Data Sheet—Monday, May 4, 2015

TOP OF MIND

Cisco's John Chambers sets retirement date. One of the longest tenure CEOs in Silicon Valley is finally stepping aside after 20 years. Senior vice president Chuck Robbins, its long-time sales chief and currently in charge of worldwide operations, will take over July 26. Chambers will become executive chairman. "Our next CEO needs to thrive in a highly dynamic environment, to be capable of accelerating what is working very well for Cisco, and disrupting what needs to change," Chambers said, commenting on the appointment. "Chuck is unique in his ability to translate vision and strategy into world-class execution, bringing together teams and ecosystems to drive results."

TRENDING

Remembering Dave Goldberg, SurveyMonkey CEO and Facebook COO Sheryl Sandberg’s husband. The high-tech community was shocked by the 47-year-old entrepreneur’s sudden passing on May 1 from undisclosed causes. His Facebook profile was flooded with tributes. Both SurveyMonkey and Facebook are “heartbroken” over Goldberg's loss. Fortune assistant managing editor Adam Lashinsky shares why the bright kid from Minnesota was one of the most “universally admired” entrepreneurs in Silicon Valley.

Telecos seek to halt enforcement of net neutrality law. Four different industry groups representing broadband and mobile companies have asked the FCC to delay classifying them as “common carriers” until several pending lawsuits can be considered. The change is scheduled to take place June 12.

Federal legislation on privacy disclosures could result in fewer notifications. Businesses would only be obliged to inform consumers about data breaches if there was “reasonable risk” of harm. That clause doesn’t sit well with privacy advocates. The counter argument is that too much disclosure dilutes the value of notification.

What’s the best company in mobile search? The list of startups challenging Google is growing fast. There were at least 27 search companies financed in 2013 and 2014, including Vurb, Quixey, URX, Jack Mobile, and dozens of others. “Anytime there is a platform change, everything is up for grabs,” venture capitalist Keith Rabois told The New York Times.

Q&A: MICROSOFT CEO SATYA NADELLA

We live in strange times. Companies are increasingly running applications on computers owned and operated by another company. Employees tend to look upon their colleagues in information technology as more of a nuisance than an asset.

Satya Nadella thinks his company can help make sense of it all.

On Monday, at Microsoft’s Ignite conference in Chicago, the chief executive will directly address those tech professionals who make sure email gets where it needs to go and that corporate databases keep chugging along. To them, Nadella will issue a reminder that even though many dollars budgeted for technology are now flowing to marketing or other corporate departments, that doesn’t mean IT spending is down overall or that the need for tech specialists has evaporated. Quite the contrary.

Last week Nadella spoke with Fortune’s Barb Darrow about Microsoft’s challenge in addressing this group about the company’s strategy and how he feels about its cloud computing competition. It’s the latest stop in a two-month itinerary that has placed Nadella in front of his company’s largest constituencies, from users of Microsoft business applications (at Convergence in March) to software developers (at Build last week).

For those readers wondering, Fortune did ask Nadella about reports that Microsoft may be the company behind a recent takeover offer for Salesforce, a company that has proven to be a rival and sometimes partner to the Redmond, Wash. company. He refused to comment.

The conversation was edited and condensed for clarity.

Fortune: Microsoft’s theme of aligning IT with businesses is something you’ve talked about for years. So what’s new in the cloud era?

Nadella: It is all about empowering IT. And in some sense I look at it and say, you know, of course IT stands for information technology, but none of those other transformations for business users can really be achieved, especially in the context of the enterprise, if IT professionals don’t also think of themselves as key drivers of innovation and transformation. And that’s kind of the play with words that I’ve been thinking about a lot. IT really stands for innovation and transformation.

Many employees view IT as naysayers and gatekeepers. I don’t see that changing. Isn’t that what drove the bring-your-own-device [BYOD] stuff in the first place?

That’s right. And I think that is the challenge. One of the things that I’ve been really focused on, long before even becoming CEO, has been Enterprise Mobility Suite [Microsoft’s software to manage corporate devices]. The thing about bring your own device or bring your own service is, what happens to the information assurance of a company? Okay, so you move to another company. What happens to all the access you had as a person with credentials? Who is taking care of restricting all of that?

So I feel that there has to be the freedom for end users to be able to choose devices and choose services and yet the ability for IT to govern but not control. I think that transformation—from control to govern, from provision to enable—is what IT must go through. And quite frankly it’s not just about them not wanting to change. It’s also incumbent on us, especially as a massive provider to IT, to give them the right kind of solutions.

One of the things we’re talking about right now is Windows 10. We are making it possible for businesses to stay current with Windows as a service [as easily as consumers have been able to]. There are lots of technology elements to this—for example, there are things that we’re doing in Windows Update to still give IT a lot of governance around how patches are applied but solve some of the things that get in the way of IT being able to satisfy their customers.

So yes, you’re absolutely right. IT has to go from saying “no” to saying “yes,” but saying “yes” with assurance. And that I think is both a technology problem for us to solve and what we must talk a lot about and evangelize.

Many companies think that if they put more business applications in the cloud, they don’t need as many IT people. Maybe you don’t need a SharePoint expert or an Exchange expert. Is the net number of IT professionals shrinking at large companies?

There are always going to be people who are experts in security, or end-user devices, or collaboration, or databases. That’s not going to go away. But what’s the reason all of these professions come together? To help the business transform itself.

You talk about shrinking budgets. So here is a fascinating phenomenon. Ask any company—it could be in manufacturing, packaged goods, energy, retail, what have you—what in their total digital technology spend is going up as a percentage of revenue. Then ask what is coming down. It’s what was considered past IT—maybe a bunch of fans, or servers. Even if you are predominantly an on-premise customer, you’re using the cloud quite a bit for development and testing new applications. You may be building a mobile or web back end in the cloud, but you’re not yet moving your ERP [“enterprise resource planning”] system to the cloud.

So in a sense they want more out of the same dollar for what they did yesterday. And then they want to spend more dollars for things that they’re doing that are new.

IT spend is not limited just to the IT department. It’s spread across marketing and human resources. One of the fascinating things I see is the amount of analytics spend. Power BI [a Microsoft “business intelligence” service], which we launched as SaaS [“software-as-a-service,” the industry term for a cloud-based application], I initially thought would be used by developers and maybe marketers. It turns out that HR departments all use Power BI because “people analytics” is a big deal. So in places where I traditionally would not have expected big IT spending, they are becoming big spenders of IT, because IT is everywhere.

Visit Fortune.com for more of Nadella’s perspective on business analytics, competitor Amazon Web Services, and the future of Windows.

THE DOWNLOAD

How Twilio, a communications software company, is redefining customer conversations

When Jeff Lawson co-founded Twilio back in 2008, Facebook wasn’t foremost among potential competitors. He might want to reorder his list.

The social network’s strategy to turn Messenger into a platform for business communications echoes Twilio’s founding mission—to embed real-time texting, phone calls and (most recently) video communications into mobile apps and Web services.

Twilio sells application programming interfaces (APIs) that are the secret sauce behind the text messages that Uber passengers receive when their ride is nearby. It drives interactions handled by Home Depot’s 2,200-plus contact centers. Another recent customer is Nordstrom, which uses Twilio’s technology as the foundation for a “concierge” service that links sales associates with shoppers. Other prominent customers include Alaska Airlines, Box, Coca-Cola, Intuit, OpenTable, and Walmart.

“[We’re] reducing friction, using software to integrate the communication with the rest of the experience [customers are] having inside the workflow,” Lawson said. “When you do it well, the communication starts to disappear. You don’t even perceive it as a communication.”

In mid-April, Twilio added video to the list of communications methods supported by its platform. Customer Zendesk is already experimenting with the technology as a support option. Of course, Facebook is also moving into video calling. Mostly, this is considered a consumer play against services such as Skype or Google Hangouts but it could also be the foundation for next-generation customer service.

In its favor, Twilio has a strong following: more than 500,000 software developers work with its technology (and that’s just ones that are officially registered). The company employs approximately 400 people; its venture backing includes more than $100 million from investors including Bessemer, Redpoint, and Union Square. Traditionally, Twilio’s rivals have included Plivo (which claims 20,000 customers including Netflix) and Nexmo (which cites Airbnb, Expedia, Alibaba.com, and Zipcar as references).

In mid-March, Twilio added former Andreessen Horowitz partner Arthur Johnson as vice president of corporate and business development. Among other things, Johnson will be responsible for identifying potential acquisitions and forging additional strategic partnerships, Lawson said.

One area of focus: shoring up security. Twilio made its first acquisition in late February. It picked up Authy, which specializes in two-factor authentication, vitally important as the company seeks to build its following with larger enterprises.

Lawson hints at more news during Twilio’s upcoming developer conference on May 19 and 20 in San Francisco. Addressing a question about the potential Facebook threat, he said: “The innovations that are going on right now are fantastic. …For a long time, we will have many, many options for how we communicate. What’s driving progress is good for Twilio and good for developers.”

ALSO WORTH SHARING

GE names CEO for industrial internet group. Kate Johnson, the company’s chief commercial officer, has added responsibility for the company’s “Intelligent Platforms” technology.

eBay investors win more power over board selections. Shareholders approved a measure May 1 that allows those holding more than 3% of the company’s stock for at least three years to nominate directors.

Here’s where you can already find some of Tesla Energy’s batteries in action: Amazon Web Services data centers, where they’re being used for power management applications.

Desperately seeking “digital native.” Is this the latest code phrase for age bias in high-tech recruiting? Here’s why some lawyers think the term is problematic.

There’s a time and a place for Apple stores. Some residents of Manhattan’s tony Upper East Side are protesting their potential new neighbor because of the potential shopping crowds it will bring.

Instant branding. Why commercial real estate giants CBRE, JLL and Cushman & Wakefield are experimenting with Instagram.

The reinvention of digital mapmaker TomTom. It’s pitching its technology as the ideal navigation system for self-driving cars.

MY FORTUNE BOOKMARKS

Meet Matternet, the drone delivery startup that’s actually delivering by Clay Dillow

Will Microsoft’s new tools be enough to lure developers? by Jason Cipriani

Why are these luxury hotels still charging for Wi-Fi? By Erik Sherman

This company streams live sports events to virtual reality. Here’s how by John Gaudiosi

Secret shutdown: Will lessons be learned? by Dan Primack

How cyber attacks became more profitable than the drug trade by Robert Dethlefs

ONE MORE THING

Yes, it’s true. Tattoos can interfere with the heartbeat sensor in Apple Watch.

MARK YOUR CALENDAR

Cornerstone Convergence: Connect, collaborate. (May 11 - 13; Los Angeles)

Cloud Foundry Summit: Open source development. (May 11 - 12; Santa Clara, California)

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

Signal: The modern communications conference. (May 19 - 20; San Francisco)

MuleSoft Connect: Tie together apps, data and devices. (May 27 - 29; San Francisco)

MongoDB World: Scale the universe. (June 1 - 2; New York)

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

Apple Worldwide Developers Conference: Future of iOS and OS X. (June 8 - 12; San Francisco)

Hadoop Summit San Jose: Mainstreaming adoption. (June 9 - 11; San Jose, California)

Red Hat Summit: Energize your enterprise. (June 23 - 26; Boston)

Brainstorm Tech: Fortune’s invite-only gathering of thinkers, influencers and entrepreneurs. (July 13 - 15; Aspen, Colorado)

LinuxCon North America: All about open source. (Aug. 17 - 19; Seattle)

VMworld: The virtualization ecosystem. (Aug. 30 – Sept. 3, 2015; San Francisco)

Dreamforce: The Salesforce community. (Sept. 15 - 18; San Francisco)

BoxWorks 2015: Cloud collaboration solutions. (Sept. 28 - 30; San Francisco)

Workday Rising: Meet and share. (Sept. 28 - Oct. 1; Las Vegas)

HP Engage: Big data, big engagement. (Oct. 4 - 6; San Diego)

Gartner Symposium ITxpo: CIOs and senior IT executives. (Oct. 4 - 8; Orlando, Florida)

Grace Hopper Celebration of Women in Computing: World's largest gather of women technologists. (Oct. 14 - 16; Houston)

Oracle OpenWorld: Customer and partner conference. (Oct. 25 - 29; San Francisco)