Subba’s Serendipitous moments

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 !

September 1, 2009

Wikipedia wrestles with a growth and direction dilemma

Wikipedia has been an unqualified success of this decade. It is just not the product but the way they have created it. They spawned a new ideology, a new culture. In fact several enterprises have started to develop their content management and even the knowledge management practices around a wiki model.

However Wikipedia itself faces a deep dilemma about its growth and direction.

It started off as an encyclopedia from voluntary contributors and complete freedom to improve the content. Now, in its latest announcement it will impose an editorial review on articles. So, now the notion that everyone can change the entries is no longer true. In my view this is inevitable. A great ability to influence has to be accompanied by an equal amount of responsibility.

Currently they are doing a review about their culture and growth direction. I am particularly pleased that they are doing that because one of their commitments was to give a free encyclopedia to the world in possibly every language. They clearly seem to have lost sight of that.

The interesting thing is that Jimmy Wales — the man who created this movement and now an iconic figure is most critical about the direction itself.

Unlike corporations, Wikipedia is run by a Foundation which means that they have followers wedded to a particular cause. Changing the growth trajectory is not simply a matter of a CEO or the Board making a decision, but they would need to carry the thousands of volunteers with them — no easy task.

This would be an interesting organizational change to watch and learn from.

August 4, 2009

Google and Apple are now confirmed rivals

If there was any doubt about the relationship between Google and Apple, the abrupt resignation of Eric Schmidt — Google CEO from the Apple Board should lay it to rest.

I wonder whether the FCC’s investigation of Apple yanking out Google Voice has something to do it. I wrote about their possible rivalry here, but before I could even conceive of possible actions, the resignation was announced. Coming to think of it, Google and Apple are bracing to compete with each other. Google’s Android which will soon be adopted by many device vendors will be in direct competition with Apple’s iPhone. And the Chrome OS will be competing with the Mac OSX.

But is this new? These moves have been going on for the past few years and while the conflict of interest wasn’t that sharp the yanking of Google Voice seems to have brought all that into the open.

I admire both companies. Both Steve and Eric are respected Valley veterans. They have been role models for me. Nonetheless I have to say they always had antithetical approaches to shaping the future of the consumer experience. Some day there was bound to be a conflict.

Apple believes in creating cool products, but being a walled garden. It has fans, not customers. Even though the iPhone is supposed to be open, every application must be approved by Apple. I had talked about the walled garden approach here and it seems to have worked very well for Apple.

Google has adherents. It believed in openness and its whole purpose (even for its Chrome OS) was to reduce the significance of devices in favor of applications that will reside in the cloud. And once the cloud becomes the organizing system, the devices — be it the phones or the laptops do not matter.

Google crowdsourced its innovation. Apple built an innovation value chain in-house. Both models were successful. Yet I think at the core there is a deep philosophical conflict which manifests as a fight between the open and proprietary approaches.  I wrote about it in the mobile phone industry here and hence am not surprised that a rivalry has come about.

The Google Voice episode is just the beginning. The FCC enquiry may reveal more.

And if the Google-Microsoft war and the Apple-Microsoft war, wasn’t interesting enough, we will see a third war — the Google-Apple war.

August 3, 2009

Be yourself

“Tension is who you think you should be. Relaxation is who you are.” — Chinese proverb.

I can’t think of a more simple, yet a deep truth. I was discussing my earlier blog post with 2 of my friends. Both believed that to be successful one should adapt, which means constantly changing oneself to circumstances. And if one has to change, one has to let go one’s true self. I will write my response to their observations in a separate post, but for now, I just want to do a follow up post which hopefully should clarify my stance.

I think most of us have a tendency to sell ourselves in situations even when we faintly perceive that we are being evaluated or judged. We worry too much about who we think we should be, instead of just being who we are. We over-value what we aren’t and undervalue what we are.

Regardless of where, when, or why of any situation, we should always be ourselves. I am specifically referring to a staying true to one’s principles and faith. The challenging part of this that there will be times when we need to challenge ourselves from a personality standpoint. We cannot just say, “Well, that’s the way, I am”. We all have such opportunities to challenge ourselves in matters of ability, growth, mental models and even beliefs. I say this with a smirk because I can tell from experience that it isn’t easy, though it may sound so.

People miss the amazing leverage that can come into play when they do buy into their vision for their own life and determining what’s preventing themselves from achieving it.

Death isn’t the greatest loss in life. The greatest loss is what dies inside of us while we live.

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