Category: Mobile

Consumer Tech and the Small Business Boost or Digitalization and the Large Corporate Leap?

    Jim D

Occasionally, a few events cluster in daily life that make you sit back and realize: “Wow, things have really changed.” This spring, as a typical homeowner, I had the local heating and AC service company come out and inspect and tune up the A/C. I registered the appointment over the internet and did not think anything was really different (though the web appointment was much better than previous experiences of calling and being put on hold). Yet on the day of the appointment, I received a call from the service technician while en route, telling me he would be there in 30 minutes. That was nice, and even better when he arrived right on time (this is a feat in itself in America, not in Denmark 🙂 ). As the technician inspected the units, took care of the issues (faulty thermostat) I noticed more changes. He had checked out what the proper replacement thermostat was from a modified iPhone  and then gone and pulled it from his truck. Throughout, he did everything on his phone,  making notes, compiling the invoice, getting my signature on it, emailing it to me, taking a picture of my check (or he could have swiped my credit card). He topped it off by setting up the fall tuneup. Fully intrigued, I asked about the impact of the new device and capabilities to his service day. As it turns out, all of his appointments for the day were on the iPhone as well as the driving instructions. His company had transitioned everything the field service techs did to the iPhones and ‘pretty much eliminated all paper’. His view? Things were a lot easier, he spent more time doing real work and no lost paperwork. My view? Wow!

To see a small enterprise make such a dramatic impact with IT on the everyday tasks and productivity of a small business like AC or furnace repair is remarkable. And the potential of impact by consumer technologies on small businesses was driven home when I went to the local barbecue restaurant for lunch. When the attendant took my order with an iPad and then explained they no longer had regular cash registers, I was wondering if I had been in a time warp and somehow missed these changes. She further explained that the iPads were also a huge convenience when they set up their booths at festivals and fairs.  Another win for consumer tech in small businesses.

I still remember being slightly surprised when I walked into the first Apple stores back before 2010 and instead of walking back to a register line with my purchase, the Apple salesperson processed it right where I stood with a slightly modified iPhone. Pretty cool. But now the barbecue place also? And the furnace repair guy? And workflow and invoice and payment software to match? The consumer tech and accompanying software are becoming serious business tools of choice for small businesses. They are not just being used to improve payments and act as cash registers (and of course, there are other good tools that have been introduced like Square or Stripe or many others), but handle appointments, customer communications, inventory, workflow, delivery routing, ordering, invoicing, and accounting. These vertical apps on consumer devices allow small businesses to minimize the administration overhead and focus far more on their true services to their customer.

What is also compelling about the adoption of the new mobile technologies by small businesses is the level of positive impact they are having on the businesses themselves. Eliminating paper? That has been a lofty goal of many large businesses for decades. Looks like small businesses are actually getting it done. Provide much better customer service through all-electronic customer interactions? Also being done. This enables to small business to compete much more effectively for that customer. Enable employees to be more productive from anywhere?  Check. And all while leveraging consumer-based and cloud technologies at a fraction of the small business IT costs and complexity from just 5 or 10 years ago.

And yet, as compelling as these small business examples are, recent articles (here, the WSJ) suggest that the largest enterprises are grabbing the biggest gains from technology implementations. As noted in the article, “economists have discovered an unsettling phenomenon: While top companies are getting much more productive, gains are stalling for everyone else. And the gap between the two is widening, with globalization and new technology delivering outsize rewards to the titans of the global economy.” Thus, gains in productivity from apply technology appear to be extremely uneven across the enterprise landscape. The larger firms, or the ones most adept at applying technology, are reaping most of the rewards.

The gap becomes even larger when gains are achieved through proprietary solutions that then allow outsized productivity gains. One example provided was PWC building lead analysis software that enabled 30x productivity gains in scanning contracts. PWC built the software itself, and even though there is commercial software now available for smaller firms, the cost of the software reduces the gains. Of course, if the software becomes not just a productivity gain but a industry or sector platform – like Amazon’s marketplace software – then the gains become enormous and far beyond just productivity.

As the scope of digitalization expands and the possibilities of doing ever more functions and capabilities increase with technology’s advances, it appears that the leading companies who have scale can craft custom software solutions to greatly streamline and reduce costs and enable them to win the lion’s share of the gains – particularly in productivity. Or even win the lion’s share of the market with a compelling platform (like Amazon’s marketplace). And by having the scale, when you do hit the mark with your digitalization, your gains are much larger.

Of course, making the right investments and successfully optimizing the processes of a large and complex business requires enormous vision, skill, persistence, collaboration, and leadership. It’s not about buying the latest tech (e.g. AI engine), but instead it is about having a strong vision of your place in your market, an even stronger understanding of your customers and what they want, and the willingness to work long and hard together to deliver the new capabilities. Thus, instead of a ‘new’ way to success, digitalization and technology just increase the rewards for the largest companies that focus on their customers and deliver these solutions better.

And the small businesses that are truly gaining advantage from becoming digitalized? Maybe they will grow faster and emerge as large enterprise winners in the future.

What has the impact of consumer tech been on your enterprise? Are you seeing the same changes in your local small businesses? And for large enterprises, are you seeing productivity gains from digitalization? And if you are one of the biggest, should you be expecting more from your digitalization investments?

I look forward to your comments.

Best, Jim Ditmore

The Recent Quarter Results Confirm Tech Industry Trends

    Jim D

Some surprising and not so surprising results for the tech industry this past quarter (2Q15) confirm both longer term industry trends and also high volatility for mismatches in expectations and performance.

First, Apple delivered strong growth in revenue and profits again (38% growth in profits to $10.8B), and yet, because it was slightly below expectations, lost $60 Billion in value. While Apple sold a record 47.5 million iPhones and saw Mac sales of 4.8 million units (up 9%), investors were apparently disappointed in both the number of iPhones sold and the lack of clear information on the iWatch. Even though it appears the iWatch is more successful at this point in the sales cycle than the iPad or iPhone, investors were apparently expecting a leadoff home run and sent the stock down 7% on the results.

And the reverse occurred for both Google and Amazon. Google delivered solid growth with 11% increase in revenue to $17.7B with net income of $3.9B which sent shares up 12%. Investors were surprised with the breadth of growth, particularly in mobile, and that managers showed some cost control. Amazon actually delivered some profit, $214M on revenue of $29.33B, and showed continued robust growth of 15%. Investors sent Amazon’s stock up on the profit results, a rarity given Amazon’s typical long term vision focus and  willingness to spend for reach and scale even in areas well beyond its core.

What the quarterly results also reveal is that the tech platform companies (Amazon, Apple, Google) are continuing to be viewed as dominant but investors are uneasy about the long term stability of their platforms and thus have a quick trigger finger if they see any cracks in their future dominance. So, with Apple’s potential over-reliance on the iPhone, when there are fewer shipments than expected, or there is not clear evidence of a new platform extension (e.g. iWatch) then investors react sharply. On the reverse, when Google appears to be overcoming the mobile threat to its core search platform, it is well-rewarded by investors.

What do the quarter’s results say about the tech product companies? Unless they have strong portfolio of winning products, it appears they will continue to struggle to regain form. IBM, AMD, HP and others all posted disappointing results as they grapple with the technology revolutions in each of their industry sectors. AMD saw a 35% loss in revenue, dipping below $1B in quarterly revenue for the first time in years to $942M with a loss of $181M. Of course, the slow to declining PC sales worldwide is the primary cause and only console sales were healthy for AMD. Expect further difficult quarters as AMD adapts to the changing component industry (driven by impacts from the platform companies). HP continues a listless journey, its 2nd quarter reflecting a 7% slide in revenue from $27.3B to $25.5B, a 50% drop in operating margin, and a 10% drop in PC market shipments. While HP will split into two entities in November later this year which has some analysts upbeat, prospects look tough across all product segments with slow or declining growth except possibly enterprise software and 3D printing. IBM had mixed results, with better than expected profit on $20.81B in sales, yet saw continued revenue decline, which left investors nervous, sending the stock down. IBM did see strong growth in cloud services and analytics, but lackluster products and results in other core segments (e.g., hardware) which make up the vast bulk of IBM revenue yielded disappointing revenue and profit showings. IBM recently sold off its low end server business as it views that sector becoming increasingly commoditized. Yet, IBM will continue to find that selling services when you have limited ‘winning’ products is a tough lower margin business. And cloud services are far lower margin business than its traditional hardware business – and one where Amazon and Google are first-comers with volume edges. IBM can certainly leverage its enterprise relationships and experience, but that is far easier to do when you have products that provide real advantage to the customer. Other than analytics (Watson) and some software areas, IBM lacks these winning products, having neglected their product pipeline (instead focusing on services) for many years. While the alliance with Apple provides some possibility of developing modern, vertical industry applications that will be compelling, there is far more IBM must do to get back on track and part of that innovation must be in hardware.

EMC and Oracle are the exceptional large technology product companies that have been able to navigate the turbulent waters of their industry the past few years. Oracle did have weaker results this quarter, primarily due to currency fluctuations but also slowing software sales. Only EMC beat expectations and had new products overcome slowing demand for core areas.  Winning products for EMC like VMware and Pivotal as well as high demand for services and products in its information security division (RSA) and analytics more than overcame issues in the core storage division (which showed some recovery from 1Q). One could argue that with the VMWare franchise and leading engineered systems, EMC has established the strongest cloud platform, thus it has a more assured place with growth and margin in this rapidly changing sector.

The bottom line? Product companies will continue to struggle with revenue growth and margin pressure as technology advances undercut volumes and platform companies offer lower cost alternatives (e.g. public cloud options instead of proprietary server hardware and services, or smartphones instead of PCs) Unless technology product companies stay on the leading edge of innovating (or acquiring) compelling products, generating additional high margin revenues through services or software will be tough sledding. As we have mentioned here before, digitalization and the emergence of platform companies will result in more casualties in product companies – both in the tech space and outside it.

And of course, there is Microsoft. Microsoft is in a unique spot where it still has a strong productivity platform (e.g. Office, Exchange) but a diminishing OS platform. And with only low margin business that are growing rapidly (e.g. cloud), the road back to dominance looks very tough. Further, their forays into other tech sectors have been middling at best and disastrous at worst. The second quarter results included an $8B write down of the Nokia acquisition, which was made two years ago. The ‘devices and services’ strategy has shown to be a ‘phenomenal error’ by some accounts. PC sales continue to decline, and Microsoft was unable to effectively crack the smartphone market. The past quarter revealed declining revenue volume for phones even with 10% more volume as the only market segment MS gained traction was phone models at lower cost points. And it is hard to see that Samsung or other handset makers will add Windows OS to their product mix. Further, traditional Windows OS revenue (from OEMs) dropped 22%. The bright spots for MS were gaming (Xbox) and of course enterprise software and cloud services. There remain major concerns for the enterprise area where the rapidly growing cloud services has far lower margin than their traditional software business. Microsoft should continue to worry that increasing import of dominance in the consumer space often translates later into winning business space – thus,  the Google and Apple productivity platforms could be the long term trojan horses that blow up the enterprise cash cow for Microsoft. Microsoft may lose the war by trying to maintain its OS platform by limiting the reach of its productivity platform to consumers on their device of choice. Already, Google and Apple have changed the game by offering such software on the platforms for free, with free upgrades. Some assessments already show Microsoft lagging in feature without even considering its far higher cost. Windows 10 should be a solid hit for Microsoft, reversing some of the ground lost with Windows 8, but it will not dent the momentum of the Apple and Android platforms – especially when Microsoft introduces such new ways to monetize as the formerly free Solitaire’s lengthy advertisements or $9.99 annual subscription fee. They continue to misread the consumer market. Despite these continual missteps, or as recently called out in a New York Times article, their ‘feet of clay’, Microsoft has a strong enterprise business, a well-positioned productivity platform, and plenty of money. Can they figure out how to win in the consumer world while growing their productivity ecosystem with compelling extensions?

There remain multiple gaps that Microsoft, IBM, HP or even Oracle could exploit to win the next platform or obtain strong enterprise market share. While Apple and Android are pursuing the future car and the home platforms, the internet of things is still an open race. And there is opportunity given that most of the gazillion apps in the Android and Apple space are games or other rudimentary (1st generation) apps oriented for consumers. But there could be tremendous demand for myriad vertical industry applications that can easily link to a company’s legacy systems. IBM has started down this road with Apple, but plenty of opportunity remains for enterprise software players to truly leverage the dominant platforms for their own gain. Let’s hope the tech product companies can rekindle their growth by bringing out great products again.

Best, Jim Ditmore

Whither Virtual Desktops?

    Jim D

The enterprise popularity of tablets and smartphones at the expense of PCs and other desktop devices is also sinking desktop virtualization. In addition to the clear link that tablets and smartphones are cannibalizing PC sales, mobility and changing device economics is also impacting corporate desktop virtualization or VDI.

The heyday of virtual desktop infrastructure came around 2008 to 2010, as companies sought to cut their desktop computing costs — VDI promised savings from 10% to as much as 40%. Those savings were possible despite the additional engineering and server investments required to implement the VDI stack. Some companies even anticipated replacing up to 90% of their PCs with VDI alternatives. Companies sought to reduce desktop costs and address specific issues not well-served by local PCs (e.g., smaller overseas sites with local software licensing and security complexities).

But something happened on the way to VDI dominance. The market changed faster than the maturing of VDI. Employee demand for mobile devices, in line with the BYOD phenomenon, has refocused IT shops on delivering mobile device management capabilities, not VDI. On-the-go employees are gravitating toward new lightweight laptops, a variety of tablets and other non-desktop innovations that aren’t VDI-friendly. Mobile employees want to use multiple devices; they don’t want to be tied down to a single VDI-based interface. And enterprise IT shops have refocused on delivering mobile device management capabilities so company employees can securely use their smartphones for their work. Given the VDI interface is at best cumbersome on a touch interface with a different OS than Windows, there will be less and less demand for VDI as the way to interconnect.  Given the dominance of these highly mobile smartphones and tablets will only increase in the next few years as the client device war between Apple, Android, and Microsoft (Nokia) heats up further (and they continue to produce better and cheaper products) VDI’s appeal will fall even farther.

Meantime, PC prices, both desktop and laptop, which have had a steady decline in the past 4 years, dropping 30-40% (other than Apple’s products, of course), will accelerate their price drop.  With the decline in shipments these past 18 months, the entire industry is overcapacity and the only way to out of the situation is to spur demand and better consumer interest in PCs is through further cost reductions. (Note that the answer is not that Windows 8 will spur demand). Already Dell and Lenovo are using lower prices to try to hold their volumes steady. And with other devices entering the market (e.g. Smart TVs, smart game stations, etc), it will become a very bloody marketplace. The end result for IT shops will be $300 laptops that are pretty slick that come fully with Windows (perhaps even Office). At those prices, VDI will have minimal or no cost advantage especially taking into account the backend VDI engineering costs.  And if you can buy a $300 laptop or tablet fully equipped that is preferred by most employees, IT shops will be hard pressed to pass that up and impose VDI. In fact, by late 2014, corporate IT shops in 2014 could be faced with their VDI solutions costing more than traditional client devices (e.g., that $300 laptop). This is because the major components of VDI costs (servers and engineering work and support) will not drop nearly as quickly as the distressed market PC costs. 

There is no escaping the additional engineering time and attention VDI requires. The complex stack (either Citrix or VMware) still requires more engineering than a traditional solution. And with this complexity, there will still be bugs between the various client and VDI and server layers that impact user experience. Recent implementations still show far too many defects between the layers. At Allstate, we have had more than our share of defects in our recent rollout between the virtualization layer, Windows, and third party products. And this is for what should be by now, a mature technology.

Faced with greater costs, greater engineering resources (which are scarce) and employee demand for the latest mobile client devices, organizations will begin to throw in the towel on VDI. Some companies now deploying will reduce the scope of current VDI deployments. Some now looking at VDI will jump instead to mobile-only alternatives more focused on tablets and smartphones. And those with extensive deployments will allow significant erosion of their VDI footprint as internal teams opt for other solutions, employee demand moves to smartphones and tablets or lifecycle events occur. This is a long fall from the lofty goals of 90% deployment from a few years ago. IT shops do not want to be faced with both supporting VDI for an employee who also has a tablet, laptop or desktop solution because it essentially doubles the cost of the client technology environment. In an era of very tight IT budgets, excess VDI deployments will be shed.

One of the more interesting phenomenon in the rapidly changing world of technology is when a technology wave gets overtaken well before it peaks. This occurred many times before (think optical disk storage in the data center) but perhaps most recently with netbooks where their primary advantages of cost and simplicity where overwhelmed by smartphones (from below) and ultra-books from above. Carving out a sustainable market niche on cost alone in the technology world is a very difficult task, especially when you consider that you are reversing long term industry trends.

Over the past 50 years of computing history, the intelligence and capability has been drawn either to the center or to the very edge. In the 60s, mainframes were the ‘smart’ center and 3270 terminals were the ‘dumb’ edge device. In the 90s, client computing took hold and the ‘edge’ became much smarter with PCs but there was a bulging middle tier of the three tier client compute structure. This middle tier disappeared as hybrid data centers and cloud computing re-centralized computing. And the ‘smart’ edge moved out even farther with smartphones and tablets. While VDI has a ‘smart’ center, it assumes a ‘dumb’ edge, which goes against the grain of long term compute trends. Thus the VDI wave, a viable alternative for a time, will be dissipated in the next few years as the long term compute trends overtake it fully.

I am sure there will still be niche applications, like offshore centers (especially where VDI also enables better control of software licensing) and there will still be small segments of the user population that will swear by the flexibility to access their device from anywhere they can log in without carrying anything, but these are ling term niches. Long term, VDI solutions will have a smaller and smaller portion of the device share, perhaps 10%, maybe even 20%, but not more.

What is your company’s experience with VDI? Where do you see its future?

Best, Jim Ditmore

 This post was first published in InformationWeek on September 13, 2013 and has been slightly revised and updated.

Massive Mobile Shifts and Keeping Score

    Jim D

As the first quarter of 2013 has come to a close, we see a technology industry moving at an accelerated pace. Consumerization is driving a faster level of change, with consequent impacts on technology ecosystem and the companies occupying different perches. From rapidly growing BYOD demand to the projected demise of the PC, we are seeing consumers shift their computing choices much faster than corporations, and some suppliers struggling to keep up. These rapid shifts require corporate IT groups to follow more quickly in their services. From implementing MDM (mobile device management), to increasing the bandwidth of wireless networks to adopting tablets and smartphones as the primary customer interfaces for future development, IT teams must adjust to ensure effective services and a competitive parity or advantage.

Let’s start with mobile. Consumers today use their smartphones to conduct much of their everyday business. And they use the devices if not for the entire transaction, then often to research or initiate the transaction. The lifeblood of most retail commerce has heavily shifted to the mobile channel. Thus, companies must have significant and effective mobile presence to achieve competitive advantage (or even survive). Mobile has become the first order of delivery for company services. Next in importance is the internet and then internal systems for call centers and staff. And since the vast majority of mobile devices (smartphone or tablet) are not Windows-based (nor is the internet), application development shops need to build or augment current Windows-oriented skills to enable native mobile development. Back end systems must be re-engineered to more easily support mobile apps.  And given your company’s competitive edge may be determined by its mobile apps, you need to be cautious about fully outsourcing this critical work.

Internally such devices are becoming a pervasive feature in the corporate landscape. It is important to be able to accommodate many of the choices of your company’s staff and yet still secure and manage the client device environment. Thus, implementations of MDM to manage these devices and enable corporate security on the portion of the device that contains company data are increasing at a rapid pace. Further, while relatively few companies currently have a corporate app store, this will become prevalent feature within a few years and companies will shift from a ‘push’ model of software deployment to a ‘pull’ model. Further consequences of the rapid adoption of mobile devices by staff include such items as needing to implement wireless at your company sites, adding visitor wireless capabilities (like a Starbucks wifi), or just increasing the capacity to handle the additional load (a 50% increase in internal wifi demand in January is not unheard as everyone returns to the office with their Christmas gifts).

A further consequence of the massive shift to smartphones and tablets is the diminishing reach and impact of Microsoft based on Gartner latest analysis and projections. The shift away from PCs and towards tablets in the consumer markets reduces the largest revenue sources of Microsoft. It is stunning to realize that Microsoft with its long consumer market history, could become ever more dependent on the enterprise versus consumer market. Yet, because the consumer’s choices are rapidly making inroads into the corporate device market, even this will be a safe harbor for only a limited time. With Windows 8, Microsoft tried to address both markets with one OS platform, perhaps not succeeding well in either. A potential outcome for Microsoft is to introduce the reported ‘Blue’ OS version which will be a complete touch interface (versus a hybrid touch and traditional). Yet, Microsoft has struggled to gain traction against Android and iOS tablets and smartphones, so it is hard to see how this will yield significant share improvement. And with new Chrome devices and a reputed cheap iPhone coming, perhaps even Gartner’s projections for Microsoft are optimistic. The last overwhelming consumer OS competitive success Microsoft had was against OS/2 and IBM — Apple iOS and Google Android are far different competitors! With the consumer space exceedingly difficult to make much headway, my top prediction for 2013 is that Microsoft will subsequently introduce a new Windows ‘classic’ to satisfy the millions of corporate desktops where touch interfaces are inadequate or application have not been redesigned. Otherwise, enterprises may sit pat on the current versions for an extended period, depriving Microsoft of critical revenue streams. Subsequent to the 1st version of this post, there were reports of Microsoft introducing Windows 8 stripped of the ‘Metro’ or touch interface! Corporate IT shops need to monitor these outcomes because once a shift occurs, there could be a rapid transition not just in the OS, but in the productivity suites and email as well.

There is also upheaval in the PC supplier base as a result of the worldwide sales decline of 13.9% (year over year in Q1). Also predicted here in January, HP struggled the most among the top 3 of HP, Lenovo and Dell. HP was down almost 24%, barely retaining the title of top volume manufacturer. Lenovo was flat, delivering the best performance in a declining market. Lenovo delivered 11.7 million units in the quarter, just below HP’s 12 million units. Dell suffered a 10.9% drop, which given the company is up for sale, is remarkable. Acer and other smaller firms saw major drops in sales as well (more than 31% for Acer). The ongoing decline of the market will see massive impact on the smaller market participants, with consolidation and fallout likely occurring late this year and early in 2014. The real question is whether HP can turn around their rapid decline. It will be a difficult task because the smartphone, tablet and Chrome book onslaught is occurring when HP is facing a rejuvenated Lenovo and a very aggressive Dell. Ultrabooks will provide some margin and volume improvement, but not enough to make up for the declines. Current course suggests that early 2014 will see a declining market where Lenovo is comfortably leading followed by a lagging HP fighting tooth and nail with Dell for 2nd place. HP must pull off a major product refresh, supply chain tightening, and aggressive sales to turn it around. It will be a tall order.

Perhaps the next consumerization influence will be the greater use of desktop video. Many of our employees have experienced the pretty good video of Skype or Facetime and potentially will be expecting similar experiences in the corporate conversations. Current internal networks often do not have the bandwidth for such casual and common video interactions, especially for smaller campuses or remote offices. It will be important for IT shops to manage the introduction of the capabilities so that more critical workload is not impacted.

How is your company’s progress on mobile? do you have an app store? Have you implemented desktop video? I look forward to hearing from you.

Best, Jim Ditmore