Why He’s not CEO/Person of the Year – Immelt of GE


Summary:

  • Business leaders are honored for creating profitable growth
  • Those who create the greatest growth disrupt the status quo and change the way things are done – such as Zuckerberg and Jobs
  • Too many CEOs act as caretakers, overlooking growth
  • Caretakers watch value decline
  • Under Welch, GE dramatically grew and he was Time’s Person of the Year
  • Under Immelt, GE has contracted
  • Too many CEOs are like Immelt.  They need to either change, or be replaced

It’s that time of year when magazines like to honor folks for major accomplishments.  This year, Time’s Person of the Year is Mark Zuckerberg, honored for leading Facebook and its dramatic change in social behavior amongst so many people. Marketwatch.com selected Steve Jobs as its CEO of the Decade – an honor several journals gave him last year!

There is of course a bias in these selections.  Most journals highly favor CEOs that drive up their stock price!  For example, Ed Zander was CEO of the year in 2004 for his “turnaround” at Motorola – and within 2 years he was fired and Motorola was facing possible bankruptcy. Obviously his “quick fix” (getting the RAZR out the door with a big marketing push) didn’t pan out so well over time.  We’ll have to see if Alan Mulallly deserves to be CEO of the Year at Marketwatch, since it appears his selection has more to do with not letting Ford go bankrupt – like competitors GM and Chrysler – and thus reaping the benefits of customers who wanted to buy domestic but feared any other selection.  Whether Ford’s “turnaround” will be a winner, or another Zander/Motorola, we’ll know better in a couple of years.

One fellow who isn’t on anybody’s list is Jeff Immelt at General Electric.  His predecessor was.  Given that

  1. GE is the oldest company on the DJIA (Dow Jones Industrial Average)
  2. GE is one of the most widely held of all corporations
  3. GE is one of the largest American corporations in revenues and employees
  4. GE is in a plethora of businesses, globally
  5. Mr. Immelt is paid several million dollars per year to lead GE

It is worthwhile to think about why he’s not on this list – whether he should be – and if not, whether he should keep his job!

Since Immelt took the helm at GE, the value has actually declined.  He’s not likely to win any awards given that sort of performance.  Amidst the financial crisis, he had to make a very sweet deal with Berkshire Hathaway to invest cash (via preferred shares) in order to keep GE out of bankruptcy court – a deal that has enriched Mr. Buffett’s company at the expense of GE.  GE has exited several businesses, such as its current effort to unload NBC via a deal with Comcast, but it has not created (or bought) a single exciting, noteworthy growth business! GE has become a smaller, lower growth company that narrowly diverted bankruptcy.  That isn’t exactly a ringing endorsement for honors!

Yes, GE has developed a nice positive cash flow, which will allow it to repurchase the preferred shares from Berkshire (MarketwatchGE to Buy Back Buffett’s Preferreds Next Year.”) But what is Mr. Immelt doing to create future shareholder value?  His plan to make a few acquisitions, pay some higher dividends (suspended when the company faltered) and repurchase equity offers shareholders very little as a way to generate high rates of return!  Why would anyone want to own GE?  Nobody expects the company to be a growth leader in 2012, or 2015.  With its current businesses, and strategy, there is no reason to expect GE to produce double digit earnings growth – or double its equity within any reasonable investing horizon.

There’s more to being a CEO than being a “caretaker.”  Mr. Immelt’s predecessor, Jack Welch, created enormous value for shareholders.  Mr. Welch was willing to disurpt the GE status quo.  In fact, he intentionally worked at it!  He made sure business leaders were constantly challenged to find new markets, create new products, expand into new businesses, leverage new  technologies and generate growth!  Mr. Welch was willing to take GE into growth markets, give leaders permission to create new Success Formulas, and invest in whatever it took to profitably grow revenues.  During the Welch era, competitors quaked at the thought of GE entering their markets because things were always shaken up – and GE changed the game in order to create higher rates of return.  During the Welch era investors received amongst the highest rate of return on any common stock!  GE value multiplied many-fold, making pensioners (invested in the stock) and employees quite wealthy – even as employment expanded dramatically.  That’s why Mr. Welch was Time’s Person of the Year in 2000 — and for many the CEO of the previous decade.

Mr. Immelt, on the other hand, has done nothing to benefit any of his constituencies.  Like far too many CEOs, he took a much less aggressive stance toward growth.  He has been unwilling to challenge and disrupt existing leaders, or promote aggressive market disruptions through the GE business units.  He has not invested in White Space projects that could continue the massive expansion started during the Welch era.  To the contrary, he has moved much more slowly, and focused more on selling businesses than growing them.  He has resorted to trying to protect GE – rather than keep it moving forward.  As a result, the company has retrenched and actually become less interesting, less valuable and less clearly able to produce returns or create new jobs!

Mr. Immelt certainly has his apologists, and seems to securely have the support of his Board of Directors.  But we should question this.  It actually has an impact on the American economy (and that of several other countries) when the CEO of a company as large as GE loses the ability to create growth.  The malaise of the American economy can be directly tied to CEOs who are operating just like Mr. Immelt: doing almost nothing to create new markets, new sources of revenue, new jobs.  Many business journalists like to say the government doesn’t create revenue, or jobs.  So who will create them when corporate leaders are as feckless as Mr. Immelt? Especially when they control such vast resources!

Congratulations to Mr. Zuckerberg and Mr. Jobs (and Mr. Hastings of Netflix who was named Fortune magazine’s CEO of the Year.)  They have created substantial new revenues, profits, cash flow and return for investors.  Their company’s employees, suppliers, customers and investors have all benefitted from their leadership.  By disrupting the way their company’s operated they pushed into new markets, and demonstrated how in any economy it is possible to create success.  Caretakers they are not, so like Mr. Welch each deserves its recent accolades.

And for all those CEOs out there who are behaving as caretakers – for all who are resting on past company laurels – for all who have watched their company value decline – for those who think it’s OK to not grow – for those who blame the economy, or government, or competitors, or customers or their industry for their inability to grow —- well, you either need to learn from these recently honored CEOs and dramatically change direction, or you should be fired.

Everything Old is New Again: Oracle’s Microsoft Strategy


Today’s guest blog is provided by Mike Meikle, hope you enjoy:

Summary

  • Oracle is at the top of the heap in the Traditional Software market.
  • Traditional Software market is deflating with $7 billion less profit than 2009
  • Software as a Service, a component of Cloud Computing, has a forecasted 26% annual growth rate over the next five years.
  • Oracle Cloud Computing strategy is muddled with bi-polar corporate marketing and platform dependency.
  • Customers feel trapped with Oracle and are looking for alternatives.
  • Oracle is  trapped in a classic Defend and Extend situation.
  • Oracle seems to be following Microsoft in using 1990’s corporate strategy in 2011.

Throughout the 1990’s Microsoft held the dominant position in software.  Firmly ensconced in Corporate and Consumer arenas, Microsoft generated enormous profits.  With an overflowing war chest, MSFT aggressively quashed or bought out the competition – which eventually attracted the attention of the United States Justice Department.  

After a little less than 10 years, Microsoft now fights to stay relevant as multiple challengers have exposed gaping holes in its armor.  The tech giant’s senior leadership appears rudderless as product lines fail to get off the mark (Windows Phone 7) or flounder (Vista).

With this in mind let us turn toward Oracle.  Long viewed as the top Database Management System (DBMS) for the corporate world, its database software underpins much of the global information economy.  It has a large war chest stuffed with the profits created by costly traditional software licensing deals with locked-in customers.  It has used that cash to acquire new lines of business (PeopleSoft, Sun) and competitors (ATG, MySQL).

However there are some dark clouds on the horizon.  The advent of Cloud Computing is a threat to its current licensing model.  How will Oracle adapt to corporations implementing virtual servers and databases in the Cloud?  Traditional software licensing is down $7 billion industry-wide from 2009.  Meanwhile “software as a service” (SaaS) is seeing explosive growth, with a forecasted 26% annual growth rate over the next five years as a natural component of Cloud Computing.

Oracle has made some efforts to delve into the Cloud Computing fray with the Oracle Exalogic Elastic Cloud, or “Cloud-In-a-Box”, leveraging their SUN and ATG acquisitions.  However this arrives several years behind the Amazon, Google, and Microsoft triumvirate of Cloud Computing products.  Oracle’s Cloud offering will also have to overcome Oracle’s own negative statements about Cloud Computing.  CEO Larry Ellison called Cloud Computing “complete gibberish” in late 2008.

Oracle also has problems with its customers.  Chafing under the steep licensing costs and sub-standard support, nearly half are looking to shift to lower cost alternatives as they become available.  Many have felt trapped by lack of suitable replacements.  MySQL was one such competitor, but with Oracle purchasing SUN and getting MySQL in the bargain, that option disappeared.  So customers have continued to (reluctantly) fork over licensing and maintenance fees to Oracle, creating the bulk of the organization’s profit stream.  

Sound familiar?

Also, the champions of Oracle software offerings, developers, are dissatisfied with the company.  The founders of MySQL and the creator of Java, now key software offerings of Oracle, have jumped ship as a result of disagreements with Oracle’s corporate direction.

Now Oracle finds itself in is a classic Defend & Extend situation.  Nearly all their profits rely on historical licensing and maintenance for traditional software, a market that is rapidly shrinking.  Current customers are unhappy with cost and service; hungry for alternatives and ready to embrace new solutions.  But Oracle has arrived late and timidly to the Cloud Computing maketplace, attempting to leverage recently acquired assets where key personnel have left (and taking who knows how much vital market and product knowledge.)   Not only will Oracle have to struggle to differentiate itself from other Cloud offerings going forward, it will have to incorporate their newly acquired assets (including technologies) into a cohesive offering while trying to ramp up top notch service.

Oracle will have to break out of the “consistency trap” if it is to drive profits toward new growth.  New services that provide value to the customer will have to be developed and aggressively marketed. To grow future revenue and profits Oracle cannot rely on shoehorning customers into poorly fitting licensing and support models based on the fading market of yesteryear.

Or Oracle could choose to not change its old Success Formula.  For advice on that approach Oracle’s Mr. Ellison talk to Microsoft’s Mr. Ballmer to see how well his 1990’s corporate strategy is working as Microsoft stumbles into 2011.

Thanks Mike!  Mike Meikle shares his insights at “Musings of a Corporate Consigliere(http://mikemeikle.wordpress.com/). I hope you read more of his thoughts on innovation and corporate change at his blog site.  I thank Mike for contributing this blog for readers of The Phoenix Principle today, and hope you’ve enjoyed his contribution to the discussion about innovation, strategy and market shifts.

If you would like to contribute a guest blog please send me an email.  I’d be pleased to pass along additional viewpoints on wide ranging topics.

Getting Rich vs. Getting Lost – Smartphones – Google & Apple vs. RIM, Nokia, Samsung, Microsoft


Summary:

  • Most planning systems rely on extending past performance to predict the future
  • But markets are shifting too fast, making such forecasts wildly unreliable
  • To compete effectively, companies must anticipate future market shifts
  • Planning needs to incorporate a lot more scenario development, and competitor information in order to overcome biases to existing customers and historical products
  • Apple and Google have taken over the mobile phone business, while the original leaders have fallen far behind
  • Historical mobile phone leaders Nokia, Samsung, Motorola, RIM and Microsoft had the technologies and products to remain leaders, but they lacked scenarios of the future enticing them to develop new markets.  Thus they allowed new competitors to overtake them
  • Lacking scenarios and deep competitor understanding, companies react to market events – which is slow, costly and ineffective.

Apple, Android Help Smartphone Sales Double Over Last Year” is the Los Angeles Times headline.  Google-supplied Android phones jumped from 3% of the market to 26% versus the same quarter last year.  iPhones remained at 17% of the market.  Blackberry is now just under 15%, compared to about 21% last year.  What’s clear is people are no longer buying traditional mobile phones, as #1 Nokia share fell from 38% to 27%.  Like many market changes, the shift has come fast – in only a matter of a few months.  And it has been dramatic, as companies not even in the market 5 years ago are now the leaders. Former leaders are struggling to stay in the game as the market shifts.

The lesson Google and Apple are teaching us is that companies must have a good idea of the future, and then send their product development and marketing in that direction.  Although traditional cell phone manufacturers, such as Motorola and Samsung, had smartphone technology many years prior to Apple, they were so focused on their traditional markets they failed to look into the future.  Busy selling to existing customers an existing technology, they didn’t develop scenarios about 2010 and beyond that would describe how the market could expand – far beyond where traditional phone sales would take it.  Both famously said “so what” to the new technology, and used existing customer focus groups of people who had no idea the potential benefit of a smart phone to justify their willingness to remain fixated on the existing business.  Lacking a forward planning process based on scenario development, and lacking a good market sensing system that would pick up on the early market shift as novice competitor Apple started to really change the market, these companies are now falling rapidly to the wayside. 

Even smartphone pioneer Research in Motion (RIM) was so focused on meeting the needs of its existing “enterprise” customers that it failed to develop scenarios about how to expand the smartphone business into the hands of everyone.  RIM missed the value of mobile apps, and the opportunity to build an enormous app database.  Now RIM has been surpassed, and is showing no signs of providing effective competition for the market leaders.  While the Apple and Android app base continues to explode, based upon 3rd and 4th generation product inducing more developers to sign up, and more customers to buy in, RIM has not effectively built a developer base or app set – causing it to fall further behind quarter by quarter.

Even software giant Microsoft missed the market.  Fixated upon putting out an updated operating system for personal computers (Vista then later Windows 7) it let its 45% market share in smart phones circa 2007 disappear.  Now approaching 2011 Microsoft has largely missed the market.  Again, focused clearly upon its primary goal of defending its existing business in O/S and office automation software, Microsoft did not have a forward focused planning group that was able to warn the company that its new products might well arrive in a market that was stagnating, and on the precipice of a likely decline, because of new technology which could make the PC platform obsolete (a combination of smart mobile devices and cloud computing architecture.)  Microsoft’s product development was being driven by its historical products, and market position, rather than an understanding of future markets and how it should develop for them.

We can see this lack of future scenario development and close competitor tracking has confused Microsoft.  Desperately trying to recover from a market stall in 2009 when revenues and profits fell, Microsoft has no idea what to do in the rapidly expanding smartphone market today.  Its first product, Kin, was dropped only two months after launch, which industry analysts saw as necessary given the product’s lack of advantages.  But now Mediapost.com informs us in “Return of the Kin?” Microsoft is considering a re-launch in order to clear out old inventory.

This amidst a launch of the Windows Phone 7 that has gone nowhere.  Firstly, there was insufficient advertising to gain any public awareness of the product launch earlier in November (Mediapost “Where’s the Windows Phone 7 Ad Barrage?“)  Initial sales have gone nowhere “Windows Phone 7 Lands Without a Sound” [Mediapost], with many stores lacking inventory, very few promoting the product and Microsoft keeping surprisingly mum about initial sales. This has raised the question “Is Windows Phone 7 Dead On Arrival?” [Mediapost] as sales barely achieving 40,000 initial unit sales at launch, compared to daily sales of 200,000 Android phones and 270,000 iphones! 

Companies, like Apple and Google, that have clear views of the future, based upon careful analysis of what can be done and tracking market trends, create scenarios that allow them to break out of the pack.  Scenario development helps them to understand what the future can be like, and drive their product development toward creating new markets with more customers, more unit sales, higher revenues and improved cash flow.  By studying early competitors, especially fringe ones, they create new products which are more highly desired, breaking them out of price competition (remember the Motorola Razr fiasco that nearly bankrupted the company?) and into higher price points and better earnings. Creating and updating future scenarios becomes central to planning – using scenarios to guide investments rather than merely projections based upon past performance.

Companies that base future planning on historical trends find themselves rapidly in trouble.  Market shifts leave them struggling to compete, as customers quickly move to new solutions (old fashioned notions of “exit costs” are now dead).  Instead of heading for the money, they are confused – lost in a sea of options but with no clear direction.  Nokia, Samsung, RIM and Microsoft all have lots of resources, and great historical experience in the market.  But lacking good scenario planning they are lost.  Unable to chart a course forward, reacting to market leaders, and hoping customers will seek them out because they were once great. 

Far too many companies do their planning off of past projections.  One could say “planning by looking in the rear view mirror.” In a dynamic, global world this is not sufficient.  When monster companies like these can be upset so fast, by someone they didn’t even think of as a traditional competitor (someone likely not even on the radar screen recently) how vulnerable is your company?  Do you plan on 2015 looking like 2005?  If not, how can future projections based on past actuals be valuable?  it’s time more companies change their approach to planning to put an emphasis on scenario development with more competitive (rather than existing customer) input.  That’s the only way to get rich, instead of getting lost.

 

 

2 Losers Don’t make a Winner – Ignore Yahoo and AOL


Summary:

  • Creating value requires growth, not cost reductions
  • Yahoo and AOL have no growth, and no new market development plans
  • Yahoo and AOL lack the resources to battle existing competitors Google and Apple
  • Don’t invest in Yahoo or AOL individually, or if they merge
  • Companies that generate high valuation, like Apple, do so by pioneering new markets with new products where they generate growth in revenue, profits and cash flow

Rumors have been swirling about Yahoo! and AOL merging – and Monday’s refresh led to about a 2% gain in the former, and 4% gain in the latter. But unless you’re a day trader, why would you care? Merging two failing companies does not create a more successful progeny.

AOL had a great past.  But since the days of dial-up, the value proposition has been hard to discern.  What innovations has AOL brought to market the last 2 years?  What new technologies is AOL championing?  What White Space projects are being trumpeted that will lead to new capabilities for web users if they purchase AOL products? 

And the same is true for Yahoo!  Although an early pioneer in on-line advertising, and to this day the location of many computer user’s browser home page, what has Yahoo! brought to market the last 2 years?  In the search market, on-line content management, browser technology and internet ad placement the game has fully gone to competitor Google.  Although the new CEO, Ms. Bartz, was brought in to much fanfare, there’s been nothing really new brought forward.  And we don’t hear about any new projects in the company designed to pioneer some new market.

And from this merger, where would the cash be created to fight against the likes of Google and Apple?  Unless one of these companies has a silver bullet, the competitors’ war chests assures “game over” for these two.

Sure, merging the two would likely lead to some capability to cut administrative costs.  But is that how you create value for an internet company?  What creates value is developing new markets – like AOL did when it brought millions of people to the internet for the first time.  And like Yahoo! did with its pioneering products delivering news, and placing ads for companies.  But since both companies have lost the willingness, capability and resources to develop new markets and products they’ve been unable to grow revenues and cash flow.  The road to prosperity most assuredly does not lie in “synergistic cost reductions” across administration, selling and product development for these two market laggards.

The reason Apple is skyrocketing in value is because it has pioneered new markets.  And produced enough cash to buy both these companies – if there was any value in them.  SeekingAlpha.com lays out the case for almost 100million iPad sales, and a lot more iPhones, in “What Could Justify a $500 Apple Stock Price.”  But beyond selling more of what it’s pioneered, Apple has not stopped pioneering new markets.  Another SeekingAlpha article points out the likelihood of Apple making video chat something people will really want to use, now that it can be done on mobile devices like iPads and iPhones, in “Apple’s Future Revenue Driver: FaceTime.”  It’s because Apple has the one-two punch of growing the markets it has pioneered while simultaneously developing new markets that makes it worth so much.

If you’ve been thinking a merged Yahoo/AOL is a value play – well think again.  Both companies are well into the swamp of declining returns.  So focused on fighting off the alligators and mosquitos trying to eat them that they long ago forgot their mission was to create new markets with new products that could carry them out of the low-growth swamp.  Sell both, if you haven’t already, and don’t look back.  Whether you take a loss or gain, at least you’ll leave with some money.  The longer you stay with these companies the less they’ll be worth, because neither has a sail of any kind to catch any growth wind.

Apple at $500 might sound crazy – but it’s a better bet than hoping to make any money in the individual, or merged, old-guard companies.  They don’t have the cash, nor the cash flow, to drive new solutions.  And that’s how value is created. 

 

The Myth of “Maturity” – AT&T and Microsoft


Summary:

  • We like to think of "mature" businesses as good
  • AT&T was a "mature" business, yet it failed
  • "Maturity" leads to inward focus, and an unwillingness to adjust to market shifts
  • Microsoft is trying to reposition itself as a "mature" company
  • Despite its historical strengths, Microsoft has astonishing parallels to AT&T
  • Growth is less risky than "maturity" for investors, employees and customers

Why doesn't your business grow like Apple or Google?  Is it because you think of your business, or the marketplace you serve, as "mature?" Quite a euphanism, maturity.  It sounds so good.  How could being "mature" be bad?  As children we strive to be "mature." The leader is usually the most "mature" person in the group.  Those who like good art have "mature" taste. Surely, we should want to be "mature." And we should want our businesses to reach "maturity" and have "mature" leaders who don't take unnecessary risks.  Once "mature" the business should be safe for investors, employees, suppliers and customers.

That was probably what the folks at AT&T thought.  When judge Greene broke up AT&T in 1984 the company had a near monopoly on long-distance.  AT&T was a "mature" company in a "mature" telephone industry.  It appeared as though all AT&T had to do was keep serving its customers, making regular improvements to its offering, to perpetually maintain its revenue, jobs and profitability.  A very "mature" company, AT&T's "mature" management knew everything there was to know about long distance – about everything related to communications.  And due to its previous ownership of Bell Labs and Western Union, it had deep knowledge about emerging technologies and manufacturing costs allowing AT*T to make "mature" decisions about investing in future markets and products.  This "mature" company would be able to pay out dividends forever!  It seemed ridiculous to think that AT&T would go anywhere but up!

Unfortunately, things didn't work out so well.  The "mature" AT&T saw its market share attacked by upstarts MCI and Sprint.  As a few "early adopters" switched services – largely residential and other very small customers – AT&T was unworried.  It still had most of the market and fat profits.  As these relatively insignificant small users switched, AT&T reinforced its world's largest billing system as an incomparable strength, and reminded everyone that its "enterprise" (corporate) offerings were still #1 (anybody remember AT&T long distance cards issued by your employer for use at pay phones?). 

But unfortunately, what looked like an unassailable market position in 1984 was eventually diminished dramatically as not only homeowners but corporations started shifting to new offerings from competitors.  New pricing plans, "bundled" products and ease of use encouraged people to try a new provider.  And that AT&T had become hard to work with, full of rules and procedures that were impossible for the customer to comprehend, further encouraged people to try an alternative.  Customers simply got fed up with rigid service, outdated products and high prices.

Unexpectedly, for AT&T, new markets started to grow much faster and become more profitable than long distance voice.  Data services started using a lot more capacity, and even residential customers started wanting to log onto the internet.  Even though AT&T had been the leader (and onetime monopolist – did you know broadcast television was distributed over an AT&T network?) with these services, this "mature" company continued to focus on its traditional voice business – and was woefully late to offer commercial or residential customers new products.  Not only were dial-up offerings delayed, but higher speed ISDN and DSL services went almost entirely to competitors.

And, much to the chagrin of AT&T leaders, customers started using their mobile phones a lot more.  Initially viewed as expensive toys, AT&T did not believe that the infrastructure would be built quickly, nor be robust enough, to support a large base of cellular phone users.  Further, AT&T anticipated pricing would keep most people from using these new products.  Not to mention the fact that these new phones simply weren't very good – as compared to land-line services according to the metrics used by AT&T.  The connection quality was wildly inferior to traditional long distance, and frequently calls were completely dropped!  So AT&T was slow to enter this market, half-hearted in its effort, and failed to make any profits.

Along the way a lot of other "non-core" business efforts failed.  There was the acquisition of Paradyne, an early leader in modems, that did not evolve with fast changing technology.  New products made Paradyne's early products obsolete and the division disappeared.  And the acquisition of computer maker NCR failed horribly after AT&T attempted to "improve" management and "synergize" it with the AT&T customer base and offerings. 

AT&T had piles and piles of cash from its early monopoly.  But most of that money was spent trying to defend the long distance business. That didn't work.  Then there was money lost by wheelbarrow loads trying to enter the data and mobile businesses too late, and with little new to offer.  And of course the money spent on acquisitions that AT&T really didn't know how to manage was all down the proverbial drain. 

Despite its early monopoly, high cash flow, technology understanding, access to almost every customer and piles of cash, AT&T failed.  Today the company named AT&T is a renamed original regional Bell operatiing company (RBOC) created in the 1984 break-up — Southwestern Bell.  This classically "mature" company, a stock originally considered "safe" for investing in the "widow's and orphan's fund" used up its money and became obsolete.  "Mature" was a misnomer used to allow AT&T to hide within itself; to focus on its past, instead of its future.  By being satisfied with saying it was "mature" and competing in "mature" markets, AT&T allowed itself to ignore important market shifts.  In just 25 years the company that ushered in mass communications, that had an incredibly important history, disappeared.

I was struck today when a Reuters story appeared with the headline "Sleepy in Seattle: Microsoft Learns to Mature."  There's that magic word – "mature."  While the article lays out concerns with Microsoft, there were still analysts quoted as saying that investors didn't need to worry about Microsoft's future.  Investors simply need to change their thinking.  Instead of a "growth" company, they should start thinking of Microsoft as a "mature" company.  It sounds so reassuring.  After all:

  • Microsoft has a near monopoly in its historical business
  • Microsoft has a huge R&D budget, and is familiar with all the technologies
  • Microsoft has piles and piles of cash
  • Microsoft has huge margins in its traditional business – in fact profits in operating systems and office automation exceed 100% of the total because it loses billions of dollars in other things like Bing, MSN and its incredibly expensive foray into gaming systems (xBox)
  • Markets won't shift any time soon – say to this new "cloud computing" – and Microsoft will surely have products when they are needed if there is a market shift
  • While home users may buy these new smartphones, tablets and some Macs, enterprise customers will keep using the technology they've long purchased
  • Microsoft is smart to move slowly into new markets, it shouldn't cannibalize its existing business by encouraging customers to change platforms. Going slow and being late is a good thing for profits
  • Although Microsoft has been late to smartphones and tablets, with all their money and size surely when they do get to market they will beat these upstarts Apple and Google, et. al.

Sure made me think about AT&T.  And the fact that Apple is now worth more than Microsoft.  Made me wonder just how comfortable investors should be with a "mature" Microsoft. Made me wonder how much investors, employees and customers should trust a "mature" CEO Ballmer.

Looking at the last 10 years, it seems like there's a lot more risk in "mature" companies than in "growth" ones.  We can be almost certain that Apple and Google, which have produced huge returns for investors, will grow for the next 3 years, improving cash flow and profitability just by remaining in existing new markets.  But of course both have ample new products pioneering yet more new markets.  And companies like NetApp look pretty safe, building a fast-growing base of customers who are already switching to cloud computing – and producing healthy cash flow in the emerging marketplace. 

Meanwhile, the track record for "mature" companies would leave something to be desired. One could compare Amazon to Circuit City or Sears.  Or just list some names: AT&T, General Motors, Chrysler, Xerox, Kodak, AIG,  Citibank, Dell,  EDS,  Sun Microsystems.  Of course each of these is unique, with its own story.  Yet….

The Wal-Mart Disease


Summary:

  • Many large, and leading, companies have not created much shareholder value the last decade
  • A surprising number of very large companies have gone bankrupt (GM) or failed (Circuit City)
  • Wal-Mart is a company that has generated no shareholder value
  • The Wal-Mart disease is focusing on executing the business's long-standing success formula better, faster and cheaper — even though it's not creating any value
  • Size alone does not create value, you have to increase the rate of return
  • Companies that have increased value, like Apple, have moved beyond execution to creating new success formulas

Have you noticed how many of America's leading companies have done nothing for shareholders lately?  Or for that matter, a lot longer than just lately.  Of course General Motors wiped out its shareholders.  As did Chrysler and Circuit City.  The DJIA and S&P both struggle to return to levels of the past decade, as many of the largest companies seem unable to generate investor value.

Take for example Wal-Mart.  As this chart from InvestorGuide.com clearly shows, after generating very nice returns practically from inception through the 1990s, investors have gotten nothing for holding Wal-Mart shares since 2000.

Walmart 20 year chart 10-10

Far too many CEOs today suffer from what I call "the Wal-Mart Disease."  It's an obsession with sticking to the core business, and doing everything possible to defend & extend it — even when rates of return are unacceptable and there is a constant struggle to improve valuation.

Fortune magazine's recent puff article about Mike Duke, "Meet the CEO of the Biggest Company on Earth" gives clear insight to the symptoms of this disease. Throughout the article, Mr. Duke demonstrates a penchant for obsessing about the smallest details related to the nearly 4 decade old Wal-Mart success formula.  While going bananas over the price of bananas, he involves himself intimately in the underwear inventory, and goes cuckoo over Cocoa Puffs displays.  No detail is too small for the attention of the CEO trying to make sure he runs the tightest ship in retailing.  With frequent references to what Wal-Mart does best, from the top down Wal-Mart is focused on execution.  Doing more of what it's always done – hopefully a little better, faster and cheaper.

But long forgotten is that all this attention to detail isn't moving the needle for investors.  For all its size, and cheap products, the only people benefiting from Wal-Mart are consumers who save a few cents on everything from jeans to jewelry. 

The Wal-Mart Disease is becoming so obsessive about execution, so focused on doing more of the same, that you forget your prime objective is to grow the investment.  Not just execute. Not just expand with more of the same by constantly trying to enter new markets – such as Europe or China or Brazil. You have to improve the rate of return.  The Disease keeps management so focused on trying to work harder, to somehow squeeze more out of the old success formula, to find new places to implement the old success formula, that they ignore environmental changes which make it impossible, despite size, for the company to ever again grow both revenues and rates of return.

Today competitors are chipping away at Wal-Mart on multiple fronts.  Some retailers offer the same merchandise but in a better environment, such as Target.  Some offer a greater selection of targeted goods, at a wider price range, such as Kohl's or Penney's.  Some offer better quality goods as well as selection, such as Trader Joe's or Whole Foods.  And some offer an entirely different way to shop, such as Amazon.com.  These competitors are all growing, and earning more, and in several cases doing more for their investors because they are creating new markets, with new ways to compete, that have both growth and better returns.

It's not enough for Wal-Mart to just be cheap.  That was a keen idea 40 years ago, and it served the company well for 20+ years.  But competitors constantly work to change the marketplace.  And as they learn how to copy what Wal-Mart did, they can get to 90%+ of the Wal-Mart goal.  Then, they start offering other, distinctive advantages.  In doing so, they make it harder and harder for Wal-Mart to be successful by simply doing more of the same, only better, faster and cheaper.

Ten years ago if you'd predicted bankruptcy for GM or Chrysler or Circuit City you'd have been laughed at.  Circuit City was a darling of the infamous best seller "Good To Great."  Likewise laughter would have been the most likely outcome had you predicted the demise of Sun Microsystems – which was an internet leader worth over $200B at century's turn.  So it's easy to scoff at the notion that Wal-Mart may never hit $500B revenue.  Or it may do so, but at considerable cost that continues to hurt rates of return, keeping the share price mired – or even declining.  And it would be impossible to think that Wal-Mart could ever fail, like Woolworth's did.  Or that it even might see itself shredded by competitors into an also-ran position, like once powerful, DJIA member Sears.

The Disease is keeping Wal-Mart from doing what it must do if it really wants to succeed.  It has to change.  Wal-Mart leadership has to realize that what made Wal-Mart once great isn't going to make it great in 2020.  Instead of obsessing about execution, Wal-Mart has to become a lot better at competing in new markets.  And that means competing in new ways.  Mostly, fundamentally different ways.  If it can't do that, Wal-Mart's value will keep moving sideways until something unexpected happens – maybe it's related to employee costs, or changes in import laws, or successful lawsuits, or continued growth in internet retailing that sucks away more volume year after year – and the success formula collapses.  Like at GM.

Comparatively, if Apple had remained the Mac company it would have failed.  If Google were just a search engine company it would be called Alta Vista, or AskJeeves.  If Google were just an ad placement company it would be Yahoo!  If Nike had remained obsessed with being the world's best athletic shoe company it would be Adidas, or Converse.

Businesses exist to create shareholder value – and today more than ever that means getting into markets with profitable growth.  Not merely obsessing about defending & extending what once made you great.  The Wal-Mart Disease can become painfully fatal.

 

When Should Steve Ballmer Be Fired? – Microsoft


Summary:

  • Steve Ballmer received only half his maximum bonus for last year
  • But Microsoft has failed at almost every new product initiative the last several years
  • Microsoft's R&D costs are wildly out of control, and yielding little new revenue
  • Microsoft is lagging in all new growth markets – without competitive products
  • Microsoft's efforts at developing new markets have created enormous losses
  • Cloud computing could obsolete Microsoft's "core" products
  • Why didn't the Board fire Mr. Ballmer?

Reports are out, including at AppleInsider.com that "Failures in Mobile Space Cost Steve Ballmer Half his Bonus." Apparently the Board has been disappointed that under Mr. Ballmer's leadership Microsoft has missed the move to high growth markets for smartphones and tablets.  Product failures, like Kin, have not made them too happy. But the more critical question is — why didn't the Board fire Mr. Ballmer?

A decade ago Microsoft was the undisputed king of personal software. Its near monopoly on operating systems and office automation software assured it a high cash flow.  But over the last 10 years, Microsoft has done nothing for its shareholders or customers.  The XBox has been a yawn, far from breaking even on the massive investments.  All computer users have received for massive R&D investments are Vista, Windows 7 and Office 2007 followed by Office 2010 — the definition of technology "yawners."  None of the new products have created new demand for Microsoft, brought in any new customers or expanded revenue.  Meanwhile, the 45% market share Microsoft had in smartphones has shrunk to single digits, at best, as Apple and Google are cleaning up the marketplace.  Early editions of tablets were dropped, and developers such as HP have abandoned Microsoft projects. 

Yet, other tech companies have done quite well.  Even though Apple was 45 days from bankruptcy in 2000, and Google was a fledgling young company, both Apple and Google have launched new products in smartphones, mobile computing and entertainment.  And Apple has sold over 4 million tablets already in 2010 – while investors and customers wait for Microsoft to maybe get one to market in 2011.

Despite its market domination, Microsoft's revenues have gone nowhere.  And are projected to continue going relatively nowhere.  While Apple has developed new growth markets, Microsoft has invested in defending its historical revenue base. 

MSFT vs AAPL revenue forecast 4.10
Source:  SeekingAlpha.com

Yet, Microsoft spent 8 times as much on R&D in 2009 to accomplish this much lower revenue growth.  At a recent conference Mr. Ballmer admitted he thought as much as 200 man years of effort was wasted on Vista development in recent years.  That Microsoft has hit declining rates of return on its investment in "defending the base" is quite obvious.  Equally obvious is its clear willingness to throw money at projects even though it has no skill for understanding market needs sin order for development to yield anything commercially successful!

RD cost MSFT and others 2009

Source: Business Insider.com

And investments in opportunities outside the "core" business have not only failed to produce significant revenue, they've created vast losses.  Such as the horrible costs incurred in on-line markets.  Trying to launch Bing and compete with Google in ad sales far too late and with weak products has literally created losses that exceed revenues!

Microsoft-operating-income

Source: BusinessInsider.com

And the result has been a disaster for Microsoft shareholders – literally no gain the last several years.  This has allowed Apple to create a market value that actually exceeds Microsoft's.  An idea that seemed impossible during most of the decade!

Apple v msft mkt cap 05.24.10

Source: BusinessInsider.com

Under Mr. Ballmer's leadership Microsoft has done nothing more than protect market share in its original business – and at a huge cost that has not benefited shareholders with dividends or growth.  No profitable expansion into new businesses, despite several newly emerging markets.  And now late in practically every category.  Costs for business development that are wildly out of control, despite producing little incremental revenue.  And sitting on a business in operating systems and office software that is coming under more critical attack daily by the shift toward cloud computing. A shift that could make its "core" products entirely obsolete before 2020.

Given this performance, giving Mr. Ballmer his "target" bonus for last year seems ridiculous – even if half the maximum.  The proper question should be why does he still have his job? And if you still own Microsoft stock — why as well?

Far too Little, Far too Late – RIM Playbook


Summary:

  • Research in Motion has launched a tablet, competing with the iPad
  • But the Playbook does not have the app base that iPad has developed
  • RIM's focus on its "core" IT customer, without spending enough energy focusing on Apple and other competitors, it missed the shift in mobile device user needs
  • Now companies, like Abbott, are starting to roll out iPads to field personnel
  • RIM's future is in jeopardy as the market shifts away from its products
  • You cannot expect your customer to tell you how to develop your product, you have to watch competitors and move quickly to address emerging market needs

Research in Motion has launched a new tablet called Playbook to compete with the Apple iPad.  But will it succeed?  According to SeekingAlpha.com "Playbook Fails to Boost Research in Motion Price Targets." Most analysts do not think the Playbook has much chance of pushing up the market cap at RIM – and except for home town Canadian analysts the overall expectation for RIM is grim.  I certainly agree with the emerging consensus that RIM's future is looking bleak.

Research in Motion was the company that first introduced most of us to smartphones.  The Blackberry, often provided by the employer, was the first mobile product that allowed people do email, look at attachments and eventually text – all without a PC.  Most executives and field-oriented employees loved them, and over a few years Blackberries became completely common.  It looked like RIM had pioneered a new market it would dominate, with its servers squarely ensconced in IT departments and corporate users without option as to what smartphone they would use.

But Apple performed an end-run, getting CEOs to use the iPhone.  People increasingly found they needed a personal mobile phone as well as the corporate phone – because they did not want to use the Blackberry for personal use. But they didn't pick Blackberries.  Instead they started buying the more stylish, easier to use and loaded with apps iPhone. Apple didn't court the "enterprise" customer – so they weren't even on the radar screen at RIM.  But sales were exploding.

Like most companies that focus on their core customers, RIM didn't see the market shift coming.  RIM kept talking to the IT department. Much like IBM did in the 1980s when it dropped PCs in favor of supporting mainframes – because their core data center customers said the PC had no future.  RIM was carefully listening to its customer – but missing an enormous market shift toward usability and apps.  RIM expected its customers to tell them what would be needed in the future – but instead it was the competition that was showing the way.

Now RIM is far, far behind.  Where Apple has 300,000 apps, and Android has over 120,000, RIM doesn't even have 10,000.  RIM's problem isn't a device issue.  RIM has missed the shift to mobile computing and missed understanding the unmet user needs.  According to Crain's Chicago Business "Chicago CEOs embrace the iPad." Several critical users – and CEOs are always critical – have already committed to using the iPad and enjoying their news subscriptions and other applications.  According to the article, Abbott, which has provided Blackberries to thousands of employees, is now beginning to roll out iPads to field personnel.  RIM's Playbook may be a fine piece of hardware, but it offers far too little in the direction of helping people discard PCs as they migrate to cloud architectures and much smaller, easier to use devices such as tablets.

RIM followed the ballyhooed advice of listening to its core customer.  But such behavior caused it to miss the shift in its own marketplace toward greater extended use of mobile devices.  RIM should have paid more attention to what competitors Apple and Android were doing – and started building out its app environment years ago.  RIM should have been first with a tablet – not late.  And RIM should have led the movement toward digital publishing – rather than letting Amazon take the lead (Kindle) with Apple close behind.  Creating valuable mobility is what the leading company with "motion" in its name should have done.  Instead of merely providing the answers to requests from core IT department customers. Now RIM has no chance of catching up with competitors.

 

HP and Nokia’s Bad CEO Selections – Neither knows how to Grow – Hewlett Packard, Nokia


Summary:

  1. HP and Nokia have lost the ability to grow organically
  2. Both need CEOs that can attack old decision-making processes to overcome barriers and move innovation to market much more quickly
  3. Unfortunately, both companies hired new CEOs who are very weak in these skills
  4. HP’s new CEO is from SAP – which has been horrible at new product development and introduction
  5. Nokia’s new CEO is from Microsoft – another failure at developing new markets
  6. It is unlikely these CEO hires will bring to these companies what is most needed

Leo Apotheker is taking over as CEO of Hewlett Packard today.  Formerly he ran SAP.  According to MarketWatch.comHP’s New CEO Has a Lot To Prove,” and investors were less than overwhelmed by the selection, “HP Shares Slip After CEO Appointment.”  Rightly so.  What was the last exciting new product you can remember from SAP, where Apotheker led the company from 2008 until recently?  Well? 

SAP is going nowhere good.  Its best years are way behind it as the company focuses on defending its installed base and adding new bits to existing products  It’s product is amazingly expensive, incredibly hard and expensive to install, and primarily keeps companies from doing anything new.  Enterprise software packages are like cement, once you pour them in place nothing can change.  They reinforce making the same decision over and over.  But increasingly, that kind of management practice is failing.  In a fast-changing world software that can take 4 years to install and limits decision-making options doesn’t add to desperately needed organizational agility.  And during the last 10 years SAP has done nothing to make its products better linked to the needs of today’s markets. 

So why would anyone be excited to see such a leader take over their company?  If Apotheker leads HP the way he led SAP investors will see growth decline – not grow.  What does this new CEO know about listening carefully to emerging market needs?  The move to install SAP in smaller companies hasn’t moved the needle, as SAP remains almost wholly software for stodgy, low-growth, struggly behemoths.  What does this CEO know about creating an organization that can moving quickly, create new products and identify market needs to position HP for growth?  His experience doesn’t look anything like Steve Jobs, under who’s leadership Apple’s value has increased multi-fold the last decade.

Unfortunately, the same refrain applies at Nokia.  Just last week I pointed out in “Another One Bites the Dust” that Nokia was at grave risk of following Blockbuster into bankruptcy court.  Although Nokia has 40% worldwide market share in mobile phones, U.S. share has slipped to about 8% this year.  In smartphones Nokia has nowhere near the margin of Apple, even though both will sell about the same number of units this year.  Nokia once had the lead, but now it is far behind in a market where it has the largest overall share.  And that was the problem which befell Motorola – #1 for 3 years early in this decade but now far, far behind competitors in all segments and a very likely candidate for bankruptcy when it spins out a seperate cell phone business.

According to the New York Times in “Nokia’s New Chief Faces a Culture of Complacency” Nokia had a very similar product to the iPhone in 2004 but never took it to market.  The internal organization made the new advancement go through several rounds of “review” and the hierarachy simply shot it down in an effort to maintain company focus on the popular, traditional cell phones then being offered.  Rather than risk cannibalization, the organization focused on doing more of what it had done well.  Eschewing innovation for defending the old products is shown again and again the first step toward disaster.  (Would your organization use layers of reviews to kill a new idea in a new market?)

Meanwhile, when an internal Nokia team tried to get approval to launch the smart phones management’s responses sounded like:

  • We don’t know much about this technology. The old stuff we do.
  • We don’t know how big this new market might be. The old one we do
  • We can’t tell if this new product will succeed. Enhanced versions of old products we can predict very accurately.
  • We might be too early to market.  We know how to sell in the existing market.

Even though Nokia had quite a lead in touch screens, downloadable apps, a good smartphone operating system and even 3-D interfaces, the desire to Defend & Extend the old “core” business overwhelmed any effort to move innovation to market.  (By the way, do these comments in any way sound like your company?)

The new CEO, Mr. Elop, is from Microsoft.  Again, one of the weakest tech companies out there at launching new products.  Microsoft had the smart phone O/S lead just 3 years ago, but lost it to maintain investment in its traditional Windows PC O/S and Office automation software.  And again you can ask, exactly how excited have people been with Microsoft’s new products over the last decade?  Or you might ask, exactly what new products?

Both HP and Nokia need CEOs ready to attack lock-in to old technologies, old business practices, old hierarchies and old metrics.  They need to rejuvenate the companies’ ability to quickly get new products to market, learn and improve.  They need experience at early market sensing of unmet needs, and using White Space teams to get products out the door and competitive fast.  Both need to overcome traditional management approaches that inhibit growth and move fast to be first into new markets with new products – like Apple and Google.

But in both cases, it appears highly unlikely the Board has hired for what the companies need.  Instead, they’ve hired for a stodgy resume. Executive who came from companies that are already in bad positions with limited growth prospects.  Exactly NOT what the companies need.  We can only hope that somehow both CEOs overcome their historical approaches and rapidly attack existing locked-in decision-making.  Otherwise, this will be seen as when investors should have sold their stock and employees should have begun putting resumes on the street!

Early Trend Spotting Very Valuable – Apple and Dell


Summary:

  • There is a lot of value to recognizing early trends, and acting upon them
  • That Apple is as popular as Dell for computers among college students is a trend indicator that Dell’s future looks problematic, while Apple’s looks better
  • It is hard to maintain long-term value from innovations that defend & extend an historical market – they are easily copied by competitors
  • Long term value comes from the ability to innovate new product markets which are hard for competitors to copy
  • Dell is a lousy investment, and Apple is a good one, because Dell is near end of life for its innovation (supply chain management) while Apple has a powerful new product/market innovation capability that can continue for several years

I can think of 3 very powerful reasons everyone should look closely at the following chart from Silicon Alley Insider.  It is very, very important that Apple is tied with Dell for market share in PCs among college students, and almost 2.5 times the share of HP:

Apple-v-dell-college-share-8.10

Firstly, it is important to understand that capturing young buyers is very valuable.  If you catch a customer at 16, you have 50 to 60 years of lifelong customer value you can try to maintain.  Thus, these people are inherently worth more than someone who is 55, and only 10 to 20 years of lifetime value.  While we may realize that older people have more discretionary income, many loyalties are developed at a young age.  Over the years, the younger buyers will be worth considerably more.

When I was 15 popular cars were from Pontiac (the GT and Firebird) Oldsmobile (Cutlas) Dodge (Charger and Challenger) and Chevy (Camaro.)  Thus, my generation tended to stay with those brands a long time.  But by the 1990s this had changed dramatically, and younger buyers were driving Toyotas, Hondas and Mazdas.  Now, the American car companies are in trouble because a generational shift has happened.  Market shares have changed considerably, and Toyota is now #1.  Keeping the old buyers was not enough to keep GM and Chrysler healthy.

That for a quarter as many college students want a Mac as want a PC from Dell says a lot about future technology purchases.  It portends good things for Apple, and not good things for leading PC suppliers.  Young people’s purchase habits indicate a trend that is unlikely to reverse (look at how even the Toyota quality issues have not helped GM catch them this year.)  We can expect that Apple is capturing “the hearts and minds” of college students, and that drives not just current, but future sales

Secondly, it is important to note that Dell built its distinction on price – offering a “generic” product with fast delivery and reasonable pricing.  Dell had no R&D, it outsourced all product development and focused on assembly and fast supply chain performance.  Unfortunately, supply chain and delivery innovation are far easier to copy than new product – and new market – innovation.  Competitors have been able to match Dell’s early advantages, while Apple’s are a lot harder to meet – or exceed.  Thus, it has not taken long for Dell to lose it’s commanding industry “domination” to a smaller competitor who has something very new to offer that competitors cannot easily match.

Not all innovation is alike.  Those that help Defend & Extend an existing business – making PCs fast and cheap – offer a lot less long term value.  Every year it gets harder, and costs more, to try to create any sense of improvement – or advantage.  D&E innovations are valued by insiders, but not much by the marketplace.  Customers see these Dell kind of innovations as more, better, faster and cheaper – and they are easily matched.  They don’t create customer loyalty. 

However, real product/market innovations – like the improvements in digital music and mobile devices – have a much longer lasting impact on customers and the markets created.  Apple is still #1 in digital music downloads after nearly a decade.  And they remain #1 in mobile app downloads despite a small share in the total market for cell phones.  If you want to generate higher returns for longer periods, you want to innovate new markets – not just make improvements in defending & extending existing market positions.

Thirdly, this should impact your investment decisions.  SeekingAlpha.com, reproducing the chart above, headlines “Are 2010 Apple Shares the new 1995 Dell Shares?” The author makes the case that Apple is now deeply mired in the Swamp, with little innovation on the horizon as it is late to every major new growth market.  It’s defend & extend behavior is doing nothing for shareholder value.  Meanwhile, Apple’s ability to pioneer new markets gives a strong case for future growth in both revenue and profits.  As a result, the author says Dell is fully valued (meaning he sees little chance it will rise in value) while he thinks Apple could go up another 70% in the next year! 

Too often people invest based upon size of company – thinking big = stability.  But now that giants are falling (Circuit City, GM, Lehman Brothers) we know this isn’t true.  Others invest based upon dividend yield.  But with markets shifting quickly, too often dividends rapidly become unsustainable and are slashed (BP).  Some think you should invest where a company has high market share, but this often is meaningless because the market stagnates leading to a revenue stall and quick decline as the entire market drops out from under the share leader (Microsoft in PCs). 

Investing has to be based upon a company’s ability to maintain profitable growth into the future.  And that now requires an ability to understand market trends and innovate new solutions quickly – and take them to market equally quickly.  Only those companies that are agile enough to understand trends and competitors, implementing White Space teams able to lead market disruptions.  Throw away those old books about “inherent value” and “undervalued physical assets” as they will do you no good in an era where value is driven by understanding information and the ability to rapidly move with shifting markets.

Oh, and if you feel at all that I obscured the message in this blog, here’s a recap:

  1. Dell is trying to Defend its old customers, and it’s not capturing new ones.  So it’s future is really dicey
  2. Dell’s supply chain innovations have been copied by competitors, and Dell has little – if any – competitive advantage today.  Dell is in a price war.
  3. Apple is pioneering new markets with new products, and it is capturing new customers.  Especially younger ones with a high potential lifetime value
  4. Apple’s innovations are hard to duplicate, giving it much longer time to profitably grow revenues.
  5. You should sell any Dell stock you have – it has no chance of going up in value long term.  Apple has a lot of opportunity to keep profitably growing and therefore looks like a pretty good investment.