As the new year approaches, a look ahead tells me there are companies doing well now who undoubtedly will be doing less well and companies that you may never have heard of that nevertheless have the potential to be stars in ’06. Let’s talk about the companies at risk first, and next week, I’ll review some of the firms I believe to be potential emerging stars. At the end of this column, and for every one from now until Christmas, I’ll also include an unusual technology gift recommendation.
Sony: The Pain of Conflict
Sony’s pain became highly visible last month with its rootkit fiasco which resulted in an increasing number of recommendations that you not buy from that company. Sony’s mistake was so big I later called it out as the equivalent of a 9-11 event for the tech market that will form the foundation for one of the core security trends for next year.
Sony’s interests on both the consumer and content side have, instead of giving them what should have been a massive competitive advantage, allowed a company like Apple who was better able to focus on customer needs, to virtually take over a market in two years that Sony largely created.
This latest problem goes well beyond the inability to compete — it virtually eliminated Sony’s ability to market effectively against the Xbox and may have handed the game market to Microsoft on a silver platter. Like Apple depends on the iPod, Sony depends on the PlayStation and now, they may have lost that battle because of the misadventures of a completely different — and clearly clueless, Sony media unit.
Having this all happen in the fourth quarter, a critical period for Sony’s already underperforming TV and PC businesses, has me placing Sony on death watch for next year. A company needs to know who its customers are and be able to focus on them. Currently Sony appears unwilling, and probably unable, to do that and survival may now be elusive, success impossible.
Google: Too Much Success Too Soon
Google started off so well, but its fate may be similar to that of so many who have won lotteries: too much good too fast can lead to really bad things. In noticing what appears to be an increase in Google’s arrogance along with what could be a building backlash I asked the question a few weeks ago about whether Google was the “New Evil Empire”. News out recently on an expensive corporate jet purchase and other wealth-related stories like this often don’t sit well with a broad cross section of the company’s fan base.
More and more, the stories seem to be focused on what appears to be executive expense abuses and no matter how wealthy you are if you don’t practice good personal expense policy as a top executive, you can expect your employees to follow your lead. The dot-com years were full of stories of companies that got out of hand with expenses. Many seem to forget that Google is actually a dot-com company itself.
A bigger problem, however, is a growing awareness that Google’s search service has a problem. On November 7, Nicolas Carr wrote that search is becoming a commodity and that the switching cost for moving from one search provider to another is incredibly low. Google is king for now but MSN and Yahoo provide similar results.
Carr argues that Google may have lost its lead. More important companies like Apple, HP, Dell, Gateway, Lenovo and Microsoft own customers’ first point of contact with the Web — their customer’s browsers. Carr argues that if Apple defaults to Yahoo and Microsoft to MSN few would ever feel the need to change the default back. Some, like The Guardian’s Ben Hammersley, argue that Google has not only lost its lead but fallen behind Yahoo.
So much may come down to trust. A recent Wired column suggests that the once loved company is gradually following its predecessors to become not only unloved but untrusted. Trusting the company is one thing. What if people began to distrust the searches? Of course it doesn’t help that companies are increasingly developing skills to corrupt Google results. Some have clearly lost trust in Google and this appears to be a growing trend. With a low switching cost for search services, Google could be in dire straits next year.
IBM: Death by CEO
I left IBM in the early ’90s after authoring a report on what caused IBM’s collapse in the ’80s. Writing that report was probably more beneficial to me than it was to the company. This week I received another of what has been a string of letters from current and ex-IBM employees talking about unannounced layoffs.
Layoffs are used way too much by way too many companies. From my point of view — a view that is apparently widely shared, those who rely on this strategy too much are incompetent. I covered this general topic earlier this year, pointing out that more firms need to focus on retention than elimination if they want loyal employees and long-term success.
One of the things that struck me in studying IBM’s leadership in the ’80s was how the leaders were selling off IBM’s future to make their short-term numbers. Watching this occur at IBM resulted in my writing this column earlier this year when another letter brought some secret layoffs to my attention. The similarities to what I’d researched over a decade earlier became apparent.
With the loss of the PC division to Lenovo, IBM will lose its contact with the majority of people who currently invest in the company. With a clear focus on services and software and a clear lack of regard, and perhaps understanding, for the engine that Louis Gerstner built in the ’90s, the current CEO appears to be on a path similar to the one that nearly put the company under in the late ’80s. I can recall the glowing reports from the financial analysts right before the stock dropped catastrophically. While monitoring has improved, there is, in my opinion, far too little done to look underneath what a company publicly discloses to identify problems that may cripple future financials.
By eliminating the PC unit IBM lost much of its visibility to a huge number of potential and existing customers and by massively reducing marketing efforts, IBM will see its image decline along with its fortunes. As EDS has shown, services as a standalone business has issues right now and selling off the company sure didn’t work for AT&T.
Oracle: The Tech Enron?
As part of a rather lengthy project I’m attempting to determine if there are clear external signs that can be used to determine the kinds of failures that exemplified Tyco, Enron, and WorldCom for the technology market. One thing is common to all cases: a CEO who had an inordinate amount of power, indications of extreme personal extravagance, and a weak, often incredibly weak, CFO.
In terms of inordinate CEO power, Apple, Sun, Oracle, and Google make the watch list. When you move to indicators of extreme personal extravagance Sun and Apple drop off the list (yes — Steve Jobs has a jet, but it is a small one). Google appears to have strong financial controls but a deep disregard for financial practices, which should remain a red flag long term. Oracle, with a revolving CFO door and a CEO known for extreme personal extravagance and an insider trading problem, makes the top of the list.
Oracle’s last CFO, ex-Microsoft executive Greg Maffei, left because he “clashed” with other Oracle executives, one of them being his successor Safra Katz. But a CFO doing his or her job will often clash with other executives — that’s how you know he or she is doing the job right. I had the opportunity to interview Katz last year and concluded that her one clear skill was carrying out Larry Ellison’ s orders. If Maffei clashed with Katz he clearly clashed with Larry and, with him out, in my opinion, the protective layer that existed in Oracle is no more. This means Oracle, in my view, is most likely to see serious problems next year.
RIM: Picking the Guy to Turn out the Lights
Intellectual property problems continue to plague the tech industry and they just hit RIM right between the eyes. Last week, NTP’s request for a general injunction against RIM moved forward and RIM seems to be almost out of appeals. With the amazing partnership of Microsoft and Palm drooling after RIM’s corporate business and RIM really not having any consumer play to begin with, the company is in deep trouble.
The U.S. government is actually coming to RIM’s defense but the fact that it needs to should scare the heck out of large corporate and institutional customers. The one thing working for RIM is that NTP doesn’t seem to want them to go out of business yet and may pull back from this brinkmanship battle before Palm and Microsoft can get their competitive solution together. But I agree with folks like Bill Robinson who suggests that RIM is on a death march. If a company’s execs want to put a firm out of business I know they generally can. Of course if, say, Microsoft, were to buy NTP this would be over much more quickly. RIM has about six months and, if by then they are still under the NTP cloud they will literally given up the market to Palm and others and go to that technology graveyard in the sky. If the hot rumor that RIM will buy Palm is true, the outcome could change.
Apple: A Red Herring
Apple will face increasing competition next year, but the company has never looked stronger. The iPod and related offerings are almost unchallenged in the market and they appear to be weathering the Osborn effect of pre-announcing the Intel stuff incredibly well. All indicators are that their Intel-based products will kick some serious competitive butt when they show up and some are rumored to be showing up right after the new year.
I forecast Apple’s decline accurately in 1995 but since that time Apple has changed dramatically. They moved into the MP3 space and these products now largely carry the company. They revitalized their leadership and gave what was always a very strong marketing organization something to market, and they renewed focus on the user who rewarded them with increased sales.
Granted they are at war with their channel and one of the most visible players, Wal-Mart, has begun to move against them. But Wal-Mart isn’t exactly widely loved and this fight may only benefit Apple long term.
I’m no psychic, so I want to point out that while the trends look bad for all firms on this list besides Apple, all are capable of avoiding disaster if they act in time — as Apple has demonstrated.
Gift Idea 1: Pimping Their PCs or iPods
Every year I do a holiday buyers guide and I’ll be pulling standout ideas every week until the end of the year. The first suggestion? A paint job for a notebook or desktop PC. Oregon-based Smooth Creations does this for the major PC publications and tech companies and some of their work is incredible.
You send them your PC case or notebook and they turn it into a head-turning piece of art. Take a moment to check out their portfolio and you’ll realize that for many this could be a gift that they will treasure for years — even after they stop using the device. They painted a case for me and a laptop for my wife. My case started out looking like this. And ended up looking like this. It sits in my office and never fails to catch positive comments. I don’t even want to use it as a PC — it is more like office art.
The laptop uses color-morphing paint that changes color depending on the angle of the light source; it’s used for incredibly expensive show cars but is affordable on small items. This last is kind of unfortunate because now my wife wants her car painted this way.
This isn’t just for PCs, they’ll do iPods or anything else. If you go to their site check out the “Star Trek” iPod, the special “Lord of the Rings” Souron laptop and Hyperjade (similar to what my wife had done). It may be tough to get this done by Christmas but it stands out as a way to create a memory that could last for years.
Rob Enderle, a TechNewsWorld columnist, is the Principal Analyst for the Enderle Group, a consultancy that focuses on personal technology products and trends.