Dear everyone,

I am extremely happy to start off this new year by introducing a fresh face on Tech IT Easy, Anand Kishore Raju, who will be blogging with us in 2010. His main areas of focus as a blogger will be greening the internet, carbon footprints, energy and power figures of the internet and web2.0.

Anand is currently working as a Research Engineer at Telecom ParisTech (ENST). His area of research focuses on the Energy aspects of the Internet, what the scientific community calls “Green Networking”. His efforts are directed towards making Computer Network Science aware that processing, moving and storing bits has a cost in terms of energy and in terms of the Carbon Emission Footprint.

In the past, Anand had also worked at Collaborative Systems Group (ColSys) at Bilkent University, Turkey, where he developed a taxonomy for user properties, influence factors for feedback quality in web 2.0, existing and novel models for deviation types and their detection. He also holds a degree in Computer Science and Engineering and aspires to join HEC in near future.

Anand joins a smart team of collaborators, some of which also work in green computing and many of which share an interest in this important topic for sure. As such, please join us in welcoming Anand to the team and I hope you enjoy reading his words on Tech IT Easy!

Happy New Year,

The Tech IT Easy team

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I’m always fascinated by business models, i.e. at how entrepreneurs and companies put together services in order to make money from them. I’d call it the source code of business if I hadn’t seen the other source code in Luxembourg —legal and accounting—but arguably that’s more like binary code, i.e. 99% unintelligible.

Sarah Lacy writes about SMSONE, a ultra-local news provider in India similar to Outside.IN, a Union Square Ventures funded US-only company that provides news updates via the web. SMSONE does it, as the name suggests, via SMS. And it spreads through a franchising model, working with local entrepreneurs that pay a franchise fee and also collect a share of the advertising revenue from locally focussed businesses. It is able to do this because of something that apparently doesn’t exist in the US (but does in Europe): receiving an SMS in India doesn’t cost the recipient anything.

When reading about this, I was immediately reminded of a similar business model employed by a Dutch entrepreneur in Russia, Ms. Annemarie van Gaal, founder of Independent Media, a company that distributed Russian versions of magazines like Cosmopolitan, Marie Claire en Good Housekeeping (source). When she spoke at the Star entrepreneurial seminar in Rotterdam a year ago, she told us about how she differentiated herself from the competition (paraphrased as I haven’t got my notes with me):

The trouble with getting your magazines distributed in Russia was that you had to pay quite a lot of money (some would call it bribes) to companies that would then take care of it… badly. Instead van Gaal decided to do it differently. She would hire street kids to distribute her magazines, similar to the gold days of newspapers: the newspaper boy.

If you read Sarah Lacy’s account on Techcrunch, you’ll see that SMSONE does it similarly, hiring local kids, often without much education, to take care of distribution. Doing it via official channels is likely a nightmare over there, and centralising distribution kind of defeats the purpose of micro-news.

It’s a different way of thinking, which many of us westerners don’t have. I mean, would you entrust your products to a beggar on the street or to a street musician? Not only is it probably against the law (except if the government does it), we pride ourselves on our super-organised infrastructure, where anything from temp-workers to interns are there to provide companies with a flexible workforce, and anything from printing presses to mobile internet exists to produce and distribute your stuff.

Of course, I wouldn’t just leave you with these two examples. In the beginning of 2008, Boston Consulting Group published a study of “local dynamos”— domestically focussed companies, which use creative business models to capture value from emerging markets that are filled with challenges, like lacking infrastructure and low-income consumers. The map below shows how widespread these companies are.

Some very interesting examples are mentioned, like:

• Shanda, a Chinese gaming-company, that, in order to combat software-piracy, focusses on providing interactive services through gaming, services that are impossible to pirate. And to overcome a lack of a financial infrastructure to pay for online services, they work with pre-paid cards.
• Indian CavinKare, which sells cheap sachets of shampoo through small local retailers, while using educational marketing to teach customers how to use their products.
• Goodbaby, which targets the many 1-child families in China, who are both willing to spend more on their child than multi-child families would, but are also in need of education.
• Amul, an Indian food-and-beverage-marketing-organisation, which collects and pays for milk locally, while tracking all operations via satellite and uses ERP solutions to make analysis based on the data and gauge whether future supply needs to be increased or decreased.
• Wimm-Bill-Dann Foods (Russia), which works extensively with local partners, and has devised leasing schemes for expensive machinery to boost their production and is able to serve 280 million consumers nation-wide.

The BCG, of course, takes the stance of its customers, Western companies, and the study is mainly aimed at how multinational companies (MNCs) can replicate 6 of these dynamo’s advantages, in order to compete with them. They are:

1. Customising to local needs – which involves first understanding these needs, and then meeting them.
2. Devising innovative business models that overcome local challenges – a logical follow-up to the last point, how to make money from the info you gained.
3. Leveraging the latest technologies – meaning that these emerging economies are less burdened with traditional infrastructure and quicker on the uptake of more affordable, newer, and easier-to-spread technology, e.g. mobiles.
4. Benefiting from low-cost labor and overcoming shortages of skilled labor – there’s two ways to look at this; a local workforce will be better equipped to interact on a local level, a highly-trained workforce will be better equipped to run a business. Tough call.
5. Scaling up fast – Russia, India, China, Brazil, etc. are all giants with the promise of huge rewards when you capture them. Many of these dynamos grow quickly through both through acquisitions and building up their network of suppliers and distributors.
6. Sustaining long-term hypergrowth without imploding – this kind of follows on to the last point

Some of the Western companies mentioned, which have managed to compete on a local level, include:

• General Motors, which has adapted its luxury-liners to meet the demands of its Chinese customers, who are usually sitting in the back;
• LG, in China, which has learned that the audio-quality of its televisions is more valued by its customers, who often reside in noisy environments;
• Carrefour, which has started to work with local municipal governments in China, as these don’t meddle in their operations like local dept. stores would, and are able to provide access to prime locations;
• Perfetti Van Melle, in India, a candle/chewing-gum manufacturer, which has found local means to advertise, interacts frequently with local partners, and has adapted its products to local tastes;
• and Yum! Brands, which owns Pizza Hut and KFC, and has adapted its menus to meet local Chinese tastes, started a new food-chain aimed specifically at the market, and uses its international expertise to integrate IT, lean supply chains, and a higher level of food standards into their offering.

It shows the value of out of the box thinking in terms of reaching people, and I believe that traditional “Western” thinking should long ago have been thrown out the door anyway, particularly in light of the troubles that media-, automotive, and financial industries are going through. We are in the flux of disruptive innovation and only those quickest to grasp new technologies and ways of thinking are able to survive another day.

No shortage of lessons on that from entrepreneurs in emerging economies…

Vincent out

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I hate breaks in anything I do, blogging, work, sports, love, etc., because it’s always harder to return back into the zone. Similarly, I already knew subconsciously that it would be hard to return back to blogging after the proposed hiatus. Routines are good and when they are moved aside, they get replaced by something else.

The human body is a machine and everything, from hours in the day, to food and exercise, to making money, to relationships, are all pieces in the machine of life. There’s only so many hours in the day is a well-familiar phrase to most of us and reflects the difficulty in balancing different activities and responsibilities, with some just falling off the map.

I am not saying that I plan to stop blogging, but I do think that we all need to make choices in our lives which will affect other, previous ones, like domino blocks.

Dynamics…

I just bookmarked a blog post on delicious on forming sales teams in a startup. It’s a good one and you should all read it. As I tagged and bookmarked however, I immediately thought, hey, I’m pretty sure no one on my company will read it. Why? Maybe because we already figured it out… Maybe because we figure stuff out as we are doing it… Your choice.

Blogging or any kind of writing for public purposes brings several complications to business people:

• it is public knowledge, meaning that the competitive advantages are slim: I don’t think this is a major factor, as most innovations are combinations of different ingredients that may or may not be public knowledge. Great artists steal, as they say.
• Writing is processed explicit knowledge from something that was previously implicit and needs to be made implicit again by the reader for it to be useful in a practical context: I’ve written about the knowledge-generating company and the knowledge spiral twice before. Another phrase, “You can’t help yourself, because your *self* sucks!” also comes to mind.

It’s the latter that represents the greatest challenge to authors and consumers of their work. I’ve also previously written about the benefit of formal education, which, I think, tries to recreate the knowledge spiral, turning explicit knowledge into the implicit kind, to be used by students in their work later on.

The dynamics of business is that there are expenses—YOU, the team, the office, etc.—which need to be recuperated by your work—the work you do for customers, after which they pay you. It leaves very little time for reflection, e.g. through blogging, etc., and for making things explicit, e.g. through blogging, etc.

I’m still a big fan of Michael Gerber’s E-myth revisited, which is really about writing that franchise manual for your business, so you can both understand the processes happening in your company, and expand on those, by more easily passing on knowledge. It’s Taylorism, of course, or Scientific Management, or any of the other management methodologies that followed in the past century.

But these activities require time, time which people inside organisations usually do not have, and hence prefer to outsource to outside consultants, who then need to make their knowledge explicit and again implicit in the minds and methods of their clients’ organisation.

It’s a real nightmare for people (like me) who think to much and always aim for something higher. And who want to blog. And who want to do good business…

Thoughts?
Vincent

(Picture courtesy of Fisica & Psychica)

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I have hardly any time today, catching up on the week, which is terrible for the creative spirit. So, as a 15 min. therapy, where do good ideas come from? Here are 4 areas that I can think of:

Exploration / Rest: Spending 3 days in Paris and 2 days celebrating the national day of Luxembourg was great for thinking about life, discussing various topics and plans, and brainstorming ideas. It is in a way the anti-thesis of working life, which is focussed on making you into a machine, constantly moving, constantly following a routine, and not breaking out into new creative patterns. Ease of Implementation: Ideas are often abstract and need a lot of work to make them useful.

Iteration: This the primary way that companies innovate, by constantly developing routines, slightly adapting them over a long period of time, until version 2, 2.1, 2.2, 2.infinity, etc. It is why (consumer) products are the way they are. Ease of Implementation: when you actually have new ideas they face the challenge of breaking existing patterns that are cemented into operating companies and more difficult to change. Still, new ideas are often based on practical data and should thus be more easy to implement.

Deconstruction: This is what I call the Sherlock Holmes way or the “where have you last seen it?” way. You are faced with a problem, e.g. finding something you lost or figuring out how an electronic device works. The best way to do it is to break it down into small steps or pieces (deconstructing) and then reconstructing the reality again. In technology, you might also call this reverse engineering. Ease of Implementation: much like iteration, it is based on realities that already exist. Ideas are often better than what came before, because you’re an outsider, taking something apart and throwing away the junk. Ever lost a piece of text you wrote due to your computer/software crashing? I guarantee that your version 2 will be shorter, more to the point, and better.

Conflict: I was discussing this with Jeremy this weekend, regarding the building of teams that can challenge each other. It’s a destructive and constructive process all at once and I think the benefits usually outweigh the risks. Ease of Implementation: It’s difficult to find that kind of talent and the right mix, so I would say that implementation is not easy. It should however be at the top of the agenda of any organisation who wants to be an innovator in its field.

Other ways to come up with fresh ideas? The floor is yours!

Vincent

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I think I must be a geek because I like creating order (that doesn’t automatically mean that I’m a very orderly person, rather the opposite).

One of my first priorities in my new position was to orientate myself in the “order” of things, or rather to have a good view on what the process from customer generation to customer acquisition is (my interpretation of the lifeblood of every company).

So my questions, very formal, covered following three elements:

• what is the profile of a customer most valuable to our company?
• what are the USPs of our company for these customers?
• what is the process of converting potential customers into actual customers?

The answer was that there is no simple answer to the question, except that over time I would learn to understand what was possible or not.

It kind of follows the paradigm that the famous Harvard Business Review article called “The Knowledge-Creating Company” introduces, where experts possess a lot of tacit knowledge, which they use to do their job (Incidentally, the HBR-article is authored by Ikujiro Nonaka and Hirotaka Takeuchi, who are the original protagonists of the Scrum approach).

In other words, over time, by accumulating experience, I would be able to develop a type of instinct regarding stuff like what a good customer is, what optimal solution is for him, and how the internal process works of customer conversion.

But the article takes it further (and is also my inspiration) in that from tacit or implicit you move to explicit knowledge, meaning that processes are documented and standardised. A kind of spiral forms, indicated in the picture below. This also reminds of Gerber’s franchise methodology in the E-Myth Revisited.

The question is what internal and environmental conditions have to exist for this spiral to function properly, and whether it can be applied universally to all company processes. I do not think so and would ague that in environments that are constantly changing, like global finance or when starting a company, making things too explicit undermines the speed-advantage that the tacit approach brings.

A little academic perhaps (you know me… ), but what do you think? What company processes typically need to be made explicit, and which are not served by this?

Vincent

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Just read the Face Value in the Economist from a few weeks ago, on Shai Agassi, an Israeli entrepreneur and former SAP employee, who is developing an ‘electric infrastructure for cars’ business, called Better Place. The idea is that there will be hotspots across a region and for cars to be subsidised by the subscription that you buy.

After the financial marble that the Indian company Tata Motors has produced, a car that costs between $2,200 and $3,800, and having seen several other concept cars in that price-range from companies like Volkswagen, is it possible that we will approach a time where cars will essentially be free?

I’m more sceptical, I think it’s a sign of the times, a recession + oil-prices and availability + the rise of emerging economies + more abstractly, that whole global warming thing, and the resulting desperation, which is causing businesses to come up with alternative business models around personal transportation.

And if given a choice, I would prefer for a system like Vel’oh!, here in Luxembourg, where you simply borrow a bike and bring it back at a pre-determined parking-zone after you’re finished with it. That said, I do hear that they get stolen a lot over there in France…

Thoughts?
Vincent

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I have to say that I (Vincent) am a little baffled by the amount of effort that goes into IT or ICT. I thought we had these discussions some years ago and the general consensus was: IT is not the source of sustainable competitive advantage.

Yet, when I opened my Economist from two weeks ago (I’m always a few weeks behind), an article mentioned that with this credit crunch, mergers and acquisitions are going down, and with that a major cash-cow for consultants: IT systems consolidation.

I guess I’m wondering why companies, particularly those young babies being acquired, are still working with proprietary systems? Is there some kind of competitive advantage to doing it “your own way?” Or is that simply a myth that people believe in?

For myself, I’ve whined a-plenty about how Excel sucks and Powerpoint sucks, and how I’d like to have software work in my “right-brained way.” But I still believe that Excel and Powerpoint works fine for 95% of the population and for 95% of the time, and that there is no need for a custom-built solution on that—the administrative—end.

There is of course multiple sides to IT, particularly if you are an IT-company or one where IT plays a leading role. Let’s take Amazon, which won’t be acquired anytime soon, which relies heavily on its proprietary technologies, being so specialised that it decided to become an IT-service-provider. Or Lucas Arts, which develops effects for films, also 3rd party, and will certainly use custom-built software.

But when I think IT-consolidation, I think databases, and I’m wondering if one database is better than the other. And I’m wondering, why there isn’t a standard for this yet, as the Amazon’s of this world are clearly pushing for it.

What am I missing here? Why do we need consultants again? Why aren’t we doing everything in the cloud?

Vincent
(give me smart answers, and I may write a smarter post about it )

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Context: I’m currently in discussion with a number of companies that are involved with SOA-vending & -consulting. As a result, I’ve been studying up a little on this market and hope to learn more by writing about it. Note: Since I know, judging by the response to other articles on enterprise-software, this isn’t exactly the most sexy of topics, I expect the number of comments to be minimal.

Jeremy has already written about this topic (primarily in terms of Software-as-a-Service (Saas) and Software + Service (S+S)) before (here, here, and especially here), so I won’t go very deeply into it, but SOA is roughly defined as:

“guidelines that allow software developers to design systems in stand-alone chunks of computer code, each specifying the critical outcomes, performance metrics, and interfaces between a discrete activity and other services.” (Src: HBR, June 2008)

If that’s a little abstract, I see it as a selling you a ticket to Lego-land, where you can play with legos all you like, those lego-blocks representing individual applications that can be used by businesses through a web (SaaS) or hybrid (Software+Service) interface, and Lego-land being the SOA-system that integrates all of them for you. This is opposed to the historical approach of buying a lego-box, which you eventually replace by another and another (side-prediction: we will eventually see Lego-world online).

SOA’s value-proposition

While traditionally it has been so that in order to compete in a technological world, you have to be technological, the idea of SOA is to remove that element, instead allowing individuals and businesses to focus on what they do best. I, personally, like that very much.

Other, more measurable advantages are that it is dramatically more cost-efficient. If you imagine that 5+ years ago, every company had to either invest into a powerful wide-area network (WAN) to be able to centralise IT-services, or replicate islands of IT-systems for each business-location, SOA removes that idea entirely, using a freely available infrastructure, the internet, and removing the need to build IT anywhere, instead paying-as-you-go for singular services that an external provider hosts and distributes. Added to this is the idea that performance now becomes accountable, in the sense that it is covered by contracts (e.g. QoS or SLA), something that was much harder to do with a permanently employed IT-staff.

With all these advantages and several more, it is no surprise that, in 2007, over 50% of mission-critical IT-projects were estimated to be SOA-based, a figure which is believed to increase to 80% in 2010 (these figures are from Gartner and may be US-only).

SOA’s hurdles

While this sounds pretty great, anytime you’re talking about system-wide change, you have to consider that this will meet resistance and involve a great many stakeholders, i.e. take a lot of time. And the question is here, who will you talk to as an SOA-vendor? Will it be the business-side of your client, as you are selling easy-to-understand lego-blocks, or will it be the technology-side, as you are selling technology? This is a serious question, so please answer it in the comments!

Added to this, a SOA-deployment is a strategic issue for your customer, meaning that your selling-proposition will also need to include the option of strategic support, aka consulting-services. This means that technology-only SOA-providers (vendors) will likely have to work with third-party consultants that pick-and-choose the best SOA-package for their client.

Related to this, the lego-like quality of SOA, which promises values like agility, flexibility, price, and reuse, and several more, all very important in this recession-prone time, also mean that someone can quite easily replace your service with someone else’s legos. Arguably this is much less the case if you provide an architectural framework and focus on building ecosystems (create lock-ins). But that is easier said than done, and as such this is a field dominated by few big players that buy up smaller ones.

Some more things, which I haven’t researched, are the degree that open source is a factor/issue here, and different revenue-models.

Grasping the paradigm-change

On the customer-side, there’s two ways of seeing this trend. On the one hand, extreme efficiencies, which also follows Nick Carr’s view that IT is no longer a competitive advantage. On the other hand, you’re giving away a lot of responsibility, which can be bad in two ways.

One, you’re giving away a lot of power to an industry, which will continue to consolidate. It’s something that may not be a problem now, but may become one.

Two, delegating a problem does not necessarily solve it. Taking the retail-industry, the biggest problem here is logistical inefficiencies, caused by delays, unnecessary replication of processes, or otherwise. Here, SOA, as long as it spans across the value-chain of manufacturers-transport-retailers-customer, is clearly a good thing. But it still requires a solid understanding of how IT does and can help your supply chain reap better results, something an independent SOA-vendor may not do as well. My opinion here is purely hypothetical, but it may be worth investigating how the masters of retail (Wal-Mart, Tesco, Carrefour, etc.) solve it. And if this is a problem, I imagine it is elsewhere too.

The SOA playing field

This post is getting a little long, so I’ll briefly go into this. Following Forrester-graphs show the players in the integrating corner of things (consultants) and, on the right, the vendors (also note the time-difference (the second one is Q4 2007) and region). You can find the originals here and here.

Clearly this industry is very layered, with some offering the complete package, including strategic assistance, and others providing either the SOA or a part of it (SaaS or similar). There is a lot of movement in this field with players buying each other out or moving into related industries, either on the hardware or software-side.

Final thoughts

Because I’m not a soft-/web-ware guy, I’m still very much undecided whether to head in the software-only direction myself, though I see much merit for an integrated business-consulting + software-deployment approach, and I also prefer selling Lego-blocks to rubber-trees. Feel free to convince me of your points of view.

All of this was initial thinking of course, and as such I’m happy to hear if you have anything to add or if I made some obvious mistakes. Again, considering the relative unsexiness of this area, I don’t expect too much

Vincent

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Here’s a quick question to all people used to either interact with or being part of software development teams.

Consider a software vendor, a good one, and its technical headcount. It is no secret that R&D teams aren’t made of software developers only. In order to be deployed successfully, architectures and code need to be tested by a QA department (QA = quality assurance) where professional testers run through thousands of automatized-or-not scenarii; documentation; technical support staff help the install base with potential regressions occuring during updates and coping with changing information system environments; localization project managers monitor translations of the software: and last but not least, application engineers actually parameterize the software at clients.

Now my question, how many technical staff should you account for every software development engineer? I figured out an average ratio of 1 to 4, that is to say, for every technical team of 100 there should be around 25 software developers actually hacking code.

I know there exists extremes but by and large, from what I’ve seen, I don’t think I’m too far from the reality with a 1:4 developer / all-categories-technical-staff ratio.

What do you think? Feel free to describe what the company does when sharing your experience, because, since there are very large discrepancies between, say, an SAP that manufactures ‘heavy’ enterprise software and any web application designer that may not necessarily run industrialized testing and that has no professional service department, we might not get nuances at first sight.

PS: the ratio will also depend on the maturity stage of the company: at Microsoft, [# of develops]/[develops + Microsoft Consulting Services staff + developer evangelists + localization engineers + testers (1 for each develop) + architects] approximately equals 1/4 (1 to probably 5 ot 6 adding documentation specialists; & 1 to much more if you consider the system integrator ecosystem that actually does the application engineering). But the company is rather mature and therefore can afford to focus on quality of execution rather than productivity in execution. Which probably wouldn’t be the case for an enterprise software startup for obvious resource reasons. Anything to share? Best and worse practices, per specific industry (Web 2 / UGC, Video Games, enterprise, affordable consumer traditional applications, etc.) most welcome. I need to test my own budgeting assumptions

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Last week, the unsexy world of lower software layers witnessed some significant consolidation moves: Sun Microsystems acquired MySQL AB, and Oracle Corporation acquired BEA Systems.

I know you guys browsing the blogosphere want to hear about Paris Hilton (this one keyword to boost visits from search engines), and most of all Twitter, Google, Apple, MS-bashing (which I won’t do unless deserved & today I believe it’s not the case), Facebook, and all that jazz. So I’ll make it quick, although I think this topic is more strategic anyone else, especially when it comes to applicative platform decisions – amongst them web apps.

• MySQL’s acquisition by Sun Microsystems

One thing that’s pretty sure is that 1bn$ (800m$ cash, 200m$ in Sun stock options) for a flagship asset like MySQL is dirt cheap. MySQL enjoys a very large developer community, a well-deserved strong brand awareness amongst web and SaaS application developers & DBAs – as well as geeks of all sorts, and most of all references like Linden Labs (the publisher of Second Life), Flickr & Facebook that have proven wrong those, like me (although I still think the TCO of MySQL is a lot larger than with MS SQL Server or Oracle 10g technologies), who doubted MySQL could handle massive loads (see this interesting slideshow by John Allspaw from Yahoo! on Flickr’s architecture) despite it’s very nice and simple administrative console. To me, MySQL will be to Sun what Flickr, MyBlogLog and del.icio.us are to Yahoo!: the jewels of the crown. 

So, from a price standpoint, I’m buoyant. However, it’s hard for me to say whether Sweden-born MySQL is a good or a bad acquisition for Sun, strategically speaking. The move looks a lot like a vertical integration effort by Sun to push its application server SunONE against Apache to run with MySQL, and its server-side OS Solaris against Linux server distros when it comes to running a MySQL database. This is where since may get mixed up, as Sun has been engaged in a very fruitful partnership with Oracle to almost bundle Solaris & Oracle 9i/10g. The same goes for Postgre SQL by the way. Therefore, my take is that a lot in the success of the acquisition will depend on how Sun’s management positions MySQL databases against Oracle.

A quick last remark: in Europe, it’s become very trendy to pretend you’ll IPO to actually get acquired by an American corporation. Anyways, I’m glad there’s one more financial success story in open source: MySQL AB wasn’t in business to be open source, but had chosen to be open source to actually do business. Open source ayatollahs pretending to developer communities hacking code in their spare time for the greatness of mankind are fools treating others like likes – that is to say fools: open source is one more software business model. Period.

• BEA’s acquisition by Oracle

This very aggressive move is one more confirmation of Oracle’s market share-acquisition strategy. Oracle is now at loggerheads with IBM Software Group, the world’s leading middleware vendor. Websphere 6.0 and Weblogic Server 9.0 + Aqualogic BPM, alongside with Software AG’s Webmethods, have been competing for a while in the business infrastructure middleware market – & I suspect Oracle anticipates Microsoft’s upcoming marketing effort to generate adoption of BizTalk Server amongst large accounts. Hence the fact that I believe that this time, Oracle’s acquiring a little more than juste market share: with Weblogic, Aqualogic, Oracle Databases and BI Suite Enterprise Edition, Oracle has a broad enough catalogue of good products to compete with Websphere, DB2, Cognos on the IBM side, and BizTalk Server, SQL Server and PerformancePoint Server & ProClarity Analytics on the Microsoft side. 8.5bn$ was therefore the price to pay to win back Weblogic Server + DB2 or + SQL Server accounts as well as afford not to loose the everyday larger account base willing to go through one software vendor, and one only, to get equipped in infrastructure software. Moreover, Oracle kills two other birds with the same stone by 1) isolating SAP whose catalogue, although enriched with BO’s acquisition a few months ago, lacks heavy weight munitions in lower layers; 2) harming Red Hat whose JBoss Application Server has long been embedded into Weblogic. It may look like gambling, but I doubt Oracle will let Red Hat support Weblogic too long.

It’s not the end of the middleware war yet, but we’re getting closer to it since the entry barrier for a potential new incremental-innovation entrant has become very high in the recent years. 

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No it is not. And when you think about it’s kind of a good thing. Because it means that the path from technology to revenue is that much shorter. Of course, the other side of that coin is that there are many people competing for that same revenue.

After writing my last post on this, and Marc’s comments, I started to ask myself some questions, such as:

• What is technology? Is it mechanical, digital, a hybrid?
• What is software? Is it the nail, the hammer, the glue, something else?
• Should software be an end-product? Is is worth anything without the hardware, is hardware worth anything without software?
• What would it take to make something innovative, aka. high-tech?

Certainly not an exhaustive list, but a good start.

My favourite of these is the fourth question, what it takes to be innovative. Back, when I was trying to convince myself to go into software, my main objective was to create something that would change my / the world in some ways. But it was strange, every-time I was thinking about a product, or rather a service (I see software as a service), I was always thinking that it would be so much better if there were hardware designed for / with it.

It’s the age-old debate of Apple vs. Microsoft, Quicktime vs. Flash or Java, a console vs. a computer, Firefox vs. IE/Safari etc. The difference between these “technologies” is that the one is designed to be—somewhat—platform-agnostic, and the other is designed for a platform.

We’ve rehashed Apple vs. Microsoft many times, so I won’t go into that too much. But if you look at cross-platform apps like Flash (as well as AIR) or Firefox, they are clearly feature-rich, but in many cases laggy as hell. I would consider both an inferior product, simply because it does not work as well as other competing products on the same hardware. The same with Windows, which has huge legacy-support, but is in some cases (a loud minority, I’m sure) not as “plug & play” with the systems it runs on, as e.g. Apple’s OS X, or the Xbox-OS.

Both of which are designed for the specific hardware, and it is actually the whole package—hardware + software—that is considered the innovation.

For something to be considered innovative, it should be seen as the whole end-product for the consumer. A minor example. When I installed OS X Leopard on my ancient (but perfect) G4-laptop, it gave me the two-fingered right-click. By all accounts a hardware-innovation, a tiny one, but which made the whole interface better. I’m not sure if software on its own could ever achieve a similar effect on the user.

So what would it take for real innovation to occur? It would have to be a paradigm-shift. We’re seeing a lot of interesting software coming out, a good example probably being Second Life. Yet Second Life—which was inspired by a world called “The Metaverse” that an author, Neal Stephenson, came up with in a book, called “Snow Crash,” is nowhere close to that ideal.

The reason is that, from a user-perspective, the Metaverse started with the interface—gloves and a helmet hooked up to a box—which allowed the user to literally hook into a system. How does Second Life ever compare to that? Instead, it forces users to be immobile behind their PCs, staring into a 2-d interface, imagining themselves to be in a world, in which they clearly are not.

And, in my eyes, the same applies to lots of software designed for an interface that simply does not innovate.

Facebook, Windows, OS X, Open Social, AIR, etc. All platforms actively marketing for developers. Yet how much of that marketing is happening in hardware, an area which has largely been commoditised over the last 20 odd years to the degree that R&D in that area must have been stagnating much.

You do see some changes. Microsoft, when it started on the Xbox, made a paradigm-shift. Apple has been doing the same for years, but now at an exploding rate. Microsoft’s Surface will be very interesting, as will the next version of Windows, though still restricted to a 2-d interface. And there’s probably 100s of other examples, which I can’t think of now.

The thing is that innovation in software has exploded in the last decades, as has, to a lesser degree, hardware. But we have reached a mature-level where the novelty has worn off. For software to become interesting again, we need new hardware—a new way to interface with technology, that takes us away from the boring old mouse and keyboard, and allows us to the live the mobile life for which our physical bodies were actually designed.

The Wii is a good example of what happens when you don’t just focus on hardware, you don’t just focus on software, but you focus on how your product can actually become useful in the lives of people that are not geeks, early adopters, or the loud minority.

Vincent out. This is my last post this year, I think.

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 In chess, a gambetto – say it with an Italian accent, consists in sacrificing a piece at the beginning of a game to gain a competitive position on the exchequer – for example through the control of the center of the chessboard or one of the long diagonals.

Getting back to business (we’ll get back to the gambetto later), it is very common to say that the state of an economy is reflected by the strength of its currency when the Euro currency is weak – and hence that the economy of the EU are in poor shape. However, when the Euro gets stronger, companies and officials claim that corporations are constrained in their efforts to export goods and services and that the situation should be reversed or the EU will soon enter an economic turmoil.

I think this is all too easy and bullshit.

God Dollar used to be the only viable currency in international trade, until the Euro came out of nowhere in January 2000 (2001 for actual pocket coins and bills). The European Union is the world’s largest consumer market, and a gateway to the Middle East and Africa for American companies. Although the Dollar still dominates international transactions of goods (slightly) and financial transactions (easily), the Euro has emerged as a tangible alternative considering the political stability of the region.

Consequently, the Euro vs. US Dollar exchange rate has kept growing insanely from 1 EUR = USD 0.85 in mid 2000 (1 EUR = 1.19 USD on January 1st 2000) to 1 EURO = USD 1.47 USD today. Althoug I acknowledge the trickiness of the situation for export businesses, high tech or not, I see very few corporations have implemented hedging strategies or make proper use of forward contracts – which is a shame. Still, instead of lamenting, I believe economic decision makers of both the US and the EU should roll up their sleeves and act in such a way (hell yeah I’m even givin’ lessons now, love blogging…):

For US High Tech companies: go for internationalization. Acquiring hardware, software, telco devices, consumer electronics and services labeled in USD has never been cheaper. So why wait? I’m pretty sure any potential buyer would understand this reasoning. A weak USD is a fantastic opportunity for American exporters to thrive abroad, and win strategic, long-term projects. It doesn’t matter whether the profitability of these projects is low: what matters is to build reputation on new markets, or to highlight your competitive advantage against local players. Remember, the gambetto? Be ready to sacrifice a few cents today (anyways, the dollar rates so low that it’s no big loss whatsoever) to be in the real race when that moment comes.

For European high tech ventures: shop for intellectual property and talents in the US since the Euro has never been so strong against the US Dollar – which will make acquiring quality companies cheap, and build production capability in China and India (or go and get cheap but excellent developers in Eastern Europe, before the Euro comes there, or Israel) to reduce the cost of goods sold, enhance their competitiveness and therefore be ready for a shift during harsher economic times or win back market share on their competitors’ behalf. EU corporations, especially the big ones, find it hard to tear the P&L from the balance sheet and should learn to make better investments. Remember when the VCs said that few large European high tech corporations had a real, sound external growth strategy? Even though making the quarter may seem tough because of a strong Euro, acquiring today technologies that will generate tomorrow’s revenues boils down to ’sacrificing’ a small slice of the pie to weaken the competition, and build a better product offer for tomorrow. Gambetto again.

Now waiting for the Chinese Yuan to offer a third way…

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IBM’s nice white paper, which I briefly touched on before on my food and retail-blog, describes a model for mapping how customers make decisions in a given setting. It looks at three types of retail-outlets: Grocery, consumer-electronics, and apparel (clothing), and explains how each type of store has different types of customers, with different motives for visiting, and different in-store behaviour.

For instance, with grocery-shoppers, they map two types of shoppers, those that shop for replenishment and those that shop for convenience. The figure below shows the different reasons why they would visit a store and what they value inside the store:

Really, what this flows out of is an analytical technique, IBM calls: “consumer decision process (CDP) modelling,” which analyses consumers in five phases:

1. Qualitative market research, to identify elements that impact target decisions: what, who, when, where.
2. Create individual CDP maps and organise elements into stages
3. Validate and create a market-representative view
4. Develop quantitative model to prioritise impact of 100s of “why” elements
5. Leverage CDP insights to drive revenue opportunities

In English: data is collected through traditional research methods, and IBM crunches this data into a system that scores different variables according to their importance and comes up with focussed advice on how a retailer can improve their marketing strategies and the shopping experience.

For instance, in the case of customers for complex electronics, like high-end sound-systems, customers would benefit from a focus on education at the beginning of the decision-making process, and on a high level of technical support after the purchase had been made. This has implications on staffing and marketing. At the same time, this can also affect stock-inventory. With products like these, where people prefer home-deliver and possibly installation, it is often not necessary to carry large amounts of stock within the store, again reducing costs on that front.

Note: this article is mirror-posted on my blog, Sounds + Food ‘n’ Retail.

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About one week ago, I had the outrageous opportunity to meet Chris Liddell, Chief Financial Officer of Microsoft Corporation. Chris happened to be in Paris for a day so it was absolutely compulsory to do something about it. As a result, Julien brought a bunch of software-friendly French venture capitalists in a room alongside with Chris for an informal chat mainly about Microsoft’s corporate development strategy and the venture landscape in France and Europe. Prior to the meeting, Chris said everything that would be said could be blogged. So I’m absolutely delighted to share this very unique moment with you, dear partners, competitors, and mere readers.

Chris started the meeting by congratulating the French rugby team for beating New Zealand at the World Cup – too bad France lost vs. England in between. Chris is indeed originally from New Zealand although he obviously new leaves in Redmond, WA. A civil engineer and graduate in philosophy, Chris is a seasoned corporate financier who has come a long way from banking and manufacturing to software at Microsoft. Chris opened the meeting by saying he aims to take finance at Microsoft to a more strategic level: Finance has always been strong in budgeting and reporting, but Chris wants to push it to the next level, to bring it up to think more strategically. Chris also recalled that Microsoft spends USD 7 billion every year in R&D. The big issue is to spend it wisely. Although none of the VC was a Microsoft shareholder, for compliance reasons, Chris made clear that any investor in Microsoft should accept the fact that MSFT is a long term investment, not a quarter company. Without R&D, there is no growth and no future. Chris even plans on expanding R&D investments to ensure growth. “Bill Gates and Steve Ballmer are the two longest thinkers I’ve ever known“, Chris even said. Which is, looking back at Chris’s background, no soft claim.

A number of topics were tackled during the meeting, here they are:

Microsoft has become more acquisitive recently, buying companies priced between USD 6 million to USD 6 billion. Microsoft acquired around 2 companies every month (20 to 25 companies every year). In terms of breakdown, Microsoft acquires a lot of 10 to 15 million dollar technology startups, 2 or 3 companies per year in the 20 million to 1 billion dollar range, and one above in 2007 (USD 6bn, Acquantive). Microsoft’s goal is to acquire companies that will give the company extra growth, which is THE key metric Chris seems to be focused on. Asked about a specific industry Microsoft would be keen on proceeding with new acquisitions in a near future, Chris mentioned online services where he feels Microsoft being between #2 and #5 leaves enough room to expand the business footprint. Chris said he couldn’t be more explicit. I think that’s pretty understandable because valuations in the would-be mentioned business would then skyrocket in a sort of irrational way.

Chris also mentioned entertainment as a hot M&A market, making it clear though that it wouldn’t be related to the XBOX, which according to him has a good market position but isn’t profitable yet. Why? Although the XBOX has reached critical mass (not in Zune yet), Microsoft has to learn how to lower manufacturing costs, which isn’t exactly its core business. Chris went on talking about Microsoft’s culture that advocates to build the company. However, Microsoft growing bigger and bigger (between 12% and 17% yearly in the last 5 years) finds it harder and harder to go it alone. M&A is a sort of substitution. In terms of capital structure, Chris remembers finding USD 60 billion at bank when he joined the company. Chris gave a lot of money back to the shareholders and now there’s about USD 30 billion at bank. So Microsoft has what it takes to acquire a large number of companies with no impact on cash. Chris added that Microsoft isn’t involved with any fund, and isn’t planning on building its in-house investment arm. Microsoft isn’t willing to invest in companies and thinks it is much better to leave investments to professional investors.

Chris then asked Eric Harlé and Nicolas Landrin from iSource, a VC-sponsored by INRIA, CDC and AXA that had sold mobile advertising company ScreenTonic to Microsoft, about how the whole process went. Eric and Nicolas answered saying it had been a very smooth process since the founders of ScreenTonic had from scratch structured their company so that it could be easily integrated into a larger structure. Julien Codorniou, French EBT lead, who had detected a potential deal initially, was then asked how it was all initiated. Basically, ScreenTonic came to Microsoft to partner, but Microsoft realized ScreenTonic would perfectly fit a gap in Microsoft’s technology road map. So it was decided to check with Microsoft Corporate Development whether it would be possible to proceed with an acquisition. The answer was ‘yes’ but the entire process between the first meeting to the press release took nine months.

Chris then explained that this the kind of decentralized process he wanted Microsoft to lean towards. What happens usually is very Product Group-centric and doesn’t involve subsidiaries. In order to define the acquisition strategy, Corp. Dev. goes once a quarter from product group to product group, product groups which are asked to identify areas and potential target companies. Chriss Liddell added he was working hard with Dan’l Lewin to bring the VC community in the loop to talk about M&A. A few VCs then added that they appreciated receiving 5-to-10-slides Acquisition Strategy Briefings that say “we’re looking for this” by email from the competition – a practice Microsoft hasn’t adopted and is apparently not planning on doing so. Dan’l and Chris’s goal is to ensure there is a systematic dialog between the Emerging Business Team, Corporate Development, and venture capitalists from all over the world. Asked by Chris about things they wanted Microsoft to do, the venture capitalists said they would love to have one day one-to-few event every year with a Strategy Exec. from Microsoft. All of them then appraised the value proposition of the IDEAS program (the French Startup Accelerator program) and the reactivity of Julien Codorniou when it comes to opening doors and making things happen at Microsoft France. VCs indeed hope Microsoft will make it easier for French startups to get connected with Microsoft Corp. Product Groups, something pretty complex to achieve as of today.

Jean-Stéphane Bonneton from Iris Capital then inquired about the acquired companies integration methodology deployed by Microsoft. Chris answered by saying that Microsoft buys companies to expand, not consolidate. Microsoft has changed a lot in this area indeed. Although it used to be Redmond-centric and make people shift to the Seattle area, Microsoft now leaves at least half of the teams in place. In the case of ScreenTonic, Eric Harlé added, it made sense to leave everyone but two developers in place since although the technology can be applied globally, mobile advertising is a very local business. Chris and iSource perfectly agreed on the benefits of a distributed model, which seems to work. Chris emphasized Microsoft’s interest in buying more companies internationally.

Chris being curious about the French software entrepreneurship landscape, Philippe Collombel from Partech International explained how the the situation of the venture business had improved thanks to the emergence of a wave of serial entrepreneurs in France. France begins to have serial entrepreneurs, and all venture capitalists believe this is a blessing to their returns. As a perfect example, Collombel explicitely mentioned Stéphane Bohbot, who successfully founded and sold DigiPlug, and now heads listed company Modelabs. Since Stéphane Bohbot is in his thirties, there are probably 5 more companies to come from Stéphane and Philippe made clear he would want to be in when that time comes.

Michel Dahan, from Banexi Ventures, then added that the French career model has changed a lot: entrepreneurs are a lot more valued than a decade ago. In France, as well as in Germany it seems although entrepreneurship is still a bit undervalued there, top engineers and students from the best business schools are still excessively large company focused, but it is no shame anymore to work for a high tech startup. “Many bright graduates spend two to three years in large corporations before joining or founding a startup – that didn’t happen a decade ago”, Dominique Agrech, partner at XAnge, the VC arm of La Poste, added.

What France lacks, it seems, isn’t a pool of talented entrepreneurs and promising startups. France is a seller market, not a buyer market, because large French corporations have no M&A strategy. According to all venture capitalists in the room, very few large French companies – but Dassault Systèmes, many added – have a clear acquisition strategy. Alcatel-Lucent, Thalès, France Telecom – Orange or ILOG are said to be contaminated by ‘NIH syndrom’ and don’t go and fetch innovation outside the box; on top of that, they seem not to be able to structure an M&A process or be able to come up with a market price – the VCs say. So, what the VCs do is pretend their portfolio companies are to go public in order to generate interest from American corporations (80% of buyers are from the US). There are few IPOs in France mainly because IPO requirements aren’t unified yet at the European scale. As far as deal intermediation is concerned, French VCs are happy with small tech M&A boutiques and expensive corporate lawyers, and claim there are very decent fundraisers. Unfortunately, software deals are too small for large banks, which are not good in this space on top of not being interested by the size of such deals. VCs all said this was a pity since large banks would have a larger road show surface and deeper execution history. Asked by Chris about the competition they faced from US funds at exit times, the venture capitalists answered it could happen but on pre-IPO series (D or E) only.

Although it’s been a fabulous moment between oversmart venture capitalists and easy going but razor-sharp Chris, I was a bit hungry at the end of the meeting. I basically had to bite my tongue during the entire meeting to prevent my own self from asking a thousand questions, starting with:

• The venture capitalists answering a question from Chris on France’s software specialties; they rightly highlighted 3D, appliances and mobility. But hey, what about datamining? eCommerce infrastructure? video? augmented reality? encryption? rule engines? retail management software? video games? neural networks and, broadly speaking, artificial intelligence? robotics? I could name at least 5 rock star companies in all these domains, on top of 3D, appliances and mobility.
• The Google stock outperforming Microsoft in terms of value creation, therefore helping Google acquire companies for stock rather than cash.
• Whether a company with intellectual property is worth more than a company with no patents and trademarks
• How Microsoft comes up with a valuation when engaging a company in the M&A pipe.
• What’s the impact of piracy on Microsoft’s revenues and stock?
• Microsoft’s expensive capital structure (no long term debt so the weighted average of capital roughly equals the cost of capital, which is higher than the cost of debt).
• Chris said Microsoft doesn’t invest in companies. But what about the Facebook rumor then?
• Many VCs here don’t believe in enterprise software anymore. I would have loved to hear Chris stating that Microsoft’s B-to-B business drives current growth for both the corporation and its partner ecosystem.
• Microsoft doesn’t distribute stock options anymore but plain vanilla stock – a stock that has been flat around USD 30 for a few years now. So, with startups becoming more and more attractive (quite understandably), what’s the company policy when it comes to attracting and retaining the best talents?

Well, Chris, if you ever come accross these lines…Many thanks again for your time and these very interesting insights on Microsoft’s expansion strategy.

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This morning, I had breakfast with 2 French friends entrepreneurs who are starting up an enterprise software company in Brussels after two years working, respectively, as a financial auditor and a consultant in Luxembourg and London. Both are 25. Starting an enterprise software startup when you’re so young is extremely difficult. Not that the older, the smarter, but large companies (not to mention venture capitalists), especially in Latin countries, tend to trust youngsters less when it comes to big business. In enterprise software, my guess is that the young crowd makes it perfectly when sales cycles are short (inexpensive apps sold to mid managers or silo-ed clusters like R&D labs or subs). Large accounts feel you can’t be a heavy weight sales exec. if you don’t have grey hair. I think that’s a shame, but what can I do…I won’t reveal the name of the company here, nor the nature of its business, because I am not allowed to, unlike asking for you people to help here on Tech IT Easy. Indeed, my two mates came to Paris to meet with many software guys as well as friend-contacts at potential clients. They came to me to brainstorm on sales materials they need to start nurrishing their sales pipeline. I told them I have absolutely no serious experience in sales – although I will at some point in my career, but they insisted on us three to spend two hours together, an hour on their business plan that I won’t talk about here, and an hour on their sales materials.

Here’s the perfect sales exec. package we came up with while brainstorming:

- A corporate overview document - 4 pages max.

- A functional product data sheet - 4 pages max.

- A technical product data sheet - 4 pages max.

- A price list (including prices for the different versions of your application + price of additional modules + consulting costs + deployment costs + service prices + hosting prices, if applicable). Keep in mind to update your price list frequently and mention the date of the last update in the document.

- A customizable standard value proposition document including all the above just in case you feel the client is willing to proceed during the meeting. This document should include a corporate overview, the vision behind your product (pain tackling / must have or comfort enhancer / nice to have? The former will sell better), the pain / lack of comfort identified at your client, your functional value prop, technical matters, option catalog, service catalog, price & delivery. My call is that this document shouldn’t exceed 20, 25 pages for very complex products for your client to be able to read it during lunch time, while in the toilets, before they go to bed and go through another time in an internal meeting to make a purchase decision. Any higher format will increase the decision cycle.

- A white paper on the benefits of your solution vs. the competition. Don’t forget to explicit the methodology. 25 pages max. excluding miscellaneous.

- Client testimonials (once you have clients) – 2 pages max. each

- On your website, allow the prospect to get a hint on the ROI of your solution by entering a few parameters

- For ‘cheap’ enterprise solutions (eg software below the capex line ie business line or business center P&L-friendly, roughly USD 30K upfront or 50K yearly per monthly payments), same thing with price: allow your prospects to type in a few parameters on your website and come up with some pricing. In case your pricing isn’t fully accountable and transparent (ie price depends on the client, it happens…) then make sure you have a commercial NDA ready to be signed by your counterpart prior to the second meeting.

Guys, none of us have a clue on the quality of our brainstorm. Did we get it right? What would you improve, add, remove? Why and how?

Addendum: we’re to meet again in Brussels in November once they have recruited their two first sales execs to think about how to organize a sales force. Something I think I can’t contribute on but the entrepreneurs want to turn the tables, do something fresh of advice from the grey hair type. I think this is sort of risky, and I told them so, especially in enterprise software, but the two guys have the stubborness of success…As for this post, they required that I blogged for advice when effective.

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