In fact, I did strongly consider Dorsey. But ultimately, I dropped him.
There are certainly many intriguing parallels between the Twitter co-founder and Jobs. Like Jobs, Dorsey created a remarkable technology company that has had huge impact. And while there are several people considered co-founders of Twitter, Dorsey is usually credited with the concept, and the development. And, of course, he was the first CEO of Twitter before being pushed aside a couple of years ago — just like Jobs!
And then, Dorsey made a triumphant return to Twitter earlier this year to lead product development, while remaining CEO of Square. Again, shades of Jobs, with his creation of NeXT, his role at Pixar, and then returning to Apple at first as an advisor.
And certainly, many others have made the Dorsey-Jobs connection. For instance, BetaBeat recently wrote:
“What we were startled by was the growing feeling feeling that there’s something about Mr. Dorsey that just sounds so familiar. A heavy emphasis on clean design. A charismatic presence at public announcements… wait a minute: @jack is kinda like a young Steve Jobs. Apple has even started selling Square in their retail stores.”
So, why didn’t I put him on the list? Part of it was the conceit of the list. I needed to keep it narrowly defined to be able to make comparisons, and so I decided to stick to people who were all CEOs. Yes, Dorsey is the CEO of Square, but that’s not why he’s such a big figure at the moment. Square is still tiny in impact compared to Twitter. It’s his role at Twitter, both as co-founder and now lead product designer that makes him a figure of note.
And in that regard, Twitter is still a mixed bag for me. The company still has scant revenue, and is still struggling to get its arms around a complex set of design and feature issues. The most interesting things about Twitter are often built by third parties, and the company needs to redefine its relationship with its ecsystem.
If Dorsey sorts all of that out, and he helps create a core, unified Twitter experience, then he’s certainly on the path to demonstrating a Jobs-like prowess. And if he can actually help the company figure out a business model, and even return to the CEO chair, then I think he’s someone to be considered for legendary status.
Everyone on that list has a lot to prove to be considered heir to Jobs’ legacy. But right now, compared to other folks on the list, Dorsey has even further to go.
I reviewed Motorola’s Atrix smartphone in this week’s Tech Files column. What intrigued me about the Atrix are its accessories: one optional dock allows the device to turn into a quasi-laptop; another allows it to turn into a pseudo desktop PC or even an Internet-connected set-top box.
As I wrote in the review, I liked the Atrix and thought the idea of a dockable smartphone had a lot of potential. But I found the docks themselves expensive, underwhelming and their potential largely unrealized.
Since I wrote my column, a reader alerted me to another reason to dislike the docks.
One of the advantages of the docks is that with them, you can use a full version of Mozilla’s Firefox browser to surf the Web and pull up Web apps in much the same way you would on a standard PC. What I didn’t realize was that in order to use the full Firefox browser on AT&T’s data network, AT&T requires users to pay its extra $20 a month tethering fee. (H/T here to blog site These Are the Droids.)
“As Internet valuations climb and bankers and would-be buyers circle Silicon Valley in an increasingly frothy tech market, many eyes are on one particularly desirable, if still enigmatic, target: Twitter. Discussions with at least some potential suitors have produced an estimated valuation of $8 billion to $10 billion.
Executives at both Facebook Inc. and Google Inc., among other companies, have held low-level talks with those at Twitter Inc. in recent months to explore the prospect of an acquisition of the messaging service, according to people familiar with the matter. The talks have so far gone nowhere, these people say.”
That’s an odd way to start a story, because it reports the talks and then tells us not to take them too seriously. Okay. The story justifies itself by saying what’s really interesting is that buyers are talking about an $8 billion to $10 billion price tag for Twitter.
I’m sure the Twitter folks are stubbornly clinging to their independence. But they shouldn’t. They should take the money. And they should take it from Google. And Facebook should walk away.
“One of the best things about Twitter, despite all the problems it has had in the not-too-distant past with reliability and other issues, is that it is totally, 100-percent focused on being a real-time communications network. Being bought by either Google or Facebook might bring a big payoff, and substantial financial and operational resources, but it would almost certainly dilute that focus — simply because it would be a small part of a much larger company — and that would be a shame just when the service is starting to show its real potential.”
But with all due respect, let me say, “Please Twitter, do sell to Google.”
Here’s why: I still don’t believe Twitter has a sustainable business model.
Twitter, of course, believes it does. And when I see smart people like Andreessen Horowitz buying shares at this relatively late date, I believe they see some there there. But I don’t.
The reason has to do with Twitter’s fundamental relationship to me. I don’t think Twitter knows all that much about me. And I don’t think there’s much of interest it can leverage to advertisers.
Let’s compare Twitter to the two potential acquirers. Facebook is going to be an advertising monster because it has an unprecedented amount of information about me, my friends, and my likes. It is my default Web profile. And it’s still in the early stages of learning how to use all that data. But its knowledge of me is the stuff that advertisers have probably dreamed of, well, ever since there has been advertising.
Google knows far less about me, and what it does know is muddled. If it follows my searches from home, it probably thinks I’m interested in technology, Duke University basketball, Star Wars, Captain Underpants, and Barbie. That’s because my whole family uses that PC. What has made them so successful is that they do a better job than anyone else at guessing who I am and what my interests are. Much of that comes directly from my search queries.
So Facebook knows who I am. Google is great at guessing at who I am. Where does that leave Twitter?
My profile information at Twitter is spare. There’s little way for it to know what tweets I might have read, unless I click on something, which I rarely do. It might draw some inference from my friends and followers, but that’s a weak pool of information.
Twitter probably doesn’t even know how deeply I engage with the service. Yes, I visit the Twitter homepage once a day, or so. But I have TweetDeck running all day, across three Twitter accounts I manage. I have glimpsed a promoted Tweet there once or twice, but rarely. I click on links in tweets, but that doesn’t mean I endorse or like the content, just that I was curious.
Given the way people use Twitter, and the poor quality of information it collects, I don’t have any expectation that it will be a compelling place for advertisers. As for any paid services, Twitter is so consistently behind the curve in feature development, it’s hard to imagine that they will build any specialized features that they could charger power users for.
In sum: No business model here. And you know what? That’s okay.
We have this default assumption that any company or service that can attract a kajillion users certainly must be able to monetize them. This is a kind of article of faith in Silicon Valley, but it’s wildly misplaced. As evidence, I would point to the most important piece of technology that may just be the worst business on the Web:
The browser.
There was a brief moment when Netscape asked us to pay $30 for the browser. But Microsoft put an end to that. And for the past 15 years or so, the browser has been free. Three of the four big ones are now made by big companies that don’t expect any revenue from them: Explorer, Safari, and Chrome. The browsers allow them to collect data on our Web surfing habits, but don’t put cash into their pockets. The other, FireFox, is developed under a non-profit.
I think Twitter is like that. It can be an important service that another company can use to enhance other things it does. The question then, is who is the best buyer?
The answer: Google.
As Ingram mentioned, Google needs to get social in the worst way. On the plus side, I think it has the engineering and the infrastructure to help Twitter fix its reliability problems once and for all. And I think it could help develop analytic tools that could help maximize Twitter’s limited revenue upside. And combining that user data with our search data would hopefully enhance Google overall.
Is there a chance that Google could snuff out all that is magical about Twitter? Yep. But I think it’s a chance worth taking to ensure that Twitter continues to exist.
A deal with Facebook would be a mistake for both asides. Ingram is right to point out that Facebook probably doesn’t have the cash to do the deal. But that aside, what would Facebook do with Twitter? I don’t think it could directly integrate Twitter, because it would mangle both services. The friend and follower dynamics are too different. And I’m not sure it brings any new users into the fold. Possibly Facebook could become a kind of social media holding company, owning both Facebook and Twitter, but operating them independently (though with friendlier integration). But that seems way too distracting.
No, at this point, there’s not enough upside for Facebook.
All this said, I think chances for a deal any time soon are remote. Twitter probably has enough money to run for awhile. It seems able to keep raising more private money, both for the company and to let employees cash out. And I’m sure the company wants to give its advertising business its best shot.
I think the real pressure, here, is on Google. In my mind, there is no amount of money that Google could pay for Twitter that would be too much. Not because of the revenue potential, but because it might inject some social thinking into Google’s engineering-driven DNA.
Google should put crazy money on the table until it’s piled so high, Twitter and its investors have no choice but to accept.
It’s official: Marc Bodnick, co-founder of the investment fund Elevation Partners, has left to join Quora, one of Silicon Valley’s hottest start-ups.
In a press release issued late Thursday night, the Elevation said:
“Elevation Partners, a private equity firm focused on large-scale investments in market leading consumer and technology businesses, announced today that Managing Director Marc Bodnick has resigned from the firm to pursue interests outside of Elevation Partners. Mr. Bodnick’s responsibilities will be assumed by Elevation’s other managing directors.
“Marc has made the decision to leave Elevation to pursue new opportunities,” said Roger McNamee,
Managing Director and Co-Founder of Elevation Partners. “Over the years, Marc has made many
contributions to the firm, and he leaves behind a healthy portfolio from Elevation’s first fund. We wish Marc continued success in the future.” “
Word began leaking out earlier this week about Bodnick’s departure from the firm that was started by McNamee and U2’s Bono, among others. Just a couple of weeks ago, I had a chance to interview Bodnick, whose reputation was on the rise thanks to his role in getting Elevation to invest in Facebook and Yelp:
“Perhaps no investor had more reason to cheer the deal that valued Facebook at $50 billion this week than Elevation Partners. Just one year ago, the conventional wisdom in Silicon Valley was that the high-profile investment fund, co-founded by Bono of U2, looked like a bust thanks to a bet on Palm that appeared to be a disaster.
But the success of its big investment in Facebook, and a smaller one in Yelp, have raised its standing in the valley and put the spotlight on Elevation partner and co-founder Marc Bodnick, 41, who played a critical role in landing both.”
Among the people I interviewed for the profile was McNamee, who was very complimentary about Bodnick’s role in the firm, those social media investments, and his general tech vision. However, according to the Daily Beast’s Dan Lyons, some at Elevation were less than pleased with the story I wrote and its focus on Bodnick:
“…an insider, speaking on the condition of anonymity, said Bodnick had exaggerated his contribution to Elevation’s success.
“Marc is a great guy. He’s a friend. But if you look at Marc’s background and hold that up to the rest of the group, well, he’s an equal partner, but if you’re going to lose somebody he’s probably the least damaging one to lose,” the insider said.”
It’s unclear whether Bodnick and Elevation have settled all outstanding issues related to Bodnick’s departure. Among the questions to be determined: How much of Bodnick’s share of the fund and its return will he be allowed to keep? What happens to his board seat at Yelp?
And most important: Will this have an impact on any plans Elevation has to raise a second fund? When I spoke to Bodnick earlier this month, he indicated signs seemed favorable to raise a second fund, despite the fact that Elevation investors had refused to give the partners more time to invest the first fund. They were apparently unhappy over its performance on investments in Palm (which managed to post a good but not great return) and Forbes (which has not done so hot).
But Facebook’s soaring valuation seems to have the first fund poised to post a healthy return. And as McNamee said when we talked, this serves as a reminder why it’s dangerous to pass judgment on any fund before it’s all said and done. At the time, McNamee said he’s be “surprised” if Elevation didn’t raise a second fund, and noted that the firm had brought on two new partners last year, presumably laying the groundwork for a second fund.
As for Bodnick, his move to Quora, a question and answer site launched last year by some former Facebook employees, puts him in the middle of a fast-growing new segment of the social media world. Bodnick has been a poweruser of the site since it launched.
“Meeting the founders and using the product were the first steps in my growing interest in the company. I knew Charlie Cheever and Adam D’Angelo through mutual friends. I’ve been an active Quora user since October 2009, a time when there were only a few hundred users. I got onto the site after running into Charlie and Rebekah Cox, Quora’s lead product designer and first employee, at a birthday party in Palo Alto and bugging them for a beta invitation.
In October, Charlie invited me into the beta and I became immediately addicted. I have an eclectic set of interests, and I spent a ton of time on non-technical topics -> U.S. Politics, Movies, Children’s Books, Crossword Puzzles. In 2009-10, my kids and I were in the middle of reading Harry Potter, and I ended up writing dozens of questions about the books as I read each one. Then I did the same thing for the Matrix movies, Iron Man 2, and Black Swan. (I’m currently plowing throughPercy Jackson, btw.) I wrote way more questions than answers.
In early 2010, Charlie and I started talking about policy on the site, and he asked me if I wanted to get more involved with the company. So I started meeting most Sunday nights with Adam, Charlie, and Rebekah. These were awesome discussions for me. I was like a Madden fan getting to hang out with Bill Walsh to talk about the West Coast offense.
Toward the end of the year, Adam, Charlie and I started talking about the idea of me joining Quora in a more active role. It’s a small company, so I’ll take on a variety of roles including product marketing, community, and business operations. This is a big change since I’ve been an investor my whole life. I start Monday Jan 31 at Quora and it is a super-exciting new adventure for me.”
At the age of 41, Bodnick now becomes the “adult” presence at Quora. While he will have a wide-ranging portfolio, it will inevitably invite some comparisons to his sister-in-law, Sheryl Sandberg, the chief operating officer at Facebook.
Can Quora be turned into a real business? Will Elevation raise a new fund or is this the end of the road? Stay tuned.
Columnist Troy Wolverton is at CES 2011 in Las Vegas. Follow his reactions here. Note: If you’re having difficulty seeing the widget below you can check out Troy’s posts on Twitter @troywolv.
Jay Adelson speaking at FailCon 2010. Photo by Dean Takahashi of VentureBeat.
As executive confessions go, the one delivered by former Digg CEO Jay Adelson in a public forum this week stands out as one of the most remarkable ones I’ve ever seen for both its brutal honesty and fearless self examination.
Silicon Valley executives are often packaged in so many layers of spin and carefully crafted images, that when someone stands up and speaks from the heart, with no filters, it can be downright startling. Like a sudden gust of wind that catches you off guard and almost knocks you off your feet.
That was the feeling I got as I listened to Adelson’s remarkable exploration of his own failings. While many folks in the room were understandably anxious to hear about the failures of his business ventures, I was captivated by his unvarnished discussion of his personal failings, as a father, as a husband, and as an entrepreneur. He spoke with great authenticity and honesty about his ongoing fight to strike a healthier balance between his intense drive as an entrepreneur and the toll it takes on his family and personal life.
Adelson isn’t exactly a household name, though in Web 2.0 circles he’s somewhat of a giant. Here’s some quick background on him. In 1998, Adelson started Equinix, an Internet infrastructure company that went public after Adelson stepped aside at the suggestion of investors to let another more “professional” CEO step in and lead the IPO. Adelson eventually lost control and was pushed out of the company, to his enduring regret. That experience was fresh in his mind he was contacted for advice by another entrepreneur, Kevin Rose, who wanted to discuss his idea that became Digg.
Adelson had left Silicon Valley and moved to New York after he left Equinix to get away from the craziness and lingering bad feelings. But ensuing conversations with Rose got him so pumped about Digg, he wife told him he had a “wild” look in his eye. Reluctantly, he found himself agreeing to become CEO of Digg. And he took the role while commuting from New York.
And this is where the personal confessional begins. Even though he had vowed to steer clear of another start-up, he found himself too obsessed with the idea of Digg to say no.
“Next thing you know, I woke up in the back of the alley with a bump on my head five years later,” Adelson said. “And I loved every minute of it.”
Asked about regrets, Adelson said he doesn’t second guess the decision to turn down the two serious offers Digg received. Instead, he again circled back to the personal toll.
“Looking back on the personal, there are moments in time when I wish things were different,” Adelson said.
When he started Equinix, his first child had been born just two months earlier. He rationalized his decision at the time by thinking, hey, it’s the dot-com boom, and I want to take my shot, and if it fails, at least I can say I tried.
“But I don’t think I realized at the time, even if you go home at 6 o’clock, which I rarely did, you don’t realize how much you take home,” Adelson said. “In your head, you’re at work. Even when you’re at home, or rocking your baby to sleep, you’re there at work.
“I wish I had the discipline to shut it off,” he continued. “This is one of the reasons I left Digg. I think I have a problem there.”
Once Adelson is working on a start-up, he find he “puts the blinders up. And to some extent, you can’t stop yourself. It’s a compulsion.”
The reasons he left Digg back in April, of course, were more than just personal. He acknowledged there were disagreements over the direction of the company. But even after he left, he found he hadn’t really left.
“It took me four months after I left Digg for the process to slow down in my head,” Adelson said. “I still wake up in the morning and I’m still working there.”
“I love the emotional context,” he explained. “Everything about Digg and Revision3 (an online video company where he is chair) is about changing something bigger than me. And I get very involved.”
Adelson knows he’s not alone in his start-up compulsion. And to illustrate his point, he asked the room full of 450 entrepreneurs how many of them reached for their smartphone the moment they opened their eyes in the morning. About half raised their hands.
“That’s probably not okay,” he said. “Look into my eyes. That’s. Not. Okay.”
Last year, Adelson and his family moved to back to Silicon Valley even though he didn’t expect to stay at Digg much longer. He was starting to advise more start-ups here and he thought that maybe being closer to them would help him achieve a better balance. He said he’s trying hard to stick to his decision to not jump back into a start-up. He said he’s struggling because he’s hearing about so many amazing opportunities.
“Can you stay on the sidelines for six months?” Brooks asked.
“Ask me that again in six months,” Adelson said. “It’s been very difficult.”
Brooks asked Adelson what he tells other prospective entrepreneurs about how to weigh the personal costs of doing a start-up against the thrill of being in the game.
“I think that it really just depends on you.” Adelson said. “It’s an emotional decision. Is it interesting to you? What it really comes down to is: Do you enjoy your life every day when you wake up? Do you grab that Blackberry first thing in the morning because you really care about this idea and the people you’re working with? Or do you grab it because you have to?”
There are plenty of CEOs in Silicon Valley that I could pick on when it comes to executive compensation. And when I do, I inevitably get an email from a reader accusing me of being resentful that someone else is simply making a lot of money. But that’s not true.
And as evidence, let me now praise Netflix CEO Reed Hastings. He’s making cash by the barrel full these days. And he deserves it.
I’ve singled Hastings out for the masterful way he’s steered Netflix through countless challenges. As I noted in this blog post earlier this year, Netflix has constantly been written off for dead. And each time, it’s come back even stronger. It’s repeatedly defied its critics expectations. And Hastings, who has been at the helm for about a decade, deserves a big share of the credit.
Were this your typical company and your typical CEO, you might also expect to find his executive compensation to be lavish. It’s not, but it’s been growing week by week. That’s almost entirely due to the performance of the company, and the growing value the company has created for shareholders. In a couple of ways, Netflix has done a remarkable job of tying pay to performance, which is why I don’t begrudge Hastings his growing pot of loot.
Let’s take a closer look at how that works.
First, we’ll start with something that Netflix does not do: Pay bonuses to executives. That’s extraordinary. From the company’s most recent proxy filing:
“The Company does not currently provide a program of performance bonuses for its Named Executive Officers. The Company expects all individuals to perform at a level deserving of a bonus and therefore such bonus amounts are taken into consideration in determining total compensation for the Company’s employees.”
Show up and do your job. There’s a novel concept.
The company then sets an overall target for what it wants to pay its executives, but it does allow the individuals to request how much of that they want in cash vs. stock. That means each person can determine how much risk they want to build into their pay. Once they do that, Netflix then allocates the options in equal amounts each month over the course of the year, with the strike price fluctuating along the way. So rather than just giving executives one big chunk at the start of the year, in a kind of all or nothing gambit, the piecemeal system does two things. It likely limits the upside, but also probably keeps more options in the money in the event the stock dips.
Look at it another way: If you flip the stock right away, your profit will be limited because the strike price will be based on the latest value at the start of the month. If you hold it for the longer term, there’s going to be more potential profit.
So let’s circle back to Hastings.
In 2008 and 2009, he was paid about $1 million in salary and received about $1.7 million in stock options each year, for a total package worth around $2.7 million. By valley standards, that’s cheap.
Since Netflix went public in May 2002, Hastings has established a pattern of stock sales from which he’s never deviated. He sells a chunk of 20,000 shares every two weeks like clockwork. For many years, these resulted in such small sales that they barely got any notice. His first sale in February 2003, when Netflix stock was just over $6 per share, was worth $126,550.
More recently though, I noticed that Hastings was often showing up in the Mercury News’ list of top stock sales each week. I wondered if he had accelerated his sales. Nope. Instead, Hastings is benefiting from the 239 percent increase in the company’s stock price over the past year.
So when Hastings sold his 20,000 shares on Sept. 2, Netflix stock was trading between $134.30 and $148.78, making the sale worth $2.8 million.
Over the past seven years, Hastings has now sold 3.35 million shares to raise $118 million. That’s somewhat offset by the $1.7 million he spent to exercise 964,152 options. But that still gives him a net profit on sales over $116 million.
That comes out to an average of $15.5 million in annual take home pay for Hastings, when you combine salary and net stock sales. That’s a lot for you and me. But it’s modest by Silicon Valley standards. And more important, it’s well deserved when your stock chart looks like this:
That kind of restraint shows the faith Hastings and his board have in the long term vision he has for Netflix. The only lament here is that this kind of mentality is still more the exception than the rule. Perhaps I may be naive in hoping that other boards might look at run of success Netflix has had and wonder if they should rethink their executive compensation principles.
What’s not to like about a book where the main character is a business columnist at the San Jose Mercury News? But Doctorow’s glimpse at the near future makes it difficult to love. The book hits a bunch of themes that would be familiar to anyone who follows Doctorow’s writing: The nature of closed vs. open systems of innovation; the wonder of making stuff and hacking.
But having just finished the book, it’s hard to say how Doctorow wants us to feel about the kind of future these things are creating. I would assume him to be a champion of open source, but the characters who fall into that camp don’t necessarily get happy endings. And in fact, they help generate a bubble that proves economically devastating not once, but twice. One of them becomes hooked on a future weight-loss program that eliminates almost all overweight people, but eventually turns out to cause horrific health problems. Technology, in this book, causes problems sometimes worse than the ones it solves.
The characters celebrate the world they live in, where the unemployed have built shantytowns from scratch as an alternative to developer driven housing models. But as a model of people making for themselves, well, these shantytowns don’t sound all that wonderful.
In the end, the message of the book is ambiguous. I’m not sure how Doctorow wants me to feel about this world, as intriguing as it is. It seems definitely more dystopian than utopian. And yet, at times he seems to be celebrating it, certainly not condeming it, and certainly never glamorizing it.
That may well be the intention, to leave us feeling ambivalent about where the future it taking us. Makers certainly offers no easy or obvious lessons about these questions. But the questions it raises made it a compelling read.
Last last year, in my annual prediction column, I included one far-out, wacky suggestion: Cisco Systems would buy Dell.
Though admittedly a long shot, my rationale was that Hewlett-Packard was moving into networking with its purchase of 3Com. That made it a direct competitor with Cisco. Both companies want to fight for big corporate customers, but HP has an advantage by simply being bigger. Though PCs are a dicey business, the best way for Cisco to level the playing field would be to buy Dell.
I’ve put that out of mind until the last few weeks when a series of events got me thinking that it could make sense. And now there’s a twist: Could Oracle be interested in Dell? I posted a short thought about this on Facebook yesterday after Oracle officially announced it was hiring Mark Hurd, the ousted CEO of HP. They now have a co-president with extensive experience running the largest PC maker in the world. Imagine what Hurd could do with Dell? And what delicious revenge it might be for him to take on HP in the PC business?
A year ago, I would have never thought about Oracle buying a PC company. But now that they’ve done the unthinkable and plunged headlong into hardware by buying Sun Microsystems, how much crazier would it be to see them buy Dell? In fact, yesterday, Quentin Hardy of Forbes also mused about the possibility of Oracle buying Dell:
“The last big Oracle buy was Sun Microsystems. At the time, people liked the software Oracle got from that deal, but wondered what to do with the hardware. Sure, it could sell high-performing Sun servers loaded with Oracle database and application software, but at what acquisition cost?
That deal makes more sense if Oracle adds to its hardware offerings with a comprehensive desktop and laptop offering. Dell has that, along with servers, storage, and a little network switching. More important, it has extensive corporate relations in selling to different parts of a corporate base than Oracle now touches.”
The company in the middle now is Dell. Following their loss in the 3PAR bidding, they are a wounded duck. They have a market cap of $24.4 billion, and annual revenue that fell last year to $52.9 billion.
By comparison:
Cisco has a market cap of $117.4 billion and annual revenue of $36.1 billion.
HP has a market cap of $82.9 billion and annual revenue of $114.b5 billion in 2009.
Oracle has a market cap of $120.4 billion and annual revenue of $26.8 billion.
Microsoft has a market cap of $206.23 billion and annual revenue of $62.5 billion.
IBM has a market cap of $158.5 billion and annual revenue of $95.8 billion.
I mention Microsoft only because of something Oracle founder Larry Ellison said a few years ago when he predicted the IT industry would consolidate. Ellison said there would be a handful of giants left at the end of the day, including Microsoft, HP, IBM, and a couple others. (I don’t remember the exact list, but I think there were five).
In any case, he wanted to make sure Oracle was one of the few giants left. And so he said Oracle needed to acquire large numbers of companies to boost its revenues and size to keep pace with companies like Microsoft. Being bigger would allow the company to spread costs such as R&D over a wider base, Ellison said.
That rationale remains as true today as it was then. Dell, first and foremost, needs to get much larger to remain competitive with HP. The fastest way to get there is acquisitions. But we’ve seen that Dell doesn’t have the resources to go toe-to-toe with HP. In fact, HP could simply starve Dell by outbidding them time and time again.
No, the best option for Dell at this point is to be acquired. But by which company?
HP probably couldn’t buy Dell without getting hung up on anti-trust issues. But if Cisco bought Dell, you would have a company with close to $90 billion in annual revenue, a number that significantly closes the gap with HP. And if Oracle bought Dell, you’d have a company with more than $60 billion in annual revenue, still only about half HP’s revenue, but closer.
“Yes, it is a big pill to swallow however, it would enable Larry Ellison, CEO and co-founder of Oracle to perform an end run in the massive global IT market and also leave a substantial legacy on his upcoming retirement.
If there is one thing we know about Larry Ellison is that he is motivated by big goals. Is this one too large for him?”
While I see Tom’s logic, I still find this scenario to be unlikely. Oracle has a lot of money, but it would probably need to make a hostile, all-cash bid for HP, which would be way too expensive. It would have to borrow massive amounts and take on big debt. Oracle’s stock wouldn’t be that attractive to HP shareholders, given that until the last couple months, Oracle and HP stock prices have tracked pretty close together:
However this plays out, expect lots of drama over the next few months. There’s no love lost between these companies. And with the economy stagnant, big players have clearly decided that acquisitions are the way to grow.
Who is the happiest man in Silicon Valley today? It has to be David Scott, chief executive of 3PAR. If he’s not the happiest, then he’s at least the guy who has made the most money in the past month thanks to the over-the-top bidding war for his previously obscure company.
According to a proxy filing in July 2010, Scott owned 2,923,468 shares in 3PAR, or about 4.6 percent of the company’s stock. On Aug. 13, those shares closed at $9.65 per share, making them worth $28,211,466.20.
Cue the bidding war. Dell threw in the towel on Thursday after Hewlett Packard offered to pay $33 per share. That makes Scott’s shares worth $96,474,444. That’s a nice 350 percent return in about three weeks.
The other big winners:
Mayfield Fund holds 2,992,752 shares, about 4.8 percent, worth $98,760,816.
Menlo Ventures holds 9,371,361 shares, about 15 percent, worth $30,925,4913.
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