The top five most-valued companies are Tech. – almost

On this first day of August 2016, I saw that the top most-valued companies are tech. companies, and the fifth one is almost there. Here is the list.

  1. Apple ($appl): $566 billion
  2. Alphabet ($goog): $562B
  3. Microsoft ($msft): $433B
  4. Amazon ($amzn): $365B
  5. Exxon Mobile ($xom): $356B
  6. Facebook ($fb): $353B

The big move is Amazon’s beating Exxon Mobile (used to be number 1 for many years) to the fourth spot. The switch came after Amazon posted its fifth straight quarter of profits last week as the oil giant’s profits tumbled 59 percent during the same rough period. If Exxon continues its drop, then Facebook will beat it in days.

This is quite remarkable! Other than Microsoft and Apple, the other 3 companies are much younger, Facebook being the youngest one. Their rapid rise is due to the growth of the Internet with its associated areas of search, e-commerce, and social networking. Interestingly Amazon survived the dot-com bust of the early 2000-2001 time unlike Yahoo, AOL, etc. Contrast this to the $4.8B valuation of Yahoo’s core business acquired by Verizon last week! Also, the fastest growing and most profitable of Amazon’s 3 businesses (Books, any commercial items, and AWS) is the cloud infrastructure piece called AWS (Amazon Web Services) with a run-rate of $10B this year. This is way ahead of Microsoft’s Azure cloud or Google’s cloud solutions. 

The importance of cloud is obvious as Oracle just paid $9.3B last week to acquire Netsuite, a company that was funded by Larry Ellison. With a 40% ownership of Netsuite, he gets a hefty $3.5B from this deal. Paradoxically, Amazon lead the way to cloud computing – not IBM, not HP, not EMC/VMWare, and not Microsoft or Google. So no wonder, Amazon is reaping the benefits!

Yahoo going to Verizon is so unexciting!

So finally it was Verizon paying $4.8B to acquire Yahoo’s core business. Business Insider said, “Yahoo, which was founded in 1994, was one of the world’s leading internet businesses but has gone through tough times in the past several years. Yahoo’s peak value was $125 billion in 2000, and even in 2008, Microsoft wanted to pay $45 billion for the company, so a $4.8 billion sale price pales in comparison.

This deal is also more or less the logical extension of Verizon’s $4 billion deal last year to acquire AOL, which is still run by Tim Armstrong, whom Yahoo CEO Marissa Mayer worked with at Google back in the day. Yahoo and AOL, after all, are fairly similar old-school content-and-advertising internet businesses. Here is the reaction from a competitor Sprint – CEO Marcelo Claure said Monday that Verizon’s purchase of Yahoo is just the latest in a long history of deals by telecom firms trying to get into the content business, none of which have panned out.

Although this deal sounds like a sad end to Yahoo, an icon of the early Internet players, Marissa Mayer tried to paint it as a success. Why not? She will walk out with almost $50m if fired from her job. It is a big let-down for her, specially after the high expectations when she was hired in 2012. She was supposed to turn this company around with big revenue growth. None of that happened. Rather she spent a ton of money for very little return. Take the case of Tumblr, which was mostly a waste (after paying $1.1B). As they say, you ruin the company and then walk out with a huge amount of money. Sad but true.

As of today, the business that will stay behind post-acquisition by Verizon includes Yahoo’s cash, its shares in Alibaba and Yahoo Japan, Yahoo’s convertible notes, certain minority investments, and Yahoo’s non-core patents (called the Excalibur portfolio). These remaining businesses will be rebranded after the completion of the acquisition in early 2017.

It will be interesting to see how Verizon brings some synergy across its 3 similar, but overlapping offerings  – AOL, Yahoo and its own go90.

Musings on a June morning!

Here in Silicon Valley, every day brings some new tech. news that gets your attention. A sample of current news:

  • Uber starts helicopter service in Sao Paolo, Brazil. That city of 20 million people gets horrific gridlocks that can stretch for hours. Hence people are taking advantage of a quick helicopter ride, say to the airport to catch a flight on time. Apparently there are plenty of helicopters sitting idle and are taking advantage of such a service. Uber is really disrupting the transportation industry.
  • Elon Musk wants to combine two of his companies – Tesla and Solar City. Actually Tesla is acquiring Solar City for $3 Billion. Musk argues that the combo would be good, as Tesla is looking for future solar-powered batteries for its cars.
  • There are still questions on the Microsoft-LinkedIn deal from last week – a $26.2 Billion price tag. Big mergers in the past decades have not shown great results. Remember Compaq+DEC ($9.6B in 1998), HP+Compaq ($19B in 2002), HP+EDS ($13.9B in 2008), Oracle+Peoplesoft ($10.3B in 2004), AOL+Time Warner ($181B in 2000), and Symantec+Veritas ($13.5B in 2005)? Then there are the big write-offs such as Microsoft+Nokia or HP+Autonomy. Only a few were winners. The rest resulted in depressed share prices, corporate confusion, and layoffs. So we will have to see how both Dell+EMC ($67B last fall) and Microsoft+Linkedin perform in years to come.
  • Nikesh Aurora quits Softbank after two years, because he is not going to be the CEO as expected. Masayoshi Son, the founder/CEO said he is going to stay for another 10 years as CEO. The truth seems to be board members questioning Aurora’s investments and some conflict of interest as he advises Silver Lake, a competitor. He invested heavily in Indian startups like Ola (Uber competitor) and Snapdeal.
  • Video messaging is becoming a hot technology future item. Snapchat, Facebook, and Twitter are all jumping into that field. But the leader seems to be a Berlin company called Dubsmash which has gained over 150 million users over last couple of years. They seem to lead in the content and delivery game and now have a new release emphasizing the video messaging platform.
  • Digital Advertising is gaining ground big time by the media companies. The shift to video ads in platforms like Youtube and Facebook is growing fast. I am  advising a company called Strike Social which is leading in the Trueview ad campaign buying and management business. I do see how fast it is growing. Using technology as a differentiator to provide cost optimization is the key here.

Microsoft + LinkedIn @ $26.2 billion cash!

This is big news this morning – Microsoft buying LinkedIn at $26.2B cash. LinkedIn’s stock is soaring by 47% as we write while Microsoft stock is falling! This is one of the biggest acquisitions since Dell’s acquiring EMC few months back. So how does this work?

Well, Satya Nadella explains the importance of a professional network in their scheme of cloud offerings, from Office360 to Dynamics. Imagine walking to a meeting and viewing all the attendees info from their LinkedIn profiles. He said, “It helps us differentiate our CRM product with social selling. It helps us take Dynamics [Microsoft’s suite of business management software] into new spaces like human capital management with recruiting, and learning, and talent management.”

LinkedIn had a bad quarter and the stock was going south by as much as 40%. So there was some anxiety on where the company was heading in future. They saw this opportunity to be part of a larger company and the board quickly jumped into this offer, as it seems. As far as the synergy is concerned, time will tell how they integrate and make it look like a seamless cloud offering. Reid Hoffman, chairman of LinkedIn will stay as an advisor, but his new role is yet to be defined. Jeff Weiner will continue to stay as CEO reporting to Nadella.

This certainly strengthens Microsoft’s cloud presence and adds value to the Dynamics business more than the Office360 side. But use of Office360 suite in creating and managing documents/profiles may add to the growth of that business. If they can make it a success, Satya Nedella’s leadership will have a new feather in his cap.

IBM’s Software Business

IBM has come a long way from my time – 16 years spent during the 1970s, 1980’s and early 1990s. Hardware was the king for most of my years there and software was merely a means to an end of “hardware sales”. Even during the early years of the IBM PC, that mistake (of thinking it was a hardware game), helped create a new software giant called Microsoft. Hence the acronym IBM was jokingly called I Blame Microsoft.

Advance two decades and we see a big shift of focus from hardware to software, finally. IBM has sold off much of its non-mainframe hardware (x86 servers) & storage business. During the 4th. quarter of 2015, IBM’s share of server-market was 14.1% with an impressive yearly growth of 8.9%. Contrast this to the growth rates of HPE(-2.1%), Dell (5.3%), and Lenovo (3.7%).

IBM’s software is another story. While it contributed about 28% to total revenue in 2015 ($81.7B), the profit contribution was 60%. If it’s software was a separate business, it would rank as the fourth largest software company, as shown below:

  1. Microsoft  –  $93.6B Rev. —> 30.1% profit
  2. Oracle        – $38.2B Rev. —> 36.8% profit
  3. SAP            –  $23.2B Rev. —> 23.4% profit
  4. IBM           –  $22.9B Rev.  —> 34.6% profit

IBM’s software is second most profitable after Oracle’s. The $22.9B revenue can be split into three components:

  • Middleware at 19.5B (includes everything above the operating system like DB2, CICS, Tivoli, Bluemix, etc.),
  • Operating System at $1.8B,
  • Miscellaneous at $1.6B.

It does not split its cloud software explicitly. Therefore, it is hard to compare it to AWS or Azure or GCE.

The only problem is that its software business is not growing. As a matter of fact, it showed a decline last year. Given the rise of cloud services, IBM has to step up its competitive offering in that space. It did acquire Softlayer couple of years back at a hefty price, but the cloud infrastructure growth does not match that of AWS (expected to hit $10B this year).

IBM is a company in transition. Resources are being shifted toward high-growth areas like cloud computing and analytics, and legacy businesses with poor growth prospects are in decline. Still, IBM remains a major force in the software market.

Hello Allo – Google’s new messaging app

So this morning at Google’s annual developer conference called IO, a new messaging product called Allo was introduced. Allo integrates Google services like YouTube, Maps, and Search, and will serve up “smart replies” and let users of the app chat with a new virtual assistant. The app aims to bring together all of Google’s latest research in artificial intelligence, machine learning, voice recognition, and natural language processing.

This is in line with what Facebook launched few weeks back where “bots” inside it’s WhatsApp and Messenger messages can intelligently invoke activities such as ordering an Uber car or booking an Airbnb room. This creates an interesting challenge for Apple, as such activities will bypass the “purpose” apps in the Apple’s App Store (a source of great revenue).

Google has another product called Google Hangout which overlaps with Allo. For now Google maintains the dual strategy of keeping both products since they appeal to different audiences. Google Hangout is aimed at enterprise users whereas Allo appeals to the consumers. Google also announced another group messaging app called Spaces.

Business Insider reported, “For one, Hangouts is tied to Google’s enterprise For Work products that’s aimed at business customers, and which includes Gmail and Docs, and is available on desktop. Allo, by contrast, is mobile only, doesn’t require a Gmail account, and is focused on the power of artificial intelligence. Right now, Allo users can chat with Google’s new virtual assistant in the app, but the company also showed off an integration with OpenTable, for booking restaurants. And hinted that it plans to be very open, while not rushing into anything.”

Still it’s tough not to interpret the advent of Allo as a signal that Hangouts’ best days are behind it. After all, unless you are already using Hangouts to talk to coworkers or because you need to communicate on a desktop PC, you’re probably more likely to opt for the new amped up experience and technology that Allo offers.

In my good old days at IBM, we ended up with two database products on the mainframe, and our marketing spin was that IBM had a dual-database strategy. Google’s trio of different chat apps might not be so crazy after all, when you consider that rival Facebook has both Messenger and WhatsApp.

TiEcon 2016 – some keynotes

After a few years gap, I attended this annual conference called TiEcon. TiE stands for The Indus Entrepreneurs, formed 23 years back by some of the valley technocrats originating from India. This is a non-profit organization to foster and help budding entrepreneurs. I helped organize the contents of this 15 years back. Now the scale has gone up and last week, there were almost 3000 attendees from the US and outside. Many attendees came from faraway places like India, Singapore, etc. Let me highlight some of the keynotes I attended.

  • Shantanu Narayen, CEO of Adobe – This was the first keynote on day 1 where he narrated how far Adobe has come, from a desktop publishing company of the 1980s and 1990s to a cloud-based digital solutions company. He emphasized the challenge of transformation and said that some of the difficult ones are the antibodies inside the company averse to change. Hence he spent a lot of cycles convincing the troops on why change is so key for survival and growth. Now Adobe has a line of products called Creative Cloud (developers), Document Cloud (Acrobat, etc delivered in cloud), and Marketing Cloud (number of analytics products in cloud). Adobe has also been acquiring companies for non-organic growth, such as Omniture. They claim to be changing the digital experience for everyone, from emerging artists to global brands.
  • Vishal Sikka, CEO of Infosys – I liked Vishal’s talk a lot. He has a Ph.D. in computer science from Stanford and his thesis was on AI, which was out of fashion for many years, but is emerging as the latest big trend. Vishal joined Infosys about 21 months back, after being CTO at SAP for many years. He described the tough transition from a product/technology company to a services company. But one can see his stamp of injecting AI technology into the services sector. He calls AI as Automation and Innovation. He announced a new solution called Infosys Mana, a platform that brings machine learning together with the deep knowledge of an organization, to drive automation and innovation – enabling businesses to continuously reinvent their system landscapes. Mana, with the Infosys Aikido service offerings, dramatically lowers the cost of maintenance for both physical and digital assets; captures the knowledge and know-how of people, and fragmented and complex systems; simplifies the continuous renovation of core business processes; and enables businesses to bring new and delightful user experiences leveraging state of the art technology. I was surprised to learn that Infosys has 200,000 employees and they educate something to the order of 17000 people every year in their huge facility in Mysore. Vishal is certainly transforming Infosys and their recent quarterly results have reflected that.
  • Sanjay Mehrotra, CEO of SanDisk – This was a real treat as I was unfamiliar with the evolution of SanDisk as a company, built by 3 immigrants – Sanjay from India, Eli Harari from Israel, and Jack Yuan from Taiwan. Sanjay described how he got rejected 3 times for a US visa when he was planning to come to UC Berkeley for his undergraduate studies. He got his BS and MS in electrical engineering and started a career at Intel where he met the other two founders. The three started SanDisk, which created a new revolution in the flash memory business. After 27 years, SanDisk was acquired by Western Digital last October for $19B. I liked the candid answers Sanjay gave to the ups and downs of his journey and how he learned many lessons while going from an engineer to a business leader and growing a company to such scale. He narrated how Sequoia rejected them for the initial investment, suggesting that funding will happen only if they follow the Intel model. Of course they refused. He said that VC’s don’t always see the future and are risk-averse if you are charting a new path.
  • Besides these keynotes, I also enjoyed listening to Diane Green, the new cloud czar at Google and how they are planning to compete with the de facto cloud king AWS. Sandy Carter from IBM described how IBM is moving towards building cognitive apps on its Watson platform.

There were several tracks on Cloud, IoT, Data Economy Social Entrepreneurship, etc. Overall it was a good 2-days experience.