Azure From Microsoft (MSFT) Is Game Changing New Enterprise Software: Investment Returns Will Develop For Unloved Stock According To Sector Expert Edward Maguire
October 21, 2010 - The Wall Street Transcript has just published Application Software & Transaction Processors Report offering a timely review of the Application Software sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
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Edward Maguire is a Senior Analyst at Credit Agricole Securities (USA), where he covers the software industry. Previously he was President of strategic consultancy firm MAGNet Strategies and Director at Merrill Lynch Technology Investment Banking, where he acted as the East Coast Software Coverage Officer and Industry Specialist.
From 2000-2007, he was Senior Director at Merrill Lynch Equity Research, and a highly regarded and widely quoted enterprise software analyst. Prior to this, Mr. Maguire was an Equity Research Associate at CIBC World Markets, he and worked as a Senior Sales Manager for Twinbrook Music, an independent distributor of prerecorded music. Mr. Maguire holds a B.A. in music from Columbia University, and an MBA in finance and management information systems from Rutgers Business School.
TWST: Who will benefit from these technological changes, and who will be left behind?
Mr. Maguire:I think when you look at who is well positioned or who is leading the charge into the next phase of evolution of technology, I would point to Salesforce.com (CRM), which has led and defined the market for software as a service, but also has been quite forward-thinking in embracing the idea of a platform as a service, which can potentially support a custom development offering with infrastructure and back-end services as a support resource to drive innovation at the edge.
They've also been early in adopting the idea of content as a service with the acquisition of Jigsaw. Jigsaw was a vendor of contact data that maps nicely into their Salesforce automation product, but I think what's more significant about it is that it represents a proprietary data store that becomes a source of recurring revenue for the vendor. I think it could be a harbinger of other potential M&A activity or other directions that I would expect application vendors to pursue in the future.
Lastly the launch of Chatter and the promotion of this social networking approach or paradigm for enterprise users is an important trend that will give rise to a more collaborative project management, the types of project management and communications, and potentially even change the nature of communications within large organizations by flattening their hierarchy and allowing users to communicate across the organization in a much more transparent manner. I would certainly highlight Salesforce as one of the leaders in this vision.
One of the names that we like that has not gotten a lot of love from investors recently has been Microsoft (MSFT). While there certainly are parts of their business that have lagged in some of the leading-edge trends, such as smartphones and tablets, I think Microsoft's vision for their Azure cloud computing platform is quite forward-thinking. It is a "bet-the-company" transition that they are trying to make, from being a provider of products with an ecosystem of partners and systems integrators, and independent software vendors that all depend on and build businesses around Microsoft's software products. This move to the Azure platform, which is essentially a cloud operating system, creates an opportunity for small systems integrators and VARs to make the transition to being more service providers themselves, to build new business models out of their own domain expertise and rely on Microsoft's expertise in creating new cloud services that can be scaled not just in Microsoft's own infrastructure, but across platforms by partners such as Fujitsu (6702).
Unique to this emerging cloud services provider market, Microsoft has a strategy to scale its technology through partners, whereas Google (GOOG), Salesforce.com, Amazon.com (AMZN), Rackspace (RAX) and others have been able to build businesses that serve up software as a service or infrastructure as a service or platform as a service from their own proprietary infrastructure.
Microsoft is really the only one of these vendors that has developed a platform that can empower partners. I'm thinking of Fujitsu in particular, but also potentially telecom providers and other systems integrators to build their own clouds.
TWST: Anybody else you'd like to mention?
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