Perhaps the Uptick in PC Sales Markets are Experiencing Will Last Longer Than Expected

On August 21, 2014, Trish Reagan and Cory Johnson of Bloomberg discussed HP’s latest earnings report during Bloomberg TV’s “In the Loop” daily show. Johnson summed up cautious remarks expressed by Meg Whitman, HP’s CEO, during the webcast of the earnings conference call. Johnson quoted Whitman providing color to the 12%, year-over-year, increase in HP’s sales of PCs as attributable to a burst of buying from companies needing to migrate from Windows XP as the result of Microsoft’s decision to sunset support for this computing platform. Johnson quoted Whitman cautioning her audience the uptick was a unique event, and not to be taken, necessarily, as a signal of a sustainable trend. Johnson called the performance a “one time thing”.

But, perhaps, the uptick in PC sales promises to continue longer than even Whitman has led analysts and investors to expect. After all, during Microsoft’s most recent earnings conference call, Satya Nadella, CEO described the 2014 holiday shopping season as an occasion for shoppers to finally have an opportunity to acquire Windows PCs at price parity with Google Chromebooks.

Nadella based a prediction of lower average sales prices (ASPs) for PCs based, in part, on the lower licensing costs Windows OEMs will likely face as they preload the O/S to their hardware. In turn, these lower licensing costs, Nadella predicted, would be one of the benefits of a new version of the Windows operating system, which he reported to be in the process of being rewritten.

This new version of Windows, in this writer’s opinion, is a “one size fits all” effort for this desktop computing O/S. In other words, Microsoft should be able to distribute the cost of building one O/S, which will run on each of the form factors it targets, across the entire effort, and, thereby, lower costs to its OEM customers. A number of posts have been published, recently, to this blog discussing the likely impact of this new operating system, which Nadella described as capable of supporting the entire range of computing form factors Microsoft presently supports, from the same code.

If a new version of Windows is available for consumers for this year’s holiday season, the increase in unit sales while likely benefit Lenovo and Dell, as well as other so-called “Wintel” OEMs.

At the same time, it is also worth noting Microsoft’s intention to sunset support for Windows Server 2003. Data center sales deliver a bigger revenue contribution for HP, IBM (soon to be Lenovo), and Dell, than consumer PCs. So some segment of the enterprise computing market will likely start migrating out of Windows Server 2003 and up to a platform Microsoft continues to support.

Johnson also remarked cautiously on the decline in profits HP reported for this most recent quarter. In this writer’s opinion it should be easier for HP to return to earlier levels of profitability a quarter or two from now. The real challenge for HP was to return to growing sales. With this most recent quarter they have met the challenge, albeit just barely.

Ira Michael Blonder

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


Microsoft Appears More Comfortable When Promoting Products to Developers

While one can argue Microsoft’s marketing communications targeting computer tech consumers often miss the mark, their promotional efforts targeting developers fare better. A good example can be found in a recent entry to the Office Blog, titled Connect and collaborate with the powerful tools in Office 365 for Enterprise.

Where the current video advertisement campaign for Surface Pro 3 fails to marry the showcased product with the human archetype a lot of the advertisement’s audience dreams of becoming, this short post does a better job of connecting these marketing dots.

The “dreamer” aka “Human as visionary” is certainly an attractive archetype for developers who build applications, and the business stakeholders sponsoring them. The editorial content of this ad explicitly presents the connection between this personality type and its various iterations across a presumed organization (or business), all the way from the CEO at the top, through the developers responsible for building the solution, and, finally, to the “workers” (perhaps end users?) who will consume the solution as they go about the task of successfully completing their work.

While the editorial content explicitly presents this connection, the method leaves something to be desired: “The CEO has a big dream. He is passionate about towers and wants to build the tallest one possible. He needs help to collect and share his ideas, and he needs a way to unite people under his cause. The CEO could benefit from Yammer.” The presentation is clearly a simplification. The reader can’t be expected to do much more than smile at such an attempt to present a rationale for collaboration.

But one of the videos embedded in this post, Office 365: Visionaries need great productivity and collaboration tools saves the day, for this writer, and provides the subtly the complete communication piece requires to make a lasting impression on readers.

It is a pity this same finesse could not have touched the video advertisement campaign for the Surface Pro 3. Regardless, it is highly likely Microsoft’s prime audience — enterprise business technology consumers — will find this post, which is good news. After all, this prime audience is more likely than average computer tech consumers to subscribe to Office 365.

Ira Michael Blonder

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


Microsoft Struggles to Promote the Surface Pro 3 to a Mass Market

On August 10, 2014 Microsoft debuted a new set of video ads for the Surface Pro 3. A lot of the ad content is comprised of a feature comparison between the Surface Pro 3 and Apple’s MacBook Air. A lot of opinion has been expressed about this set of ads as simply the latest example of an ongoing comparison, dating back to the late 1990s, when Apple kicked it off with its infamous Mac vs PC ads.

Does Microsoft stand to benefit from this approach? In this writer’s opinion the answer is “no”. The original Apple campaign was likely effective as the result of a successful effort to bridge the gap between product and consumer. The “Mac” of the ad amounted to one type of person (consumer), while the “PC” was a radically different type of person. The ad then left the viewer to identify with one, or the other. Much has been written about the success of this campaign, so there is no need for us to spend time exploring it further here.

The current comparison is strictly product to product. One can argue the music background on the first of the new ads, with its female vocalist, is suggestive of a personality type, but the actual content is strictly feature to feature review. But, this writer would argue, PC consumers buying Macs are buying them more for what a Mac says about someone who owns one, than the actual features of the device. Sadly, the round of ads from Microsoft fail to speak to this human behavior pattern.

These ads may run against the grain of enterprise IT organizations, which would be very unfortunate. These organizations are most likely to motivate corporate users to scrap orders for MacBook Air laptops and replace them with orders for the Surface Pro 3. Enterprise customers are accustomed to evaluating products head to head (so-called “best of breed” comparisons are the norm), but strictly on a feature basis, without any attempt to add tone to the presentation by associating buyer type to products.

Bottom line: these ads attempt to plant one foot on either side of a gap between consumer and enterprise IT. This posture is not sustainable. The next round should position the product on one side of the gap, and preferably the enterprise IT side, where Microsoft has more friends.

Ira Michael Blonder

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


Do Better Informed Consumers Deliver More Sales Than Their Less Informed Peers?

Implementing a strategy to better inform customers about specific differences between one’s product and a product manufactured by a competitor includes a tacit agreement to compete to be the best. ISVs should carefully consider the ramifications before implementing this strategy. With the exception of clones and direct copies, no two products are the same, nor are they ever targeted at the same consumer. So this strategy may not pay off as expected.

Anyone visiting Microsoft.com recently will notice a number of direct comparisons between the Surface Pro 3 and Apple’s MacBook Air, and the soon-to-be-released (this writer, who owns a Windows Phone 8.0 Nokia Lumia 925, would hope) Cortana personal assistant and Apple’s Siri. The underlying premise supporting this type of marketing communications is product equivalence. The Surface Pro 3 and the MacBook Air are two versions of the same solution, as are Cortana and Siri.

But, we argue, this underlying premise is a fallacy. Dr. Michael Porter has written about this competitive approach, and unfavorably. Dr. Porter’s ideas on the topic have received commentary in this blog before, so there is no need to revisit them. It may suffice to simply equate this approach with a “zero sum game”. One competitor wins everything, while rivals receive nothing at all. When the results are combined, the total is a zero — no one really wins.

One may argue this effort has a highly successful ancestor — the television ad campaign Apple undertook in the first year or two of the new century. This campaign purported to be a competitive comparison between Mac and PC, albeit in the form of two personae — one guy representing the Mac, and another, stiffer, bespectacled, stouter, more formal guy representing the PC. Regrettably, this argument doesn’t work.

The ad is actually a caricature of the “head to head” product comparison communications method. The subtle suggestion, of course, points back to the presumed male viewing the ad, to whom a question will likely appear (seemingly out of the blue), “do I want to be the Mac, or do I want to be the PC?”.

Unfortunately, the comparisons on Microsoft.com do not possess this same subtly and can only be construed as direct product to product comparisons. In the opinion of this writer, they are not likely to be persuasive and, even if they are, they will not likely lead to a lot more profitable sales.

Ira Michael Blonder

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


NVIDIA Q2 2015 Results Point to a Healthy PC Gaming Market and More

NVIDIA’s reported results for its 2nd quarter, 2015 fiscal period exceeded management and analyst expectations. Based on NVIDIA’s results, the consumer market for PC Gaming hardware looks strong. The results also include a report of substantially larger sales of NVIDIA’s Tegra SoC platform into the automotive market.

The company also guided higher for likely sales for the 3rd quarter of 2015 and pointed to consumer GPUs as its most popular product line. There was no indication of any margin erosion in the near future. Jen-Hsung Huang spoke to very deep strength and health in the global PC Gaming market and likely increases in average sales prices (ASPs).

If one can extrapolate from these results to broader markets, perhaps the global consumer PC market has more depth than would otherwise appear to be the case. These game consumers are an entirely separate segment from business users who, one might argue, have been driving up sales to renovate older sets of Windows XP desktop computers. The NVIDIA results also included mention of the Chromebook PC as one platform likely to experience substantial growth. So-called “Wintel” OEMs (HP, Dell, Lenovo) all have entries to the global Chromebook market. It may make sense to increase expectations for sales volumes for these companies.

A hot PC gaming market may indicate increased consumer appetite for XBOX One and Playstation 4. This assumption looks reasonable given remarks by Jen-Hsun Huang during the earnings conference. He pointed to the release of a number of games, scheduled for later this year, which carry very high levels of consumer anticipation. It is likely these games will be offered not only to PC gaming hardware consumers, but to console owners as well.

Worth Noting: When Matt Ramsey, an analyst from Cannacord Genuity asked Jen-Hsun Huang to speak to the promise of the data center, cloud market for NVIDIA GPUs built on ARM architecture, Huang responded by identifying this market as the most promising emerging market for NVIDIA, going forward, and, further, the market with the best promise of increased ASPs for the business. If they can win here they will achieve an objective AMD has failed to reach.

As we have written earlier to this blog, in our opinion Intel has fortified its position in the Data Center through its support of Hadoop and OpenStack, to the detriment of ARM OEMs.

Ira Michael Blonder

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


What’s the Significance of an Enterprise Search Feature Capable of ‘Standing’ the Whole Concept ‘On Its Head’?

Sprinkled within Satya Nadella’s remarks during Microsoft’s Q4 2014 Earnings Conference Call were some words about “Delve”. For readers unfamiliar with “Delve”, this new feature, which is only available via an Office 365 subscription, is a further refinement of something called “Code Name: Oslo”. “Code Name: Oslo” was presented at Microsoft’s annual SharePoint Conference, 2014, as something called “Office Graph”. Nadella noted “Delve will turn enterprise search on its head as information that is relevant to you finds you. Think of this as the Facebook suite for productivity.” The remark is a concise summary of the features of the product, with the allusion to Facebook serving as a placeholder for the Enterprise Social features of the product.

How big a market is there for “enterprise search”, and how does this market differ from the public “search” market? In this writer’s opinion there is a promising market for the type of substantial improvement to enterprise search Nadella cites as likely once Delve hits the “virtual shelves”. Almost every highly regulated business will want to at least take a look at the feature, if not purchase an Office 365 subscription to obtain it. FINRA’s 10-06 regulation, which requires financial services firms to archive Social Media conversations, represents yet another burden on smaller banks, brokerage houses, etc. Given the low per user cost of public Office 365 subscriptions, it may be safe to assume lots of these firms will want to at least take a look at Delve, and, therefore, consume some Office 365 subscriptions. Similar requirements exists for heavily regulated businesses in the health care industry. We can wrap up merely a cursory look at likely markets by including law firms in this category.

Another very promising potential inherent to Delve is any possible hooks to Cortana. Once again, for readers otherwise unfamiliar with Cortana, this product, which was recently announced during a debut of the new features to be included in Windows Phone 8.1, is Microsoft’s entry into the market for voice assistants, and can be seen as a direct competitor to Apple’s Siri and “OK Google”. Cortana has been touted as a method of leveraging Microsoft’s Bing Search Service via voice commands. If Cortana can also connect to Delve, then the whole mobile market for the above mentioned heavily regulated businesses may want to consume this new “Enterprise Search” whiz, as well.

Ira Michael Blonder

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


With One Windows O/S for All Screens PC Consumers Should Enjoy Much Lower Acquisition Costs

During Microsoft’s Q4 2014 Earnings Conference Call, Satya Nadella presented the notion of one version of the Windows O/S for all screens: tablets, pcs, laptops, smart phones, etc. If true, the reduction in duplication of efforts, functionality, etc. should produce PCs, laptops, etc. at dramatically lower costs for the 2014 holiday season.

Nadella framed this announcement within the context of describing an effort to reduce operating costs, which should make sense to anyone following Microsoft: “[the] [s]econd [principle of how we operate amounts to our effort to] consolidate overlapping efforts. This means one OS that covers all screen sizes and consolidated dual-use productivity services that cross life and work.

In turn, one Windows O/S will provide the added benefit of uniform delivery of features to all screens and devices, at the same time. The imbalance between the Windows feature set for RT and Intel platform devices should be removed. Consumer satisfaction should increase, while acquisition costs, as mentioned above, should be reduced. Finally, release of this new version of Windows will likely be welcome news for consumers from enterprise business who seem to remain unconvinced they have a burning need for a touchscreen O/S like Windows 8.1. The new O/S, as has been reported by the media, will have the ability to “autosense” computing hardware and serve up an optimum user computing environment for a mouse and keyboard user, while still serving up the now familiar touchscreen interface for tablet, smart phone, and laptop users with a touchscreen.

The potential impact of dramatically lower acquisition costs on the percentage of the consumer market deciding to use Windows O/S should be positive, particularly at the lower end, which is the predominant segment for emerging markets. Gains for Microsoft in these segments will likely mean market share has been won back from Chromebooks.

All told, if Microsoft is successful in this effort to consolidate versions of the Windows O/S, and the finished product is well received by markets, the impact on the bottom could be positive.

Ira Michael Blonder

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


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


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 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