FTC starts turning the screw on Big Tech

The Federal Trade Commission (FTC) has issued Special Orders to five of the technology industry’s biggest hitters as it takes a more forensic look at acquisition regulation.

Under the Hart-Scott-Rodino Act, certain acquisitions or mergers are required to be greenlit by the regulatory authorities in the US before completion. This is supposed to be a measure to ensure an appropriate marketplace is maintained, though there are certain exceptions to the rule. It appears the FTC is making moves to combat the free-wheeling acquisition activities of Big Tech.

Under the Special Orders, Google, Amazon, Apple, Facebook and Microsoft now have to disclose all acquisitions which took place over the last decade. It appears the FTC believes the current rules on acquisition need to be reconsidered.

“Digital technology companies are a big part of the economy and our daily lives,” said FTC Chairman Joe Simons. “This initiative will enable the Commission to take a closer look at acquisitions in this important sector, and also to evaluate whether the federal agencies are getting adequate notice of transactions that might harm competition. This will help us continue to keep tech markets open and competitive, for the benefit of consumers.”

While authorities have already questioned whether some acquisitions are in the best interest of a sustainable industry, in fairness, Big Tech has done nothing wrong. Where relevant, the authorities have been notified regarding acquisitions, and they have generally been approved. If the FTC and its cousins in other regulatory authorities believe the current status quo is unappealing, they only have themselves to blame.

In general, an acquisition will always have to be reported if the following three criteria are met:

  1. The transaction would have an impact on US commerce
  2. One of the parties has annual sales or total assets of $151.7 million, and the other party has sales or assets of $15.2 million or more
  3. The value of the securities or assets of the other party held by the acquirer after the transaction is $68.2 million or more

All three of these criteria have to be met before the potential acquisition has to be approved by the regulators.

Interestingly enough, the Android acquisition by Google is rumoured to be for roughly $50 million, therefore the third criteria was not met, and the team did not need to gain regulatory approval for the deal. This is perhaps what the FTC is attempting to avoid in the future, as while we suspect there was no-one in the office at the time with enough foresight to understand the implications, the regulator might suggest it would not have approved the deal in hindsight.

One of the issues being faced currently, and this is true around the world not just in the US, is that authorities feel they have lost control of the technology industry. Companies like Google and Facebook arguably wield more influence than politicians and regulatory authorities, a position few will be comfortable with outside of Silicon Valley.

Aside from this investigation, the FTC is also exploring Amazon in an antitrust probe, while Google and Facebook are facing their own scrutiny on the grounds of competition. There have also been calls to break-up the power of the technology companies, while European nations are looking into ways to force these companies to pay fair and reasonable tax. Across the world, authorities are looking for ways to hold Big Tech more accountable and to dilute influence.

Interestingly enough, we don’t actually know what the outcome of the latest FTC foray will be. It will of course have one eye on updating acquisition rules, though as Section 6(b) of the FTC Act allows the regulator to conduct investigations that do not have a specific law enforcement purpose; it’s a blank cheque and the potential outcome could head down numerous routes.

US hints at state support for domestic ORAN push

The US government is thinking of subsidising US tech companies to help them get better at 5G software, in the hope that will solve the Huawei problem.

The rumour comes courtesy of the WSJ, which actually has a named source for once. White House economic adviser Larry Kudlow told the Journal that the White House is ‘working with’ tech companies to help them raise their game when it comes to networking software. This would enable the US to be self-reliant on 5G in the advent of the Open RAN movement getting to the point when it was actually useful.

Presumably US tech companies have previously tried to take on Huawei in the networking market but failed. What a few top tips from President Trump will do to tip the balance in their favour is unclear, but a shed-load of public cash never does any harm. Among the companies involved in the initiative are AT&T, Microsoft and Dell, apparently, but Ericsson and Nokia also seem to have been adopted by the US for the purpose of this exercise.

Unsurprisingly Dell and Microsoft are especially keen to get involved, cognisant as they presumably are of the massive new market available to them is networks can be run by software sitting on any old server. Apparently Michael Dell has even gone on the record as saying “software is eating the hardware in 5G.”

While we would never suggest that some US tech companies might exploit the current use of Huawei as a pawn in the trade war with China, we can imagine the likes of Dell exaggerating the short term prospects of ORAN in order to tell budget-holding politicians what they want to hear. For further analysis, check out this Light Reading piece.

Amazon and Microsoft are proving to be a different class in the cloud game

Amazon and Microsoft have unveiled bumper financial results and now it is over to Google to prove it can keep pace with the two clear leaders in the cloud segment.

For years, it was Amazon’s cloud business unit, AWS, which was incomparable to the rest of the cloud segment. No-one could get anywhere near this trailblazer, though Microsoft has closed that gap recently. The question is whether anyone else has? The likes of Google, IBM and Oracle claim to be in the same league, but there is little evidence to support this, but Google has a chance to set the record straight next week.

Amazon and Microsoft have now revealed their numbers for the final three-month period of 2019. The story is not quite complete without Google’s numbers, realistically the only competitor who has a credible claim to be in the same league, but the numbers are eye-watering.

At group level, Amazon increased revenues by 21% during the last quarter, with the cloud business bringing in $9.9 billion, an increase of 23% year-on-year. While net income only increased 19% to $2.6 billion, this was actually 79% of the total net income across the group. The cloud business unit at AWS is a profit machine.

Over at Microsoft, group revenues increased by 14% to $36.9 billion, while net income was up 38% to $11.6 billion. Revenue in the ‘Intelligent Cloud’ unit increased 27% to $11.9 billion with Azure’s revenue up 62% for the quarter. Cloud products and services of course factor into the other Microsoft business units, but the ‘Intelligent Cloud’ group is showing the most aggressive growth.

Business unit Total revenue Growth
Intelligent Cloud $11.9 billion 27%
Productivity and Business Processes $11.8 billion 17%
More Personal Computing $13.2 billion 2%

Although revenues are only one part of the picture, market share estimates also tell another story.

Looking at the most recent estimates from Synergy Research Group, Amazon is leading the cloud segment with 39%, Microsoft sits in second with 19%, Google is on 9% and 5% for Alibaba. Salesforce now has 4% and IBM is on 3%, while no-one else has more than a 2% share. These figures are for the Infrastructure as a Service (IaaS) and Platform as a Service (PaaS) segments.

As mentioned before, the landscape is not complete until Google releases its numbers next week, though IBM and Salesforce have released theirs. At IBM, total cloud revenues stood at $6.8 billion, up 21% year-on-year, while Salesforce reported group revenues of $4.5 billion for the last quarter, an increase of 33%. These numbers are attractive, investors might well be pleased, but Microsoft and Amazon look like they are sitting alone in the top tier of the cloud industry.

Another factor to consider are the deal wins.

While Amazon has been hoovering up deals with SMEs and the emerging digital businesses, Microsoft has extensive existing relationships with almost every major corporation in the Western world. The firm claims to currently be working with 95 of the Fortune 100 companies on cloud infrastructure. These companies like the look of Microsoft, thanks to a stronger focus on hybrid-cloud, whereas Amazon has a better reputation for the speed and scale of cloud-only strategies.

During the last period, Microsoft secured the US Department of Defense $10 billion JEDI cloud contract, which will cover 1,700 data centres and the transition of millions of devices from on-premise servers to the cloud. AWS lost out on this deal, but it has got plenty of significant customer wins to boast of; Western Union, media firm Fox, the NFL, pharmaceutical giant Novartis and Best Western Hotels & Resorts.

Interestingly enough, the rapid expansion of these internet giants might well start to encroach potential revenues which have been earmarked for the telcos.

The last few months have not only seen CAPEX investment from the likes of AWS and Microsoft, but also picking up industry executives. An excellent example of this is Alex Clauberg, a former Deutsche Telekom executive.

As the connected world starts to spread to more corners of society and the ‘edge’ develops, there are plenty of opportunities for telcos to make more money from what is quickly becoming a commoditised service. However, there is no guarantee the newly created ‘service’ revenues will be reserved for the telcos themselves. Clauberg’s move is evidence the internet players are attempting to muscle in on telco revenues.

Clauberg is a well-known name in the SDN and NFV sector and is the current Chairman of the Telecom Infra Project (TIP). He was previously VP and CTO at T-Systems International, the global services and consulting arm of DT, but now works as Solutions Architects Leader, at AWS. There is not a huge amount of information as to what this new job actually is, but it is demonstrative of the ambitions of the likes of AWS in the telco world.

These are companies which are growing rapidly in their traditional playing grounds and pushing aggressively to steal profits in places they should be considered secondary. Google still has an opportunity to place itself at the top table of the profitable cloud segment, but it does look like AWS and Microsoft are in a league of their own.

Will telcos follow Big Tech in pursuit of a greener life?

Microsoft has stated its green ambitions, delivering a plan to be carbon neutral by 2030, halving the carbon emissions of the business.

By the mid-point of the decade, Microsoft plans to have its own direct carbon emissions almost down to zero, while it will work to drive the same efficiencies through its supply and value chain. The business will also invest $1 billion to accelerate the development of carbon reduction, capture and removal technologies.

“While the world will need to reach net zero, those of us who can afford to move faster and go further should do so,” said Microsoft President Brad Smith. “That’s why today we are announcing an ambitious goal and a new plan to reduce and ultimately remove Microsoft’s carbon footprint.

“By 2030 Microsoft will be carbon negative, and by 2050 Microsoft will remove from the environment all the carbon the company has emitted either directly or by electrical consumption since it was founded in 1975.”

While many executives might claim to have a green agenda, the technology, media and telecoms industries are being led by the US Big Tech giants. This is one example, though Apple claims to have transitioned to 100% renewable energy for the electricity it uses in its offices, retail stores and data centres in 43 countries. In the last three years, Apple has reduced its carbon footprint by 35%.

The question is whether telcos have the same attitude as Big Tech in driving towards a more sustainable future. And according to Paul Gowans, Wireless Strategy Director for Viavi, there are some significant business benefits as well as corporate social responsibility.

Gowans pointed out that the network is energy guzzling asset for every telco, and depending on where you are, this can have a very different impact on the spreadsheets. For example, the world average price is $0.15 per kWh, though this decreases to $0.11 per kWh in South Korea and increases to $0.35 per kWh in Germany, more than 3X the cost. The economics of running a network vary, therefore the appetite for increasing the energy efficiency of networks does also.

There are of course numerous ways to tackle this issue, though Gowans pointed to an algorithm written by Viavi which powers down certain parts of the network during certain times of the day. It seems like the most obvious answer, but powering down certain cell sites in residential, commuter towns between 9-5 or the Square Mile in London over the weekend, can have an impact on the bottom line without impacting customer experience; most of the users will be elsewhere.

This is where green and clean technologies might make more of an impression for the budget holders at telecoms companies; appealing to the wallet might be much more successful than appealing to their sense of social responsibility. Their primary objective is to make more money for shareholders after all.

With 5G pressurising balance sheets, and for some scaled telcos with vast numbers of cell sites such as China Mobile or Verizon, introducing green strategies is not just a hippy-style to save the environment, there is could be some serious cost efficiencies to be realised.

Android beat Windows mobile because of antitrust distraction – Bill Gates

Bill Gates has suggested if it wasn’t for the costly and prolonged antitrust lawsuit in 1998, Microsoft would be the dominant player in the mobile OS world not Google.

This lawsuit, which lasted roughly three years, proved to undermine the Microsoft dominance on the technology world. With the playing-field levelled for competition, Microsoft gradually fell back into the chasing peloton, though founder Bill Gates suggested there was a much bigger impact for the business.

“There’s no doubt that the antitrust lawsuit was bad for Microsoft, and we would have been more focused on creating the phone operating system,” said Gates at the DealBook Conference in New York. “Instead of using Android today, you would be using Windows Mobile.

“We were so close. I was just too distracted that I screwed that up because of the distraction. We were just three months too late with the release that Motorola would have used on a phone. It’s a winner take all matter for sure, now no-body here has ever heard of Windows Mobile, but oh well.”

Some might dismiss Gates’ proclamation, the OS did launch after all and was not in the same league as Android, though it is an interesting idea.

If Microsoft had not been spending so much time defending its PC software business, more attention and investment could have been directed to the mobile OS. The transition from home computer to the smartphone was after all one of the contributing factors to Microsoft’s decline from power.

Interestingly enough, Gates also claims that if he hadn’t had to defend the business in such an intense antitrust case, he wouldn’t have retired so early.

While Microsoft is now recapturing its dominant position, thanks to a focus on the cloud computing segment, it spent years lurking in the shadows as an also-ran in the technology segment. This was still a very profitable company, but it had fallen from the dizzy heights of the 80s and 90s. The world moved from the home computer to mobile, and Microsoft was slow to react.

On the other side of the equation, Google acquired Android and entered the mobile world. This is perhaps one of the smartest bits of business ever, as Google reportedly acquired Android for as little as $50 million. Without this OS, Google would not have dominated the mobile world and would not be anywhere near as profitable as it is today.

Gates might be exaggerating with his claims here, though the world certainly look a lot different if Microsoft had won the mobile OS race.

Nokia and Microsoft bundle their cloud offerings

A strategic collaboration between Nokia and Microsoft is banking on companies wanting to buy their cloud hardware and software together.

Here’s the official pitch: “By bringing together Microsoft cloud solutions and Nokia’s expertise in mission-critical networking, the companies are uniquely positioned to help enterprises and communications service providers transform their businesses.” This seems to be mainly about things like private networks, SD-WAN and private cloud, but specific commercial use-cases are thin on the ground at this stage.

“We are thrilled to unite Nokia’s mission-critical networks with Microsoft’s cloud solutions,” said Kathrin Buvac, President of Nokia Enterprise and Chief Strategy Officer. “Together, we will accelerate the digital transformation journey towards Industry 4.0, driving economic growth and productivity for both enterprises and service providers.”

“Bringing together Microsoft’s expertise in intelligent cloud solutions and Nokia’s strength in building business and mission-critical networks will unlock new connectivity and automation scenarios,” said Jason Zander, EVP of Microsoft Azure. “We’re excited about the opportunities this will create for our joint customers across industries.”

This initiative is more than just good PowerPoint and canned quote, however, with BT announced as its first paying punter. Apparently it’s already offering a managed service that integrates Microsoft Azure cloud and Nokia SD-WAN stuff. Specifically this means Azure vWAN and Nuage SD-WAN 2.0.

Apart from that the joint announcement mainly just bangs on about how great both companies are at this sort of thing – in other words a thinly-veiled sales pitch. The market will decide if it needs this kind of complete virtual WAN package and whether or not Nokia and Microsoft are the best companies to provide it. But there’s no denying BT is a strong first customer win.

Microsoft revenues surge once again thanks to the cloud

This will officially be the last time we talk about Microsoft’s recovery, as it is unfair to undermine the continued progress and domination of the firm on the digital economy.

Everyone in the TMT industry knows the trouble Microsoft faced in bygone years, and everyone understands why the firm found itself in that position. But there is no need to discuss this aspect of the business anymore. CEO Satya Nadella has redefined the organization, leaving the troubles in the past. This business is a new beast and the latest financials prove it is one of the dominant forces in the digital economy.

“We are off to a strong start in fiscal 2020, delivering $33 billion in revenue this quarter,” Nadella said. “Our Commercial Cloud business continues to grow at scale as we work alongside the world’s leading companies to help them build their own digital capability.”

Fundamentally, Microsoft is a different business. In the 90s and 00s, Microsoft was defined by its dominance of the PC operating software world. Although this presence still exists today, the focus is on enterprise customers, however, the prospects of the business are perhaps more acutely focused on Azure, the cloud computing unit. The Microsoft of today and the troubled Microsoft of yesteryear are chalk and cheese.

Looking at the financials for the first quarter which were announced following the close of the market yesterday [23 October], they are once again pretty impressive. Total revenues increased 14% year-on-year to $33 billion, while operating income stood at $12.7 billion, up 27% from the same three-month period in 2018.

Revenues at Microsoft Azure increased 59% year-on-year, while the team has stated there has been a ‘material increase’ in the number of $10 million + contracts. The cloud is driving Microsoft forward, while the excitement around edge computing opens-up new prospects for the business.

This quarter also saw the team open two new datacentre regions, in Germany and Switzerland, taking the total up to 54 worldwide. Microsoft Azure is now available in 140 countries around the world, with the geographical footprint focused in Europe and North America.

Asia is one market where the team could grow further, and this might be a development worth keeping an eye on as more countries travel through the digital transformation journey. Nadella paid homage to a partnership with Indian telco Reliance Jio as a green-shoot of growth in the market.

Alongside the progress which is being made to expand the datacentre footprint of the business, the team is also pointing towards strategic partnerships with the likes of VMWare, Oracle and SAP for the added momentum in the cloud business.

“You’d actually see it in a couple of places [impact of partnerships], not just in Azure, which may in fact be the most logical extension,” said CFO Amy Hood during the earnings call.

“But, at the heart of this is making it easier, faster and more reliable for us to help customers move their estate to the cloud and to migrate that with confidence.”

This is perhaps one of the most exciting aspect of the cloud segment and will not just be limited to the success at Microsoft. There is still a huge amount of growth left to realise.

Many companies around the world will claim to be cultivating a cloud-first mentality, and many of these companies are migrating workloads across to the cloud. However, what has been achieved to date is only a fraction of the total. The cloud has matured, availability is increasing, and prices are decreasing. The likes of Microsoft, Amazon and Google might be hoovering up the profits, but there is still huge potential for growth.

Value Growth
Total revenue $33.1 billion 14%
Operating income $12.7 billion 27%
Net income $10.7 billion 21%
Productivity and Business Processes unit $11.1 billion 13%
Intelligent Cloud unit $10.8 billion 27%
More Personal Computing unit $11.1 billion 4%

 

Microsoft might be toying with European data protection compliance

The European Data Protection Supervisor has raised ‘serious concerns’ over whether Microsoft is compliant with data protection regulations.

The contracts in question are between the software giant and various European Union institutions which are making use of said products. The central issue is whether contractual terms are compliant with data protection laws intended to protect individual rights across the region from foreign bodies which do not hold data protection to the same standards.

“Though the investigation is still ongoing, preliminary results reveal serious concerns over the compliance of the relevant contractual terms with data protection rules and the role of Microsoft as a processor for EU institutions using its products and services,” a statement reads.

“Similar risk assessments were carried out by the Dutch Ministry of Justice and Security confirmed that public authorities in the Member States face similar issues.”

The preliminary findings from the European Data Protection Supervisor follow on from investigations taking place in the Netherlands and also changes to the Microsoft privacy policies for its VoIP product Skype and AI assistant Cortana. The changes were seemingly a knee-jerk reaction to reports contractors were listening to audio clips to improve translations and the accuracy of inferences.

What is worth noting is that Microsoft is not the only company which has been bending the definition of privacy with regard to contractors and audio clips. Amazon and Google have also been dragged into the hazy definition of privacy and consent.

The issue which seems to be at the heart of this investigation is one of arm’s length. While government authorities and agencies might hand-over responsibility of data protection and privacy compliance to the cloud companies, the European Data Protection Supervisor is suggesting more scrutiny and oversight should be applied by said government parties.

Once again, the definition and extent of privacy principles are causing problems. Europe takes a much more stringent stance on the depth of privacy, as well as the rights which are affording to individuals, than other regions around the world. Ensuring the rights of European citizens are extended elsewhere was one of the primary objectives of the GDPR, though it seems there are still teething problems.

“When using the products and services of IT service providers, EU institutions outsource the processing of large amounts of personal data,” the statement continues.

“Nevertheless, they remain accountable for any processing activities carried out on their behalf. They must assess the risks and have appropriate contractual and technical safeguards in place to mitigate those risks. The same applies to all controllers operating within the EEA.”

One development which could result in additional scrutiny is The Hague Forum, an initiative to create standardised contracts for European member states which meet the baseline data protection and privacy conditions set forward. The European Data Protection Supervisor has encouraged all European institutions to join the Forum.

Although GDPR was seen as a headache for many companies around the world, such statements from the European Data Protection Supervisor proves this is not an area which can simply be addressed once and then forgotten. GDPR was supposed to set a baseline, and there will be more regulation to build further protections. Perhaps the fact that Microsoft is seemingly non-compliant with current regulations justifies the introduction of more rules and red-tape.

Microsoft gets into the Android smartphone game, or does it?

At an event devoted to its Surface device range Microsoft teased a new, dual-screen Android smartphone called the Surface Duo.

This is Microsoft’s first attempt at an Android phone and it gets its name from the fact that it has two screens, joined by a 360-degree hinge, i.e. not a foldy screen. Microsoft has yet to issue a formal press release on the launch, but there is a sparsely-populated product site and a video, which you can see below.

Panos Panay, Microsoft’s Chief Product Officer, did manage to have a chat with Wired, however, and he insisted it’s not a smartphone at all, despite it using the Android OS and enabling phone calls. Instead, Panos insists, it’s a ‘device’. The reason for this gadget semantics seems to be Microsoft’s hope that people will view the Duo as a completely new category.

There is some justification to this. In many respects the Duo is a miniature version of the Neo, which was also launched at the event. Microsoft is attempting to define and own the dual-screen device category, regardless of the size of those screens. As you can see from the second video below, the Neo does seem to introduce some novel features, but it runs on Windows with an Intel chip. Those options weren’t available for a smaller device, hence the ‘not quite a phone’ thing.

The reason we don’t know more is that neither the Duo nor the Neo are commercial devices yet, and won’t be for another year. As you would expect of Microsoft, they are positioned as mobile devices with an emphasis on productivity and the Neo certainly seems to offer some new ways of working on the road. Whether or not people will be willing to swap their existing smartphones for a smaller version of it is another matter entirely.

 

Microsoft unveils details for Project xCloud public trial

It’s been a year in the making, but Microsoft is going through the final preparations to launch its game-streaming service, Project xCloud.

The project itself will allow Xbox gamers to play their favourite games by streaming the content onto their mobile devices. Although the technology giant has had to fit out its data centres with specialist servers to run the games, the extensive geographical footprint of its data centre network could make Microsoft a force to be reckoned with in the emerging cloud gaming segment.

“Our vision for Project xCloud is to empower the gamers of the world to play the games they want, with the people they want, anywhere they want,” said Kareem Choudhry, Corporate VP for Project xCloud at Microsoft.

“We’re building this technology so gamers can decide when and how they play. Customers around the world love the immersive content from Xbox in their homes and we want to bring that experience to all of your mobile devices.”

Next month, the public trial will be launched. The US, UK and Korea have been selected as the initial testing grounds, with consumers able to sign-up here. All you’ll need is a wireless controller with Bluetooth and a stable mobile internet connection of 10 Mbps.

More to follow…