It's a wise person who knows never to be the last person at a business holiday party. Things never go well for those who stay too late.
Yet, far too many businesses stay way, way too long at their market party, focusing on the same strategy when they should have moved into new competition a whole lot earlier.
This week, Oracle missed earnings estimates and the stock fell some 14 per cent, from $30 to under $26. For the year, Oracle is down about a third, from its high of $37. The question any investor needs to ask is the one headlined by ZDnet.com: Oracle Earnings: An Aberration or Trend?
Oracle is very, very poorly positioned for future earnings growth. Like most big software companies, including Microsoft and SAP, Oracle built its business on the formula of large data centres running large 'enterprise applications' supporting lots of independent corporate PC users.
And it was clear fully a year (or two) ago that the market simply isn't growing. Organisations are rapidly shifting away from hard-to-use, one-size-fits-all (at very high cost) enterprise software applications. Users are moving away from PCs to mobile devices and refusing to use clunky enterprise interfaces. Worse, software is moving away from data centres in client-server configurations tied to PCs. Instead, companies small and large are rapidly shifting to software-as-service (SAS) environments where the company can pay 'by the use' for software maintained in the Cloud. These solutions are scalable, cheaper to buy, cheaper to implement, vastly more flexible and operate on mobile devices a whole lot better. If you have ever used Salesforce.com, you must have experienced the benefit, compared to more clunky enterprise customer resource management (CRM) applications.
Oracle missed this trend. Despite all the dozens of acquisitions Oracle has made such as buying UNIX hardware provider Sun Microsystems, it largely missed the shift to Cloud architectures. It has remained far, far too long at its party, enjoying the profit-laden punch and hoping the market would never shift. As the customer base shrank to fewer, and ever larger, big corporations, Oracle did not prepare for changes in its business the next day. Oracle has stayed too long, and its ability to compete in new markets against more flexible solution providers such as IFS, with better user interface capabilities, looks really weak.
Somehow, Best Buy fell into the same trap. In early December, the country's largest 'big box' retailer announced lower earnings after cutting prices to shore up revenues. As a result, the stock dropped 20 per cent, from about $28 to $22 continuing a pretty much downhill slide all year of nearly 40 per cent from its high of $36.
Best Buy felt like it was doing great after Circuit City failed. Circuit City had been a darling of the infamous 'Good to Great' text. But Circuit City demonstrated that in a market dominated by a long-term trend, away from fixed stores and toward online purchases, every retailer is bound to struggle.
When Circuit City failed in 2008, investors worried that a weak economy would tank Best Buy as well. But as all that Circuit City capacity disappeared, Best Buy was a short-term winner.
Unfortunately, Best Buy leadership confused short-term sales re-allocation with long-term trends. They, along with a lot of other locked-in brick-and-mortar retailers, felt that things would quickly 'return to normal' and Circuit City was the company caught out in the cold when the music stopped. Best Buy chose to stay at its party too long hoping the dancing would never stop. Its leaders chose to ignore the long-term trend away from traditional retail toward online shopping. No wonder BusinessInsider.com headlined a famed investor Marc Andreessen: Retailers Should Be Scared About 2012.
What's surprising is how many people in business think the party will simply never end. That everyone can keep drinking and dancing and rolling in the profits. Even when the trends are obvious.
This 2011 holiday season, every business team should be asking itself: Are we staying at the party too long? What trends are affecting our business and likely to bring this party to a crashing end? What are we doing to prepare for a tough competition tomorrow?
If you don't, it's far too easy you could end up on the downhill slide, with one heck of a horrible hangover like Oracle and Best Buy in 2012.