Even tech titans have to come back down to Earth

20 Jul 2015

This will be a major week for earnings of tech giants like Apple, Yahoo! and Microsoft

This will be a pivotal week in earnings for tech giants like Apple, Yahoo! and Microsoft. There will be good news and bad and, of course, the bruising truth. In the end, all leaders must come crashing back to Earth, writes John Kennedy.

To understand the tech industry is to simply think of it as history in motion. The very device or browser window you are reading this on is part of that ever-evolving history – advances in Moore’s Law, materials, design, battery life, apps… you name it. You, dear reader, and your experiences are all part of the narrative.

Right now in Silicon Valley some CEOs could be forgiven for assuming they have god-like status. After all, they are masters of the universe, are they not? The dot-com bubble of 2000 and the subsequent crash are all just memories, footnotes in the forward march of tech.

But if you are a realist you will realise that not everything goes their way and the results out this week will no doubt give you a picture of some doing better than others. But keep an eye out for the underlying risks.

In Apple, Microsoft and Yahoo! you have three very different leaders.

The leaders

Apple CEO Tim Cook is the perfect person for the job at the right time – while his company rockets forward on all cylinders, he is humble, realistic, shrewd and capable. Apple is being boosted by the performance of the iPhone, a device that didn’t exist before 2007, and Cook’s reason, logic, cool-headedness and very little ego are essential if heady growth is not to be squandered.

Microsoft’s Satya Nadella is a software man at heart. A person for whom technology is as much philosophy and art as it is form and function, but who must transform an organisation that can’t relinquish its past glory days into a beast hungry for the future. In about nine days’ time Nadella is about to make a bet that will transform computing for 1.5bn users and possibly leave the mistakes Microsoft made in the last five years in the history books.

Yahoo! CEO Marissa Mayer has the distinction but also the pressure of being one of the few female CEOs in Silicon Valley. She shares the cool, analytical approach to running tech companies of both Cook and Nadella, but is hamstrung by a company that jettisoned its winning culture a long time ago and is struggling to regain relevance. Yahoo! is still one of the world’s foremost web properties, but Google now occupies the place where it could have been and in a world awash with Snapchat, Facebook and Tinder apps, Yahoo! is hallooing into the abyss for attention.

The challenges

Like I said, the tech industry is history in motion. In 1997 during a holiday in Boston, I ambled into the library at Harvard, found a free computer terminal and looked up some news. I discovered a bombshell – Microsoft bailed Apple out just days or weeks before bankruptcy loomed. Yes, Microsoft saved Apple in 1997.

Steve Jobs returned from his exile to return Apple to greatness and, accepting a US$150m investment from Microsoft, said: “We have to let go of this notion that for Apple to win, Microsoft has to lose.”

It is ironic, therefore, that as we realise Apple wasn’t always the unstoppable tech titan that it is today, the pivotal moment in 2007, when the iPhone arrived, was precisely the moment that Microsoft, which then seemed unstoppable, lost its footing.

The iPhone is Apple’s cash cow. In Apple’s most recent Q2 financial results in April it revealed that iPhone sales brought in US$40.3bn in revenue, with some 61.1m iPhones sold during the quarter, bringing in profits of US$13.6bn. The iPhone is now responsible for bringing in 69pc of Apple’s revenues.

But tomorrow night will also reveal how Apple’s newest form factor – the Apple Watch – fared.

A report in June on Siliconrepublic.com estimated that 2.79m Apple Watches had been sold since its launch, but this surge appears to have waned. According to new figures from Slice provided by MarketWatch, just three months later the company is now selling fewer than 10,000 per day worldwide in some instances. That is a 90pc slump.

It will be interesting to see how accurate this is and what Apple itself reports. No tech titan is too big to fail and this could be the first real test of Cook’s leadership since he took over as CEO.

Microsoft is little over a week from launching its newest operating system Windows 10 and, like I said, this is a huge bet for the company. It is a company that is undergoing a major culture change – one away from khaki slacks and polo shirts to something sleeker, more stylish, more refined and more nimble. Nadella dresses it up under terms like empowering billions of people to be more productive.

Windows 8.1 is a solid performer for the company, as is the Xbox platform, cloud services Office 365, Microsoft’s enormous server and enterprise legacy and the company’s Surface device platform gets nowhere near the recognition it deserves. New technology platforms like HoloLens also have the potential to give Microsoft an enormous edge.

However, Microsoft has to get over the hump that is the Nokia failure. Last year the company paid more than US$7.2bn for Nokia’s devices division. In recent weeks Microsoft recorded a giant US$7.6bn impairment charge, mainly due to the Nokia acquisition.

Windows 10 represents Microsoft’s shot at being relevant not only in its core markets of cloud and PCs, but in mobile. It has one shot at getting this right.

For Yahoo! everything could have been so much different. In the late 1990s Yahoo! was pretty much an unstoppable force, as competitors like Alta Vista were swept away, and it was pretty much the home page of the internet for many people. However, bungling leadership failure to realise a “sure thing” acquisition offer from Microsoft prior to Mayer’s arrival at the helm has left Yahoo! adrift. It has no smartphone OS, for example, and Google owns the market in terms of mobile and web advertising.

Mayer is quietly repurposing the company but many of the ships have sailed and it isn’t yet clear what big bets are left at her disposal. Yahoo! has filed to spin off its lucrative stake in Alibaba as Aabaco Holdings and in recent days Yahoo! quietly launched its Livetext app – which combines mobile messaging with live silent video – in a move that might see it take on Facebook Messenger or Snapchat.

Either way, you get the sense that Yahoo! is tiptoeing into the party, hoping to be unnoticed instead of making an entrance.

The moral of the story is tech fortunes can change, not in the blink of an eye, but through hubris and inaction on the part of leaders.

In 2007 former Microsoft CEO Steve Ballmer laughed at the iPhone’s one button.

In the early 1990s Apple fancied itself the next IBM.

In 1998 Yahoo! was the most popular page on the internet. Little did it know at that time that the two founders of Google – then penniless students scrambling to buy server space with maxed credit cards – were about to eat its lunch.

Tech is history in motion and this could possibly be a revealing week.

Earth image via Shutterstock

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years