Archive | September, 2013

Was Ballmer Really That Bad?

9 Sep

There has been much criticism of Microsoft CEO Steven Ballmer over the last few weeks since he announced he’s leaving the company within a year.  Some have gone as far as to call him the “worst CEO ever.”  He certainly hasn’t been an exceptional CEO.  Microsoft’s stock has languished during his tenure, it’s organization has become bloated, and most importantly, it’s missed out on the big technology trends of the last decade – smartphones, tablet cannibalization of PCs, the rise of paid search, cheap cloud computing, Social, etc.  But, it seems to me, some of the criticism is overblown.

Without digging too deep, I can think of a few tech CEOs far worse than Ballmer.  Leo Apothekar at HP with his ill-conceived acquisition of Autonomy, decision to spin off its PC business, and relationship issues with the Board.  RIM’s co-CEOs for their corporate infighting and inability to create an OS challenge to iOS or Android (or go all in on the latter).  Or, if you’re looking for a CEO that truly lost his company, how about Stephen Elop, CEO of Nokia, which Microsoft just bought?  Nokia used to be one of the world’s most recognized brands, the dominant force in handsets.  And now, because of it’s strategic error in aligning itself with Windows Mobile instead of Android, (Nokia should have been what Samsung is to day), it’s selling itself for less than $8 billion.

In terms of stock price, yes, Microsoft’s stock has been essentially flat since the Dotcom bust, which is on Ballmer.  See this stock chart I pulled from Yahoo! Finance:

ImageBut Microsoft isn’t the only high-flying Dotcom era stock that has struggled in the last decade plus.  Check out Cisco to name one company with a similar price trend:

Image

Microsoft could have fared far worse these last 10 years.  Ballmer inherited a monopoly business tied to distributing incredibly high gross margin Windows software on PCs.  And he inherited this business at its peak.  With the growth of Google and mobile computing among other trends, it was always going to be hard to sustain Microsoft’s position as the kind of software and the top destination for tech talent.  Tripling revenue and doubling operating profits while creating new billion dollar business lines isn’t bad when seen in this context.

Great CEO?  No.  Worst CEO ever?  Hyperbole, for sure.

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The Mom ‘n Popification of E-Commerce

3 Sep

The e-commerce market in the US has grown at double digit percentages for the last several years despite the general economic slowdown.  This growth is expected to continue as e-commerce continues to take share from traditional retail.  Forrester estimates that  e-commerce will continue to grow at over 10% annually for the next few years and will hit 10% of total retail sales in 2015:

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This growth and other factors like new business models (subscription commerce, direct-to-consumer, etc.) has led to an explosion in new venture-backed startups over the last 5 years.  As some have said, it’s “E-commerce 2.0.”  Birchbox, OpenSky, ShoeDazzle,  ModCloth, NastyGal, Warby Parker, Chloe + Isabel, etc. – just to name a few.  

One trend that I think is overlooked in this mix of new e-commerce startups is what I call the “mom ‘n popification” of e-commerce.  You now have thousands upon thousands of online retailers and small manufacturers-cum-online retailers that are trying to build businesses online.  And unlike their venture-backed counterparts, they are bootstrapped or have taken non-institutional friends and family capital.  

These are the online equivalents to the small, local physical retailers we see all over the country.  Some will perhaps grow into much larger businesses, but the vast majority will either stay small or in some cases grow to medium size through slow but steady growth.  Like their physical retail cousins, they need to contend with their big box WalMart equivalents – Amazon, eBay, Blue Nile, etc.  

In the physical world, retail started as small, highly local businesses.  Even though organized retail concepts like the department store had been around for quite some time, it was only really in the last half of the 20th century where you saw the establishment of big, national chains in American retail.  

The online world seems to be operating a bit in reverse.  Amazon, eBay, Overstock, etc. were the early pioneers starting in the mid 1990s and grew quite rapidly in sales and market cap.  

What’s happened now though is that the barriers for small, “mom n pop” entrants to start selling online have really lowered.  It’s easier than ever for someone without an existing brand and very little capital to start selling online.  I think this is due to many factors:

  1. The growth of cloud services means that there’s now e-commerce infrastructure delivered as a service.  And it’s affordable.  Anyone, for instance, can create their own e-commerce store using Shopify and be up and running with a professional looking storefront in a matter of hours.  There’s affordable SaaS products for dropshipping, managing social referrals campaigns, and so on and so forth.   
  2. Payments – a subset of the above services – has been a particular pain point for people looking to sell online.  Mundane issues like accepting multiple currencies have historically been a nightmare for storefront developers.  These problems are being solved today by Braintree, Stripe, Google Checkout, etc.  
  3. The mainstreaming of using your credit card online.  Everyone transacts online now in the US and levels of trust when buying online are much higher than they were 10-15 years ago.  Simply put, it’s easier for a small, no-name seller to credibly hawk their products online.  
  4. The growth of Google since the early 2000s and the growth in Facebook/Twitter has created huge new channels for online marketing.  There are more opportunities than ever for sellers to get discovered organically or through advertising.  
  5. Finally, I wouldn’t underestimate the importance of free shipping, which was pioneered by Amazon Prime and has become table stakes in many e-commerce categories.  

I expect this trend to continue.  Aggregate e-commerce volume will continue to be concentrated heavily between Amazon, eBay, Walmart.com, and a few other large players.  But I think the long tail of sellers will keep growing.  Also, new categories of e-commerce will open up to smaller players as services like same-day delivery 3PL gain traction.  Most of these companies will occupy small niches, but they can be profitable businesses for their owners and good employers.  

Finally, I’m very bullish on prospects for horizontal players who are providing software or services to the mom ‘n pop e-commerce market.  Shopify, for instance, has a very bright future as a public company, assuming they don’t let an Amazon or eBay buy them beforehand. 

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