No fun in monopolies

Microsoft is running into trouble with EU yet again.

"Talk," says the EU Competition Commissioner Neelie Kroes, "is cheap. Flouting the rules is expensive." How expensive? Well, several years of flouting and talking are going to cost Microsoft a record fine of 899 million euros, or about $1.35 billion if the dollar doesn't keep dropping.

On top of previous fines stemming from the same judgment, Microsoft's EU tab stands at about $2.6 billion. Tell me, is there any fun in running monopolies?

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"Giv'em more Jammers instead"

David Talbot is happy for US soldiers in Iraq. Here’s what he has to say -

“…the days of patrol leaders operating half-blind on the deadly streets of Iraq are drawing to a close. After a two-year rush program by the Pentagon's research arm, the U.S. Defense Advanced Research Projects Agency, or DARPA, troops are now getting what might be described as Google Maps for the Iraq counterinsurgency. There is nothing cutting-edge about the underlying technology: software that runs on PCs and taps multiple distributed databases. But the trove of information the system [the Tactical Ground Reporting System, or TIGR] delivers is of central importance in the daily lives of soldiers…”

I am happy too. But if it is as open-source, low on tech and as popular as Google maps, I’d better be worried. For all you know, the militants would be pinging pentagon already using something like it or better still, powered by reliable ground intelligence and real time data on troop movements (they speak the language too mind you!). GPS is cookie cutter in this day and age.

Give them more Jammers, instead…!

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Staring down the wrong barrel, Ballmer?

So here you’ve got an interesting twist in the boringly slow Microsoft-Yahoo (mis)match. Randall Stross of NYT echoes the sentiments expressed by MIT professor Michael Cusumano in goading MSFT to “go stalk SAP” instead of Yahoo!

As far as the reasons go, Cusumano says it’s useless to pursue an outmoded, declining internet asset at a premium. MSFT could do well to focus on enterprise software segment where it has a major presence. He points to Oracle’s strategic acquisitions and its impressively regular, prudent use of capital to “roll up firms with similar products and customers to its own.” All of its 13, 13 and 11 acquisitions made by Oracle in 2005, `06 and `07 have been linear to its own LOB and at reasonable valuations. But he acknowledges that it’s hard not to be distracted by the buzz surrounding the internet crowd across the street and goes on to admire Oracle all the more for that. The Cusumano gospel wraps it up in a one-line strategy checklist for MSFT - to find the best acquisition strategy, ask, “What would Larry [Ellison] do?” The Stross warning follows – “If Microsoft tries to fight Google with wobbly legs, scared witless, it will lose”.

But then Dan Farber and Larry Dignan differ.

My money sense suggests Ballmer would be better off if he dumps all acquisition ideas in Ether and heads to the real (estate) world. He’ll get it for a lot less now. $44.6 billion is a lot of cash and he can use it to buy foreclosed real estate across Sacramento, CA or an entire Slavic village in Cleveland, Ohio on the cheap. The bet is much safer.

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Behind that mask, hides the monster?

I don’t believe this. Could this be Microsoft? The same Company that threatened lawsuits to deter customers from using Linux? But then As Marey Jo Foley says, Microsoft’s OSS strategy makes a lot of sense for Microsoft. It’s another way for Microsoft to try to make Linux obsolete, and not look as obviously ruthless doing so. And for OSS vendors who are selling a lot of their software on Windows.

Specifically, Microsoft is implementing four new interoperability principles and corresponding actions across its high-volume business products: (1) ensuring open connections; (2) promoting data portability; (3) enhancing support for industry standards; and (4) fostering more open engagement with customers and the industry, including open source communities.

But then as Om Malik says, Ray Ozzie is talking about software partners, APIs, web services and the need for Microsoft to change [the way] it does business, and become open and interoperable. Between the lines you can read, Microsoft is worried, scratch that, very worried about developers leaving them in the cold. Om quotes analysts while suspecting MSFT is worried about the EU and the Justice Department creating problems when it comes to the pending Yahoo bid and the Danger deal.

At first blush looks like the leopard is changing its spots. Is it? Let you know soon.

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The merger effect

In the software industry, M&A are known to the fastest way to ramp up customer & product stack portfolio. It occasionally creates shareholder value too, though not guaranteed. But hardly does anyone concern how the customer sees it. Agreed, making predictions is a tricky business to begin with. But in the case of the business intelligence (BI) market, recent consolidation has made the task even more difficult than usual and left industry experts largely at odds.

Within the last year, Oracle has acquired Hyperion, SAP acquired Business Objects and IBM acquired Cognos. The only agreement is that until "mega-vendors" SAP, IBM and Oracle announce integration strategies for their recently acquired BI technologies -- expected to happen sometime in the next six to 12 months -- customers have little more to rely on than their wits when making BI buying decisions. Even then, the only sure bet is that they will have to make some difficult choices. The toughest decisions will fall to customers of Business Objects, Cognos and Hyperion, whose IT infrastructures are not based on the technology of the acquiring vendor -- SAP, IBM and Oracle, respectively.

Exactly why I say it makes sense for open source BI companies like Pentaho to come up with expansion plans to take on the significant consolidation in the estimated $6.25 billion business intelligence industry. Hopefully, it will tempt the big enterprise players not to raise prices for upgrades and maintenance.

But then in their post-merger avatars, will they remain the darling of SMB’s…? What do you think…?

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As IT begins to dim

A recession spares none. Here I read Indian IT vendors are likely to cut the onsite allowances of employees at clients’ offices abroad by 25 to 30 per cent from April 1, 2008.

I can see CEOs of many other Indian companies smile. Those needing Civil, Mechanical, Electrical, Automobiles, Chemical engineering talent were totally deprived since all roads led to IT in the past. The low margins of these businesses could’ve hardly afforded the lavish $$ denominated allowance structure offered by IT vendors.

Every dog has its day. But years of code writing sitting in a cube farm sure would've corrupted their acumen. Do you think they'll be competent enough…? Think of having to live in buildings built by bunch of ex bug fixers…? Hmmm.... Scary.

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Live by the Cloud, Die by the Cloud

All that jazzed about SaaS suffered a rude jolt when Amazon web services (EC2, S3) had its outage this morning. We had suffered Skype outage before but that was free VOIP calls and you had a fallback. But this could ruin many a small business – especially if they’d put it up in the Amazon cloud. Twitter for one.

The retail to digital media to web services giant has made a lot of progress persuading small and midsize businesses to use its enterprise infrastructure for all their data storage and server needs. The cloud computing proposition sounds plenty compelling: Focus on building your business and leave the driving to us.

But all it takes is a bad crash to give people second thoughts. For the quality of infrastructure and the resultant cost savings that S3 offers, how many would really crow about one outage every two years…? Larry Dignan says you won’t recognize it in the next decade.

Meanwhile I had a look at Amazon’s 2007 numbers and some analysis. Coffee or tech? Looks like coffee isn’t a bad business. Amazon makes $207million on $5.67billion($0.48 earnings, $74.21 stock per share), or Starbucks $208million on $2.8billion($0.23earnings, $19.22 stock per share). Which look like a better business to you?

So, stay put? Nothing to worry? Live by the Cloud, die by the Cloud, I say.

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I've got my new phone... Can I have a holster please?

There is a certain suspicion that someone have quietly slipped in a generous dose of steroid into Redmond water supply. Close on the heels of its hostile bid to swallow Yahoo, MSFT quietly bought Danger, a Palo Alto company best-known for creating the technology behind T-Mobile's chic Sidekick smart phones, for $500 M.

X-box, Zune and now sidekick… Is MSFT getting serious about hardware? Well, with a competitor like Apple around (now that the CEOs share the same first name), it ain’t got no choice. RIM has its Blackberry, Palm has its Treo, Apple has its iPhone, but Microsoft had nothing before. Now it's got this… But as Erick schonfeld says “mobile handsets business can be brutal” and he points to Motorola.

I agree. Tell me something… with so many features loaded into a cell phone, why not someone design a holster?

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Can't beat'em? Join'em...

If this happens, the enterprise IT universe is sure to be disrupted. Very violently perhaps. Will Oracle bite it?

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If it doesn't, SAP / Microsoft / HP will be more than happy to - even if it takes cannibalizing their own in-house initiatives to turn on-demand from on-premise models.

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When in doubt, whip up bidding frenzy...

OK. So Yahoo has help at hand. Microsoft can’t have it easy if there’s gonna be a bidding war, especially with Google in the fray.

This puts us, users - officially in the spin zone, where the air gets cloudy with FUD. VC Fred Wilson says “Consolidation of ownership of web services is not a good thing for the Internet. If you think about the Internet, it's a huge distributed network of loosely connected services owned and operated by literally millions.”

Fred quotes several analysts outlining the way forward for Yahoo –

• Outsource search to Google. That will provide at 25% boost to cash flow according to Citigroup analyst Mark Mahaney. I have heard that this is worth about $10/share in Yahoo!'s stock price.
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• Dividend out to shareholders the interests in Yahoo! Japan and Alibaba. They are worth $12/share according to this WSJ article.

• Split up the remaining company into several businesses which can be independent public or private companies. I would put Yahoo! home page, search, MyYahoo, and email into one company and let that be new Yahoo! The other assets could be sold off or assembled into additional private or public companies.

Being a prolific user of the Web, I loath any one player dominating this universal medium. While the Internet rewards competitive innovation, Microsoft has a checkered history. It frequently sought to establish proprietary monopolies -- and then leverage its dominance into new, adjacent markets. On those lines, the acquisition of Yahoo will allow Microsoft to extend unfair practices from browsers and operating systems to the Internet. That’s a bit scary.

That was my perspective as a user of search. Now come to think like a Yahoo stock owner. When pressed between a rock and a hard place and with no clear growth strategy that Yahoo has now, it’s better to sell and cash out. There are a lot better things that one can do with the kind of money MSFT or any rival bidder might offer. With America looking into that deep pit of a recession, the next boom could be a few years away. So I prefer cash in hand so that I can buy some assets on the cheap. There could be several foreclosed houses coming at bargain prices.

I have no illusions of Yahoo climbing up the ladder on its own, not at least as long as Google is around. So why not gradually swap it for some Google stock itself – at $544 a share, I’d say it’s not bad. Or to take a slightly contrarian view (if you have some guts, that is) go stock up on a Citigroup or Merrill Lynch that come dead cheap now thanks to the mortgage meltdown. The tide would soon turn since SWFs are bailing them out and they’ll be right back at their prime, may be with different owners. Meanwhile Yahoo board can order a re-valuation of its shares in the interest of its shareholders, to give them a better idea of their stock’s worth and pray for the time lag to whip up some bidding frenzy as a bonus… Get me Larry Ellison, please - will ya...!

Tell me, how do you like my little spin…?

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Will they say Woof...?

Steve Ballmer could not have timed his offer better. Yahoo’s Q4 earnings have lagged and Google momentum is clearly slowing.

In Q4 2007, Microsoft had online revenue of $863 million, compared with $4.8 billion at Google. Yahoo and Microsoft together had more than $2.6 billion in revenue, still trailing well behind Google but in a far stronger competitive position. In effect, this deal is a clear admission by MSFT that its online strategies have failed to work.

MSFT has grown solidly for years, but investors give it little credit. Its stock price has long been stagnant, despite the company’s extremely profitable businesses. The Office division alone had quarterly revenue of $4.8 billion — equal to Google — and an astronomical $3.2 billion in operating profits. The Windows unit is even more profitable. But it has not shaken things up as it used to for quite a while.

It’s a risky strategy for both trying to take on the leader by going to bed with strangers. Never mind so long as they don’t say Woof…

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