Xerox’s Bid for HP: A Reversal of Fortune in the Making?–Futurum Tech Podcast
This week’s episode of the Futurum Tech Podcast took a main dive into Xerox and its bid to acquire HP and reverse both company’s fortunes. In our Fast Fives, we talked about internal objections to Facebook’s historical practices coming to light and the company’s responsibilities to society. We discussed Mavenir’s advocacy of Open RAN architectures as key to driving 5G builds, the latest NVIDIA breakthrough in using GPU to scale AI inference capabilities, DXC’s acquisition of Virtual Clarity, the CEO departure after the fallout from Imperva’s security breach, and much more.
Our Main Dive
Earlier this week rumors started to circulate about an audacious move by Xerox to acquire its much larger competitor HP. What are the prospects for the acquisition to succeed? What are the downsides and will it be enough to revive the prospects of both companies? We talk about potential branding outcomes and key areas of potential breakthrough like 3-D printing, and other interesting things about the bold takeover bid.
Our Fast Five
We dig into this week’s interesting and noteworthy news in the Fast Five segment of our Podcast:
- Facebook employees chafed at what they perceived as anti-competitive or unethical practices by the company in 2012-13 — their concerns were overruled by senior managers including CEO Mark Zuckerberg as competitive survival considerations triumphed. How much new government regulation will tech titans require as their impact on the competitive landscape and society broadens?
- Through its OpenRAN/vRAN assets, Mavenir bolsters the operator use case to accelerate their 5G deployments while also gaining significant CapEx/OpEx savings and total cost of ownership (TCO) benefits. Feel free to read Ron’s article on this: Mavenir Analyst Day 2019: Ready to Make the 5G Era Open.
- At its recent NVIDIA GTC event, NVIDIA announced record-breaking performances for AI inference workloads in data centers and at the edge, further demonstrating that GPU technology, coupled with the company’s deep domain expertise in software and developing high performance models, has the potential to emerge as the leading hardware architecture for AI Inference. NVIDIA’s partnership with USPS points the way.
- DXC acquires Virtual Clarity – The move validates ITaaS as a key emerging market and bolsters DXC’s portfolio to accelerate IT modernization and fulfill large enterprise vertical demands.
- The last of our Fast Fives is focused on small-satellite startup Kepler doing something never before accomplished with satellite-based broadband connectivity: providing high-bandwidth to the Arctic. The breakthrough is a key milestone in achieving worldwide broadband coverage.
In the Tech Bites part of our Futurum Tech News Podcast, we talked about the news that focused on Chris Hylen stepping down from his role as Imperva’s CEO after the cybersecurity specialist’s August data breach. Does this serve as a precursor for more C-suite departures following high-profile security breaches?
Crystal Ball: Our Predictions and Guesses
In our Crystal Ball conversation, we discuss the trillionaire’s club. Who is next in joining the elite company of Microsoft and Apple? Who is better positioned – Amazon or Google (Alphabet)? What are the impediments to joining the club? Are there any other plausible candidates?
Daniel Newman: Welcome to this week’s edition of the Futurum Tech Podcast. I’m your host today, Daniel Newman, joined by my esteemed colleagues, Olivier Blanchard and Ron Westfall. Olivier gets a smile on his face every time I try to say his name, like he’s French, and he is, but definitely another great week ahead of us here. Going to be talking about a big possible acquisition that’s going on. David is acquiring Goliath, or is he, with the Xerox HP story, and then we will dig into our regular series of fast fives. We’ve got an interesting story budding for our Tech Bites section, covering a executive outing or ousting I should say, following a data breach, and then we’re going to bring it home, talking about the trillionaires, the companies that have exceeded trillion dollar valuations and guessing who may be next. So that’s the preview, but jumping into the show this week, excited to be here.
Now before we start our show, I do have to remind everybody that this show, while we do talk about tech companies that are publicly traded, is for information and entertainment purposes only. So everything we talk about here is for your information, is for your entertainment, but please do not trade on the advice given here by our team of analysts.
All right, now that I’ve gotten all that out of the way, Olivier and Ron, welcome to the show. How are we doing today gents?
Olivier Blanchard: Thumbs up.
Ron Westfall: Pretty decent.
Daniel Newman: All right. That’s a way to counter my energy with some low energy responses. I appreciate that. Yes, let’s keep everybody moving. So, all right, let’s jump right into our main dive today. We’ll keep everybody moving. This way you can listen to our show, which we hope you are tuning in. We hope you’re subscribing and we’re hoping you’re sticking with us, and then you can get on with your day. But hopefully this is a half hour or more of really good insights.
First thing, Xerox, this audacious move. Don’t know if everybody out there has heard about it, but basically earlier this week rumors started to come out that HP may be a target of acquisition for Xerox. Now Xerox you say, Oh my gosh, who? Yes. You know that company that used to make copies that pretty much was only known for making copies but actually was a hub of innovation for a long time and patent holder for many, many products and services that were later developed and brought to market by other companies while Xerox kind of took its innovation but never actually was able to monetize it all. Well, Xerox is still about an $8 billion market cap company and HP, which has been through some meaningful change with the outing of CEO Dion Weisler and the entrance of CEO Enrique Lores.
And it’s kind of one of those great stories by the way with Lores, as he was an engineering intern at HP who worked his way all the way up through the rankings to now become the company’s CEO. But on a couple of notes, if you heard me mention this earlier, Xerox is an 8 billion valuation company. HP is a $29 billion valuation company. So that alone was very interesting. But the rumors started surfacing that Xerox had possibly lined up a financing partner that was going to help them take the company in. And it’s just a really interesting series of circumstances, because essentially both of the companies are in the same kind of hot water. There’s been recent talks with HP about a significant layoff of staff. They’ve recently had a layoff of staff. Both companies are heavily invested in print, and obviously with the migration towards mobile technologies and applications and mobile documents and portable documents, the demand for print has not necessarily been at the rate at once was.
And then of course we’ve seen 3D printing kind of stall out, which this has been one of the big bets of HP. So starting out, bringing the team here into the conversation, Olivier and Ron, what are some initial takes on this news? Ron, I’ll let you jump in first. I’m sure you’ve been reading about and hearing about it as you’ve been covering the tech stories each day of the week.
Ron Westfall: Well yeah, and I think you hit the nail on the head right there, Daniel. It’s the upside for 3D printing. Yes, has gone through a lull, but we’ve seen this before with many technologies that are truly innovative. There is that whole process of having to better understand the technology, how to operationalize it, how to monetize it and so forth.
And there’s a long list. We saw it, for example, with the first iteration of voice over IP. It was overhyped, it got over-marketed, the market stalled, and people are like, Oh, okay. This was something that was not going to obsolete the PSTN, the Public Switch Telephone Network overnight. And so it kind of just went into the background. But fast forward to a couple of years later, and voice over IP is the mainstream way of delivering voice.
And we can anticipate the same thing with the 3D printing. And the reasons why are because of things like the dawning of 5G capabilities. There will simply be better bandwidth capabilities, lower latency capabilities, and so forth to take better advantage of 3D printing capabilities. And that includes environments such as a smart factories, smart manufacturing, and it aligns with the other critical trends out there that we’re seeing, that is improving automation of processes, whether they’re on the factory floor or the operations behind all the manufacturing, or whether it’s the enterprise or operator end-to-end capabilities. Likewise, it’s also aligning with enabling autonomous capabilities to give the enterprises more control over their own processes.
And that includes, for example, adopting private LTE networks on the one hand, but also quite simply being able to have domain control over their capabilities while working with cloud partners and other ecosystem partners. And so this is actually one aspect that makes this acquisition possibility exciting beyond the David and Goliath aspect.
Daniel Newman: Absolutely. And as you read about this, what you’re hearing mostly is efficiencies. You’re just immediately hearing… Well, I think the street was excited, right? So HP saw a 6.3% jump on the news, Xerox saw a 3 1/2 percent jump, and let’s be straight. Those are not typical jumps for those companies. Those companies barely move most days. And if anything, the sentiment has been generally negative. And so what is the street, what are the analysts excited about?
Well they’re essentially excited about streamlining resources, cutting operational costs, bringing together the print lines, maybe expanding the offerings of some of their services. Print as a service, or device as a service, and obviously print accessories as a service have been big focuses of the company. But again, as print market isn’t growing, those are tough areas to be dependent upon. And so in the past it’s been all about, well, let’s give these large format printers away and charge for all the accessories. Again, not a growing market.
So one of the interesting parts of this all though, is HP does bring something that is still very much in demand, and that’s the PC. And the past couple of years, the HP PC business actually did see a bit of a renaissance. So coming out of the separation were HP and HPE most notably, but also DXC and Micro Focus and several other companies were all splintered off.
HP actually did have a short return to being the number one PC maker, and it had some great marketing leadership. Antonio Lucio actually was the CMO of the company at that time. And Antonio is now the CMO of Facebook, the company most notably that developed a new logo that says Facebook. And he left, and it seems that the marketing didn’t kind of keep up. And now Lenovo, China’s largest manufacturer of PCs, is taking that top spot at over 24% of the market. But there is an artifact of a successful PC business, gaming PCs, productivity PCs, enterprise PCs.
So Olivier, talk about that a little bit. How do you see Xerox and HP together potentially being able to maximize the broader portfolio of the two companies, and maybe create relevance again? And maybe one other thing I’d like to get your take on too is would they combine names or do you think which name actually… like who has the name worth keeping at this point if they were to come together?
Olivier Blanchard: Right. H Xerox P, I don’t know. I don’t know how that would work. So yeah, I’m not going to be as thorough Ron, who’s quick take was basically pretty solid and thorough analysis of the entire thing. However, the one thing for me that just really strikes me is that an $8 billion company like Xerox, that like you said, was kind of not really in the forefront of anyone’s minds in recent years, would attempt to acquire a $29 billion company that is in the forefront of our minds and that is a pretty big well-known brand that’s doing well like you said, with laptops. As a matter of fact, one of the laptops on my desk right now is an HP and I really like it.
However, it’s kind of like Blackberry trying to announce they’re trying to buy Xiaomi, right? It’s a little bit like that. It’s unexpected. You would expect it to be the other way around, where HP would try to acquire Xerox and try to blend it in. But I think that one of the reasons why the street is really excited about it and why, I don’t know that I’m excited about it, but I’m intrigued in a positive way, is that this brings purpose into the equation. It’s almost as if, HP is doing well, but HP is on its trajectory, and there’s nothing really exciting or new coming forward.
It’s just HP doing its thing and being marginally successful at it. Xerox has been kind of stuck, it feels, even though they’re probably doing really well as a company, but just in terms of public opinion, it’s just, it’s not really there. But you bring those two companies together and especially with that dynamic, and it just seems like they would be stronger together.
It’s a little bit like that line in the latest trilogy of the Planet of the Apes movies, where the apes put their fists together and they’re like, “Apes together strong,” it feels like Xerox and XP together would have renewed purpose. And like you said, renewed efficiencies as well, because the only way this works is if they trim the fat and focus on what works.
It kind of brings me back to everything that Ron said about not only the IoT and 3D printing, which we’ve been kind of talking about 3D printing for some years and it hasn’t really taken off the way that we’d like it to or the way that we hoped it would, but I think that bringing those two companies together with purpose makes perfect sense in the sense that it brings a lot of technologies together. It brings a lot of technology innovation and IP together, and I think that could unlock a lot of possibilities for small and large businesses, especially in the era of 5G where computing and creating are going to be very different and much more dynamic and fluid and embedded in the fabric of business.
Daniel Newman: Yeah, it definitely does have a more diverse portfolio that can be taken advantage upon by a large number of sales force around the world. You have some new executive leadership. It’d be interesting to see sort of what survives the leadership transformation there, because obviously you don’t need all those duplication, which would immediately create some savings. I think shareholders can get behind it. I think they are two companies that are kind of floundering, and I think there would be a little bit of a renewed sense of purpose.
I have to lean towards HP having the stronger consumer brand at this point. As crazy as that is, because Xerox was like Kleenex in our day, but in the last decade I think my kids know who HP is. I think your kids probably know who HP is. They probably have no idea what Xerox is. They don’t talk about Xerox. They say make a copy, or they say print something. They don’t say, let’s make make a Xerox the way we once said that.
So before we close out this segment, I just got to ask Ron, which brand do you think survives? Is Xerox or is it HP?
Ron Westfall: I’m going to timestamp myself. I like Xerox, because I think the man on the street, granted today’s generation, but there’s still I think a cohort out there that can appreciate Xeroxing something. And that I think is in contrast to HPing something. And so as a result that actually could be a way to quite simply revitalize the Xerox brand name. And it’s distinct. It’s not a combination of initials. It’s not an acronym. And so on a contrarian note, I think Xerox, especially since they’re the acquiring company, could very well be the dominant brand name going forward.
Olivier Blanchard: If I could just add this one thing, I think the HP brand probably sticks to the laptops but nothing else.
Daniel Newman: I was actually thinking that to myself. It might actually be a hard split. The print business falls under Xerox, the PC business stays with HP, and you go that way. I could definitely see it being split. But the last time I called a split was Microsoft and AWS sharing the JEDI contract, and I got that wrong. I get a lot of things right, but I have to be honest out there when I do get them wrong. And that one I was dead wrong.
All right, let’s move on to our fast five. Olivier, I’m going to let you take the first stab at this one. Facebook doing dumb stuff once again, let’s go.
Olivier Blanchard: Yeah, so this is actually kind of like a rewind. We’re going back in the past of I think 2012 and 2013, some documents recently became public or available, and they were apparently leaked by a former staffer. And essentially it just kind of opens a window into the quote unquote unethical ways or instincts of Facebook at times.
And this specifically, what it was kind of like discussions about Facebook allowing competitors or potential competitors to advertise on its platform. And the idea I think was that essentially, if Facebook is going to be an advertising platform, it should allow anyone who has the money and a product or a platform to advertise on it. And what happened is there were internal discussions and apparently Mark Zuckerberg, who according to Bloomberg and the Wall Street Journal I think, gave the final directive about this. And it was basically to not allow arrival platforms like WeChat, Kakao and others to advertise on Facebook.
And the idea was that if they advertise on Facebook, they might be pulling some of our customers or users away and attracting them to their platform. And apparently internally a lot of people thought that was very unethical, and that Facebook should not have banned or blocked those types of ads. So this matters now because of antitrust action being considered and possibly taken against Facebook for those types of behaviors. And so if proven true, this could pose some legal problems for Facebook in the future.
Daniel Newman: Yeah, I think a quick rebuttal, which is atypical for a fast five, is that with now all this question around what platforms rights are for banning and choosing and picking ads, this is just another case of where are those lines drawn? What do these platforms have to allow? They’re public companies but they’re not government or national entities. So do they have to take anyone that wants to pay? And I just, I think that’s going to become more and more of a question, especially as these political conversations continue moving forward.
So Ron, under the next one, a little more technical. Let’s talk about Open RAN and 5G.
Ron Westfall: Yes. This week Mavenir had its Analyst Day, and they shared their vision if you will. And it aligns with what we’re hearing a lot out there. And that is in the 5G era, quite simply, service providers need to adopt an OpenRAN type of architecture. And that is begging the question why, that sounds good, openness and so forth. But what is critical here and to begin with, an OpenRAN architecture would enable less vendor lock in. That has been the hallmark of pre-5G deployments. Quite simply, whether you’re talking about 3G or 4G LTE technology, fundamentally the supplier, whether it’s an Ericsson or a Nokia or Huawei, etc., have been able to lock down the RAN part of the network, while other parts have been opening up. And so that has quite simply caused cost issues for the operators.
It makes it more difficult for them to sometimes accelerate a service or to quite simply get better price points down, in terms of CapEx and OpEx. Also, it’s a way to minimize the physical legacy RAN inventory, quite simply. That’s pretty much a common sense aspect, looking at a hardware to software transformation, and so with less reliance on hardware technology, that is a purpose-built RAN versus a server in a data center, then you’re definitely looking at also reducing inventory costs, and quite simply allowing operators more flexibility in how they deploy their mobile services. And that includes along with that, lower maintenance costs, lower support costs, lower testing costs and so forth. So it’s really setting up for trending toward an Open RAN architecture and Mavenir is aligning to that and is stating the case for why operators needs to adopt this approach if they really want to thrive in the 5G era.
Daniel Newman: Absolutely. And this is going to be a big conversation that’s going to be continued through the next, I’d say 24 months, until 5G really becomes sort of ubiquitous, but the next two years I think it’s still going to be surprisingly early days. As much as we like to think it’s going to spread fast, even as fast as it is spreading, it’s just going to take time before everybody becomes comfortable. So these infrastructure, these software defined networks, these sort of scale out, scale up technologies are going to be very important.
All right, so my fast five is about this week’s GTC event in DC held by NVIDIA. Now, NVIDIA does GTC two different times, once on the west coast for the enterprises, and basically once on the east coast, primarily for federal customers, but actually for all of those that are interested in attending. And they had a few pieces of news. I’m going to break this down very quickly.
One is new benchmark measurements on their AI inference. Basically they broke the MLPerf benchmarks once again, and this is really interesting in short because most of the talk was that CPU technology was going to be the inference technology, whereas GPUs are going to be the training technology, but it’s increasingly looking like NVIDIA’s tech and the GPU is going to be the preferred technology for inference workloads.
A couple of other things that they rolled out was this new Jetson Xavier NX, which is basically an edge device for handling AI workloads. And with the growing use cases for edge, smart cities, autonomous vehicles, all kinds of different retail applications, you’re going to see an increased importance for having infrastructure and simple form factors that can be deployed rapidly and have a high compute capabilities and be run at the edge. So that’s a new device that was put out. It’s built on the same architecture that people are comfortable with in their data centers. So that was a big move.
And then probably the most practical and an understandable story for the less technical would be the announcement NVIDIA made that they’re partnering with the United States Postal Service, and they’re going to basically be using their EGX solutions to do training, learning out to the edge at 200 USPS, United States Postal Service facilities within the next year. And the outcome expected from this is going to be packages being processed at a 10 times faster rate than they are today, with a much higher level of accuracy.
And given that there are hundreds of millions of packages per day being analyzed, this is a really good news. So for those of you out there that wonder what that is at any means, if you have mail coming, your mail will come faster and it will come to the right place, which has been harder than you’d think for the United States Postal Service.
All right, now back over to you Ron, with the next fast five. We were talking a little bit about a new acquisition being made by DXC, who’s been on a little bit of a tear of these kind of small acquisitions.
Ron Westfall: That’s right. Yes. Recently they acquired a company called Luxoft, and today they announced the acquisition of Virtual Clarity. And Virtual Clarity basically brings IT as a service capabilities into the DXC portfolio. It certainly augments those capabilities. And this is a market segment that is getting more momentum, certainly more attention, and it stands to reason. It’s basically paralleling what we already talked about in terms of the major trends in the industry, the increased reliance on cloud technologies, particularly a multi-cloud implementation, especially if you’re a large enterprise or an operator.
And what IT as a service can bring further into the DXC portfolio is that. It’s accelerating time to market for many of these large enterprises in terms of modernizing their IT capabilities. Again, less reliance on proprietary hardware implementations and increased capabilities that come from using a cloud implementation. That also enables the flexibility to decide, okay, where do I want to distribute my workload, how can I elastically scale capabilities? And you’re not having to nail down on a multi-month, multi-year process how to do those exact things.
And so what’s also important is being able to pinpoint the requirements for key verticals. And that’s been something that’s been elusive, especially for operators on the one hand, but certainly for the large enterprise business. We want to work with ecosystem partners that really understand our business, and IT as a service allows that capability because it’s allowing not just the enterprise to be able to migrate to the cloud in a more flexible and accelerated fashion, but also being able to in essence, maintain their expertise. The DNA that is critical for that migration process.
In many cases we’ve seen there is something lost in translation. Literally taking hardware coding and trying to pour it into the cloud just doesn’t work. You definitely need native cloud capabilities, and you definitely need vertical expertise in order to make these implementations successful, quite simply. And so that’s really the key takeaways from today’s acquisition.
Daniel Newman: Yeah, it sounds like a good one to follow, and hopefully it’s going to help DXC now that they’ve got a new CEO, in finding their footings, as they’ve been treading water a little bit since the separation.
So Olivier, let’s move on to you talking about the world’s first in satellite broadband out in the Arctic. You always bring those human stories. I like it.
Olivier Blanchard: I know, I know, I’m nerding out on this one. So I’m reading this awesome book called The Terror, that’s about a doomed Arctic expedition in like 1842 or something. And they had no communications, and that’s why they all died. So fast forward to today, and now we have nanosatellites being launched into low polar orbit, delivering a hundred megabytes per second broadband internet to research vessels that are pretty much out of reach of traditional satellites, and of any other means of getting broadband. And what’s really interesting about this, so the company that delivered this and pulled this off as a small startup called Kepler, and they make nanosatellites. And nanosatellites are based on the standard that was passed about 20 years ago called CubeSats. And they’re essentially just like the size of a small box, and they’re intended to function for about two to five years, and then just kind of blink out.
So they’re extremely cheap to manufacture. They only take about a year to design build, and then they were up there for a few years, and then you’re done. And what’s actually really interesting about this on top of just the general notion that now polar expeditions or any kind of scientific research that’s being done in very extreme environments and very remote regions of earth, is that the quality of the broadband is actually really good.
So what they achieved apparently, is 38 megabytes per second down, and 120 megabytes up, which is above Google’s max recommended specs for the highest quality of gaming for their stadium service. And so it’s really interesting. This is for science, right? And the quality of the signal was higher than the maximum recommended specs that Google suggest for a stadium gaming platform. So this is really cool. I just geeked out on it. I thought it was really interesting. It’s not really kind of a top five story, but I think it’s more important than people give it credit for.
Daniel Newman: Hey, getting that high speed internet to everywhere is going to be the future of a truly connected world. So right on, running forward. So let’s talk about our tech bites. So gentlemen, thanks for those fast five.
Appreciate it. All good stories. But this week, and actually our partner in crime Shelly Kramer, wrote a piece about a company called Imperva, and they’re a cybersecurity company. And their CEO basically announced on August 27th that the company had been breached.
So you’re talking about a company that essentially is supposed to secure, that’s their jobs. It’s not even like a typical breach, but it’s actually a security company had 13,000 customers breached. And this was about three months ago, and just this last week, the CEO ended up having to step down from their job. And so the topic for me was essentially that executive accountability. So over the past few years, we keep hearing about these data breaches, but we’re not hearing all that much about what happens to the CEOs, what happens to the executives, and sort of who is at fault, and what happens to organizations when a CEO has to announce a breach, and basically who’s accountable.
So in the past it’s kind of been like, well, the CISO maybe, the Chief Information Security Officer, the CIO might be at risk, but in some cases, when you’re in the business of cybersecurity or when you’re in the business of data privacy and digital trust, and the company is breached, is it just the CISO whose head needs to roll? Or are we in an age now where CEOs and top level sales executives, marketing executives and others could be held accountable in an event of a breach?
So while the Imperva breach itself was kind of older news, what really kind of caught my attention with this and the reason I decided to make this our tech bites category, is I wanted to get your take Olivier and Ron, essentially on, is it fair for a CEO to potentially lose their job in the wake of a breach, even if they individually had very little to do with what ended up causing the breach in the first place? So Olivier, I’m going to have you kick this one off.
Olivier Blanchard: All right, so you might not like my answer because it’s going to be very French. I’m not super comfortable with this habit, and it’s typically American, by the way. No offense, right? It’s just, it’s a cultural norm that’s a little bit different here than it is in other parts of the world. But this habit of people losing their jobs at the first infraction or the first problem or the first glitch, right? On the one hand, I’m all about personal responsibility, professional responsibility. I think that nobody should skirt that. I just get nervous when people call for heads to roll at the first sign of trouble.
And so no, I don’t think that a CEO should lose his job necessarily when a breach happens, even if the company’s focus is cybersecurity and they fail at their major focus. It’s kind of like firing Tim Cook because the iPhone 11 doesn’t sell, or doesn’t come with 5G, to me it’s silly to be that extreme about the reaction, the knee-jerk reaction to a mistake or a failure.
I think that CEOs and executives and pretty much everybody should have a chance to kind of redeem themselves and fix the problem and learn from their mistake too, which is difficult to do if you get fired and tossed. I don’t think it’s really that productive.
Daniel Newman: That’s definitely an interesting take, Olivier, and I would only imagine how you’ve probably responded to this last week’s decision to oust the CEO of McDonald’s, given it was two adults having a consensual relationship, and at the first sign the company immediately kind of went against policy. You got to go, it doesn’t matter how well the company is doing. And obviously there’s a lot of different factors to that because you’re talking about an ousting for a relationship versus an ousting for a data breach.
But to your point, and it sounds to me like what really bothers you the most about it is this was apparently a first major issue, and the decision to eradicate this person from a role is a little harsh. As you said, maybe that’s the French or the European versus American culture, but that heads need to roll.
But Ron, I’d definitely like to hear from you too. And what’s your take there? Should heads be rolling? You like the contrarian view sometimes.
Ron Westfall: Very good. And yes, I think the McDonald’s parallel is apt in terms of timing. However, I think they are two different species in terms of what is the warrant for an executive to be dismissed, particularly the CEO. And I think a more apt comparison would be in the case of Capital One, which experienced an egregious security breach recently, and that was in line with their ongoing migration to an AWS cloud implementation. And that’s where actually the security breach occurred, was a former AWS employee.
Now theoretically had the Capital One CEO or executive team had to resign because of that, that would have been more eye opening. That would have been more egregious because that is not their area of expertise, it’s not their forte. So it would have been just that, a more aggressive mindset in terms of just how much responsibility can be applied to the CEO and executive suite.
What I think is also distinct here is that in the case of Imperva, this fallout occurred shortly after Thoma Bravo, a private equity firm, had acquired the company for a cool $2.1 billion at the beginning of the year. And so I think that was some of the foregrounding here. It’s like, hey, we just forked out $2.1 billion for a cybersecurity firm. And obviously the competition here is intense. You’re going against the McAfees and the Junipers and so forth. And I think this provided more fuel than normal if you will, for having the CEO fall on a sword.
And I think that it’s a rather distinct situation, and that McDonald’s parallel is interesting. But I think if you see another cybersecurity firm have something like this happen to them as well, it would be less surprising if you see someone on the executive team take the fall versus somebody who’s relying on Imperva for their security and having it happen to them. And that I think is more contextual as to what’s going on here,
Daniel Newman: Ron, that’s some great analysis, and really appreciate your thoughts there. It’s an interesting predicament for CISOs CEOs, but also now for CEOs and other executives to really consider what a breach could mean. With digital trust and privacy being such a big digital transformation issue in the coming years, companies will need to heed to greater standards to protecting the data and protecting the privacy of their consumers. And there will be companies that will focus on it and execute on it, and those that do not could see the most senior executives really pay the price the next time a data breach takes place.
So I want to wrap this show up today with our famous crystal ball section. Yes, it’s famous because I said it’s famous, but one of the topics that we’d like to come back to from time to time is the inevitable trillionaires, the trillion dollar companies, those that reach a trillion.
Now remember, last year we were having that debate as Apple crossed the threshold just momentarily, who would follow suit behind them. And at that time we were saying, would it be Microsoft, would it be Google, would it be Amazon? Well, Microsoft actually propelled right past Apple after a couple of bad quarters for Apple and became the next, and for a long period of time Microsoft sat at the number one spot. But now the battle of the trillionaires is no longer about who’s next, because the two companies, both Apple and Microsoft, have not only reached a trillion, but they are over 1.1 trillion now. So for all those hundred billion valued companies, they’ve got one of those plus a trillion inside of the walls of their organizations. But not far behind today sits Google at 900 billion at the moment, and Amazon at close to 900, about 875, just a cool 25 billion off from that next number.
And so, shifting towards something a little fun, a little interesting, some prognostication from the two of you. I wanted to get your take. Do you think in the next 12 months that either of those companies are going to follow suit? Now that we’ve kind of hit that point where the two biggest companies have sort of established themselves, and barring a significant trail off or even a recession, may never fall below that trillion dollar number again, do you think Google and Amazon are going to follow suit? Or is there someone else? And if so, do you think it’ll happen in the next year? Ron, I’ll let you kick this off.
Ron Westfall: Yeah, I’m going to lay my bets on Google. And obviously the Alphabet over Facebook, because it’s a combination of perception and market momentum factors. We see, for example, Google Cloud making more inroads into the market. And so obviously it’s not as big as Amazon or AWS, but they have more upside, more growth potential in this regard. And over on the perception side, I think what you alluded to earlier, the fact that Amazon got shut out of the JEDI contract is definitely a stumbler for them. And so as a result I can see Google, also known as Alphabet, quite simply outpacing Amazon in terms of reaching that $1 trillion threshold as a result.
Daniel Newman: And you Freudianly slipped and said Facebook. And I don’t even think they’re in the discussion right now, but they are actually, they are close to about half a trillion now.
Ron Westfall: Right, that’s going to be much further out.
Daniel Newman: Without a leadership change, I don’t see that one happening, but that’s some interesting take there. You’re picking Google. Olivier, are you going to pick Amazon? Are you going to pick neither? What do you think?
Olivier Blanchard: You know, it’s a really close tie between Alphabet and Amazon. I really don’t know. And the JEDI contract thing does kind of throw things into chaos a little bit. Before that I would’ve said Amazon, now maybe Alphabet ahead of Amazon. But what’s interesting to me isn’t so much those two, because I think it’s kind of a foregone conclusion that they’re both next in whichever order it happens. But I’m kind of actually, since Facebook came up, I think that, to round out the top five, I kind of like Facebook and Berkshire Hathaway as my next. I know Berkshire Hathaway is not a tech company, but you know, Geico, uses tech, so.
Daniel Newman: Every company is tech company, and way and not answer the question, yet still answer the question. I appreciate that.
Olivier Blanchard: Okay, so if I have to pick one, okay, I’ll-
Daniel Newman: You know what? I’m going to do the same. I’ll make it fast. I actually think the AWS contract, and I wrote a lot about this and trust me, I didn’t miss the opportunity to provide press quotes, but I actually think it’s a speed bump. It’s $1 billion a year for 10 years. AWS does 9 billion a quarter, so it’s a very small percentage of the business. I do think it’s going to be a huge thing for Microsoft. I just don’t know that it’s going to be that big of a problem for AWS. And I think based upon the trajectory and the fact that we’re only somewhere between 20 and 25% of all cloud workloads actually being in the cloud, you know, potential cloud workloads being in the cloud, I think that there’s still a ton of growth in that category.
To Ron’s point, I think GCP will grow too, I think those three all have a lot of success and I think everyone else is going to struggle that’s currently in that space, but cloud alone, but obviously you’ve got to love the fact that Amazon also has a humongous, humongous eCommerce business.
And of course Alibaba will not trade it publicly in the US, is another company to keep an eye on because they could certainly be a trillionaire at some point in the not so distant future with the foundation that was laid by the now retired CEO Jack Ma.
So with that in mind, I’m going to go ahead and end this episode of FTP, Futurum Tech Podcast. I want to thank everybody out there. Please hit that subscribe button. Definitely look up our articles and analysis on the Futurum Blog if you haven’t already. Find us on Twitter for the latest and most updated news. Join us each and every week for a rotation of Futurum’s growing team of analysts chiming in on the week’s biggest topics, the fast five’s, telling you what bites, and making a few predictions at the future. So for this episode, I’m Daniel Newman, your host, and I want to say thank you to everybody for tuning in, and we look forward to seeing you again very soon.
Disclaimer: The Futurum Tech Podcast is for information and entertainment purposes only. Over the course of this podcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we do not ask that you treat us as such.