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Data Sheet—Monday, January 12, 2015

Jan 12, 2015

Happy Monday, Data Sheet readers. Apparently, EMC has convinced activist shareholder Elliott Management to back off (sort of) until September. Meanwhile, President Obama will push for stricter federal rules for disclosing and preventing cyber breaches.

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TRENDING

EMC adds two independent directors, with help from activist shareholder. Hedge fund Elliott Management has convinced the giant storage technology company to expand its board to 13 people. In exchange, the fund agreed to a “standstill” pact (albeit limited) until September. Elliott is very publicly pushing for a break up of the company’s “federation” model, through a spinoff of VMware.

The new directors are Jose Almeida, chairman, president and CEO of Irish healthcare products company Covidien; and Donald Carty, the retired chairman and CEO of American Airlines’ parent AMR (and also a past CFO of Dell).

Here’s Elliott’s statement about the appointment (via portfolio manager Jesse Cohen): “Both Joe and Don are strong and experienced executives, and we believe they bring invaluable perspectives to the board’s ongoing review of EMC’s strategic direction.” EMC Joe Tucci issued the requisite endorsement, too.

Many investors expect “meaningful” strategic changes in the February-to-March timeframe, notes investment banker Stifel in a report issued this morning.

Obama pushes faster corporate breach disclosure. The President will propose a single federal standard that requires companies to ‘fess up about cybersecurity lapses within 30 days of discovery. (That means pretty quickly.) Right now, state laws govern this. Meanwhile, exiled NSA whistleblower Edward Snowden thinks the U.S. should downplay the idea of “hacking back” after attacks. (His comments during a new PBS interview were in response to the ongoing Sony situation.) Snowden said: “We’re creating a class of Internet security researchers who research vulnerabilities, but then instead of disclosing them to the device manufacturers to get them fixed and to make us more secure, they sell them to secret agencies.” New York Times

Ellison’s ‘trusted soldier’ gets a promotion. India-born engineer Thomas Kurian is one of the Oracle chairman’s closest confidants. He’s now president of software development, squarely in charge of the company’s cloud strategy. (With his 70-year-old mentor, of course.) Reuters

RESEARCH & PREDICTIONS

Lenovo, HP and Dell: Still the PC big three. Collectively, the three powerful manufacturers accounted for 52.1% of all personal computers sold during 2014. (That doesn’t count the fourth quarter, but IDC forecast worldwide shipments of 300 million for the year.) The company most likely to break that hold: Apple. ZDNet

Slower spending. Prominent forecaster Gartner thinks $3.8 trillion will be spent this year worldwide on software, data center equipment, telecommunications services, and other business technology. That represents a slower rate of growth than it previously thought, mainly because of the rising U.S. dollar.

POLICY & STRATEGY

When did Intellectual Ventures get so sensitive? Lawyers from Symantec, the defendant in one of its ongoing patent suits, aren’t allowed to call the holding company a “patent troll” in court. So there. Bloomberg

STARTUPS & DISRUPTORS

Is Shopify prepping IPO papers? The e-commerce software company, which powers 120,000 sites including one for Tesla Motors, is reported to be preparing an initial public offering in both the U.S. and Canada. Shopify was valued near $1 billion when it raised $100 million back in December 2013. Wall Street Journal

MongoDB adds $80 million in private funding. The database software company—which competes with the likes of Oracle—is still selling another $20 million in this latest round, according to a regulatory filing. Incidentally, it also has hired a new chief revenue officer, Carlos Delatorre, who has worked at several startups subsequently acquired by companies including BMC Software, Oracle and Symantec. MongoDB’s previous round of $150 million was in October 2013; at the time, the company was valued at $1.2 billion. TechCrunch

$18.5 million more for machine learning pioneer. Vulcan Capital is leading the Series B round in Dato (formerly called GraphLab). Also participating are Opus Capital, New Enterprise Associates, and Madrona Venture Group. Total funding so far is $25.25 million. Applications for Dato’s predictive analytics technology include fraud detection and sentiment analysis. High-profile accounts include Adobe, Cisco, PayPal, and Zillow.

Citrix buys storage virtualization company Sanbolic. Terms of the deal weren't disclosed, but the intent is to "optimize" the performance of the Windows applications being accessed using virtual desktop software. More than 200 Citrix customers already use Sanbolic's technology.

CLOUD CHATTER

Policy violations on the rise. More unsanctioned cloud applications are creeping their way into big businesses, including to an analysis by Netskope (which sells security software). Even more concerning: close to even The more concerning stat: close to 90% of them don’t meet typical audit, security or disaster recovery requirements. eWeek

ROAD SHOW PITSTOP

5 takeaways from Box’s books

On the morning of Jan. 9, Box CEO and co-founder Aaron Levie posted this not-so-cryptic tweet: “Well that certainly took a while.”

The 29-year-old entrepreneur will be far more quiet for the next two weeks, as he races to brief potential shareholders on the cloud file-sharing and collaboration company’s eagerly awaited IPO. Right now, the offer could price as early as Jan. 22.

Bad timing derailed the company’s initial IPO dreams in mid-2014. Now, Box seeks to raise at least $137.5 million through 12,500,000 shares of Class A common stock on the New York Stock Exchange (under the entirely appropriate symbol, BOX). The tentative offer price range is a modest $11 to $13. That values the 10-year-old company at substantially less than the $2.4 billion number bandied about after Box’s last private equity round.

Here’s part of Levie’s core pitch, from its 230-page-plus prospectus:

At an organizational level, as people become more mobile and networked, the linear, process-centric ways of working that dominated the mainframe and PC eras of technology are neither tenable nor warranted. Mission-critical workflows should be as simple as sharing an update on Facebook, whether it’s Pearson’s editors collaborating on new educational content around the globe; Wasserman Media Group sharing content seamlessly and efficiently with their key client and media partners; or Eli Lilly delivering up-to-date information to its distributed teams.

Yes, they’re all customers, as is more than 48% of the Fortune 500. Some of its biggest accounts: Molson Coors, Chevron, New Balance Schneider Electric, Dell, eBay, Safeway, and Eli Lilly and Company. For the nine months ended Oct. 31, 2014, the company counted more than 32 million registered users. Revenue for the period was $153.8 million, up 80% from the previous year. But the company is still burning an enormous amount of money on sales and marketing, $152.3 million for the same period. And about 50% of the proceeds from the IPO will go toward (you guessed it) more investments in that activity, as well as product development and administrative processes.

Soon, we’ll see if the public market “buys” Box’s mantra of empowerment for information workers. Meanwhile, here are five metrics that I hear discussed less often.

  1. Long legacy of losses. Box doesn’t expect to be profitable for the “foreseeable future.” As of Oct. 31, it had accumulated a deficit of $482.7 million. And, no, I don’t think this is surprising, either.
  2. New order growth is healthy. During the same period referenced above, at least 60% of the software company’s new orders were for new enterprise customers (defined as companies with more than 1,000 employees) or for additional services within existing accounts. The latter is where the company model starts to pay off over the long-term; sales and marketing expenses are dramatically lower for renewals.
  3. You’ll need a crash course in customer retention rates. Billings are a key performance metric for cloud software companies, since they reflect the multi-year nature of many corporate subscriptions. For the nine months ended Oct. 31, Box reported billings grew $164.4 million, compared with $112.7 million in the year-earlier period. Box also touts its customer retention rate, which it estimates at 130%. It reflects not just renewals, but upsells of more services. It calculates retention using contracts worth at least $5,000. “We believe our retention rate is an important metric that provides insight into the long-term value of our subscription agreements and our ability to retain and grow revenue from our customer base,” the company notes.
  4. It’s fighting an 18-month-old patent dispute. OpenText (which describes itself as Canada’s largest software company) filed suit against Box in mid-June 2013; although the scope of its claims were reduced, the case is still active.
  5. Class A shareholders won’t have much say. That’s because 98% of the voting power remains concentrated in the hands of the company’s Class B investors, including the executive team, employees and directors. (Each Class B share gets 10 votes to one for each Class A.) “This will limit your ability to influence important transactions, including a change in control,” the prospectus explains.

FOR YOUR INNER TECHNOPHILE

Technology that speaks to you, regardless of your language. Google is preparing updates to its almost-real-time mobile translation apps—already downloaded more than 100 million times. Advances in machine learning technology are making these services far more fluent. NYT

ONE MORE THING

Attention getter. Sure, Facebook isn’t adding new members as fast as LinkedIn, Pinterest, Instagram or Twitter. But Pew’s ongoing usage research found almost 70% logged into the social network on a daily basis, up substantially from last year. Twitter, on the other hand, reported an even bigger drop. WSJ

MARK YOUR CALENDAR

National Retail Federation: Technology showcase. (Jan. 11 - 14; New York)

IBM ConnectED: Collaboration and digital experience. (Jan. 25 - 28; Orlando, Florida)

IBM Interconnect: Cloud and mobile strategy. (Feb. 22 – 26; Las Vegas)

Gartner CIO Leadership Forum: Digital business strategy. (March 1 – 3; Phoenix)

Microsoft Convergence: Dynamics solutions. (March 16 – 19; Atlanta)

IDC Directions 2015: Innovation in the 3rd Platform era. (March 18; Boston)

Cisco Leadership Council: CIO-CEO thought leadership. (March 18 - 20; Kiawah Island, South Carolina)

Gartner Business Intelligence & Analytics Summit: Crossing the divide. (March 30 – April 1; Las Vegas)

Knowledge15: Automate IT services. (April 19 – 24; Las Vegas)

RSA Conference: The world talks security. (April 20 – 24; San Francisco)

Forrester’s Forum for Technology Leaders: Win in the age of the customer. (April 27 - 28; Orlando, Fla.)

MicrosoftIgnite: Business tech extravaganza. (May 4 – 8; Chicago)

NetSuite SuiteWorld: Cloud ERP strategy. (May 4 – 7; San Jose, California)

EMC World: Data strategy. (May 4 - 7; Las Vegas)

SAPPHIRE NOW: The SAP universe. (May 5 – 7; Orlando, Florida)

Gartner Digital Marketing Conference: Reach your destination faster. (May 5 – 7; San Diego)

Annual Global Technology, Media and Telecom Conference: JP Morgan’s 43rd invite-only event. (May 18 - 20; Boston)

HP Discover: Trends and technologies. (June 2 - 4; Las Vegas)

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