Maybe IT doesn't matter, after all. At least, not as much as it should.
A recently released survey of chief financial officers and their views on technology spending found that roughly 57 percent say they are getting an acceptable return on investment (ROI) from their tech spending. Lest you think that the CFOs are too distant from the chief information officer to have a true grasp on ROI, keep in mind that the survey found that 41 percent of organizations have CIOs reporting to CFOs. The Computer Sciences Corporation conducted the annual survey of 629 CFOs in association with the Financial Executives Research Foundation.
Other data from the "Technology Issues for Financial Executives" study was equally interesting:
- Among those surveyed, IT spending has increased over the last three years, and is expected to grow in 2008, as well.
- Greater than 50 percent suggest medium to high ROI on technology investments but only 11 percent reported a "high" ROI. ... Read more
Tudou, which had been scolded for insufficient censorship (namely, of porn) and faced either threats or rumors of a government shutdown as recently as last month, is looking a little healthier this week.
Tudou, the largest video-sharing Web site in China, finally officially announced its $57 million series D financing at a $150 million valuation, which is the largest round of funding ever for a Chinese Internet company. (This takes) Tudou's total fund-raising to $85 million over the past three years. (In previous rounds of funding), Tudou raised $500,000, $8.5 million, and $19 million respectively.
This is not likely a low-risk investment. Not only are Internet companies hard to predict, but the video sector in China is heavily regulated and subject to shutdown orders on a moment's notice from authorities.
There are real incentives for the government to keep these companies going, however: they grow the economy, they represent Chinese successes, and they circulate a lot of material that is in no way illicit. But I see one more bump in their future.
Tudou is still a bastion of copyright infringement. Entire TV series, just as before the recent crackdown, are available on the site. If authorities get serious about their intellectual-property efforts, or just want to make a public gesture in that direction, Tudou will need to be ready to quickly remove a vast amount of material from its site and institute controls more like, say, YouTube.
Sometimes I'm so uninspired I can't come up with a decent blog post to save my life. When that happens, I turn to what comforts me: numbers. Yes, I know how weird that sounds. What can I say, I'm a geek.
Anyway, I just got to wondering how investors in various technology companies fared over the long haul. I was just as interested in how technology companies performed versus companies with a more traditional business model. ... Read more
Both Red Hat and Oracle had excellent quarters, but Oracle's was apparently not "excellent" enough for Wall Street's tastes. Its shares and the market went south this week on fears that technology spending is in decline.
In addition, Wall Street apparently didn't notice that Red Hat actually raised its fiscal year 2009 guidance this week.
Consolidation is one way to improve earnings in a down market, but open source may well be a better way as The New York Times opined.
Oracle's total software revenue was up 21 percent, to $4.2 billion. Pretty good. Unfortunately, it was well under the 30 percent growth Wall Street was expecting.
More unfortunately, Oracle's third-quarter application license revenue only increased by 6.6 percent, to $451 million, which was well below the 30 percent growth ($553 million) that Wall Street expected.
As Sarah Friar explains in The Wall Street Journal,
...(C)ompanies typically buy such software when they are embarking on new projects and are likely to dial back such purchases in tough economic times.
But the same affliction isn't showing up in Red Hat's earnings. Red Hat's percentages were roughly the same. Red Hat's quarterly revenue rose by 27 percent over the fourth quarter and annual revenue in fiscal year 2008 was up more than 30 percent. Red Hat's numbers are much smaller compared with Oracle's, of course, but one thing that really stands out is its deferred revenue number, which was up 40 percent.
As I read that number, Red Hat is doing more longer-term deals. Basically, it's sitting on a growing mountain of cash that is just waiting for services to be performed before it can recognize that revenue. It means that Red Hat's future is demonstrably, tangibly bright.
Here are some salient facts from the Red Hat announcement:
Total revenue for the quarter was $141.5 million, an increase of 27 percent from the year-ago quarter and 5 percent from the prior quarter. Subscription revenue for the quarter was $121.9 million, up 27 percent year over year and 5 percent sequentially. For the full year, total revenue was $523 million, an increase of 31 percent over fiscal 2007 revenue, and subscription revenue was $449.8 million, up 32 percent from the prior year.
Oracle is projecting 10 percent to 20 percent sequential quarterly growth. Red Hat, too, needs to find ways to super-charge its growth. But for the moment, I think it's enough for the company to be demonstrating a flight to value in recessionary times. Investors may bemoan the fact that it's harder to mint money with an open-source company, but this may simply be a new reality for the software industry.
We had a few decades of anomalous growth when there was a mismatch between the economics of production and consumption (i.e., write once, manufacture an infinite number of my products for roughly zero cost, but charge customers steep prices as if the economics of digital production didn't exist). Open source and the Web are going to bring things back into alignment.
For now, Oracle is a good bet in the stock market. If any company is going to weather the recessionary storm, I'm betting it will. But for those with a longer-term view on the software industry, it would be wise to bet on open source.
Updated March 22, 2008. Edits explained at the end of the post. - ST
I was reading a news item about the resignation of Mathstar's chief financial officer. I was surprised to see a publicly traded semiconductor company I'd never heard of, so I checked it out.
Turns out that Mathstar is like a number of companies I've come across over the years: they come in under the radar screen and, as such, investors think they've found something special.
Sure, these companies are special, but not in a good way.
(Credit:
Mathstar)
Mathstar markets itself as a development-stage fabless semiconductor company. Its products are called field-programmable object arrays, or FPOAs, and are targeted at high-performance, data-intensive applications like defense, security, medical imaging, and video.
Sounds good, right? ... Read more
Silicon Valley remains the hotbed of Web 2.0 activity, but the hipness of start-ups with goofy names is starting to cool in the face of economic reality.
Dow Jones VentureSource on Tuesday released numbers of venture capital activity in Web 2.0 companies and declared that the "investment boom may be peaking."
Venture capitalists put $1.34 billion into 178 deals in 2007, an 88 percent jump over 2006. But once you strip out the $300 million that Facebook raised from Microsoft and others, the numbers don't look as bullish.
The pace of deal flow, or the number of fundings, has slowed, particularly in the San Francisco Bay Area. Deal flow in 2007 went up 25 percent to 178 deals, but nearly all of those occurred outside the Bay Area, where the number of deals slipped downward.
"Web 2.0 deals in the Bay Area actually dropped from 74 deals in 2006 to 69 last year and investments were down 3 percent from the $431 million invested in 2006. It's clear that the real growth in the Web 2.0 sector is happening outside of the Bay Area," Jessica Canning, director of global research at Dow Jones VentureSource, said in a statement.
Breakdown of VC deals in Web 2.0 in 2007 and 2006
(Credit: Dow Jones VentureSource)The second largest deal in 2007 was a $44 million first round for Ning, a service co-founded by Marc Andreessen that lets people build their own social-networking sites.
The New England region saw 20 deals valued at $158 million in 2007. Southern California had 14 fundings worth $115 million, while the New York Metro area had 25 deals worth $58 million. The Seattle area had 13 worth $140 million in 2007.
The median size deal has gone up to $5 million, but that is still a relatively cheap investment for venture capitalists. Start-ups can get off the ground efficiently by using open-source software and inexpensive hosting services.
But even with the relatively low capital risk, particularly compared with clean tech, Canning said that many Internet companies still have unproven business models that rely on future advertising revenue.
"2008 may be a make-or-break year for many Internet companies with business models relying on advertising," she said. "The slumping economy, coupled with a slowdown in click-through rates for online advertising, is going to pose a real challenge to their ability to generate revenues and position themselves for an exit."
Keeping tabs on Microsoft's efforts to win Yahoo, Matt Karnitschnig of the Wall Street Journal reported Friday on some interesting events.
As reported Thursday in News.com, the "radio silence" between the two companies has taken a shift and the parties have held informal merger discussions.
An interesting note in Karnitschnig's report is that the talks Monday in the Valley were held with only senior executives of the companies and no investment bankers from either side.
And while it's not unusual for executives to chat informally about "what if" merger scenarios without bankers and lawyers hovering about, it was a particularly smart move on Microsoft's part, said one former banker.
"Given they already have this offer out there, the dynamics are very different," the former banker told CNET News.com. "By having bankers there, it lends an air of formal negotiations. Microsoft is trying to get Yahoo to buy into the concept of a combined business and then hope they'll be more willing to negotiate...it's like trying to win the hearts and minds of the enemy. And with the bankers there, it's seen as more of a negotiating tactic than a friendly olive branch."
And while the Journal report notes that no other meetings between the companies have been scheduled since Microsoft gave its outline of the combined companies, that's not to say the folks in Redmond don't foresee another trigger point ahead.
One source familiar with the talks told CNET News.com on Wednesday that Microsoft will keep a keen eye on Yahoo's upcoming first-quarter results, when the Internet search pioneer reports its financial performance on April 22.
Cisco Systems has invested in a peer-to-peer Internet TV start-up.
The Seattle-based start-up GridNetworks said that Cisco is one of two "strategic investors" that contributed to the company's $9.5 million series A round of funding announced in October. The venture capital firm Panorama Capital of Menlo Park, Calif., was named as the lead investor when the funding was first announced.
GridNetworks, which launched its service in November 2006, has taken a hybrid approach to delivering high-definition movies and TV shows over the Internet. It uses both peer-to-peer technology, which leverages content distributed on users' computers all over the Internet as well as content delivery technology, which essentially caches and stores content in server farms throughout the Internet so it can be served up more quickly to geographically close clients.
GridNetworks' software client called Gridcast Connector is installed on PCs and, when content is requested, it locates peers best suited to serve the content. It uses content delivery technology to buffer the first 30 seconds or so of a show or movie.
Cisco has been focused on video for the last couple of years. Eventually, the GridNetworks technology could work well with the company's cable set-top boxes from Scientific Atlanta and Linksys home routers. On the infrastructure side, Cisco also offers video-on-demand products. In 2006, it bought Arroyo Video Systems for $92 million. Cisco plans to use the Arroyo technology to deliver Internet video directly to set-top boxes. And this technology could help the company distribute high-definition video more efficiently.
Cisco is the largest Internet infrastructure provider in the world. And it's significant that the company is investing in a company that is developing a peer-to-peer video platform.
P2P has gotten a bad reputation for being a damaging technology that allows digital pirates to distribute stolen content. It's also been blamed for clogging broadband networks. Last year, cable operator Comcast admitted that it slowed down some peer-to-peer traffic to better manage its network. Comcast is currently under scrutiny from the Federal Communications Commission, which is looking at whether the company's practices violate Net neutrality principles.
Other carriers have also expressed concern over the use of peer-to-peer technology. Time Warner said it is testing a tiered service to discourage people from using peer-to-peer applications.
But many networking experts say that P2P is actually the best and most efficient way to deliver video, especially high-definition video, which, when streamed, eats up vast amounts of bandwidth throughout the entire network. Cisco's investment in a budding peer-to-peer delivery platform could help speed up developments in the technology that will make even more efficient use of networks.
Will he or won't he?
Microsoft Chief Financial Officer Chris Liddell is speaking at the Morgan Stanley Technology Conference at 8:45 a.m. PST on Monday. Maybe some comments regarding the Yahoo bid will fall from his mouth, and then again, maybe not.
Microsoft's big bid for Yahoo
Liddell's Webcast may add to comments made Monday by Microsoft Chief Executive Steve Ballmer in Hannover, Germany.
Ballmer made the case for the existing offer.
"The deal makes sense with the price and structure we announced. We hope it becomes reality," he told reporters, according to the Associated Press.
Update 9:20 a.m. PST: Morgan Stanley analyst and moderator Mary Meeker asked Liddell the effect of software as a service on Microsoft's business. In response, Liddell noted: "Software as a service will be a bigger part of our business, and things like a Yahoo acquisition is one way how we see that."
Update 9:47 a.m PST: As Liddell's presentation and the Q&A portion wrapped up, no one in the audience--to Liddell's surprise--asked a single question about Yahoo.
Hello...Microsoft is looking to lay down mega, mega, and, I say, MEGA bucks for Yahoo and no one at the investor/technology conference asked a single question about its bid.
That didn't stop Liddell from addressing the proverbial elephant in the room.
Said Liddell: "No one asked me about Yahoo, which is interesting. It's a small company we are looking to acquire, but the company has not yet formally responded to our offer...We will continue to look at our options and that is something I am incredibly systematic about."
The systematic approach Liddell referenced includes looking at the horizon for other acquisitions too. Of course, he didn't drop any names of who might fit the bill for those.
Morgan Stanley is the banker representing Electronic Arts in its unsolicited buyout bid for rival game publisher Take-Two, the investment bank confirmed Monday.
While that news alone is no big deal, consider this: Morgan Stanley is also representing Microsoft in its unsolicited buyout offer for Yahoo, which was announced a mere 25 days ago.
That's two megabillion-dollar buyout bids the premier investment banking firm has agreed to handle in the past month. And both have the potential to get mean and nasty, should the target companies kick and scream all the way to the altar.
So, this raises the question regarding Morgan Stanley, lofty fees aside:
Is Morgan a glutton for punishment?
