Microsoft-Novell open-source agreement from a different perspective

Here's the beginning of a conversation, from a newsgroup populated by entrepreneurs:

(Microsoft + Novell) / Linux = Free BSD

This is an open question for the MORE informed in term of OS / LINUX / FreeBSD. We saw the debacle of SCO law suit about Linux in the last couple of years. Now Microsoft and Novel trump in on Linux again.

Is this the sign that it is time to move to FreeBSD?

Questions for the BSD knowledgeable people:

Will any of these stunts ever impact FreeBSD?

Was FreeBSD conceived form the beguiling on a solid foundation where software giants will not come up with a legal pact and find a way to tell you - "Hey you! -- You've used the free software for the last 5 years - here is the bill, pay it or get sued"

I do not mind supporting open source software for a few hundred bucks, but if we are forced to the multi-thousand dollar licensing with the commercial companies, it adds to the headaches of finding money to get a business off the ground.

I think there nothing to worry about having to pay more for using open source products. In fact, until the whole landscape settles (medium term), some prices may come down. For more info, check out the comments section.

Immelt on things of general (end electric) concern

21 months ago, I published Immelt on hitting Wall Street quarterly numbers. That posting was about the way Jeffrey Immelt, the GE's CEO, understands the relationship between a CEO and Wall Street. The CEO communicates the company strategy, and then follows-up, every quarter, with the numbers. It sounds simple.

Over the past two years, communications is what Mr. Immelt has done. And I am not talking about his addressing as much Wall Street through some dedicated channels as the public at large (customers and potential investors alike). Indeed, chances are you've seen Immelt's positions on ecomagination or US executives pay.

On the other hand, the year of the large cap stocks, as the investment analysts dubbed 2006, is coming to an end, yet few large caps have done as well as predicted. GE stock price returned to $35, where it started the year, after it reached a low of $32. So, not counting the dividends, GE would have been in business for itself had one considered only its stock price.

From an interview with Mr. Immelt, recently published in Financial Times, we learn more about his perspectives on the world as it relates and surrounds GE. This is the type of statements that we seldom learn from CEOs for it says little about here and now. Moreover, his opinions may well indicate, even if indirectly, what has been going on at GE over the past year or two. Here they are, followed by my comments:

"If you put globalisation to a popular vote in the US, it would lose. It is anissue on which business has to find better ways to present its case."

I don't think it's about presentation alone since the real wages of the US workforce have gone down over the past few years amidst growing corporate profits. Some people hint at the need for better re-distribution or protectionism, I think it's about the need for better education and a more trade/investment-open, and copyright respectful, China.

"If we didn't have access to global markets we would lay people off in Cincinnati and Milwaukee, so [globalisation] is real."

This is presented as markets only, I would also add, especially from the perspective of GE- or Microsoft-like businesses, the need for qualified workforce.

"If the US continues on the current trend towards a service-based economy, it could easily end up with wealth concentrated on the two coasts and bigger discrepancies between rich and poor."

What a refreshing perspective on the state of clothing of the emperor (read: services based economy.)

"People think that running GE is like driving a stagecoach: if horse number three breaks down, take it out and shoot it. This way you develop a management team that would rather be bought than stay to fix things and build businesses for the long term."

If this is how things are in reality at GE, Mr. Immelt is to be commended, regardless of the perceived lack of performance registered by the stock price. If it's only a matter of perception or investors' taste, give it some time and reality will take over. It should also be noted that GE lost one of its top managers to a hedge fund, so even GE management can be bought.

"Private equity funds are the conglomerates of this era. Strategic buyers have not seized the moment in terms of doing deals they could have done to build their companies for the long term. The vast majority of them only add value through financial, rather than operational improvements. If you took any of GE's top managers and told them that you have to bring the [profit] figure from 4 to 7 in three years, and then they could drop the reins, almost any of them could do it."

Considering how the hedge/private funds seek to raise money in the public markets, and the frenzy ensuing the pursuit of better alpha, the time of reckoning is closer than the image in the mirror. GE thus becomes the safe bet.

"There are people who like thematic work, who build their careers two years at a time, but I want to hire people who are curious to see stuff through to the end."

Most any hiring manager would say the same thing. GE, by being so diverse, large and keen on accountability, may offer a unique chance for the individual employee to grow professionally without leaving the company.

"I would not tolerate anybody in the company being satisfied with being number four."

This is just to make sure that not everything has changed since Jack Welch retired--the individual and operational entity measures of success have been kept. One thing Mr. Immelt changed was to dispose of the insurance business that made Jack Welch look so dear with the investors in the late nineties.

As if to match words with personal commitment, in the last 12 months, Mr. Immelt has bought GE stock in the open market for which he paid over $2M. Statements and actions like the ones above should make GE the favorite supplier and employer of most, which in turn will translate in great financial returns. A big question mark remains though. In a June interview with HBR, Mr. Immelt said:

"If we can create a sales and marketing function that is as good as finance at GE, I'll change this company."

Hm, not knowing more details, this reads like the GE wildcard. Statements identical to this abound, and so do failures. A relatively recent casualty of this type of failure is Carly Fiorina, who could have well said, to paraphrase GE's CEO, If we re-create a sales and marketing function for HP-Compaq that is as good as engineering at HP, I'll ...

All in all, GE might not have been, and will not be in short term, one's best bet, yet come some crisis and you wish it were.

A long tale

Google's paying $1.6Bn worth of GOOG stock for YouTube looks to date as the most appropriate illustration of the excess preceding some crisis. And, since the transaction has been made in stock and not cash, it may well be heralding a stock market crisis. In other words, this event is so not as much about Google, since it paid with its somehow inflated currency, as it is about the public market itself that, thinking Google can do no wrong, rewarded GOOG handsomely after the transaction.

Writing about crises, I am not sure though how much of a crisis this transaction signals for the established media. I would posit that YouTube, in any foreseeable form that builds on the current model, could become a first-class channel to capitalize on the potential of the long tail effect associated with specialized media. In this context, specialized media is an euphemism for personal productions or copyleft material. This blog illustrates well the former category, while the following clip illustrates the latter:




So, while I can see millions of users deriving some sort of benefit by uploading/viewing personal productions, I could also see Google's aggregating enough demand for, let us say, the Celibidache-Michelangeli rendition of the Ravel Piano Concerto to even sell it in its entirety for up to $25.

While I have your attention, I would advance a quippish thought: I expect YouTube to make possible enough Blair Witch Projects in the next 5 years to even justify its price tag. As for the main media, one could only wish the model of three or more channels of the same thing on cable were over, or the newspapers, TV-, and radio-stations, fulfilled indeed their public service charters.

On creativity and large hi-tech companies

During a recent flight, I happened to sit by a senior member of the management team at a large hi-tech company. Upon learning about the creative dimensions of my activity, which give the beginning of the company's name (CrEIRe), this person asked for my opinion about ways in which mature hi-tech companies could re-ignite the creative urge of their staff.

I observed that large companies tend to be about execution, scale and hierarchy, and not about creativity. Most of a company's creativity is acquired at the time of each individual hire decision; the rest can only be stimulated. I, for one, tend to think creatively when in conversations that push the limits of common thinking/knowledge, or in situations without apparent solutions. I also try to stimulate my creativity by frequenting many a venue of human expression, however related or not to the business at hand. Such venues could take me to anything/anywhere, from a report on the health of the economy to a financial model, from the wisdom of the classics to observations about how my child appropriates the world round her, from an academic text to some museum. And the list could go on. Yet, creativity cannot be summoned, it just happens should the conditions be in place.

To return to creativity in the workplace, I am not even sure most companies, once they become large, can do too much about creativity. They can, and seem to always, buy some startup that comes their way to fill whatever creative gaps in their offerings. They can, yet seldom, improve on the working conditions of their staff. Indeed, in how many a large hi-tech company have you seen working conditions that were conducive to creativity? Does one feel creative in one of those too many cubicles, claustrophobic and grey, air-conditioned and fluorescent-lit into oblivion from the outside world, at companies like Cisco, Dell or CA? Unless, of course, one expects the upper ranks (VPs and above) to shoulder the burden of creativity at such places. From this perspective, Microsoft does a little better, and Novell and Google may well top the list--the latter two bearing the Eric Schmidt imprimatur.

So, I had to tell this person that improving working conditions and creatively employing creative people could help improve the creative output of large hi-techs.

Microsoft buying Yahoo!

Despite a long history of unsuccessful corporate mergers and acquisitions (M&A), captured by now by the dismal M&A rate of success (~30%), M&A comes in and out of fashion as a favorite growth option. Ever wondered where these [...] ideas about M&A might have come from? Seneca--the Younger--would have answered: cui prodest. We, from Tech Trade Daily, learn about a Merrill Lynch analyst's research report whereby Microsoft is being advised to acquire Yahoo!.

The stated rationale behind such advice is: Google's assumed internet preeminence; Microsoft's failed MSN; Microsoft can afford the cash and debt, and needs, to buy a company the size of Yahoo!; and, in the analyst's own words:

Yahoo! seems a strategic fit based on: 1) Microsoft's search/advertising focus across the PC, mobile devices and video game consoles, 2) natural ad platform and cost synergies and 3) elimination of a top competitor.

I am not sure how the conclusion that Microsoft needs to buy something the size of Yahoo! was reached. Lest we forget, Microsoft still has to make sense out of its two last largest corporate acquisitions, Great Plains and Navision. These two companies were not structured as differently from Microsoft as Yahoo! would be, and came both for at a tenth of the cost of Yahoo!.

As a side note, I could imagine the transformational power of targeted advertising, which at the limit would place a future successful business in between a buyer and a lot of her transactions, but would have a hard time betting the future of a today successful company on that prospect. Indeed, who doesn't recall the late '90s projections behind e-commerce, and Amazon.com in particular, yet we see how hard it's been to change the industry structure.

As a second side note, since the Merril Lynch analyst seems troubled not a bit by reduced competition on the internet, one can tell how much he cares about consumers welfare.

Not for lack of rigour, we are then being told that, in the worst case scenario, failure would cost Microsoft $5/share. Some people simply don't know a typical organization from a hole in the ground, our analyst doesn't seem to know that, from an operational perspective, $1 at Yahoo! may be very different from $1 at most Microsoft. Indeed, while Yahoo! has become a media company, Microsoft, according to its current corporate structure and $12 Billion annual revenue, is so much more about enterprise and consumer software platforms and applications than a(ny) media entity. And, unless all computer applications, consumer and enterprise, are going to be delivered like the little gadgets from Google or Yahoo!, why would one want to make Microsoft a media company? Moreover, some seem to have forgotten AOL-Time Warner proved how difficult it is to join even two media companies. How can one think of grafting a media giant like Yahoo! onto the rest of Microsoft when they have so little in common? So, when pricing the cost of the option of buying Yahoo! only at $5/share, cui prodest?

Without doubt, there is plenty of revenue potential in approaching the internet more like a media business, but so is in the non-media business Microsoft has been so successful at. As I wrote here, Microsoft would do better if separated its consumer and enterprise businesses. Should that happen, one can see less structural obstacles to a joint Microsoft-Yahoo! entity. Otherwise, some in the M&A field must be reminded that corporate entities rarely make for additive operations. The rest of us, when not knowing an answer, would do well to return to classics.

On advertisingThe only/last business model?

Henry Blodget, the blogger--as if he had it all coming from his name, brings up an interesting thesis by correlating the fates of the advertising and housing markets: As Goes the Housing Market, So Goes Advertising.

Without analyzing the strength of this correlation, why wouldn't one go a step further and ask: If advertising were no longer enough to support Google's growth, could it ever charge for its growing number of services?

I don't have an answer, yet the value is in the question sometimes. What do you think?

June 14 Addendum
People are looking indeed: http://www.internetoutsider.com/2006/06/citigroups_mark.html

June 15 Addendum:

"I think we'll look back at this day as the separation between two eras in software — the first being software in a box, and the second software distributed over the Internet for free and funded by advertising. The new era requires a complete re-examination of Microsoft's business model, which has been one of most profitable the world has ever seen." These were the words of George F. Colony, CEO with Forrester Research, on the occasion of Bill Gates' announcement about gradually leaving Microsoft. I sure hope George got it wrong, even though the history of television would indicate otherwise.

Small is beautiful, again...

If you come to think about it, most kitchen appliances could be reduced to one big motor and one resistor. That would be the case if we were to follow the same logic as, let us say, Microsoft's Windows Vista or Vioxx--the blockbuster drug. Then, for example, the central shaft of the motor, analogously to the steam engine powering the first industrial plants, would set everything in motion through various-size gears/belts. An analogy like this is valid inasmuch an operating system (OS) consists mostly of a file system and a scheduler, and supports all applications, small or large. As well, the blockbuster drug is designed with the largest population target in mind, despite considerations of the cost-benefits analysis that, in the case of Cox inhibitors, would indicate a much smaller target population.

The results of extending a product to do more for most people could and will eventually be outweighed by the risks of failure. Production costs rise fast and even more so does the risk. For computing system vendors, increased complexity is intended to replace innovation while protecting the incumbents. However, as we saw with Vista's delays, or Intel's first 64-bit architecture, the risk and costs of failure are big and real. Vista's latest delay has dented billions from the market value of Microsoft and several of its partners. Intel's failed attempts at a 64-bit architecture cost the company and HP a lot of money and opportunities seized upon by AMD. On the other hand, the drug companies have perfected a distorted game (consider the strenuous FDA approval process, or the limited human-testing abilities) by spending excessively on marketing and on convincing doctors more people need their drugs. All goes well as long as the side effects are being kept under control and new blockbusters are being introduced. But, as the Cox inhibitors case shows us, nobody can force the course of innovation nor control the side effects on patients beyond reasonably intended targets.

Solutions seldom come from a single direction. In the case of hi-tech companies we have a combination of regulatory measures and the nimble Google. On their part, the blockbuster-drug companies are under pressure from litigators and the nimble biotechs. In either case, be it personalized/mobile computing or tailored drugs, small and agile is beautiful again. After all, today's premium kitchens have a device or an appliance dedicated to one or a reduced number of tasks.

If you find a virtualization fork in the road...

Almost a year after Apple decided to switch to Intel processors the rationale for such a move still remains a guessing game for most. Then, in January 2006, the hacker community is challenged to build a solution to natively boot Windows XP on the Intel Mac. Two months later, the challenge is met and after one more month, in April 2006, Apple itself launches Boot Camp Public Beta, a technology that lets one install and run the Windows XP operating system on an Intel Mac.

Without speculating about the level of involvement Apple might have had in lining up the events in the above sequence, I think, Apple faces some uncommonly strategic options around the notion of virtualization. In essence, Apple opens its outstanding hardware platform to the equally impressive universe of Windows-supported applications. This way, Apple exchanges some of its nobility for the democracy of Windows applications. Indeed, didn't you also think, when seeing the latest Mac Mini, "For this price I'd get a couple except that I don't know what to do about applications."?

Let's quickly chart some alternatives in terms of players, costs, risks, and benefits:

At these early stages, Microsoft still holds some cards, so Apple is tentative and mindful--both in its PR and the requirement to have "a bona fide installation disc for Microsoft Windows XP, Service Pack 2, Home or Professional." Lest we forget Microsoft's own Virtual Server 2005 R2. On the other hand, AMD and the traditional IBM-compatible PC makers will have to start thinking beyond the parallelopiped.

At this time, keeping the cost of hardware the same, I would expect the performance of running XP on MAC to be lower than that of XP on a PC. However, two mitigating factors will have to be considered: (a) Within certain limits, cool-factors overshadow performance/cost factors; (b) Due to multi-core processors, non-enterprise users have now the chance to enjoy the best out of virtualization, without low performance/cost factors--Intel is placing a momentous bet on its releasing a new multi core architecture that increases the performance, while decreasing power consumption, of its processors in the 2^nd half of 2006.

Among the risks we have: Problems at Intel continue; Microsoft Vista comes on time with an overwhelmingly positive user experience; Users begin to pay more for hardware; Microsoft problems may erode Apple's image.

Among the benefits: Users will do whatever they do in style; Apple and non-Apple ISV's can begin a relationship, even if indirect in the beginning; personal computing starts being interesting.

So, as Yogi Berra put it: " When you come to a fork in the road....Take it "