January 2012 Tech M&A Monthly

Forecast 2012 Webinar: Global Tech M&A Review and Predictions

Introduction

Ward Carter

Okay, thanks for joining us and welcome to Corum's special January webinar, Forecast 2012: Global Tech M&A Review and Predictions. I'm Ward Carter, chairman of the Corum Group, speaking from our headquarters near Seattle. You are part of a group of close to 1000 software and tech executives from 34 countries who have registered for this event.

Here is our agenda for the next 90 minutes. We'll start with our Global Market Overview, look at why Boomers are selling, and provide some insight on drivers for further M&A in 2012. We'll spotlight our key market sectors and have a full report from Corum's Research Department on deals and valuations in 26 software and related technology sectors. Finally, we will hear from our tech leader panel, with their market insights and predictions. At the end of our session, we'll open up the floor to Q&A.

Our list of speakers today includes Corum presenters from around the world and they will be introduced in more detail later. The industry leader panel is a who's who group that includes Chris Bray from IBM, Dan Shapiro from Google, Peter Coffee of Salesforce, T.A. McCann from RIM, John Heyman of Actuate, Steve Singh from Concur and finally Reese Jones reporting live from CES.

Corum produces or provides primary co-sponsorships annually for over 100 live and online events around the world. They are supported by over 40 organizations. We'd like to extend a special welcome today to the following event supporting organizations, including the Washington Technology Industry Association, the Ottawa Center for Regional Innovation, the Northeast Ohio Software Association, the Louisiana Technology Council, Tech Southeast of Eastern Canada, the San Diego Software Industry Council, the Illinois Technology Association and the Canadian Advanced Technology Alliance.

We'd also like to extend thanks to the World Technology Council. This is an elite advisory group of leading executives, buyers, luminaries, analysts, and industry experts who provide support and counsel to the Corum Group.

Bruce Milne

Thank you, Ward.

We have extraordinary information-packed agenda today with I think the best panel of leaders ever for predictions for the coming year. We'll get right to it, but before I do, we have hundreds of new participants here in addition to our regular audience, so let me briefly introduce you to Corum.

We've been at this for 26 years. We work only with software-related tech, only on the sell side, primarily with privately-held firms. We have offices all over the world. Sixty percent of our transactions involve cross border deals. We've developed a proprietary optimum outcome M&A process that helps guarantee success for the most important transaction of your life. We use a team approach, the most senior points in the world, people who themselves have sold their companies, while leading writers, researchers, valuators, and negotiators are all former CEOs. You'll meet some of them today.

We're the largest educator in the world. This builds buyer relations outside the crucible of the deal, but we believe strongly in education, as you'll see. The better educated you are, the better prepared you are for success. We built the world's largest proprietary database, and all of that has resulted in one simple goal, to be the largest seller of firms in the world. We sold more privately-held, software-related technology companies than anyone in the world.

Year-End Summary

Let's get to our year-end report and what is happening.

China, the news you need to know as you're going forward, building value in a company and getting ready to sell, they are still rocketing along. There is a little bit of cooling, but it is still about 9%. The index rose, but the stock market is at a two-year low, though, in contrast to the US.

There are some concerns though, about China Bank and some others that we have reported on in the past, and China housing.

In the rest of Asia, Japan has seen the most IPOs since 2007. This is in line with the rest of the world, Canadian confidence rising from a two-year lull, the Loonie gaining, Australia's slowest job growth in 15 years, there's an ongoing bumpy ride there.

Japanese machinery orders have unexpectedly slid on the strong yen. They are still fighting that currency, we've had a lot of specialty currencies dramatically affecting things.

As we move west to Europe, the ECB lends greater than forecasted $845B, the banks are sucking up the cash. We've talked in the base about the Basel Accord and how it is creating problems and everyone is not really in compliance. There are going to be some continuing issues there.

The UK braces for most insolvencies since 2008, Euro banks devour funds, Italy's GDP contraction, Russia's inflation rate, which is actually really good, it's been a problem, and this morning, UK economy may contract, which is interesting.

In the United States, the news is good. The stock market is up at a five-month high, consumer confidence is up, Blackrock saw growth of about 2.5%. You might remember from a prior webcast that we dropped down to some problems with maybe 1.3%. We're back up in predictions. Jobless claims are at the lowest in nine months, and we're still not out of the woods yet. US consumer confidence has risen again in another report.

Moving along, US growth may accelerate as Europe shrinks as a safe haven. Profit growth is at a two-year low, though, it is growing, but not as profitable as we would like. US exports are led by Caterpillar, people like Boeing. Retail sales, kind of a flash report there, the US rose less than forecast, so not out of the woods yet.

Looking at real estate and commodities, a lot of you are thinking about investing, well, we're kind of at the bottom, and you get mixed numbers. They revised the 2007 numbers. We had a jump in new home starts. Of course you have to remember that this is from almost 0.

This is interesting, I like this one, UBS' Harris as the #1 forecaster said that housing will drive US 2012 growth. This is in line with what Buffett said recently, we will recover. The problem is this next point, that home seizures are up, this is the foreclosure, we still have to work through a lot of them before we start coming out. As you've heard in the past, assets may be a great investment now.

In finance and currencies, the Euro will fall, it's about $1.28 now, the worst predictions are about $1.20. I've seen some going out two years to maybe parity. The EU banks must raise $153B of extra capital. Something to worry about? Yeah. If they don't have the capital, they can't lend it to us.

Under technology, the eBay model, without PayPal it is up 30T%, but Oracle is down, probably a good time to buy that. There are still fights going on in patents. We've talked about that a lot. SAP, nice to see them back in play, we'll hear more about that later.

IBM bought DemandTec, and we'll hear from IBM later. US PC shipments fell for the first time in a decade. That is a bit of a misnomer as tablets are taking over, phones are taking over. Remember last month we talked about tablets taking 75% fewer chips. Yesterday Apple bought Israel's Anobit for $390M. We're going to learn more about the reasons for that.

I saw this New York Times article and it was on general businesses. Five Reasons Boomers Will Sell in 2012. At first I thought it didn't apply, and then I realized that it applied exactly. First off we have a record number of boomers in the sell zone. They are at the point in their life, and we'll hear more about this, where it is time to move on. We have Bush-era tax cuts, it'll be much more expensive, and you'll get less out of the deal moving forward. There is one thing that people understand, and that has to do with estate planning and gifting. We'll have a special on that next month. The tax laws changed dramatically, so better to sell now. 2011 was a good year, as you know from our valuations, if you've been to our conferences, much better to sell on an up-tick, dramatically affects your value versus a down-tick. You know what, 2011 was a good year for most of us. Lots of cash, we're going to hear a lot about that, not just in tech companies, but in PE, and in the sovereigns, too.

Here is an issue: This is happening across all markets. The markets may be flooded soon. What we're seeing, we had a record Q4, but we're up 200% in terms of number of companies going to market. I think Corum's activity is a pretty good gauge of what is happening. The problem is that the buyers are buying like never before everywhere and so are the financial buyers, but they have only limited bandwidth to go through the due diligence with their business development teams. If you're thinking about going to market think about getting out now.

There is just this issue of getting on with your life. This is about achieving a dream, changing your life, what's your dream? Get on with it.

I asked the World Technology Council, our people in the field, what their thoughts were on the 2011 year in review, you'll hear a lot more about this today: tablets, tablets, tablets. I just read about Vizio coming out with one, which may be a game changer. Really interesting company. Smart phones, you're going to hear about that over and over again. Cloud technology, we're going to hear about that shortly.

This was interesting, the Japanese earth quake and tsunami, why was that an issue? It dramatically affected the supply chain, how one event can change our lives, and it did for a while, some of you were certainly strongly affected by it.

There's this issue of the private public, I'm not sure what to call these. These are the firms, Facebook, etc, where we have a valuation created by investors and we're going to see more of that where funds, public funds actually, former PE funds that are public, will go to private companies and literally create a market in private stock. That will be interesting. Some of those companies went to market, the top IPOs and we'll hear more about those, too.

Tech firm cash glut. We had a special on that and we'll hear more about it today. PE firms continue to buy and you will be very conscious of the role they are playing after you hear the report today.

Social media is changing the world, we've got a great special report and some wonderful speakers on that. We lost some great industry veterans this year, Steve Jobs, a lot of you don't know Ken Olson, I had the pleasure of working for him, he was the Bill Gates/Steve Jobs of his age, he changed the world in minicomputers and was the father of a lot of the networking as we see it today. And Dennis Richie in the language sector.

Lastly, the Arab Spring. The reason the Arab Spring is interesting, is we saw dictatorships, oligarchies, whatever you want to call them, topple, rapidly, and this to me was really an example, a manifestation of what technology can do, it can change our lives. We have country after country. Will it continue in 2012? Sure. There's still Iran, North Korea, there's Cuba 90 miles off shore. There are all these illegal satellite dishes there and everyone has a link up with their phone. Once people have the information, once you've stopped controlling that and you can't control communication, these dictatorships are done. Let's look forward to 2012.

Trend Spotlights

We have a great spotlight review coming up. The markets that will be trendsetters in the coming year, you'll hear from some of the people that I mentioned, vice presidents who themselves are industry leaders, they sold their companies, they are market experts, let's start with Jon Scott and the whole social phenomenon.

Jon Scott

Thanks, Bruce. A New York Times columnist said that until recently people thought that Twitter was a sound, a cloud was in the sky and Skype was just a typo. Social networking has changed the world, it's even changed the simple word friend. You never knew you had so many friends, did you? Our friend Dan Shapiro from Google has an interesting spin on the whole idea of friends, and we'll hear from him on the luminary panel coming up.

Social has changed whole societies, as Bruce mentioned, with the Arab Spring. From our recent special webcast, we know that social networking has reached most of the world's online population, about 82%, creating a huge opportunity, ranging from online gaming to business intelligence that analyzes consumer sentiments, to infrastructure to speed up all this traffic. We'll hear from other speakers on those topics a little later on.

One of the fastest opportunities in social networking, is attracting an older demographics, users 55 years and older. The generation also of digital natives, the 15-24 year olds, who have grown up with internet and digital media. It is interesting to look at the split here.

Now, the younger group is leading the biggest decline in the use of email and instant messaging, along with the highest average time spent on social networks.

Social networking leads all content categories in the number of display ads delivered, more than 25%. However, the monetization of these ads is less than 15%, which tells us that advertisers still don't believe that this is the most effective place to put their dollars. I think they're going to catch on to this in 2012.

And, of course, there is the smart phone, a key part of social is letting people know where you are at the moment, what you're doing, and what you like. Location based check in services like Foursquare and Facebook Places are driving this, however we wonder how much of this information people want to make automatically available. I'm just not sure about that one.

Social networking is even intersecting with enterprise computing, which we will hear more about shortly.

Bruce, back to you?

Bruce Milne

Thanks, great stuff. We're going to hear a lot more on that from our other panelists. Now let's move to the cloud. Rob Schram recently had a panel with Amazon. Rob?

Rob Schram

Thanks, Bruce. I recently hosted the cloud segment at an M&A monthly and had the pleasure of interviewing Raju Gulabani, VP and GM of Amazon as part of the cloud services team. Let me share some of the highlights relating to infrastructure as a service that came out of that session.

The last few years have witnessed phenomenal uptick in cloud service offerings, driven by scalability and cost transparency, along with rapid innovation by commerce service providers and SaaS. The number one cloud benefit that companies cite is efficiency, along with lowered capital costs and reduced staffing.

In 2009, revenue for cloud services was just under $60 billion. In 2011, global IT spending topped $2.5 trillion, yet cloud computing represented only 2.3% of that market, so there is still plenty of room for growth in the cloud. Gardener projects that revenue for Cloud Services will approach $150 billion in 2014, that's about a 20% year over year growth.

Here are a few productions from the Corum Crystal Cloud.

Services and communication providers will drive larger cloud deals. In the last year, Verizon acquired Terremark for $1.4 billion. Time Warner Cable acquired NaviSite for $230 million, and CenturyLink bid $2.5 billion for Savvis.

The next blockbuster deal? Rackspace. With a $5.5 billion enterprise value, they are an excellent take out target. Possible acquirers include Dell and maybe even T-Mobile, whose parent Deutche Telecom, flush with a $4 billion break up fee from AT&T, could reinvigorate T-Mobile's large North American enterprise base. The evolving issues are, the real costs of the cloud and security. Perhaps we'll hear more about these issues from our speakers today. Back to you, Bruce.

Bruce Milne

Thanks, Rob. Let's move to Canada and Peter Andrews. Peter, like the other speakers here today from Corum, has built his own company and sold it, and is a successful adviser in the industry. Peter, mobile, you're up in the land of RIM.

Peter Andrews

Thanks, Bruce. Well, as we know from our recent mobile madness webcast, increasing upload and download speeds are driving disruption in mobile, and that will continue in 2012. Some of the game changers will include mobile payments replacing debit and credit cards with higher levels of convenience and security, reducing credit card theft and fraud.

Mobile commerce applications will be combined with context, location-based, and quick response bar code tools, driving the explosive growth of commerce. Asia's upgrade from 2 to 3G creates huge demand for mobile devices and applications. China has one billion mobile subscribers, India just under that. To put this in perspective, the total North American population is one quarter of that at 530 million!

Adobe's departure from mobile flash will make HTML 5 the dominant language for mobile web apps. Google's Android platform will continue to dominate at the expense of RIM and Microsoft.

Mobile M&A will be driven by market share, scale, and agility.

Some further deal predictions. RIM will be acquired, perhaps by Microsoft, Amazon, Verizon, Sprint, Samsung, LG, there is no shortage of potential buyers. This deal will be contingent on the Canadian government's approval, and that may not be so easy given what happened to the T-Mobile and AT&T deal.

Speaking of AT&T, how about them acquiring Dish Networks? There would be less antitrust issues, while delivering the consolidation and market share they are looking for. And Sprint, who are under attack by small and large competitors, acquiring T-Mobile. That would be a deal. Microsoft will look to acquired Spotify, with 2.5 million subscribers, moving them clearly into mobile music. And Apple, the perceived mobile leader, will make acquisitions in mapping and navigation, playing catch-up to Google's strengths. We're looking forward to additional insight from our guest panelist, T.A. McCann, from RIM.

Bruce, back to you.

Bruce Milne

Thanks, let's move from Toronto down to Las Vegas with Jim Perkins. Jim is in an interesting situation. We sold his company some years ago, they were a gaming company, they were publishing at the time Duke Nukem, which some of you will remember. It was the number one selling product of any kind, including utilities, in the world. That was a fun ride to sell that. Jim has gone on to stay a business leader and luminary in the gaming industry. Jim, what do you have for us?

Jim Perkins

From our recent chairing of the Casual Gaming Conference, here are some 2012 observations and predictions:

We saw two of the biggest IPOs in 2011 in video games – Zynga in the US and Nexon in Japan – after a less than impressive showing by both companies so far, I see very few game IPO’s in 2012. This may be part of a more economic-wide IPO bubble pop.

Interestingly, we are seeing more activity from Japan. We just sold Nefsis to Brother last month.

I see M&A by the major video game companies increasing dramatically – I count among them EA, ATVI, TTWO, Ubisoft, and others. In fact, I think we’ll see some of these mega-companies merge and consolidate

Enter other major media players, for the third time. They need growth, and will finally recognize games as incredibly valuable assets with blockbuster hits that dwarf many of their own properties: Modern Warfare 3: $400M in 1st day. $775M in 5 days!

It will be another year of blockbusters: Max Payne 3, a Bioshock sequel, Mass Effect 3, GTA5. We’re watching to see if EA’s new online multiplayer game Star Wars: The Old Republic can rival Activision’s dominance with World of Warcraft.

A shortage of talent will send the price of making games higher. Will China help fill the talent gap?

There will be a continued sales shift to online games from retail. Apple, EA, GameStop, and Microsoft are well positioned here.

The rate of pure desktop social gaming usage will slow, and see a transfer to the platforms of choice in 2012 – mobile gaming on smart phones and tablets. The real question will be social gaming monetization – it’s great to have lots of players, but how do publishers really make money at this?

Technology-wise, I see voice recognition entering video gaming in a big way in 2012. Siri on the iPhone led the way – there will be major leaps in voice recognition in how we play games online.

Bruce Milne

Thanks, Jim.

Let's now move back to our Chairman, Ward Carter, speaking on SaaS.

Ward Carter

Thanks Bruce. We'll hear more on SaaS later today from two of our panelists who are really SaaS superstars, Steve Singh and Peter Coffee. Both of their solutions confirm that SaaS is a very mature market, no longer just for SMB’s, but mainstream for the largest enterprises.

Maturity brings scale, profitability, and makes consolidation even more pervasive as the larger IT players that can really drive growth seek to tie up smaller players. The good thing, for those of you who are looking to sell, is that SaaS valuations are very strong, demand is high and we're seeing many deals in the 4-5x range and above for highly strategic targets.

The targets are no longer small privately held companies, but rather some much larger public firms. Oracle’s acquisition of Right Now for $1.5 Bil was at 6.6x revenues, IBM acquired DemandTec for 505M at over 5x, and SAP picked up SuccessFactors for $3.65 Bil at over 11X. All staggering numbers that set the bar for M&A in 2012. This due to the fact that SaaS companies sport global annual growth rates double that of the traditional on-premise market.

451 Group and Corum project that the SaaS market will expand over 30% from just under $8 Bil in 2010 to over $11B in 2012 and $15.4 in 2014. Thus, SaaS will continue to be attractive area for continued consolidation.

Two of the leading SaaS companies in the world are represented in our industry leaders panel today, Salesforce and Concur. I’m looking forward to hearing their presentations.

Back to you, Bruce.

Bruce Milne

Thanks, Ward, and thank you to all of our presenters.

They referred to a number of webcasts and specials that we have done. We do our monthly webinars, we do our live events, we co-sponsor, as Ward mentioned, 100 events total. All of these various topics, cloud, social, gaming, etc, are all profiled in our monthly reports, and those are all online, for those of you who have not been with us before, feel free to go and get those, they are free.

Corum M&A Update

Now let's move on to the meat of our Corum presentation, before we go to our luminaries, predictors and industry leaders. This is the Corum M&A update. Elon Gasper, is himself also a company builder, he sold his company, and is also one of the leaders in the world in terms of intellectual property.

Elon Gasper

Thanks, Bruce, for the introduction, and thanks to our industry experts for your excellent overview of the major market trends.

Thanks, Bruce, for the introduction, and our industry experts for the excellent overview of the major trend markets. The rate of change is breathtaking. I’m joined by Dougan Milne, Alina Soltys and Amber Stoner of Corum Research, who will cover all 26 subsectors we track of the 6 major market groups – horizontal, vertical, consumer, infrastructure, internet, and IT services. We’ll present the highlights – the full report will be online and in printed form after the rebroadcast.

Alina, take it from the top, please.

Alina Soltys

Thanks Elon, we’re going to start the research report off on the public markets that ended the year pretty flat after all we’ve been through. An interesting note here is the spread in closing value of indexes which had investors picking favorites and punishing others. As we will see, while volume continued, it did adjust valuations down -- they are recovering now. If you felt queasy at all during the summer, you can thank the volatility index, the VIX which brought swings up 160% resulting in those sporadic dives and gains in Q3 reacting to the European Debt concerns which still haven’t fully gone away. After the tumultuous 2011 year, investors sure could use a bit of a calm drift.

Elon Gasper

Yes, it was a roller coaster ride, but the money just kept coming in. Just look at these record cash hordes that Bruce has talked about. With such cash you either buy your own stock back, give dividends or make acquisitions which is going to continue to drive M&A into 2012. Plus with so much of them stranded abroad, you’ll see a lot of international deals.

Dougan Milne

I agree, Elon.

Just look at the Top Buyers Chart, it’s pretty interesting. At first glance, its a who's-who of the software and tech world, some of whom are with us today. But take another look, because we’ve been witness to a rapidly changing buyer landscape over the past 24-months. Facebook as an example, really just started making acquisitions in Q4 2010. We predicted last January that Facebook would be a top acquirer in 2011, and indeed there they sit. Google continues to dominate acquisitions with over 30 this past year, coming off 2010, where they did 26 publicly announced acquisitions. Don’t expect them to slow in 2012.

But, besides the obvious, lets see who else made the cut and who didn't. Thomson Reuters and Intel both sitting in the Top 3 there. WPP, if you're not familiar with them, Densu, Publisis, all have been doing a lot of deals, but WPP had 10 acquisitions. They are a traditional advertising shop turned digital Agency, and that transition was done through acquisition.

But, who’s missing? Where’s SAP? Where’s HP? How about Dell? Or Symantec, even? Some of our classic Top Ten industry M&A giants have been rather quiet this past year. We'll be interested to see what their stance is in 2012, but we think they’ll be back.

Elon Gasper

Looking back, we see that recovery of software-related M&A activity continued up from the recession low in Q1 of 2009. 2011 was up both in number of deals and their total value, with the former taking out ‘07 and approaching the ‘06 high. We forecast that trend continuing this year with another pair of single digit percentage rises, shown at the right of the chart. Dougan, how’d our last year’s prediction turn out?

Dougan Milne

You know, Elon, our analysis team this time last year predicted that 2011 should come in at about $225B, so we're really within just a couple of percentage points on both counts there. We've got pretty good predictive analytics, here, we think that 2012 should continue to inch upward.

Elon Gasper

We're placing another bet here, based on our forecast model and it's structured analysis like our own Corum Index, as shown in the next slide. Amber, any other notable current indications there?

Amber Stoner

Elon, what is particularly interesting in our index is not just that we saw substantial increases in the number of transactions and mega deals, but that private equity and VC activity also saw a tremendous increase. We had a nearly 31% increase in the number of deals involving private equity and the value of those deals stayed steady with a modest increase compared to 2010; this is the smart money deciding that now is a good time to take companies to market. We’ll be discussing some of those private equity deals as we move through our report.

Elon Gasper

To get there we’ll dive deeper now. As mentioned, Corum divides the industry into 6 broad markets with 26 sub-sectors. This specific chart rolls the 6 up together, then we’ll subsequently examine each in detail with its subsectors. For the hundreds of you in today’s record audience who are new to the Tech M&A webinar, you’ll gain a better understanding of this method and each market’s definition as we continue. These charts are technical in nature and go by fast, so I’d suggest you to examine them further you rely on our complete 2012 World Tech M&A Report online or in print. We’ll start with the top performer of our 6 markets, Horizontal Applications. Alina, you’ve been tracking an emerging trend in its M&A with a set of examples, right?

Alina Soltys

Yeah, but before I get into that, looking at the horizontal sector valuations.... on a monthly view the multiples bounced around a little bit and are up from their lows in September. We expect them to continue up as there is buyer interest across the board.

We have seen the Web Content Management space transform in front of our very own eyes; maturing into the more encompassing Web Experience Space. Two giants really shaping this sector are Adobe and IBM, who we'll talk further about analytics today. They are approaching it in their own way. IBM more traditionally by combining Web Analytics player Coremetrics with Unica for marketing automation. This has laid the groundwork But They have yet to pick up a direct WCM player which may happen this year.. Adobe is approaching it from how they know best - building out a complete web-based digital content ecosystem.

But the company I want to focus on here that has made biggest splash in this space has been Oracle. They didn’t just dip their toes in the pool but they cannonballed in, spending around $3B on 5 deals in the last year or so. To fill the gaping WCM hole, FatWire was stolen from right under EMC’s nose for an estimated $160m. Add on top of that call-center and customer services firm InQuira, Endeca for search and e-commerce and RightNow for web customer service/support/engagement you have the makings of an all-knowing, all-encompassing solution. The benefit to Oracle is all of these companies were leaders in their own right and carry impressive customer lists but the challenge will remain to coordinate and connect all of these disparate systems at the same time.

United under the WebCenter brand we can expect these web experience platforms to really start hitting their stride this year.

Amber, what’s going on in the Vertical Space?

Amber Stoner

Well, our valuations in the broad vertical market aren’t back up to the numbers we saw in early 2011, but we have seen a slight increase over last month’s numbers and the market as a whole is still trading at a healthy 2x sales multiple.

While we don’t track the education space as a separate sub-sector, we have seen a lot of consolidation within that space over the past year; not only in K-12, but also in higher learning as well as corporate learning. And one of the biggest trends we’ve seen is private equity’s involvement in the education space.

The most recent example is Datatel, a Hellman & Friedman portfolio company, acquiring SunGard Higher Education for $1.8B, providing customers with a broader portfolio of solutions, accelerated innovation, and an expanded knowledge-sharing community. Around the same time Renaissance Learning was taken private by Permira in a deal valued at $455M. Finally, the other big private equity deal in the space was Providence Equity’s approximately $1.64B acquisition of Blackboard, which was the last remaining leader in the public software-centric education space after Plato was taken private by Thoma Bravo in 2010.­

Elon Gasper

Thanks, Amber. Clearly great changes are upon education delivery and content, and that’s true for Consumer Applications too. First, we’ll note that valuations in this broad market have followed the overall trend cycling back to roughly start of the year. Our digital content call out is up considerably, however, powered in part by the consumer tech industry preparing gleefully, as Bruce mentioned, for the death of the printed book.

But last quarter while the usual e-Reader and tablet titans were counting their inheritances from that eagerly anticipated event, #1 Japanese e-Commerce outfit Rakuten, AKA the “Amazon of Asia”, snatched up Kobo, a spinout from Canadian book retailer Indigo and maker of the dark horse e-Readers Touch and Vox. Kobo won Wired’s Editor’s Choice award last month, beating Kindle, Nook and Sony Reader. Indigo CEO Heather Reisman called her highly profitable $315M divestment “bittersweet”, explaining that with 9-figure annual expenditure bets being placed in that sector Indigo “just cannot play in that league”. Kobo’s CEO said they considered an IPO, but “cash alone would not be sufficient”. We’d say both of these observations are realistic assessments of the nature of 21st century tech competition, which smaller firms should pay heed to in their own growth & exit considerations. Barnes and Noble seemed to be listening: last week they put Nook into play as a potential spinout, too.

Over on the games side now, let’s play catch-up for billion dollar stakes! Watching Zynga run away with the social-mobile prize apparently inspired EA to take a bite of Seattle with PopCap games, outbidding the Zingers for our “bejeweled” hometown heroes with a reported $750M down plus up to half billion booster. Zynga may have gotten the last laugh, though, as the big deal set the stage for its own IPO valuation to open above EA’s, though they’d hoped for even more. So who was the real winner? We’ll see, and so will other potential game company buyers such as Disney.

Alina, these games need Infrastructure too, but you’re focusing instead on more PE splash in that market, too, right?

Alina Soltys

Absolutely, but before we look at PE-fueled deals, the overall sector is still more or less stuck in the lows of 2011, after reaching highs in April that resemble more of a SaaS-like company in the horizontal sector that we're looking at.

Infrastructure has really changed from the storage bidding wars we were seeing in 2010 to more of a traditional focus of adding complementary products that improve overall efficiencies to an exponential degree.

As we’ve mentioned, 2011 was a big year for private equity. Thoma Bravo certainly put some of its powder to work acquiring Blue Coat for $1.3B and TripWire for $225m ... these add onto their already heavy portfolio that includes: LANDesk, Attachmate, Entrust, Embarcadero Technologies, and SonicWALL, mostly in management of networks, especially on the security front. Blue Coat provides security against web-based threats and also acceleration and optimization for networks. Combining Tripwire’s platform of continuous monitoring of file integrity, as well as a policy and remediation managers with security operations and network optimization. This starts to make a lot of sense. Tripwire was heavily focused on compliance with its monitoring solutions which had a good run but as the revenue began trailing off and low growth entered the forecast, they could no longer bear public scrutiny for an IPO and instead acquisition was the next move.

Amber, I know you were keenly monitoring the predictions we made in January, how did some of them end up?

Amber Stoner

Yeah Alina, you know, when we talked about the Internet sector in last year’s annual webinar, we said that we expected to see online and brick-and-mortar companies combining both to help the online companies stay grounded and to help the brick-and-mortars increase their online presence.

Early in 2011 we saw Walgreens do just that when they acquired Drugstore.com for $429M. The acquisition not only added more than 3 million online customers to Walgreens’ existing customer base, it also accelerated Walgreens’ online strategy.

A more recent deal in the internet infrastructure space is Akamai’s acquisition of Cotendo for $268M. As a result of this deal, Akamai gets technology for the emerging market for mobile content delivery and acceleration services. Akamai believes there is a tremendous opportunity for the combined technologies as enterprises embrace the move to the cloud and seek solutions for an increasingly mobile world.

Elon Gasper

Well, Amber, looking at our last sector, IT Service deals, we can see the Cloud contributing to the overall annual increase in valuations in 2011 as shown in our last Market slide. And though the IT Services year saw some major mergers like the collision of Indian giants iGate and Patni, let’s just call out a couple more intriguing Cloud-related deals, while we’re on the subject, for the wrap.

So take a look now as world’s second largest PC maker, Taiwan’s Acer, flys off into the fluffy white stuff using a $320 million first-class ticket named iGware. This Silicon Valley firm has shunned the spotlight - they’ve only had a one-page website! - leaving fame for its clients who use it to support over 100 million connected consumer devices. Among them? Nintendo, whose Wii and Wii U will now be set to float in the “AcerCloud”, perhaps heralding an even more heavenly relationship to come between Acer and Nintendo. Was that part of the reason for paying up for this IT services company? Acer is demo’ing its first three AcerCloud services – for pics, music and docs - at CES today. So, what’s this going to mean for Dell, Lenovo, and the rest of the family, hmm?

Finally, we highlight one more PE buyout with Oak Hill gulping down yet another Cloud pioneer, Intermedia, that combines SMB services with Office in the Cloud, even supporting email on your Amazon Kindle or Android smartphone. A reported 4-year 30% growth rate apparently caught the PE group’s eye – that, and the buzzword of the year: Cloud.

And that’s the highlights from our report. Back to you, Bruce.

Bruce Milne

Thanks to Elon and the whole crew, that was extraordinary and very insightful. I think everyone learned something there, not only about what is happening in valuations and deals, but also with important trends we need to pay attention to. It is amazing how many companies that are out there that we've never heard of, the Amazon of Asia, the world's second largest PC manufacturer? Do people know about that and the power they have?

Alina, it's really interesting, you mentioned the sale of BlueCoat to giant PE company Thoma Bravo. I don't know if you all know this, but Blue Coat was founded by Joe Kryskowski. Joe founded that after he sold his first firm with us.

We have in our newsletter a thing we call Where Are They Now? We profiled Joe a while back, his dream was always to be a race car driver. He went on to be one of the top amateur race car drivers in the world, winning several events. I think we'll have him on soon, I want to hear about the racing as much as anything else regarding technology.

Speaking of PE by the way, we will have a special on PE, we continually see those names coming up in terms of changing the industry. In two months, in March, we will have our annual PE panel. A lot of these leaders you have heard about will be with us at that time.

Tech Leaders Panel

To lead the Tech Leaders panel we have our own leader, Nat Burgess. He himself is a bit of a luminary. CNBC has him on regularly. Nat was on about 10 days ago and they wanted some off-the-wall, outside-the-box predictions. You said Microsoft should buy Barnes and Noble? How did that go across?

Nat Burgess

I'd say they were skeptical, Bruce. On the other hand, they asked me for the deals I think should happen, and I did have lunch with a corp dev friend at Microsoft last week and confirmed that at least the strategies behind such a deal are in place, but I'm not buying B&N stock yet.

Let's focus now on our panel. We're very lucky to have a distinguished group with us today, we'd like to have an hour with each of them, but due to time constraints we're going to have to get everything we can in four-minute increments. We have asked each of our guests to give us their views on the markets they focus on, their insights on trends, and some advice on how you can capitalize on that.

Let's kick off first with Chris Bray, from IBM. Chris joined a live conference we sponsored last month in London. He is here with us again today with some excellent insight. Thanks for joining us today, Chris.

Chris Bray

IBM was 100 years old last year. Today the company has shifted from its roots in hardware, made famous by the IBM 360, to being much more of a software and services company – these two areas now account for 84% of revenue.

Each year we spend $6 billion on R&D to keep at the forefront of technology – and each year we register more patents than any other company in the world. One of the results of our efforts is the creation of Watson, IBM’s newest supercomputer, which I will cover in a minute.

Each January IBM publishes the GTO - Global Technology Outlook. The GTO identifies high impact disruptive technologies that will lead to game changing products and services in a three to ten year horizon. What follows are the highlights from the current version:

Today there are 7 billion devices connected to the Internet – one for every person on the planet. By 2020 we estimate there will be 50 billion connected devices – the tenet being that you can put a chip in nearly anything. The infrastructure needed to operate these devices offers huge opportunities in systems, software and services. That infrastructure is part of the foundation of IBM’s Smarter Planet solutions, which will also require Petascale Analytics Appliances, rich ecosystems of data, algorithms and skills.

Through the Internet of Things, vast amounts of data can be captured to enable faster, better, more complex decision making. Much of the data will be in motion rather than at rest - congestion charging is but one example.

IBM has invested in both developing and acquiring analytics solutions and will continue to do so as analytics is going to figure in the GTO for many years to come.

One key point about analytics and cloud: Big data is too costly to move so analytics will need to stay near the data so expect to see analytics solutions at the edge of the network rather than at the center.

Of course, we mustn’t forget the human side of the Smarter Planet. Socially Synergistic Enterprise Solutions is a bit of a mouthful but it is simply the use of social network based tools used in harmony with the Internet of Things and Petascale Analytics to deliver significant but necessary changes to Enterprise operations and organizations. We’ve learned a lot from companies such as Google and Facebook who have brought new working practices to bear. As more digital natives (those under 23) enter the workplace, the rate of change will only increase dramatically.

We envision a future in which advances in technology will see a new class of learning systems, architected with people as an integral and central element of the process. We will go beyond just increased storage, better search and more complex analytics to systems that enable humanity to reach its greatest potential for human creativity, innovation and ingenuity.

The first step along that path has been taken with Watson, IBM’s new supercomputer that recently won the “Jeopardy” quiz show in the USA, defeating two human super-champions to do so. Most of the data in the world is now unstructured and we need engines capable of analyzing this data. We have moved from number-crunching giants, through neural nets to arrive at what Watson represents today – the first step towards true learning systems.

Watson’s ability to correlate unstructured data from multiple sources will lead to significant advances in learning systems in the next few years – it is currently being applied to such areas as medical diagnostics, and the complex problems we face with the environment. Nothing is for certain, but if Watson had existed in 2001 and the US defense agencies had fed it with all their petabytes of accumulated data on terrorists, it is likely that catastrophe could have been averted.

We are very excited about the possibilities for Watson in the rest of this decade as it helps us to build a truly Smarter Planet and a better world.

Nat Burgess

Thank you very much for your comments, Chris. Utterly fascinating and IBM remains on the forefront, both in terms of sheer processing power in the cloud, but also with this new idea of bringing analytics out to the edge. Very interesting, a lot to keep an eye on here.

Next up we'll shift gears and go into the social realm and the arena of intriguing, delighting and engaging consumers. To bring us some insight from that we have our friend Dan Shapiro from Google. He has been through our offices through multiple iterations of multiple companies. He is currently in Hawaii with his family, and I think he actually had to sneak away to record a brief segment for us, so listen through the sound of the surf in the background, for Dan's insights.

Dan Shapiro

Thanks for having me.  As you can hear, I'm hard at work today and unable to join you directly, but I've been able to take a quick break from my labors to say a few words about the opportunities I see in the social ecosystem.

We're at the start of a new generation of online social products.  The first product to make a splash was Friendster.  It was quickly eclipsed by a much larger wave when MySpace reared up, only to crash as the Facebook tsunami took over.

But even a tsunami eventually runs aground.  Parents and grandparents have discovered Facebook, and youth and early adopters are none too pleased to have them there.  While I don't see Facebook going away any time soon, there's a new opportunity opening up: an opportunity for a service where the underlying fabric more closely resembles the way humans have relationships.  

Twitter's arrival was like a cool drink of water, because in real life, not all friendship is reciprocated - sometimes you just want to keep an eye on someone.  Match.com and other dating sites are still afloat because the "like a little" world of flirting is nothing like the simple friend model from Facebook.

And the next set of opportunities and winners is going to come from the companies that cash in on this real-life complexity.  Niche sites like Instagram will connect aficianados in ways that are unique to their own domain.  Q&A sites like Quora and Stackexchange will bring together communities of learners, debaters, and trolls in ways similar to but more powerful than the bulletin boards of yesteryear.  But the big prize goes to the site that simultaneously mirrors and hides the complexity of real world relationships: we're friends, but not that kind of friends, the other kind of friends, you know, not friends like that, but totally friends.

Long story short? This social ocean shows no signs of bottoming out any time soon.

I'm Dan Shapiro, thanks a lot!

Nat Burgess

Thanks, Dan, and best of luck to you in your new role at Google.

Next we'll move from the social realm back to enterprise. We have a very exciting speaker with us here today to help us understand that and there is a connective thread here, which is, Salesforce has been a pioneer in bringing social concepts and technologies into enterprise. Peter Coffee has over 30 years of experience in tech and he is how helping to shepherd Salesforce's strategy in the platform arena. Peter, thanks for joining us.

Peter Coffee

It's great to be with you today and I can't help but notice how much of the context of what I have to share has already been set in the conversations prior to this one, because it really is impossible today to talk about anything as small as a handheld or anything as big as a global enterprise without answering questions about what it will do with the cloud and how the cloud will change the environment in which it operates.

There are a few additional numbers I can share with you. In the past year, Salesforce.com has exceeded 100,000 customers and it explicitly is forecasting a $3 billion revenue run rate for the coming year. Our CEO is openly talking about his vision of a $10 billion revenue stream, but perhaps the most exciting number for the audience today is that at our recent Dream Course conference in San Francisco there were more than 350 other companies exhibiting there, implementation partners, people producing additional services, people producing hardware that is powerfully cloud-enabled to do really interesting new things in point of presence healthcare delivery, in retail, in government, in entertainment. There are really very few businesses today that are not asking, 'How can we take advantage of this leverage?' What I think is most important to stress is that this is a year when the cloud is going to stop apologizing for being at the end of a wire and instead assert the value of being closer to your customer, closer to your supply chain, closer to your partner network. It's not that the cloud is far away and therefore a problem, it's that the cloud is closer to where the data is, as we just heard from IBM. You don't take these enormous high-velocity, high-volume data streams and try to pull them all down into your data center to with them there, rather you take advantage of the high peak-to-average capabilities, the extraordinary analytic richness and sophistication of the cloud, and bring down to your people, wherever they are, whatever they are doing, the actionable summaries and the powerful recommendation facilities and collaboration facilities that the data can enable.

We, of course, got our start in what was then called customer relationship management, and our stock ticker symbol continues to be CRM, but I think more and more we are calling that community relationship management, because something very powerful has happened. We have already heard some references to the whole area of spring phenomenon during this discussion. People have discovered that they can find each other, identify shared interests, collaborate on coordinated action, without traditional hierarchy and without traditional leadership. What this means is this: If you have a disaffected customer, and I use that in the broadest possible term, it could be a citizen in a nation, it could be a buyer of a product or service, their complaint used to be directed to you in a one-on-one conversation and you dealt with it more or less at your leisure.

Today the first notice you have of the disappointment in your served community, is likely to be a globally published note on Twitter or Facebook and you deal with that promptly, you deal with it at the edge of your network, you deal with it by empowering every person in your organization to function as a problem solver.

The mobility environment really changes the whole time scale of what technology development has to be. The time scale of rolling out new platforms in the traditional desktop world was 3-10 years. Ten years might sound like a ridiculous number, but Windows XP is about 10 years old now and it still runs nearly half of the world's desktops. This is a very leisurely process of envisioning and delivering new application function.

In the mobile space, the device lifecycle is more like five months! That means that if you are not working with the high leverage of a cloud platform, then you are either skipping a generation of a device, or you are failing to provide full support for the richness of function for these devices. Either way, you're not going to be satisfying customers who increasingly demand customer experience. And here is the interesting thing: Engineers get to design products, but only the customer gets to tell you what the customer experience was. The shift of power to the customer is enormous.

We will always be having conversation about cloud from the point of view of security, data residency issues, governments and compliance, and so on. But during this past year, again we saw a decisive shift where national authorities like the National Institute of Standards and Technology, and even the National Security Agency here in the US, explicitly acknowledged that security, auditability, and governability in the cloud are more rigorous in design, more consistent in their maintenance, and more governable and auditable than traditional approaches.

We also had the unfortunate situation in Japan, which has already been mentioned, but which was a decisive demonstration that cloud-based facilities that were used for disaster remediation and coordination of aid to the people affected by those disasters, cloud-based facilities delivered in situations where traditional data centers were completely unable to function.

Finally, we've been hearing from some people at CES, I just saw an article the other day on CES on all the new devices and what are they? They are all edge devices and delivery containers for what are ultimately cloud-based services and cloud-based communities.

So, it is vital not to think of the cloud as the next generation of IT. It is vital not to think of it as a cost-reduction strategy. Use of the cloud is strategic, it is a device for accelerating entry into markets, improving margins, maintaining competitiveness, and it must be viewed from an ROI perspective where more investment at high ROI is good, instead of being viewed from a cost center perspective, where spending less is the goal. It is not the goal to spend less, it is the goal to earn more, and that is the cloud conversation.

Nat Burgess

Peter, thank you so much. That was fascinating. I'm always impressed with your strategy and how you guys are always able to win on infrastructure, win on agility and also win on what you can deliver to the end user, the customer, who is ultimately the judge and jury of the solution.

We're going to shift gears a little bit now and we're going to welcome another luminary guest, T.A. McCann, who has transitioned from multiple America's Cup campaigns to building technology companies and his most recent brainchild, Gist, was recently acquired by RIM. T.A., welcome.

T.A. McCann

Thank you very much for having me.

I'm going to try to make a few points, they may be a little off the wall, relative to mobile.

The first point, is what I would call the rise of the importance of group-based messaging. This is really being driven by three main factors. One is the user interaction of groups versus individuals. Two is the ability for those messages to be understood and read, so you can see deliveries and read receipts of those. Three, in many places where the cost of delivering these kind of what feels like text-based messaging is included in a regular data plan.

Some real examples of that in the trajectory here include Blackberry Messenger, which has effectively 50 million daily actives, and in many ways BBM is driving the growth of Blackberry in new segments like the youth market, as well as emerging markets like Indonesia and Columbia.

Some other acquisitions that happened in this space, Facebook bought Beluga this year, which is a group-based messaging solution and was the basis for their messenger in mobile, which launched earlier this year as well. Skype brought GroupMe, same type of thing, and Apple's launch of iMessage with iOS5, is another example of these. Finally, Blackberry launched their social platform on BBM allowing the merging of group-based messaging into other applications like Foursquare or gaming applications.

A couple of predictions in that space. There will be even more evolution in the kinds of services which are blended with group-based messaging. A couple of examples of this would be something like Path or Instagram, which are blending the photo experience into group-based messaging. I can see one or more of those companies being acquired this year.

Another prediction which would be interesting is looking at what Windows phones may do with Skype, after that acquisition.

Next key point would be people-centric experiences. Clearly this is the space that I worked in with Gist, where we really created an experience all around your social graph in a prioritized way, a little bit as Dan talked about. We also bought Tongle this year and really focused on 'Who are the people that are most important?' 'How can I communicate with them?' 'How important are they relative to others?' those are really keys there.

Another example of that would be Windows Mobile and their people tab, which is a dynamic view and very centered in their user experience, and the new version of Android Ice Cream Sandwich, which has a people view, which is effectively a copy of Gist.

I see a prediction there that there will be more acquisitions by these major players to find more ways to have prioritized social graphs to understand the strength of connections across many different services.

The next is what I would call blurred lines of control and influence, so this is people who weren't really in the phone business really becoming part of the phone business. Amazon launching the Kindle Fire is a great example of this. Samsung is someone who is generally a hardware provider, but they are now launching and leading with many of their own software solutions. Obviously there is also the continued rumor of the Facebook phone.

A prediction for this particular category would be that one or more of these people are going to launch a phone. You could easily see an Amazon phone launching this year, with it very centered around the commerce experience and the Kindle experience, or others like that. I think major hardware providers will buy some of these software companies in order to be in this space and have their own solutions independent of carriers and independent of the current existing software players.

The next is the perfect portable computer. We're seeing lots of examples of this, especially in healthcare, and if you're at CES, you're seeing this too, but products like Dailyburn, Fitbit, Runkeeper, etc, are all applications primarily running on iPhone that are focused on collecting data in dynamic ways and helping me improve my health. I would imagine that over the next year you will see examples of this that are blending the mobile device, the cloud, the community, analytics, and in certain cases, hardware, like the square device people are using for credit card readers at this point, I predict you will see augmented hardware features around iPhone, Android, Blackberry, etc, that will make those devices' data collection even richer, and people will start to use them as predictive health tools in some very unique ways.

The last point I will make is the tension between native web and cloud-based development, for developers specifically. With the fragmentation of Android, with the multiple platforms coming out from RIM, with iPhone, Windows and the tablet form factors, it is incredibly challenging for developers to figure out how to build the right solutions, and in that, making choices between HTML5, native, web, etc, and doing that in a way that is modestly consistent, and also takes full advantage of the applications and the native capabilities of the device. An example of this is Adobe buying Nitobi this year, which is the maker of Phone Gap.

The prediction in this space is that there will be many players and many more solutions like Red Foundry and Row Mobile, to give two examples. Those guys, one or more of them will gain serious traction and be acquired by one or more of the large software companies to get them into the space of owning a large part of the developer community, all around mobile.

Thank you very much.

Nat Burgess

T.A., thanks for your comments, very interesting, definitely one of the hottest and most disruptive areas in tech today.

We've heard now from a couple of visionaries who started companies that have been acquired at a relatively early stage, but let me ask you this. How many executives have you met that are capable of coming up with an idea, raising seed, raising venture, doing private equity, doing mezzanine, taking it public, and then growing it into the hundreds of millions of revenue? Very few, in fact, in my case, just one. His name is Steve Singh, he is founder and CEO of Concur, one of the most successful and highly-valued SaaS companies on the market today. Steve, welcome.

Steve Singh

Thank you, Nat and thank you everyone else. You know, when Bruce and I met five years ago, Concur was over $70 million or so in revenues. This year we will do just about $500 million in cloud-based revneues.

You know, cloud computing is enabling a broad range of business and consumer opportunities to be addressed. When you think about cloud computing in the context of mobile computing, where mobile is pushing computing capacity into literally every corner of the world, you can see that the real impact of cloud computing, which is going to be the largest and most pervasive phase of computing in the last 40 years. In our view, what you see is that cloud computing in combination with mobile computing, will enable and drive verticalization in nearly every supply chain.

For example, if you look at my industry and the travel industry, mobile plus cloud plus data will drive ecommerce in a way that you deliver the best value proposition for the end consumer, while also delivering an optimized yield management with suppliers.

The impact of cloud computing and mobile computing in my view is that we are seeing the very early stages of this. Regarding the comment Peter made earlier, this is going to be a pervasive, massive shift across not just the competing landscape, but literally every facet of business. I think the next major phase in cloud computing will be data. You are seeing data accumulated in quantities unlike anything we've ever seen in the past, but frankly what's more interesting is that this data is being accumulated through cloud providers like Concur and Salesforce, Amazon and Google, and that information is being used in a way to improve the experience and products and services, and frankly lives of the end customer.

I think that is the next major phase of cloud computing.

The one other thing I would ask everyone to think about is that while mobile has a huge impact in expanding the addressable or number of people that actually are interfacing with computing, it has another major change that it brings to the enterprise space.

In the enterprise space, typically what happens is that you see customers and vendors work together to solve a particular business problem. That relationship typically exists between an economic buyer in enterprise and typically the vendor. What mobile computing is doing is saying there is more than those two parties involved in that decision. It is also the end user of all those services that the enterprise is buying. So you now have a third individual that is part of that decision process. Whether they are driving the economic decision or driving the experience decision, they are now a significant part of that decision process.

And I'll stop right there.

Nat Burgess

Thanks for your comments, Steve, again very interesting. We've resonated a couple of times here on big data.

Our next speaker, John Heyman, was going to join us to talk about a big deal. He sold his company for over $1 billion, he learned a lot of lessons along the way that are very relevant our guests on the call today. We got an email this morning that he was on his way to the maternity ward with his wife. Bruce, what's the latest?

Bruce Milne

Actually, good news, but bad news for us. His wife is in labor. Since John won't be joining us today, he actually had an interesting presentation, which was two parts. One was on the future of POS, as one of the leading experts, having just sold $1.3 billion. And also on how you sell for $1 billion in 2012. He asked me to give just the first part of his presentation, and that is on POS.

If you look at the M&A climate in the POS industry, you will continue to see traditional and non-traditional players, given the size of the industry. You will also see PE firms, as we have seen this morning. Tens of companies are interesting in expanding through acquisition, and they are all getting smarter about the market and looking for complimentary acquisitions to enhance their growth.

A number of trends are converging. The POS is now in consumer hands with the advent of wide-spread mobile solutions and cloud computing. Industries that were slow to adopt technology are seeing it comoditize their businesses, but are also beginning to understand its power, when they use it as a consumer themselves. Like never before, social media, mobility and the cloud have brought power to the people. Some businesses are looking for ways to embrace technology like never before.

As a side comment, we at Corum are seeing a lot of change and there will be a lot of deals happening in this space. The experience you get when you walk into an Apple store with a mobile POS, it's changing everything, vendors, suppliers, customers, they are all looking at this brave new world with cloud and mobile.

We'll look forward to hearing from John at next month's annual seller's panel, along with some other leaders and I'll turn it back to you, Nat.

Nat Burgess

Last but not least, we are lucky to be joined by Reese Jones. This will be his third year participating in our forecast panel. Reese is one of the industry's leading luminaries and futurists. He sold his company, Netopia, for over $200 million to Motorola. He is the associate founder and trustee of Singularity University. He is at CES, where we have been testing the limits of the cell network. Reese, welcome.

Reese Jones

Thank you, I'm here at CES with 100,000 of my friends and they are all using their phones at the moment. I'm going to talk about five trends in very simple ways, basically devices, services, social, exponential change, and healthcare. The trends that are important to look at in a simplified way, to kind of predict what is going to happen.

In the case of devices, what is clear is that they are becoming comoditized. Generally on the theme of phones that are distinguished based on different sizes, so there are phones that are in sensor devices, phones that are in your pocket, phones that you hang on the wall that used to be called TVs, phones that have wheels on them that used to be called cars. So, they are all connected to the cloud and the net and that is the general thing to think about them. They have a trajectory of heading toward free, as opposed to more expensive, with the money being made from cloud services.

The second item is services, as discussed by several people earlier, the trend toward cloud is where the services from the cloud is where the money is made, with the free devices. There are traditional service providers such as cable and satellite TV, or book publishers which are being displaced by different companies providing that kind of content, but from the internet. For example, there are more people at any given moment watching Youtube than all channels of all TV from every country at the same time in the world.

There are two things attached to the cloud when you look at social. One is physical things, like computers, and the other is living things, like people. Both of those have different characteristics in the way that they interact with the cloud. Humans interact with the cloud in a social way and the big battle for 2012 will basically be Facebook versus Google or the other way around, and the social elements of how people interact on the cloud and interact with things through the cloud, and that's becoming more social and tending toward both an internet of physical things and an internet of living things.

What's enabling all this, the fourth trend, is an exponential change of technology that has been continuing for decades, most obviously with Moore's law, computers getting twice as good every year, approximately, but the same is happening to memory displays, cameras, communications, and especially cloud intelligence or cloud smarts. That trend will continue to change the dynamics of markets all over the world and many kinds of technology.

The fifth item, health, the major change happening now is essentially the intersection of phones and health or the phone being used for healthcare. One of the things announced at CES was the X prize for what is called the tricorder, which is a phone which can help diagnose your health. That is an indicator of a trend of using a phone in any language in any country to be your primary access to your health and wellbeing and a number of businesses are happening in that area.

One last thing, a break through change here at CES, the first personal DNA sequencer is here. That is more or less an emerging trend of programming and DNA software that runs in lights and that requires readers and writers of DNA and programming tools and it creates new industries and markets for writing software that runs in biology.

Those are the main trends I've noticed and different ways to think about them.

Nat Burgess

Wow, that's pretty exciting. We look forward to having your holograph projected from CES if you can join us next year. Reese, thanks so much for your insights and comments.

Thank you to all of our panelists, this has really been insightful and thought-provoking.

Bruce Milne

Thanks, Nat, and thanks again to our panelists. We'll be spending some time digesting that.

Now let's get to our questions. Ward?

Q&A Session

Ward Carter

Thanks, Bruce. We had a couple of comments for Chris Bray, more comments than questions, but regarding the Global Technology Report, the commenter was not aware of this kind of data being avaiable from IBM, are there other resources IBM can also offer tech executives?

Chris Bray

Published is perhaps a bit misleading. We publish it and it is used internally. We use it with clients and customers, but we don't leave copies with anybody, but you get to see it, but you can't keep it. We do joint research projects and there is money available for first of their kind projects with customers and clients, but we don't publish it to the general public because of the very high value of the intellectual content in the actual report.

Ward Carter

I kind of figured that. I did notice that there is a nice summary available on the web.

Chris Bray

Yes, we also do an internal and external version. The internal version is obviously much more comprehensive as it is used to inform company strategy.

Bruce Milne

Chris, when will the 2012 report be out?

Chris Bray

Normally it is published internally in the last week of January. It will then be available to discuss with clients in mid-February onward.

Ward Carter

Thanks Chris. Moving on to a question in the cloud area, maybe Peter could address this. Peter, we have a number of SaaS entrepreneurs out there, and you talk about leveraging the cloud, which we all understand and appreciate. I picked up on your comment about stopping apologizing. I wondered, could you maybe quickly summarize what your pitch is that some of these guys might be able to use to convey that concept to some of their customers?

Peter Coffee

If you look at the ten years that it has taken to get half of the world's PCs off of Windows XP, even though I think everyone would agree that Windows 7 is a better system, it just can't get traction because of the disruption and nuisance of installing upgrades in the traditional thick client model, compared to six substantial upgrades that were delivered to Salesforce.com customers just in the period of time between Windows 7's original release and SP1. As a software provider, you offer your customer two possibilities, one: I can give you three upgrades a year that don't cost you anything, that don't disrupt your operation, and that just make everything work better, or two: I can deliver you the old model, where it is up to you to figure out when things are quiet and when you can tolerate the nuisance and risk of deploying my upgrade. Which would you, the customer, rather have?

This is the reason why most software providers today find customers asking when they can get a cloud-based delivery option, and the answer should be in a matter of months, rather than a matter of years. Independent software providers should not be building server farms and should not be architecting their own multi-tenant databases. They should be finding these services out there in the supermarket, for people like ourselves, people like Amazon Web Services, who deal with different aspects of those commands, and in fact, many companies deal with both of us, they use Amazon for peak load computation and bulk storage, they use us for high-value collaborative facilities, work flow automation, and other business-related stuff, and put together something that is a unique go-to-market with branding to their customer base and that is how they get into the market more quickly, attract customers who can discover and adopt them more readily, and deliver a steady stream of improvement so that the customer finds nothing but upside.

Ward Carter

It certainly has worked well. Thanks, Peter. I had a question for Steve Singh. Nat had summarized the tremendous track record of you and your organization in growing from a startup to now generating over a half a billion in revenue per year. For an entrepreneur audience, any words of wisdom on how you go through the multiple transitions that it takes to grow from small to big like that?

Steve Singh

You know, I would tell you that I'm on the board of a handful of small companies. It is one of the areas that out foundation invests in, largely driven to the extent possible to help others succeed in their businesses. The single most common cause of failure, the thing that is the biggest impediment to companies doing well, is really the lack of ability to focus. I realize that everyone has heard this and everyone instinctively understands this, but it is incredibly hard to take something that we understand at an intellectual level and actually internalize it and make it operational. That part is very hard to do because as entrepreneurs we want to do as much as humanly possible, and solve for the biggest particular marketplace that we can address.

I think that what we have found at Concur is that every year as we continue to execute, the number of opportunities made available to us continues to expand. I will tell you that the single biggest thing we do every year is limit what we will go and work on. That is the one area that I would tell people that no matter how well you think you do it, go back and really pressure test that assumption and whether or not you are actually operationally getting to that.

Ward Carter

Okay, thanks, that's great advice, Steve.

Bouncing over to T.A. McCann. We kind of got a snapshot of some of the things you are doing, and not to just give you free commercial time here, but could you give us a quick update on what is Gist and what kind of market are you addressing there?

T.A. McCann

Well, Gist is a product that really helps all of us focus on the people and companies that we find most important. It brings together all of the contacts from my inbox, my calendar, LinkedIn, Facebook, Twitter, automatically prioritizes them, and then goes out to the web and searches 50,000 news sources, 20 million blogs, Facebook and Twitter, and then gives me content about all my contacts, and we deliver all that back inside a web experience, inside Outlook or Gmail, and on iPhone, Android and Blackberry, so you always have all the information you need about all of your contacts in priority order, so you never miss anything. That's Gist today.

We certainly are bringing a lot of this capability to Blackberry, so the new Playbook contacts app was built by the Gist team and you'll see lots of that capability there and obviously a lot of the concepts of Gist and in many cases practical parts of it will be in future versions of the Blackberry. As Dan mentioned, we're really focused on...all of our social graphs are growing, those people that we know are posting on more services and for the services they use, they're posting more contact. The trend is around, “How do I focus on what is most important” are only going to be in our favor or need solutions that are sort of like Gist, and we think it is even more important in a mobile space, where you need a device to be smart enough to say, “What do I need to know now?” especially when it comes to people that you are dealing with in a business context.

Ward Carter

Great, that's very interesting, I can see why RIM found that very attractive and why that is a great differentiator.

A quick question for Reese. Reese, you're at CES. Any new players we need to watch out for?

Reese Jones

Well, it's interesting that the show is mostly marked by who is not here. Apple isn't here, Microsoft has announced that they are not going to be here. With the vendors, it is no longer good enough to make a great phone or TV or computer, you have to, for example, make a phone that runs underwater to get any attention at CES. The traditional kinds of devices that were at CES are becoming commoditized and are differentiated by the services that they come with and that is kind of the big trend.

Ward Carter

Okay. One more question for Peter. We've had continuing issues regarding security in the cloud, a lot of horror stories. How do you address that?

Peter Coffee

There is an enormous difference between a security incident that happens to involve a cloud service provider and a security breach demonstrating any actual weakness of the cloud itself. If a company is storing data with a cloud service provider and the company had a serious problem with the way that it manages privileges on its accounts, then the fact that it was cloud-based data that was breached is completely irrelevant, because it was not a failure of the cloud, it was a failure of security practices and the exact same failure would have had the exact same consequences, even if the data had been stored in a data center. So people need to peel the onion here. When they read about a breach in the cloud, they need to ask if this was a cloud failure or a failure of the owner of the data to maintain best practices and due diligent in how they administered their privileges. People have to be more nuanced about that, because as more and more people use cloud-based storage, it stands to reason that more and more screwups will wind up involving data stored in the cloud, but that does not mean that the failure should in any way be attributed to the fact that the cloud was involved.

Ward Carter

Good point, Peter. One last question here, maybe I'll bounce it over to Bruce Milne. Bruce, we're seeing that valuations are somewhat down and a lot of that could be due to the European debt crisis. Where do you think they are going in 2012, and what are some of the drivers?

Bruce Milne

Well, I think that we're still on pins and needles a little bit concerning Europe, but it's becoming less and less important. They've dropped about 30% in terms of our trade. We're not through this yet, there are a lot of problems. It is interesting, what's going to happen, and what the drivers are, is that there are more new buyers. We're hearing from companies on here that are leaders, and as Dougan mentioned, there are a whole bunch of new buyers, and where did the old ones go? Well they didn't go away and they will come back. There are new buyers, new public companies, there is a staggering amount of cash out there. We had this report a couple of months ago, we're sitting on half a trillion or so in the strategic buyers, a half a trillion or so with the PE guys, and they are back into technology, away from places they lost money, such as real estate, and you have the sovereign funds that are sitting on trillions!

Tech is cool. You have Warren Buffet investing in IBM, taking a huge stake, right up there with Coca-Cola, and all the investors are looking at that, and the US is a place to invest, it is a safe haven. There are companies like HP and others saying we're going to get more into software. IBM, you heard today from Chris. There is a strategic imperative. We're hearing about so much change. It is breathtaking. These companies have to acquire new companies to acquire traction, companies like T.A.'s company. If they don't, they'll die. The new tech is not being bred internally, it is being done by young companies out there, many of whom are online, so deals will continue to grow and 2012 will be a banner year.

Ward Carter

Okay, thanks, Bruce. That concludes our presentation. I want to thank all of our speakers and a big thank you to our audience for participating. We hope you can join us at an in-person conference soon. This concludes our January 2012 tech M&A report.