Has Salesforce Completed Its Transformation Into an Enterprise Sales Organization?

On May 20, 2014, Salesforce.com reported its results for Q1 2015. The speakers included Marc Benioff, CEO, Keith Block, President and Vice Chairman, and Grant Smith, Chief Financial Officer. It should be noted Mr. Block will complete his first year at Salesforce.com in June, 2014. He came to the company from Oracle® Corporation, where he spent 26 years, from 1988 to June, 2013, in a series of sales management roles, which culminated in a tenure of nearly 10 years as EVP North America where he had responsibility over a multi-billion dollar revenue generating effort.

As I wrote earlier in this blog, on April 2, 2014, in a post to this blog titled
Cloud SaaS ISVs Develop Sales Strategies for Enterprise Prospects, Mr Block is, perhaps, one of the strongest examples of a master of the Complex Sale, which is a sales concept championed by Jeff Thull. After all, Mark Murphy, a software analyst for Piper Jaffrey referred to Mr. Block’s tenure as EVP, North America for Oracle as an opportunity “to run, arguably, the largest and most profitable enterprise software business in the world.”

So, given this backdrop, the analyst questions Mr. Block fielded about just how long it will take before the sales teams at Salesforce.com produce a “9 figure deal” make a lot of sense, especially when one considers the ratio between Salesforce’s present market cap of $30.62B and a staggering forward price to earnings ratio, for its CRM public stock, of 149.25 to 1. Mr. Benioff’s reflections on the level of success the business has achieved are certainly admirable. The company sounds like a terrific place to work and a great contributor to its social surroundings. But the forward price to earnings ratio requires a sense of urgency, on the part of management, which was somehow lacking, in my opinion, in Mr. Benioff’s opening remarks.

Mr. Block cited a win at Manulife, an expanded relationship, where they leveraged “[Salesforce] Service Cloud to develop a customer engagement platform, with very personalized service across their life insurance, wealth management and investment products” (transcribed from remarks made by Mr. Block recorded on the audio webcast).

He went on to refer to several other enterprise-wide wins at other larger organizations, across several industries. But Rick Sherlund asked a very big question: “I think we’re all waiting for 9 figure deals. Is that realistic? Are there deals of that magnitude in the pipeline that we can look forward to over the balance of this year?” (transcribed from a recording of Mr. Sherlund’s question, which is included in the quarter’s webcast).

In my opinion, Mr. Block’s reply to the question signaled a much slower pace of change than, perhaps, the analysts in attendance would have wanted to hear. On the notion of whether there are any “9 figure deals” in the works, he merely referred to a “natural evolution” of relationships with important partners, which, over time, he argued, exhibit the potential required to support sales of this magnitude at some future date.

Disclaimer: I have no position in Salesforce.com whatsoever

Ira Michael Blonder

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


Microsoft Leverages Partnerships for Features Exclusive to the Surface Pro 3

Two exclusive features of Microsoft’s Surface Pro 3, namely the efficiency of the chipset supporting Intel’s quad core processor, and Photoshop Touch, would not be available without direct participation from Adobe and Intel in the collaborative design of the product. Readers can watch the webcast introduction of this product to catch the specifics of each of these features.

The development of these features is not the only recent example of Microsoft® successfully leveraging opportunities to collaborate with other ISVs. During the week of May 19, 2014, Microsoft also announced a joint effort with SAP: SAP and Microsoft to Deliver Tighter Integration for Application Development and Cloud Deployments.

The potential benefit to Microsoft’s bottom line implicit to these collaborative wins should not be underestimated. SAP is a very large force in precisely the same enterprise markets Microsoft already dominates with its operating system and office suite. Since the SAP effort focuses on Azure, its impact on Microsoft’s share of the enterprise segment of the global cloud may be important.

In turn, the collaborative wins with Adobe, and Intel around the Surface Pro 3 may result in some portion of Apple’s core market at least seriously considering a switch over to the Surface Pro 3, if not actually taking the big step.

I am interested in learning further about these collaborative efforts and who the stakeholders are within Microsoft’s organization. I suspect the product marketing teams for the Surface product and for Azure have been the drivers, but perhaps groups from the sales organization have played a role, as well.

The significance of all of this, is of course, is to better gauge the likelihood of Microsoft convincing other mature ISVs (for example, Oracle, and, perhaps, even IBM) to jump on its bandwagon as it increases the intensity of its competition with Amazon, Google and Apple in their respective core markets. If the right players are in place in Redmond to continue to drive these deals, we can confidently expect to see more surprising deals like the debut of this hardware device.

Ira Michael Blonder

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


Microsoft Evangelizes Public Cloud and Mobile at TechEd 2014

During the Keynote Address of Microsoft’s 2014 TechEd Conference, Brad Anderson, Corporate Vice President, spent a considerable amount of time citing the explosive growth of smart devices and the enormous amount of additional data they produce. Mr. Anderson appeared to be citing these facts as examples of the important drivers for organizations to adopt a cloud data repository architecture, together with matching, Software as a Service (SaaS), computing procedures.

Mr. Anderson pointed out the value of cloud repositories for all of this new data, but not just any cloud repositories, he really focused on public cloud.

The tone of the opening few moments of the Keynote is very much along the lines of an argument from authority. The multimedia content supporting Mr. Anderson’s presentation includes interviews from unnamed authorities (presumably staff at Microsoft). Each interview is a testimony either to the value of all the new data produced on a device-to-device basis, or to the usefulness of a ubiquitous cloud repository for the data and related computing processes. One interviewee even states “Don’t be afraid of it, just jump on for the ride”

Whether at a subliminal level, or consciously, anyone viewing the presentation will likely perceive the presentation as an effort to encourage usage of the cloud, along with acceptance of the value of smart devices, and all of the data they produce. Perhaps the reason for the evangelical tone of the presentation is some resistance in the TechEd community (which is made up of “IT Professionals and Enterprise Developers”) to public cloud computing resources, and, perhaps, big data, which is the stuff produced by all of the smart devices cited in the presentation.

If my assumption is correct (and I have nothing substantive from Microsoft® to indicate it is correct), then it is also safe to infer the enterprise organizations supported by these professionals and developers have expressed a reluctance to embrace public cloud computing offers.

The impact on the big picture of what this all may mean for Redmond’s product marketing plan is as follows:

  1. There is a need to encourage faster adoption of the usefulness of public cloud computing on the part of enterprise businesses
  2. Redmond benefits when more customers use Microsoft’s public cloud offers
  3. Redmond is firmly seated on the “Internet of Things” bus

Ira Michael Blonder

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


BlackBerry Included as a Niche MDM Solution in Gartner’s Magic Quadrant for Mobile Device Management Software

As I wrote earlier in this blog, Blackberry’s recent promotion of free Blackberry Enterprise Service 10 (BES10) to anyone willing to try the product, did not seem fitting for a leader in the enterprise Mobile Device Management (MDM) market. I based my point on some information shared, publicly, by Gartner, during a recent webinar on the enterprise Bring Your Own Device (BYOD) trend. The information reported on a willingness on the part of a substantial majority of survey respondents from enterprise businesses to invest in an MDM solution.

My reasoning amounted to questioning why Blackberry would give BES10, which is an MDM solution, away for free if approximately 80% of the enterprise market plans on buying and implementing a solution. Based on this giveaway, I concluded Blackberry has faced some substantial obstacles in its effort to convince enterprise business to standardize on its MDM offer.

This apparent setback was confirmed, recently, when Gartner published its Magic Quadrant for Mobile Device Management Software. BlackBerry is included in the lower left square of the Magic Quadrant — as one of the “Niche Players” in the market.

This result is, in my opinion, an important signal of some problems in the strategy John C. Chen, BlackBerry’s CEO presented to the analyst community back in December, 2013. Mr. Chen notified the analyst community of his intention to transform BlackBerry into an enterprise software vendor, while, at the same time, lowering the company’s exposure to the mobile smart phone manufacturing business, which exhibits the characteristics of a pure commodity market.

If BES10 can do no better than achieve a slot as a “Niche Player” in the enterprise MDM market, then BlackBerry’s giveaway strategy makes sense. At least Mr. Chen should achieve wider awareness of what BlackBerry offers as a solution for this market as a direct result of this very aggressive tactic. But it will certainly be difficult to convert free users into paid customers at some later date.

It would be useful to learn more about how Gartner reached a decision to include BlackBerry in this lower left square of the Magic Quadrant, directly opposed to the “Leaders” square, at the top right.

Disclaimer: I recently closed a long position in BlackBerry. I am not affiliated with Gartner, Inc.

Ira Michael Blonder

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


Seventy Percent of the Small to Medium Size Business Market Apparently Remain Uncommitted to a Cloud Computing Strategy

On May 15, 2014, Microsoft’s Small Business Office Blog published a post written by Kirk Gregersen, a General Manager. In this post, titled Survey finds technology is critical for small business owners but many have yet to adopt cloud solutions, Mr. Gregersen claims “[o]nly 30% of small businesses are using cloud technology, and 10% are not familiar with cloud technology.” Mr. Gregersen’s claims are based on the results of a survey of over 500 small business owners.

Of course, one needs to ascertain the demographics of the survey respondents to determine the likely usefulness of the results for an analysis of the suitability of cloud computing offers, including Microsoft’s own Office 365, for the broad SMB IT market. Microsoft® offers a minimum of detail on this topic. As well, only the questions presented to each respondent are available for review.

Nevertheless, the results appear to be consistent with those recently published by one of Microsoft’s Managed Partners, ConceptSearching, which ran a study of enterprise businesses and, interestingly enough, came up with the same 30% adoption number for cloud computing. Both of these estimates, however, are 50% higher than those presented by IBM’s CEO, Ginni Rometty, during her Keynote presentation for MobileWorld Congress, 2014. (if readers would like to obtain links to either the ConceptSearching Study, or Ms. Rometty’s MobileWorld Congress Keynote, please contact us. We will be pleased to send the links upon request). Ms. Rometty referred to a more likely percentage of merely 15% of enterprise applications migrating to cloud availability by the end of 2016.

The upside of all of this discussion is either a rosy picture of year-over-year revenue growth for Microsoft, and its peers in the cloud IaaS and SaaS markets, namely Google and Amazon. Or, a dismal picture of a stubbornly resistant segment of both the SMB and enterprise markets to cloud computing offers. I admit to favoring the latter takeaway from this data. The paramount obstacle, as I see it, is the inability of these suppliers to demonstrate really secure infrastructure, meaning the kind of formidable, well defended architecture capable of withstanding any malicious threat — especially one emanating from state sponsored terrorist attack.

Unless and until the suppliers “put up or shut up” on this point, the core of these markets will likely think better about cloud and continue to support an on premise computing strategy with, perhaps, a cloud (or even a public, multi-tenant cloud) component for mobile workers, or to support a corporate BYOD policy. In this scenario, I think Microsoft, IBM, Oracle, SAP will continue to demonstrate profitable business, while their pure cloud play competitors (Google Apps, Amazon AWS, Salesforce, Workday, etc) will not fare so well. The difference between these two groups of competitors is, of course, the installed on premises computing base already established by Microsoft, et al.


Ira Michael Blonder

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


Microsoft Works Familiar Territory for Its Annual TechEd Conference for 2014

Just 10 minutes into the TechEd Conference, 2014, Keynote Address, Mr. Brad Anderson, a Microsoft® Corporate Vice President landed on familiar ground, a podium before an audience of IT professionals assembled from global, enterprise businesses and their peers in the public and not-for-profit sectors. Mr. Anderson’s audience was then treated to a rather old fashioned rhetorical construction, more of the same elaborate argument from authority I noted in the very first few moments of the video recording of his presentation.

The construction goes something like this: Microsoft is one of only 3 vendors, anywhere, with the capabilities to support the needs at the top of the enterprise computing market – meaning the very largest organizations. I should note Mr. Anderson didn’t mention Microsoft’s two competitors, but it wouldn’t take much to assume them to be Google and Amazon.

Mr. Anderson illustrated this point with a play on the old “mandatory requirements” pitch, which goes as follows: Any organization in the target market should only discuss its needs with a supplier capable of supporting “hyper scale,” meaning a supplier who has demonstrated its ability to deploy “hundreds of thousands of servers per year” and is “going through incredible growth”. After all, only this select group of 3 suppliers can call on the necessary level of innovation required to support the enterprises represented at the conference audience with the best infrastructure.

“Public Cloud” Suppliers on this short list must also be “Enterprise Proven”. They must be able to demonstrate the right “capabilities” and an “enterprise-grade cloud”. This type of supplier has the financial capability to back “its SLAs financially [meaning with cash reimbursement to customers in the event of service outages, or other lapses in service quality]”.

Finally, supplier must demonstrate superlative performance with “Hybrid Cloud”, which Mr. Anderson defined in a somewhat different manner than the more familiar use of this term in IT circles. The common denominator for a supplier with the right experience in this area is a familiar Microsoft theme – scalability. A supplier with the right experience set with Hybrid Cloud will be very comfortable designing, building and supporting the same applications across any type of cloud. This is the core of Microsoft’s “consistent user experience” claim, which not only powers their promotion at this conference, but also powers their effort to provide the same user experience across tablets, PCs, and even smart phones.

It should not be a stretch to assume Mr. Anderson’s audience liked what they heard. If the audience meets the criteria of an assembly of IT professionals picked from the very largest enterprise businesses, then this is actually a group of some of Microsoft’s best customers. They certainly know how to ring those bells for these guys.


Ira Michael Blonder

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


Microsoft Debuts the Surface Pro 3

Microsoft Corp. debuted the Surface Pro 3 hardware device in New York City on May 20, 2014. Powered by either an Intel i3, i5, or an i7 quad core processor, this device has the computing power of a laptop and the physical form of a tablet.

Satya Nadella provided the introductory remarks for the debut. Mr. Nadella conveyed a sense of urgency as he reported on the degree to which Microsoft is adhering to its “Mobile First, Cloud First Strategy”: “this is our focus for every device and for every service that we launch at Microsoft” (transcribed from the audio track of the Surface Pro 3 webcast).

With this intensity as the backdrop, he went on to report how “in particular, with Windows, we’re advancing on every dimension, from form factors, to business models . . . . and today is the next step on that journey.” (transcribed from the audio track for this webcast) Of course, form factors are the stuff of hardware devices, are they not? Therefore, with his brief opening remarks, Mr. Nadella actually provided a very helpful emblem of how the hardware device to be introduced, meaning the Surface Pro 3, represents, actually, more of the state-of-the-art refinement of this Windows product strategy for hardware devices, than anything else.

So, to take this a step further, if we look at the product from this vantage point, concerns about the future growth potential in the tablet market, given the global fiscal Q1 2014 results recently published by IDC likely have little bearing on what the sales future for the Surface Pro 3 will look like.

Perhaps this product will provide Microsoft with a knife and fork to cannibalize the laptop market, as some analysts have noted. But, then again, the product may prove to be a very useful method of capturing some of the very high end business laptop business Apple has come to own with their “Air” portables — iPad and MacBook.

This latter scenario is certainly reinforced by the participation of Adobe in this launch. The Surface Pro 3 will be the first computer built for a new version of Photoshop, which has been written for a touch screen interface, including the new pen Microsoft will ship with the Surface Pro 3.

Disclaimer: I’m long Microsoft

Ira Michael Blonder

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


NVIDIA Provides Scant Detail About Tegra Sales for the Latest Quarter

During NVIDIA®‘s Q1 2015 Earnings Conference Call, Mr. Jen-Hsun Huang, Co-founder and CEO, fielded a question presented by Mr. Mike Burton of Brean Capital about the components of the performance of one of the company’s products. Mr. Burton’s question was on the subject of NVIDIA’s Tegra Processor. He asked about the details of the sales performance, by market segment (smart phones, tablets, and automotive) for this product for Q1 2015.

Mr. Huang did not include a lot of specific detail in his answer, which rolled smart phone and tablet customers for this product into a category named “devices”, while automotive customers were presented as a separate group, with a different profit margin.

If NVIDIA management is unwilling to breakout the specific components of the sales performance for Tegra, how does it make sense, if at all, for analysts to project levels of market penetration for it? One may argue the information can be compiled from customer comments about the product. But for every customer reporting information relative to likely purchases of Tegra processors (for example, Microsoft’s rumored decision to replace Tegra with Qualcomm’s SnapDragon processor for a new model of the Surface tablet), there are many other customers not reporting anything at all, at least not publicly.

So, in my opinion, forecasting the performance of Tegra in the tablet market, at least for the latest reported quarter, and for every quarter, going forward, where management does not provide specific sales detail, will be a very difficult task. The end result, in turn, will not be credible, at least as I see it.

Are sales of Tegra processors to mobile customers in the tablet and smart phone markets an important indicator of NVIDIA’s future performance? Perhaps, if one considers the potential market size represented by these mobile customers to be dynamic, and expansive. In contrast, the same position may consider sales of NVIDIA’s hardware GPUs to the PC gaming market less significant, and less of a reliable forward looking indicator as the result of the comparatively static, and contracting nature of the global market for PCs.

But, in my opinion, NVIDIA’s very strong performance in the latter category for the quarter, when put together with their well attended developer conference for their hardware GPUs, is more of a useful indicator of the health of the business.

Nevertheless, what management does with the revenue, and the rationale behind these actions, is, unfortunately, another subject.

Disclaimer: I recently completely closed a long position in NVIDIA

Ira Michael Blonder

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


NVIDIA’s Notebook Gaming Business Grew by more than 50%, CAGR for the past three years

During the first few moments of NVIDIA’s Q1 fy 2015 Earnings Conference Call, Chris Evendon, who heads Investor Relations for NVIDIA reported the company had achieved better than 50% CAGR for “the last 3 years” for NVIDIA’s notebook gaming products. Mr. Evendon also claimed NVIDIA has grown its market share of the PC workstation gaming business to its “highest level since 2010”.

NVIDIA’s performance in the PC Gaming market brings into question their product marketing plans. Does it make sense for the company to maintain activity across a horizontal set of new markets?

  • Tablet Computers via the Tegra® Chips
  • Cloud IaaS via NVIDIA’s GRID product
  • Automobile In-Dash Displays via the Tegra Chips
  • Vehicle Manufacturing (Tesla is the leading example), via NVIDIA’s “GPU-based machine learning” product

Rather than focusing further on the PC Gaming market?

Readers sharing my interest in this question might want to consider each of the following points:

If rumors can be believed, Microsoft® plans on replacing the NVIDIA Tegra chip with Qualcomm’s SnapDragon for the next generation of its Surface tablets. The greater tablet market may produce further substantial challenges for NVIDIA as Intel® enhances Atom to better meet market needs and wins over more OEMs to its architecture. Of course, Intel is only one of NVIDIA’s chip competitors in this market.

The largest market opportunity for GRID seems to be enterprise business’ needs for a desktop virtualization solution for graphics displays. Mr. Evendon reported “a 25% increase in the number of boards sold over the previous quarter.” The big question, of course, is desktop virtualization market size. I am not aware of a definitive answer to this question. In my opinion, Microsoft’s decision to sunset the Windows XP O/S was a big driver for desktop virtualization, and U.S. Government organizations were likely the biggest category of users likely to look for this type of fix. But older PCs powered by Windows XP, in 2014, are not likely to be big consumers of Graphics software. Bottom line: I am not sold this is the kind of big market warranting a lot of product attention from a business with an annual run rate under $8 Billion.

Automobile In-Dash Displays
In contrast, the market for in-dash graphics and multi media displays is, in my opinion, is a substantial opportunity. NVIDIA has scored some big wins at the high end of this market — Audi, Porsche, Lambourghini, etc. But the real volume is at the lower end. So it would be comforting, for investors, to learn about some wins for NVIDIA with high volume automobile manufacturers.

But this quarterly report does not include any mention of a win, or even serious discussions with a mainstream automobile manufacturer.

GPU Machine Learning
NVIDIA’s continued success with Tesla is, once again, good news, but not the big volume sales indicator some investors may be after. The reports of healthy levels of interest from IBM and Google, on the other hand, are encouraging, but some time will be required to see just how these opportunities develop for the business.

One would hope NVIDIA continues to add the kind of features the PC gaming market (across workstations and notebooks) continues to be after to ensure no slow down in the velocity of this business as the company works on new sectors. Perhaps management will opt to reduce the horizontal extent of its new product development efforts to ensure adequate resources are available, as they are required, to add to early evidence of success.

Ira Michael Blonder

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


Apple Apparently Plans on Acquiring Beats Electronics

According to an article written by Ryan Faughnder and Chris O’Brien, titled Apple may be buying Beats Electronics for $3.2 billion, which was published on the LA Times web site on the evening of May 8, 2014, on May 8, 2014, the Financial Times published a report of talks between Apple and Beats Electronics. The driver for the report amounted to a strong likelihood Apple intends to acquire Beats Electronics. A sale price of $3.2 billion is included in the LA Times article.

In a short video clip titled ‘Apple: Can-Kicking’ Alan Livsey and Joseph Cotterill of the Financial Times opine on the merits, or lack thereof, of Apple proceeding with the acquisition.

Joseph Cotterill sums up what will likely prove to be a popular investor concern about the deal: “Where else could [Apple] have spent the $3 Billion?”

Messrs Cotterill and Livsey go on to delineate why the deal fails to make a lot of sense:

  • iTunes, which back in 2008, according to Mr. Cotterill, amounted to a $16.00, per subscriber, business, is now just a $1.00 per subscriber business. He sees the Beats subscription service as, essentially, more of the same
  • Mr. Livsey characterizes Apple as the quintessential brand, and wonders why it makes sense for them to buy another heavily branded business — Beats Electronics
  • Finally, Cotterill notes Apple will not be buying the Beats Electronics hardware business, just the subscription engine they have developed, which though highly regarded, still has far fewer subscribers than Spotify

Is this Apple’s attempt to build its own SaaS, cloud offer? In other words, is the Beats Electronics subscription service Apple’s attempt to cobble together their own version of Microsoft’s highly successful Office 365 cloud SaaS offer? Certainly the target market is entirely dissimilar (SMBs and enterprise businesses on the Office 365 side, vs music lovers with a credit card for Apple/Beats side), but the recurring revenue, low maintenance, presumably high margin business is very much the objective of both attempts. Presumably we will all know a lot more about the rationale behind the deal if Apple makes a formal announcement about it.

Ira Michael Blonder

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