Satya Nadella owns his mistakes – impressive

By | Microsoft | No Comments

From a recent Fast Company article about Satya:

Invited to participate in a Q&A at the Grace Hopper Celebration of Women in Computing, a major annual event, he told the largely female audience that women in the tech industry should forgo asking for raises and instead trust that the system would reward them appropriately. The negative reaction was swift, with attendees quickly tweeting out their pushback.

Nadella realized his mistake, and the next day issued an apology. “I answered that question completely wrong,” he wrote in an email to Microsoft employees. Today, he describes his onstage comments as “a nonsense answer from this privileged guy.”

But Nadella did more than deliver a mea culpa; he explored his own biases—and pushed his executive team to follow suit. “I became more committed to Satya, not less,” says Microsoft chief people officer Kathleen Hogan, the former COO of worldwide sales, whom Nadella promoted into her current role soon after the kerfuffle. “He didn’t blame anybody. He owned it. He came out to the entire company, and he said, ‘We’re going to learn, and we’re going to get a lot smarter.’

That makes me want to join Microsoft to follow him :). Very impressive.

Microsoft buys Nokia’s devices division – where’s the excitement?

By | Microsoft, Mobile | No Comments

The big news in the tech world this morning is that Microsoft has bought Nokia’s devices division for $7.2bn or $7.7bn, depending on who you believe. Either way it is a lot of money and these are two iconic brands that dominated the tech landscape in the 1990s. Sadly both have been in decline since then and both need to do something exciting if they are to revive their fortunes. This deal isn’t it.

Screen Shot 2013-09-03 at 12.52.44

Microsoft’s problem is that they haven’t made the transition to mobile. The chart above shows just how important that miss is, and explains why Microsoft has lost 40% of its value over the the thirteen years that Steve Ballmer has been CEO. A superficial analysis might suggest that buying Nokia, the world’s second largest mobile business in 2012 by share of devices sold, is a great solution, but as I suspect most of you know Nokia’s problem is that they have lost the smartphone battle. The chart below shows just how badly.

Screen Shot 2013-09-03 at 13.08.24


Smartphones are the interesting end of the market, and Microsoft isn’t getting much here. Maybe they can bring life to Nokia’s high end phones, but it isn’t easy to see how. Their main asset in this space, Windows Phone, has been running on Nokia devices for a while without making much of an impression and Microsoft’s history in mobile isn’t strong enough that it’s likely they will come up with a bit of magic that sets the world on fire.

I fear that Microsoft is going the way of HP.

Great to see Microsoft making a success of Skype

By | Exits, Microsoft | One Comment

Many great services whither and die following acquisition and when Microsoft acquired Skype I feared the worst. It turns out I was wrong. Microsoft announced yesterday that we all made 115bn minutes of calls over Skype last quarter, a whopping 50% up on the quarter before.

They also announced an integration with Outlook which sounds pretty cool and that revenues in the division which is largely comprised of Skype were up 20%.

It is great to see Microsoft's $8.5bn acquisition of Skype working out for a number of reasons:

  • Skype is a great consumer service and it will most likely continue to get investment going forward
  • It's good news for the employees of Skype, who are mostly based in Europe, and therefore for the local ecosystem
  • Successful acquisitions beget more acquisitions


A sad rationale for Microsoft’s acquisition of Skype

By | Exits, Microsoft | 5 Comments


By now I’m sure you have seen that earlier this week Microsoft bought Skype for $8.5bn, or 32x trailing EBITDA, a price tag that Business Insider described as “silly on a stand alone basis”.  There must, therefore, be a strong strategic logic, and the best explanation that I have seen is the defensive logic as set out in the article below from the Financial Times:

Trying to justify Microsoft’s $8.5bn price for Skype by increasing growth estimates is impossible without entering stratospherically silly numbers. But what happens if the acquisition is considered a defensive move, rather than an offensive one?

Perhaps Microsoft was thinking only about protecting the current franchise. If Google or Facebook got hold of Skype, they would be closer to building a suite of products that could shake users loose from Office/Windows. To prevent that, Microsoft was prepared to pay an amount that, on traditional metrics, looks insane.

If investors follow this logic and view acquisitions like Skype, or the $6bn purchase of advertising firm aQuantive four years ago, as the price of maintaining Microsoft’s current business, such purchases suddenly look much more attractive. Microsoft exudes free cash: almost three dollars a share of it over the past 12 months, for a remarkable free cash flow yield of 11 per cent. (Which is why value investors like the stock.) And even if Microsoft periodically lays out massive sums to keep the old cash machine running it barely makes a difference. Assume that Microsoft has to make a Skype-sized deal every three years. Take that out of future free cash flow and the stock’s free cash flow yield only drops from 11 per cent to 10 per cent.

This makes much better sense to me than the more offensive rationales I’ve seen (e.g. to boost Windows Phone 7, or to get a presence in video ads), but it doesn’t bode well for the future of Skype as a service.  Atlas, the key product line at aQuantive, hasn’t prospered since the Microsoft acquisition and if the logic for buying Skype is indeed defensive then it is hard to see Microsoft investing adequately to keep Skype at the forefront of its market.

Whatever the logic the deal was a good one for Silverlake and the other investors who bought Skype from eBay last year.  They made a 3.3x return in just eighteen months.

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Google may be getting its mojo back

By | Google, Microsoft | 3 Comments

In private conversations recently I’ve found myself being quite critical of Google’s track record in innovation.  I’ve been saying that their search product is deteriorating and that outside of search the only business line they’ve really got working well is Android, and amazing though the success is even that has seen significant compromise as they allowed carriers to (ab)use the software to push their own services rather than sticking with their original ambition of truly revolutionising the mobile value chain.

Three developments over the last couple of weeks have got me thinking that before long I might have to change my tune:

  • Google belatedly changed their search algorithm to take action against the content farms that have been gumming up our search results – just a few days in the changes look like they are having a meaningful impact, although surprisingly Demand Media seems like it is emerging unscathed.  These changes are only partly based on data from the Personal Blocklist Chrome extension, which is pretty cool in its own right.
  • Chrome is getting a bunch of cool new features that is making it more and more like an OS, including the ability to have apps running in the background (i.e. without a tab open),
  • Google Docs got a boost with viewer support for a bunch of new file types (including Microsoft Excel) and the release of Google Cloud Connect which syncs Windows desktop MS Office files to Google Docs

If these changes live up to their potential in a few months Google could be looking a whole lot smarter.  People might have stopped complaining about the search results and Chrome/Google docs might be looking like a real threat to the Microsoft Windows/Office monopoly.

At that point the complaints will shift back to Google being a monopolist 🙂

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2011 – the year when Google and Apple find themselves with real competition?

By | Apple, Facebook, Google, Microsoft, Mobile, Search | No Comments

More competition for the major web platforms would be a significant boon for startups.  Google’s huge margins make it more expensive and hence difficult for startups to acquire customers and grow and Apple’s restrictive policies for iPhone apps have a similar effect on companies in the mobile arena.  For this reason I’m a keen supporter of Android and of Microsoft’s efforts to make Bing a viable competitor in search.

Given this position you can imagine I was pleased to read the following articles on Techcrunch this morning:

The first headline is self-explanatory – when counting searches on and Bing powered they had a near 30% market share in November, and they are growing fast.  In my book that makes them a true competitor to Google in the US.  Clearly they occupy second place, but at that level of difference in market share they must be getting towards a place where economics and margins shouldn’t be too out of kilter with Google’s.  Microsoft will need to replicate that market share globally though, and my sense is they are further behind outside the US.

The second article I linked to above reports on how the 1m downloads of the Flixster app over the last week were shared between the different mobile platforms (Flixster is a service for movie enthusiasts).  Apple was way out in front with 50% on the iPhone and a further 10% on the iPad, and Android was a clear second with 30%, RIM managed 8% and Windows Phone was sub 1%.  If you follow the mobile space you will be aware of the massive growth that Android enjoyed in 2010 and overtook the iPhone in terms of new connections.  However, Android is available on a lot of lower end handsets, and many carriers have customised Android installs on devices they subsidise to push their own properties both of which combine to make headline OS market share data a bit misleading.  From a third party developer perspective the important question is how the platforms compare in terms of application and web use, and this Flixster data shows us that by this metric Apple still has a considerable lead, but Android is already a very credible second. And, once again, it is growing fast.

More competition will inevitably lead to more innovation and falling prices, which will be good for all of us.

Finally – as an aside it is interesting to note that you need deep pockets to challenge an incumbent platform with a near monopoly position, and that the companies with the resources and appetite to have a go are the monopolists from the previous wave of tech.  Microsoft is using the cash from its OS and office apps monopoly to challenge Google in search and in turn Google is using the cash from its search monopoly to challenge Apple in mobile (and also Microsoft in office apps).

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Google becoming a monopolist? Are they the new Microsoft?

By | Google, Microsoft | 13 Comments

It looks like Google is increasingly favouring its own properties in its search results.  Techcrunch and the Wall Street Journal have both run articles to this effect in the last couple of days citing examples in local search.  It appears that Google is promoting Google Places at the expense of Yelp, Citysearch, TripAdvisor and others.  According to TechEYE Stephen Kaufer, CEO of TripAdvisor said:

since Google had made changes to the way the search engine displayed search results for local business he had lost 10 percent of his online business.

"Google does seem to be chasing us and I do not like it one bit," Kaufer said, adding that he had been in ongoing negotiations with the firm to address the situation.

Google has responded saying that they are focused on delivering the best results for users, but tellingly they ended that response by saying:

If we fail our users, competition is just a click away.

In the UK at least Google is a de facto monopoly and it isn’t true that there is a meaningful alternative which is ‘just a click away’.  Citing competition in this manner is what you’d expect from a monopolist who doesn’t fear competition.  It is no accident that Google is the subject of multiple enquiries about its market dominance and manipulating search results in this way is the most blatant example I’ve seen of Google abusing its market position.

That said, I think this conflict of interest problem has been coming for some time.  The trend in search is very much towards providing information and content direct on the search results page and given Google plays in both content and search it was always likely that they would end up favouring their own properties at some point, particularly given that they are arguably better than the competition.

The risk for Google is that opposition from the competition authorities and the public will rise and will feed off each other leading ultimately to regulation and customer defection.  However dominant and strong Google is today and however good their products are today (and they are good) if people start to use them only because they feel they have no choice resentment will rise and they will become vulnerable to competition.

Right now that competition might come from Bing, but a more likely scenario is that companies like Amazon, Kayak and Facebook will slice off a meaningful percentage of queries for themselves, and they might even be the most valuable set of queries.

I mentioned Microsoft in the title to this post because there are many parallels between where Google is today and the period when Microsoft started selling Office and other apps as well as Windows.  Microsoft started out selling a great OS and then as they moved into desktop apps it made sense to improve their performance by tightly integrating with their OS – that was great for users, but effectively locked out the competition and pretty soon the whole planet was using MS Office.  Google started out selling general search and now as they move into local search it makes sense to integrate it with their general search – that is arguably great for users, but effectively locks out the competition…..

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Profitable streaming services – will movies get there before music?

By | Apple, Google, Microsoft, TV | 12 Comments

Netflix, the US DVD rental cum video streaming business is out cutting $1bn deals with movie studios for streaming rights and Hulu is contemplating an IPO – both developments which suggest the premium video streaming business is starting to reach maturity.  The music streaming business, by contrast, is still finding its way, and is characterised by conflict between the record labels and streaming service providers, none of whom are cutting $1bn deals or preparing to IPO. 

The interesting thing here is that even though the traditional music business model is collapsing the music industry is more loath to embrace streaming than the movie/TV industry, whose legacy model is merely starting to decline (the number of US pay TV subscribers suffered a quarter on quarter decline for the first time ever in Q2 this year – detail here).  Paradoxically, it might be precisely because the music industry is in freefall that its executives are unable to countenance the short term sacrifices that moving to internet distribution might entail.

The FT has a very good piece of analysis on developments in video streaming today which makes a number of noteworthy points:

  • Analysts are divided on whether pay TV has a future [the first time I’ve seen this].  Some argue that Pay-TV’s advantages in live sport and prime time shows like American Idol will sustain it going forward, whilst others argue that “cable will go the way of the landline phone industry.  It is nothing more than an empty pipe which the internet will replace”.  [I’m in the second camp.]
  • HBO plans to launch its own streaming service and won’t make its content available via any other sites.  [I think this is the way forward for large content companies.]
  • Netflix is in the first skirmishes of what could turn into a full-blown bidding war with the cable companies for movie rights.  The Girl with the Dragon Tattoo was available on Netflix before pay TV.  [A bidding war seems likely to me.  Exclusivity drives subs like nothing else (look at the way Sky’s UK business was built on its Premiership football rights) and we may be on the cusp of a general land grab for streaming customers.]
  • To enjoy streamed video services you need a 2MB internet connection to your home.

The other interesting piece of the movie/TV streaming conundrum is the device on which the streams are watched, and if it is to be the TV, how the streams will get from the PC to the TV.  Anecdotally, increasing numbers are watching direct on their laptop screens, and there are a number of companies looking to sell set top boxes and/or technology embedded into TVs which will help bridge the living room – not least Google, Apple and Microsoft.  And, of course, people can simply hook their PC up to the TV, either via cable or wireless.  That’s what we’ve done in our house, and it seems to me like it could turn out to be the simplest solution for many others.

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Convergence at work – Apple and Google square up

By | Apple, Google, Microsoft | 6 Comments

Apple and Google have been edging into each other’s markets for some time now and post Apple’s acquisition of music streaming service Lala and the launch of YouTube’s VEVO service earlier this month they are now firmly head to head.  It won’t be long before an antipathy between the two companies builds – similar to the one they separately have with Microsoft.

According to AppleInsider Google was in talks with Lala before Apple sealed the $85m deal, a purchase which takes Apple into direct competition with music videos streamed from YouTube and now also songs streamed direct from Google’s search results.  The same post also reports rumours that Apple was attempting to acquire Admob before Google picked up the company for $750m last month.

Further, as you may have seen Eric Schmidt resigned from the Apple board back in August.

I guess this is another step in the maturation of the consumer tech industry as the leaders expand into new categories  as they seek to leverage their brands across as many categories as possible.  Apple has pushed from its hardware and software heritage to embrace content and advertising.  Google meanwhile started from an advertising base, added content before moving into mobile software and are now rumoured to be launching a mobile phone (something Marissa Mayer refused to deny at LeWeb earlier this week).

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‘Less than free’ as a business – is it time to be afraid of Google?

By | Google, iPhone, Microsoft, Mobile, Search | 8 Comments

I’m back from holiday today (Majorca, very nice, thank you…) and have been enjoying catching up on reading and looking forward to getting back into the routine of posting every workday.  Perusing my usual sources for inspiration (amongst which Viewsflow is becoming increasingly important) I hit on this wonderful post from Bill Gurley about Google and the ‘Less Than Free’ business model.

Bill’s first point is that this is VERY BAD NEWS for TomTom/Tele Atlas and Nokia/Navteq as Android now includes turn by turn navigation for free based on Google’s data (after they dropped Tele Atlas in October).

His second point, and this is where ‘less than free’ comes in, is that Google will effectively be paying mobile OEMs to use its Android OS by offering them a share of the search ad revenues that come with it.  This presents a tough choice for Apple and RIM who must choose to either not match the competitive offering of free turn by turn navigation or pay royalties to Tele Atlas or Navteq on every device sold, threatening already tight margins.

It is worse news for mobile OS vendors Microsoft and Symbian who will face the same choice but will have few other dimensions on which to compete with Android and lower revenues per handset to soak up the cost of a license to Tele Atlas/Navteq.

Bill’s final point is that Google can make the same ‘less than free’ offer to PC OEMs who might choose to use Chrome instead of Windows or another open source alternative.

All this adds up to a very powerful set of moves from Google and have the potential to significantly increase their stranglehold on the search market – which will be bad news for most of us.  I have been impressed by Microsoft’s latest efforts with Bing, but it is hard to even dream about a search feature set which would compete with the structural competitive advantages that Google is building.

Afterword: naysayers on ‘free’ in general take note.

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