Three Companies to Watch

I can’t say that any of these picks are surprising.

After poring over the Silicon Valley 150 list, there are several candidates. But I think there are three companies that are in particular peril heading into 2009 — Advanced Micro Devices, Sun Microsystems and Palm.

[From O’Brien: The three valley companies most vulnerable in 2009 – San Jose Mercury News]

I decided to look at this from the other direction, pick 3 companies that should weather the economic turmoil and do well. I’m limiting my selections to publicly traded companies and trying to avoid being obvious by picking something like Apple or Google.

1) Netflix: Solid management team and little in the way of serious competitive threats, Netflix is looking forward with a downloadable service that gets high marks and a pricing plan that is appealing. Their balance sheet is moderately strong, with the only caution flag being their cash fluctuates dramatically quarter-over-quarter. What is most in their favor in my analysis? Affordable entertainment that will be a firewall for most families… things will have be pretty bad before broad cross sections of the market find it necessary to cancel their $17 a month 3 DVD Netflix account. Potential weaknesses are a dependence on managing customer churn and physical infrastructure costs. Analysts have recently cut their ratings but that’s on valuation concerns following a rally on the stock, rather than operational issues.

2) eBay: This one takes a little explanation to frame it properly. First and foremost, if eBay does nothing different they will be in for a very rough year ahead, but if they kill that asinine price increase and make amends with their power sellers, they could turn things around. This is a company that should thrive in a down economy and with their stock having been hammered for the last 6 months it should be a bright spot to focus on. eBay has done so much wrong over the last year that I’m willing to bet they finally do something right and their market and brand position are strong enough to provide a good bounce back.

3) Oracle: Ellison gets a lot of credit for calling a big shift in the enterprise software market 3 years before his competitors figured out what was going on, even more so for staking $35 billion to executing on the strategy. Oracle has all of the parts that enterprise IT runs on, and while companies may slow down their IT expenditures they will not stop cold and just like those big oil tankers out at sea… they take a long time to come to a stop. Oracle’s maintenance revenue stream alone ensures healthy cash flow for years to come. Two areas that may come to flank them, the first being a good amount of debt on their balance sheet that will require servicing and probably has some significant covenants that will dictate a precise level of performance the company has to achieve. Secondly, software as a service and cloud computing are not their strong suites and the culture shift is daunting.

Microsoft launches its alternative to Amazon’s SimpleDB

It was long thought that open source would represent the biggest challenge to traditional database vendors, but fast forward to today and the law of orthogonal technology innovation kicks into high gear as hosted databases go from a “wouldn’t that be pretty cool” to very real offerings.

Microsoft has begun signing up testers for SQL Server Data Services (SSDS), a forthcoming service that will allow customers and developers to host their data in a Microsoft-hosted database. So what is (and isn’t) SSDS, exactly? [From Microsoft launches its alternative to Amazon’s SimpleDB]

While the idea of taking down Oracle’s database business is indeed appealing to me, I doubt that will be the outcome of both SimpleDB and SDSS (seriously, why the hell can’t Microsoft acronyms as product names habit?) because for the time being the core enterprise software market is still oriented around on-premise offerings.

However, two interesting things have happened in recent years… I can’t think of a single company that has built a new product or company on a BEA stack or with an Oracle database or any other proprietary software stack. Open source technologies get their fair share of attention but if you were to poll 100 startups that have formed in recent years you would find a significant number of them are built on Amazon Web Services.

Secondly, non-relational database technologies are making inroads into the traditional enterprise market. StreamBase is one example, founded by one of the fathers of relational database technology, Mike Stonebraker, the company has been focusing on complex event processing in financial services. SimpleDB itself is another example, representing a dramatic departure from relational database systems.

These services are starting to make their way on to enterprise desktops and just like was the case with open source we can expect that enterprise osmosis will bring them into IT. Salesforce.com is also playing a role in this as well with their Force.com offering, which combines data storage with application development tools.

I haven’t seen any acceleration of Force.com in the marketplace, but this is probably less about the technology and more about the peripatetic approach to marketing it, which certainly hasn’t been helped by their identity crisis that drives the confusion around what name is it being called this month.

Give it a couple of years and I strongly believe that big enterprise IT shops and systems integrators will be enthusiastic users of these new hosted infrastructure technologies if for no other reason than the cost of building with them and maintaining them as needs scale is a fraction of on premise infrastructure.