The strength of (low) numbers

Has it ever occurred to you why people like shopping so much at Costco that they even pay an annual fee to do so? The following comment
It's been estimated that there are 1,000,000 SKU’s (Standard Stocking Units) out there in America. An average supermarket has 40,000 SKU’s. Now for the stunner: An average family gets 80% to 85% of their needs from 150 SKU’s. That means there's a good chance they'll ignore 39,850 items in that store.
posted here, and some additional information I had about Costco explained the magic of paid shopping membership.
  1. Costco mark up is up to 16% => One can hardly find products at the same quality cheaper elsewhere;
  2. Costco carries only a very limited number of items/brands => scale economies and higher negotiating power with suppliers;
  3. Costco has a refund/replacement policy for the life-time of a product => it costs you little if any to try out a new product from Costco.
From #2 & #3 above, one has the feeling Costco is pre-screening well the products competing for a place on its shelves; otherwise it could not have stayed in business for this long.

All in all, there is value in numbers, that is small numbers...

Job markets r-evolutions

Apparently, not much has happened in the online job-markets since became the 800-lb. gorilla. Contenders have either been devoured by, or stayed on life support due to the hopes Yahoo! and its likes have for this market. All this would have made for a boring landscape, in which the process of looking for a job on Monster is like asking your current HR person for a job with another company, had it not been for a new concept introduced by companies like LinkedIn or Doostang. These companies leverage the salient feature of job markets, that is networking. Your typical candidate, for once, becomes a multi-faceted entity, represented as such, that reveals a wealth of information before you even make a phone call. The job market is among the first to capitalize on concepts such as markets as conversations or social networks. There is so much more to happen before late.

Markets as conversations
December musings


Given the confusion generated by its intended $6.9Bn acquisition of Scientific-Atlanta, I wonder if CISCO is on its way to sharing the fate of a former undisputed leader of networking, Novell. Through this purchase, Cisco wants to become the leader in TV, telephone and Internet. At an operational level, CISCO and S-A have been as different as they come (markets, profit margins, support, pricing, etc.). At another level, it is interesting seeing there are still incumbents thinking of revolutions in terms the most successful application(s) of the prior medium. It could be argued that this is more a problem for Yahoo! and AOL than for the infrastructure provider itself, yet I am skeptical about this version of Nirvana consisting of 500 VOD channels. The relevance of the model's viability is clear to those who recall the many billions worth of infrastructure equipment CISCO had to write off after the last boom.


When did problems start showing up at Dell? When Michael Dell left the top position, when Mark Hurd succeeded Carly Fiorina, or when some Central-Texas star lost its shine? It could be all or any of the above and something more. Anyone recalls Dell's exiting the Chinese retail market? Somehow, Lenovo was able to do better in that market, despite all Dell's patented processes and such. And that was only punch #1 in the series. The second came shortly after, when Lenovo acquired IBM's PC business. Optimists still call this progress, however, when considering the success of Lenovo's first ThinkPad, progress is in the eye of the beholder. I would say, this was just the most recent punch...
The point of the whole story may well be that Dell, by deciding to put its money in processes, has been, by and large, about lower prices and little else. When a canny competitor, (e.g. Lenovo) that spends on R&D and somehow beats Dell's processes, shows up what's left to keep Dell in the customer's grace?


Will there be a time, in the enterprise software market, when Oracle and Microsoft are the only players? On the one hand, Oracle has to do prove it did not bite off more than it can chew. On the other, success at Oracle will push SAP and Microsoft in the same place. I should add that I cannot see how a third option, represented by online offerings (e.g., can resist the giants. Such option is limited by the need of enterprises for back end integration of their applications. By the time is able to add one more enterprise application to its own offering, the big players will have developed their online versions as well.


In theory, the music and print industries are best suited to make the most and fastest out of the potential of markets as conversations. Here would be some of the reasons:
  • Their contents are either digitizable or in digital form already;
  • People often base their buying decisions on advice from others;
  • The current cost structure is extremely inefficient;
  • The costs of producing (digital) content have been lowered dramatically.
On the flip side, these same industries fear:
  • The proliferation of pirated (digital) copies;
  • Changing of their tested, however imperfect, revenue system with something uncertain at best, if not disastrous.
What are the driving forces?
  • Digital piracy that cuts on the profit margins;
  • Newcomers such as Amazon, Google;
  • Decreasing revenues from the traditional channels;
  • Perceived lack of fairness on the part of consumers who, say, have to pay up to $20 for a CD.
To illustrate the concept of markets as conversations, how many times have you checked product reviews with Amazon or Epinions before making an on/off-line purchase? What do you trust more, an advertisement or several reviews? Moreover, the reviewers are being rated themselves. Is this step, of checking online reviews, going to become part of your purchase making process? If so, why not make content producers out of what are still being perceived as channels by traditional content producers? Alternatively, given the reduced price of production, why wouldn't content makers bring their products to a place like

To conclude, the challenge in the music and print industries is about finding the next business model. DRM or legal interventions can help the incumbents only dream a little longer. It is essential to stress out that, no matter how one looks at it, consumers must pay for content. However, supporting bloated industries cannot be anybody's goal. Question is: How much to pay? Hint: Follow the evolution of telephony pricing!

What do you think?

To Jim Heskett

Harvard professor Jim Heskett raises a monthly challenge at HBS Working Knowledge. This month's topic is "Is Less Becoming More?". Here's my take:

Complexity problems with producers are seldom encountered by first movers. Complexity tends to creep in either as result of the producers' need for differentiation, product complexity, or as "me-too's," choice complexity. Indeed, when producers want to differentiate themselves, up to a point, the safest and quickest way to achieve that goal is to add features or increase product complexity. Moreover, striking analytically (as opposed to heuristically) the right level of complexity may not even be doable. Thus, the first impulse of some producers is to err by doing more. When successful, product complexity is being subsidized either by scale economies, as in software, or by the consumers' wants, as in luxury products. Choice complexity is usually brought about by those "me-too" producers that want to capitalize on the first-movers' R&D. Less search-costs, its net effect is to drive down prices, being subsidized by producers. It is remarkable though how Apple manages to achieve product simplicity and choice complexity with its iPod line of products. Product simplicity endears iPod with the consumer, while choice complexity helps Apple segment its customer base. As a side note, products start simple, and then get copied and more complicated until another category starts anew.

Regardless of the type of complexity, product or choice related, the consumer is ultimately overwhelmed. Worse yet, consumers may even experience frustration due to unfulfilling complexity of choice. An example could be found on the shelves with cereal boxes at your health-food store. Cereals come in about two dozen offerings, but chances are that you'll find just one to contain organic cereals without sugar. Maybe the producers' problem is the lack of perceived innovation/differentiation in plain and sugarless cereals.

Additionally, you may want to consider: Minimalist vs. Baroque Categories

Internet futures

Friends and foes alike are asking for a seat at the Internet-governance table through the formation of an international institution supplanting the US-based ICANN. The US Government responded with a Monroe Doctrine of our times. For more, check out Internet(s) at crossroads, posted on the sister site Ideas in Motion.

An unorthodox mix of voices

What an interesting phenomenon is shaping up at minimsft, right now! Due to either the exhaustion of more mundane subjects or the logical escalation of the conversation, minimsft has started tackling a subject of major importance for Microsoft: How Fit Is Steve Ballmer as the CEO of Microsoft? Judging by the comments on the subject, the conversation is spreading beyond the usual (SDE) suspects of the blog to embrace what seem to be Microsoft more sophisticated constituencies such as Company management and investors.

It is interesting how, by "ignoring" the conversation, Mr. Ballmer has attracted onto himself the lights of public scrutiny. For most, in the end, it doesn't matter who's raising the questions about the top guy as much as the rise of the right questions themselves.

How this whole episode in corporate communications will end? Your guess is as good as any. However, management at public companies is likely to have one more Sarbanes-Oaxley-type of burden to put up with: the "unorthodox" mix of voices coming from employees, customers, investors...

Addendum Oct 8, 2005

Apparently, there is at least one member of management at Microsoft, Ken Moss - General Manager MSN Web Search, who has read minimsft. Mr. Moss has "strong opinions on many of the points discussed on Mini’s blog and in the comments. But I’ll save those for another discussion." For the time being, Mr. Moss is only addressing a challenge to the anonymous employee behind Mini-Microsoft:
I have no idea who Mini is, but I would like to officially issue a challenge to him to come and do a totally anonymous informational interview with me. If he passes our hiring bar, I am confident that we can provide him with a way to feel inspired by Microsoft and the work we’re doing. We have many awesome features he can come and work on – and he’ll be able to ship them as soon as they’re ready since we update our service constantly.

I, and the rest of the management team, will do our very best to provide cover for any bureaucracy that may stand in his way. Mini will be free to innovate and ship software as fast as he is able to. He will be able to challenge himself to see how good he can be. He will be inspired and have a blast. I can almost guarantee that success won't be easy -- but I can guarantee the opportunity to challenge himself. If he does great work, he will get great rewards.
I find such an idea commendable--to invite an employee to an interview whereby s/he could work in an inspiring environment. Indeed, there are great individuals who get stuck in one organizational context or another, and the only way out/up is outside the organization. Having a second chance in the same place cannot hurt. However, a question still remains: Why would a manager make such an invite only to the person who, supposedly, is behind minimsft? What recommends an anonymous figure to such preferential treatment is an enigma to me... unless this is an attempt at tackling the Mini-Microsoft blog issue?

Hmm... I think the horse is out of the barn and enjoying, albeit in a contorted way, the blogosphere pastures. However, since investors and customers have joined in, minimsft is no longer an internal Microsoft affair. Thus, Microsoft management should kick into gear and treat the whole issue at least at a PR level. Observers of the whole phenomenon would probably welcome Mr. Moss' addressing any of the several MSN-related issues that have come up at Mini-Microsoft.

Addendum Oct. 17, 2005

On where Bill Gates sees himself in ten years:
I’ll be turning 60. I have to say, ten years older than me always seems like that’s when I’ll be old. When I was 40 I thought 50 would be that mark, and, now that I’m very close to that, No, no, no, that’s not being old. My life’s work in terms of creating a company is certainly around Microsoft. Software was what I thought about when I was very young and believed something dramatic could happen, and so the opportunity to be involved in that and shape that industry, that’s really my professional work.

Over the next ten years, my balance between the time I spend on philanthropic things vs. my full-time job will switch in favor of doing philanthropy. It does mean I need to get one of the great young people at Microsoft to get on the hot seat of setting product strategy. I love my job, it’s an amazing job, and I’ll always be able to have some mix of Microsoft and philanthropy.

Addendum: 12/02/2005

Kevin Schofield, General Manager with Microsoft Research, visits MiniMSFT and leaves the following comment:
Regarding Thinkweek documents, they are company confidential documents and should not be discussed outside the company. As employees who want to be trusted by our company, it's our responsibility to be trustworthy in return and not "go rogue" and leak confidential information.

For example, if there is indeed a thinkweek paper about taking MS private (I haven't tried to verify this) it's inappropriate for you to mention it here. Some reporter will read your comments, will start calling Microsoft asking for a copy of it and comments on the record, and will eventually nag enough people that someone will dig it up and leak it to the reporter. Or worse, they'll just make stuff up. This is a huge can of worms that you don't want to open.

Mini, I understand why you feel like you need to stay anonymous to be a public critic of Microsoft, and while I'm not sure I agree I certainly respect the reasoning and emotion behind that decision. You'd lose all respect in my book, however, if you start using the cloak of anonymity to leak confidential information. I think it's great that the company encourages a broad set of employees to read and discuss Thinkweek papers -- I love the philosophy that by default we should trust our employees -- but this is a relatively new trend for Thinkweek and I worry that they will be forced to re-think that policy if the papers keep leaking.

But by all means, I hope you enjoy reading the thinkweek papers. There's a lot of good stuff.
available here
Here's my reply:

Kevin, knowing that a GM with MSFT visits these pages confirms my suspicion that Mini-MSFT cannot be ignored where it counts a great deal (i.e. among the executives of the Company). Not being privy to the discussions you and your peers have about Mini-MSFT, I would certainly expect that, at least when you officially visit this place, some consideration is given to any one of the real issues people bring up. Addressing this forum obliquely does justice neither to your position with the Company nor to your public profile as illustrated by

The option of taking technology companies private again has been exercised by several (e.g. Trilogy, Seagate, Corel, etc.). In other words, changing the form of ownership of a company, from public to private, is just one of the several strategic options managers ought to consider. Since a prior comment here addresses so well such (im)possibility for Microsoft, one should be grateful to the public, if anonymous, intelligence, enabled by this blog, for saving some brain-cycles of Microsoft executives.

Addendum 1/19/06:

To the growing chorus enabled by blogger/minimsft, we should hail the latest voices: Microsoft Partners'. To judge the amount of scripting vs. improvisation, the over/under-tones, and any other parameter in these folks' tunes, have a look here:

And now, the $10k-question: How soon will the top two acknowledge the minimsft- phenomenon?

On sources of technology innovation

Two recent comments, posted at Mini-Microsoft, have given me some food for thought. Please, read through and ...
  1. Oh by the way, there is the SmartWatch to look out for. You know - BillG's innovation that made the IEEE Spectrum list of the ten dumbest ideas of the year? LOL, that's the kind of innovation Microsoft is famous for!
  2. The sad fact is that our execs are now so very disconnected from the real morale/culture problem. They think that somehow just shipping more product will help. NOOO, that's not it. It's the fact that our execs don't understand what it's like to be an IC, to want to just get something done, get credit for it and get paid well to do it...and NOT be getting micro/process managed to death while you're doing it. That's it, plain and simple.
... answer: Could multi-(b/m)illionaries innovate on behalf, and for the benefit, of your average JOE?
Since the collective intelligence is more apt to tackle such a question, I invite you, the reader, to think about this. Your comments will be appreciated!

From behind the NDA curtain

Considering the (qualifiable) success of Mini-Microsoft, a supposedly Citrix employee has launched a Mini Citrix blog. Is this part of a trend that's going to make corporate management honest, and overall better? Only time will tell. Meanwhile enjoy what the smart, and identity-less, folks say, despite the NDA curtain.

Is Koogle's successor the key to Google's future?

I can hardly imagine Google making the kind of money the investor community is anticipating without getting scores of unhappy users. Granted, Google is still far from Yahoo!'s misplaced and annoying advertising, but in the end how can anybody make that kind of money and remain Mr. Nice?

First off, how many people recall Koogle? He used to be Yahoo!'s CEO before Semel. Yahoo! needed a Semel to graduate from the do-only-good on the internet stage and start delivering the type of ROI the Street had been waiting for. Will Google's management and don't-be-evil philosophy change in time? Let's see: Eric Schmidt had given us a taste for how well he could maneuver a corporate entity, at Novell. Wasn't he the one who, among other things, sold SCO-Unix, yet later Novell bought SUSE-Linux? If Schmidt is replaced by a Semel's equivalent, people will talk about Page&Brin as they do now about Filo&Young.

So far, Google's achievements are:
  • Made most happy internet users;
  • Built one (of the most?) extraordinary internet infrastructures on commodity equipment;
  • Perfected an (IBM/CMU?) search/ranking algorithm for web pages to the point advertising subsidizes their turning upside-down business rules for ISVs;
  • Bought a few start-ups and released their nice technologies for free;
  • Seduced the Street into getting a $7Bn cash advance;
  • Created a supposedly phenomenal working environment at a larger scale;
  • By and large, lived by its don't-be-evil philosophy.

How far and where can Google grow from here?

I think most speculation on this is, to put it mildly, unwarranted. I'll leave it to those who need to trade such things. What we may anticipate is that an advertising-subsidized internet can become as Orwellian as they come. There is no such thing as free lunch, and those who expect it should reckon the difference between HBO and the big 4-5 major TV networks. The only problem is going to be the multiplicative factor of the internet.

Who should be afraid of Google?

IMO, its first casualties are going to be those businesses, targeting consumers, that don't understand simplicity commands a premium. More on this here--see the CHI Triad. Conversely, when companies are thinking too much in terms of closed-platforms, or closed-specs complements for their products and technologies, the inherent complexity is discounted. It is as if Microsoft or Intel started with the idea of a platform in mind, or DRM was contemporary to the first Walkman. So, when "new" at Microsoft is an extension of one of its platforms, and Intel tries to go with its first Itanium, they are not as mindful of the customer as they were when their success was growing. In these cases, the novelty is called Google, and AMD, respectively.

Another category that is living under potential threat would be our very selves--the users of Google technology. Indeed, the potential for Google's misusing personal information is so huge that one may want to pay just to be free.

Personal note

As far as I am concerned, my interaction with Google has been allright. While I have not received any discounts to the things I enjoy via Google, the little experiment I run with the smallest Google ad-box to the right of this posting is behaving. The displayed ads match the contents of this page anywhere from 45% to 85%. Yet, I have seen much worse on more popular pages...

Thank you for your attention and comments!

Comments I posted at Mini-Microsoft

Here are my comments posted in different places on the Mini-Microsoft Blog. In green-font are (snippets of) others' comments posted there that prompted me to reply.


It is interesting how, across most postings to Mini-Microsoft, most blame is directed at management. And, to a great extent, management is responsible--otherwise how in the sky could they justify their own compensation schemes?

In ancient times, people used to vent their passions during carnivals, when kings and fools exchanged places for a brief. In the long interval between carnival days, it used to be religion. In democracies, we have elections. Religion has been replaced by shows and morale building exercises (i.e. propaganda). When the individual (contributor) doesn't believe anymore in the show managers put on, it's time for a (ritual) reversal... So, managers, take notice!

Yet, where is the personal responsibility that arises from a conscious decision to grow up as individual and either clean up the mess around you or move on?In the end, let's face it, the cake is in only one place!


For the MSFT shareholder who asks why the Company has a finger in the gamming pie, I would venture to answer:
  • Because of digital convergence;
  • Because of no-longer growing revenues in those areas that have made him money so far;
  • Because it's fun for the engineers who work on it;
  • Because consumers welcome alternatives (to Sony and Nintendo);
  • Because it's there--as a growing market.
...should I go on?


Somebody at Mini-Microsoft quoted "Microsoft Corp. and Time Warner Inc. have been discussing potential online partnerships that would help the two companies better compete against rivals Google Inc. and Yahoo Inc. (Nasdaq:YHOO - news), two people familiar with the talks said Thursday."

MSN has always had a problem: it tried to be(at) AOL no matter what the users who were running to Yahoo! and Google were saying. Now, does anyone think that putting together two less-than-stellar entities will form something great? Hmmm, unless I am a hopeless geek, they should ask Carly--the former first lady at HPQ!


Why is it that folks think Microsoft has lost it's agility? My guess is that most associate the Longhorn/Vista delays with this lost agility. I think this is a cop out. The systemic constipation inside of Microsoft around Longhorn/Vista is the result of the Chief Software Architect's failure to properly design and architect his vision of integrated innovation. Bill is an architect in name only.

The above comment raises some interesting (insider) points. For us, the outside observers, the big question nobody has been willing to ask is: "How much does BillG still deserve the position he appointed himself to?" Follow up question becomes: "When talking about accountability, how high up can one go?"

Be it as it may, we've seen how Scott McNealy and Larry Ellison have stepped aside to make room for new blood...

Few more interesting points, and I would welcome a conversation on the subject, are those related to MSOffice on Linux, getting together with Apple's music format at the expense of WMA, etc. That such points make for heresy at Microsoft goes without saying. I'm not sure though they make a lot of business sense.

Oh well, drop us a line, especially if you are PM in one of these areas. In any case, state your function at the Company!


The owner of, and MSFT participants to, the Mini-Microsoft blog might have done more (for better or worse) to set things in motion at Microsoft than scores of executive wonks. Hence the value of the internet in making the workplace more democratic. Now we should wait and see how well this does to business. I cross my fingers!


From all incentive systems I've known, for large organizations, I had come to respect the most the one employed by McKinsey.

Consultants (at lower levels) rate their next-level-up manager/mentor anonymously, and are being rated by their manager. There is assumed flexibility for a junior consultant from a mentor to another. This inter-rating mechanism keeps most bastards honest, and people do actually get useful feedback for improvement.

For how long has this incentive system been in place at McKinsey? For as long as anybody at the Company remembers!

Now, incentive theory is really a chapter in the science of economics. Have you wondered why when you get in a cab, it starts with a few dollars on the meter as the driver turns the engine on? And, relative to the cost per mile, the starting-fee is not trivial. They make it so a driver gets enough from such starting-fees that he's got an incentive to drive you in the shortest time to destination...


Dear fellow minis,I really love this blog and I am a huge fan of the "Mini" himself. But please quit with the constant field sales bashing,e.g - that shit might get salespeople fired up but for your average introverted dev it does nothing but promote ennui.We both love and fear for the company just like you do. Signed, Longtime EPG account rep (lowest of the low but I have served one of our biggest customers for 7 years and beleive me the software you develop (a) isn't easy to sell and (b) it's a total b***tch to deploy across an enterprise.

Sometimes, it takes an "EPG account rep" to see the gap between the coolest/innovative ideas and happy customers--some people call it "process." Other times, nothing does the trick but a higher stock-price.

Thinking more about the review process at MSFT, it looks like it encourages massive politicking due to its one-sidedness. I would be surprised if, in fact, there have not been executive drives to streamline middle management and increase accountability. But hey, everyone has got a friend, with a lower IQ, whom can be turned into a power base through the one-sided review process.

In other words, a bad process may be as costly as no process...


Bring back some sense of fairness between execs and rank and file. 320,000 shares for Kevin Turner? Is Kevin really worth 320X+ more than the average good employee? Should a grossly underperforming exex like Burgum not only retian his job but cash a couple $M every Q? I don't think so.

I wonder since when has it become an issue the fairness of executive pay? By and large, little is fair about it, and so is life!

Having incompetent executives is a another matter. The novelty about this latter notion is given by this couple of key elements:
  1. MSFT has smart, and type-A, personalities who came to the Company after/under genetically less endowed managers;
  2. The employee-liberating, and -enabling, capabilities of a blog.
The rest will be a new page in corporate reform, driven by the explicit action of a vocal, and newly empowered, minority.


Imagine if Apple suddenly decided to offer MAC OS 10 on standard Dell platforms, and when you called Dell, they asked which OS you wanted. UI in Office 12 with other 23.984 useless featuress (where each running Office app will eat 70 MB of the memory)...

Reading some recent opinions posted at Mini-Microsoft about how several of MSFT products/features turned into resource hogs, let me put it in a slightly different (non-Google) context:

There has been a yesterday's company whose platform runs most efficiently and effectively out there. Its customers loved it so much that they saw no need to upgrade--no, it's not about some mainframe architecture.

So, what happened? Hardware system vendors (HSV's) decided to stop offering support for the old platform. The old hardware would either crash or not interconnect with the newest hardware. In the end, customers had to jump ship. Who benefited from this? MSFT, Intel, and al other usual suspects in the HSV space. Who lost? The customers and Novell.

Fast forward (I) to the early 2000. IBM, not to be fooled twice, drops a lot of mainframe-, and new-IP, into Linux (e.g. virtualization, driver support). Not to be outdone, the rest of the HSV band (formerly, of MSFT-brothers), with the partial exception of Dell, joins IBM in supporting straight Linux, or one of its corporate flavors (Red Hat, SUSE/Novell). As a measure of this transformation, 5 years ago, who would have thought SUN would complement both Solaris and Sparc with Linux and Intel/AMD, or the fact that Oracle would run on Linux??? And, except for IBM (and possible Oracle) nobody does it despite Microsoft.

Fast forward (II) to the Google's IPO. The public at large gets a taste of Google's context (i.e. simple things in small-sized software).

Fast forward (III) to 2005 corporate customers. Here's the voice of a select few. What is the message? They want to DO MORE WITH LESS!

Fast forward (IV) to 2005 HSVs and ISVs. Oracle and IBM are doing/promoting about grids, and most every HSV is doing blades. How do I translate III & IV? Optimal allocation of IT resources or better ROI's for the IT budgets.

Fast forward (final) to mini-msft blog. Microsoft engineers ponder how it is possible that their Company continues to invest in countless obscure Office-like features. Yeah folks, the genie is out, yet who knows when the turn comes for your management to think of growth alternatives to bloating software.

As end-user I've been able to tolerate MSFT annoyances up until two episodes. (1) When a customer from abroad emails me an audio-clip he made using MSFT tools, I could not play it back until Windows Media Player checked with some DRM-god on the internet. (2) Hearing the complaints of a partner (marketing-strategy type) about his Dell laptop slowing down I suggested, and then wanted to initiate, a reinstallation of the system from the vendor's CD. I was told that, because the XP version on the CD was older than the (patched) one on the laptop, I could not reinstall the system.

Why did I share the above two anecdotes with the readers here? To illustrate how MSFT-neutral customers might have grown unhappy with MSFT to the point they'd switch when alternatives show up. For the (mini-)Microsoft engineers, such consideration should only nuance the(ir) conversation--after all, they've gotten paid their salaries from such tactics. For those in management, it is a whole different thing. It's up to them whether or not to take their customers and (minimsft-)employees seriously, regardless of their particular biases.


Somebody posted a remark about Apple grabbing mindshare with the iPod and OS X. As somebody who is completely outside of Microsoft -- I'm a journalist, but very much not tech -- I can't stress enough how right that is. It is not only the products like the iPod, it is the decisions they have made, like yanking the iPod Mini at the hight of its sales to market the Nano. The collective reaction among the people I know was first something like God, the balls on those guys! followed by God, is that beautiful!. And the "halo effect", though probably overrated, is real. All the Apple people in my department have to do is say something like "If you think that is cool, you should see my Mac."

I think folks in MSFT Entertainment Group have taken notice--As proof, msofties themselves are saying the latest XBox is something they look forward to buying.

"If you think that is cool, you should see my Mac."

Now this is major indeed. Not as much for its effects--when Apple started going down, it still offered a greater experience than MSFT--as for its power of example for companies dealing with consumers. The platform approach at MSFT, which made them so big, sustains a vicious circle in which some products are put on the market without being required to compete on their own merits. We are probably witnessing in fact the price platforms are exacting on a firm by skewing the behavior of marketing and development folks. On their part, customers who sunk so many resources in MSFT technologies have little option but keep "consolidating" the platform. The ideal situation would be when customers like so much a product that they want to try others from the same vendor. Only then should the vendor look for platform synergies. Again, this would be ideal.


More on mini-Microsoft
On MicroSoft

Meet my customer's customers!

For practitioners of the art/science of new (IT-) product development, CIO roundtables are a must attend. Many a time, such a practitioner faces oneself with a product-concept that sprung out of somebody's frustration/imagination, a product-concept that extrapolates somebody's strong feelings into a whole market. Therefore, getting together with a group of CIO's is as close as one can come to experiencing the reality oneself.

I happened to be involved recently in such a CIO roundtable, over a couple of days. Here's the background on the CIO's companies.
Day One:
Manufacturer: a US subsidiary of an Asian manufacturer of electronics;
Designer: A company that only designs stuff;
Agency: A quasi-governmental entity;

Day Two:

A retailer: A rather special one;
Financial: A diversified financial services company;

Here is my approximate transcript:

THEME #1: How to manage growth without adding personnel? Leverage IT to scale the company/IT as multiplier of existing resources!

Manufacturer's View:

Premise: IT gets information to more people faster;

Goal: Automating everything without adding personnel;

How: BPI & BPT initiatives;

  1. For those people in the room things are OK, but for those outside the room it's about loosing control;
  2. The IT leader problem: getting in the right place where business people make strategic decisions (i.e. informal networks where things happen)
  3. --> It's not about IT, but relationships
Conclusion: A lot of the technology problems are about people's (not) wanting to use new systems--culture change, etc.

Context: Everybody in the industry buys the same tools, so business processes differentiate a supplier from the next; the next step is automation

Quote: "The exact process that I use is my only advantage for the next year!" after that, process automation

Outsourcing Views:
  1. Outsourcing without offshoring doesn't save money!;
  2. Outsourcing results in as much as 10% savings, however it ends up not being profitable;
Outsourcing challenge:
  1. If you outsource for knowledge then you had better know how to get that back in house;
  2. Understanding diversity of cultures is critical for good outsourcing (incentive system, trust, etc.);
What to know about outsourcing:
  1. How much does it really cost you to outsource: socialization (i.e. making the same assumptions), coordination, etc.?
  2. Outsourcing Business analysis and design: good;
  3. Outsourcing coding : not good since it brings no value added;
  1. No ROI internally but at corporate level they are lots of them with plenty of intangibles;
  2. Should separate the cost of doing business (email, computer, etc.) from others and don't ask for ROI's over a long period of time;
  3. I can do more with less;
  4. ROI's have been misused and abused to the point they all sound like TV ads;
Words of wisdom: IT vendor, give me the biggest, fastest, and that can be absorbed--many times, several initiatives come into the same area and that's a problem for they cannot be absorbed!

Designer's View:

Premise: IT is good only in the context of what's important for business, what's mission critical, etc.

Industry challenge: When the OEM's slice their prices the suppliers have to figure out a way to do so as well;

Modus operandi:
  1. Before improving a business process, ask if it can be eliminated
  2. --> Is this business process a value adding one or is just a support function?
  3. --> simplification / elimination;
  4. Change the business process to comply with the IT tool--unless prevented by a strong business reason!
Context: A lot of IT activities are commodity (except for Dell's)

Challenge: Business leaders to understand what technology is

Solution to above challenge:
  1. Insistence on formal communication;
  2. Some IT leaders are assigned to talk to the business/design leaders;
  3. Quarterly stirring committee--people at 2nd level of management (directors and senior managers) in charge with accounts payable etc.;
  4. -->bi-directional flow of communication
  1. 80% customers, 90% suppliers and 60% of sales force are in overseas
  2. --> global environment
  3. --> global support for customers, its own sales, and suppliers
  4. --> outsourcing
Perspective on outsourcing: Outsourcing is not new (e.g. payroll, salesforce) but mission critical apps should stay in-house for control reasons

Outsourcing Challenge: Understanding culture is also important, otherwise contracts are just pieces of paper that need to be enforced in courts

  1. Things need to be articulated in metrics that matter to the leadership (not money always!);
  2. Investment driven by the need and not other considerations;
  3. When a business case is made and a look at the total cost.


Challenge: Educating business people about IT and not only the IT people about business;

  1. "O"-word is forbidden;
  2. Business wants to keep control (over accounting, back-office, etc.) so outsourcing is not liked;
  3. However, it is CIO's job to consider all options;
Outsourcing challenge: What's gonna happen when things go wrong? If I am responsible I want to be in control.

Outsourcing potential:
  1. Keep same level of service when ownership changes;
  2. Pilots are good (learn a lot of info and risks are low);
  3. Identify non-critical parts of the business and outsource them so you don't keep hiring;
  4. How expensive is to bring things back in house if/when something goes wrong?
  1. Intangibles are no good in an ROI analysis;
  2. --> Don't tell me how much IT saves, but by how much my fixed cost decreases.

THEME #2: What is you biggest set of (IT) challenges?


  1. Automation of the relationship with suppliers without cost to the suppliers (let Wal-Mart drive the RFID)
  2. Compliance // MasterCard and Visa are imposing controls on the users of their cards that cannot be observed by themselves
  3. Getting the telcos to wire the facilities (they sell all the right stuff in words but don't deliver)
  4. Password change rule: "to be different from the last 4" is difficult/costly to be enforced
  5. --> Solution Single Sign On (SSO)

SSO Problem: SSO would be a neat technology if it came at $10/user per annum;

SSO alternative: Leveraging Active Directory because it was too expensive to buy SSO!

  1. Technology today is so much easier to use that developing in-house applications is more and more doable HOWEVER, the problem is that in-house developed software needs to be documented, but then ERP-X support doesn't have all the answers typed up on paper either so it all comes down to the responsibility of the CIO;
  2. Due to outsourcing pressures, IT people are normal again and one ought to look for in-house integration and development opportunities as well.

Challenge with outside software packages: 16 people are supporting 4 functional blocs of ERP-X, and next year they'll have to grow to be 20 --> too much for a general ledger or payable/receivable system!

Needs and Future Opportunities:
  1. Mobile ways to get merchandise out of the store so that waiting in line will be cut down (it's not about cutting labor as much as keeping the flow)
  2. Restaurant technology in supermarkets
Modus operandi: The only information on the customer is their credit card number held for 30 days by and at an outside highly-encrypted place

fCh Question on the above: How about the whole new etailing category exemplified by Amazon and E-Bay, and their IT-enabled ways of knowing everything about the customer? Not to mention the whole school of thought from the strategy consulting houses that calls for more numbers and data about the customer?

Retailer's CIO Answer: The pendulum is swinging back--it went too far into numbers and everybody is getting hurt. We offer our customers a (shopping) experience not cross-selling/marketing...

Quote: "I'd love to buy software that's reasonably priced; 3% is a good margin in retailing, 10% (as opposed to 50%) might be a good margin for the IT vendor too!"


  1. Information security;
  2. Our Company name shall not be in the newspapers;
  3. California and New York ask repositories of personal data to inform each and everyone of their customers in case there is a breach in data security, other states will follow;
Approach towards information security: Info security oversight committee (security, legal, compliance)

More (mundane) challenges: 1000 people in the branches who need to access 5 to 10 applications with different passwords/rules/scripts etc. --> SSO would be a good thing 27% to 32% of helpdesk calls were about password resets (clerks at $8/hour forget passwords from Friday to Monday)

SSO problem: The difficulty is not about logins and passwords, but scripts that launch the legacy financial applications.

Modus operandi: DIY doesn't work for banks! Too many applications coming from different and highly specialized vendors; internally, we develop only interfaces and intranets

Future needs:
  1. Data warehouse (cross-selling opportunities etc.) due to the proliferation of too many SQL databases (a total 57);
  2. Enterprise content management (archival, storage, retrieval, etc.)

Quote: "If you wait long enough in the industry, it's all going to come back: now, with ASP's, it's all about time sharing again!"

More on mini-Microsoft

I keep reading the comments posted on Mini-Microsoft pages about how lean and mean MSFT used to be, and how annoyed are the developers by the extra layers of "bureaucracy"--program managers (PMs) and testers included.

These are probably the voices of those (younger) developers who got into MSFT at its top form. Yet, why aren't they being told that MSFT used to ship buggy software ("blues screen of death") and made for tons of jokes about bad software development? When you grow big and customers say you need to fix up or else, adding more testers and "bureaucrats" to make sure the customers don't switch is VITAL!

I shipped myself some big software and know full well about the culture clash at the intersection of developers, business, customers, partners, testing, consulting, etc. Guys, beyond a point in size, it's just life! For those advocating a smaller MSFT (hence mini-Microsoft?), I should add that a little fat hasn't killed anybody, and one gets to appreciate that when a new opportunity shows up or the market fluctuates. In a sense, one of the problems Microsoft has is its inability to hire what/how much it needs! And this is not a function of Google as much as a function of how education fails US. Moreover, as of late, we've seen many of downs, yet people complain about having to co-pay $40 for branded medicine. If you spent time with the folks from Wall-Street, who are ready to chew you up at a moment notice, you'd have a better understanding of where Ballmer is coming from on that.

As I said elsewhere, I suggest MSFT reorganize along big enterprise stuff and consumer stuff. Big enterprise software is meant to be boring and process-laden(sorry folks!), consumer software being in the opposite category. Self selection of the employees could put its mark on the overall happiness then. As another recommendation, MSFT could do better if stayed away from just about everything that (can) exists in digital form. Initially, this approach might have been the result of lower projected revenues in mature areas. Now, when so much is becoming digital, it may be hubris. A better way to tap into the future would be to just buy whatever company is doing well in a promising area--problem is, those guys don't always develop on .Net or Visual Studio...

Why wouldn't the top brass at MSFT put everything into two buckets? Maybe because they keep telling everybody Windows is a monolith that cannot be taken apart into modules--yet they are doing just that, at least when it comes about developing the beast. In other words they might have gotten themselves on a "dependency path" that does not allow Microsoft to be different and save management/legal face at the same time. To counter a possible argument like: "fCh, doesn't MSN cut it both ways under your two bucket plan?" I would say that beyond a certain size, MSN consumer cannot be(come) MSN enterprise, unless you want to make everybody unhappy--from developers to customers, your cousin included. A grown up MSN consumer would be more like Yahoo!, whereas MSN enterprise like Who in the right mind would MERGE (all the way to developer-level) the two of them?

As for Google, let those guys go round the bloc for a few times, prove their worth, and then jump to conclusions. Google is not the answer, any number of start-ups in the Valley might be--at least for those who dream of themselves sleeping on/under tables and developing untested software. I use and respect Google's stuff, yet I am apprehensive like hell about what it may turn into--I'll write more about this soon. For an early taste of what's to come, click here!

Synergies between retailing and search

Let's say you are a young father-to-be. It's 9pm and your wife has settled, uncomfortably, on to her favourite couch. Clearing her throat, she politely reminds you that you've been a bit distant lately, that you haven't done a hell of a lot to help her around the house. You cringe. She continues: she's eight months pregnant, for God's sake, and when are you going to get around to reading that copy of What to Expect When You're Expecting that she left none-too-subtly in your briefcase six months ago?

Now, you're in your den, avoiding dealing with the sheer terror of becoming a father by checking your e-mail for the tenth time in so many minutes, but a pang of guilt finally reaches your irresponsible heart. So you start searching the web, trying to get smart quickly. You Google "pregnancy baby" and head to the first link,, where you read up on the eighth month.

You then find a link to an article that lists 10 things you can do to be a better husband. The fourth suggestion reminds you to read the books your wife has purchased, so you head to Amazon and buy another copy of What to Expect When You're Expecting, as you left the one your wife gave you next to the Gideon Bible on your last business trip. "I'll read it, I promise," you tell your wife, and then add, "I'm on Babycenter right now, in fact." Pleasantly startled, your wife springs off the sofa - well, lumbers, perhaps - and peers over your shoulder. In a flash of inspiration, you intuit that there might be something you could watch together on TV that relates to the whole parenting thing. "Let's see if there's anything on TV that might be good," you say.

You click over to your TiVo home page, which lets you manage your television service through a search-based interface. You search for "parent childbirth newborn" or something like that and find that there are five shows in the next week that focus on the course of pregnancy, three of them on the Learning Channel. You tell TiVo to record them all, noting that the first one will be available to download tonight, in half an hour, no less.

In the background of your computer, as you jump from site to site and page to page, several marketing-related actions are occurring. A cookie set by your local cable company notes that you've visited several sites that r marketing potentials -,, and, all sites that indicate significant intent to purchase products or services. You've also alhat you intend to download five new programmes, and the system takes note of content tags associated with those programmes, cross-referencing them with your recent search history.

The cable cookie shares this information with a marketing application running in the background of your computer, perhaps as part of that Google Desktop Search (GDS) program you downloaded last year. Alerted by the marketing potential that your recent surfing has created, GDS instantly uploads new tags to Google's central advertising marketplace.

Up on Google's ad marketplace, millions of similar potentials are aggregated and presented to hundreds of thousands of advertisers for sale in a modified real-time auction. Most of those advertisers have preset their spending levels, demographic preferences and, most important, intent-based targeting profiles.

In the time it takes for an average Google search to finish - less than a second - several advertisements have already been sold against each of the five programmes you've selected.

Half an hour later, you and your wife turn on your television to catch the Learning Channel show. As it starts, a small box appears on the bottom of the screen, alerting you to several advertisements that have appeared in your feed. You pause the show, hit the ads button, and scan the commercials.

Only they're not just commercials; they're offers as well. The first is from Gerber for a free month's supply of formula. (Pass; you and your wife have agreed that breast-feeding is the way to go.) Next up is a Pampers ad offering a free box of diapers. (Sure, why not? You accept that one, clicking the box that allows the system to send your details to the Pampers marketing machine.)

Then comes the killer ad: "Click here for $50 off a Peg Perego Stroller. Ships in 24 hours!" Huh? you think to yourself. That's the one your wife said was the Mercedes of strollers. Maybe you can afford one after all. "Honey," you begin. "What do you think? Should we go for it?" Her eyes light up (you had said no to this exact request twice - $300 for a fucking stroller?!! were your exact words) and you click to accept the offer. Your wife snuggles into your side, pleased that, for once, her husband actually gets it.

Is such a scenario possible? While the details will inevitably vary, I honestly think it is not only plausible; it is inevitable.

For an advertiser like Peg Perego, such a scenario not only makes television advertising affordable; it turns the medium into a new sales channel. Instead of buying time on the Learning Channel on Mondays at 8pm (a content-attached purchase), Peg Perego will buy direct access to the intentions you have declared through a blend of your search history and your television watching habits. Once it is satisfied that you are a potentially high-value customer, it will then push advertising offers down the cable line to your digital video recorder.

The beauty of this scenario lies in how it changes the economic model of marketing. First of all, Peg Perego has never been a television advertiser because the medium has never lent itself to a high enough return on investment - the company relies mostly on word of mouth and distribution through a network of retail outlets for its sales. But because it can identify exactly who its customers might be, on the basis of intent, it can change its model completely, and view a marketing investment in television to be, well, not a marketing investment at all, but rather - this is worth stating again - a new sales channel. This in turn means that tens of thousands of marketers who otherwise may never have considered television a viable medium will soon see it as such.

That is the magic of intent-based marketing - it shifts marketing dollars from the unknown to the knowable. As Tim Armstrong, vice- president of advertising at Google, puts it, "search turns a cost centre into a profit centre". Think about that for a minute. The entire foundation of marketing - a $100bn industry driving, well, nearly every business on this planet - is shifting, slowly but surely, to a new model, one informed by the simple idea of people looking for things on a search engine. No wonder Jan Pedersen, chief scientist for Search & Marketplace at Yahoo, recently quipped: "We think of shopping as basically an application of search."

Marketing is not the only industry facing massive change in the search economy. There is probably no greater example of a thriving off-line search business than the yellow pages, now worth around $15bn in the US alone. Within one generation, however, the yellow pages will be viewed as a dead industry.

Now, before you tell me that flipping though a printed directory is far more convenient than turning on your computer and punching in some search terms, let me remind you that local search, as it's called in the search industry, is still in its very early stages. There will be about 1.7 billion mobile phone handsets in use by the year 2006, and most of those will have internet access.

When finding a dentist is as easy as punching "dentist" into your phone (or, with new technology already on the market, simply speaking it), the idea that anyone will pull out a 10lb paperweight to execute a search will seem as quaint as hand- cranking a car.

Imagine it's the near future and you're in your local grocery store on a mission to pick up food for a Saturday night dinner party. Because you've got oodles of disposable income to burn, it's a high-end Whole Foods store, the aisles dripping organic righteousness and whole-grain goodness. You know that dinner for eight is going to run to at least $200, not counting the wine, but that's OK compared with the tab at the local bistro. You'll be coming out ahead. But you do want to make sure you're not spending money you don't have to, especially on the wine.

Now, Whole Foods has quite a wine selection, but the store isn't known for its discount prices on anything, and when it comes to wine, you've got a sneaking suspicion that the store is really sticking it to you. But it's a convenience buy, you've always thought, and you're willing to put up with it for the most part.

As you slip your Neiman Ranch tri-tip roast beef into your basket and thank the butcher, you head to the wine aisle. What might go with that grilled tri-tip? A nice Cabernet, no doubt. Whole Foods' wine aisle, a testament to hierarchy and peer pressure, places the most expensive bottles on the top, and the cheap juice on the bottom. No self-respecting Whole Foods shopper wants to be seen bending down to check out a bottle of wine. Then again, those bottles staring out at you from eye level are exactly the kind that you suspect Whole Foods marks up with the glee of a four-star sommelier.

What to do? Not to worry; you've got Google Mobile Shop installed on your phone. You whip out your Treo 950, the one with the infrared bar code reader installed, and you wand it over that $52 bottle of 2001 Clos du Val now lovingly cradled in your arm. In less than a second, a set of options is presented on the phone's screen. It reads:

2001 Clos du Val Merlot, Lot 21 Stags Leap District, Napa Valley Average Retail Price: $38 (click here for more) Click here for a list of prices at nearby stores Click here for stores selling similar items Click here for reviews of 2001 Clos du Val Merlot Click here for more on this vendor [ecological impact, vendor labour policies]

You're pretty sure that Clos du Val isn't employing child labourers, and anyway you're really interested only in price comparisons, and the first screen has confirmed your initial suspicion: Whole Foods is ripping you off.

You click on "list of prices at nearby stores" and see that the liquor store up the street is selling the same bottle for $39. You click on that store's link, and then choose the "reserve this item for same-day pickup" option. With a satisfied smirk, you replace the bottle on its perch on the top shelf, and head over to compare prices and recipe tips for $6 boxes of imported pasta. As you leave, the fellow who runs the store's wine department eyes you warily, then picks up the phone to talk to his manager. "Herb," he says. "Did you get my message about banning cell phones in the store?"

Is this scenario possible? For it to happen, a few nontrivial things need to occur. First, the entire UPC barcode system must be made open and available as a web service - a nontrivial event, to be sure. Those bar codes and the information within them are not yet a public resource, though a small coterie of researchers and entrepreneurs is looking to change that. Second, merchants must be compelled to make their inventory open and available to web services. Third, mobile device makers must install readers in their phones, essentially turning phones into magic gateways between the physical world and the virtual world of web-based information. And fourth, providers like Google must create applications that tie it all together.

While the first few hurdles to the realisation of this scenario have yet to be jumped, it's certainly a no-brainer that Google and Yahoo would love to tie everything together should it become possible to do so. The implications of search breaking out of the PC box and making real-time information available at the point of purchase has been the failed business model of several web 1.0 companies. But with recent developments in local and mobile search, it is far closer to happening now.

What might be the effects of such a system coming to fruition? For one, markets would have to compete far more on service, convenience, ambience and other factors unrelated to price. And vendors of products that have been made in third-world sweatshops or in factories that overpollute; or vendors that support causes some consumers do not wish to support; would be called out in a far more transparent fashion. Refusal to participate in such a system would mean that vendors or merchants had something to hide, and so the system could be a major force for good in the global economy, forcing transparency and accountability into a system that has habitually hidden the process of how products are made, transported, marketed, and sold from the consumer.

Whether or not such a system actually develops, the fact remains that it could, and that alone is a powerful force on the vast ecosystem of local and global commerce. Decision by decision, possibility by possibility, click by click, search is shifting the firmament of our economic world, and what we've see so far - the billions upon billions of dollars running over the servers at Google, Yahoo, and others - is simply the first indications of that shift.

for more, click on comments!

This is an edited extract from "The Search: How Google and Its Rivals Rewrote the Rules of Business and Transformed Our Culture", by John Battelle, to be published by Nicholas Brealey Publishing on September 20.

To buy a copy for £16.99 (+ SH) call 020 7239 0360, or click here!

On MicroSoft

BusinessWeek features an interesting cover story on its 09/26/2005 issue about Microsoft: "Troubling Exits At Microsoft - Once the dream workplace of tech's highest achievers, it is suffering key defections to Google and elsewhere. What's behind the losses?"

Amid all changes in the marketplace, Microsoft's stagnant stock price and increasing attrition rate make for a troubled picture. The BusinessWeek article seems to suggest that Microsoft was different in the '90s, and only now, with Ballmer at the top and Google/Yahoo becoming better professional destinations, things take a while to come out of Redmond. However, one should recall that after shipping MS-Windows 95, it took Microsoft a long time to come out with MS-Office--a suite that was made up of various pieces, built or acquired.

Obviously, Microsoft is facing a fork on its road. On one hand, enterprise software needs to come out to the market in lockstep. Thus, most efforts to transform the Company into a mature business ought to be in areas dealing with large enterprise software. There are many models one could think of, yet one has to start from one's own premises. On the other hand, in the consumer space, where the innovation pace has been set by Google, Yahoo, and Apple, Microsoft would do well to think of ways to stay nimble and flat! In any case, there are always some who wonder: "When has Microsoft stood for (product) innovation?" pointing to the Company's long string of acquisitions. On the enterprise side, Microsoft should look at ways of getting better than IBM, on the consumer side it's got Google and Yahoo to worry about. Accordingly, there could be at least two different corporate entities, one targeting enterprises, the other consumers. No matter what the answer may ultimately be, trying to cut it into a size that fits all is just a dream, and no other entity has managed to be all things to all markets.

Forbes also has an article in its 09/13/2005 Business Strategy section: "Microsoft's Midlife Crisis"

This article goes into some of the details about daily life at Microsoft. The reader learns about a number of management initiatives launched by Ballmer, such as everything-reviews, or the dismissal of "6.5% of the workforce every year for inadequate performance." While these initiatives could make all the sense in the world, the reader is not given the context, either organizational or historical, in which they occur. This, together with the scattered complaints of its employees, leave the reader bewildered as to what the diagnostic and solution might be for Microsoft (culture) ills.

In fact, for the student of corporate culture, a better place to start thinking about Microsoft's situation would be to look at Mini-Microsoft, a blog where people with all Microsoft-related affiliations vent out about the Company. From there, I quote an anonyous reply that puts the employees' complaints in a better industry perspective:

Hopefully sites like this will add value to the discussions around the problems that MSFT faces and what can be done to address those problems.

But the fact of the matter is if anyone thinks MSFT is in poor shape in terms of innovation, morale, etc... take a look at the rest of the industry, and just the economy in general.

You want to be really depressed, talk to folks who work in the auto industry... or let's look into what ails the airlines... two bankruptcies in one day, and who's accountable? No one knows for sure, but a lot of pilots, flight attendants, mechanics, etc will be paying the price for management mis-steps...

Even in the hi-tech industry, think MSFT is bad? Try working for IBM, HPQ, Sun, SGI, Intel, or if services is your thing, try EDS, Accenture, etc. Talk about endless meetings, lack of passion, regular quarterly headcount reductions to cut costs, missing the innovation that made some of these companies great... MSFT isn't so bad by comparison.

However... just because MSFT isn't as bad off as these stalwart companies, I also can't deny that MSFT isn't as passionate, innovative, and hip a place to work as companies like Google, Yahoo, and other darlings of Wall Street and the media are. But they'll all end up in the same place as MSFT eventually (with the same BW or Forbes articles written about them), and those same passionate, innovative, A-Type personalities will move on to the next big thing.

It's part company growth and part Wall Street. Get big enough, get successful enough, and God forbid, go PUBLIC, and you can flush long-term innovation and employee morale right down the toilet. Bill and Steve are just as beholden to Wall Street these days as Immelt and Palmisano and Hurd... cost cutting, earnings, and stock price trump innovation, employee morale, and benefits every time.

Upset about having to pay $40 for a prescription or no longer having towels for your after-workout wipedown during lunch? Would you trade that for what other competitors and other industries offer? Probably not.

As I mentioned, just because MSFT isn't as BAD as the majority of companies, that doesn't mean it's as GOOD as Google, et al, in terms of passionate workforce, excellent benefits, stock options, innovation, etc. There is significant room for improvement.

But at the end of the day, I'm not certain any publicly traded company in America can sustain the entrepreneurial spirit that got them going in the first place, once investors become the key stakeholders. Just look at what happened to the HP Way... it got laid off and put to pasture... Gerstner made quick work of the IBM family, and the "Think" mantra morphed into making the elephant dance... on the backs of tens of thousands of layoffs.

Microsoft has the talent and people and money to re-invent itself and compete. And most likely, change will need to start at the top with Ballmer. Often times, executive shakeups produce near and mid-term results. But ultimately, MSFT's situation is more a function of the influence Wall Street has on good companies, than anything else.

In other news: This site is fantastic and I just saved a lot of money on car insurance by switching to GEICO. ;>

In the end, here's Goldman Sachs' position about the current situation at Microsoft:

Goldman Sachs maintained an "outperform" rating on Microsoft despite employee morale issues.

The research firm cited recent reports about a decline in morale among Microsoft employees. "Microsoft has never been the most innovative company," Goldman said. The rapid pace of innovation by competitors including Google has been a lingering employee concern, according to Goldman.

Moreover, the maturity of Microsoft's products has been a damper on growth, on the stock and on employee compensation, according to the research firm.

Goldman remains convinced that Microsoft still has "a lot of smart and highly motivated people," and that the product pipeline remains strong.

"The new product flow and innovation is impressive and increases our conviction that there are robust new product cycles upcoming that will be beneficial to the stock and a boost to morale," Goldman said.

So, all will be well when MicroSoft will have played all its cards (i.e. products on the pipeline). Until then, a cautious "outperform"...

From SUN To SUN Again!

"When people have a monopoly sometimes they don't make the right choices." Intel's blunders have reinvigorated the computer industry in the sense that it "is good for the industry, and it will lead to more innovation."

"In my mind the biggest challenge is to avoid unnecessary complexity and gratuitous engineering. My personal mission is to make things as simple as possible."

For him, investor with $200,000 in Google at an early stage, what matters most is that he is doing just what wants to be doing at age 49. "I've wanted to build things since I was 6 years old. Writing checks and watching companies grow is not my cup of tea, if you know what I mean."

Andreas Bechtolsheim, Sun co-founder

Andreas' observations are very timely. Several of the (IT) industry giants, past and present, would do well to take in his advice!

E-Bay & Skype (Part I & II)

Even the thought that E-Bay is evaluating the possibility to buy Skype is somehow unsettling.

Given the discernible lack of complementarity between what E-Bay and Skype have been about, one is left wondering what the synergies might be? Or maybe E-Bay, after an extensive international expansion, is simply running out of steam as far as economies of scale are concerned. After acquiring Pay-Pal, one would expect further developments from E-Bay towards economies of scope--since the shopping experience there is far from perfect (e.g. trust or item return issues).

By comparison, one can see a much better rationale behind's A9 efforts. Often times, somebody searches something on the internet with the prospect/possibility of buying something.

... unless E-Bay's rationale is to counter what Yahoo! and Google have recently done in the VoIP area. Indeed, considering that these two are its direct competitors, E-Bay may fell it needs to mirror their actions. However, this would be a wrong move; check out historical precedents!

09/26/05 Addendum:

Following the completion of a project evaluating opportunities for other players in the telephony and data services sector, here are some considerations as they relate to the rationale behind the recent acquisition of Skype by E-Bay:

  • "We believe that you should not have to pay for making phone-calls in future, just as you don't pay to send email." Niklas Zennström, Skype cofounder and CEO
  • So far, Skype's cost of acquiring a customer has been $5, compared to $200-$400 for Vonage;
  • Skype adds about 150,000 users a day to its member base of 54 million in 225 countries and territories. It does so without a dollar spent on equipment, or marketing--zero marginal cost.
  • "We want to make as little money as possible per user, because we don't have any cost per user, but want a lot of them." Niklas Zennström
  • VoIP is driving the price and cost of VOICE to zero;
  • Cost sensitive customers are adopting Skype in droves. In short term, this increases average revenue per user (ARPU) for the providers of traditional telephone services. In the end, they would have to offer telephony services for free, and part of a larger data services package.
  • "When Yahoo! and Microsoft buy companies, they typically disintegrate them." Niklas Zennström
  • E-Bay plans to leave Skype alone, as a brand and business.
  • Skype is one of the top brands on the internet. Its brand alone could be worth over $1Bn of the $2.6 E-Bay has paid for it.
  • The rest of the purchase price (up to $1.6Bn) could also be justified by the "reduced friction" Skype will enable E-Bay's transactions with. Cross-pollination between the customers of the two entities, and "pay-per-call" (analogous to Google's pay-per-click), are further justifications.

Still not convinced Mrs.Whitman's spent well E-Bay's dollars? Consider this:

The picture on the minds of the EBay-Skype dealmakers becomes so much clearer now, and sense has been blown into it anew. This deal is a keeper.

Watch for major transformations in the telephony-services market; subscribers will become consumers!

Never think you are too good or right relative to your customer

You probably ran into this situation too. Let's say there is a book or something you order from and you are being told "Usually ships in 1-2 business days" or "Usually ships in 24 hours." When you actually complete the transaction, unless you paid for expedited shipping, you learn that the item you've just ordered would ship in 14 to 20 business days.

This seems to be another way for to segment its customers and/or boost the adoption of its "Free Two-Day Shipping or $3.99-per-item Overnight Shipping on over a million eligible items sold by" program. Alas, all this comes at the expense of service level.

That is not the most economical is old news to its customers, who paid the premium because of the quality of service. Does think its service level is so high that it only can be lowered? Or could it be that they borrowed from the book of some top-service retailer in Kirkland WA, that charges for membership?

Hmm, I don't think this can work in the long run (factor in those looming state taxes), but then again I'm not the one running their numbers...

Since we are talking about, who likes the bazaar atmosphere on their pages anyway? I can even imagine one line of defense: is doing real-time trials on what sells and it actually sells more by cluttering the space. However, based on my years of history with the Company, I would expect at least the option to customize my Amazon shopping portal if not a default minimal design. Is it just me?

The road(s) ahead...

In the world of personal computing, the ball has been for too long in the court of the incumbents--folks in Redmond, etc. So it pleases one to see how the personal computing industry is taking notice, and changes as result, of the challengers--Firefox, Google and their likes. Indeed, Internet Explorer has become stale and heavy long time ago--until recently there had been no developers working on it anymore. Longhorn, the ghost of the operating system once meant to be, will finally be released in 2006.

Meanwhile, public imagination has been set ablaze by a series of pointed actions undertaken by the folks at Google: acquisitions, big name hirees, unconventional business approaches towards product and service offerings, or the $4Bn pile of cash it wants to get by selling its near $300/piece stock.

In charting out Google future, I would ponder the answers to the following questions:

  1. What strategy should Google follow?
  2. What one Google product should have its API public?

Google should make it so that access to its services is less dependent on Microsoft's gates(sic!).

Longhorn, at least initially, was supposed to offer a lot of the functionality Google tries to bring to the desktop and more. Should Longhorn come in a position to do that, Google's days on the desktop would be numbered, and considering the low adherence people have to search websites, Google would have a hard time justifying its multiples. Consequently, an elegant way out of the Microsoft conundrum for Google could be Linux. However, one of the major weaknesses Linux has is its lack of a (novice-)user oriented interface.

How about extending the Google search capabilities to Linux so that the user is presented with an extremely simple point of access to all the local-, and internet-resources? In other words, what would it take Google and Linux to become what Longhorn has struggled for such a long time to be?

To ensure the success of such approach, API's (and developer tools) should be provided so that an ecosystem (consisting of software and hardware applications) may develop.

To sum it all up: make search, discover, and consume the new computer paradigm, and get there, before Longhorn, with the help of the developers community!

During all this time, Google should continue to throw good technologies at the end-user so that the costs of switching off away from it grow.

Microsoft would do well to (re-)learn a lesson in creative destruction and mobilize its resources and developer community.

The end-user customer will finally be the judge, albeit a delighted one!

An upcoming IT revolution in healthcare?

Steve Case, the founder of AOL, is thinking of a comeback. This time is Revolution, a private holding company in which he's put $500M of his own money and the hope to do something that would amount to a revolution in the healthcare industry by buying and building companies that help people take care of themselves. In case one thinks highly of AOL's founder and former chairman acumen, and of the healthcare industry's potential, here's Mr. Case's checklist:

  1. Online reviews and rankings of doctors and hospitals.
  2. Information and breaking news about medical ailments and treatments.
  3. Software and tools that let people manage their medical records online.
  4. Health "concierges" or "coaches" who help patients navigate the medical system.
  5. Walk-in medical clinics where, say, in 15 minutes and for $39, you can discover whether your child has an ear infection.
It may not look like much but nor did AOL about a decade ago. While people were thinking and talking big about the soon-to-come internet revolution, Steve Case thought of end-user access at a lower fixed cost, and a direct marketing campaign that flooded our mailboxes for years on end with the ominous AOL starter kit.

Keep in mind: Cost, Quality, and Timeliness

Harvard Business School professors Pankaj Ghemawat and Ramon Casadesus-Masanell have recently co-authored an academic paper Dynamic Mixed Duopoly: A Model Motivated by Linux vs. Windows. They explore several answers to the fundamental competitive dynamics question:
Will open source software (OSS) ever displace traditional software from its market leadership position?
In their formal economical model, they structure the problem in terms of a dynamic mixed duopoly in which a profit-maximizing competitor (Microsoft) interacts with a competitor that prices at zero (Linux), with the installed base affecting their relative values over time.

They go on further to ask what conditions are needed for Linux to take over Windows:
  • Is Linux's superior demand-side learning sufficient to win out?
  • What is the effect of forced procurement by governments and some large corporations on the long-run equilibrium?
  • How do cost asymmetries play out?
  • Can Microsoft use piracy strategically to improve its market position?
Summing up their findings, the authors say:
"We believe that there is still a great deal of confusion and puzzlement on how this competitive battle will develop."

Worth pointing out are their recommendations for Microsoft to strategically to remain competitive against a product that is argued to be of better quality, is updated more frequently, and is free:
  1. Increase its own demand-side learning.
    1. Listen to the demands of the user community to better exploit the benefits of demand-side learning. Microsoft must facilitate communication between the user base and the company to have prompt feedback on the performance of its products.
    2. Make an effort to incorporate improvements in the code (fix bugs and introduce new features) as soon as possible.
    3. Reward those who propose improvements for the code. At the very least, Microsoft could publicly acknowledge those who proposed new features or discovered bugs.
  2. Feed its direct and indirect network effects.
    1. Support as much as possible the independent software vendor community so that the quantity and quality of complements is substantially above that of Linux.
    2. Encourage competition between the different ISVs. The lower the prices of applications, the more appealing the Microsoft system will be.
    3. Price discriminate. Give Windows and applications away to schools and universities so that users build their file libraries on Microsoft, not Linux.
  3. Minimize the number of strategic buyers.
    1. Let governments access the source code and give guarantees that sensitive data is treated confidentially
    2. Price discriminate. Give binary away to organizations and individuals who are not willing to spend money on Windows but who would be willing to use Linux because it is free.
  4. Reduce costs to be able to sustain long periods of time with low prices.
  5. Decrease Linux's demand-side learning.
    1. Because the way to do this involves some questionable (from a legal point of view) actions, we will refrain from suggesting specifics.
  6. Lessen Linux's direct and indirect network effects.
    1. Make it as hard as possible for Windows applications to work on Linux.
    2. Same for MS Office documents.
    3. "Promote" Linux's code forking.
  7. Infuse fear, uncertainty, and doubt into the Linux user community. For this to work, the statements must be perceived as credible. Credibility requires some past FUD announcements to be realized.


The model is structured in terms of price, quality, and frequency of updates. In Competing Against Time, George Stalk, a consultant with BCG, shows how companies that respond faster to customer needs can expect to be twice as profitable as the industry average, and to grow up to 3x quicker. Stalk arrived at his findings structuring the problem in terms of supply chain, which he described along the following parameters: cost, quality, and timeliness. Not unlike those of Ghemawat and Casadesus-Masanell.

More cash, more chances for VoIP

The story of VoIP continues with the latest round of funding at Vonage. From PRNewswire we learn:

EDISON, N.J., May 9 /PRNewswire/ -- Vonage, the leading provider of broadband phone service, today announced the closing of a $200 million financing round led by Bain Capital, with strong participation from existing investors including New Enterprise Associates (NEA), 3i, Meritech Capital Partners, Institutional Venture Partners, and existing investors. This latest round of financing brings total investment in the company to $408 million.

Boasting 600,000 subscribers, Vonage is the de-facto placeholder for what VoIP is yet to be: the alternative to fixed-line telephony, local and long-distance, and much more. It is difficult to call into question the viability of the Vonage model, even though no VoIP-enabled killer-app has surfaced into the shopping lists of customers. However, a series of exceptions could be taken with the current positioning statements of most VoIP services, chief amongst being 'low-cost telephony.'

Before Vonage even came into being, price wars among the long distance carriers brought the price per minute of most phone conversation down to pennies. The low prices were due in part to: excess capacity combined with VoIP technologies, opaque cost structures at the big long-distance carriers, and the apparition of a myriad of small players squeezed in between.In essence, the above reasons centered on a cost structure that allowed such low prices for the consumer. On the other hand, the sustainability of such costs has proven to be questionable. Several of the large carriers are no longer in business, and the small ones (the squeezed in between) cannot scale much beyond their initial scope.

When Vonage entered the stage, the prices of phone conversations were already low, for local and long-distance alike. A look at the cost structure at Vonage is indicative. Vonage spends about $400 to get a new customer who, in turn, pays back to Vonage $25/month. Assuming monthly operating costs between $10 and $12 per subscriber, we see that Vonage needs to serve a new subscriber well over 20 months to break even. So unless somebody (read, for example, cable companies) is willing to subsidize for that long the challenger category to the Baby Bells, providing low cost telephony may not be the way to stay in business for the VoIP promoters. For one, the Baby Bells could do a number of things to temper VoIP, and for another, VoIP architectures don't seem to scale well on the provider side.

As a way out for a company like Vonage, one can think of:
  1. An application rich environment that targets the mobile individual (e.g. follow-me abilities, and connecting IM, email, phone, calendar, etc.);
  2. Selling the company to the public or some cable operator.

Adding to the recent infusion of cash a friendly regulatory environment in Washington, makes for a hopeful landscape for Vonage/VoIP despite some regulatory hurdles big states that are hosts of individual Baby Bells may raise along the way--see Texas' lawsuit against Vonage over how it handles emergency calling.

-these are some thoughts from a larger project I have undertaken with my partner, M. Vexler, VP with IPCC-