Monday, 31 October 2011

Running an Airline 101

It seems Qantas got the Willie Walsh effect. In an era where Unions have never been as moderate it seems that Airlines get the yips and decide to take them head on for no good reason.

Over a long period, amidst all his other disasters like buying a dead airline, the Terminal 5 Fiasco, launching an All premium Class Service to New York to ferry bankers back and fore when we hated them, Willie Walsh faced down the Unions as his loyal Cabin Crew defended their jobs. In Walsh's case, it was hard to see the strategy as he had no clue which he wanted - high class staff for Premium services or dimwits to run a budget airline. In between he had more staff than he could shake a stick at in the back rooms whereas the battle would be won up front. It was a silly plan.

In buying a Spanish Airline, you still cannot get a Heathrow to Valencia flight with either BA or Iberia. Class.

Qantas have fallen foul of the same self-harm instinct that BA has. By grounding all its 108 aircraft in the face of some flights which was peeving a number of customers, they decided to shaft every one of them. That really was going to endear the Airline to its customers. In fact, in true BA and Easyjet fashion, Qantas informed their customers of the stoppage by merely putting up a one liner on a screen. But, I suppose, at least Qantas had a plan - they wanted to expand into the lucrative Asian travel market.

It seems Corporations are into this public 'auditing' of its management decisions and techniques and there a few like BA, Qantas, and HP who seem to be failing rather spectacularly.

I dare say, if you were booking a flight to Australia today, Qantas would not be first choice.

Wednesday, 26 October 2011

Night of the Long Knives

After 12 years at the top, Terry Sweeney, CEO of RM the educational specialists, has stepped down. In other news, so too has Bobby Watkins, MD at Acer UK.

RM has suffered badly at the hands of Government cuts in Educational Projects, specifically about new school builds and regeneration. But it's more than that. RM is a company that has bet all its chips on Education and it has failed to create a viable business outside the UK in order to take advantage of the 'hot spots' of spend in Education in other parts of the world. It has also not been able to really capitalise on some of its Intellectual Property like learning software and create partnerships with OEMs to expand its footprint profitably. It certainly failed to see the win by the Coalition at the last Election and the period of austerity that would inevitably follow.

For that, Terry Sweeney, has agreed to fall on his sword and make way for Rob Sirs to step up. Sirs has a much more progressive view of international markets and software - this could be the making of RM. But the next few years will be very hard as he has to place the long term bets against a falling market in which they will cut one in five existing jobs. RM are well spread in terms of products - some would say far too wide. They need to narrow down their portfolio, look at getting international and exploit the profitable technology they own.

Would you buy their shares? Anyone 100% focused on Education is always in a cliquey, niche market that is fickle depending not just on economies but on Politics. I wouldn't.

Acer were the derring-do company of the noughties. They made decent products and sold them indirectly so always keeping slim workforces in-country. Any European subsidiary of a Taiwanese company run by Italians might be a curious mix but success has been plentiful. It rose to be the No. 1 shipping brand in Europe, ahead of the mighty Dell and HP.

Until the last 12 months, that is. Europe got itself into a real tizz. Against a rapidly falling market, the European subsidiary - possibly mainly the UK - ran heavy on stock and somehow didn't account for a large amount of it that no one had noticed clogging the warehouse. Large write offs were taken ($150 million) in the middle of the maelstrom market where Acer has suffered far worse than others. In one distributor, monthly sales have collapsed to close to zero on Acer.

It was perhaps inevitable then that someone would cop the blame and it seems Bobby Watkins, head of the UK subsidiary, has done so.

It really is the sign of the times when two such leading lights in their respective market places could go so horribly wrong and then lose their chiefs. What is happening in the IT market seems to attack much more swiftly. Overnight, Amazon announced a 73% drop in its profits as it blamed investment in the new Kindle product for poor performance even when it seemed to exceed sales expectations.

But Amazon is well spread in a growing market - its sales rose 44%. Slim margins are its issue and this may cause them problems down the line as you only need to get one of your metrics wrong to wipe out most, if not all, of your profits very quickly.

So if we can learn anything from these announcements it's: 1) Education is a great market in good times - in bad you need to be well spread to avoid over exposure to the biggest influencer, Politics. 2) Reading the changing PC client market is not easy as the market dynamics shift very rapidly - being solely a PC vendor right now is not a good place to be. 3) In a business with very slim margins, placing massive bets on one product can wipe you out completely - particularly when the one product can be emulated by most other smartphone or tablet devices. After all, there are only so many electrical gadgets we can all buy - consolidation is not a bad thing.

The final lesson is one I have learnt the hard way - it is easy to be a great manager when the markets are good. It is not so easy to be great when the graphs point the wrong way. 

Tuesday, 25 October 2011

Cloud Sales Set To Increase - Shocker

There is a lot of hype about the Cloud. Everyone has an opinion about what it will mean for the computer, software and services market but few really agree on what that is but most acknowledge that things will change.

TechMarketView, an industry analyst, reckons that over 15% of the software and services market in the UK will be Cloud based by 2014 when the market will be worth over £6bn - this is up from 6% currently. In that time, tablets and smartphones will be account for over 30% of the client devices in the market.

Most industry people would agree that the business model in Cloud software and services sales is very different to the old and this poses a problem to companies entering into it. One Reseller I have spoken to told me of a deal they had specified to an HVAC company in Yorkshire which had gone from being a traditional lump sum of £50k to one worth around £1,500 per month by switching to the Cloud. This posed a dilemma for the company as much of its cost model, cash flow and compensation plan had been geared to the £50k upfront sum.

The problem was further exaggerated by part of the sale being 'pass-through' from Microsoft which, although it was relatively margin-rich compared to the upfront sale, meant that they could only recognise the pass through referral fee portion of the money albeit at 100% gross margin, not the full value of the software.

Microsoft have been relatively enlightened about their referral fee model in terms of giving higher margin incentives for Office 365 but most mature software vendors are thinking either same margin models and some are even thinking to give less as they bear the cost of the application hosting in the Cloud. The channel is in an uncertain time when it comes to business models and opportunities to earn - many think that mature vendors are being unrealistic in terms of margin opportunities in a changing world, given the pain of change Resellers will have to go through.

More of the mature software vendors are jostling for position with Cloud offerings and this will force change on Resellers. For sure, there is a very big change happening in Corporate IT where the 'Consumerisation of IT' is causing nightmares for IT managers and suppliers as individual users spend their own cash on smartphones and tablets and ask for them to be included in their networks. Apart from the implied security risks, there is a lost opportunity in revenue for many Resellers while IT managers are having decisions being made for them. This is a trend that will only accelerate in line with the growth in these new client devices. 
Until Resellers wise up and take Mobility as a serious computing market opportunity not just the realm of the likes of Telcos and airtime providers who know little about Corporate networks, security and Governance.

The pressure is on then. Buying decisions are changing at the client end, software and services are moving toward the Cloud and there will be pressure on both the sales potential in this new world and the business model for Resellers.

It all sounds pretty bad - but should we all be afraid?

Some Resellers have taken the plunge. They have made fairly sweeping changes to both their business models and their compensation plans to help transition salespeople to a new earnings opportunity. It seems those that have embraced change fully or by setting up 'shadow P&Ls' in the new model have fared better than those just trying to shoehorn Cloud sales into a classical model. Vendors have the same dilemma. Few vendors are looking at how they earn differently or use the Cloud products themselves or change their compensation plans, but they are happy to pass that down to Resellers at the same or less margin believing they are doing them a favour.

Resellers may well be wise to look at new applications in the changing world and new opportunities to earn money. One thing is for sure, where there is change there is usually opportunities to earn more - whether that be by increasing margins on current sales or by making money in services surrounding the change. There are also opportunities to sell new types of applications such as services like Cloud back and recovery, disaster recovery, security, hosted email etc and these all should be modelled so that margins increase rather than decrease.

It could be that we see a rise in 'white label' products. Back in the 'Cola Wars' Britain became the first country to have aggregated sales of white label colas to actually knock Coke off the No. 1 slot and in the same way Applications as a Service might become more prevalent too.

The upshot of all this is that as a Reseller you can ignore the Cloud and continue in an uncertain and changing market ploughing the same but narrower furrow or you could look to engage early on the new world opportunities that Cloud offers. There is no doubt that old thinking and business models don't really apply in the Cloud world but if you think with not the next 12 months in mind but the next 24 or 36 months, then you will begin to see how Cloud models really pay back not just in terms of good, profitable repeating business but in how 'sticky' it makes you with your customers.

Whichever way you feel about Cloud, it is growing and it won't go away. Now is the time to consider how to tap into the opportunities.

Wednesday, 19 October 2011

The Losing Battle

As HP wonders what to do next with what, Lenovo and Dell worry about low margin products, RIM tries to clear up its messes, Acer looks slack-jawed at its continued fall, Google and Apple just go on and on.

And then some.

But Wall St is a funny place as even a staggering 85% increase in profits to $25.9bn this year sent the shares down 5% in value. I dare say that analysts will be asking if such dizzy heights in terms of growth can ever be achieved again - particularly after the passing of Steve Jobs. Yet, the iPhone 'franchise' continues to deliver as the new 4S got a massive tick in the box with pre-orders of 4m while the version 5 is just around the corner.

The only shadow on the whole thing was that iPad sales slowed considerably as only 11m were sold when everyone had expected 20m would be in the final quarter. In terms of computer, Apple Mac sold 4.9m models up 27% over the same period last year. That growth was achieved while the PC market went backwards at a rate of knots.

There is no doubt that Wall St expects more of even the Golden Goose and that's its problem not Apple's. These figures were stunning.

I mentioned Google's near $10bn sales quarter recently. Inside the numbers was an interesting story as Gartner Group now estimate that 0.5% of the revenue is contributed to by Google Apps for Business sales.

Trivial in the great scheme of things, eh? That tiny percentage represents $50m of sales last quarter, $136m in the 9 months to that date, $200m annualised right now. These sales are of a simple set of Apps priced flatly at $50 per user per annum.

This is the 'noise' that Microsoft refers to. You could suggest that Google might have expected around $100m of those sales to have been achieved in Europe - after all, some 450,000 teachers have standardised on Google Apps for Business in Morocco alone, according to the numbers. 

If those numbers from the independent Gartner are right then Google are completely outselling Microsoft globally on Microsoft Office 365 - and by an order of magnitude in Europe in terms of both sales and licences sold.

The noise is getting somewhat louder.

The world of the Cloud is changing us very quickly as Apple released its iCloud and Google sells its Apps. As Tom Austin, Gartner's Analysts who put the figures together in noting that small businesses are now 'flocking' to Google, said 'It's Microsoft's game to lose'.

I would say with its current strategy, Microsoft are making a good fist of losing this battle.

Monday, 17 October 2011

A Red Mists Descends

I'm Welsh, so I can rightfully be accused of being biased. I am proud of my team's performances at Rugby World Cup 2011 - they played with passion, strength and flair. They gave it their all in preparation and execution and deserved more from the tournament than they got.

What they got was determined by a single decision by one of the world's best referee's, Alain Rolland. After just 18 minutes into the game, the Welsh Captain, Sam Warburton, upended the French winger, Vincent Clerc, with a dangerous tackle. 

That much we can all agree on. From there, French fury inflamed the situation and the referee, without calming things down, immediately reached for a red card and sent Warburton off.

In the context of modern day rugby where minor percentage differences between two sides can mean heavy defeats, the average advantage created by a 10 minute sin binning is 10 points to the non-offending side. In this context, Rolland's split-second decision meant Wales had to play for 62 minutes without a player. In the context of the sport generally, it is hard to recall when a player got summarily dismissed for such an offence.

This just happened to be the RWC semi-final and less than a quarter in. The final will be watched by over 1 billion people worldwide. So the burden of responsibility in the wider sense was for the referee to ensure that the two most worthy teams get into the final. A moment's pause may have got the full perspective considered.

As it happens, France, having been defeated already by hosts New Zealand and by lowly Tonga in the Group stages, will again meet New Zealand in the final. Effectively, yesterday's semi-final between New Zealand and Australia became the final - as New Zealand newspapers pointed out before that game - "80 minutes and we're laughing."

But don't listen to a jaundiced Welsh fan. On the day, Lawrence Dallaglio and Francois Pienaar highlighted that rugby is not a 'Contact Sport - Ballet is a contact sport. Rugby is a Collision Sport'. And they should know - they have played on the winning side in World Cup finals.

The fact that Warburton was physically bigger than Clerc caused the tackle to go 'dangerous' not the intent of the player. And dirty or dangerous play is all about intent. I can say that, having played the game for over 20 years myself as intent is the same at any level of the sport.

The referee, with all that experience and advice at hand, should have seen that inbalance in physical dimensions between the two players and considered it. He should have calmed the players down before considering his decision. He should have at least consulted his two on field deputies before making his decision.

Instead, a red mist descended over Alain Rolland's eyes and he reached for the red card without any consideration to the wider implications.

Over the weekend, former and current players have voiced their outrage at Rolland's decision. As Mark Cueto, the England winger on the end a few dodgy referee decisions in his time including last RWC final, put it, 'People did not come to see you {Alain Rolland}'.

This game, perhaps this RWC, will be remembered for the fact that New Zealand will play France because the referee called it wrongly in the semi-final. New Zealand will rightfully lift this cup - they have been easily the best team in this tournament and their performance over Tri-Nation Champions, Australia, yesterday was awesome. But it would have felt better if they had defeated Wales, the form team of this RWC in the final. 

What a final that would have been.

A final note on these types of decisions. What Rolland needs to go through in his mind is the inconsistency of application of these laws. There have been three more serious 'spear tackles' in RWC 2011 and not one resulted in a red card - one did not even get a yellow card. 

And finally. This whole law got revised when Brian O'Driscoll got upended by two New Zealand players in the opening minutes of the First Test between New Zealand and the 2005 British Lions. O'Driscoll, was the Lions Captain and unquestionably the best centre in the world at the time. He dislocated his shoulder in the tackle and missed the rest of the tour.

One of the tacklers that day will take the field this RWC final. Not even a penalty was given on that particular day. The Lions went on to be clean swept by New Zealand. 

In a way, the outcome of Ma Nonu's tackle on O'Driscoll that day has had a double whammy result. Not only did he finish the tour for the Lions Captain but he indirectly caused the RWC 2011 to be guaranteed to be picked up by his team next Sunday.

Fact is sometimes more revealing than fiction.

Friday, 14 October 2011

In The Wrong Place at The Wrong Time

The company that Microsoft staff describe as 'Just noise' or 'Just an advertising company' made quite a noise and sold a lot of adverts yesterday.

Google announced a very impressive 26% rise in quarterly profits to $2.73bn up from $2.1bn in the same period last year with revenues reaching almost $10bn for the same period as well, which was up 33% on last year.

The astute mathematicians amongst us will realise that the profitability of this business is just extraordinary and the resources it is accumulating are equally impressive. The future looks just as good as its mobile operating system, Android, makes great in roads in the smartphone market and now the tablet market as well. On other market fronts, the take up of Google's answer to Facebook, Google+, was very heartening while it will make great play of its Google wallet concept in the next year as it attacks the voucher market which is so in vogue right now.

In the meantime, as the client computing market changes appreciably and quickly, PC and netbook sales have dropped dramatically meaning that the opportunity for Microsoft to continue accruing rising revenues on its Windows operating system are diminishing while its share of the smartphone and tablet market operating systems is pitiful. Equally, the opportunity for sales of its client based productivity software such as Office will fall as clients change. Microsoft has all but capitulated in the search and advertising market while its partnership with Nokia may be too little, too late to get it a  share of the mobile operating system opportunity.

What Apple and Google have done is to redefine the whole concept of client computing, the operating system that runs the devices and how software is delivered, costed and refreshed on these devices, using the Cloud to its fullest extent. Steve Jobs and his counterparts at Google have moved us all into a different place that has changed the way we use computing devices at a very personal level which is directly linked to how we work in business. For RIM, the founder of business-grade mobile communications with applications, it was another sorry week as their network failed them giving their customers' executives the final excuses that they needed to switch off the Blackberry future.

There is always a lag in these things and the next 2 or 3 quarters will be a very interesting time for Microsoft and a very bad one for RIM. There could be a case made that Microsoft is in the wrong place at the wrong time, while RIM has had its moment and failed to see the future.

There is definitely a case that the main players have vastly underestimated the success of Apple and Google. Some may call it 'noise' but you can't argue with numbers.

Wednesday, 12 October 2011

Are We In The Post PC Era?

Another day, another data firm releases bad news about PC sales. This time it is Context and their assessment on Q3, having gleaned their information from European distributors, is that the decline seen in PC sales continued unabated.

On the one hand, there has been some aggressive price cutting which has had some positive effect on unit sales by some 9% but the pricing action itself meant that there was still a drop in revenues by 10%. In the category of laptops, there was another alarming drop of 18%.

The pricing action was more to help distributors run down the high levels of stocks they had bought largely in anticipation of continued strength in the PC market. The decline and subsequent build up in stocks has happened in very short order and it echoes the speed at which the whole client market is changing.

Of course, things were not helped by the dramatic announcements by HP regarding its PSG division and then its subsequent removal of its CEO. It is still unclear how that will affect the future of the division.

Context has not shown any appreciable market share loss by HP but this does not reflect information supplied from other sources where there seemed to be a 4% loss of share by HP, a good proportion of that loss transferring to Lenovo.

The converse rise in tablet sales continues to show the rapid changes at the client computing level. More and more staff at firms are buying such products with their own money and are using them in the Corporate environment. It's clear that the whole 'refresh' market is fraught with uncertainty for PC and laptop vendors.

In all of this, the one company that is not suffering is Apple. Not only has it seen shipments rise but its market share has also risen while it still commands premium margins for the vendor.

Perhaps, just perhaps, the client market is giving a collective vote of 'lack of confidence' in the PC and Microsoft market.Perhaps, just perhaps, this market has seen its best days. Perhaps Steve Jobs was right, we are now in the post-PC era.

The changing face of client computing together with the growing trend toward Cloud based computing is going to shake the market up over the next few years. I dare say that we may see a very different landscape of dominant vendors at the end of it. There whispers that Microsoft's era of domination in this sector are over.

Is there fight enough left in the giant to survive and continue to thrive?

- Posted using BlogPress from my iPad

Tuesday, 11 October 2011

Fear of Failure

We are in tough economic times and many companies will be experiencing zero or little growth, some will be experiencing some downturns. There is the ominous threat of the infamous 'Double Dip Recession' that lurks ahead although some economists think we are being too gloomy. Whichever way you cut it, most businesses need to review their plans and do some 'what ifs'. Failure is a distinct possibility.

Denial is a powerful psychological tool. In times of human bereavement it is denial that allows us to block out the negative thoughts and continue to operate. In business, it is often the ability to block out the possibility of failure that drives people to success. So let's not underestimate the strength that denial can give us.

However, some people who have experienced abject failure or the possibility of lack of success, go on to achieve the most. We have all been touched by the loss of Steve Jobs in recent days and been amazed by what achieved in his short life. Yet he was a man who was considered a failure at least twice in his life. Once, when he dropped out of college and once when he was effectively turfed out of the company he founded because his Board did not want him. In another example, if ever you want inspiration listen to JK Rowling's address of the Harvard graduates and understand that it was only when she hit rock bottom that she could galvanise her life about the one thing that would bring her success. There are many similar stories.

Some people have never experienced failure in their lives - some people just deny that they have. Personally, I am only too aware of the times I have failed and they have not been very pleasant experiences but they have shaped my life. I no longer fear failing but I now know that I have to face it to avoid it.

So when planning your business in troubled times it's sensible to avoid planning for failure. By understanding what failure would constitute and what that would mean to your company, its employees and shareholders it allows you to focus on what is needed to avoid it and to execute meticulously on the plan.

But what if you fear failure? Some people simply do not contemplate failure - they use denial to believe that it could not possibly happen to them. If that allows them to focus only on all the necessary important things that would avoid failure, then they are the unusual but extraordinary business people in life.

For the rest of us mere mortals, failure is a real possibility if we don't consider it as one - but failure is also a real possibility if we plan only because we fear it. That sounds daft but it's true. If we sit there petrified of failing, it can easily influence our decision making and actually increase the chances of failure. Why? Because in such circumstances, business people often act in a polar way.

How does that work? Well, if you fear failure too much for example, it's very likely that you might cut heads because you don't want to enter a recession struggling to contain costs - you fear the worst and so you anticipate it and plan as if it will happen.

In a subtle reworking of this, by acknowledging failure is a possibility, you do not necessarily cut heads but redeploy resources to refocus your business on the opportunities that will exist in recessionary times. If the heads aren't there then you cannot do this.

- By visualising what failure looks and feels like, you can plan to avoid it by reconfiguring your resources to put the power where its needed, when its needed so helping you to exploit any opportunities.

- By fearing failure, you are likely to be so focused on avoiding failure to see the opportunities. 

- In denying failure as a possibility you are likely to have a binary chance of success or failure. If you are the kind of business person who can be so focused on denying failure exists so as to only focus on the opportunities for success - great. But if you are not, you will likely set yourself a trap. The danger of planning only for success is that if failure strikes, you exaggerate its effects.

If you are not one of those people who constantly uses denial as a powerful factor for success, it's likely that you may actually inadvertently plan for failure. Planning for failure is the trait of fair weather business people who cannot see when markets or economies change. They are people who are unlikely to have been exposed much to failure and so they can't plan for avoiding, do not have sufficient fear of it to galvanise their actions and certainly will not have known what it feels like to make sure they plan to avoid it in the future.

It's difficult to know which business person I would want on my side in such times yet I know who I don't want there. On balance I would stick with someone who knows what it's been like to fail and so has learned how to avoid it in the future.

I would like, in that context, to always have a Steve Jobs on my team. It would always give me a greater chance of success.

Monday, 10 October 2011

The Health Lottery - It's Not A Joke, Is It?

I must admit that I must be living in a bubble. I had heard nothing if this new 'Health Lottery' and so it's launch has taken me by surprise. On the M25 today I saw a picture that was reminiscent of the 'Banana Splits' advertising it and I thought for a second that Camelot had found a new way to screw money out of us.

Imagine my surprise when I found out that this latest possible 'scam' is run by none other than Richard Desmond, celebrated proprietor of several tabloids and owner of Channel 5. Perhaps playing on our general scepticism of the NHS, it seems that money from the lottery will go towards Health Charities at a rate of around £50m a year.

However, the devil is in the detail. Just 20.34p of every £1 spent on a Health Lottery ticket will go toward any charities which is just above the legal threshold that constitutes it being called a 'Society Lottery'. The National Lottery is not a 'Society Lottery' but 28p of every pound goes to good causes while a further 12p goes to Lottery Duty. Many worry about the profits made by Camelot and their IT and Distribution partners but the the Health Lottery is pretty unashamedly a way to gain money for its operators and owners.

The play on our senses - we are aware of the 'Postcode Lottery' for health care - seems to be the modus operandi. I don't think that the money raised from this Lottery will make the difference the proprietor purports it will. It won't get better care for the elderly or save lives at A&E or ensure proper drugs are available to sufferers in every Health Authority. But Richard Desmond relies on people thinking it will.

Personally, I think this is a classic case of exploitation. Readers of his papers will love it. Desmond will get richer. Those in need of proper healthcare will be no better off.

Thursday, 6 October 2011

The New World IT Manager

I have blogged on the changing face of client based computing - the decline of the PC and the growth of devices such as tablets and smartphones. Some may not believe that this has much to do with corporate computing. But it has.

Yesterday, the European President of the world's largest distributor, said exactly the same thing. His angle is that executives and employees are making personal spend on such mobile devices and then asking not the IT managers but the CEO if they can attach them to the corporate network. In his case, this was revenue he was missing out on as many of these devices are being bought via retail outlets or in mobile airtime contracts that his company did not sell.

This phenomenon is the rise of the new IT managers and it is how Apple and Google are inveigling themselves into the corporate world. It's something that vendors like Microsoft would tell us that cannot occur and all these devices do not sit easily with Office products. But it is happening. Even to the extent that you will now see many executives with two phones - a blackberry issued by the company and an Apple or Google based smartphone connected to the network but paid for by themselves. Then they have iPads or tablets too.

This is the dawn of user based computing definitions and it is marginalising the role of the IT manager in the decision making at the desktop or client level. It is the reason why Apple Mac is making a resurgence in the corporate market and 'Ty' Tyson has shown us great graphs that show while PCs decline dramatically, Apple Macs rise strongly in terms of sales into the corporate world as users define the client not IT.

This has profound consequences for traditional volume PC and software vendors. Firstly, all these devices are sold very differently to the usual methodology. Secondly, all of them work in the Cloud in terms of their software and data. Thirdly, this is not a price driven market - smartphones and tablets make far more revenue and gross margins per product than PCs for the vendors. This whole new wave of computing is driven by IT spend that does not use the tradition group purchase, volume discounts and reverse auction tomfoolery - this is being growing one by one with little reference to price.

In all of this then there lies a massive threat to the status quo in terms of channel to market and there is also a massive opportunity. The dynamics in this market are very different now to what we are used to.

It will take a very savvy, well balanced and innovative distribution company to take advantage of this market. Some are placed better than others, for sure and resellers will need to align quickly to seize the opportunities.

One thing is becoming clear. In all the hype and hurrah about Cloud, the client market is where the big change is occurring, not at the server end. And Apple and Google are by a big distance, leading the way in terms on incursion into the new world. Microsoft are still some distance behind and are losing ground rapidly. In choosing their route to market, they may also have determined the path of least success in terms of partnership.

The next two years will be a 'Race for the Client' period and in the early part of the race Apple and Google are winning hands down. Can the mighty Microsoft respond? What are the consequences for Microsoft's operating system and Office productivity suite if it loses significant ground?

The consequences for the traditional channel - the products and services it sells - will be huge. Everyone needs to adopt a very different approach and the Cloud needs to be taken very seriously in all this as it will be the de facto way all these client devices communicate with the world.

Footnote: It was sad to hear that Steve Jobs passed away. Clearly he had known the worst when he stepped down. His legacy is the beginning of the new rise of Apple computing - I believe the best is yet to come from Apple. His visionary ideas brought them back from the brink to be the largest capitalised company in the USA, an achievement unsurpassed in the business world that isolates him for the genius he was. He was an extraordinary man.

Wednesday, 5 October 2011

Cloud? It will never take off

Key IT executives have this week been attending the IT research event hosted by Canalys in Barcelona and the Tweets have been interesting. One came from a nameless distribution man who picked up a point by Canalys that said only 5% of IT spend would be on Cloud this year so his comment was, "Focus on the 95%, I say."
You can't argue with facts, can you? And I'm sure Canalys know their stuff but perhaps their definition of Cloud spend differed to that of the Tweeter's own company. A quick survey within that company shows that they spend significant money hosting several portals throughout Europe on hosted SharePoint servers. Their entire ERP system, the most significant spend in their IT budget, is a hosted SAP server. Over 70% of the company's sales transactions are via a hosted web portal which links directly into the stock control system which is the same hosted ERP server and the application is served to users ia the Public Cloud. In fact, with the exception of corporate email and file storage, almost the entire backbone of that company's IT is a mixture of hosted Private and Public Cloud applications with corresponding infrastructure. Companies tend to ignore these simple facts but in that context, well over 50% of that company's IT spend is on Cloud based applications and services.
Where is the mismatch on reporting this as surely Canalys is not a stupid company? The reason is that much of the research is focused on the client end. After all, the lion share of users in most businesses use Microsoft Office based products and the vast majority of the emails and file storage associated with this is an on-premise solution. Most people consider Cloud adoption to be only really occurring when the client software is changed.
So in that context, Cloud IT spend will certainly be 5% or less.
That same person's company will be facing the falling PC market head on as major categories of PC product experience catastrophic collapses in sales. Meanwhile, tablet sales rise substantially, dominated by Apple. In this context, the face of client based computing is changing dramatically and significant spend on IT for business productivity is being made on devices that only work in the Cloud. The software consumed by these devices is not only cheaper but it is served by Cloud App Stores and the spend, more often than not, is coming from the pockets of employees.
It could argued that it is only a matter of time before Smartphones, tablet and App sales become part of the mainstream IT budget as these machines become more productive for business. The threat to companies like RIM is imminent while the obvious rise of Google and Apple back into corporate world is already gaining momentum. The reality is that research that puts IT spend on the Cloud at just 5% seems immediately flawed or we are not talking about the same thing.
Apple will introduce iCloud shortly along with iPhone 5 and there will no doubt be new iPads soon, while Google has bought Motorola. It is very clear that some companies have more of an insight on the future than others - or perhaps have the two most successful computing companies of the millennium to date gone stark raving mad?
While it makes good sense to understand that the market has not adopted Cloud for many mainstream productivity applications, the window of change is there for all to see. It might possibly be that only 5% of that IT budget will go on Cloud based applications this year but it is foolish to believe that the market transformation is not happening in front of our eyes and at a pace that no one could have predicted.
IT spend is changing. PC companies are squirming and suffering, some surrendering in the face of dwindling margins. Meanwhile, every Apple Mac, iPad or iPhone that is sold yields Apple a cool 33% gross margin. What is apparent is that some companies get it more than others and they seem to be making more money because of it.
The disturbing fact here is that by and large Apple and Google are client computing companies. The fact that they are growing faster than any other IT company tells us that if we believe the 95% figure of IT spend on non Cloud products then Google and Apple should be nowhere with poor outlooks.
That isn't the case. Facts and statistics can be used in all sorts of ways but you cannot argue with numbers. Last quarter Apple was sitting on more liquid cash than the US Treasury. It didn't accumulate this wealth by being an industry also-ran. Google is not just an advertising and search company.
Denial is a powerful tool in business but sometimes it stifles innovation. Already, it has been shown that Cloud is adopted more widely by faster growing companies led by younger executives. I guess they haven't stopped to read the Canslys research.
Just this month, I have blogged that my entire application suite is now Cloud based. As a small business, I have significantly decreased my costs and future-proofed my business. I have also made sure my IT spends are smoothed and not lumpy based around upgrade time. The Cloud is a compelling proposition for small businesses. I have also become a true mobile executive and it feels quite liberating!
So we can ignore it or lead it. Denying it will ensure companies miss the boat.

- Posted using BlogPress from my iPad

Monday, 3 October 2011

Cloud Data Security - When Facts and Myths Collide

'There is no way on earth that I would put my company's data on servers mounted in the Cloud. Not in my lifetime,' said an executive to me a couple of months ago at a Cloud Forum. I sagely nodded and agreed with his arguments. His company was a household named Building Society.

By the end of the conversation we had agreed, to his surprise, that his company actually had 13 business applications currently hosted in the Cloud, ranging from internet banking, comparison website feeds, websites, to HR platforms. In reality, what he meant was that the emails and general user data files, possibly ERP system, that company employees used were the sacrosanct area.

In looking him up later, I networked with him via LinkedIn after he had given me his business card. I noticed that he had put up his career details, the town in which he lived and his personal email address on his LinkedIn profile. I found him on Facebook too though I did not link with him.

It's an odd fact that most of us are content to make very important details available and make highly sensitive transactions every day over the web deep in the Cloud and we trust that our most personal and vital information is not compromised. We buy flowers, gifts, groceries, books, book holidays, buy flights add our credit card and passport details to sites, home phone numbers policy details - you name it we surrender it. It is usually for the convenience and herein lies the truth of it all.

The Cloud has very distinct advantages and personally we all are very much bought in as users with few exceptions, even in dealing with Government over the web or discussing our innermost secrets sometimes with almost complete strangers on public 'walls' where we even care to name our children and put up photos of them and our spouses, friends and family up.

Company's who specialise in acquiring competitive knowledge and doing due diligence actually glean most of their information from executives active in social networking or on other public sites.

We must be mad. But we're not. 

Yet when it comes to our company's interests, we are stuffy as heck. Why is that?

The person in question asks all his customers to put their trust in an externally mounted server somewhere in the ether through which they can access all of their banking data, pay bills, transfer money and even ask for loans and overdrafts. That same person, having taken our trust for granted, then votes against the same extraordinarily on behalf of his company's own data which arguably is nowhere near as sensitive.

It's at this point where facts and evidence collide. What is secure and robust for customer transactions is not secure enough for mere emails and general files.

I am not arguing that companies should bury all their fears and just break into the Cloud but I would strongly advocate that they reconsider their own bull. If the Cloud is secure enough for millions of transactions per second of commerce including that company's customers' data, then surely the same medium is secure enough for vast majority of intra-company emails and flotsam files?

Hmm, maybe I'm going mad after all.

The Cloud Business Model - Practical Advice vs. Hot Air

It doesn't help that we are in tough economic times and that the attrition of Resellers is at an eight year high (figures according to Graydon but Resellers considering selling in the Cloud need to understand the impact of the Cloud business model on their profitability and cash-flow.

Vendors and Distributors talk glibly of how they can advise Resellers on how to modify sales incentives and to tell them of the impact of Cloud sales on their business but few people within these companies either have the experience of running Cloud business models or have the ability to eat their own 'dogfood' by actually adopting the model themselves.

Most salespeople from these companies will struggle to recognise a Cloud based version of their own products - believe me I have seen that at firsthand with one of the largest vendors in the world - and they most certainly will not be paid on the kinds of models they try to tell you about. So how on earth are they qualified to 'advise' resellers on how to change their business?

The answer is simple: they read it off the slides so well prepared for them.

The Rule of 78s

I have blogged on, and much is made of, the Rule of 78 which is a method of budgeting for and creating targets for monthly billable sales. It came out of the telecom industry where such methodology is tried and tested as the basic sku of a telecom sale is a unit of time consumed on a telephone line. This mapped well to a SaaS based consumption model I used at Genesys Conferencing where audio conference minutes were a base unit at premium price to include the proportionate web minutes consumed. And once a conference service was provisioned, it got used to a greater or lessor extent.

Rule of 78s tells you that in a 12 month period, assuming your base monthly selling unit is one, then in month one you will bill one unit corresponding to the acquisition of a customer billing one unit. In month two you will bill a new customer one unit plus the one you will bill again from month one. Track this through the year and you have a rapid stepwise accumulation on monthly sales units that if all are added over the year, equals 78. You can substitute your one for any other number.

You can apply this easily to a customer base by assuming the monthly billing rate from the previous 12 months as being a base level required, then adding some growth number you are aiming at for the total year and divide that by 12 and then add it to the monthly average (i.e. you want to pay for growth not status quo). that becomes your monthly expected unit of sale. 

There are some obvious things that come out of Rule of 78. Firstly, you will pay commissions at a disproportionally high rate in the first six months when the graph is very shallow as opposed to the last six months when the graph gets very steep. So you need to plan your cash to accommodate this.

But more importantly, if you apply this model to a brand new monthly billing model then you have no baseline to work from, so every increment is pure growth. If your sales cycle is less than 28 days, it is no problem. But that is very rare. What typically happens is that there is a lag.

So after around 3 months, it is very often in a new product sales situation that very little or even no sales have occurred. The trouble with Rule of 78 is that it doesn't forgive and a salesperson in that environment with no baseline sales to keep them going very often loses heart between month 3 and 6 because they can see no sales arriving and no commission rolling in - and it will only get worse even if their luck changes beyond month 6. 

Rule of 78 is really not very good when applied solely to new business as if the dispirited salesperson leaves then you have to start the graph again but you have lost 6 month's selling on the budget.

Ideally, Rule of 78 has to be implemented with a robust CRM package like and keen KPI measures need to be set in terms of baselines of acceptable numbers of calls, demos, sales visits etc . A close scrutiny is required on the pipeline and funnel of future and forecasted sales  - these need to be reviewed and questioned. Rule of 78 rapidly becomes a pressure cooker for salespeople.

In the telecom environment this tends to wash itself out over time as if a phone line is sold it is almost guaranteed to bill and the billings may actually vary from customer to customer dependent on usage. Software and services sales don't work like that - you either get them or you don't.

Churn is a problem in telecoms because they are charging for actual line usage, but again statistics favour the salesperson. In software, churn is direct licence annuity lost and so it needs to be as low as possible which means 'adoption or roll out' is key in SaaS based sales to prevent churn.

Annuity Sales

Rule of 78 then is better for established businesses with a monthly billing model. A harder model on the business but a greater incentive to salespeople is annuity style commissions. Effectively, this is similar to insurance sales where a sales commission on the whole value of the contract is paid on booking rather than the billing. This can mean an even greater call on cash but experience shows this evens out quickly. 

Why? Because the astute SaaS biller may be booking revenue and profit to the accounts monthly in 12 equal instalments but they may be collecting the whole cash value as one upfront subscription. In my case at PlaceWare, we would offer a small discount for two years worth of subscription paid upfront but equal to 24 months of billings.

The salesperson can quickly see that sales accumulate very rapidly. Also, there is a natural benefit toward the end of the year, when salespeople typically look to next year's goals. In a Rule of 78 model, each month's P&L billing drives the commission so a sales in month 12 is worth the same as in month one for that month's commission. But in annuity, the sale in month 12 is worth a full 12 month's worth. At this point, spikes in bookings can be dramatically increased with the clever use of accelerators.

At PlaceWare, by using annuity over Rule of 78, we drove booked sales incredibly rapidly throughout the year while we also had a positive effect on cash-flow by offering cash deals for annual payments ahead. The potential danger is salespeople leaving after sales so just make sure there are tight rules around scheme payments and clawbacks.

The other issue on Rule of 78 is that it works best if the underlying profitability of each unit sales washes itself cleanly. In reality, vendors and telecom companies are operating at 40 to 80% gross margins in billing services and software. At best, resellers are facing SaaS based gross margins of as high as 20% - and sometimes as pass through commissions only where they do not have the direct relationship with the customers to 'deal' on the cash side and so cannot recognise full revenue and enjoy the cash-flow.

Resellers Get proper Advice

The term 'Transformation' is the new vogue amongst the Cloud Intelligentia - mostly from people with little experience of what they are talking about, least of all actually living the SaaS transformed business model. So please be wary on whose advice you act as a Reseller.

It really pays to get some advice.

The reality for most resellers is that the simple issue of billing recurring monthly bookings is actually very hard. Most accounting or ERP systems don't cater for this feel, requiring things like new monthly orders or POs etc. Most companies end up with some kind of manual work around.

Imagine the difficulty of dealing with multiple Cloud vendors such as software companies, distributors and co-hosting companies offering a variety of bills for services and products - some of which, like hardware, might be on regular 30 days, full billing terms. How do you amalgamate all these and then create bills for clients each month but also track the existing ones and bill them? And then book the revenue and profit.

Usually, the clever distributors who claim to 'advise' on transformation really have no solution and the vendors just look after themselves. This is because most of these companies, with the exception of true Service providers, haven't actually solved the problem themselves. Distributors receive spreadsheets from their suppliers and they then create invoices for their customers once they have fathomed out who needs to be billed what this month and last.

Few, if any, distributors have invested in a true Billings Aggregation platforms even though they talk about the concept all the time. Rather than advise on things they are not experienced in, it would be better if suppliers invested their money in devising practical solutions for resellers which take away the need for resellers to invest in expensive systems for billings of their own.

One or two distributors are making this investment but it is not a simple process as most have ERP systems which are based around physical logistics and 'sell and forget' models. Do not expect much beyond manual processes until some time in the new year.

For those companies wishing to understand these issues in greater detail, I would be delighted to get involved.

Changing World of Maintenance Services in the Cloud

'Own the desktop and you own the server,' is a mantra in third party service provision. It stands to reason as even if it costs a trivial amount to maintain a desktop there will be overwhelmingly more of them compared to servers owned by a large company and so the cost of maintaining desktops will be the major element in any contract so servers usually get maintained by the same company as part of the deal.

But the IT world is changing. In the last two quarters in Europe there have been dramatic shifts in the 'client' market with the PC market taking successive quarterly nosedives in numbers sold while certain categories like notebooks have collapsed catastrophically. In the meantime, there has been a surge in the number of tablets bought which is currently a market dominated by Apple.

So if tablets do really start to take a foothold in the Corporate marketplace and replace the falling number of PCs, what will it mean for third party services providers? And what happens as customers start to migrate to the Cloud? Do the services dynamics remain the same? I mean there are always client devices, aren't there?

'Follow the Data, my boy, and you will be a rich man.'

At the consumers and possibly small business level, buying something like a tablet is easy as you can do it over the web. There aren't endless permutations of configurations, the number of product variations is small and so choice is simple. One of the easiest choices when buying an iPad is to add AppleCare. At just £150 for 3 years from Amazon, it was less than 10% of the purchase value per year of the iPad and I get a replacement product if anything fails - even the battery. It's a no brainer - a 'You want fries with that moment'.

There will be more ways to capture me or similar users on that front. As we buy and use Apps why not make offers to sell AppleCare again? It should be simple. And nobody will want these products to be fixed - a replacement is fine as we are backing all the data into the Cloud and iTunes restores your applications. The Cloud refreshes any new device as if it was the old one.

Corporations can learn a lot here. As tablets take a hold and data is once again centralised, there is no reason why third party maintenance and services could not change as well. As more businesses adopt the Cloud, data gets managed centrally and there is less onus on getting a fix for tablets. Replacement is as simple and as cheap.

With all the data on the servers, the focus changes for services. No longer is it really necessary too have all the client devices on large contracts governing who maintains servers, these central engines can be managed under the co-hosting contracts taking the need for costly IT staff away but getting Tier 1 grade service provision and maintenance coverage as one contract.

The mantra of 'own the desktop, own the server' is changing as the Cloud increases its traction on businesses. Whoever is providing the managed service of the server farm is actually likely to get the contract to manage the viability of the server.

This means that the client end is going to get ugly in terms of competition. It is going to be very much insurance driven over time as, if replacement product over 'break fix' becomes the order of the day, then the whole dynamic of pricing and who sells what for how much commission will change dramatically. If you are today in the third party maintenance business, it's as well to spot the trend coming and make sure you have the right offerings in your portfolio as the world of how things are bought and what is important on the desktop is changing as we watch it.

For the client vendors and the App Stores, there is a massive opportunity to get this right. Make it simple and cheap to offer the replacement of the tablet over its lifetime and there will be a lucrative and profitable business. Keep it as per the status quo and insurance style maintainers will get a foothold.

The Cloud certainly is changing things.

A footnote on buying tablets via phone contracts. On the face of it this is attractive.  The tablet becomes cheap, if not free, just like a phone on an airtime contract. What could possibly go wrong?

The clue here is the airtime contract because that's what the consumer buys and contracts for. The phone or tablet featured in the 'sale' is deemed to be a 'gift' from the contractor even though it's cost is obviously amortised over the length of the contract. This has a big impact in terms of liability. 

The big example of this is that if you, as the consumer, believes that you have been given rubbish service relating to the phone or tablet. You cannot break your airtime contract as a remedial action. In other words, as a consumer your rights regarding the phone is limited only to the product's warranty and/or if you have bought some kind of insurance on the device. Your normal consumer rights are forfeit as you have not been deemed to have 'bought' the phone - it has been gifted to you by the airtime provider as a contract 'sweetener'.

In reality, this should not cause a problem. But if, as in my wife's case, the product could not charge due to a shorting in the copper connectors on the outside of the phone, then an airtime provider can declare water damage and therefore invalidate the warranty and the only option is to buy a new phone or tablet. It doesn't happen? It did to my wife - the fact the phone was repairable for just a few pounds was overlooked by the airtime provider and we could not break our airtime contract without paying the outstanding amount even though we were effectively being forced to buy a new phone for £300 due to a nice and lucrative scam being used by the airtime broker.

The company was Carphone Warehouse. It's the last time, after 12 years of contract, I will use them and I will advise any other consumer to avoid them while begging any business to avoid contracting with them.

My strongest advice on the tablet front is to take it on the chin and buy your product and then get an airtime contract if you need one. Avoid wrapping the tablet up in the airtime contract. Your rights in Consumer Law become limited.

Saturday, 1 October 2011

Failure is the new Black

Leo Apotheker is reputed to have walked way from the mess he created at HP with a cool $10m in compensation. Not bad for around a year's incredibly poor work.
HP's share price plummeted around 45% under his watch and he presided over one of the biggest balls ups in Corporate history in his, and his team's, handling of the potential sale of the mammoth PSG division. Oh and then there was the whole volte face thing and withdrawal of the TouchPad and WebOs tablet woes. And now it seems Palm is up for grabs again after all that wasted money, while the potential deal for Autonomy doesn't look healthy either.
On the face of it, Apotheker couldn't have done a worse job. Yet he was paid far more in that short tenure than he would have ever earned had he succeeded. One might even postulate that this guy was so clever that he knew there was no gain in being successful but there was plenty to be earned by failing - quickly and disastrously.
He joins a long line of Corporate and sporting serial failures who thrive on failing spectacularly and quickly, getting massive rewards and then moving on to the next botch job. It's the new in thing and it seems you become more 'successful' if you fail. Just ask his predecessor at HP, who should know himself.
Down in the trenches at HP, the average employee had to work hard to achieve their quotas and commissions - there is no reward for failure. But at the top, in the rarified atmosphere of the Boardroom, there are rewards aplenty for lack of success - no, abject and utter failure is better.
Such reward schemes aren't taught at Harvard, and they aren't taught outside either yet they have become the vogue in major Corporations and sports. You might have thought that HP would have learnt by now, after all they have gone through more CEOs than the average call girl - oops, let's not go there. Yet they puckered up and kissed another frog.
And there was probably a spectacular fee for the clot who hired Apotheker. Some cliquey, bespoke headhunter who negotiated a fat sign on fee when Apotheker had already buggered up at SAP. Really, you couldn't make this rubbish up.
The new Corporate culture of fast failure is very much in. Shareholders put up with it and Boards get away with it. The rewards for the astute failure are amazing.
We may all sit and wonder why we can't have some of it, as surely when it comes to plotting failure it must be easy - as Yosser Hughes would put it, 'I could do that.'. But to be as good at it as Apotheker, you need more than sheer nerve. You need brains. Or was he really just as incompetent as you and I?
Ah well, it's the reason he's up there earning the big bucks and we're down here grovelling for a pay rise.

- Posted using BlogPress from my iPad