China Remains a Tough Market Even for U.S. Web Giants Allowed In
Amazon.com (AMZN) has long had a major presence several European markets, as well as Japan. The company has also become a top-two player in India's burgeoning e-commerce market, and (though MercadoLibre (MELI) is currently the biggest player here) is starting to step up its investments in Latin America.
However, in a Chinese retail e-commerce market that's now worth over $1 trillion (that's not a typo), Amazon remains a minor player and (relative to regions such as Europe and India) hasn't talked much lately about its efforts in the country. Though Amazon has operated in China for more than a decade and launched a Chinese version of Amazon Prime in 2016 that caters to consumers looking to buy imports, research firm eMarketer estimated last year that Amazon would have just a 0.7% Chinese retail e-commerce share in 2018 -- a small fraction of Alibaba's (BABA) estimated 58.2% share and JD.com's (JD) estimated 16.3% share.
Now, Chinese business magazine Caijing reports that Amazon is in talks to merge its Chinese unit with local Internet and gaming firm NetEase's (NTES) Kaola unit, which happens to be (along with Alibaba and JD) a top player among Chinese e-commerce sites focused on imports. A Chinese e-commerce exec talking with TechCrunch speculates Amazon could help Kaola procure more inventory, as well as provide capital that it needs to help open more offline stores.
Regardless of the specifics, a merger between Amazon's Chinese unit and Kaola would be yet another sign of how tough China has been for U.S. Internet services firms to crack, even when their services aren't banned in the country. Just ask Uber, which in 2016 gave up on its attempts to compete against local ride-sharing leader Didi Chuxing.
E-commerce, it should be noted, isn't the only field in which Amazon has had a hard time in China. In spite of being quite dominant in the global cloud infrastructure (IaaS) market, Amazon Web Services (AWS) has a much smaller Chinese IaaS share than Alibaba's AliCloud unit, and also appears to be trailing Tencent's cloud unit in China. Last July, research firm IDC gave Alibaba a 45.5% Chinese IaaS share, and AWS a 5.4% share.
A variety of factors can be blamed for the struggles that American Internet companies allowed to operate in China have witnessed, from protectionist policies, to the favoritism shown at times towards local firms, to the scale advantages that entrenched local players have been able to generate, to the speed at which Chinese web and mobile app ecosystems have been evolving.
Regardless of how one wishes to assign blame, however, it's pretty eye-opening when even a company with Amazon's resources and reputation persistence thinks about throwing in the towel on a giant addressable market.
What Palo Alto Networks Has in Common with Salesforce and Workday Feb. 19, 2019 | 7:52 PM EST
Major enterprise cloud app providers such as Salesforce.com (CRM) , Workday (WDAY) and ServiceNow (NOW) have been making heavy use of M&A in recent years to expand into adjacent markets. They've made these acquisitions pay off not only by integrating acquired products with existing ones, but by using their distribution channels (both salespeople and resellers) to sell the acquired products to existing customers.
These companies have also often built out large ecosystems of third-party apps and services that integrate with their software. And following an acquisition, the acquired company's products might join the ranks of apps that can be integrated with third-party offerings.
For all these reasons, the reasoning behind security hardware and software firm Palo Alto Networks' (PANW) $560 million deal to buy Israeli startup Demisto has to feel familiar to many cloud software firms. Much like a startup that Splunk (SPLK) spent $350 million for last year, Demisto competes in a fast-growing security software field known as security orchestration, automation & response (SOAR). Its products are used to respond to and investigate major security incidents, as well as to automate the handling of routine security events.
Not surprisingly, Palo Alto says it will use its distribution channels to help Demisto "achieve its ambitious goals." The company also argues Demisto's offerings, which can orchestrate security workflows that involve apps from third-party developers, can help customers "further automate a significant part of their security operations," and thus strengthen its broader product line.
Notably, Palo Alto also sees Demisto bolstering the company's recently-launched Application Framework, which lets developers create apps that can take in and act on security data produced by Palo Alto's products. During a conference call held to discuss the deal, Palo Alto noted Demisto already supports the Application Framework, and that its products will allow it to provide security analytics solutions that can leverage third-party data, rather than just Palo Alto's own data.
The deal follows a pair of 2018 acquisitions (they cost a combined $473 million) meant to bolster Palo Alto's offerings for protecting a company's cloud infrastructure assets. With the help of M&A as well as internal R&D, Palo Alto has been steadily growing the number of security software and service offerings it sells to the tens of thousands of businesses that have deployed its next-gen firewalls. These include solutions that are both directly tied to Palo Alto's hardware, and ones that can work on a standalone basis.
This strategy, which firms like Salesforce and Workday can definitely relate to, has done a lot to expand Palo Alto's addressable market. And as Palo Alto keeps pursuing this strategy in an enterprise security market that appears ripe for consolidation, more acquisitions are likely.
Apple Still Appears Intent on Growing Its Mac and iPad SalesFeb. 19, 2019 | 12:54 PM EST
Plenty of attention has been given in recent weeks to Apple's (AAPL) attempts to offset recent iPhone sales pressures by further growing its services revenue. However, judging by recent reports, the company seems just as interested in growing sales of non-iPhone hardware businesses with the help of expanded product lines.
Well-connected Apple analyst Ming-Chi Kuo -- he has been pretty accurate when it comes to predicting what future Apple products will look like, and more hit-and-miss when it comes to predicting their prices and names -- reports that Apple plans to launch a new MacBook Pro with a 16-inch to 16.5-inch display and "all-new design" this year. He also reports that Apple plans to launch a new standard iPad with a 10.2-inch display (half an inch larger than the current version).
Also reportedly in the works: A refreshed iPad Mini (it was last updated in 2015); a 31-inch, 6K-resolution, monitor; new AirPods featuring wireless charging and an upgraded Bluetooth radio; a new Mac Pro with "easy to upgrade components;" and (not surprisingly) two new iPad Pros and three new iPhones. The iPhones will reportedly have the same screen sizes as 2018's models, but will (among other things) support front-and-back wireless charging and pack larger batteries, and at least one of the models will have a triple rear camera.
Several of these products have already been reported by others to be in the pipeline. However, the new MacBook Pro, whose display size is larger than that of the 13-inch and 15-inch models in Apple's current MacBook Pro lineup, wasn't previously reported, nor were the 31-inch monitor and Apple's plans to up the standard iPad's display size.
It's worth noting here that while Apple's iPhone revenue fell 15% annually in the December quarter to $52 billion, its iPad revenue rose 17% to $6.7 billion and its Mac revenue rose 9% to $7.4 billion. iPad sales benefited from the launch of Face ID-capable iPad Pros that (though maintaining the same display sizes) are smaller and lighter than their predecessors; Mac sales benefited from the launch of a new MacBook Air and (to a lesser extent) Mac Mini models.
AirPods, meanwhile, have been a runaway hit. Together with the Apple Watch, they're believed to be heavily responsible for the near-50% "wearables" revenue growth that Apple reported for its December quarter. And in spite of an unfavorable accounting change, services revenue rose 19% ahead of a rumored March 25 event where new video and news services are expected to be unveiled.
With the iPhone accounting for 63% of Apple's fiscal 2018 revenue, offsetting lower iPhone sales by growing services revenue streams and non-iPhone hardware businesses isn't easy in the near-term (it might be easier in 2020, as more significant iPhone improvements arrive). However, no one can accuse Apple of not trying hard.