services business is relatively insignificant.

Strategic fit: While the acquisition gives Dell a services outfit, it is unlikely to be a strong strategic fit. Dell’s competencies are in supply chain, direct marketing, agility to respond and being able to sell volume products. The services business is an entirely different kettle of fish and the verticals where Perot is strong — the government and the healthcare are not noted for being agile. How this acquisition could become the “anchor” acquisition for IT services is difficult for me to understand unless Dell is planning on a roll up strategy to acquire other IT services firms.

With this step Dell also seems to be going on a different path. All trends and figures indicate that Dell’s position is becoming difficult with new areas like cloud computing, SaaS and other developments. Dell needs to bolster its offerings in that space to contend with the likes of Cisco and IBM and the Oracle-Sun combination as all of them are beefing up their offerings on the server space.

A strong product focused organization with its unique DNA and specifically strong organization culture will have to contend with several hiccups to make sense of this acquisition. IBM, HP and other It services organizations are unlikely to be impacted.

September 1, 2009

At Telstra you get a bonus for delayed IT projects

Welcome to the Telstra’s compensation model.

Greg Winn, the Sol Trujillo-appointed chief operating officer of Telstra until February 2009, was paid a bonus of $2.2 million for outcomes related to the delivery of the carrier’s IT transformation, which has since been revealed to be running $200 million over budget. Read the details here.

What’s interesting is that despite it running over $200 million over budget ( the project was supposed to save $100 million a year in IT expenses), the CIO feels satisfied that many of the objectives of the five year transformation was achieved.

David Thodey — the Telstra’s CEO believes a $200 million overspend should be considered a good result, considering the awful experiences other industries have had attempting an IT transformation.

“I do not know of a better IT transformation,” he said. “I’ve never seen a transformation come in that well.”

I am wondering if this is Telstra’s compensation policy and if I can get a job there. I am also curious to study Telstra’s goal setting methods, budgeting process and their compensation model.

Last year, I was advising a IT services firm on the strategy approach to managing a business transformation program for one of their clients. Knowing the risk of such a program and the various dependencies, there was a discussion of how the compensation structure for the team should be built. While I didn’t have a hand at making the final recommendation, the consensus was that the bonus scheme should be weighted in favor of the benefits realization proposition. Benefits in this case was actual cost savings and hence the cost savings need to be computed, independently verified, communicated to the client who has to accept it. Only then could the bonuses be paid.

Ironically, the IT services firm has Telstra as one of their large accounts. I hope they don’t adopt the Telstra model.

Microsoft Windows under siege.

Operating systems wars have been skirmishes. They haven’t produced any major upsets. Microsoft dominates the OS completely and despite the Linux aficionados, Microsoft’s strong hold remained unchallenged especially at the low to medium end servers and in desktops. It is a different story in the mobile space though.

But things are slowly changing and my sense is that in the next couple of years, Microsoft will face more heat compared to anything that it has ever faced on the server front.

Microsoft will have to increasingly contend with VMWare which has bolstered its arsenal with its acquisition of Springsource – maker of open-source software development tools which can analyze and optimize the application performance. This could allow VMWare to undermine the Windows operating system.

Despite all the talk about the huge growth of virtualization, the untapped market is still large. Currently virtualization has been done mostly at the data centers (which is where the complexity is and where the cost savings are) and even there the current estimate is that less than 25% of the servers are virtualized. This creates a big opportunity. It is no surprise that Cisco wants a piece of this market and it is targeting them with its Unified Computing system.

Well, there’s a desktop market and a notebook market and it will require a different approach to tackle this market. Currently the focus seems to be on the servers.

Microsoft cannot afford to ignore this market. In fact it announced Hyper V Virtual machine as part of its Windows Server 2008 and it is likely that it will offer several enhancements in time to come. Moreover, Microsoft can afford to give its Hyper V free. With other contenders like Citrix Xen, Virtual Iron remaining in the fringes, it is going to be a battle between Microsoft and VMWare. And again, this battle is not just one of functionality or product features, but increasingly fought on a business model.

In some way, it could very well resemble the browser wars of the nineties.

But from Microsoft’s standpoint the battle for the OS has another contender. Google with its web based software for office and productivity applications is also undermining the Windows operating system.

The early impact on Microsoft is here to see. However it is too early to announce the demise of Windows.

So, the skirmishes are over and the battle is being fought on many fronts.

August 11, 2009

Mobile phones serve as catalysts for social media.

The mobile data services market is on an unprecedented roll. For the first time, wireless data revenue in the U.S. passed $10 billion in Q1 2009. Wireless data revenue in the U.S. itself maybe $42 billion by 2009 as per the respected analyst — Chetan Sharma who has provided details in his market update. The U.S. is now is the largest mobile data market, ahead of Japan and China. Verizon’s data revenues are close to $4 billion, just shy of NTT DoCoMo’s. The top four U.S. carriers figure among the top 10 global operators by way of mobile data service revenues.

I was curious to find out what could have led to the phenomenal surge. While there could be a few factors, in my view the single largest contributor has been the growth of social media. Let me explain:

As more and more people sign on to social networking platforms like Facebook, there is a compelling desire to share and be part of the communication. This naturally implies that more people are signing up for the mobile data plans which are far more profitable for operators. The key catalyst that contributes both to the social media and to the operator’s profit pool happens to be the ubiquitous mobile phone.

A simple, easy to use browser and a good camera on the phone is all that is needed. When the smart phone was invented, I bet no one saw this as a potential application. The iPhone showed what is possible and soon a variety of devices has made access to social media quite easy.

Now, mobile operators for a long time have tried to offer a variety of applications, but barring a few none took off. This only goes to show that managing a network and managing a application portfolio calls for different competencies. And suddenly when one was least expecting, there’s a big surge in mobile data services.

INQ Mobile — owned by Hutchinson Whampoa has launched a Facebook phone. In Hong Kong, where the INQ1 launched back in March, nearly 50 percent of its owners regularly use data services on a level that is four times higher than the typical 3G user base. Facebook usage is also 3-4 times higher than the average on other 3G devices on the 3 Hong Kong network, the company said. Soon we may have a Twitter phone as well.

So, we are back to where it all started: Carriers have become dumb pipes and the innovation is happening around the ends of the pipes — at the device level and at the application level.

So, like I normally say about innovation, the unintended effects of an innovation caused by seemingly disparate tributaries often causes a flood in an area that we least expected to happen.

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