The Sum Is Greater Than the Parts

The internet today is dominated by Google services: Gmail, Google Search, Google Maps; social sites: Facebook, Twitter, LinkedIn; smart devices: iPhone, Samsung Galaxy, Nexus, Kindle; and thousands of innovative applications. The past few years have brought in a revolution in personal technology not seen since the birth of the PC, and one that is heralding the death of the PC. The technology of big business too is changing; it has seen the advent of cloud services: Amazon, Google; and SaaS applications: that capture efficiencies of scale. The vast amount of information generated by billions of people online is being stored, analyzed, and used. IBM and Oracle have taken a lead in this world of Big Data.

It is a story that is playing out, with an ominous omission: Microsoft. The company that brought in the PC revolution, and desktop productivity, seems to be no longer relevant. Eric Schmidt has already written it off. Is it then time to sell MSFT and move on? Not quite, on the contrary, Microsoft has not looked better in years.

Microsoft is lagging in many things: Windows Phone 8 leaves a lot to be desired – the apps are far from competitive, the map and navigation hardly as good as alternatives. Windows Surface is more expensive than the Nexus, and not as cool as the iPad. Office 365 is just emerging from the fiasco that was Office Live and it still feels clunky. Amazon and Google clouds are more popular with developers due to early limitations and pricing of Windows Azure. Oracle, not Microsoft SQL Server, remains the database of choice to run enterprise databases.

The Strength of Good Enough

Microsoft may be lagging, but it is certainly a player in all fields. A “good enough” solution with a few twists of its own, and universal reach, can be surprisingly competitive.

Windows Phone: The tile interface is edgy and unique. It is also consistent with the Windows 8 desktop. The hardware is catching up; the new phones from HTC and Nokia are at par with iPhone and other Android devices in terms of processor, camera, and screen size. The phone and allows you work with Word and Excel documents. The phone now uses Nokia maps that can be used offline and speak out turn-by-turn directions. Microsoft promises a Skype app that will the Windows phone the best platform for VOIP calls and video chat.

Windows Surface: The tile interface is interesting and fresh. It is consistent with the Windows phone and Windows 8. The keyboard cover is a great addition. The Office suite, the world’s best productivity software, is available in both Windows RT and Windows 8 Pro.

Office 365: It is now simply Exchange, SharePoint, and the ability to view and edit Office documents in the cloud. The pricing is more competitive. Office 365 subscribers will soon get iOS and Android apps that allow editing Office documents.

Window Azure: Windows Azure is now open to many development methodologies including Python, MySQL, node.js etc. The pricing has improved, and a much-needed FREE tier is available. It is now also part of the popular MSDN subscription.

Windows 8: The Windows 8 looks modern and is ready for touch – a noteworthy gap in Apple’s desktop OS. It does have a learning curve, but just like the Office ribbon, it will catch on.

Office Suite: Office is still the professional productivity suite of choice; additions like PowerPivot make it stronger. SkyDrive with cloud storage and its ability to work with Office documents in the browser will stave competition from Google Documents.

Microsoft Business Software: The Microsoft Dynamics suites of applications are new, but an ecosystem is emerging. The combination of cloud services (Microsoft CRM Online, Office 365 with SharePoint), and the ability to run the same on premise is unique to Microsoft. Microsoft also is the only company that manages federated identities in a seamless way. This flexibility will help win enterprise accounts.

The Illusive Synergies

Synergies rarely materialize (aka aQuantive), yet even a very conservative analysis cannot ignore the obvious links.

The Microsoft Devices will do better with a flourishing cloud offering (Windows Live: SkyDrive, Skype; Office 365 etc.). The Microsoft cloud will do better with devices like Surface, and Android/ iOS apps that tap into Office 365. The Windows 8 platform will benefit from the consistent look and feel in all devices: the phone, the tablet, and the desktop. And the whole Microsoft ecosystem continues to benefit from the best developer tools in the industry.

There are signs that Microsoft management is focusing on this transition. Only a few years ago, a dazzling amount of overlapping technology and products were causing confusion in the marketplace – many are gone. Office 365 has replaced Microsoft Office Live. The Windows Phone, the Windows Tablet, and the Windows Desktop now have the same look and feel. Even the Microsoft kiosks are current, urban, and utilitarian – just like the brand they intend to portray.

The Microsoft Kaizen (改善): Service Pack 2

Microsoft is a Service Pack 2 company. Unlike Steve Jobs and Apple, who have shown the discipline to perfect things before they are unveiled, Microsoft has always had long beta periods. Significant updates and patches will continue to roll on and will make all these offerings stronger in the coming months.

This is no accident. When Apple releases a product, they control the whole value chain – the hardware, the software, and even the retail space. That is ideal for a “revolutionary” product (iPhone) because you need all aspects of technology and marketing aligned for it to succeed. On the other hand, a loosely held federation of companies: Nokia, Intel, Dell, HP, multitude of retailers and many others, market Microsoft products. They are like herd of thundering buffalo’s that make alignment in strategy difficult. However, they also make an “evolutionary” product (Windows 7) shine.

We are entering an evolutionary phase of cloud and device technologies. The iPhone 5 hardly any different from iPhone 4, the iPad Mini, the small changes to Gmail, all speak to this. This is where Microsoft excels – slow continuous improvement.

The Prediction

As I write this, MSFT closed at $27.70 on Nov 23, 2012. I see at least a 20% upside ($33.24) over a period of 2 years excluding dividends. Add to this the current dividend of (23 cents) 3.32%, which I expect to continue. That makes MSFT a great investment for the next 2-3 years. I expect the holiday season to be worse than expected resulting in a great buying opportunity in the first quarter of 2013.

Disclosure: I own MSFT at an average price of $28.08 a share. I also own Google at an average price of 595.38 a share.



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Steering in a downturn

I know we are all doing a bit of soul searching and thinking about how to come strong through, what could very likely be, a challenging 2009. I have a few thoughts to share from the perspective of running a business.

A good business is a combination of the right idea (basis of value creation), the right people (means of value creation) under the right circumstances (they dictate the value created). Circumstances have changed and so we must re-evaluate our strategy and expectations. However, just as a good plan can be bad under the wrong circumstances, similarly an otherwise good idea can be bad for the wrong set of people.  [Note: For large businesses culture is a proxy for people. It is the same thing, just a collective representation.]

So though we need to keep an eye out on how the world would shape in the coming years. More importantly we need to look inwards to the strengths of our business, to the strengths of our team. The question should be “What can we do best?” and “How can we profit from it?”  There are two main reasons why I think it’s important to look inwards.

There is no visibility out there. Even in normal times it is hard to predict what would happen in the future. It’s next to impossible now. I am not saying it’s not important; it’s necessary to look out in future to make sure you place yourselves in the best position to benefit from it. What I am saying is that right now it just can’t be done. The government is changing the rules every day, the corporations are re-assessing their strategy and making changes, business models are changing, and the political environment is unstable. There is no telling what things would look like when the dust settles.

I think our energy is best spent on looking at how we do things and how we can improve. This is an opportunity to forget the outside world, at least for a few months, hunker down and work on ourselves. Moreover, this notion that a “tailor” can suddenly be a “cook” because there happens to be a great demand for culinary skills is misguided. Let me reiterate a good business is the right idea, with the right people, under the right circumstances. Some believe we will see profitable green cars from Detroit – sure, we can all have our dreams.

Harsher the downturn more likely it will be for experimenters to perish. Innovating and risk taking is crucial for financial success. The time for that however is during an upswing when mistakes are relatively cheap. This is the time not to just look inwards but to focus on strengths. We need to assess what our competitive advantages are and act on them with renewed vigor. It is time to spend our energy on technology we already posses, push the brands that already have a name in the marketplace, push the partnerships with people we already know.

Winds of creative destruction are blowing. Only the healthy should survive. It is time we make sure we are one of them; the landscape will be cleaner and healthier for all of us in the future.

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Dueling economist: Jeffrey Sachs and William Easterly

It is easy to be swayed by seemingly logical arguments made by academicians when it comes to complex problems. The trouble is not in what is being presented; often conclusions are based on good reason, and backed by supporting evidence. The problem lies in a beginner’s inability to spot what is not mentioned at all. How do know that ALL the relevant evidence is presented?

Fortunately, that can happen when you can get a debate going between opposing factions that is not veiled by false decorum. It’s impossible to miss disagreement, even for a novice, when you call your opponent stupid, or bald. Perhaps bald is not called for, but still, what’s the harm in making the discussion a bit colorful. Surely a few hurt egos is a small cost to pay when it comes to thinking about global poverty and billions in aid.

If they can’t agree on anything else, Jeffrey Sachs and William Easterly would probably agree to that. So if you are at all interested in the cause of millions of poor I encourage you to read this exchange ( Sometimes it’s better not to just do something, but to step back and think.

The following books are excellent reads on the topic on of foreign aid and poverty erradication. Economists might work on some hard and depressing problems, but they do write very entertaining prose. Both these books are very readable.

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Have we lost credibility and how do we get it back?

Let me start by saying I believe in laissez-faire capitalism and freedom as defined by libertarians. It pains me to see “Wall Street greed” being the public discourse of the day. It pains me to see a CEO being questioned if it was “fair” if he earned what he earned. It pains me to see the very concept of pursuit of self interest (even greed if you must call it that), being challenged. Not here, not in America.

And as we shift through the causes and explore alternatives to the financial setback. Let’s not ignore the crisis of credibility in professional management. Most managers are vanguard of resources that they do not themselves own, and one hopes their incentives are aligned to pursue the best interests of their shareholders, employees, and customers in that order. However, that by itself has been proven to be insufficient. I do believe there is a crisis of leadership which needs to be addressed by those in professional management. If we don’t do something about it soon, the day is not far when the society will lose faith. We will be bound by regulation and adjudicated by courts.

I was heartened to see an article (“It’s time to make management a true profession”) in Oct 2008 issue of HBR that calls towards professional accreditation for managers, something along the lines of the bar for the lawyers, or a license for those in medicine. That is but one idea that could help, but we need to think more critically to protect our collective reputation. It’s no longer just a matter of ethics, it’s bad for business. I appeal to your self interest.

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