Why are financial analysts so dumb about technology?

We are in a curious time of the year. Software companies in the US seem to delay product releases to miss the first few weeks of the year — perhaps because so many take time off at the holidays — so I have seen a number of product updates that are coming out soon, but which I have been asked not to talk about until they are released. So, the things that are top of mind will have to wait.

Recently, we’ve seen a lot of financial and market results that — once again — underscore the trend lines in the ‘computications’ device business (see How fast and far can Intel fall?):

  • Intel announced numbers this past week that indicated demand is at best flat for personal computer chips, and this led to a fall in the company’s stock, and — in combination with other data — the S&P fell over 7%, and companies in related niches — VMware and Citrix — fell in tandem. Intel also announced plans to cut its workforce 5% a few days later.
  • On the other side of the companion device/PC divide, Apple and Samsung are projecting huge numbers of tablets for 2014: 80-90 million units and 60-70 million units, respectively.

I don’t get why the market can be ‘surprised’ by the slumping fortunes of Intel or the dinosaurs that are trying to sell access to cloud computing that is premium priced relative to Amazon’s. This is one example of the way that financial analysts seem dumb. My bet is they think change is happening slower than it is, or as McLuhan said

We look at the present through a rear-view mirror. We march backwards into the future.

The analysts feel the future should be like the past, but nowadays that means whenever some news comes out, you’re surprised.

A second indicator of the trend toward  the me-ization of work: Dropbox announced a $250 million round of investment — which might actually be as high as $400 million — at a valuation of $10 billion (see Dropbox, now valued at $10B, raises $250M). When I reported this, several folks responded on Twitter that it seemed a bit bubblicious. But the Wall Street Journal reported that the company expected sales to rise over $200 million in 2013, which is 50X valuation, but not based totally on signups: it’s serious bank.

Dropbox’s round might step up the competition with Box, which raised $100 million last month at a $2 billion valuation.

A second example of how the financial analysts are dumb about technology: they don’t get Dropbox and its competitors. Douglas MacMillan of the Wall Street characterized Dropbox as an ‘online storage provider’, which is like calling Instagram a photo storage company.

Dropbox is worth so much because it backfills a flaw in today’s operating systems. It provides a virtual distributed operating system that is lacking in OS X, iOS, Android, and Windows. One of the companies making those OSs would be well served to step up and buy Dropbox for a premium above that $10B — which would  have to be $20B or more, I bet — to bring those capabilities back into the OS layer.

So when Google buys Dropbox for $25 billion, expect the financial analysts to be surprises that an ‘online storage provider’ could command such a price.

How fast and far can Intel fall?

Here’s a few data points indicating the velocity of the transition to companion devices (smartphones, tablets, wearables) away from the previous desktop paradigm:

  • Intel posted fourth quarter 2013 numbers showing basically flat demand for personal computer chips, its sweet spot. It has struggling with making the low energy chips better suited for companion devices, being beaten there so far by Qualcomm and Samsung. The market responded badly to this and other poor reports like GE’s, and the S&P fell 7.19%, and led to a cascading impact on VMware, and Citrix, whose cloud computing solutions run on Intel chips.
  • Intel also announced that its Bay Trail chipset for tablets will be rolling out in Q2. This might turn out to be Intel’s BB10 or Windows 8 moment, however, if device makers don’t start buying them in large numbers.
  • Intel responded with an announcement that it will be cutting 5% of its global workforce, but that did not lead to a rebound in the market. It seems that seeming cost-consciousness about its declining markets is not going to make investors buy more stock, although the falling price stabilized as Wall Street assimilated the news about redirecting R&D toward profitable and expanding lines, like low-power systems.
  • Meanwhile, Apple and Samsung are projecting huge numbers of tablets for 2014: 80-90 million units and 60-70 million units, respectively.

What surprises me is how Wall Street can be surprised about these trends. The handwriting is on the wall: we are hurtling into a postnormal world that will be dominated by companion ‘computications’ devices, and the desktop (and to a lesser extent, the laptop) will go the way of the telegraph and the floppy disk.

The implications for business and the workforce are broad and deep, and there is still a great deal of disruption to come. But we should stop being surprised by the structural impacts of these changes. So, while Intel might change itself into a competitor in this brave new world, it will have to become a very different company to do so.

Does a decline in social media use really mean companies are retrenching on social?

I’ve been rereading some great articles and reports from 2013, and one set of statistics caught my eye from the Deloitte report called The Burdens Of The Past, by John Hagel III, John Seely Brown, Tamara Samoylova, and Matt Frost. In a figure that shows ‘inter-firm knowledge flows’ nearly every sort of activity being measured fell precipitously in 2012 relative to earlier years, with the exception of email alerts and webcasts:

Print

The authors circled the declined of social media, and singled that out as an indicator of businesses being involved in a sort of retrenchment against new ways of doing things:

In 2012, participation in work-related online forums, professional and community organizations, and social media networks decreased from their 2011 levels. Corporate social media usage, in fact, is lower in 2012 than it was in 2009, with participation rates in social media below 20 percent across most levels of the organization (figure 9)—including middle management (18 percent), lower-level management (13 percent), and non-management (9 percent).

Given the increased availability of knowledge-sharing tools and many companies’ expressed intent to deploy them, these results seem surprising. After all, in a July 2013 Deloitte and MIT Sloan Management Review report, executives across all industries indicated that they considered social business to be important. Numerous organizations have demonstrated how social media can help workers resolve exceptions, share practices, crowdsource solutions, and discover expertise wherever it resides. So why has its adoption been so slow at many companies? Executives in the Deloitte-MIT Sloan Management study cited barriers such as the absence of an overall strategy and the lack of a proven business case. But we suspect that a more fundamental force may be at work: the historical value accorded to efficiency and controllability by businesses accustomed to a less changeable, less transparent world.

But if you connect this with the next chart in the report, a different picture begins to emerge.

DUP595_chart-10-960x473

The wholesale move onto companion devices — smartphones, tablets, and soon wearables — is perhaps the missing puzzle piece. Note that the categories in the first chart above do not account for texting or chat apps on mobile devices.

My bet is that the time that people formerly spent on PCs, or in more formal face-to-face activities like lunch meetings, community organizations and conferences, are being replaced by informal texting and web chat. And perhaps this is also an aspect of the third way of work: people will make their own decisions about how to communicate and share, and not rely on  the company to supply approved tools. As I said earlier this year, we now dig our own holes, and sharpen our own shovels.

This doesn’t moderate all the of the possible negatives that come from a decline in corporate social media use, if in fact that is happening, but on the other hand it lines up with my sense that people are organically applying the same sorts of communications tool they use outside of work inside as well.

A few trends that converge on a networked, unbundled, and connected world

William James once observed (although I can’t find the reference),

You can judge a man’s intelligence by how well he agrees with you.

This post is about some recent thoughts by two very smart people, by that measure. Williams also stated that

Our view of the world is truly shaped by what we decide to hear.

Which is presumably why you are reading this post in the first place, and why I read nearly everything by Fred Wilson and Benedict Evans.

Fred Wilson spoke recently at Le Web in Paris, and laid out three megatrends that his venture firm, Union Square Ventures, follows closely and which guide their investment philosophy. Niv Dror was there and captured his talk. The three trends are these:

  1. Networks
  2. Unbundling
  3. Smartphones

In brief, Wilson argues that bureaucratic (and inefficient) hierarchies everywhere — in business, in government, in all institutions — are being displaced by networks, and those networks are inherently based on internet communications technologies. His examples include Twitter disrupting the newspaper business, YouTube pushing aside the hollywood studio model, and Soundcloud (and now Beyoncé) bypassing the record labels.

This is reflected in the world of business, the internals and externals of business. The third way of work is predicated on exactly the same disruptive force: social networks that are fully reliant on internet communications — not just the ‘collaborative’ tools of the late 20th century and the first few years of the 21st — are corrosively unmaking the bureaucracies of business. And just as Fred is investing in the disruptors in media and entertainment, we can expect that upstarts like Dropbox, Box, Editorially, and Asana — to name only a few top-of-mind examples — will accelerate that trend, and displace the creaking, aging tools predicated on a very different form factor of work and shape of organization.

[Note that it’s important to make the distinction between the disruptive technologies being developed today that are based on the central role of social networks, and not the earlier collaboration technologies that often have no networks at all, but only hierarchies, based on groups, and fairly authoritarian models of work.]

Fred talked about the formerly high costs of bringing products and services to market, and how that led to bundling. For example, opening a bank branch was expensive, so it would be sensible for it to offer a wide spectrum of services in the same place: savings accounts, CDs, auto and home loans, and so on. But today, the internet explodes that, and we will see (are seeing) the unbundling of that, with examples like Lending Club (peer-to-peer lending) and C2FO (a global collaborative exchange for working capital).

In business technologies, we are seeing the shift from broad technology platforms and tools — like SAP, IBM, and Oracle suites — to narrow and deep tools, well suited for specific kinds of workers, like Github for developers, and Adobe Social for marketers. And in particular, the emergence of small-and simple tools — especially those that play well on companion devices (smartphones, tablets, and wearables) — is the next wave.

And that brings me to Wilson’s third point: smartphones, or more generally, companion devices. He polled the audience in Paris, asking if they had to choose between their laptop and smartphone — where they could only have one — what would they pick? Approximately 80% picked the phone.

And why? The sensors, the location-aware apps, and because we are always within three paces of it: it’s with us all the time. We are connected — for the first time — all the time. We are nodes in the global social network of connected people, all of the time, and that — as Wilson makes clear — is important. Or to my way of thinking, revolutionary.

Benedict Evans wrote an important post this week, too, in which he makes one observation about the meaning of mobile scale, one that paints a bright red line across the timeline of human civilization:

Some time in the next six months, the number of smartphones on earth will pass the number of PCs.

Screen Shot 2013-12-18 at 17.51.51

These inflection points are critical, because it means that we can make inferences about the entire civilization a few years from now based on the behaviors of those most involved in the use of the new technology, today. And the interactions between the two sorts of devices, because PCs, smartphones, tablets, and soon, wearables all interact.

As Evans points out, that graph shows an enormously expanded internet, one that has almost doubled in size since 2010. Yes, doubling in three years. And the chart suggests it could double again in the three years following.

And he points out that smartphones aren’t connected to the web — the browser– to any extent like the way PCs have been. We’ve seen an explosion of nation apps using the internet as their backbone, but operating outside the browser.

That alone may explain the interest in small startup enterprise apps that really get the mobile behaviors — like Orchestra’s purchase by Dropbox, or this week’s acquisition of Collaborate.com by Cisco (see Cisco acquires Collaborate.com, but not a peep about Webex Social).

2014 is really looking like the year of these trends all crash together, a perfect storm: an always connected population and workforce, new apps that fill the corners of our totally connected lives and work, and the dissolution of institutional hierarchy by the corrosive and subversive nature of networks.

Coming soon to an operating system near you: file sync-and-share

Last week, Evernote announced a new product, Evernote for Salesforce (see Evernote for Salesforce announced), which connects the popular document repository platform with the post popular CRM application. This is interesting for more than the first-order effects, the benefits to Salesforce and Evernote users. It’s it the most recent example of a rising trend, in which the new architecture of work management will be based on the dynamic that all work is distributed and social.

Consider the emergence of solutions like Evernote — a tool for people to collect snippets of information, links, scribblings, images, scans of business cards — and to store and organize them in ways personally relevant to the user, using tags, folders, and naming conventions. These can be synced across all a user’s devices, and shared with others in later versions, like Evernote for Business. This is paralleled by the rise of other not dissimilar tools like Google Drive, Dropbox, Box, Hightail, and so on, that support the syncing and sharing of files — created by whatever other tools — across what amounts to be a virtual, distributed operating system.

The emergence of these tools is actually the backpatching of a flaw in our operating systems, which are still based on the 20th century premise of a local file system, and relative ignorance of the web. Smarts about the web is not built into the operating systems on our laptops and desktop computers, although those on our companion devices are somewhat more web-savvy. But they all force the user to wrestle with files as if they are fixed, and not distributed across devices. We leave that to specialized applications, who compete for our trade, and who have created a divided world of contending distributed virtual file systems.

One of my earliest programming projects in grad school was to create a hierarchical file system on some truly ancient computer that Boston University had lying around. Imagine: the native file system was a single flat namespace. So I programmed a file directory, allowing folders and nesting. And then I and others were able to create modern style programs for that machine. Basically, I backpatched a logical flaw in the operating system.

And that’s what Evernote, and the others are doing. They are constructing programs that allow users to operate as if files, notes, images, and so on are being managed in a giant distributed file system, one that sits at the center of our world of work (and play, too), and where the dumbness of today’s operating systems can be overlooked, to a degree.

The major vendors of operating systems — Apple, Microsoft, and Google — have entered this marketplace in recent years, and are parroting the offerings that these other newcomers have dreamed up. Google Drive, Apple iCloud, and Microsoft Skydrive offer somewhat contrasting approaches which in the final analysis are competitors. But what they should do, and what they will inevitably get around to doing, is to build file sync-and-share capabilities into the operating systems.

Consider a not-too-far-in-the-future versions of OS X, in which iCloud is no longer an app, but a set of low-level capabilities. For example, I can create a folder (in a future version of the Finder), and simply share that folder with other people from my Contacts, or indicate that I want this folder synced with my other devices. In those cases, other people and other devices would receive notifications about their ability to access that folder. The next time I turn on my not-too-far-in-the-future iPhone, the synchronization of that folder would start running in the background.

And what if my device was an Android tablet instead of an iPhone? Obviously, the various operating systems would have to interoperate. They won’t at first, but ultimately they will. And then, Evernote would be relegated to being a relatively minimal editing tool sitting on top of the vast distributed file system implemented by iOS, Android, Chrome, and Windows. And the market share for Box, Dropbox, Hightail, and the other file sync-and-share apps would collapse, although a few of them would likely be acquired to become the plumbing for Apple, Google, and Microsoft implementations.

Most people can’t remember back to the time when email services couldn’t intercommunicate, but I can. And they also don’t recall when Mac and MS-DOS file systems were incompatible, so that a Windows formatted floppy couldn’t be opened on a Mac.

In a strange way, we’ve come all the way around to this, a return to a world of silos. You’re using Google Drive to share folders with me, but I want to use Box, and another friend is sharing files from Evernote.

Building this into the OS’s will also mean that they become social at their core. They’d be implementing one of the most important aspects of our social networks: the network defined by who we share files with. (And presumably, we want to share comments about those documents, and a stream of updates about what’s in those documents, and… you get the picture: social operating systems would be next.)

The first operating system vendor to bake these capabilities into their OS is going to gain a serious market advantage in the business space. Imagine I could more easily share — securely and reliably — files with my coworkers in a way that also guaranteed back-up and recovery, and it did so in a way that could be managed both by the individual (for personal files) and by company administrators (for business files). Why haven’t Google, Apple, and Microsoft implemented this yet?