Watching the news coming out of Greece over the weekend reminded me of the economic crisis in Argentina in 2001. Growing public unrest, a history of military intervention and an seemingly irresolvable economic crisis are all common factors but Argentina stands as a defining example of why it doesn’t always pay to follow the advice of the IMF.
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When Apple Became “The Man”
This weekends pranking of the future Apple store in Hamburg shows just how far perceptions of Apple and Microsoft have changed. This puts Microsoft in the position of being the scrappy competitor fighting against all the encompassing dominance of ‘The Man”. If we’re not careful the act of putting a little Windows logo in the rear window of your car may become the very definition of geek counter-culturalism 🙂
Microsoft’s Nokia Nightmare
Last week saw a lot of speculation regarding Microsoft’s possible acquisition of Nokia’s mobile devices business. The rumor was quashed by Stephen Elop speaking at the All Things D conference who denied there had been any discussion with Microsoft regarding an acquisition. Case closed then? Maybe not.
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Intel’s ARMageddon
In ten years we’re going to recognize this week as the moment Intel ceded its leadership position in the global chip business. Microsoft’s decision to embrace ARM signaled more than a desire to take on Apple’s iPad – we are witnessing the end of the ‘WinTel’ era and the emergence of ‘ARMDows’ – a seismic shift in the IT industry is about to take place.Continue reading →
Sinofsky’s Power Play
At CES yesterday we may just have witnessed the first public exposure of an internal power play for the future leadership of Microsoft.Continue reading →
Why Sarah Friar is Wrong About Microsoft’s 2011 Growth Prospects
Goldman Sachs’ analyst Sara Friar is at it again. Continue reading →
Five Things Politicians Need to Understand About Data Centers
The Office of Governor Bob McDonnell of Virginia issued a press release today trumpetting their success in convincing Microsoft to build its latest Gen4 Data Center in the state. Given huge gulf between the real long-term local economic benefit of a data center like this and the content of the press release I am left to conclude that either A) The Governor really does not understand the economics of these things or B) He really does understand the true economic impact and the press release is a cynical attempt to fool the voters.
For other politicians who might be tempted to spend tax payers money to secure the locations of a data center here are some things you really do need to understand:
- Today’s modern global data centers do not create any meaningful number of jobs. Modern global data centers are remotely operated which means that even the few jobs that are created are not high skilled software or computer engineering roles. The type of jobs created tend to be in the building maintenance, HVAC, electrical engineering and security domains.
- There’s a high price to be paid for securing relatively few jobs. The fifty number touted by Virginia sounds about right. However, from the Governor’s press release, it sounds like at least $6.9 Million of direct incentives and probably an unspecified amount of long-term commercial property tax exemptions were used to secure those 50 jobs. Is that a good rate of return?
- When a technology company says they will invest $499 Million in building a new data center that does not mean they are investing $499 Million in your state. Far from it. Most of that cost will be in the computing infrastructure, communications, and other electrical machinery. That equipment is by and large not built in the state where the data center will be located. In fact a lot of it will be sourced from outside the country creating jobs and employment elsewhere, but not in your state.
- Modern data centers are ‘Shells’ of a building. Microsoft’s Gen 4 data centers employ pre-assembled container ‘Lego Blocks’ which are rolled onto a concrete slab and plugged into power, cooling and data pipes. If they could get away without building anything other than the concrete slab and HVAC containment buildings they would and in years to come they will. This all means that very few construction jobs will be created and certainly not any that require significant new up-skilling of your labor force.
- On a positive note a modern global data center is one of the most dense power consumption facilities around. That is why many sites are selected based on access to hydro-power where the cost of energy and distribution challenges can be kept to a minimum. It is possible that the location of a major global data center in Virginia will create the downstream need to upgrade the state’s electricity distribution and generation infrastructure. Being forced to do this obviously creates ancillary benefits for other company’s but again at what price?
Politicians really do need to understand the reality of these things. It is far too easy to give away the tax payers money today on the assumption of major downstream economic benefits tomorrow. In the case of data centers those benefits are likely to be few and far between.
Why Its Time to Break Up Microsoft
Microsoft posted a record quarterly profit of $4.5B on record revenue of $16.04B after the markets closed yesterday. The EPS of 51 cents blew away analysts consensus forecasts of 46 cents for the quarter. Any other company announcing a financial performance of this magnitude would have seen its shares pop in after hours trading; not Microsoft. Of course that may change when the market open today but it is a telling marker of investor sentiment towards the company.
In my view its one more indication that the company’s true value is being overshadowed by a ‘Crisis of Perception.’ Investors see Microsoft as a vision-less consumer company struggling to compete with Apple and Google while in actuality its an innovation machine transforming the world of enterprise IT. You only have to look at numbers like the unearned revenue line (A proxy for new long term annuity contract signings with enterprise customers) to see just how much an enterprise machine the company is. That number grew 20% in FY’10!
Of course the lack of pop in the stock is likely relate to the fact that the company continued to pour cash into its search and mobile phone efforts as well as the other loss-making consumer focused on-line properties.
In my view it is time to stop the pretense that Microsoft can become a ‘Cool’ high growth and highly profitable consumer products company. The enterprise DNA of the company just isn’t going to mutate quickly enough to let that happen in any reasonable period of time. In my opinion the situation requires radical surgery. This would include spinning off XBox into a separate games focused company, merging the consumer on-line assets with Yahoo to give them scale in a competitive race with Google and finally ditching the phone business.
Yes I did say get out of the phone business. Here’s my prediction: Windows Phone 7 will be the ‘Zune’ to Apple’s iPhone and Google’s Android i.e. cool competitive technology with no chance of building the scale required to compete with those other platforms. It’s time to stop wasting money on phone which could be better leveraged elsewhere in the product portfolio.
A slimmed down Microsoft that was entirely focused on delivering the worlds best enterprise business platforms might not be ‘Cool’ but it would be a lot more interesting for both customers and shareholders. The development teams would regain the focus and investment dollars they need to extend their competitive advantages in this market and the move to achieving and maintaining leadership in cloud services would be accelerated. The change would also address the ‘Perception’ issues which are overshadowing investors opinions about the stock. Without the consumer business ‘Boat anchor’ the company could increase R&D spending in its core business AND return substantially more to share-holders in the form of dividend payments. Turning Microsoft into a dividend paying machine is one sure way to move the stock.
If the board and executive team really do recognize their responsibility to maximize value for shareholders then its time for them to focus the company on what it does really well; building the world’s best enterprise software and cloud services. Unfortunately stories about new attempts to re-brand the company just reinforce the view that senior leadership is missing the point and is intent on continuing the long march to irrelevance. If that’s the case then maybe it really is time for new management.
Why Regulators Need to Mandate Open Data Protocols in the Cloud
TechCrunch’s article about Intuit’s decision to shut down Quicken OnLine and not let users migrate their data to the new service Mint.com is an outstanding example of the emerging problem of ‘Data Lock-In’ and an issue which regulators need to get ahead of before its too late.
As the market for ‘Cloud’ services takes off we’re going to witness an explosion of new services whose value proposition is based on managing some aspects of the consumers life on-line. The big buckets already are life-centric services such as health and fitness, personal finances and of course managing you social graph. The expanding roster of new services will be accompanied by an equally large number of failures. That is the natural order of things in new markets. Not all new entrants will find a business model which works or is sustainable over the long term. Regulators need to start thinking about the consumer protection regimes that need to be put in place as this happens.
I was struck by some of the debate surrounding the Intuit issue by the number of folks who think its not a big deal because Quicken On-Line is a ‘Free’ service. That could not be further off the mark. One of the challenges for any new entrant in the crowded market for ‘Cloud’ services will be figuring out how to make their service as ‘Sticky’ as possible. After having invested a great deal to acquire new customers you want to make sure its not easy for them to leave or switch to a competitors service (Ever wonder why its incredibly difficult to dump you mobile provider? It’s called ‘Churn’ and ‘ARPU’)
One way to build ‘Stickiness’ is to ensure that new customers have to invest a significant amount of personal effort to extract the full benefits of the service. In Quicken Online’s case that was the time required to upload banking information and months and months of entering individual financial transactions. Making it easy for customers to export their data from the service would undermine ‘Stickiness’ and therefore increase the likely hood that customers might switch to a competitor’s services. In the highly competitive ‘Cloud’ service market it will be very tempting to find ways to bind users to services by making it difficult for them to take their data and run.
Consumers need to be educated about the dangers of ‘Data Lock-In’ so that they increasingly demand Open Data Access (ODA) from ‘Cloud’ service providers. I think its also about time that government regulators started thinking about mandating ODA for all service providers. These regulations would be a natural extension of existing privacy regulations by enshrining the principle that personal information of any sort belongs to the consumer, not the provider, and the consumer has the right to take that data with them when they leave a service. This would be a direct analog to ‘Number Portability’ requirements in the mobile telephony sector. Service providers would be required to ensure that all consumer owned data can be exported from their service using open standard formats and protocols.
Such a regulatory requirement would protect consumers of the sort of mess now faced by Inuit’s customers. It would also force service providers to focus on broader value proposition of their service rather than relying on ‘Data Lock-In’ as a competitive lever. This focus on ‘Functional’ competition would be a great thing for consumers and the market.
Fix for iPad ‘Error 14’
[Updated with Windows 7 File location]
The update of my iPad to version 3.2.1 of iOS failed last night. iTunes reported that an ‘Error 14’ had occured (Not very helpful) Subsequent attempts at un-docking and re-docking resulted in iTunes trying and failing to restore the device. Here’s how I fixed the problem.
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