Two Bosses Are Better Than One: Thoughts on the Virtues of Matrixed Organizations

Posted on December 30, 2011 | 4 Comments

When I was new to the workforce, I was violently opposed to matrixed organizational structures.  “They’re bullsh*t,” I thought, “people will always favor one direction over the other, making one of the two managers superfluous.  And, if that’s the case, then why bother at all?”

It was only as Business Objects grew, and me with it, that I realized matrix structures weren’t an “if” but a “when” and the ability to work within such structures would become a defining attribute of someone who “could scale” within the organization as it grew.

As the head of worldwide marketing, the defining question to me was simple — say, for example, the French country marketing VP came to me and said, “which is it, am I French or am I in marketing?”

The answer was, inevitably, both.

  • You are supposed to be a right-hand to the French country manager.  You are supposed to worry about the French pipeline and the French sales number.  You are supposed to work on French go-to-market strategy.  You drive French public relations.
  • You are in marketing.  So you are supposed to be consistent with the positioning and messaging that use worldwide.  We want you to use programs that have worked elsewhere to improve cost-efficiency and we want you to contribute back to the worldwide marketing community by attending leadership meetings, sharing best practices, and leveraging common systems.

Like it or not, you’re both.  And, more importantly, if you can’t handle that, then perhaps you’re not the right person for the job.

But given my historical views on matrices, we didn’t do the classic “solid one-way and dotted the-other” reporting structure.  We created a double solid-line matrix that, to me, more accurately reflected the business reality.  It also gave the matrix some teeth.  I thought the model worked quite well, balancing local empowerment with global consistency and scale economy.

That’s how I, a dyed-in-the-wool anti-matrix person, became a big fan of matrices.  The fact is, as a company grows, certain leaders in the organizations will inevitably need to have dual allegiance.  For example:

  • The head of product marketing for a business unit owes allegiance to both marketing and the product business unit.
  • The head of sales engineering for a country owes allegiances to both the country and the worldwide sales engineering organization
  • An head of overlay sales for a given product owes allegiance to both the product unit and the sales organization

In fact, in a perverse way, as either the head of marketing at Business Objects or the head of a product business unit at Salesforce, I have noticed the following law:

The more a local leader treats me like a virtual boss, the less I care about reporting structure.  And conversely.

That’s my take on the matrix.  What’s yours?

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Posted in management

The Privacy Inversion

Posted on December 21, 2011 | 5 Comments

I’ve always been an avid reader, particularly when I was younger and seemed to have more time.  I’ve always loved bookstores.  I’d spend hours in them browsing from category to category.  One category I never understood was Self Help, where the titles were usually so dramatic that it had to depress sales.  After all, it took real guts to grab some of those books, stand in line, hand them to a cashier, and buy them.

What were you supposed to do if you were waiting for 10 minutes behind a woman holding Men Who Can’t Love and Women Who Love Too Much?  Quickly hop off line, grab copies of Jane Eyre and Wuthering Heights, and say “Hi, my name’s Dave” with a coy smile?

So when Amazon first came along, I thought, wow, people can finally buy books in privacy.  I bet sales of Self Help and other potentially-embarrassing-to-buy categories will go up.   After all, only you and Amazon would know you bought them.

But over time that’s completely inverted.  Say, for example, you’re bored and want to watch something juvenile late at night like Old School or American Pie.  The next morning your wife goes to Netflix and sees the Recently Watched list with Old School right there on on top.  “Honey, I thought you said you were working late last night.”

Ah, but you’re clever and think, I can defeat that by deleting the movie from my history.  But you can’t.  Netflix has decided that you cannot delete a move from your history.  You watch it and it’s there forever.   And that’s putting aside the issue that even if you could delete it, that somewhere in backup- or log-land there’s still a record of the rental.

I’m pretty sure that Amazon’s order history is permanent, too.  With one click I just looked at all my orders from 14 years ago.  And then there are recommendations which can pull things from your past and highlight them, bypassing “security by obscurity.”  Example:  we’re recommending Hall Pass because you liked American Pie even, I’d imagine, if it was some time ago.

Imagine the possibilities if someone starts sharing their 10 year old Amazon account with a curious new spouse who decides to dig into what their new partner bought way back before they were dating.  The data’s there and only a shared password away.

Nor does any of this consider the subpoena issue where I’d imagine they could go dig up offline and/or “deleted” information if so asked by effectively anyone in the right legal proceeding.

All of sudden, standing in line in the bookstore — if you can find one — and paying with cash doesn’t seem such a bad idea.

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Posted in Privacy

First-Day Stock Price Appreciation is Not the Correct Measure of IPO Success

Posted on December 19, 2011 | 2 Comments

Zynga went public last Friday.  The company raised $100M and was valued at around $7B off TTM revenues of about $1B (see S-1 here).  This puts the Zynga’s valuation in the same range as Electronic Arts, a company founded in 1982 and whose TTM revenues are 3.6x times larger at $3.6B.  One might easily say:  “Wow!”

But because the shares did not rocket upwards on the first day of trading the media portrayed the IPO as lackluster.  Consider, for example, some of these headlines:

I’d argue that the Zynga IPO was a tremendous success.  Why?

  • The company is now public and has established a liquid market for its shares.  This, over time, will benefit existing shareholders who want liquidity and will facilitate future fundraising for the company.
  • The company received $100M in capital which it can use to fuel future growth.
  • The share price did not rocket upwards on day 1.

Wait a minute, doesn’t everybody judge the success of an IPO by the first-day pop in valuation?  Yes, most people do.  But they’re wrong.  If you look at things from the company’s perspective, the day-one share price “pop” is clearly not the right metric.

Let’s show this by pretending the stock did double to $20 on the first day of trading.  In this case, the company would have sold 100M shares for $10 that were, at its turns out, actually worth $20.

Who wins and loses in the first-day double scenario?

  • The company loses, because it gave away $100M.  Had the shares been properly market-priced at $20, it could have either raised $200M or issued half as many shares (reducing dilution for existing shareholders).
  • Employees lose.  This one’s tricky because people think they are happy.  “Hey, my 10K shares were worth $100K in the IPO and now they are worth $200K!”  The reality is that they were worth $200K all along and employees only believe the price “doubled” because they were psychologically anchored to a price of half their value.
  • The institutional investors who bought in the IPO win.  These people are the usual customers of the investment bankers who underwrite the offering, and quite possibly their buddies from b-school.
  • Anyone else able to get access to some shares in the offering wins.  I’m not sure what happens today, but back in the bubble if you were CEO of another company and had a discretionary account with an underwriter (who was hoping to get your future business) you might well have been allocated some shares in the IPO which were sold on the first day for a nice profit.  (Recall the Meg Whitman issue, where she allegedly netted $1.8M through this practice.)

As my friend Crispin Read once said:  “if you work in a donut shop, you get free donuts; if you work in a bank, you get free money.”  In this example, the $100M gap between the aggregate sale price of the IPO shares and their value at the end of day one  is the closest thing to free money you can find.  And its allocation is controlled not by the company, but by the bankers and presumably to their advantage.

I understand the common counter-arguments to my viewpoint, but disagree with them.

  • If IPO shares don’t pop, then no one will want to buy them.  Hum, seems to me as if billions of shares are traded everyday without the expectation of one-day pops.  Somehow, investors buy all those shares.
  • IPO firms are risky and thus  buyers should expect a higher absolute return.  Yes, I can buy this.  So perhaps a buyer will need to expect a 15-20% first-year return to compensate for this additional risk.  That’s quite different from a 50% first-day return.
  • The IPO shares are actually worth more on IPO day then they were previously.  Indeed, a liquidity premium should apply to the shares — but this should be reflected in the IPO price.  Buyers in the IPO are buying shares that will be publicly traded, and they know it.
  • Thin floats and lock-up periods will make the shares more volatile than “normal” companies in the first six months and thus some discount should apply.  While both of those are true, they again well known and should be priced into the IPO price itself.

I’m not sure what the right first-day pop is.  There is an argument that a 0% pop is ideal — it means the shares were perfectly priced in the IPO roadshow, no free money was created that can be handed out by the bankers, and the company raised funds at the optimal price.  I suppose that’s too idealistic.  My gut feel is that success looks like a 10-20% pop — which, by the way, is still huge compared to typical stock-market investment returns.

But I am certain that the media tradition of weighing IPO success by the size of the first-day pop is misguided.  In the end, if every IPO pops 50% on its first day it simply means that IPO shares are being systematically undervalued, which then prompts the question of who wins and who loses as a result of that undervaluation?

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Posted in IPO

Endeca and The Butterfly Effect

Posted on December 7, 2011 | 4 Comments

Let’s go back to July of 2010.  Imagine you’re having coffee with Endeca’s CEO, Steve Papa, a brilliant guy and someone for whom I have great respect.

But let’s say we’re having a coffee with Steve in July, 2010 and say the following:  ”Here is what’s going to happen over the next 18 or so months.

  • Hurd will expense those dinners.  Someone at HP is going to look into those expense reports and launch an investigation.
  • Hurd will — and I know you’re not going to believe this — basically get fired over those expense reports, which are the monetary equivalent of stealing Post-It notes relative to his salary.
  • HP’s board is going to appoint — and I know you’re really not going to believe this one — former SAP CEO Leo Apotheker to the HP CEO slot.
  • Leo is going to miss financial targets  – OK you can believe that — and then one day he’ll announce that he’s spinning off the the PC business and acquiring Autonomy for an astronomical $10B.  Yes, that’s right $10B for the meaning-based M&A leader.
  • And, as a strategic response to that, Oracle is going to buy Endeca for what I’m guessing will be a very nice multiple as well.”

This purpose of this post isn’t to slight either Endeca or its CEO.  I think Endeca was a fine company, I am a big fan of founder CEOs who build their companies, I have even greater respect for those few who make it work over extended time periods (Endeca was founded in 1999) and with a pivot or two along the way.

But I’d say that the average (largely perpetual) enterprise software company is worth 2-4x revenues and I’m guessing / speculating that Endeca got more like 6.  What accounts for that 50% uplift?  You could say it’s market dynamics and demand.  Or, looking at the above chronology, you could say it’s The Butterfly Effect.

But, either way, timing is everything and I believe Endeca did the right thing at the right time for the right price.  And making the wise decision to say yes wasn’t random.  Well done and congrats.  But remember the butterflies.

“In preparing for battle, I have always found that plans are useless, but planning is indispensable.” — General Dwight Eisenhower.

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Posted in endeca, Venture Capital

The Three Faces of the Social Revolution: Media, Marketing, and Service

Posted on November 23, 2011 | 3 Comments

Thanks to MarkLogic‘s historical focus on the media industry, I had front-row seats to the social media revolution.  But the part of the stage visible from those seats was how social media disrupted traditional media.  How “weekly news magazine” became an oxymoron. How Craigslist wiped about classified advertising.  How Yelp clobbered Zagat.  How columnists became bloggers.  How YouTube impinged on TV.  How social sites gobbled up time from first traditional media and later alternative web-based media.  I could go on and on.

Perhaps the single best slide I produced was entitled Media’s Philosophical Coasts (presentation here) where I contrasted East vs. West Coast media mentality.

I first came at social media from a media perspective. Secondly, I came at social media from a marketing perspective.  After all, I’m a marketing guy by background and the more that people are saying in social media, the more you want to measure it the way we used measure traditional media.  How many column-inches did we get?  Was the tone positive negative?  But the explosion in content and The Long Tail effect meant that there was no way you could hire English majors with rulers to get that data.  You’d have to use technology.  Spidering and/or licensing content, text mining to find entities and sentiment, and analytics for summarizing and interactively analyzing the data.

Sometimes I kick myself for not founding a company like Radian6.  I was right in the middle of social media, unstructured information, text mining, and analytics.  I saw the opportunity — heck, I watched some early text miners like Attensity pivot to social media (aka “voice of the customer”) applications as strategic plan B’s.  But MarkLogic was perversely doing too well with its platform strategy to pivot to something else and I, at the time, didn’t have a practical way to so independently.  (Axiom:  burn your VCs and you never raise money again.  Corollary:  all departures must be organized and peaceful.)

If you’re not familiar with Radian6, check it out.  It is an amazing platform for social media monitoring and engagement.

When you come at social media from a marketing perspective, you tend to think listen / analyze / monitor.  What are people saying?  How are they reacting?  How can I slice-and-dice that information by location, by demographics, by target audience?

But when you come at social media from the third perspective — the customer service perspective — you can see another angle:  engagement.  If someone is Tweeting that they don’t like Comcast, you can do more than measure it.  You can respond.  See Comcast Cares.  If someone says that they can’t find a BofA ATM, you can help them out.  See @BofA_Help and their clever ^-based naming convention so you can see which person is helping you.

As the social revolution transforms us, it first hit media, then hit marketing, and is now hitting customer service.  Customer service is now the front lines.

And if for some reason, you’re not yet convinced on the enormity of the social revolution, look at this video from Socialnomics.

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Posted in Uncategorized

Social Customer Service at Comcast

Posted on October 17, 2011 | 1 Comment

About five years ago, Comcast was featured in a slew of home-made YouTube videos of field service representatives literally falling asleep while on-hold for back-line customer service.

What’s happened since then?  Well, the once-victim of social media is now a leader in how organizations can leverage social media to improve not only customer service, but their overall business.  In 2008 they launched the @ComcastCares initiative under the leadership of Director of Digital Care Frank Eliason, profiled in this BusinessWeek story.  In mid-2010, Eliason moved on to become SVP of Social Media at Citibank but @ComcastCares lives on and has grown under new leadership.

In this post, How Social Customer Service is Changing the Culture at Comcast, social media guru and author Brian Solis talks with Kip Wetzel, Senior Director of Social Media Servicing and Strategy at Comcast about the initiative today and its impact on the business.

Some key quotes and tidbits:

  • Most people feel that large companies “speak at” consumers.  We have the ability to “speak with” consumers and to let them know that their voice is heard.
  • Comcast does not use social media as a way to push customers into traditional channels.  You need both.  The situation should dictate which method is most appropriate and you need integration:  you can’t fix a line downed by a tree over Twitter.
  • Let people see one company; don’t show them silos or divisions.
  • You can scale your social media department to 100 people, but if you don’t fix the problems internally, you’ll never have enough.
  • We can use Twitter as well as proactive traps and alarms to quickly identify faults and problems.
  • There isn’t a social media team — it’s an extension of product, marketing, PR, care … we can evaluate what people are saying, take that feedback, see the impact on the different organizations at Comcast and adapt.
  • Social is a catalyst for internal conversation … how does a theme evolving about a product or service influence the different organizations, and how do we collectively evaluate those things and put our real change a day later, a week later.
  • Social is not just about reacting, listening, or responding, it’s about building better products, services, and processes that allow you to lead the customer experience.

Here is a direct link to the video interview.

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Posted in Social Customer Service, social media

Thoughts on the Jive Registration Statement (S-1) and Initial Public Offering (IPO)

Posted on September 19, 2011 | 10 Comments

I finally found  some time to read over the approximately 175-page registration statement (S-1) that enterprise social networking software provider Jive Software filed on August 24, 2011 in support of a upcoming initial public offering (IPO) of its stock.

In this post, and subject to my usual disclaimers, I’ll share some of my thoughts on reading the document.

Before jumping into financials, let’s look at their marketing / positioning.

  • Jive positions as a “social business software” company.   Nice and clear.
  • Since everyone now needs a Google-esque (“organize the world’s information”) mission statement, Jive has one:  “to change the way work gets done.”  Good, but is change inherently a benefit?  Not in my book.
  • Jive’s tagline is “The New Way To Business.”  Vapid.
  • Since everyone seems to inexplicably love the the tiny-slice-of-huge-market argument in an IPO, Jive offers up $10.3B as the size of the collaborative applications market in 2013.  That this implies about 2% market share in 2013 at steady growth doesn’t seem to bother anyone.  Whither focus and market dominance?

Now, let’s move to financials.  Here’s an excerpt with the consolidated income statement:

The astute reader will notice a significant change in 2010 when Jive Founder Dave Hersh stepped down as CEO and was replaced with ex-Mercury CEO Tony Zingale.  Let’s make it easier to see what’s going by adding some ratios:

Translating some of the highlighted cells to English:

  • Jive does not make money on professional services:  they had a -17% gross margin 2010 and -13% gross margin in 1H11.
  • In 2009,  a very difficult year, Jive grew total revenue 77% and did so with a -15% return on sales.
  • In 2010, Jive grew revenue 54% with a -60% return on sales, while in 1H11, Jive grew revenue 76% with a -64% return on sales.
  • In 2010, Jive increased R&D, S&M, and G&A expense by 127%, 103%, and 132% respectively.
  • In 2010, Jive had a $27.6M operating loss, followed by a $30.6M operating loss 1H11

To say that Jive is not yet profitable is like saying the Tea Party is not yet pro-taxation.  For every $1.00 in revenue Jive earned in 1H11, they lost $0.90. People quipped that the Web 1.0 business model was “sell dollars for ninety cents.”  Jive seems to be selling them for about fifty-three.

But that analysis is unduly harsh if you buy into the bigger picture that:

  • This is the dawn of a large opportunity; a land-grab where someone is going to take the market.
  • You assume that once sold, there are reasonably high switching costs to prevent a customer from defecting to a competitive service.
  • These are subscription revenues.  Buying $1.00 of revenue for $1.90 is foolish on a one-shot deal, but in this case they’re buying a $1.00 annuity per year.  In fact, if you read about renewal rates later on in the prospectus, they’re actually paying $1.90 for a $1.00 annuity that grows at 25% per year.

I’d say this is a clear example of a go-big-or-go-home strategy.  You can see the strategic tack occurring in 2010, concurrent with the management change.  And, judging by the fact that they’re filing an S-1, it appears to be working.

Before moving on, let’s look at some ratios I calculated off the income statement:

You can see the strategy change in the highlighted cells.

  • Before the change, Jive spent $1.16 to get a dollar of revenue.  After, they spent $1.90.
  • Before, they got $2.91 of incremental revenue per incremental operating expense.  After, they got $0.90.  (It looks similar on a billings basis.)
  • Before, they got $6.76 of incremental product revenue per incremental S&M dollar.  After, they got $1.73.

Clearly, the change was not about efficiency.  You could argue that it was either about growth-at-all-costs or, more strategically, about growth as a landgrab.

But we’re only on page 6 of the prospectus, so we’re going to need to speed up.

Speaking of billings and revenues, let’s hear what Jive has to say:

We consider billings a significant leading indicator of future recognized revenue and cash inflows based on our business model of billing for subscription licenses annually and recognizing revenue ratably over the subscription term. The billings we record in any particular period reflect sales to new customers plus subscription renewals and upsell to existing customers, and represent amounts invoiced for product subscription license fees and professional services. We typically invoice the customer for subscription license fees in annual increments upon initiation of the initial contract or subsequent renewal. In addition, historically we have had some arrangements with customers to purchase subscription licenses for a term greater than 12 months, most typically 36 months, in which case the full amount of the agreement will be recognized as billings if the customer is invoiced for the entire term, rather than for an annual period.

The following table sets forth our reconciliation of total revenues to billings for the periods shown:

This says that billings is equal to revenue plus the change in deferred revenue.  Billings is a popular metric in SaaS companies, though often imputed by financial analysts, because revenue is both damped and seen as a dependent variable.  Billings is seen as the purer (and more volatile) metric and thus seen by many as a superior way to gauge the health of the business.

For Jive, from a growth perspective, this doesn’t strike me as particularly good news since billings, which were growing 99% in 2010, are growing at 59% in 1H11, compared to revenue which is growing at 76%.

Now we’re on page 8.  Happily the next 20 pages present a series of valid yet unsurprisingly risk factors that I won’t review here, though here are a few interesting extracted tidbits:

  • The company had 358 employees as of 6/30/11.
  • They plan to move from third-party hosted data centers to their own data centers.
  • Subscription agreements typically range from 12 to 36 months.
  • They do about 20% of sales internationally.
  • They recently completed three acquisitions (Filtrbox, Proximal,  OffiSync).
  • There is a 180 day lockup period following the offering.

Skipping out of page-by-page mode, let me pull some other highlights from the tome.

  • There were 44M shares outstanding on 6/30/11, excluding 15M options, 0.8M in the options pool, 0.9M shares subject to repurchase.  That, by my math, means ~59M fully-diluted shares outstanding after the offering.
  • Despite having $44.6M in cash on 6/30/11, they had a working capital deficit of $15.9M.
  • The Jive Engage Platform was launched in February 2007.  In August 2007, the company raised its first external capital.
  • The Jive Engage Platform had 590 customers as of 12/31/10, up from 468 at 12/31/09.  There were 635 as of 6/30/11.
  • The dollar-based renewal rate, excluding upsell, for 1H11 for transactions > $50K was over 90%.  Including upsell, the renewal rate was 125%.
  • Public cloud deployments represented 59% of product revenues in 1H11.
  • The way they recognize revenue probably hurts the professional services performance because they must ratably take the PSO revenue while taking the cost up-front.

One thing soon-to-be-public companies need to do is gradually align the common stock valuation with the expected IPO price to avoid a huge run-up in the weeks preceding the IPO.  Gone are the days where you can join a startup, get a rock-bottom strike price on your options, and then IPO at ten times that a few weeks later.  Companies now periodically do section 409a valuations in order to establish a third-party value for the common stock.  Here’s a chart of those valuations for Jive, smoothed to a line, over the 18 months prior to the filing.

This little nugget was interesting on two levels, bolded:

The core application of the Jive Engage Platform is written in Java and is optimized for usability, performance and overall user experience. It is designed to be deployed in the production environments of our customers, runs on top of the Linux operating system and supports multiple databases, including Microsoft SQL Server, MySQL, Oracle and PostgreSQL. The core application is augmented by externally hosted web-based services such as a recommendation service and an analytics service. We have made investments in consolidating these services on a Hadoop-based platform.

First, it seems to suggest that it’s not written for the cloud / multi-tenancy (which, if true, would be surprising) and second, it suggests that they are investigating Hadoop which is cool (and not surprising).

More tidbits:

  • 105 people in sales as of 6/30/11
  • 122 people in R&D as of 6/30/11
  • Executives Tony Zingale (CEO), Bryan LeBlanc (CFO), John McCracken (Sales), and Robert Brown (Client Services) all worked at Mercury Interactive.  The latter three were brought in after Zingale was made a director (10/07) but well before he was appointed CEO (2/10).
  • Zingale beneficially owns 7.5% of the company pre-offering.  This is high by Silicon Valley standards, but he’s a big-fish CEO in a small-pond company.
  • Sequoia Capital beneficially owns 36% of the company.  Kleiner Perkins owns 14%.
  • I think Sequoia contributed $37M of the $57M total VC raised (though I can only easily see $22M in the S-1).
  • If that’s right, and if Sequoia eventually exits Jive at a $1B market cap, that means they will, on average across funds, get a ~10x return on their investment.  $2B would give them 20x.

What’s left of my brain has officially melted at page F-11.  If I dig back in and find anything interesting, I’ll update the post.  Meantime, if you have questions or comments, please let me know.

As a final strategic comment, I’d say that investors should consider the possibility of an increased level of competition from Salesforce.com, given their massive push around “the social enterprise” at Dreamforce 11.

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Posted in enterprise software, IPO, social networking

Will Oracle or IBM Start a Bidding War with HP over Autonomy?

Posted on August 22, 2011 | 3 Comments

I’ve heard a fair bit of discussion about whether IBM or Oracle is likely to step in and start a bidding war for Autonomy which HP last week announced that it will buy for $42.21 per share, or $10.2B, as discussed last week in Kellblog when the rumors first surfaced.

My opinion — and this is an educated guess / speculation only — is that the answer is no.  Here’s why:

  • I’m told by those who’ve analyzed the deal that it is a very target-friendly deal on contractual terms as well as price.  HP wants this deal to happen.
  • I’m also told that HP is moving through the acquisition process with great speed.  HP wants this deal to happen.
  • I’m also told that HP is messaging that the deal is not just about buying into unstructured data but also about getting Autonomy’s CIO-level relationships that are supposedly superior to HP’s.  While I’m not sure that Autonomy has great CIO relationships (think:  “let Jimmy here tell you how much you’re going to pay next year”), that’s not the point.  The point is if that HP believes it, the deal becomes about protecting the core as much as about expanding into software which again would suggest that HP wants this deal to happen.
  • Because HP wants the deal to happen, I suspect the deal was not shopped and the first Oracle or IBM heard about it was the announcement.  If that’s true, then they didn’t get a chance to bid (and/or not bid) before the deal was announced.  But if that’s true, HP had to offer a market-clearing price such that Autonomy could accept the deal without shopping it.  That’s how you get a 70% premium to the market.
  • Oracle can move quickly.  The biggest reason that I think Oracle will not start a bidding war is that they haven’t already.
  • I’m told that Oracle investor relations is making comments along the lines of  [not verbatim] “if we were worried about Autonomy as a competitor, we couldn’t think of a better place for it to land than HP.”  And my guess is they believe that.   I suspect Oracle is more bummed about Clearwell slipping away (a leading pure-play e-discovery solution) than it is about a mini-me of document-oriented solutions (i.e., Autonomy) with a mere $250M/quarter spanning numerous categories including enterprise search, web content management, e-discovery, and digital archiving with over 40 products in a product line built through inorganic growth.
  • If either Oracle or IBM cared about a document-oriented, unstructured data platform, they could acquire other companies (e.g., MarkLogic!?)  for a lot less than $10B.  If they care about enterprise search, they could buy one of many small vendors in that space or put (more) wood behind Lucene and Solr.  They already have offerings in web content management and e-discovery.  The key point is that if you de-construct Autonomy, Oracle and IBM either already have or could easily buy each of the pieces.  Buying them all-in-one at discount?  Maybe.  At $10B for the starting bid?  Methinks not.

I’ve been wrong before and I’ll be wrong again, but I just have a lot of trouble seeing a bidding war on this deal.  It reminds me of the Sun / MySQL deal where a hardware company paid a hefty multiple for a deal they decided is absolutely strategic to their future.   You usually don’t get bidding wars on those because the purchaser precludes them by offering a market-clearing price.  And $10B for Autonomy strikes me as a market-clearing price.

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Posted in autonomy, HP, IBM, Oracle

Interview by SandHill.com on Big Data, Cloud Computing, and the Future of IT

Posted on August 19, 2011 | 1 Comment

[This is a re-post of a recent interview with me, authored by Darren Cunningham of Informatica.  The post originally appeared on SandHill.com where Darren writes a column on Cloud Computing.]

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The Cloud in Action

Big Data, Cloud Computing and Industry Perspectives with Dave Kellogg

BY Darren Cunningham

I had the pleasure of working with Dave Kellogg early in my marketing career and continue to learn from him as a regular subscriber to his popular blog, Kellblog. A seasoned Silicon Valley executive, Dave has been a board member (Aster Data), CEO (MarkLogic), CMO (Business Objects) and VP of Marketing (Versant and Ingres). I recently sat down with Dave to discuss industry trends. As always, he didn’t hold back.

Dave, you’ve written a lot about “Big Data” on your blog. Why is it such a hot topic in the world of data management?

First I think Big Data is a hot topic because it represents the first time in about 30 years that people are rethinking databases. Literally, since about 1980 people haven’t had to think much about databases. If you were an SMB, you went SQL server; if you were enterprise, you’d go Oracle or IBM depending on your enterprise preferences. But in terms of technology, to paraphrase Henry Ford: any color you want, as long it’s relational.

Overall, I think Big Data is hot for three reasons:

  • Major new innovation is finally happening with databases for the first time in three decades.
  • Hardware architectures have changed — people want to scale horizontally like Google.
  • We are experiencing a serious explosion in the amount of data people are analyzing and managing. Machine-generated data, the exhaust of the Web, is driving a lot of it.

I think Big Data is challenging on many fronts from the cool (e.g., analytics and query optimization), to the practical (e.g., horizontal scaling), to the mundane (e.g., backup and recovery).

What’s the intersection with Cloud Computing?

I think when people say cloud computing, they mean one of several things:

  • SaaS: The use of software applications or platforms as services.
  • Dynamic scaling: My favorite example of this is Britain’s Got Talent, which uses Cassandra. Most of the time they have nothing to do. Then one night half the country is trying to vote for their favorite contestants.
  • Service orientation: The ability to weave together applications by calling various cloud services — in effect using a series of cloud services as a platform on which to build applications.

I think Big Data intersects with cloud in several ways. First, the people running cloud services are dealing with Big Data problems. They are hosting thousands of customers’ databases and generating log records from hundreds of thousands of users. I also think Big Data analytics are very dynamic loads. One minute you want nothing, then suddenly you need to throw 100 servers at a complex problem for several hours.

How do you see these trends changing the role of IT?

I think corporate IT is constantly evolving because smart corporations want their internal resources focused on activities that they can’t buy elsewhere and that generate competitive advantage for the business.

IT used to buy and run computers. Then they used to build and run applications. Then they focused on weaving together packaged applications. Going forward, they will focus on tightly integrating cloud-based services. They will also continue to focus on company-proprietary analytics used to gain competitive advantage.

The other trend driving IT is consumerization. The Web sets expectations for functionality, user interface and quality that corporate IT must meet with internal systems. The bar has gone way up – people won’t tolerate old-school ERP-style interfaces at work when they’re used to Facebook or Yelp.

What does that mean for technology sales and marketing?

If Mr. McGuire in The Graduate were dishing out advice today, instead of saying “plastics,” he’d say “data science.” More and more companies will use data scientists to analyze their business and drive tactical operations. First you need to gather a whole bunch of data about your operations and customers. Then you need to throw world-class data analysts at it to get business value and to be sure you don’t draw false conclusions – e.g., mixing causality with correlation.

Today, most companies have their sales departments on salesforce.com. Leading marketing departments are on Marketo or Eloqua, but most marketers still don’t have much technology backing them. Going forward you will see a whole class of analytics applications vendors providing advanced analytics for Salesforce (e.g., Cloud9, Good Data) and the marketing automation vendors will move beyond lead incubation into providing overall marketing suites. I expect Marekto or Eloqua to try to do for the chief marketing officer what SuccessFactors did for the chief people officer – and if they don’t, then there’s a real opportunity for someone else.

Speaking of all things cloud, you often write about Silicon Valley trends. How would you characterize what’s going on in the market right now?

From my perception, the Silicon Valley innovation engine is running full out. Top VCs are raising new funds. I meet a few new startups every day. Of late, I’ve met fascinating companies in next-generation business intelligence, analytics, Big Data, social media monitoring and exploitation and Web application development. One of the more interesting things I’ve found is a VC fund dedicated to big data - IA Ventures (in New York). When I heard about them, I thought: oh, lots of Big Data infrastructure and platform technologies. Then I spent some time and realized that most of their portfolio is about exploiting new Big Data infrastructure technologies via vertical applications. That was really interesting.

People will debate whether we’re in a mini tech bubble or a social networking-specific bubble. Who knows? I just read an article in the The Wall Street Journal that argues $140B valuation for Facebook is realistic, and it was fairly convincing. So you can debate the bubble issue but you can’t debate that the IPO market has been closed for a long time. Now it is starting to open, and that’s a huge change in Silicon Valley.

Entrepreneurs have historically dreamed of creating $1B independent companies. I’d say for most of the last decade they’ve dreamed of getting bought for 5-10x revenues. Michael Arrington had a great quote a while back saying that “an entire generation of entrepreneurs [has been lost] building dipshit companies that sell to Google for $25M.” I think those days are over. When the IPO window opens, people dream of building stand-alone companies.

What advice do you have for both entrepreneurs and IT veterans?

Don’t build or run things that you can buy or rent. If you follow that mantra, you will follow market trends, and always stay at the right stack-layer to ensure that you are adding value as opposed to leveraging old skill sets. While you may know how to run a Big Data center, you can now rent time in one more cost-effectively. So either go work for a company that runs data centers (e.g., Equinix) if that’s your pleasure, or go leverage the people who do. Put differently, don’t be static. If you’re still using skills you learned 10 years ago, make sure that you’re not teeing yourself up to get left behind.

As always, great advice, Dave! Thank you.

Darren Cunningham is VP of Marketing for Informatica Cloud.

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[Notes:  Minor changes made from the SandHill post.  I added emphasis via bolding and I corrected the attribution of the famous lines "plastics" from The Graduate.  It was not Mr. Robinson, but Mr. McGuire, who said it.]

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Posted in Big Data, cloud computing, Information technology, Initial public offering, Innovation, IPO, NoSQL, Uncategorized, Venture Capital

HP Rumored To Be Buying UK’s Autonomy for $10.2B

Posted on August 18, 2011 | 7 Comments

Just a quick post to share the widely published rumors that HP is in discussions with Autonomy over an acquisition estimated to be about $10B.

Some quick thoughts on this:

  • It’s a great deal for Autonomy, price-wise.  Today’s market cap was £3.5B or $5.8B so it seems to represent a 71% premium to the market, if I’m doing the math correctly.  2Q11 revenues were $256M, so call it a $1B run-rate, which means the deal is proposed at 10x run-rate revenues.  That’s expensive for a company growing revenue at 16% year/year, but then again, Autonomy is very profitable with 45% operating margins, and they say that 62% of IDOL revenues are now done on a recurring model.  (Note:  recent Iron Mountain deal included in these numbers on a stub period basis only.)
  • Ever since Autonomy bought Verity, I have viewed them as a finance company dressed in (meaning-based) technology company clothing.  This seems a happy ending for that finance company.
  • Autonomy the finance company may have been running out of companies to buy on their buy-cheap and crank-the-recurring revenues model that worked so well for Verity, Zantaz, and probably the Interwoven acquisitions.  (It takes a pretty specific profile to make that strategy work:  big installed base, recurring revenue model, and a cheap stock price.)  To me, Autonomy seemed all dressed up with nowhere to go.  They sold about $800M worth of bonds in February, 2010, presumably to make a big acquisition and then did little or nothing until paying $380M for Iron Mountain’s digital assets in March, 2011.
  • HP wants to get more into the software business and, given the massive consolidation of the past decade, there aren’t that many $1B companies to buy.  At some point, they will probably acquire a mega-vendor (e.g., SAP), but the Autonomy deal might be a nice warm-up to that.
  • Autonomy stock was nevertheless off 8% on the day.

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Posted in autonomy, HP