Bits & Pieces…

Bits & Pieces… acquisition talk seems to have come to naught…

A few days ago, reports surfaced saying that Microsoft had made an offer of $55bn. that was rebuffed by the Salesforce board. The rumor is that Benioff and co. considered the offer to be undervaluing the company by as much as $15bn., the implication being that they would not consider any offer of less than $70bn. The same reports indicated that Microsoft CEO Satya Nadella became nervous about committing to an acquisition of this magnitude. This is of course all speculation, to be accompanied by an appropriate discount.

In terms of strategic value, an argument could be made that with its gorilla power in Saas-based sales force automation and related CRM categories becoming more solidified by the day, and still growing at 20%+ annually, Salesforce would be an immediately accretive acquisition for any company that intends to build a $20bn. plus business in cloud revenues in the next 3-5 years. Capturing Salesforce before a close competitor did so could also be considered a major differentiator. But as we’ve seen in enterprise/B2B tech to date, whenever a company reaches a valuation of $10bn., $20bn. or more, it becomes very difficult not only to acquire (there being very few potential buyers who can afford to pull the trigger), but also very tricky to digest successfully – whether from a portfolio strategy, product integration, installed base, and/or business manageability perspective.

Thus it may be that the time has come and gone for Salesforce to become food for a hungry goliath such as Microsoft, IBM, Oracle, or HP. This is without considering Google or Amazon, neither of which I believe would have a clue about what to do with Salesforce as an acquired entity (though such an obstacle has not always deterred desperate buyers from taking the plunge). Next move for Salesforce: Put the M&A distraction behind it, and refocus on growing the business – unless this episode was just a trial run for an actual acquisition. We shall see.

Big data alliance targeting faster adoption of Hadoop…

It was interesting to hear about the big data alliance announced in mid-February, aimed at accelerating the adoption of solutions based on Hadoop – the best known but still relatively hairy open-source method for distributing, managing and processing very large and often disparate amounts of data. The initial group of companies that signed up includes IBM, GE, Pivotal, Verizon, and Hortonworks. This type of multi-vendor initiative, often undertaken in after a new technology has experienced a few years of more hype than actual adoption, is a logical step aimed at encouraging standardization of code, common development platforms to stimulate application development, and certification among vendors and resellers, all targeted at accelerating the formation of a sustainable new high-growth category. It was interesting to note that Cloudera (among others) has elected not to join the alliance – at least not yet. Back in February, Mike Olson, co-founder and chief strategy officer of Cloudera, was quoted as saying that his company believes that this new initiative is redundant. His reasoning was that the Apache Software Foundation, the open source group that has supported Hadoop from the beginning of its launch in the marketplace, is the right forum for ensuring industry-wide standards for Hadoop. Unfortunately, open source forums or collaborations are not always reliable as fosterers of faster adoption because when they are unfocused and/or un-led, though the Openstack foundation made reasonable progress after its founding by Rackspace. In the end, pragmatist customers, always the largest bloc of target customers, will undoubtedly prefer to opt for what they see as a default choice. So, hopefully one or other initiative will win out over the other.

Cloudera’s view gives voice to the foreseeable tug of war between open source advocates who make their money from servicing and supporting the technology, and proprietary vendors who make most of their money from IP license renewals. The concern among open-source advocates is always that the IBMs, Verizons, GEs, and VMwares of the world will attempt to co-opt Hadoop, as they have in the past with Unix and, to a much lesser degree, Linux. However, these days most vendors acknowledge that the days of purely proprietary technologies winning the adoption and upgrade wars are numbered. After the successful adoption of Unix in the 90s, followed by that of Linux in the 2000s, enterprise customers have shown that they will adopt service-led solutions that are based on these non-proprietary free technologies. One of the major liberating aspects of the cloud era of enterprise computing that began around 2008 or so has been to make IT organizations increasingly averse to vendor lock-in because, for example, they now have alternatives through Openstack and the Open Compute Project as legitimate alternatives. These days customers want to avoid the future threat of having to pony up millions of dollars for proprietary technologies that are embedded in their data centers but add less and less value in comparison with newer, more open technologies. Thus major players in on-premise computing such as IBM, CA, and BMC in mainframe software, Oracle and IBM in Database Management Systems, SAP and Oracle in ERP, and VMware in virtualization, are all increasingly vulnerable to the risk of customers opting out of maintenance contract renewals. It doesn’t help them now that, too often, the cost of the renewals has been extortionate, making customers feel more like hostages than clients.

This new big data alliance signals a couple of things:

  1. A number of leading traditional and younger cloud vendors are anxious about the slower than hoped-for adoption of Hadoop by larger corporate and government organizations due in part to its inherent complexity and to the complexity of figuring out which use cases it is most suited for.
  2. They realize that both incumbents and insurgents need to pool the know-how and technology that they each bring to the table in order to formulate credible, repeatable solutions to the business problems that pragmatist customers are anxious to solve.

Assuming that the alliance delivers much more than just a press release, the mere fact that these disparate product and service providers are pooling their efforts may well push big data across the chasm into the enterprise. It is always important to remember that pragmatist customers, more than visionaries or technology enthusiasts, are intensely self-referencing, preferring to make decisions as a herd. Furthermore, this is the set of buyers that eventually determines whether or not a category gains sustained market adoption within a relatively short time such as 2-3 years, or whether it takes another five to ten years (think sales force automation or data warehousing in the 80s and 90s) or – worse – if it never really takes hold (examples abound, including artificial intelligence or expert systems twenty or thirty years ago). …

Watson, Google Glass, and iWatch face different adoption barriers…

IBM’s attempt to redefine both expert systems and artificial intelligence in the form of cognitive analytics in its much-vaunted Watson initiative, is still navigating its way out of the chasm. The inherent complexity of the technology and how to use it – such as, for example, transferring the knowledge of an experienced oncologist into an automated computer application that can effectively put the expert’s knowledge to work for hundreds or thousands of patients simultaneously in different parts of the world – still prevents its widespread adoption in spite of IBM’s insistence that they will generate a $1bn in revenue from Watson within the next couple of years. Separately, in a sensible move following the clumsy, nerdy launch of Google Glass a couple of years ago, Google has seen fit to withdraw Glass from the market in order to re-organize the effort under Tony Fadell, the former Apple whiz and co-founder of Nest, acquired by Google last year for $3.5bn. Time will tell us whether Glass will resurface inside a smarter market development strategy, or whether its appeal fades. Certainly, there were indications of real applications such as surgeons using Glass in the operating room to consult important information during delicate procedures.

In contrast to these two still unproven technologies-cum-products, Apple’s ability to bewitch the market seems to have worked once again with the launch of the iWatch. The smart-watch category is further along in production and even adoption than the first two technologies I mentioned, with vendors including Samsung, Pebble, Sony, Motorola, and Metawatch having had products in the market for a couple of years, and startups like Olio coming out with more recent offerings. But it’s difficult to be convinced that this category has crossed the chasm. Certainly, many of the normal early adopters – technology enthusiasts predominant among them – have bought their first iWatch to go with their Peble or other earlier device. The bigger test now will be whether Apple is able to redefine the category as it did with the MP3 player to iPod, or smartphone to iPhone transformations. The company has already linked the iWatch to delivering payments in a new form, but as yet the value proposition does not seem anywhere close to being as compelling as that of the iPhone, which transformed the earlier smartphone category into a full-blown online computer in your pocket. One obstacle cited by many commentators is the need to tether the watch to your mobile phone; another is the doubt voiced by others about how much more connected we all need to be, beyond the high degree of enslavement to our mobile devices. But we should remember that back in early 2007 many people were second-guessing the future success of the just-announced iPhone, and look how that story unfolded…

Security becomes a C suite and board-level concern…

The increasingly frequent and disturbing series of high-profile security breaches, including the announcement in early February by Anthem Blue Cross that millions of policy holders had their confidential data hacked and even more recent breaches, has led to a realization that security is now a C-level and board concern in virtually every company. From now on, any CEO who has permitted his organization to operate lax security controls, as appears to have been the case at Anthem, probably faces serious censure if not the loss of their job, and the board will almost certainly face increasingly costly customer, shareholder and maybe even employee lawsuits. This development promotes the importance of proactive security measures over reactive band-aids.

Sony’s attention-grabbing and highly embarrassing breach in December last year provided a vivid precursor to Anthem’s massive data loss. Combining the two events, security has definitely become an urgent concern for mainstream corporations and government agencies of all types and sizes. As security expert Ed Felten commented in his Dec. 23 blog, “The biggest open question is how this will affect national policy. Thus far national policy has taken an eye-in-the-sky approach that protects a perimeter encompassing government and some big companies, and focuses on surveillance, monitoring, and response rather than broad deployment of protective technologies. Whether the Sony breach is a failure of government policy is debatable—it’s not clear if Sony Pictures is inside the perimeter, and anyway current policy doesn’t emphasize deploying the types of measures that might have protected Sony or reduced the damage—but it will be seen as a failure regardless. The likely response will be to double down on the current strategy. … Best-case, 2015 will be the year we finally get serious about addressing information security and privacy vulnerabilities. More likely, we’ll just do a bit more of what we were already doing—and the breaches will continue.”

I prefer to be a bit more optimistic than Mr. Felten, at least with respect to how leaders rather than laggards (example: Sony) will behave. The combination of brand embarrassment, legal consequences, and financial losses will, in my opinion, motivate boards and CEOs to do much more to stay out of harm’s way even though security experts agree that hackers seem often to be inventing new ways to breach security defenses, staying one step ahead much of the time. This will usher in a slew of new technology solutions and security experts with track records in the NSA or DOD will be brought in to senior management with enticing compensation packages. Be prepared for a sudden over-supply of VC-funded lemmings, many of which won’t make the cut, as solutions demanded by customers outstrip the capabilities of copy-cat players. However, in amongst the me-too companies we should expect to see some adventurous new value propositions enabling organizations to get ahead of the curve by adopting hacker-avoiding strategies.

On-demand sharing economy businesses are learning to get on with the world…

Led by Airbnb and Uber, the two major players in the on-demand sharing economy, most of the startups in this fast-growing super-category are learning that “it’s not about the product”. What I mean by this is that, beyond the appeal and ease-of-use of their sexy smart-phone apps, their future success will be increasingly predicated on their ability to nurture marketplace relationships. Among these priorities are negotiating agreements with regulators, partners, insurers, and others, and learning how to manage their relationships with their “contractor-employees”. In earlier posts I’ve written about the contrasting approaches adopted by Airbnb and Uber, largely due to their very different corporate cultures. Most notably, Airbnb’s strategically collaborative culture appears ideally suited to generating and maintaining trust as it inevitably disrupts the hospitality industry.

Following its reported success in providing accommodation for 60,000 or more visitors at last year’s World Cup in Brazil, the Organizing Committee of the 2016 Rio Olympics signed an agreement for Airbnb to provide 20,000 accommodations through its marketplace. This will augment the paltry 40,000 hotel rooms available in Rio de Janeiro, most of which will only suffice for officials, corporate guests, and others associated with the Games. But closer to home Airbnb faces challenges to the recently introduced Airbnb law in San Francisco. Recent legislation being proposed would limit the number of days that tenants or homeowners can rent out their properties in any one year to 90 days. The intention is to prevent the City becoming over-run by transient visitors who occupy dwellings that otherwise could be put on the market for long-term residential rentals given that San Francisco suffers from a dearth of affordable and even pricier housing for the people who live and work in or around the City. Similar challenges await Airbnb in other desirable capitals and cities popular with business and tourist visitors, so it will be some time before all of these issues are resolved.

As for bad-boy Uber, it is refreshing to see that the company seems to be attempting to put the adversarial frat-house culture personified by its CEO firmly in its past, and instead allow some of its newly hired “adults” to provide supervision. This should enable the company to operate more like an orchestrator than a concentrator (my polite word for bully) as the urban transportation industry gets reshaped by the advent of compelling mobile apps. Uber has also introduced new safety policies, and it plans to form a safety advisory board comprising outside experts as well as incident response teams to investigate safety issues worldwide.

Both Uber and Lyft, the two most visible and largest taxi and ride-sharing services, continue to forge agreements with insurance companies and trade groups in California and elsewhere in the U.S. and elsewhere to provide insurance for the third-party owned cars driven by their driver contractors. One innovation is a new twist in the structure of the insurance policies designed for Uber, Lyft, and other mobile-app companies to cover their drivers in California. The newly designed policy covers three different “periods”. Period 1 is when a driver is logged in to a service but not matched with a passenger; Period 2 covers the time when a driver has accepted a ride request and is en route to pick up their passenger(s); and Period 3 covers the time when the driver is ferrying the passenger. Each period carries different levels of insurance, in consideration of the different risks that need to be underwritten in each case. This is an example of how disruption tends to eventually tease out creative ideas (necessity being the mother of invention), especially between parties that are experiencing the pressure of conflicting interests. It’s of little value to conduct these negotiations on a war footing, because it wastes time and energy, and gets people focused on the wrong things such as just defeating the other side. When both sides are required in order to make the new industry function, diplomacy and negotiation are the appropriate tools.

To me the more contentious issue is still to be faced. This is the aspect of whether or not the drivers are contractors or employees. It may be that existing legislation provides the right definitions and distinctions, but so far the on-demand companies are insisting that because they are technology companies that only match drivers with passengers, and the drivers are free to work for other ride services, they cannot be considered as employers. As a result, the individual contractors have no medical insurance, nor vacations, nor sick leave, nor retirement plans. And of course, the marketplaces pay no employer taxes. As some of the other categories, such as hired workers for domestic or food delivery services (Taskrabbit, Instacart, Postmates, Homejoy, and many others), are now experiencing, there is a definite possibility of exploitation in terms of paying minimal incomes to the freelance workers. Thus the crucial element of Trust is at risk in various areas, something that could put the entire sharing economy value proposition at risk. What’s building to a pressure point is government action against these companies for unpaid employment taxes, in parallel with class-action lawsuits by contractors to be considered employees, or at least to obtain some pf the benefits that employees receive. Unfortunately, there is plenty of scope for long drawn-out and contentious disputes, making it that much more vital that these companies realize that while technology enables their business model, they are in fact marketplaces that match supply with demand, and need to operate collaboratively in helping to reshape their respective industries…



about 2 years ago

Hi Philip.As always, great read.Thank youVaclavPS. One small detail. Apple actually released Watch or Apple Watch. It is not an iWatch. iWatch is knock off product from China 8-) These damn marketing people!


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