Monday, June 24, 2013

Storm "Cloud"s for VMWare

Lately I have been asked my opinion on the sliding fortunes of a number of companies.  (Nobody ever asks about the ones on the way up - don't know why?)  The three that I've heard most about recently are VMWare, Tibco, and Apple.  Let's take a quick look at what it means from a financial perspective for a company to go into decline:

  • VMWare:  In September 2012 their stock price was @$122/share; today $72/share.  That's a 41% drop.
  • Tibco: In September 2012 their stock price was @$33/share; today $22/share.  That's a 33% drop.
  • Apple: In September 2012 their stock price was @$702/share; today $400/share.  Not only is that a 43% drop, it also means that investors have lost about $300 for each share they own.  Let's say that you are hoping to retire on your stock portfolio and own 10,000 shares of Apple.  Well, since last September you have lost a grand total of $3 million.  Given that Apple is sitting on $100 BILLION in cash, you might be more than just a little enraged.
So what's the deal?  Is there something that all three companies have in common that's causing such headaches for everyone?  The answer is yes and it doesn't have as much to do with their management teams as you might think.

As we go go forward, remember this new factoid.  More than any time in human history, consumers and societies as a whole have never been more influenced by trends than they are today.  Let's start out by looking at the "cloud".

Even though cloud computing was well established by 2010, it was not truly a societal fad.  Yes, if you had a Google, Yahoo, or MSN email account you were technically a cloud computing user.  However, in the 1st quarter of 2010 the first iPad hit the street.  This device sold like wildfire; still does in fact.  What few people realize is that it was the first main piece of end-user computing hardware that had no physical data input ports (meaning USB). 

The iPad was a true cloud device because it connected its users to applications that put data...elsewhere.  While the iPad may not be the only reason for the massive explosion in cloud computing, it was this device that showed people in a truly personal way that cloud computing was a viable way to operate.

Back to the topic at hand, let's take a brief look at VMWare.  For over a decade they have basically owned the data center.  If you wanted to virtualize your servers, the only true choice was VMWare.  Yes, Microsoft could argue Hyper-V and Citrix (and many others) could argue as well, but VMWare was the play.  VMWare capitalized on this (double entendre intended) fact and charged a true premium for its products.  However, their strategy was tied to a belief that corporate IT departments would want to continue owning and operating data centers for the foreseeable future.  When cloud providers like Amazon EC2, Rackspace, Secure24, and others came along, IT departments quickly discovered that they could get out of the data center business, in a hurry.  VMWare responded by developing tools geared towards the management of the public cloud.  But they continued their model of building elaborate software tools and charging extremely high prices for them. 

VMWare missed something important along the way.  With the advent of the cloud, the onus for security and uptime shifted from the IT department to the cloud provider.  Where the premium tool was needed in the past, society had shifted toward the philosophy of "good enough".  VMWare missed the trend, stuck with the higher priced options, and opened the door for competition in cloud management tools to just pour in.  By failing to move quickly to a new model, VMWare has lost almost half its value in less than a year.  Why couldn't they have come up with a lower cost option?

Tibco's story has elements of two societal trends.  Like VMWare, the first trend is "good enough", but like Apple there is another societal trend called "new is necessary".  For years, Tibco has been the gold standard of data management and middleware (I know, just that description is boring).  However, back to the emergence of the cloud, companies are no longer trying to move and manage their own data all by themselves.  They are looking for the cloud providers and other outsourcers to do that for them.  Tibco has been very slow to adapt to the changes in the management of data according to the new societal trends.  And, in turn, the market and its customer base is relentlessly punishing Tibco.

Apple is a huge victim of the "new is necessary" societal trend.  That's very ironic, considering that under Steve Jobs they were company who taught us to expect something new and shiny every four months or so.  Since the iPhone5 came out last year what has Apple brought to market?  Umm....not much.  Well, Apple, you taught us to be fickle so now that you're not delivering that's exactly what we're doing.

Here is the big takeaway.  Our currently society is deeply infatuated by trends.  Although the recent movie "The Great Gatsby" was set in the 1920's, it is a metaphor for today.  People of the today are flocking, constantly, to the new and exciting.  Become boring and you're done, right Gatsby (listening Mr. Cook?)

Nobody is immune - not big companies, certainly not small companies, not politicians, and definitely not the cultural leaders of yesteryear.  It's a cinch that no-one can expect much advanced notice of what the next fad will be.  But ignore it and you can use the three examples above about what to expect.  Do you hear that, all you technology companies? 

Not all of you have a $100 billion in the bank to save you when you miss the signs.

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