The Cisco-Acano Deal: When Small is Big

This post is at least 3 weeks late and you can blame it on my vacation in India (which I will talk about in another blog). Analysts have been praising how impactful the Acano acquisition is going to be from Cisco’s perspective and what great synergy exists between the respective collaboration portfolios of Acano and Cisco.

I had met with the Acano folks at Enterprise Connect a couple of years ago and was impressed by the team, their innovative approach to video infrastructure and more importantly, their enthusiasm and conviction that they had a winner in their product, coSpaces. They were already seeing the very initial impact of their disruptive approach to video collaboration in the market.

What struck me about all the analyst reports is that none talked about how Acano’s market impact is a direct result of gross miscalculation and poor people management on the part of Cisco. The key Acano executives are either ex-Cisco or ex-Tandberg men, branching off on their own in reaction to being sidelined by Cisco’s senior management. Acano CEO OJ Winge was the former SVP and GM of Cisco’s Collaboration Technology Group, having transitioned from Tandberg as EVP of products. Both Acano CTO Mark Blake and Vice President of Products Jan Nielsen are also former Cisco/Tandberg execs.

Exactly two years after launch, Acano’s standards- and platform-agnostic approach to video collaboration had gained enough mindshare among enterprises to become a very palpable, near-term threat to Cisco. Keep in mind Cisco’s huge investments in Tandberg and the sustained decline in its hardware-based MCU revenues over the past few years. Despite analyst claims that Cisco paid a revenue multiple of 14x to 16x for Acano, this could well be higher in reality according to publicly available information on Acano’s revenues.

Acano Rev

The latest figures put Acano’s revenues at £11.5 million or $17.3 million, which means given the proposed acquisition price of $700 million, the revenue multiple is 40x and not the 14x to 16x that analysts claim.

Wow! I dare say the Acano executives must be laughing their way to the bank. Another example of Cisco waking up a bit too late to market realities, e.g., PostPath,ümi, Cius, Cisco TelePresence…

So what are the implications for the market and customers? Surely, none of us believe that Cisco is planning to recover its investments on Acano anytime soon. Here is a simplistic calculation. With revenues of little over $17 million at the time of the acquisition, it will take Cisco about 16 years to recover this investment even if we assume a very optimistic 25% revenue growth year on year. So how would Cisco monetize Acano and recover its investments? Simple, it would do so by removing a competitor that was offering cost-effective video that works across multiple, disparate platforms, endpoints and standards. And the investment recovery would happen by pushing the more expensive, proprietary, hardware-based Cisco solutions to  customers.


Microsoft Embracing the Cloud Paradigm in Earnest, thanks to Satya Nadella

I can’t believe I am saying this, but I really think that Microsoft is reinventing itself and is well on its way to becoming a ‘cool’ company all over again. RFeatured imageemember Steve Ballmer’s talk about the iPhone at the time of its launch? That is the image of Microsoft etched in my mind, the big bully in the software industry, milking away its customers in a near-monopoly desktop software market and arrogantly dismissive of competition. But then came the cloud, and Microsoft, like many of its peers, was confronted by a rapidly changing marketplace, novel and definitely cheaper product consumption models and newer competitors that made it look like the IBM of the software industry.

All these seem to be changing now. In July 2014, Microsoft came out with the new Office for iOS integrating desktop productivity with iOS aesthetics, allowing users to read documents on iOS devices for free. However, in order to create and edit documents, one needed the Office 365 subscription that cost $9.99 a month. Within 3 months of doing this, Microsoft took another bold step forward, offering full functionality Word, Excel and PPT for free to iOS users. This move by a company that firmly believed in no free lunches, a company that was contemplating a price of about $50 – $60 for Office for the iPad just a couple of years back. Since then, Microsoft has made a number of announcements – a promotion for Office 365 at $6 a month for OneDrive users and the latest one offering 100 GB of free OneDrive storage to Dropbox users for a year and for two years for those that sign up to its Bing Rewards program.

What drove this change of mind? The steady decline in MS Office revenues for one. Also, Microsoft was forced to playing catch up in both the cloud and the mobile markets. Its attempts to push Windows-based devices as an alternative to Android and iOS were not paying off. Satya Nadella who succeeded Ballmer as the CEO is a strong advocate of the mobile-first and cloud-first philosophy. However, in order to walk the talk, he also realizes that the company’s thinking needs to go through a paradigm shift. The cloud market demands a very different type of business model, and a dramatic shift in approach from a vendor that is used to realizing profit margins of more than 60%. Microsoft needs to garner mind share among cloud and mobile users and the quickest way to achieve this is to offer some of its products for free on the most popular cloud/mobile platforms. I have no doubt that the number of people using Office on iOS devices has jumped by a few million since the apps became free. I am sure today’s announcement will also boost One Drive users to a great extent.

More significant is the fact that, for the first time in years, Microsoft is not reacting to competitive moves in the cloud market. It is the aggressor now, surprising competitors and analysts alike with a strategy that is so not like Microsoft. However, as a user, I should say that I am beginning to like what I see. I just hope that this change is for the good, for both Microsoft and its customers.

Microsoft and Cloud Customer Care


This post is in part a continuation of my previous blog on Microsoft and its Office 365 customer care services. Just to recap, I cancelled my Office 365 annual subscription within a couple of hours of buying it as Outlook didn’t work on my Mac. After nearly a 2-hour struggle with MSFT tech support, I gave up and said I wanted to cancel. The call was duly escalated to Billing (by now I should have gotten used to the ‘escalation’ process which basically means you go from one clueless support person to another to whom you should recount your story for the fifth time). After a lengthy explanation of the difficulties in installing the software, I said “as it is not installing on my laptop, could I cancel the service?” Of course I could, she said, apologizing profusely that it didn’t work out for me as expected.

I was relieved to say the least. However, at that point of time I did not realize that nothing was said about refunding the $105.99 subscription fee. I will admit it. I am throughly spoilt by the likes of Amazon and Apple who do refunds if you are not happy with their products, especially cloud services, without question. Most retail chains in the US have similar refund policies. The most I had encountered when requesting for a refund was a polite, “was there something wrong with the product, madam?”

A couple of days later, I checked my credit card account. No trace of a refund. I called Billing again, but this time a different person. I regaled him once again with my failed attempt at installing Office 365 and asked him when I could expect a refund. In a booming voice he assured me, “5 to 7 working days.” Alright then, I would wait.

When I remembered the refund again, it was well past the 7 days. I checked my credit card account, still no trace of a refund. Relentless, I called again. This time, another polite lady from somewhere across the world answered. By now, I had become rather proficient at reciting my story and a little wary of very polite people on the phone. After hearing me out, she says “sorry ma’am. But Microsoft has a non-refund policy for monthly subscription services.” But then, I didn’t use the service, I struggled for more than two hours to make it work and so did your technician, I argued. Nope, policy is policy, she said. You signed the terms and conditions.

Yes, I did sign it after just glancing through it. But the service didn’t work. How can you charge me for something that never worked and was never used? After going back and forth for a few minutes, she agreed to escalate (!!) this again. A couple of days later, I get a mail from Microsoft. It said: “I have taken ownership of your request from my colleague (great, my request is progressing up the value-chain).

I understand that you wish to receive a full refund for your Office 365 subscription. My colleague made you aware of the Microsoft Service Agreement which states that all monthly subscriptions are not refundable (Not true. This was not told to me at the time of signing up but later when I asked for a refund). You agreed to the Microsoft Service Agreement during the installation of your software.

If there is anything that I can consider in your favor I would like to ask you to provide proof in form of emails sent to Microsoft, Chat transcripts, and reference numbers or similar (Really! I thought you recorded the calls and saved chat sessions. You want your customers to do it?) I am happy to consider anything that you may have that proofs (proves?) that you tried to contact us before. Without any such proof, I am not able to give you any refunds outside of the applicable terms and conditions.

The only reference of your attempt to cancel your subscription was the reference number 1250534697 from last week, but based on this I cannot refund any charges.”

I was now determined to get my money back. I did two things. I disputed the charge to my credit card with my bank and wrote a reply to Microsoft, highlighting the fact that I did reach out to tech support and apparently Microsoft had no record of those conversations. The long and short of the story was they came back to me after two days and said that I seemed to be right and I would be entitled to a refund. But by then, my bank had already withdrawn the charge to my credit card and my interactions with Microsoft support had left an indelible scar.

I was just thinking about the story in light of an article that I read on CNN today on how Microsoft intends to transform itself from a software company to one focused on mobility and cloud services such as the Office 365. I think what Microsoft needs is a fundamental shift in its thinking. It thinks and behaves like a traditional software license vendor. The cloud business demands an exceptional framework to attract, monetize and retain customers. To build that kind of business and customer care will be the first of Microsoft’s many challenges.

Dear Microsoft, the Cloud is all about Self-service



I am now a bit skeptical about Microsoft’s cloud service, Office 365. Touted as the “Future of Productivity,” the company promises to deliver the cloud “on your terms.” By ‘your’, I am hoping Microsoft is also referring to me, the humble home Office user. The recent price reduction of the Office suite in the cloud to just $9.99 a month for up to 5 devices had me eyeing the service for sometime. If you pay one-year subscription upfront, you get an additional 16% discount, so that you end up spending just $99 plus taxes.

The key motive behind me subscribing to the service was that I would be able to access my company email, which is Outlook, on my MacBook Pro as well as my iPad. I went ahead and bought the online subscription with a credit card on a particularly idle Friday evening. Here is an account of what ensued:

7.30 PM: The download goes smoothly and I am already calculating the number of hours I would save by having my office email on the personal laptop so that I did not have to switch back and forth between the work PC and my Mac. No such luck. Every time, I try to configure Outlook, it stalls. I force quit the application several times, then reboot my Mac and try again. Outlook is stubbornly inactive.

8.00 PM: After an initial struggle, I give up and call Microsoft tech support. After navigating the elaborate menu and the automated voice that cautions you to listen carefully to  the menu options “as they have changed recently,” I manage to reach an operator on the distant shores of (I am guessing here) The Philippines. The connection sounds as if the tech support person is in the middle of a particularly intense Mardi Gras parade.

8.30 PM: Tech support establishes a remote session on my Mac and proceeds to troubleshoot while explaining to me elaborately what he is doing. After 10 attempts of trying to awaken Outlook, he uninstalls the application and begins the download all over again. Great, just another 20 minutes.

9.00 PM: Outlook downloads successfully or that is what I am told. To my dismay, it is DOA and wouldn’t budge.

9.20 PM: Tech support says he is going to escalate this to the enterprise team and they should be able to help me. After a long goodbye message punctuated by several polite apologies, I am left in the safe hands of Mr Ferdinand.

9.40 PM: I have by now explained the problem to Mr Ferdinand who now tells me that the ticket was escalated to him by mistake and he is now routing me to the ‘absolutely correct’ department.

9.50 PM: I am now handed over to another, this time a woman, who asks me for my name, ticket number and a description of the issue. By now, I am done. Productivity or no productivity, I didn’t want to go through this any longer. Could I cancel the order?

10.00 PM: I am still on the phone explaining to the person that I am not unhappy or angry but just tired after a long day at work and couldn’t spend any more time on the phone with Microsoft, though I would love to. I am handed over to Billing.

10.15 PM: Another 10 minutes of profuse apologizing. Sorry this didn’t work out for you madam. Surely we could fix up some time in the morning to continue where we left? The prospect of rebooting my computer and entering my password a dozen times didn’t seem to be the ideal way to spend a Saturday morning. I politely decline the offer.

10.30 PM: I am finally let off the hook but not before a flurry of emails hit my inbox. Thank you for contacting Microsoft and here is your ticket number. Here is another, confirming your cancellation. Another with the transaction confirmation code and a fourth with a customer satisfaction survey.

I would like to think that I am just an exception to the rule. I just hope that Microsoft is not spending all this time on the phone with customers who are bringing in revenues of about $100 a year. I think even with the lower salaries in the Philippines, this may not be a very profitable cloud model.

P.S.: Today I got a call from Vonage urging me to activate my second extension on a mobile device. They apparently didn’t want to make it too obvious that they were selling me something. So the call center person (this time from somewhere closer across the border) proceeds to extol my virtues as a valued customer and says that in appreciation, Vonage would like to offer me a second extension. The service costs just 17 cents a day and $4.99 a month. Because I am such a valued customer, my first day of the service would be offered free. I was sure I didn’t hear that right. Naively, I ask “so are you offering the service free?” The caller responds enthusiastically, “As a valued customer, the first day of use is offered free.” So, in the Vonage world, a good customer is valued 17 cents!



Why Cisco’s Revenue & Profitability will Continue to Decline


Cisco reported its Q3 financials today and Wall Street celebrated the fact that the networking vendor managed to post less-than-expected decline in revenues. Cisco’s revenues for this quarter were at $11.5 billion, a 5.5% decline year-on-year from $12.2 billion in Q3 2013. Analysts expected Cisco to see lower revenues at $11.36 billion. Profitability declined 12% for the quarter to $2.2 billion from $2.5 billion in Q3 2013. Collaboration revenues, which declined by 16% between Q1 and Q2, saw a small rebound at 1.2% growth between Q2 and Q3. John Chambers remarked that he was pleased with Cisco’s “clear progress on returning to growth”. Returning to growth? I beg to differ. Remember that in Q2 Cisco was citing macro-economic conditions for its poor performance. Now, we are talking about another poor quarter when the economy is showing signs of a rebound.


Cisco will continue to see declining revenues and profitability because there are fundamental changes happening in the enterprise communications and collaboration market.

The Cloud

Cisco’s product composition in the last 10 years has changed from 100% on-premises to a mix of cloud and on-premises. Much of the collaboration business of Cisco, which accounts for 8% of total revenues is delivered as a service, with WebEx being a key contributor to this mix. Cisco’s margins from its on-premises products is on an average 65% – 70%. However, the WebEx cloud business had operating margins of 24% before it was acquired by Cisco in early 2007. I assume that this would have declined further after the acquisition as Cisco’s cost models would have been only higher. Another of Cisco’s cloud service, Cisco Hosted Collaboration Service or HCS has been a non-starter, right from the times of its earlier avatar, HUCS.

Cloud services will threaten Cisco’s privileged position in terms of profitability and top-line growth if the company fails achieve scales comparable to cloud competitors such as Amazon, Google and Salesforce.

The Video Challenge

Cisco’s big vision for video, selling expensive telepresence rooms and bundling those with intelligent networks, seems to have met with several roadblocks. This is largely because low-cost competitors with equally good, if not better, technologies have arrived in the market (Ex.: Vidyo with pioneering work in scalable video coding). Room systems were never destined to see the scale of desktop video. Cisco’s ambitions of selling desktop video systems at $3,000+ per endpoint is clearly not going down well with enterprise users. Though Cisco does not break out its video revenues from total collaboration sales, I do have reasons to believe that this is on the decline as well from what it was a couple of years back.

Path Forward

Cisco’s legacy businesses of switching, routing and security are suffering from the classic symptoms of markets nearing maturity and saturation and also face intense competition from alternative delivery mechanisms. Cisco plans to invest $1 billion in Cisco Cloud Services to create global inter-clouds using the OpenStack platform by forging alliances with service providers across the world. It is expected to use this service to drive its Internet of Things ambitions, with its grand design of tying in data, processes, and people.

Cisco says that it has already got Telstra on board for its Cloud Services project. However, given Cisco’s track record with service provider offerings such as HCS, HUCS and telepresence exchanges, I am highly skeptical. Add to this the fact that it is up against large competitors such as Amazon with its EC2 (Elastic Compute Cloud) and S3 (Simple Storage Service) offering these services at prices that Cisco’s business model could never afford to support. Even if Cisco succeeds in this business against strong odds, it will take at least a few years before this cloud initiative becomes profitable. Until then, its sales expenses will escalate, profitability will be elusive and revenues will see a possible ramp-up over a number of years.

Under these circumstances, Chambers’ “clear progress on returning to growth” will remain elusive.

Cisco WebEx Social is Out, Welcome Jive!


Today, Cisco announced a partnership with Jive to integrate the latter’s social collaboration platform with Jabber and WebEx. The partnership has set the Jive stock on fire, which soared by 9% shortly after the announcement. The partnership will see deep integration between the Jive Social Business Portal and Cisco’s communications and collaboration applications that will allow users to initiate voice and video calls, see presence status and do instant messaging at the click of a button. The announcement ends Jive’s prolonged quest to partner with leading communications vendors to kickstart sales and really boost market sentiments. For customers, they can engage in persistent, real-time conversations without having to switch between multiple platforms and interfaces.

First Quad, Now WebEx Social

Buried somewhere deep under the announcement was a by-the-way-we-are-dumping-WebExSocial statement from Cisco. By abandoning WebEx Social, Cisco is acknowledging that its social collaboration efforts have failed to impress markets and customers. WebEx Social’s earlier avatar was Quad, Cisco’s on-premises version that never progressed beyond pilot implementations among its customers. The platform was too complex and closed (and probably expensive) to really become a competitive force in the market. Cisco’s efforts to move it to the cloud was an attempt to piggyback on its more popular cloud-based collaboration platform, WebEx, and probably spur adoption through some intelligent bundling.

Jive’s Window of Opportunity

Jive has a reason to celebrate. With the Cisco brand name, marketing muscle, and sales prowess, it is easier to get a foothold in large enterprise accounts. However, I believe this is going to be just a short-term window of opportunity, until Cisco finds an alternative, either via an acquisition or in-house development of capabilities. I cannot but help compare this partnership with the earlier Cisco-Radvision deal.   In the early days, Cisco did not have any video products outside of its TelePresence suite.  Multi-point control units or MCUs were outsourced from Radvision under an OEM agreement. Cisco had the TelePresence Multipoint Switch, a vastly different architecture from the Radvision SCOPIA MCUs, which were standards-based and could interwork with MCUs from other vendors.  When Cisco opted for the M&A route to fill portfolio gaps, Radvision had close to $44 million at stake, which accounted for about 42% of its total revenues. The Cisco pull-out from the partnership subsequent to its Tandberg acquisition had dire consequences for Radvision, which lasted until the very end, before it was sold to Avaya.

The Jive management should carefully evaluate how much they bet on this relationship with Cisco, given that its former competitor could at any given point of time go back to being just that, a competitor.



Will Twitter Ever Reach Facebook’s Scale?


At little past 5 PM Eastern Time today, Twitter stocks fell by 14% from its initial IPO opening price of $45.10, apparently on poor market sentiments triggered by its less-than-expected growth in user base. In fact, the markets seem less anxious about the net loss of $132 million than the slow user growth. Timeline views by monthly active users declined 8% year-on-year. Analysts are fervently comparing what they deem as a ‘lackluster’ performance by Twitter with the great results of Facebook a week ago. I guess this was inevitable given that Twitter’s newly launched profile page mimics Facebook’s so closely. However, as there are some fundamental differences between the two social media networks in terms of user engagement and content lifespan, I think the comparisons are less than fair.

Expectations versus Performance

After a great year in 2013, when Twitter beat Wall Street estimates in terms of both earnings and user additions, the 5.8% growth in monthly active users this quarter was not enough to boost sentiments. I think the low user additions, much below Facebook and LinkedIn averages, is triggered by poor user experiences. Though Twitter has been tweaking its UI in order to bring in more visual experience to its audience over the years, it still feels like it has a long way to go. The company also has challenges when it comes to user engagement, partly because of the very nature of Twitter and partly because of the poor user experience.

Twitter’s sub-par user growth is also because of the significant downtimes it has witnessed over the years. How many times have you been turned away by the “Oops, something seems to be wrong” or the fail whale banner when you had rushed in to post a tweet? To be fair, some of these downtimes were because of unforeseen network overload when some big news or event breaks over the Internet. Twitter seems to have learnt from its past mistakes though as it has been investing in infrastructure and network failover mechanisms over the last several months.

The Future

The biggest challenge for Twitter is that its growth is slowing even when it has enough headroom to grow. Unlike Facebook, it is not nearing market saturation even in mature markets such as the US, let alone globally. While Facebook’s slower growth in user base is more or less anticipated, Twitter should be sprinting along at a considerably faster rate, which is not happening right now. The growing popularity of competitors such as Pinterest, Snapchat and Instagram can be attributed to the fact that these are more appealing visually and hence sustain user engagement. Even relative newcomers such as WhatsApp, which has about 55 employees, had a daily active user (DAU) count of 353 million compared to Twitter’s 120 odd million DAU in early 2014. However, WhatsApp’s use case as a messaging application is different from Facebook or Twitter, which are both pure-play social networks.

Twitter CEO Dick Costolo admits that the platform has to become more user-friendly in order to grow and retain registered users. However, I am not entirely convinced that copying a Facebook-style profile page is a step in the right direction. Twitter has to leapfrog competition in terms of both user interface and experience in order to overcome some of its growth challenges. Also, for a company that bets most of its future growth in international business, it has not been consistent in rolling out new products for the non-US markets, contributing to the growth slowdown.

Growth in the most prospective Asian markets has been slowing for sometime now. Especially in Japan and South Korea, where the percentage of mobile users is very high, due to a larger market movement towards private social networks rather than more open platforms such as Twitter. In Korea, only one in seven of Twitter users are said to be even moderately active on the social network. Dick Costolo rejects any claims that the fundamental nature of Twitter could be inhibiting adoption. While this may be true, it should also be acknowledged that despite the fact that a majority of its users are not from the US, international revenues contribute just 27% of total sales.

Will the recent improvements in the interface be enough to overcome what seems to be a mounting number of issues? I am skeptical.