Information Technology

IT Opportunities due to the weaker Dollar

2007-12-05T11:30:00.001-08:00

The dollar, currently valued at about two-thirds of a Euro, has been continuing on this trend for the last two years. With future interest rate cuts all but inevitable, and the likelihood of interest rate increases or holding steady in Europe in the near future, this trend is likely to continue.

From the Economist:
The ECB is managing an economy that has relied much less heavily on rising house prices to fuel consumption. As Jean-Claude Trichet, the ECB’s president, made clear, the main worry is about higher inflation, which is currently at 3.0%, well above the target of a bit below 2%, rather than lower growth.

The cheap dollar brings about a number of arbitrage opportunities, since goods and services produced in the US, but consumed in Europe are likely to be significantly cheaper. Retailers and the tourism industry in the US have already seen this trend, and opportunities for technology goods and services cannot be far behind.

S-as-S and Web 2.0 markets

Web-based services developed and hosted in the US may have significant cost advantages over European counterparts. Building in multiple language and multiple currency support early should be a key priority for most S-as-S companies because of easier monetization opportunities.

IT equipment

While large semiconductor plants like the one built by AMD in Dresden employ 2,000, labor costs account only for a fraction of operating expenses. However, other costs - including transportation and other costs may make large projects like this unviable if their primary market is outside Europe. More companies are likely to build manufacturing plants in the US because it may now make economic sense to do so.

Outsourced IT Services

IT and BPO outsourcing firms are likely to face pressure in face of rising salary costs in emerging economies and lower revenues due to a weaker dollar. For companies considering or using outsourced IT services, increased prices or lower quality of services are inevitable.

For application development, processes like LEAN and Scrum help projects move forward faster, but aren't geared towards geographically distributed teams. ALM tools (ECF, Microsoft Team System, Serena) and application frameworks (.Net 3.5, Django) drastically improve software developer productivity. In many cases, it may therefore make more economic sense to develop software locally rather than using offshore teams.

Voice recognition and self-service technologies have also developed significantly and are widely used by many large firms, and while not as personal, may be an adequate replacement for Tier 1 offshore call-centers. Canadian firms may also find it easier to outsource IT work to the US.

Customers

European and Asian customers in emerging markets, who are used to paying significantly higher prices for technology products and services, may find services from US firms (particularly S-as-S) cheaper and more customer-friendly. It may also be difficult for internet firms to geographically segment customers.

While the falling dollar may mean some increased costs for some, many opportunities like the ones mentioned exist for firms seeking to exploit such opportunities. While arbitrage opportunities exist in exports from the US to Canada, Europe and Asia, the Pound is also likely to depreciate against world currencies due to lowering of interest rates fueled by the deflating housing bubble there.

How technical is your web-site visitor?

2007-12-03T12:19:00.001-08:00

Every month, the Seattle startup community waits eagerly for the list - a list that will be debated, commented upon, written about, sometimes criticized, but always initiates bouts of navel-gazing and moments of satisfaction. The Seattle2.0 list is maintained by Marcelo Calbucci, a Seattle entrepreneur who founded and runs Sampa.

The composite index is driven by a startup's performance in getting web traffic, as measured on Alexa and Compete, and besides providing some insight into the eyeball movers and shakers of the month, also provides increased publicity to media-shy Seattle startups.

Given that this information was neatly tabulated, I tried getting additional information from this data. Using that fact that there is a serious skew towards internet developers in Alexa data, and that Compete doesn't suffer from this skew ( but can be gamed, nevertheless), I created a normalized TechScore, which shows how technical the website's audience is likely to be.

What it means:

A higher TechScore means that your audience is skewed towards Tech folks/ Internet developers - and you can use this information to your advantage when continuing to add features to your web site.

How can you use it:

If you are getting a tech-savvy audience, you can spend less resources on making detailed online help available. You could also make the experience richer because these folks are more likely to have a broadband connection and a good computer.

Caveats:

A higher TechScore could also mean that

the site is new and Alexa seems to have recognized and started gathering information about the site earlier than Compete (Compete doesn't yet have statistics for November - and there may be a lag ).
Traffic has significantly increased the last month, and the comparison of Alexa and Compete rank may be an apples to oranges comparison.

A lower TechScore could also mean that the webmaster may have the Compete toolbar installed.

Company	Alexa Rank	Compete Rank	Normalized TechScore	Seattle20 Rank
ReelTime	114,988	501,512	100	86
LiveMocha	30,485	108,734	100	42
goChongo	144,268	514,694	100	89
Bill Monk	284,797	938,222	100	121
SEOmoz	1,517	4,640	100	5
Shelfari	5,677	17,122	100	14
Athleon	265,331	778,663	100	113
Ohloh	21,251	48,834	98	29
Movaya	192,854	385,139	94	84
WidgetBucks	6,374	12,054	93	12
Should Do This (Robot Co-Op)	100,512	189,516	92	64
MixPo	359,254	652,277	91	111
Biznik	72,642	135,887	91	55
FEEDJIT	42,998	74,441	90	37
Pelago	504,607	861,790	89	129
Openomy	469,358	801,366	89	123
PixPulse	352,108	571,190	86	105
Jookster	448,666	725,930	86	120
Jambool	254,712	410,964	86	91
Versionate	337,575	538,422	86	100
PeepCode	137,726	221,847	85	72
ProgrammableWeb	18,843	28,835	84	25
Jackson Fish Market	367,097	551,137	83	104
Others Online	231,758	349,930	83	85
MyTypes	68,519	105,336	81	50
Zoji	112,162	165,733	80	62
ZooDango	262,597	367,232	78	87
Popshops	57,116	83,027	77	43
Picnik	12,709	15,832	73	17
RescueTime	97,974	128,066	73	57
Down2night	407,352	509,365	73	103
SWiK	8,283	10,028	72	11
BlueDot (now Faves.com)	8,204	9,905	71	10
Sampa	34,313	40,894	71	31
PhotoSleeve	375,652	448,999	70	98
Wishpot	167,714	198,298	68	74
ImageKind	19,199	21,628	68	23
Earth Class Mail	76,843	93,074	67	48
nuTsie.com	48,732	53,545	66	35
Wishlisting	303,093	337,903	66	88
EyeJot	164,391	180,489	64	70
GridNetworks	373,608	385,218	62	96
They're Beautiful	558,987	571,246	62	115
FeedWhip	674,975	681,169	61	128
Zeenami	837,113	806,441	59	133
Wetpaint	5,024	4,738	58	7
LiquidPlanner	696,134	653,778	58	127
Just Cause	785,719	727,072	57	132
FlowPlay	390,850	359,877	56	94
Redfin	21,239	18,911	55	21
Treemo	161,858	150,222	55	67
Instacalc	463,538	410,291	54	99
43 People	126,645	114,779	53	59
Synapse	956,376	807,295	53	136
NewsCloud	95,757	84,630	51	52
SimplifyThis	546,495	448,697	51	108
Estately	237,846	198,499	51	79
Konnects	127,867	109,256	51	58
TeachStreet	540,162	439,047	51	106
SecondSpace	414,418	337,705	51	95
Ripl	496,833	392,706	49	101
Pluggd	106,919	88,667	49	54
Trailfire	44,411	33,068	48	32
PrestoGifto	585,499	418,623	45	109
ActiveRain	6,875	4,730	45	8
Cdigix	1,382,173	954,746	44	145
Fyreball	973,832	671,700	44	134
Cocktail builder	849,637	567,360	43	130
Inrix	797,785	525,962	43	125
The Phrogram Company	866,758	567,880	42	131
Jamglue	23,940	15,153	42	20
Medio Systems	801,835	507,153	41	124
Etelos	199,017	130,763	41	68
SnapTune	1,394,772	869,159	41	144
Linebuzz	617,437	371,102	39	107
LexBlog	221,860	136,194	39	71
Bus Monster	800,963	461,252	38	122
ClayValet	1,257,235	714,508	38	137
Findory	75,079	47,704	37	40
Walk Score	114,654	68,784	37	53
Dashwire	362,909	202,813	37	82
TrenchMice	752,182	412,007	37	118
nPost	188,490	108,278	37	66
Scriptovia	758,423	410,248	36	119
Robot Co-op (43 Things)	369,859	200,835	36	83
Avvo	179,401	98,885	36	63
FinancialJoe	1,309,443	678,478	36	139
TalentSpring	1,123,447	580,647	35	135
SmartSheet	241,129	125,899	35	75
Broadband Sports	102,255	56,837	34	45
CoolToors	1,463,438	715,522	34	143
43 Places (Robot Co-op)	49,571	23,571	34	30
BuddyTV	4,967	2,348	34	6
Jott Network	50,317	30,314	33	33
OwnYourPhone	904,975	421,525	33	126
SongSlide	1,366,510	621,085	32	138
All Consuming (Robot Co-Op)	115,479	58,572	32	51
AlphabetLane	1,776,698	802,983	32	149
Blist	267,729	125,268	32	77
Bioscreencast	1,748,576	778,695	32	148
iMedExchange	1,638,401	723,085	32	146
PhoneMyPhone (KeenScreen)	1,697,185	740,435	32	147
HomeMovie	700,579	306,962	31	110
You Just Get Me	2,035,156	866,593	31	155
Appature	1,941,322	815,324	31	153
Urban Spoon	38,412	15,722	30	26
Noonhat	577,713	238,184	30	97
43 Things (Robot Co-op)	4,078	1,605	30	4
Ontela	1,912,409	752,757	30	151
Overcast Media	1,551,030	603,451	29	142
SportsUltra	646,289	253,041	29	102
Lists Of Bests (Robot Co-Op)	86,063	39,299	29	41
MerchantOS	99,415	43,816	29	44
ActiveWords	544,050	206,096	28	93
EmptySpaceAds (KeenScreen)	2,170,926	785,513	28	156
Minecode	2,211,166	780,735	28	157
PhoneSherpa	267,979	99,831	28	76
AdReady	160,820	62,132	27	56
Crush or Flush (IceBreaker)	267,271	96,843	27	73
Catch the Best	1,540,278	520,683	27	140
Weedshare	1,960,327	644,243	27	150
Melodeo	877,890	283,761	26	117
SNAPforSeniors	852,401	275,083	26	114
ResortScape (SecondSpace)	503,493	161,001	26	90
PilotOutlook	2,336,438	713,139	26	158
Conenza	2,044,021	623,906	26	152
Frigy	2,858,639	862,735	25	161
Style du Jour	3,327,129	988,497	25	164
TripHub	220,994	71,935	25	65
Knouen	2,758,509	810,972	25	160
CalendarData.com	896,904	252,044	24	116
iLike	2,962	785	24	2
Zillow	3,031	802	24	3
Formotus	1,656,751	428,850	24	141
GarageBand.com	30,055	7,643	24	18
Trendi	3,423,175	876,825	24	163
Metafos	2,206,776	553,981	23	154
YourSports	584,137	150,698	23	92
RealSelf	134,130	34,632	22	47
Audiosocket	3,586,655	690,772	21	162
Bag Borrow or Steal	39,930	7,087	20	24
TrustedWord	2,802,424	484,868	20	159
SnapVine	34,667	5,614	20	22
Jobster	20,734	3,242	20	15
Postacrime	874,387	137,993	19	112
Judy's Book	33,087	4,799	19	19
Thrift Books	350,679	56,812	19	78
PayScale	14,872	2,068	19	9
3Guppies	55,396	14,430	19	28
Mercent	301,264	43,583	18	69
Cozi	240,692	34,419	18	61
Menuism	89,419	16,491	18	36
Farecast	18,622	1,742	17	13
Healia	236,452	27,707	17	60
Peppers and Pollywogs	410,725	43,085	17	80
Yapta	102,434	15,730	17	38
BigOven	51,888	10,817	17	27
Mpire	24,577	1,569	16	16
LandWatch (SecondSpace)	143,717	15,954	16	46
Atomic Moguls	108,900	11,056	16	39
Intelius	3,585	106	15	1
Trumba	84,653	9,152	15	34
GotVoice	171,807	1,479	13	49

How is TechScore calculated?

I do a simple regression of Compete Rank (independent variable) against Alexa Rank (dependent variable) to get a slope (1.94 this month, intercept = - 13,174), and calculate a projected Alexa rank = Slope * Compete Rank + Intercept. I calculate a ratio of Calculated Alexa Rank to actual Alexa Rank and normalize it on a curve to give it a score of 1- 100.

I did not add the intercept to sites with Alexa ranks less than 50,000 - so sites with Alexa ranks of less than 50,000 may have a slightly higher tech-score. However, this doesn't affect the scores on the vast majority of websites.

TCO for software implementation projects

2007-11-30T12:22:00.001-08:00

Understanding factors contributing to high TCO's for software projects and helping customers eliminate these adverse factors will enable ISVs and their channel partners to create and capture additional value.

Lengthy RFP Process: Complex RFP processes that drag along for months are expensive and erode value of projects and increase TCO.

Causes of delay: complex licensing structures, lack of clear list of capabilities, perceived execution risk, cost of implementation

Implementation Costs: Professional services, which are complementary to software, in the same way as mortgages and houses, or hot dogs and mustard, account for a significant portion of the cost of the project. Remote customization and implementation templates provide the promise of reducing implementation costs. Reducing the cost of complements with automated migration solutions and help ISV's capture more of the value created, albeit at the expense of the party providing a less automated migration service. Automated migration solutions also eliminate switching costs that an incumbent may have built to retain some competitive advantage.

Causes: Migration/Rollout costs, complex dependencies between software - impact is usually broad; training and learning curves for corp IT developers and end users.

Costs of "Lights On" Operation: Periodic maintenance expenses, if not automated require systems administrators and increase chances of failure in systems when they are least expected. Periodic maintenance also has to be scheduled to fit into enterprise change management windows.

Allen and competitive advantages

2007-11-29T12:30:00.001-08:00

Sports Illustrated and Seattle-PI columnist John Cook, both talk about Microsoft founder Paul Allen's investment and passion for sports teams - (Seattle Seahawks and Portland Trailblazers) he owns. For those questioning the wisdom of his investments, that rationale behind many of his investment decisions become clearer if you understand complementary products and competitive advantages that his asset management company, Vulcan, has over other more traditional venture investment firms.

Sports Teams As Complements - Real Estate is the Product

The Blazers are the only major league team in Portland, and the Seahawks were kept in Seattle after Paul Allen bought the franchise in '97. Sports teams, things to do - like museums, shopping and convention centers are all factors in attracting visitors and inhabitants to a city, and this increases the value of real estate. Also, investments in EMP, the Seattle Center are all really investments in Vulcan's South Lake Union project.

Vulcan Competitive Advantages - Timeframe.

Asparagus typically takes 3 years to harvest, so only farmers who can sustain a negative cash flow for 3 years can make the investment. However, it provides a higher return over 3 years than crops with shorter harvest cycles. Many fruit trees take longer, but again yield higher values over a long period than asparagus.

Vulcan, unlike private equity or venture capital firms that have an investment lifecycle, does not have a restricted timeframe. They can therefore invest a part of their assets in "fruit trees" when even the best venture firms cannot.

So investments that look less than stellar in a 5-10 year timeframe may make sense when looking at a 25 year timeframe.

Philosophy - Create Value before Capturing it

The lack of short term pressures like fund-raising and track records also means that venture fund managers is likely to be more supportive of entrepreneurs and portfolio companies, and not succumb to monetization pressures too early.

Of course this philosophy may not work for all startups, since it is not ideal to have no monetization pressures, nor is it great for entrepreneurs looking for an early liquidity event if the investor likes to add more value before a liquidity event, but it is good to know that there is an investment firm that offers capital under different terms than most funds.

Diversification - and an eclectic portfolio

Wall Street had a laugh at the eccentric "accidental zillionaire," noting that had he simply held on to his Microsoft stock -- that is, had he adopted no investment strategy whatsoever -- his net worth would have exceeded $80 billion. - Sports Illustrated

Hindsight is 20/20, and diversification is a smart investment management strategy. There are more cases of people who lost through putting all their nest eggs in one basket, than of people who have gained through lack of strategy.

Vulcan's portfolio seems well-diversified - both in sectors and time to maturity, and its technology startup portfolio is eclectic - consisting of Semantic Web startups (zoominfo.com, Radar Networks), energy efficiency/alternate energy companies (Ember, Imerium) and disruptive models (Redfin.com).

The only thing I couldn't find is international investments, which are probably made through public securities or other instruments. Given that growth rates in emerging markets are much higher than the domestic market, it is an opportunity worth considering since it fits well into the gaps in Vulcan's current investment strategy.

Non-Profit websites

2007-11-26T19:03:00.001-08:00

About 6 months ago, I was looking for alternatives to a poorly designed and rather unmaintainable shtml web site for a non-profit I am deeply involved with. Seattle Youth Garden Works has an annual operating budget of about $450,000, and after a restructuring, I volunteered to maintain the web site.

The CMS.

I decided on Drupal after evaluating a few Open Source and proprietary content management systems. Joomla was a close second, and I chose Drupal because

Already established in the non-profit world.
Had plugins that I needed.
Other research regarding future support etc.(IBM, forums)
The ability to add blogs, forums etc if necessary.

If you are looking for alternatives, Joomla, Magnolia or DotnetNuke are all good CMS choices depending on your comfort or choice of application stack.

The host.

Dreamhost, a widely popular hosting service is large enough to have professional support available 24x7, and has a user community that helps you solve most problems before going to technical support.

They provide free hosting for non-profits - which is an absolutely sweet deal, and they are carbon-neutral - which many of our donors like.

They also support PHP/MySQL and provide root access for their non-profit account - a very useful feature. My only gripe is that MySql queries on Dreamhost are rather slow.

The Modules

I recommend using Drupal 5.0 because most commonly used modules exist for this version. I used a number of modules including Event, Volunteer Timeslots and FCKEditor to enable employees to make changes to the website directly without having to request a webmaster. Contact me if you are looking for a list of modules to install along with a Drupal installation for your non-profit.

The Result

Check out the website to see what it looks like.

The Next Steps

It would be a useful feature to have donors commit to and donate online. Although CiviCRM integrates well with Drupal, changing donor management software is disruptive and may adversely affect fundraising activity. Enabling social networking feature for volunteer management would also be a cool feature, and would ensure a more engaged group of volunteers.

A Hypothetical Sun Microsystems – Unisys merger

2007-11-14T21:07:00.001-08:00

It has long been observed that though Sun Microsystems comes up with superior technology, it has been unsuccessful in monetization. Solaris is now open-source, as is Java. Of course, this has been hugely beneficial to customers and other vendors building providing valuable solutions using these technologies.

Sun's struggles in the recent past and jugglery with stock symbols (they changed from SUNW to JAVA), and a recent 4-1 reverse split have largely been "busy work" for the financial mavens, when a merger or acquisition would make more sense. There are obvious weaknesses (see chart bottom), that could easily be removed by acquiring or merging with the right partner.

Sun's bet on giving away software (that can be installed on any hardware), but charging a premium for their servers doesn't make a lot of sense – SPARC based servers are typically 3 times more expensive than comparable white-box servers to purchase, and the total cost of ownership is still higher. In order to extract a premium for their servers, Sun focused on TCO by including data center build-out costs – in their Black-box offering. The Black-box offering, may certainly make sense for many computing-intensive firms, but this strategy can largely be replicated using commodity hardware by other vendors like HP.

Meanwhile, another vendor, Unisys, has evolved from primarily manufacturing proprietary hardware to becoming an expert in consulting, systems integration and data-center build outs. Unisys' professional services and consulting expertise are complementary to Sun's superior, but open-source technology offering, and it may make sense for some kind of Unisys – Sun partnership. M&A with other hardware vendors is nothing new for Unisys Corp, which was formed when Burroughs and Sperry merged in 1986.

A SWOT analysis of both companies is given below.

Unisys' strong consulting and system integration relationships and its expertise in high-performance computing is a great complementor to Sun's high-performance computing infrastructure and software. In addition, Sun's xVM family of products - which includes a bare-metal virtualization platform based on Xen and corresponding tools to manage a grid of computing resources - CPU, memory and storage, will benefit strongly in adoption due to Unisys' established data-center build-out and management expertise.

Although Unisys resells Sun products, a deeper relationship, where Unisys services are bundled together with Sun data center solutions, may be advantageous to Sun.

As the virtualization bandwagon starts rolling by - with Oracle and other players announcing their own bare-metal VMs, this may be a good time for these companies to consolidate, and provide a much higher value service to their customers.

"Office is the Browser" - Microsoft

2007-11-14T14:34:00.001-08:00

Hosted office applications are getting better, and are providing more and more functionality that is generally available on Office Desktop applications. Suites like GAPE and Zoho are providing functionality that is pretty close to what most people expect and use.

As Google, Zoho and a number of other SaaS firms bet on the providing rich functionality over the browser, Microsoft is attempting a contrarian strategy.

According to Microsoft, Office applications like Word, Excel and Outlook can be front ends for more complex back-end applications like SAP etc. This integration benefits

the back-end application vendors through additional seat license sales, and consulting revenue through integration,
increases Microsoft Office sales,
and makes it more difficult for enterprises to switch to another Office application easily later.

Most firms have been using Excel to query and analyze databases and create usable reports, and Office Business Applications formalizes this process. However, the success of this strategy depends how competitive SaaS offerings can be to Microsoft Excel, which has been the undisputed leader in its class.

I see 2 key challenges to Microsoft Excel's dominance in the market.

Google's ability to outprice Microsoft in its "free hotdogs, just buy mustard" offering.
Office 2007 - which has been a significant change - and has not been adopted widely among the the most common users yet, and upgrades are likely to take some time to verify that integrations with previous Office versions work with the newer version as well.

Office 2007 has a significantly different look and feel, and there is a learning curve associated with using Excel 2007, after you have become used to the previous version. Also, Enterprise IT organizations have been waiting for any significant problems to show up and be fixed in Service Packs before adopting the new version. Given this uncertainty around Office 2007, both Google and Zoho have a unique window of opportunity to push and get SME's to adopt their solution instead of Excel.

Inefficiencies in the services sector

2007-11-13T13:53:00.000-08:00

Inefficiencies in the service sector are not easily visible until you have to find a plumber on a holiday weekend or are looking for a story teller who can hold the attention of a dozen easily board five-year-olds.

These inefficiencies are challenging for both the service provider and the customer, and are caused by a number of reasons.

Frequency of use: Most people do not use these services on a daily basis or for that matter more than once a year. As a result, prospective customers do not understand what to expect. Not understanding what deliverable can be expected leads them to question whether the service worth the value being charged.

Information Asymmetry: The customer is not able to know the quality of a service provider’s work until after a contract has been signed. Therefore, customers rely on word-of-mouth referrals (which are inherently inefficient), or on reputation management sites (like Angies’ List – which is subscription based).

Friction points in the sales process: The sales funnel has numerous friction points – and a lot of time is spent by a service provider answering similar questions for each prospect. Advance payments for some services is made through checks in snail mail (which is another obvious friction point), or if a service provider doesn’t take deposits, causes a loss of service revenues through last minute cancelations or no-shows. Unlike airlines or restaurants that can use yield management algorithms to manage no-shows, independent service providers are left with lost revenues if this occurs.

High fixed cost/low marginal cost business: Service providers, like airlines, have high fixed costs, tied to cost of living, which they incur regardless of whether they are serving a customer or not. They, therefore split these high fixed costs across the orders they get over a period.

For instance, if a plumber had fixed costs of $10,000 a month, and charged $100/ hour of labor, and of the 160 hours he works each month, spent 30% of his time answering customer calls, he would make $11,200 or a profit of $1,200. However, if he were to answer all his questions on a website, and enable customers to book his services online, and was able to reduce the time spent answering phone calls to 10%, his profits would increase to $4,400. Even after assuming that he paid $500 per month on the system, he would still have 200% additional profit. His customers would get other benefits like the ability to book and schedule appointments online, and the plumber could pro-actively market things like “winterize your bathroom” specials to customers when he is less likely to be busy.

The problem is much worse if you look at services where customer tastes change rapidly and high demand elasticity exists – like entertainers and venues. Demand elasticity is also much higher than you would see in essential services like plumbing. Also, utilization of services usually centers around weekends – utilization of venues is as low as 15% and is lower in case of entertainers. Increasing utilization by offering discounted prices but which are higher than marginal costs, can ensure significant additional revenues for entertainers and venues.

A number of web-based applications, the growth of social marketing and service providers getting comfortable with this new customer acquisition method will go a long way in correcting this inefficiency.

Integrating front office and back office tools: IT systems for most venues have evolved to encompass most sale and post-sales functionality – like bookings, deposits, printing receipts, accounting etc. However, these systems primarily assume that the customer is booking through telephone or in person. Booking or inquiries through web-based systems are rarely tracked within the system, and generally assume the form of an email notification containing lead information, which has to be manually re-keyed into another system. Integrating search engine marketing tools and lead generation forms with back end processes like instant booking will improve sales for franchises and entertainers significantly.

Online reputation management: Word of mouth referrals, while effective, are rather inefficient methods for generating leads, especially where customer tastes change regularly. Online reputation management is of paramount importance for a service provider who is looking to increase his revenues and decrease expenses.

Comfort with web bookings: Most people under 40 are comfortable using the internet to make purchases, choose restaurants or other services. They also the “instant gratification” of buying or booking being confirmed when they place an order. Service providers should take advantage of this trend and ensure a sufficient web presence to meet the demands of their target customer.

Google and Microsoft

2007-11-01T19:52:00.001-07:00

Google seems to have perfected the art of attacking its competitors cash cows. Attacking cash cows is a good strategy for two reasons – it makes the company being attacked move to a defensive role. Once in a defensive role, you are reacting to the competitor's threats, rather than focus on adding value to the customer and others in the value chain. Second, a loss of revenues means that there is less investment available for other projects that help the company retain competitive advantage.

Google has done this often and rather successfully. First, it took on Paypal. Google Checkout's price promotions in the 2006 holiday season and throughout 2007, have led to significant adoption in the marketplace, and has forced Paypal to spend additional product development dollars or lose market share.

It has also done this with Microsoft – with GAPE (Google Applications Professional Edition), which bundles the equivalent of Office and Exchange in a SaaS solution at a price of $50/user/year. Exchange and Office costs of ownership are significantly higher.

The unchallenged competitive advantage Google has as a market maker for ads makes it possible for Google to finance these strategic initiatives.

SWOT Analysis for Microsoft

Strengths	Weaknesses
Closest to customer	Hard to convey incremental value to customer
Solid Development platform	Execution
Established ecosystem of partners	Partners capturing too much value
Lots more experience in managing value chain
Opportunities	Threats
Better Development Tools	Google - Office
Publisher Ad incentives	Open source - Servers
international markets	Virtualization – Can they make server OS' irrelevant? Adobe?
Enterprise software

SWOT Analysis for Google

Strengths	Weaknesses
Execution	Dependent on network operators and PC OS's
Unchallenged Ad market making	Single source for revenues
Established ecosystem of publishers and advertisers
Major SEM tools integrated
Traffic cop for the internet
Opportunities	Threats
Mobile SEM	Can execution be sustained?
Making other advertising markets efficient	Can someone incentivize publishers to move elsewhere?

For Microsoft to retain competitive advantage and the ability to price products without significant competitive pressure, it must act to somehow dilute Google's source of revenues. As most of you already know, Google a significant portion of ad inventory where Google Ads are served is on non-Google sites. If Microsoft were able to convert these publishers to use their own version of an ad network, codenamed Gatineau, or at the very least undermine the use of the Google Adsense program (through legitimate means, of course). Microsoft can do this in 2 ways – buying a stake in publishers –like Facebook – which it has already done, offers a potential for a significant amount of ad inventory that is out of Google's hands. The second, possibly more difficult option, is to provide ads cheaper to advertisers, and pay more to publishers – and take less of a margin or no margin at all in brokering the transaction. While this doesn't help Microsoft's bottom-line directly, it helps by impede Google's ability to invest in high projects that will continue to offer it competitive advantage.

Virtualization – The Next Generation

2007-10-30T08:56:00.001-07:00

There are a number of case studies that show that server virtualization and consolidation provides significantly higher utilization of assets. Cost savings occur not only due to direct equipment costs, but also due to savings in software licensing costs, rack space and data center usage and power. Over 75% of large enterprises now use at least some method of server virtualization in their data-centers.

On the client too, desktop virtualization eliminates the need for testing a home-grown application for compatibility and qualification with a number of desktop operating systems, and makes desktop OS migration significantly easier due to fewer dependencies on additional application development and testing efforts.

However, the ever-increasing drive towards more efficient computing organizations will undoubtedly take enterprise IT computing to the next steps in virtualization – where computing, storage and networks are all able to anticipate and re-configure themselves according to demand for specific computing resources.

Dynamic provisioning – where a virtual server is configured as needed, will enable IT managers in capacity planning using averages and medians instead of peaks in usage – which typically occur less than 10 hours in a year. For instance, additional e-commerce virtual servers would be instantiated dynamically on Black Friday, which usually sees the highest sales in a calendar year, and additional customer service virtual servers would be provisioned automatically to handle returns after new year for an e-commerce business.

Demand Orchestration - Additionally, business process configuration and management software will also be intelligent enough to orchestrate demand to balance the need to maintain business SLA's and optimal efficiency. For instance, a line of business file export could be configured to run any time between 12am and 4am, and will be scheduled intelligently between those times by a scheduler using historic data. Intelligent scheduling of computing demand will enable higher utilization due to more uniform usage.

Exciting times are ahead for IT efficiency in general, with virtualization evolving to squeeze more out of infrastructural investments.

Social Networking and Customer Acquisition costs

2007-10-29T09:27:00.000-07:00

I was infected with a virus this week. After a few futile attempts to fight ghosts being thrown at me and offers of beer, I succumbed and installed SuperPoke! and to get even, sent a few vampires after those people. Nicholas Carr talks eloquently about vampires and social networks and observes that we welcome these social networks to be part of our lives.

Many blogs and news articles have commented on how Facebook would be able to use profile information to target ads more effectively than ever. While this may certainly be true, I think that peer pressure and peer recommendations are going to drive the next generation of marketing efforts far more effectively than super-targeted campaigns using profile information. This approach is currently far cheaper than other means of customer acquisition, and stickiness is likely to be greater because it is enforced softly by the your peer group.

First, for most of the population the need for affiliation is far more than the need for power or achievement. Analysis of qualitative information around us (I can't seem to find quantitative data with nAff, nPow or nAch scores for US subjects using McClelland's Thematic Apperception Test and inexperienced in conducting such a test. If anyone has some information, please post in comments below or email me) like houses in a sub-division, dress codes, cars in a neighborhood etc. look alike not only because of formal rules, but also because of informal social pressure.

Additionally, cost of web-traffic is growing. For adwords, or paid search, the most used keywords are fairly expensive, and less used search keywords need a marketing specialist to manage a campaign. Affiliate marketing rates for traffic are anywhere from 4%-15% of revenues. With shrinking margins, this cost is often prohibitive for product companies.

Firms have already realized this, and product companies are increasingly moving to own communities (Johnson and Johnson's purchase of Mayasmom and Reliance's launch of bigadda.com are some examples). BuyCostumes has benefited by this trend by writing a Facebook application and saving significantly on costs of customer acquisition.

All this leads me to think that the next logical step for Facebook is offer a valuable service to product companies–set up Owner Clubs for products and charge product companies for this service.

Are Companies Spending too much on IT?

2007-10-17T09:12:00.000-07:00

Most IT managers and executives are likely to be creating their 2008 IT budget this time of the year. As companies prepare for an economic slowdown and are looking to reduce operating expenses, IT executives may be hard-pressed to explain any increases in IT spend.

I looked at IT areas where companies are currently spending money, and where there may be room to reduce IT operating expenses without creating investing in large CAPEX projects.

According to META in 2004, the financial services industry is well above overall averages, with projected IT spending of six percent of revenue in 2005, compared to an average of just over four percent and projected spend of 13 percent of operational expenses, compared to an average of five percent.

Gartner surveys say insurance companies in the US spent 2 to 4 percent of their annual revenues on IT expenses in 2006.

Surprisingly, insurance companies were quoted as saying that 65% of their IT expenses were "to keep the lights on." The large amount spent in running the engine leaves few resources for strategic projects that can actually help increase company revenues. Here are a few areas where executives can reduce their IT spending.

Do you really need those servers?

Additional resources come with huge hidden costs. For example, software licensing, data-center space, maintenance contracts and additional system or network administrators needed to manage the product, may end up making a bigger dent on your IT budget than you intended.

See if you can move applications to servers to improve utilization, or use virtualization to squeeze more out of your hardware. Also, using virtualization may mean that you can get rid of some OS licenses altogether. For instance Weblogic runs directly on the hypervisor, and other applications that run on Java VM's may be able to do so as well.

Better Application Maintenance processes

Ensure that you have a documented application development process. Use EPF or Visual Studio Team system to have an integrated approach to application lifecycle management. Enforcing a process ensures smaller learning curves, and consistency in estimates and process when interacting with other departments. Ultimately, this saves time and reduces confusion and risks. In addition, since the process is documented and enforced by the system, you can continually improve process and ensure that every one in the application development team follows it.

Use PPM to determine what Projects to execute
Unfortunately, most executives have more positive NPV projects than the budget will allow (and raising additional capital for projects, while theoretically sound, may not be likely in practice due to transaction costs). If you already have a good system for evaluating business cases, tracking projects, quantifying risks - use your PPM system to monitor and reassess your priorities as the time goes by. Sometimes, it makes sense to nix a project that continues to be on time and on budget if it is no longer as important. If you don't have such a system to track projects, this may be a good time to start. Serena's Mariner or Microsoft Project Portfolio Server are best implemented by professional services or if you have the $$, by consulting companies who have done this many times before.

"Lights-on" Operations
Are you relying on people for operations that can be automated? For instance, diagnosing most issues like batch processes not running or password resets do not require a technical support person. Look at issue logs over the last 6-12 months and identify the issues that were most frequent and required signficant time to fix. Look for opportunities to automate diagnosing and fixing these simple but time-consuming problems using simple scripts or use products like iConclude (now part of HP).

The Malaise at Microsoft

2007-10-16T15:42:00.000-07:00

In a business school case (Rohm & Haas), we learned about how channels of distribution were critical to a new product's success. I have added a brief description of the case below.

Joan Macey, Rohm and Haas' market manager for Metalworking Fluid Biocides, found that sales of a new biocide, Kathon MWX, was utterly disappointing. This was all the more puzzling since sales of her other product--Kathon 886 MW, a liquid biocide used only in large-capacity tanks--was well on target and held a steady 30% market share. In May 1984, about five months after the new product was launched, Joan Macey was reviewing her entire marketing strategy with a view to bringing Kathon MWX sales closer to target. Of particular concern to her were the distribution and communication strategies used for the new product.

Designed for Channel, not the end-user. The better product apparently cannibalized strong service revenue retailers were getting, and retailers really didn't have any incentive to sell the new product. Obviously, Microsoft has learned this lesson too well. That is the problem. It is obviously not enough that a product exist to help players in the value chain capture value, it has to create substantial value to the customer too.

Products don't solve a problem: Most products (including Vista) primarily seem to be designed to push more products and services to customers who really don't see a problem being solved.

Products create problems. In fact, most people I know have gone back to XP because all their software and peripherals (Camcorder, Palm software etc.) work with XP but not with Vista. These are people who prefer function to form.

Advice to product managers: talk to end users for product requirements, not just to channel partners.

How much is it again? Licensing is confusing. Now, that is an understatement. Because a lot of Microsoft products are sold through channel, Microsoft has to list really ridiculous list prices for their software. Other software vendors like Oracle also do so, but Oracle primarily deals with large enterprises, whereas Microsoft has a lot of small business customers. If I don't understand pricing, as an IT manager, I will go to a vendor who has a more transparent pricing model.

The licensing tool is an attempt to help with your pricing confusion and perhaps anchor a ridiculously high price as a reference point for you to begin bargaining.

Segmentation Gone Wild
Microsoft Dynamics, after several confusing name changes, has 7 products and each product has an average of 3 editions. Not only is this challenging for the customer to navigate through, it is challenging for the sales staff who has to be up to date on the features of each of those products. Is it really cost-effective to extract every ounce (or more) of value from your customers? Or is it poor post-merger integration?

Peanut Butter with your OS?
Yahoo executive Brad Garlinghouse wrote the Peanut Butter manifesto for Yahoo, but it applies to Microsoft as well. The software maker recently launched Real Live Moms, a Live Spaces site that exhorts moms to be "the most spirited mom in the block" (sic) and other spaces to promote its "community." It may be time for a talk about the problem of spreading resources too thin and shoddy execution on products.

Outlook: I'm moving to GAPE!
As SAAS offerings like Google Applications Premier Edition are beginning to provide rich functionality, avoid issues like local storage, and provide a clear pricing structure ($50/user annually), I expect more small businesses to move to such products. Also, improvements to Google Gears may take care of times when your network go offline for brief periods.

Understanding web-consumer psychology through Google Data

2007-04-02T20:04:00.000-07:00

Google now collects vast amounts of consumer behavior data. Most obvious among the data being collected is search keywords.

By offering Google Analytics for free, Google is able to collect data from other sites that users visit, and is able to establish a pattern of visits for a particular visitor. For instance, Google will be able to determine what

Not IT - Are railroad companies the next private equity target?

2006-09-16T18:38:00.000-07:00

Private equity firms, with a significant amount of capital to invest, highly incentivized managers (in case of buyouts like Sungard), the ability to avoid the cost of being a publicly listed, and the opportunity to extract operational efficiencies - are all reasons for the increased number of buyouts by private equity firms.

Typically, private equity firms are attracted to industries with consistent cashflows, low volatility (beta less than 1) , low debt (Debt less than 50% of capital) and high dividends. The railroad industry ( BNI, NSC, UNP) fits right into this set of specifications, and their enterprise values (market value of debt + market value of equity) are in the $24bn - $30bn range, an size that a consortium of PE firms can easily digest.

In addition, cash flows in this industry are strong, coupled with gross margins close to 40%. Railroads have a greater efficiency than road transport - and higher fuel costs are likely to make railroads cheaper than shipping by road. Levered beta for this industry (with 40% D/K ratio) is 0.9.

Stock values in the transportation sector have in general weighed down by high fuel prices, and railroads may be a good buying opportunity for PE firms.

Name	Burlington Northern Santa Fe Corp.	CANADIAN NATL RAILWAY	CSX Corp.	Norfolk Southern Corp.	Union Pacific Corp.
Industry	Railroads	Railroads	Railroads	Railroads	Railroads
Current Share Price	69.82	41.02	31.61	43.05	83.80
Market Value	$25,272 mil	$21,851 mil	$14,020 mil	$18,711 mil	$22,571 mil
Revenues	$14,031 mil	$6,507 mil	$9,096 mil	$9,107 mil	$14,715 mil
Net Earnings	$1,724 mil	$1,684 mil	$1,036 mil	$1,343 mil	$1,366 mil
5-yr. Sales Growth	8.24%	13.84%	1.41%	7.49%	2.89%
5-yr. Earnings Growth	15.23%	35.48%	25.08%	31.49%	-0.53%
Net Profit Margin	12.30%	25.90%	11.40%	14.70%	9.30%
Short Interest	1.3	1.6	1.4	0.8	1.2
Est. EPS Growth Rate	15.3%	14.3%	16.1%	14.4%	15.6%
Forward P/E	14.1	14.2	14.4	12.9	15.0
PEG	0.92	1.00	0.89	0.89	0.96
Price/Sales	1.8	3.4	1.6	2.0	1.5
Price/Cash Flow	10.2	10.2	8.3	10.4	9.7
Price/Book	2.5	2.6	1.6	1.9	1.6
ROE	17.5%	22.2%	12.7%	14.2%	9.8%
ROA	5.7%	9.0%	4.3%	5.2%	3.8%
Dividend	$1.00	$0.59	$0.40	$0.72	$1.20
Dividend Yield	1.43%	1.44%	1.27%	1.67%	1.43%
Payout Ratio	16.8%	16.6%	11.6%	18.1%	23.7%
Total Return (12-mos.)	18.2%	17.1%	37.7%	7.7%	18.5%
Total Return (3-yr.)	149.4%	143.4%	121.6%	140.4%	50.2%
Beta	0.8	1.1	1.0	0.9	0.8
% Off 52-wk. High	-20.65%	-19.84%	-15.32%	-25.40%	-14.04%
% Above 52-wk. Low	26.07%	21.54%	48.06%	16.29%	25.28%
On Balance Volume Index	61	59	67	46	82

The resurgence of Java

2006-08-29T09:26:00.000-07:00

The majority of new websites (Web 2.0) use the LAMP stack, and other popular development platforms are ASP .NET and more recently, Ruby on Rails. Has Java seen its heyday?

Amazon's EC2, Google's Web Toolkit and Sun's open sourcing of Java may finally make economically feasible for web-companies to develop in Java.

For a development platform to be successful among web startups, it should have
1. A good IDE,
2. A variety of hosting services
3. A talent pool of programmers
4. Free code-samples and ready to use open-source software that users can customize.

While ASP .net and LAMP meet all these criteria, Java has always been tough to adopt because there weren't any cheap hosting services for a bootstrapped company to use.

Thanks to Amazon, a good language can now be used for things other than enterprise middleware services.

Also, Google's Web Toolkit now makes it possible for developers to develop web UI's using Java, and then convert them to Javascript.

So, if I could host applications like Daffodil CRM in an Amazon Elastic Cloud, and get it customized and integrated with my Web 2.0 website (at $12/hour), use one free development platform to develop a website that anyone with a CS degree should be familiar with, using Java finally makes economic sense.

I expect Java to add some caffeine to Web 2.0

Is Google entering Salesforce’s backyard?

2006-06-09T08:32:00.000-07:00

Some products, like Google Sets, graduating from Google Labs may seem the esoteric. However, all these products fit a larger offering Google is building – a highly flexible set of application components with can be easily integrated into an application of your choice.

Applications or components include email, online calendars, spreadsheets, online document processing etc. But when combined together – these provide a significant productivity boost for customers. For instance, when I get a tracking number from an order I placed, Gmail automatically detects the string as a UPS tracking number and provides a link to check the status of the package. It is also able to detect a meeting request or an address and show me the appropriate links (like “Add to Calendar” or “View map”).
Gmail conversation threading and labels provide the ability to track chains of conversations. Also, Google Analytics provides a fantastic system to view Web leads and look at your sales-funnel, and you could get the features of a basic CRM for free with Google products. Granted that most of the products are still in Beta, but Salesforce has had some outages as well. One missing piece – Google Proxy authentication, which seems imminent, when available will make software development over Google Services easier and undermine some of Salesforce’s value proposition to ISVs.

Meanwhile, Salesforce has probably anticipated and is reacting to this strategic threat with AppExchange. Just as fries or soda are always easier to sell with the burger... by providing a platform with rich services, the AppExchange platform is helping ISV’s by reducing the friction in the sales and product development process, and increasing value of both the Salesforce platform and the ISV’s product to customers by providing a seamless interface. Of course, the markets segments each company is targeting currently are very different, with Google targeting individual and small business e-commerce companies, and Salesforce targeting the SMB and the enterprise marketplace. But with the projected high growth rates of both companies and not-so-high growth rates of the CRM market - competition is inevitable.

Passport 2.0?

2006-06-09T07:57:00.000-07:00

One of the challenges facing Web 2.0 companies today is the friction due to required signups. You typically provide an email address and a password to create an account, and you get a confirmation email with an activation code. As a visitor to the website, this causes a significant amount of friction, and I looked into how we can eliminate this while ensuring that the website is able to provide features that will not be misused (for email or link spam)

Why do websites require accounts?

1. To prevent misuse – Visitors without accounts can use the “email this article” feature to spam others. Alternatively, comment spam could be used to boost Pagerank.

2. To keep track of visitors and their information – Websites could also do this with cookies, but users have the ability to delete them.

3. To notify users of “Exciting new features” – This is a proven method of increasing web traffic.

4. To protect private information a user may have entered or other transactional information.

All these, or most of these functions can be accomplished by having one company manage ID’s for multiple websites. Like the Google Account or Microsoft Passport earlier, a OneID would make it easier for web users to get access to a lot of features on a website without the webmaster having to worry about the potential misuse by anonymous users.

Symantec is reported to be exploring this opportunity, and Google may be coming up with an Account authentication proxy. Several blogs, including ZDNet, point to this imminent launch.

The feature will be particularly useful for Google because they can look at what other sites a user visits, and will be able to better train their search algorithms to display to the user what they were looking for without having to visit 10 websites to get this information.

Is this the case of Google copying Microsoft?

Metric madness causes google searches to be no longer as relevant

2006-03-02T06:56:00.000-08:00

The Google search algorithm is a popularity contest of sorts, and Google uses links to the site from other sites as a proxy to measure this intangible attribute.

How Google works

PageRank Technology: PageRank performs an objective measurement of the importance of web pages by solving an equation of more than 500 million variables and 2 billion terms. Instead of counting direct links, PageRank interprets a link from Page A to Page B as a vote for Page B by Page A. PageRank then assesses a page's importance by the number of votes it receives.

Consequently, people who want their sites to get a higher pagerank know exactly what to do - get reciprocal links, get links from the more well-known sites, or write poor quality blogs with every tenth or fifteenth phrase being the topic the webmaster wants to promote.

And thus, the metric is separated from the underlying attribute it strongly correlated to earlier. Google search is no longer as good as it used to be, because the motivation to link to other sites is not solely whether you like the other site's content.

So, why is Google still successful? Other search engines do not have the simple look and feel we have all grown so accustomed to...

Update: I hadn't realized that Nick Carr and the Wall Street Journal wrote about this issue on March 1.

Consolidate or go for grid of cheap servers?

2006-02-28T07:42:00.000-08:00

Most fortune-500 companies have already done some consolidation. The benefits of server consolidation have been huge - the tens or hundreds of servers, each with different patch levels and service contracts contributing to low utilizations have been replaced by a few high-end servers. Nicholas Carr, in his blog asks if the server industry will suffer as a result of higher CPU utilization (resulting either from virtualization or consolidation)?

SAP's Charles Zedlewski provides a good counterargument, why the server industry will be ok after all.

The real metrics that organizations should consider are
1. Costs per processing unit,
2. Volatility of computing demand.

In the long term, enterprises of the future will go with a limited number of highly consolidated servers running some virtualization software, yielding about 60%-70% in utilization, with additional computing power available on-demand to run complex statistical and marketing programs, provided by OEM vendors like Sun, IBM or other providers using generic hardware.

I wouldn't be too worried about any drastic reduction in computing demand, simply because firms would (hopefully) buy this additional lower cost processing capacity to make better business decisions. The only server manufacturers who would truly go away are server divisions or companies that make expensive, generic hardware (Dell, HP?).

Space and power - the drivers for hardware design

2006-02-28T07:27:00.000-08:00

Once upon a time, hardware and software costs were a significant portion of a company's IT budget. As costs of harware and software reduced, companies are more concerned about data-center costs, which are now a significant portion of IT budgets. Some of these costs are also incurred by other departments in the company, and facility managers have to take these factors into account when desgning a data-center.

Data-center costs are - real estate costs, power costs for HVAC and computer equipment.

The IT eco-system

2006-02-26T08:31:00.000-08:00

Here is a pictorial representation of the IT ecosystem I put together. I will use this as a basis for the next few posts.

SAP and Microsoft

2006-02-22T16:53:00.000-08:00

Two software leaders SAP and Microsoft, are slowly reentering the On-demand marketplace. These two software giants have not targeted the early adopters in the Gartner Hype cycle, and usually have enter the field later than most other cutting edge ISVs. Consequently, they have used their deeper pockets and other resources to steadily erode marketshare of other incumbents in the field.

Also, while SAP has provided some limited resources to open source projects like SAPdb, and Microsoft may be forced to license its software in the EU, both companies have largely eschewed open-source and continue to rely on traditional software business models.

Both companies a strong partner program to complementors (ISVs, distributors, systems integrators and Value added resellers) significant incentives to partner.

Are they competitors or do they complement each other?

Currently, SAP and Microsoft products largely complement each other. SAP and Microsoft are also collaborating in Mendocino to integrate back-office ERP with front-office Microsoft Office products, possibly using .Net and NetWeaver.

However, Microsoft, with its newly renamed Dynamics products is targeting the small and medium business (SMB) ERP markets, the same market that SAP is increasingly focused on to increase its growth.

We will know in the next few months whether the Dynamics products start gaining traction in the marketplace or whether a the product requires a lot more than a new name to be successful.

Salesforce earnings 2/22

2006-02-21T19:34:00.000-08:00

Salesforce has undoubtedly been a phenomenal success - with a value-proposition targeted at companies' frustration with lengthy CRM installations. Well, once the installation is complete, customers are only going to be satisfied if the product is fundamentally feature-rich. Also, customers in a subscription model are always going to look at the pricing of comparative products.

With Microsoft announcing its entry into the CRM market, SAP entering the On-demand CRM space, and open source offerings from Daffodil and SugarCRM , the added-value provided by Salesforce has significantly diminished. Salesforce has been forced to add value in other areas - which it has tried to do with the Appexchange platform, but I cannot think of any serious venture-funded ISV developing software to be solely on the Appforce platform, especially with so many other CRM products entering the market.

Service delivery has also been a problem in the recent past, with two high-profile outages, after which the company has started disclosing root-cause and service availability at trust.salesforce.com , but not before several blogs started complaining about the lack of visibility and corporate IT departments going into the "I told you so mode".

While the quality of earnings is high due to the subscription model (since customers provide recurring revenue and a huge attrition is unlikely to occur), I am very skeptical that Salesforce deserves a P/E ratio of 151 when even SAP and Microsoft are trading at more modest multiples.

Dell's poor outlook for next year

2006-02-20T22:07:00.000-08:00

Dell's performance as a cost-leader using a direct-sales channel is being threatened. As other manufacturers have gained significant efficiency in manufacturing, they are able to manufacture and sell higher quality products to customers. VAR Business provides a good overview of Dell's malaise. As VARs find more ways to beat Dell , we haven't seen any major changes in Dell's strategy apart from some blathering about manufacturing computers with AMD chips .

With enterprise markets tending to move more towards HP and Lenovo, and consumers switching towards whitebox computers, Dell must work fast to recapture these market segments where it has been most successful in the past.

At least, Rollins isn't busy giving away hardware and chuckling at competitors as they take market share away.

Sunset?

2006-02-20T21:47:00.000-08:00

Sun Microsystems' future does not look very bright. They have "successfully" opensourced the Solaris operating system with 4 million downloads, and more recently have started giving away Niagara servers on free trials.

While open-source and try-before-you-buy hardware may build communities and be very good for the customer, I fail to see how any of this will make Sun any money. More likely, if there is a widespread adoption of Solaris, it will be on whitebox servers.
Sunfire servers may be state of the art and may only sip juice, but they more than 3 times more expensive than whitebox servers.

Sun has also been notorious for failing to make money on good products (Java?). I see Sun continuing to dig a deeper hole for itself in the next few quarters, until a company with money and focus on monetization(maybe Oracle) buys them.

It is also funny to see Schwartz chuckling at HP.

"We all enjoyed the site HP put up to promote Sun's Niagara announcement - it's worth a good chuckle."

Only time will tell who has the last laugh.