Fear and Greed in Silicon Valley
The mortgage crisis continues to wend its way through the national psyche. The occasional rays of sunshine—such as the Abu Dhabi Investment Groups $7.5 billion investment in Citigroup and comments from a Federal Reserve official to the effect that the Fed may soon cut interest rates again to stimulate the economy—seem more like temporary fixes than fundamental repairs to the U.S. economy.
The drop in consumer confidence announced at the end of November is probably a more accurate reflection of the macroeconomic picture: rising oil prices, a tightening job market, and fears that reset mortgage rates in 2008 will make it harder for consumers to spend on discretionary items and even lead to bankruptcies (leading to yet more write-downs by lenders and on and on).
But folks in the financial community remain upbeat about technology, and they expect M&A (merger and acquisition) activity in the tech sector—and IPOs, to a lesser extent—to surge in December and into the first and second quarters of next year.
Robert Louv, who heads the software group for M&A advisory company Montgomery & Co., said M&A activity has grown by 75 percent in 2007 compared with 2006.
Fueling that acquisitive appetite is a conviction not only that the technology sector is growing but also that the technologies being created in some areas are necessary competitive tools. Louv, presenting at the 451 Groups annual client conference in Boston the week of Nov. 26, said companies are acquiring smaller rivals and startups for two reasons: fear and greed. They live in fear that a competitor will scoop up a technology company that will give them a competitive edge, and theyre greedy for growth.
Louvs partner, John Cooper, identified six areas that are particularly attractive to investors: Internet advertising, mobility, HCM (human capital management), GCRM (governance, compliance and risk management), data center technology and SAAS (software as a service).
Cooper called Internet advertising a “breakaway sector,” with a potential 35 percent CAGR (compound annual growth rate) over the next few years. He added that theres plenty of room for new market entrants. “Its not going to be just Googles game from here on out,” he said. Cooper said mobile devices will soon have the same capabilities as PCs, meaning more business users will adopt them, leading to a greater need for mobile device management tools. He said the mobile market will grow from $223 million in 2007 to $345 million in 2010—or 10.9 percent CAGR.
Cooper expects the SAAS market to grow by a stunning 30 percent CAGR between 2007 and 2010. No longer confined to CRM (customer relationship management), SAAS is becoming pervasive throughout the enterprise. “Its really going everywhere,” Cooper said.
He expects the market for HCM applications to grow by 18 percent CAGR, data center technology by 11 percent CAGR and GCRM by 6.5 percent CAGR.
But why is this happening against such a gloomy economic backdrop?
Louv allowed that much of the activity is coming from European companies, which can more easily afford acquisitions in the United States because the euro is stronger than the dollar. The business culture in Europe is also changing, and companies are more comfortable with taking on debt than they were in the past. “Thats allowing them to buy growth,” Louv said. “And theyre desperate for growth.”
Its not just European companies that are slaking their thirst for acquisitions.
Ward Carter, president of Corum Group, another M&A shop, said U.S. companies are in much better financial shape than they were during the economic downturn in 2002. The U.S. economy has enjoyed four to five years of substantial growth, and “corporate coffers are flush with cash,” Carter said.
Carter also said banks are still lending readily for these kinds of transactions, but he said that a few weeks ago. Today, said Louv, deals worth more than $500 million are getting harder to make because “you cant get the financing.”
Louv expects M&A activity to taper off in the second half of 2008. He also said that if banks tighten lending further, and the stock market keeps making like an airplane in choppy weather, activity could level off sooner than he now expects.
But even if the U.S. economy slows considerably, companies will still need technology as much as, if not more than, they do now to compete more effectively.
New applications make companies more efficient and help them make better use of resources. “Those are the kinds of things companies cant afford not to be doing,” Carter said.
iPhone Safety Risk
While I was in Boston for the 451 Groups conference mentioned earlier, I came to realize that all the talk lately about the iPhone should have included some discussion of security risks.
I flew in for the conference from my home base of New York. I came in a day early to meet with my colleagues in eWeeks Woburn, Mass., offices.
The cabbie taking me from Logan International Airport to our quaint offices in suburban Woburn didnt know how to get to the 100 Unicorn Park address.
“You been there already?” he asked me.
“Not so I could tell you how to get there,” I replied.
Not a problem—the driver had an iPhone.
Speeding along at a healthy 70-mph clip on rain-slicked I-93 north, he held the sleek device in his right hand, opened a browser, searched for a Google map, and pushed and pulled the map around, deftly zooming in and out in an attempt to find the proper exit ramp.
The driver occasionally checked his actual position on the actual road and made the necessary adjustments. But, mostly, he was prompted by my hoarse exhortations from the back seat: “Pole!” “Car left!” “Lane!”
As the existence of this column item attests, I arrived at 100 Unicorn Park safe and sound. Having recovered my wits, I asked the driver how the iPhone was working for him.
“Not so happy,” he said.
“The battery life sucks. And no GPS” he said.
When cell phones first became ubiquitous, many cities passed laws requiring drivers to use hands-free devices so they could keep their hands on the wheel. I know some people find the iPhone irresistible, but do we really need legislation forcing drivers to keep their eyes on the road?
Back to (High) School
A few years ago, MIT launched an ambitious project called OpenCourseWare. The plan was to make much of MITs curriculum and many of its classes freely available over the Web to anyone who wanted to view them. On Nov. 28, MIT announced that OpenCourseWare now includes nearly all the coursework available at the school.
This alone is a noteworthy achievement. OpenCourseWare is one of the best uses of the Internet in the last 10 years, making it possible for anyone to learn from some of the top science minds in the world. (It also serves as a pretty good advertisement for the quality of MITs education.)
However, MIT made another announcement related to OpenCourseWare: the launch of MIT OpenCourseWares Highlights for High School.
Highlights for High School is essentially a filtered guide to OpenCourseWare designed specifically for high school students and teachers interested in the sciences and in preparing for advanced placement. The site breaks down introductory MIT classes and offers AP classes in the sciences and courses for high school students that were created by MIT students.
All in all, the site looks like it will be a very valuable resource for students hoping to pursue a career in the sciences.
Those interested in Highlights for High School can find more information at ocw.mit.edu/highschool.
Its official: E-mail has hit the wall.
I know Im not the only one who gets a lot of e-mail. My colleagues and I pretty much daily bemoan the constant chore of paring down our in-boxes to a point at which we can actually send e-mail. (I was at that point last week, until an 8MB “data sheet” attachment brought me to a screeching halt.)
And so the conversation I had with a PR person last week was especially significant. She got hold of me by, of all things, the phone. She started off by saying, in a very nice way, she had sent me several e-mails and was wondering if I could answer a couple of questions for her.
After I apologized for missing, ahem, a couple of e-mails, we started commiserating about the difficulty we and so many people we know have in managing our e-mail in-boxes. Theres spam, of course, but thats almost easy to deal with—you know it when you see it. Its the messages you get that you know you need to respond to but cant right away—the ones that dive into some kind of e-mail Bermuda Triangle once they scroll off your screen. Or its the message you dont see because of all the other messages around it.
The PR person said she knew a tipping point had been reached when one of her press contacts said to her, “If you want to reach me, dont e-mail me. Get me by phone or send me an IM.” Hmm. I can remember, not too long ago, when voice mail was the bottleneck. Indeed, my voice mail greeting even now lets callers know the best way to reach me is by e-mail, at which point I proceed to reel off my work e-mail address.
But is e-mail really the best way to reach me or anyone else?
Here at eWeek, IM has become the internal messaging platform of choice if you want to get an answer right away. But I must admit I find IM very intrusive. Yes, I want to get answers right away, but I dont necessarily want to give them right away.
Coincidentally, just a day before the conversation mentioned earlier, I sat through a demo of a new CMS (content management system). The big update in the new version of the CMS is social networking capabilities, and one of the platforms features is the ability to message corporate “friends.”
OK, I can kind of see the value in that (even though Im not really getting the whole social-networking-on-top-of-enterprise-apps thing at this point), but its yet another messaging system—and another presence-based one, to boot—added to the many were all dealing with right now.
Maybe Ill change my voice mail message: “The best way to reach me is … to snail-mail me a letter.”
Get Ready for IPv6
Upcoming federal Office of Management and Budget deadlines for IPv6 implementation mean that core IP services including DNS will be coming under new scrutiny.
In January, eWeek Labs will go on site at WiscNet to evaluate the organizations DNS replacement project. WiscNet is a large, nonprofit network service provider for Wisconsin state agencies, municipalities and schools.
Domain Name System, the service that translates names into IP addresses (so you can type in, say, www.eweek.com instead of 192.168.22.35), is a relatively distant cousin, architecturally speaking, of Layer 3 IP.
The June 2008 milestone for IPv6 adoption in all federal agencies raises a host of questions, including how DNS will accommodate the much larger 128-bit IP address that IPv6 provides. The pressure on DNS is coming from e-mail and SAAS (software as a service) applications that depend on the aging infrastructure. Add to this the coming implementation of IPv6, and I see a growing justification for looking at how DNS is currently implemented—with an eye toward modernizing the ubiquitous protocol that enables us to connect point A to point B. Because DNS plays a central role in handling e-mail and Web connectivity, even the small changes required to accommodate IPv6 will likely be made with great reluctance by most organizations. However, there is a difference between reluctant preparation and being blindsided.
The OMB mandates are just the beginning of an era that will be marked by subtle but far-reaching changes to the underlying network infrastructure that has carried the Internet wave this far.