What is Twitter’s New Business Model?

October 19, 2015

Major changes are announced by Twitter. The company is cutting back on staff and reorganizing its leadership. But will it find a new Business Model?

One of persistent questions in the business press has been ‘what is Twitter’s business model?’ The company has grown sensationally but always on its potential to make money rather than short-term profit. In that respect it is similar to Amazon. LWD subscribers will find several posts on this topic.

Turnover of senior executives

Over the last few months there has been a rapid turnover of senior executives at Twitter. Its head Dick Costelo departed in July when a Board reshuffle saw its brilliant entrepreneurial co-founder Jack Dorsey return in a transition role as CEO.

This resulted in a sideways move for a Twitter insider Adam Bain, who was considered a candidate to take over from Mr Dorsey who was seen as more of an ideas man with great inspirational and motivational skills.

Then earlier this month, [5 October 2015] Dorsey’s interim position was reclassified as a permanent one as CEO. This left unresolved a possible clash of interests with his involvement with Square, a fast growing mobile payments company in which he still retains executive responsibilities. As the new CEO, Mr Dorsey acted swiftly and announced major staff reductions at Twitter in a major restructuring plan.

Here comes Omid

One week after his appointment, Mr Dorsey also announced the arrival of Mr Omid Kordestani, an influential figure at Google whose reinvention of its corporate self as Alphabet may have contributed to Kordestani’s move to new challenges at Twitter.

Outsiders considered that further moves are required to give the company stability and coherent leadership. The official role of Mr Kordestani is as executive chairman. It remains to be seen how the leadership roles at Twitter will play out, and how the Company will redefine its business model.


Alphabet Soup as Google reinvents itself

August 17, 2015

Goggle springs a surprise with the announcement that it is restructuring itself under the holding company name of Alphabet

Google’s co-founder Larry Page explained what was going on in a blog post.

Being Google, it has created a quirky domain for itself.

One alternative explanation for the change offered by outsiders is that such restructuring efforts permit creative accounting. Google’s track record on tax minimization has become a matter for public protests in Europe.

Differentiation and Integration

The restructuring is explained by a much respected idea addressing the need to balance differentiation and integration of an organization. You can think of the restructuring as differentiating individual components including the core activities of the former Google Empire. The integration or coordination takes place through the new holding company Alphabet. You can read the classic paper in Administrative Science Quarterly here

To general approval, Silicon Valley whiz kid Sundar Pichai is to become CEO of the new slim line Google division, which remains the most profitable and largest revenue generator.

Hint to business commentators:

Practice saying ‘Alphabet’ while thinking ‘Google’s Holding Company’ Keep saying it until it loses all meaning except ‘Google’s Holding Company’. On the infrequent times you are using the word alphabet in its old sense, explain that you mean ‘Not Google’s Holding Company’.

To go more deeply

Business students needing to study the early days of Alphabet will find the following sources useful to back up more scholarly articles.

The new businesses explained

The new businesses listed

tech crunch explanatory video

Google in a 45 Second video


Satya Nadella’s leadership dilemmas at Microsoft begin with Nokia

August 5, 2014

Paul Hinks

Satya Nadella

Satya Nadella

Satya Nadella became Microsoft’s third ever CEO in February 2014. He faces enormous challenges of change to an economic powerhouse

Since its inception 39 years ago, Microsoft has driven change. Its products have shaped and disrupted the IT landscape. Its desktop and server operating systems have become industry standards. Yet, relentless competition demands further changes. The new CEO recognizes the situation.

‘One Microsoft’

A few months into his appointment [10th July 2014], Nadella published an ‘internal memo ‘ in the public domain entitled: ‘One Microsoft’. The document provides insight into the strategic priorities at Microsoft – as well highlighting deeper leadership dilemmas. “The day I took on my new role I said that our industry does not respect tradition – it only respects innovation.” He wrote.

Changing landscapes and Microsoft’s previous success

Cloud Computing and Mobile technologies were focal points in the memo – repeated references to “a mobile-first and cloud-first world” emphasising where he feels Microsoft’s future lies.

A key dilemma and challenge for Nadella is that Microsoft no longer appears to be dominant in shaping the direction of the IT landscape. Microsoft’s desktop and server operating systems provide examples of different franchises that became de facto industry standards. Today we talk about firms such as Apple, Google and Amazon and how their products and services have momentum – the iPad, iPhone, Kindle, Android phones – as well various cloud services.

It isn’t that Microsoft hasn’t tried to succeed in these new marketplaces – it has. It’s just that Microsoft’s success doesn’t mirror the success of its competitors. Microsoft has attempted to break into the tablet market but Apple still leads the way. Windows mobile phones competes against Android phones and iPhones, but they do not enjoy the passionate following that their competition enjoys.

Microsoft Axes 18,000 jobs

The acquisition of Nokia in 2013 provides an example of Microsoft’s efforts. Nokia was itself a market leader in the mobile telecommunications market before suffering a number of setbacks which saw its products fall out of vogue. Some analyst at the time saw merit and synergy in Microsoft’s acquisition. However on Thursday [17th July 2014] the BBC reported that Microsoft was announcing a loss of 18,000 jobs globally – the bulk of the cuts to be at Nokia:

Microsoft pledged to cut $600m (£350.8m) per year in costs within 18 months of closing the acquisition – cuts that were much more severe than the 6,000 initially expected. Is this acknowledgement that the Nokia deal was ultimately a failure? Or is it an example of how knowledge, know-how and patented technology can be bought lieu of ethical leadership and employees’ livelihoods?

The Future direction of Microsoft?

Nadella and Microsoft appear to recognize the challenges ahead. Change is necessary. Cloud Computing infrastructures are maturing; mobile online access is now ubiquitous – Nedella’s memo acknowledges Microsoft’s need to adapt and respond – repeated references to “mobile-first and cloud-first world” provide a clear indication of where he sees Microsoft’s future. Will change at Microsoft result in the progress needed for Microsoft to remain a dominant force?

Bill Gates’ 1990 vision of ‘Information at your fingertips’, and then his keynote speech at Jan 1995 Comdex of ‘information at your fingertips ‘ provide evidence of how Microsoft’s first CEO led the way and helped shape an industry.

Nadella has one of the toughest jobs in the industry, made more challenging by an expectation that Microsoft can remain creative and innovate. Not an easy task.


The Lenovo Juggernaut Rolls on Unabated

June 10, 2014

Dr Pikay Richardson

Chinese personal-computer maker Lenovo Group is looking to acquisition to fuel further growth. The company has great ambitions, and cash to fund its plans. Will it be able to balance innovation and efficiency?

Lenovo recently concluded two deals worth collectively about $5bn. The company has acquired IBM’s low-end server business for $2.3bn and from Google, Motorola Mobility handset operations for $2.9bn. Both were seen as Lenovo’s efforts to diversify beyond PCs into other faster growing areas of the computer industry.

Growing through acquisitions

Lenovo’s foray into other business segments was not entirely surprising. Having beaten HP to become the world’s largest PC maker by shipments, it has been looking for new sources of growth, mainly in smart phones and servers and storage systems. “We will continue to use acquisitions as a means to grow”, Lenovo Chief Executive Yang Yuanqing said after a shareholders meeting in Hong Kong. “Wherever there is a good opportunity, we will grasp it”.

The company has great ambitions, and an extra cash store to match. After paying $4.7bn, it still has $2bn on hand, according to Wang Wai Ming, Lenovo’s chief financial officer. What is more, the current low-interest environment provides opportunity to raise further funds, which Lenovo is considering, according to Mr Wang.

Lenovo’s strong corporate governance regime

Investor confidence is high. On 21st May, Lenovo announced its full-year results in Hong Kong where it has been listed since 1994. Its revenues were 14% higher than the year before, at $38.7bn, while pre-tax profits topped over $1bn for the first time in its history, up 27% on the year before. But this is only part of what is causing the investor euphoria. The other is that, Lenovo unusually for a Chinese Company, claims a strong corporate governance regime, as well as consistently delivering predictable returns.

Lenovo’s ability to turn around the controversial $2.9bn purchase of Motorola Mobility has been questioned. The pioneer mobile phone has fallen on hard times, but Mr Yang has responded to skepticism by saying that he was confident his company will be able to turn around the unprofitable business in four to six quarters, based on a strategy of increasing economies of scale rather than trimming staff.

From losers to treasures

“We have a good track record of turning around money-losing businesses into treasure”, he said, pointing to Lenovo’s first foray into foreign markets when it bought IBM’s loss-making PC business in 2005. Few believed then that an obscure Chinese company could save a Western premium brand, but this is precisely what Lenovo has done. Yang went on “Lenovo is the best company in the world when it comes to balancing innovation and efficiency.”

Whether or not this claim is sustainable is more a matter of “wait and see”.


Google accused of being evil, doing evil by UK politicians

May 21, 2013

Do no evilGoogle stands accused of acting in a way contrary to its slogan “do no evil”. This continues a debate over tax avoidance, tax evasion and corporate social responsibility

.

Last week [May 18th 2013] Google’s European leader Matt Brittin appeared before The Commons Public Accounts Committee in London to defend his Company’s tax arrangements in the UK. A pivotal point was the practice of declaring sales were completed in another country [Ireland] with more generous Corporate taxation arrangements.

The Chair of the Committee, Margret Hodge, was particularly vehement in her criticism of the firm’s methods of tax avoidance in the UK. The criticism had moved on from tax evasion (illegal) to tax avoidance (legal) in a way that amounts to serious departure from the corporate claims of good citizenship.

The Guardian reported that

“[The] Commons Public Accounts Committee Members reacted in disbelief on Thursday [16th May 2013] after it emerged that they paid just £3.4m of tax on £3.2bn of sales taken from UK customers last year as their sales were technically “closed” in low-tax Ireland.”

Writing in The Observer a few days later, Google CEO Eric Schmidt noted:

“It is tempting for every government to assume that they will benefit if and when the current [tax] structure changes. But in reality, it’s probably only a significant increase in corporation taxes globally that would make every country a “winner” – and the consequences of that would likely be less innovation, less growth and less job creation. That said, the UK government has the perfect opportunity to take the lead in shaping this complex debate at the G8 summit next month. We hope George Osborne seizes the initiative and makes meaningful tax reform one of the top items on the agenda.”

It’s a Tax Dodge, says Hodge

Margaret Hodge had made clear her view at the Committee investigation, telling Google’s European CEO Matt Brittin, that his company’s behaviour on tax was “devious, calculated and, in my view, unethical”.

[Mr Brittin] had been recalled by MPs after being accused of misleading parliament over the firm’s tax affairs six months ago. Hodge said: “You are a company that says you ‘do no evil’. And I think that you do do evil.” Hodge was referring to Google’s long-standing corporate motto, “Don’t be evil,” which appeared in its $23bn US stock market flotation prospectus in 2004.

Do no evil image

Image from grokdot

To be continued


How will Google deal with the threat of the smart phone?

October 21, 2012

Google’s biggest threat may be from changes to personal search habits triggered by mobile phone users

Weaknesses revealed in the Facebook financial model at its Initial Public Offering [IPO] recently, are now suggesting related problems at Google.

Google’s business model under scrutiny

For Facebook, the weakness in the valuation of its shares was considered by commentators as difficulties in converting its billion or so friends into means of selling advertising opportunities to commercial clients. Google’s business model has also come under scrutiny, after last week’s embarrassing leak of its financial figures [18th October, 2012].

A tipping point?

A minor operational error at Google last week involving a premature release of poor financial figures resulted in a stock-market blip. But the blip is now being taken more seriously. and has been tagged on to wider criticisms of the Company’s business model. If you believe in tipping points (and I’m not sure I do), it’s a tipping point.

The doom scenario

Such times call forth the doom scenario. On 20th October 2012, The popularist Daily Mail newspaper in the UK asked whether Google could disappear completely

As Google suffers a catastrophic nose-dive in its market value, analysts are already predicting its demise as the world’s lead Internet search engine.
Advertising revenues are falling — and will continue to fall — for Internet companies because consumers are increasingly migrating to mobile applications and advertisers aren’t willing to pay as much for [advertising through mobile phone platforms]

Realisation is dawning

Realisation is dawning that what is happening to Facebook is part of a wider economic shift.

“I keep saying Facebook isn’t the only one that has a mobile issue — Google does, too,” Colin Gillis, an analyst for Boston Consulting Group, told CNBC.com. “I keep saying Facebook isn’t the only one that has a mobile issue — Google does, too. If you are an investor in Facebook, ‘mobile’ is priced into earnings. I don’t think mobile in Google is priced in.”

The deepening story

The deepening story this week brought news that a dispute in Brazil has resulted in Brazil’s National Association of Newspapers [ANJ] saying that all its 154 members are following its advice to ban Google News from accessing content free.

Since 2010, the ANJ had experimented with giving Google News free access to its first few lines of stories. Google had sold them the idea that the arrangement would grow traffic for the Brazilian sites. But it turned out that it has, if anything, reduced traffic.

If the ban continues, Brazilian Internet users will still be able to find content if they use Google rather than Google News in searches. But Google says newspapers and news aggregators should be able to reach a negotiated solution to the problem.

Charging the taxi driver

Google’s Public Policy Director, Marcel Leonardi, suggested that the ANJ’s demands are like charging a taxi-driver for taking tourists to eat at a particular restaurant. But Google says newspapers and news aggregators should be able to reach a negotiated solution to the problem.

Page remains upbeat

Unsurprisingly, Google co-founder Larry Page was more upbeat, telling investors [19th October, 2012] that the company was uniquely well-placed to exploit mobile phone technologies, which he saw as in a transitional stage leading to multiple screen usage.

Page was making his first public speaking appearance since June 2012, a silence which had begun to produce health rumours.

Google executive arrested in Brazil

In another story, a senior Google executive in Brazil was arrested [Sept 26th 2012] for failing to comply with a judicial order to take down You Tube materials ruled to be in violation of the country’s electoral law.

Update

August 17 2018

The turbulent events covered in this post may (or may not) have contributed to the restructuring of Google into Alphabet


FAS Brazil links with Google to ‘do no evil’ in the Amazon basin

August 22, 2011

FAS, a conservation organization in Brazil, has joined forces with Google’s controversial Street View activities. What are the opportunities and potential pitfalls in the relationship?

FAS (fundacao-amazonas-sustentavel) is a Brazilian organisation devoted to conservation. Yet even its best intentions can attract criticism for unintended consequences to the priceless resources of the Amazonian rain forests. For example, The World Rainforest Movement has criticised Fundação Amazonas Sustentável about its work in the Juma Sustainable Development Reserve.. Now, FAS must be bracing itself for the glare of publicity as it undertakes a project with the mighty Google organization.

Google does no evil

Google prides itself in its corporate social responsibilities. Yet its plans to capture information have been denounced as illegal and megalomanic. The company’s famous mission statement is “to organize the world’s information and make it universally accessible and useful”. Its social responsibility side is captured by its equally famous motto “Don’t be evil”.

Dilemmas of privacy

A particular issue has been that of privacy and dilemmas of free speech.

Controversies and battles with governments have occurred in many countries around the world including Turkey, India, China, Germany and France over what is permissible according to national law. In the UK, the activities of its Street View operations have been seen as invasions of privacy.

Google has removed dozens of photos from its new UK Street View service. The street-mapping facility launched amid a fanfare of publicity but now the firm has been forced to pull some of the images after complaints. It is thought the pictures removed contained revealing images of homes, a man entering a London sex shop, people being arrested and a man being sick. A spokesperson for Google told the BBC that anyone could have their images removed if they asked.

Google announces its intentions with FAS

The Google/FAS plans were announced in a Google blog post

Members of our Brazil and U.S. Street View and Google Earth Outreach teams are currently in the Amazon rainforest using our Street View technology to capture images of the river, surrounding forests and adjacent river communities. In partnership with the Amazonas Sustainable Foundation (FAS), the local non-profit conservation organization that invited us to the area, we’re training some of FAS’s representatives on the imagery collection process and leaving some of our equipment behind for them to continue the work. By teaching locals how to operate these tools, they can continue sharing their points of view, culture and ways of life with audiences across the globe.

We’ll pedal the Street View trike along the narrow dirt paths of the Amazon villages and maneuver it up close to where civilization meets the rainforest. We’ll also mount it onto a boat to take photographs as the boat floats down the river. The tripod—which is the same system we use to capture imagery of business interiors—will also be used to give you a sense of what it’s like to live and work in places such as an Amazonian community center and school.

In this first phase of the project, the Google and FAS teams will visit and capture imagery from a 50km section of the Rio Negro River, extending from the Tumbira community near Manaus—the capital of the state of Amazonas—to the Terra Preta community. We’ll then process the imagery of the river and the communities as usual, stitching the still photos into 360-degree panoramics.

The road to hell?

As has been observed by theologically-minded map makers, the road to hell is paved with good intentions. What should the FAS leadership do to ensure their actions keep them on a better path?