Identity crisis

By Heather Clancy
June 7, 2016

We often use this space in Data Sheet to discuss exciting rise (and occasional comeuppance) of high-growth tech startups. The release of the annual Fortune 500 list is a great reminder that, oh right, the country’s largest, most powerful tech companies are not necessarily the ones that get the most press attention.

Setting aside Apple, Alphabet, and Amazon, the top of the Fortune 500 list is dominated by old-line tech stalwarts like IBM, Intel, Cisco Systems, Qualcomm, and EMC, and the telecoms—Verizon, AT&T, and Comcast. Check out the 2016 list of Fortune 500 tech companies here.

One thing these tech giants have in common is that they need to transform themselves in the face of flat or shrinking growth. They’re doing major M&A deals, installing new leadership, and (in many cases) investing heavily in new technologies.

That dynamic was on full display for me this weekend, which I spent alongside Fortune 500 executives and startup CEOs at a summit hosted by Greycroft Partners in Montauk, at the tip of New York’s Long Island. Just about every BigCo executive who spoke expressed a desire to be more lean, agile, and fast-moving like a startup. Meanwhile, the startup founders yearned for stability, resources, and credibility garnered by big, established businesses. (This is especially true of the “unicorns” that are stuck in limbo—unable to go public, but too big, with billion-dollar-plus valuations, to be acquired.)

The intersection of old and new makes the entire tech industry look like it’s having an identity crisis. Nowhere is that more striking than with a side-by-side comparison of Fortune’s Unicorn List and its ranking of Fortune 500 tech companies.

Consider this: Uber, the biggest unicorn, is now more valuable (on paper) than the vast majority of the Fortune 500. But if it were public, it would not have made the list. The company’s reported net revenue is over $1 billion; Burlington Stores, No. 500 on this year’s list, had $5.1 billion in revenue. While hype might dominate the headlines, in the long run revenue and profits will always matter more.

Erin Griffith is a writer at Fortune. Follow her on Twitter or drop her an email.

This essay is part of “A Boom With a View.” Find past editions of Data Sheet.

 


BITS AND BYTES

Four top Cisco executives head for the exit. A quartet of senior vice presidents—Mario Mazzola, Prem Jain, Luca Cafiero, and Soni Jiandani, collectively known as “MPLS”—resigned over their roles after a reorganization that was disclosed last week, reports The Wall Street Journal. The team, who joined Cisco in 1993 through an acquisition and helped the company expand into network switching equipment, have been behind several successful “spin ins,” companies that were started outside Cisco’s walls and then later integrated back into the company. (Wall Street Journal)

Verizon still the front-runner for Yahoo. The telecommunications company was planning to offer approximately $3 billion for Yahoo’s core Internet business assets before a Monday deadline, reports The Wall Street Journal. Private equity firm TPG is also believed to still be in the running. The Internet giant once hoped to attract bids of $4 billion to $8 billion. (Wall Street Journal)

Supreme Court won’t hear Google’s appeal over ad lawsuit. The Internet giant must face a class action case brought back in 2008 in California by advertisers unhappy with scenarios in which their ads showed up against error pages or “parked” website domains. Any settlement could represent advertisers who used the service between 2004 and 2008. (Reuters)

Cadillac will call on virtual reality to sell cars. By using VR simulations to show off the luxury vehicles, the General Motors division thinks it can cut down on expensive showroom inventory while showing off its cars to more potential buyers. (Wall Street Journal)

Is Japanese software company Line IPO-bound? In case you missed it, Bloomberg reports that the profitable messaging firm, which claimed 215 million monthly active users at the end of last year, is mulling an initial public offering in Tokyo and New York sometime in July. It could seek to raise between $1 billion and $2 billion, making it by far the largest tech IPO of the year (at least so far). (Bloomberg)

Intel won’t develop its own wireless charging method. Last week four of its executives stepped back from AirFuel Alliance, one of several organizations working on technology for charging notebook computers through airwaves rather than requiring a cord. The company intends to focus instead on helping computer makers validate their own approaches to this problem. (Fortune)


THE DOWNLOAD

Why SaaS consolidation isn’t happening. The software industry has come a long way since 1999 when Marc Benioff decided to build a contact management system called Salesforce.com and offer it as a web application. This simple idea changed the software landscape and created a wave of innovation unlike anything we had seen before in enterprise software. By moving applications to the cloud the industry democratized enterprise software and made it broadly available to organizations of all sizes. Today even the smallest companies have access to the same powerful tools that 10 years ago were available only to the largest of enterprises.

The software-as-a-service (SaaS) market has become very crowded, and the general consensus is that the ecosystem will eventually begin to consolidate. And yet, we have seen very little evidence of it happening.

Part of the reason may be the high valuations in the private markets. Or it may be that the acquirers have become rather concentrated themselves. And part of it may be that something fundamental has changed, writes August Capital partner Villi Iltchev, who was previously part of the leadership teams at Box and Lifelock. He believes this is the crux of the matter: It’s a lot more complex and difficult to create value via acquisitions. (Fortune)



ONE MORE THING

Restaurant chain Wingstop lets diners order via social media. The company will now accept orders for its 900 restaurants via chat conversations on Twitter or Facebook Messenger, joining the list of organizations, including Domino’s, that are dabbling with this process. Wingstop started accepting online orders in 2009. They now represent about 15.8% of total sales. (Fortune)


This edition of Data Sheet was edited by Heather Clancy.

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