TIME Companies

How HP Could Once Again Dominate Silicon Valley

HP has shown it can innovate — but can those innovations save the company?

Throughout Hewlett-Packard’s 48 years, it’s innovated many technologies that became commonplace: pocket calculators, laser printers. But for much of the past decade, the headlines about HP have centered on the Silicon Valley pioneer’s revolving door of CEOs, boardroom controversies and – more recently – its slow, painful turnaround.

CEO Meg Whitman has slashed 55,000 jobs in an ambitious restructuring. As the company prepares to split into two, the fruits of that effort are winning over investors who have pushed HP’s stock up 190% in the last two years — or nearly five times the Dow Jones’ rise. Throughout all of this, what HP hasn’t been portrayed as is what it was early on: an engine of innovation.

In recent months, however, new initiatives at HP have emerged to suggest that’s starting to change. In particular, HP has unveiled three innovations in printing, personal computing, and data analytics that each has the potential to influence or even reshape their respective markets. Even if that doesn’t happen, each one shows a new flair at HP to take bold new approaches in established markets.

Last month, HP announced its long-awaited entry into the 3D-printing market. While younger, smaller players like Stratasys and 3D Systems have dominated the nascent 3D-printing market early on, HP held back until it could deliver a breakthrough 3D-printing technology that could become the kind of industry standard HP has set in traditional printing. With its multi-jet fusion technology, HP seems poised to achieve just that.

Based on HP’s thermal inkjet technology – an area where HP is strong in expertise and intellectual property – multi-jet fusion promises 3D printers that offer higher resolution, lower cost and printing that the company says is 10 times faster than leading 3D printers on the market. HP’s first 3D printers will use thermoplastics, while in time HP hopes to employ metal, ceramics and other materials.

HP says it plans to make the new systems available starting next year to large and small manufacturers alike. That may seem like a late entry, but multiple analysts expect annual revenue in the 3D-printing market could rise north of $10 billion by 2020. HP says it expects its printers to be revolutionary, and some analysts agree. To persuade them, HP has a video showing how a chain link printed in less than half an hour can lift up a one-ton car.

Along with its 3D printing technology, HP also unveiled Sprout, a machine combining a PC, a projector and a 3D scanner. There’s nothing quite like Sprout on the market, and it’s hard to describe – it’s simpler just to watch a video of it – but basically the Sprout blends a tablet-like touchpad, a 14.6-megapixel camera, a projector and a scanner into a product HP calls immersive and intuitive.

Sprout is a risky product in that it sells for $1,900 at retailers like Best Buy, but it doesn’t have a pre-defined market. HP developed the idea out of an interest in bridging the physical and digital world, says spokesperson Elizabeth Pietrzak. “The target is more psychographic rather than demographic,” she says. Which means, basically, people who make things: designers, hard-core scrapbookers and school teachers, for instance.

Sprout is designed for creators who don’t have the training or the patience to use design software. HP is planning on building newer, specialized applications for markets like architectural design and health care, and it’s inviting developers to create still other applications for the platform, which HP built on Windows 8. Sprout may not end up being as disruptive as multi-jet fusion. But it shows HP is willing to innovate in areas where there is more potential than predictable outcomes – an approach that defines many startups.

Perhaps the most disruptive innovation HP is working on is something called the Machine. It’s a name at once understated and potentially pretentious, but what HP wants to do with the Machine is to create wholesale an entirely new computing architecture for the era of big data. As cloud computing and the Internet of Things demand systems that manage ever larger amounts of data, the drain on the electrical grid gets bigger.

HP’s answer is to create computing technology that can handle much more data using much less power. The Machine is being built with this goal in mind, and to reach it HP had to come up with multiple innovations: a software-defined server called Moonshot that uses 89% less energy and requires 80% less space; lasers a quarter the size of a human hair that use photonics instead of copper wires; and memristors that use ions to fuse memory and storage, making them faster and cheaper than DRAM or flash drives.

The Machine is the brainchild of HP Labs, which had earlier announced pieces of the plan, like Moonshot and memristors. In June, the company announced the Machine and discussed what may prove to be the hardest piece: an entirely new, open-source operating system. HP is also working on stripped-down versions of Linux and Android that could run the Machine on devices like smartphones.

HP expects products and services using the Machine to ship in four or five years. As with any ambitious project, the Machine faces uncertainty and questions. Will HP execute on the different pieces and integrate them into a seamless system? Will third parties embrace the Machine as a standard? Will other cash-rich tech giants build their own versions of the Machine first?

Whatever the answers to those questions, HP is showing that it’s pushing to return to its innovative roots. Earlier this month, venture capitalist Ben Horowitz talked about how big companies can innovate, arguing that the key is to have a secret insight that no one else understands, one that often comes from years of experience. HP has plenty of experience, much of it hard fought, and it’s boosted its R&D budget to 3.1% of revenue from 2.3% in 2010.

“Innovation has been a large part of our ethos over the years,” says HP’s Pietrzak. “Now we’re on a path where we can invest back in R&D.”

In Silicon Valley where young pups seem to rule, HP is an old dog, and one that has been through its share of scrapes in recent years. But it’s also showing that it can still learn some pretty intriguing tricks. And with any luck, those tricks could bring it to the forefront of tech innovation again.

TIME Executives

Dear Tech Executives: Nobody Cares if You’re ‘Thrilled’

Inside Google Inc.'s New Toronto Offices
Patrick Pichette, chief financial officer of Google. Bloomberg—Bloomberg via Getty Images

Executives have gotten too comfortable offering less than a no-comment—a comment of negative value—by telling us what they're feeling

The quarterly call that executives hold to discuss earnings is, short of face-to-face meetings, the best chance for investors to get a sense of a company’s financial health. Over and over again, the analysts on these calls focus their questions on pressing for metrics or hard numbers to gauge that health.

It’s one thing for executives to be bashful about sharing too much data that could help their competitors. It’s another for them to try and replace cold hard numbers with a completely useless commodity: a confessional on how a CEO or CFO is feeling in the moment.

Yet this is an unwelcome trend in tech earnings, where over and over tech leaders who are smart enough to know better keep repeating how thrilled they are, how excited, how they couldn’t be happier about all the boring little incremental developments that apparently please them to no end. It’s unwelcome because these calls aren’t support groups. Investors tune in to decide whether they should buy, sell or hold a company’s stock.

Take Google. On a recent earnings call, Citigroup analyst Mark May asked a reasonable question about Compute Engine, Google’s cloud services platform. “What sort of impact is that having on revenue or expenses and capex for the business?” “We’re really thrilled by the momentum,” Google CFO Patrick Pichette replied.

A no comment would have sufficed here. But Pichette offered less than a no-comment, a comment of negative value, a subjective emotion as answer to a mathematical question. It’s like ordering food at a restaurant and being served a picture of someone who just had a yummy meal. It neither nourishes nor satisfies.

And yet Pichette and Chief Business Officer Omid Kordestani went on to mention how thrilled they were about this or that (we’re thrilled to be a platform!) six more times during the call. The Oxford English Dictionary defines a thrill as “an intense emotion or excitement” that causes “a subtle nervous tremor.” The word comes from the English “thirl,” meaning to pierce something with a sharp instrument–to bore it, which is what Pichette and Kordestani were doing to their audience.

Nor were they the only corporate thrillseekers. “Overall, I’m thrilled with the progress we made across all of our initiatives,” Groupon CEO Eric Lefkofsky said on Thursday. But at least Groupon’s stock rose 25% on the evidence of that progress. So even if Lefkofsky wasn’t exactly atremble with joy over the company’s progress, the surge in value Friday of his Groupon shares surely enlivened his mood.

Not so for Mark Zuckerberg. Facebook’s shares fell 10% on warnings of slower growth and heavier spending. The normally low-key Zuckerberg had no thrills to report but he does get excited pretty easily–nine times in last week’s earnings call. Most people in the Bay Area get excited when the Giants win the World Series, but for Zuckerberg it’s a new ad platform, deep linking or “partnering with credit card companies.”

This is fine, in a nerdy way. But the point is, on Wall Street nobody cares about excitement levels, even with an influential executive like Zuckerberg. The numbers Facebook delivered meant everything in the selloff. The emotional state over at Hacker Way meant nothing. So why do executives even bother?

Sometimes the hyperbole defies common sense, as when Greg Blatt, chairman of IAC’s Match Group, which owns OKCupid and Tinder, explained that Tinder isn’t being monetized right now but that he “couldn’t be happier.” But wouldn’t surging revenue and profits from the popular Tinder app make him happier? Because it would probably make investors in IAC feel better.

Perhaps the king of earnings hyperbole is Apple’s Tim Cook. Which seems strange because Cook gives off this constant Zen vibe. “It’s just absolutely stunning,” Cook said about Mac sales to a group of investors who were completely not stunned. Later, Cook added, “I could not be more excited about the road ahead in fiscal 2015.”

At one point in last week’s call, Cook said he “couldn’t be happier” about Apple’s ability to supply its new iPhone lines. Then, only a few seconds later, he said he “couldn’t be happier with the way demand looks.” Which is either a direct contradiction or a crazy business koan that, once cracked, will yield immediate enlightenment.

The effect of such relentless hyperbole is that, when companies do have good news to be excited about, investors just dismiss it as more hollow rhetoric. Instead, it’s the immediate, often knee-jerk reaction to the stock price that sets the consensus on how well or poorly a company is performing financially. The thicker the happy feelings are layered on, the more they are distrusted as more corporate spin.

Of course, such grandiose language is also to be found outside of the tech industry. Starbucks CEO Howard Schultz on Friday said he was “beyond thrilled” to be announcing—not blowout profits or guidance surpassing Wall Street’s hopes—but a new roastery Starbucks is opening in December.

Maybe Schultz is on to something. Taking his words “beyond thrilled” at face value could be good advice for overexcited executives in general: Hurry up and get past your declarations thrills/excitements/pleasures. Because the rest of the market is already well beyond caring about them.

And while you’re at it, more numbers would be helpful.

TIME technology

7 Ways Satya Nadella’s Microsoft Is Completely Transformed

Microsoft Corp Chief Executive Officer Satya NadellaSpeaks At Company Event
Satya Nadella, chief executive officer of Microsoft Bloomberg—Bloomberg via Getty Images

It’s not even nine months into the Satya Nadella era of Microsoft and the new CEO is making his mark. Notably, his Microsoft is smaller after completing this week most of the 18,000 job cuts he announced in July. Whether Nadella’s plans for Microsoft succeed, it’s clear the company is dramatically different from the Microsoft that ruled the technology industry in the 80s and 90s. The Microsoft that Nadella leads has strayed so far from its original incarnation that it seems in some ways to have become nearly its opposite. Here are seven examples of how today’s Microsoft is different from the juggernaut Bill Gates built.

1. Microsoft has a kinder, gentler CEO. Bill Gates frequently hurled verbal abuse at employees and was coldblooded about deploying predatory practices against competitors. Steve Ballmer had a reputation for hurling chairs and inspiring the rank and file in manic, sweat-soaked diatribes. Both heightened Microsoft’s image as a hard-charging software giant.

Nadella is cut from a different cloth entirely. Yes, his mansplaining about salaries revealed an ability to insert his foot in his mouth, but most accounts of his temperament describe a low-key and humble personality at odds with those of his predecessors. He communicates not in fist-pumping speeches but lengthy memos on strategy.

2. The tables have turned in the Microsoft-Apple rivalry. For decades, Apple had but a sliver of the market share for personal computers. In 2014, Apple is not onlyshipping more personal computers – counting the ones that fit in our pockets – it’s making much more money from them. Apple made $156 billion in revenue from iPhones, iPads and Macs in the last year. And Microsoft? Between Windows and Office software, Nokia phones and Surface tablets, it saw about $23 billion in revenue.

3. Microsoft isn’t a monopoly, but it competes with some. Gates never got the stranglehold he wanted on the Web, thanks to antitrust lawsuits and the Internet’s decentralized structure. And today, Microsoft is just one more company fighting for turf in a variety of markets: enterprise software, game consoles, search and, yes, personal computers.

And anyway, monopolies in the Internet era aren’t quite what they used to be. Yes, Amazon is bullying publishers but it’s pushing prices down, not up. Yes, Google dominates in search but it costs consumers nothing to find a perfectly good alternative like Bing. Neither of those companies is exactly stifling innovation but rather investing heavily in new technologies.

4. Microsoft isn’t really a Windows-driven company. And not just because PC sales have been declining for years. It’s more because Microsoft under Ballmer expanded into gaming and enterprise software markets. Under Nadella, these are becoming an even bigger part of the business. Enterprise offerings like server and storage software, cloud computing and consulting services made up 53% of revenue last quarter. Xbox made up 7%. Windows and Office were only 18%.

5. Microsoft has stopped worrying and learned to love open. Or at least it’s trying. Where Ballmer called the Linux open-source operating system a “malignant cancer,” Nadella proclaims, “Microsoft loves Linux.” All along, Nadella has said Microsoft needs to develop its own platform while playing well with others. Thefitness tracker Microsoft announced Thursday works with Windows as well as Android and iOS phones. Its Office programs work on those platforms too, even though that approach is leaving Microsoft vulnerable to upstarts.

6. It’s not exactly a growth company anymore. In the mid-90s, Microsoft’s revenue was growing by nearly 40% a year. It’s risen an average of 8.5% a year over the past two years, although that pace could increase this year under Nadella. Wall Street demands from Microsoft the kinds of hefty payouts older, slow-growth companies offer: Last year, Microsoft spent $4.9 billion on buybacks and $9.3 billion on dividends. Taken together, that’s more than Microsoft spend on R&D.

7. But it’s slowly gaining cachet among young geeks. A generation of software engineers grew up in the 80s and 90s loathing Microsoft – calling it evil, the Borg, or worse. But for those who came to know Microsoft not through Windows but the Xbox console and Halo franchise, the feelings range from indifferent to positive.

The $2.5 billion purchase of Mojang may or may not make Microsoft a cool brand. But it will wash away the hostility that the Microsoft brand inspired only a dozen years ago. Most kids who love Minecraft seem to think of Microsoft as a big corporation that won’t hurt and might even help Minecraft develop. That generational shift in sentiment may be the most dramatic evidence of how Microsoft has changed.

TIME Companies

Here’s Why Netflix Can Shrug Off its Stock Plunge

US Online Streaming Giant Netflix : Illustration
In this photo illustration the Netflix logo is seen on September 19, 2014 in Paris, France. Netflix September 15 launched service in France, the first of six European countries planned in the coming months. Pascal Le Segretain—Getty Images

Netflix is hanging on tight to its core mission

It’s not every day that a brand-name stock loses a quarter of its value in a matter of minutes, as Netflix did after reporting its financial earnings Wednesday. It’s even rarer when executives respond as if it’s no big thing.

After Wednesday’s stock market close, Netflix reported a net profit that exceeded Wall Street’s expectations. So far so good. But Netflix’s success hinges on whether it can keep signing up new subscribers, and it’s here where the company came up short: The company added 3 million net subscribers around the world after publicly predicting it would add 3.7 million.

Investors read those numbers and started running for the hills. It took about 30 minutes for Netflix’s stock price to fall by more than $120 a share. After the plunge, the company was more philosophical than apologetic. “Our internal forecast . . . will be high some of the time and low other times,” CEO Reed Hastings shrugged in a letter to shareholders. Later, on a Google Hangout with select analysts, he was just as Zen-like, saying he expected to miss subscriber estimates “frequently.”

There are a few reasons why Hastings can get away with this attitude without investors calling for his head. Wednesday’s stock market was a tumultuous one in general, seeing the Dow close down 173 points after a 458-point drop at its worst. And amid lingering concerns that tech valuations in general were too high, many investors were ready to sell any stock on bad news.

On top of that, Netflix has long been a favorite of speculators, who have made it one of the most consistently volatile issues in the tech sector for the past decade. This has long been a headache for Hastings, who’s complained before about “momentum investor-fueled euphoria.” Such euphoria usually ends in nasty hangovers, like the 80% plunge in Netflix’s stock price after it raised prices in 2011. What Netflix is seeing today is another bender coming to an end, one Hastings predicted a year ago.

The main reason Netflix is shrugging off the current decline is that the company has always hewed, come what may, to a single strategy of finding a more efficient way to distribute video content. That tactic, which has always worked out in the long run, is the classic distrupt-the-incumbent model. And in the world of video content, no one has done this better, and more consistently, than Netflix.

The creation myth of Netflix says that Hastings founded the company after racking up $40 in video rental late fees. As DVDs emerged, Hastings started delivering them by mail, precipitating the slow but sure extinction of video-store giants like Blockbuster. As bandwidth improved, Netflix switched to an even more efficient way to deliver movies: by streaming them online. Today, 87% of Netflix revenue comes from streaming movies and TV shows. Netflix has effectively disrupted its own founding business model. Netflix wasted no time disrupting its founding business model, splitting off its DVD-by-mail business into an ill-fated venture called Qwikster. Today, Quikster is an unsightly footnote in the company’s history, and 87% of Netflix revenue comes from streaming movies and TV shows.

More recently, Netflix has begun to bump up against the cable companies that are so loathed by consumers by pushing more into TV programming, notably several of its own series. In a victory for cord-cutters, Time Warner said Wednesday it would offer HBO as a standalone online service starting next year. That will provide Netflix a strong competitor, but it’s likely to do more damage to the cable providers in the long run. In effect, HBO is hedging its future by adapting to the model Netflix pioneered. CBS followed suit Thursday with its own launch of an on-demand subscription service for its programs.

Now Netflix is moving into a new area by producing its own original films, reasoning that it’s often cheaper than entering into bidding wars for titles every several years. This is likely to work with “branded” films, like a sequel to Crouching Tiger Hidden Dragon and a series of Adam Sandler vehicles (Netflix says data shows Sandler’s comedy translates well in global markets like Brazil and Germany — who knew?).
This latest move is angering movie theater chain owners, mostly because their own aged business model has turned into another unpleasant experience for consumers. Moviegoing often involves paying upward of $15 a ticket to endure a gauntlet of pre-film commercials and obscenely overpriced popcorn. Another recent technological development, the rise of affordable, high-def home entertainment systems, is making it easier to bypass that experience. And Netflix is now working to speed up the time it takes for new movies to reach home theaters.

All this is costing Netflix a lot of money. Streaming content obligations rose to $8.9 billion from $7.7 billion in the last three months alone. Netflix is warning that these obligations will weigh down cash flows for years. This is risky, because the new content costs may not translate into enough new subscribers. And that’s why investors freaked out about the low subscriber figures this quarter. Netflix keeps building more content, but what if subscribers don’t come?

Right now, Netflix is shrugging in the face of all this fretting. Investors also worried two years ago, when the company’s overseas operations were losing $400 million a year. This year, Netflix’ international subscriptions are close to breaking even. Most of all, the company has learned to ignore speculators and naysayers as it pursues its core strategy of finding better ways to bring quality video content to consumers. Producing movies may sound like a new and risky area to move into, but as Netflix sees it, it’s the same old business model that’s worked so well in the past.

TIME Silicon Valley

In Silicon Valley, You Can Forget Aging Gracefully

HP CEO Meg Whitman Visits China
ChinaFotoPress—ChinaFotoPress via Getty Images

Getting old isn't easy, especially in tech

Nature abhors the old, Emerson said. In 2014, we can add: so do technology investors. Because in the tech sector, where innovation and growth are worshipped and rewarded with obscene valuations, the esteemed companies that helped establish Silicon Valley and shape the Internet are not being allowed to age gracefully.

HP is breaking into two, despite years of its CEO saying this wouldn’t happen. eBay’s spinning off PayPal, after its CEO insisted this made no sense. Both companies knuckled under shareholder pressure. Now Yahoo is facing pressure to cash out of Alibaba and merge with AOL. That follows Dell going private and IBM ditching its low-end servers. There are even investor rumblings that Microsoft would be better broken into pieces.

Spinoffs, breakups, LBOs and shotgun marriages aren’t uncommon among aging, troubled companies. But the wave of events hitting companies once considered blue-chip tech firms is unprecedented. Only a decade ago, most of these companies were at the top of their games. Even today, many are so profitable they annually pay out billions, if not tens of billions, to shareholders through dividends and buybacks. And while many of these companies have been undervalued by investors for years, they are now being treated as if they are entering a period of advanced decay.

In sectors like utilities or retail, slow growth is tolerated as long as a healthy profit margin is maintained. But in tech, profits aren’t enough without growth. And there is plenty of growth among the younger generation of tech giants like Google, Facebook, and LinkedIn. The gap between long-in-the-tooth tech giants and lithe, growing companies is getting wider by the year. While the latter are driven by innovation the former are pushed around by shareholder demands.

Tech investors have always been growth-oriented, but now it’s becoming an obsession. And why not? As the network effects long promised in the early years of the Internet finally kick in, growth at a successful startup can mushroom from seed round into large cap in a few years. Airbnb, Uber and WhatsApp were all founded about five years ago and today are valued at $10 billion, $18 billion and $22 billion, respectively.

Often, the new generation of successful startups push to stay out of public markets as long as possible to avoid the public scrutiny, quarterly earnings parades and exposure to shareholder activists that are plaguing the likes of HP, eBay and Yahoo. The world of secondary markets and venture investing have evolved to accommodate them, allowing institutional investors who can afford substantial stakes to become investors while the startups remain private.

Yet there’s a cautionary lesson here that startup founders should consider: The same forces that are accelerating tech growth curves are also accelerating the time to maturity. Grow big enough and companies will need to draw on public markets for financing. To meet quarterly targets, they need to maintain billion-dollar businesses even when they stop growing. That limits the ability to find new, financially risky areas of innovation. Soon enough, dividend and buyback programs are rolled out to placate antsy investors. That, as we are seeing this year, only placates them for so long.

No one is demanding a dividend from Google, or calling for Facebook to spin off Instagram. Both are delivering growth that often surpasses investor expectations and rewarded with rising stock prices. Others like Netflix and Amazon are getting a pass by investing profits into future growth. But as much as HP talks about, say, developing a mass-market 3D printer, investors only look with disappointment at the slow-growth business of PCs and IT services.

There are a few companies founded before the dot-com boom, notably Apple and Amazon, that have so far been able to buck the trend. But they may not be able to stay ahead of the curve for long. The campaign to pressure Apple for more dividends has halted because Tim Cook keeps promising new product categories like the Apple Watch. Amazon has lost nearly a quarter of its value in the last nine months amid concerns its spending is outpacing its promised growth.

For now, Apple and Amazon are anomalies among companies more than 20 years old that are promising more growth in coming years. That’s leaving their CEOs independent enough to pursue blue-sky innovations. But age catches up to all companies. And these days, companies in the tech sector are growing old faster than ever.

TIME technology

This Is GoPro’s Plan to Continue Conquering the World

GoPro goes public on Wall Street
GoPro's CEO Nick Woodman holds a GoPro camera in his mouth as he celebrates his company's IPO at the Nasdaq MarketSite in New York, June 26, 2014. Seth Wenig—AP

IPOs can not only provide startups with new capital, they can also offer a lot of free publicity, especially when the company has a product beloved by its users, a charismatic founder and a backstory of entrepreneurial grit. In that sense, GoPro’s IPO has been nothing short of a boon for the company.

In a year that has seen the allure of the IPO market fizzle early on, GoPro is just the poster child Wall Street needs to reignite interest in new offerings. The company was founded in 2002 by Nick Woodman, the son of an investment banker who saw a need for a portable, durable, and affordable camera to capture surfing footage.

As GoPro’s cameras grew smaller and capable of higher-def video, word of mouth spread quickly. GoPro became the high-definition action camera of choice for sports enthusiasts who shared their filmed exploits through social media. That word of mouth pushed GoPro’s share of the US camcorder market to 45% last year from 11% two years earlier. Revenue grew 87% in 2013 to just shy of $1 billion.

That success explains GoPro’s initial rise in the wake of its IPO. GoPro went public in late June at $24 a share, rose 31% on its first day alone and within its first week had more than doubled its offering price. It was just the spark that the sluggish IPO market needed going into the summer, and GoPro bulls argued that the initial surge was justifiable.

The bull case went something like this: GoPro represents the rise of a new consumer gadget brand. Sure, it competed with hoary old camera companies like Canon, Nikon and Polaroid. But it had a shiny, 21st Century feel to it, the way Sonos does and Panasonic doesn’t, or the way Nest does and a General Electric thermostat does not. GoPro was emblematic of a new breed of consumer electronics.

The early rally soon drew the attention of bears, who felt the post-IPO surge in GoPro’s stock was speculative, leaving it at an overvalued price. Even now, the stock trades at nearly 10 times its 2013 revenue and 100 times its net income.

Such a rich valuation overlooks the uncertainties in GoPro’s future. As impressive as the company’s growth in camcorder market share has been, it won’t be long before it starts to reach saturation. At the same time, such rapid success tends to draw emulators. And struggling companies like Olympus and Canon have resources to develop and market similar cameras.

An even bigger threat may come from the wearable cameras being developed by Apple, Google and others. Early videos promoting Google Glass revealed an even more portable video camera, one that is likely to drop in price once it reaches the mainstream market. For many amateur videographers, the increasingly high-definition cameras included in smartphones may also make a GoPro seem obsolete in time.

To counter these competitive threats, GoPro is working to expand internationally, innovate new features in its cameras and promote the GoPro brand as a source of original and user-generated content. The push from gadgets to media is a logical one, but it also highlights some of the barriers the company faces in finding future growth.

GoPro’s prospectus says it’s investing in video programming for partner platforms such as Virgin America and Xbox Live. While welcome partners, these platforms aren’t nearly as big as, say, YouTube. The GoPro channel on YouTube has a little more than 2 million subscribers. Not bad, but also not nearly enough to put it in the top 100.

The biggest benefit of more visible GoPro content may not be to generate media revenue but to market GoPro cameras. The company says it plans to build new marketing relationships, increase its presence inside stores and spend more on advertising – initiatives that may need to draw on the proceeds raised in its IPO. However, the bulk of those proceeds went to pay off loans and pay out insiders. And the increased spending is likely to weigh down margins even as the company’s revenue growth slows.

Such concerns have weighed on the stock in the past two weeks. After reaching a peak of $49.90 on July 1, the stock has since fallen 22%. The initial surge created a demand for GoPro shares available for borrowing by short sellers. Right as GoPro shares peaked, an analyst noted that “borrowers are snapping up all the available GoPro shares they can, and are willing to pay a high price to do so.”

Another analyst at Vertical Group issued a sell rating on GoPro an a price target of $28.50 last Thursday, citing a media strategy that was “fraught with risk” and a “still-questionable competitive moat.” Since that report, GoPro’s stock has fallen 10%. On Friday alone, GoPro fell 7.3%.

The shift in momentum in GoPro’s trading away from the bulls and in favor of the bears doesn’t mean the company won’t have a bright future ahead of it. But it’s a caution for investors hoping to buy the stock of a well-known consumer brand right after its IPO. GoPro needs to show it can fend off competitors and produce a viable media strategy before it can come close to earning its post-IPO price.

TIME technology

The Days of the Chief Executive Bro Are Numbered

Evan Spiegel
Snapchat CEO Evan Spiegel poses for photos, in Los Angeles, Oct. 24, 2013. Jae C. Hong—AP

Skipper: Now, aren’t you all ashamed of yourselves?
Thurston Howell III: I’m ashamed we got caught.
-Gilligan’s Island

It’s not a bad gig, being a CEO. Not only is the mean compensation 257 times that of the average worker, you often get a carte-blanche license to be a jerk. Jeff Bezos can verbally abuse workers with an inane insult like, “I’m sorry, did I take my stupid pills today?” and be hailed as the best CEO in tech. Because the CEO he stole that mantle from, Steve Jobs, took executive assholery to a whole new level.

Still, there are exceptions to that carte-blanche rule. Jerk behavior takes on a toxic quality when the insults involve pernicious social problems, like sexism in the tech industry which has been there all along, yet is growing more visible—and therefore more opprobrious—by the week.

And the past week has been a banner one for what we have come to call brogrammers. A co-founder of RapGenius resigned after being blasted for exceptionally tasteless comments on his own site. Uber’s CEO saying that his luck with the “ladies” was pretty great now that his company was successful. The latest example is Snapchat CEO Evan Spiegel, whom TechCrunch declared in a headline was “kind of an ass.” Spiegel’s leaked Stanford emails said over and over again things that, when the rest of us rewind to our college days, recall people we met and never wanted to deal with again. Now here they’ve gone and created the apps we’re stuck with using.

Spiegel sent out an attorney-masticated apology saying he’s “embarrassed that my idiotic emails during my fraternity days were made public.” Like Thurston Howell, he’s sorry he got caught. It’s not really an apology, but at least there’s a modicum of honesty in it.

Mark Zuckerberg’s undergrad IM’s, scorning the “dumb” users of Facebook’s prototype, presaged the privacy policies of his $164 billion company today. Similarly, Spiegel’s company Snapchat seems to realize an adult fantasy of erasing for good all the stupid things he ever said in his emails five years ago.

Nevermind for a minute all the talk about brogramming, this is what’s important here–trying to erase what can’t be erased. Reed Hastings founded Netflix (apocryphally) after returning a late DVD. Zuckerberg wants (spuriously) to connect the world. Spiegel, it seems, wanted to let people erase the present because it can bite your future in the butt once it becomes the past.

That makes Snapchat an app tailor-made for CEOs, not just in tech but in most other industries. The abhorrent comments leaking out are things that have been said among men in business–and frats, the preschools of business-for decades. His emails are written in the argot of the old-boys club. Except that men on Wall Street are better at keeping it, and men in the chemical or automative industries don’t have to worry about their stupid comments leaking out to the media, because nobody pays attention to the chemical or automotive industries.

In the Internet industry, they have to worry. Because Internet startups like Snapchat and Uber are attracting the spotlight of not just the tech media, but of the mainstream media. And because, as much as companies like Google try to position themselves as companies of the future, they are very much backward looking when it comes to parity. Google said this week only 17% of its technical employees are women.

That’s the thing about brogrammers. The Spiegels et al are just the uglier edge of a broader, shrewder and much quieter culture of sexism in Silicon Valley. Forget the rhetoric about how tech is forward-thinking. It’s no different from any older industry where bias has been there all along. What matters is this: The Internet apps and technologies these educated dolts are helping to create are not only exposing their secret thoughts, they are also creating a platform for others to criticize them en masse.

CEO’s will always be jerks, maybe well paid for their peculiar dysfunctions. And we’re not even close to seeing the end of executives, tech or otherwise, saying sexist stupidities and being publicly shamed for them. It’s not that there are suddenly more sexist CEOs, it’s that they’re being hoisted more often by their own petards. That will make for headlines of CEO’s being caught saying stupid things, but the more it happens, the better it is in the long run. Because it means the days of the Chief Executive Bro are numbered.

TIME technology

Meg Whitman Has the Hardest Job in Silicon Valley

Technology Business Leaders Address Salesforce Conference
Justin Sullivan—Getty Images

See correction below.

Meg Whitman has vowed to turn around HP, a task that many thought impossible in her early years at the company. Judging from the company’s stock performance over the past year, she may finally be gaining ground but it could come at a cost. In slashing costs to fix HP, is Whitman slashing too aggressively?

In October 2011, a month after Whitman took over, HP employed 350,000 people. That wasn’t as big as IBM, which employed 431,000 at the time, but it’s vastly larger than most of the startups that are having a big impact on the tech innovation these days. (WhatsApp, to offer an extreme example, had 35 employees when Facebook bought it.)

The following spring HP announced it would lay off 27,000 employees through the end of 2014. By fall, headcount had fallen to 318,000 and HP upped the number of layoffs to 34,000 jobs – equal to about a tenth of its peak employment. To manage that, HP said it would take $4.1 billion in charges related to the layoffs, a figure that exceeds its annual budget for R&D spending by a good margin.

When HP reported its earnings last week, the company said it would cut as many as another 16,000 jobs. Many of those positions are expected to come from declining businesses like personal computers, traditional printers and enterprise services, areas that all declined in 2013.

The idea, in theory at least, is to reduce spending enough to generate more corporate cash that can be invested in new innovations like tablets, cloud computing or 3D printers. But more often these savings go into the stock buybacks and dividends that placate antsy investors. HP’s board allocated $10 billion worth of stock to be repurchased in 2011, and the company still has $7 billion to spend.

The broader issue facing HP and others is that big tech is very often old tech. Companies that have grown successful in the past decade years are less dependent on hardware manufacturing and are able to benefit from technological efficiencies. As a result, Google can boast revenue per employee of $1.3 million while Facebook’s sees $1.2 million per worker. HP’s revenue per employee is $354,000.

So even while the tech industry is growing in revenue, it’s not really growing as a source of jobs. Technology jobs grew through the 1980s and 1990s but have declined in Silicon Valley and the US during the past decade. In 2000, technology accounted for 5% of jobs in California, but that ratio has since settled down to around 4.3%, even as the share of technology companies contribute to California’s economy has remained stable.

The layoffs are helping HP’s performance in the short run. HP’s stock rose as high as $34.09 on Friday on the news that Whitman was axing even more positions. That price marks a 175% increase since November 2012, when HP’s stock hit a decade low. The last time HP’s stock traded above $34 a share was in August 2011, a month before Meg Whitman was named CEO.

Whitman was left with a difficult hand to play. A series of scandals and a longer series of ill-advised and costly acquisitions by her predecessors, coupled with a decline in PC sales left the company in a tough spot. Layoffs were widely expected to be part of the process of stabilizing HP, but they come with a catch: Cut too many employees and you weaken the company’s ability into the kind of growth investors are demanding.

In words that must sound callous to departing HP employees, Whitman declared her willingness to cut more jobs if things don’t turn around soon. “Listen, I’m not at all disappointed. I think it’s the natural course of what makes sense in a turnaround of this size and scale,” Whitman said on a conference call with analysts last week. “HP must be manically focused on continuous improvement in our cost structure.”

Some on Wall Street, mindful that endless rounds of layoffs can both help and harm, doubted whether HP’s newfound mania was a good thing. “Serial restructuring cannot solve HP’s secular challenges, particularly following years of underinvestment,” wrote Goldman Sachs analyst Bill Shope in a research note. Kubinder Garcha of Credit Suisse wondered if the restructuring charges, now estimated at $4.9 billion, would undo any cost-savings benefit. “HP is turning into a perennial restructuring story,” Garcha said.

Neither is HP’s maniacal focus on cutting jobs certain to position it against an ever competitive market for enterprise IT. While HP is defensively cutting costs, companies at the high-end are investing in improving their strengths, while those on the low end, including Asian companies like Lenovo, are growing by aggressive pricing.

HP may be, as Whitman says, “making us a more nimble and decisive company” and putting it back on a track to revive revenue growth. But it’s also true that the slashing jobs, while pleasing to investors in the short term, maybe hobbling the HP’s ability to become, in the longer run, a company that can keep growing in the growth-driven tech industry.

Correction: A previous version of this story mistakenly identified WhatsApp as another company.

TIME mergers

AT&T’s $50 Billion DirecTV Buy Is Risky, Probably Not Great for You

The telecom giant will pay $48.5 billion in stock and cash as it looks to keep up with rival Comcast, but it's a risky deal that may not benefit consumers

I’m as guilty as anyone: Readers of business news hunger for big numbers. The bigger, the better. On that front, the $48.5 billion that AT&T said Sunday it will pay to buy DirecTV did not disappoint. Eat your heart out, Mark Zuckerberg.

In its announcement of the deal, AT&T threw out even more mega numbers. Toss in DirecTV’s net debt and the deal’s value rises to $67.1 billion. The combined company will have 26 million customers in the US and 18 million in the growing market of Latin America. AT&T even said it expects “cost synergies to exceed $1.6 billion on an annual run rate basis by year three”—whatever that means, but it has a ten-digit number in it, so it sounds impressive.

But there’s something about AT&T’s big numbers that grow stale quickly. The problem with big spending is, if you don’t put it toward something worthwhile, it’s just a waste. Time’s Sam Gustin noted on Twitter that the sum AT&T is spending on DirecTV could deploy a hell of a lot of gigabit-fiber service to homes that want it. Instead, it’s going to buy one more aging incumbent in the fast-changing TV market.

So once the transitory buzz of the large numbers ebbs, the strategy behind the deal will start to be scrutinized a bit more. And so far, the strategy seems to be: Well, Comcast has gotten big, so AT&T needs to get bigger too. This isn’t AT&T’s only recent big-ticket bid. In 2011, the company tried to buy T-Mobile USA from Deutsche Telekom for $39 billion, but that deal fell through after the Justice Department intervened.

Why is AT&T so keen to buy its way into growth? Because no matter how much blood the company tries to squeeze from its customers, the stock can’t break out of the flatline it’s been in for a while. As this graph shows, AT&T’s stock has risen less than 10% in the past two years. The S&P 500, during the same period, has risen more than four times as much.

Screen Shot 2014-05-18 at 7.20.45 PM

Some people have taken a look at the strategy behind the DirecTV purchase and not been kind in their conclusions. When rumors surfaced last week of a possible acquisition, analyst Craig Moffett suggested that the acquisition could be a distraction from an inevitable decline in AT&T’s growth. “When DirecTV begins to shrink, then the price paid will no longer matter,” Moffett wrote. “It will merely be another liability that AT&T will need to offset by growth somewhere else.”

Aging companies often make big acquisitions when facing a decline in their own businesses. In the best case scenario, the acquired company is snapped up at a discount and revives overall growth for years to come. More commonly, the big buyouts are merely attempts to buy time. Integrating incompatible operations for a couple of years, and providing excuses for large-scale layoffs. The smoke and mirrors works only for so long. Then another expensive deal is required to keep the ruse going.

The DirecTV deal is looking like it will fall into the latter camp–an expensive gambit that may at best offer growth and cost-savings in the short-term. Pay-TV has an uncertain future in an era where over-the-top offerings like Netflix and video consumption on mobile devices are seeing much stronger growth. DirecTV’s stock has quadrupled in the past five years, but there’s little reason to think growth will continue at anything close to that rate.

Moffett, who was a top-ranked analyst at Sanford C Bernstein & Co. before setting up his own research firm, put it more severely. “Like skid row junkies in the final wretched tremens of downward spiral, telecom/cable/satellite investors now appear to need a deal fix almost daily to stave off the messy crisis of incontinence that comes with the inevitable withdrawal.”

Other analysts speculated about AT&T’s motives for the deal, but few of them shared the sunny interpretations of the acquirer. The timing, coming after Comcast’s plans to buy Time Warner Cable, could be an attempt to piggyback on another telecom deal, one likely to win regulator approval. Or maybe Comcast sparked a merger mania in the telecom industry, with DirecTV the first to be snapped up. Sprint may be prompted to buy T-Mobile. Dish Network could also be in play soon.

In other words, no matter how you slice it, this deal has little to do with helping the consumer. Yet in announcing the deal, AT&T referred to the consumers who are its customers (19 times) nearly twice as often as it did its shareholders (10 times).

So far, the consensus is that DirecTV is unlikely to draw the regulatory criticism that T-Mobile did for AT&T. But AT&T isn’t taking any chances. The company took a $4 billion writedown after the T-Mobile deal fell through, most of it related to breakup fees. AT&T made clear today it wouldn’t pay a fee to DirecTV should regulators foil the deal this time.

That’s good for AT&T, but it adds an air of desperation to DirecTV. Another sign DirecTV wanted to sell quickly: Rumors of the deal last week put the price at $100 a share, but the actual deal is only $95 a share. DirecTV’s stock only rose as high as $86.90 on the $100-per-share rumor, reflecting the Street’s skepticism on the price. Some of that skepticism, it seems, was warranted.

For consumers, the bigger question is, when will these telecom mega-mergers end? Benefits from mergers are usually passed on to shareholders in the form of share repurchases or higher dividends. They rarely benefit customers—in fact, reduced competition in telecom has historically meant higher fees.

That’s why consumers should be wary of these big-ticket mergers. Don’t be too dazzled by the big, flashing numbers of the headlines. The more and the merrier the mergers grow, the more the consumer becomes an afterthought.

TIME Technology & Media

Microsoft’s Brand New CEO Needs to Do Much More

Satya Nadella
Microsoft CEO Satya Nadella speaks at the Build conference on April 2, 2014 Harry McCracken / TIME

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This post is in partnership with Fortune, which offers the latest business and finance news. Read the article below originally published at Fortune.com.

How does a CEO grab attention when he’s the follow-up act to a brash, voluble leader like Steve Ballmer? For Satya Nadella, who hardly seems prone to the same kind of sweat-soaked stage performance of his predecessor, the answer lay in a bold strategic gesture: Get Microsoft Office onto the iPad.

Office, of course, had long been Microsoft’s great cash cow fenced off from the green pastures of the tablet market. Some believed it was the reason Microsoft started making Surface tablets after decades of not manufacturing personal computing devices. That expensive experiment hasn’t exactly delivered a hit. Surface sales are growing, but its 2% market share lags those of Samsung, Amazon’s Kindle Fire, and of course the iPad.

With Nadella taking the reins from Ballmer, Microsoft has the chance to begin a new era — distinct from the Ballmer years that saw modest growth and a move into enterprise software, and even more remote from the Gates years when Microsoft ruled PC software with an iron fist. Nadella’s Microsoft appears to be a company that aims to compete in markets rather than control them.

MORE: Nadella: Microsoft needs a ‘data culture’

Nadella’s experience is aligned with the same technologies that promise future growth — cloud computing, multi-platforms, mobility, big data — the antithesis of the proprietary software that Microsoft built its historical success on. That’s why the Office 365 for iPad announcement was notable. It wasn’t so much two longtime enemies sharing revenue. It was Microsoft risking its own mobile platform by expanding to another, bigger platform. It was a Microsoft open like never before.

The announcement was also Nadella’s first big public appearance, a product launch cum CEO debut. The move was a risky one: It could telegraph that Microsoft was capitulating to Apple, running its prized wares on its old rival’s device while paying a 30% share of revenue for the privilege. Increasingly, Nadella is instead being seen as a leader who can finally usher the company out of the PC era and into the cloud economy.

Last month, when Microsoft announced that Office apps would be available for the iPad, the news stirred a ripple of notice. Analysis was mixed. The New York Times wondered if it wasn’t the right move too late. Techcrunch found it to be worth the wait. Someone at Forbesdismissed it as a non-game changer.

After a few weeks in the App Store, Office for iPad is proving the early skeptics wrong. More than 12 million people downloaded Office Apps in the first week. Today, Word, Excel, and Powerpoint are the three most popular free apps in the iPad App Store (excluding games, which shows that tablets may be better for idleness than productivity). The basic apps are free for bare-bones functionality, but a subscription to Office 365 opens up more features.

For investors, the arrival of Office for iPad is unlikely to translate into material earnings, at least any time soon. It may open Microsoft to businesses that prefer tablets over traditional PCs, but it could also cannibalize the company’s older, high-margin markets. Desktop and laptop sales have been declining since the iPad’s introduction, although recent months have shown signs those declines are stabilizing.

MORE: For Microsoft’s Nadella, signs of leadership potential

If the move has little short-term benefit for Microsoft, its symbolic value is higher. CEOs of prominent companies like Microsoft often set the tone of a company, and in some ways Microsoft now appears to have lost the cloud hanging over it when Ballmer was there. Ballmer, of course, also worked to push Microsoft into a more open direction, but somehow Nadella’s presence makes it seem like it may finally be happening.

Office, of course, is only one part of Microsoft’s business. It’s the prime contributor to the company’s business division, along with Sharepoint and Exchange. That division makes up a third of Microsoft’s revenue and three-fifths of its operating income. But growth in the division has been flat — revenue rose only 2.5% in Microsoft’s last fiscal year (ended June 2013) and declined 6% in the last six months of 2013.

Microsoft is seeing faster revenue growth in its server and online services divisions, although these segments have much lower margins. (The online division has been a perennial money loser.) So while the Office move is seen as a symbolic victory for Nadella’s Microsoft, the company is still weighed down by many of the same old issues: an enterprise software market and the aging business in PC operating software.

Office for iPad is a strong start to Nadella’s follow-up act to Ballmer. But it will need to be followed by a lot more creative, bold moves to change Microsoft into the dynamic, future-oriented company that investors are hoping it can become.

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