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4 Reasons Why Big Tech Companies Continue Splitting

bridgeComputer Sciences, the giant IT consulting company founded in 1959, announced yesterday that it will be splitting into two different companies. Under the new structure, CSC Commercial will serve Fortune 1000 companies while CSC US Public Sector will focus on servicing government entities. Following HP, Symantec and eBay, CSC is the latest of a series of tech companies that have announced splits in the last year. Other legendary companies like EMC have been under constant pressure to spin off VMWare into a separate entity. This phenomenon is becoming a strong reality of large tech companies to the point that legendary venture capitalist Marc Andreessen presented the provocative thesis that most tech companies older than 20 years will be forced to split.

Despite the media fascination with the split of large tech companies, it’s pretty obvious that those decisions are extremely complicated. Companies like eBay, Symantec, HP, CSC or EMC are legendary institutions in the history of the tech industry and many of them have enjoyed stellar performances in the public markets. In that sense, what can motivate or force such institutions to split into different companies? While the explanations are far from obvious, there are a few factors that might indicate the possibility of a split.

One Business Unit Starts Growing Faster than the Core Business

One of the main scenarios for a company split is when a business unit of the company starts growing exponentially higher than the others. Arguably, this is the case of eBay in which Paypal’s revenues recently became larger than eBay’s core business. In those situations, many shareholders see a split as a potential solution to allow the fast growing segment to continue evolving faster while the core business units can grow without the distraction of a faster growing little brother.

Different Business Units Evolve Under Drastically Different Business Models

Another cause of a company split could be seen when two groups of business units within a company evolve under completely different business models. In this scenario, we are not necessarily referring to a group of business units growing faster than the rest of company but rather under different business models. HP could be used as an example of this scenario as the enterprise software business units have grown following a business model completely different from the core printing business. When faced with this scenario, companies typically faced challenges enforcing common strategies and goals which makes the split an appealing scenario.

Wall Street Doesn’t Know How to Value the Company

In many cases, the stock price of large tech companies have suffered because Wall Street have difficulties valuing the company with many diverse business models. In those scenarios, sometimes shareholders believe they will benefit from a split that could simplify the valuation of the stock. An example of this scenario (not from the tech world) can be found on GE recently announcing the sale of the assets of the GE Capital unit.

Agility in New and Competitive Markets Becomes Challenging

Every sector and geography in the world can be potentially considered a technology market. Some sectors also experience very fast grow and become extremely competitive with new generation of startups entering the space. In those situations, business units of a large company can experience continuous challenges to expand into new areas or geographies or simply remain competitive in fast growing spaces. As a result, many shareholders see a split as an option to allow the company to regain its agility without the pressures and distractions of the other business units.

 
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Posted by on May 21, 2015 in Uncategorized

 

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Not All IOT Platforms are Created Equal

wonder

A few days ago, I was part of a super interesting debate with several thought leaders in the internet of things (IOT) community about the evolution of IOT enterprise platforms. The core point of the debate was trying to identify the different channels by which enterprises will be exposed to IOT platforms.

In the past, I’ve been very vocal that the enterprise IOT will inevitably produce a new type of platform. That thesis is no longer a theoretical argument as we are already seeing the first flavors of IOT platforms starting to make inroads in the enterprise. Even though this generation of IOT platform represent the first iteration in the space, we can already see marked differences between different types of platforms. As an organization looking to embrace an IOT platform, this initial diversity can result very confusing.

IOT Platforms Provided by Traditional Enterprise Software Vendors

  • Overview: Traditional enterprise software vendors like Oracle or IBM are already heavily invested in extending their capabilities into the IOT space. As a result, these vendors are likely to bring to market IOT platforms that are deeply integrated with their existing technology stacks , vertical solutions and services.
  • Should Excel At: in my opinion, the IOT platforms produced by traditional enterprise software vendors are likely to be commercialized as part of industry specific industry solutions rather than standalone platforms. In that sense, this type of platform will excel at providing industry specific capabilities as well as tight integration with the products and platforms provided by the specific enterprise software vendor.
  • Should Not Be Great For: Complementing the previous point, we think IOT platforms provided by traditional enterprise software vendors will be commercialized as part of domain specific solutions and will require a decent level of professional services and training. In that sense, we can make the argument that those types of platforms won’t be great for building general purpose solutions without the involvement of the target enterprise software vendor.

IOT Services Provided by Platform as a Service Providers

  • Overview: Platform as a service (PaaS) providers like AWS, Azure or IBM are already providing specific services that abstract fundamental backend capabilities of IOT solutions. This trend is only going to increase in the near future as more and more cloud providers start building a presence in the IOT space.
  • Should Excel At: The IOT capabilities of PaaS solutions are typically provided in the form of individual services. In that sense, this type of solutions should see a broad adoption within the developer and startup communities. As a result, we should see a lot of the IOT PaaS services being adopted by startups providing smart devices or industry specific solutions as well as IT organizations building their own internal infrastructure.
  • Should Not Be Great For: The IOT capabilities provided by PaaS platforms are likely to lack the consistency of complete IOT platforms. Also, the cloud nature of this type of solution should present challenges for organizations building IOT solutions that require to be deployed within their premises.

IOT Services Provided by Smart Device Providers

  • Overview: From startups to big software companies like Cisco or Texas Instruments, IOT device providers are starting to build the first incarnations of IOT platforms that work consistently across their device portfolio. These IOT platforms will be tightly integrated with the specific family of hardware devices as well as the corresponding manufacturing toolkits.
  • Should Excel At: Platforms provided by IOT hardware providers should be best in class enabling solutions powered by those specific devices. Similarly, this type of platforms will provide consistent backend services and management experience for solutions powered by those smart devices.
  • Should Not Be Great For: While the IOT platforms provided by smart device providers should excel in solutions powered by those devices, they are likely to result limited for general purpose IOT solutions. In that sense, is unlikely that third parties will embrace this type of platforms for building new IOT solutions.

IOT Capabilities Provided by Enterprise Mobility Management Platforms

  • Overview: Enterprise mobile management platform(EMM) vendors such as BlackBerry or VMWare are starting to make the first inroads in the IOT space. If you think of mobile as a subset of IOT, the assumption that a lot of the current capabilities provided by those platforms should be adaptable to the IOT space makes some sense. As a result, we are likely to see that group of vendors providing hybrid platforms that enable both enterprise mobile and IOT solutions.
  • Should Excel At: If we use the enterprise mobile space as a reference, we are likely to see strong IOT security, device management and other operational capabilities included in the IOT platforms provided by traditional enterprise mobile management platform vendors. That model will allow the EMM vendor to extend their existing footprint in the enterprise mobile ecosystem into the IOT space with a consistent value proposition.
  • Should Not Be Great For: While IOT platforms provided by EMM vendors should excel in the security and management capabilities, they are likely to not result an ideal platform for developers building IOT solutions. For years, EMM vendors have evolved cultivating devops as their target customer which entails specific product delivery, sales and marketing models. EMM vendors should continue expanding on this model as they enter the IOT space.

New IOT Enterprise Platforms

  • Overview: Like any other transformational movement in the history of enterprise software, IOT will produce a new group of startups and platforms that will help enterprises build and manage the new generation of industrial solutions. These platforms should provide capabilities such as complex event processing, security, real time analytics, operational management while also providing a friendly interface for developers. We are already witnessing platforms like Kii, Xively, 2lemetry (Amazon), ThingWorx etc start to make progress in this space.
  • Should Excel At: From all the different channels explained in this article, the new wave of enterprise IOT platforms is likely to produce the biggest wave of innovation in the entire space. We should also expect to see these type of platforms being delivered using both on-premise and cloud models as well as leveraging open source vehicles. Additionally, these new group of platform is likely to provided the broadest levels of integration with new hardware manufactures and IOT solution providers.
  • Should Not Be Great For: As explained previously, the new generation of enterprise IOT platforms is likely to excel at innovation and openness. However, because this type of platforms are just evolving, we should not expect to see a lot of industry-specific solutions powered by these platforms in the immediate future. Additionally, as the enterprise OT space evolve, some of this new IOT platform startups will be acquired by larger enterprise software companies inheriting some new commercial and delivery models.
 
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Posted by on May 14, 2015 in Uncategorized

 

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The List of Companies that can Acquire Salesforce.com is Smaller than you Think   

sf2

Yesterday, Bloomberg broke the news that Salesforce.com have hired advisers to evaluate a potential takeover offer. The news spread incredibly rapidly and the CRM stock had to be halted due to volatility. When trading resumed, the stock was up 10% trading at an all time high.

As media outlets started speculating about the potential Salesforce.com acquirers, there was a consensus that only IBM, Google, Oracle, Microsoft and SAP have the sufficient market cap and cash to afford what could be considered the second highest technology acquisition of all times. However, as we start analyzing each potential acquirer, we quickly realize that the list of smaller than we think.

Let’s take a look:

Microsoft

  • Pros: Microsoft seems to have over $95B in cash that could be deployed into M&A activity. The Redmon company has established a strong relationship with Salesforce.com on the CRM side and an acquisition can help immediately help their Office365 and business suites. Other components of the Salesforce.com platform like the social analytics and marketing platform can also be a great fit for Microsoft’s portfolio.
  • Cons: While the Salesforce.com CRM suite seems to be a great fit for Microsoft, we can’t say the same about the the rest of the platform. Specifically, there is a strong competition between the Salesforce1/Heroku and Azure platforms which will be hard to reconcile. Additionally, keep in mind that Azure and Salesforce1 have been built in different technology stacks. Finally, a takeover offer doesn’t seem to be the style of the Satya Nadella and the current Microsoft board.

IBM

  • Pros: Acquiring Salesforce.com will represent a string accelerator toi IBM’s SaaS business. Also the Salesforce1 platform fits nicely with IBM’s aggressive investments in the mobile and IOT spaces.
  • Cons: With only about $9B in cash, IBM doesn’t seem to have enough liquidity to embark in such an aggressive acquisition. Also, similar to Microsoft, IBM is heavily invested in their cloud platform which presents some serious overlap with the Salesforce1/Heroku stacks.

Google

  • Pros:com can be a very strong and necessary addition to Google’s enterprise business. Additionally, Salesforce1/Heroku can help to expand Google Cloud’s capability set which is still trailing competitors like AWS or Azure.
  • Cons: Acquiring Salesforce.com will be a strong shift from Google’s current trajectory making it’s enterprise business one of the most relevant business units of the entire company. Also, a hostile takeover doesn’t seem align with Google’s culture.

SAP

  • Pros: SAP has embarked in an ambitious effort to modernize its existing business suite. Acquiring Salesforce.com could be the accelerator needed to effectively execute on those plans. The marketing and analytics suite seemed to be a perfect fit for SAP. Also, the Salesforce1/Heroku platforms can really help SAP’s struggling cloud business.
  • Cons: SAP seems to only have about $5B on hard which will require the German giant to take on some debt to pursue the acquisition.

Oracle

  • Pros: Oracle seems to be a great candidate to acquire Salesforce.com. The CRM and business platform can really simplify and help Oracle’s chaotic SaaS business. Salesforce1/Heroku can be a great fit for Oracle’s Cloud stack which is lagging competitors like IBM, AWS and Azure. Also, don’t forget that Salesforce.com leverages a lot of Oracle technology which will make the technical integration slightly less challenging. Finally the existing relationship between Benioff and Larry Ellison should not be ignored.
  • Cons: Oracle has reported to have around $14B in cash and another $30B in securities. In that sense, Oracle will have to assume some heavy debt to pursue the acquisition.

I hope the previous analysis makes sense. In addition to the previous list, Amazon, Alibaba and EMC could also be considered as potential acquirer although not at the same level of the ones included previous list. Is that enough for speculation? What do you think?

 
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Posted by on April 30, 2015 in Uncategorized

 

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Will Open Source Platforms Dominate Enterprise IOT ?

open source

Recently, I’ve been spending a lot of time thinking about the key elements that will be required to make IOT successful in enterprise settings. While IOT is clearly dominating the discussions in technology forums, the ecosystem of enterprise solution is still in very early days. As a result, many of the key elements of enterprise IOT platforms are still to be defined. When we think about those key elements of IOT platforms, we naturally tend to focus on technology. However, lately I’ve becoming convinced that the development and distribution models (open vs. closed source) is going to play an important role in how organizations embraced IOT platforms.

When we think about a way to categorize the different types of IOT platform, we can use a simple model that groups them based on its hosting topology (cloud vs. on-premise) and development-distribution model (closed sources vs. open source).

iot2

Following the previous taxonomy, we can clearly see that closed source solutions, whether deployed on-premise or in the cloud, are likely to see more adoption powering vertical-specific solutions in industries such as healthcare, retail, manufacturing, etc.

There are a number of reasons that can contribute to the adoption of closed source IOT solution in this model. For starters, vendors such as IBM or Oracle providing these type of IOT platform have a deep expertise in different verticals and a long history of developing solutions for customers in those industries. However, that’s not the only factor. The closed source nature of those IOT platforms makes it ideal for building solutions using the platform building blocks but almost impossible to extend the platform with new building blocks.

As an alternative to closed source IOT platforms, open source models can see a lot of adoption in the enterprise IOT environment. Below are some of the reasons that might facilitate the adoption of open source IOT platforms in the enterprise:

  • Adapters to custom devices: As IOT continues evolving, enterprises are likely to adopt all sorts of smart devices that go beyond the traditional development toolkits such as Arduino or RasperryPI. An open source platform will provide the right extensibility vehicles for supporting heterogenous devices in enterprise settings.
  • Integration with Enterprise Systems: Integration with corporate systems will be a fundamental component of enterprise IOT platforms. An open source model would allow enterprises and the developer community to implement new adapters to line of business systems so that they can be leveraged in an IOT solution.
  • Custom Protocols: Despite the increasing adoption of standard transport and encoding protocols within IOT device manufacturers, it is safe to expect some IOT vendors to create custom encoding formats or transport protocols that optimize their devices for certain conditions. An open source IOT platform will allow the vendors to incorporate their custom protocols, encoding mechanisms and other  elements into the platform so that they can be used in enterprise settings.
  • On-premise Hosting: Even though the cloud is destined to play a super important role in the adoption of enterprise IOT solutions, there will be many scenarios in which enterprises would prefer to deploy on-premise instances of an IOT platform. In those settings, open source models will offer the right levels of customization to support diverse enterprise environments.
  • New Foundational Capabilities: As enterprises reinvent themselves by embracing smart devices in industrial settings, the number of requirements for an enterprise IOT platform is destined to grow exponentially. An open source model will allow enterprises to customize and extend the IOT platform with new foundational capabilities that are required in their scenarios. As more and more foundational capabilities get added to the platform, other enterprises can benefit from the collective knowledge of the platform
  • Customer Confidence: Like any other emerging trend in enterprise software, the IOT industry is likely to produce a new group of startups that provide platforms for enterprise IOT deployments. Large enterprises typically express concerns when working with new startup platforms. Open source models typically help to alleviate those concerns as enterprises can help to maintain and evolve the code base if the platform vendor goes out of business.

These are just some of the reasons I think might propel open source enterprise IOT platforms as one of the most dominant models in the space. As I said before, I don’t have any clear answers but hopefully the ideas explained in this post will trigger some interesting debates.

 
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Posted by on April 24, 2015 in Uncategorized

 

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The Relationship Between Public and Private Markets Valuations

A few days ago, I wrote about the importance for startup CEOs to have certain level of familiarity with public market dynamics. Apparently, the blog post sparked some very interesting debates about the relationship between public and private markets dynamics.  So it’s time to follow up with a new post ;)

While public and private markets operate under fundamentally different models they also share a lot of commonalities. More importantly, public and private markets influence each other through different elements, the most important of which tends to drive entrepreneurs crazy and puzzle the minds of investors: COMPANY VALUATION. Let’s take a look at a couple of recent examples about the relationship between public and private markets.

Private Markets Influencing Public Markets: Spotify, Pandora and Unicorns

Last week, music service Spotify announced that it is raising $400 Million at a $8.4 Billion valuation. The result of the announcement had an immediate impact rival music service Pandora which shares rose almost 4%.

pandora

Pandora’s stock behavior during last week is a classic example of how a private market valuation can influence a public market stock. Pandora’s current market cap is about $3.5 billion. Although puzzling, the reasoning was very simple.  People likely did the math and applied Spotify’s value to Pandora, which if it were Spotify, would be valued at about 2.5x its current price, theoretically putting the company’s share price closer to the $42 levels it traded at in the past.

The Unicorns Example

Is just been a quarter since the start of the year but it’s pretty obvious that the number of public offerings has slowed down compared to previous years. Among other reasons, investors believe the recent high valuations in private markets has something to do with that. Investors often refer to that phenomenon as “the unicorn effect”.

ipos

Unicorns is a recent term used in the technology industry to refer to companies like Uber, Slack, Dropbox, Pinterest, etc that have are currently valued over $1 Billion Dollars. Years ago, public markets was the only available vehicle to achieve those valuations. Today, the large amount of private funds available have allowed the unicorns to hit valuations that will be hard to live up to in an IPO offering. As a result, those companies have decided to stay private impacting the current IPO climate.

Public Markets Influencing Private Markets: The Box and Dropbox

The public-private market relationship is completely bidirectional. A great example of this is how IPO valuations influence private market valuations. Let’s take Box and Dropbox as an example.

Enterprise software company Box went public a few months ago at an astonishing $2.7 Billion market cap. The public offering came right after a private round of funding that valued Box at $2.4 Billion making the IPO not a great return for the lead investors in that round. Box is often compared with rival Dropbox which current private valuation is bordering the $10 Billion mark. Even though Dropbox doesn’t seem to be currently raising a new round, it is pretty obvious that any new valuations will be inevitably compared against Box’s current market cap.

The previous examples illustrate some of the tangible relationships between private and public markets. While both type of markets operate under different models, they are inevitably linked by the dynamics of valuations.

 
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Posted by on April 15, 2015 in Uncategorized

 

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Building the Industrial Enterprise Part I: The Elements of an IOT Platform

As enterprises start embracing smart devices to automate business processes, the need for a platform will evolve all the way from a fancy requirement to a key element of enterprise IOT deployments. In the past, I have been vocal about as the adoption of new forms of data consumption or data production technologies in the enterprise typically creates new requirements in areas such as security, analytics, integration etc. The internet of things (IOT) promises to take this principle to a whole new level producing new platforms that will power the industrial enterprise.

While the initial flavors of enterprise IOT platforms are starting to emerge, they are still very basic from the capability standpoint. That statement can only seem logical if we consider the fact that enterprises are just starting to adopt IOT technologies and the requirements of real world IOT solutions are rapidly changing. Having said that, there are a group of capabilities that we believe will be foundational to enterprise IOT platform. Let’s start with the following diagram that I believe provides a good foundation for an enterprise IOT platform.

iot1

From the previous diagram, we can identity the following capabilities that should be considered when considering enterprise IOT solutions.

IOT Protocol Layers

An enterprise IOT platform should be able to receive and send data using IOT protocols such as XMPP, MQTT as well as binary payload formats such as protocol buffers. This layer should adapt the data produced from smart devices so that it can be processed by other elements of an enterprise IOT platform.

Complex Event Processing  Layer

Enterprise IOT solutions are notorious for continuously producing large volumes of data. The vast majority of that data comes in the form of events that provide telemetry data and don’t have a lot of meaning individually but that can be aggregated to describe specific conditions. This characteristic makes it completely unpractical to integrate IOT devices directly with business APIs. Instead, a complex event processing layer will aggregate the data produce

Event Integration Layer

As events are collected from different devices in an IOT topology and processed by the CEP layer, the results should be integrated with different backend systems. To enable this capability, enterprise IOT platforms should enable connectivity with enterprise backend systems or APIs. This model will facilitate the integration between the data produced by smart devices and traditional enterprise systems.

Real Time Analytics

Providing real time telemetry and visualization about the data generated by smart devices is an essential element of an enterprise IOT solution. To enable this capability, enterprise IOT platforms should provide real time analytics features that can visualize the aggregated data in real time providing intelligence about the runtime behavior of enterprise IOT deployments.

Mobile Device Management

Enterprise IOT topologies are typically composed of hundreds or thousands of smart devices. The security and management of those devices should be one of the key capabilities of enterprise IOT solutions. In that sense, enterprise IOT platforms should include a flavor of device management that can scale to thousands or tens of thousands of devices.

Data Security

As any other new trend in the history of enterprise software, enterprise IOT will require new levels of data protection, privacy and access control. Those capabilities should be present at the platform level so that they can be holistically applied across different solutions.

The capabilities listed in the previous sections are just some of the essential elements of an enterprise IOT platform. As the enterprise IOT industry evolves, new requirements and capabilities will emerge that will shape the next generation of enterprise IOT platforms. In future posts we will analyze the individual elements of an enterprise IOT platform

 
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Posted by on April 9, 2015 in enterprise software

 

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Why Startup CEOs Should Understand Public Markets

Uptrend stacks coins,on the financial stock charts as backgrou

A few days ago, during a dinner with a few experienced tech executives, we had a super interesting discussion about the current state of the public markets and its relationship with the venture industry. One of the topics we were debating was the value of understanding and following the state of public markets as an entrepreneur and CEO of  a private company.

The discussion was particularly interesting to me as I have been advocating the value of knowing to speak the language of public markets for private company CEOs. In my opinion, understanding the dynamics of public markets can be incredibly useful for a variety of reasons:

Understanding of Public Market is a Very Useful Skill

Socks, bonds, options, etc are statistical principles that describe the state of a company, industry, a country or the entire world. Understanding those principles can result incredibly beneficial during negotiations with potential large customers or investors. Whether you are a technologist, business person or an investor, I’ve found that understanding the language of public markets tends to be a very complementary skill that can become helpful is various situations.

VCs Often Use Public Market Information to Calibrate Private Market Valuations

If you are raising money for your startup, it doesn’t hurt to validate the current state of public markets. Whether you like it or not, venture capitalists (VC) typically look at public market valuations as a way to calibrate the valuations of their investments. This is particularly true if your company is on a trajectory to go public at some point.

Public Market Downturns Affect the VC Industry

Public markets are the ultimate representation of an economic downturn. The indicators of difficult economic times ultimately affect the VC circles. If you were around during the 2000s or 2008 crisis, you might remember that it was impossible to raise a round of VC funding regardless of the quality of the investment.

Public Market Investors are Becoming More Active in Private Markets

In the last few years, a number of hedge funds and private equity firms have started to make inroads in the vC market. Those public market investors are typically lured by the opportunity to invest in fast growing private companies before a potential public offering. As a result, many startups are now raising institutional rounds from traditional public equity investors. In those circumstances, the understanding of public market dynamics can result incredibly helpful.

These are just some of the reasons why I believe developing an understanding of pubic markets can be incredibly valuable in your career. At the end, public markets are a language that you should know how to speak and that will expand your perspectives of your work, industry and even your life.

 
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Posted by on April 3, 2015 in Uncategorized

 

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