All New Horsemen

Erik Schmidt got some attention at the All Things Digital conference naming new horsemen in the tech industry.  The old horsemen were commonly listed as Microsoft, Intel, Cisco, Dell.  Schmidt rather self congratulatorily named Google,  Amazon, Facebook and Apple as the new four.  Sure things are changing, but a completely new field of horsemen, really? 

What is it with the horsemen anyway?  One must wonder how we got onto the horsemen thing in tech, it seems like we would want to stay as far away as possible from an allegory rooted in conquest, war, famine and death.  If you have some time to kill, check out the Wikipedia entry for the Four Horsemen of the Apocalypse, for a not so brief introduction to the idea of horsemen.

Is there a new reality in tech and if so is this it?

With the possible exception of Dell, which specialized in advanced supply chain management, the old four developed technology and sold it to individuals and businesses and those customers employed the technology to achieve their ends.  The old horsemen are in fact still in business, and will be for some time.  IBM may not have liked being left off of the old list, but they have done pretty well for themselves in the last decade with their stock up 50% in the last decade compared to losses for the others.

With the possible exception of Apple, the new four don’t sell technology at all.  I suspect they are often thought of as technology companies because of their use of the Internet in their business models.  The wholesale switch is notable, and mostly for Microsoft.  Indeed, Microsoft has not been performing well on the stock market over the last decade with a drop of over 50% while all of the others are up and Apple is up a whole bunch.

These new horsemen are going to drive the delivery of a new kind of computing services. Even if this shift only turns out to be half as big as Mr. Schmidt predicts, it is going to have a profound impact on how technology is sold.  This is commonly referred to today as the migration to the cloud, and is so overhyped that often we forget to stop and think about what that actually means. 

First a review, technology resellers used to make money marking up hardware and shrink wrapped software.  Then they made money adding integration and support services to the sale of hardware and software, and next they will make money delivering innovation.  Here are some examples of this phenomenon:

• DropBox (www.dropbox.com) is a file system in the cloud.  You can get to your files from any device.  It is Amazon’s infrastructure on the back end, but no one has to know that.
• WordPress or SquareSpace (www.wordpress.com; www.squarespace.com ) are content management systems in the cloud.  Anyone can publish a website or blog on these sites and all of the hosing is handled.  Although one step removed, these companies rely on Google for indexing and discovery.  Google is also seeding the next wave of these companies with Picasa and Google voice. These may seem like birds of a different feather, but before you say so think about searching images or audio files.  Google’s partners make money by helping their clients manage content and show up online in the right places.
• Security is making sure content does not show up in the wrong places like when credit card information is stolen, or weapons system blueprints land in Peking.  Facebook has designs on knowing who you are and where you are and (soon) what you buy and what you have access to.  Making sure the keys to the kingdom, your keys that is, remain in your own control is important and will be big business.  Emerging in this field are upstarts like Reputation.com and Klout.com, and established firms like Symantec.

Before you think that this blog post has gone off of the rails, let me state plainly that I am not proposing DropBox, WordPress, SquareSpace, Reputation.com, and Klout.com as services that partners can mark up and resell.  I am proposing that these are the new channel partners and that they exist in a sympathetic ecosystem with the new horsemen.

These forward thinking channel partners do not think of themselves as channel partners.  They think of themselves as the inventors of a new wave of services.  Nevertheless, they are channel partners because they make money packaging new technology into services that add value to consumers and business.

Matchmakers You Can Trust

Just about any 17 year old American male will tell you that finding a date to the prom is a difficult and humbling experience.  Similarly, employers will tell you that finding a good employee is nearly impossible.  Buyers of IT products and services will echo the sentiment:  It is much harder than one would think to find and procure the technology a business needs to remain competitive.  Ironically, if you talk to the other half of each of these matches you will find quite a different perspective.  The Difference is enough to make you wonder if your grasp on reality is starting to slip away. 

Girls start planning on being asked to the prom 6 months before it even enters the consciousness of boys.  Even in this down economy, four million jobs change hand in the US – every month.  And companies spend millions of dollars trying to find their next customer.  For the past fifteen years the most successful companies on the web have aimed to do the matchmaking in these examples.  Online dating sites like match.com, eharmony.com, and some would say the entire porn industry have set out to capitalize on the first matching challenge.  Monster.com was one of the first Internet companies to buy a Superbowl ad, and Google, Bing, eBay, Amazon.com and now Groupon get paid quite well to connect would be buyers with would be sellers right at the very time the buyer wants to buy.

So successful internet business equals:  find an area where matchmaking needs to be done and have at it.  If you think you are late to the game, think again.  This internet thing is just getting started and there are many more untapped opportunities than tapped ones.  Yes indeed, Classmates.com, Facebook, and Yelp have all been invented already.  However, no one has even started to work to match enterprise technology buyers to enterprise technology sellers.  We all have lists of markets we would like to see better matchmaking tools on the internet.  Doctors to patients, kids to educational tools, scientists to research subjects, and even people to movies as the million dollar Netflix challenge demonstrated are all up for grabs.  For now, let’s focus on enterprise IT match making.

There are many things that stand in the way of solving this problem, but none as big as the lack of trust.  Trust has been eroded between the buyers and sellers of enterprise technology through repeated over promising and under delivering of products and services to the point that even the historically accepted measure of ten times better is no longer sufficient to get a business buyer to make a change and buy something new.  In the technology industry this phenomenon is sometimes labeled vaporware – software that has been promised to customers that does not even exist.  The risks for the buyer are quite large and even larger without vendor trust – and this slows down the adoption of new technology significantly.

Adoption of new technology is the key to increases in productivity and increases in productivity drive our economy and increase our standard of living.  Therefore one of the things standing in the way of our economic recovery is trust.

Successful matchmakers employ three simple tactics to get right at the trust issue:

1. Make money on the success of the match:  A business model built on making the match between technology vendor and technology user, instead of making the sale of technology, aligns the interests of the parties and turns the matchmaker into a trusted advisor.
2. Be transparent about how money is made:  A matchmaker advocating for a particular solution will always be suspected of doing so selfishly.  Full disclosure of how the matchmaker gets paid will drain away this suspicion.
3. Demonstrate deep and wide knowledge:  It is natural to sell what you know and stay away from what you do not know.  Demonstrating a detailed understanding of all of the products in the category will validate the trusted advisor status.

The two most trusted matchmakers in business IT are Accenture and Deloitte.   IBM is a giant in the IT matchmaking business, but is also pushing its own technology.  At one time EDS, Perot Systems, and ACS were on this list -- until they were acquired by HP, Dell, and Xerox -- which changed their motivation from matchmaking to selling their own technology solutions. 

This will be a very interesting area to watch in the years ahead as new companies flood in to fill the trusted matchmaker void created by this consolidation.

More Fuel for the Cloud

In the last 24 hours I have come across three stories in the media that give the cloud movement even more reason to be gaining momentum.  If you are following the cloud acceptance / cloud vs desktop story, you may want to check them out.

NPR On the Media - Laptop Searches at the Border:  The segment is towards the end, but the rest of the show is also worth listening to.  The story highlights the work of the ACLU in pursuit of the US Government for overly aggressive search and seizure of laptops at the borer.  This is a very good reason to use cloud services and not keep any data on your laptop.  I suspect the government is tracking activities on the cloud as well, so if you are up to no good -- you are probably no better off there.  But if you are a law abiding citizen worried about getting caught in the government's web -- the cloud is probably safer.

NY Times:  Microsoft + Russian Government against activists:  Unfortunately for Microsoft there is a very disturbing story on the front page of the NY Times today about how the Russian government is using Microsoft piracy claims to seize computers of people they don't like.  I suspect that if the Russian government wants to take your computer -- they are going to take your computer.  So again, the cloud would be a good place to put your data.  And for Microsoft -- any type of collaboration with the Russian government is likely to end badly (ouch!).

Dell Gets Blasted by the Haggler:  Again in today's NY Times the typical tale of woe.  Hard drive fails, sent back to Dell, lost again, lost again, in a Sisyphean tragedy we all know too well.  Same remedy, keep your data in the cloud and access it with multiple machines or devices or even someone else's machine.  Then you can still get your work done even while *insert vendor name here* is doing whatever they can to make your life miserable.

Maybe there is something to this cloud computing thing.

Intel Wants the Consumer

The grass is definitely greener on the consumer side of the fence in 2010.  Companies that have built their businesses on their ability to sell to the enterprise, or that are a step or two removed from direct access to the consumer, are looking for a the gate through the fence. Increasingly mobile is that gate, and it appears that Intel thinks McAfee is their best shot at getting over there.

It is much more fun as a writer to be negative on announcements like this -- and the business press is having their share of fun with Intel.  Anyone that wants the business press to be positive should remember not to surprise them.  A few good leaks will get some of the journalists onto your side ahead of the announcement.  With the exception of Steve Jobs, who gets to play by a different set of rules, scoop equals page views, page views equals happy writers, happy writers equals "this is a brilliant idea".

Intel depends on the PC makers to get its chips to market and has managed to dominate that business over the years through business tactics that just keep getting them in trouble with the Justice department and the EU.   The top PC makers in the world control over half of the sales of new PCs including HP (18%), Dell (13%), Acer (12%), Lenovo (10%), and Asus and Toshiba tied (5% each).  The industry is on the rebound, up 22% in Q2, so everyone is growing.  However, HP and Dell are growing only slightly, and the other guys are smokin' with growth rates up to 87% (Asus).

The deal to buy McAfee may or may not be a good idea, but it does signal Intel's concern over its traditional route to market, and its corresponding desire to find a new route.  Their best domestic friends are getting pounded by the guys in Asia, and they are increasingly prevented from pulling monopolistic stunts, so I would guess there will be more deals to follow.

Other coverage:  

BusinessWeek

WSJ Digits Blog

Daily Finance

Read Write Web

CNet (for the PC industry numbers)

Another Layer on the Silos

Is it just me or does it seem like the big vendors are isolating themselves even further?  Here are the events that I can remember from the last few weeks that point to this trend:

Apple pushes Adobe away:  The old folks remember that Pagemaker, made by Aldus and acquired by Adobe, was the killer business application on the Apple platform.  But hey, that was a long time ago.  Steve Jobs clearly thinks they can make it without Adobe on their team.

Apple Sues HTC to Kill Android:  Some say that android is now the most expensive phone operating system because HTC had to go to Microsoft for patent protection and then Microsoft shot at Google for Android -- pushing the cost of Android up to as much as $40 per device -- and none of the money goes to Google.

HP buys Palm, Kills the Win7 tablet, gives its partners an anti Cisco ultimatum:  I guess if you are going to start shooting, you might as well shoot at everyone.  

Dell pushes the fear button on Cisco:  Look for Dell to come out with networking gear soon because their PR machine is on the anti Cisco track.  Funny because Dell and HP are always going at each other, and HP is all over Cisco, you would think that Dell would line up with Cisco.  Nothing like fighting wars on multiple fronts.

Things are getting hot in tech!

LATER: Jim Jubak on MSN Money had a similar thought.

Picking the Winners

I am not smart enough to pick the big winners in advance.  So I don't play the stock market, and at CSG we sell shovels to the gold miners instead of prospecting for gold ourselves.  Sure striking it rich would be a thrill, but the world is littered with hundreds or even thousands of would be Googles.  I was going to say would be Twitters, but they have not made any money yet!

This strategy has provided us with a very interesting vantage point from which to watch the show.  And it is quite a show these days.  I sure am glad I am not a telecom equipment vendor or a distributor -- it is easy to see what is going to happen to them.  It is much easier to pick the descending parts of our industry than the ascending.  Who in tech is going to do well?  

There has been so much talk about services over the past ten years that we have both lost interest, and lost track of the definition of services.  There are hosting services, IT services, software as a services, software + services -- and each time the word services means a different thing.  IBM, Dell, HP, Microsoft, and Oracle all have significant services organizations.  IBM generates more revenues from services than all of Microsoft's revenue.  What is IBM doing when they deliver services to their clients?

Business pay IBM 50 billion dollars a year for services.  And everyone in tech wants to get into services.  I propose that we could learn a bunch about the future winners by digging into the question -- what are people paying IBM 50 billion dollars a year for?

Stay tuned, in tomorrow's post I will dig through IBM's annual reports.

Microsoft and HP

Yesterday Microsoft and HP announced a deeper partnership through which they intend to offer solutions based on Microsoft Software and Hewlett Packard hardware with an emphasis on cloud computing. Hard to know what this really means and the reporting I have seen does not offer much in granular detail other than to recount that they intend to spend $250 million on the exercise.

Here are some thoughts on what could be significant about it:

Microsoft's strength is in the enterprise. If this deal pushes cloud solutions aimed at small business and consumers to HP it could be a good thing -- particularly since it would help Microsoft stay focussed on its strengths. Some of the reporting on the announcement mentions that there is an enterprise element to the HP partnership. I really don't get that. Microsoft and HP both have big ongoing relationships with enterprise customers and I just cannot imagine the companies throwing that business into this bucket.

HP is no Google in terms of consumer focus, but is well positioned to deliver the broader marketplace. So there is a chance HP could make it work.

Who else is impacted? As with many of these deals, the people not in the deal are as important as those named. The most significant is Dell. We do not know how this deal changes the relationship between Microsoft and Dell. We will have to keep an eye on that. Other players like VMware and Cisco will also be interesting to watch in the context of this deal.

So initially I think it is a good move by Microsoft. The downstream execution and the reaction of the other related companies will determine if is a winner of an idea. Either way, there will be more to this story.