Connected World

May 30, 2016 by · Leave a Comment
Filed under: Business, Technology 

cloudofthingsv2As the term Internet of Things (IoT) becomes as colloquial as “smartphone” or “texting”, one can’t help but to think about the implications to modern life.  It is undeniable that it is the biggest economic opportunity in the world since …well, the Internet (although I always considered computers as being “things”).   The concept that devices (aka things) can sense stuff in their environment,  send data autonomously, and act on commands at a relatively low cost is what makes it so disruptive and intriguing.  There is no surprise that companies like Apple, Microsoft, Alphabet (the company formerly known as Google), and Amazon have been gobbling up startups and investing oodles of cash into it.  This is a technological transformation similar to the digital era that changed the way we read, listen to music, or watch movies. Besides these are the companies best suited to drive the trend. There will be hundreds of other smaller companies in this industries developing devices, software, sensors, and network elements.  But these 4 have to be at the epicenter of the action.

In the humble opinion of this obscure blogger, there are 4 elements worth analyzing that are affecting this new trend:  The evolution of technology, the “things” themselves, the data they send or receive, and the system to make the whole thing do something useful.

  1. Technology Evolution: This answers the question of why now.  Moore’s law, Metcalfe’s law, and the development of fast wireless is making it all economically and physically possible. In essence, a lot of processing can be done in very small sizes and at a very low cost.  It is now cost and size effective to have electronics in almost every “thing” to sense the environment and transmit data.  None of this will even be thinkable without the right scale of technology.  The right scale is happening now.
  2. Data:   “Things” sense data and autonomously transmit it.  A “thing” can send identification data, status data, environmental data, location data, actionable data, or a combination of these.  A message saying “the third fridge in the ice cream section is malfunctioning” can be an example. A message like this can be sent to a store operator’s device so s/he can go and physically check the fridge and fix the problem.  But if there is a feedback loop, a system can remotely trigger an action to correct it automatically.  In other words, data can be just informational, actionable, or a command itself. The data is captured by sensors that are meaningful to the object: Temperature for a fridge and weight for a truck are examples.  An intelligent system will then make sense of the data by analyzing it and then propose or trigger an action. Sense, connect, analyze, and do something about it.  Simple, right?
  3. The “things”. These are the “what”.  I like to classify them according to seven major environments where “things” are.  The individual, home, vehicles, public places, the workplace,  the enterprise, and infrastructures.  The data is different across all these and, more importantly, it is used for different reasons.  The first four imply a direct relationship with individuals and they are inter-related.  In all of them, for example, we’d like the temperature to be comfortable so an automatic thermostat may be enough.  An individual may have control over the temperature in his/her car, but not in the mall or the office. So there is no need for these thermostats to interact with each other.  However, if you google (or is it alphabet now?)  the restaurant for your business dinner, wouldn’t you want it to seamlessly show up in your car’s navi so you can drive there, and then on your phone for the last few steps?  Or would you like your playlist to continue from your home, to your morning run, and then your car?  These require an integration beyond just their own environment and the end user needs to be the center of the experience.  The connected enterprise, workplace, and infrastructures are a bit different.  In these cases the “things” are the core of the operations.  My simple ice cream fridge example above is one of those.  These will generate a significant ROI for companies, so they will most likely develop faster.  More on this in future posts …
  4. Architecture.  This is where the debate gets not only nerdy, but interesting.  The industry is toying around with 3 basic architectures: Smartphone centric, cloud centric, or environment centric (based on a local hub or a mesh of objects in the environment).  In my opinion, there always has to be something in the environment managing and connecting all the “things” even when the smartphone is not there, so lets consider that a given.  But there are pros and cons to a smartphone vs. a cloud architecture.  And as it often occurs when new technologies are being launched, the control of the experience is the battleground.  It is in the best interest of the smartphone players to have it be the center.  Apple or Alphabet (through the Android ecosystem) will thrive in this environment.  For the strong cloud providers, like Microsoft or Amazon, cloud is the way to go. But from the user’s point of view a combination is the best option.  So the word “centric” needs to not be that relevant.  Again, companies like Apple and Alphabet have a great presence in both the smartphone and the cloud.  In addition to that, their hubs, AppleTV and Google’s OneHub will complete the offering.  Microsoft and Amazon do not have enough presence in the personal device but are very well positioned with cloud services and hubs, so they will also be strong players.

To paraphrase Dr. Carl Sagan, there a billions upon billions of “things” out there that need to sense, get connected, monitored, and acted upon. Some estimates put it in the trillions of dollars of economic activity. Consumers will benefit significantly with a seamless and open architecture.  What made the Internet so successful is, in part, the openness.  One would hope that the “things” will also be as open.  If this market is to be as big as predicted, we will need a lot of large companies and lots of smaller ones to make it work.  Openness will make it happen.

Mr Cook, Mr Nadella, Mr Bezos, and Mr. Page, I hope you agree when you read this. If you don’t, let’s discuss.

Enjoy.

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Please, it is time to go

April 24, 2016 by · Leave a Comment
Filed under: Business, Technology 

windows-10-phoneWell, a year ago I wrote this piece begging Mr. Nadella to stop the misery and kill Windows 10 Mobile and for some unknown reason, he didn’t read it.  Ok, I get it.  he is in denial.  But in 1Q16 the Lumia line in Microsoft got an alarming decrease in sales of 73%.  If that doesn’t make you quit, I don’t know what will.    A year ago I thought i was going out on a limb, but it does seem like the market agrees with me.  A rare occasion … let me just enjoy it for a second … OK, that’s enough.

Where were we?  right, the fiasco of Windows Mobile …

Let’s make a little bit of history, shall we?  the Lumia line came to Microsoft as the difficult to understand acquisition that Ballmer made as a parting gift back in 2013.    I wrote about that too at the time. It was a questionable acquisition from the business perspective.  Nokia mobile was losing money and had no sight at becoming profitable.   However, if you have money up the wazoo and are the perceived leader in technology, can you afford not to participate in mobile?  Nokia was the last standing soldier developing mobile phones using Microsoft’s OS.  Rumor has it that they had threatened to go Android in order to recover a position in the market share.  So what’s a rich company to do?  Ballmer had 2 choices:  let Windows Mobile die with Nokia going to Android, or plunk out an insane amount of money for a business that was losing money.  Obviously, he chose the latter, $7.2B for a shrinking business that lost money.  But it became Microsoft’s “right to play” in the mobile world, by far the largest computing platform of this decade.  Mr. Nadella wrote that investment off back in 2015 without a lot of explanation.  I guess the first quarter of this year explained it.

It does seem clear that Microsoft has not been focused at all in Mobile and are now a distant, or even negligible player.  Just to put things in perspective, Microsoft sold a little over 2 million phones in 1Q16 (fiscal 3Q16).  Apple sells that amount in less than a week, and there are more than 2 million Android phones sold every day in the world.   Yes, seriously.

Imagine if you are one of the unlucky people who happened to buy one of the 2.3 million phones?  Who is going to write apps, who is going to be my phone buddy?  So, please, Mr Nadella, the world begs you to kill this walking dead.  My loyal reader (singular), please tell Mr. Nadella to help the industry out and do like RIM and go Android.  The world will be a better place with one less OS to distract developers.

Enjoy.

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Is there an end to Apple’s growth?

March 20, 2015 by · Leave a Comment
Filed under: Business, Finances, Technology 

apple-logo1What do you do if you are the richest company in the world?  What next steps should you take?  Is there really an end to your reign?  What are you paranoid about?

Look at Apple’s last quarter:  $75.5B in revenue with a mind boggling operating income of  $25.2B.  That is 33.3%;  a third of every dollar Apple sells goes to the bottom line (pre-taxes).  Another way to look at these numbers is (are you ready?) $838M in revenue profiting $280M per day.  Or $35M of revenue with profits of $11.6M per hour.  $3,236.50 of profit per second.  But wait, there’s more!  After a super aggressive dividend and stock buyback program, Apple carries $32B in cash, and $145B in long term investments.

If there was ever a money printing machine, that would be Steve Jobs’ legacy.

Wall Street values Apple at close to $750B in market cap.  Just to put this in perspective, Saudi Arabia’s GDP is close to $750B and it is the 19th economy in the world. And it is not an expensive stock in Wall Street’s terms.

The question is, where is this going?

It is evident that last quarter, closing on Dec 31st, 2014 was hugely benefited by the iPhone 6, a long overdue overhaul of Apple’s flagship product so it can get close to the spec of Samsung’s money losing, much better (spec-wise) Galaxy S5 and Note 4.  The thing is, as impressive as it sounds, Apple sold 75M iPhones in the last quarter of 2014.  This represents close to 70% of their revenue, which makes them very, very vulnerable to disruption. Remember Blackberry or the Motorola Razr?  Yeah, I didn’t think you would.  My apologies to all Apple fans for comparing.  I know it will take a lot more than a better device to disrupt the iPhone hegemony, but you can see how history can repeat itself.  It took less than 2 years for the indisputable market leaders to fall like a rock. Innovation came and went.

Now, I’m not saying that Apple has stopped innovating, but it is so dependent on a single product that, as an investor, I would be concerned.  The watch, as interesting as it sounds, cannot cover for what iPhone has done for the company, and perhaps never will.  iPod started a trend, iPhone disrupted and improved on it, iPad was supposed to do that, but it didn’t.  It just helped sell more iPhones, not a bad thing, but is is sustainable?  What is the next iPhone?  Nobody knows.

Analysts and pundits claim that the next step is for Apple to reach $1T in market cap.  If the P/E multiple says constant they would need to make more profit or $33.5.  At constant margins it will mean $100B in revenue in a quarter, or around what Walmart’s revenue was in 2010.  It seems far fetched, don’t you think?  But then again, $75B in revenue in a quarter and $750B in market cap seemed unfathomable just a few years ago.  It is a fact that AAPL has broken all common sense with a focus on 1 simple thing:  delight customers with a great product.

So, my loyal reader (singular) go buy an iPhone, it will cost you about the same as 5 shares of AAPL if you buy it un-subsidized but it will not make you money as the shares would.  Have you bought 5 shares of AAPL at the launch of the first iPhone, it would have set you back a little under $82.  They will be worth today a little under $640. Or you could have bought back then 39 shares of APPL for the cost of the iPhone that would be worth today close to $5000. So you’d have made almost 30% annually over the past 8 years.  Impressive?  For sure!  Sustainable, I think not.

Enjoy!

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Wearables for the Enterprise

January 19, 2015 by · Leave a Comment
Filed under: Business, Technology 

WearablesIt seems that all the craze at the end of 2014 and CES 2015 is about wearable computing.  Definitely a relatively new computing paradigm that promises to put more computing power in the body of consumers.  If we put aside the fact that we already carry several cables and chargers for our phones, tablets, and laptops, needing more for our watches, glasses, or other form factors seems a little unwieldy, the paradigm maxes sense for applications like fitness or gaming.  But what about the enterprise?  Is this new trend going to affect productivity applications as well?

The industry seems to be set on adding the adjective “smart” to any wearable component, and call it a wearable computer.  But, in my opinion, to do something really useful particularly for the enterprise, they have to go well beyond that …

There are a few common form factors that have been popular with consumers.  Watches, of course, currently dominated by Samsung, at least from the lineup perspective and with the world patiently waiting for Apple’s watch that promises to be a hit for Apple fans.  These form factors are typically centered around notifications of email, text, calls, etc., which means an accessory to a phone.  There are also the fitness band form factors, like fitbit or jawbone’s specifically to track activity and sleep.  Most watches track these too, but are not dedicated or optimized for it.  Then we have glasses, made so popular by Google Glass, now not for sale anymore, that promise to move the displays to a more intimate experience.  Gaming and information “snacking” tend to be the ideal use cases for them.  The least popular form factor is the smart badge.  Companies like Zebra (formerly Motorola Solutions), Vocera, etc. have been bringing some to market for vertical applications like retail task management and healthcare patient care.  These offer little future for consumers in this blogger’s opinion, but perhaps a better option for these niche vertical applications.  However, all of these lack the proverbial “killer app” to make them not only mainstream, but the next money maker for tech companies.

Enterprises have been working with wearable computers from quite some time in productivity applications.  The obvious benefit is the ability to work hands free in environments where the job itself requires the continuous use of the hands.  But we have not seen them in customer facing applications, mainly because most designs are really a handheld mounted on the body.  Hardly an aesthetic thing you will be comfortable wearing when you are assisting, let’s say a patient in a hospital.  Miniaturization in technology, the ever advancing Moore’s law, printed electronics, and sensors are changing the way these devices will be designed for sure.  This last area, sensors, it what perhaps provides the most attractive reason to adopt wearable technology in enterprises.  If you think about highly physical tasks, like warehouse or construction workers, imagine looking at these activities as we see athletes today!! That looks very promising and it also seems to be a necessary stepping stone to adopt automation in these activities.  You first need to fully understand how an intelligent human performs a task like that before you teach a machine to do it.  In any case the biggest hurdle is that it is still another battery to manage.  If you have ever used a smart watch or a bluetooth headser, for example, keeping it charged is one more thing to worry about.  So that will limit their appeal particularly in productivity applications, since battery management is usually a complex chore that needs to be minimized.  Advances in battery and wireless charging technologies are what will eventually make these really take off.

One more problem for massive enterprise adoption is that most of the current wearables are not stand alone.  Few are, but the battery life is abysmal.  This means there is a “real” computer somewhere else, typically a smartphone, doing the task and the “smart” accessory just presents the information it in a different way.  This not only means another device and battery to manage with its cost implications, but adds unnecessary information “jumps” that will cause latency and inaccuracy problems.  Hardly a good thing for productivity applications. So, my loyal reader (singular) for wearable technology to really take off it will have to be either a true computer that is worn, or with a dedicated cloud with low latency that provides the computing power for the task.  That doesn’t mean it won’t happen, it just means it will happen through a different paradigm than that of consumers.  And that may be a good thing.

There is also the additional problem that most workflows are not designed for wearable technologies.  Except for some of the top 100 companies in the world, there is little activity designing and optimizing tasks for wearable technology.  This is of course a “chicken and  egg” problem.  There are not enough wearables to optimize workflows to and there are not enough workflows optimized for wearables to drive mass design and adoption. However, this will probably be changed by consumer wearables.  We already see enterprise application giants the likes of SAP and Oracle experimenting with Google Glass for warehouse and healthcare applications.  Granted, these are not the right devices, but they do give the idea of what can be done.

So, advancement in electronics, computing power and the never ending need to make every operation more efficient will be the catalyst to a significant growth in wearable technologies in the enterprise.  But before it becomes the preferred paradigm, battery and charging technologies need to improve.  And when they do, workflows will be redesigned to account for the new, more efficient way to do them with wearable technology in workers’ bodies.

Enjoy.

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A Falling Knife?

September 9, 2013 by · Leave a Comment
Filed under: Business, Finances, Technology 

It is widely known that two turkeys do not make an eagle.  I’m not sure what made me think of this, I’m not even a golfer. But it seems to me that Microsoft just handed a bunch of their cash to Nokia for what seems to be a desperate move.  Let me explain.

Nokia operates 3 businesses.  For the first half of 2013 none actually made any money.

  • Nokia-Siemens network (~ 50% of their revenue) which is 11% below last year’s revenue and operating at roughly break even.
  • HERE, formerly Navteq, which has imploded to EUR 233M in revenue and losing EUR 100M per quarter. (amazing what an $8B investment can turn into in a few years)
  • Devices and Service, which is what Microsoft made an offer to buy, is responsible for roughly the other 50% revenue, which for the first half of 2013 was EUR 5.6B vs 8.3B for the same period last year.

This business lost “only” EUR 75M for the first half vs EUR691M for the first half of 2012.  So it is improving.  What makes up this revenue, you may ask?  That’s where it gets interesting.  EUR 2.3B is made by the sell of 13.5 mostly Windows based smartphones.  EUR 2.9B from 109.5 million of what they call  “Mobile Phones”, which do not run Microsoft’s operating system.  The rest is services, whatever that really means.  So, a little over a half of their revenue is not only non-Microsoft products, but at an ASP (average sales price) of EUR 26 (yeah, not missing any zeroes, it is twenty six euro per phone).  This is just a small, very, very small fraction of what an Office or Windows license go for these days.  The other 40% is Smartphones, which are mostly Windows based.  Those sold at an alarming EUR 175 ( $232 US) average price.  Compared that to above $600 for an iPhone and above $500 for a Samsung Galaxy makes them one of the lowest in the industry.    They are actually great devices, but they have to almost give them away for the carriers to take them to their customers.  No wonder the division is not making any money!

So, Microsoft handed $7.2B (which is actually less than 10% of their cash at the close of last quarter) for a shrinking business with the lowest sales prices in the industry, 60% of which they have no interest in.  Not surprisingly, Microsoft investors did not like the idea and drove the stock down around 10% in the first couple of days.  One has to imagine that Microsoft thought this was their only chance to get into the fast growing mobility business.  On the other hand, Nokia investors loved the deal.  The stock shot up 50% in the first couple of days!

So what can the deal do for Microsoft?

In their fiscal year 2013, which ended June 30th, Microsoft ran 5 business that produced $77.6B in  revenue with mind-blowing operating earnings of $33.4B.  Every one of these businesses grew from a year ago, except for Windows, which was roughly flat.

  • Business Division, whose main product is the ubiquitous “productivity” suite Office, was 31% of their revenue and 48% of their OE (operating earnings)
  • Servers and Tools, which sells servers, had around 24% of the total revenue and 24% of their O.E.
  • Windows, which was 25% of revenue and 28% of O.E.
  • Online services, which manages Bing among other online offerings, was 4% of revenue and operated at a loss that represented -3% of O.E.
  • Entertainment, which sells Xbox, Surface PCs, and Windows phone was 13% of revenue and produced a modest 2.5% of Microsoft’s yearly earnings.

The latter is where they will probably merge Nokia’s business if the acquisition goes through and probably spin Xbox out as it has been rumored for a long time.  Assuming the revenue stays flat (a big if), it will represent around 20% of Microsoft’s total revenue, but no earnings to speak of.  Their only hope is to drive ASP (average sell prices) up.  And, my fellow reader (singular), there is only one way to do that:  with unique products that customers value their differentiation.

Consumers don’t particularly like Microsoft, but there is a group that has had a long lived love affair with them: I.T.  Most corporate I.T organizations in the world prefer Microsoft to any other operating system.  They trust them and have been supporting them for years.  Microsoft’s only hope is to leverage that.  They will have to relentlessly push for Windows based phones to become the Blackberry of Christmas past.  Focus on professional users by making email, calendar, office, and corporate apps a seamless experience.

That’s all they’ve got.

However, the world of mobility is that of 99 cents apps and free OS.  Clearly not where you want to take a $43.5B business that throws $24.7B in earnings per year selling operating systems and corporate applications. That is a boat load of 99 cent apps.  Apple and Samsung have shown that making significant amounts of money with differentiated hardware in the mobility industry is possible.

The question is, is there room for a third one …

Enjoy.

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