28
Jan

Competitors exhibit a strong desire for some of the recent success of Microsoft’s Office 365

2-Color-Design-Hi-Res-100px-widthOn Wednesday, January 28, 2015, Amazon announced the launch of a new product: Amazon WorkMail. This new offer is targeted to enterprise businesses in need of email and calendar management offered on a subscription basis via a cloud service.

The announced features of Amazon WorkMail position the product as an alternative to Exchange, Microsoft’s backend for Outlook Web App (OWA), one of the core components of the Office 365 application suite. A lot of the editorial comment already published on this product makes additional mention of Google Apps for Business as a target. But Amazon WorkMail operates just fine with Microsoft Outlook as the client interface, something Google Apps for Business does not do.

With Amazon challenging Microsoft on the email and calendar front, and Facebook challenging Microsoft’s Yammer and, arguably, the rest of the collaboration features built into Office 365, it looks safe to say enterprise business consumers have increased their appetite for cloud SaaS productivity suites. Microsoft reported strong growth in the number of subscribers to Office 365 during its Q2 FY 2015 earnings conference call. Three big competitors are now on the playing field looking for some of the same action.

With consumers trending in this direction, the likelihood of competitors addressing product development from the perspective of “competition to be the best” certainly increases. As I have written on numerous occasions in this blog, Dr. Michael Porter argues this strategy is a mistake. I like Dr. Porter’s position. Readers interested in learning more about what he has to say on the topic may want to read a piece written by Joan Magretta back in 2011 for the Harvard Business Review titled Stop Competing to be the Best.

The cost of product development, together with a substantially narrower prospect horizon for multiple players marketing to, in theory, the same prospects (in actuality I would argue no two enterprise organizations are really the same, nor do they often exhibit the same needs), are two warning signs ISVs should take very seriously as they consider jumping into direct, brand to brand competition.

Ira Michael Blonder

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

30
Dec

Don’t put too much stock in Amazon’s list of top selling computers for the 2014 holidays

2-Color-Design-Hi-Res-100px-widthOn the day after Christmas, December 26, 2014, Amazon published a press release titled Amazon Prime Experiences Another Record-Breaking Holiday Season. This press release included a listing of the most popular purchases for the holiday gift-buying season. In the computer category the winner was the Acer C720 Chromebook.

Some writers made a point of this press release. Brooke Crothers wrote a piece for Forbes titled Chromebooks From Acer, Asus, HP Top Holiday Sellers On Amazon.

But a mere 4 days after the publication of this list, on December 30, 2014, the top selling laptop was an Asus running Microsoft Windows.

So what is the significance, if any, of the Amazon statistics? Readers approaching personal computers as pure commodities (I admit to membership in this camp) may want to note the decline in street price represented by these transactions and consider the impact, if any, on adjacent hardware computing form factors (namely tablets). But even by this measure the Amazon statistics can be misleading: the best selling computer device on the Amazon web site on December 30, as of 5:30pm, was the Kindle HD tablet, with a price of $99.00. So, is it, therefore, safe to say the street price for personal computing devices is now firmly established below the $100 mark? Further, does this mean we are looking at a substantially higher volume of devices sold?

I don’t think so. The dollar impact of all of these comparatively inexpensive computing devices is not, in my opinion, likely to mean much of anything good for the bottom line of manufacturers. Commodities are all about big volumes and very low margins. So all of these sales may amount to more of a headache for Asus and its competitors, than anything else.

But what about the impact of the volume of operating system (O/S) licenses associated with these sales? The Amazon press release identifies Google’s Chrome O/S as the winner. So is it safe to say Microsoft took a hit from the season? I don’t think so. Chrome is a cloud O/S. If, for argument’s sake, I buy into the notion Chromebooks were the real best seller for this holiday season, then the impact of choice associated with cloud (and the possibility some of these new Chromebook owners will opt for a personal subscription to Office 365) is a big factor rendering any call too early to tell.

Ira Michael Blonder

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

14
Nov

Any meaningful feature gap between high end and low end smartphones has been obliterated

Consumer markets for smartphones no longer present any gap, whatsoever, between high end and low end entrants as regard high value features. With this gap obliterated, industry players will do well to implement product marketing strategies with a proven effectiveness in pure commodity markets or else risk extinction. This means product marketers should emphasize methods of lowering the cost of manufacture, and secondary markets to prop up revenue expectations while closely scrutinizing new model planning.

Here’s a case in point. We just purchased, outright, an LG Optimus L90 Smartphone from our wireless data provider, T-Mobile. Our total cost to acquire this device amounted to a one-time charge of $99.99. We should also note we maintain 2 Nokia Lumia 925s, which we purchased from T-Mobile at a cost of approximately $600.00, each. We are still paying, monthly, for each of the Lumias and will likely continue to do so for at least another few months.

But with an Android KitKat O/S, and a very extensive set of app options, we can’t find anything we’ve given away by opting to purchase the LG-D415 instead of a new Lumia, or even an iPhone 6. Sure the Lumia and the iPhone 6 offer many more powerful features than our LG Optimus L90, but we have no need for them. In this writer’s opinion, when features reach a usefulness plateau as they have in the smartphone market, consumers have zero incentive to migrate up the ladder to more expensive versions of the same commodity.

Leading manufacturers of smartphones are already exhibiting a set of strategic moves befitting general agreement about the nature of the market as, in late 2014, entirely commodity driven. Accordingly, Apple is talking about producing a gold version of its iPhone 6, which is already available for custom monogramming. This move makes sense for a manufacturer with a leading product whose principal attractiveness is its position as a status symbol for a highly concentrated set of consumers habituated on only buying the leading product in the category.

At the low end manufacturers like Samsung are feeling the pain as competitors with a substantially lower cost of manufacturing, for example, Xiaomi, seize market share. For this segment of the market, app stores look to be an oasis in a profit desert. No wonder Microsoft is racing to win a place on the radar of app developers as its best hope to capitalize on the smartphone market.

Look for further consolidation in this market as manufacturers either drop out, or consumer rivals.

Ira Michael Blonder

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

3
Oct

iPhone 6 and iPhone 6 Plus consumers are not likely to maintain an insatiable appetite for these devices

On Thursday, September 25, 2014, Barrons ran an article by Tiernan Ray. This short piece, Apple: ‘Bendgate’ Irrational, Says Cantor; Apple Comments via CNBC, which was included in Ray’s Tech Trader daily feature amounted to a quote from an analyst at Cantor Fitzgerald, Brian White, along with some comments from Ray.

White’s quote speaks to the current controversy about these new smart phones, and points to what he refers to as an “insatiable appetite” for these devices on the part of Chinese consumers. No product has ever, or, in this writer’s opinion, will ever stimulate insatiable consumer appetite. Anyone with a keen interest in the fortunes of these newest smart phones from Apple should maintain a skeptical stance about the usefulness of any comments like White’s.

If readers are skeptical about the veracity of our take on White’s comment, we simply point to the fate of Apple’s stock in market activity on Thursday, September 25, 2014. The stock dropped over 3% precisely around the set of concerns White calls “irrational”. If these concerns are, in fact, “irrational”, then why the deep dive on Apple’s stock price?

In this writer’s opinion, consumer concerns about these new smart phones are not irrational. As we have published earlier in this blog, and some other people (who we consider to be astute) have also written, the price of these devices will fall out of the range of the “average” smart phone consumer by a substantial amount. So, with the very high end of the consumer market not only targeted for these products, but, even more, already rapidly consuming them, the market reaction is entirely understandable.

Folks shopping at Burberry’s expect perfection. Sure they are willing to pay for it, but, in return, they are the most demanding of consumers. So market dissatisfaction with Apple’s mistakes and, perhaps, PERCEIVED trickery (why would an affluent consumer throw away a perfectly functional iPhone, albeit a previous model, for a slick new entry, which, nevertheless is “bendable”), should be entirely acceptable.

Further, an analyst who looks at market reaction and attempts to DENY its legitimacy is an analyst whose words will likely receive a lot of careful scrutiny.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 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

17
Sep

When Different Words Mean Different Things to Different Writers, Readers Feel the Pain

On Friday, September 12, 2014, the Wall Street Journal featured an article by Peter Thiel on competition and monopolies. The Journal supported the article with a video interview with Thiel about his notion.

In the second paragraph of Thiel’s article he contrasts the financial performance of Google, in the year 2012, to the performance of the entire airline industry: “But in 2012, when the average airfare each way was $178, the airlines made only 37 cents per passenger trip. Compare them to Google, which creates less value but captures far more.” But what does “value” mean, and for whom? Unfortunately Thiel includes neither a definition of “value” nor much of any description, whatsoever, of just how Google “captures far more”.

One may argue Thiel’s failure to support his thesis with these points of detail is trivial. But, in this writer’s opinion, the lack of detail is, thematically, consistent with the rest of the “atmosphere” of this article, and, actually, a very important indicator of some “snake oil in the wine”. So neglecting to include any notion of what “value” means, Thiel proceeds further, and presents the core of his thesis: businesses should make best efforts to achieve monopolies in their industries, and avoid reacting to competitive pressure as much as possible.

Leaving aside, for a moment, the decidedly non free market capitalism at the core of an argument for monopolies, this writer would prefer to focus back on Thiel’s construct of Google vs the airlines as the preferred method of demonstrating, ultimately, a lack of connection between building a business plan to prosper by delivering value to a market, rather than building a business plan to prosper through some other means.

We are choosing to refer to the method Thiel evidently presumes Google implemented to make “100 times the airline industry profit margin that year [2012]” as simply “some other means” for a reason. In this writer’s opinion, there is no other way for a business to prosper than by delivering “value”. Google made a lot more profit than the entire airline industry because customers paid them, proportionately, more money for a product much less costly to develop than the cost of flying a jet plane, with hundreds of people on board, anywhere. They paid more money because they thought they received something more valuable from the product purchased from Google. They would not have paid this price had they thought otherwise.

Further, we would argue, airlines have failed to deliver any more value to customers other than a lowest possible price of a flight at a most convenient time because of market pressure, where consumers have come to expect essentially the same product to be delivered from any number of sources. Flights are, for better or worse, commodities. Back in 2012, click ads on Google were not.

We would recommend readers read Thiel’s article very closely and be wary of semantic stretches.

Ira Michael Blonder

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

18
Aug

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

4
Aug

Microsoft Differentiates Its Azure Offers via Acquisitions

In the aftermath of the public release of Amazon’s most recent quarterly earnings report, analysts have focused on price and margin reductions for its Amazon Web Services (AWS) product line. Microsoft’s Azure is a competitor of Amazon AWS, but, per Microsoft’s most recent quarterly earnings report, Microsoft is adding services to its Azure offers via acquisitions, presumably to better differentiate its cloud, IaaS offers for consumers.

Satya Nadella, CEO, provided word of these acquisitions during the “Quarterly Highlights” section of the earnings report, and within the specific context of a mention of “high value services” for Azure, and an increasing consumer appetite for them: “To support these high value services in Azure I have prioritized acquisitions such as

  • Greenbutton for big compute
  • Capptain for mobile backend services
  • and, Just in the past few weeks, InMage for disaster recovery for hybrid clouds

Earlier this month we published our opinion on the InMage acquisition. We maintain an Office 365 E3 plan subscription and have experienced, first hand, the need for a robust backup system for our data stored in the cloud, one which can be managed by SMBs without recourse to potentially expensive third party service So we think InMage is a positive addition to Microsoft, and, to both of its cloud offers — Azure and Office 365. We do need to note Amazon AWS claims to be compatible with “many popular disaster recovery architectures” (quoted from AWS Disaster Recovery Cloud Services.

From the short message on the front page of its web site, Greenbutton appears to have been designed to work with Azure since the business commenced activities in 2006. So this acquisition is more about folding what was third party business back into Azure than it is about breaking new ground. From the promotional information still available on the Greenbutton web site, it would appear consumers with applications requiring a very rapid transformation into a cloud-ready condition would want their developers to implement the Greenbutton SDK to hasten the process. The promotional information speaks of flexible capacity planning for IaaS resources as another plus for the SDK.

Finally, Capptain looks like at least part of a solution Microsoft needs to offer to its App Developers as it grapples with how to magnetize more interest from them, and add to their ranks at the same time.

Ira Michael Blonder

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

16
Jun

Has Microsoft Rebranded the XBOX Into a Pure Gamer’s Console?

A lot has been written about one short sentence included in a statement made by Phil Spencer, Head of XBOX at the start of the XBOX Global Briefing during E3 Gaming 2014, which was held in Los Angeles. Mr. Spencer set the stage for the balance of the briefing with a simple announcement: ‘Today we are dedicating our entire briefing to games.’

These 9 words have prompted thousands, if not tens of thousands of words in analyst commentary on what they imply, and even signify. Is Microsoft trying to rebrand the device as a pure gamer’s console? What about the home entertainment potential of the product? Why all the emphasis on “shooter games”? Is this a capitulation to the better sales performance Sony has achieved with the Playstation? etc.

But what if Mr. Spencer meant no more than what he said? What if product branding hasn’t changed, but the communications opportunity presented by the Global Briefing was better served with an absolute focus on one of the benefits of the device — its capabilities as a gaming console? Further, wouldn’t this focus be entirely appropriate given the venue, meaning the E3 Gaming 2014 event?

I think this last set of assumptions makes the most sense, and, further, is just another example of how Microsoft has fine tuned its marketing communications and public relations since Satya Nadella took over as CEO. The XBOX One is still a very full featured home entertainment control center, and Microsoft is likely to use appropriate opportunities to highlight these capabilities for the market. But electronic games are a very big market in and of themselves. If nothing else, all of the commentary published in the aftermath of Mr. Spencer’s presentation and the video tour of new games may help boost sales of the XBOX One.

Even better, if the intention is to disrupt a market, which is, I believe, Microsoft’s plan to open opportunities for its hardware devices (for the tablet, smart phone, home gaming console, and home entertainment center markets) then provoking a bit of controversy certainly can’t hurt. If nothing else, everyone seems to have heard the same consistent message. Clarity never hurt anyone.

Ira Michael Blonder

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

18
Dec

Curious Case of Christmas 2013 Hot, But Sold Out Consumer Tech Products

Three smart consumer electronic devices released for the 2013 Holiday Shopping Season attracted very favorable reviews. Sony manufactures the PlayStation 4. Microsoft manufactures the remaining 2:

  • XBox One
  • and the Surface 2

But all 3 of these devices were sold out for most of this Christmas season. As of my last check, back on December 6, 2013 all 3 were apparently sold out everywhere.

Note: last weekend, on December 15, 2013, My local BestBuy had inventory of the XBox One.

Another note worth considering: I spoke with the Microsoft Online Store crew back on December 6, 2013. They told me the Surface 2 would be back in stock on December 14, 2013. To the best of my knowledge this new inventory never showed up. Once again, my trip to BestBuy on December 15, 2013 produced an availability date in mid January 2014 for the Surface 2.

AMD manufactures the 64 bit Jaguar CPUs and the Radeon graphics GPUs powering both the PlayStation 4 and the XBox One. The huge demand for both of these devices may translate into some good news on the actual volume of units AMD will be able to sell, for the first year, into this market.

The actual profitability of these sales is a point of discussion among AMD analysts. Nevertheless, the Q3’13 AMD CFO Commentary includes the following point worth considering: “Graphics and Visual Solutions (GVS) segment revenue was $671 million, up 110% compared to the prior quarter, driven by our semi-custom business.

  • GVS segment revenue was up 110% sequentially due to Sony and Microsoft next generation products”

Tegra CPUs power the Surface RT (Tegra 3) and the Surface 2 (Tegra 4) Microsoft tablets. NVidia manufactures these CPUs. Recent positive press reception of the Surface 2 product, together with generally favorable early consumer reviews, may fuel more demand for the Surface 2 tablet than analysts have estimated. Of course, if this proves to be true, then NVidia’s shipment volume for Tegra 4 chips may exceed analyst estimates.

But I also need to note comments made during NVidia’s latest quarterly earnings report, where management disclosed tighter margins for the Tegra chips. So greater volume should not be construed, necessarily, as an indicator of greater profitability. Nevertheless, the chip should attract added interest from other OEMs, as a result of the explosive market interest in the Surface 2. There is still room for competitive tablets and other touch screen driven computing devices in this consumer market.

Ira Michael Blonder

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