Jim Mellon, in his recent article for Master Investor which was summarised in the IoM Examiner, said:
“My call – until very recently an appalling one – that the big internet platforms of Google (Alphabet) (NASDAQ:GOOGL) and Facebook (NASDAQ:FB) would soon be getting some comeuppance seems to be coming modestly right”.
Jim went on to justify his pessimism based upon the unrealised risks faced by the big internet platforms - most importantly regulatory risk. In the same edition of the Examiner my excitement for the future of Google was palpable - their new Quantum processor is a big deal.
Therein lies one of the major quandaries for IT leaders and business people choosing technologies and suppliers for their businesses - which suppliers are really sustainable? When you commit to a “strategic” technology supplier you are often taking a large gamble - making major purchase decisions on the assumption that they will still be able to support you in five or ten years from now.
Nortel Networks was a pre-eminent supplier of business telephony equipment (PBX systems, telephone handsets etc.). Founded in 1895, in Canada, it became a global leader, at its peak it employed over 94,000 people. In the UK the primary supplier of Nortel telephony systems was British Telecom, and a high proportion of UK (and Isle of Man) businesses relied upon Nortel equipment. I bought my last Nortel system, a large Voice over IP telephony upgrade to our existing PBX, giving us around 400 new IP telephony handsets and the networking and PBX infrastructure to support them, in 2006. A major purchase and before making it we also considered other premium telephony equipment suppliers including Avaya and Cisco. Avaya, Cisco and Nortel were three of the biggest suppliers globally, each sold and supported in the UK by British Telecom, each a “safe bet”.
Nortel went bust in 2009. My large high-tech telephony system continued to work, but of course ongoing support for this expensive tech investment, which we had expected to last for at least a decade, was uncertain. With the manufacturer dead we were reliant on the best efforts of British Telecom to support it. Maybe we should have bought an Avaya system instead - but Avaya filed for Chapter 11 Bankruptcy Protection in January 2017. Cisco is still going. The office in which I’m currently sat still has a working Nortel phone system - it must be about 20 years old, but if I were to ask Manx Telecom for a replacement system I guess they would probably suggest Mitel, which has established a strong position in the PBX market. Anyway, there you have it, two out of three major global telephony equipment leaders, each recommended and sold by the UK’s biggest telco, went bust in relatively short order, leaving many customers without manufacturer support or upgrades for telephony systems costing tens or hundreds of thousands of pounds.
The UK mainframe and mini-computer market saw a similar turmoil; in the mid 1980’s the three biggest computer suppliers in the UK were IBM (International Business Machines), ICL (International Computers Ltd.), and DEC (Digital Equipment Corporation). IBM and DEC, both US companies, were numbers one and two worldwide. ICL was the biggest UK-based computer maker. The advent of the PC rapidly brought the demise of both DEC (bought as a shell of its former self by PC manufacturer Compaq in 1998) and ICL (rescued by Fujitsu in 1990). IBM survives. Buying a mainframe is, like buying a large telephony system, expensive; the cost of the machine and the investment in compatible software and staff skills etc. means that these big tech purchases dictate long-term technology strategy for IT leaders who sometimes have to bet on the future for decades ahead.
Back to Jim Mellon. I suspect Jim made his comments prior to Google’s announcement of its new Quantum processor, and certainly prior to the Cambridge Analytica - Facebook voter-manipulation scandal which emerged on Monday last week. Within two days the Cambridge Analytica scandal wiped 13% off the value of Facebook. It has already been estimated that if the US Federal Trade Commission decides that Facebook is culpable for Cambridge Analytica’s access to Facebook customers’ data, the penalty to Facebook could be as high as two trillion US dollars - which would wipeout Facebook. Then of course there are the European regulators to consider, including the UK Information Commissioner - I really wouldn’t want to be in Mark Zuckerberg’s shoes right now. It is entirely possible that Facebook, which was worth half a trillion dollars on March 16th, could be toast by the end of next year - or sooner.
Which, as an IT manager, suddenly makes choosing Facebook’s fancy new employee collaboration offering, Facebook Workplace, look like a remarkably short-sighted option. Oops.
On the other hand, Google’s GSuite is on a roll with an increasing number of big corporates starting to understand the productivity benefits of software which was built from the outset for team collaboration. One of the latest converts is Airbus, which recently announced that it is throwing out Microsoft Office and replacing it with Google’s GSuite, for all of its 130,000 employees.
Back to Jim Mellon - looks like he might have been half right. Shorting Facebook was a great call and I hope he did before the scandal broke. I think though I’d bet long on Alphabet / Google, they seem to have so many of their bets coming in good that it looks like the only way is up. (This is not investment advice!).
Maybe Microsoft is not looking so hot though? Pending a rabbit out of the hat the increasing trend for big corporates to migrate from Microsoft Office to Google GSuite cannot be good for M$. Once you’re on GSuite you can easily dispose of PCs and Microsoft Windows:- ChromeOS on Chromebox or Chromebook is much cheaper to buy and manage (every edition of IT Matters has been written using Google Docs on ChromeOS). Microsoft Office and the Microsoft Windows PC operating system are Microsoft’s first and third biggest revenue generators, accounting for around half the software giant’s gross sales and the lion’s share of profit. As an IT manager I would not want to bet on using Microsoft for the long term - a five-year decision might be OK but a strategic commitment to using Microsoft PC technologies could be looking very flaky by 2025.
It’s in the nature of technology companies that they can rise in value and grow very, very quickly, but they can fold just as fast, and history shows us that size is no indicator of resilience. Most Isle of Man businesses are not of a scale to be heavily tied in to one technology supplier or another, but all of our larger businesses, and Government, are vulnerable to rapid changes in the fortunes of tech companies, as are most of our local ICT companies because their expertise is primarily based upon Microsoft technologies. A rise in the fortunes of Google and a corresponding fall in Microsoft could cause significant disruption to larger organisations and the ICT sector here on the Isle of Man.
Some of you will remember Friends Reunited - a social network site which emerged in 2000, experienced meteoric growth, and was by 2005 the most popular of its type with many millions of users. Facebook, founded in 2004, was initially restricted to users in the USA. In 2006 it opened up to users in the rest of the world, and by March 2008 Friend Reunited was a basket case having lost half its users in the previous 12 months. Few large Isle of Man companies would be seriously impacted by a collapse in Facebook, but a broad swathe of smaller local B2C enterprises would find that their primary marketing and customer outreach platform had evaporated, leaving them floundering for new ways to engage with local consumers. I would not currently bet on Facebook still being with us in 2020.
Strategic selection and acquisition of technology is one of the most difficult aspects of IT leadership. I am on record elsewhere are stating that there is no such thing as IT Strategy. That’s not to say that big IT decisions are not strategic, but they are all about Business Strategy. Technology itself should be regarded as tactical and disposable - it certainly won’t last forever and it probably won’t last as long as you hope.