Andreessen Horowitz and The End of Windows

I read a very interesting post by Ben Evans, a partner at Andreessen Horowitz, titled "Microsoft, capitulation, and the end of Windows Everywhere."

In many ways, what he says about Microsoft is right in alignment with our writing over the past few years.  In some other ways, namely about the future of computing, I am not sure that extrapolating the present gives the picture about the future winners.  It almost never does.

Mr. Evans introduces his article by saying that it's very difficult for large companies--like Cisco, HP, IBM and Microsoft--to throw in the towel on a business.  His identification of internal corporate processes driven by strategy teams and abetted by high price, outside consultants as outlawing giving up is hilarious, and true. I've sat through many of the "hundred-page decks" myself, arguing that tacking while staying the course was the best.

Back in 2013, we wrote,

• Establishing our Windows platform across the PC, tablet, phone, server, and cloud to drive a thriving ecosystem of developers, unify the cross-device user experience, and increase agility when bringing new advances to market.(This means that the legacy though currently very profitable will inhibit real innovation.  Microsoft needs to let go of Windows and its legacy)

Ben Evans puts it succinctly, "Windows is not a point of leverage for Microsoft in mobile."  

He also debunks the strategy put forward by Microsoft CEO Satya Nadella which emphasized courting the developer community to build apps for Windows 10, which will appear across all computing form factors, from tablets to phones and desktops.  Again, Mr. Evans writes, "Uber doesn't have a desktop Windows app, and neither does Instacart, Pinterest, or Instagram.  The apps and services that consumers care about are either smartphone-only or address the desktop using the web, with only partial exceptions for the enterprise." 

He unfortunately confirms my suspicion that my value-driven move to Windows Phone on Nokia devices will leave me abandoned in the desert, as Microsoft often does to its loyal customers. Windows 10 will mean nothing to me on this device, as I have the look and feel, and the great apps like Here Maps already.  

We are in rabid agreement that "Microsoft has missed mobile," but I am not sure that I agree with Ben's  conclusion that all computing will be done on phones.  

The most current, relatively disinterested data on smartphone usage comes from Pew Research, and I direct my readers to their surveys and conclusions.  But, let's go back to another strand from the IT Guru Business, namely "Big Data," and Smart Cities and Smart Corporations.  We know that the back end of these houses are going to need massive computing power, mainly driven by cloud-style models with consulting and analytical support.  

On the front end, where are the analysts, directors, and VPs going to do all their data analysis, scenario testing, and supporting work for presentations?  Certainly, none of this can or will be done on a phone, unless people start carrying around 30" flat screens!  If this phenomenon is real, as all the tech CEOs have said, since they are reporting their multi-billion dollar revenue run rates on every conference call, then surely this significant transformation of enterprise research, analysis, business forecasting, risk management, and financial forecasting won't by supported by the growth in the number of smartphones.

Suddenly, a device like Microsoft Surface looks like a godsend, or Apple's Macbook Airs.  

Pew's research shows that, especially for younger users, whether students or entry level employees, smartphones are used to relieve boredom, to text, send photos, find friends who are in the neighborhood and other non-GDP enhancing uses.  

Is the smartphone the future of "computing?"  Who knows?  But, it surely depends on what's meant by "computing," The venture backed companies developing apps are doing it in office spaces, on big displays, backed by computing power supplied by Amazon Web Services and others.  They may use their phones to order pizza at the desk, but the future of computing is surely more complicated and nuanced than that.  

IBM CEO: All Is Not Well With Watson

Well, the big announcement came from IBM, and it wasn't at all surprising.  It also leaves questions unanswered.  The NYT headline reads, "IBM Is Betting That Watson Can Earn Its Keep."

The Watson Business group will have three relevant features that speak to the weakness of the initial concept. 

• Locating it in the East Village far from Armonk speaks to the need to develop a different kind of culture from Big Blue. It is also allows the company to draw from a wider base outside of New York City, since it is easier to get to the Village than it is to Armonk. Princeton and the little tech belt in New Jersey come to mind.
• Experts in industries will be part of the development team. This would presumably address problems the Watson project has had with clients, including WellPoint. 
• The group will have a small venture fund, which clearly says that the basic computing platform needs innovation around its analytical core which can't be done quickly through IBM. 

Henry Morris of IDC says what we've been saying for some time,“Big Data by itself isn't value, it has to deliver recommendations about what to do,"  It can't do that until IBM works directly with its customers to help them understand the dynamics of their own businesses in a way that's helpful to the computer's modes of operation.

Yesterday's comments from WellPoint's Vice President about the IBM Watson experience are a bit puzzling. She said, "...Watson initially took too long to "learn" WellPoint's policies. The task was then to check against treatments for beneficiaries to see if they complied with the policies.  This is not at all a super computing task. IBM's inability to essentially design Google-type searches around the problem seems hard to believe.

The problem, as we said yesterday, is not all about hardware or software--though the latter is a real issue--but it's about being able to work together with the customer and to really understand their needs, as opposed to fobbing off an order for some iron, software and support, which is the traditional IT package. 

On the next conference call, look for analysts to seek revised and specific goals for the Watson Business Group like revenue, net effects on expenses, and earnings contribution to the Road Map.  Get working on those slides now!

Finally, the comparison of the current CEO's early tenure with that of former CEO Sam Palmisano leaves out the luck factor and timing of market and IT cycles.  This is a different time and a different environment, and there needs to be more work done on IBM's sales and customer service paradigms than was evident during headier times.  

More Thoughts on Cisco and the New IT

We've been thinking about 'big data' in many posts, and it is now one of the common buzzwords on the lips of most tech CEOs, institutional investors, and analysts. This phrase, along with many others, such as 'software defined networks,' 'virtualization,' 'SaaS,' and 'the cloud,' mean that IT is undergoing a fundamental shift in the way that customers interact with technology, corporations use data, and buyers evaluate and pay for IT equipment and services.

So, is this sea change the reason that the Four Horsemen of Tech--IBM, Microsoft, HP, and Cisco--are struggling with top line revenue growth and earnings?  Is this why their shares sport historically low absolute and relative multiples?  It could be, but it seems as if there's something wrong with the market's view, as there was during the Internet bubble and during the Y2K crisis-that-wasn't.

Companies in other, more prosaic industries deal with the slow death of their cash flow rich businesses, and the better companies adapt or reinvent their portfolios.  Think about the check printing business for financial printers like Deluxe, Merrill Corporation and John Harland.  Who writes checks?  I use my iPhone and so on, yada yada.  Well, Deluxe has done quite well by branching out into search engine optimization, brand identity, and e-marketing, while still maintaining a check business that is providing cash for an array of financial services.  The Four Horsemen should be able to navigate their industry change, but some are playing a stronger hand than others, but this fact alone won't determine who will take the pot at the end.  That's why stock picking is an art.

Today, in the aftermath of Cisco's sell-off for poor guidance, I read one analyst who essentially said that Cisco was finished because of their dependence on selling high margin gear for an evolving system of software defined networks. The analyst is being myopic just as the banking analysts were who said checks are going away. Cisco management admitted on their call that they realized three years ago that they had to prepare for a major product line shift in their core business, and it is underway in the most recent quarter.  They may take a while to get it right, but having a huge market place presence and a fortress balance sheet is a strong hand for Cisco to hold.

Looking at Cisco's board, I noticed that Dick Kovacevich, the retired CEO of Wells Fargo is a director. Dick made an extremely challenging "merger of equals" work through regulatory, economic, operational, cultural and management challenges.  Wells Fargo was, and is, a bank that had consistently made large investments in technology.  Having the perspective of a financial services buyer on the board is extremely valuable; plus, I know from seeing him operate on the board of one my employers that he is a man of integrity with a strong sense of duty and loyalty to his shareholder constituency.  There are other strong directors who know tech from a different angle, like Marc Benioff and Arun Sarin who provided innovative software and hardware to customers.

Thinking about the "big data" opportunity, it isn't clear that any of the Four is building an insurmountable lead, because the nature of the opportunity, like every market, will have layers and segments which will require different business models and capabilities.  On the high end, for users like the U.S. government and its agencies, and for big university research systems, IBM and Cray Research have established positions and they compete with NEC, Hitachi, and other competitors.  Companies like HP and Dell who want to pursue this opportunity will come into it by building inexpensive high performance computing machines from commodity parts, thus analysts say undercutting margins for products like IBM's Watson and Cray's XC30-Cascade.  I doubt that the buyers will look at their decisions in this simplistic way, but we'll have to wait, see and learn.

HP went and bet the farm on buying an analytic engine through Autonomy.  This may or may not be enough, but they recklessly overpaid. Cisco, meanwhile, is really making a big run at network security and this opportunity can probably be more financially rewarding, faster than the big data opportunity.

Finally, IT buyers are not like Wal-Mart buying shampoo.  The CIO reports to someone who can put her out of a job for a catastrophic failure or a loss of confidential personal or financial data that invites regulatory bodies in for fines and civil lawsuits.  CIOs like meeting their peers and talking about they have recently implemented the 'next big thing.' I have lived through millions being wasted on business intelligence software, digital dashboards for real-time analytics, and data centers with robotic arms to swap data cartridges for IBM and Hitachi mainframes.  None of those CIOs pinched pennies.

Here is an example from a real life customer which is implementing a very large scale super computer project in Japan.  The Railway Technical Research Institute is dealing with a train system that is the transportation backbone for the country, where an unanticipated seismic event affecting bullet trains with several hundred passengers would be catastrophic.  In this case, a provider who could provide experience and a tightly integrated system capable of handling thousands of processors and a tested analytical engine got the bid.  The market for high performance computing and big data will definitely have segments in which many players can participate.



 

The Big Hype Begins for Big Data

Back in May 2012, we started looking into "big data," as it was starting to make the rounds of university alumni magazines, technomags, and the occasional CEO speech, as with HP. In this construction, big data was a step-child of "cloud computing," the other big marketing concept.

You can be sure that big data has arrived as a big time concept when academics jump in, and as the New York Times reports, they have done in a big way.

If you want to see how foggy the concept is, check out this video from the Institute for Data Sciences and Engineering, Fu Foundation School of Engineering at Columbia University.  Between one the heads of the IDSE, Professor McKeowen and Dean Goldfarb, they stumble around the edges without being able to cogently describe what exactly the Institute will be teaching and training practitioners to do.

The Times reports today that data scientists will be among the most highly recruited graduates in the coming years.  Among the leading commercial companies employing "big data" concepts are Google and Amazon.  Most of what these future graduates will be working on will be fairly boring and routine. They will become like the "Microserfs" who worked on the early code for Microsoft Office: important work, but mind numbing. Of course, many of these engineers got wealthy through stock options in the then smaller company.

On the other hand, using the statistical, computer science, and decision science concepts for bioinformatics and personalized medicine will be interesting, but the data scientists will probably function like grunts,on an multidisciplinary team headed up by physicians or biological researchers.

Mike Loukides on the O'Reilly Radar has a good introduction to the broad contours of data sciences.

Coincidentally, about two weeks ago, I finished an interesting book by Samuel Arbesman, "The Half-Life of Facts."  Dr. Arbesman's Ph.D. is in computational biology, but his book is about a collection of inter-related issues and makes good reading.

Arbesman warns against the "big data" hype by saying the utility of oceans of data to determine the optimal pattern of traffic light timing is Rio ("Smart Cities") is rather limited.  The thorniest problems will require "long data," i.e. time series and a different set of analytics.

If you're buying HP, Cisco, IBM, VMware or other stocks for the big data play: relax, you're WAY early.

HP, Clouds and Big Data Again

Along with not being a lawyer, I am not an IT professional, and I'm proud to make both statements.  Since my original post on the cloud and big data as it affects HP, I've done quite a bit more research into these issues.  If I can borrow a lyric from Judy Collins' "Both Sides Now," I would say, "I've looked at clouds from both sides now."

I stand by my first, somewhat intuitive conclusion, and that is that "The Cloud" is largely hype, something that IT gurus enjoy as they wrap straightforward concepts in a cocoon of mystery.  At the same time, I've come to a different conclusion about first generation cloud players, namely that many companies will have their hands in delivering cloud solutions.  While the industry giants like IBM, Oracle, Cisco, VM Ware, HP, Amazon and Cray will all have roles to play in different segments, innovative startups will add their secret sauces until the industry inevitably consolidates, once the first generation cloud implementations are mature.

Although "cloud" is the current buzzword, the underlying approach and technologies have been developed over years and decades.  With the explosion of corporate data centers has come a massive sprawl of physical servers, which has flattened out at some 32 million servers, according to a 2011 white paper prepared by IDC, sponsored by HP.

As virtualization of servers really started to take off in the 2005 period, today the installed base of logical servers stands at more than 80 million units, according to IDC.  CTOs benefited from falling unit prices of servers, as well as from the flattening out of demand in units, as virtualization of machines accelerated.  Energy costs of data center management have been relatively constant, helped by more efficient servers, virtualization, stable utility rates, and energy conservation measures within the data centers.

The one cost component that has rampaged out of control is "Management and Administration," according to the IDC report.  The industry wide spend is some $50 billion.  As corporations saw their IT infrastructures start to sprawl, they became choked by an explosion of virtual machine images, the consequent overprovisioning of storage and data network facilities, and even a physical thicket of cabling.

Within the management and administrative expenditures, CIOs/CTOs and data center managers have had to focus on very micro issues like tracking down the causes of individual CPU failures within jerry-rigged racks of servers.  For this problem, HP has developed HP Operations Orchestration software that allows managers to design work flows and automate the processes for monitoring system performance, availability, down times, and the ability to quickly document and identify root causes.

According to the IDC report,

"Many large organizations have serious sprawl and incompatibility issues created by years of meeting their immediate needs by using a project-by-project approach." 

 So, HP and others looking to establish dominant positions in converged infrastructure management and cloud computing have developed offerings that sometimes combine optimized servers, storage and network appliances, along with management software and consulting.

The more a reader looks through the myriad offerings from HP, the more obvious it is that the knowledge, experience, and technical as well as business acumen of the consultants will be the differentiating point for the customer when choosing between, say HP and IBM.

The move to a fully automated converged IT infrastructure will reduce annual IT costs to provide a unit of workload throughput by several orders of magnitude, according to the IDC report.  That's why Meg Whitman talked about the unprecedented opportunity in the "cloud."

Remember, though that some parts of cloud computing, such as public clouds are, and likely will continue to be dominated by Amazon and perhaps other players like it.  This is a commodity business.

Large corporations may choose to develop "private clouds," or hybrid models where some lower-value data are stored on public clouds while mission-critical data remain in private clouds.  HP certainly has the ingredients and a positive legacy of relationships with the big customers to suggest that it can succeed.

It will, however, be competing with IBM, Accenture, Oracle, VMware and others.  It will take time and expense to upgrade and expand the consulting and customer interface talent pools.

A part of the offering for the converged infrastructure solution should be the ability to handle and extract value from "big data," which was one of the main reasons for acquiring Autonomy.  Unfortunately, only about $2.4 billion of the $11.2 billion of assets from the Autonomy purchase remain on the books after the last write-down.

Thinking back to the Analyst Day demo of Autonomy's IDOL engine, it really was a relatively primitive application, in which real time data from various social media channels were monitored, and counts were made by keywords.  The most frequently occurring keywords then scrolled across a dashboard in different sizes and colors of type.  This might be an application that a marketing officer might use, but it hardly seems mission critical.  If HP wants to play in big data, it remains to be seen if the Autonomy acquisition will be enough to provide the offerings HP needs for its customers.

Another area of hype is in the concept of "big data" itself.  The handling of extremely large, complex data streams made up of words, numbers, and symbols, along with real analytical engines beyond counting, is not something that can be done by many players in the business today.  These gigantic data sets are typified by university or private genetic research operations, or global meteorological networks, or private energy development and production companies. These data sets cannot efficiently be moved routinely back and forth among cloud servers.  Cray, Inc.  is very active with these kind of customers, and they lead with customized data appliances and analytical tools.

HP seems to be trying to extract whatever value it can out of Autonomy, but it may need to partner, or perhaps acquire, smaller, more specialized players who develop unique capabilities in  the field of big data.  The whole notion of HP acquiring a company should induce afib in hearts of their shareholders.  Also, aside from a selfish need for liquidity, it's hard to believe an innovative entrepreneur would want to see her company absorbed within a dysfunctional HP.

Cray, by contrast, seems to be effectively implementing a partnership model for many of its offerings.

2013 should be a "proof of concept" year for HP in the whole area of "cloud computing."