Emerging economies — Knowledge vs. Infrastructure

Technology is spreading to emerging markets faster than anywhere else. Soon, there will be more internet users in China than in the United States. In India, the phone subscriptions are growing by 8 million a month, and the country produces more engineers that the US. But outside modern urban centers, the lack of reliable infrastructure, maintains the digital divide.
> the Economist details the latest report from the Word Bank of the issue.

Microsoft / Yahoo! : Week 2 — The BS Flies

It’s all about advertising! No, it’s applications! No, search is king! No, think new media! No, it’s about freedom and competition!
With such high stakes, $40 billion or so, who’s counting, no wonder the BS flies. The Microsoft propaganda staffel is in full battle order led by their usual henchmen and women at Waggener Erdstrom. See their Corporate motto: You innovate. We communicate. Give your PR career a voice today.
The reality is more like: You innovate, we help Microsoft crush you. So, these days, Microsoft plays the aggrieved party, the friend of free market competition selflessly warning us of the danger of Google’s monopoly. Chutzpah aside, they have a point. Google enjoys a dominant position, no dirty tricks involved as in Microsoft’s adjudicated cases, but problematic nonetheless. Microsoft’s next point is a smoke screen: It’s the advertising market we’re interested in. No, we’re afraid of losing the gigantic profits of desktop applications and Windows licenses. In 1994, we all (yours truly included) dismissed Marc Andreessen’s “The Browser Is The Operating System”. All of us but one, Microsoft. Bill Gates promptly added one word: In. As in “The Browser Is In The OS”. Netscape died. Not quite, Firefox should be called Phoenix. Firefox, based on parts of the old Netscape, runs on Linux, Macintosh and Windows. And Google Apps run on browsers, Firefox, Safari and Microsoft’s Explorer. Google Apps aren’t yet and probably never will achieve the same “rich” set of features available with Microsoft Office. So rich we call it bloatware, obese software that more and more gets in the way of getting most things done.

The result?
We’ll always need an operating system of sorts, that’s not the debate. But combinations of Web-based applications such as Google Apps with browsers such as Firefox make the OS argument less relevant. As discussed last week, this is what Microsoft directors see, this is the threat to the real billions, the Windows and Microsoft earnings stream.
But, yes, it is about advertising, really. Not advertising in itself, but advertising as the source of Goggle wealth. What Microsoft would like to do is cut that oxygen, cut Google’s ability to invest their advertising profits into their server farms, their software development, their ability to build the foundation for businesses that threaten Microsoft’s only interesting profit engine: Windows + Office.
With this in mind, things are, I hope, a little clearer.

But what about Search?
A friend of mine at a noble and worthy (and possibly suffering) US business daily newspaper writes, rather convincingly: Google is a brand. He means there is no objective difference between search results at Ask, Yahoo, Live.com (Microsoft) and Google. I beg to differ, they do differ in two ways.

First, in my admittedly unscientific tests, Google gives me better results, more often and closer to the top of the list. Yes, everyone clones the uncluttered Google look, but Microsoft and Ask sometimes completely fail to yield useful results.

Second, Google provides a richer set of functions around search and does this in a fairly discreet fashion. As we say here, YMMV, Your Mileage May Vary, a way to say I realize what I state here is hotly debated. Anecdotal as my position might be, I’ve seen steady improvements in Google’s search. Refinements here, better results at the top there, nothing striking but more than enough to strengthen Google’s lead position. The dog keeps coming back to that dog food, even after trying other brands.
Again, what Ballmer and the Microsoft Board seem to say is this: Search leads to advertising leads to money leads to investments against our Divine Windows and Applications profits. We failed to do anything of value in search and in advertising. We haven’t done much with a confusing (dis)array of so called Live Web applications. Buying Yahoo! at least help us gain combined search and advertising revenue, thus cutting Google’s ability to compete with our traditional business.
Still, many of us here in the Valley fail to see how the two companies can combine their people and business units. Microsoft, with all its money and competent engineers keeps failing to make any gains on Google’s ground. Why? Could it be Microsoft chose to develop very large scale server farms on its own product, Windows Server? That product is excellent in Enterprise applications, well-understood by many, supported by tools, reasonably easy to deploy with a good UI (User Interface). But, it is utterly unable to “scale” (in English: grow) and support hundreds of thousands of interconnected servers. Think of the human skeleton, it can’t support heights much beyond 7 feet. The weight grows with the cube of dimensions, the bone load-bearing grows with the square of it diameter. The same old architecture reaches an unbreakable limit. Today’s gigafarms are at the edge of computer technology and Microsoft is shackled to its past while Google is free to pick and design whatever fits its future. Google has no architecture or applications past.

Speaking of past, AOL is for sale. Netscape was sold to AOL, late 1998, for $4 billion, soon to become $10 billion by the time the announced transaction became reality. In 2000, AOL bought Time Warner in the biggest merger of all times, $182 billion in stock and debt. Things went downhill from there, the synergies, the media conglomerate, the portal to end all portals, the hypergalactic infotainment and edutainment (a despicable concept and conceit) center never worked. Now, finally, AOL is “freed”. Is this the future for MicroHoo ?


Infrastructure — A Giant Leap for your Bits

Cisco Systems likes numbers. Big and metaphor-rich ones. Here is the latest form last week, when the network giant introduced its new digital switch : the Nexus 7000 can transfer 90,000 movies (the entire library of a big rental company like Netflix) in 38 seconds over the internet. In theory, it solves the question of the network needs for new applications (they’re supposed to grow exponentially). The applications Cisco needs to sell more iron? Well, they’re up to you.
> story in the New York Times
Cisco has been using such a tremendous power and speed for its own development. The company holds 600 telepresence sessions each week. The tools : a 65-inch display ensuring a HD-like quality for videoconferencing. In this story, the company CEO’s John Chambers is “traveling” across the world in 3 1/2hrs.
> article in Fortune.

Numbers — A new metric is born : the Kerviel

The Kerviel unit is about E4.9 billion, approximately $7.2bn. This is the amount lost by the n°2 French bank Société Générale. There is also the Kerviel Plus, about E50bn ($72bn). This was the total position taken by the young trader; SocGen felt it had to dump it in the midst of a bear market. It’s a little too easy to call Jérôme Kerviel a “rogue” trader. He’s rather a searchlight suddenly throwing a piercing ray of truth on the the financial system follies. Unfortunately, even if this only about a very narrow sector of the system, Kerviel becomes a beacon for the legion of opponents to the free market economy. Plus, and here’s an interesting surprise, he’s exonerated, even lionized by the crowd . See Le Figaro’s poll last Friday, only 13% think Kerviel bears most of the responsibility in the SocGen mess, versus 27% who say it’s the regulators, and 50% the management of the bank. People are ready to forgive the index rider who went, well, slightly off track. But this new metric turns out to be an interesting tool to compare real and virtual economies. Let’s wonder : how many Kerviels (kvl) is your company worth these days ?
- Yahoo (11,500 employees) : 6,2 kvl (according to Microsoft)
- Google (11,400 emp) : 22 kvl
- Boeing (154,000 emp) : less than 9 kvl
- Total (95,000 emp): 23 kvl
- News Corp (53,000 emp.): 8.3 kvl
- The New York Times Co. : (11,500 emp) one third of a kvl Well, you get the picture. These economic discrepancies don’t make any sense, except that all the companies mentioned above feel the tremors when a market related incident occurs (drop in stocks, increase in interest rates, etc.). -
> A large part of the excesses of the financial sphere is tied to a corrupting compensation system. Read this insightful analysis – written before the SocGen debacle – in the Economist.

Microsoft / Yahoo! — Why the deal won’t fly

Seriously, what possesses Steve Ballmer? Why risk his reputation, to say nothing of his shareholders’ well-being? Let’s forget the easy jibes, big egos, phallic insecurity.
Instead, let’s ask ourselves: What does the Microsoft Board of Directors know we don’t know?
They can’t be ill-informed, ill-advised, ill-intentioned or dumb. And yet, there are many obvious or should be obvious reasons why this forced marriage can’t work.

Technical, first. Microsoft uses Microsoft software, mostly. Yahoo uses Linux servers and applications, some Oracle bits. So, how do you “converge” mail, search, advertising services, shopping, instant messages? In the Valley we joke, at our own expense, saying much money has been lost because we said: It will work because it’d be cool if it did. Well, too often, it doesn’t. Do you want the job of merging two huge and already messy computing infrastructures?
Declaring a winner-take-all is a possible solution. Awright guys, everybody moves on this ship. You tell Yahoo Mail and Messenger customers their accounts are now on the new Hotmail at Live.com. Same user name and password and, for you, we redirect your old yahoo.com login automagically. Sounds easy. But moving millions of email accounts, billions of messages may be of such as scale as to be intractable. Users rarely respond well to being forced to switch. The welcome screens on Yahoo and on Microsoft’s Live.com feel very different and most users are reluctant to change their habits, especially when there is no clear benefit to doing so. So, now, multiply the technical and behavioral difficulties by the number of different platforms, portals, advertising systems, shopping sites, news, maps and search that have to be unified for the merger to work, to help MicroHoo become Number One. Microsoft directors are well aware of the challenge. That’s just the beginning.

We now turn to Culture Wars. Many in the Valley’s venture capital business rub their hand with glee. Boy, we had so much trouble getting engineers, marketing and sales people. We’re philanthropists, you see, this deal makes staffing our start-ups easier – and cheaper. Yes, here too, Ballmer sees the problem: in his letter to Yahoo he mentions “retention packages” for Yahoo “key personnel”. Does Steve refer to executives churning out PowerPoint slides or to the engineer in a cubicle who performs actual work, who knows where the corpses are buried in the source code? Techies have already kick-started the word processor and warmed-up their résumé.In Mountain View, it’s Christmas in January, wags want their company to change its name to Giggle. One individual calls the happy hallway gossip “cluster cluck”, delicate rhyming allusion to a more vulgar expression often used to describe such mergers, a cluster f–k.

Summarizing: Yahoo shareholders (and executives) take the money and run. Merged computer systems won’t run. Culture wars cause an exodus of real workers. VCs rejoice. Goggle giggles.Microsoft directors know this and still support Ballmer’s takeover of Yahoo. Why?
There aren’t many possible explanations. The simplest is this: We’re screwed. One, we can’t catch up with Google as we know it today. Two, we see Google’s long term strategy. They have the best large scale computer system on Earth (more than one million servers early 2008, running better than we know how to). Over time, with this “computer cloud”, Google offers (sells or sells advertising with) everyday services for people and businesses. This takes gold away from the Divine Earnings Stream: Office and Windows. More than $3bn, last quarter for applications alone, as much as Google’s total profit for one year.
One has to admire Microsoft’s Board for doing what too few Boards do: real strategy. Yes, we make tons of money today but, from 10,000 feet high, we see the torpedoes. Too bad doing what we do won’t help, even with more money skill and energy, but that’s the way it is. We’re left with one move: buying the only other competitor left and hope we gain enough muscle to fight the Web’s new Microsoft, Google. It’ll work because it has to work.
“Mere matters of implementation” will get in the way, I’m afraid. – JLG

Further readings :
> The letter from Microsoft board’s to Yahoo’s
> Henri Blodget’s (yes, that’s him, the Internet Bubble repentito) strongly reasoned view, here.
> How Yahoo got lost in rival’s shadow, in the FT.com
> In The New York Times, “A giant bid that shows of how tired the giant is”
> The “Peanut Butter Manifesto”. On November 2006, a Yahoo senior vice-president wrote a memo outlining the company’s flaws. Interesting reading in retrospect. Full text on The Wall Street Journal or TechCrunch
> And, the always entertaining and extremely intelligent satire from Fake Steve Jobs

Google and Publicis to team-up

Last week in Paris, Eric Schimdt the CEO of Google, and Maurice Levy, chairman of Publicis Groupe, the n°3 advertising group in the world, disclosed a one year-old cooperation. Although the CEOs did not elaborate; they simply acknowledge loaning employees to each other (depending on the employees, that could mean a lot). It’s a smart move for Publicis, in a depressed French market, its stock gained almost 5% during the week.
> story in Adweek