IT Investment Research

Thousands of HP Employees Get Autonomy

This could have been you California: HP Cuts Headcount 8%

(Looks like Meg found what I predicted when she got a look at the dog that was Autonomy.)

-- Dennis Byron

HP's Wohl Kicked Upstairs for Killing WebOS, Buying Autonomy, Other Mistakes

The marketing communications business is a lot tougher than when I last practiced it 25 years ago. 

HP (HPQ) has had a bad week in the market because it admitted it wasted a ton of money on Palm, is planning to make another foolish acquisition, and has announced it is getting out of the consumer business. So HP canned its Marcom guy according to Bloomberg. Huh?

In a sense HP has a bad year with its then new CEO having to avoid going to headquarters, or apparently anywhere in the United States, for a while after he took the job.  In fact, let's face it, HP is having a bad century.

But back in the day, those were not the kinds of decisions that Bill Smith and Dick Brown made. Really, those are the real names of two of the greatest information-technology marketing-communications/PR professionals of all time and they worked back to back to back to back at Data General. That is, Smith was replaced by Brown who was replaced by Smith who was replaced by Brown between 1973 and 1983 as the company went from $20 million in annual sales to over a $1.2 billion (remember that's in 1970s/1980s dollars).  And PR guys certainly didn't get blamed, as some others have speculated, because some breaking news hit the wire 20 minutes before it should have on August 18. 

The fact that Wohl is being replaced by another ex-SAP guy actually tells the story.  I'm pretty sure this is another Brown replaces Smith replaces Brown sort of thing.

But at least someone remembered enough PR 101 that the news was released on a Friday afternoon(eastern U.S.)/nite (in Europe) in August in the northern hemisphere during a hurricane. Smith and Brown would be proud.

-- Dennis Byron

HP Acquires Hodgepodge of Enterprise Applications at Top Dollar

Boy, you take a few months off and the world goes crazy.

Congratulations to the guys at Autonomy (LSE: AUTN) for unloading that hodgepodge of old enterprise applications businesses for top dollar to HP. 

Maybe it's something to do with Euro to dollar exchange rate... or a way to save on U.S. corporate taxes by not repatriating profits... or something else not immediately obvious... Whatever, HP (HPQ) is

• back in a business it shouldn't be in
• will be trying to sell a half dozen products that didn't sell that well when they had their own brandnames on them 
• tyring to sell them into a market dominated by Microsoft (MSFT), Adobe (ADBE) and IBM
  • [I think even Oracle (ORCL) and Open Text (OTEX) are slightly bigger than HP will be in the content software market if the deal goes through but Oracle and Open Text have just as much a hodgepodge of products as Autonomy.]  
  • [Google (GOOG) could have entered this market with gusto anytime in the last 10 years and hasn't; does that tell you something?)

Supposedly this deal has driven up the share prices of MicroFocus and Sage a few pence (Is a pence what I think it is?) and put SAP and Software Ag (SOW) in play.

It would be interesting to know if Oracle had bid and if this price was just the result of some kind of male-urination contest.

-- Dennis Byron

Google Really Is a Technology Company... Full Stop. Exclamation Point

There has been a considerable debate over the years about whether Google (GOOG) is a technology company or a media company or consumer company or a new age company or a... As a result its future potential was analyzed and priced by some investment gurus one way and by others another, meaning they all used a separate set of assumptions against the same set of facts. 

For the casual investor, to depend on such analyses is like depending on S&P to rate your mortgage-backed securities. When I last looked at this issue in February 2010, I wrote:

"Google begins its 10-K with the statement:

"Google is a global technology leader..."

"As such Google doesn't compare itself against Amazon or eBay, Disney or McGraw Hill.  If you think of Google in that way instead of as an enteprise (sic) software market leader along with IBM, Microsoft (MSFT), Oracle (ORCL) and SAP, you do so at odds with the founders and other insiders that control 70% of the votes. If Eric, Larry and Sergey think they own a technology company, Google is a technology company.

So 18 months later, Google's pending (but likely to be adjudicated) acquisition of Motorola Mobility just puts the exclamation point on that way of looking at the company.  (Except that Eric is gone and you can take SAP from the list.)

I concluded at the time:

"So instead, think of Google this way: Primarily Google indexes information and web sites on its extremely large worldwide server farms in order to facilitate free Internet searches that help Google “sell” marketing enterprise applications.  Brilliantly these enterprise software sales are monetized by over $20 billion in advertising revenue annually instead of boring old license and maintenance contracts. But Google is still an enterprise software company."

Eighteen months later the pending Motorola Mobility acquisition just adds "from the palm of your hands to" to the phrase "worldwide server farms." And "over $20 billion" has become "over $25 billion." (And note that elsewhere -- thanks to Oracle -- I had changed the definition of "enterprise software company.")

When you invest in a company, take the owners' word for it -- not some investment guru's -- when they tell you what they do. It's their baby.

-- Dennis Byron

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

Why Microsoft Rules Enterprise Software: Drag and Drop

IDC is out with a new report that explains the almost absolute dominance of Microsoft (MSFT) in the both the consumer and business information technology (IT) sector: Drag and drop. That term has nothing to do with moving a mouse or finger around a screen but refers to the aftermarket that Microsoft $60-billion-plus annual sales revenues drag with them and the drop in meaningful competitors with which Microsoft has to deal because of the drag.

It's truer of the business sector of course because -- despite PR, including even some of Microsoft's PR -- the business sector is Microsoft's sweet spot and heritage.  But it also applies to the consumer sector where Microsoft's ability to play both sides works perfectly with the way both sides -- consumer and business use of IT -- are melding as people work at home and 'facebook' at work. 

The IDC hard numbers are here. But the quick take is that Microsoft partners account for 30-to-40-something percent of the entire annual worldwide IT spend of a trillion and a half dollars: systems, software, services and telecom in IDCspeak (or at least in ancien IDCspeak). There is probably some double-counting with HP (HPQ), IBM and Oracle (ORCL) partners but there is also a lot of revenue flow among pure Microsoft partners to balance that out.

You look at these numbers and you see why IBM and HP exited the systems market (except for their decreasing proprietary cash cows) and sought status as an implicit or explicit Microsoft services partner. (Ironically, these numbers also illustrate why Oracle entered the systems business--because it didn't believe it could do what HP and IBM did.) You see why SAP tentatively choreographs its kabuki dance with Redmond. And why Intuit, unlike SAP, doesn't even pretend to chase another partner. You see why Agile, Borland, Cognos, Digital Insight, Frictionless... (I could run the table but you get the picture) are long gone. You see why Lawson (LAWS) and Epicor (EPIC) or being taken over and taken private despite Microsoft's weak ERP offering.

Despite all the lamentations of the open source zealots and Apple (APPL) bigots and the Googlers, the market has spoken. The open source zealots are anti-market (exaggeration for effect). Apple wants to keep all the money for itself.  And Google (GOOG) doesn't know what it wants to be when it grows up: an open source zealot, like Apple or like Microsoft.

(Truth in advertising: the IDC report was sponsored by Microsoft and I used to work for and still occasionally consult to IDC.)

-- Dennis Byron

Microsoft Sharepoint Gets Great Congressional Endorsement

They say great inventions are 99% perspiration and 1% inspiration.  The corollary to that is that great information technology (IT) marketing is 99% hard work and 1% "s**t luck."

I remember in the 1980s working at Data General with great PR and ad people to try to promote a new IT concept called "integrated office automation (OA)."  It was more than just word processing (WP), a concept that Wang "then owned." Because of Wang's prominence in that market, we didn't want to promote our product as just some super word processor. Integrated OA was better than that. It combined WP with this new thing called email as well as with calendaring (which no one then or now uses) and a few other bells and whistles. Shortly after launch, DG's particular OA product was interfaced with some bizarre little program called CompuCalc (whose co-author -- a former DG programmer --  then decided that these bizarre little programs called "spreadsheets" would probably run better on PCs). 

We were somewhat successful in our efforts between 1982 and 1985 in terms of sales but it was a slog.  Then in 1986 an obscure Marine Lieutenant Colonel named Oliver North got called before the U.S. Congress for doing some no-longer-remembered thing wrong and said "I know nothing." Unfortunately, everything he knew nothing about was preserved forever on the Reagan White House PROFS (the PRoffessional OFfice System from IBM) minicomputer and a battery of Congressmen mentioned PROFS about a zillion times that winter on TV. After that, all our great PR and ads meant nothing.  All we had to say was our OA product was like PROFS, only better.

Those good old days came flashing back to me this week when some poor lawyers from the U.S. Homeland Security bureaucracy got hauled before the U.S. House Oversight and Government Reform Committee because the lawyers weren't processing freedom-of-information open-government requests through the bureaucracy fast enough. The lawyers' excuse was that they couldn't get the approvals of the bosses fast enough... 

• "But" said the lawyers, "but don't worry we just put in a SharePoint system to solve the problem."
• "I know SharePoint," said the top Congressman, "I used to use it in the company I owned before I became a Congressman.  It's a great product."

Wow. I can just visualize the marketing meeting at Microsoft (MSFT) the next morning. 

• Can we use a Congressman in an ad? 
• Do we really want -- yawn -- to link to C-Span?
• Did our PAC contribute to his campaign?
• Is Homeland Security using a licensed copy?
• On and on.

Marketing people just live for the one or two mornings per career that go like that. Of course, the sales guys take the credit anyways.

 -- Dennis Byron

(Sidenote: Apparently Homeland Security didn't get the Obama administration memo that you can only do "open government" on open source.  They chose SharePoint over Drupal!!)

Oracle's "CY 2010 Results:" Which Oracle Are You Asking About?

It's time to look at the Oracle (ORCL) trailing 12 months revenue flow.  Based on Oracle's off-quarter and off-calendar fiscal reporting, the 12 months ending February 28 of any given year are the "Oracle months" that most look like a calendar year. And therefore mimic the calendar-year dynamics -- be it SAP's and IBM's December hockey stick or Microsoft's (MSFT) holiday-season sales.

These four companies make up 75% of the software market so that's all you need right.  Well yes and no.  There is nothing simple when it comes to Oracle comps.  Oracle's off-calendar and off-calendar nature is the least complicated thing to deal with. 

First, it's all those acquisitions that really screw things up.  Some investors want to see Oracle backcast (look in the Oracle 10-K proforma section but that's done only once a year), because that's most indicative of overall market dynamics.  Others want to see Oracle GAAP because that's most indicative of whether the financials are working out the way Safra said they would (they always do!).  And now an increasing number of investors want to see the big picture because -- hey -- maybe there is something to this "attack IBM" thing. 

Second, in other words it doesn't matter anymore that Oracle is number two or number three in the software market.  Oracle itself even mixes up its software revenue, counting some of its software in the two heritage "software" line items on its income statement (new, and updates/support), counting some of it in the "OnDemand" line item on its income statement (as has been true at least since the acquisition of Siebel), and now counting some software in the new (since March 2010) Hardware Systems Products line item.  The exact wording is:

"Our hardware systems products consist primarily of computer server(s) and storage product offerings and hardware-related software, including our (Sun Microsystems') Solaris operating system."

And of course there are a few of you who still want to see how what's left of BEA middleware is doing against IBM Websphere, and what's left of PeopleSoft ERP is doing against SAP R/3.

I hate to tell you this but if you're in the latter group, you're dinosaurs like me.

-- Dennis Byron

Red Hat's Goal to "Own" 50% of the Market Now Faces Oracle

Red Hat (RHAT) CEO James Whitehurst led off the March 23, 2011 conference call announcing the operating system and middleware provider's annual results with the low key:

"Red Hat's growth indicates that we are continuing to gain market share." 

Talk about understatement. I would guess so given that I doubt if any comptetitor of any size had more than Red Hat's 20% revenue growth (more to come as we begin to review the Gartner and IDC share tables that will be coming out in the next month).

But remember.  Red Hat's stated goal isn't simply the mundane gaining "market share."  It wants a 50% share (as measured by instances I think but it's been a while since I dug down on this) of both the operating system and middleware-stack markets by 2015. I didn't see any mention of how Red Hat was doing against that benchmark in the conference call. But I didn't see Red Hat backing off that goal either.  

Looking at both sides of that ambition: 

• On the operating software side..
  • Red Hat wants to end up driving over half the world's servers by 2015. That seemed very doable in 2007 when announced because all it meant was mothballing a lot of Digital UNIX, AIX, Solaris and HP-UX systems. (Email to Microsoft (MSFT): You keep your Windows share and we'll take everything else.)
  • That was both logistically and technically sensible. In the process Red Hat saw its products becoming a mainstay on the mainframe as well. Also contributing to reaching the goal: there will be a lot of justifiable double counting as stacks like Red Hat's (and so far it's the only real game in town) forms the underpinning of virtualized Windows and VMware servers.
  • However Oracle's (ORCL) acqusition of Sun changed the dyamics. A very different player enters the mix offering a more intergrated approach up and down the stack.  That doesn't mean the goal should be changed but it affects both the operating system and middleware-stack sides of the equation.
• On that middleware side, holistically, to reach its 50% goal...
  • Red Hat would have to not only displace other potentially more popular open source middleware (e.g., Apache HTTP software) but billions of dollars of "closed-source" software currently in use across the world. (NOTE: The open-source vs. closed-source characterization is not meaningful in understanding or measuring the market but I use it because the open source zealots still insist on drawing this distinction. Red Hat is not a zealot but simply uses open source terms and conditions very effectively as research/development and marketing techniques.)
  • To literally accomplish its goal, Red Hat would need to displace 50% of the $20-$30 billion worth of IBM (IBM) CICS and Oracle (formerly BEA, formerly Novell, formerly the real AT&T) TUXEDO shipped in the last 30 years, the $20-30 billion worth of MQ Series, TIBCO (TIBX), etc., shipped in the last 20 years, the $20-$30 billion worth of IBM WebSphere and Oracle WebLogic and Application Server shipped in the last 15 years, the $10-$20 billion of Oracle, SAP, IBM and so forth integration servers, development tools, ESBs, portals, and so forth. Now we're talking about a real challenge and that assumes you do not define middleware the way Oracle and IBM do, including business intelligence and collaboration software and just about everything else -- including databases -- except ERP and customer relationship management.
  • No matter how you measure 50%, Red Hat would have to displace existing installed software at an astonishingly rapid rate over the next 6 years to reach its goal because the overall software market is only growing 5-6% (and the middleware market basically tracks the overall software market).
  • In addition, competitively Red Hat needs a database product because as many times as not, that is where the decision is made and the operating system and middleware stack decisions flow from that.  Monty, where are you?

 But the good news.  I don't think Red Hat lost any ground against its ambitious goal in 2010.

-- Dennis Byron

Infor and Lawson: What a Pile of... Systems Integration Challenges

On March 10, in commenting on why it would be a good idea for some industry-centric enterprise software supplier such as Cerner (CERN) or JDA (JDAS) to take a look at Lawson (LAWS), I said:

I can't dismiss the hint... that privately held Infor might acquire Lawson but that would mean it's a fire sale...

Well get on your asbestos gloves.

But this does allow me to run my annual post that tries to remember and list all the enterprise-software companies that used to be independent but that are now a part of Infor.  Here goes:

Agilisys (out of SC&T), Aperum, Arzoon, Baan, Boniva, Brain, Daly Commerce, Comshare, Dun & Bradstreet, Elevon, e.piphany, EXE Technologies, Extensity, Formation Systems, Foundation, Future Three, Infinium (nee Software 2000), Ironside, JBA Software, Lilly Software, Marcam, MAPICS, Mercia, McCormick and Dodge (M&D), Ohio Community Library Consortium (OCLC), NxTrend, Octane, Pegasus (not Pegasystems), Provia, Softbrands, StarBuilder, SunSystems (not to be confused with the server manufacturer acquired by Oracle), Symix, System Software Associates (SSA), Varial, and Vision.

And if the Infor buy-out offer is accepted by Lawson management and Carl Ichan, add BCM, CareScience, Confer, Enwisen, Healthcare.com, Healthvision, HCI, HIE, Hublink, Integrated Media, Intentia, Mobis, Movex, MPower, Noblenet, Outlaw, Pixel, PM Sims, Riley Dike Dosher, Rouge Wave, Scase, Xcare.net and Lawson itself -- which grew pretty much organically -- to the list.

-- Dennis Byron