Sep 212016
 
mark_hurd_oracle_ceo

Oracle CEO Mark Hurd’s keynote at the company’s Open World conference in San Francisco yesterday illustrated a problem facing businesses around the world and its effects on enterprise software vendors like the one he heads.

“Standard and Poor’s top five hundred companies’ revenue growth is at one percent, their earnings growth is five percent.” “It means what? Expenses are going down.”

“This is the problem that the CEO has,” he says. “Why is it hard to grow revenue. All your investors want you to grow earnings and deliver growth. They have little patience for any long story about why it’s so hard.”

“They don’t care about any issues you may have. Grow earnings, grow cash flow, grow stock price. That’s it.”

Growing in a slow market

As a result of that the easiest way to grow earnings is to grow revenues but when global GDP and markets are flat, the only way to grow is to gain market share, Hurd says. “We have to know the customer better, we have to do a better job of marketing and we have to do a better job of aligning our goods and services to what our customers want. We have to improve our products and processes.”

That imperative for companies to cut their operating costs has had a brutal effect on enterprise IT budgets, “over the past five years, the growth in enterprise IT has been flat.” Hurd says, “the growth in spending has been basically zero.”

Customers drive the market

Like many things in the tech industry, the sector’s growth focus has shifted to consumers, “consumer spending on IT has almost quadrupled in the past decade. So while companies are sort of flat, consumers have been spending like crazy.” Hurd observes, “consumers are more sophisticated, more capable, more knowledgeable and expect better services than ever before.”

“Your customer experience is not being defined by your competitors but by technology fuelled consumers. For instance, AirBnB may be defining customer experience for the hospitality industry.”

“People are using a lot of social technologies in their personal lives,” “we expect ease of use, simplicity, clean interfaces are now things we expect in the enterprise side.”

Crimping innovation

In the enterprise IT sector, Hurd believes the flat market means many companies catering to the corporate market are skimping on Research and Development which in turn is crimping innovation, a factor compounded by cloud providers taking an increasingly larger share of the market.

This is underscored by cloud leader Amazon Web Services spending over ten billion dollars a year on R&D. Hurd’s boast that Oracle is spending half of that shows how the legacy players are struggling.

What stands out in Hurd’s keynote is how legacy providers see cloud computing as their salvation. However Amazon’s dominance in that space is a major obstacle for them.

For consumers, big and small, the shift to the cloud has been a good thing in shaking up the existing industry and making new technologies more accessible to smaller customers. For existing businesses like Oracle, there’s a challenge in adapting to a lower margin, commoditized and quickly changing market.

A bigger question though facing all large corporations, not just software companies, is this new normal of low economic growth. Succeeding in that environment is going require a completely different management and investor mind set to that of the last seventy years.

Sep 162016
 
oracle-head-office

Ahead of next week’s Oracle Open World, which I’m attending, the software giant has announced its quarterly results which illustrate how software has shifted to the cloud.

The company’s cloud revenues jumped 77% on the previous year which is impressive but represents less than a tenth of the company’s sales.

What would concern Oracle’s shareholders is the stagnation of sales in their main product lines – on premise software makes up 69% of the firm’s revenue but it didn’t grow for the quarter and new license sales dropped eleven percent, which doesn’t bode well for the future.

Oracle’s big announcement in the last quarter though was the acquisition of cloud ERP provider Netsuite for $9.3 billion.

That acquisition will test how Oracle pivots into the cloud, it may well be the Netsuite management teach the parent company some tricks.

 

Jul 302016
 
Nokia Lumia 920 has an impressive camera

Last week Microsoft quietly buried its smartphone ambitions with the announcement they would shed 1,850 jobs largely from the remains of the Nokia business they acquired four years ago.

Microsoft’s Lumia exercise was expensive for the company but even more costly in terms of missed opportunities.

Those opportunities are now in cloud computing and artificial intelligence services. Shareholders will be hoping the current CEO Satya Nadell executes a lot better on them than his predecessor did with smartphones.

Jul 282016
 
Microsoft-2014-Worldwide-Imagine-Cup_1-1600x700

Currently Microsoft are running their Imagine Cup, the company’s annual student developer competition at their Seattle head office.

A regular fixture for the last 14 years, the Imagine Cup is Microsoft’s opportunity to show how emerging applications can be based upon their technologies. It tells us as much about the company’s successes as it’s missed opportunities.

With Artificial Intelligence and machine learning being the upcoming battlegrounds for the software giants, it’s not surprising many of this year’s competitors are focused on applying those technologies.

A good example of this is the Ani platform of Australia’s entrant, Black.ai, which analyses spatial movement and biometric information. In many ways this adds intelligence to smarthomes and has immediate applications in fields like aged patient care.

Black.ai’s timing is very good as patient monitoring has become an issue in their home country and veteran tech investor Mark Suster predicts tracking the flow of people is going to be a huge market.

The patient care angle of Black.ai’s  is particularly pertinent to the Imagine Cup competition as health services have been a focus in the past. Two years ago the winners were another Australian medical services platform, Eyenaemia that used a smartphone app to detect anemia.

While the Imagine Cup is a good showcase for Microsoft, the competition also shows how the market has evolved around the company. Most of the contests have a smartphone component and the cloud features heavily in all the applications, both are fields where Microsoft has either struggled or is playing catch up.

The focus on cognitive computing and artificial intelligence in this year’s event shows the company is keen to show off its prowess in the emerging battle with Amazon, Google, Apple and no doubt other companies. Microsoft will be hoping they won’t be left behind in the next wave of computing.

Jun 282016
 
dav

“If you’re digital now, you’ll be cognitive tomorrow” says Ginni Rometti, the head of IBM.

Rometti was talking at the Sydney IBM Think forum today where she laid out the vision of IBM’s role in the data rich organisation of the future,

IBM’s pitch is that services like their Watson artificial intelligence platform is a key part of business as companies try to differentiate themselves in the new economy.

While Rometti’s view is correct, the question is whether IBM are the company to do this. The audience in Sydney were largely incumbent corporations and government agencies, it was almost sad that some of the panelists citing their digital smarts were from Australian businesses that have been tragically leaden in responding to changes to their markets over the last two decades.

In the first panel Rometti was joined by Andrew Thorburn and Richard Umbers the respective CEOs of the National Australia Bank and the Myer department store chain.

Thornburn’s comments about NAB being an agile fintech company were somewhat at odds with the reality of Australia’s housing addicted banking sector but Umbers’ view that Myer is leading the way in customer experience is almost laughable given how his company has missed almost every development in retail over the past twenty years.

Leaden corporations are Rometti’s core customers however – it still remains true that no-one at companies like Myer and NAB gets sacked for buying IBM.

“We’ve been part of your past, and I hope we can be part of your future” was Rometti’s conclusion of her keynote. It remains to be seen whether her customers are part of the future.

Jun 142016
 
Microsoft-acquires-linkedin

“There’s a shared sense of alignment,” says LinkedIn CEO Jeff Weiner during his video with Microsoft’s Satya Nadella to announce Microsoft’s $26 billion dollar acquisition of LinkedIn.

Weiner has been trying to reinvent LinkedIn’s business model for three years and Microsoft’s acquisition is an admission of defeat with the company’s market capitalisation half of what it was a year ago and profits proving hard to find.

The fact revenues were slowing in the face of anemic returns is probably the reason why LinkedIn’s board was happy to accept Microsoft’s deal that’s 46% more than the social media site’s $17.5bn market capitalisation on Friday.

LinkedIn’s capitulation shows what a graveyard social media sites have been for investors. With the exception of Facebook, almost all have failed to deliver the profits or promise hoped for by those making big bets on the platforms.

Both LinkedIn’s and Twitter’s managements have been distracted by the search for revenue streams to justify their huge stockmarket valuations which in turn has alienated core users. LinkedIn’s surrender means Twitter’s acquisition is only a matter of time.

Microsoft now has to show how it is going to derive twenty-six billion dollars worth of value out of LinkedIn. The company’s track record of acquisitions is execrable as we’ve seen with Nokia, Yammer and Skype and there’s little to indicate this deal will fare any better.

Commentary that LinkedIn as a ‘cloud company’ will help Microsoft Azure against an already rampant AWS is downright silly, Nadella himself in a Bloomberg interview with LinkedIn’s Weiner was at pains to point out the networking service’s fit with the Dynamics product.

Plugging LinkedIn’s ‘social graph’ with Microsoft Dynamics might give the Nadella’s team better tools to compete with Salesforce in the CRM market, it seems a high price to pay and almost justifies Salesforce’s Marc Benioff rejecting Microsoft’s overtures last year.

LinkedIn’s capitulation marks the end of social media’s growth phase. Now, as Facebook becomes the platform that rules all, the others have to find their niches in a market dominated by one services. For Twitter the race is now on to find a buyer.

Jun 072016
 
data_centre_corridor

A few months back I spoke to Amazon Web Services’ Chief Information Security Officer Stephen Schmidt about how his company was expanding in Australia and East Asia.

One of the questions I asked was about the Australian footprint where all of AWS’s services are based in Sydney. Many of the company’s customers have questioned the suitability of that setup.

Schmidt was dismissive of the need for data centres outside of Sydney to serve the Australian market saying, “the Australian footprint is largely based on what the customers tell us. Right now they are happy with the way things work in Sydney, we have POP locations in other areas for edge access.”

“What we hear from customers is the network connectivity between Melbourne and Sydney is very good,” he added, “it’s really irrelevant whether you’re based in either city.”

During the storms that hit Sydney last week those words came back to haunt AWS as their data centers were knocked out of action.

Not a good look and now one suspects a Melbourne based data center, or at least some redundancy down under, is now higher on AWS’s to-do list.