18
Feb

Microsoft and its partners continue efforts to take down obstacles to wider cloud adoption by enterprise business

2-Color-Design-Hi-Res-100px-widthRackspace, a leading provider of managed services to enterprise businesses, reported earnings on February 17, 2015. Some remarks from its CEO, Taylor Rhodes, point to what maybe a promising indicator of enterprise business moving towards increased use of cloud IaaS, PaaS, and SaaS services. Microsoft also previewed the coming release of an Active Directory tool, which should ease the difficulty of synchronizing on-premises AD and Azure cloud AD.

Rhodes’ remarks were quoted in an interview titled Rackspace CEO Rhodes: Price Cut Curve is Flattening Out. The interview was published on the Barrons web site and was conducted by Tiernan Ray.

The heartening indicators for anyone looking for signs of more movement by enterprise business communities of computing users towards cloud offers amounted to:

  • “The mainstream market has two problems: They have legacy apps that won’t go multi-tenant automatically; they want single-tenant versions along the way; and the second problem they have is this skills set gap. Cheap infrastructure is just pouring gas on the fire. There is a need for software and tools development. Companies are saying, I don’t have access to people who know how to run all those things”
  • and Ray’s summary of some other comments appears to have made during the interview: ” . . . the company [sees] more and more deals of $100,000 or more, some of it coming from competitors such as the telcos; rising organic revenue growth (it was 16.4% last quarter, excluding currency effects); and rising operating profit margin.”

The type of enterprise software Rhodes calls “legacy apps”, in my opinion includes the “customizations” of big server applications like SharePoint, which Microsoft has found so difficult for its customers to work with as they consider migrating some on-premises processes to the cloud. The recommended methods of dealing with palpable inconsistencies between what can be accomplished with these processes, on-premises, vs the same for cloud, whether via SharePoint Online/Office 365, or Azure IaaS/PaaS/SaaS, have been reduced from tightly woven “hybrid computing” to today’s “hybrid scenarios”, where almost wholly separate processes run locally and remotely, but in service to the same communities of users.

So Rhodes’ remarks about how Rackspace has captured some of this headache as tangible business and, even better, big ticket business (presumably with attractive margin) is a heartening note and, perhaps an indicator of better news to come.

The second breathe of fresh air on this challenge is to be found in a post to the RedmondMag website authored by Kurt Mackie. The post is titled Upcoming Perks of Azure Active Directory Connect Tool.

Anyone familiar with the kind of hybrid cloud computing requirements detailed by Microsoft SharePoint MVP Fabian Williams in a video tutorial set from VisualSP titled SharePoint 2013: Hybrid Cloud should understand the critical role Active Directory must play in any serious attempt to bolt a cloud component like Office 365 or some service, infrastructure or even platform running on Microsoft’s Azure cloud. The tool is certainly promising. Should the results produce a reliable directory of users for on-premises and cloud computing venues, increased enterprise adoption of the cloud component should become more of a realistic expectation for stakeholders.

Ira Michael Blonder

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

5
Feb

Investors buy up shares of prominent social media ISVs despite slowing user growth

2-Color-Design-Hi-Res-100px-widthPerhaps investors are changing their taste in prominent social media ISVs. Could the search for a telltale sign of promise have shifted from substantial growth in users to what may be a meaningful increase in revenue? From the after hours trading experience of LinkedIn and Twitter on February 5, 2015, it would appear to be the case.

Twitter and LinkedIn both reported solid revenue growth in the quarter ending December 31, 2014. But in the case of Twitter this plus was offset by anemic growth in the number of active users. Tiernan Ray wrote in Barrons: “[Twitter] said its monthly average users (MAUs) rose 20%, year over year, to 288 million from 284 million in the prior quarter. That was down from a rate of 23% growth in Q3. Of those MAUs, 80% were on mobile devices, about the same as the prior quarter.”

Hannah Kuchler of the Financial Times also remarked on management’s forward-looking guidance, “that was above the average analyst forecasts”.

Investors looked like they liked what they were hearing and reading. Twitter’s share price was up over 10% after hours.

LinkedIn shares were also up substantially, approximately 6% above the close. The quarterly earnings report included very similar highlights: substantial growth in revenue. But I found a different nugget: Maria Armental wrote in the Wall Street Journal:“The professional social network, which this month launched a localized version in simplified Chinese and traditional Chinese that has nearly doubled its Chinese member base to more than 8 million, said nearly 70% of total members come from outside the U.S.” Eight million users is certainly not a very big number for the country with the biggest population in the world. But LinkedIn is succeeding (as Apple is also succeeding, though in a much bigger way) in a market that continues to elude Microsoft and curiously enough Google (Android).

As a user I must attest to a much more promising experience from my efforts with Twitter than has been the case for how I have worked on my LinkedIn profile. I make a lot of use of Twitter’s Analytics. As my tweets have magnetized more impressions there has been, over time, a substantial increase in the page views of this blog. But perhaps the best result of all has been a growth in our following on Facebook. But I will write more on this point in a later post.

Ira Michael Blonder

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

2
Feb

Consumers pass on smaller tablets to take advantage of offers for smartphones with bigger screens

2-Color-Design-Hi-Res-100px-widthOn Monday, February 2, 2015, Tiernan Ray of Barrons reported on a research note published by Canalys. Ray’s article is titled Tablets Fall 12% in Q4, First-Ever Decline, Says Canalys; 7-Inch Models Cannibalized. Ray mentions this note claims “that shipments of tablet computers fell in Q4 by 12%”.

Anyone with an interest in consumer preferences for small, smart devices for computing on the go will likely look at the Canalys claim, especially if other published research affirms the numbers, as an indication of how Apple’s product marketing has successfully convinced buyers in mature markets, and even China, to value the iPhone as a status symbol. When this product magnetism is combined with carrier incentives, consumers apparently passed up opportunities to buy tablets to obtain an iPhone 6 or 6S.

Apple does not appear to be suffering much pain from these changing consumer tastes. According to Apple’s most recent quarterly earnings report, the surge in iPhone buying more than offset the 18% drop in tablet sales Canalys notes. But will the same scenario play out next year, when Apple debut a new iPhone? Would it not make sense for analysts to discount future earnings estimates based on an understanding of just how consumers of luxury electronics might behave, over time?

Unfortunately there is not any mention of this type of skepticism in Ray’s article. When buyer sentiment can turn quickly negative when products “[fail] to wow” it is reasonable to call a market top, of sorts, for this category of products. Regardless of the size of Apple’s operations, and its deep pockets, it is not likely we will continue to see widely popular new product releases time after time after time when the only real incentive for buyers is to announce to their peers they can still afford to buy the newest pricey gadget.

The Canalys report also mentions a serious drop in sales for Samsung tablets. In my opinion there are legitimate reasons for this, not the least of which is a combination of Google’s decision to no longer support “early” versions of Android, and Samsung’s own poorly timed introduction of new tablets, too often to the detriment of customers unfortunate enough to buy a product about to be obsoleted. But I argue the luxury market condition also weigh heavily on Samsung’s results. By crafting product promotion around a “competition to be the best” assumption, Samsung rendered its own small form hardware devices fair game for buyers to cannibalize in their frenzy to consume an iPhone 6 or 6S.

Ira Michael Blonder

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

24
Sep

Can a set of entirely positive market comments endanger the revenue stream health of a tech hardware business?

Apple’s September 9, 2014 new products debut has magnetized an almost entirely positive set of market comments. But can such a set of editorial content actually work against Apple? The lopsided set of positive, almost glowing market commentary about the iPhone 6, 6S, iWatch, and iPay reaches a pinnacle, of sorts, in a piece written by Tiernan Ray, which was published by Barrons on September 16, 2014. The title of this article is Apple: Don’t Listen to the Doomsayers. Even Ray’s decision to include a contrarian opinion expressed by Doug Kass of Seabreeze Partners in his bucket of “doomsayers”, in this writer’s opinion, exemplifies the excessive weight of positive opinion about these new products, and what they promise to bring to Apple.

So, to answer the question posed in the title of this post, we certainly hold the opinion an almost unanimously positive market reception for a set of comparatively very expensive products like these from Apple, can be dangerous to the financial health of the ISV producing them. It is simply not tenable, in this writer’s opinion, to assume Apple will be able to pay for the very high market capitalization it presently enjoys by continuing to focus on the top of the consumer market for these devices. Regardless of whether the cost of purchasing an iPhone 6S is subsidized by a carrier here in the US, or a consumer ends up paying outright to purchase one, a $199.00 street price is not reflective of the TRUE cost of acquiring the product.

The US market is trained to react positively to offers fueled with artificially low prices. Not so the rest of the world, and, especially not so in emerging markets. These other locales and communities of consumers are not likely to line up to buy either of these smart phones anytime soon. These products will only be available, at launch, in a basket of countries, and, in this writer’s opinion, for good reason. Average global consumers simply cannot afford these devices.

What is even more troubling about the editorial euphoria bubbling up around these devices and the debut, as a marketing communications piece in its own right, is the complacency expressed by what is referred to as the “mainstream media”, here in the U.S. on the question of whether average consumers here in the US will have the fortitude to make rational decisions about whether or not it makes sense to purchase one of the products.

One popular publication ran a headline something like this: “Like it or not, Wearables are Here to Stay”. Have we really reached the age of “solution without a problem” on steroids? This writer does not think so. If consumers do not need wearable tech, then they won’t buy devices in the category. Certainly, different consumer segments exhibit different needs, but all this talk will have to evolve into buying action before we can really be convinced a shift in consumer sentiment has occurred.

Bottom line: the old adage “too much of a good thing” speaks the truth. It will be interesting to gauge results a quarter or two down the road.

Ira Michael Blonder

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

11
Aug

Twitter and Other Cloud Businesses Benefit from Investor Enthusiasm

Twitter and its Cloud business peers are benefiting from highly enthusiastic investor sentiment. Investors appear disinterested in a widening distance between GAAP and non GAAP earnings results for these businesses.

Sandra Ward illustrated some of this disconnect last Saturday, in an article published in Barron’s Online titled Twitter’s Results: Less Than Meets the Eye. She writes: “Using generally accepted accounting principles, or GAAP, Twitter (ticker: TWTR) lost 24 cents a share in the second quarter, but it played up a non-GAAP measure that showed a two-cent profit, versus the consensus of a penny loss.”

As of the date of this blog post, August 6, 2014, a loss of $.24 per share for Twitter, amounts to $141.585 Million, USDs. This loss is actually 45.38% of all of the revenue ($312 Million, USDs) Twitter generated for the quarter. One would think investors would care about a company losing almost a dollar of every two it brought in for the quarter, but they appear not to have cared. By the time trading resumed on Monday, August 4, Twitter closed at $43.45, a mere 1% below its closing price on Friday, August 1, 2014.

While the primary driver of investor appetite for Twitter still alludes this writer, it is, perhaps, safe to assume a lot of momentum can be attributed to investor satisfaction with the non GAAP presentation of the same quarter’s results, namely the mirage of the 2 cent profit Ward notes in her article. Perhaps investors are now convinced management has “gotten the message” and subsequent quarters will continue to show profits, albeit on a non GAAP basis. Hasn’t this been the case with Facebook, which is often characterized as a direct competitor to Twitter? After all, quarter after quarter, Facebook has reported profits over the last couple of years.

What is likely to be of greater concern than this excessive investor enthusiasm in this social media business bleeding cash, (which has now opted to highlight its results, as expressed according to non GAAP) is their complacency. Maintaining confidence this business “will eventually get it right”, simply as the result of throwing cash at its problems, doesn’t make sense to this writer. When one looks at the overall market for these types of publicly traded businesses, one likely will conclude the whole sector is simply too inflated, at least at present.

Disclaimer: I am neither invested in Twitter, Facebook, nor any other social media cloud business at this time.

Ira Michael Blonder

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

1
Aug

Writing About Better PCs While Focusing on Macs

In a manner emblematic of the times, on Saturday, July 26, 2014 Barrons published an article written by Alexander Eule on the topic of the resurgence analysts have recently noted in consumer interest in PCs. But, with the exception of a paragraph or two about Intel, and the evident success of its 3 year old objective of re-architecting CPUs for thinner, lighter laptops, the rest of the article is entirely about Apple iPads and Macs.

This article, titled What Comes Next in the Post-PC World? Better PCs, begins with some remarks about the troublesome sales plateau Apple’s iPad has apparently reached, at least according to its latest quarterly earnings report. Eule attributes diminishing consumer interest in iPads to “tablets [getting] squeezed out of the picture”. He suggests Apple may be looking to “cannibalize” its own position in the tablet market by introducing a larger iPhone in the fall.

But, despite quoting Gartner analyst Mikako Kitagawa, who reported (within a quarterly review of global PC sales) “‘[t]he availability of affordable thin and light notebooks have drawn consumer attention'” along with, perhaps, renewed interest in touch O/Ss: “‘Touch-enabled devices are also widely available with decreasing price premiums compared to a year ago'”, there is absolutely no mention, whatsoever, of Microsoft’s Surface 3 hybrid tablet/laptop.

Given Kitagawa’s comments, and Eule’s report on the success of Intel’s project to re-architect its PC CPUs for thinner, lighter, battery-powered devices, omitting mention of the Surface 3 is at least curious, and maybe a lot more.

This writer visited a local BestBuy in the metropolitan New York market recently and spoke directly with floor sales staff about the Surface 3 and the level of customer interest in the product. What he heard was very positive. While he was in the store he noted a lot of floor traffic interest in the Surface pavilion, as well as a lot of effort by sales staff to point prospects to these very thin, but very powerful computing devices.

When these same sales personnel were asked to characterize the type of customer moving to one of the Surface Pro 3 models, there was no mention of Macbook Air converts. Rather the Surface Pro 3 appears to be taking market share from laptops.

Ira Michael Blonder

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

13
May

Now that Facebook Leads in Mobile, Where Does that Leave Google?

According to an article titled Facebook Better-Positioned in Mobile than Google per AppNexus Data, Says Oppenheimer, which was written by Tiernan Ray and published on May 6, 2014 on the Barrons web site, Jason Helfstein, an analyst with Oppenheimer & Co. “reiterates an Outperform rating on share of Facebook (FB) and a ‘Perform’ rating on shares of Google (GOOGL)”.

Mr. Helfstein bases his rating on some data he collected over a “call with ad broker AppNexus”. In my opinion this data is credible (I base my opinion on some points Mark Zuckerberg made during a webcast of Facebook’s latest quarterly earnings conference call. I wrote recently to this blog on these points). But the question of the long term benefit to Facebook of ascending to its new position as mobile advertising front runner, in my opinion, cannot be answered, at least as of yet.

In turn, I do not think it is possible to render an opinion on the question of what the long term impact will be for Google, as a result of this change in market leadership. The analyst community has emphasized the importance for online advertising media to demonstrate an ability to monetize mobile as a separate venue, or locale, for this type of business. But, in my opinion, mobile advertising consumers demonstrate a substantially different behavior pattern than online advertising consumers.

The result of these dissimilar patterns of consumer behavior is some products will benefit from the mobile advertising experience, while others will not. In my opinion the type of product best suited for mobile online advertising media will not bring with it, over the long term, the type of revenue for media players like Facebook and Google, analysts expect.

To put it rather simply, products requiring a considered purchase by consumers won’t play well on mobile devices. So, if Google has been dethroned by Facebook, who really wins and who loses? It is still too early to tell.

Ira Michael Blonder

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