Near term future consumer risks from successful malicious online activities look to grow

2-Color-Design-Hi-Res-100px-widthDespite what looks like a daily increase in the number of successful attempts to maliciously disrupt legitimate online activities, end consumers look more exposed, today, and for the near term future than ever before.

Two factors contribute to this assessment:

  1. Hacker tools now include a much richer supply of once legitimate access credentials. At the same time the set of organizations victimized by hacker successes are moving at too slow a pace towards safely pooling the kind of information critically important to an objective of better defending future victims from the next round of hacker activities
  2. Risk management programs–electronic data insurance policies–exist (and are available for businesses to purchase), but are not funded to an appropriate level, given the extent of business exposure to hacker activities. There is little indication of the underwriters of these programs adding much more financial power to them anytime soon.

Both of these factors are worth further description: proven methods exist to render information specific to organizations anonymous. As written earlier in this blog, I have personal direct experience promoting content sets (Key Risk Indicators, or KRIs) produced by one of these methods by an ISV targeting operational risk management teams for banking institutions subject to the Basel II accord.

There is no reason why similar technology cannot be used to strip critically important information about compromised login credentials of the specifics required to directly identify the source of the data. In case readers are unfamiliar with the imperative for keeping organization-specific information absolutely private, there are a number of good reasons for this requirement. The two most prominent of these amount to:

  1. Protecting an institution from full revelation of the extent of damages suffered to peers within its industry group and
  2. Protecting an institution from potentially damaging publicity

Certainly other reasons exist. Readers looking to explore these can contact me. I will be happy to discuss the topic further.

But the lack of interest on the part of risk underwriters to “bulk up” on the financial resources they offer does not look to be as sanguine and easily correctable. On April 7, 2015, the Wall Street Journal published an article written by Rachel King titled Cyber Insurance Capacity is ‘Very Small’: AIG CEO (http://blogs NULL.wsj NULL.com/cio/2015/04/02/cyber-insurance-capacity-is-very-small-aig-ceo/). In my opinion Ms. King is on track to publish this piece, which includes excerpts from an interview Ms. King had with Mr. Peter D. Hancock, the CEO of AIG.

One of the quotes Ms. King includes from her conversation with Mr. Hancock should provide the data security ISV community with a very valuable insight: “‘I suspect, over time, the willingness of insurers and by others in the industry to provide greater capacity will increase with greater comfort in the maturity of the countermeasures'” Apparently Mr. Hancock, AIG, and, perhaps, a good chunk of the rest of the risk underwriting business community are not yet convinced about our ability to defeat the hackers. Makes sense to me and ought to provide ISVs with a reason to work harder at the hacker problem.

In the meantime, businesses, and the members of the general public affiliated with them, should plan on more pain.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2015 All Rights Reserved


Online businesses looks to be on course for a negative event of even greater magnitude — stay tuned

2-Color-Design-Hi-Res-100px-widthIt is one thing to lose something of great value while covered by a comprehensive insurance policy, and quite another to be in the same position, albeit without the coverage.

So adding the insurance policy looks to be a no-brainer, right? Not so fast. According to an article titled Cyber attack risk requires $1bn of insurance cover, companies warned (http://www NULL.ft NULL.com/intl/cms/s/0/61880f7a-b3a7-11e4-a6c1-00144feab7de NULL.html?siteedition=intl#axzz3SrQZqbSm), written by Gina Chon and published on Thursday, January 26, 2015 by the Financial Times, businesses are not only finding a lot of obstacles on their way towards securing the extent of insurance coverage they need to cover online commerce, but (and this is even more worrisome) are also exhibiting a lot of reluctance to even make the effort. If we are looking at a wave of complacency, then perhaps we are looking at a major negative event with enormous financial impact all around in the making.

Back in October 13, 2013 we published a post to this blog titled Online Security Problems are too Pressing for the Public to Continue to Ignore. The position I have always taken on topics like the one Chon treats in her article for the FT is as follows:

  • the “mono protocol” data communications world we have, perhaps inadvertently, created by vigorously pushing further expansion of markup language code at the application layer with Ethernet over TCP/IP as the underlying pipe is very very dangerous. The old world of multiple data protocols running across wide area networks made a lot more sense and was, inherently, safer

But my position, at present, is “so be it”. The internet, for better or worse, as it is presently technically constructed is here to stay. The question ought to be how do we get this “genie back in the bottle” and mitigate the risks associated with doing business online.

Apparently businesses are not willing to take the steps required to accomplish this critically important step. Underwriters seem not to want to handle the risk and the insured are not willing to pay the cost for coverage. This is a potentially dangerous condition. One would hope all of the parties involved will see their way through to a mutually satisfactory conclusion. The sooner the better.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2015 All Rights Reserved


Disruptive Technology startups require a different set of evaluation criteria

Uber, Airbnb, and, I would argue, Yelp and Groupon can each be categorized as a disruptive technology startup. But the importance of the adjective appended to the business type for this category of early stage business should not be over-emphasized. Here’s why:

For each of the businesses mentioned above, an important objective is to capitalize on an opportunity to enhance the efficiency of a social process. In the late 1990s this phenomenon was referred to as “dis-intermediation”. Back then, online versions of print publications popped up to challenge the hardcopy hierarchy of newspapers. The whole process was disruptive, even down to the tense internal relationship between teams at, for example, the Conde Nast set of publications, and their print counterparts. Back then, I worked with Human Resources at Conde Nast in effort to help them fill some editorial management positions for their online publications. So I can personally attest to the disruptive nature of the process.

So disruption is nothing new. But why all the buzz about “disruptive tech (http://www NULL.foxbusiness NULL.com/technology/2014/12/22/year-in-tech-disruption-takes-center-stage/)“? Perhaps it will be helpful to consider the scope of the impact of a business like Uber. Car services are used by a much larger segment of the US population than, one can argue, even print newspapers. Therefore, when a well-funded albeit early-stage business like Uber tries to step into the New York City market for private car transportation services, it makes a very big noise. I would argue businesses like Yelp and Groupon are doing the same. The size of the US markets impacted by Yelp and Groupon are comparably massive. So the moniker “disruptive” makes sense for them, as well.

Disruption is actually nothing new to new businesses entering already established markets, and certainly predates the Internet. One need only consider Henry Ford’s Model T and the impact it had on the horse-drawn carriage trade to identify the surroundings of a massively disruptive business plan. Bottom line, anyone choosing to evaluate the likelihood of success for the next Uber should be comfortable with business process “disruption” and on the lookout for the resources the business will require to succeed.

Ira Michael Blonder

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


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 (http://bits NULL.blogs NULL.nytimes NULL.com/2014/06/14/why-that-phone-charger-took-two-years-to-arrive/?ref=technology). 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 (http://www NULL.kickstarter NULL.com), 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 (https://plus NULL.google NULL.com/108970003169613491972/posts?tab=XX?rel=author)

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


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 (http://newsroom NULL.fb NULL.com/news/2014/06/david-marcus-joins-facebook-as-vp-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 (https://plus NULL.google NULL.com/108970003169613491972/posts?tab=XX?rel=author)

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


A Brief Interview with John Thompson, Microsoft’s New Chairman, Provides Some Clues as to Likely Near Term Future Priorities for this Mature ISV

On February 28, 2014, Mia Saini of Bloomberg TV briefly interviewed John Thompson, Microsoft’s new Chairman (http://www NULL.bloomberg NULL.com/video/john-thompson-on-microsoft-virtual-instruments-dmcicWMJSamaSkZJdNQskQ NULL.html). Saini includes some questions about Mr. Thompson’s other significant current venture, Virtual Instruments (http://www NULL.virtualinstruments NULL.com). But this post will only speak to a few of the discussion topics specific to Microsoft.

John Thompson did not assume a Defensive Posture as He Handled Some Challenging Questions

Anyone watching Thompson’s video on the Satya Nadella web page on Microsoft’s web site will note his objective, in his new role as Chairman, to improve the quality of Microsoft’s dialogue with the investor community.

Saini opened the interview with the following statement: ” . . . Many say, and it’s a widely held view that innovation is not happening on Microsoft’s base products. What do you say to that?” (quoted from a video interview with John Thompson, Microsoft’s new Chairman. The interview was led by Mia Saini of Bloomberg TV. A link to the entire interview is provided above).

Thompson’s reply began with reference to Microsoft ” . . . as a company with an enormous amount of resources . . .” (ibid) and then turned the conversation into his preferred direction: ” . . . The issue, quite frankly, for us is about focus”.

Readers may want to watch the video interview with Satya Nadella on the Satya Nadella page of the Microsoft Site. Nadella spends time in this video discussing the need for innovation at Microsoft. But this new perspective, as presented by Thompson, adds another dimension to the conversation — the need for focus, running parallel.

Thompson goes on to note one of the main reasons Nadella was selected for the CEO role: ” . . . he understands exactly what needs to happen to move Microsoft forward . . .” (ibid) So the viewer is left with a picture of Nadella as a new leader capable of marshaling “enormous resources” in a focused manner to build new base products, etc.

A Couple of Other Points Worth Noting

  1. When Saini noted the importance of Cloud products and services, Thompson interrupted her with a “for sure”. So clearly he gets the cloud imperative. He also made a big claim Microsoft naysayers may want to note ” . . . Office 365 is a very, very successful cloud based application” (ibid). It will be interesting to follow the performance of this product in Microsoft’s coming earnings reports.
  2. It doesn’t look like the consumer products effort will be wound down any time soon. Thompson noted ” . . . another focus of Microsoft’s strategy is how we become even more relevant to consumers, and the Devices and Services strategy that was launched about a year ago, is very much a part of that” (ibid)

Disclaimer: I’m long Microsoft

Ira Michael Blonder (https://plus NULL.google NULL.com/108970003169613491972/posts?tab=XX?rel=author)

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


Does It Make Sense for Google to Continue to Pursue a Brand on the Societal Edge?

On Monday, November 25, 2013, The online New York Times published an article by Andrew Pollack titled F.D.A. Demands a Halt to a DNA Test Kit’s Marketing (http://www NULL.nytimes NULL.com/2013/11/26/business/fda-demands-a-halt-to-a-dna-test-kits-marketing NULL.html?ref=technology). The DNA Test Kit of interest is manufactured and marketed by 23andme, a business operating with the financial backing of Google.

Opting to invest in a product like this one, from 23andme, which is positioned at the edge of the range of products sanctioned by the U.S., as a society, is, to put it kindly, a questionable decision by management. Google is a publicly traded business and, therefore, has a responsibility to its shareholders, one would think, to provide notice to them of any intention to proceed on an investment like backing 23andme, before proceeding on it.

Unfortunately this isn’t the first example of risky product marketing decisions on Google’s part. Google Glass is another. Once again, mainstream media picked up on a recent case where a woman received a speeding ticket, in California, along with another ticket for wearing Google Glass (http://edition NULL.cnn NULL.com/2013/10/30/tech/mobile/google-glass-driving-ticket/).

One needs to ask if product marketing at Google is aware of how they are branding the business by pursuing these types of products, and, once again, if it’s in the best interest of Google shareholders to proceed in this direction.

From the looks of the initial advertising campaign for the Moto X smart phone (which hasn’t fared too well with the public), it would seem product marketing is aware of the “edgy” brand Google is magnetizing, and may want to keep it that way. The initial campaign, as I wrote about earlier in this blog, was memorable for the models it included who all sported a lot of tattoos.

I’m wondering if Google is interpreting all of this “edginess” as a correct way to pursue the kind of “business as a rebel”, which Steve Jobs used with great success. If they do see a Jobs connection, they should, perhaps, follow his lead and do a better job of very carefully selecting ad agencies and PR firms to spread the word.

Ira Michael Blonder (https://plus NULL.google NULL.com/108970003169613491972/posts?tab=XX?rel=author)

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


An Exponential Growth in Sales is Not an Adequate Single Indicator of a Healthy Business

It’s now fashionable for investment commentators to point to a meteoric sales growth rate, sustained over several quarters of business activity, as the most important indicator of a business worth considering for investment. But a healthy sales volume for products, nevertheless, incorrectly priced, may not pay for the operating cost of a business.

An article written by Tiernan Ray, and published on the Barrons website on Saturday, September 21, 2013, BlackBerry Won’t Be the Last Victim of “Disrupters” (http://online NULL.barrons NULL.com/article/SB50001424052748704293904579071284259002604 NULL.html?mod=BOL_hps_dc#articleTabs_article%3D1) is an example of this kind of exposition.

To understand Tiernan Ray’s concept of businesses as disrupters, one needs to buy into his notion of disruption. Disruptions can be defined as a type of business “disaster” Tiernan Ray attributes to technology companies once in an industry leadership position, but, later, merely an industry laggard. Examples of business disruptions include Blackberry, Nokia and even Microsoft. Tiernan Ray observes each of these businesses have been disrupted. They are each, in 2013, ” . . . franchises . . . displaced by newcomers . . . ” History, he claims, illustrate ” . . . those franchises never come back”.

I’m not so sure. As I I’ve noted over several posts to this blog, one of the biggest challenges facing a mature ISV, like Microsoft® is how best to put together a product marketing plan capable of sustaining the business at some reasonable size, given the level of revenue the business used to produce from the product lines disrupted by Tiernan Ray’s newcomers. Delivering Software as a Service (SaaS) via a multi tenant cloud subsription product model, historically, has NOT produced the revenue even these newcomers have required to fuel their challenges to the market leaders.

Tiernan Ray writes of two businesses he characterizes as disrupters, specifically Workday and Salesforce.com. “Workday is not profitable, but trades at 31 times this year’s projected sales, versus 3.2 times for Microsoft. Salesforce, whose earnings are a perennial matter of Wall Street debate, given that they exclude the cost of stock options, trades at 155 times the 34 cents a share it may earn this year.” These observations move me to conclude the investment community has lulled us into a mistaken set of concepts, meaning a bubble, since neither business can profitably sustain itself at present revenue levels. Even worse, I question whether dramatic growth in the sales volume of their incorrectly priced products will fix the revenue shortfall problem.

At least Microsoft is sitting on somewhere around $75 Billion in cash. I’m not sure either Workday or Salesforce.com can say the same.

Ira Michael Blonder (https://plus NULL.google NULL.com/108970003169613491972/posts?tab=XX?rel=author)

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


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 (http://online NULL.barrons NULL.com/article/SB50001424052748704131804579053110950972676 NULL.html?mod=BOL_hps_mag#articleTabs_article%3D1), 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 (https://plus NULL.google NULL.com/108970003169613491972/posts?tab=XX?rel=author)

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


Is the Dell Buyout Simply Buying Time on a Trip to Nowhere?

I’ve watched the history of Dell closely over the last several years. Several of the companies Dell recently acquired, principally Quest Software, are familiar names to some of my clients. I’ve also listened to several of Dell’s most recent quarterly earnings reports and supported some of the notions management presented in these meetings.

But Dell did not schedule a quarterly earnings report for the last fiscal quarter, so those periodic management presentations came to an abrupt end. I have to say, coincidentally, I also lost interest in the company. I find it hard to follow businesses with a history of missing on objectives. Recently I had to place Dell in this group.

So when I read an article in the online edition of the New York Times, on Thursday, September 12, 2013, Dell Shareholders Approve $24.9 Billion Buyout (http://dealbook NULL.nytimes NULL.com/2013/09/12/dell-shareholders-approve-24-9-billion-buyout/?ref=technology&_r=0), I came away with the thought this buyout, worst case, may prove to be no more than a means of buying time on a business plan with an ambiguous objective, going nowhere.

As Michael J. De La Merced and Quentin Hardy note in this article, “Mr. Dell has not given detailed plans for how he hopes to bring his company into the modern tech world, though he has already spent $13 billion on acquisitions, primarily software and networking companies, to build a cloud business aimed primarily at small and medium-sized businesses, long a core market for Dell.” (Quoted from an article published on the New York Times website on Thursday, September 12, 2013. I’ve provided a link to the article above), I silently noted, “what else is new? After all, these acquisitions began a long time ago. Now, after over 10 years of acquiring, digesting and integrating market leading businesses into the Dell pantheon of technology offerings, it can no longer be acceptable not to have a plan of “where we’re going”.

Of most importance, regardless of whether the company operates privately, or as a public company, there is still an imperative to make money, if for no other reason than to grow the business. So we all could use a better idea about how Dell plans on replacing lost dollars from shrinking sales of PCs, laptops, servers with seats on cloud offers.

Ira Michael Blonder (https://plus NULL.google NULL.com/108970003169613491972/posts?tab=XX?rel=author)

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