Quick Thoughts: TMT heavyweights weigh in at #CodeCon


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Quick Thoughts: TMT heavyweights weigh in at #CodeCon

  • The inaugural CodeCon conference featured big hitters from MSFT, GOOG, AAPL, QCOM, INTC, CMCSA, NFLX, S, CRM, WDAY, TWTR, and WMT, often with real news to announce
  • MSFT’s real time translation, GOOG’s control-less autonomous car, and the consummation of Apple’s Beats deal were the biggest surprises, but frank talk on issues important to investors was typical.
  • Nadella of MSFT and Son of S offered aggressive new visions. CMSCA’s Roberts and NFLX’s Hastings traded barbs about net neutrality, CRM and WDAY’s CEOs touted a new paradigm for computing.
  • AAPL’s Eddy Cue promised best new products in 25 years by year end, Dick Costolo promised to fix TWTR’s user experience in the same timeframe. Investors will hold them to that.

The gang at (Re)Code made a big splash with their first conference since breaking away from the Wall Street Journal and their former All Things Digital brand. This year’s inaugural Code Conference boasted a who’s who of TMT speakers sitting in signature red chairs including Microsoft’s Satya Nadella, Google’s Sergey Brin, new Google head of Devices Tony Fadell from Nest, Apple’s Eddy Cue and the first post-Apple acquisition appearance by Beats’ Jimmy Iovine , Netflx’s Reed Hastings, Qualcomm’s Steve Mollenkopf, Softbank/Sprint’s Masayoshi Son, Intel’s Brian Krzanich, Comcast’s Brian Roberts, Salesforce.com’s Marc Benioff appearing with Workday’s Aneel Bhusri, WalMart CEO Steve McMillon, and Twitter’s Dick Costolo. With so many hitters taking the stage, especially ahead of major annual events like Apple’s WWDC and Google’s IO, there was no shortage of news. Here’s our quick run down of what went down at CodeCon.

Microsoft: The conference kicked off with Microsoft CEO Satya Nadella in his first public interview. Nadella spoke about his vision for the future of Microsoft in a “post-post-PC era”, a surprise for company that had long publicly pushed “PC-plus era” as an alternative to the Steve Jobs coined “post PC era.” Nadella downplayed windows and emphasized Microsoft’s cloud activities, reminding everyone that Azure was built on the back of the company’s investment in Bing. In the middle of the interview, Nadella took a break to demo a new instantaneous translation application for Skype, showing the service translating a conversation between English and German speakers. It was impressive, it is something that Google and Apple can’t do right now, and it showed the depth of Microsoft’s cloud capabilities and its computer science talent. With Microsoft’s future clearly in the cloud, I think Nadella is the right guy at the right time.

Google: Google co-founder and mad scientist in residence Sergey Brin closed day one at the conference with a candid conversation about the company’s Google X moonshot programs. Brin had pointed criticism for NSA spying and deflected criticism of his own company’s data gathering asserting that Google’s commitment to privacy and the open scrutiny of its services offered strong protection for its users. The big reveal was a Google-built self-driving car with no steering wheel or control pedals. The clownish-looking electric vehicle enables far more sensitive and comprehensive sensors than the previously demonstrated retrofits, greatly raising the bar on safety for both passengers and pedestrians. Brin envisions fleets of similar vehicles efficiently shuttling passengers, saving money, time and the wasted real estate devoted to parking. While Brin allowed that his vision was years away, GM product development head Mark Reuss later commented that Google could evolve into a “serious competitive threat”.

A day after Brin’s interview, Google acqi-hire and CEO of Nest, Tony Faddell took to the stage. Faddell shared a vision of areas ripe for innovation beyond his company’s thermostats and smoke detectors, such as health, security and all other things associated with the home. He spoke of the importance of software, alluding to the possibility of many home apps that don’t require much in the way of new hardware. However, as a long time former Apple employee, it is not surprising that Faddell refused to offer any specifics about plans for future products, and was coy in responding to talk that Google was circling connected security camera maker Dropcam. Faddell was also adamant that the company remains autonomous as part of Google and that it doesn’t share data with its new parent. Google’s next moves in this space will be intriguing, particularly in light of rumors that Apple will announce an integrated home control app for iPhone at next week’s WWDC event. Perhaps this could draw a response at Google’s own I/O conference two weeks later.

Apple:  Just hours after finally announcing its long rumored $3B acquisition of Beats, Apple reshuffled its representation at the conference, replacing Software Engineering head Craig Federighi with Beats co-founder and long-time “friend of Steve” Jimmy Iovine in a panel that also featured Apple’s SVP of Internet Software and Services Eddy Cue. For all the banter over headphones and hip hop culture, the deal seems an admission of weakness. It’s troubling to think that Tim Cook didn’t believe Apple could build a high end headset business or a streaming music service without outside help. Moreover, with the entire recorded music industry now generating just $10B in sales, it’s hard to see how Beats can move the needle for a company the size of Apple. Then again, Jimmy Iovine probably knows some guys in the TV business. Here, Eddy Cue owned up that despite cumulative sales of more than 20M Apple TV boxes, “TV still sucks” and that Apple was still “working on it”. Apparently they must be working hard on TV and on other new products, as near the end of the session, Cue made a bold statement about Apple having the “best product pipeline” he’s seen at Apple in the last “25 years.” That’s big talk from the company that gave us the iPod, the iPhone and the iPad over that stretch. This further fuels the hope that Apple can innovate itself out of its growth doldrums with “one more thing” to add to its roster of game changing devices. We’ll see if Apple can walk this talk.

Intel: Intel’s CEO Brian Krzanich admitted that his company blew it in mobile, taking way too long to realize that people won’t be gravitating back to their PCs. He’s not giving up on mobile, expecting that Intel can grab 15-20% of the tablet market, and at the same time, expects to dominate cloud data center processors and will make a big play for wearable computing. To that end, Krzanich was sporting a prototype smart shirt that monitors the wearer’s health. This may have been the point that the whole wearable computing craze finally jumped the shark. It’s been a long time since Intel really led the way in anything other than semiconductor fabrication process technology, and this presentation gave me little reason to believe that they were ready to take the lead in anything now.

Qualcomm: Qualcomm’s Steve Mollenkopf was one of several newly minted CEOs on the docket for CodeCon, and he quickly credited the strong culture fostered by his father and son predecessors Irwin and Paul Jacobs. Mollenkopf followed Google’s self-driving meme, touting his company’s work on computer vision technology, a key component to autonomous vehicle solutions and, likely, a feature of future smartphones and tablets. Indeed, sensors, like machine vision, are an obvious next move for Qualcomm, which already dominates the market for LTE modems and high end device processors, and is attacking with its 40 band radio chip solutions. Qualcomm is an R&D juggernaut, keeping its extraordinarily lucrative patent licensing business evergreen and spurring its entry into new chip categories adjacent to its powerful wireless franchise. Mollenkopf didn’t drop any bombshells at the conference, but exuded considerable confidence about his company’s position in an increasingly wireless world.

Salesforce/Workday: Salesforce.com CEO Marc Benioff and Workday CEO Aneel Bhusri took to the stage in a joint interview to sketch out what in their view is once every 10-15 years paradigm shift occurring in enterprise IT. Benioff calls it a “glorious third wave of computing,” while Bhusri sees the legacy vendors struggling as “we’re probably three to four years into a 15-year cycle.” Both CEOs see their companies out ahead of a land rush that will end with almost every routing business process running on software in the cloud. While Salesforce.com and Workday are clearly present day leaders, I think it’s still early to call winners in SaaS as the plummeting costs for the biggest cloud hosting players – Amazon Web Services, Microsoft Azure, and Google Compute Engine – have eliminated barriers to entry for new enterprise application players. Older players, like Salesforce and NetSuite, built on ‘90’s vintage data center architectures and without massive consumer franchises to drive scale economies, face their own future transitions to modern infrastructure well before the “glorious third wave” is over.

Twitter: Former standup comedian and Twitter CEO Dick Costolo took the stage with TV and radio personality Ryan Seacrest to talk Twitter, its impact on media, and future growth. Seacrest played the pitchman, extolling the virtues of Twitter for his triple-threat roles as radio DJ, TV host and production mogul. Costolo got the tough questions, acknowledging his company’s apparent shortcomings, particularly around user experience and improving the relevance of tweets appearing on user timelines. The company is working to revamp its app to enable its users to find relevant content more easily, a job that is almost certainly being given the highest attention with Google Maps vet Daniel Graf now in charge. Costolo also griped that the company’s active user counts seriously understate the number of people exposed to tweets given widespread use of Twitter content across other media. This may be true for Twitter’s cultural relevance, but I doubt that advertisers care all that much about the “hashtags” segment on the Tonight Show Starring Jimmy Fallon. Still, despite management having dropped the ball on subscriber growth, Twitter’s monetization is on fire – ad revenues were up 125% in 1Q14. When the company fixes its app and begins to aggressively court users, and I think they will before year end, user growth numbers will finally be a positive factor for investors.

Sprint/Softbank: Japan’s most charismatic CEO, Masayoshi Son of Softbank, killed it at CodeCon, drawing audible laughter for his riffs on the American telecom market. Son believes U.S. broadband is glacially slow and unreliable, asking “How can America live like this?” He blames his wireless competitors, the cable industry and regulators, all of whom he sees as blocking his ambitions, and thus, quality broadband for all Americans. Son refused to bite when asked to comment on a possible bid for T-Mobile, but his explicit praise of this competitor and its CEO John Legere spoke volumes about his interests. Masa’s vision is for a combined S/TMUS to take on not only T/VZ, but also CMCSA and the rest of the cable industry, lobbying for the FCC to consider telecom as a single market containing all of these players. I’m not sure that the FCC is going to buy his argument, and the road to approval of this, as yet, hypothetical deal may be inextricably tied to the commission’s ruling on the CMCSA/TWC deal that is already on their desks.

Comcast: NBC Universal is part owner the Re/Code media property, and Mossberg and Swisher gave their corporate master, Comcast CEO Brian Roberts, a proper grilling. Comcast is currently trying to justify its proposed acquisition of Time Warner Cable to regulators and a weary public. Should the deal go through, Comcast will have 30% of the pay TV market and be the internet provider to some 40% of US broadband households. Roberts dismissed concerns over US internet performance arguing the US has respectable speeds, despite coming in 31st in average speed amongst the nations measured by Speedtest app maker Ookla. According to Roberts, American households, 60% of which have no choice other than cable modem for internet service fast enough to support HDTV streaming, have “plenty of choices” for TV and broadband. Roberts also deflected questions about his company’s abysmal reputation amongst consumers, chalking it up to having to take the blame when content providers raise their prices. He also defended Comcast’s intention to collect fees from internet content providers as well as consumers, pithily saying “it’s time to pay the postman”. I wrote at length about the net neutrality kerfuffle at the heart of this controversy in my previous blog post, and I’ll summarize my thoughts: Comcast is the biggest and most powerful player in a broadband and PayTV oligopoly that is extracting extra-normal rents from consumers in the form of artificially high prices and woeful service. Allowing the Comcast/Time Warner Cable merger to consummate will only make them bigger and more powerful, making it all the harder to nurture the true competition that could resolve the situation

Netflix: A day after Roberts took the stage, Netflix CEO Reed Hastings closed the conference going on the offensive, accusing Comcast of taxing the internet and calling cable a virtual monopoly. For Hastings the issue of net neutrality would be moot if cable companies had competition for high-speed residential Internet, but in his view, and mine, they don’t. Hastings noted: “They (Comcast) want the whole Internet to pay them for when their subscribers use the Internet”, adding that the quality of service on Comcast had deteriorated so much for Netflix subscribers, that he had no choice but to pay for a faster connection via the February interconnect agreement. Obviously, Hastings is against Comcast’s pending Time Warner Cable merger. Aside from his cable tirade, Hastings also talked about content and his plans for Netlflix. Original content reception has been strong and without mentioning any concrete metrics, he noted the second season of “House of Cards” has such “a huge audience that would make any cable or broadcast network happy.” Responding to questions about acquiring live programming rights such as for sports, he noted that Netflix doesn’t have the bandwidth to serve live content and doesn’t have the money to spend on it. Hastings though remains committed to expanding to international markets and scaling to the size of YouTube globally.

For our full research notes, please visit our published research site.

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