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Hypervendor grandslam

(123RF)

They make the news all the time, but just how does the present and future look for some of technology’s biggest names?

Apple

Founded: 1976
CEO: Tim Cook
Market capitalisation: $800 billion
Revenue: $214 billion
Profit margin: 20%
Main income: iPhone

Apple make s a lot of money – more than twice that of Microsoft or Google. It also has more revenue streams than Google or Facebook. The problem Apple faces is that at some point it will need to change strategy and move beyond the iPhone, which still contributes roughly half of its earnings. The fact that it dropped the ball with its Macbook computers, to the point that Mac enthusiasts have taken a shine to Microsoft’s Surface devices, is a worrying sign that Apple may be a bit too narrowly focused on its top earner. Then again, can we blame it? The margin on an iPhone is more than 35% – the margin on a new Samsung Galaxy is 17%.

Apple has also has been building a strong services arm. iTunes, iCloud, Apple Pay and a number of other businesses bring a combined $20 billion yearly to its coffers. But that’s a pittance compared to Apple’s overall earnings.

Complacency combined with the pressure of being a leader may be Apple’s biggest threat. As it struggles to rediscover the innovation culture it had a few years ago, Apple is staying the course. There are glimmers of hope: a revamped interface for the iPad may pump new energy into that line, while Apple has also said it will address the grumblings of Macbook and iMac fans.

Roughly eight percent of South African smartphones are from Apple and it has several retail shops in metro areas. Unfortunately Apple’s premium status and price does put it out of reach for most local consumers. With rumours of the next iPhone possibly having a price tag above $1 000, the brand will likely keep extending that gap. Then again, it would make up the shortfall with the premium price, because Apple fans probably close their eyes when they swipe their card for that purchase!

Alphabet

Founded: 1998
CEO: Larry Page
Market capitalisation: $600 billion
Revenue: $90 billion
Profit margin: 21%
Main income: Advertising

It seems just like yesterday, but two years have passed since Alphabet became the holding company of Google. This separated Google from its experimental and development branches.

Alphabet takes care of these areas now, freeing Google to operate more specifically as a business. Google also has a separate executive to Alphabet, but beyond that it’s fair to say they are the same entity.

Google is a big business, but with a big problem. It draws almost all of its revenue from a single source: its colossal ad network. Compounding that, more than three quarters of it arrives through its own sites, such as its search engine. That’s a very narrow feeding line. To combat this, Google has been betting wide: fibre networks, internet balloons, self-driving cars, healthcare and artificial intelligence (AI) are where much of its efforts have been spent.

This may actually pay off very handsomely, especially when weighing the potential of, say, AI delivered over Google’s vast network. Might you one day reduce your utility bill by plugging your (possibly Android-powered) smart home into Google and letting it run things? This is a very reasonable scenario in the near future.

But Google is falling short in other areas. Despite having cloud business services (Google Apps) on the market for longer, Microsoft’s Office365 had no problem becoming the market leader. Google has a customer service problem and it only seems to know how to do two things: innovate and sell ad space.

Lucrative, yes, but that’s punching well below its weight. Even in South Africa the main focus appears to be on advertising. Perhaps the huge gains by Microsoft and Amazon will stir Google out of its complacency.

AI and Android are great, but why isn’t Gmail home to the world’s largest commercial business email service? That’s a question worth pondering...


Microsoft

Founded: 1975
CEO: Satya Nadella
Market capitalisation: $500 billion
Revenue: $85 billion
Profit margin: 21%
Main income: Cloud/Server

What a difference a few years make. It’s true that changes at Microsoft were already under way when it switched leadership in 2014. But only since then, boy have the tectonic shifts in this company become evident. Microsoft’s Windows operating systems are only the fourth-biggest contributors to its earnings, the first being its cloud and server operations.

Microsoft has adopted a “Cloud first, Mobile first” vision, in the words of its new CEO. The cloud portion is easy to see: Office365 has grown to become the biggest cloud business service in the world, while its Azure cloud platform has come out of seemingly nowhere to stake a significant claim in the public cloud market. The mobile portion may seem like a failure, since Microsoft’s phones flopped. But it has made sure its services work very well on smart devices, and it has managed to seize the 2-in-1 business laptop market with its Surface devices (although not yet in South Africa).

A changing Microsoft means uncertainty, mainly for the people working inside it. The company is currently busy with a major restructuring, which could see thousands laid off across the world. An extensive partner network is doing much of the heavy lifting in delivering its services. In a few years, we may have a much leaner but more powerful Microsoft, detached from its operating system addiction and helping lead the cloud future. Already Windows 10 is transforming from boxed software to a continually-updated connected platform. Your next version of Windows may even be free.

The company has long had a strong presence in South Africa, but the above strategy is cementing that considerably. Partners are becoming key elements in delivering Microsoft services, while the 2018 arrival of two hyperscale datacentres is a clear sign South Africa and Africa are firmly part of Microsoft’s cloud roadmap.


Amazon

Founded: 1994
CEO: Jeff Bezos
Market capitalisation: $430 billion
Revenue: $135 billion
Profit margin: 2%
Main income: Retail

Who would have thought a bookshop started in an investment banker’s garage would turn out to not only be the biggest challenger to the industrial hegemony, but also the godfather of the cloud era? Amazon’s revenue is very healthy and spread over a number of reliable businesses. It’s true much of Amazon’s revenue comes through its retail channels, and that the retail business has a really thin margin. That’s because Amazon pours most of what it makes back into development.

Is this a good strategy? Just ask the AWS cloud business. Even though it only brings in seven percent of Amazon’s revenue, AWS is responsible for half of Amazon’s profits. That’s in part because Amazon has built a really good computer network: once commercialised, this has enabled it to take up to 80% of the public cloud market.

Taking that further, the heavy reinvestment allows Amazon to take real gambles that can pay off well. That’s how it could develop the Kindle e-reader and the Echo – Amazon’s dark horse intelligent speaker that’s becoming a not-so-silent revolution. It’s also pioneering drone delivery and robotic factories, and taking a swipe at Microsoft Office and Google G-Suite by developing cloud-based productivity software.

But perhaps most significant: AWS is poised to become a cloud operating platform that could be compared to the reach of Windows and Android. That is huge.

Amazon’s main problem may be growth. In South Africa its presence is negligible as an online retailer and just on the radar as far as cloud services go, despite a Cape Town office. However, the company is currently working on understanding the region’s demand, not only in South Africa, but across the whole of the region. With the intention of building its own cloud infrastructure in the continent.

And the other contenders…

Samsung

Did you know Samsung is the world’s largest chip manufacturer, bigger than Intel? It’s also a staple smart device brand across all earning levels, successfully a competitor to both Apple’s high-end devices and the rising Chinese brands such as Huawei. Samsung continues to make good amounts of money, drawing over $40 billion in Q4 of 2016.

That the company was able to weather the scandal of combusting batteries in its flagship Note 7 phones speaks volumes of its current strength and brand appeal.

Samsung’s biggest challenge is that a lot of its success is tied to factors often outside of its direct control. For example, its smart devices are wholly reliant on Google’s Android ecosystem. Any attempt to move away from that, such as its own Tizen operating system, has failed to take off. Bixby, the personal assistant on the Galaxy S8 to rival Google’s virtual assistant, is a frequent target for jokes. Samsung is mainly seen as a supplier of devices, not a player in the overall services technology game played by Apple, Microsoft and the other tech giants. If it can convince the market that it’s serious about being a contender in that world, Samsung will have to demonstrate it’s more than a maker of nice electronics.

IBM

Out of all the companies in this list, IBM is certainly considered the most senior. Yet age is not always a good thing in business, especially when you occupy a market that’s changing very rapidly. IBM certainly knows how to transform, having done so several times since the mainframe days. At face value it has been doing exactly this again: it’s a cloud player, with roughly the same market share in the public cloud market as Google (around five percent). It also continues to provide cutting edge server systems and has been a driving force in artificial intelligence.

Yet the numbers show a different story. Its revenues have been falling for 20 consecutive quarters and it’s losing ground in virtually all its major markets.

Analysts have declared it as being in a growth stall since 2014. Despite serious acquisition and development, such as the ground-breaking Watson cognitive computing platform, IBM is absolutely in a rut. This suggests the problem is culture: IBM is not being invigorated from the top to adjust to the new breed of technologies. There are already calls that the current leadership should be fired and replaced by outsiders with new perspectives.

Intel

When you have to threaten one of your oldest partners with legal action that means the status quo is shifting. Intel did just that when word surfaced Microsoft and ARM are working on a version of Windows Server that runs on ARM chips. Intel took over the computer world with its x86 chips, but it couldn’t replicate that success into chips for mobile devices, or the growing Internet of Things market, where it battles ARM and Qualcomm. The world is changing, but Intel is struggling to change along with it.

That doesn’t spell doom for the technology giant, but Intel does have its work cut out. It replaced leaders in 2014 and has since made several other changes. There are also various experimental projects, such as 3D sensors for drones and augmented reality systems. It’s been lucky with Nvidia, the graphics chipset company Intel acquired because Nvidia chips are not only popular with gamers, but also used extensively for running artificial intelligence. However, Intel is in crisis mode, and aims to lay off around 11 000 of its global staff.

Cisco

There’s an interesting trend emerging especially if you’re a provider of the systems on which companies are building platforms. Cisco, the leading brand in all things networks, is feeling that pinch as it competes against a growing market of cheaper network systems providers, particularly out of China. Until recently, it has seen falling sales for six consecutive quarters and is already shedding thousands of jobs.

Cisco may be a victim of over-specialisation and a lack of focus on software services. But signs of the turnaround are already there having posted a year-on-year increase at the end of 2016, fuelled by double-digit growth in security and services. Perhaps other ailing giants can take note that Cisco also took on a new CEO in that window. Several years ago analysts earmarked it as one of the potential losers of the cloud transition. It appears Cisco got that memo. But it’s too soon to say if Cisco will return to its former greatness...

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