Data Sheet—Tuesday, October 7, 2014

Good morning, Data Sheet readers. Did too many CEOs spoil HP? CEO Meg Whitman addresses the rationale for the breakup at the Fortune Most Powerful Women Summit. Plus, 30-year-old tax software company Intuit is banking on a three-year plan to shift customers to cloud services. Will it add up?

One thing she believes precipitated the decision? A history of poor succession planning: "Over the course of the last 15 years, there has been about seven different CEOs. This is the fundamental problem: The CEOs had different strategies, different approaches and the organization sort of went from strategy to strategy."

That includes her, of course. So as the first CEO of the soon-to-be HP Enterprise, Whitman has already promised the board that she'll groom a successor from within. Her counterpart at HP Inc. (which will inherit printers and personal systems) is Dion Weisler, an Australian-raised executive who joined HP two years ago after stints at Lenovo and Acer. (The former surfer is 47 years old, so it stands to reason that he'll be around for a while.)

Investors appear happy about the proposed tax-free breakup, which will leave HP shareholders with a piece of both companies. HP's stock jumped nearly $2 per share on Monday to $37, a gain of 5.5%. Whitman's rationale is the split will make both HP companies more "nimble," but the reality is very few things tie together these two divisions of the 75-year-old Silicon Valley legend right now. What's been holding them back, other than misguided management decisions? And, won't those same cultural problems exist in the post-split world?

(As an aside, does anyone else find it ironic that the last company that Whitman ran, eBay, is also looking to downsize by divesting its PayPal digital payments division?)

Far more interesting to ponder is the potential industry fallout. We've all heard that EMC and HP were talking merger earlier this year, a deal that apparently was too hard too integrate. But analysts speaking with Investor's Business Daily believe the split sets the stage for a union of HP Enterprise with EMC or another enterprise technology company.

Gigaom floats another theory: that the excitement over HP may somehow force Cisco CEO John Chambers to rethink his bigger is better strategy. Although the pace of its acquisitions has slowed considerably over the last decade, do you realize that the networking giant bought at last 17 companies in the past three years, including two this summer (ThreatGRID and Tail-f Systems)?

One thing is very clear. The "old guard" of the high-tech industry is feeling the effects of the twin transitions reshaping what people want out of technology: mobility and services they can turn off or on quickly. This is the biggest sign yet of a disruption that—if history repeats itself—will leave at least one-third of the legacy leaders behind. Guesses as to who's next? Email me at datasheet@heatherclancy.com

CLOUD CHATTER

More European tough talk on Internet data protection. During his confirmation hearing, the new commissioner on "digital single market" issues, Andrus Anship, promises big changes for how EU citizens' data can be used for marketing purposes. He's also prepared to suspend the "Safe Harbor" agreement that allows U.S. authorities access to personal data unless they find a way to win real trust. Wall Street Journal

ADP's marketplace for HR services. The giant payroll processing company, which counts more than 600,000 businesses as customers, is teaming up with software companies that sell complementary human resources applications. Initial partners include Concur (expense management), GetHired (recruiting), and Globoforce (employee engagement). CornerStone OnDemand (talent management) and LifeCare (services that aid with work-life balance) are in the wings. Oracle and Workday, you are officially on notice.

STATS & SPECS

Splunk takes on mobile app performance. Could bad design mean disaster for your company’s mobile strategy? Splunk wants to help you avoid it. It's releasing two new products during its customer conference this week, Mint Express and Mint Enterprise, that track performance and usage. (It's the first technology to emerge from its acquisition of Bugsense earlier this year.) Splunk is also updating two of its core products, which make sense of machine data (aka, the information generated by servers, software and technology "talking" to each other).

STARTUPS & DISRUPTORS

More cold, hard cash for Infusionsoft. The SMB marketing software company is adding $55 million in a round led by Bain Capital Ventures, along with Signal Peak Ventures and Goldman Sachs—bringing its total to $125 million. More than 25,000 customers in 100-plus countries have used its software to send 3.8 million customer and promotional newsletters this year. Rivals include HubSpot, which expects to raise $120 million in an IPO planned this month.

Another $17 million for picturing big data. ZoomData's real-time visualization technology turns data points into images that illustrate trends or put them into geographic context on a map. Its biggest threat is Tableau Software, but it's trying to differentiate by supporting a more diverse range of big data analytics sources. The lead investor was Accel Partners, and the round puts total funding at $21.1 million. TechCrunch

FAQ

Intuit's calculated three-year plan for cloud success

Two years ago, dissatisfied with Intuit's focus on "me-too" products, CEO Brad Smith sent the company's senior leaders into the field for new ideas.

"We followed the leaders of the product companies that we admired. Each one of us followed a CEO and watched how they made their decisions, how they engaged their teams, how much times they spent in products, and we changed the way we lead inside the company," Smith said during Intuit's annual investor briefing in late September. "The fruits of that labor showed up this year."

His highlights include an overhaul for Intuit's SMB tax-prep offering, QuickBooks Online, and a newly imagined TurboTax for consumers. Intuit also changed the way it handles customer service and ran its first Super Bowl ad, featuring one of its small-business customers, toymaker GoldiBlox.

Based on the series of presentations made to analysts last week, it has much more in store for the next 12 months including a heightened focus on mobile apps, a foray into SMB lending, a tighter relationship with digital payments company PayPal, and a pipeline of anticipated products for accountants and other tax professionals.

"The best time to repair the roof is when the sun is shining," Smith said.

Like most software companies around since the early days of the personal computer, 30-something Intuit is fighting for relevance in the era of cloud computing. Sure, it recorded $4.5 billion in revenue for the fiscal year ended July 31, up 8%. (Net income was $897 million.) But for the current fiscal year, Intuit's guidance is $4.3 billion to $4.4 billion, a decline of 3%-5% as it shifts more sales into monthly cloud subscriptions accounted for over time. (It forecasts GAAP operating income at $800 million to $830 million.) The company's stock is up about 50% since June 2013, currently trading around $84 per share.

How's Intuit's cloud transition going? Most notably, it wound up last year with 683,000 QuickBooks Online customers with the goal of reaching 2 million subscribers by fiscal year 2017.

To get there, it is relying not only on organic innovation but on strategic acquisitions: last year, Intuit took out its own checkbook 10 times to buy both talent and technology. That's more than for the past five years, combined. One of those transactions will bring better inventory management capabilities to QuickBooks Online, a hole Intuit executives admit has kept many legacy customers from making the switch from desktop to online.

Another rallying cry is Intuit's ability to tie together, automate and simplify the processes that keep money flowing in and out of small businesses, much as Salesforce does with its cloud-delivered sales and marketing services.

It's telling that Intuit's executive compensation is tied to delivering against three-year plans for revenue, operating income, and relative total shareholder return (although metrics are reviewed very two weeks).

"This is a game plan that we have so much confidence in, that for the first time we've given three-year outlooks and expectations," Smith said on the analyst call last week. "We have greater visibility into this accelerating cloud adoption, increasing our footprint and customer adoption outside the U.S. The predictability of our revenue is such that 73% of our revenue will be recurring, cloud-based services by fiscal '17. And while we do have a transition year in this current 12-month period because of the change to our accounting practices … we're going to be existing in '16 and '17 with mid-teens growth, and ultimately a company that is on track to get to $6 billion, with $5 in [earnings per share], with margins that are better than they would have been at our current pace and course that we've been on."

Intuit faces literally dozens of cloud-first upstarts, ranging from Xero Software (backed with $244.2 from investors including Peter Thiel) to Freshbooks (which just picked up its first $30 million venture round in July).

How can it weather the multi-year transition ahead and face down these new rivals? Only by acting like the entrepreneurs it serves, Smith said.

"We want to be a 30-year startup," he said. "Everybody in the company is a founder. Everybody in the company is an entrepreneur. Everybody in the company has the ability to improve products and come up with new ideas that we will commercialize."

ONE MORE THING

Sell spyware, be treated like a spy. Authorities in Los Angeles last week arrested the 31-year-old creator (and seller) of StealthGenie, a mobile app for iPhones, BlackBerrys and Android devices that can eavesdrop on someone else's phone calls or text messages. The charge: federal wiretapping charges and conspiracy to sell a "surreptitious interception device." It's only the second time the United States has targeted the maker of spyware technology, rather than someone using it for snooping. Privacy advocates hope the government will be more aggressive over other tools used to invade personal or professional privacy. Wired