IT Investment Research

Senate To Pass Law Against National U.S. Telecommunications Market

There was an interesting Congressional hearing on May 11 "investigating" the proposed merger of T-Mobile into AT&T (T). T-Mobile is a subsidiary of Deutsche Telekom although the Senators made it sound like it was a little local operating company maybe owned by the pretty lady in its ads. The hearing kind of summarized a lot of things that are off kilter in America today:

• First, the hearing was held by a Senate subcommittee on tweedle-lee-dee and tweedle-lee-dum. The Senate really has no say over mergers. Possibly it could pass a law against the merger but post-facto laws don't normally hold up in courts. But there were a lineup of witnesses representing Sprint and regional wireless service providers asking for the government to bail them out the way banks and trains and you name it have been bailed out by federal government. And there was an unspoken meme that somehow the U.S. government could keep Deutsche Telekomm from just walking away from the market.
• Second, the theme of the hearing was bascially against large companies acquiring smaller companies for competitive reasons, calling the result in the wireless market the rebirth of a Ma Bell du-opoly (AT&T, which is really Southwestern Bell not Ma Bell, and Verizon-VZW). Only one witness--the Communications Workers of America union rep surprisingly--realized that you can't divide the market by wireless vs. landline vs. whatever communications technology is involved. As in the information technology market, the communications market is defined by the application data vs. or and voice, not the technology.
• Third, there was the underlying theme, this whole Obama-administration thing about building out communications technology to "rural America." For example, there has been a separate effort relative to fiber cable funded wastefully by stimulus money. What a waste! There are other technologies that could answer this need if there were sufficient demand. The communications suppliers shouldn't be penalized because no one lives between Fort Hays, Kansas and Colorado Springs.

That's the bigger issue. I for one still want to make that drive where you don't see anything but wheat in May for four hours knowing my cell phone won't ring. Or be able to head east out of Baker, Oregon into Hell Canyon, up through Bear, idaho and not get my messages until I reach Helena. Or ride the old Union-Pacific/Central-Pacific railbed from Promontory to eastern Nevada (actualy my phone did ring in a ghost town somewhere around Kelton).

 I really don't care if Romania has more cell volume or whatever per capita. Take those rides away and this will no longer be America.

-- Dennis Byron

Breaking News: Oracle is Database Market Leader!!!!

Beware of tout sheets.

I guess you don't need to be reminded of that but I was reminded today that they still existed when I came across a Forbes link to a website I had never heard of called trefis.com touting:

"The NetSuite win is another feather in Oracle’s cap, as the company is already a dominant player in the database software market with a market share of around 50%."

Really. I'm not sure what struck me more in this tout:

• The fact that there was no mention of the Netsuite (N)'s super-majority owner.
• Or the breathless declaration that Oracle (ORCL) was "already a dominant player in the database software market."

Already?  And it's only been a short 30 years?

I never heard of these self-proclaimed experts before but they seem to tout a lot of information technology stocks (for Willy Sutton's reason clearly) so be careful. And Forbes should have known better than repeating this crap.

-- Dennis Byron

Does Dodd-Frank Hurt Intuit?

The Barney-Frank-bank-account-fee-f**cking has reached me.

I didn't pay a lot of attention to the Dodd-Frank financial-reform-legislation debate in the summer of 2010. After all, it was the summer. I do remember that some whiney woman from Harvard now runs the program and that all the pundits said that everyone would soon notice bank fees going up dramatically. 

Since anything higher than zero would be up dramatically in my case, I have noticed.

Bank of America now wants $7 a month to synchronize my accounts with Intuit (INTU) Quicken Home and Office.  This is a "service" that has been free for at least 16 years.  In fact, a precursor of Bank of America -- the First National Bank of Boston -- gave me my first copy of Quicken for free back in 1995 to encourage online banking.  I finally bought my own copy around Y2K time when some banking regulations brought in a new interface that didn't work with my free but by then six-year-old version.

Now this is why Barney-Frank-fee-f**cking hurts Intuit.  I put "service" in quotes in the above paragraph because the synchronization of my BOA accounts with Quicken is basically a worthless service.  It's always a few days late in seeing transactions that I can very easily see instantly directly on the BOA online banking site. Or I can even balance my bank statements the old fashioned way on Quicken in minutes. I don't think I would pay $.50 per month for the synchronization "service," never mind $7. 

So, putting my old product marketing hat on, I asked myself how does this work and how could they possible have decided on a fee of $7 a month. Coincidentally I now understand how this all works thanks to a related article about identity theft May 8 in PC World: "Someone May be Getting Your Online Bank Statements." That explained why the synchronization that is basically worthless is also days late.

On the pricing side, I decided the synchronization "service" must be priced to cost because it sure as hell isn't priced to value. That means BOA must be paying Intuit $3-$4 a month for the privilege of getting days old data that is available free days earlier elsewhere. When millions of consumers figure that out, Intuit monthly service revenues with BOA are going to drop like a rock. (I am assuming BOA only pays Intuit if the consumer pays it, possibly a bad assumption given how poorly these big banks are run.)

Is the same deal in place between Intuit and others? So far every other community bank, department store, charge card, stock broker, insurance company, and corner convenience store that I deal with still offers synchronization with Quicken for free. How long before the Barney-Frank-fee-f**cking reaches those other financial institutions? How long before all Intuit synchronization service revenue goes away?

-- Dennis Byron 

Gartner Claims IBM Really Number One in Enterprise Software

Gartner put out an odd press release May 5 that said IBM

"would be the No. 1 enterprise software vendor if Gartner did not count consumer sales of Microsoft's office and operating systems."

Count it as enterprise software sales instead I guess is what Gartner means.

But, based on the chart in the Gartner press release ranking IBM, Microsoft, Oracle (ORCL), SAP, Symantec (SYMN) and 'other,' Gartner is claiming that Microsoft sold about $30 billion in Windows and Office software to consumers. Sniff! Sniff! I don't think so.

Microsoft did about $62.5 billion total revenue in its FY 2010 so let's guess it did around $65 billion for CY 2010. (All this information is available to the penny quarter by quarter. I just haven't added it up recently.) Gartner is estimating that about $55 billion of the estimated $65 billion Microsoft revenue total is software revenue (with the other $10B in revenue being for support services, Microsoft Press, advertising, game hardware, I dunno).

But in its July 2010 10-K, Microsoft divides up its divisional revenue streams for FY 2010 as follows:

• Windows and Windows Live -- $18.5 billion, 80% of which goes through the OEM channel (Microsoft doesn't give an enterprise/consumer split of this OEM number in its 10-K; I have it in my notes somewhere but lets just say it's 50/50 for argument's sake; I actually think it's more enterprise than consumer)
• Server and Tools -- $15 billion, almost all of which presumably goes to enterprises
• Online -- $2 billion, almost all of which is probably counted as consumer; I could debate that but let's keep this blog post simple
• MBD -- $18.6 billion, 80% of which is to enterprises according to Microsoft
• Entertainment Device -- $8 billion, basically none of which comes from enterprises 

Doing the math on the back of an envelope, I have Microsoft with $37.4 billion in enerprise sales (write me if I calculated wrong).  Assuming the corporate-aggregate split of 90% software to 10% services, that would compute to about $34 billion in enterprise software sales, not the $24 billion implicitly claimed by Gartner. I think Microsoft is still number one by a mile.

But -- to save all this heavy math -- we could just turn the whole Gartner press-release approach on its head and ask

"Would IBM even make the top-four enterprise-software market share chart if Gartner didn't count IBM software locked into 30-year-old mainframe sales."  

People are still paying a billion a year for CICS for chrissakes (or were a few years ago, the last time someone paid me to look into the subject).

-- Dennis Byron

Valley Lawyers Suing Apple, Adobe, Google, Intel for Changing Valley Culture

It is really just a Friday morning funny to me but IDG News Service reports that a list of Silicon Valley cultural icons are being sued for illegally trying to change the Silicon Valley culture of perverted and indiscriminate job hopping. IDG says

"A California class action lawsuit puts Apple (APPL) at the center of a conspiracy involving Google (GOOG), Adobe (ADBE), Intel (INTL) and others to keep employee wages down."

In the 20teens, with jobless claims still rising and everyone everywhere happy just to have a job, I assume that the stories about the good old days of the 1990s in Silicon Valley are just as interesting along 101 as Grey Eagles' stories about the good old days at DG of the 1970s are here on 128 and 495 (this link to a Grey Eagles story is old but the BS goes on even today -- if you're interested -- on Facebook and LinkedIn).  

Yes, there was a time in Redwood Shores or Palo Alto or out near SJO where you could walk into a bar at 7pm and leave with two or three RSO offers by 9. But -- and based only on reading the IDG article -- apparently the recruiters got sick of working late (and in bars) and accelerated the Silicon Valley job-hopping process by simply working their way through a competitor's phone directory (how 1990ish) during working hours.

That was sacriligous (sp.?) in the eyes of Jobs, Schmidt et al. It was OK with them if you wanted to change jobs three times a year but at least have the common decency not to do it on our dime... and our time. So they colluded -- along with Adobe, Intuit (INTU) and others -- not to cold call each other's employees. (Noticably missing from the list: eBay, Oracle and Sun.)

"No can do," said the U.S. Department of Justice in 2009, at least under California law. So the companies agreed to stop. 

Now the whole class of Silicon Valley bar hoppers who didn't get cold called during the period of the "illegal unfair" agreement are suing to get back the compensation they lost because the Valley's employment churn was turned down a  notch by the agreement.

Only in America.

-- Dennis Byron

ERP Enterprise Software Harder to Kill than Osama bin Laden

Two little quote-toids (that's a factoid quoting someone) crossed my desk May 4 that make me think ERP is going to be around for a long time.  The boss at Panorama is saying:

"Even after 15 years in the ERP consulting industry, I am still amazed by how many companies have trouble with their business processes or suffer from organizational change management issues, but blame the (ERP) software instead."

And, according to Larry Dignan, the CEO of NetSuite (N) said on April 28:

“CIOs are loathe to throw out legacy ERP..."

Perhaps -- like Osama bin Laden -- the reason ERP is so hard to kill is that ERP is out there hiding in the enterprise in plain sight. 

From an investment perspective this is good news for incumbent ERP players -- primarily Infor, Oracle (ORCL) and SAP -- and bad news for the likes of NetSuite, which according to the Dignan ZNet article just can't seem to get any real traction behind its ASP-to-OSB-to-ERP-to-CRM-to-Cloud tactical changes over the last 15 years. (NOTE: OSB has nothing to do with Osama but refers to NetSuite's period as Oracle Small Business ERP product early in the last decade.)

Not that I'd recommend a play on Oracle or SAP based on their ERP lines but these quotetoids indicate that Oracle's and SAP's ERP cash cows are protected as the two companies (numbers three and four in the software market respectively depending on how you rank IBM vis a vis Oracle) continue their respective diversifications. The investment play for the two is a matter of which way you think SAP is going to grow (if you so think) and how well you think the Oracle entry into the systems business will work out (if at all).

As for Infor, you can't invest in them anyways.  But with the addition of Lawson last month and who knows who next, Infor doesn't have a cash cow.  It has a whole dairy.

-- Dennis Byron