Google and Microsoft Shuffle the Deck

July 18, 2014

Each company is using different card tricks.

I see a common theme in the termination of employees at Microsoft and the management redeal at Google.

I read “Beyond 12,500 Former Nokia Employees, Who Else Is Microsoft Laying Off?” I am okay with a Microsoft watcher point out that not just Nokia staff getting the axe. The comment that caught my attention reveals how serious a problem Microsoft faces. Here’s the passage I noted:

Under the new structure, a number of Windows engineers, primarily dedicated testers, will no longer be needed….Instead, program managers and development engineers will be taking on new responsibilities, such as testing hypotheses. The goal is to make the OS team work more like lean startups than a more regimented and plodding one adhering two- to three-year planning, development, testing cycles.

As I understand this, a company almost four decades into its life cycle wants to be “like lean start ups”. I am not sure if my experience is similar to that of other professionals, but working with fewer people does not equal a start up. In a start up, life is pretty crazy. Need a purchase order? Well, someone has to work up that system. Need to get reimbursed for that trade show party? No problem we’ll get a check cut. Over time, humans get tired of crazy and set up routines, systems, and procedures. The thrill of a start up is going to be difficult to emulate at Microsoft.

That’s the core problem. Microsoft has missed or just plain failed with Internet search, unified experiences across devices, online advertising, enterprise search, and improving is core applications. Adding features that a small percentage of users try is not innovation. Microsoft is no longer a start up and firing people will not make it one. Microsoft is an aircraft carrier that takes a long time to turn, to stop, and redirect. Microsoft has to demonstrate to its stakeholders that it is taking purposeful action. Firing thousands of people makes headlines. It does not create new products, services, or meaningful innovations. IBM has decided that throwing billions of dollars at project that “could” deliver big revenue is almost as wild and wooly.

Now to Google. The company reported its quarterly earnings. Cheerleaders for the company point to growth in ad revenue. The New York Times states:

Google’s revenue for the quarter was $15.96 billion, an increase of 22 percent over the year-ago quarter.

Tucked into the article were several comments I marked as indicators of the friction Google faces:

ITEM: “The price that advertisers pay each time someone clicks on an ad — or “cost per click,” in Google talk — dropped 6 percent from the year-ago quarter, largely because of the shift to increased mobile advertising.”

ITEM: “Mobile, however, is something that Facebook seems to have cracked. The social media giant accounted for almost 16 percent of mobile advertising dollars spent around the world last year, eMarketer estimates, up from 9 percent in 2012. Google dropped to a 41.5 percent share of the mobile ad market last year, down from 49.8 percent in 2012.”

ITEM: ““There’s a little bit of concern in the markets that there’s some drunken spending going on,” said Mark Mahaney, an Internet analyst with RBC Capital Markets.”

The New York Times’ article omitted one point I found interesting:

Excluding its cost of revenue, Google’s core expenses in the second quarter jumped 26 percent from last year. Source: http://bit.ly/Uf8JPM.

The Google “core expenses” are creeping up. Amazon has this problem as well. Is there a reason to worry about the online ad giant? Not for me. But the “drunken spending” comments, while clever, have the ring of truth. Then the swift departure of Glass director Babak Parviz (Amir Parviz, Amirparviz, or Parvis) suggests disenchantment somewhere between the self assembly wizard and Goggle management. After a decade of effort, Google has yet to demonstrate that it can create a no advertising revenue stream of significant magnitude for a $60 billion a year company.

Microsoft’s and Google’s recent actions make clear that both companies are trying to adapt to realities of today’s market. Both companies are under increasing pressure to “just make it work.” Three card Monte

Stephen E Arnold, July 18, 2014

Bing Search: Will It Be Forgotten

July 17, 2014

I read “Bing Implements ‘Right to Be Forgotten’ Ruling, Asks Applicants ‘Are You Famous?’” My reaction to is that search is Google. Microsoft wants to be compliant with the European Union. The Register took a different view of the situation. In a story “Forgotten Bing Responds to Search Index ECJ Rule: Hello? Remember Us?” People don’t want to be in the Google index but don’t seem to think about Bing index.

Microsoft wants respect. “Microsoft to Cut Up to 18,0000 Jobs over Next Year.” some of these soon0to-be-RIFed employees may create blogs and other online content. Microsoft executives may want to make some content about itself go away.

The comment by Daniel Ives, an analyst with FRB Capital Markets, explain the situation like this:

“Under the Ballmer era, there were many layers of management and a plethora of expensive initiatives being funded that has thus hurt the strategic and financial position the company is in, especially in light of digesting the Nokia acquisition,” says Ives. “Nadella is using today as an opportunity to make sure that Microsoft is ready and well positioned to embark on its next chapter of growth around mobile and cloud.”

What strikes me is that the observation can apply to Amazon and Google equally well. As these companies expand, generating new revenues and delivering meaningful profit becomes more and more difficult.

Microsoft’s plight may be a harbinger for other firms as well. Search is a bit of a muddle at Microsoft and time may be running out for Bing to become a substantial contributor to Microsoft’s financial position.

Stephen E Arnold, July 17, 2014

HP: Chasing Autonomy Execs the Next Big Thing

June 28, 2014

I read “HP Will Settle 3 Lawsuits Over Its $11 Billion Autonomy Acquisition, Urge Shareholders To Sue Autonomy.” The settlement approach makes sense; otherwise, attorneys would be able to purchase the total output of McLaren and Ferrari before a final decision stumbles from a courtroom.

The write up states:

To recap: less than a year after buying British software maker Autonomy for $11 billion, HP wrote off $8.8 billion and alleged that Autonomy had improperly inflated its revenues and margins, to the tune of $5 billion. HP called it fraud, named a whole bunch of ways it believed Autonomy had done this, and asked for investigations by the authorities.

But the portion of the article that caught my attention was this passage:

The shareholders will agree to drop all claims against HP’s executives and board members, including CEO Meg Whitman, but they will be free to pursue former officials at Autonomy. Plus, the shareholders’ attorneys will “receive fees for helping HP pursue any further claims” Reuters reports.

My take is that HP wants to covert Sir Michael Lynch from the most successful software entrepreneur in England to scapegoat. The only hitch in the git along is that HP bought a company after Board approval.

Fascinating, but the approach may lead to a fundamental breakthrough in computing. That processing power can be applied to HP decision theory problems. Now that Autonomy IDOL is a cloud service, I assume a computer revolution is not too challenging for HP management.

Stephen E Arnold, June 28, 2014

Amazon and Book Publishers: WalMart 101

June 25, 2014

I have been thinking about the reactions to Amazon’s approach to book publishing. I enjoyed the tone, examples, and modest outrage expressed in “New Amazon Terms Amount to ‘Assisted Suicde’ for Book Industry, Experts Claim.” The “claim” is a nice dodge too.

Amazon has a cost problem. Without cutting and pasting the financials, the Bezos machine faces a future with more costs than revenues. Now one can gild the lily in the manner of Wall Street cheerleaders, but the fact is Amazon needs revenue. Expenses keep on rising and one can only hope that hefty profits will characterize the company’s performance over the next nine to 12 months. How does one solve a problem with essentially uncontrollable costs for hardware, software, infrastructures, pesky humans, etc.? Easy. Find ways to generate new money.

Enter squeezing the hapless, ineffectual suppliers. WalMart 101.

The article points out that Amazon is offering book publishers assisted suicide. Perhaps some of these former gatekeepers should opt in. The digital revolution has been underway for a few years. Book publishers want life to be the way it was when owning a book meant the reader was a cut above the general population.

The article states:

The Bookseller’s editor Philip Jones said the ongoing negotiations “indicate a direction of travel that would see [Amazon] take a sizeable control over both a publisher’s inventory and its marketing”, and that “publishers spoken to – and obviously they will only speak on condition of complete anonymity – have every right to be concerned. This is a form of assisted suicide for the book business, driven by the idea that publishers are a sickly lot unable to run even the most basic operations efficiently.”

Perhaps it is a trifle too late? The Gutenberg museum in Strasbourg may want to start development of an exhibit showcasing publishing as it was in the 1990s.

Stephen E Arnold, June 25, 2014

Huge Bets on Search: Spreadsheet Fever Rages

June 11, 2014

The news of the $70 million injected into Elasticsearch caused me to check out Crunchbase and some other sources of funding data. I looked at a handful of search and content processing vendors in the departures lounge. I am supposed to be retired, but Zurich beckons.

How large is the market for search and content processing software and services. As a former laborer in the vineyards of Halliburton Nuclear and Booz, Allen & Hamilton, the answer is, “You can charge as much as you want when the customer is in a corner.” The flipside of this adage is, “You can’t charge as much when there are many low cost options.”

In my view, search—regardless of the window dressing slapped on decades old systems and methods—is sort of yesterday. One of the goslings posted a list of Hewlett Packard’s verbal arabesques to explain IDOL search as everything EXCEPT search. The HP verbal arabesques make my point:

Search is not going to generate big money going forward.

Is search (regardless of the words used to describe it) a money pit like as the Tom Hanks’ motion picture made vivid?

For that reason, I am wondering what investors are thinking as they pump money into search and content processing companies. The largest revenue generator in the search sector is either Google or Autonomy. Google, as you may know, is in the online advertising business. Search is a Trojan horse. Search is free and the clicks trigger the GoTo/Overture mechanism that caused Google’s moment of inspiration. Before the Google IPO, Google ponied up some dough to Yahoo regarding alleged borrowing of pay to play methods.

Autonomy focused on the enterprise. Between 1996 and October 2011, Sir Michael Lynch grew the company to about $1 billion in revenues. HP’s prescient and always interesting management paid $10.3 billion for Autonomy and then wrote off $8 billion, aimed allegations at Autonomy at the company, and, in general, made it clear that HP was essentially a printer ink business with what seems to be great faith in IDOL, DRE, and assorted rich media tools.

More recently, IBM, the subject of an entertaining analysis The Decline and Fall of IBM by Robert X. Cringely suggested that Watson would grow to be a $10 billion in revenue business. Not a goal to ignore. The fact that Watson is a collection of home grown widgets and open source search technology. I think Watson’s last search contribution was creating a recipe for a tamarind flavored sauce. IBM is probably staffed with folks smarter than I. But a billion dollar bet with a goal of building a revenue stream 10 to 12 times greater than Autonomy’s in one third the time. Wowza.

Let’s do some simple addition in the elegant United lounge.

Let’s assume that IBM and HP actually generate the billions necessary to recover the cost of IDOL and hit the crazy IBM goal of $10 billion in four or five years. To make the math simple, skip interest, the cost of assuaging stakeholders, and the money needed to close deals that total $20 to $25 billion. HP pumps up Autonomy to $10 or $11 billion and IBM tallies another $10 to $12 billion.

So, HP and IBM need or want to build $10 billion or more in revenues from their respective search and content processing ventures. I estimated that the market for “search” was about $1.3 billion in 2006. I am not too sure that market has grown by a significant factor since the economic headwinds began blowing through carpetland.

Now consider the monies invested in some search and content processing companies.

Attensity (sentiment analysis), $90 million

BA Insight (Microsoft centric, search and business intelligence), $14.5 million

Content Analyst (text analysis, SAIC technology, $7.0 million

Coveo (originally all Microsoft all the time, now kitchen sink vendor), $34.7 million

Digital Reasoning (text analysis, no shipping product), $4.2 million

EasyAsk (natural language processing, several owners(, $20 million

Elasticsearch (open source search and  consulting), $104 million

Hakia (semantic search), $23.5 million

MarkLogic (XML data management and kitchen sink apps), $73.6 million

Recorded Future (text analysis of Web content), $20.9 million

Recommind (similar to Autonomy method), $15 million

Sinequa (proprietary search and widgets), $5.3 million

X1 (search and new management), $12.2 million

ZyLab (search and licensed visualizations), $2.4 million

Read more

Quote to Note: HP Generates a Sparkler

May 29, 2014

I read “HP Buys Time for Turnaround.” If the link at the newspaper’s Web site is dead, dig out the May 29, 2014, hard copy and flip to page B 5. The article has some interesting observations. Many of these seem to be surfing on Hewlett Packard’s management, revenue estimate, and Autonomy problems.

Here’s the passage I noted as a quotation worthy of my collection:

HP Chief Financial Officer Cathie Lesjak said she didn’t believe that layoffs would complicate the company’s turnaround. and that employee engagement had improved in a recent company survey. The first 34,000 layoffs “did not impact morale or at least we did not see it,” she said.

I find statements like this fascinating. One of my relatives coached baseball. His favorite saying was:

You can’t hit it if you take your eye off the ball.

Was Hewlett Packard watching the ball? Was HP management in the game? I would enjoy reviewing the HP morale survey data and interviewing some of the 50,000 RIFFers who will not complicate the HP turnaround.

Dr. Lynch, are you available for a turnaround of the HP turnaround?The target date for success is 2017. Just around the corner if you don’t keep your eye on the 2014 calendar.

Stephen E Arnold, May 29, 2014

Hewlett Packard: Search Seems Quiet

May 23, 2014

I read a number of news stories by real journalists who reported on HP’s second quarter 2014 financial performance. In Recode story, the one item that caught my attention was the announcement that HP would fire another 16,000 people. I enjoy the euphemisms some management gurus use; for example, these 16,000 people will be able to “find their future elsewhere.” For the old school manager, RIF (reduction in force) is snappier.

The software revenues at HP were uninspiring to me. For a company that once saw enterprise software as the high margin puppy, the reality seems to be less sunny. With cloud computing headed down the commoditization trail and enterprise services trouble, I will be watching how HP stacks up against the always interesting IBM. Maybe next quarter Autonomy and Watson can do a round of mud wrestling?

Could Mike Lynch’s team done a better job? Interesting question for 16,000 job hunters to ponder.

Stephen E Arnold, May 23, 2014

Google Search, AdSense, and Other Pressures

May 4, 2014

I read “Google Is Enraged By A Fake Conspiracy Theory That It Is Stealing Money From Publishers.” My initial reaction was, “Google seems to have a low threshold for pain.” I continue to hear and read that the shift from desktop Web surfing to whiz bang mobile devices is putting some pressure on Web sites that are designed to make money. This blog is free and every couple of months I try to figure out how to get the paltry sum Google says I have earned.

The article does not address my concerns about AdSense. I don’t have much at stake with my personal blog. Heck, after hitting the big seven oh, I am lucky to remember that I have a blog.

The article points out something that I found mildly interesting:

an alleged former Google employee who claims the company systematically banned hundreds of Web publishers from its AdSense advertising system simply because they were making too much money.

That comment gets into the notion of trust, but apparently the “leader” was a fake. Business Insider did not peg the false information method as disinformation, misinformation, or reformation.

The article points out that a Googler explained that Google does not penalize anyone using AdSense.

But for years, I have heard about Web sites that experienced some AdSense anomalies. For example, I was asked by one Web site owner to look at data about the company’s AdSense earnings. I worked through the information and noted one anomaly. It seemed that variances in the amount paid to the Web site owner ramped up as Google approached the end of a fiscal quarter.

I have only a sample of one, so I want to emphasize that this situation may be an anomaly, or in fancy talk, an outlier.

Google’s fast response to the false story struck me as interesting. Google is not exactly the most rapid response outfit I have come across.

I have several questions:

  1. Are there other Web sites using AdSense that have periodic anomalies? It would be interesting to learn about payment deltas so I can figure out if my analysis was an odd duck or something more interesting, maybe a snail darter.
  2. Why is Google so vociferous with regard to a one shot article? The reaction in itself was fascinating because of its speed and the delivery of the message from a person at Google who has the job of balancing search engine optimization with the Google need to sell ads.
  3. What financial pressures are mounting at Google as the emergence of New Age searching pushes down the value of certain types of online advertising?

If I were younger, I suppose I could build a head of steam about the fake story, the Google reaction, and the experiences of other AdSense dependent sites. Well, I am not. I don’t care because Google, like other companies, may have its work cut out for it in the months and years ahead. AdSense may be the least of Google’s worries. Plus is exciting. Glass is exciting. Management churn is exciting. You get the idea.

Stephen E Arnold, May 4, 2014

Google and IBM: Revenue and Profit Honks Sounded

April 17, 2014

At my age, I don’t own stocks. I don’t own anything because life in rural Kentucky is simple. The news about Google’s and IBM’s most recent financial results struck me as an MBA discussion group problem.

IBM issued “IBM Reports 2014 First Quarter Results.” What surprises did the $100 billion giant sprint on me? In a nutshell, declining revenues and profits. The bright spots were IBM’s consulting revenues and the company’s cloud computing. Other parts of the business were less robust. Overall IBM faces major challenges in hardware where no easy fix seems evident. Search as manifested in the Watson initiative will have to deliver.

In “Google Inc. Announces First Quarter 2014 Results” made clear that the Google was able to pump up its revenue. I noted the word “great” as Google’s way of describing the last 12 weeks’ financial performance. I noted that profit was down. Explanations included accountants being accountants and acquisitions. For me, the shift to mobile and the now-familiar dependence on one major revenue stream were important. Google may have to do more to keep up the appearance that it is the same super star that burst upon the scene more than a decade ago. Aging pro athletes and Hollywood starlets know the drill well. More effort goes into staying young at an increasingly higher cost. Is search as Google defines it up to the task of paying for personal trainers and plastic surgeons?

Could this be a group activity for tomorrow’s future business leaders? Here’s a question I know I would struggle to address:

What steps would your team recommend to generate more revenue and increase profit over the next quarter? The next nine months? Identify key assumptions for the cost benefit of your recommendations.

Identifying options that address a looming crunch in operational costs is easy. Implementing actions is likely to be more difficult. Pro athletes slow down. Hollywood stars age. Time and cost are challenges in the near term and the future.

Will MBAs and management work their magic? I suppose executives at each company can query their firms’ respective search engines for answers. Google’s information will be sponsored, and IBM’s will be a game show winner.

Stephen E Arnold, April 17, 2014

MarkLogic: Poised for Growth after 13 Years

March 27, 2014

I believe that MarkLogic opened for business in 2001. One of the founders was involved with Ultraseek, a search engine that eventually ended up in the hands of HP Autonomy. In case you did not recall Ultraseek, that product dates from the mid 1990s.

Why’s is this relevant to MarkLogic, a company offering an XML database?

I read “MarkLogic Poised for Continued Growth as the Industry Leader in NoSQL Marketplace.” The write up states:

growth in new markets including Japan and Europe, steady customer acquisition, strategic partner relationships and industry recognition, has further propelled the company into the leadership position within the NoSQL database market.

The company points to the release of MarkLogic, Version 7, which works out to one release every two years. The company “introduced new pricing and packaging, a free developer license, and cloud ready hourly pricing for Amazon Web services.” No details on the pricing were in the story. No information about MarkLogic’s revenues were included. After the last shift in senior management, MarkLogic seemed to be nosing toward $60 million in revenues in 2011, based on our estimates. Now three years later, the company is showing renewed press release activity, but I would have preferred some hard numbers. In those three years, MarkLogic has suggested that its XML database can work as an information retrieval system, a platform for conducting intelligence, and providing print publishers with a useful content processing system. In this 36 month period, open source solutions, JSON, and competitors have been moving in similar directions. Choice, at least in data management, abounds.

MarkLogic, since 2001, according to  Crunchbase, has ingested $73.6 million in funding with the last cash infusion coming in 2013 from Sequoia Capital, Tenaya Capital, Northgate Capital, and Gary Bloom, who is, according to Businessweek, the chief executive Officer, President, and Director of MarkLogic.

The news release points out:

MarkLogic received many industry accolades during the last year. The company was favorably positioned in Gartner’s “Magic Quadrant for Operational Database Management Systems,” published in October 2013. In addition, MarkLogic was the only enterprise NoSQL database vendor featured in the report that integrates search and application services. The company was also recognized in the April 2013 “Gartner Magic Quadrant for Enterprise Search,”- the only company to have the same product featured on both reports. Other accolades include the 2013 Computerworld Honors Laureate, by IDG’s Computerworld Honors Program. The annual award program honors visionary applications of information technology promoting positive social, economic, and educational change. Furthermore, MarkLogic was selected as one of the 2013 Red Herring 100 Global Winners – recognized as a leading global private company and an innovator in the technology industry.

These types of awards are not identified as “content marketing” or pay-to-play studies. I assume these accolades are objective and based on the cited firms’ deep experience with Extensible Markup Language and its applications. Anything less would be suspect in my way of looking at the world of databases, semantics, search systems, and business intelligence solutions.

With fast moving deals for outfits like Oculus Rift, the surging growth of Elasticsearch among developers, and almost frantic efforts of some MarkLogic competitors to find a way to generate revenue growth and profits—MarkLogic appears in the news release to be showing signs of revivification.

My view is that investors may be looking some return on the money pumped into MarkLogic. Assuming that patience is a virtue, I wonder if this 2001 start up is ready to deliver a big pay day to its stakeholders. WhatsApp, founded in 2009, was a home run for its stakeholders. Cloudera seems to be on a similar trajectory.

MarkLogic is 13 years old and proving to be like a teen in a fancy private school. Money is needed periodically. Do teens repay their parents? My teens did not. Investors may not have the appetite for underwriting without a return that I did as a happy parent.

Stephen E Arnold, March 27, 2014

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