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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Time to Say Goodbye

April 26, 2015 by · Leave a Comment
Filed under: Business, Finances, Technology 

The need to say goodbye is one of the most basic emotions.  It is always hard, never comes intuitively, and we struggle to say the word and stick to it.  There are myriads of songs on the topic.  One of my favorites will have to be Can’t Let You Go by Rainbow.  It is probably the right time for Mr. Nadella to sing goodbye to Microsoft’s mobile operating system.

The industry reported that in 2014 Microsoft had a pathetic 2.7% market share in the Mobile OS, dominated by Google’s Android and Apple’s iOS.  The thing is, Mobile OS’s are successful if developers create apps for them.  Obviously all developers are focused on one of the two mentioned above or perhaps, both.  There is little room for a third.  But that is not really the issue.  Strategically, Microsoft has decided to give away Windows for any device smaller than 9″, or any tablet or phone.  But it collects a $10 royalty or more on most major android devices.  2014 estimates put the royalties at around $3B.  This cash goes directly to the bottom line.  Sure, software has great margins, but not 100%, royalties almost do.

But wait, there is more.  Microsoft has reported hundreds of millions of downloads of Office for iOS and Android.  Office, the defacto corporate suite is Microsoft’s money making machine. It is a mind boggling product. Last fiscal year it was responsible for 40% of Microsoft’s OE and 33% of its revenue.  It operates at an outstanding 56% OE.  So, my loyal reader (singular), who do you want to protect?  An OS franchise that is going the way of the dodo or your money printing machine.  Microsoft will be better served, and it actually is, but the downloads and product of Office 365 for Android and iOS.  And, of course, the insane royalties it is collecting for android devices.  And then focus on cloud and other services.

So, Mr. Nadella, it is time to say “goodbye” to the product that made Microsoft exist and dominate the PC industry, at least the mobile kind. In case you don’t know it, I’m taking the liberty to post the entire lyrics of Rainbow’s song on this piece since it seems that Master Richie Blackmore and Joe Lynn Turner had predicted the demise of Microsoft’s Mobile OS and wrote this song.

“Day after day I’m waking up
To find that you’re slipppin’ away
Night after night
I can’t fight the emptiness inside

There’s nothin’ I can say
Now I know you’re turning me away
It’s only you know disguise but you don’t have to hide
The truth is in your eyes tonight

I don’t wanna live a lie
But I don’t wanna say, “Goodbye”
And I can’t let you go, even though it’s over
I just can’t let you go
I know your love is growing colder

One look in my eyes and you’ll realize
You got my heart in your hands
Won’t you let me know somethin’ more
Where did we go wrong, girl?

I don’t wanna fight
All I wanna do is try and understand, yeah
I’m reaching out for you, babe, what can I do?
I’ve been holding on so long

I don’t wanna live a lie
But I don’t wanna say, “Goodbye”
I can’t let you go, even though it’s over
I just can’t let you go
I know your love is growing colder
And I can’t let you go, even though it’s over

I don’t wanna live a lie
But I don’t wanna say, “Goodbye”
I want you by my side
And I can’t let you go, even though it’s over
I just can’t let you go
I feel your love growing colder

And I can’t let you go, even though it’s over
I just can’t let you go
Feel your love is growing colder

Don’t go
Though I know it’s over
I just can’t let you go.”

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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6 Mobility Predictions

March 11, 2012 by · 1 Comment
Filed under: Business, Finances, Technology 

The world of technology, particularly mobility has been one of the most dynamic in the past 2 decades.  Well, it is my contention that it is about to change again, very fast and very drastically.  What was shown in the Consumer Electronic Show (CES) back in January in Las Vegas and the Mobile World Congress in Barcelona at the end of last month is trully game changing.  If you are an investor looking for advice, I suggest you ignore what you’re about to read here.  It is always fun to venture into the predictive “sciences” and look back a couple of months later to see what really happened but by no means I know what I’m talking about.  My time horizon is 12 – 24 months.  So read away and derride if you must.

Prediction #1:  Research in Motion will not be a stand alone company. The makers of the once annoyingly ubiquitous Blackberry have been losing ground since Apple launched the iPhone back in 2007.  Jobs’ creation revolutionized what we now call the smartphone and by most accounts it is the gadget of the decade.  In the meantime RIM tried to position itself as the preferred smartphone by professionals and the only one trusted by IT.  They were and by far.  In June 2008, RIM hit a high of $148 a share.  These days trading at a meager $13.6 indicates a stock in clear trouble.  They are still profitable and at a market cap of roughly $7B someone that needs good hardware can take them out.  Who can that be?  Read along …

Prediction #2:  Nokia will not be a stand alone company.  This story is even sadder.  The ones kings of the cellphone market could not and did not adapt to the smartphone revolution.  The Finnish company once enjoyed a 40%+ market share around the world.  They revolutionized how cellphones were used and they were the first ones to penetrate emerging markets like India or China.  Nokia back in 2008 saw its share price hit the  mid $30’s.  Now it squanders at $5 and even with their market leadership of roughly 24% share in 2011 (down from 28% in 2010) it struggles to stay profitable.  As I posted previously here, Microsoft has partnered with them and has made them their preferred partner for Window Phone 8.  In this blogger’s humble opinion it will take a lot more than $1B of Ballmer’s money to bring Nokia back to life.

Prediction #3:  Android will come of age.  Are you kidding me;  it is the number one selling OS in the smartphone category?  Sure, but it is still immature.  It is very fragmented, some apps don’t run well across devices, each OEM has its own GUI flavor, enterprises don’t like it, IT can’t manage it, and there are tons of stories of malware and malicious apps that have hit it.  Even if OEMs like Samsung, LG, HTC, or Motorola fix that, corporations don’t want to deal with different tools for different devices.  Google will have to get their act together and embrace them.  Their move to acquire Motorola Mobility, that I mentioned here is a testament of their true interest in the space.  What will they do with Motorola’s hardware capabilities still remains to be seen.  But, my loyal reader (singular) you have to agree that nobody spends $12B, even Google, if they don’t have a solid strategy.  Android will be one of the 3 contenders in the smartphone/tablet battle.  Why 3? read along …

Prediction #4:  Samsung will be the next dominant player in consumer products.  This one is a classic vertical integration play.   Samsung owns ICs, displays, manufacturing, etc. they are extremely agile in their development and manufacture products that are state of the art.  If it wasn’t enough, unlike Apple, they believe consumers should have choices, in fact want choices.  For example, Samsung is the only company with a  mobility lineup of 4.3″, 5.2″, 7″, 8.9″, and 10.2″ Android devices and some Windows devices too.    Samsung had about 17% market share in 2011, are extremely profitable, and are among the price leaders in tablets and smartphones.  But that’s not it; they have impressed in recent trade shows with their integration of computers, TVs, smaprthones, tablets, music systems, etc.  A single experience across “all-screens-and-speakers” has always been the dream of the likes of Apple, Sony, Microsoft, and others.  Samsung seems to be the only one executing to it.

Prediction #5:  Microsoft will be a true force in mobility.  I know I’m starting to go out on a limb here.  They have a dismal 6% market share, about 1/2 of RIM’s.  But our friends in Redmond are pouring (to paraphrase Dr. Carl Sagan) billions upon billions of dollars in the quest. I know I’ve said the opposite before (that’s why you should ignore me) but I think this time is real.  Google’s acquisition of Motorola Mobility also opens the door for Samsung, LG, HTC, and other OEMs to rekindle their romance with Windows if for nothing else, as a hedge against Android’s marriage.  Windows phone 7 was actually pretty good, 7.5 even better.  They were “just” missing OEM adoption and apps.  But in classic Microsoft fashion Windows 8 promises to be the third time is a charm deal. Reports of the beta version of Windows 8 (on a PC) are extremely positive which will revitalize them for the mobile space.  Microsoft is the trusted adviser for corporations across the world and IT will gladly go back to them if users accept it.  The trick will be in the hardware and the ecosystem of apps.  Again, in this blogger’s humble opinion, a combination of what I’ve mentioned in points 1-3 above may be Microsoft’s ticket to mobility.

Prediction #6:  Apple will not continue its reign.  I know this may be out there  and  I’m not saying Apple will go down but at the very least they will slow down their growth.  The main reason of their success may be the cause of their change in fortune.  According g to Cook’s iPad3 launch, Apple sold a mind blowing 172 million devices.  Of those 172 million, even more mind blowing is that around 100 million were iPhones.  Think about that: 1 product (actually 2, black and white) sold in 200 countries!  Essentially Apple believes that 1 product with no changes is ideal for everyone in the world!  My loyal reader I ask you: how sustainable is that, especially when you see their competitors following the opposite approach?  iPad3 was a disappointment not because it is not a great product, it is. It became a “speeds and feeds” game; same old device, but better this and faster that.  It is a reminder of the WinTel era in which you had to have the fastest computer with the most memory and the fastest disk.  Apple themselves made Mobility to be not like that.  The market that Apple changed with music, movies apps, and multipurpose devices is about the experience.  Sure, a better this and a faster that may drive a better experience, but I believe we’re reaching diminishing returns particularly to rush and get one.   iTunes and iCloud bring the continuous experience across iOS device, but it stops there.  On top of that Apple TV was a failure.  There is life outside of our mobile devices.  But then again, with $100 B in cash, they might reinvent something else one more time.

So there you have it. 6 predictions in an 18-24 month horizon.  If you disagree, let me know, if you agree pleas do that too.  And remember to ignore me because unlike the song I will not get closer if you do.

Enjoy.

 

 

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