Facebook reiterates mobile risks in IPO filing
Facebook executives are on the IPO roadshow, drumming up investor interest in a transaction which values the social media firm at $96bn. However, uncertainties over the mobile profit model have been a repeated fly in the ointment, and the company this week amended its S-1 filing with the SEC to emphasize these risks.
The new filing details how the shift of social networkers from PCs to mobile devices, while it may create opportunities, is currently a negative, reducing what Facebook can charge for adverts and so threatening its key revenue stream in the longer term. Facebook has already said that it has not yet found a significant way to monetize its huge mobile user base, about 488m monthly average unique users as of March.
In the expanded S-1 document, the company says, under „risk factors‟: “We believe this in-creased usage of Facebook on mobile devices has contributed to the recent trend of our daily active users (DAUs) increasing more rapidly than the increase in the number of ads delivered. If users increasingly access Facebook mobile products as a substitute for access through personal computers, and if we are unable to successfully implement monetization strategies for our mobile users, or if we incur excessive expenses in this effort, our financial performance and ability to grow revenue would be negatively affected.”
The company has been taking some initiatives to generate mobile revenues, such as the new „sponsored stories‟ within mobile news feeds, but it has stressed that it will be cautious about any new features which would alienate users. Its wider mobile vision relies on trying to create a full apps, content and unified messaging platform around its core service, in order to generate revenues beyond its basic advertising model, and increase its overall impact. This will also be important to fend off potential challenges from rivals with existing mobile platforms, such as Google and Apple.
Two weeks saw Facebook making one step in that direction, launching its own app store. This will provide easy access to social apps on its platform, and will integrate simplified discovery and its payment options. The App Center will go live in the coming weeks via iOS and Android Facebook apps and on the web. All canvas, mobile and web apps that follow the firm‟s guide-lines can be listed. The aim is not to achieve the massive apps base of Apple, but to encourage mobile developers to use Facebook APIs – examples being Pinterest, Draw Something and Viddy. If the apps discovered via the new Center need to be installed, consumers will still be directed to App Store or Google Play.
Facebook said on its blog: “Many developers have been successful with in-app purchases, but to support more types of apps on Facebook.com, we will give developers the option to offer paid apps. This is a simple-to-implement payment feature that lets people pay a flat fee to use an app on Facebook.com.”
While the social giant is currently treading an uneasy path between collaborating with iOS and Android, and seeking to clip the wings of their owners, it hopes to have greater freedom of movement as the mobile market moves towards web services and HTML5, which will dilute the power of the individual operating systems, and so benefit firms which do not have their own OS. Facebook has made a major commitment to HTML5, having admitted the disadvantage of controlling an OS, especially with Google integrating its own social app, Google+, increasingly tightly into Android.
For that reason, there have been persistent rumors that Facebook might develop its own OS, either by acquiring one (it was linked to webOS at one stage) or creating a new-style browser/OS on top of Linux or even Android, like Mozilla. It has also been developing a range of functionality for feature phones, tapping into emerging economies.
However, none of this promises a certain path to mobile profits in future. In its original IPO filing, the company said mobile platforms were “critical to maintaining user growth and engagement over the long term”, and that the rate of growth in mobile users would continue to exceed its overall user growth “for the foreseeable future, in part due to our focus on developing mobile products to encourage mobile use of Facebook”.
However, it added: “We do not currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven.” It went on: “If we are unable to successfully implement monetization strategies for our mobile users, our revenue and financial results may be negatively affected.” It did point to the growth of mobile advertising, citing one source which forecast this to grow at a compound rate of 64% to reach $17.6bn in 2015. Most of Facebook‟s current revenue – about 85% in 2011 – comes from PC-based advertising and last year it made net profit of $668m on sales of $3.71bn.
Update – Last Minutes News: Investors are bracing for Facebook's Wall Street debut on Friday after the world's No.1 online social network raised about $16 billion in one of the biggest initial public offerings in U.S. history on May 17, 2012. Valued at $104 billion, Facebook is larger than Starbucks Corp and Hewlett-Packard combined, sparking intense speculation on how much higher its valuation will rise once shares start trading. Some expect shares could rise 30 percent or more on Friday, despite ongoing concerns about Facebook's long-term money-making potential. At $38 a share, Facebook would trade at over 100 times historical earnings versus Apple Inc's 14 times and Google Inc's 19 times.
Samsung taunts Apple by getting the user experience right at last
Samsung unveiled its new flagship, the Galaxy S III, joining HTC in the rarefied quad-core LTE superphone market, which is increasingly leaving Apple well be-hind in terms of functionality. Apple has not felt the need to chase top end specifications with the iPhone so far, knowing that its brand and user experience guarantee sales even without 4G or 3D. But it will have to respond this time, when it unveils iPhone 5, by unleashing some real innovations rather than just building on its famous but five-year old platform. This is because hardware alone may not beat the iPhone, but a new approach to the user experience may do, and Samsung has, after years of trying, created a UE which threatens to out-Apple Apple. Its extensive use of sensors and voice activation promises a handset which can “listen to you and understand what you want”, and in contrast to most Samsung user interface claims, this one was backed up by a large number of reviewers and analysts. The Korean vendor still needs to get a lot right – notably launching more quickly in the US than it did with the S II, and making a big splash in China, where Apple is finally having a major breakthrough. The S III is well positioned to consolidate its creator’s hold on the Android market, and to force Apple to turn out something special this fall too.
The S III will certainly have to wait for the „iPhone 5‟, and possibly the „iPhone 6‟, to meet an Apple rival which matches it in hardware terms – but of course, that is only half the story, and Samsung has yet to come close to its competitor in terms of brand or software experience. So the impressiveness of the S III‟s feature set and marketing campaign are still tempered by nagging doubts over whether Samsung can deliver the content platform and the integration with its other screens, such as TV, which will put the Galaxy at the heart of a broader platform, less subject to consumer fickleness.
The new user experience: However, the firm has made some serious efforts in terms of user experience, generally making the handset more intelligent, and able to “see and hear”, as the firm put it. For the first time, a new Galaxy emerged with some radical thinking on the software side, and with praise for its UI, rarely Samsung‟s strong point. If its TouchWiz UI has never set the world on fire before, the early reviews for the latest version, running on Android Ice Cream Sandwich (but largely hiding that fact) indicated a major step forward.
IBM PureSystems
Experton Group believes the simplicity offered through the next generation of computer systems is achieved through the automation and forced standardization aspects more than the consolidation and virtualization components. While Experton Group applauds the push for standardization, it is highly likely large enterprises, especially the development organizations, will push back and insist on the imperative for development to set the standards for each new application. Nonetheless, the new offerings from IBM Corp. contain major advancements in the drive to restrain IT operational expenses so that companies can invest in innovation and revenue growth opportunities. IT executives should not brush these solutions aside but should understand the pros and cons of each offering, determine which ones might satisfy corporate requirements, and pilot potential solutions to see if they perform up to expectations.
To reduce the typical project budgets, problems, and times associated with infrastructure and platform deployments IBM spent more than three years and $2 billion to re-architect and build pre-configured, pre-integrated systems based upon knowledge acquired from thousands of data center optimizations
Business Imperatives
- The next generation of systems, following the lead of cloud computing solutions, turns the development/operations model on its head. The traditional model has development defining the application architecture and operations environment; the new model has operations providing development with alternative operational infrastructure environments from which an application should elect to operate. This forced standardization along with the automation features will enable IT to drive costs down through facilities, hardware, software, personnel and power savings. However, this paradigm shift cannot be vendor driven. It must come from the top corporate and IT executives. IT executives should examine the cost/benefit impacts of the shift to solutions like PureSystems, determine if and where these initiatives should be undertaken, and establish a governance program to ensure the initiatives are implemented as desired.
- The IBM PureSystems offerings come in infrastructure flavors, called PureFlex, and platform solutions, call PureApplication. IBM spent more than three years analyzing and re-architecting systems to produce integrated data center solutions designed with built-in expertise. The PureFlex infrastructure offerings are designed to be expert at sensing and anticipating resource needs to optimize the infrastructure, according to IBM. IT executives should evaluate the advantages and disadvantages of this type of automated and standardized infrastructure technology and, where appropriate, incorporate the infrastructure into target environments.
- The IBM PureApplication platform solutions are designed to be expert at optimally deploying and running applications for rapid time-to-value, as stated by IBM. The company, with its business partners, has developed more than 100 pre-configured, pre-integrated platform offerings based on optimized application patterns of use. These optimized solutions can be rapidly installed and deployed, are highly automated and efficient, and consume fewer resources with greater availability than conventional system platforms. IT executives should understand and assess these architectural solutions to determine if they are appropriate for inclusion in their target environments, and if so, should work with the appropriate vendor(s) to incorporate the platforms, where appropriate. IT executives should also work with development to gain buy-in on adopting the platforms instead of rolling its own.
The Bottom Line: Enterprises can expect the vendor community to offer an array of more engineered solutions with added expertise and knowledge built-in so that fewer staff is required, time to value is trimmed, and operational costs are reduced. IBM has invested heavily (and acquired a number of firms to fill the gaps) in order to develop and deliver an initial set of next generation "expert integrated" systems. Experton Group has not been able to validate IBM's claims but, as any we have always stated to clients, "your mileage will vary" and experienced results almost never match those benchmarked. This will be true of IBM's or any other vendors' performance claims. Furthermore, next generation systems are still immature and there is a long way to go before they attain the levels customers view as realizable. However, the biggest inhibitors to adoption will be the organization's business and development culture. It will take strong executive management to change the corporate paradigm. IT executives should recognize the need and benefits of shifting the business culture to embrace consolidation, standardization and virtualization, communicate the value to staff and the user community, and gain buy-in for converting development and operations over to a culture committed to the new paradigm. IT executives should also work with its strategic partners to understand and pilot their next generation solution offerings to see how each vendor's approach maps to the corporate direction and then select the appropriate partner for the journey.
Next Generation Systems
The new offerings from EMC Corp., Hewlett-Packard Co. (HP), IBM Corp., and Oracle Corp. are major advancements in the drive to contain IT operational expenses so that companies can invest in innovation and revenue growth opportunities (see article on IBM’s PureSystems).
EMC has added VSPEX – proven, preconfigured infrastructure – to its vBlock converged infrastructure approach while HP has taken a three-pronged approach to converged architecture. EMC labels its new full spectrum of offerings as simple, efficient and flexible, and the company is delivering it with a variety of business partners. On the other hand, HP claims it is redefining the expectations and economics of data centers and is architecting solutions that include added intelligence into the solutions to maximize performance and minimize downtime with a minimum of customer effort. IT executives should evaluate the advantages and disadvantages of the different infrastructure technologies and, where appropriate, incorporate the infrastructures into target environments.
Oracle has also leapt into the next generation fray with its engineered systems concept. When Oracle acquired Sun Microsystems back in 2009, it had the engineered, full-stack vision of how it could profitably enter the hardware world by delivering integrated systems. Oracle's goal was not to sell hardware building blocks – most of which are priced at commodity levels with thin margins – but to integrate the hardware and software layers into a vertical stack optimized for the applications and middleware that are Oracle's bread and butter. These engineered systems are the Exadata and Exalogic engines and the SPARC supercluster.
The strategy behind these systems is three pronged:
- to exploit networking, processor, storage, and systems trends to deliver breakthrough innovations by combining Oracle software with Sun hardware and software;
- to integrate components of Oracle's software stack to provide unique value to customers; and
- to deliver a complete, open, integrated stack of applications, database, hardware, infrastructure, and middleware.
Although Oracle states its strategy is to deliver an open stack, the reality is that its stack is proprietary and the company is deliberately ensuring competitors cannot be certified using alternative stack components.
HP Triple Play: Beginning last November HP started unfolding its new data center and cloud strategies. First out of the box was Project Moonshot, a hyperscale architecture designed to allow thousands of extreme low energy system-on-a chip (SoC) processors to share an integrated fabric, server management at the enclosure and rack levels, power and cooling, and storage pools. Experton Group discussed this in detail in the research note "HP's Moonshot."
However, Project Voyager, which is to be another multi-year, multi-generational journey, does have its first instantiation of next generation servers out, ProLiant Gen8 servers. These servers, which come with HP ProActive Insight Architecture, are designed to simplify the user's server life cycle experience. The new ProLiant platforms address four key operational elements: integrated life cycle automation; dynamic workload acceleration; automated energy optimization; and proactive service and support.
HP claims a three times improvement in administrator productivity due to the features in its integrated lifecycle automation package. There are intelligent provisioning capabilities that remove half the deployment steps and reduce system deployment time by two-thirds along with faster problem analysis and updating features. The amount of time required to do updates is cut by almost 70 percent, according to HP.
Thus, like the EMC offerings, these servers should be able to demonstrate a strong ROI and TCO over earlier generations and competitive boxes that do not possess embedded process expertise.
The Bottom Line: Enterprises can expect the vendor community to shift to offerings with more engineered solutions with added expertise knowledge built-in so that fewer staff is required, time to value is trimmed, and operational costs are reduced. However, the HP and Oracle offerings are really islands of integrated intelligence. They are improvements over prior packages but there still remains a significant workload left for administrators to do. HP has alluded to more advanced offerings but details remain lacking. Meanwhile, Oracle's efforts are less geared toward solving customer problems than locking users into its proprietary stack. On the other hand, EMC has grasped the customer's dilemma and has created next generation offerings that holistically solve the operational hurdles for certain environments. The potential challenge of the EMC stacks are the variability – especially, that of the multiple choices of vendor partners – and the ability for the customer to have "one throat to choke" in the new integrated solution set. IBM has also shown it understands the customer challenge with the PureSystems announcement.
Dell, Dell, and More Dell
Dell Inc. continues its acquisition spree by acquiring mainframe rehosting company Clerity Solutions Inc. and application modernization tool provider Make Technologies Inc. In the course of the past month Dell has also acquired network security and data protection provider SonicWALL Inc. and Wyse Technology Inc., a thin client solutions vendor.
• Dell announced it has acquired Clerity, a leading provider of applications modernization and re-hosting solutions and services. Dell claims the addition of Clerity's capabilities will enable Dell Services to help customers reduce the cost of transitioning business-critical applications and data from legacy computing systems and onto more modern architectures, including the cloud.
• Dell's second acquisition just weeks ago was the purchase of Make Technologies, whose tools are aimed at modernizing mainframe and midrange applications. The Make Technologies acquisition gives Dell a tool that can examine the structure of mainframe and midrange applications, generally written in COBOL or RPG.
• In March Dell purchased SonicWALL, a privately held provider of data security measures for businesses. The purchase price was undisclosed but according to the New York Times, Dell paid about $1.25 billion, including the assumption of SonicWALL's debt. The new acquisition gives Dell a provider of high-grade networking security services, which include next generation network firewalls, e-mail protection, backup and recovery, and policy, management and reporting offerings.
Experton Group believes Dell is aggressively pursuing its transformation into a full-service commercial IT products and services provider and should make the transition successfully. Dell recognized that its personal PC business would not continue to provide it with the growth required once Apple Inc. started to dominate the market with its smartphone and tablet products and services. Management realized the success it was having with its Data Center Solutions unit, which had grown to be a $1 billion business and is the largest provider of densely-optimized servers.
IT executives that view Dell as a strategic partner should meet with Dell executives to understand the strategy and roadmap to ensure that Dell's direction and timing is compatible with corporate goals and requirements. In companies where Dell is not a strategic partner but a supplier, IT executives should continue to keep Dell on the short list to help ensure the company is getting the best deals possible from its full-service competitors.
Cloud Computing and Data Integration: Trends to Watch
According to a recent article published in eWeek, the following are data integration and cloud computing trends that could potentially affect how the cloud will be used in the near future.
• Enterprise Application Integration & Integration Platform as a Service – there is movement on many fronts to simplify application integration not only from one vendor, but many vendors. Standardization of cloud application interfaces at a higher level than APIs will help promote cloud usage. It is generally recognized that in order for “new-comers” to introduce and gain acceptance of their applications, they need to interface with generally accepted social media tools like Facebook, Twitter, etc.
• B2C will Drive B2B Agility – it is clear that the consumer market is driving a lot of what is being developed and used in the corporate market. In other words, the consumer is driving the cloud market.
• Data as a Service – as more and more information from multiple sources becomes available, there are manufacturers and service providers that have recognized the need for data management, which includes filtering, curation, etc. See iFlow.com.
• Master Data Management – building on data as a service, the management of data and integration with existing enterprise data will develop significantly in the near term.
• Data Governance/Security – as more consumer data becomes more prevalent and service providers offer management and integration services, the protection of private information becomes even more paramount
• Business Process Modeling & Activity Monitoring – as the capabilities of the cloud mature and enterprises take advantage of cloud-sourcing, sophisticated tasks like process modeling and business activity monitoring will move into the cloud.
• Cloud Service Brokerage – it makes sense that while multiple cloud services become available and cloud service integration platforms develop, that there will be a need for knowledgeable service providers to offer brokerage and service integration services.
A lot of what is presented above is based on traditional business development. If we were to go one step further, it is expected that there will be a lot (more) of service merger and acquisition – new leaders will emerge that will offer a wide range of cloud services and threaten traditional service providers like Amazon, SalesForce, etc.. IT Executives should make sure that they keep abreast of market developments before making significant investments and commitments.