10 ms·

Fascinating that IBM's entire lower-end server business is worth about two thirds of Snapchat.

n1ghtmare_ 13y ago
I came here to say exactly that. It's absolutely crazy.
rplnt 13y ago
The value is probably closer to reality. Don't know what is Snapchat really, but other hip online whatever (instagram, tumblr, facebook, ...) are insanely overvalued for some weird reason.
herge 13y ago
Eh, Snapchat is worth more than half of Sun Microsystems.
coliveira 13y ago
That's because social websites are in the business of taking money from speculators and unsuspecting investors. The valuation doesn't represent their revenue-producing capacity, just the fact that they can be traded by speculators for the (remote) possibility of becoming the next Facebook.
- loceng 13y ago
  Well, in part though these social networks can theoretically be worth the amounts they state - that is if they're not factoring competition and that users are mobile and can easily start using another service very quickly. This is why governance of the ecosystem is the next competitive advantage layer.
- chaz 13y ago
  LINE, a free messaging app in Japan, made $194m in a single quarter, and its high margin business continues to grow fast. It's monetized through virtual goods and partnerships. And yet, it's nearly unheard of in the US. I'm not sure if SnapChat is a winner and if their multi-billion dollar valuation is correct, but there's there's still whitespace in the market and plenty of money to be made. http://www.techinasia.com/line-app-financials-q3-2013-sees-revenue-194-million-bucks/ http://www.techinasia.com/line-app-financials-q3-2013-sees-r...
  - w1ntermute 13y ago
    LINE makes 80% of its revenue from stickers (20%) and games (60%). I can't see stickers as a workable revenue model outside of Asia. As for games, it may work, but I don't think Westerners like the idea of integrating their games into their messaging apps/services. After all, Facebook tried this with games, but nowadays people prefer to play standalone game apps on their mobile devices.
    - jasonlotito 13y ago
      Stickers are as crazy as hats.
      - ivarious 13y ago
        And one of LINE's core business is being a (mobile) video game storefront.
      - jfim 13y ago
        For those who did not get the reference, Valve paid out 400K$ in the first week of 2014 [1] to item creators for Team Fortress 2 and Dota 2, which are purely cosmetic video game items ("hats") [2]. [1] http://steamdb.info/blog/43/ http://steamdb.info/blog/43/ [2] http://ca.ign.com/articles/2013/04/16/how-to-make-a-living-selling-virtual-hats http://ca.ign.com/articles/2013/04/16/how-to-make-a-living-s...
    - epsylon 13y ago
      > I can't see stickers as a workable revenue model outside of Asia. Asia is a HUGE market.
      - w1ntermute 13y ago
        It's also notoriously difficult to break into (in the software space) for Western companies. With Japan, there's the isolationist culture, and with China, there's the Great Firewall.
    - chaz 13y ago
- deleted 13y ago
  [deleted]
Keyframe 13y ago
The question is what is the longer term stability and volatility of that value? In both cases. Also, how much of that value is perceived and how much is calculated.
nly 13y ago
Valued, not worth.
loceng 13y ago
It's hard to make copies of users, not so hard to copy hardware.
johnward 13y ago
Not to mention that the server business brings in $5 billion in actual real revenue yet is being sold for 1/2.
- mnglkhn2 13y ago
  Revenue matters, but the valuation is driven by the amount of profit. Margin in the server business must be very low (5%) and hence the valuation is a multiple of profit and not revenue.
  - johnward 13y ago
    I'm sure the profit margin is low for IBM but will be workable for lenovo, but startup valuations are based on rainbows and unicorns.
  - lsc 13y ago
    do you have a source for the 5% number? I mean, I agree that x86 servers are a low-margin business, but 5% is lower than I'd expect.
    - mnglkhn2 13y ago
      I should have qualified that number right from the beginning as a back-of-the envelope estimation: If we assume a 10x multiple to profit and a 5bn revenue, it results in 5.4% margin. If we just say it was a 8x multiple, then it is 6.75% It goes to 7.7% margin if we make the multiple to be 7x
michaelt 13y ago
I certainly agree that Snapchat is over-valued. The problem with being in a mature market is you can't convince investors that huge growth is just around the corner, so they start looking at things like 'profit' and 'dividends'. And when you have HP and Compaq and Dell producing basically the same thing, you can't charge much of a premium as your customers can easily switch suppliers.
- testrun 13y ago
  Compaq does not exist anymore.
  - michaelt 13y ago
    That only serves to reinforce my point :) Let's say s/Compaq/SuperMicro/ then
tomasien 13y ago
Snapchat is better than IBM's entire lower-end server business. I know this is not a popular opinion, but I think what Snapchat has done is spectacular and what IBM has done is pretty meh.
- iends 13y ago
  Do you have particular insights into IBM's low end server business or is it because you use snapchat and have never used an IBM server?
  - astrodust 13y ago
    Walk in to any datacenter. HP and Dell absolutely dominate. Third place is Sun. Fourth is Supermicro. Very, very infrequently you'll see an old IBM server.
    - lsc 13y ago
      >Walk in to any datacenter. HP and Dell absolutely dominate. Third place is Sun. Fourth is Supermicro. This is also what I thought. (though, places I've worked, ODMs and supermicros dominated, followed by dell, with hp dead last, but yeah, the quote from IBM never even made it to technical evaluation where I would see it.) However, I went looking for a source[1] before I posted further up this thread. Apparently, IBM sells more servers than dell or hp (but not more than both put together) Hm. reading further, I see numbers between 10% and 30% of IBM's server revenues being the high-end stuff they are keeping. So that could bump them below both dell and HP, in terms of just x86 servers, but even knocking 1/3rd off, they still sell a lot more x86 than I thought. [1]http://www.forbes.com/sites/chuckjones/2013/08/29/ibm-regains-1-server-market-share-position/ http://www.forbes.com/sites/chuckjones/2013/08/29/ibm-regain...
    - ams6110 13y ago
      iDataPlex clusters are somewhat more common in HPC environemnts. They are x86-based.
    - iends 13y ago
lsc 13y ago
To be fair, the lower-end of IBM's server business is much like dell; they don't actually manufacture any of the complex bits, they just sell them. Your CPU is made my intel, your ram by Samsung and your raid chipset by LSI, just like if you bought a SuperMicro; In fact, it wouldn't surprise me at all if SuperMicro did more of the board layout work in-house than IBM or dell. That said, the IBM has... much more market share than I thought in the server market[1] so even if it's mostly a sales game, it's not a small sales game. [1]http://www.forbes.com/sites/chuckjones/2013/08/29/ibm-regains-1-server-market-share-position/ http://www.forbes.com/sites/chuckjones/2013/08/29/ibm-regain...
- nulagrithom 13y ago
  "IBM's System z mainframe running z/OS experienced its third consecutive quarter of growth, increasing revenue 9.9% year over year to $1.2 billion, representing 9.8% of all server revenue in 2Q13."[0] IBM makes some big systems. To me, it's not terribly surprising they'd be willing to part with their lower-end units. Mainframes are where the money is for IBM. [0]http://www.idc.com/getdoc.jsp?containerId=prUS24285213 http://www.idc.com/getdoc.jsp?containerId=prUS24285213
  - lsc 13y ago
    >IBM makes some big systems. To me, it's not terribly surprising they'd be willing to part with their lower-end units. Mainframes are where the money is for IBM. Yup. even if that's only 10% of their revenue, I bet it's a lot more of their profit. Margins on assembling servers are driven down by massive competition, and by the fact that it's really difficult to 'differentiate' x86; your product is the same microchips as the competition on very similar boards in very similar metal boxes. (Which isn't to say the margins are zero, it's just that the customer has a lot more negotiation ammo. Your sales person has to work a lot harder.) This situation is very good for the consumer, of course; they can reasonably play one supplier off of five. But it isn't as great for the suppliers.
- deleted 13y ago
  [deleted]
patmcguire 13y ago
Same as Tesla being worth one and a half Chryslers.
- matznerd 13y ago
  Tesla definitely has more potential upside than Chrysler.
  - ams6110 13y ago
    That's definitely debatable. Chrysler sells more cars in a modest town than Tesla does in the entire world.
bitcuration 13y ago
Consider IBM is lucky to fool Lenovo into it. It puzzles me what's in the world has Lenovo been thinking to spend that much money on that. Different from thinkpad, x86 server business is already doomed. Might Lenovo see a private data center future than public cloud dominance?
- oijaf888 13y ago
  How is the x86 server business doomed? Do you think there will be an abrupt shift to ARM servers?
  - mbreese 13y ago
    I believe they are referring to a shift to cloud-based servers that usually aren't stock IBM/HP/Dell, etc... machines, but rather custom builds for the cloud. I wouldn't go so far as to say doomed, but it will be a shrinking business until is his a steady level. Lenovo has done a pretty good job with the PC/workstation side of IBM that it bought a few years ago. There's no reason to think that they wouldn't do just as well with the servers. Just because IBM doesn't want to spend time for the small (to them) profit in servers doesn't mean that there isn't some real money to be made in that market.
    - ams6110 13y ago
      Huge cloud providers like Amazon do utilize custom built servers, but most enterprise "private clouds" will still be buying Dell or HP servers.
    - np422 13y ago
      We use computers to help us solve so many more problems today then we ever have before and we have much higher expectations of IT-system today. So, the metal scraps used for this keeps piling up in data centres all over the world. Anecdotal observation: Many of my clients avoids using cloud services often cited reasons: cost and worries over ownership of data. Based on the my observations my prediction is that traditional server vendors will keep on growing their business for many years to come but it's very likely that cloud services such as PaS/IaS will grow at faster pace ...
ChuckMcM 13y ago
I realize there is a bit of snark in that comment but the interesting bit is known as COGS. Part of the "value" of a business is the rate at which it can make money, and the server business is limited in its rate by how many machines you can build and the price you can sell them for. Most internet businesses (like Snapchat) are limited only by the amount of money you can extract from users and the number of users you can sign up. While the sunk costs of hosting servers and infrastructure is non-zero, the marginal cost of an additional customer is tiny compared to the marginal revenue they could generate. This is the fundamental way in which the information economy is different than the goods economy. And that makes comparing a business in one, with a business in the other, invalid.
- nacs 13y ago
  And just how much money is Snapchat extracting from its users to justify 3 billion?
  - ChuckMcM 13y ago
    Well this estimate http://techcrunch.com/2013/11/19/how-many-users-does-snapchat-have/ http://techcrunch.com/2013/11/19/how-many-users-does-snapcha... is that snapchat probably has at least 10M users. So let's say you wanted a 10% return on your $3B value, you would have to generate $30 in net income per user per year ($300M). If you charge a 'membership' fee of $3/month [1] that gives you $360M a year, leaving $60M/year (or $5M / month "burn" rate). So would people pay that? I don't know. But it would be the sort of math you would go through evaluating that deal. To evaluate the server deal you have to look at how many units you think you are going to ship, what your COGS are on them, and your gross margin. You can't really give someone 'free server' for a year because you have money sunk into building it and shipping it. Further your revenue probably doesn't change if 100 people use a server or 1000 people do. My point remains that it is not possible to compare 'goods' economy companies with 'info' economy companies. [1] [Edit: added the RPM rates] Conversely, in advertising terms with 400M snaps per day you would need a RPM of $2.50 to generate $360M/year in revenues.
    - 13y ago
dave_sullivan 13y ago
I thought Marc Andreessen's take was pretty plausible: """The bull case on Snapchat is that there's a company in China called Tencent that's worth $100 billion. And Tencent is worth $100 billion because it takes its messaging services on a smartphone and then wraps them in a wide range of services—things like gaming and social networking and emojis, and video chat—and then charges for all these add-on services. And it has been one of the most successful technology companies of all time and is worth literally $100 billion on the Hong Kong Stock Exchange. Maybe that's [CEO Evan Spiegel's ] plan. Maybe Evan's plan is to transplant the Tencent business model into the U.S., which nobody has actually been able to do yet.""" IBM is already IBM, and they're in a market with diminishing margins. Snapchat... Who knows?

I came here to say exactly that. It's absolutely crazy.

rplnt 13y ago

The value is probably closer to reality. Don't know what is Snapchat really, but other hip online whatever (instagram, tumblr, facebook, ...) are insanely overvalued for some weird reason.

herge 13y ago

Eh, Snapchat is worth more than half of Sun Microsystems.

coliveira 13y ago

That's because social websites are in the business of taking money from speculators and unsuspecting investors. The valuation doesn't represent their revenue-producing capacity, just the fact that they can be traded by speculators for the (remote) possibility of becoming the next Facebook.

loceng 13y ago
Well, in part though these social networks can theoretically be worth the amounts they state - that is if they're not factoring competition and that users are mobile and can easily start using another service very quickly. This is why governance of the ecosystem is the next competitive advantage layer.
chaz 13y ago
LINE, a free messaging app in Japan, made $194m in a single quarter, and its high margin business continues to grow fast. It's monetized through virtual goods and partnerships. And yet, it's nearly unheard of in the US. I'm not sure if SnapChat is a winner and if their multi-billion dollar valuation is correct, but there's there's still whitespace in the market and plenty of money to be made. http://www.techinasia.com/line-app-financials-q3-2013-sees-revenue-194-million-bucks/ http://www.techinasia.com/line-app-financials-q3-2013-sees-r...
- w1ntermute 13y ago
  LINE makes 80% of its revenue from stickers (20%) and games (60%). I can't see stickers as a workable revenue model outside of Asia. As for games, it may work, but I don't think Westerners like the idea of integrating their games into their messaging apps/services. After all, Facebook tried this with games, but nowadays people prefer to play standalone game apps on their mobile devices.
  - jasonlotito 13y ago
    Stickers are as crazy as hats.
    - ivarious 13y ago
      And one of LINE's core business is being a (mobile) video game storefront.
    - jfim 13y ago
      For those who did not get the reference, Valve paid out 400K$ in the first week of 2014 [1] to item creators for Team Fortress 2 and Dota 2, which are purely cosmetic video game items ("hats") [2]. [1] http://steamdb.info/blog/43/ http://steamdb.info/blog/43/ [2] http://ca.ign.com/articles/2013/04/16/how-to-make-a-living-selling-virtual-hats http://ca.ign.com/articles/2013/04/16/how-to-make-a-living-s...
  - epsylon 13y ago
    > I can't see stickers as a workable revenue model outside of Asia. Asia is a HUGE market.
    - w1ntermute 13y ago
      It's also notoriously difficult to break into (in the software space) for Western companies. With Japan, there's the isolationist culture, and with China, there's the Great Firewall.
  - chaz 13y ago
deleted 13y ago
[deleted]

Keyframe 13y ago

The question is what is the longer term stability and volatility of that value? In both cases. Also, how much of that value is perceived and how much is calculated.

nly 13y ago

Valued, not worth.

loceng 13y ago

It's hard to make copies of users, not so hard to copy hardware.

johnward 13y ago

Not to mention that the server business brings in $5 billion in actual real revenue yet is being sold for 1/2.

mnglkhn2 13y ago
Revenue matters, but the valuation is driven by the amount of profit. Margin in the server business must be very low (5%) and hence the valuation is a multiple of profit and not revenue.
- johnward 13y ago
  I'm sure the profit margin is low for IBM but will be workable for lenovo, but startup valuations are based on rainbows and unicorns.
- lsc 13y ago
  do you have a source for the 5% number? I mean, I agree that x86 servers are a low-margin business, but 5% is lower than I'd expect.
  - mnglkhn2 13y ago
    I should have qualified that number right from the beginning as a back-of-the envelope estimation: If we assume a 10x multiple to profit and a 5bn revenue, it results in 5.4% margin. If we just say it was a 8x multiple, then it is 6.75% It goes to 7.7% margin if we make the multiple to be 7x

michaelt 13y ago

I certainly agree that Snapchat is over-valued. The problem with being in a mature market is you can't convince investors that huge growth is just around the corner, so they start looking at things like 'profit' and 'dividends'. And when you have HP and Compaq and Dell producing basically the same thing, you can't charge much of a premium as your customers can easily switch suppliers.

testrun 13y ago
Compaq does not exist anymore.
- michaelt 13y ago
  That only serves to reinforce my point :) Let's say s/Compaq/SuperMicro/ then

tomasien 13y ago

Snapchat is better than IBM's entire lower-end server business. I know this is not a popular opinion, but I think what Snapchat has done is spectacular and what IBM has done is pretty meh.

iends 13y ago
Do you have particular insights into IBM's low end server business or is it because you use snapchat and have never used an IBM server?
- astrodust 13y ago
  Walk in to any datacenter. HP and Dell absolutely dominate. Third place is Sun. Fourth is Supermicro. Very, very infrequently you'll see an old IBM server.
  - lsc 13y ago
    >Walk in to any datacenter. HP and Dell absolutely dominate. Third place is Sun. Fourth is Supermicro. This is also what I thought. (though, places I've worked, ODMs and supermicros dominated, followed by dell, with hp dead last, but yeah, the quote from IBM never even made it to technical evaluation where I would see it.) However, I went looking for a source[1] before I posted further up this thread. Apparently, IBM sells more servers than dell or hp (but not more than both put together) Hm. reading further, I see numbers between 10% and 30% of IBM's server revenues being the high-end stuff they are keeping. So that could bump them below both dell and HP, in terms of just x86 servers, but even knocking 1/3rd off, they still sell a lot more x86 than I thought. [1]http://www.forbes.com/sites/chuckjones/2013/08/29/ibm-regains-1-server-market-share-position/ http://www.forbes.com/sites/chuckjones/2013/08/29/ibm-regain...
  - ams6110 13y ago
    iDataPlex clusters are somewhat more common in HPC environemnts. They are x86-based.
  - iends 13y ago

lsc 13y ago

To be fair, the lower-end of IBM's server business is much like dell; they don't actually manufacture any of the complex bits, they just sell them. Your CPU is made my intel, your ram by Samsung and your raid chipset by LSI, just like if you bought a SuperMicro; In fact, it wouldn't surprise me at all if SuperMicro did more of the board layout work in-house than IBM or dell. That said, the IBM has... much more market share than I thought in the server market[1] so even if it's mostly a sales game, it's not a small sales game. [1]http://www.forbes.com/sites/chuckjones/2013/08/29/ibm-regains-1-server-market-share-position/ http://www.forbes.com/sites/chuckjones/2013/08/29/ibm-regain...

nulagrithom 13y ago
"IBM's System z mainframe running z/OS experienced its third consecutive quarter of growth, increasing revenue 9.9% year over year to $1.2 billion, representing 9.8% of all server revenue in 2Q13."[0] IBM makes some big systems. To me, it's not terribly surprising they'd be willing to part with their lower-end units. Mainframes are where the money is for IBM. [0]http://www.idc.com/getdoc.jsp?containerId=prUS24285213 http://www.idc.com/getdoc.jsp?containerId=prUS24285213
- lsc 13y ago
  >IBM makes some big systems. To me, it's not terribly surprising they'd be willing to part with their lower-end units. Mainframes are where the money is for IBM. Yup. even if that's only 10% of their revenue, I bet it's a lot more of their profit. Margins on assembling servers are driven down by massive competition, and by the fact that it's really difficult to 'differentiate' x86; your product is the same microchips as the competition on very similar boards in very similar metal boxes. (Which isn't to say the margins are zero, it's just that the customer has a lot more negotiation ammo. Your sales person has to work a lot harder.) This situation is very good for the consumer, of course; they can reasonably play one supplier off of five. But it isn't as great for the suppliers.
deleted 13y ago
[deleted]

patmcguire 13y ago

Same as Tesla being worth one and a half Chryslers.

matznerd 13y ago
Tesla definitely has more potential upside than Chrysler.
- ams6110 13y ago
  That's definitely debatable. Chrysler sells more cars in a modest town than Tesla does in the entire world.

bitcuration 13y ago

Consider IBM is lucky to fool Lenovo into it. It puzzles me what's in the world has Lenovo been thinking to spend that much money on that. Different from thinkpad, x86 server business is already doomed. Might Lenovo see a private data center future than public cloud dominance?

oijaf888 13y ago
How is the x86 server business doomed? Do you think there will be an abrupt shift to ARM servers?
- mbreese 13y ago
  I believe they are referring to a shift to cloud-based servers that usually aren't stock IBM/HP/Dell, etc... machines, but rather custom builds for the cloud. I wouldn't go so far as to say doomed, but it will be a shrinking business until is his a steady level. Lenovo has done a pretty good job with the PC/workstation side of IBM that it bought a few years ago. There's no reason to think that they wouldn't do just as well with the servers. Just because IBM doesn't want to spend time for the small (to them) profit in servers doesn't mean that there isn't some real money to be made in that market.
  - ams6110 13y ago
    Huge cloud providers like Amazon do utilize custom built servers, but most enterprise "private clouds" will still be buying Dell or HP servers.
  - np422 13y ago
    We use computers to help us solve so many more problems today then we ever have before and we have much higher expectations of IT-system today. So, the metal scraps used for this keeps piling up in data centres all over the world. Anecdotal observation: Many of my clients avoids using cloud services often cited reasons: cost and worries over ownership of data. Based on the my observations my prediction is that traditional server vendors will keep on growing their business for many years to come but it's very likely that cloud services such as PaS/IaS will grow at faster pace ...

ChuckMcM 13y ago

I realize there is a bit of snark in that comment but the interesting bit is known as COGS. Part of the "value" of a business is the rate at which it can make money, and the server business is limited in its rate by how many machines you can build and the price you can sell them for. Most internet businesses (like Snapchat) are limited only by the amount of money you can extract from users and the number of users you can sign up. While the sunk costs of hosting servers and infrastructure is non-zero, the marginal cost of an additional customer is tiny compared to the marginal revenue they could generate. This is the fundamental way in which the information economy is different than the goods economy. And that makes comparing a business in one, with a business in the other, invalid.

nacs 13y ago
And just how much money is Snapchat extracting from its users to justify 3 billion?
- ChuckMcM 13y ago
  Well this estimate http://techcrunch.com/2013/11/19/how-many-users-does-snapchat-have/ http://techcrunch.com/2013/11/19/how-many-users-does-snapcha... is that snapchat probably has at least 10M users. So let's say you wanted a 10% return on your $3B value, you would have to generate $30 in net income per user per year ($300M). If you charge a 'membership' fee of $3/month [1] that gives you $360M a year, leaving $60M/year (or $5M / month "burn" rate). So would people pay that? I don't know. But it would be the sort of math you would go through evaluating that deal. To evaluate the server deal you have to look at how many units you think you are going to ship, what your COGS are on them, and your gross margin. You can't really give someone 'free server' for a year because you have money sunk into building it and shipping it. Further your revenue probably doesn't change if 100 people use a server or 1000 people do. My point remains that it is not possible to compare 'goods' economy companies with 'info' economy companies. [1] [Edit: added the RPM rates] Conversely, in advertising terms with 400M snaps per day you would need a RPM of $2.50 to generate $360M/year in revenues.
  - 13y ago

dave_sullivan 13y ago

I thought Marc Andreessen's take was pretty plausible: """The bull case on Snapchat is that there's a company in China called Tencent that's worth $100 billion. And Tencent is worth $100 billion because it takes its messaging services on a smartphone and then wraps them in a wide range of services—things like gaming and social networking and emojis, and video chat—and then charges for all these add-on services. And it has been one of the most successful technology companies of all time and is worth literally $100 billion on the Hong Kong Stock Exchange. Maybe that's [CEO Evan Spiegel's ] plan. Maybe Evan's plan is to transplant the Tencent business model into the U.S., which nobody has actually been able to do yet.""" IBM is already IBM, and they're in a market with diminishing margins. Snapchat... Who knows?