Matt Curry is back! In this episode recorded at OSCON 2017, we discuss the problems with getting people to change, from staff to management, private sector and government.
In a too rare spate of social commentary, we start talking about the price of hipster avocados in Australia and US health insurance. With one of our favorite analysts moving over the enterprise side, we talk about what it’d be like going through that door. We then wrap up talking about Canonical’s IPO talk, related OpenStack market discussion, and then use CyberArk’s acquisition of Conjur to discuss the state of privileges access management (PAM). We end, as always, with recommendations, including some CostCo discussion.
Check out the full show notes for more.
A nice way of explaining Amazon’s success in charts, e.g., as compare to Wal-Mart:
Just thinking aloud without any analysis, it seems liken Amazon is an example of how difficult, long, and confounding doing continual innovation as your business is. Many companies claim to be innovation-driven, but most can just eek out those “incremental innovations” and basic Porterian strategy: they improve costs, enter adjacent marketers, and grow their share of existing TAMs, all the while fending off competitors.
Amazon, on the other hand, has had decades of trying new business models mostly in existing businesses (retail), but also plenty of new business models (most notably public cloud, smart phones and tablets, streaming video and music, and whatever voice + machine learning is).
All that said, to avoid the Halo Effect, it’s important to admit that many companies tried and died here…not to mention many of the retailers who Amazon is troubcibg – Wal-Mart has had several goes at “digital” and is in the midst of another transformation-by-acquisitions. Amazon, no doubt, has had many lucky-breaks.
This isn’t to dismisss any lessons learned from Amazon. There’s one main conclusion, thought: any large organization that hopes to live a long time needs to first continually figure out if they’re in a innovation/disrupting market and, if they are, buckle up and get ready for a few decades of running in an innovation mode instead of a steady-state/profit reaping mode.
Another lesson is that the finances of innovation make little sense and will always be weird: you have to just hustle away those nattering whatnots who want to apply steady-state financial analysis to your efforts.
You can throw out the cashflow-model chaff, but really, you just have to get the financial analysis to put down their pivot tables and have faith that you’ll figure it out. You’re going to be loosing lots of money and likely fail. You’ll be doing those anti-Buffet moves that confound normals.
In this second mode you’re guided by an innovation mindset: you have to be parnoid, you have to learn everyday what your customers and competitors are doing, and do new things that bring in new cash. You have to try.
Shareholders will also be asked to approve a $500m return of value, approximately $2.09 per share,” the statement to the City added.
Well, who doesn’t like money?
That said, performance is declining:
The [HPE Software?] business has shrunk in recent years, with turnover dropping from $4.06bn in fiscal 2012 ended 31 October to $3.19bn in fiscal 2016. Profit before tax during that period slipped too. In HPE’s Q1 ended January, sales in the software arm fell 8 per cent year-on-year to $721m.
All that M&A didn’t work out too well:
The software division at HPE is made up of a collection of separate units including Autonomy, Mercury Interactive, ArcSight, three businesses that alone cost HPE more than $16bn to acquire. Other elements include Vertica (buy price undisclosed) and relatively smaller IT management ops outfits.
For more context, see my notebook on the HPE/Micro Focus merger back in September, 2016.
According to a recent research report from eMarketer, 60.5 million Americans will talk at least once a month to their virtual personal assistants named Siri, Cortana, Alexa, and other as-yet unknowns this year. “That equates to 27.5% of smartphone users, or nearly one-fifth of the population,” eMarketer said. Link
More details on the study:
- “The e-commerce giant’s Amazon Echo and Echo Dot devices will claim a 70.6 percent share of the U.S. market this year, the study found.”
- That 60.5m figure is more like “penetration,” people who have tried voice stuff but aren’t active users. By device ownership (I don’t know if this includes or excludes phones with Siri and such): “The number of active U.S. users will more than double for the devices this year, to 35.6 million, eMarketer said.”
Personally, I still find all this obnoxious. But (a.) I’m more of a podcast and text person, and, (b.) hey, the Echo is a really nice Bluetooth/Spotify speaker.
There’s a few stories out about Canonical, likely centered around some PR campaign that they’re seeking to IPO at some time, shifting the company around appropriately. Here’s some highlights from the recent spate of news around Canonical.
Testing the Red Hat Theory, competing for the cloud-native stack
Why care? Aside from Canonical just being interesting – they’ve been first and/or early to many cloud technologies and containers – there’d finally be another Red Hat if they were public.
Most of the open source thought-lords agree that “there can never be another Red Hat,” so, we’ll see if the Ubuntu folks can pull it off. Or, at the very least, how an pure open source company wangles it out otherwise.
That said, SUSE (part of HPE/Micro Focus) has built an interesting business around Linux, OpenStack, and related stuff. Ever since disentangling from Novell, SUSE has had impressive growth (usually something around 20 and 25% a year in revenue). All is which to, the Red Hat model actually is being used successfully by SUSE, which, arguably, just suffered from negative synergies (or, for those who don’t like big words, “shit the bed”) when it was owned by Novell.
As I’m perhaps too fond of contextualizing, it’s also good to remember that Red Hat is still “just” a $2.5bn company, by revenue. Revenue was $1.5bn in 2014, so, still, very impressive growth; but, that’s been a long, 24 year journey.
All these “Linux vendors,”like pretty much everyone else in the infrastructure software market, are battling for control over the new platform, that stack of cloud-y software that is defining “cloud-native,” using containers, and trying to enable the process/mindset/culture of DevOps. This is all in response to responding to enterprises’ growing desire to be more strategic with IT.
Shuttleworth said “in the last year, Ubuntu cloud growth had been 70 percent on the private cloud and 90 percent on the public cloud.” In particular, “Ubuntu has been gaining more customers on the big five public clouds.”
Its OpenStack cloud division has been profitable, said Shuttleworth, since 2015
Al Sadowski has an extensive report on Canonical, mentioning:
[Canonical] now has more than 700 paying customers and sees a $1bn business for its OS, applications and IT operations software. Time will tell if this goal is realized.
Canonical claims some 700 customers paying for its support services on top of Ubuntu and other offerings (double the 350 it had three years ago), and to have achieved more than $100m in bookings in its last financial year…. [Overall, it’s] not yet a profitable business (although its Ubuntu unit is). We estimate GAAP revenue of about $95m.
On focusing the portfolio, shoring it up for better finances for an IPO:
we had to cut out those parts that couldn’t meet an investors’ needs. The immediate work is get all parts of the company profitable.
To that end, as Alexander J. Martin reports:
More than 80 workers at Ubuntu-maker Canonical are facing the chop as founder Mark Shuttleworth takes back the role of chief executive officer…. 31 or more staffers have already left the Linux distro biz ahead of Shuttleworth’s rise, with at least 26 others now on formal notice and uncertainty surrounding the remainder
Back to Al on the Job to Be done, building and supporting those new cloud-native platforms:
Rather than offering ways to support legacy applications, the company has placed bets on its Ubuntu operating system for cloud-native applications, OpenStack IaaS for infrastructure management, and Docker and Kubernetes container software.
And, it seems to be working:
Supporting public cloud providers has been a success story for Canonical – year-over-year revenue grew 91% in this area…. Per Canonical, 70% of the guest OS images on AWS and 80% of the Linux images on Microsoft Azure are Ubuntu. Its bare-metal offering, MaaS (Metal as a Service), is now used on 80,000 physical servers.
On OpenStack in particular:
Canonical claims to be building 4,000 OpenStack deployments a month at some 180 vendors…. It claims multiple seven-figure deals (through partners) for its BootStrap managed OpenStack-as-a-service offering, and that the average deal size for OpenStack is trending upward.
The Vaughan-Nichols piece outlines Shuttleworth’s IPO plans:
Still, there is “no timeline for the IPO.” First, Shuttleworth wants all parts of the slimmed down Canonical to be profitable. Then “we will take a round of investment.” After that, Canonical will go public.
However, Al’s report says:
It is not seeking additional funding at this time.
Probably both are true, and the answer as Shuttleworth says is “well, in a few years once we get the company to be profitable.
- Al’s report is really good and, as always for him and most 451 reports, thorough as shit. Check it out for lists of customers and more analysis of Canonical’s business mix.
- If you’re into Shuttleworth, Barton George does frequent video interviews with him.
After all these years, print media still struggles versus the Internet. This long piece on how the travel magazine industry has been suffering covers many great topics. I suspect much of the analysis is the same for all of print media.
One of the problems is the new set of demands on writers in that field:
There is the pain point of figuring out an internal work flow that functions across platforms. Journalists, writers, and content creators often have specialized skillsets, so asking one to write a story, create a listicle, take photos, and film compelling videos about a trip is a major challenge.
“We just started working more efficiently that way and it really, it’s painful to integrate digital and print,” said Guzmán. “The plays are different, the workloads are different, the story ideation is different. In doing this, there’s this huge cultural shift that is exciting and difficult.”
And, then, even after suffering through all that “cultural shift,” the results are often disappointing:
“The iPad was just going to be this Jesus of magazines and I never really quite believed that because I knew how challenging it was was to rejigger the content to fit that format,” said Frank, who oversaw Travel + Leisure’s digital strategy in the early 2010s. “Having just gone through the process of signing up and downloading a magazine, it took forever and was buggy and it just wasn’t necessarily a great solution. I was never really bought the gospel that the tablet was going to be our savior. But we did it. I mean, we created a great app and it was beautiful. It won awards, but that was knowing what the usership was is a little disheartening.”
And, as ever, there’s the tense line between blaming “most reader are dumb” and “rivals are evil” when it comes to what’s to blame:
“I could have written the greatest travel story ever known, and it would not have gotten on the cover of the traffic oriented site because a Swedish bikini teen saved a kitten from a tree; which is going to be more popular?”
Let them watch cats.
Still, as the article opens up with, it’s the old Curse of Web 2.0 – former readers, now just travelers – writing the useful content in the form of reviews on TripAdvisor and such:
“In general, people don’t read a review and make a decision,” said Barbara Messing, chief marketing officer of TripAdvisor. “Consumers will read six to eight reviews. They might dig in a certain characteristic that they are interested in, maybe they really are interested in what the quality of the beach is, or maybe they are really interested in whether it’s kid friendly or not kid friendly. In general, people will hone in on the characteristics of something that’s most important to them, find that answer on TripAdvisor, get that most recent insights, check out the photos, check the forums, and really be able to make an informed decision of whether something is right for them. I think that the notion that people could rely on the wisdom of the crowd and the wisdom of individuals to their detriment, I just think that’s false, and I don’t think the reality is that is going to happen.”
There’s also some M&A history of trading various assets like Lonely Planet, Zagat, and Frommer’s back and forth as different management figures out what to do with them.
As ever, I’m no expert on the media industry. It seems like the core issue is that “the Internet” is so much more efficient at the Job to be Done for travel (as outlined by the TripAdvisor exec above) that the cost structure and business process from print magazines is not only inefficient, but unneeded. Those magazines are now over-serving (and thus, over-spending) with a worse product.
While the quality of TripAdvisor (and Yelp, for example) reviews is infinitely worse than glossy magazines, since there’s an infinite amount of more crappy reviews, with the occasional helpful ones…it sort of more than evens out in favor of Sweedish bikini cat rescuers. Plus, digital advertising has so much more spend (and overall, industry profit, if only by sheer volume if not margin) – it must be because it’s better at making the advertisers money and because it creates a larger market:
A brief note, from William Fellows at 451, on HSBC’s use of Google Cloud’s big data/analytical services:
They have lot of data, that’s only growing:
6PB in 2014, 77PB in 2015 and 93PB in 2016
What they use it for:
In addition to anti-money-laundering workloads (identification and reducing false positives), it is also migrating other machine-learning workloads to GCP, including finance liquidity reporting (six hours to six minutes), risk analytics (raise compute utilization from 10% to actual units consumed), risk reporting and valuation services (rapid provisioning of compute power instead of on-premises grid).
As I highlighted over the weekend, it seems like incumbent banks are doing pretty well wtih all this digital disruption stuff.
Thus far, it seems like the large banks are fending off digital disruption, perhaps embracing some of it on their own. The Economist takes a look:
- “Peer-to-peer lending, for instance, has grown rapidly, but still amounted to just $19bn on America’s biggest platforms and £3.8bn in Britain last year”
- “last year JPMorgan Chase spent over $9.5bn on technology, including $3bn on new initiatives”
- From a similar piece in the NY Times: “The consulting firm McKinsey estimated in a report last month that digital disruption could put $90 billion, or 25 percent of bank profits, at risk over the next three years as services become more automated and more tellers are replaced by chatbots.”
- But: “Much of this change, however, is now expected to come from the banks themselves as they absorb new ideas from the technology world and shrink their own operations, without necessarily losing significant numbers of customers to start-ups.”
- Back to The Economist piece: “As well as economies of scale, they enjoy the advantage of incumbency in a heavily regulated industry. Entrants have to apply for banking licences, hire compliance staff and so forth, the costs of which weigh more heavily on smaller firms.”
- Regulations and customer loyalty are less in China, resulting in more investment in new financial tech in Asia:
- As another article puts it: “China has four of the five most valuable financial technology start-ups in the world, according to CB Insights, with Ant Financial leading the way at $60 billion. And investments in financial technology rose 64 percent in China last year, while they were falling 29 percent in the United States, according to CB Insights.”
- Why? “The obvious reason that financial start-ups have not achieved the same level of growth in the United States is that most Americans already have access to a relatively functional set of financial products, unlike in Africa and China.”
- There’s some commentary on the speed of sharing blockchain updates can reduce multi-day bank transfers (and payments) to, I assume, minutes. Thus: ‘“Blockchain reduces the cost of trust,” says Mr Lubin of ConsenSys.’
Fixing legacy problems with new platforms, not easy
- The idea of building banking platforms to clean up the decades of legacy integration problems.
- Mainframes are a problem, as a Gartner report from last year puts it: “The challenge for many of today’s modernization projects is not simply a change in technology, but often a fundamental restructuring of application architectures and deployment models. Mainframe hardware and software architectures have defined the structure of applications built on this platform for the last 50 years. Tending toward large-scale, monolithic systems that are predominantly customized, they represent the ultimate in size, complexity, reliability and availability.”
- But, unless/until there’s a crisis, changes won’t be funded: “Banks need to be able to justify the cost and risk of any modernization project. This can be difficult in the face of a well-proven, time-tested portfolio that has represented the needs of the banking system for decades.”
- Sort of in the “but wasn’t that always the goal, but from that same article, Gartner suggests the vision for new fintech: ‘Gartner, Hype Cycle for Digital Banking Transformation, 2015, says, “To be truly digital, banks must pair an emphasis on customer-facing capabilities with investment in the technical, architectural, analytic and organizational foundations that enable participation in the financial services ecosystem.”’
- BCG has a prescriptive piece for setting the strategy for all this, from Nov. 2015.
- A bit correlation-y, but still useful, from that BCG piece: “While past performance is no guarantee of future results, and even though all the company’s results cannot be entirely attributed to BBVA’s digital transformation plan, so far many signs are encouraging. The number of BBVA’s digital customers increased by 68% from 2011 to 2014, reaching 8.4 million in mid-2014, of which 3.6 million were active mobile users. Because of the increasing use of digital channels and efforts to reconfigure the bank’s branch network—creating smaller branches that emphasize customer self-service and larger branches that provide higher levels of personalized advice through a remote cross-selling support system—BBVA achieved a reduction in costs of 8% in 2014, or €340 million, in the core business in Spain. Meanwhile, the bank’s net profits increased by 26% in 2014, reaching €2.6 billion.”
- And a more recent write-up of JPMC’s cloud-native programs, e.g.: ‘“We aren’t looking to decrease the amount of money the firm is spending on technology. We’re looking to change the mix between run-the-bank costs versus innovation investment,” he said. “We’ve got to continue to be really aggressive in reducing the run-the bank costs and do it in a very thoughtful way to maintain the existing technology base in the most efficient way possible.” …Dollars saved by using lower-cost cloud infrastructure and platforms will be reinvested in technology, he said.’ JPMC, of course, is a member of the Cloud Foundry Foundation which means, you know, they’re into that kind of thing.
The miniature culture wars fought between cities and states—such as North Carolina’s tussle with Charlotte over its anti-discrimination rules—are well known. The financial tensions between them are quieter but as important. “Money is usually the main problem,” says Larry Jones of the United States Conference of Mayors, and especially divisive in lean times.