bizzXceleration: Performance, Value and Profit

Now that we've pointed to Pulitzer's wrestling with the impact of major new technologies, that nobody had ever seen before, and finding new value creation goals and delivery mechanisms the next question is, what would Joe do? We're not going to answer that right off the bat but instead build up to it a bit and lay some groundwork by exploring how various old and new media, and the associated members of the ecology, are wrestling with the most fundamental questions. Looking back it's not clear how long it took for Joe to find, develop and implement his innovations but it wasn't over-night either. On the other hand everybody else mimicked him and the models he developed were adopted around the world AND sustained the Industry until the last few years.

In fact while Radio and Television were, in their own rights, major innovations they were only locally disruptive. That is they displaced players and patterns but did NOT cause the entire ecology to be jump-shifted. Perhaps that's the source of the complacency but much of what's going on today was foreshadowed by work done at IBM in 1994-1996 when they came up with the whole e-Business schtick. In fact somewhere in my garage is the file of proposed new businesses that look a lot like everything you see around you! The catches are that IBM was, as usual, way to early and the rest of the world ignored the warning signs until the last 18 months or so. And is now scrambling to play catch up. The graphic is a composite of a vidclip the WaPo did at the WSJ's All Things D conference which has turned into one of the single best places to find out what's going on, what the players are thinking and doing and, especially in this context, how they are or are not adapting to the pressures for change.

Continue reading "What Would Joe Do? Re-thinking Content in the New World" »

Posted by dblwyo at 04:42 PM | Permalink | Comments (0)

We're in an environment where the critical factor will be finding sustainable sources of value, value that can be differentiated and turned into profitable business models, and where the keys are strategy, execution and management. And we will be in that environment for at least the next decade. A change from the last three decades where a rising economy plus financial engineering floated all boats. Among the many changes that are disrupting the old world and creating new normals is the rise of technology-enabled new media, what we've called the Technomediatainment Industry, the evolution of which we chronicled in this white paper:Technomediatainment Futures: Evolution, Barriers, Structure and Opportunities of a New Industry . A few posts ago we started another pass by taking a very deep dive on Cisco (Mobility, the 4As, and Cisco: an Anti-sclerotic Exemplar?) and how their entire business strategy is dependent on that evolution, the rise of the 4A Anywhere, Anytime, Anyplace, Any Device ecology.

Yet we can look back well over a 100 years to Joseph Pulitzer and his creation of a new media empire as the benchmark for how technology and media companies will have to adopt and adapt to this ecology. The fulcrum of his efforts was the widespread emergence of two disruptive technologies that changed the fundamental structure of the world's economy, more than at any time in human history, and more (relatively speaking) than now. Those technologies? The railroad and the telegraph. But the lever that created the world's first media empire was value - he focused on delivering news the way the new audiences wanted to see it, written in ways that were appealing and that gave value for money. Pulitzer's innovations defined and shaped how we view media ever since and offer us lessons for resilience that are still relevant today. This recent Newshour interview of a recent biographer is a clear summary of the man's ideas and impacts and is, IOHO, well worth the time of anybody concerned about the outlook for these industries.

Continue reading "Pulitzer's Legacy: Value, Disruption & Delivery in Technomedia" »

Posted by dblwyo at 08:16 AM | Permalink | Comments (0)

Well we've been working our way down yet another track on business performance in the "New Normal" from general environmental conditions (here, here and here) to & toward general assessments (here and last post), and interweaving it with specifics, this time on the Tech Industry and Finance (general, GS as bad example).(BtW - Matt Taibbi has a follow-up takedown on GS where he channels Barry Ritholz of Big Picture using his own very unique voice that lines up with our assessment almost exactly in terms of substance, if not tone:Taibbi: “The Best 18 Months of Grifting This Country Has Ever Seen”). Over the last few years it's fair to say that almost all businesses failed to monitor the environment, walked into the downturn blind, got sideswiped by the crisis, reacted rather poorly and are still frozen. We've just had several conversations off and on over the last few weeks with other folks who're seeing the same things on a widespread basis. But there are exceptions and it seemed like a good idea to address while also creating a Tech pair to match our Finance Industry/Firm examples. Plus it's been a while since we took a really deep dive on a particular firm so we're going to address all that by looking at Cisco.

Mobility, the 4A's and Cisco's Strategic Environment

With all that in mind it may seem a little strange to start (above) with a clip pointing to NBC's Olympics coverage home page but there's a method to our madness triggered by a recent TechTicker on how upset everyone was with their coverage (NBC's Olympics Coverage Infuriates Sports Fans From Coast To Coast). Now we gave up TV years ago and see everything online and the one thing we still missed was some sports but especially the Olympics and it turns out if you actually navigate your way over there there's plenty of stories, photos and slideshows. And, lo and behold, an immense inventory of online video clips, full event coverage and live streaming broadcasts. And it's all pretty well done. Which made someone who's resurrected their career by hoping on the new media outlet using that venue to harshly criticize NBC for tape-delays disingenuous at best and appallingly ignorant at worst. We'll admit NBC has a long ways to go to better market and integrate their new stuff, cross-leverage with the old and make money but they've done a find job. In fact we've lost way too much time, including being able to watch the entirety of the complete opening ceremonies online. Which makes NBC on the bleeding edge of the 4A's - Anywhere, Anytime, Anything, Any Device. It is this brave new world that Cisco sees as being a major driver of the Tech world going forward (as does IBM, HPQ, Dell, Intal, TI, etc. etc.). The real question is who's got it right, who can develop the right capabilities and who can deliver? Now those are really interesting indeed. And to attack them and understand what making the 4A's real you need to know a bit about how all the pieces play, or not as the case more often is.

Continue reading "Mobility, the 4As, and Cisco: an Anti-sclerotic Exemplar?" »

Posted by dblwyo at 01:38 PM | Permalink | Comments (0)

Now that all the last several months of business performance analysis has been pulled together into a baseline it's time to apply it. At the same time we will also be continuing our last post on Technology by beginning a three-part series taking apart the future of the Technomediatainment Content sector. We probably all still have that meme buried deeply inside us, at least I do, that views Technology as different from other industries; or at least the the B2C portions and especially the Web 2.0 social media. In fact Technology in general (Computers, Telecom and Information Systems) are in fact mature and saturated as much as Steel or Textiles were. Worse the brave new world of content is suffering from similar problems but it's less visible because of the hype surrounding the "new media" and the death of the old. In this post we're going to focus on old media, news in particular, and apply our toolkit to dissecting it. The lessons and findings are interesting for their own sake but also for what they say about the rest of the performance outlook for the Industry as a whole. In a way you'll be surprised....but Social Media is failing the checklist of our performance blueprint as badly as any of the Dotcom startups and for the same reasons. We'll back that assertion up in future posts but for now let's focus on the News !

Changes and Changes: the Industry Value Chain

The common wisdom is that what's killing the news industry is the Internet, which is certainly a major contributing factor. In actual point of fact what's killing it is a combination of two things: a failure to adapt to the structural changes in the industry triggered by the Internet and bad management practices. That's almost redundant but not quite. To understand how this has played out and will play out let's start with the value chain of the industry for content creation as it was. In a later post we'll talk about the "to-be" value chain. Interestingly enough one can adapt a traditional supply- / value-chain model to understand how the media business did function, and still does to a great extent. Ultimate value is determined by delivering content to consumers when, where and how they want it. Under the old technology and infrastructure constraints the choices were narrowly determined - TV for media, airwaves for radio and hardcopy for newspapers and magazines. Each of these target markets was reached by one or more distributors - in the case of movies it might be the local independent theater or a chain of theaters from someone like Viacom. Like CPG and Retail the real power players were the "manufacturers" who decided what to make, provide the financing and the infrastructure and built the teams to make it. Those teams were "talent", writers (think designers in other industries), producers (the team-builders, strategist and marketers) and service providers (food caterers, electricians, newsprint mfg. and so on). NB: when you look at it like this is actually more than bitterly amusing that an industry who's OEM manufacturers built their industry on flexible, ad-hoc workforces have failed to adopt. Now with that discussion we're going to temporarily leave you with a take-home test - how has the value chain evolved with changes in the technology infrastructure ? Or hasn't as the case might be ?

Key Questions for Management

We said that the central failure was largely one of executive failure. It's not like the internet is a surprise. It's been coming and visible since 1995 and clearly an existential threat to the industry since at least 2000. So what did management do - or more specifically what questions should they address ? And what did they address ? Well in our approach some general ones - like what's your core value ? And the strategies and business models that go with it ? How are you reaching your market - right market analysis, right messages, right sale approach satisfactory service ? How about creation and delivery ? In this case what "manufacturing" plant did you have ? How about the labor force ? What innovation and product development was in place ? Finally the management system question - what decisions should we take and do they serve our strategic goals ? Are the right resources (people, money, technology) adequate for reaching those goals, profitably ?

Management's Answers 

Now if we consider the answers that appear to have emerged out of all the media industries, both historically and relatively recently, things get interesting indeed. On the most fundamental questions media organizations create content that people are willing to pay for because it adds value to their lives. Specifically for news organizations that value lies in gathering disparate source of data together, vetting and validating it, then organizing, analyzing and presenting it. In other words the central value proposition was the collection and structuring of information. If you shift toward considering the Go-to-Market (G2M) questions they refine themselves to what content for what audiences in what form. And at what price ? Which circles back to business model question - so far nobody's come up with anything better than some combination of subscriptions and advertising. There's a very extensive collection of readings that looks at trends and status and provides specific examples of the Boston Globe, the NYT, Portfolio and Newsweek. Both the Globe and the Times made the unfortunate error of running their papers for their own internal agenda instead of where their target demographics saw and see value. Portfolio, which started with great fanfare, lots of funding and had friends of mine working for it, was a glossy "new age" but old-line magazine which treated the internet as an after-thought. Newsweek just put out it's completely re-thought new self- my and the general reaction appears to be ho, hum. In fact it looks and reads like the old Newsweek with a slightly new cover. Not the complete re-engineering of value delivery required. Basically, as you'll see in several of the readings, the entire news industry - and media in general - couldn't give up what it was, struggled in denial for over a decade and still can't imagine a new self. Stop me when that sounds like Steel, Textiles or Autos. Talk about being trapped in the box ! NB: it also sounds like what's happening to the Finance Industry as we speak, accompanied by pitchforks, torches and public defenestrations.

Answers They Should Have Provided

We're not experts in the media industry but it's amazing about how being user of a service combined with a structured and disciplined way of thinking about things can take you pretty far in generating comments, critiques and strategic alternatives. It's long past time for new thinking yet we're not seeing much. In the readings you'll find other extended sections of struggles with old and new business models as well as a real inventory of experiments. As a business-as-usual case one of the major causes of BK for many of the old-line papers has been the Private Equity investors who came up and loaded them with debt ! What were they thinking ? That's not the kind of thinking that is going to get them out of this mess. Nor is it clear that the experiments are much more than that. The graphic throws out some of our passes at re-thinkings (Fair Disclosure: while I've not been in the news business per se I have been involved in the Internet since 1995 in one form or another). Just take one major consideration - it seems to us that the key new value proposition is to a) collect local news from any source and present it in a readily accessible way on any channel, to b) go beyond the imaginative limits of the old information structure and start leveraging the new technologies to create databases of highly structured news, videos, graphics (think Wikipedia if you think we're making this up) and c) to develop new revenue generation models as well as charging what the real costs of information is. There's lots more thrown against the wall in the graphic - none of which we've seen or are aware of being demonstrated by any player.

A Closing: Representative Samples

A year ago Jeff Zucker, CEO of NBC, had an hour-long interview on Charlie Rose where he was quite eloquent about exactly these challenges. And we mean in detail with our assessments, by and large. At the time and still we applauded him for facing up to the facts as they are and admitting how open-ended, challenging and dangerous they are. Facing brutal realties is one of the first requirements for effective adaptation and innovation. What we didn't hear, and still don't see, is much if any, really new thinking indicating that Jeff and his team are re-thinking the business from the ground up. In partial contrast a few weeks ago the Managing Editor of the Financial Times - Lionel Barber, also had an hour-long interview, though he covered more ground than just media futures. His central rubric is that news is expensive so no more blanket free on-line access, ala the WSJ. Well, that's a step in the right direction but, as a occasional FT perursor, we have yet to see sufficient value differentiation that would make us pay for access. On the other hand we are a paid subscriber to both the WSJ and the Economist. Unfortunately the reason we subscribed to the Journal is succumbing to the NYT's old disease of hidden bias starting to disort the reporting, not just the OpEd page. On the other hand the Economist creates immense value with every issue in our humble opinion by provide widespread coverage, amazing and intelligent writing, deep insight and a careful but clear analytic take on each story. All without letting it's strong position distort it's reporting. Now the question is can the rest of the media industry develop those same skills at adding value or not ?

UPDATES:

1. There's a set of two very long comments that extend these ideas with points of clarification, debate and alternatives that you should read. They are, IMHO, almost worthy of seperate posts in their own right so please read them.

2. This morning's NYT brings us a strategic assessment of Newsweek's remake last week that nicely encapsulates both our assessment and the problem with the industry in general that's at the heart of our argument.

Newsweek’s Journalism of Fourth and LongThere is a hermetic feel to the reconception of the magazine that can make reading it seem like small ball, a retreat from mass ambitions to a smaller, more rarefied civic niche. If Newsweek is becoming a magazine of reasoned political argument, it may end up overwhelmed in the clutter of more partisan, more ferocious blogs and Web sites, along with magazines like The Weekly Standard and The New Republic, small publications that lose money while occasionally playing big for their size.If you were to come up with a route to commercial salvation, it probably would not include making a nonpartisan political magazine. Owned by The Washington Post and home to history-making journalism over the course of its existence, Newsweek is not simply going to slip beneath the waves. But the fight for its future probably doesn’t have much to do with bolder headline treatments and more white space in the print artifact. The big talents and ambitious journalists that remain at Newsweek should probably spend less time reimagining the magazine and more time imagining a future when the physical product does not exist.

But this NOT just about the self-inflicted suicide of the hardcopy media - more generally it's about the need to re-imagine and re-conceptualize the value proposition and it's execution of all media. Even more generally it is a lesson for all businesses facing challenges of re-thinking in trying times at which most would appear to be failing. So, please, consider this as a case study in innovative failure and the inability to be appropriately resilient and adaptable.

Continue reading "Technomedia Content Wars II: News Industry Futures (Updated 2)" »

Posted by dblwyo at 02:59 PM | Permalink | Comments (2)

As we work our way thru the business, finance and policy news, and wrap it in our interpretations and frameworks - hopefully to make more sense of it - two central questions keep taking center stage. First - how are businesses and their leaders reacting - are they adaptive and resilient or are they standing around flat-footed and shell-shocked ? So far the answer is more of the latter than the former. Second, how are they positioning themselves for the future - do they understand that there are multiple firestorms ripping thru the economy, even society, and their industries and are they prepared and preparing to deal with the consequences ? Again the answers we can see aren't encouraging. While we've been working thru Finance as a whole and sector by sector as the exemplar of all this they aren not an isolated, single case. Every industry faces these changes and pressures. We could, for example, dive into the next obvious example as GM and Chrysler teeter on the the edge of bankruptcy and every major worldwide player is threatened. But we're going to dive into an investigation of the strategic outlook for the Tech Industry by asking those two questions of it. The answers are no more pretty than for anyone else.

Tech vs the Downturn

Let's start with this busy little composite chart which, by presenting multiple data on multiple timeframes, is meant to tell an integrated story of where we're at, been and will be in economic and industry terms. The top shows the relationship between GDP, Industrial Production and Capex. IndProd has fallen off a cliff which tells us that Capex has a long way to go down. Not surprising given that it's a leading indicator. The LL corner contains two charts that break down these indicators so you can see Capex and it's two components (Equipment/SW and Commercial Real Estate - Structures). This downturn is worse than anything we've seen, not surprisingly, and much worse than the Tech Bust with a long way to go judging from these charts. In the LR corner we take a more granular breakdown and you can see how severe things are. Now imagine how much worse things are going to get.

Industry Responses and Pressures

In the prior post on Tech (Tech Industry Refresh I (News): Boxes to Software to Phones - OUCH !) we reviewed the current news and status of the Industry and used our "stack" pictures to help sort and filter things as well as provide an interpretive framework. After the section in the readings where ALL the various analysts groups are finally catching up with economic realities the next section presents a cumulative set of readings that look at various components and how they are performing and reacting. The graphic is another (commercial) depiction and expansion of the stack that shows us how industry solutions build on network and computing platforms to deliver business-driven solutions, if they do. No one buys Technology for the pure fun of it, or at least they shouldn't. In actual point of fact too many technologists fall in love with "bright shiny things". Which is a major part of the continuing gap between value required and value delivered. The other major part is the lack of business involvement and responsibility. Tech folk can pretty much build anything you want but to get it, and get it right, you have to invest the time, effort and energy in deciding on goals & strategies, requirements and working to drive those into the actual design and construction of solutions. Which isn't, and hasn't been, happening - there are no clean hands here.

The Continuing Performance Shortfall - the Business/IT Gap Lives

 For that gap to be filled and value-created solutions to be created four things have to happen. Clear strategies have to be developed on the Business and IT sides of the house. And business operating execution and realities have to be reflected in the detail design and development of IT products and solutions. Now as it happens the controversy that erupted a couple of years ago over whether or not IT was a commodity is directly related to these problems. The bottom part of the stack, where the IT community are the business experts, has become a commodity because the existing requirements are satisfied and more. The top 1/3 of the stack, where the two communities have to come together is NOT a commodity. Anything but. As the example of the list of usual suspects (WMT, Fedex, Tesco, Zara, et.al.) continue to show us IT investment driven by a deep understanding of business requirements offers a sustainable competitive advantage. Especially if the organization leans to be continuously innovative. Oddly enough we first addressed these cultural breakdowns almost exactly a year ago (WRFest 16Mar08(Tech): DLS's, Two Cultures and the Breakdown) along with the associated consequences for commoditization (WRFest 30Mar08(Tech Industry): Commodization, Consolidation, Consequences).

Requirements vs Functionalities: Consequences of Maturity

In that latter post we introduced a concept that's at the heart of all this, in the Tech and other industries, as a matter of fact. That's the question of whether or not a particular solution meets, is less than or exceeds customer requirements. Stop for a minute and ask yourself whether or not you computer and your software fits into one of those categories. For example we run on WinXP which is robust and reliable (though we confess to dearly missing OS2 for it's multi-tasking, industrial strength robustness and overall reliability. Think of it as mainframe in a box). And we use Office2K software because those versions of Word, Excel and Powerpoint not only do all we need done but exceed our requirements by about 80%. Our suspicion is that you are no different. Now think about the implications - though each tech company and sector would need to be individually dissected. Consider Oracle for example. Databases are commodities so competition reduces to a couple of major players (IBM and ORCL plus some small-scale open source and MSFT's offerings). On the other hand they've never managed to create much breakthru thinking or value on their applications. So without innovation you end up with effective maturity because solutions to customers needs aren't forthcoming. That results in industry consolidation, default maturity and saturation, a lack of new sales and them "coasting" on their legacy installs and collecting maintenance fees as their key strategy. Yet because new sales are lagging badly the legacy is eroding and customers are looking for alternatives. We think you can apply these tools to every company (and have the ambition to do so at some point but....).

MSFT as Exemplar: the Value-Gap

Not to pick on another favorite whipping child but let's consider MSFT. Not just because everybody loves to do that but because they also represent a lot of the problems with the Industry in general. And just to put a point on it after years of mega-buck investment in Longhorn we got the sterilized VISTA OS which represents the removal of about 3/4 of the previously announced new features and was slow, under-integrated and didn't work on most platforms. So much so that there was a concerted effort that was partially successful to retain on-going support for WinXP. Then we were presented with a set of deceptive marketing programs and mis-leading public positioning when in fact MSFT executives knew that Vista was broken. Which is all implicitly admitted by their announcement of Win7 ! The graphic is extracted from their last set of major annual analyst presentations and is their strategic vision. The top sub-chart id's the mega-trends that are supposedly changing the market. While they're all true do any of them speak to solutions - or just the bottom of the stack ? The middle chart id's the four major sectors they're choosing to pursue. Commercial software - where's the beef ? Without the mad cow infections ? Open source is dismissed with faint praise of course. Advertising and Commercial Electronics - these are areas where MS's culture, skill set, market position, etc. etc. will provide breakthrus in value delivery ? And are big enough soon enough to move the earnings dials ? We don't think so. We're looking at a company trapped into "mining" it's legacy reserves, just like an oil company over-pumping a declining field.

We don't mean to pick on MSFT in particular, though we certainly savor the opportunity of course, but ask our standard enterprise questions: what is the "Theory of the Case" ? That is in the immediate future, the short- and long-terms and structurally for each line of business and product family what are your capabilities, strategic intent and resources ? Can you make the case for credible value delivery ? That question should be being asked and analyzed for each company and sector IOHO ! On the whole we're arent' seeing the kind of re-thinking and renewal from the Technology Sector, the supposed home of innovation and adaptive resilience, that we see from Mickey D's or WMT etc. Though in fairness IBM appears to have found ways to maintain it's reserves in the commodity spaces though not finding new ones while Apple is the main counter-argument. (WRFest 27Apr08(Tech Ind): Innovators, Survivors & Also-rans,Tech Industry:APPL vs MSFT vs YHOO Wars ).

In the readings section we end with a pretty complete inventory of prior postings that provide other readings, tools and frameworks and interpretations that reinforce many of these points. You may want to consult them as appropriate.

Continue reading "Tech Industry Refresh II: From Downturn to Re-structure to Re-engineer ?" »

Posted by dblwyo at 12:12 PM | Permalink | Comments (0)

Now that we're slowly catching up with the business news let's shift our attention to a refresh of the Tech Industry news, which has been unrelievedly bad these last several months ! NB: this may seem like a jump-shift from huge scale disruption and company-scale WMT studies but there is a direct link, even though we step sideways. At it's core Tech is about product development, both new and improving existing. Large-scale and small-scale innovation should be at the heart of what it does; case in point being MSFT's failures to create any new major business lines or products other than bey near brute force. And not at a profit or positive ROI ! Which is the second link - if product development is a core enterprise competence, akin to manufacturing for the auto companies or store operations and distribution for retailers, then all the devilish details we waded thru for WMT apply here as well. For example Sprint's customer service has been abysmal and customers are leaving in droves. Dell despite noble efforts to re-invent itself first fired a warning shot when it sacrified it's own service to short-term cost control. Operational execution really matters, it's where the rubber meets the road, and strategies remain fantasies unless they are coupled to capabilities.

We last visited the Techs in Jul/Aug (Tech Trends II (Analysis): What're the Drivers and Outlooks) and warned that as the business cycle turned over eventually so would capex; and that would take Tech profits, earnings and stocks with it. The chart shows the NDX/QQQQs on the left, which is down about -45% almost to the day. Much of that with the credit crisis implosion but nonetheless.... A couple of friends recently took us to task for not translating our assessment more strongly into investment recommendations. If you look at the 2X leveraged ETFs the inverse was up almost 125% from Aug to Nov08. That's opportunity ! But nonetheless indeed...the real economic pressures didn't hit and really hurt until the end of the year and accelerating into this. In other words our prescience was luck and our warnings then are just now showing up in the daylight - so be re-warned !!! The consequences show up in the readings which survey a collection of tech stories running back aways from chips and boxes to middleware to application software to telecom equipment to telco services. And include Intel, Lenovo, Dell, HPQ, MSFT, IBM, Sony, Cisco, ALU, NOK, MOT, Nortel, L3, Sprint and ATT. Nobody's not in serious trouble with storied names cutting costs and laying off thousands and others headed for the big house, BK that is ! In this post we wanted to rollup, wrapup and explain the news by sorting it into categories. We'll try to follow this with a complementary post de-constructing the strategic and structural changes that are taking place hidden by all this "normal" bad cycle sturm und drang.

Re-Visiting the Tech Stack

Repeating an earlier graphic on the Tech stack that explains how chips make boxes, adding operating systems and middleware makes platforms and adding applications and interfaces makes solutions. The graphic also illustrates the evolutionary challenges the industry continues to face. We won't tell you how old this particular illustration is but trust us it's got some legs on it. The problem is that the problems that needed to be overcome back then are still unsolved today. The industry does extremely well on it's home turf, where geek talks to geek. That would be the bottom of the stack (chips, boxes, middleware). On the top of the stack (applications and services) they're still be-deviled by the two-culture communications gap between users needs and tech delivery. The net results is that those companies on the bottom may keep adding functionality but they exceed customer's wants and needs. That's a recipe for becoming a commodity where competition reduces to execution capability. On the top after over-promising and under-delivering during the '90s and seeing no major new uptake in applications in a decade the "take them to the cleaners model" for aging application maintenance business model is pretty aged itself.

Telecom Stack Re-view

The next graphic is the "future" of the Telecom industry, the emerging Technomediatainment mega-industry. The problem is that the equipment manufacturers and telco service providers still make their money on the old businesses, for one thing. For another the new industry has it's own challenges which we'll go into in another follow-on posting. But briefly, and this is important, the content everywhere revolution requires two things. Cheap and infinite bandwidth combined with applications and content that are truly valued and valuable. On the first everybody's having troubles and on the second the first initial hype surge for Web2.0 and social media appears to be running out of steam. OOPS and DOUBLE OOPS ! Meanwhile demand for both wirelines and mobile support has dropped like a rock, even before the downturn got really going. The net result is that equipment providers and Telco's are taking it in the neck. They desperately need the "New Media" thing to work out and right now are just struggling to survive.  When MOT and Nortel head for bankruptcy and ALU is in the ditch you know things will never be the same. Even mighty Cisco, the sole remaining stander in the entire industry with the exception of Huiwei, is hurting big time. You think them declaring war on HPQ, IBM, et.al. is an accident ? It's a symptom of no place to go on their home turf. And, likely to the worst strategic mistake in their entire history. CSCO's a great company but hasn't shown any special magic ala Apple these last ten years. What makes them think they can run IBM's ROLM purchase and ATT (gen -5) in reverse ? Trouble ahead. Like their friends in the traditional Tech space (think about that as a label for the industry of the future !) these guys are competing in a commodity space at the bottom of the stack. And are utterly dependent on being save, again a similar situation, by innovation and value-creation at the top.

As you skim thru these readings we'd ask you to do three things that are critical to evaluating the situation for each company:

1) Place them in the stack in your mind; that tells you what the external opportunities and pressures are.

2) Understand on that basis how they'll be effected by a sustained and worldwide economic downturn where capex is likely to keep shrinking for a long time.

3) Ask are they prepared with operational capabilities and core competencies that will enable them to survive and then positions themselves for the future. HPQ and INTC may be, jury's out on Dell, MSFT has failed for a decade, none of the telco equipment folks have made any headway for longer except Cisco, the Telcos themselves are strugging with yet another perfect storm. And so on and so on.

Last Jul/Aug when I shared my appreciation of the situation with all my tech buddies they basically ignored me as not knowing what I was talking about. Even as late as Nov. a very sr. exec with a major tech analyst firm basically blew me off. The time to see these things is when there coming not after they're hear. And that is another tsunami wave building up offshore IOHO !

Continue reading "Tech Industry Refresh I (News): Boxes to Software to Phones - OUCH !" »

Posted by dblwyo at 11:34 AM | Permalink | Comments (0)

Let's pick up where we left off with dissecting the outlook for Technology, having started with the computer industry per se, segued into a deep dissection of the environmental pressures and side-tripped into economic data, it's probably time. We're going to try and weave three major strands together because the reinforce one another. First, what're the trends in the Telemediatainment Industry, how does Dell's surprising performance illuminate that and what's the future of content. You might recall our mantra is Economy - Industry - Company. In other words don't fight the tide because you'll drown. Or put differently Dell's results are more about a growing worldwide downturn than they are about them. On the other hand once you're caught in a riptide you'd better be a good swimmer. There are some great wars going on right under our noses that'll create challenges and opportunities in all these areas.

Telecom Stack and Industry Trends 

You might recall this graphic which shows how the Telemediatainment Industry is structured from the networks that provide the bandwidth for distribution to the applications, services and content that create and deliver value to the end users and their growing myriads of alternative end-point devices. After the break you'll find the readings excerpts organized roughly along these lines. Here are a few observations to go with.

1. Networks - the traditional phone business is dying but the replacement, wireless, is saturated in this country and Europe so the "future" likes in finding new applications/services to drive higher usage. The iPhone was a revolutionary cusp point trigger and no everybody's going gang busters after smart mobile devices, from INTC to MSFT to HPQ to ATT. You name it they're chasing it. At the same time you still need some sort of pipe into the home and the fatter the better. The cable guys were winning 'cause they had lots of spare pipe but it turns out it doesn't scale. Which indicts this whole argument and makes the operating companies new infrastructure investments brilliant, courageous and risky. Ivan Seidenberg may be the next hero.

2. Mobility - as the result of all this everybody is going after the next big platform - MID or Mobile Intelligent Device. This is literally a center piece in the annual strategy presentations of all the companies named. It's also why Apple's 3G announcement coupled with the open software platform for applications is so game-changing. Even mighty IBM has announced a major packaged solution to after large-scale mobility opportunities; though in their case they're bundling stuff they've been building at in services engagements. In any case welcome to the brave new world.

3. Content Wars - at the end of the day consumers and businesses will judge value not by bright shiny things but what you've done for them lately. In other words by the entertainment or business value of the applications, content and information. They theory being that ubiquitous and cheap bandwidth would make any content deliverable anywhere/anytime/anyhow...the 4A's. Which if true completely turns over the entire business model of the traditional media. And one which they're struggling to proceed with. And haven't figure out as yet.

Dell's Results and Implications

At the end of the day the relative performance of any of these players will depend on developing the right strategy, the right operating capabilities and delivering results thru superb execution. Earlier we took a very deep dive into Dell and argued that a major re-engineering was well started there and the early indicators were promising. We stand by those conclusions and think, in fact, that yesterday's earnings results bear them out in a way. But it also illustrates the power of the mantra. At the time we suggested Dell was a target to keep on the front-burner, not a purchase, because the economic and industry situations said otherwise. We stand by that argument as well and consider yesterday's results - when you dig into them - to bear it out. AND, most importantly, serve as a model for the kind of investigation that one needs to do into any of these players. Powerpoints are one thing, delivery is another. When you do dig in you'll find that many of their product, market and geographic initiatives resulted in outstanding growth, absolutely and relatively. They got hurt on gross margins and operating margins. The latter especially because they have quite a ways to go in re-factoring their operations. But they appear to know that and are moving "smartly ahead". Which is not what the press coverage or analyst comments would have you believe. In effect Dell is investing in market share, this time on a sounder strategic footing with more aligned products and services, and taking the penalties to buydown future gains. They call that value-investing don't they ?

Magic Answers and Zuckervision

One executive who admits he doesn't know the answers but is running a tight ship while investing in explorations of the alternatives if Jeff Zucker of NBCU, which just had a great real-time lab test with the Olympics. As well as their on-going experiments with HULU in conjunction with FOX. There are two Charlie Rose interviews that we recommend as the best candid discussions of the issues and challenges facing the industry and what they're doing about it. These are a bunch of smart guys who have taken the first, in some ways biggest and hardest step. They've recognized that change is required AND they're doing something about. That includes Zucker, Peter Cherin at FOX and Bob Iger at Disney - who helped kick start this whole thing with his early commitment to iTunes for movies. We forget how revolutionary iTunes was for music and how big a leap going from music to video was and is. But unlike the old-line industries of movies, newspapers & magazines and music these guys are out there doing all the right things to find out what works, test many alternatives and invest in the experiments. This is as big a structural change for them as the creation of their media was when it was born. Most of the traditionalists are loosing or have lost. We think these guys will figure it out but you decide for yourselves.

Jeff Zucker on Charlie Rose

Peter Chernin on Charlie Rose  

Continue reading "Tech Trends III: Dell Earnings to Bandwidth to Content Wars" »

Posted by dblwyo at 01:41 PM | Permalink | Comments (0)

Consider this a direct continuation of the prior post on Technology since there was too much ground to cover in one post, even one of mine. :). Which also provides a great opportunity to debunk the received wisdom for today - obviously the markets took off and the only possible explanation was, of course, the surprise jump in durable goods orders. Let's parse that out a little because it sets the table for so much else that we need to dissect. First off on the markets - judging from sector ETFs the real news was Finance (XLF +1.9%), Homebuilders (XHB +3.7% !!) and Energy (XLE, 1.6%). Now if capital spending were the thing that'd be some different sectors. In reverse order you've got a hurricane - likely temporary, fantasies about a surge in mortgage applications and the fact that Fannie fired three top execs today. Sometime likely in the middle of the day when the markets surged "for no observable catalyst" before falling back at the end of the day. And bear in mind Finance is still 21% of the SPX and Energy about 10%. There you have it folks - unsinn as usual.

So moving away from nonsense what we'd like to do is trace thru the outlook for Technology spending by asking what's the outlook for capital spending, under which it falls. Bear in mind the prior discussion about the severe earnings jeapordy we see coming from the disappearnce of currency conversions on foreign revenues as well as falling international demand. And the fact that the markets seem to be getting nervous, i.e. aware of, that little fly in the ointment. So that boils the question down to what's investment going to look like ? And in parallel how's that going to impact demand in each of the major Tech sub-industries, in line with our "Dumbbell Ecology" discussion about who plays at what level of the layers and in which markets (yes, I'm afraid this may mean reviewing the prior post:Tech Trends I (Readings): Big Picture to Key Players).

Durable Goods and the Tech Outlook

So what did the DG numbers tell us this time ? Well take a gander at the accompanying chart. YoY% changes in new orders for durables, capital goods ex-aircraft and industrial production, montly to Jan04 and quarterly to Jan99. Which should clearly establish it's a business cycle related data series, that they three of them move together with the cycle and, recently, some interesting things have happened. IndProd is headed down - so much for domestic industrial activity and therefore future domestic cap spending. Reflected in a flattish Durable orders curve. Notice that capital goods have jumped short-term, though not noticeably in the longer timeframe. Can you spell exports and oil equipment ? We thought so and think that pretty well explains things. If you'd like a more detailed breakdown a superb one is on EconomicPic Data:Durable Goods - July.Well worth your time.

IBM as Earnings Exemplar

 After the break we continue this line of inquiry by diving deeper into investment in the business cycle big picture, looking specifically at Software & Equipment and then look at stock price performance for some bellweather tech companies. But we want to conclude with a dissection of IBM's last earning report just to close the loop on the currency conversion and foreign revenue issues. You've got to give IBM enormous credit for the clarity and honesty of their materials - this lays things out so explicitly we can analyze and comment on it. And that's not true in many cases. Since we can, we did. And take a look at the major comments. And then think about the fact that almost every other Tech company is exposed to the same pressures and risks. In other words what we have to seay about IBM applies to everybody else as well !!

Continue reading "Tech Trends II (Analysis): What're the Drivers and Outlooks" »

Posted by dblwyo at 07:34 PM | Permalink | Comments (0)

Oddly enough the logical next step from international economic news is considering how that might impact business, specifically big technology businesses. The linkages are threefold - a slowing US economy further slowed by feedback from slowing foreign economies will lead to lower capital spending, which we've talked about. That's a little in-direct though. There are two direct impacts to consider. First, all the big tech companies have been claiming that major portions of their growth comes from abroad. That means there's a direct link that will see foreign sales start to come under pressure in the next periods. Not something that's being factored in by executives, investors or the markets so far, as best we can judge. Second - all those foreign earnings have enjoyed huge currency conversion benefits. If foreign earnings went up 13% half of that was currency. Now even if the dollar just flattens out or drops back to the level it was at the free ride is over. In other words you might be looking at a 50% drop in foreign earnings, which might be 35-50% of total earnings, for many of the big tech players. And that's without any real economic impacts.

Well there's something funny beginning to happen in the Tech Markets that popped up last week and got reinforced a bit this week. In case you didn't notice the NDX didn't drop relatively as far as the SPX, by a longshot, climbed rapidly back and has been relatively immune to the gyrations of the more traditional businesses and their stocks. All on the thesis that earnings would hold up. We think the market's beginning to notice because there's several days recently where the tech indices have in fact gone down while the oldline indices have not. Most of which you can see on this chart of the NDX, if you believe it's a decent tech proxy. Thought notice that the XLK ETF which mirrored it for so long is considerably below recently. Telling us that the big names are holding up while the industry is starting to hurt, perhaps ?

We'd like you to keep that in mind as we swerve to the other side of the Tech road and talk about the "inside baseball" issues which impact all of that nasty stuff like how much you actually sell and how much money you make off it. After the break you'll find two collections of readings. The first on "big picture" industry issues and the second on news on specific players. The former sets the stage for the latter in many cases once you translate what you're reading into guidelines for evaluating it. Which, hopefully and perhaps the Industry Dumbbell will help with.

What it tries to show is how well tech industry customer's requirements are satsified where those requirements are defined by the stack picture we've put up before that layers them together. Starting with the box (chips, OS, etc.) at the bottom, with middleware like databases, integration and development tools, etc. next, followed by applications and then the interface on top. For very small businesses often something like a spreadsheet, a contact manager and a word processor plus QuikBooks solves their entire problem and runs easily on a bunch of PCs. For very large businesses things are orders of magnitude more difficult, complex and expensive. But strangely enough their needs are satisfied by huge servers, say mainframes from IBM, ginormous database programs from Oracle or IBM, huge suites of ERP and other software and so on. The poor schmoos in the middle have hard, complex problems but the stuff at either end doesn't scale very well, either up or down. And none of the attempts to work around those problems have worked out very well. In particular below you'll find:

1. The whole Software as a Service, i.e. hosting it on a server ala the old-style time-sharing services, doesn't work well when you actually try to solve real business problems and get multiple different packages to work together. Which creates huge barriers for such folks as Salesforce or GOOG's attemps, even when it's liteweight apps. And also explains why SAP backed off their mySAP efforts years ago. 

2. Meanwhile the big software packages turn out not to solve every problem (the gap between what's claimed, what's delivered and what businesses needs could fill up several textbooks - in fact it does but never mind for now). And in those niches you're finding a lot of small companies busy trying to make some money. And oddly, they're using a lot of very good programming talent from India, Russia, Eastern Europe and so on. Hm....

3. Meanwhile the mid-size Tech departments who are the most under-served. Someday somebody will crack that code and make a lot of money.

4. At the same time when Intel and the rest ran into speed limits on single-core chips they created something with multiple-cores. Unfortunately they forgot to tell the software people how to write for the new architectures so your fancy new "Intel Inside" isn't much faster than your old box. Hint, hint. On the other hand the big server guys have been solving these problems for decades. Gee, what happens if the big-server guys figure out how to scale their boxes down to go after the medium-sized companies that the PC-farms can't handle very well.

Looks to me as if every layer of the Dumbell is up for grabs over the next few years. Wonder what that does for earnings ? As you read thru the excerpts we suggest you keep both sets of factors in mind - the external economic ones and the internal technical ones. Both are telling us that some wild rides may just be getting started.

Continue reading "Tech Trends I (Readings): Big Picture to Key Players" »

Posted by dblwyo at 11:05 AM | Permalink | Comments (0)

Continuing on the theme of slowing capital spending combined with increased pressure on foreign economies we turn our attention to the Tech Sector. And with the NDX down 1.4% so far today on the heels of Apple's surprise this might be even more timely than anticipated - purely accidentally of course. Which nonetheless reinforces the point that, at the end of the day, the state of the economy and general business matter even for a superb innovator like Apple. If this keeps up consider this an early fore-shadowing of a future buying opportunity.

Just to put a point on it consider the accompany multi-company chart graphic, which shows pairwise comparisons of key tech bellweathers. The top contrasts the NDX with CSCO where Chamber's honesty and directness has led to a more serious decline in Cisco's stock than many techs so far. Meanwhile the new and the old (AAPL, IBM) show two companies that have held up very well but highlight key concerns with consumer spending domestically, the likely downturn in capex and the issue of foreign demand. Which leads one to the next pair of GOOG and MSFT both of which blindsided with lower than expected performance. The final pair is also a new and old contrast in the software business showing Salesforce.com vs SAP. Both of which holding up well. Lots and lots of issues hiding there as well that get to the heart of the Tech outlook. Besides the general the key question there is how will spending on softward hold up as the economic malaise grows and extends worldwide ? One might suspect future surprises in store - unless of course the thesis that software spending saves money in a downturn holds it up. Not a thesis btw that's historically well-grounded. Which leads us back to yesterday's international economic outlook summary (Economy (Int'l): Re-coupling Redux and Deterioration Accelerations).

How all these conflicting forces play out is illustrated after the break with another set of worthwhile readings excerpts, starting with Cisco but then comparing and contrasting INTC vs AMD. There you get an almost perfect contrast between innovative strategic transformation PLUS superb execution and scale verses self-inflicted foot-shooting. But the real poster child for bad execution is Sprint which continues to suffer tremendously from terrible customer service problems.

The other interesting pair of excerpts is on the transformative nature of Apple's recent iPhone announcements which change it from a very smart customer gadget to a new computing platform. A fundamental game-changer that's not being widely recognized as yet but calls for strategic re-positioning on the part of all the players involved. Jim Jubak is one of the few widely read commentators who gets it and his discussion of GOOG vs NOK vs AAPL highlights some interesting aspects. And creates a list of future buying candidates that you need to table for evaluation.

The final excerpt discusses Kleiner's strategic shift to green tech investing and away from its' traditional base - which could serve as the exemplar for the paradigm shift emerging in the VC community and is worth thinking about. 

Continue reading "Readfest(Tech Indstry): Playing it Again, Same...oops Sam" »

Posted by dblwyo at 11:18 AM | Permalink | Comments (0)

Now that we've got all this machinery listed, cataloged and presented it might be time to apply a bit of it so that's what we propose to do with the Tech Industry news from the last few weeks. A lot of that's either gadgets, related to Telecom or the Yahoo Wars...all of which we'll come to in separate posts. Here we'll focus on a couple of things in the classic mainstream of the industry - where the primary big news that caught our eye in the last few weeks is HPQ's acquisition of EDS. Before we comment on that per se this is our time to talk about the industry in general.

When you look at the analysts consensus forecasts for Q4 it's the Tech industry they expect to save the day. Earlier this year the bottom-up estimates were 20% for Tech and 29% for Telecom. It'll be interesting to see how/when/where/if these other industries follow the financial guys who've been madly revising downward. There are two sets of problems you need to think about. First there are some major breakages in the logic regarding economic fundamentals. Second there are further breakages with regard to the analyst's methodologies.

But let's start with a chart on the NDX and, pardon the experimentation, it's a "Point and Figure" chart which may be as new to you as us but does offer up some interesting perspectives. A column of X's indicates a day where the price rose a pre-set amount and O's the converse - start a new column when certain limits are exceeded. The result is almost a pure price trend chart though dates are indicated by numeric/letter entries where 1=Jan...Oct=A and so on. And this one you really do need to click thru on. The chart on the left is a daily chart that runs back ~ Oct peaks while that on the right is a weekly chart that runs back to '06. Interestingly the shorter-term chart didn't quite break the uptrend this last week - the innate sentiment in favor of Tech is therefore intact. Yet on the longer-term chart there is a significant downtrend and the software suggests a bearish target of 1760 ! But that's only a 9% drop from here. 

The Fundamental arguments that have floated around are that spending will still occur on Big Tech because it helps companies save money. Got some bad news for folks - I've made those decisions and sold to those who day and that is not the way they think. When things tighten up they cut capital budgets and live with what they've got. So here are the four exposures on fundamentals: 1) a slowing economy which is likely to tip over will lead to a downturn in capex with the normal lag; i.e. Tech spending will be pressured and the signs are already in the surveys. 2) For some players the "consumer shift card" has been played,e.g. Apple and iPod/iTunes. Please - consumer spending is going to be the first and is already headed for the basement. 3) Foreign sales are the next shibboleth - based on currency conversions and de-coupling. Well as a matter of fact many of the majors have shifte large chucks of business into the int'l economy - a major structural shift in fact. But it's still not their dominant businesses and they've enjoyed a revenue runup mostly based on currency effects not jumps in unit sales. 4) On top of which it turns out that not only is de-coupling mythological but the BRICs et.al. are experiencing their own unique set of problems in addition to slowing growth; e.g. Europe. C'est la vie for that arguments set - does the earnings estimate hold up ? Do you think it'll be "just" a 9-10% if it doesn't ? 

The key to re-thinking earnings is coupling economic fundamentals with company performance analysis - which is where the analyst community should come in but, with some notable exceptions, generally doesn't. Earlier (Readings (Earnings): The Real Earnings Realities that Ain't...YET) we'd gone thru a long, careful and documented dissection of some of the characteristic flaws of analyst work that might be worth reviewing. Aside from the fact they are often wrong they also tend to lag the realities and all too often their work is biased because it's based on management prognostications. Which in turn are all too often looking backward to the last quarter instead of the readily discernible general trends that should govern business outlooks. In other words executives are telling folks how it is and was - not reading the tea leaves about how the currents are running. Which was, at the end of the day our whole point with the "Dashboard" series. 

Which leads us to this next chart which is a little more traditional and uses ETF's as proxies for various Tech sectors starting with the common index of IXN - Global Technology stocks which turns out to track the NDX almost exactly. On the top are IXN, IGV - Software and IGW-Semiconductors. The bottom is more Telecom oriented with IGN-Telecom Equipment, WMH-wireless provides and mfg., FDN - Internet players (GOOD, Yahoo, et.al.) and TTH - telecom service providers. On the whole everybody has enjoyed the benefits of the bear market bounce AND the tech mythologies, particularly software which'll power thru any possible downturn of course. This whole discussion reminds us of nothing so much as the discussions circa '05 about how the homebuilders were safe this cycle 'cause they'd been careful to maintain the health of their balance sheets and not over-invested in land. Think about the metaphor there for a bit...please !

If our economic outlook has any validity to it the estimates of Tech earnings are wildly overdone due to a lack of sensible business analysis coupled with grounded economic fundamentals. Potentially an textbook case in why our mantra makes sense. Which then leads us to the pick good companies who'll do well as survivors in any downturn and prepare yourself to pick them up as/when/if we go thru a significant adjustment. Which in turn leads to the HPQ/EDS news. Which was a real puzzler to a lot. There are two key questions, perhaps three here. First can Hurd apply his strategy-based execution improvement magic to EDS which sorely needs it having kept tripping over it's own feet for years. Two - out of necessity EDS targets the big companies for advanced and complicated services - is there enough HP business there to grow a well-running EDS's revenue ? Or, converesly, can EDS bring in HP behind it on it's client base ? HP has a large enterprise component but that's not been its' primary emphasis so this represents a real strategic addition, if not a shift. And, I guess, third, EDS has done very poorly at building an international presence and capacility unlike IBM, in particular, or Accenture. If that can be developed and leverged there some real potentials. In any case HP is both an extremely well-run company which also has a very thoughtful and considered strategy by line of business. IOHO they go on any value oriented investors shopping list, post downturn of course. 

After the break, in addition to some excerpts, you'll find pointers to some recent vidclips on CNBC with some analysts who actually reinforce much of what we're arguing for here. Worth your time. Bon Appetit'. 

Continue reading "Technology Industry: HPQ/EDS, PCs and Prospects" »

Posted by dblwyo at 05:42 PM | Permalink | Comments (0)

Two industries where we've ended up taking particularly deep dives are Technology and what we're calling Technomediatainment - the emerging composite of Telecom, New Media, Entertainment and Consumer Electronics. After the break you'll find the usual summary tables with all the previous posts in these areas separated into those categories.

The two industries are interesting for their own sakes, as exemplars of the approach we take to business analysis and for the implications and impacts on the broader markets and economy. The first two Tech posts focused on the market situation and pointed out with slowing Capex spending (thereby linking back to our "understand the context" theme of coupling to economic analysis) that the unusual performance of the Tech indices was unlikely to continue. An argument which seemed to  first be born out from Oct to Mar and then wrong as the NDX/Nasdaq bubbled up over the SP500. Notice however that, literally today, the NDX is now moving in concert with or lower than the S&P. Interesting, eh what ? That question will be settled by whether or not earnings hold up unusually well - something we don't think will happen as the Economy continues to tip over but which is likely to lag other indicators.

Exactly how the Tech & Techno enterprises perform will result from the confluence of changes in industry structure, the emergence of new products, services and solutions and the performance of individual companies. All of which is discussed in more detail in these prior posts by some of which can be briefly reviewed here.

Technology

1. Industry Structure - Technology per se is essentially a commodity, at least on the bottom part of the stack. On the top part, the applications/content/solutions portion, there's still lots of room for value creation. The former assertion leads to the wave of consolidation we've been seeing among the platform providers and middleware vendors. The latter on-going challenge leads to the struggles of the application vendors as well as the emergence of SaaS, e.g. Salesforce, to try and fill in that gap. The biggest untapped opportunity is to provide reasonably sophisticated business applications to the grossly under-served mid-market.

2. New Frontiers - the  Application Space. The interesting thing is the continuing challenge on the part of vendors, customers/users, analysts and service providers still wrestling with the multi-decade old "two cultures" problem where Tech guys like bright shiny things and resent adult supervision. Contrawise business guys just want it to work but aren't willing to invest the hard...hard work in learning enough about Tech - at least in terms of end-use - to provide the guidance, participation and supervision required. That btw also means that those invidual user enterprises who can and do learn how to manage their Tech investments will continue to enjoy a sustainable competitive advantage. Sadly and surprisingly that's the same list of the "Usual Suspects" it's been for decades, e.g. Fedex, WMT, et.al.

Technomediatainment

1. Industry Structure - the key factor here is the rapid convergence of the various networks to a common infrastructure based on the same "stack" that underpinings the Internet and creates the strategic opportunity for XoIP where IP = Internet Protocol and X = Data, Voice, Video, etc. etc.

2. The Techno Stack - this shift creates huge opportunities for the Equipment Sector and the Service Providers (Phone and Cable companies). It also enables a revolution in the New/Old Media and Consumer Electronics companies, an exemplar of which is Apple's successive introduction of the iPod and iPhone. Which are really digital consumer electronics that are complete end-to-end solutions that are destroying the underpinnings of the old analog world in both media and consumer electronics. Whee...we're having fun now.

Winners and Losers: the Undiscovered Country

The separation between the winners and the losers will be between those who establish an on-going, sustainable and repeatable innovation capability and those who do not. And we DON'T just mean invent new crap but also execute on the delivery of those inventions. The relevant operating distinction between invention and innovation is whether or not you deliver it and make money in the process. Clever is fun but doesn't count. This will get interesting in all the sectors of these industries but is particularly fascinating to watch as as the New Media companies adapt to the "Content Wars". The series of posts on Innovation walk thru the general requirements and characteristics involved - here illustrated by contrasting pathways. So where do MSFT vs YHOO fall ? How 'bout Dell vs HPQ ? Or Nintendo or AAPL ?

Anyway...that's certainly not all the accumulated graphics digging into various aspects of these Industries. And definitely all the discussions, analysis and readings. If anything strikes your fancy you'll have to follow the pointers below to dig in some more. Bon Appetit' indeed. We are definitely living in interesting times. 

Continue reading "Key Postings Vb (Technomediatainment): Maturities, Barriers and Disruptions" »

Posted by dblwyo at 05:50 PM | Permalink | Comments (0)

The prior post took a look at the multiple wars going on at the bottom of the Telecom value stack. Now we'd like to look at the smaller but growing ones at the top. If you will yesterday's post was on the technology and infrastructure wars while this one is on the content wars and the distribution debates. Just to refresh your memory about the Content & Distribution Wars you might want to look at a prior discussion (WRFest (Telemediatainment): The Content Who Would Be King) which offers up some other examples that play nicely with these. And lays out a "model" of Content value chain, which we have in mind here.

In the last few weeks there have been some startling new developments that continue to accelerate the changes in New Media "cusped" by Iger's coming to terms with Pixar and the Internet a couple of years ago. Now we're talking about the top of this stack where the strategic questions are: 1) who's content will appear on 2) which device and 3) what kind is it ?

TWX and Apple have agreed to have new movies come on iTunes the same time as the DVD while Viacom (cf. the earlier post) is starting up a new channel aimed at, among many other things, doing something similar. Since Paramount is captive they might have an easier time of it even. At the same time Apple is revisiting its' not-too-successful' foray in Apple TV.  It may have a long way to go but they've also got a lot of runway considering everything else that's working well for them. That re-visiting is syngeristic with the iTunability of movies.

Meanwhile Europe is acclerating its' experiments with Mobile TV - think of it as TV on your smart-phone. Back to the 4A paradigm as well as the bandwidth/infrastructure wars. And ATT is following suite in the US. Whee....Katie bar the door. A lot of challenges before the cup really gets to the lip but again consider this, really mixing metaphors, another big canary.

On the other side of the house traditional content generators are still struggline with the problems of migrating to this brave new world. Unfortunately, aside from online web sites and blogging, old media is still struggling mightily to re-think itself for this new environment. That is - they still haven't figured out two key things. First - how to create an interface that takes advantage of the new media instead of just mimicing the old one. And second - how to make money in either/any case. On the latter I'll bet, at least for now, that they end up back at the answer of the last 100+ years - advertising. Maybe with a dash of subscription thrown in. On the former though, as the prior post, discusses at more length, several interesting or key players are beginning to really re-think what can be done online.

This'll be really interesting, eh what ! 

Continue reading "Technomediataiment (Content): the Revolution is HERE" »

Posted by dblwyo at 12:01 PM | Permalink | Comments (0)

Watching the Superbowl this year was an interesting experience this year for lots of reasons, not least of course because it was one of the best games I've seen in a long...long time. But another thing really interested me because my hosts had just gotten a new HDTV which the man of the house was eagerly looking forward to. Unfortunately the sound quality on the HD channel was terrible with most of the announcer's gabble almost washed out in noise.Contrawise the picture was very good but when we switched to the regular channel at his wife's insistence we of course ended up with a mediocre picture. The moral of the story - other than who rules the roost - was despite all the hype and hoopla that the cable company (Comcast in this case) didn't have the bandwidth to support even one good HD channel with the most important sporting event of the year !

Now we've talked for some time about convergence and competition in the telemediatainment industries but underlying a lot of our, and many others thinking, was that the cable companies had an innate advantage because they already had fat pipes into the premise. What that little anecdote tells us is that it just ain't so. Worse, as many of the stories below illustrate, our experience was by no means isolated. We've tried to represent these issues in the Telecom Industry stack chart which shows both the technology requirements and integrated value proposition that all the underlying service providers are wrestling with. We've talked before about the 4As - Anything, Anywhere, Anytime, Any device. If the cable companies are already struggling with things as they are that means $Bs of new infrastructure investment will be required to compete with the traditional phone companies and completely disrupts the entire competitive landscape. The "Bandwidth Wars" are going to take on a whole new character that will determine who wins and looses up and down the entire stack. This dynamic will also impact the extent of the convergence where XoIP, x being anything from Voice to Video and so on, becomes the underlying enabling technology. Just as an example that all means that Seidenberg's strategy to pull fibre for Verizon is looking more and more brilliant, not just gutsy.

After the break you'll find interesting stories about device wars as RIMM struggles to up it's game against Apple's iPhone where ATT/Apple are cutting prices for more functionality ! Whoops indeed. You'll also find an interesting story about the next wave of competition on the services being offerred - which puts tremendous requirements on multiple layers of the stack but is the value proposition requirement to make all these myriad devices and the new media offerrings viable. Then ther'es a popourri of Sprint the Disaster stories - nothing like combining bad strategy with worse execution and abysmal customer service to watch your cusotmers leaves in droves. Hmmm...Telecom and customer service... an oxymoran ? Or just morans ? And then there's a special section reinforcing our point about the Cable industry's struggles and attempts to find strategic alternatives. Interesting times indeed !

Continue reading "Technomediatainment (Telecom): RIM, ATT, Sprint, Cable Wars" »

Posted by dblwyo at 12:56 PM | Permalink | Comments (0)

Let's take a look at the big tech news from the last week or so (deferring the HPQ/EDS discussion for now) and focus on the APPL vs MSFT and MSFT vs YHOO campaigns. In both of which there was some big news everybody covered and some that may have passed you by. In an earlier post/survey (WRFest 27Apr08(Tech Ind): Innovators, Survivors & Also-rans) we introduced some ways/weighs of thinking about innovation and typical patterns. You may want to refer back to that as here we're going to build some more charts to dig into some other patterns to set the stage for our discussion. You might also find reviewing the earlier discussion (Sailing Into the Storm: From Execution to Innovation) of innovation a worthwhile review, especially if you buy the argument that Innovation is not just an issue in the Tech Industry but is both a general requirement and the biggest challenge beyond Execution facing all businesses. And one that most are failing at. We think the framework for analyzing what works and is required vs the typical barriers applies to P&G just as much as to MSFT...a view which, judging from public statements and observable behaviors, P&G agrees with.

So consider the chart at right which shows how many companies face the "Renewability Challenge". Chrysler is almost the perfect poster child, along with MOT, of a company who lurches from breakthru hit to hit and hopes it survives the downturn. That behavior is apparantly deeply seated in its' culture. What you'd like to do is have good strategy, translate that into excellent and on-going execution and, on that foundation, build up a repeatable capability for innovation. And better yet embed that capability into the core of the Company. A path that Lafley at P&G appears to be well along on after close to seven years of hard and sustained effort.

There are two big questions. First, can you get the Innovation process going on a regular and speedy cycle show that new products and offerings begin to take off before the old starts into decline. And second, and as or more important, is the question of what path is the Company on. That is are innovations moving the company forward, marking time or eroding despite apparent cleverness.

When you think about the Big Three here you reach very different conclusions. Apple appears to have created a sustainable culture of Innovation with one hit following another. Admittedly largely due to Steve Jobs...yet none of the major innovations Apple has produced are from a one-man band but represent the efforts of entire teams. And even more interestingly, in a rather Disney-like fashion, Apple is beginning to see cross-feeds and synergies. The iPod effort led to the iPhone which was and is a major breakthru in the entire Telecom business model. Both together are causing a rapid growth in Mac sales. Even more importantly big business is beginning to give serious consideration to Apple computers. A critical strategic enabler is a brilliant decision on the Operating System which is modular and scalable. All Apple lacks now is a portfolio of small business applications along with a good development platform. That would allow them to become a major player in the empty dumbell space of ill-served SMBs. (WRFest 2Mar08(Technology): Small to Large - IT Industry Structure)

In contrast MSFT has not only failed in its Yahoo acquisition - which you may recall we thought was a disaster from the get go.(B2C Wars:Yhoo/MS Merger - Disaster in the Making ?) But it really hasn't had any major successes in any of its' new endeavors in years. Instead it's milking the cash cows and monopoly positions it enjoys in OS share and Office Suites. And doesn't appear to have made much, if any, headway in the SMB space. Largely we're given to understand because of a lack of cultural understanding of the applications development process. Now apps are different from middleware, culturally as well as technically. Yet at the end of the day MSFT's core competence MUST be software development. Yet we ended up with a new OS (Vista) that was grossly de-featured from the original innovations promised in Longhorn, has been rather badly recieved, even resisted as it doesn't provide significant advantages over XP and throws open the door to competitors. Particularly in the business marketspace. 

How 'bout that YHOO ? Well after the initial breakout as the most successful portal,with a business built around display advertising it failed to find a way to grow that business. Terry Semel was brought into to provide a little adult supervision, which he did and effectively, but his "new media" initiatives, which presumed that increasing the portal attractiveness and thereby number of eyeballs, both built on the display advertising theme and failed. Meanwhile of course GOOG's wild, and unexpected, success with search-based advertising blind-sided them completely. So what does Yahoo do now ? So far it's failed to take its' huge footprint and sustain it, failed in developing its' own superb search engine (though admittedly with major improvements) and faces an incredibly daunting uphill battle given Google's share, penetration and street cred. Nor can it tell us what it wants to be when it grows up.

Looking at the chart and the three different timepaths illustrated we could just about assign names to each path: Apple, Microsoft and Yahoo. These interesting times are really tough. From a stakeholders perspective you'd have to argue that Apple has found a sustainable path that appears to make it a great place to work but one that's more than fully valued in the markets. That MSFT is sufferring from Red Queen syndrome with major investment after investment that have not succeeded in major incremental growth opportunities. Which makes it an intermediate-term value play and a long-term question mark. For Yahoo the future is now - they appear to be locked into downward path that may metastasize into a death spiral if they don't pull themselves together, execute enormously better and deliver value to existing users/customers and find new paths (vistions, value props, strategies, business models) forward. At best this is a "turn-around" opportunity but it'd take time, money, blood and enormous effort. 

Continue reading "Tech Industry:APPL vs MSFT vs YHOO Wars" »

Posted by dblwyo at 09:52 AM | Permalink | Comments (0)

Here's an interesting accumulation of Tech-related readings (after the break) that are worthwhile in their own right but also are perfectly illustrative of many of the themes we've tried to strike here. Both for the Tech Industry itself and for it's inter-actions with the larger economy. Most of us, myself included, have this wonderful, romantic view of the Tech Industry as being its' own thing running on an internal dynamic. Unfortunately most of the major names are now mature companies struggling to find the NBT (next big thing). Worse many of them are experiencing severe organo-sclerosis in their core disciplines. Tech is not the only industry driven by Innovation however. In fact it is more central to the Pharmaceutical and Aerospace industries than what we traditionally think of us tech. And, as I hope we've established, innovation is returning as a fundamental requirement for survival let alone prosperity. Put all this together and you have two broad mis-conceptions to adjust:

1. Patterns of Innovation: Once a company or industry matures it is no longer driven by internal dynamics, e.g. the famous "S-curve" of fame and fortune. Worse when a company is used to living on the curve it gets both complacent and, with growth, harder to manage. Often its' core disciplines deteriorate as well, so that one ends up with desperate gamble after desperate gamble to recover the glory years. There are however key players who have managed, thru discipline, execution and insight, to find sources of renewal. 

2. Business Cycles: one you're off the curve then you become just another capital "equipment" supplier (or consumer supplier for those migrating into the entertronics industry). Which means normal business cycle consequences begin to show up. In this downturn, which we've barely seen the beginnings off, first consumer demand will slow and turn down, likely severely. And companies will cut their hiring and capital expenditure plans. All of which we're beginning to see and more of which is coming. As IT budgets are constrained what do you think happens to IT spending and tech industry outlooks ? Wouldn't ask the analysts on the Street :)

The trick is to sort out the survivors from the also-rans who are going to struggle. And then sort the survivors into the so-so's and the real men. As you skim over the readings we think the portents for the future are pretty clear. Which means in terms of evaluating investment and performance we're back to asking Economy - Industry - Company questions. You're hopefully looking for the companies with the skill, chutzpah and resources to gain new high ground. And IOHO those are the folks who've re-made or are re-making themselves. Those will be the buying opportunities after we get thru this current unpleasantness.

A perfect contrast is AMD vs Intel. The former had a hit but failed to follow-up, sustain it or execute. Instead it made an acquisition gamble looking for the easy fix. In stark contrast Intel transformed itself by building on it's base skills in chip design and manufacturing as well as operational excellence and is now extending those capabilities to whole new markets. (We can't recommend some of the last investor presentations highly enough btw). MOT is the perfect poster child for what we've called decliners in the charts. IBM on the other hand could serve as the example, if not exemplar, for the sustainer.

The real interesting contrast is APPL vs MSFT. There are a lot of readings below but consider what we think is the most fascinating and powerful contrast. At it's heart MSFT is a software company and it's most fundamental  discipline should be product development. Yet it delivers Vista late, emasculated, bloated, missing an ecology and buggy. What Longhorn was going to be and what Vista became reduces in large part back to Code Red - when internal development broke down almost completely and they had to do emergency surgery.

In contrast Apple made a decision to create a new, elegant, powerful and portable OS that not only drives Max OSX but the iPod and iPhone because it's modular, componentized and scalable. (Shades of NEXT and it's object-oriented OS and application platform). That means that every product Apple makes runs the same software base and therefore can share applications, within limits of course. So MSFT is wrestling its' own kudzu and Apple has created a self-sustaining, evolving and growing eco-system. Which holds the most promise for the future do you think ?

Of course there's many a slip 'twixt cup and lip and MSFT is still a huge, tightly run profit machine and Apple will need to sustain it's innovations with the NBT on top of this wonderful foundation. Which merely makes it easier and more likely. But it's looking like Apple joins Cisco and Intel in that pantheon of folks who've made the necessary cultural changes to embed innovation in their DNA. (Sailing Into the Storm: From Execution to Innovation)

Continue reading "WRFest 27Apr08(Tech Ind): Innovators, Survivors & Also-rans" »

Posted by dblwyo at 06:19 AM | Permalink | Comments (0)

With network convergence, the shift of consumer electronics from analog to digital technology and new tools for content generation and management we're seeing a major evolutionary event emerge in front of our eyes. And are participants willy-nilly. But are we knowledgeable ones ? Gaining ground on that is helped a bit by framing the changes. What we're seeing is the Telecom industry going thru network and service changes, and increased overlap with Media and Entertainment, shifts in Consumer Electronics and the growing force of things like games in the later. In my mind that leads to the re-labeling of the new industries as Telemedia and Entertronics. The individual components will remain by thes new hybrids are also forming. And at the end of the day it'll be all about the content - who creates it, how it's packaged, who distributes it, over what kind of networks and where/what/when it's delivered.

In case you haven't noticed in the last 18 months we've seen ginormous changes in the way content is presented on the Web. People talked about Web 2.0 which was really just extensions and developments on the capabilities of the existing capabilities into social networking, collaboration, etc. IOHO what we're seeing now is something truly deep - a fundamental re-think of how content is presented. Which is accompanied by a change in who the players are. It started with Iger taking over Disney and striking up a deal with Apple for content distribution - thereby becoming the first major media player to seriously embrace the web and begin the landslide beyond small-scale participants. The other big change, which we first really noticed about two years ago, was that content generators were beginning to really re-think presentation instead of just adapting the formats and thought processes inherited from prior generations. Now things are much more inter-active, non-linear, multiply connected and wide open. And we're seeing it just in the last couple of months. The first example was Amazon's re-think, the WSJ has done some really good stuff over the last year or so but now it's spreading like wildfire. And a great example is Hulu. 

All of a sudden a huge wealth of old and new content is readily available on-line in a decent intercface with more coming.Now personally I think some of it needs to be worked on, more is needed and they've already exceeded the limits of managing the sortation and searching. In other words they need a much better content architecture and information management capability. But when you look at the quality of the material, as opposed to say one more YouTube amateur nightmare, content quality matters. And when you've said that you've said it's about the people, skills, money, networks, resources and management capacities to create, build and distribute content. This is the REVOLUTION folks. Just in the last month I've been able to re-discover Dougie Howser, Babylon 5 and Studio 60 (Fair Disclosure: my TV went away a couple of years ago and I've been online for things like Rose, etc. for that long). Here's one my favorite S60 episodes which proves the point. Sadly the show went into a nosedive after the creator moved away from exploring deep and great issues and started writing to his personal troubles. But while he was on a roll he was looking at US culture, what it takes to run a creative business, Corporate America, the wasteland of TV all inter-woven with personal stories. It could have done for culture and the corporate world. Sorry about the sidebar. Now wait - that is the point. It's all about the content !

Now it's going to be about the Value Chain the emerges and evolves for the Telemediatainment Sector(s). Consider the picture at right which shows the ecology of that value chain as it was. To get an idea of how it will be "simply" add more major "Distributors" to the framework. We'll take a deeper dive sometime in the future but the excerpts below should be looked at in this context. The Telecom industry faces huge demands for bandwidth and shifts in types of service, which'll impact the Equipment providers. Major Web 1.0 content providers (Google, Yahoo, Amazon, AOL) are showing widely varying ranges of adaptability and innovation to old challenges and new ones. Yahoo in particular is a sad....sad story because it had the world's largest portfolio of high-value content which it let go fallow thru neglect and an inability to sell and then monetize. Now it's looking for quick fixes but can't explain any of this (for the record I read the latest major investor presentation which hints at some interesting things but is so discomboobulated that, as a mirror on executive thinking, it's scary). You also find stories on new ways to manage content, alternate distribution experiments, e.g. Blockbuster's bid for CC (!! yikes) and the problems with providing economic access to bandwidth which could kill the whole thing.

Continue reading "WRFest (Telemediatainment): The Content Who Would Be King" »

Posted by dblwyo at 09:11 AM | Permalink | Comments (0)

As usual there's a lot of tech and related news so we've accumulate and sorted key stories and prior posts that span the suddenly exploding Yahoo Wars, the search wars, iPhone news and rippled effect changes in the telecom, media, entertainment and related distribution industries. It's kinda hard to sort it all out and put it into an organized context but we'll take our best shot. Ram Charan had an interesting article (When -- and How -- to Reposition Your Business) on one of the most fundamental strategic requirements of business - looking outside the business and re-thinking it when things change. And they're changing enormously and rapidly across multiple industires.

Telecommunications is seeing the bandwidth wars between cable and traditional providers with alternatives coming up fast. New "phonelike" platforms, e.g. the iPhone, are going gangbusters AND forcing major re-thinks of the traditional business model, at the heart of the Yahoo discussions are two things. First off, and let's not kid ourselves, was a profound lack of execution on a large and rich portfolio of sub-businesses. And second the fundamental debate over getting and monetizing eyeballs. Yahoo's model was create attractive content and then DISPLAY advertising. Google stumbled into the alternative of embedding advertising in search and the brilliant notion that they could collaborative with any and all content providers.

Meanwhile in the last week old media has finally really, truly been heard form. Not only did the Yahoo/Msft contretemps boil up and over but all of a sudden the promised disruptions of old media by new took on new life with Time-Warner's and Fox's entry into the bidding wars. This is a cusp-point SEE change that we've been waiting for since 1995 and the development and distribution of content will never be the same. Media is beginning to re-think itself.

And two of the major changes enabling and driving it are the sudden appearance of new platforms that are alternatives to the ones we're all used to. The iPhone being the preminent example but the gaming industry, which combines platforms with content, being another and bigger one. Which is also driving enormous changes in distribution. And in the entertainment business that means re-thinking and re-structuring the networks. In parallel the other form of distribution is the retail channel which is experiencing very hard times as the steady stream of profitable new consumer electronics drys up. So at the end of the day we have five major industries that are going thru huge disruptions with new value propositions, strategies and business models to be developed and established. And with a profound dearth of good operating execution on the old models, which contributed to the problems, and no apparant clues as to what the new operating models should be let alone examples.

These are not critiscisms per se, by the way. They're observations reflecting a natural state of affairs that ALWAYS results when new technologies, products and services emerge. Cast your mind back to when mass-market newspapers took off in the 1890's - how long did it take Hurst and Pulitzer to develop new models ? How 'bout when radio emerged in the '30s and the models had to be re-thought ? And again in the '50s in the early days of TV ? Everybody always started with adapting what they knew to the new formats and capabilities. And then slowly evolving more effective and efficient approaches.

We're in the first inning of what promises to be a long game. And an early season game in what will be a long...long season. Now that the bigs have emerged from their cocoons this'll get really interesting. 

Continue reading "WRFest 13Apr08(Telemedia, Entertonics): Let the Wars Begin" »

Posted by dblwyo at 07:44 AM | Permalink | Comments (0)

Almost more than any industry the Telecom Industry has been the "beneficiary" of a series of perfect storms that have shaken and re-shaken it from the telecom bubble and bust to the displacement of wirelines by wireless to the VoIP shift to the fat pipe wars that are going on now. And as the underpinnings of the industry have changed so have the players - people still under-estimate for example how revolutionary the iPhone is for product development, commercial relationships and industry structure. But the realizations are growing.

There was a fair amount of news in the last two weeks which we've gathered up here which reflects a lot of this change as well as how the individual companies are coping. The first harbinger for example of weakness in the Tech outlook was Chamber's discussion of earnings last Fall which scared everybody. What everybody forgot is that when a tech company says everything's all right now they are capital goods and capex spending lags in downturns. Well that's beginning to be visible. Meanwhile on the coping front a lot of equipment suppliers are still failing to cope with this brave new world, for example Siemens and Sony/Ericsson. But the unfortunate poster child is Motorola which under pressure from Icahn is proposing to go thru yet another breakup. We think this is, at best, only a short-term financial good idea and is a terrible strategic choice. MOT's problems haven't been so much strategic focus as a total lack of execution on a sustainable basis. This'll be the third time in the last decade that they've broken off a chunk on the theory that this time we'll fix it. And each time failed and it failed because they couldn't figure out how to change the way the company operates.

Continue reading "WRFest 30Mar08(Telecom): More Perfect Storms a'Comin" »

Posted by dblwyo at 11:54 AM | Permalink | Comments (0)

In case noone's noticed the Technology Industry as a whole has reached the point where it is mature, which we define as being able to provide products and solutions who's capabilities exceed customer requirements. If that sounds a bit like Clayton Christiansen's arguments in the "Innovators Dilemma" it should because it is. In fact we're on record as arguing that the PC industry reached that point circa '98/'99 when speeds and feeds were adequate for the software, e.g. Word, who's functionalty was well beyond any reasonable cutoff point, say 60/40 and meandering around the 95/5 or worse. Unfortunately costs tend to go up non-linearly as you add bells and whistles.

The chart at right traces out this industry dynamic. It's kind of simple but hopefully it gets the point across. We show customer requirements slowly evolving over time along with two products which have high demand initially because the gap between requirements and capabilities is large and negative, that is customers want more than can be delivered. New products may have some special capability or vastly lower cost but not meet current requirements and have to be introduced in a niche. So does a company keep investing in old products or gamble on new and jeapordize the franchise and cash flow ? You have to apply this thinking to each major business segment in the stack as well because their history, status and outlook are all different. But for the bottom layers of the stack, by and large, capabilities vastly exceed requirements. The top layer, applications and business alignment are very different as the capabilities are vastly exceeded by requirements, especially in the SMB space. But NONE of the customers believes the industry can deliver value-enhancing, businss-driven solutions. As you go thru each of the readings below you might keep all this in mind because a lot is explained.

Continue reading "WRFest 30Mar08(Tech Industry): Commodization, Consolidation, Consequences" »

Posted by dblwyo at 05:50 AM | Permalink | Comments (0)

DLS stands for "Dirty Little Secret" in case you didn't know and it refers to those "inside baseball" hidden characteristics that, once all the formal stuff is out of the way, actually determine how something works. The Technology Industry has two major ones, one of which we'll focus on. The first is that the cultural gap between business and technology continues to be wider than any other Mars/Venus split you can name. Men understand Women better than IT gets business and visa versa. That was sorta o.k. when all the bottom of the stack was new and obvious needs exceeded capabilities. Now it's a continuing disaster. We'll focus on that but just FYI is that the other DLS is that decisions are made on technology use by politics, not what best serves value and service. IT needs adult supervision but doesn't get it from the business side, which has abandoned it's responsiblities.

But when that gap is bridged the results can be truly magic. Unfortunately the small list of comanies that use IT strategically is largely the same small list it's been for almost 20 years. Until actively managing the "two-culture" gap becomes standard business practice companies won't use technology systematically, systemtically or correctly. Vendors will keep building the wrong things. And investment returns will still be commodity-like because the bottom 3/4 of the IT stack are commodities. It's what's hurting Dell and MSFT for example. On the other hand what Jobs and Apple has done is concieve and execute total technology solutions that start with customer value, translate it into high-value strategies and execute it comprehensively in total solutions. IF technology worked as well in general as Quicken did in managing your home finances a lot of money could be picked off the table. The graphic shows how it should be and isn't. Now here's an interesting fact - it dates from circa 1991 ! And is based on work, some from IBM's Business Institute dating back to the late '70s !! BUT when you find a tech company who can bridge that gap you've found a real winner. Or a company who runs its' own business by using technology truly strategically.

Continue reading "WRFest 16Mar08(Tech): DLS's, Two Cultures and the Breakdwon" »

Posted by dblwyo at 07:39 AM | Permalink | Comments (0)

Somehow or another all the business news is either finance or technology news these days. I'm sure that's not true but that's the net effect give my readings. The huge wave of finance industry news is, under the circumstances, not a surprise and we covered it yesterday. It's worth bearing in mind that the Industry was a whole appears to a) be as badly broken thru its' own self-inflicted wounds compounding and b) as the credit markets go thru an extensive de-leveraging process that the industry will be badly shaken up and re-structured. And perhaps c) we may have a long way to go.

The first two stories below are on Chrysler and Pfizer - both of which industries have backed themselves into similar corners. The Auto industry by getting stuck in its' own rigidities and denying the need for change for 3+ decades. As we've mentioned the core of the Pharma industry is their R&D activities and, very unfortunately for them, their core business model of chemistry-based drug development is broken by exhaustion. And the nextgen replacement (bio-chemical/biological) is not a near- or intermediate-term potential (though depending your horizon you should be lookin at systems biology and what's going on with "synthetic" life). Whic leaves us a bunch of Tech industry stories. Which in turn are stories about escalating pressures for cost control and change, companies failing to innovate and some succeeding.

In the latter class are Apple and TIVO both of whom have focused on defining and delivering value. Preceeding them is a story about one MS fantasy about Yahoo - that it'll help take them into the on-line software arena by combining Yhoo's on-line DNA and MS's software development DNA. Excuse me - their core strategic value propositions at which they've been failing miserably for years now ? Yahoo obviously but for those of you not enchanted with Longhorn, excuse me Vista the pitiflul remenants of a grand(iose) vision terribly executed and perhaps flawed in conception (btw do a search on Code Red and MS sometime for an understanding of how badly their supposed core competence in programming failed them). The other side of the coin is HPQ which is well on it's way to re-balanced and re-factoring itself, illustrated by a story on Hurd's moving to the next step by starting in on re-directing their R&D labs toward a stronger commercial focus (a step Gerstner took at IBM back around the mid-90s).

The first two tech-related stories are more general interest tech stories which define the ecology of the industry. One counseling IT departments to start putting pricing pressure on their vendors. The other on the topic of business vs technology alignment. We've all heard the stories about businesses able to change an industry thru the strategic use of technology. The problem is that for 20 years it's generally the same small handful of exemplary firms, e.g. WMT, FDX, Schwab, et.al. What you may not be aware of is that there's a huge gap between the MIS department and the operational business which the industry has been struggling with for decades. And despite the bottom of the "stack" becoming a commodity the top part where business solutions live is as much about magic, mis-communication and 70% failure to deliver rates as it ever has been.

As a friend of mine with almost 40 years in the business said:

La plus ca change, la plus ce meme chose.

Continue reading "WRFest 9Mar08(Business):Auto, Pharma & Tech News" »

Posted by dblwyo at 11:54 AM | Permalink | Comments (0)

Odd as it might seem we're still, at the end of this week, just catching up with last week's news summaries. Here we want to focus on the Technology Industry with several interesting stories. In the process of several of these recent Tech focus summaries we've been wrapping the excepts with some charts that show how the industry is put together. Earlier we introduced a simple stack picture which showed all the elements from platform to middleware to application to interface that are necessary for any particular solution to be put in place. Think of that as the basic characterisitcs of the industry's ecology. Another dimenation that structures an ecology is the number of large and small players and what niches they go over. Which we try and capture with the accompanying chart.

Continue reading "WRFest 2Mar08(Technology): Small to Large - IT Industry Structure" »

Posted by dblwyo at 06:54 AM | Permalink | Comments (0)

There's not necessarily any major new sources of growth in the Telecommunications industry in the sense that major new capabilities are appearing. At the same time there is a fundamental, tsumanic structural change going on with changes in the nature of the underlying network. That basic change is the shift of all forms of Telecom network infrastructure to the new platform, VoIP. Or Voice-over-IP where IP is Internet Protocol. Actually it's much broader and more complex than that and isn't happening all at once but we tried to capture some of the simple characteristics in the accompanying chart. Many of the results of which you can see for yourself.

For example with the writer's strike when's the last time you watched TV ? Being a victim of what Comcast laughingly thinks of as it's customer service it's been at least two years for me. But that hasn't caused me to miss any programs I was particularly interested in. Many of my favorites happen to be available on-line for free. And then there's always DVD rentals. Both of which are being supplemented and perhaps replaced by downloadable audio and video files. Apple is now the largest music retailer in the country for example thru its' iTunes store. This is going to go on for a while and not only continue the changes you see around you but accelerate them. It'll also change the industry - actually it'll change several industries from Telecom & Cable to Telecom equipment to Semi-conductors to the entire Media & Entertainment complex. A decent start on understanding it is to understand the structural shift.

Continue reading "WRFest 2Mar08(Technology): Telecom, Media & Entertainment" »

Posted by dblwyo at 12:07 PM | Permalink | Comments (0)

On the theory that if you're going to take the trouble to analyze somebody's work and comment you might as well post the work instead of restricting it. Today's WSJ had an interesting "Ahead of the Tape" pointing out that other than Financials earnings were holding up well. Reasons for which we've discussed extensively before.Grading the Takehome: Bottoms, Earnings & Outlooks,Review the Bidding, Count the Cards: EPS Growth Rates,Have You Seen the Elephant ?: More on Earnings. These are btw worth reviewing in their own for some differentiated perspective on the earnings outlook from what you may be hearing on bubblevision. Now we may be wrong but at least we've laid out the argument with data and our feeble attempts at logic. Feel free to disagree but given stories like this you should have an alternative toolkit for compare and contrast.

The parts that caught our eye was the discussion of how well Tech earnings are doing and how poorly their stocks are in general. Here are some relevent excerpts with our 4-Part assessment of some fundamental problems after the break.

 Earnings Slump Still Confined:Technology earnings have been an important, and potentially overlooked, bright spot. In the latest earnings season, the technology sector has been the Best in Show. But tech stocks have been treated more like mutts.Fourth-quarter earnings of technology companies in the Standard & Poor's 500-stock index are on track for a 26% increase from the prior year, according to Thomson. That makes it the best performance of any sector in the index. Even computer maker Dell, which has struggled to compete with rival Hewlett-Packard, is expected to report healthy operating earnings growth today, at 36 cents a share, up from 30 cents a year ago, a 20% gain.There have been some scares, but 76% of tech companies beat analyst estimates for the fourth quarter, according to Thomson.
Taken together, tech earnings have been 5% higher than expected. Yet the tech-stock-focused Nasdaq Composite index hasn't benefited much. Though it has recovered 2.5% from its late-January low this year, it lags behind the S&P's 5.4% rebound and the Dow's 6% comeback. And the Nasdaq is still down 18% since Oct. 31.Could investors be missing an opportunity?

 BtW just by way of compare and contrast consider the following headline from Bloomberg: Dell Profit Misses Estimates as Retail Expansion Falters; Shares Decline.

Not to mention Sprint, et.al. But we'll pick up all that coverage in the next Readfest. 

Continue reading "Comments on the Tech Outlook (and Earnings in general)" »

Posted by dblwyo at 06:44 PM | Permalink | Comments (0)

Well spreading the news excerpts does give us some chance to slice and dice 'em. Here we'll focus on the technology news, some of which we've either already mentioned and/or have been covering for a few weeks now. Primarily that the various analyst shops (Forrester, Gartner, et.al.) have abruptly lowered their spending outlooks for '08. Below you'll find the first outlook that anticipates a negative growth rate for Q208. Bear in mind these surveys are based on bottom-up work talking to IT departments so they reflect reality on the ground but a reality which tends to lag big picture economic cycles. By combining that with our top down look at macro-trends you get a bookend perspective - and those trends have been suggesting declining capex outlooks for a while now. So when John Chambers shows up on CNBC and says things are going well he's talking about the quarter just past and the sales activity and order stream he can see right then. NOT an outlook - keep that in mind.

The other little thing we thought we'd insert into our discussions is a way to sort and filter the tech news as the jumble of acronyms floats by. So we're going to introduce you to the infamous "stack" picture of how all the pieces in the tech industries fit together. Then to show what it's worth talk a little about some industry examples, e.g. Oracle's merger spree and then try to apply it to this week's stories. You'll have to judge whether this is useful or not.

Thinking in "Stacks" 

If you'll take a look at the picture on the right we provide a very simple version of the infamous stack, which you may have heard folks refer to. The stack is all the things you need to make a computer (or a phone for that matter work). Simple but a powerful sorting hat because it'll tell you who's in what House and how they're linked. The PC on your desk incorporates the top four layers. Likely an Intel/AMD processor which then has to have a bunch of other chips, power supply etc. IBM's announcement today of a major new mainframe will define the new large-scale server standard for some time. To make that PC or server work you need an Operating System (OS) which on your PC is likely Windows but on the server is something called MVS, or Multiple Virtual System. All this hoorah about Google's huge server farms and virtualization software - well the big guys have been doing it for three decades and your life depends on it in the sense that most banks, airlines, etc. are running on very large servers.But all the OS does is let the machine talk to itself it's what's called Middleware (MW) that sits between the machine and the applications that lets interesting things be done. So when Oracle buys BEA what you're seeing is a further consolidation in the MW space where BEA was the first provider of a Java application "server", i.e. a software machine commercially even though Java was created by Sun. Unfortunately BEA wasn't able to match IBM's inventiveness over the last decade and has lost those wars. In fact if you take IBM's analysts reports apart their growth engine for several years, for profits as well, and anticipted to be in the future is software. And when they say software they mean middleware. Finally the thing you talk to is the application - though you can debate for example whether or not a spreadsheet is an application or middleware in a sense. But when somebody talks about ERP, CRM, Sales Automation, etc. etc. they're talking about big bundles of code sitting on top of the MW that actually process the data, talk to the user and get things done.

Continue reading "WRFest 25Feb08(Tech):Dropping Outlook vs Climbing Competition" »

Posted by dblwyo at 01:16 AM | Permalink | Comments (0)

This has been a rich week for news and stories in the general business sector but particularly in the technology and related industries. On the continuation you'll find several interesting excerpts and links but we want to set the stage with our own post on the B2C Wars:

B2C Wars:Yhoo/MS Merger - Disaster in the Making ? Among the other big news, and there was sure a lot of it last week, was Fri's announcement of MSFT's semi-hostile offer for Yahoo. An offer which apparantly is the last item in almost two years of on-going discussions and failure to reach agreement. In our humble opinions this is a disaster in the making and they only possible beneficiary is Google. That conclusion is reached by a combination of familiarity with the Industry, with companies and technologies involved and applying our model of enterprise assessment (Masterclass: Buffett on Investing and Business Analysis). It's also a lesson in business history among other things. In any case how this plays out is important for Internet users, for investors and for employees as well as customers and suppliers of the companies involved. As a start on pulling the pieces together we used our framework to put together a preliminary analysis skeleton of the merger and wrapped it in a bit of industry analysis as well.

Not only for it's own sake, that is specific to the Yahoo/MS merger talks but also for the portrait of the B2C Industry, the illustration of the business analysis approach and also for a bit on the broader telecom industry. As you read 'em put the exceprts into the context - Google's continuing it's charge on network hosted apps - how much influence does that have on MS's thinking ? Meanwhile after all the $ they haven't figured out how to monetize social sites (maybe Murdock was lucky to miss out). What does that say about Google's strategic outlook (which is dissected in the B2C Wars post a bit). Meanwhile Time-Warner is about to spinoff part of AOL but has yet to come to grips with what the rest should be. Has the industry evolved beyond their ability to morph with it ?

Continue reading "WRFest 9Feb08(Business/Tech): B2C Wars, Telecom & Tech" »

Posted by dblwyo at 07:34 AM | Permalink | Comments (0)

Among the other big news, and there was sure a lot of it last week, was Fri's announcement of MSFT's semi-hostile offer for Yahoo. An offer which apparantly is the last item in almost two years of on-going discussions and failure to reach agreement. In our humble opinions this is a disaster in the making and they only possible beneficiary is Google. That conclusion is reached by a combination of familiarity with the Industry, with companies and technologies involved and applying our model of enterprise assessment (Masterclass: Buffett on Investing and Business Analysis). It's also a lesson in business history among other things. In any case how this plays out is important for Internet users, for investors and for employees as well as customers and suppliers of the companies involved. As a start on pulling the pieces together we used our framework to put together a preliminary analysis skeleton of the merger and wrapped it in a bit of industry analysis as well. Below the line you'll find some very interesting reading excerpts and linkages as well. In particular we highly recomment following thru the link on Nicholas Carr's article and using his discussion as a template for understanding what's going on here. To put another point on it btw - this is an excellent example to illustrate how one might begin to do deeper analysis on companies. Let's start with the skeleton in the table below:

 The emphasis here is on preliminary - a considerable amount of additional work would be needed to flesh out the details,especially at a company level. Nonetheless several key points stand out when one uses the template to think things thru a bit.

Continue reading "B2C Wars:Yhoo/MS Merger - Disaster in the Making ?" »

Posted by dblwyo at 08:33 AM | Permalink | Comments (0)

Now that our little side detour to look at the emerging bear is "over" - btw just kidding, from the futures today it's just really beginning - it's time to put up the interesting links and excerpts for the business stories of the week. There are enough we're going to split them into two. This one will focus on Innovation based industries and the next on general business issues and more traditional industries. In fact judging from today's open this is pretty timely :).

A constant theme we've been playing is the need to understand the drivers and characteristics of enterprise performance, which argument has been mightily reinforced these last few weeks. Not to mention these last few days. While all this sturm und drang is going on there are some major deep changes happening in the innovation-based industries. Which notion is itself a major one. Notice we didn't just say technology industries ! Innovation is something that all firms should be doing, most don't and will become increasingly important as a foundation for survival. But the innovation-based industries are the ones where product development in fact drives the whole rest of the firm.

As Josh Limon pointed out the first pill costs $10B while the 2nd costs $1 in the pharmaceutical industry. Similarly in the aerospace business Boeing and Airbus should really have a split P&L. One for the research, development and production behind the first new model. The second for the continued manufacturing, sales and support of the next 1,000. In comparison R&D and innovation do not, as a matter of fact, take up as much of the budget and aren't as critical to the traditional tech industries. Though it is still critically important. So we've collected readings on tech, telecomm, pharma, aerospace and alternative energy under this heading. 

But let's set the table with - why do you care ? Well if this carnage ends in six months as the standard expectation has it who'll you pick to get back in with ? If it keeps going same question, different dates ? On the other hand if you'd read Truth, Justic and the NDX Way and agreed with the conclusions you might have been out of Tech in time to save or short and make money. Consider this post a continuing part of our efforts to dive deeper into business evaluation and rubble sorting (Winners & Loosers: Rubble Sorting). Since we've a little space, and each link deserves it's own post - if not a series, let's try and expand on  the context a bit.

1. Telecomm - on it's 3rd or 4th Perfect Storm. The story below on the iPhone will help explain why the decade+ business model of the big telcos got blown up last year. Another major disruption is the "fat pipe to premise" war between the telcos and cable companies. The result of which is already upending the media & entertainment industries more than they've been since they were shaped at the end of the 19th C (hyperbole ?). Part of the next big storm is the growth of Unified Communications which should be a major innovation for the Telcos but which they're having trouble grasping. Meanwhile MSFT and IBM are going after it big time. Interesting. And then there's the GOOG vs YHOO war where the first's model may be aging while the latter let complacency and lack of innovation and adaptation depreciate its' user base value so severely. And who doesn't seem to be generating any new breakthru thinking either !

2. Technology - meanwhile IBM reported a 12% jump in EPS but when you look at the detailed investor presentation that was 24% YoY but 10% was in revenue growth and buybacks, each. But revenue growth would have been 4% without currancy benefits. And they told me that you buyback shares when they're under-valued not to catch a falling knife in a down market. Me, I'd rather have that cash as a dividend rather than see it go into buybacks and be depreciated completely. Similarly ORCL bought BEA (finally) but BEA has almost completely lost its' clout to IBM in the last few years in the Java arena and ORCL's not done well with its' own middleware strategies (FUSION). Can't say there are many indicators of organic revenue and profit growth let alone long-term innovation here. 

3. Pharma - it's finally dawning on investors that the R&D model which drives Big Pharma is broke as broke can be and no substitute is on the horizon for a long....long time. Which is why you hear a lot of analysts beginning to talk about major downsizings and further consolidations. Drug pipelines are 7-15 years long. Today's problems were laid down in the late 90s and the stock prices have increasingly reflected that.

4. Aerospace - Boeing's been taking it in the neck recently over continued delays in the B787 Dreamliner because of supply problems. That's in addition to market pressures of course. Yet the 787 represents major design and construction innovations that date back almost a decade, based on design innovations in CAD/CAM that go back to the mid-90s. For this plane they've undertaken a huge new operational innovation by outsourcing whole assemblies around the world. That's turning out to be a major headache but I'm pretty confident that they'll solve it. Meanwhile Airbus's big new thing is the A380 which is so big only a few airport can handle it and which is really only profitable on very long-haul int'l routes. Yet as technology advances it becomes more feasible to start flying more and more point-to-point city pairs. Which is perfect for the B787. When this is over, like Apple with its' string of sustained innovation, BA looks like a great investment for the future. 

5. Energy - alternative energy is going great guns but the fact of the matter is that it takes 20-30 years to migrate an energy infrastructure to a new foundation. All this does is nibble around the edges. And that's as long as you don't make silly mistakes like subsidizing ethanol production from corn thereby driving up food prices, not producting fuel at any cheaper prices and neglecting your real alternatives over the next several decades of coal and nuclear. Meanwhile of course these might still be good speculative investments. 

All in all there are going to be real winners and loosers in these industries. Sorting them out takes a bit of work but you'd probably spend that much time reading charts and financials. Why not invest a little in exploring the structure and fundamentals as well. We'll do our best to help. 

Continue reading "WRFest 20Jan08(Tech Bizz): Times They are Changing" »

Posted by dblwyo at 09:24 AM | Permalink | Comments (0)

And perhaps, to be both fair and honest, we should add Schadenfreude. If you look at the chart it shows the relative six- and three-month performances of the NDX, AAPL, GOOG, and RIMM. Now we've been warning for some time that that the markets have "fluffed" or "bubbled" up over their long-term trends, irrespective of the underlying economic fundamentals.Most recently here. And that techs in particular and the big techs most especially had exaggerated that fluffing process considerably. Well those chickens came home to roost big time last week with a drop in the NDX since last Mon. of about -8%, along with similar drops in AAPL and GOOG coupled with an -18% drop in RIMM. Whee....are we having fun now or what ?

Our argument has been basically the logic that a slowing economy meant slowing capex spending which meant lower tech demand and investment. A thesis which is beginning to be reflected on a worldwide basis with last week's downgrade, for example, of INTC as well. To that we should have added another - which is that there's been a dramatic shift in some tech dynamics as companies like Apple make major efforts to enter what amounts to the Consumer Electronics industry. Which falls under the sector heading of Consumer Discretionary - a sector even more hardhit than any but Financials.

Now we need to be a little careful here. All three companies are genuinely excellent operational performers with some distinct differences. RIM appears to be still a dominant player in smart-phones for the business sector and also to have gotten a major halo uplift from the iPhone, which opened up the "smart phone" appeal to a much wider audience. Google continues to be a great company which continues to achieve superb results in its' core business. Please note though that in terms of long-run value that it hasn't had any, that we can find, major new innovations that have driven increased penetration of new markets. Though it continues to introduce and testfly many new inventions none have established new markets. Apple on the other hand continues to demonstrate a relatively rare combination of strategic innovation - defined as delivery new products and solutions to markets that actually solve customer problems and provide new value as opposed to just introducing new technology per se. And to couple that with continued operational performance and delivery.

Nonetheless the bloom is indeed off of these roses for reasons we've waxed poetic about, repeatedly in fact, before. Barry Ritholz posted a delightful and insightful assessment of the gap between fundamentals and market perceptions today that compared much of the thinking going on by Mr. Market as fitting Kubler-Ross's well-known stages of denial (an analogy we've also used before).

5 Stages of Market Grief One of the most intriguing things I find about the market is how the collective psyche sometimes resembles a singular entity. In particular, I have been fascinated by the commentary we have heard from some quarters regarding deep and obvious flaws in the present macro environment. I spent a lot of time over the holidays  (skeptically) reading commentary from various pundits. There was something strangely familiar in the absurdly erroneous observations, but I couldn't place my finger on what it was. Until Friday. I don't know who or what actually triggered my memory, but it finally dawned on me what the parallel was: The Kübler-Ross model of 5 stages of grief. For those of you who never took any psych in college, that is the process by which Humans deal with grief and tragedy. It was introduced by Elisabeth Kübler-Ross in her 1969 book "On Death and Dying". This has become well-known as the "Five Stages of Grief". Reviewing recent market commentary, it appears that the investors, traders and pundits alike have been working their way through each of these 5 stages.

As the recent unpleasantness, as they say, continues to work its' way forward that's a worthwhile model to keep in mind. And not just for tech but for all the other sectors, industries and firms. On the continuation you'll find another interesting excerpt on the overall outlook for tech spending that resonates with these points. 

Continue reading "Truth, Justice and the NDX Way: More Tech Outlook Reflections" »

Posted by dblwyo at 06:42 PM | Permalink | Comments (0)

Earlier this week Herb Greenberg had an interesting Marketwatch colum on just exactly what is a technology company that's not only worth reading but even more worth thinking about. And then perhaps comparing and contrasting to Fleck's most recent jeremiad where he trys to focus on profits, earnings and margins for real.

Herb borrows and advances the argument that you need to look at R&D spending and gross margins, which is useful, but only a start and can be more than a bit mis-leading. My argument would be that you need to look at the consequences to that spending in terms of sustainable income and continuos innovation. Which is, btw, really hard work to dig into. But at the end of the day the ability to invest in R&D, translate that into products and sell those products for an above-average profit because you've focused on delivering value is the real set of things to look at. So as you're looking at the excerpts and links below check out the accompanying 3-month chart and ask yourself - is that NDX runup based on sustainable profitable products or not ? Or is it just a momentum play ?

To start with Mr. Greenberg here's what he had to say:

Why Google, Apple, Dell, others may not be what they appear. Herd mentality drives me nuts, especially when it involves "technology stocks" as if one size fits all. It often is a categorization that is as arbitrary and blurry as the line can be between value and growth stocks. That is simply the way Wall Street works, especially when any sector comes into favor, as tech has been in recent months. But that also raises the question: What really is a tech stock? Broadly defined, high-tech is anything having to do with telecommunications, semiconductors or personal computers. But that can be misleading, which is why former hedge-fund manager, tech analyst and all-around out-of-the-box thinker Andy Kessler likes to take it a step further to say that to be considered bona fide tech, a company must spend "some exorbitant amount on research and development" resulting in products that more than pay their own way. The easiest way to figure that out is to look at gross margins and the amount spent on research and development relative to sales. On both counts, the higher the better.

Definitely worth reading but there are several major problems with taking it to far.

Continue reading "Tech, tech, who's got the tech: Greenberg on Definitions" »

Posted by dblwyo at 03:27 PM | Permalink | Comments (0)