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  • June 14, 2016
  • indexMicrosoft’s acquisition of LinkedIn for more than $26 billion raised a lot of eyebrows for good reason. True, the acquired company is valuable and generating revenue but like most of the social networking space, it is far from healthy and one wonders if Microsoft could have gotten a better deal.

    According to a colleague at the Enterprise Irregulars, Ross Mayfield, Ellen Levy reported that the deal can boast a number of superlatives if you look at it right, among them,

    • The largest sale of a consumer Internet company in history;
    • The largest sale of an enterprise software/cloud company in history;
    • The third largest sale of a technology company since 2001; and
    • The largest acquisition ever made by Microsoft.

    With those attributes you might expect that LinkedIn is in a really hot sector and everybody wants to get it at any price. It looks like a regular feeding frenzy. Well, hold on big guy, here are some other numbers to consider.

    Facebook announced revenue in Q1 2016 at $5.2 billion and profit of $1.51 billion tripling its year over year comparison according to a BBC News article that you can read here. Good for them.

    But now consider Twitter, which according to CNN Money has lost a cool $2 billion since 2011. I wonder if this can be construed as an illegal campaign contribution to The Donald. At any rate, Twitter has never turned a profit. Yikes!

    Then there’s LinkedIn. According to a Reuters article from February 4 of this year that you can find here, “LinkedIn Corp forecast first-quarter revenue and profit below Wall Street estimates as growth slows in its ads business and its hiring services face pressure outside North America, dragging its shares down 28 percent after the bell.”

    The article goes on to say that, “Online ad revenue growth slowed to 20 percent in the fourth quarter from 56 percent a year earlier as automated ads offered by Alphabet Inc’s Google make its traditional ad displays less attractive to advertisers.” Finally there was this, “Its revenue forecast of about $820 million also missed analysts’ expectations of $866.9 million by a wide margin.”

    Suddenly it looks like social media has become a winner take all market accentuated by Metcalf’s Law which states that the value of a network is directly proportional to the number of nodes i.e. users in this case. Why use anything but the biggest network unless it’s specialized as LinkedIn is because of its sales and HR focus.

    This is happening despite the high acceptance of social media in everyday life, just ask The Donald. Social has rapidly become the thing everybody loves to use and no one wants to pay for. The advertising business model that most companies rely on doesn’t help.

    Advertising has its limitations. There is a huge pool of money available for online ads but huge is not infinite. Just as there is lots of music available, people only want to pay for hits. If you combine Metcalf’s Law, which tends to limit the number of viable networks in this space and add in the reality of the fickle consumer you have an instant recipe for a declining market, which is what we see.

    Don’t worry, social media is too important to go away. It’s so important that it has commoditized its market into a virtual singularity. That’s the bad news too. The social market looks like it can support 2 styles; say Facebook’s and Twitter’s. There might be additional vendors in the space for a long time especially if larger companies buy them and they function as loss leaders. That’s ultimately the vision I see for any social company not named Twitter or Facebook.

    Published: 6 years ago


    thMicrosoft announced the intent to buy LinkedIn for $196 per share today or more than $26 billion. It’s a huge deal and a great payday for the social networking company specializing in making it easier for business people to connect. But why do this deal and why now? This calls for a lot of speculation but perhaps we can make some sense of it.

    Like other major software companies including Oracle and Salesforce, Microsoft sees itself as an essential platform for enterprises at all levels. The more functionality it can provide to its users, the easier it will be to keep them at home rather than roaming the Internet looking for something new. In addition, the availability of a familiar face such as LinkedIn has great appeal for many customers.

    But also, we may be witnessing the consolidation of the social networking space. Brands like LinkedIn, Twitter, and Facebook, and others such as Plaxo and MySpace, all got started around the same time—about ten years ago. Since then each has found a niche and many rely on an advertising model for revenue and growth.

    Those models are limited by network constraints, however. Each might be flexible and have great people working there but as Metcalf’s Law stipulates, the value of a network is directly proportional to the number of nodes on it. In our case nodes can be thought of as people and while we might all have Twitter and Facebook accounts, the number that also have a third network is smaller for the simple reason we can only track so much.

    So the advertising potential of networks is similarly limited. There is a large revenue pie for ads on social networks but it isn’t infinite and as is often the case, the early participants like Google continue to capture the lion’s share of revenues. In such a situation, if LinkedIn can be relieved from the need to generate so much ad revenue growth by simply becoming a valuable addition to the overall Microsoft value proposition, so much the better. The situation is similar with other vendors that offer social and collaboration functions as part of their value propositions, like Salesforce and Oracle.

    All this is to say that the age of social media is likely entering a mature phase. We can see which ones will be able to have a stand-alone future and which ones won’t. This doesn’t mean social networks and social media are becoming passé—just the opposite. They’ve become so valuable that they are becoming commodities and it’s hard for commodities to reap soaring profit growth (that’s why they’re commodities).

    So, good for Microsoft and LinkedIn, I think they are better together and their association seems to signal an inflection point in social networking. The strike price of $196 per share is significantly below last year’s peak of nearly $260 but also significantly above Friday’s close of $131.08, just about right in the middle. Is everybody happy?

     

     

    Published: 6 years ago


    A billion dollars isn’t what it used to be but it’s still substantial. You might wonder, as I did, what else in the world might be worth $16 billion the sum Facebook will pay (unless it pays $19 billion) for WhatsApp.  As it turns out there are lots of things and people in the $16 billion range.  Here are some examples.

     

    Len Blavatnik, a self-made man with diversified holdings is #44 in Forbes list of richest people in the world.

     

    Michael Dell, founder of Dell Computer, is #25 in Forbes’ American list.

     

    According to the UN, GDP rankings the Republic of Georgia has a GDP of $15,830 billion.

     

    The 2014 winter Olympics cost Russia a reported $50 billion.  But the 2018 event in Pyeonchang, South Korea has an infrastructure budget of only $7 billion, assuming a 100% overrun we’re in the neighborhood.

     

    The latest US Aircraft carrier, the USS Gerald R. Ford, is the first in a new class of carriers also called the Ford class, aka the floating Fort Knox.  It was christened last year and had a cost of $13 billion, not including things like planes and ammo.  Ford-class carriers will begin replacing the 40 year-old Nimitz-class carriers and we can expect a $16 billion carrier any time now.

     

    F-35 joint strike fighter jet.  Projected cost of $391.2 billion for a fleet of 2,443.  That’s a current projection of $160.13 million per.  Seems light to me.

     

    US federal budget, $2.9 trillion with a deficit of $901 billion, now that’s big.

     

    Forget all that, I decided to do what’s fastest and easiest.  I simply Googled $16 billion to see what would pop up.  Naturally, WhatsApp and Facebook were everywhere, but if you get deep into the search pile interesting things begin to emerge.  Here are headlines and links.

    What does $16 billion buy?More Than $16 Billion in Taxpayer Money Wasted Annually on Animal Testing

    http://www.peta.org/features/16-billion-taxpayer-money-wasted-annually-animal-testing/#ixzz2ttVjpunz

     

    Bolivia Earns $16 Billion from Energy Industry Since Nationalization (in 2006)

    http://www.laht.com/article.asp?ArticleId=767997&CategoryId=14919

     

    FY 2013 – $16 billion to assist recovery from Hurricane Sandy. ($15.18 billion after sequester)

    http://portal.hud.gov/hudportal/HUD?src=/program_offices/comm_planning/communitydevelopment/programs/drsi

     

    Exxon reports record profit of nearly $16 billion

    July 26, 2012

    http://money.cnn.com/2012/07/26/news/companies/exxon-profit/

     

    American Psychological Association

    The use of psychotropic drugs by adult Americans increased 22 percent from 2001 to 2010, with one in five adults now taking at least one psychotropic medication, according to industry data. In 2010, Americans spent more than $16 billion on antipsychotics, $11 billion on antidepressants and $7 billion for drugs to treat attention-deficit hyperactivity disorder (ADHD).

    https://www.apa.org/monitor/2012/06/prescribing.aspx

     

    Suntory buying spirits maker Beam in a $16 billion deal

    http://www.wdrb.com/story/24431843/suntory-buying-spirits-maker-beam-in-a-16-billion-deal

    A lot of bourbon

     

    Unclaimed Money: $16 Billion in Unredeemed U.S. Treasury Bonds. Could Some Be Yours?

    June 15, 2011

    http://abcnews.go.com/Business/unclaimed-money-16-billion-unredeemed-treasury-bonds/story?id=13841871

     

    JP Morgan: $7 Billion in Fines, $16 Billion in Legal Costs

    August 8th, 2013

    http://www.ritholtz.com/blog/2013/08/jp-morgan-6-9-billion-in-fines-unknown-billions-in-legal-costs/

    Ouch!

     

    China announces $16 billion Beijing anti-pollution plan

    http://www.globalpost.com/dispatch/news/regions/asia-pacific/130329/china-announces-16-billion-beijing-anti-pollution-plan

    Who are they kidding?

     

    Cost of Excessive Drinking in Texas: $16 Billion

    “In Texas, the yearly cost of binge drinking is estimated at $16 billion, which includes expenses related to health care, criminal justice and lost work.”

     

    http://www.publicnewsservice.org/2014-01-13/health-issues/cost-of-excessive-drinking-in-texas-16-billion/a36818-1#sthash.raPGV1Le.dpuf

     

    Shop til you drop: India’s e-shoppers spent $16 billion in 2013

    http://www.techinasia.com/india-ecommerce-market-spending-16-billion-dollars-in-2013/

    Let’s see that’s about $16 per.  Think of the upside.

     

    So there’s lots that $16 billion can buy.  I don’t know why there’s such an uproar over a ten year-old software company buying a four year-old software company.

    Published: 9 years ago


    I went to Oracle OpenWorld as a guest of Oracle and came away with a variety of observations that I can share.  Some of what I saw was under NDA and that will remain undisclosed though I have to tell you that I did not see any labs or next generation products beyond what my colleagues saw at the show.  My secret experiences revolved around customer stories.  I also went to an America’s Cup qualifying race as a guest and had a great time on San Francisco Bay.  The only reason that matters is in case you think I’m cutting Oracle some slack.  I won’t do that but I will say that I was treated well all week, thanks to the efforts of Susie Penner, who runs the influencers program and does a bang-up job, and others.

    Some of my colleagues were grumbling, and perhaps have done so in print, that they didn’t get enough time with executives — or any at all in many cases (me included) — and that their experience was diminished by the lack of a good séance.  I can only observe that with 50,000 or so customers and press in town your executives can only be spread so thin.  More importantly, I have always found that when I call up I can speak with the person I need to find plus or minus some obeisance to the gods of Wall Street and the public company’s quiet period.  My take on meeting with executives is to make a call when I need information and not to expect so much from a conference like this.  To that point we had a good meeting with executives and product managers in May when Oracle held an analyst day.

    I must also say though that the company makes an unnecessary distinction (my humble belief) between an analyst and an influencer.  Analysts seem to get greater access and are sequestered from the influencers in part because they work for brick and mortar analyst firms while people like me who are analysts, bloggers and occasionally journalists, get lumped into a separate but equal program.  But, as I say, I can always pick up the phone.

    As a CRM guy, the show was a bit light on information and the impression I have is that Oracle is only two or three years into a transformation that starts at hardware and moves steadily up its stack to applications.  The hardware announcements at OpenWorld were superb and I can see a bright future for all of computingdom (a new technical term to be sure and evidence of continuing innovation in Silicon Valley) with Oracle’s devices.  But I have been saying this for three years.

    Each year the Exa-hardware line (Exadata, Exalogic, Exalytics) gets more robust. This year the company finally aimed Exa-hardware squarely at cloud computing to claim a spot as a serious infrastructure supplier.  It also announced a new version of the database (Oracle 12c) for its public/private/hybrid cloud strategy to complete the picture.  I am not much of a fan of private clouds because they seem oxymoronic, like jumbo shrimp as Steve Martin used to say.  But for many, the idea of a private cloud is what will finally get them to cloud computing and sooner or later true cloud computing will break out as hybrids die a natural death.  But also, I see great gains for sustainable computing with these announcements and with them lower operating costs for users.

    The private cloud, seen for what it is, is a transition state.  Neither fish nor reptile, it is an amphibian capable of adjusting to multiple surroundings and it will be the parent of something better adapted to an energetically more stringent environment.  This is the greatest differentiator between Oracle and all of its much further progressed competitors in the cloud in my opinion.

    Oracle has hundreds of thousands of customers and most of the biggest companies in the world use its products.  It will not turn on a dime and it will need to support its customers and their older products for many years as they transition to cloud computing.  So, Oracle’s strategy cannot be the same as a pure SaaS player and I believe the two should not be directly compared without caveat.  In fact, I think Oracle’s next big innovation will not be hardware or software related.  It will focus on the high-wire act of changing its business model to subscriptions while encouraging its customers to do the same all while running full tilt into the future — just what you’d expect from a company headed by a yachtsman captivated by speed.

    I was not impressed by the front office applications and they fell into three buckets – new product acquisitions, existing products i.e. those bought in 2005 and Fusion.  The products that Oracle bought last year are all up and running as they were when they were purchased but they are only lightly integrated, I think.  The glue that is supposed to hold them together was hardly in evidence.  I am talking about Fusion.  Whatever Fusion is going to be is still in the future as far as I can see and I can’t say much more than that because I didn’t get to see much.  The older applications are quite literally getting older and the race is on between them and the new acquisitions to see if the new apps can spin up quickly enough.  Fusion is a very important of that dance.

    On the other hand the company has adopted RightNow’s customer experience or CX mantra completely and did a reasonably good job of introducing its customers to those social ideas.  Unfortunately for me — and many of my colleagues who have been swimming in the social soup for many years now — Oracle’s CX Summit was aimed at its legion of neophyte customers.  There’s nothing wrong with that.  It accurately shows where everything and everyone is relative to social. But the net effect of it all is that we didn’t see behind the curtain and didn’t get a glimpse of what’s ahead in social for Oracle.

    We did hear about the importance of social networking and collaborating and how Oracle Social Network (OSN) fills a void etc., etc.  But I have profound doubts.  I consider social as a recently blank canvass, which has been filled by things like Twitter, Facebook, LinkedIn and, yes, Chatter.  In each case, creative types tried to paint it with transcendence and visions of what can be.  Then consider OSN, a plow horse of a name that says “we checked off another box,” and you get an inkling of where Oracle is in its social rollout.

    On applications, my net impression is that Oracle has not yet generated a lot of thought leadership.  There are times when thought leadership is not as valuable but we are at a crossroads and the signs point to cloud, social, mobile and all of the above.  The Oracle messaging was long on “here are the facts about our new products” but relatively short on the part that says “and here’s why that’s important to you in today’s economy/market place/world” pick one.  Oracle wants to be the go-to technology business partner but to achieve that goal in a new generation they need to throw some fastballs down the middle of the plate.  Every year I see progress and maybe next year they’ll get the thought leadership.  It will be vitally important as the company moves not just into the cloud but more and more into the subscription economy and expects its huge customer base to follow suit.

    Published: 10 years ago


    There is a very good article in the current issue of Vanity Fair (with Alec Baldwin on the cover) about Microsoft.  In “How Microsoft Lost Its Mojo” Kurt Eichenwald recounts the failures and bad decisions of the company’s “lost decade” a time overseen by current CEO Steve Ballmer.

    If you are in this business you can probably recall at least some of the major inflection points related to missed opportunities and in-fighting that cost the company its market leading position.  I thought it was just me, but Eichenwald even compared Microsoft to Detroit auto makers and their past glory.  For good measure he ends with a long quote from Steve Jobs’ biography about the difference between having a sales or ops guy running the show and having a product guy in charge.  Sad.  Worth reading.

    According to the article, Microsoft’s stock has barely budged over the last ten years while other tech companies flew by — Google, Facebook and of course Apple.  In one recent quarter iPhone alone made more money than all of Microsoft.

    The article quotes Ballmer saying he wants to remain at Microsoft till 2018 but I don’t think the company can wait that long.  The article also implies that Ballmer might be a smart pick to break the company up and to take the legacy products into the sunset while more product oriented people try to salvage the core of innovation, if it still exists.

    Fun fact:  According to Wikipedia, “Ballmer was the second person after Roberto Goizueta to become a billionaire in U.S. dollars based on stock options received as an employee of a corporation in which he was neither a founder nor a relative of a founder.”

    Ten years of stagnation can’t be sitting well with Wall Street.  What will it take to orchestrate a palace coup?

    Published: 10 years ago