30
Sep

Salesforce Continues Its Joint Marketing Strategy and Lands an Alliance with Workday

On September 18, 2013, Salesforce.com and Workday announced a strategic alliance promising to deliver a lot of the capabilities of the PeopleSoft component of Oracle® entirely in a cloud Software as a Service (SaaS) offer. When I put together this deal with Salesforce’s partnership with Oracle, announced in June of this year, I have to congratulate Salesforce on closing two very potent alliances.

The specifics of the deal, which I am not going to touch on here, can be found in an article, Salesforce and Workday form Cloud Alliance, authored by Quentin Hardy, and published, same day as the announcement, on the New York Times website. What piques my interest in this story is the lesson the chief marketers at Salesforce.com (probably Marc Benioff, the CEO and founder) are giving on how to leverage application scale to boost the revenue torque represented by SaaS cloud subscriptions.

As I’ve written elsewhere, the difficulty in all of this for mature ISVs is precisely the paltry torque of cloud subscriptions. It’s very hard to part with revenue models built on sales of juicy on premises software licenses for cloud subscribers who usually pay a mere fraction of these prices in the form of monthly subscription costs. But what if the same infrastructure, and the same applications, could be promoted to an ever increasing set of enterprise prospects by negotiating alliances with other ISVs with complementary product offers? From what I’ve read of this deal and the earlier deal with Oracle, I think this is where Salesforce.com is taking us.

Of course, if they succeed and start to demonstrate substantial growth in revenue, per subscriber, over the next few fiscal quarters, then mature ISVs looking for a method to successfully attain an adequate revenue base from cloud offers to fuel continued growth and profitability will have a model worth following.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved

27
Sep

Profitably Managing Related Products to Increase the Value of Commodity Sales

Over the last 5 years, what I refer to as spurious sales incentives — membership mileage programs for air travelers, membership points programs for people using branded credit cards — have delivered diminishing value to their sponsors. These programs no longer stimulate much consumer enthusiasm. The reasons are simple:

  1. Apparently, sponsors can no longer afford them, so it is increasingly more difficult for consumers to benefit. A free international plane ticket, in 2000, was generally available for 35,000 air miles points. Today, travelers are lucky to obtain the same for 100,000 points.
  2. Consumers have little loyalty to specific brands, regardless of whether or not a membership reward program is connected, or not.

But sponsors have gotten much more adept at managing components of reward programs to their advantage. So what looks, on the surface, to be a marginal program for a sponsor, may actually be a real producer.

Delta airlines successfully manages what I refer to as the negative consumer reward program experience to its advantage. A hypothetical consumer earns the 35K points required for a free international round trip ticket on Delta. But when this consumer attempts to identify a suitable reward (meaning a round trip flight), he/she fails, leaving the consumer with a negative impression of the reward program and of Delta, itself.

When this same consumer approaches Delta to explore other possible applications of his/her points, he/she is informed they can be used to purchase other goods, but only when he/she uses the Delta branded American Express credit card. Of course, by using the Delta credit card, regardless of whether my consumer opts to pay with points, only, or with a combination of points and cash, Delta benefits from the merchant services charge (at least 3.5% of the acquisition cost for the item).

This example illustrates how Delta has successfully managed a key component of the sale of its commodity — meaning the cash required to pay for a ticket — by promoting the use of its own branded credit card, to its sole advantage. Certainly the quality of customer service takes a big hit in this type of scenario, but with fickle air travel consumers, does Delta really care?

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved

26
Sep

Microsoft Adds Cash Incentives for iPad Owners to Switch to Surface Tablets

On Friday, September 13, 2013, Computerworld published an article by Greg Keizer, Microsoft kicks off iPad buyback deal in latest effort to juice Surface sales. From the information presented in this article, and the sales promotion published on the Microsoft website, Microsoft’s commitment to capturing a meaningful share of the consumer market for tablet computers should be clear.

But I find worrisome something else about this campaign. If Microsoft needs to gain market share by converting iPad owners to the Surface tablet, then the market size for these devices is far smaller than I would have expected. Why else adopt a method of cannibalizing the installed base to sell more units?

This technique is neither exclusively a Microsoft tool, nor is it only applicable to tablets. This sales tactic has been around for ages. Apple uses a version of it to juice iPhone sales in a two pronged attack. On the one hand, carriers seed their customer base with free iPhone offers. On the other, outlets like BestBuy are also offering a trade in program.

But regardless of who is running a campaign like this one, and for what type of small, smart, mobile device, the obvious conclusion is at least the north American markets for these devices (tablets and high end smart phones) have reached saturation levels. The only way of growing market share amounts to cannibalizing a vulnerable customer base otherwise owned by a competitor.

Undoubtedly, as more analysts reach the same conclusion, the valuation of companies like Apple, Google and even Microsoft, itself, will likely be brought down. But until we reach this point, it’s clear Microsoft will continue to implement this type of tool to “surface” the Surface as legitimate tablet computer in the market.

If nothing else, it is also clear Microsoft is very serious and committed to winning share in this market. Why else would they plan on buying back a competitor’s product? Certainly they have no interest in reselling them.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved

25
Sep

Comments on Apple’s Debut of the new iPhone 5C and iPhone 5S

On September 10, 2013 Apple formally debuted two new smart phones, the iPhone 5S and the iPhone 5C. I was particularly interested in learning more about the iPhone 5C. My interest stemmed from a conviction any further sales growth for Apple, Google, Microsoft, etc. will have to be forthcoming from emerging markets. But emerging markets lack the buying power of the Americas and Western Europe markets, so the pricing of these phones will have to be substantially lower than the pricing of comparable smart phones sold in the Americas and Western Europe.

Apple substantially disappointed me with their announcement. If the performance of their stock since announcement can be taken as any indicator of how the broader investment community has reacted to their announcement, I’m not alone in my opinion. (September 25, 2013 update: The nice bump we’ve seen in Apple’s price, since these products launched, in my opinion, must be entirely attributed to their ability to use these new products to persuade existing customers to buy yet another iPhone. Of course, they are also cannibalizing competitors in the upscale markets, but I still stand by my take on their likely failure to increase penetration in emerging markets with these new phones.).

The iPhone 5C purported to be Apple’s solution for the emerging markets. But with a price tag of $400.00 USDs, for retail customers buying the smart phone without a service contract, the product fails to represent the promising pricing strategy Apple needed to increase sales in emerging markets.

When I put the disappointing iPhone 5C together with an equally disappointing iPhone 5S, I can only conclude Apple has little path upwards from here, and, in all likelihood, some way to diminish over time.

For the record, what’s disappointing about the iPhone 5S is my opinion on the negligible additional value the new speedier processor and the fingerprint sensor for device authentication and online purchases are likely to deliver to average customers. Most device speed is a function of networks, anyways. Competitive smart phones are already equipped with very fast processors, so I don’t think the iPhone 5S will magnetize a substantial amount of buying interest based on its significantly faster processor. But the importance of the status factor of one upping your buddies with a new high end iPhone cannot be dismissed, at least for now.

On the question of the fingertip authentication system, I think this is an old technology. Perhaps Apple should be commended for porting it over to a small, smart mobile device driven by a touch screen, but I can remember lots of problems with the fingertip reader for my HP laptop, and can’t help to think there will be more of the same with this system. (September 25, 2013 update: Hackers claim to have broken this authentication system already.).

Of course Google and Microsoft will likely benefit from the less than earth shaking response I think Apple will get for these new products, over time.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved

24
Sep

Smart Phone Margins Look to Shrink as Competition Intensifies

On Saturday, September 7, 2013, Barrons published an article written by Leslie P. Norton, titled Lenovo Attacks. I came away from this article with some points about Lenovo, including:

  1. Operating profit margin – 2.4%
  2. #2 position in China’s smart phone market
  3. 7% of what Leslie P. Norton notes IDC refers to as the ” . . . global ‘smart interconnected device market’ . . . “
  4. #1 position in global market for PC manufacturers
  5. Plans on entering the U.S. market for smart phones in 2014

Here’s what I think the most important of these points portends for the market for smart phones, PCs and tablets:

1) Lenovo’s 2.4% operating profit margin

Samsung and Apple are likely learning to live on much tighter profit margins as they both build defensive strategies against Lenovo’s “attack markets” (quoted from Leslie P. Norton’s article on Barrons, a link to which has been provided above). As both of these market leaders look for greater efficiency from existing feature sets, I think the importance of the high end of the smart phone market, globally, will diminish for all of the contenders. Absent any real break away new features, these devices must, inevitably evolve into even more of a commodity.

2) Lenovo’s #2 position in China’s smart phone market

With Lenovo taking market share from Samsung in China, I think Apple’s deal with China Mobile will not be the earth shaking event investors have been waiting for. The skew between Lenovo’s operating margin at 2.4% vs. Apple’s at 29% is just too great, in my opinion, for Apple to overcome. If they do succeed in taking share from Lenovo and Samsung, it will have to be on the low end of the product spectrum. Given Apple’s historical product marketing strategy (they sell MSRP $2500.00 “AirBooks”, where Lenovo sells similar powered devices in the MSRP $900 – $1100.00 range), I can’t see them “going there”.

5) Plans on entering the U.S. market for smart phones in 2014

If emerging markets are promising a vast new expansion of smart phone customers, why is Lenovo looking to further cannibalize the U.S. market? My conclusion is the cost of these devices is too expensive for the next tier of emerging markets, so estimates of global market size have been overstated. Planning on a slimmer global market should help investors glean the right information from press announcements from the industry leaders, while carefully maintaining a watchful eye over share price inflation.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved

23
Sep

Looking Further at Microsoft’s Announced Acquisition of Nokia’s Handset Business

We’ve recently commented (via several posts to this blog) on some changes at Microsoft®. The first of our posts included notes on Steve Ballmer’s July “One Microsoft” reorganization announcement. Most recently, we noted our thoughts on Mr. Ballmer’s announcement of his planned retirement from the position of CEO of the company, to occur sometime during the next 12 months. What’s consistent about our comments is our position about just what’s important about the product mix driving revenue at Microsoft. We think it’s all about Microsoft’s enormous customer base across large organizations in the public, private and not for profit sectors, and not much about the consumer product lines the company manufactures.

So we were surprised to read about Microsoft’s intention to purchase Nokia’s handset business. This move, on paper doesn’t seem to have much to do with what we take to be the core revenue driver for this business — enterprise software sales. We aren’t alone in our viewpoint. On September 7, 2013, Barrons published an article on a related topic, It’s the Shareholders, Stupid, written by Andrew Bary. Mr. Bary quotes Rick Sherlund, from Nomura Securities, arguably the leading industry analyst on Microsoft, on the subject of this latest announcement: “‘Investors have wanted Microsoft to reduce its exposure to a declining consumer space and focus on its stronger enterprise business and pay out more cash in the form of share repurchase and dividends. Management succession was thought to help in this regard, but the Nokia deal doubles down on the cost structure for the consumer business and makes it more difficult to reduce costs[.]'” (quoted from Mr. Bary’s article. We’ve provided a link to the complete article earlier in this paragraph).

Leaving aside Mr. Sherlund’s observations on the impact of the additional overhead costs Microsoft will have to shoulder once the acquisition has completed, his remarks about investor notions of where Microsoft should be looking to repair and expand its business are entirely consistent with our ideas on the same topic. So how can the acquisition of Nokia’s handset business be seen as contributing to the success of Microsoft’s efforts to repair its core enterprise software business?

We think this move is understandable when one considers the comparatively diminutive positive impact on earnings from cloud products. If enterprise markets are truly moving away, in droves, from on premises computing solutions, then Microsoft is clearly at the start of a long road of shrinking revenue contributions from its Office products, if not its operating system profits, as well.

Smartphones are pricey devices with an average cost, here in the United States of approximately $500.00 each, if not higher. So buying an admitted laggard in the market, which, nevertheless, was once the biggest manufacturer of mobile phone handsets in the world, can be seen as a means of shoring up the bottom line with a nice chunk of hardware revenue, to copy a page from Apple’s playbook. As well, enterprise business is looking like a market in need of a replacement for the ubiquitous “Blackberry”. The Windows Phone O/S on the Nokia Lumia handset, is, we think, a very good option enterprises will have to consider.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved

20
Sep

The Mystery of Just What Constitutes Big Data Continues

Perhaps no other point so vexes me when I read about “Big Data” than the now familiar absence of a clear definition of the term. I just read an article published today, Thursday, September 5, 2013 in the “CIO” blog of the Online Wall Street Journal, Financial Services a ‘Real Leader’ in Leveraging Big Data. Michael Hickens, the author of this short post, makes a point about the new proclivity of financial services firms to adopt “big data”: “Banks and other financial services firms are further along than most other industries in making use of predictive analytics, according to a study reviewed by CIO Journal.”

In fact, this statement appears at the very start of Hickens’ article. But there is no connection made between “predictive analysis” and “big data”, so I’m left wondering about the point at hand, and where the author of this post would like to lead me. I’m also recollecting the late 1990s, when neural networks were, once again, a really strong area of interest of financial services firms. In fact, these businesses actively pursued the design of neural networks in an effort to advance the accuracy and utility of “predictive analysis”.

So what’s new about this time around? Beyond a mention of Hadoop as the data repository of choice, there is no mention whatsoever about the features I’m following on the topic of “big data”, meaning unstructured data, metadata tagging, etc. Are these financial services firms doing new work in these areas? Are they implementing taxonomies as a way of organizing unstructured data? Are they using metadata tagging techniques?

Unfortunately, Hickens short article does not include detail on these points. I would hope authors, going forward, try to be more specific about just what they mean by “big data” so reader like me can derive more benefit from articles on this kind of topic.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved

19
Sep

Apple’s Public Relations Team Does a Top Notch Job Enhancing the Innovation Factor of the iPhone 5S and 5C

Last week, the first week in September, 2013, Apple debuted two new iPhones — the 5S with a 64 bit processor, and the 5C (marginally, all of $100.00, less expensive than the other iPhones in the 5 series). Despite a halted market reaction to these smart phones, Apple’s Public Relations team has, once again, done an exceptional job stimulating influential writers to render opinions on these products, which inflate the value of the features for public consumption.

The new phones have been cited as likely to succeed for as spurious a set of reasons as simply “it’s a new iPhone. I can afford one, you can’t, so turn green with envy”, all the way to the blinding speed of 64 bit processing for a smart phone. It’s actually of little consequence whether the claims of pundits make sense, or not. What’s really important is the impact of these claims on consumers, who will likely think more about these phones than would otherwise be the case if the original round of reviews had struck home.

ISVs will do well to study the effectiveness of this promotional campaign. A successful PR campaign like this one will contribute substantially to the popularity of these phones with the consumer market, not only for Apple, but for the carriers who opt to jump on the new products and pushing them out to their subscribers. What’s particularly impressive about this effort is the likely positive effect on consumer sentiment after a comparatively much less successful presentation of the features, themselves, to the technical community, investment analysts, and other commentators on Apple, the company.

Certainly a PR campaign should be a foundation plank of any launch of a new technical product. It is, nevertheless, curious for me to note the difficulty many ISVs experience when they grapple with how best to implement a PR campaign. The cost of the campaign should not be the key determiner of whether or not it makes sense to implement it, or not. The best basis to determine return on investment in this type of effort is to quantify how well the campaign performed against goals. Unfortunately, in my opinion, establishing useful goals is the really hard part.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved

18
Sep

A Contrarian’s View of Microsoft’s Announced Plan to Acquire the Mobile Handset Business from Nokia

We all awoke yesterday, Tuesday, September 3, 2013 to the news Microsoft® plans on acquiring the mobile handset business from Nokia. Nokia, in turn, announced its acceptance of Microsoft’s offer. We think this $7 billion planned acquisition will provide Microsoft with a unique opportunity to redesign its brand for small, smart, mobile devices. Further, we see a lot of positive opportunity for Microsoft to improve its sales performance in this market, with little additional risk.

Most of the bad news is already baked into the Nokia product line. The portion of the global market using Nokia handsets built on the Windows Phone O/S (the Lumia product line) is purported to be under 5%. The Windows Phone O/S has been frequently criticized, with a common complaint being a comparative lack of third party applications for the platform. Microsoft’s failures to win market share in these markets has also been widely publicized. Finally, the size and shape of the Lumia smart phone has been described as uncomfortably large and clumsy, in part as the result of the irregular shape of the phone necessitated by the placement of its camera lens in a “bump” on the back.

On the other hand, we use Lumia 925s everyday and need to note our strong satisfaction with the simplicity of the operating system, the lack of clutter to the user interface, and the very high quality of the camera lens and even the software shipped with the smartphone to enhance the quality of the usual picture taken with a cellphone. So Microsoft can benefit substantially by crafting marketing communications capable of informing the public about these important points.

If the product marketing team can capitalize on Microsoft’s position as an underdog in this market, then they should be able to steal some of the “noble rebel” title from Apple, which is, after all, “the empire” in this market.

But Microsoft’s marketing communications and public relations teams have stumbled, in the past. We aren’t ready to place a bet on whether they will successfully exploit this opportunity or not.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved

17
Sep

ISVs May Be Able to Use Community Sites of Prominent Analysts to Publish Promotional Content at Little or No Charge

Visitors to IDG Connect may not be aware the site is a community site. We weren’t aware of the purpose of the site and thought we could find some content from IDG analysts on it. But what we found were a set of articles produced by members of the IDG Connect community (we aren’t sure whether these firms buy services from IDG, or are invited to post for some other reason).

By community site we are referring to web sites with content produced by at least some of the members of the site, rather than by the publisher of the site. Community sites also include a lot of social media features, including an option for members to post comments (which will be moderated prior to posting), and a Twitter feed.

We think IDG would do better to include a prominent disclosure on the site about the actual source of the editorial content posted on the site. We visited the site to read an article, Leverage Big Data to Boost Your Organisation’s Sales Effectiveness, written by Ed Farquhar. Only after finishing reading this article did we note a lack of any biographical information about the author. When we Googled “Ed Farquhar” we found out he is employed by Pros, Inc., which happens to be an ISV with a cloud offer precisely matching the technology described in the article.

The article mentions the importance of unstructured data as a component of the information required for Business Intelligence (BI) applications to process to provide sales teams with useful knowledge for pricing and pursuing high probability prospects. But the lack of detail about what’s special about unstructured data, and the now familiar positing of the whole process as something clearly differentiated from the type of analysis done in the past via relational databases, but without any meaningful detail, failed to convince us.

We couldn’t help thinking the whole piece was a kind of informercial/advertorial.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved