Today Kenexa (KNXA) announced the planned purchase via tender of Salary.com (SLRY).

On the plus side, the cloud technology space is begging for consolidation as companies find themselves using scores of vendors across their many business areas and processes. Companies are trying to broaden their offerings and companies are trying to consolidate their many vendors.

At the functional level the acquisition makes plenty of sense given that Kenexa has been focused on “talent management” and Salary.com has been in “compensation management” and on-demand HR solutions.

Both companies have the same business model, which is the classic on-demand/SaaS model we have all grown so accustomed to.

There are a few things that investors may or may not like about this transaction:

1. The price at just under 2x sales is reasonable. However, Salary.com hasn’t grown much in the past two years, no doubt thanks in part to the weak employment market. Worse still, the company has done little to control spending and has been losing money at an $18M annual rate.

2. Due diligence has been limited and Kenexa participated in an auction process, which means that they are likely to discover far more information once the deal closes and that there are bound to be some negative surprises.

3. Current customers of both companies may demand price concessions before any benefits of “cross-selling” can materialize. Most of the management commentary has been focused on opportunity but we know corporate customers are also interested in leveraging consolidation to get better “bundled” pricing.

We completed a quick Intrinsic Value analysis for Salary.com and it suggests that Kenexa is not wildly overpaying for the company. A scenario of restoring revenue growth to 10% and bringing SG&A down consistently from current levels to a more normal 50% of revenue generates an IV of $3.50/share.

As with most acquisitions, the value is going to be in how Kenexa can aggregate an excellent combined customer set with a rich set of data for better decision making and more efficient businesses processes.

It’s feeling like M&A activity levels around cloud computing are going to remain high this year. We’ve seen the recent activity in “big data” with Greenplum/EMC and 3PAR/Dell or HP and also the SaaS applications space.

[Disclosure: None]

I was mildly surprised with the Intel purchase of McAfee, which is somewhat better than being bored by the Dell/3PAR deal. At least HP has come along and made the plain girl in the corner appear more interesting. Anyway, moving on to Intel/McAfee…

Nobody refutes the fact that security is an extremely important aspect of cloud infrastructure. All the enterprise systems players take it seriously and have been building on their solutions for years. Companies like Cisco, EMC, IBM and Microsoft have spent a small fortune on both development work and acquisitions in security.

Intel is always looking for ways to add more functionality and value around their core chipsets, so security algorithms and embedded processing make sense. But these are technologies and techniques that can be either licensed (probably for no money up front and a very small royalty) or acquired through what would really be technology acquisitions that are counted in the millions of dollars rather than billions.

In fact, we’ve found little companies like Zix Corp (ZIXI) that have embedded solutions that make email and messaging in applications within healthcare and financial services secure and encrypted, all in the background and at very low cost. This type of technology is available, deployed broadly, and not expensive.

So why buy what is really a large scale consumer and enterprise business to go after a slice of the embedded infrastructure that is needed for cloud and mobile computing?

Sadly, the answer I keep bumping into is “because they can,” and a company their size “needs to do something big” so that people believe they are “serious” about the space. These are lousy reasons from an investment standpoint. Furthermore, it’s also lousy from a business standpoint. One way to show how serious you are is to deliver outstanding solutions. Intel sold their anti-virus business to Symantec over a decade ago and certainly knew about putting security primitives into the core back then, but hasn’t pursued the security market with any gusto during this time.

To be fair, Intel, after many struggles, has managed to finally integrate and embed at least some level of core networking and graphics processing into their chipsets. I’d be willing to bet that this came at horrific costs looking back 10 years but it’s there today and memories are short.

It isn’t that security integration doesn’t make sense, it’s that Intel could have done it fairly easily already and licensed or acquired key technologies along the way easily and at much lower costs. That is what adding value is all about from a management standpoint, building and buying assets that you then make into something far more valuable. In this case Intel paid the premium for McAfee shareholders and took $3B+ out of their own shareholder pockets.

The example we see pointed to most often is EMC. EMC did diversify away from a pure storage company with a steady stream of purchases including RSA, Documentum and VMWare to name three (there were many more.) But then that asks for the question “Is that Intel really going to embark on a software infrastructure strategy?” That would suggest they might be interested in companies like Akamai (AKAM), Solar Winds (SWI), Progress (PRGS), Adobe (ADBE), BMC (BMC) etc.

The good news there is that these are some of the few technology businesses that have higher gross margins than the existing Intel business. The bad news is that Intel doesn’t know anything about running a software company. They might be able to learn (so far not so good…) but if they do it’s going to cost plenty.

McAfee will be disrupted by the acquisition, as is the case 99% of the time in acquisitions like this. What happens in the wake will be telling insofar as to whether Intel management is here to build shareholder value or serve their ego and succumb to laziness by acquiring big chunks of market position without wishing to do the work to build them or even keep them. Unfortunately for them, they started out with a 15 yard penalty right at the kickoff so they have that much more work to do.

On the margin this is also good news for a recovering Symantec, which has been making progress but can certainly use a bit of wind at their back which is what this deal is likely to do – at least for the next 12-18 months.

[Disclosure: No positions although an asset management partner of R2, Aberdeen Investment Management, owns shares in Zix Corp.]

It was just back in early March that Steve Ballmer gave his “for the cloud, we are all in” speech at the University of Washington and sent an email along those same lines to all Microsoft employees.

Like many, I had more or less given up on Microsoft but thought that maybe the release of Windows 7 and a realization by the company that they really needed to do something different might change things. In addition, many Microsoft executives that I spoke to or saw present were being very honest about their shortcomings and lack of answers in areas like mobile computing and security. (Even Ballmer admitted yesterday that Microsoft was now “number five” in the mobile race.) So for a time I was open to thinking that maybe Microsoft in general, and Steve Ballmer in particular, was waking up.

Ballmer is infamous for his ham-handed antics as a CEO in the past and some of these are documented on YouTube. His head-in-the-sand stubborn attitude was shown also in his home where he reportedly doesn’t allow his family to have devices like the iPhone or use Google search. But at his U of Washington speech he seemed like he had lost a few pounds, was wearing glasses that made him look smart and, well, I thought… maybe.

In just two short months Mr. Ballmer has made it clear that he is beyond repair or reform as a failing technology company CEO. His inability to see the changing technology world around him will drive Microsoft ever lower in the food chain.

Ballmer doesn’t seem to understand mobile computing and the fact that it is fundamentally part of the cloud. My guess is that this stems from a view that is still rooted in the idea of a PC that uses the cloud rather than being inside the cloud itself. This is a very big problem if you are a technologist and responsible for the direction of a company like Microsoft. It means you see everything through a lens that distorts what is going on in the market.

Even Ozzie, another ray of hope introduced into the Microsoft darkness some time ago, appears to have a mistaken view of Android versus Chrome because he underestimates the power and potential of the mobile platform when combined with the cloud.

What Microsoft will have left are updated versions and upgrades to their declining (but still very large) franchise like Office, enterprise development and productivity applications. The company will remain important by virtue of their size and its tendrils in areas including gaming and smart cars.

Steve Ballmer seems to be unable to strike out no matter how many large technology industry shifts the company misses. Ballmer was recently able to make the statement that Microsoft “missed the whole cycle” in mobile computing as if it was a minor thing. Ballmer goes so far back at Microsoft that he is unlikely to be replaced. But after so many profound misses, the only chance Microsoft has is to do something akin to what IBM did when they brought in Lou Gerstner.

On the plus side, this is very good news for Google and Apple, who will continue to be competing with a giant that can’t see.

[Disclosure: The R2 model portfolio has long positions in both Apple and Google at the time of this writing. The author has a position in Apple.]

Thanks to Google this week already started off with a focus on the real-time web, based on mobility and new devices with sensors, cameras, microphones, HD displays and speakers.   On Monday Google presented a slew of new features and technologies aimed at improving search by location, by voice, and by sight.   When combined with enhanced real-time search, one that includes a variety of content from sources like twitter, location-aware applications and fixed search content, the real-time web becomes a much richer experience than what we have known so far with things like IM and SMS.

Tomorrow and Thursday we will be attending Le Web 2009 in Paris who has chosen “real time web” as the theme.  As with all Le Web events there is a fairly diverse range of content across three different programs but the usual suspects (Twitter, Google, Facebook) will all be in attendance and elaborating on real-time as the latest “mode” of web development.

We wouldn’t put “real-time” as a true facet of technology as it relates to our work.  Latency has been a key factor in technology usage for thirty years.  We did include an analysis of this and other features for what we view as the ultimate Internet architecture in our February 2007 research monthly (pdf).  IBM funded many studies that demonstrated the dramatic increases in productivity and value that came from “sub-second respond time” as we called it back then.  As with many things on the web and in the cloud old things are new again.  What’s new now is the ability to deliver instant responses across applications, networks, distances and devices.

What’s so powerful about this notion today is the richness that can be brought into the realm of real-time use: People, places, things, and all related information in one place and current to within a few seconds ago.  As we’ve written before the initial oohs and aahs of insight will be coming from so-called augmented reality and real-time social networking applications on the iPhone and the like.

From an investment standpoint we continue to focus on the mobile segment of this space with companies like Apple, Google, Research in Motion and Motorola being the ones to own.  Based on our IV work it seems that Research in Motion has the most near-term upside here.  RIM is also too strategic to not be acquired by someone like Microsoft, HP, or IBM.

More broadly we know that cloud-based GPU computing is already in early deployment which will add yet another growth story for both Nvidia and AMD.

If it feels like just the beginning it’s because it is.  There are many more related themes to this trend as it develops ranging from wired and wireless bandwidth, content, devices, cloud services and infrastructure, new software infrastructure and on and on.

Thanks to the exponential pace of technological advance and our linear perceptions, we know that many of these advances will seem to happen “all of a sudden” in the next few years.

For more information on the Google Search briefing there is a summary here on TechCrunch.  More information on the Le Web 2009 program can be found on the Le Web event website. The events on Wednesday and Thursday are supposed to be available via webcast.

[Disclosure: Research 2.0 has model portfolio positions in Google, Apple, Research in Motion and Nvidia.]

Dell showed the industry a new way to do business in personal computers.  It was revolutionary at the time and created a very large, very profitable franchise in computing.  A one trick pony is plenty when the trick is good enough.  Unfortunately the trick is no longer unique.

There’s no point in rehashing the misfortunes of Dell customer service and the legendary “Dell Hell” that was created for customers and users.  When Michael Dell came back to run the company in 2007 it offered hope for a new chapter in Dell innovation.  So far though it’s hard not to be disappointed with what the company has done.  Dell has made two fairly large acquisitions:

1. The purchase of Perot recognizes one clear fact in the enterprise market which is professional services are required.  IBM led the way here with IBM Global Services many years ago and even exited the PC business.  More recently HP acquired EDS. In contrast Dell professional services were so bad that customers didn’t even use them when they were included at no additional charge.  Perot addresses this weakness but merely follows market reality and is a somewhat lesser solution than what is already offered by competition.
2. Dell also acquired EqualLogic at the beginning of 2008.  Although a very strong player in storage area networking, EqualLogic doesn’t bring unique capabilities or a change in positioning for Dell.  Most of the major systems vendors, HP, IBM, even Sun Microsystems, have storage solutions.  Any gaps are easily filled with components from vendors like EMC, NetApp or Brocade.

Unfortunately the best case scenario for moves like this is possible parity with other competitors in the market and that looks like quite a stretch given the size of HP/EDS and IBM in the marketplace.

Dell still has a reasonably solid position with enterprise customers who appreciate Dell technology for it’s price/performance and execution on promised delivery.  That one bright spot is enough to keep them in the game within the entperprise for some time.

On the consumer side Dell now has to face a new leader in terms of innovation (Apple) and a plethora of very good, very low cost products from firms like ASUS and Acer in addition to behemoth HP.  Dell still can win often enough with good prices, online configuration and fast delivery to stay afloat but not enough to really gain share.  The growth of good alternative online channels for computers like Newegg and Amazon diminishes the advantage Dell once enjoyed online.

While Dell has been catching up the market has also been moving increasingly toward mobile computing as the new locus of innovation and activity.  To be fair Apple is the only computer company that really saw this coming and exploited it fully with the iPhone.  Still Dell is nowhere to be found here and although they have made some noises about having their own branded device in this space it doesn’t appear that they are investing heavily in it.  Contrast that with Motorola who has basically decided to bet the company on the next generation of Google Android powered phones.

The other major trend towards RealVR and Cloud Computing would also appear to leave Dell in a support role where they may be supplying servers into the racks of some of the service providers.  Although it’s good business today it won’t support high margins given the power of the buyers versus the suppliers.

The crux of the matter is that as long as Dell feels they are a channel rather than a creator for great innovation and client solutions they are going to suffer.  Why? Because there are channel technologies everywhere and they have been copied and made commonplace.   Dell has also been stuck with the Microsoft OS which hasn’t helped them much in the past two years.   Now with Windows 7 Dell has at least some wind at their back in their loyal enterprise accounts and with consumers who will still respond to Dell price/performance leadership.

The point here isn’t that there is no innovation at Dell; just that there is not nearly enough.  The company has done some good things in generating practical online communities, has leveraged social networks like Twitter, built a fairly good all-in-one computer to try and match the iMac and has designed a cool laptop called the Adamo, etc.  But these are all changes at the margin rather than being at the level of corporate identity and positioning.

Dell needs to do something deep, daring, daunting and potentially delightful.  What is it going to be?

[Author has no position in Dell, HP, IBM at the time of this writing.]