Brian Sommer's Month In Brief - December 2018
- Summary:
- There was a lot of tech M&A, AI and weirdness in the news last month. And, of course, some of this caught Brian’s attention.
Buzzwords of the Month:
Courtesy of none other than the Wall Street Journal is “CRaP” as in:
“Inside Amazon, the items are known as CRaP, short for “Can’t Realize a Profit.” Think bottled beverages or snack foods. The products tend to be priced at $15 or less, are sold directly by Amazon and are heavy or bulky and therefore costly to ship characteristics that make for thin or nonexistent margins.”
The rest of the article is pretty good, too, especially if you care about e-tailing, supply chains and finance.
“AIQ” – Artifical Intelligence Quotient – I’m kicking myself for not thinking up this one. Obviously, either my IQ or my AIQ is too low. (for more on AIQ, see this book by Nick Polson).
Weird Stories
T&E software vendor Certify collapsed five years of weird travel and entertainment charges into a best-of list. Every accounts payable and HR leader should have this list if only to remind their teams of the crazy things people will try to get reimbursed. The human skull request was one I thought would have come from some software sales person as part of a sacrificial offering to close a deal before Q4 ended but it wasn’t…..
Wired’s January 2019 issue tells about the new font “Sans Forgetica”. No, I’m not making this up. The premise is that a font that makes your mind really concentrate on the copy you’re reading makes you focus on it more and, hopefully, retain more of what you learned. I suspect this is why Diginomica’s Jon Reed uses the strikethrough mechanism so much. He’s really telegraphing the parts of the article you should pay attention to!
M&A, Material Change of Control and Other Disturbances in the Force
The investment bankers must all have been on an end of year deadline to get deals done. There were some beauts, too!
First, let’s discuss a piece in Chief Executive magazine. In an article titled “Tech Without Tears”, the author points out how many new M&A deals in technology are being initiated by non-technology firms. I suspect this will be a continuing phenomenon has the major driver behind this activity is the desire to acquire critical patents and other innovations related to a more digital-based economy. It may be prudent for old-school companies to secure their more digitally oriented future through these acquisitions as patents will provide some measure of protection against interlopers into their space.
Host Analytics was acquired by Vector Capital. Deal terms and other information have not been released. One source noted that by the mid-2017 timeframe, the company had already raised $80 million in venture capital and had approximately 700 customers. With this deal, Dave Kellogg (CEO) and Ian Charles (CFO) will be exiting the company. Dave promised me he’ll give me a call on this once he can answer the questions he knows I’ll be asking.
Aspect Software was also acquired by Vector Capital in the same timeframe. That deal may be a materially different kind of deal but one thing did stand out to me: both deals used almost identical copy in their respective announcements.
From Host’s press release:
We are pleased to complete this transaction and look forward to supporting Host Analytics, which has a tremendous opportunity in the growing cloud enterprise performance management space,” said David Fishman, Managing Director at Vector Capital.
And from Aspect’s press release:
We are thrilled to partner with the team at Aspect Software, which has established, market-leading product offerings and an exceptional blue-chip customer base,” said Andy Fishman, a Managing Director at Vector Capital.
ERP vendor IQMS got acquired by much larger Dassault Systemes. Jon Reed got the story on this deal here. This transaction is interesting as it puts together an ERP vendor with a big-time cross sell opportunity into Dassault’s customer base. I suspect the cultures of the two companies will be interesting to mesh together. IQMS is in hip, cool, Southern California and sells to a lot of small to mid-sized manufacturers mostly in North America. Dassault is massive, French headquartered and often sells into some of the largest firms on the planet.
One of Sage Intacct’s best implementation partners, AcctTwo, acquired another Sage Intacct partner firm called Leap the Pond. This deal means the two companies now have far greater geographic coverage and over 800 implementations globally. In a call with AcctTwo’s CEO, Marcus Wagner, I learned that the company is continuing to build out new vertical solutions using Intacct’s financial accounting software at the core. While the company always had a strong presence in the not-for-profit and faith-based verticals, they’ve quietly been building out an oil and gas application. That vertical focus holds multiple interests with me, least of which is the fact that I did some 15 different implementations of oil and gas software earlier in my career. I’ll have more to cover on this later.
Santa got me new Bose headphones and Plex got a new CEO. Last month, former BMC executive Bill Berutti took the helm. I did some due diligence on Bill before my call with him. Within BMC, he was well-respected and BMC’s new owner, the private equity firm KKR, apparently really wanted him to stay. Like I do with all new or exiting executives, I pressed for specifics. I didn’t really get anything from Bill as to his plans for Plex as the announcement was barely hours old. So, in that situation, I gave him my best suggestions for the company. Plex has great products and it can kill it in the IoT/Factory of the Future world if it gets more marketing, more verticals and more growth.
The Wall Street Journal weighed in Oracle’s stock buy-back actions of late. In “The Limits of Oracle’s Buybacks” we see that Oracle’s consuming a lot of its available cash to repurchase shares but this isn’t propelling its stock price upward. If you track the company, you should read this. Will this dampen Oracle’s interest in doing some very large M&A deals as it rebuilds its cash reserves?
Looking ahead, I hear rumbling that 2-3 major enterprise software firms may be getting shopped right now. Also, an ERP firm is looking at new CEO candidates. So, the changes are bubbling up everywhere.
The bigger story is why is all of this happening and happening now? I suspect valuations have peaked and its time for some deals to finally get their liquidity moment. Also, with a slightly slowing economy before us, it’s time to re-jigger the executive teams so that great financial results keep occurring no matter where the economy or company growth takes these firms.
Artificial Intelligence
“Artificial Intelligence Has Some Explaining to Do” is a piece I’ve been waiting for. It describes how software makers are having trouble selling certain algorithms or artificial intelligence utilities because they cannot fully explain or defend the “learnings” the tool is using for its recommendations. For example, if an algorithm denied you insurance coverage, you should be afforded the opportunity to understand why. If you have a kid that’s considering becoming an attorney, this could be a ripe area for career advancement and growth. Personally, all of those pseudo-scientific sales pitches I hear for these tools make me very uncomfortable, especially when even the developers of them can’t explain what’s really going on. When these tools are used against human beings then something’s really wrong. Thanks to BusinessWeek for this one!
In another AI piece, we have “The MisEducation of Artificial Intelligence” in Wired. This piece exposes one of the most crucial flaws of AI: it has no common sense. This quote is epic:
But some heretics argue that deep learning is hitting a wall. They say that, on its own, it’ll never produce generalized intelligence, because truly humanlike intelligence isn’t just pattern recognition. We need to start figuring out how to imbue AI with everyday common sense, the stuff of human smarts.
Big Ideas
“The Boom in Big Data” in Barron’s is definitely worth a read. It tells of a mostly unknown sub-industry where firms are brokering your smartphone location and other data to hedge funds and others who might find an advantage in knowing where you shop, where you live, how you travel, etc. It’s creepy and scary at the same time. Here’s one tidbit that made my skin scrawl:
I have encountered situations where a vendor is offering to not only tell you how many cellphones were inside Best Buy on a particular day but also to tell you where the people live,” he says. “And the way they figure that out is they follow those cellphones to where they go to bed at night and sit for 10 hours and wake up in the morning. That to me is a closer call, and I think that the law around that is undeveloped.
Regarding the law, Inc. had a piece this month called “Mind My Data”. This too-short article talks about California’s new privacy laws and how they may impact the way companies handle customer information. While there’s some practical content here, this subject warrants a longer treatment. I believe that variants of the CCPA (California Consumer Privacy Act) may start showing up in other states, too.
Talk about timing, here’s a The Associated Press telling us about how the Weather Channel has been accused of selling its users’ personal data. The City Attorney of Los Angeles is pursuing this matter. The article states:
He said 80 percent of users agreed to allow access to their locations because disclosures on how the app uses geolocation data were buried within a 10,000-word privacy policy and not revealed when they downloaded the app.
“Electric Avenue” is but one of numerous great articles in the current issue of MIT’s Technology Review. It’s important to look at electric car adoption in China as it points to a smart economic policy on China’s part. Electric vehicles (EVs) have hundreds if not thousands of fewer parts and do not create the atmospheric issues that traditional vehicles do. You get the sense that the government will use simpler, cleaner and natively created vehicles to lessen their dependency on non-Chinese automotive and petrochemical companies. One statistic in this article caught my eye: it costs $14,000 to get a license plate for a traditional vehicle in Shanghai while an electric vehicle costs nothing to license. Just remember, according to this article some 487 EV companies have launched in China since 2013. In high-tech, auto and other sectors, the prevailing wisdom was that as California goes so goes the rest of the country or the world. The pendulum may be shifting to China.
“Land of Giants” is another article in the same issue. This piece details the race on innovations and patents underway between the United States, China and Japan. U.S. patent growth is essentially unchanged from 2016; however, China has been dramatically closing the gap. While the article does point to some questions about the quality or efficacy of some of the innovations coming from China, it’s the overall trend that one should pay attention to as it only takes a few of these thousands of patents to deliver real value to its owners (or nation states).
Barron’s piece “Corporate America Signs Up for a New Deal” is all about the subscription economy. The authors seem to think that “the subscription model is changing the relationships between customers and companies”. Apparently, they didn’t read my piece “The SaaS memo most ERP vendors missed”. The Barron’s piece does have a lot of good data within in; however, the full move to a subscription mindset was mostly lost on many in the ERP vendor world. I can tell you that few clients of mine can see much different from a pre-/post-SaaS ERP vendor based on their business practices.
“A Company That’s Helping Build China’s Panopticon Won’t Stop There” in BusinessWeek is a story about electronically monitoring 1.4 billion human beings in real-time in China. The company behind this is SenseTime and the story should rattle anyone who values their personal liberty and freedom. In a related piece, you might find this Guardian article also interesting.
HR in the News
Back to the Wall Street Journal, we see this piece “For Job Recruiters, These Are Trying Times”. Talk about mixed feelings…. This article describes bad candidate behavior of late. People aren’t showing up for interviews, recruiters aren’t getting commissions, etc. That is bad behavior and it should be called out. However, I’m not sure recruiters are exactly blameless either.
From the recession of 2008/9 onward, the power balance was decidedly one-sided: employers (and recruiters) were on one side with all the chips while jobseekers were left begging for anyone’s attention. Today, the labor market is constrained and the shoes are on the other feet.
What employers and recruiters should have been doing all these years is develop relationships with passive jobseekers. They chose not to do so. Now, the chickens have come home to roost.
Recruiters might find more grateful and appreciative job candidates if they looked at more under-employed, self-employed, contingent, older and minority candidates. As an older, self-employed individual, I’d welcome a call, anytime, from a recruiter, but I know it will not happen.
The Month Ahead
Acumatica and Zoho both have events this month. I’m doing a call with CuroComp, a compensation management startup with great customers to their name. Colleague Vinnie Mirchandani and I are in a race to see whose book will get published first. Should be a fun month….
