Microsoft

The ebbs and flows of software organizations

Sat, 08 Dec 2018 13:09:38 -0500

This week I was in New York for a day. At lunch, Sir Martin Sorrell pointed out that Microsoft overtook Apple as the most valuable software company as measured by market capitalization. It's a close call but Microsoft is now worth $805 billion while Apple is worth $800 billion.

What is interesting to me are the radical "ebbs and flows" of each organization.

In the 80's, Apple's market cap was twice that of Microsoft. Microsoft overtook Apple in the early 90's, and by the late 90's, Microsoft's valuation was a whopping thirty-five times Apple's. With a 35x difference in valuation, no one would have guessed Apple to ever regain the number-one position. However, Apple did the unthinkable and regained its crown in market capitalization. By 2015, Apple was, once again, valued two times more than Microsoft.

And now, eighteen years after Apple took the lead, Microsoft has taken the lead again. Everything old is new again.

As you'd expect, the change in market capitalization corresponds with the evolution and commercial success of their product portfolios. In the 90s, Microsoft took the lead based on the success of the Windows operating system. Apple regained the crown in the 2000s based on the success of the iPhone. Today, Microsoft benefits from the rise of cloud computing, Software-as-a-Service and Open Source, while Apple is trying to navigate the saturation of the smartphone market.

It's unclear if Microsoft will maintain and extend its lead. On one hand, the market trends are certainly in Microsoft's favor. On the other hand, Apple still makes a lot more money than Microsoft. I believe Apple to be slightly undervalued, and Microsoft is to be overvalued. The current valuation difference is not justified.

At the end of the day, what I find to be most interesting is how both organizations have continued to reinvent themselves. This reinvention has happened roughly every ten years. During these periods of reinvention, organizations can fall out out favor for long stretches of time. However, as both organizations prove, it pays off to reinvent yourself, and to be patient product and market builders.

How Microsoft's acquisition of GitHub impacts the cloud wars

Mon, 04 Jun 2018 11:16:38 -0400

Today, Microsoft announced it is buying GitHub in a deal that will be worth $7.5 billion. GitHub hosts 80 million source code repositories, and is used by almost 30 million software developers around the world. It is one of the most important tools used by software organizations today.

As the leading cloud infrastructure platforms – Amazon, Google, Microsoft, etc – mature, they will likely become functionally equivalent for the vast majority of use cases. In the future, it won't really matter whether you use Amazon, Google or Microsoft to deploy most applications. When that happens, platform differentiators will shift from functional capabilities, such as multi-region databases or serverless application support, to an increased emphasis on ease of use, the out-of-the-box experience, price, and performance.

Given multiple functionally equivalent cloud platforms at roughly the same price, the simplest one will win. Therefore, ease of use and out-of-the-box experience will become significant differentiators.

This is where Microsoft's GitHub acquisition comes in. Microsoft will most likely integrate its cloud services with GitHub; each code repository will get a button to easily test, deploy, and run the project in Microsoft's cloud. A deep and seamless integration between Microsoft Azure and GitHub could result in Microsoft's cloud being perceived as simpler to use. And when there are no other critical differentiators, ease of use drives adoption.

If you ask me, Microsoft's CEO, Satya Nadella, made a genius move by buying GitHub. It could take another ten years for the cloud wars to mature, and for us to realize just how valuable this acquisition was. In a decade, $7.5 billion could look like peanuts.

While I trust that Microsoft will be a good steward of GitHub, I personally would have preferred to see GitHub remain independent. I suspect that Amazon and Google will now accelerate the development of their own versions of GitHub. A single, independent GitHub would have maximized collaboration among software projects and developers, especially those that are Open Source. Having a variety of competing GitHubs will most likely introduce some friction.

Over the years, I had a few interactions with GitHub's co-founder, Chris Wanstrath. He must be happy with this acquisition as well; it provides stability and direction for GitHub, ends a 9-month CEO search, and is a great outcome for employees and investors. Chris, I want to say congratulations on building the world's biggest software collaboration platform, and thank you for giving millions of Open Source developers free tools along the way.

Unlike marketing efforts, CAPEX doesn't lie

Sun, 03 Jun 2018 04:23:51 -0400

The title of this blog post comes from a recent Platformonomics article that analyzes how much Amazon, Google, Microsoft, IBM and Oracle are investing in their cloud infrastructure. It does that analysis based on these companies' publicly reported CAPEX numbers.

Capital expenditures, or CAPEX, is money used to purchase, upgrade, improve, or extend the life of long-term assets. Capital expenditures generally takes two forms: maintenance expenditure (money spent for normal upkeep and maintenance) and expansion expenditures (money used to buy assets to grow the business, or money used to buy assets to actually sell). This could include buying a building, upgrading computers, acquiring a business, or in the case of cloud infrastructure vendors, buying the hardware needed to invest in the growth of their cloud infrastructure.

Building this analysis on CAPEX spending is far from perfect, as it includes investments that are not directly related to scaling cloud infrastructure. For example, Google is building subsea cables to improve their internet speed, and Amazon is investing a lot in its package and shipping operations, including the build-out of its own cargo airline. These investments don't advance their cloud services businesses. Despite these inaccuracies, CAPEX is still a useful indicator for measuring the growth of their cloud infrastructure businesses, simply because these investments dwarf others.

The Platformonomics analysis prompted me to do a bit of research on my own.

The graph above shows the trailing twelve months (TTM) CAPEX spending for each of the five cloud vendors. CAPEX don't lie: cloud infrastructure services is clearly a three-player race. There are only three cloud infrastructure companies that are really growing: Amazon, Google (Alphabet) and Microsoft. Oracle and IBM are far behind and their spending is not enough to keep pace with Amazon, Microsoft or Google.

Amazon's growth in CAPEX is the most impressive. This becomes really clear when you look at the percentage growth:

Amazon's CAPEX has exploded over the past 10 years. In relative terms, it has grown more than all other companies' CAPEX combined.

The scale is hard to grasp

To put the significance of these investments in cloud services in perspective, in the last 12 months, Amazon and Alphabet's CAPEX is almost 10x the size of Coca-Cola's, a company whose products are available in every grocery store, gas station, and vending machine in every town and country in the world. More than 3% of all beverages consumed around the world are Coca-Cola products. In contrast, the amount of money cloud infrastructure vendors are investing in CAPEX is hard to grasp.

Disclaimers: As a public market investor, I'm long Amazon, Google and Microsoft. Also, Amazon is an investor in my company, Acquia.

Microsoft buys LinkedIn: the value of data

Tue, 14 Jun 2016 01:39:33 -0400

In my latest SXSW talk, I showed a graphic of each of the major technology giants to demonstrate how much of our user data each company owned.

I said they won't stop until they know everything about us. Microsoft just bought LinkedIn, so here is what happened:

By acquiring the world's largest professional social network, Microsoft gets immediate access to data from more than 433 million LinkedIn members. Microsoft fills out the "social graph" and "interests" circles. There is speculation over what Microsoft will do with LinkedIn over time, but here is what I think is most likely:

With LinkedIn, Microsoft could build out its Microsoft Dynamics CRM business to reinvent the sales and marketing process, helping the company compete more directly with SalesForce.
LinkedIn could allow Microsoft to implement a "Log in with LinkedIn" system similar to Facebook Connect. Microsoft could turn LinkedIn profiles into a cross-platform business identity to better compete with Google and Facebook.
LinkedIn could allow Microsoft to build out Cortana, a workplace-tailored digital assistant. One scenario Microsoft referenced was walking into a meeting and getting a snapshot of each attendee based on his or her LinkedIn profile. This capability will allow Microsoft to better compete against virtual assistants like Google Now, Apple Siri and Amazon Echo.
LinkedIn could be integrated in applications like Outlook, Skype, Office, and even Windows itself. Buying LinkedIn helps Microsoft limit how Facebook and Google are starting to get into business applications.

Data is eating the world

In the past I wrote that data, not software, is eating the world. The real value in technology comes less and less from software and more and more from data. As most businesses are moving applications into the cloud, a lot of software is becoming free, IT infrastructure is becoming a metered utility, and data is what is really makes or breaks business results. Here is one excerpt from my post: "As value shifts from software to the ability to leverage data, companies will have to rethink their businesses. In the next decade, data-driven, personalized experiences will continue to accelerate, and development efforts will shift towards using contextual data.". This statement is certainly true in Microsoft / LinkedIn's case.

Source: Microsoft.

If this deal shows us anything, it's about the value of user data. Microsoft paid more than $60 per registered LinkedIn user. The $26.2 billion price tag values LinkedIn at about 91 times earnings, and about 7 percent of Microsoft's market cap. This is a very bold acquisition. You could argue that this is too hefty a price tag for LinkedIn, but this deal is symbolic of Microsoft rethinking its business strategy to be more data and context-centric. Microsoft sees that the future for them is about data and I don't disagree with that. While I believe acquiring LinkedIn is a right strategic move for Microsoft, I'm torn over whether or not Microsoft overpaid for LinkedIn. Maybe we'll look back on this acquisition five years from now and find that it wasn't so crazy, after all.

Microsoft's investment means Open Source is no longer a community, it is a movement

Sat, 21 Apr 2012 12:50:32 -0400

For many years now, developers around the world have celebrated and promoted the numerous benefits that open source has to offer IT and business communities. Despite the flare for technology innovation and bringing new offerings to market, the real value of the open source community is the culture of the people that represent it. A shared ethos, coupled with a collaborative working model and mutual respect has delivered and will continue to deliver cutting edge software offerings that are increasingly competing with traditional proprietary vendors.

But open source has moved beyond simply being a novelty or hobby, as its potential for huge cost reductions and delivering significant savings to the bottom line have become recognized by hard pressed businesses around the globe. Implementations of open source projects can also now be found in many countries in the government sector, with the UK, US, and France being notable examples. Only recently, it was announced that Iceland was shifting over to an open source model to help make savings and reduce the deficit.

For those of us working in the community, the only surprise with these headline-grabbing government sector implementations was that they weren't happening faster.

When making the case for open source, despite the numerous benefits on offer, it's vital that providers demonstrate they have the same structure and ecosystems you would expect from a major proprietary software vendor. In this context, open source offerings need to be appropriately packaged up with hosting, consultancy and the support network that many IT decision-makers consider to be a necessity for implementation. That's why I founded Acquia, which serves as a commercial vehicle for enabling Drupal open source adoption into enterprise-size organizations, offering support and service level agreements that enterprise users expect.

But the open source community has recently seen two major developments that have fundamentally changed the perception of everything we have to offer. The first being Red Hat reaching the $1 billion USD revenue mark, which provided a huge confidence boost to open source developers that their business model is profitable and can be successful. This landmark achievement will open the floodgates to more developer-focused organizations achieving unprecedented success and puts further pressure on the traditional proprietary vendors that have dominated the IT landscape for so long.

Another landmark announcement is that Microsoft has chosen to move into the open source space, a signal of just how seriously the value of community development has become. Some expected this news to be met with a negative reaction, but the open source community should celebrate the fact that a large proprietary software organization is investing in open source and extend a warm welcome to Microsoft.

With businesses looking for IT solutions that can deliver both innovation and cost savings, there has never been a more exciting time to be involved in open source. With open source businesses reaching the $1billion dollar revenue mark and leading proprietary firms opening up new subsidiaries to invest in open source, the open source community should feel that the best days are still yet to come. Once a fast growing self-contained community, open source is now recognized as a genuine alternative to proprietary software with a serious offering that will empower businesses across the globe.

Continuous services and connected devices

Tue, 26 Oct 2010 09:48:11 -0400

Ray Ozzie, who took over the role of Chief Software Architect at Microsoft when from Bill Gates retired about five years ago, announced recently that he will be retiring soon. When Ozzie first became Chief Software Architect, he wrote a famous 5000-word internal memorandum titled, The Internet Services Disruption. The memo outlined the transformative and disruptive potential of web services.

Ozzie wrote, "The ubiquity of broadband and wireless networking has changed the nature of how people interact, and they're increasingly drawn toward the simplicity of services and service-enabled software that 'just works'. Businesses are increasingly considering what services-based economics of scale might do to help them reduce infrastructure costs or deploy solutions as-needed and on subscription basis.". Ozzie was spot on as this is what today's Software as a Service (SaaS) and Cloud Computer are all about.

Now, five years later, just before he is about to retire, Ozzie wrote another 5000-word memo entitled Dawn of a New Day. In this memo, Ozzie reflects on how Microsoft has been transformed over the past five years with regards to so-called 'services'. Despite many successes, Ozzie acknowledges that for the most part, Microsoft missed the boat on mobile and social software.

More importantly, he also lays out his vision of where things are going in a post-PC world: "To cope with the inherent complexity of a world of devices, a world of websites, and a world of apps and personal data that is spread across myriad devices and websites, a simple conceptual model is taking shape that brings it all together. We're moving toward a world of 1) cloud-based continuous services that connect us all and do our bidding, and 2) appliance-like connected devices enabling us to interact with those cloud-based services."

I spent most of my evening reading both memos. It provides some unique insight about what it means to be Chief Software Architect at one of the largest software companies in the world, as well as how they see the future. In general, I agree with Ozzie's vision of the future as he explains it in his latest memo. The part on complexity also resonated with me. I think the points he makes are very relevant for most of us that make a living with Drupal. Like Ozzie, I think development of this new service-connected world will be neither fast nor easy. However, I think Drupal is uniquely qualified to play a prominent role in such a world. It requires us to make the right decisions, to manage complexity, and to stay on top of our game. Whether you like Microsoft or not, the memo is worth reading.

On Microsoft's anti-Drupal ad

Wed, 16 Dec 2009 11:49:17 -0500

Yesterday, an anti-Drupal ad by Microsoft was spotted in the wild; see the image on the right. The news spread on Twitter like wildfire. I said this was "interesting", not because Microsoft isn't allowed to compete with Drupal but because Microsoft is also promoting Drupal. In fact, I was flattered by the idea that Microsoft considered Drupal worthy of competition. However, it left many of us confused about the fact that Microsoft decided to both partner with Drupal and compete against it.

For me, the interesting part is not whether Microsoft is allowed to compete or not – of course they are allowed to compete. What is interesting to me is the way Microsoft reacted. Within hours, Microsoft had noticed the small Twitter-tsunami, picked up the phone to talk about it, pulled down the ad and publicly apologized for confusing the Drupal community.

This means a lot. It is hard proof that social media like Twitter works, and that Microsoft can be great at listening and responding. It is proof that the web has changed to be more humanized, and that Microsoft understands how to build relationships online. By being transparent and human, and by publicly apologizing, they built some trust with the Drupal community (as reflected in the comments of Mark Brown's blog post), and that might actually influence people's experience with Microsoft. Plus it looks like, at least for now, Microsoft decided to promote Drupal rather than compete with it.

At the end of the day, this was the act of one Microsoft employee in India who was out of sync with the rest of Microsoft. This inevitably happens in big companies. All is good now.

IIS module for Mollom

Mon, 03 Aug 2009 03:10:37 -0400

Zion Security, a Belgium-based company specializing in the security analysis of web sites and systems, has used Mollom's open API to develop a Microsoft IIS module utilizing Mollom to detect and prevent comment and posting spam.

This module is unique in that it is a HTTP module coded for Microsoft IIS, comparable to an Apache module, and allows Mollom to potentially expand to a number of ASP/IIS based systems.

The Mollom IIS module is available as a zipped file for download here and is listed on our downloads page. It checks any submitted form for spam using Mollom's spam detection analysis, and like other Mollom plugins, requires you to obtain a set of registration keys from mollom.com before it can be actively used to protect your ASP-based forms.

Because it is written as a module at the webserver layer, it may be possible to use Mollom's spam-detection and CAPTCHA challenge ability with existing web applications running on IIS (think SharePoint or DotNetNuke). It's an interesting approach and one we haven't really considered ourselves. It will be interesting to see how this develops, and if it sticks.

Microsoft promoting Drupal

Wed, 18 Mar 2009 15:30:00 -0400

Microsoft announced its Web Application Gallery at its annual MIX conference today. The exciting news for many of us is that Drupal is one of the first 10 applications to be included as part of the Web Application Gallery. Other open source applications including Wordpress, SilverStripe, and Gallery also made into the initial group.

The Microsoft Web Application Gallery follows on from last year's Web Application Installer, but it is even better. The Web Application Gallery allows you to browse and discover web applications that install and deploy well on Windows, and offers a simplified download/install experience for these applications and all of Microsoft's free web products that these applications run on. Just click the 'Install' button on the Web Application Gallery and you'll be guided through the installation process. For people running Windows Vista, 2003 Server, XP or Windows 7, the installer automatically configures IIS6 or IIS7 appropriately for PHP and Drupal, installing the required MySQL database and PHP's mod-rewrite rules and required extensions. Note that Drupal does not support Microsoft SQL, and that Microsoft will not automatically install MySQL at this point – the installer prompts users to download and install Windows binaries for MySQL from mysql.com.

Because we believe this is an opportunity to introduce Drupal to hundreds of thousands of new users, Acquia worked with Microsoft to help package Acquia Drupal for the Web Application Gallery. When Microsoft approached us, we were cautious at first, but quickly realized this could be a great opportunity for both Drupal, and the Open Source community at large. We were further encouraged when the Microsoft Web Platform team provided us every resource we needed to get the job done in record time, including dedicating a full-time engineer to work with us. While not perfect in version 1.0 we are encouraged by this new direction.

One interesting aspect of this cooperation is that the actual Drupal code, along with the Web Application Gallery metadata, is all hosted and maintained by Acquia (not by Microsoft). Whenever we roll a new release of Acquia Drupal, the Web Application Gallery will automatically point to the latest version of Acquia Drupal. It is integrated in our testing environment and build loops. In addition, all support for this IIS-friendly Acquia Drupal package can be handled through Acquia's support forums.

This kind of arrangement makes things very scalable for Microsoft. Going forward, anyone will be able to submit their ASP.net and PHP applications for inclusion in the Web Application Gallery. If Microsoft chooses to push this hard, and markets these applications to the millions of Windows developers world-wide, it is likely we'll be seeing hundreds of Free and Open Source applications being added to the Web Application Gallery. Microsoft also told us that they are working on an SDK that will allow third-party applications, such as Plesk and cPanel, to integrate with the Web Application Gallery, enabling their customers to install all the Web Application Gallery software directly on their Windows-based hosting accounts instead of their local desktop.

Microsoft ships Drupal

Wed, 15 Oct 2008 16:00:38 -0400

Microsoft just announced the Web Application Installer. It is an installer designed to help get users of the Windows operating system up and running with some popular web applications. Guess what? It comes with support for Drupal. I don't know enough about their roadmap but this could introduce Drupal to thousands of new users. Oh my!

From the Web Application Installer page:

Web Application Installer provides support for popular ASP.Net and PHP Web applications including Graffiti, DotNetNuke, WordPress, Drupal, OSCommerce and more. With just a few simple clicks, Web Application Installer will check your machine for the necessary pre-requisites, download these applications from their source location in the community, walk you through basic configuration items and then install them on your computer.

I don't have a Windows machine so I can't test it out, but it sounds like a great way for Windows users to explore Drupal. (Hat tip: Jelle Druyts)