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Data Sheet—Wednesday, February 4, 2015

February 4, 2015, 1:48 PM UTC
Fortune

Good morning, Data Sheet readers. I don’t normally fawn over new products, but SAP and VMware have pretty much everything to prove with their latest software updates. Plus, Microsoft is methodically overhauling how it charges for software. Here’s why you should care.

If you find this newsletter useful, forward it to colleagues and business partners, and tell them to sign up! Did you miss one? Here’s an archive of past editions.

TRENDING

Sony: Can we have an extension please? Its formal third-quarter financial report was delayed. (The accounting systems apparently didn’t survive the cyber breach.) Sony's best guess is that it made a profit for the quarter, but still will lose about $1.44 billion for its current fiscal year. One big drag: its Xperia smartphone business. Plus, it officially expects to spend $15 million cleaning up after its security incident.

More talk time! Chip designer ARM Holdings has speedier, energy-sipping smartphone processors on tap for summer 2016. You care because its technology is the guts for about 95% of the models on the market.

Come the fourth quarter, Yahoo Small Business will be on its own. The division's spinout is part of the company’s planned Alibaba share divestment.

SCUTTLEBUTT

PayPal’s retail strategy chief Don Kingsborough—the person who negotiated its relationship with Home Depot—has left the building.

After the breach. Target just replaced the security expert brought in to shore up its cybersecurity defenses with a new CIO, a specialist in analytics and supply chain optimization from UK retailer Tesco. Mike McNamara’s mandate (direct from the CEO): “further advance Target’s digital transformation.”

Know something about selling iPads? Apple has some job openings, especially if you know how to talk to business buyers.

Add Amazon’s name to the list … of rumored Radio Shack asset buyers (along with Sprint). It certainly would give the e-commerce giant a quick on ramp to brick-and-mortar retailing. Ever stood in line outside a Radio Shack store? Indulge in some nostalgia from those who’ve been there.

Two dozen commercial drone licenses, and counting. The FAA is considering formal requests from close to 350 businesses and individuals with commercial applications in mind. Don’t want to duplicate a test? Here’s a cheat sheet.

UP-AND-COMERS

$40 million more, but it’s still not talking. Startup Qumulo just scored a healthy Series B round to create a “modern storage appliance.” Its latest financing was led by Kleiner Perkins Caufield & Byers. Its founders were involved with Isilon, eventually sold to EMC for $2.25 billion.

Nutanix progress report. The company has now signed up 1,200 customers for technology that converges the functions of networking gear, storage devices, and servers. At least 50 of those organizations have bought more than $1 million worth. For the second quarter (ended Jan. 31), Nutanix reports that its annualized bookings run rate topped $300 million. Hmmm. When privately held companies start publishing quarterly updates on sales, formal IPO plans often aren’t far behind. So far, Nutanix has raised about $312 million; its valuation is in the $2 billion zone.

Worth a closer look? Cloud videoconferencing service provider Zoom—led by former Cisco and WebEx engineers—has raised $30 million in Series C financing led by Emergence Capital. Other backers include Li Ka-shing’s Horizons Ventures, Yahoo co-founder Jerry Yang, and Qualcomm Ventures. Since its last round in fall 2013, the company has signed more than 60,000 business customers (its total is 65,000).

Cloudera’s quest for smarter analytics. The Hadoop powerhouse just paid an undisclosed sum for business intelligence startup Xplain.io, its fourth acquisition to date. The latter’s technology works behind the scenes to optimize data queries, so the results are more relevant and succinct.

FOR YOUR INNER TECHNOPHILE

Normally I steer clear of writing about new products, but there were two significant introductions early this week that represent make-or-break moments for the companies behind them, SAP and VMware.

SAP: Use our database, or else. Once upon a time, SAP’s resource planning, supply chain software, and other business management applications relied on Oracle’s platform. Those ties were severed this week with its latest software overhaul. Now, businesses will have to run them using SAP’s own database technology, HANA. (This awkward acronym officially stands for High-Performance Analytic Appliance.)

Considering the rather lukewarm reception for HANA so far, this is a pretty bold decision. But CEO Bill McDermott is pretty confident. He recently told Fortune:

“I don’t think a lot of people have fully comprehended that Hana is the de facto standard in-memory platform for OLAP and OLTP. And that is the only database in the world that can do transactions, analytics, and all the unstructured stuff like social. And it’s gonna blow everybody away. There’s no shot! We win this. We’re going to win this thing. And now we’re at the top of the hill cruising down.”

VMware seeks deeper relevance. Remember when virtual server software used to be the company’s most important product? Moving forward, VMware needs to score more with its vSphere data center management software.

The overhaul launched this week includes features directly competitive with products from EMC, which owns 80% of its stock. Its mission: help big businesses better control all of the components in their data center—including networking gear, data storage arrays, and computing servers—rather than just concentrating on the virtualized stuff. There’s also that little matter of supporting the cloud services that more companies are using to handle applications and processes.

Here’s the requisite proclamation from VMware CEO Pat Gelsinger: “Today, we are taking another leap forward in helping our customers meet these demands through a unified platform, defined in software, which will offer unmatched choice and extends out innovation across compute, networking and storage to deliver the hybrid cloud.”

Lots of buzzwords to sort. The key takeaway is that VMware needs to watch its back for innovators in software-defined networking and converged infrastructure. Like the aforementioned Nutanix.

MICROSOFT’S EVOLVING PRICING MANTRA: BUY ONLY WHAT YOU USE

I missed a boatload of financial reports last week while I was on vacation. After rejoicing over Amazon’s decision to start disclosing results for its cloud services division, I spent time catching up on Microsoft’s second-quarter results. To refresh your memory, it reported a respectable $26.5 billion in revenue. Profits slipped about 10% (mostly because of its restructuring), pretty much as expected.

Nothing stellar, but nothing surprising either.

Far more interesting is this tidbit: a 30% increase in non-corporate subscribers for the cloud-hosted edition of its productivity applications, Office 365. (There are now 9.2 million of these people.) Meanwhile, its commercial cloud revenue grew 114% to an annualized $5.5 billion, driven by Azure, Office 365, and Dynamics CRM Online.

That cloud uptick is good news, but here’s another intriguing metric: Microsoft is still reporting appreciable sales for server software, and related services. For example, it recorded double-digit growth for the SQL Server database platform. Oh, and it just promised to ship an on-premises version of the SharePoint content management technology for businesses that aren’t quite ready for the cloud model.

SAP’s cloud transformation will drag on profits until 2017. Oracle is also feeling the financial pressure. So why does Microsoft seem to be navigating its own transformation somewhat more gracefully than two of its biggest rivals?

From my standpoint, Microsoft’s flexibility when it comes to how businesses or individuals want to pay for software could be very important. Over the past year, it has completely overhauled its volume licensing policies. I won’t bore you with all the details, but the biggest change is this: instead of charging companies for software on a per-device basis, it will price subscriptions and licenses based on who actually uses them. It will also emulate Apple’s strategy of free operating system updates with the Windows 10 release.

Notes Technology Business Research (TBR) analyst Kelsey Mason: “While moving customers to the cloud remains a priority, Microsoft realizes that hybrid IT will be the end-game for many customers. As a result, preventing defection from core, traditional software businesses such as Windows and SQL Server is a critical piece to Microsoft’s strategy in becoming the ‘productivity and platform company for the cloud-first, mobile-first world.’ ”

Many tech types use the word “hybrid” to describe where software is installed, whether that happens to be down the hall in an on-premises data center or somewhere off in cloud hosting location. But the adjective actually could be applied to software payment models.

Traditional software licenses (where customers pay up front as a capital expense) will co-exist alongside multi-year cloud subscriptions (pay over time) for many years to come. What businesses wind up paying will be some combination of the two approaches. Most software companies will use the freemium model—essentially allowing people to try before they buy—to entice potential converts.

Smartsheet, which sells online project management software to the likes of Cisco, Genentech and “20 of the Fortune 50,” is one example of startup that has used that strategy to advantage. Rather than forcing businesses to pay a lump-sum license based on employee headcounts, Smartsheet makes its software available to entire companies centrally. Then, it charges quarterly for what actually is used. So far, that strategy has resonated with more than 55,000 paying companies, said co-founder Brent Frei. “When you win the business, you win the right to sell them software.”

For Microsoft, this could mean a far closer union between its operating system software and applications—something that could put antitrust hawks on notice. Notes TBR’s Mason: “The stickiness of Windows will be key to monetizing the operating system amid this business model transformation. To do so, Microsoft is seamlessly attaching services such as Office, Enterprise Mobility Suite and OneDrive, and the promise of universal applications will add value to the Windows platform.”

That could prove a core differentiator over the next several years as more businesses embrace cloud-delivered software. It also means Microsoft’s business model will look more like Apple’s in the months to come.

MY FORTUNE.COM BOOKMARKS

How selfies and hate-tweeting earn big bucks for the Academy Awards by Erin Carlson

Why Chipotle’s co-CEO spends so much time talking about pigs by Beth Kowitt

How to save on your prescription meds (yep, there’s an app for that) by Jean Chatzky

Activist investors were a lot more active in 2014 by Stephen Gandel

How much for that Facebook fan? by Anne VanderMey

ONE MORE THING

Mind-boggling mobile metrics. Cisco says … close to 70% of the world’s population (that’s 5.2 billion people) will clutch mobile phones by 2019. They’ll generate 24.3 exabytes of data traffic per month. (An exabyte equals 1 billion gigabytes.)

MARK YOUR CALENDAR

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)