30
Jun

Gallup Poll Results on U.S. Consumer Buying Habits Support a Skeptical View of Social Media Business Valuations

Public companies in the Social Media business (facebook, Twitter, LinkedIn, Google, etc.) have all implemented global business strategies. Nevertheless, some substantial proportion of the business plans for each of these businesses, over the next near term, depend on sales to advertisers for the U.S. consumer markets. But the results of a Gallop® report on the buying habits of U.S. Consumers, published on June 23, 2014 may point to excessively optimistic revenue forecasts in these plans, and, in turn, even more inflated business valuations than previously appeared to be the case.

Here are some important points coming out of this report:

  • 62% of a cross section of respondents to the survey reported Social Media had “No influence at all” on their purchasing decisions. Two caveats on this statement should be noted: 1) the numbers of respondents from each of four groups — “Millennials”, “Generation X”, “Baby Boomers”, “Traditionalists” — are not included in the article about the report, which is now widely available to the public (a link to the article is included in this post) and 2) despite a landing web page for the report, itself, the landing page does not offer the visitor any access to the report, so it is not possible to explore the report, at least at the time this post is being written
  • But this percentage drops to 48% of “Millennials” who responded to this survey. “Millennials” are defined as people born after 1980.
  • Only 5% of a cross section of respondents reported social media exerted “A great deal of influence” over their purchasing decisions. The percentage rises by 40%, to 7% when only responses from “Millennials” are considered.

In Facebook’s 10Q filing with the U.S. SEC, dated April 25, 2014, for the three months ended March 31, 2014, 45% of total global business revenue for the quarter was reported for the United States market, alone. The sources of revenue are clearly defined in this report as follows: “We generate substantially all of our revenue from advertising and from fees associated with our Payments infrastructure that enables users to purchase virtual and digital goods from our developers with applications on the Facebook website.”

Given the claimed results included in Gallup’s report, it might make a lot of sense for investors to recalibrate the cost of an investment in Facebook. In the opinion of this writer Facebook is grossly overvalued, as are most of its peers in this segment. Online advertising is simply better suited to the promotion of tangible items, or intangibles highly dependent on tangible factors, (for example, geographical location) than it is for purely intangible offers.

Since the range of items suitable for online promotion is, therefore, limited, the extent to which valuations have been inflated is even more extreme than this writer previously assumed to the be case.

Disclaimer: I have no current investment in any of the businesses mentioned in this post

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

27
Jun

Does It Make Sense to Ignore Consumer Interest When Designing Technology Products?

Amazon débuted yet another smart phone targeted to the broad consumer market, this one named the “Fire Phone”, in mid June 2014. In an interview with Greg Bensinger, which was published by the Wall Street Journal, titled Amazon’s Bezos on How the Fire Phone Is Like Chocolate Ice Cream, Jeff Bezos, Amazon’s CEO expressed his opinion on whether ISVs should listen to consumers, and, subsequently, produce products, within their reach, to satisfy consumer needs.

This nugget popped up in the middle of Mr. Bezos’ reply to a broad question posed by Mr. Bensinger, the core of which amounted to “why are you sill diversifying products, horizontally, with a hardware device?”

Bezos replied as follows: “It’s easy to do something unique if you’re not constraining yourself by customer interest.” This short sentence of fourteen words nicely sums up several variations on what this writer calls “engineering driven product marketing”.

In the 1980s this approach provided the operating juice behind “solution without a problem” products.

In the first decade of this century (and even, perhaps, to this day) this notion provided the core of “ready, fire, aim” product design for ISVs, who, unfortunately, confused the intended benefit of this product development method (which is to reduce time to market, while insulating a very early stage business from a poorly timed decision to deeply commit to a wrong product notion), with a laissez-faire product design mandate.

Mr. Bezos’s point, in the opinion of this writer, should not be taken as a recommended product marketing methodology by early stage ISVs, who may have a lot technical heft, but little understanding of what markets are looking for, simply because they either

  • haven’t sampled consumer interests, and requirements, or
  • have focused on, as Mr. Bezos’s notes in his statement, “building something unique”

The question of whether “uniqueness” amounts to anything, at all, as regards the potential of a specific product for a specific market can not be broadly answered. Commodity markets, like the smart phone market to which Mr. Bezos has introduced the Fire Phone have not reacted well to so-called “unique” products in the past. For example, the Ford Edsel was a big failure, as was “new Coke”.

Early stage ISVs, in this writer’s opinion, will do better in commodity markets by either lowering their cost of product manufacturing/consumer acquisition, or rethinking product platforms to truly meet unmet consumer needs.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

26
Jun

Blackberry is Turning Around, But at a Slower Pace Than Previously Expected

Blackberry reported on earnings for the first quarter of fy 2015 on Thursday, June 19, 2014. As reported on the MobileWorldLive web site, John Chen, CEO, mentioned a likely return to profitability in fy 2016. But the pace of improvement is much slower than expected, based on management comments from earlier earnings reports.

Does the gap between the timeline Mr. Chen presented back in December, 2013, as part of his presentation to investors, and his latest pronouncements present a challenge for anyone following the performance of this business? Back then, many proponents of Mr. Chen’s ascendancy to the CEO position at Blackberry spoke positively of his past successful experience turning around Sybase, and seemed to look forward, eagerly to the second phase of his plan — marketing BlackBerry’s Messenger service to the market for enterprise mobile device management (MDM) software.

But, as I wrote earlier to this blog, Gartner has since released its Magic Quadrant for Enterprise MDM. Unfortunately, BlackBerry’s BBM is included, simply, as a “niche solution”, and certainly not one of the market leaders, at least according to Gartner.

So we can only conclude the first phase of Mr. Chen’s December, 2013 plan is still in process. Ken Willard, who wrote this article for MobileWorldLive notes “[t]he remainder of sales was made up by hardware (39 per cent) and software & other revenue (7 per cent).” On the other hand, the services business (not a focus of Mr. Chen’s December, 2013 plan) “represented more than half of Q1 turnover (54 per cent).”

In fact, it looks much more likely Mr. Chen will remain deeply engrossed with the challenge of squeezing profitability out of the hardware business at Blackberry for the next few quarters. Mr. Wieland quotes Mr Chen as using an abstraction to describe the pace of BlackBerry’s progress on this objective, “Chen admitted that BlackBerry had still to hit breakeven point on hardware, but added it was getting ‘very close’.” What may be very close for Mr. Chen maybe very far off for investors. Perhaps it is safe to say simply reporting the numbers, and leaving the task of “connecting the dots” to analysts would have been a better approach.

Disclaimer: I liquidated my entire investment in BBRY back in May, 2014

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

25
Jun

Amazon Debuts the fire Phone, If I’m a Retailer, Should I Care About ‘Dynamic Perspective’?

What do the Amazon fire Phone and the Trojan Horse have in common? Perhaps the combination of a couple of new features in this smart phone, ‘Dynamic Perspective’, and ‘Firefly’, provide us with some important clues. Remember how the Trojans were convinced to welcome the Trojan Horse, and thereby, met their downfall? Well brick and mortar retailers may want to keep an eye on shoppers carrying fire Phones.

As Nathan Olivarez-Giles wrote in an article titled Amazon’s Fire Phone: Firefly, Free Cloud and Other Big Takeaways, the new fire Phone “will use four dedicated front-facing cameras with an especially wide field of view to recognize and track where your head is, where you’re looking and how close the device is to your eyes.”. Sounds perfect for shoppers cruising brick and mortar retail store aisles, doesn’t it?

The “Firefly” component could be the payload, like all of the Greek warriors waiting to be sprung inside the Trojan Horse. As Mr. Olivarez-Giles explains, Firefly may “[use] the camera to recognize consumer products. Any content or product that Amazon sells will automatically be queued up for you to buy (now or later). Firefly can also use the phone’s camera to recognize phone numbers of local businesses.”

Readers may be surprised at the brazen aggressiveness of this phone and what looks like a prime aplication for it (no pun intended). But, as I wrote recently in this blog, Amazon looks like a real practitioner of “bully tactics”. Simply consider how this business has conducted itself throughout its negotiations with Hatchette, the publisher. Or how Amazon chose to implement the Android O/S for the Kindle eReader.

Bottom line, there isn’t anything new about the potential for the strategy behind the fire Phone to be a method of capturing even more impulse purchases from consumers as they pay their visits to brick and mortar retailers. With the fire Phone fickle buyers won’t even need a dressing room to take a selfie in an outfit and then shop it on Amazon. I wouldn’t be surprised if we start seeing signs at the entrances to some retail locations notifying shoppers to “Please leave your fire Phone outside”.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

24
Jun

Does Public Micro Funding of Very Early Stage ISVs Help or Hinder Creation of Viable New Businesses?

Perhaps it is harsh to say, but some very early stage businesses are better off as concepts than actual funded efforts. For early stage Independent Software Vendors (ISVs) this is, too frequently, the case. Simply put, either no one on the management team has any prior experience with the kind of immense start up effort at hand, or the product concept, itself, has not been studied, sufficiently, to warrant capitalizing the notion and kicking off a business with it.

But with the availability of public “micro funding” resources, commonly referred to as “crowdfunding”, more of these notions and teams are actually embarking on a business effort, than one would otherwise hope to be the case.

Jenna Wortham published an article on the New York Times web site on June 14, 2014 titled Why That Phone Charger Took Two Years to Arrive. Ms. Wortham’s article, perhaps inadvertently, reports on some of the early stage gross errors capable of crippling an ISV business powered by a creative, but poorly assembled product notion.

The subject of the article is Ms. Wortham’s history of an investment she made, via KickStarter, a famous “crowdfunding” web site, in a business set up to sell a product called “JuiceTank”. As is typical of these investments, Ms. Wortham received no equity in return for her investment of $55.00. What she received was a confirmation of her order for something once called “JuiceTank”, which later became something called “the Prong”. As Ms. Wortham explains, this product promised to look like a “slim iPhone case”, but to serve as a “wall charger” for an iPhone.

So what’s the problem with all of this? the reader may ask. First and foremost, any investment in a start up with absolutely no product to show should be an equity investment, and not an order. After all, it took two years for this business to fill Ms. Wortham’s order. Further, Mr. Lloyd Gladstone, one of the founders of this “business”, as Ms. Wortham reports, “had no prior experience with products or manufacturing.” Mr. Gladstone’s lack of experience, when combined with the prior experience of his partner, Mr. Jesse Pliner, in Investment Banking, evidently resulted in acceptance in the KickStarter “crowdfunding” effort.

But who really benefits when an effort like “the Prong” nee “JuiceTank” secures the capital to get off the ground, but then leaves a lot of very small investors literally waiting years for delivery on a product purchased on no more than a whim. I would argue no one. In all likelihood Messrs. Gladstone and Pliner have felt no small amount of pain as they meander through a series of very dangerous errors. In turn, the group of very small investors waiting for their $55.00 purchase to show up on their door step, has also felt some pain.

Simply put: public micro funding, in this writer’s opinion, benefits no one other than the venue hosting the effort. Small investors are better off sitting on the sidelines while legitimate venture capital makes an effort to properly manage ISV notions all the way through to viable emerging businesses.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

23
Jun

Why Isn’t Amazon Instant Video Available on Samsung’s Galaxy Note 2.1?

On Wednesday, June 18, 2014, Amazon has scheduled a new product announcement. A lot of the talk, online, is about the likelihood this new product will prove to be an Amazon smart phone. But, of all this talk, only one writer, David Streitfield, of the New York Times, in an article titled With an Amazon Smartphone, the Retailer Seeks a Tether to Consumers appears to appreciate the urgency, for Amazon, to debut yet another smart phone. Mr. Streitfield alludes to the inevitability of Amazon taking a very late step into a very mature smartphone market: “Now Amazon is giving this brutal business a shot. On the one hand, analysts say, it has no choice. On the other, the rewards could be tremendous.”

Actually, perhaps it is more accurate to say Mr. Streitfield reports on some analysts who actually appreciate why Amazon actually has no choice but to take this step. But why is Amazon forced into this move? Unfortunately, Mr. Streitfield provides no further detail on this point, beyond painting a picture of a likely shrinking market for the various items in its massive inventory and offering to consumers, if search engines, like Google, continue to roll in further enhancements to their location based search features.

This writer caught more of a tangible sense of why Amazon might need to take this step when he attempted to use his Amazon Prime account to watch “Amazon Prime” instant videos on his Samsung Galaxy Note 10.1, 2.1, and/or his Surface 2 tablets. Neither device would run the videos. This writer experienced no problems running the instant videos on a desktop PC, but the tablets would not work,

A discouraging message came up when he tried to play an Instant Video on the Samsung Galaxy Note 10.1 2.1. The message amounted to a warning the video would not be able to be played on this device, so try playing it on a PC.

With the Android O/S deeply entrenched in the position of the most popular smart phone (and tablet) O/S, by far, Amazon cannot afford, much longer, not to have a viewer of its own for this market. If an Amazon smart phone is an effort to solve this big problem, and, at the same time, a reliable player for Android and Windows 8.1 Mobile Devices is also announced, then the decision will likely be the right one for Amazon to have made.

But the question still remains — why do is there no player for these other mobile device O/Ss? Does Amazon’s position in the Instant Video market, as a competitor to Google Play, and Samsung’s own online entertainment marketing effort, have anything to do with it?

The answer to this question is a likely “yes.” If Amazon implemented the same bully negotiating style it called on for its issues with Hatchette, with Google Play, Samsung, and even the Windows Store, the the lack of a viewer on any of these platforms makes sense.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

20
Jun

Will Microsoft Add Some Definition to the Implications of Intel’s Guidance Announcement for the Broader PC Market?

In the aftermath of Intel’s Guidance announcement of June 21, 2014, thousands of words have been written by what looks like an ever growing list of analysts about what the import of these numbers actually mean, not only for Intel®, but for the overall PC market.

Three themes run through most of the commentary:

  1. The improved demand for PCs is a temporary phenomenon, largely the result of increased sales of PCs to businesses
  2. Business demand can’t be counted to last as the driver is the end of product life for Microsoft® Windows XP
  3. Some of the increase in sales can be found in more interested consumers purchasing “2 in 1” computers, which can be used either as a laptop, or as a tablet

There are some issues with each of these three themes:

The first theme underestimates the importance of improved business appetite for PCs, and includes a prediction about how long this improvement will last. There are few tablet computers on the market today (with the notable exception of Microsoft’s Surface Pro 2 and 3, but more about these later) with attractive street prices above $1,000.00. But there are quite a number of PC options for desktop computers, laptops, and, especially, servers carrying a price about the $1K number. So improved business appetite for comparatively higher priced computers will likely be a good thing, not only for Intel, but for its OEMs, the businesses manufacturing other parts for these computers, and more.

I don’t believe there is enough data, at least as of yet, to produce a reliable prediction as to how long this improvement can go on. No one has factored in the possibility of a change in consumer sentiment about the safety of cloud computing. If one agrees with a notion about consumer appetite for tablets (but this notion can also be applied to smart phones and even home entertainment computers/game consoles) based around the usefulness of these “portable screens” as superior viewers for e-reading, movie watching, games, and television, then cloud SaaS products are going to be more important for this segment of the computing market than would otherwise be the case for PCs. If the present market potential for these devices is approaching saturation, and the threats represented by the never-ending string of successful cloud computing hacks grow more intimidating, then it may be the case the improvement in the PC market may have greater longevity than analysts have planned upon.

As to the 2nd theme, as I wrote in an earlier post to this blog, perhaps a driver is an improved consumer perception of Microsoft’s Windows 8 operating system. Microsoft formally announced the end of life for Windows XP last year, and the actual due date, in April of this year, will soon be a quarter behind us, so I’m not sure migrations to new computers replacing Windows XP is a big driver, any longer.

Finally, and this is a big point, hasn’t Microsoft maintained a very consistent approach to the tablet market, all along, to present the Surface product line as the best method of improving productivity, while, at the same time, supporting consumer needs for great e-readers, movie viewers and portable game consoles? In sum, isn’t the Surface tablet a great example of one of these “2 in 1” computers? But with the name tablet?

Since the Surface Pro 3 announcement last month, which included a video presentation about how some customers have been using the Surface tablet to enhance productivity, the New York Times web site has featured what looks to be a daily ad from Apple presenting precisely the same type of information about some prominent consumers of iPads. Is it safe to assume, then, some traction for Microsoft’s tablets as examples of these “2 in 1” computers. If this assumption is reliable, then doesn’t the argument end up in the circular file? After all, the Surface is a tablet and not, per se, a PC.

Ultimately, when Microsoft either next reports earnings, or, potentially, announces a change in its own guidance (and I have absolutely no indication whatsoever of its plan to do so), we should get some more useful color on this point, right?

Disclaimer: I’m long Microsoft and Intel. I am not invested in Apple. Neither am I invested in the New York Times

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

19
Jun

Is Microsoft Struggling to Support the Devices and Services Objectives of Its July, 2013 One Microsoft Announcement?

After a string of marginally successful hardware device announcements, Microsoft seems to have fared poorly at the E3 Gaming Expo, 2014 held in Los Angeles. Given the amount of effort the XBOX team evidently put into Microsoft’s appearance at this event, (anyone who did not attend the event can watch a recording of Microsoft’s Press Conference at the E3 Gaming Conference, 2014 online) it should be a fair question to ask whether the potential return is worth it.

According to the latest 10-Q report Microsoft has filed with the US SEC, Gross Margin for the Hardware segment of its Devices and Consumer business, for the first three months of the calendar year, declined by 34%, from 2013 to 2014. Of course, during this period Microsoft announced the release of a new version of the XBOX product, which would incorporate the next generation features of the XBOX One, but would not have the Kinect® features.

Just after the end of the quarter, Microsoft also made a formal introduction for the press of the new Surface Pro 3, so some of the costs incurred during the quarter immediately prior to the announcement may likely be attributable to this tablet “designed to replace your laptop”. But, regardless of why funds were expended on these devices, at some point, sales of these hardware products have to start contributing, positively, to Gross Margin.

A number of reviewers from prominent publications — including the New York Times, and the Wall Street Journal — came away from the XBOX press conference at the E3 expo with the impression the new strategy is all about “shooter” games. Anyone reading the press lately would question whether this type of branding will really benefit Microsoft over the long term.

Further, while Phil Spencer provided a preview of what was to come for the audience for the Press Conference, in short, a presentation all about games, reviewers from the gaming community didn’t come away with the kind of “shock and awe” one would have hoped would have been the case.

Even worse, while analysts were also noting how Microsoft’s communications had de-emphasized the XBOX’s considerable feature set as a home entertainment control center, Sony, the market leader, in turn, specifically emphasized similar features on board the PlayStation 4 console.

It would seem Microsoft has a pretty clear set of objectives for the near term future of the XBOX — either get it right and, as Mr. Spencer also informed the press, take back market leadership, or carefully rethink the branding for this product, or, perhaps, spin it off.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

18
Jun

Facebook Hires the President of PayPal to Run Its Messaging Business

If anyone needed better indication of a solid management team and business plan at Facebook to support its high market valuation, they may have gotten the right message on June 9, 2014, when the company announced David Marcus, President of Paypal would join Facebook as VP of Messaging Products.

For a manager with Mr. Marcus’ stature to join Facebook, one can argue, the quality of the company’s business plan, as well as of its management team has become more compelling. But what may prove to be even more promising about this hire is the indication it provides of Facebook moving to take a commanding position in an otherwise unexpected market niche.

As I wrote earlier in this blog, Facebook appears to be the clear online marketing leader in the mobile market, ahead of Google. But what if Facebook’s long term interest in the mobile market is much more complex than it would, on the surface, otherwise seem to be, and not limited, simply, to online marketing? In other words, what if Facebook wants to win the biggest share of the mobile market to provide space for something else; for example, simply grafting the Facebook way of doing things onto a mobile computing engine, and let it take its own direction?

One can argue the latter objective, while certainly more ambiguous, would, nonetheless, pack a tremendous amount of potential. How to fuel the “Facebook way of doing things” in a mobile computing world? Financial services, of course, provide Facebook with a very wide range of tools to tap resources in a search for a lot of energy. Mr. Marcus will likely bring with him one of the best experience sets any manager could bring to this task. After all, PayPal has outperformed any other merchant services organization, not to mention a large number of commercial banks, for years.

Don’t forget Paypal’s roots as the first method consumers could implement to send payments anywhere. Facebook’s focus on emerging markets, together with its commitment to provide the tools required to transform people not connected to the Internet into paying consumers of networks and the applications running on top of them, makes much more sense with the former head of Paypal at the head of the messaging products business. All together, the addition of Mr. Marcus to the senior management team at Facebook looks like a very smart move and very promising for its future prospects.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

17
Jun

As More Enterprise Businesses Embrace Hadoop, Intel Stands to Benefit

Of the 42 members of Hadoop’s Project Management Committee, 8 are directly affiliated with Cloudera®, and another with Intel®. Patrick Hunt, an Engineer at Cloudera appears to have played a key role in the development of a keyword search feature for Hadoop, which is not a trial achievement for a database like Hadoop, which is designed for unstructured data. Intel has an investment in Cloudera. Therefore, Intel should benefit as more organizations choose to proceed with unstructured data, and Hadoop as its repository.

Some prominent online businesses, including:

  • Amazon
  • eBay
  • facebook
  • Twitter
  • and Spotify

have made major commitments to Hadoop.

Readers are recommended to review Who uses Hadoop? to familiarize themselves with the size of an average Hadoop implementation. Of course, very large repositories of data like these require a lot of CPU resources for processing. As the leading manufacturer of server CPUs, Intel benefits from all of this need for computing power, regardless of whether an organization implementing Hadoop runs it on the Apple OS X O/S, Ubuntu, or another Linux flavor. The recommended hardware for each of these is Intel.

The tools offered by Cloudera for managing Hadoop data repositories are designed to provide enterprise businesses with familiar features and procedures. Since most of these enterprise data centers are already full of Intel hardware, Cloudera can be seen, perhaps, as another method Intel can leverage to maintain its position in these same installations.

What bearing does all of the above have on discussions about large data centers, a need for better power management, and the likelihood of hardware OEMs building solutions on the ARM architecture capturing substantial share? Given the importance of Hadoop to the leading cloud, IaaS vendor — Amazon, as well as to Microsoft Azure it doesn’t appear likely server cores running ARM architecture will quickly become the standard in these environments any time soon.

Further, Intel is certainly not standing by, but working, very actively to produce more power efficient hardware in very small form factors. One can argue Microsoft’s Surface Pro 3, which is powered by either an Intel Quad Core i3, i5, or even i7 is a tangible example of how much progress they have made to better satisfy consumer appetite for power thrifty, extremely thin computing devices.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved