Mark Penn Assumes Role of Executive Vice President, Strategy for Microsoft

On March 2, 2014, in an article published on the re/code website, titled Exclusive: Top Execs Bates and Reller to Depart, as Musical Chairs Begins at Microsoft, Kara Swisher informed the public of the appointment of Mark Penn to the position of EVP of Strategy at Microsoft®.

A quick review of Mr. Penn’s page on Microsoft.com (updated on March 3, 2014) substantiates Swisher’s claim.

In another article Swisher opines on the political ramifications of Penn’s tenure at Microsoft.

Nick Wingfield, who writes for the New York Times, spread the word of Penn’s ascension to his new position further in an article published on the same day, titled Ex-Clinton Aide is Named Microsoft’s Chief Strategy Officer. Wingfield also chose to focus on Penn’s controversial track record directing Microsoft’s recent marketing efforts, most notably the “Don’t Get Scroogled” campaign.

But there is another side to this story neither Swisher nor Wingfield have chosen to treat: What’s the real significance of this change in leadership, given Penn’s predecessors in this position?

Industry analysts may want to put together an answer to this question, while adding to it, perhaps, a dash of zest from the opinions of Swisher, Wingfield, et al. Just a word on why the zest: If the combative, confrontational style themes projected by the Scroogled campaign are to be the norm, going forward, than perhaps we can build a different picture of how Microsoft will likely behave under the leadership of Messrs Nadella and Thompson towards competitors.

Penn’s predecessors in this position included Bill Gates and Ray Ozzie. Both Gates and Ozzie were obviously very deep in technical understanding, but, perhaps, very light as regards their respective abilities to foretell consumer interest in product notions. Certainly one can argue Gates was the pre-eminent strategist for business computing products. Ozzie, for his part, brought to Microsoft the core of the Lotus Notes “thing”, which captivated so much of the Fortune 1000 marketplace for collaborative computing.

But neither Gates, nor Ozzie had the chops to address the consumerization of IT trend and put together the solutions appropriate for this new market. Penn may have these chops.

Don’t forget his past career in the political arena as chief pollster for both President Bill Clinton, and, later, Hillary Rodham Clinton. Penn brings the methodical analytic expertise to the job, which is required to prove product notions across Microsoft’s Devices and Services market.

Bottom line: Microsoft is serious about the consumerized IT market and doesn’t look to be pulling back from tablets, and smart phones anytime soon.

Ira Michael Blonder

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


Investor Interests in Early Stage Technology Businesses Can Provide Telltale Indicators of a Product Cycle Peak

We think studying investment decisions made by venture capital firms is a useful activity. The CEOs of early stage technology businesses gain important insights into product life cycles by observing how the venture capital financing sector opts to commit its cash. From what we can see, we think the personal computing paradigm, which has been in place since the mid 1980s, is approaching an important crossroads. We wouldn’t be surprised if innovation grinds to a halt as this movement plays out.

On June 30, 2013, the Venture Beat website published an article authored by Navin Chadda, A ‘Silver Linings Playbook’ approach to Venture Capital. Mr. Chadda summarizes findings presented in the most recently published year book of the National Venture Capital Association: “Key findings include:

◾In 2012, the VC industry raised $20 billion vs. the almost $100 billion in 2000;
◾92% of this capital went to existing managers (vs. first-time managers) and 48% went to 10 large firms;
◾Overall, about 522 firms are estimated to be active, and some believe this number even lower closer to 100 defined as firms that have made at least 4 investments over the last year;
◾The median fund size for 2012 was $150 million, and the overall deal pace has come down to slightly over 750 investments per quarter;
◾Although some momentum companies are being bid up, valuations are trending lower overall according to Dow Jones Venture Source data.” (quoted from Mr. Chadda’s article, a link to which has been provided above).

Across the board, the venture capital community is operating at a mere fraction of its former self (by “former self” we mean the level of activity Mr. Chadda reports for 2000, the start of the “Dot Com” era). We’re not sure this is good or bad news. All we can say is things are slowing down, dramatically. With a lot less capital flowing into early stage technology businesses from this sector, some proportion of innovation will slow down, as well.

The result will be status quo, at least for the foreseeable future.

Ira Michael Blonder

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


Executive Changes at Intel May Signal Their Future Chip Platform Efforts

In an article titled Intel’s CEO Pick Is Predictable, but Not Its No. 2, published in the online edition of the Wall Street Journal on Friday, May 3, 2013, the authors, Don Clark and Joann S. Lublin, note the surprise of some Intel analysts at the selection of Renée James as the new President of Intel. We share their surprise.

Ms. James’ major achievements include her instrumental roles in the acquisitions of Wind River Systems and McAfee. Neither of these businesses have anything to do with chips, or firmware. So why Ms. James for the position of President?

We can’t help but interpret this executive appointment as a signal of a change in likely market direction for Intel, going forward. We think the board is tacitly throwing in the towel, at least for now, on seizing any type of position as a contender to ARM in the small, smart mobile device markets. Sure, Intel made many attempts over the years to take ground in these markets and failed. But now failure appears to be maturing into an outright retreat.

If we’re right, it will likely be much harder for companies depending on Intel’s chips (Microsoft and its OEMs) to win any market share of any significance from the ARM crowd. Intel’s innovations (like the current Atom processor) will continue to fail to meet some fundamental market requirements and leadership will remain largely in the hands of Android and Apple.

It’s nevertheless fascinating to watch an enormous business like Intel implement a horizontal product strategy. Diversification certainly makes sense from a risk management perspective. With its cash on hand, Intel can afford to buy its way into markets. The sales cycle patterns of McAfee and Wind River Systems are likely very different from those of Intel’s core chip business. Perhaps the board selected Ms. James for her ability to help the business continue its diversification strategy.

A healthy Intel, feeding off of subsidiaries like McAfee and Wind River Systems, can certainly take the time to think harder about how to re-enter mobile markets with better technology.

Ira Michael Blonder

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


Microsoft Gets It Right On Two Fronts –Elastic Infrastructure and Online Meetings

On Tuesday, April 30, 2013 a couple of press releases attested to some success Microsoft® has experienced with its elastic computing infrastructure and virtualization product Windows Azure, and with Skype. Sales for Windows Azure exceeded $1Bil. Access to Skype conferencing features (including video) would be included in the Outlook.com web email service through a special plug in.

We aren’t surprised at their success with Windows Azure. We think Amazon AWS (market leader with greater than 80% of the current market for elastic infrastructure and virtualization services) is highly vulnerable. The AWS control panel is very difficult to use. The AWS MARCOM is almost entirely directed to technical users (principally developers). The task of setting up a service for the average smaller business looks to be too demanding.

Windows Azure is a natural for enterprise IT organizations with a substantial on premises commitment to Microsoft Windows desktop computing. The increases in sales points to more enterprise IT organizations adopting a multi tenant, off premises solution for at least part of their infrastructure needs. We think the “Cloud First” initiative by the US Federal Government is also driving some of these sales. Windows Azure, as a Microsoft cloud offer should benefit substantially as both of these groups (enterprise IT and the US Federal Government) increase use of cloud services.

The plans to offer a Skype add on exclusively for Outlook.com also make a lot of sense. GMail has been a very big success for Google, why not Outlook.com for Microsoft? Providing a browser add on for Skype on the Outlook.com website for Chrome, Firefox and Internet Explorer provides Microsoft with an opportunity to also gain market share from competitive browsers. This strategy looks like a substantial change from the old approach of only building new features for Microsoft browsers. Someone in Redmond has his or her eyes open and should be commended for both of these successes.

Ira Michael Blonder

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


Why Early Stage ISVs Should Plan on App Dev that Services Multiple Computing Platforms

Every business, regardless of size, must plan for managing risks. Some businesses consciously build a risk management strategy, while, for other businesses, the process appears to be unconscious, or even missing.

We think an important area of exposure for early stage ISVs can usually be found in their product development strategy. When we look at a product development plan, we ask about the computing surroundings around the tools and applications the business plans to produce. Is this software captivate to a specific computing platform, for example, Microsoft® Windows, of GNU/Linux? If the answer is yes, we usually attempt to learn more about the rationale behind the business’ decision to fully commit development efforts to one computing paradigm.

One needn’t look much further than the historical timeframe from late 2010 to present to note a radical shift in computing. Lots of business users are making radical changes in how they handle their daily computing tasks. Large ISVs, for their part, are contributing to the flux with new offers intended to support users doing what they used to do with desktop computers, but now with tablets, smart phones, or phablets.

A small ISV with one application on the market for MS Windows computing can, literally, plan on a very likely decline in revenue over the next few years as users continue to shift over to computing via other devices with their own operating systems and platforms.

How could this small ISV avoid the mess it might shortly find itself in? We think it makes sense to take core business capabilities and apply them over as wide a computing landscape as possible. If you build workflow tools for Oracle, or Microsoft products, you should explore opportunities to build workflow tools for Google Apps. By taking the steps required to open alternate markets you will provide your business with a defense should a worst case scenario arise. Better yet, write your applications in code that has been proven to be genuinely portable. It also makes sense to develop either a cloud SaaS for your solution, or a version of the solution that works with each of the browsers on the market today.

Ira Michael Blonder

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


IT Buyers in 2013 are Much Better Informed and No Less Willing to Spend

A lot has been written about serious changes in IT buyer habits in 2012 and 2013. The consensus is that IT buyers are not talking to sales personnel until much later in the sales cycle. One reason for this change, some contend, is tighter budgets in 2013. Tighter budgets aren’t driving less engagmement. Better informed IT buyers don’t have much to talk with sales people about.

Let’s look for a moment at spending levels. We think that total IT spending in 2013 will increase over past years. Enterprise IT spending will increase, as well. All of these buyers might not buy PCs, Laptops, or on premise software, but they will still buy tablets, phablets, smart phones, cloud services, or a combination of products and services (that may include PC hardware and software as well).

Products need to be promoted online. IT buyers are online researching requirements, solutions, and customer experiences with specific products or even solutions. Product marketers have an opportunity to present these buyers with communications copy to build their interest.

Here’s a design for this online content: start with a simple text statement that presents, broadly, a pain point typical of a buyer of your product or service. Display on the same page customer testimonials, awards and company news. Use back pages of your site to present your specific expertise, management team, etc. From this content design one can see that IT buyers in 2013 look for sellers with direct experience meeting their needs, who can be trusted to deliver, expertly, on requirements.

Of course, producing persuasive content is not so simple. The most important of the three design cornerstones that we just presented, presenting the pain point, requires that sellers thoroughly understand their buyers. Product marketing must produce a very clear picture of a promising prospect. It won’t hurt to display that picture to sales personnel, customer service, and even technical staff.

Ira Michael Blonder

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


Logistics Software for Transporting Hazardous Wastes is an Example of a Niche Market based upon an Industry Component

The market for logistic software for transporting hazardous wastes is an example of a niche market arising from a heavily regulated industry. In fact, this niche market is actually the result of a number of heavily regulated industries; for example:

  • Oil and Gas Exploration
  • Energy Production (Nuclear Power)
  • Health Care
  • Environmental Management
  • Transportation

Each of these industries produces waste that is hazardous to human health; therefore, a unique set of policies and procedures — specific to heavily regulated industries — accompanies the normal set of required operations for a typical business in this category. When we Googled the keywords “logistic management software hazardous waste” when came on the web page of a business that is, by no means, a smaller ISV, but, nevertheless, one that certainly started out that way: Information Handling Systems (IHS). IHS, which is now a public company with fiscal 2012 sales of $1.53B and EBITDA of $363.32M.

IHS was founded in 1959 by Richard O’Brien to address a highly specialized, niche market: “as a provider of product catalog databases on
microfim for aerospace engineers” (quoted from the IHS web site) Note how the original business plan included a very tight focus on a highly specific (in other words limited, clearly defined) set of requirements for a heavily regulated industry — aerospace.

In 1967 IHS, itself, was acquired by another firm, Indian Head Company, ” . . . founded in 1953, a broadly diversified company in metal and automotive products, producing glass containers, information technology systems and a wide variety of specialty textiles.” (quoted from the IHS web site). From 1967 forward IHS has grown through a series of acquisition of other businesses, all of which were dedicated on specific niche markets that contributed to the enormous success that this company has achieved.

We are not presuming that every small ISV that successfully build a solution for a niche market will enjoy the success that IHS has enjoyed, but, nevertheless, we do think it makes sense in 2013 for smaller ISVs to consider adopting a contrarian marketing plan, meaning one that eschews the commodity markets that characterize most software development requirements, as well as the push to deliver all sorts of software via a SaaS business model, in lieu of a realistic focus on identifying very promising, albeit limited opportunities — in other words, niche markets.

In all likelihood, most competitors are looking other ways, towards SaaS delivery models, or towards simply provisioning development talent to an enterprise market. Therefore, a smaller ISV may have a glimmer of opportunity to succeed following a model that worked for IHS back in 1959.

Ira Michael Blonder

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


Researching the Components of Regulated Industries can Reveal Niche Opportunities for Highly Specialized Software

This is a fourth blog post on the topic of niche market opportunities for smaller ISVs. It may be useful to take a moment to recap where we have come to in this series. The first point we are trying to make is that smaller ISVs will do well to carefully consider niche market opportunities as they piece together a business plan. As we broadly noted in the first post in this series, niche markets may not offer an opportunity for meteoric growth, but, for businesses with software development expertise that has some track record of success, these markets can be expected to deliver attractive revenue.

The second point we made is that the actual level of competition for these markets among smaller firms is comparatively restricted. The reason why, in our opinion, is a trend, over the last several years, on the part of smaller ISVs to address the market for software application development services, without much more than simply a matching focus on the applications themselves. Of course, the driver for this type of product marketing was the aggregate extensive demand for software application development services from:

  • Enterprise Business Looking to Contract, and even Outsource Systems Development
  • Public Organizations (like the Federal Government here in the United States) After Much the Same Services
  • and Healthy Demand for New Systems Development from Start Up Tech Ventures

As we see it, these three markets (largely as a result of the proliferation of Software as a Service, SaaS, offers from large ISVs) are presently contracting. We think it makes a lot of sense for smaller ISVs to eschew this services focus and, once again, look seriously at product development (including SaaS offers for highly focused markets).

Finally, we started to touch on why we think that heavily regulated industries are a good place for smaller ISVs to start their research for niche market requirements. Of course, competing to satisfy the broader industry needs (for example, for medical systems, or financial systems, or even legal systems) in any of these categories will not make much sense. After all, the large ISVs compete fiercely for this business. But niche requirements can still be won and are worth a serious look.

In the next post to this blog we will start to broadly sketch out a scenario around simply a module of the operations of a hazardous waste management business as an example of a niche in need of its own highly specialized automated systems.

Ira Michael Blonder

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


Heavily Regulated Industries Present Smaller ISVs with Potential Niche Markets

This is the third blog post in our current series on the opportunities for smaller Independent Software Vendors (ISVs) in opting to service niche markets. In this post we will look at a source of product notions that these smaller ISVs may find when they look closely at heavily regulated industries.

Heavily regulated industries share one common characteristic: they are all subject to periodic review by their respective regulatory agencies. Therefore, records keeping — across the board — is a mandatory task for all of these businesses. Extrapolating from this fact, it should be easy to see why these types of businesses are particularly promising for ISVs who offer comprehensive applications, like Enterprise Resource Planning (ERP), or any of the other “enterprise” software packages (Content Management, Document Management, Risk Management, etc). In fact, once one of these businesses standardizes on an ERP solution, every department throughout the organization will need to implement the solution.

With a business intent on migrating all of its operations onto a new ERP platform, there will be, in all likelihood, opportunities to provide customers with what we like to refer to as “follow on” software and services. For example, despite the fact that all departments within a heavily regulated business must, across the board, implement a new ERP standard, these same departments can still complain about the obligation. Further, they can perform poorly with the new software, which can lead to a drop in overall profit for the business or a drop in sales. Regardless of how activities diminish, a requirement emerges to support the customer in its efforts to hasten user adoption across the business, of the new software package.

For all of the above it makes sense for ISVs of all sizes to look closely at regulated businesses. Obviously, larger ISVs have developed lucrative ERP solutions for the largest components in specific industries. For example, for law firms, an Enterprise Content Management (ECM) software package by the name of Hummingbird, which is actually no longer aggressively marketed, is still the standard. Needless to say, quite a number of ISVs have earned meaningful revenue either selling this package, or servicing it.

Similar examples abound for health and human services businesses, financial institutions, and more. But this is fine for larger ISVs. What about smaller ISVs with original Intellectual Property (IP) in mind as a business model. Where are the opportunities for these smaller players in heavily regulated industries? We will take a look at how to filter for some of these opportunities in the next post to this blog.

Ira Michael Blonder

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


Product Marketing for Smaller ISVs Should Maintain a Focus on Niche Market Requirements

Over the last two posts to this blog we have discussed what was a familiar model for smaller Independent Software Vendors (ISVs), namely software product development which was entirely focused on satisfying the needs of niche markets. In fact, these smaller ISVs, or Value Added Resellers (VARs) as they were referred to in the past, could develop into attractive businesses with a lucrative revenue model, all built around highly specialized markets. In fact these market niches almost always included formidable barriers to entry that would discourage likely competitors.

In the last post we provided a brief example of a VAR that grew into a successful business employing 4-5 developers. This VAR sold a complete Enterprise Resource Planning (ERP) automated system specifically designed for the conference market for non profit organizations. There are, literally, thousands (or, perhaps, even millions) of examples of other highly specific software products built by VARs, or smaller ISVs for very specific markets.

However, it does not make sense for these same smaller ISVs to pursue product development for niche markets if the business plan is built around providing software development services to customers. This services business model has been very popular since 2000. The model works as follows: we have a small team of software developers, and Subject Matter Experts (SMEs), for a specific type of software development; for example, application development with PHP, C#, Java, etc. Our revenue model is built on leasing out these experts to customers who may use our team to build their own custom software products. Of course, the custom software products developed by our SMEs remain the property of our customers. Once the project is finished, our team (ideally) proceeds to a new project.

In fact this services business model for smaller ISVs is no longer the revenue generator that it once was. We have written a lot on this topic already; therefore, we are not going to expand on the point here. Let it suffice to say that via a combination of a more global market for SMEs, a push by enterprise ISVs and enterprise customers for Software as a Service (SaaS), and the cool markets for software that characterized the last several years during a global economic slow down, an ISV simply marketing the services of a team of SMEs is not a very promising strategy.

Rather, we think that smaller ISVs need to come back to thinking about product development. Satisfying the needs of niche markets is certainly a good place to start. In the next post to this blog we will look at opportunities for lower cost product development as the result of SaaS resources like Amazon AWS, etc.

Ira Michael Blonder

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