It was an eventful week for tech stocks in general and Microsoft (MSFT - Analyst Report) in particular. The software giant entered into important alliances with Adobe (ADBE - Analyst Report) , Workday (WDAY - Snapshot Report) , Dell, HP Enterprise (HPE - Snapshot Report) and got attacked by Salesforce (CRM - Analyst Report) .
Here’s a quick look at the top stories:
Microsoft Deal Week: Adobe, Workday, Renault
Microsoft’s alliances last week were notable. HP Enterprise and Dell, which officially joined Azure last week at its Ignite Conference in Atlanta, have everything to gain from the alliance. That’s because Microsoft is the only one of the top cloud infrastructure providers that continues to bet on the hybrid cloud.
Unlike Amazon (AMZN - Analyst Report) and Alphabet’s (GOOGL - Analyst Report) Google, Microsoft expects companies to initially (and perhaps also later) use the public cloud for some operations while housing some sensitive operations on owned hardware. Therefore an alliance with Microsoft brings together the companies that can make this happen.
Also at Ignite, the company announced a major collaboration with Adobe that will have the PDF software maker run its Adobe Marketing Cloud, Adobe Creative Cloud and Adobe Document Cloud on Azure. In return, Microsoft will make Adobe’s marketing cloud the preferred marketing service for Dynamics 365, its own CRM solution.
The combination of sales software from Microsoft and marketing software from Adobe will help users run Microsoft analytics on Adobe-stored data, thus putting up some solid competition for Salesforce’s Sales Cloud and Marketing Cloud. What’s more, the companies will cross-promote products. While Adobe will continue to work with Amazon’s AWS for customers that want it, Adobe CEO Shantanu Narayen has said, “We’re going to be focusing our innovation and efforts on Azure.”
The company’s alliance with Workday, intended to roll out this quarter, is intended to integrate Workdays’ HR and finance software with Microsoft’s Office 365 productivity solutions. The combined resources are expected to help customers “simplify their business processes, enhance collaboration, and infuse more intelligence into their organizations,” according to Microsoft CEO Nadella. There will also be employee-related analytics, such as how employee time is used.
Renault and Nissan, that have gotten together to develop self driving car technology have now chosen Microsoft’s Azure to provide advanced navigation, predictive maintenance and vehicle centric services, remote monitoring of car features, external mobile experiences and over-the-air updates. They also intend to collaborate on next-generation connected services for cars that will be powered by Azure services.
SalesForce Opposes Microsoft-LinkedIn Deal
After losing out in the bidding war to acquire LinkedIn, Salesforce is now trying to do what’s second best. The main concern for the company is LinkedIn’s data on 450 million professionals across 200 countries that has thus far been widely available. If Microsoft, as part of its efforts to integrate LinkedIn into its services decides not to share this information, Salesforce CRM customers would have one less reason to use the solution (and one more reason to use Microsoft).
No wonder Salesforce is working to delay the deal or at least get regulators to approve it on the condition that the revenue sharing arrangement continues. Since the U.S., Canada and Brazil have already approved, the company wasted no time in going to the EU (Microsoft hasn’t registered the acquisition in Europe yet, but Salesforce has filled out a standard questionnaire that the EU sends to competitors as part of the normal approval process). This is a big hope because the EU is anyway suspicious of American companies, is concerned about the growth of European companies and is scrutinizing closely transactions that involve large data sets.
Will Google Buy Twitter?
Ever since Twitter co founder Ev Williams indicated on Bloomberg TV that the company would consider all its options in response to a question on its possible sale, people have been speculating about a prospective buyer.
But what does Twitter have on offer? A ton of data, including on its relatively stagnant 300 million-odd user base, a platform where most news breaks and a newfound love affair with sport videos. All this comes with baggage, i.e. 100 million or so in quarterly losses, the inability to adequately monetize its platform, the prevalence of duplicate IDs on the platform, which is partly why advertisers hesitate to pay high rates, a video sharing platform that still limits video clips to a few seconds and a somewhat screwed-up reputation involving hate speech.
The possible suitors being bandied about in the press include Google, Salesforce, Microsoft and Disney (the last one being really weird but sometimes such things happen).
Twitter’s co founder-CEO Jack Dorsey is also Disney’s board member, which is probably why some people are trying to find a reason it could be interested. Twitter can be a new shareable TV feed popularizing Disney productions, these people say.
Others say that Microsoft is not done swallowing social media companies. It may be spending $26 billion on LinkedIn, but it has so much more. So why not splurge on the data Twitter will add? After all it intends to be AI king.
On to Salesforce. CEO Marc Benioff appears to be smarting from the LinkedIn loss to Microsoft. But Twitter is no LinkedIn, their only similarity being users that look for information and reactions more than interaction. Still, Twitter is somewhat more interactive (even discounting the trolls) and can possibly be useful for a CRM player like Salesforce as more companies use the platform to interact with the user base.
That leaves the speculators’ favorite Google. True enough, Google has the greatest chances of bringing the company to profitability simply because it is the best-equipped to sell ads on the platform. Since their agreement in early 2015, Google has been given access to real time tweets for a good positioning on the search engine results page. This was supposed to generate non-member revenue for Twitter, increase traffic to its platform and perhaps generate some new users.
For Google, it was about fresher results. How that partnership has gone isn’t clear but Twitter’s recent decision to hire Goldman Sachs Group and Allen & Co. to solicit potential buyers didn’t start because of it. People familiar with the matter told Bloomberg that a Salesforce bid moved Twitter to action. Since then, Google has hired Lazard Ltd. as financial advisor to bid for Twitter.
Last 6 Months
Other stories you might have missed-
Cisco Invests in Mexico: Cisco will pump $4 billion into its Mexico expansion efforts. The company, which already employs 1,000 will directly add 270 more people plus 77 in related jobs. Cisco will increase the manufacture of routers, servers and video conferencing screens at its Mexico facility for export to 110 countries worldwide.
Microsoft Forms New A.I. Group: Headed by Microsoft veteran Harry Shum reporting directly to CEO Nadella, the new A.I. and Research Group will combine Microsoft’s Information Platform, Cortana and Bing, and Ambient Computing and Robotics unit, basic and applied research labs and New Experiences and Technologies (NExT). The 5,000-strong team of engineers will focus on “infusing A.I. into everything we deliver across our computing platforms and experiences,” says Nadella.
Alphabet Forms New Cloud Group: Google’s new Google Cloud unit, an umbrella for its cloud services and corporate software and hardware offerings, will be headed by Dianne Greene. That means the unit will include the entire range of its enterprise offerings from web-based productivity software (Docs, Sheets, etc, now called G Suite) and machine-learning and digital-mapping tools to those Android phones, tablets and Chromebooks that are specially designed for office users.
Customer support will be handled by the new Customer Reliability Engineering group within Google Cloud. Google doesn’t break out its cloud revenue yet, which means it’s still under 10% of total revenue (it generated revenue of $75 billion in 2015, so not that surprising). Forming the new unit could mean that it’s getting ready to publicize it. That would make sense because it has recorded some major wins since Greene took over, the most recent being Home Depot, Pokemon Go, Disney and Coca Cola.
Wedbush Downgrades Alphabet: Wedbush analysts pointed to several trends that don’t bode so well for search advertising. For instance, it has become much easier to target self-identified consumers through social networks and on ecommerce platforms. Second, consumers these days have greater control over [Internet]-delivered ads because of ad blocking technology. Third, companies are willing to pay consumers for seeing ads (Apple recently filed patent applications for a digital wallet service that pays users to look at advertising).
What all this means is that there is greater emphasis on self-identified consumers for targeting, which kind of hits Google’s traditional impression or click based advertising models directed at unknown consumers. Google has been adjusting its business with these trends, but there could be a period during which the benefits of the new paid search model don’t cover the declines in the older model. This uncertainty led Webush to downgrade the shares to underperform.
Google Focus on India: After losing out to government pressures in China, Google is ensuring a strong position in India. While Indians have much lower per capita income, the economy is currently one of the fastest-growing in Asia. It’s also home to the second largest population of netizens, behind China. So the expanding middle class makes for a good market, one that all the big technology companies are looking to capitalize on.
Earlier, Google tied up with Railtel (the telecom arm of the Indian Railways) to provide free Wi-fi across 400 railway stations. Google has connected 52 to date and plans to touch 100 by year-end. Monetization will follow. For now, it has launched the paid service (secure, high-speed Wi-fi hotspots) in malls and other highly-frequented areas, where sellers can use the Google service to offer chargeable Wi-fi to customers.
The Allo app, which has already seen a million downloads since its launch last week, will see a Hindi version of Google Assistant by year-end. For slower connections, Chrome will automatically load simplified pages and save on video data.
Users can download web pages, videos, music, or pictures and access them offline through the newly created Downloads tab. When installing an app, there will be a new “wait for Wi-fi” option. YouTube Go is a new app for slower connections, allowing users to preview videos, save offline for later viewing and share with people nearby without using data.
Netflix Creative Head Joins Spotify Board: Netflix leadership continues to get closer to Spotify as it reportedly prepares to go public sometime next year. Netflix Chief Content Officer Ted Sarandos will now take to the Spotify board, following former Netflix CFO Barry McCarthy who now occupies the same position at Spotify.
The music streaming business has accumulated 39 million consumers and this number continues to grow. Revenues come from a subscription structure that woos customers to its paid service. Profits are still hard to come by, since it pays out as much as 84% to rights holders. This could be why it has recently started producing original shows, an area Netflix leadership can help with.
WhatsApp on Wrong Side of German Regulator: German privacy watchdogs have objected to Facebook porting WhatsApp user data to the Facebook app without the explicit approval of WhatsApp users, some of which aren’t Facebook users. Before WhatsApp’s acquisition by Facebook, its co-founder, Jan Koum assured users that their privacy would not be compromised (earlier WhatsApp charged users a very small amount as annual subscription).
This wouldn’t have been a good way to monetize the platform. So Facebook did away with the subscription, grew the user base, started sharing data including phone numbers to Facebook and also has plans to allow business users to communicate directly with other users.
Yahoo Sued for Gross Negligence: Ronald Schwartz has sued Yahoo for gross negligence, saying that the company took 3X as long as others to discover the data breach that affected 500 million users and also didn’t make the information public until now, around two years after it happened. Yahoo has said that the attacks were state-sponsored, which also aroused the ire of senators Patrick Leahy of Vermo, Richard Blumenthal of Connecticut, Al Franken of Minnesota, Ron Wyden of Oregon, Edward Markey and Elizabeth Warren of Massachusetts. Lawmakers are concerned that information related to Americans have passed on to foreigners, so they are now investigating the measures Yahoo takes to safeguard user data.
Google Expands Ride-Sharing Service: Google expanded the Waze ride sharing service to the San Francisco area last week. Anyone can sign up to be a driver and anyone using the Waze app can look for a driver willing to pick someone up. But the app is restricting users to two rides per day, most likely targeting people going to and from work.
There are some issues that Google must be working on still, such as the navigation system and interaction between drivers and riders. But overall, this is a service that can catch on, simply because it helps save on fuel cost and is so easy (in its current state). Commercialization could however require more work since safety of travelers will have to be considered.
VIDIA Could Get Inside Macs: Bloomberg cited a job listing by NVIDIA that said the successful applicant would work in partnership with Apple and play a role in shaping the future of graphics-related software on Macs. This led to speculation that the company’s graphics chips will likely replace AMD’s sometime next year.
M&A and Collaborations
Apple-Deloitte: Apple has enlisted Deloitte’s help to sell more devices to enterprise customers. Accordingly, Deloitte, which uses around 100K Apple devices itself, is employing a team of 5K to advise corporate clients on how to deploy Apple devices for specialized tasks such as insurance claims adjusting, or retail sales, or simply building software apps for their own businesses. Apple has earlier partnered with IBM, SAP and Cisco to boost enterprise sales.
Facebook Data Gathering Initiative: Facebook has partnered with the World Bank and the Organization for Economic Cooperation and Development (OECD) to collect data through questionnaires. The Future of Business Survey as the program is called has collected responses to 15 questions from 90K SMBs across 22 countries that use Facebook to connect with users.
Since SMB data is hard to come by, this is being considered an important measure by both organizations, which will however continue to collect data through traditional channels as well. The data collected is also important for Facebook, because it can help the company market the platform to more SMBs.
NVIDIA-TomTom Combine on Maps: Tom Tom has a lot of HD maps and NVIDIA has the DriveWorks software development kit to handle computationally intensive algorithms for object detection, map localization and path planning that together form an essential part of self driving technology. So the two companies are getting together to develop artificial intelligence for self-driving cars so automakers can work on the NVIDIA platform and Tom Tom mapping data to speed up commercialization.
Apple iPhone 7 Component Orders Rise: Apple supplier General Interface Solution (GIS), a subsidiary of Foxconn, has said that Apple has increased component orders for the December 2016 quarter. Accordingly, Digitimes reported that component orders are 20-30% higher than expected.
Apple Unit Sales Estimate Up: KGI analyst Ming-Chi Kuo who has a good reputation for accurate estimates, has raised Apple’s unit sales estimate from 65 million to 70-75 million. The dual camera on the iPhone 7, the Galaxy Note 7 recall and the larger number of countries Apple launched the product in were cited as reasons.
Facebook Advertisers: Facebook has said that 60 million businesses now have a Facebook page, 30% of which are owned by women. Around 4 million of these businesses also actively advertise on the platform with more than 70% of the marketing being outside the U.S. The company is seeing the fastest growth in Vietnam, Indonesia, Greece, Ukraine and the Philippines. It claims that 20% of active advertisers have also created 4 million new video ads.
Cowen on Amazon Prime: Cowen analyst John Blackledge is highly optimistic about Amazon Prime, saying that members are worth more than $143 billion to Amazon over their lifetimes (since Prime members rarely cancel and more than 90% renew their subscriptions). The analyst says that Prime will have 12 million new members this year compared to 10million last year and 7 million in 2014.
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