TED2012 Day 1 “LittleBits” for big dreams

Here we go again, TED 2012 started yesterday in Long Beach. I decided this year to do a short blog post every day on the talk or conversation that most inspired me.  Yesterday we had the amazing TEDFellows make their presentations.  Wonderful to see these ideas being presented in such a passionate and clear way.  There were many great presentations but the one that struck me most was by Ayah Bdeir –  Founder of LittleBits . Essential LittleBits is concept where Lego meets engineering.

My younger daughter is a fascinated by building Lego models – but honestly there are just so many Pirates of the Caribbean ships you can build.  We need to find more interesting ways in which our children can experience the joy of building new things.  LittleBits create a fun, creative and powerful new way for kids to learn how to build great new products.  Here is how the LittleBits team describes what they do

“Just as LEGOs™ allow you to create complex structures with very little engineering knowledge, littleBits are simple, intuitive, space-sensitive blocks that make prototyping with sophisticated electronics a matter of snapping small magnets together. Each bit has a simple, unique function (light, sound, sensors, buttons, thresholds, pulse, motors, etc), and modules snap to make larger circuits. With a growing number of available modules, LittleBits aims to move electronics from late stages of the design process to its earliest ones, and from the hands of experts, to those of artists, makers, students and designers.

True to form the TED team included a LittleBits starter kits in our bag of goodies. Even though there were only a couple of pieces to connect I was fascinated by the simplicity of the parts and how they connected.

Here is a great video showing how to build and have fun with LittleBits. Congratulations to Ayah and her team for creating this great product.

As usual, your comments and thoughts are welcome.

Zia

HW vs. SW: Do you have to choose ?

Yesterday’s decision by HP to sell of its PC business prompted me to consider this question of HW vs. SW. I believe the decision by HP to sell of its PC business is the right one (IBM made the same decision in 2005 and was able to transform the company into a highly profitable services and sw giant). Though HP was much more successful in consumer HW than IBM and so watching this transition is going to be interesting to see if they can pull it off.  HP CEO Leo Apotheker’s perspective on the future of HP is clear and he is making the bold moves to execute against it – as usual company culture will be the biggest hurdle (disclosure Leo was my direct boss for 4 years before I left SAP).

But I digress – the conventional wisdom seems to have become HW = Bad, low margin, low growth business & SW = Good,  high margin, high growth and what smart companies should focus on.  This seems also be true in the venture capital community – start up’s that have a HW component to their business are encouraged to ditch the HW piece and focus only on the high margin SW aspects.

You could view the decision by IBM and now HP to ditch their “low margin HW PC business” in favor of higher margin SW and services as a good example of that.  After all HP with $120 bn + in revenue has a market cap of $49 bn and SAP that is a pure play enterprise SW company has revenue’s of $20 bn and a market cap of $58 bn – this must be because of the HW margin drag that HP has to carry.  This is partly due to the margin differential – but does not explain the real issue.

Newsflash for my no-HW friends – our current poster child for technology and innovation Apple has at the core of its success both a HW and a SW business and is now the company with the largest market cap in the world.

Another newsflash – SW needs to run on HW to make it work.

It is absolutely correct that over time HW becomes commoditized and will have a lower margin than SW – this is a no brainer analysis. If you are in the commodity HW business and are simply selling dumb pieces of HW that becomes valuable with SW from other companies then yes you are much better off having our friends in China build this piece of the stack as they can do it much cheaper and better.

But this conventional analysis misses a much more subtle  and critical point – an integrated HW and SW product that is compelling, easy to use, that leverages the strengths of this combination in unique ways and understands the value that each brings to the end user experience is unbeatable.

Could iTunes have been successful without the iPod or in reverse could the iPad have been successful without the apps in the AppStore. Gaming consoles have a combination of both HW and SW packaged in a way that creates a compelling experience.  Even the printer division that HP is keeping is a compelling product because the combination of the HW and SW for that product providers the consumers with a winning package.

To make this point even more powerfully – I think the distinction between HW and SW is becoming less and less relevant.  The only way to make an object “smart” is by adding SW to it.  The number of devices in our lives that have embedded SW is growing dramatically (yes this is partly the “Internet of Things” point).  Your local BMW is basically a SW platform now with a car attached to it.

So yes I acknowledge that a HW business that is only  a box (to put it simply) has little value and must be produced by the company that can do it for as low a cost as possible – but the real magic is in combination of elegant HW and compelling SW.

So the Right Question in this case is “How can you build a compelling product that combines the best of HW with the best of SW in an experience that is magical” not the simple wisdom of HW is bad lets only focus on SW.

As always, thoughts and comments are welcome.

Zia.

Rethinking the Technology & IT Analyst Industry

Over my last twelve years working as a senior executive in the technology industry I have had an opportunity to engage with a broad section of technology and IT analysts and researchers – both from established firms (eg. Gartner, Forrester etc.), smaller more focused firms (eg. Altimeter Group) and of course the more recent phenomena of the blogger/independent analyst.

For the most part the people I have encountered are smart, have a good deal of  domain knowledge, are good communicators and care about providing timely and accurate analysis and advice.  But with all other things, there is a bell curve, there are some people that have amazing insight and I always learn from then, there are a whole bunch in the middle that are solid and sometimes can add good value and as always there are some that really should look to do something else with their time.

This post is not about the individual analysts it is about the analyst industry.

So the issue is not the people – the issue is the structure of the industry and the inherent incentives that lead to sub-optimal analysis and advice that is tainted by accusations of “pay to play”.  This is a topic that is not new, and has been discussed before.  The general complaint that analysts play both side of the game, they write about vendors and the industry but then also get paid by the vendors thus tainting their advice is an old one.

The reason I thought this topic was important to revisit is because (1) there have been some structural changes to the technology industry that make the current IT analyst model seem archaic and (2) I have some specific thoughts on how we might try and reform the industry.

Why Change is Even More Relevant Today: There are several important changes that have taken place in the technology industry that will require some rethinking of the traditional IT Analyst Industry.

Lack of Defined Categories:  Traditionally we have had very specific functional domain experts – the CRM expert, the BI expert etc.  I don’t think customers buy in categories any more – they buy solutions that transcend software category boundaries – thus making research papers focused on these categories less relevant.

Integration of Consumer & Enterprise: This is one of the bigger changes in the industry – the “consumerization of the enterprise”.  Now more than ever there is no classic enterprise software play.  As such, analysis and advice based on deep enterprise background, without the latest thinking on consumer sw trends (and just focusing on social media does not cut it) misses integrating a fundamental change in the industry.

The Rise of the Consumer as the Buyer: Traditional analyst work has focused on providing insight to the CIO and associated IT teams in enterprises.  Analysts spend a great deal of time with vendors and CIO – but the decision makers are increasingly the end users.  We still see very little end user based research at traditional analyst firms

Not Enough Focus on Start Ups: Research coverage is still based on large and medium sized vendors.  This is partly due to the influence of these vendors, partly because they can afford to pay consulting fees and therefore get more attention.  The reality is that startups is where the innovation happening and there is no effective model today to provide customers the timely effective insight on the innovation taking place with smaller companies.

What Can We Do – Some Suggestions: IT/Technology Analysts can play an important part in acting as sources of unbiased and informative research and analysis.  Here are some suggestions for the industry to consider.

Focus on Industry Segments not SW Categories: The buyer of software is seeking the solution to a problem. These challenges arise out of specific dynamics of an industry (eg. Retail, Banking etc.).  Analyst firms should build up much stronger expertise in industry knowledge to make the advice more relevant and specific.

Rate Analysts and Firms: The financial analyst industry has it partly right (notwithstanding the failure of analysis in the financial meltdown).  Equity analysts provide very specific recommendations and then based on their insight and accuracy they get a rating.  Top analysts and firms get paid more and have more influence – this seems the right approach.  I agree that it is marginally easier to rate the accuracy of financial analysts – but I am sure the industry can come up with a standard rating system that provides customers and consumers some insight on this topic.  There are plenty of examples and methods to choose from  - Yahoo even has a “Analyst Performance Center” for this purpose.  This would be a great business idea for an independent firm to provide analyst ratings for IT/Industry analysts – I bet customer and vendors would buy this research.

Transparency of Relationships: This will help address the “pay to play” topic.  I think specific analysts and firms should clearly make transparent their economic relationship to a vendor and this information must be attached to every report and visible on the firms website.  I think the preference would be to provide the dollar amount but that is probably going to far. A more radical approach to this problem – use “Buy Side” and “Sell Side” analysts.  You either work with customers only to advise them on deals etc. or you work with vendors only to write on their innovations.

Stop Using IT Lingo:  I have written about this in a previous blog posting “Why Words are Killing the Adoption of Innovation” Somehow we think that the more complicated the words the more insightful and important the analysis.  This could not be further from the truth.  The industry would be much better placed if they focused on the clarity and simplicity of the analysis.  Vendors already make it impossible to understand what they are really selling – sometimes analysts add to this confusion.

Foster Independent and Small Analyst Firms: The consolidation in the analyst industry has resulted in bigger firms with more market power – this is fine, but it should be balanced with smaller and independent firms that innovate on how they are trying to bring new research and analysis to the market.  Constellation Research is a new firm that is seeking to innovate in this area and I look forward to following their progress.

These are just a few suggestions for us to consider.  I am sure not everyone will agree with me and I am sure my analyst friends will have a relevant point of view based on their experience – I would welcome the feedback.

Hope this fosters some interesting discussion and “analysis” !

Zia.

A Growth Strategy for Yahoo – the (Social) Enterprise ?

Yahoo is a company that has always intrigued me.  Over the past few years we have all read about the issues facing Yahoo – lack of a clear strategy, management challenges, the on again off again romance with Microsoft and a stock price that has gone from about $35 about 5 years ago to $16 today. And even todays stock price has built into it a significant value from China’s Alibaba.

Clearly Yahoo needs a growth strategy. So here is the “Right Question”  Should Yahoo develop and execute on a strategy to provide a comprehensive set of services for the enterprise ?  I think they should seriously explore this as an option.

Lets review what some of the current trends are in enterprise software – let me throw out some buzz words – cloud computing & SAAS, social media in the enterprise, social CRM, crowdsourcing, structured and unstructured data, Enterprise 2.0 and so on. In essence, many of the innovations in the enterprise are being driven or inspired by innovations in the consumer web.  This is the core of the Enterprise 2.0 approach.

On one hand you have the pure consumer focused companies – Facebook, Google, Twitter etc. On the other hand a new generation of enterprise focused companies are extending these new approaches and seeking to integrate them into the enterprise, SocialCast, Yammer, Ning, Jive etc.

Now lets take a look at Yahoo.  Despite its challenges the company is still a consumer technology leader.  Some ideas – if a consumer online store – Amazon – can create the leading cloud platform for the enterprise  Amazon EC2 then why cannot Yahoo leverage its data center and web management expertise to provide an enterprise cloud infrastructure and apps.  Yahoo Finance is a strong product and has interesting potential to be connected with other enterprise apps to provide integrated structured and unstructured information.  Yahoo knows how to build communities (maybe not as good as Facebook) but still good enough.  Yahoo can be a strong player in providing social media capabilities for the enterprise.  You can even consider integrating Yahoo Jobs into enterprise HR systems to provide an end 2 end business process for talent management.

I know that Yahoo has considered some of these options in the past and considered partnerships with enterprise software firms – but these plans never took off and the company focused on its consumer roots. Maybe some of these ideas are currently being discussed in the company – I hope they are.

So I don’t know if a more enterprise focused strategy (to complement the consumer work) is a viable option for Yahoo at this stage but I think it is certainly something that the Yahoo management should explore carefully – certainly if there is any truth to a private equity buyout of Yahoo this should be part of the strategy.

As usual, I appreciate your thoughts and comments – especially from current and past Yahoo employees and experts.

Thanks,

Zia.

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