Archive for julho \30\UTC 2010

Will cloud computing economics add up for Microsoft?

julho 30, 2010

 
Post de hoje do blog http://www.zdnet.com!

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Will cloud computing economics add up for Microsoft?

By Larry Dignan | July 30, 2010, 3:00am PDT

Microsoft at its financial analyst meeting made the case for being a cloud computing leader and argued that its economic prospects will improve as information technology shifts to an on-demand model.

The big question: Do you buy the argument that cloud computing will accelerate Microsoft’s earnings and revenue growth? Let’s face it: Every software vendor is talking cloud computing, but the economic theory is that it’s better to cannibalize your own business than allow some rival to do it. Few established software vendors have argued that the cloud will gussy up their financial metrics.

Microsoft CFO Peter Klein, however, made the case that cloud computing is going to be big business, improve the company’s gross margins, cut costs and bring in more customers. And, as noted by Altimeter partner Ray Wang, Klein did a decent job putting cloud computing in financial terms. It’s too early to put any hard data around Microsoft’s nascent Azure efforts, but Klein said that the software giant could grab a bigger piece of the enterprise IT pie. After all, the historical dividing lines between vendors—software, hardware, networking and storage—are melting away.

So how’s Microsoft going to harness the cloud for financial gain? Klein had a few big themes to ponder:

The cloud opens up a broader IT spending pie.
In cloud computing, software, hardware and services blend together. You don’t buy servers. You buy capacity. Klein said:

Obviously, the total global IT spend, which we’re going to address more of now in the cloud world, is much bigger.  And so obviously at a high level is an incredible opportunity for the cloud to have us address a much larger piece of the IT market.

Microsoft can sell to more users. Klein talked a lot about how cloud computing can allow Microsoft to be more of a player for midmarket companies that don’t have the resources to implement a SharePoint infrastructure. Klein said:

[The cloud] allows us to sell to more users. This could either be new customers that we don’t serve today or new users within existing customers today. So, this is greenfield incremental opportunity selling to users that today don’t have Microsoft products.

He continued:

And with business users, I want to start with the mid-market segment.  Historically, while the mid-market has been a very attractive market for us, it also poses some challenges.  Number one, it’s highly fragmented, and number two, there’s a little bit of a gap between the needs and desires in terms of IT capabilities that mid-market companies have and the resources and expertise they have to deliver those capabilities.  In some sense, you could say a mid-market company has the needs of enterprise IT but the capability of a much smaller business. The cloud really solves that problem by bringing cost-effective, easy-to-deploy technology solutions to mid-market customer in ways they can’t today.

Delivering software via the cloud will improve gross margins by lowering costs for Microsoft and customers. The automation of deployments, configuration and ongoing maintenance will cut costs for all parties. There are also hardware savings. Klein said:

Interestingly, the one thing I want to point out on this, the 10 percent savings is net of what an organization would pay us for the Azure service.  So, it’s the net of what they would pay more, in addition to the licenses and for the service, and on top of that there’s 10 percent savings.  And again, given the one instance that you’re running, given the automation, you reduce support costs.  It’s actually a good thing for not only the customer but for Microsoft.  And you add all that up and that’s a 30 percent savings, again, net of what Microsoft would make for the existing software license, plus gross margin on the service.

The cloud makes it easier for Microsoft to garner “competitive migrations”—essentially poaching customers from rivals. “All that revenue is brand new and incremental to our bottom line,” said Klein.

Microsoft can make a “pretty smooth” transition to the cloud and lower costs of goods sold (COGS) and improve gross margins from the 80 percent mark today, said Klein. For comparison’s sake, Salesforce.com’s gross margins are roughly 82 percent and Oracle’s is projected to have margins in the 75 percent range (down from 80 percent due to its Sun hardware business). The pace of this transition remains to be seen, but Microsoft is confident. He said:

We spent a lot of time thinking, both from a sales and revenue perspective, and a sort of build-out perspective, how do we smooth out the impact of that.  And I think we’ve got — we’ve done some great work on the sales side for our customers in particular to provide a smooth transition from sort of our existing business models to the cloud model.

And from a margin perspective in terms of the COGS, I think, number one, we’re able to sort of leverage all the investments we make across the company in datacenter technology, which provides good scale for us and ability to smooth.  And we’ve done a lot of work to plan out how we think about datacenter build-out, how we get really smooth about how we just get it right in front of sort of the demand.  So, we’ve done a much better job in forecasting demand and then making out build plans on datacenter.  So, both from the revenue side, I think we’ve got some good licensing plans to make that smoother, and then from the COGS side — unless there’s sort of just dramatic spikes, which of course I think will cause COGS to go up.  I think we can smooth that out pretty well.

There were a few missing elements. Klein wasn’t specific about estimates for margin improvement and percentages on future growth, but it’s too early for that level of detail. Add it up and Microsoft’s case for cloud economics was a lot more fleshed out than details provided by other software companies.

More from Microsoft’s analyst meeting:

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet’s sister site TechRepublic.

Cloud Services with Windows Azure – Part 1

julho 28, 2010

Post de hoje do blog http://www.sys-con.com!

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Cloud Services with Windows Azure – Part 1
Cloud computing in relation to SOA and Windows Azure
By: Thomas Erl
Jul. 28, 2010 08:00 AM

For a complete list of the co-authors and contributors, see the end of the article. 

Microsoft’s Software-plus-Services strategy represents a view of the world where the growing feature-set of devices and the increasing ubiquity of the Web are combined to deliver more compelling solutions. Software-plus-Services represents an evolutionary step that is based on existing best practices in IT and extends the application potential of core service-orientation design principles. 

Microsoft’s efforts to embrace the Software-plus-Services vision are framed by three core goals: 

  • User experiences should span beyond a single device
  • Solution architectures should be able to intelligently leverage and integrate
    on-premise IT assets with cloud assets
  • Tightly coupled systems should give way to federations of cooperating systems and loosely coupled compositions

The Windows Azure platform represents one of the major components of the Software-plus-Services strategy, as Microsoft’s cloud computing operating environment, designed from the outset to holistically manage pools of computation, storage and networking; all encapsulated by one or more services. 

Cloud Computing 101
Just like service-oriented computing, cloud computing is a term that represents many diverse perspectives and technologies. In this book, our focus is on cloud computing in relation to SOA and Windows Azure. 

Cloud computing enables the delivery of scalable and available capabilities by leveraging dynamic and on-demand infrastructure. By leveraging these modern service technology advances and various pervasive Internet technologies, the “cloud” represents an abstraction of services and resources, such that the underlying complexities of the technical implementations are encapsulated and transparent from users and consumer programs interacting with the cloud. 

At the most fundamental level, cloud computing impacts two aspects of how people interact with technologies today: 

  • How services are consumed
  • How services are delivered

Although cloud computing was originally, and still often is, associated with Web-based applications that can be accessed by end-users via various devices, it is also very much about applications and services themselves being consumers of cloud-based services. This fundamental change is a result of the transformation brought about by the adoption of SOA and Web-based industry standards, allowing for service-oriented and Web-based resources to become universally accessible on the Internet as on-demand services. 

One example has been an approach whereby programmatic access to popular functions on Web properties is provided by simplifying efforts at integrating public-facing services and resource-based interactions, often via RESTful interfaces. This was also termed “Web-oriented architecture” or “WOA,” and was considered a subset of SOA. Architectural views such as this assisted in establishing the Web-as-a-platform concept, and helped shed light on the increasing inter-connected potential of the Web as a massive collection (or cloud) of ready-to-use and always-available capabilities. 

This view can fundamentally change the way services are designed and constructed, as we reuse not only someone else’s code and data, but also their infrastructure resources, and leverage them as part of our own service implementations. We do not need to understand the inner workings and technical details of these services; Service Abstraction (696), as a principle, is applied to its fullest extent by hiding implementation details behind clouds. 

SOA Principles and Patterns
There are several SOA design patterns that are closely related to common cloud computing implementations, such as Decoupled Contract [735], Redundant Implementation [766], State Repository [785], and Stateful Services [786]. In this and subsequent chapters, these and other patterns will be explored as they apply specifically to the Windows Azure cloud ­platform. 

With regards to service delivery, we are focused on the actual design, development, and implementation of cloud-based services. Let’s begin by establishing high-level characteristics that a cloud computing environment can include: 

  • Generally accessible
  • Always available and highly reliable
  • Elastic and scalable
  • Abstract and modular resources
  • Service-oriented
  • Self-service management and simplified provisioning

Fundamental topics regarding service delivery pertain to the cloud deployment model used to provide the hosting environment and the service delivery model that represents the functional nature of a given cloud-based service. The next two sections explore these two types of models. 

Cloud Deployment Models
There are three primary cloud deployment models. Each can exhibit the previously listed characteristics; their differences lie primarily in the scope and access of published cloud services, as they are made available to service consumers. 

Let’s briefly discuss these deployment models individually. 

Public Cloud
Also known as external cloud or multi-tenant cloud, this model essentially represents a cloud environment that is openly accessible. It generally provides an IT infrastructure in a third-party physical data center that can be utilized to deliver services without having to be concerned with the underlying technical complexities. 

Essential characteristics of a public cloud typically include: 

  • Homogeneous infrastructure
  • Common policies
  • Shared resources and multi-tenant
  • Leased or rented infrastructure; operational expenditure cost model
  • Economies of scale and elastic scalability

Note that public clouds can host individual services or collections of services, allow for the deployment of service compositions, and even entire service inventories. 

Private Cloud
Also referred to as internal cloud or on-premise cloud, a private cloud intentionally limits access to its resources to service consumers that belong to the same organization that owns the cloud. In other words, the infrastructure that is managed and operated for one organization only, primarily to maintain a consistent level of control over security, privacy, and governance. 

Essential characteristics of a private cloud typically include: 

  • Heterogeneous infrastructure
  • Customized and tailored policies
  • Dedicated resources
  • In-house infrastructure (capital expenditure cost model)
  • End-to-end control

Community Cloud
This deployment model typically refers to special-purpose cloud computing environments shared and managed by a number of related organizations participating in a common domain or vertical market. 

Other Deployment Models
There are variations of the previously discussed deployment models that are also worth noting. The hybrid cloud, for example, refers to a model comprised of both private and public cloud environments. The dedicated cloud (also known as the hosted cloud or virtual private cloud) represents cloud computing environments hosted and managed off-premise or in public cloud environments, but dedicated resources are provisioned solely for an organization’s private use. 

The Intercloud (Cloud of Clouds)
The intercloud is not as much a deployment model as it is a concept based on the aggregation of deployed clouds (Figure 8.1). Just like the Internet, which is a network of networks; intercloud refers to an inter-connected global cloud of clouds. Also like the World Wide Web, intercloud represents a massive collection of services that organizations can explore and consume. 

 

Figure 1: Examples of how vendors establish a commercial intercloud 

From a services consumption perspective, we can look at the intercloud as an on-demand SOA environment where useful services managed by other organizations can be leveraged and composed. In other words, services that are outside of an organization’s own boundaries and operated and managed by others can become a part of the aggregate portfolio of services of those same organizations. 

Deployment Models and Windows Azure
Windows Azure exists in a public cloud. Windows Azure itself is not made available as a packaged software product for organizations to deploy into their own IT enterprises. However, Windows Azure-related features and extensions exist in Microsoft’s on-premise software products, and are collectively part of Microsoft’s private cloud strategy. It is important to understand that even though the software infrastructure that runs Microsoft’s public cloud and private clouds are different, layers that matter to end-user organizations, such as management, security, integration, data, and application are increasingly consistent across private and public cloud environments. 

Service Delivery Models
Many different types of services can be delivered in the various cloud deployment environments. Essentially, any IT resource or function can eventually be made available as a service. Although cloud-based ecosystems allow for a wide range of service delivery models, three have become most prominent: 

Infrastructure-as-a-Service (IaaS)
This service delivery model represents a modern form of utility computing and outsourced managed hosting. IaaS environments manage and provision fundamental computing resources (networking, storage, virtualized servers, etc.). This allows consumers to deploy and manage assets on leased or rented server instances, while the service providers own and govern the underlying infrastructure. 

Platform-as-a-Service (PaaS)
The PaaS model refers to an environment that provisions application platform resources to enable direct deployment of application-level assets (code, data, configurations, policies, etc.). This type of service generally operates at a higher abstraction level so that users manage and control the assets they deploy into these environments. With this arrangement, service providers maintain and govern the application environments, server instances, as well as the underlying infrastructure. 

Software-as-a-Service (SaaS)
Hosted software applications or multi-tenant application services that end-users consume directly correspond to the SaaS delivery model. Consumers typically only have control over how they use the cloud-based service, while service providers maintain and govern the software, data, and underlying infrastructure. 

Other Delivery Models
Cloud computing is not limited to the aforementioned delivery models. Security, governance, business process management, integration, complex event processing, information and data repository processing, collaborative processes-all can be exposed as services and consumed and utilized to create other services. 

Note: Cloud deployment models and service delivery models are covered in more detail in the upcoming book SOA & Cloud Computing as part of the Prentice Hall Service-Oriented Computing Series from Thomas Erl. This book will also introduce several new design patterns related to cloud-based service, composition, and platform design. 

IaaS vs. PaaS
In the context of SOA and developing cloud-based services with Windows Azure, we will focus primarily on IaaS and PaaS delivery models in this chapter. Figure 8.2 illustrates a helpful comparison that contrasts some primary differences. Basically, IaaS represents a separate environment to host the same assets that were traditionally hosted on-premise, whereas PaaS represents environments that can be leveraged to build and host next-generation service-oriented solutions. 

 

Figure 2: Common Differentiations Between Delivery Models 

We interact with PaaS at a higher abstraction level than with IaaS. This means we manage less of the infrastructure and assume simplified administration responsibilities. But at the same time, we have less control over this type of environment. 

IaaS provides a similar infrastructure to traditional on-premise environments, but we may need to assume the responsibility to re-architect an application in order to effectively leverage platform service clouds. In the end, PaaS will generally achieve a higher level of scalability and reliability for hosted services. 

An on-premise infrastructure is like having your own car. You have complete control over when and where you want to drive it, but you are also responsible for its operation and maintenance. IaaS is like using a car rental service. You still have control over when and where you want to go, but you don’t need to be concerned with the vehicle’s maintenance. PaaS is more comparable to public transportation. It is easier to use as you don’t need to know how to operate it and it costs less. However, you don’t have control over its operation, schedule, or routes. 

Summary  

  • Cloud computing enables the delivery of scalable and available capabilities by leveraging dynamic and on-demand infrastructure.
  • There are three common types of cloud deployment models: public cloud, private cloud, and community cloud.
  • There are three common types of service delivery models: IaaS, PaaS, and SaaS.

•   •   • 

This excerpt is from the book, “SOA with .NET & Windows Azure: Realizing Service-Orientation with the Microsoft Platform”, edited and co-authored by Thomas Erl, with David Chou, John deVadoss, Nitin Ghandi, Hanu Kommapalati, Brian Loesgen, Christoph Schittko, Herbjörn Wilhelmsen, and Mickie Williams, with additional contributions from Scott Golightly, Daryl Hogan, Jeff King, and Scott Seely, published by Prentice Hall Professional, June 2010, ISBN 0131582313, Copyright 2010 SOA Systems Inc. For a complete Table of Contents please visit: www.informit.com/title/0131582313 

Authors
David Chou is a technical architect at Microsoft and is based in Los Angeles. His focus is on collaborating with enterprises and organizations in such areas as cloud computing, SOA, Web, distributed systems, and security. 

John deVadoss leads the Patterns & Practices team at Microsoft and is based in Redmond, WA. 

Thomas Erl is the world’s top-selling SOA author, series editor of the Prentice Hall Service-Oriented Computing Series from Thomas Erl (www.soabooks.com), and editor of the SOA Magazine (www.soamag.com). 

Nitin Gandhi is an enterprise architect and an independent software consultant, based in Vancouver, BC. 

Hanu Kommalapati is a Principal Platform Strategy Advisor for a Microsoft Developer and Platform Evangelism team based in North America. 

Brian Loesgen is a Principal SOA Architect with Microsoft, based in San Diego. His extensive experience includes building sophisticated enterprise, ESB and SOA solutions. 

Christoph Schittko is an architect for Microsoft, based in Texas. His focus is to work with customers to build innovative solutions that combine software + services for cutting edge user experiences and the leveraging of service-oriented architecture (SOA) solutions. 

Herbjörn Wilhelmsen is a consultant at Forefront Consulting Group, based in Stockholm, Sweden. His main areas of focus are Service-Oriented Architecture, Cloud Computing and Business Architecture. 

Mickey Williams leads the Technology Platform Group at Neudesic, based in Laguna Hills, 

Contributors
Scott Golightly is currently an Enterprise Solution Strategist with Advaiya, Inc; he is also a Microsoft Regional Director with more than 15 years of experience helping clients to create solutions to business problems with various technologies. 

Darryl Hogan is an architect with more than 15 years experience in the IT industry. Darryl has gained significant practical experience during his career as a consultant, technical evangelist and architect. 

As a Senior Technical Product Manager at Microsoft, Kris works with customers, partners, and industry analysts to ensure the next generation of Microsoft technology meets customers’ requirements for building distributed, service-oriented solutions. 

Jeff King has been working with the Windows Azure platform since its first announcement at PDC 2008 and works with Windows Azure early adopter customers in the Windows Azure TAP 

Scott Seely is co-founder of Tech in the Middle, www.techinthemiddle.com, and president of Friseton, LLC,Published Jul. 28, 2010— Reads 627
Copyright © 2010 SYS-CON Media, Inc. — All Rights Reserved.
Syndicated stories and blog feeds, all rights reserved by the author.

About Thomas Erl
Thomas Erl is the world’s top-selling SOA author and Series Editor of the Prentice Hall Service-Oriented Computing Series from Thomas Erl (www.soabooks.com). With over 100,000 copies in print worldwide, his books have become international bestsellers and have been formally endorsed by senior members of major software organizations, such as IBM, Microsoft, Oracle, BEA, Sun, Intel, SAP, CISCO, and HP. His most recent titles – SOA Design Patterns and Web Service Contract Design and Versioning for SOA – were co-authored with a series of industry experts and follow his first three books Service-Oriented Architecture: A Field Guide to Integrating XML and Web Services, Service-Oriented Architecture: Concepts, Technology, and Design, and SOA Principles of Service Design. Thomas is currently working with over 20 authors on a number of upcoming titles, including SOA Governance, SOA with .NET, SOA with Java, ESB Architecture for SOA, and SOA with REST. He is also overseeing the SOAPatterns.org initiative, a community site dedicated to the on-going development of SOA patterns. Thomas is the founder of SOA Systems Inc. (www.soasystems.com), a company specializing in vendor-neutral SOA consulting and training services. He is also the founder of the internationally recognized SOA Certified Professional program (www.soacp.com and http://www.soaschool.com). Thomas is a speaker and instructor for private and public events and is regularly invited to Gartner summits. He has delivered many workshops and keynote speeches, and is on the program committee for the International SOA Symposium. Articles and interviews by Thomas have been published in numerous publications, including SOA World Magazine, The Wall Street Journal and CIO Magazine. For more information, visit www.thomaserl.com.

SaaS Revenue Growth Set to Leapfrog Packaged Software by 2014

julho 27, 2010

Post do blog http://www.phoneplusmag.com!

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SaaS Revenue Growth Set to Leapfrog Packaged Software by 2014

Yesterday by Doug Allen, Senior Editor

The SaaS market is poised to jump from $13.1 billion in global revenue last year to $40.5 billion by 2014, a compound annual growth rate of 25.3 percent, according to a report by IDC. What does that mean? Diminishing returns for the old software sales model, shipped by CD, which IDC expects to drop to 15 percent of net-new software sales by 2012; that means 85 percent of these offerings will be cloud-based, while more established ISVs will move to SaaS delivery by 2014. At that point, SaaS will represent more than one-third of total new business software purchases, at 34 percent, and cloud-based software delivery will make up about 14.5 percent of global software revenue across all primary markets.

“The SaaS model has become mainstream, and is quickly coming to dominate the planning – from R&D, to sales quotas, to partnering, channels and distribution – of all software and services vendors,” said Robert Mahowald, vice president, SaaS and Cloud Services research at IDC. “Enterprise IT plans are rapidly shifting to accommodate the growing choices for sourcing most or all IT software functions, from business applications to software development and testing, to service and desktop management, as SaaS services become available from established vendors and new models for accessing functionality in the cloud creates lower-cost options and more tailored models for consuming IT services.”

The rise in SaaS will also lead the software industry to adopt more subscription-based models, causing a permanent disconnect in the way companies license their software. With the decline of traditional, packaged software and perpetual license revenue, there may be little choice; this shift will cause worldwide license revenue to drop by almost $7 billion this year. In addition, the SaaS market will expand to other cloud-based domains, such as infrastructure and application development and deployment (PaaS). By 2014, applications will drive over half of total market revenue, as international user adoption picks up.

The numbers may be different, but market consultancy Gartner certainly validated this trend from the end-user side in a recent report, forecasting global SaaS revenues for the enterprise market to surpass $8.5 billion this year. That’s up 14.1 percent from last year’s $7.5 billion. SaaS adoption has been so fast that it has driven growth to varying degrees across much of the enterprise software markets, leading to an increase in total SaaS revenues from just over 10 percent of these combined markets last year, to more than 16 percent by 2014.

Gartner estimates the cloud accounts for 75 percent of today’s SaaS delivery revenue; as business models mature, the total for the broader SaaS market could surpass 90 percent by 2014. It’s been a while coming, Sharon Mertz, research director at Gartner says; SaaS really only began to take off about five years ago, but today, many businesses have begun to resolve key concerns about hosted services, particularly security, response time, and service availability.

According to the Gartner report, even though SaaS overall is doing quite well, deployment levels vary widely between the broader enterprise application markets and specific market segments, depending on buyer demand and applicability of a particular app. Some sectors are booming, such as the project and portfolio management SaaS market, and customer relationship management SaaS, which pulled in almost 24 percent of the total revenue for that market last year; that number is expected to creep up to 26 percent this year. Similarly, Web conferencing SaaS accounted for roughly 82 percent of the market in 2009. By comparison, enterprise content management SaaS brought in a miserly 4 percent for the same period.

Cloud Computing: The Next Bubble?

julho 26, 2010

Post do blog http://seekingalpha.com!

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Cloud Computing: The Next Bubble?

Adib Motiwala

July 25, 2010

Cloud computing in simple terms is internet based computing. Software as a Service (SaaS) is software that is deployed and accessed over the internet. Saas is also called “software on demand”. Both these technologies are the rage nowadays. Companies that directly or indirectly operate in this space are considered the next Microsoft (MSFT) and Google (GOOG). Both Microsoft and Google are also creating products and services that will be delivered as a service and over the ‘cloud’ if you will. You may have heard about Google Docs which is similar to Microsoft Office; instead you access it via your browser from anywhere in the world. As a regular user of Google Docs and being in the IT profession, I can certainly appreciate the value of such services. Let us take a look at four companies whose business models are related in some way to cloud computing.

Two big and popular names that sport large market caps:

First up we have Salesforce.com. “salesforce.com, inc. provides customer and collaboration relationship management (CRM) services to businesses and industries worldwide.” Salesforce.com was founded in 1999.

Then we have VMware. “VMware, Inc. provides virtualization infrastructure software solutions and related support and services primarily in the United States.” VMware is a subsidiary of EMC corporation (EMC).

And two smaller and relatively less known names:

“Taleo Corporation provides on-demand talent management software solutions”. It was incorporated in 1999.

“Concur Technologies, Inc. provides on-demand employee expense management solutions worldwide.” Concur was founded in 1993.

Now, let’s take a look at their valuations and other financial numbers.

Salesforce.com (CRM) VMware (VMW) Concur Tech (CNQR) Taleo (TLEO)
Market Cap 11.98 billion 29.57 billion 2.24 billion 998 million
Sales 1.38 billion 2.19 billion 267.5 million 205.4 million
P/E 151 143 88.8 209
P/E (2012e) 61 46 46.8 26.7
PEG 3 2.62 2.47 1.46
P/FCF 45 32 40 28
EV/S 8.4 12.5 8.24 3.7
EV/EBITDA 70 77.6 33.9 27.74
5 year median ROE 5% 14% 6.6% -3.4%
5 year median Op Margin 3.7% 17.4% 9% -2.5%
5 year median sales growth 51.5% 69.4% 36.6% 28.5%
5 year median EPS growth 13.4% 67.6% 35.1% n/a
5 year median OCF growth 41% 42.6% 77.1% n/a

Data sources: Yahoo Finance, Old School Value spreadsheets (the 5 year median numbers are computed by measuring the metric across different spans of the 5 year period and then taking the median of all those numbers)

I am left speechless looking at these valuations. Yes, I notice that all the above companies have demonstrated excellent top line growth as shown by the 5 year median sales growth number. All these companies with the exception of Taleo have shown good to excellent earnings growth and cash flow growth.

However, when I look what investors are paying for these ‘growth’ companies, it makes me think of the valuations in the crazy days of dot.coms in 1999-2000. One thing going for these companies compared to most of the companies that dot.bombed is that they are profitable and have been around for several years. They have grown sales and earnings.

PEG

I can understand that ‘growth’ investors look at their sales growth and are excited. However, looking at the PEG ratio (which is a ratio of P/E to the expected growth rate), you will see that investors are paying way too much for growth. Peter Lynch who made the PEG ratio popular would look at companies where the PEG ratio was less than 1. He reasoned that means that even though the P/E seemed high, if he could get growth for less than the earnings multiple, it was a decent investment.

EV / Sales

I presented the EV / Sales number to show the high multiples being paid on the sales of these companies. For comparison, the EV / Sales for Apple (AAPL) is 4 and for Google is 4.7

P/E

And finally, the P/E ratios are just mind boggling. I know some people will say that these numbers are based on depressed sales and earnings and that when times are better, these numbers will look better and come down really fast. I do not doubt that the P/E ratios will come down. How much the P/E ratios will come down due to earnings (E) growing faster than the stock price (P) or due to P/E compression remains to be seen.

My Conclusion

All of the above companies could very well have excellent products and services. They could turn out to be great businesses as well. However, I am not sure if these companies are good investments at these levels. There will always be plenty of investors seeking out ‘growth’ by chasing the next hot stock / sector of the day / week / month without paying attention to the valuation or the fundamentals. However, investors who stay disciplined and invest in good businesses trading below their worth and with a margin of safety should continue to be rewarded.

Disclosure: I have long positions in GOOG and MSFT. I do not have any positions in CRM, VMW, CNQR, TLEO and AAPL.

Adib Motiwala is an MBA candidate with a concentration in Finance at the University of Texas at Dallas. He is employed as a software developer and has 10 years of experience in the IT industry. He manages his own portfolio and has a value investing bent. He writes on his blog at http://adibmotiwala.blogspot.com

MSFT earnings up, stock down. What do investors want?

julho 24, 2010

Post de ontem do blog de Don Dodge (http://www.dondodge.typepad.com/), que é ex-Microsoft,  sobre sua ex-empresa!

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MSFT earnings up, stock down. What do investors want?

Microsoft reported record revenues and profits for the quarter and fiscal year. Yet, the stock (MSFT) is down again. What does Wall Street want from Microsoft? I think the problem is that Microsoft still considers itself a growth company, while Wall Street considers it a Blue Chip stock that should pay a higher dividend. Take a look at this 5 year graph of MSFT. The stock price is just about exactly where it was 5 years ago.

msft5year

Now look at Microsoft financial results five years ago. They had revenues of $39.8 Billion, Net Income of $12.2B, and Earnings Per Share of $1.12. They had $37.7B in cash. For 2010 Microsoft reported revenues of $62.5B, Net Income of $18.8B, and EPS of $2.10, with $36.8B in the bank. Revenues and earnings are up about 50%, and earnings per share are up nearly 100% due to stock buy-backs. Those are impressive increases across the board, yet the stock price hasn’t moved. Why?

Wall Street prices stocks based on future potential, not past results. High growth stocks typically sell for 25 to 35 times earnings. Microsoft has a price to earnings ratio (P/E) of just 13.7, very low for a leading technology stock. By comparison, Apple (AAPL) sells for 22 times earnings. Therein lies the problem. Comparisons.

Investors have many choices in where to put their money. Comparing Apple to Microsoft in terms of future growth prospects, product pipeline, and most importantly, pricing power, Apple wins. Microsoft is a consistent power house, growing revenues and earnings every quarter, but not enough to satisfy the growth needs of investors.

Wall Street views Microsoft more like IBM, a stable Blue Chip stock with a nice dividend. IBM’s P/E is 12 versus MSFT’s 13.7. IBM’s dividend yield is 2.0% identical to MSFT’s 2.0% yield. Wall Street came to the conclusion that Microsoft is a Blue Chip ten years ago. This chart of the past 24 years tells the story. Microsoft was a growth stock from 1986 to 2000. But, the past 10 years it has flat lined.

msft24year

Maybe Microsoft should accept Wall Street’s conclusion that it is really a Blue Chip stock and stop acting like it is a growth stock. Maybe they should listen to Mini-Microsoft and cut expenses significantly, focus their product development efforts, and increase their dividend.

Blunders like the Microsoft Kin phone that cost them $500M, and billions more poured into Bing search efforts, don’t contribute to growth or profits. Billions more spent on acquisitions that didn’t work out are another big drain on cash and profits. Microsoft doesn’t need to do anything fancy. Imagine what the financial results would be if they stripped away all the needless spending in pursuit of elusive growth. Imagine how much cash they would have available to pay dividends to investors if they didn’t keep spending billions on questionable acquisitions. Microsoft spends billions every year on pure research in labs all over the world. It is hard to trace any of that spending to commensurate revenue increases.

Wall Street has concluded that MSFT is a Blue Chip, and hasn’t changed its mind in 10 years. Microsoft is still investing and acting like it is a growth company. Something has got to change. Don’t bet on Wall Street changing. Your move Microsoft.

Disclosure: I don’t own any Microsoft stock. I sold it all last year. However, I do wish the best for all Microsoft employees and shareholders.

ICT’s Effect on the Demand for Skills

julho 23, 2010

 Novo paper do NBER- national Bureau of Economic Research, dos EUA!

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Technology’s Effect on the Demand for Skills

If information and communication technologies (ICT) complement the analytical tasks primarily performed by highly educated workers and substitute for the routine tasks generally performed by middle educated workers — but have little effect on low educated workers who perform manual non-routine tasks — then ICT can explain the observed polarization in the labor market. Using industry-level data on the U.S., Japan, and nine European countries from 1980-2004, co-authors Guy Michaels, Ashwini Natraj, and John Van Reenen confirm that industries with faster growth of ICT saw greater increases in relative demand for high educated workers and larger declines in relative demand for middle educated workers. Technologies can account for up to one fourth of the growth in demand for the college educated in the quarter century since 1980, they conclude.
Abstract
 
Has ICT Polarized Skill Demand? Evidence from Eleven Countries over 25 years
Guy Michaels, Ashwini Natraj, John Van Reenen
NBER Working Paper No. 16138
Issued in June 2010
NBER Program(s):   ITI   LS   PR

OECD labor markets have become more “polarized” with employment in the middle of the skill distribution falling relative to the top and (in recent years) also the bottom of the skill distribution. We test the hypothesis of Autor, Levy, and Murnane (2003) that this is partly due to information and communication technologies (ICT) complementing the analytical tasks primarily performed by highly educated workers and substituting for routine tasks generally performed by middle educated workers (with little effect on low educated workers performing manual non-routine tasks). Using industry level data on the US, Japan, and nine European countries 1980-2004 we find evidence consistent with ICT-based polarization. Industries with faster growth of ICT had greater increases in relative demand for high educated workers and bigger falls in relative demand for middle educated workers. Trade openness is also associated with polarization, but this is not robust to controls for technology (like R&D). Technologies can account for up to a quarter of the growth in demand for the college educated in the quarter century since 1980.

This paper is available as PDF (635 K) or via email.

Social networks and statehood

julho 23, 2010

 Matéria da nova revista The Economist!

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Social networks and statehood
The future is another country

Despite its giant population, Facebook is not quite a sovereign state—but it is beginning to look and act like one

Jul 22nd 2010 | berlin and san francisco  

A COUPLE of months or so after becoming Britain’s prime minister, David Cameron wanted a few tips from somebody who could tell him how it felt to be responsible for, and accountable to, many millions of people: people who expected things from him, even though in most cases he would never shake their hands. 

He turned not to a fellow head of government but to…Mark Zuckerberg, the founder and boss of Facebook, the phenomenally successful social network. (It announced on July 21st that it had 500m users, up from 150m at the start of 2009.) In a well-publicised online video chat this month, the two men swapped ideas about ways for networks to help governments. Was this just a political leader seeking a spot of help from the private sector—or was it more like diplomacy, a comparison of notes between the masters of two great nations? 

In some ways, it might seem absurd to call Facebook a state and Mr Zuckerberg its governor. It has no land to defend; no police to enforce law and order; it does not have subjects, bound by a clear cluster of rights, obligations and cultural signals. Compared with citizenship of a country, membership is easy to acquire and renounce. Nor do Facebook’s boss and his executives depend directly on the assent of an “electorate” that can unseat them. Technically, the only people they report to are the shareholders. 

But many web-watchers do detect country-like features in Facebook. “[It] is a device that allows people to get together and control their own destiny, much like a nation-state,” says David Post, a law professor at Temple University. If that sounds like a flattering description of Facebook’s “groups” (often rallying people with whimsical fads and aversions), then it is worth recalling a classic definition of the modern nation-state. As Benedict Anderson, a political scientist, put it, such polities are “imagined communities” in which each person feels a bond with millions of anonymous fellow-citizens. In centuries past, people looked up to kings or bishops; but in an age of mass literacy and printing in vernacular languages, so Mr Anderson argued, horizontal ties matter more. 

So if newspapers and tatty paperbacks can create new social and political units, for which people toil and die, perhaps the latest forms of communication can do likewise. In his 2006 book “Code: Version 2.0”, a legal scholar, Lawrence Lessig noted that online communities were transcending the limits of conventional states—and predicted that members of these communities would find it “difficult to stand neutral in this international space”. 

To many, that forecast still smacks of cyber-fantasy. But the rise of Facebook at least gives pause for thought. If it were a physical nation, it would now be the third most populous on earth. Mr Zuckerberg is confident there will be a billion users in a few years. Facebook is unprecedented not only in its scale but also in its ability to blur boundaries between the real and virtual worlds. A few years ago, online communities evoked fantasy games played by small, geeky groups. But as technology made possible large virtual arenas like Second Life or World of Warcraft, an online game with millions of players, so the overlap between cyberspace and real human existence began to grow. 

From the users’ viewpoint, Facebook can feel a bit like a liberal polity: a space in which people air opinions, rally support and right wrongs. What about the view from the top? Is Facebook a place that needs governing, just as a country does? Brad Burnham of Union Square Ventures, a venture-capital firm, has argued that the answer is yes. In the spirit of liberal politics, he thinks the job of Facebook’s managers is to create a space in which citizens and firms feel comfortable investing their time and money to create things. 

Facebook has certainly tried to guide the development of its online economy, almost in the way that governments seek to influence economic activity in the real world, through fiscal and monetary policy. Earlier this year the firm said it wanted applications running on its platform to accept its virtual currency, known as Facebook Credits. It argued that this was in the interests of Facebook users, who would no longer have to use different online currencies for different applications. But this infuriated some developers, who resent the fact that Facebook takes a 30% cut on every transaction involving credits. 

Like any ruling elite that knows it relies on the consent from the ruled, Facebook seeks advice from its members on questions of governance. It allows users to vote on proposed changes to its terms of service, and it holds online forums to solicit views on future policies. And like any well-intentioned politico, Facebook makes blunders: its members were infuriated earlier this year by changes to its policy that made public some previously private information. If Mr Zuckerberg achieves his goal of creating the world’s favourite “social utility”, he may need to give users a more formal say—a bit like a constitution. 

Experience shows that networks which neglect governance pay a price. Take MySpace, which was once much bigger than Facebook: its growth stalled a couple of years ago when its managers let the site become too disorderly. There is a thin line, it seems, between the freedom that spurs creativity and a free-for-all. 

For now at least, real governments still have some aces; they can simply pull the plug on the service. Facebook is blocked in China, and in May it was temporarily cut off in Pakistan, under a court ruling about a page that advertised a contest to draw the Prophet Muhammad. Perhaps Facebook is less a nation than a giant transnational movement—comparable to the Red Cross or the Catholic church—which has an overarching aim and can speak to governments on something like equal terms. 

As Facebook’s masters present it, their mission is just to make the world more open and connected—and bring closer the “global village” predicted in the 1960s by Marshall McLuhan, a futurologist they love. Their claim to be accelerators has some force. Facebook’s success “raises a lot of issues that we thought were a generation away,” says Edward Castronova, a professor at Indiana University. One of them is how much impact virtual economies and currencies will have on real world ones. The Chinese government has repeatedly curbed virtual currencies. Last year it banned their use to buy real-world goods and services, in part because of concerns about the impact on the yuan. 

Facebook may also influence how governments supply services, and compete to provide them. For instance, the firm allows members to use their Facebook profiles to log into other sites around the web, creating a sort of passport. A similar facility could help people on the move retain access to government services. And then there is the question of how social networks will change politics. Clearly, they help to stimulate discussion and marshal action, and they let governments trawl for and test proposals. When Messrs Cameron and Zuckerberg conferred, the main topic was how to get new ideas for cutting public spending. 

Like many diplomatic relationships, theirs was fickle. Days after the chat, Facebook was rebuked by the British government for allowing tributes to a murderer to be posted. The firm refused to remove the offending page, which was later taken down by its creator. “Facebook is a place where people can express their views and discuss things in an open way, as they can and do in many other places,” it said. Mr Zuckerberg may not have any territory, but he was determined to stand his ground. 

International 

Small Percentage of Small Businesses Know About Cloud Computing

julho 21, 2010

Post do blog http://voip-software.tmcnet.com!

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July 20, 2010

Small Percentage of Small Businesses Know About Cloud Computing

 

By Anuradha Shukla
TMCnet Contributor

 

For the techno-savvy people “cloud computing” is not something strange. But you will be astonished to know that some small business are totally unaware about cloud computing. A recent survey on small business within the United States, United Kingdom, Germany, Italy and Brazil, shows that only 37 percent of small businesses have heard about cloud computing.

The findings were released based on primary research conducted by Techaisle in the months of May-June 2010.

Techaisle’s report says that among those who have heard about cloud computing, 13 percent said that they did not know what it meant. Some 44 percent of the respondents think that cloud computing means subscribing to services such as servers or storage hosted by a third party and 29 percent think that it means access to applications over the web. Even among the 29 percent of small business that use SaaS (NewsAlert), not all of them have heard of cloud computing.

Clearly a tremendous education initiative has to be undertaken by both the channel partners and IT vendors to articulate the use of cloud computing. The vendors are busy courting large enterprises as they are easily identifiable and have established IT departments. Small businesses do not generally have IT departments let alone knowledge and focus on cloud computing.

The Techaisle survey reports that channel partners are most effective in approaching small businesses regarding cloud computing. To that extent the vendors are empowering the channels, then they are certainly succeeding. But it may be opposite – that channel partners in order to survive are changing their business model to embrace cloud computing.

Some 26 percent of small businesses have heard about cloud computing from their channels while only 13 percent have heard about it from an IT company. And 25 percent of small businesses have also heard about cloud computing from blogs/forums and other social media websites.

While it may be said that the use of cloud computing among small businesses is on the rise there is definitely confusion and lack of knowledge about what it really means. Of those with dedicated channel partners, 48 percent say that their channels have approached them with some cloud computing offering.

For more information, read a related article on TMCnet “NASA’s Nebula Cloud Computing Technology to Play Key Role in New Open Source (NewsAlert) Initiative.”
Anuradha Shukla is a contributing editor for TMCnet. To read more of Anuradha’s article, please visit her columnist page.

AEE – Arquitetura Empresarial Estratégica: um instrumento de acesso à Cloud

julho 19, 2010

A nova newsletter da Creativante, intitulada “AEE – Arquitetura Empresarial Estratégica: um instrumento de acesso à Cloud“, já está no ar!

Você pode acessá-la aqui!

Q&A: Microsoft executive has his head in the cloud

julho 19, 2010

Matéria de hoje do http://www.washingtonpost.com!

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Q&A: Microsoft executive has his head in the cloud

Monday, July 19, 2010

Microsoft made several announcements during last week’s Worldwide Partner Conference in D.C. about its plans for Web-based or “cloud” computing. One centered on a new service that allowing organizations to create private clouds, walled off from the public Internet. The company also showed off mobile and tablet devices that use the cloud to sync with the computer desktop and the Xbox game system.

Tim O’Brien, the man charged with crafting Microsoft’s goals for cloud computing, sat down with Capital Business. Here are edited excerpts of that conversation.

Why has Microsoft decided to move to the cloud?

At the topmost level, there’s an inevitability to this. The people who move first can quite often be the biggest beneficiaries.

When Microsoft thinks of the companies that use its software, what do you see as their first move into the cloud?

For most companies, their first move into the cloud is with so-called “commodity workloads” — the workloads you need to run your business, but that aren’t necessarily a source of competitive differentiation or business edge. E-mail and collaboration are fairly obvious ones. We also see movement with apps that have poor economics on-premises, either because their usage patterns result in low server utilization, or the server infrastructure has been purposefully over-provisioned to allow headroom for unpredictable load increases.

How does this change Microsoft’s overall business model?

We’re no longer just charging money for a software license. We’re charging money for a software license deployed on a server that we’re paying for, in a building that we’re paying the lease on, being cooled off by a fan that we paid for. If customers had to [provide all] that on their own, they might pay more. So they’re getting cost advantages by doing it with us, [and] we get more revenue.


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