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Archive for May 5th, 2009

What Now, Microsoft? (Pssst, It’s Not Too Late, and It’s Not About Yahoo!)

Posted by Bob Warfield on May 5, 2009

What should Microsoft do now?

Clearly, it is fighting a rear guard action where search is concerned.  Any deals with Yahoo are stopgap at best.  Microsoft probably believes they only need to slow the erosion to buy time for their own technologies to kick in against a large enough installed base, but that isn’t it.   That’s an incremental strategy that won’t get them anywhere very helpful.  Google will just keep peeling away share.  This strategy of hooking up with Yahoo is a classic violation of Sun Tzu’s (and every strategist since) ideas.  When you are the weaker player, don’t attack the strong one in their strength!

It’s about out flanking.  Doing the unexpected.   And realizing that your days of leveraging existing monopolies to reach into new spaces are about done.

Think about what the reaction would have been if Microsoft had bought Sun instead of Oracle.  For starters, they could have bought them for cash using a little more than 1 quarter of EBITDA.  Yes, Microsoft is cash machine.  But just imagine the signal they could have sent:  We are tearing down our walls!

No more anti-open source.  No more anti-Java.  Can you imagine what a ripple that would have sent?  That would have been some outflanking. 

And because it would be such a radical move, you’d have to believe it, unlike Oracle where it is easier to assume they’re just the glue factory and the race horse is done.

Think what such a move could have done in terms of reseating Microsoft at the head of the development tools table, which is where they started.  A jumpstart on Cloud Computing.  Throw in RedHat, market cap half that of Sun’s purchase price (another 1/2 quarter of cash generation for MSFT) and you’ve got Linux too.  Now Microsoft would’ve had a truly amazing platform story.  Almost scary amazing, in fact.

How can a Yahoo search deal even begin to compare to that?

Lots of strategic upset in such a move.  Imagine putting the internals of SQL Server behind MySQL.  Microsoft has always staked out the low end.  The don’t risk nearly so much cannibalization as Oracle does with MySQL.  Lots of organizations would love to have a paid (though admittedly still cheap) version of MySQL that just ran a lot faster when they needed it too.

But that deal is done.  Oracle got Sun.  It’s not something to be unwound.  It was a once-in-a-few-decades strategic alignment of the stars that went unnoticed in Redmond.  The old strategic religion is too strong for them to have ever considered it seriously.

What else should they be looking at with similarly game changing?

Twitter  ($1B might do it).  Clearly Twitter is pretty darned game changing, and some are saying its just the right thing for Microsoft.  But it will be awesomely expensive, and it isn’t clear how to use it as a beachead to build out nearly so horizontally as Google has. 

Facebook  ($10B?  Less?).  Another good example, even more awesomely expensive.  Would Microsoft build something out of it that would ever justify the cost?  Unclear.

Amazon (Too much!).  This would’ve been my favorite from a technology perspective, but it has all sorts of problems though  Hard to catch Microsoft + Amazon for Cloud Computing.  Their market cap is $35B, which is probably too painful to swallow, and it would take a significant premium above that.  The Cloud business is still a tiny portion of that, so MSFT is buying the world’s most successful e-tailer.  Margins are lousy on this stuff compared to MSFT’s core business, so it is dilutive to the franchise.

How about a bevy of SaaS Companies?

I like this idea.  They are not cheap, but the most expensive of all,, is $5B or so.  Say they wind up paying $7B, but they’ve now bought by far the biggest SaaS player.  Let’s pick up a few more to round out the suite.  I’ll take Successfactors for HR at $500M (peanuts with Microsoft’s cash flow).  Let’s add RightNow for Customer Service at circa $300M.  We’ve got room for one more, and I’d round out the CRM suite potential with either Xactly Corp or Callidus Software.  Xactly is a pure play and cheaper, but might not be willing.  Callidus has a lot of baggage, but has built a good sized SaaS business.  Let’s kick in NetSuite for another $1B (or a little less after they somewhat missed).


Salesforce, SuccessFactors, RightNow, Xactly, and NetSuite.  In one fell swoop Microsoft becomes the biggest SaaS player on the planet.  They block Oracle and SAP from acquiring these companies, and I’m not too sure they wouldn’t love to annoy those companies anyway.  As a matter of fact, there should be any antitrust issues here because of SAP and Oracle.  These SaaS companies would totally sew up MSFT’s domination of the low end business software world too.  And the total price tag?  Maybe $9B and they totally dry up the well of companies that have any scale at all in the business model that is the coming thing.  Heck, round up to an even $10B and pick up whatever remains of the SaaS world.  Then launch a classic Microsoft all-out hypercompetitive battle against Oracle and SAP for world domination.  It’s a clear opportunity to destroy the fat maintenance margins of this group while maintaining their own margins in unrelated business units. 

That would liven up the Enterprise world again for sure!  Best of all, it’s got nothing whatsoever to do with Google.  Let them eat cake over there, trying to grow a market they already own most of.  Wait for Carol Bartz to show up with her metaphorical hat in hand.  You can still buy that search business a whole lot cheaper. 

Not bad for a few months cash flow.  Mr Ballmer, when are you going to get on with doing something exciting over there?  Or will Oracle steal a march on you again?

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eBook Replacing Scientific Calculator?

Posted by Bob Warfield on May 5, 2009

I’m going to date myself here, but the memories are just too fond.  Starting in high school, I was a total scientific calculator junkie.  You know, the programmable kind?  As a pubescent alpha geek, that was my iPhone of the day.  We were past the slide rule era and just pre-PC.  I did have a little CP/M system with a rompin’ stompin’ 4K of hand soldered 2102 RAM for those that remember that sort of thing, and the rich kid down the block had an Apple II that threw out so much RF interference he had to sit in one corner of his room with the Apple II and quint to see the TV monitor in the diagonally opposite corner. 

My buddies and I who couldn’t afford Apple II’s (we did manage Trash-80’s when those came out) were all programming these calculators to do all sorts of funky things.  Lunar landers games of varying sophistication, prime number calculation, iterative equation solvers, you name it.  I started with a Texas Instruments calculator, a TI-59.  I still remember opening the package.  It was probably the first thing I got in life that had all those little gadgets (chargers, memory cards, instruction manuals, yada, yada) and that had that wonderful “new consumer electronics” smell.  Nothing like the uber sleek Apple packaging an iPhone comes with, but for the day it was exhilarating to get a package like that.  In those days, a kid was doing good to get a Schwin bike as a gift, a Lionel train set if they were really lucky.  We didn’t hope for multiple game consoles, cell phones, and the rest of the stuff kids take for granted today.  The $299.95 TI-59 was quite an expensive luxury.


But I didn’t rest for long with it.  Eventually I came to embrace the amazing conceptual elegance of Reverse Polish Notation (you know, the calculator only the real geeks could understand how to work?) and that meant an HP.  HP’s fit, finish, and packaging were a whole level above that of the TI.  Texas Instruments may have invented the electronic calculator, but HP perfected it.  After having used the TI-59 for 2 years, I sold it to a friend and bought an HP-41C to take with me to college.


At the school I went to (Rice University), we divided the student body into two types:  Academs and SE’s.   Academs were Fine Arts majors of one kind or another, and Business majors were lumped into that category.  Rest assured that the HP-41C was not a machine for Academs.  They scarce seemed to use a calculator at all, perhaps the little HP-12C financial calculator (still a great little machine!).  SE’s were Science and Engineering majors, the Geeks, and we all had programmables, mostly HP’s if you were a really good geek.

Which brings me to Amazon.  There were always a lot more Academs running around than SE’s, even though my school was primarily an Engineering school.  The world seems certain Amazon is about to introduce a new Kindle intended for textbook reading.  Why not?  Seems like the ideal power tool for Academs.  At last, a knowledge slate able to convey a classical education and not just scientific notation.  The new machine will have 9.7″ screen instead of the current 6″.  Cool!

People wring their hands over Kindle pricing, but if you’ve been reading along you must realize that Kindle is bargain compared to the calculators I’ve been writing about.  We scraped our pennies together in times that were both leaner, and where pennies went a lot further, to pay darned near as much as the Kindle costs today for our little bundles of computational joy.  This doesn’t begin to describe the relationship between the cost of a textbook-sized kindle and the ridiculously expensive wood pulp tomes we used to pay for in the on campus bookstore every semester.  Maybe Amazon can actually cut those costs enough so students are net ahead on spending money.   If nothing else, they’ll head off back problems as students quit having to carry so much weight across campus in their backpacks. 


I think it’s fantastic that the Kindle will be serving the textbook market.  Some important questions remain: 

–  How do I highlight my textbooks?

–  How do I use it to check out books from the University Library?

–  Can I get all the scientific journals without paying the exhorbitant sums these periodicals charge?

Time will tell.

Posted in amazon | 2 Comments »

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