Data Sheet—Thursday, September 25, 2014

Good morning, Data Sheet readers. Did you know two-thirds of Ericsson’s revenue comes from software? Or that the BBC is one of its biggest media customers? I spoke with CEO Hans Vestberg about recent cloud software investments and the coming “techno revolution” in network services. Read on for interview excerpts. Plus, Cisco has taken itself off the list of EMC suitors, but a group led by Goldman Sachs may take over messaging company Perzo.

Secure instant messaging for trading desks? Goldman Sachs is apparently behind a group of banks and financial services firms considering a buyout of Perzo, which makes messaging and collaboration technology secure enough to appease the compliance police. The rationale: create a cost-effective alternative to Bloomberg terminals. WSJ

Nope, Cisco doesn't want EMC either. Even though the two companies are close partners in data center technology (via the Virtual Computing Environment coalition), CEO John Chambers told The Wall Street Journal there's no interest in an acquisition, although a deal would have made sense a couple of years ago. Talks with Hewlett-Packard and Dell have failed to produce a deal.

Adobe quits research and development activities in China. Officially, the company is consolidating engineering teams in fewer locations for efficiency's sake, but the buzz is domestic antitrust scrutiny and the country's high rate of software piracy made a Chinese exit attractive. Fortune

Hackers demonstrate more ingenuity. Federal security experts believe the previously unseen malware that compromised more than 56 million credit cards at Home Depot was customized specifically for its network. Meanwhile, if your company uses Linux or Unix servers (this means you) you'll want to know about the "Shellshock" flaw, which lets intruders stick unauthorized code on them. The flaw is being compared to the massive Heartbleed problem that emerged last year, affecting more than 500,000 websites. Wired

CLOUD CHATTER

Microsoft creates "bug bounty" for finding security flaws. The company already pays researchers and technical experts to find vulnerabilities in Windows and Internet Explorer that could be exploited by hackers. Now, it's extending the program to its cloud services, starting with Office 365. eWeek

STATS & SPECS

AMD wants more enterprise respect. Desktops and notebooks running on chips from Advanced Micro Devices traditionally appealed to consumers than businesses, but it's tired of playing second fiddle to Intel. New processors shipping this fall include high-end graphics and security features meant for corporate applications, which could double the number of AMD-based options by year-end. Both Hewlett-Packard and Lenovo are on board with systems. Dell is still a holdout. eWeek

STARTUPS & DISRUPTORS

Big bucks for information management upstart. Magnitude Software, formed in April through the merger of Noetix and Kalido, has raised $100 million from private equity firm Audax Group. The company already has about 600 enterprise customers that use it for business intelligence, data warehousing and analytics.

Turn tables faster with tablets. Intel Capital and Romulus Capital are leading a $35 million financing round for E la Carte, which makes touchscreen systems that diners use to order and pay for food. Applebee's just became a national account after a 30-location pilot, and the company expects to process approximately $1 billion this year. It makes money off monthly subscriptions. TechCrunch

More mobile apps, please. Kinvey, which makes technology for writing mobile apps, has raised $10.8 million in a round led by Japanese carrier NTT DoCoMo and Verizon Ventures—barely one week after Red Hat paid $81.8 million for rival FeedHenry. Kinvey's customers include Aetna, Bayer, Johnson & Johnson, Schneider Electric and VMware.

CONNECTED

How Ericsson simplifies network services innovation

A decade ago, almost 75% of Ericsson's annual sales came from hardware. Last year, almost two-thirds of its roughly $31.5 billion in revenue (based on current exchange rates) came from software and services. CEO Hans Vestberg is pushing for more.

That plan came alive this week in two separate, but very much related developments: the Swedish company's decision to buy a majority stake in cloud company Apcera (its fourth such investment in two months), and an overhaul of its core network technology that makes it far easier for Ericsson's customers to turn on new features or services with software upgrades rather than hardware retrofits.

In 2010, Ericsson managed several dozen different hardware and software architectures, not an unusual model for the telecommunications industry. But the push to cloud services means it's time to simplify.

"We decided by 2015, we want to have three hardware platforms, two to three software stacks," Vestberg told Fortune, while visiting New York for investor meetings. "When we did that, we also decided that wanted to virtualize all our products for the future. You can buy them per capacity, buy them per how much they are used. We couldn't do that in our industry before, it was impossible."

Where will that future take Ericsson, especially in light of competitor Huawei Technologies' new plan to spend $4 billion on research and deveopment over the next four years?

You probably know approximately 40% of the world's mobile traffic rides on its technology, but you might not realize Ericsson also stands behind the vast video resources at media giant BBC. And that's significant. "I think that we are trying to put data communications, telecommunications and media communications together and be the No. 1 player there," Vestberg says. "They have never come together before, they will come together in the next five years."

We asked him to put that transition into context. His comments were edited for clarity and brevity.

Why is this important now?

We are in the second era of one of the biggest techno revolutions we have ever seen. Every techno revolution has two phases. In the first phase, you build the technology. Think about the last 30 years, up to 2010. There were only three services you could get from a network: fixed broadband, voice and SMS. All networks were built for that. Then a lot people came along who discovered you could come do a lot of things on that network that had nothing to do with it: Google is a perfect example. Facebook is another one. Now they are innovating on that, and that's the phase we're moving into. If you want to take advantage of this, you need to change the way your technology is set up, because everything is set up for voice, SMS and fixed broadband. Some [service providers] might decide to deliver connected cores, machine-to-machine [applications], healthcare solutions. This will mean connecting private clouds with telecommunications clouds, and the only way to do that is with a virtualized platform.

How does this recast Ericsson? People think of you as an equipment provider.

Historically, Ericsson has never segmented our customers. No need, they all were doing the same thing. But we see a tremendous segmentation of carriers. I will give you examples, and you'll understand what we're doing. No. 1 are the network developers. These guys say, "Hey, I don't care what happens on my network. I have a great network, it's not fancy, one flat fee for data. I don't care about SMS or voice, just one flat fee." Then you have the service creators. Those guys pour money into the IP network, they make it more aware, more smart, add everything from radio access to 4G [connectivity] to routing. They know they are going to deliver new types of data services, to new industries even. These two operators are very different, and they are investing extremely differently.

Connected is an interview series with leaders of innovative organizations. A longer version of this conversation will appear online. For Vestberg's perspective on the evolution of mobile networks—ones in underserved communities that will connect an additional 1 billion people within five years—see his video interview during Fortune Brainstorm Tech.

ONE MORE THING ...

Yes, Virginia, Apple can make mistakes, too. As is usual with Apple-related stories, reports that the iPhone 6 Plus could be more malleable that you expect (ahem) went viral as a problem dubbed "Bendgate." There's no comment on that concern, but Apple did acknowledge a flaw in the first iOS 8 update that messes with cellular service and its touch security feature. (Plus, here's a review roundup for BlackBerry's new square smartphone, Passport.)