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July 31, 2006

IBM research labs foresaw the disruption from the PC

By Tom Foremski for Silicon Valley Watcher

It is the 25 year anniversary of the PC and I have long wondered if the industry standard technologies that resulted from the PC revolution were accidental because the computer industry strongly favored proprietary technologies. It was good to discuss this subject when I recently met with IBM's top strategist, Irving Wladawsky-Berger.

We talked about the disruptive effect of the PC technology. It disrupted huge sectors in the computing industry, nearly all the minicomputer and mainframe companies were put out of business or disappeared through acquisitions. Even IBM barely survived--it had to reinvent itself as an IT services company.

There are many definitions of a disruptive technology, but to me, a disruptive technology is something which disrupts the business models of large numbers of companies. You can see the train wreck happening in front of you, but you cannot get out the way. Just like the minicomputer companies could see what was happening, but they couldn't change course, or downsize fast enough.

Mr Wladawsky-Berger said that it was IBM's research labs, the largest in the world, that helped save the company. "In labs, we were able to see a few years ahead and we could predict the disruptive effect of the PC but our management wasn't able to react fast enough."

He said that making the necessary changes at IBM, the cuts in staff and projects was very difficult to do. "People talk about having to 'eat your children' but those people clearly have no children of their own," he said.

I agree, as a father of two fantastic kids my instincts are to protect them as much as I can, and I can see how that kind of emotional involvement in business ventures, the people you work with, the communities created, makes it so tough to make the hard decisions.

I remember chatting with Ed Zander, the first interview since he left as president of Sun Microsystems. He said the worst thing about his job was laying off people at Sun, following the dotcom dotbust. Sun had never been in that position before, its culture was one of fast paced growth and loyalty to staff.

Mr Wladawsky-Berger said that this was why Lou Gerstner, an outsider, was brought in to run IBM. I read Mr Gerstner's account of those times in his excellent book, "Who says elephants can't dance?" He became the most unpopular person in the company, not to mention the loneliest job, but he had to be incredibly rigorous and disciplined in his ten-year-long transformation of IBM, in response to the incredible disruption wrought by PC technologies.

I asked about the PC standards created, the fact that IBM choosing off-the-shelf components and software for its IBM PC, created an open industry platform that spawned a massive industry. Up until then, proprietary computer systems were the way the computer industry made money, lots of it.

Mr Wladawsky-Berger said that IBM used off-the-shelf technologies to create the PC platform precisely because it did not take the threat from the PC seriously. "We dealt with big, complex computer systems, our management did not look to the PC as something that could seriously challenge our business."

But the researchers in IBM's labs did see the writing on the wall and eventually that message was recognized. IBM had a large enough business base that gave it time to make the changes needed for survival. Others didn't have the same solid customer base to enable such a transition.

- - -

Please see SVW: Thoughtleader: lunch with IBM's top strategist Irving Wladawsky-Berger

Irving blog: A collection of observations, news and resources on the changing nature of innovation and the future of information technology.

Business as a Complex, Continuously Evolving System
Reflections on blogging - one year later

SVW: The remaking of IBM: A chat with IBM chief strategist Irving Wladawsky-Berger

Book:

Options scandal: More criminal indictments afoot?

By Richard Koman for SiliconValleyWatcher.com

On July 20, the full force of the law came down on former executives of Brocade Communications, when the SEC, the US Attorney's Office and the FBI filed charges against Gregory Reeves, the company's former CEO, and Stephanie Jensen, former VP of HR, for crimes related to the backdating of stock options.

U.S. Attorney Kevin V. Ryan stated, ``The criminal charges filed today allege that this backdating scheme contributed to the restatements of hundreds of millions of dollars of Brocade's financial results. The criminal complaint alleges that these defendants altered and backdated Board of Director meeting minutes and employment offer letters in a scheme to defraud in connection with the pricing and granting of stock options." (Mercury News, 7/20)

Today, the SEC announced that it is investigating Santa Monica-based Activision, a game maker, over its accounting practices, presumably looking at failure to account for backdated options.

And Friday the IRS said it would be looking closely at executive compensation for problems with options.

And run of the mill employees who received options may also be facing criminal liability, Eumi Choi, second in command at the US Attorney's Office for Northern California Today, told the Mercury News in an interview.

On Sunday, the Chronicle looked looked at what fueled the backdating craze of the 90s.

"The recruiting pressure was so intense," said Ron Bottano, senior partner in the executive compensation practice at recruitment firm Korn/Ferry. "Companies were viewing (options) as currency. (Job seekers) focused on the number of options, 'Can I get more options at one location than another?' "
...
"Because of the very rapid growth (in granting of stock options), the infrastructure for administering and dealing with it didn't grow as quickly," said Corey Rosen, executive director of the National Center for Employee Ownership. "To put it simply, you had a lot of amateurs. Professional advisers were giving advice that may not have been very good and stock plan administrators made mistakes."

Bottano said the software commonly used in the 1990s to administer options grants made it easy to change records, facilitating backdating. "You could make an edit, the program didn't ask for any verification," he said. "It was more a tool than an auditing mechanism. The systems weren't very advanced because options weren't."

July 28, 2006

Tech Con Friday

By Richard Koman for SiliconValleyWatcher.com

Notes on conferences current and future:

BlogHer

BlogHer is holding forth today and tomorrow at the San Jose Hyatt. What was a nice little chickcon last year has blown up into a sold-out monster this year (more proof that SV is in full swing). "How could we expect it to turn into this?" the Chronicle quotes Elisa Camahort, BlogHer's president of marketing and events. With 700 attendees this year, "We can all agree now, women are the power of Web 2.0," founder Lisa Stone told News.com. Arianna speaks tomorrow.

But, hey, is these heady Web 2.0 days, BlogHer isn't just about female power - or maybe it is, as in purchasing power.

Camahort then told the group that based on demographic studies that BlogHer has conducted, the for-profit organization has an audience that's very attractive to advertisers. She said that more than 80 percent of BlogHer readers make more than $50,000 a year, 90 percent have at least a college education and half write their own blogs.

Real Estate Connect

Today concludes Real Estate Connect, where some real money is floating around. The searing hot real estate buzz is on Zillow, which just picked up $25 mil and Reply!, which got $17 million. But the big story really is that Realtors (mustn't forget the capital R) are finally embracing tech in a big way, the Mercury's Sue McAllister reports.

``There's a feeding frenzy,'' said Glenn Kelman, chief executive of Redfin, a Seattle-based online brokerage now operating in the Bay Area, as businesses attempt to add more features to their sites.

But is this frenzy truly bubble behavior? "How much of it is good for the consumer and how much of it is just smart technology people doing what they did in the late '90s, is a question," pondered Mark Brandemuehl of online brokerage Movoto.com.

SES San Jose

At Search Engine Strategies San Jose, Aug. 7-10, features a conversation between Search Engine Watch's Danny Sullivan and Google CEO Eric Schmidt Aug. 9. The Google Dance is Tuesday, Aug. 8. An ongoing thread of related parties and events is maintained on SEW.

July 27, 2006

The Empire Strikes Back - Sean Maloney leads Intel's push to win back markets

By Tom Foremski for Silicon Valley Watcher

Thursday was a very important day for Intel (a sponsor of SVW) as it introduced its Core 2 Duo family of microprocessors, representing the most important product launch since its Pentium launch 13 years ago.

"The empire strikes back," was how Nathan Brookwood, microprocessor analyst at Insight64 termed it. And that's an excellent comment on what this launch means to Intel, the world's largest chipmaker.

The Core 2 Duo launch is more than just a new microprocessor family; it represents Intel's determination to return to its core capabilities after embarrassing missed product deadlines, less than successful forays into other businesses, and an obsessive need to regain market share lost to rival Advanced Micro Devices.

It is also a return to a culture formed from a rigorous engineering discipline that doesn't tolerate missed deadlines, or *any* loss of market share--no matter how small.

To further underline the importance of this event, just days before the launch Intel appointed its most effective and aggressive senior executive, Sean Maloney to lead its global sales and marketing.

. . .

As Intel chairman Craig Barrett looked on from the front row, CEO Paul Otellini strode the stage and reported that over the past couple of years Intel's engineering teams have consistently met all their deadlines on time, and sometimes ahead of schedule. This includes the new Core family, which will form the foundation of Intel's business for the rest of the decade and beyond.

But getting to this point was not easy, it required a complete overhaul of its microprocessor designs in order to make low electric power consuming chips operating at higher performance levels. These two goals are extremely difficult to achieve with traditional microprocessor designs. Intel had to develop innovative technologies, making the chips smarter about power conservation, while providing higher performance through the use of multiple processor cores.

During this time, it was not easy watching rival AMD make significant inroads into its markets, with its Opteron family and other microprocessors.

The significance of Thursday's launch was further underlined by its location at Intel's HQ in the heart of Silicon Valley, in huge tent filled with nearly 300 journalists and analysts.

Sean Maloney, the freshly appointed senior VP of global sales and marketing, demonstrated the capabilities of the chip family, and promised further advances in lower power consumption, increased performance, and new types of applications for the digital living room.

. . .

Over the past 24 years Mr Maloney has earned a reputation as Intel's top troubleshooter. He is the one that Intel relies upon to tackle some of its most challenging business problems.

Mr Maloney used to head Intel's UK operations and then became technical assistant to CEO and chairman Andrew Grove. From 1992 to 1995 he worked side-by-side with Intel's legendary top executive, learning all aspects of the business. This is how Intel grooms executives destined for its senior ranks.

Through a series of senior positions Mr Maloney quickly became known as one of Intel's most effective and aggressive managers, tackling some of the company's most difficult jobs such as rebuilding its troubled communications chip group.

Again, Mr Maloney has been handed one of the company's most challenging jobs: reigniting sales and growth for what insiders call "Intel 3.0," the next big phase of Intel's business strategy. Intel 3.0 represents the third reinvention of the company.

Very few people remember that Intel started off as "the memory chip company," then it became "the microprocessor company," and now it is set on a new course to become "the platform company."

But Intel is like a supertanker in that it takes a while for it to set up a new course; when it does, it becomes an extremely aggressive competitor.

AMD, located just a stones throw away from Intel's HQ, has done well to exploit changes in microprocessor markets at Intel's expense. Now it faces the full might of a refocused and reenergized Intel determined to win back any lost market share--and then some.

Yet AMD's response is puzzling. Earlier this week it announced plans to acquire Canadian graphics chip maker ATI Technologies in a $5.4bn deal. This is not the time to be distracted by a huge merger--unless AMD's management is looking to ATI as a life raft.

In fact, a life raft might be the best way to view this deal if you consider that AMD has to develop its own multi-core chip family, develop global sales channels, *and* invest billions of dollars in building new chip fabs, which, by the way, includes mastering a new manufacturing process at 65nm. Each one of these are extremely challenging and risky endeavors.

I cannot see how AMD can continue to gain market share and profit at Intel's expense. It is up against a competitor that just announced a record number of 550 PC/notebook design wins; and 200 server design wins for its new microprocessors. Intel has already successfully made the transition to 65nm production; plus it has one of the industry's most capable managers, Sean Maloney, leading its global sales push. This is the Empire Strikes Back--with a vengeance.

- - -

Coming up: Sean Maloney talks to SVW on net neutrality. (I grabbed a few minutes with him for a chat before his presentation.)

YouTube poised to monetize the clip culture

The fast-moving digital media world basically cleaves into two parts: those that license, sell or pirate traditional, label/studio-generated content, and Web 2.0 stuff - media created, sampled or collected by people for other people. Apple clearly belongs in the first camp, YouTube clearly in the second.

(Yahoo uncomfortably tries to split the difference, simultaneously pursuing studios and labels, while buying up social networking sites. Not too much has really changed with Yahoo since I wrote about them last year - see 'Yahoo unveils Media RSS spec and elaborates on its schizophrenic strategy'.)

The cleavage becomes apparent in coverage of Chad Hurley's appearance at the AlwaysOn Summit yesterday. Hurley was speaking on a panel with Yahoo, Sony and Michael Robertson, but all eyes were on Hurley as Bubble-blowers continued to salivate over the way-cool vidclip service.

People like the WSJ's Kara Swisher, who moderated the panel, are calling on hot companies to show their profits. Wall Street won't get fooled by a tech bubble again! A typical exchange went roughly like this.

Hurley: We already are generating revenue and developing a new ad platform and building out our sales team.

Swisher: So not profitable, huh?

Hurley: No, not yet.

Robertson: Give them a break, they just started.

Swisher: It's back to the dot-com days!

The real juicy issue is media, not profits, though. `We are not trying to stream full-length programming. We have developed a new clip culture," Hurley said. The site limits videos to 10 minutes. Or as Tony Perkins has it, a "personal content revolution."

Hurley thinks he has protection against liability because the clips are limited in time and because they're responsive to copyright holders demands to remove material. Presumably, he has some legal advice to that effect, but it won't really matter because the business proposition will be so strong.

NBC demanded YT remove clips of Saturday Night Live sketches, which they did, but now NBC wants to use the site to promote its fall lineup, says the Mercury News. There's tons of Jon Stewart on YT but you don't see Comedy Central complaining.

Let's throw all the buzz words at this baby. Clip culture is a powerful long-tail economic engine that wind up wagging the dog of traditional media. YT's energy is from its contributor-users. Right now, unlike Napster in its heyday, YT is anything but a cesspool of copyright rip-offs. Stuff ripped off from TiVO is there for sure, but it's still overwhelmed by Mentos, the history of dance, and cyberspace's funniest home videos.

Hurley can monetize the crap out of this engine, as he plans: "We are in discussions with all of the networks, studios and labels to leverage what we have built." And as long as he keeps what he's built on the Web 2.0 side of the media divide, leaving the Sonys to deal with Steve Jobs, YT will do just fine.

Verne Kopytoff suggests in the Chronicle that it's just a matter of time until YT gets bought up by some needy multibillion-dollar search engine. Hurley's avowal that staying independent is "the best place" for YouTube "undoubtedly convinced few in the audience," Kopytoff wrote. Perhaps it's not the best place for Hurley but based on Yahoo's buys of Flickr and Delicious, it's probably an excellent place for the clip culture.

Thoughtleader: lunch with IBM's top strategist Irving Wladawsky-Berger

By Tom Foremski for Silicon Valley Watcher

Wednesday I had lunch with IBM's top strategist Irving Wladawsky-Berger, vice president, technical strategy and innovation. He was in town to appear on a panel at the AlwaysOn conference in Palo Alto.

It's always a pleasure to catch up with Mr Wladawsky-Berger. I've been meeting with him on a regular basis from many years. Our conversations are always wide ranging and we compare notes on many different aspects of the IT industry and beyond.

We started off chatting about Withnail and I, a cult British movie that his daughter had recommended. (I am very fond of the type of characters in that movie from my upbringing in the UK.)

Then we moved on to my favorite subject, blogging and media. What is a blog or what isn't?

I said that the definition is very broad, and I like to remove the "b" word because it is universally confusing. It is about the ease of online publishing using a very robust platform, with the ability to publish outwards and publish back--it's a two-way media technology.

Mr Wladawsky-Berger said that blogging encompassed an incredible variety of types of content but that authenticity was a prime requirement. "You cannot have somebody ghost write a blog," he noted.

Mr Wladawsky-Berger said he likes to write long posts that explore a theme or idea; he references books, and other sources, rather than other blogs. He said he would rather be writing about the world at large than writing about what someone else has blogged.

I said it is good to spread some link-love but there is a danger of stepping into an echo chamber. I'd love to do more link-love but I'm out and about all day trying to get exclusives, scoops, any original material. It's in the tradition of you-can-only-get-it-here that news organizations have practiced for centuries. The drawback is that I'm always behind in my email and in my blog reading. But when I do blog read, I start with my Technorati links (trackback is dead).

We also agreed on another important point, salad nicoise for lunch.

I asked what was catching his eye these days. "I'm fascinated by complex engineering systems and how to apply the disciplines of engineering to ever more complex business systems such as customer service. It's relatively easy to do the back-end IT stuff that businesses need, but the front-facing stuff, dealing with people, is complex because people are unpredictable. And that's what makes this all very interesting."

Mr Wladawsky-Berger is a visiting professor at MIT and lectures on this, and related subjects.

I asked Mr Wladawsky-Berger a question I've wanted to ask about IBM for some time: how many business processes could I outsource to IBM? IBM's services group is half the company's revenues and it has a huge high-end business consulting group that has extensive domain experience in many industry sectors.

"Well, if you just want to stay at home and have us run everything, you couldn't do that, there is more to business than that, culture is very important," he said. However, there is an Indian telecommunications company that has outsourced everything to IBM except customer service.

"Sunil Bharti Mittal, CEO of Bharti TeleVentures Limited made a presentation our company meeting in Rome and he has been incredibly successful. He has managed to grow revenues while the price of cell phone minutes has been dropping," Mr Wladawsky-Berger said.

I mentioned that keeping the customer service as a core capability was smart because this is about keeping the cultural interface. I changed the description of Silicon Valley Watcher to "reporting on the business and *culture* of Silicon Valley" because businesses exist within a society and they have to understand their culture interface with many different communities otherwise.

That is why it is easy to outsource back end functions, software development, but it is not possible to outsource the front-end cultural user interface; that has to be kept local. The cultural aspect is part of Mr Wladawsky-Berger's research work on complex engineering systems, trying to understand the unpredictable human elements that can determine the success or failure of a business.

It's interesting discussing these topics and seeing how sometimes we can come to similar conclusions through different routes.

Coming next: The only thing that saved IBM from the disruption of PC revolution was ... Find out in Part 2 of Lunch with Irving Wladawsky-Berger...

---
Mr Wladawsky-Berger is responsible for driving big changes at the world's largest computer company, and beyond. His influence within IBM and the industry is remarkable and achieved without much fanfare. He has managed to drive some important changes within IBM towards open standards, and very early support of Linux, and many other IT initiatives. And these have had great effect across the IT industry.

SVW: The remaking of IBM: A chat with IBM chief strategist Irving Wladawsky-Berger

July 26, 2006

What is the profitability of the long tail?

By Tom Foremski for Silicon Valley Watcher

Nicholas Carr over at his blog Rough Type points to a discussion about Chris Anderson's Long Tail theory:

In his column in the Wall Street Journal today, Lee Gomes tries to debunk Chris Anderson's Long Tail theory, and on his Long Tail blog today, Anderson tries to debunk Gomes's debunking.

One point of contention is Mr Anderson's assertion that sales in the long tail could be as much as 25 percent of sales in the head of the tail, thus sales of "misses" can be substantial when compared to sales of "hits." (A music sales example is used in this case.)

IMHO, the focus on sales of a product misses the point of the viability of the long tail. When talking about the *business* of the long tail you have to use profits as the metric and not sales.

The long tail could do double duty in describing the rapidly declining profit margins in selling to niche markets. In fact, margins in the tail most likely fall at a steeper rate than the long tail describes because of proportionately higher marketing costs.

- - -

I went to Mr Anderson's book launch last Thursday and had a quick chat and picked up a copy of the book but haven't read it yet. I told Mr Anderson I was encouraged by the brevity of the book at some 200 pages. I said that many of us probably have about 150 pages we could write on a topic and stretching it to 200 pages instead of 400 to 500 pages was an encouragement to all.

Mr Anderson smiled and said that the magic number of words was 78,000!

The event was fun and the local in-crowd turned up for drinks and food at the hot (temperature) Varnish Gallery south of Market. Six Apart was the sponsor and Anil Dash VP at Six Apart introduced the event.

However, the microphone failed during his rendition of a long anecdote. Ignoring the divine intervention in the proceedings, Mr Dash decided to continue on, using his natural vocal abilities :-)

Google shines light on click fraud, decison on settlement due this week

By Richard Koman for SiliconValleyWatcher.com

Even as a judge prepares to decide whether to enforce a $90 million settlement against Google for a class-action lawsuit, Google announced moves to shine some light on their click fraud suspicions. The Mercury reports that will tell advertisers how many clicks have been deemed invalid each day for advertising campaigns they run on Google.

Google will start giving advertisers an estimate of the number and percentage of invalid clicks over a day, week, quarter and year, the Chronicle reported.

``This gives them the data that shows that Google is doing what we say we have been doing,'' Shuman Ghosemajumder, business product manager for trust and safety, told the Mercury. What Google says they have been doing is using sophisticated software to filter out the vast majority of fraudulent clicks.

On the official Adwords blog, available here) concludes that Google's efforts at stopping click fraud are "reasonable." While the report says that Google is doing a lot to deal with the problem, as much as anyone, there are hard limits to a technological solution. Danny Sullivan points out:

Between the obviously clear cases of valid and invalid clicks, lies the whole spectrum of highly complicated cases when the clicking intent is far from clear and depends on a whole range of complicated factors, including the parameter values of the click. Therefore, this intent (and thus the validity of a click based on the above definitions) cannot be operationalized and detected by technological means with any reasonable measure of certainty.

Google's offered settlement is being criticized by 40 of the plaintiffs as ipoorly calculated and unfair. According to the National Law Journal:

Under the settlement, class members who contributed 10 percent of Google's billions of dollars in revenue by paying for fraudulent clicks would receive compensation based on only 10 percent of the $60 million fund, or $6 million, he said in court papers. Such an undervalued settlement is "unprecedented," [said a lawyer representing two of the objectors.]

Mercury Interactive: HP gets BTO software, legal headaches

By Richard Koman for SiliconValleyWatcher.com

HP President Marc Hurd shows he's serious about building a software business with the acquisition of Mercury Interactive, a Mountain View-based company specializing in business technology optimization (BTO.) Analysts say it's a stunningly good fit for HP - `It's so complementary we think it could be worth more to HP than to many other bidders,'' said Cindy Shaw of Moors and Cabot, the Merc reported.

It must be, because Mercury carries with it more than the usual risk baggage. It was the "grandaddy of companies being investigated for options backdating," as Jack Ciesielski puts it on Seeking Alpha. Backdating is claiming a grant date that is different that the actual grant date. Mercury did lots of that, apparently, plus incorrect accounting of options, incorrect reporting of options, failure to record options. You get the picture.

Hurd said HP had been pondering the Mercury purchase ``for a while.'' One of the issues HP was mulling over was the possibility of assuming liability for the costs of cleaning up Mercury's stock-option backdating.
HP Chief Financial Officer Bob Wayman told financial analysts during a conference call, ``We have done a lot of work evaluating the potential liability. We think we have our arms around them. . . . We think they're very manageable.''

As for the actual business synergy, CXOToday provides perspective:

The acquisition is likely to strengthen HP's OpenView line of offerings with Mercury's application management, application delivery, IT governance and SOA governance range of offerings. ...
In 2006 May, Mercury rolled out a new tool designed to let companies automate change management and carefully assess associated risk with new application and infrastructure modifications. With HP gradually maturing into a prominent infrastructure management vendor, capabilities such as Mercury's Change Control Management tool could do a lot to fortify its credentials.

The price of $52 a share for Mercury is a 33 percent premium on the company's closing price of $39 yesterday. Not bad for a company that's essentially damaged goods - even if it has cleaned up its act.

A chat with IBM's top strategist . . .

By Tom Foremski for Silicon Valley Watcher

Irving Wladawsky-Berger - IBM
Tune in later this week, after I chat on Wednesday with IBM's top strategist Irving Wladawsky-Berger, vice president, technical strategy and innovation.

Mr Wladawsky-Berger is responsible for driving big changes at the world's largest computer company, and beyond. His influence within IBM and the industry is remarkable and achieved without much fanfare. He has managed to drive some important changes within IBM towards open standards, and very early support of Linux, and many other IT initiatives. And these have had great effect across the IT industry.

I've been meeting with Mr Wladawsky-Berger on a regular basis for many years. Here is my most recent meeting, and tune in for the next one on SVW later this week on ThoughtLeader Thursday.

---
Irving Wladawsky-Berger blog: A collection of observations, news and resources on the changing nature of innovation and the future of information technology.

SVW: The remaking of IBM: A chat with IBM chief strategist Irving Wladawsky-Berger

July 25, 2006

HP/Mercury merger: A $4.5bn deal to grab lead in IT management software

By Tom Foremski for Silicon Valley Watcher

Hewlett-Packard's $4.5bn bid to acquire Mercury Interactive, announced today after close of markets, is a smart move as the top IT vendors jostle for prime position in the area of data center management and automating business processes.

The ultimate goal is to create a type of operating system for the IT data center of the future in which applications can be provisioned in near real-time, and performance loads can spread across many different resources depending on the business process. This is part of a meta-level approach to combining business processes with IT in what is called Business Optimization Software (BTO). And to do that, IT managers need to know the performance of their applications and the rest of their systems--Mercury Interactive provides part of that solution.

HP's OpenView software is already one of the leading applications for managing IT resources and the Mercury products will strengthen that product line.
From HP:

The transaction brings together the strength of HP OpenView systems, network and IT service management software with Mercury’s strength in application management, application delivery, IT governance and service-oriented architecture governance.

From HP:

The Mercury acquisition is expected to increase the size of the HP Software business to more than $2 billion in annual revenue. Immediately following the close of the transaction, Mercury will become part of the HP Software business and both companies’sales forces will begin reference-selling each others’ products.

However, HP's past performance of its software group has been rocky. Over the past few years, the company failed in its bid to establish a large middleware business through acquisitions and organic growth to rival BEA Systems, and IBM.

HP also needs to unravel some of the mess that Mercury got itself into in recent years with the SEC and make sure that there aren't any hidden problems.

Here are some call-in details for further information:

HP conference call and webcast for financial analysts and shareholders: 5 p.m. ET / 2 p.m. PT, hosted by Mark Hurd. Listen only dial-in: U.S. +1 800 299 0148, International dial-in: +1 617 801 9711, passcode: 82591745. Live audio webcast:www.hp.com/hpinfo/investor. Replay information, available until Aug. 1, 2006: U.S.: +1 888 286 8010, International dial-in: +1 617 801 6888, passcode: 55367340.

HP industry analyst call: 6 p.m. ET / 3 p.m. PT, hosted by Thomas Hogan. U.S. dial-in: +1 800 299 8538; International dial-in: +1 617 786 2902, passcode: 83000965.Replay information, available until July 25, 2007: U.S. dial-in: +1 888 286 8010; International dial-in: +1 617 801 6888, passcode: 57320057

Mercury financial analyst webcast for analysts and shareholders: 8:30 p.m. ET / 5:30 p.m. PT, hosted by Tony Zingale; David Murphy, chief financial officer; and, Shelly Schaffer, vice president, Corporate Finance.

U.S. dial-in: +1 800 289 0533; International dial-in: +1 913 981 5525, passcode: 4078554. The webcast link will be available on Mercury’s website: www.mercury.com/ir. The replay will be available via the same link.

A replay of the Mercury call will be available at +1 719 457 0820 or +1 888 2031112, passcode: 4078554. Replay will be available shortly following the conclusion of the live call for one year and the dial-in replay will be available until July 31, 2006.

Here is a comment and perspective from a note sent to me by Miko Matsumura VP, Technology Standards, Infravio, The SOA Governance Company:

This is a big move for HP. The part that is of interest from the SOA perspective is the Systinet division of Mercury.

What does this mean? First of all, it's a huge move for HP and securely puts HP at the center of the Systems Management arena for emerging SOA initiatives. IT tends to be about two fundamental forces, CONTROL and AGILITY. On the agility side are typically distributed business units — which are tied to application platforms and are interested in deploying applications rapidly and with the least possible amount of hassle.

On the control side are typically central IT people like the CIO. The CIO maintains job security by establishing control of IT systems at all times — this includes visibility but also policy enforcement. From this perspective, the Systems Management assets of HP and the IT Management assets of Mercury (and the SOA Governance capabilities of Systinet) provide the ultimate control suite for SOA as well as IT management assets.

So this is great, right? HP + Mercury + Systinet = Ultimate Control.

This is a very, very attractive combination from a value perspective. However, this sale is a very centralized CIO-centric sale.

The line of business owners want SOA for AGILITY purposes, and this is where Infravio has had tremendous success and strength —whether it's enabling business to business integration through Service Delivery Contracts(tm) or new business process centric capabilities via BPEL or other process engines. These types of drivers are attractive to lines of business.

So the turf war between Registry Repository giants continues, with Systinet moving squarely into the network management layer and focusing on control, and Infravio, the strongest independent player focusing on agility and business enablement through SOA Governance.
Miko Matsumura
Vice President, Technology Standards, Infravio, The SOA Governance Company

Chair, SOA Adoption Blueprints Technical Committee, Oasis

Blog: www.SOAcenter.com

1999 all over again? VCs setting funding records

By Richard Koman for SiliconValleyWatcher

The Valley is back. How do you know? Follow the money.

AP reports that VCs sunk $6.35 billion into 856 startups in Q2 - the hottest quarter for VC investing since Q4 of 2001. And surely you remember that quarter with fond memories. VCs also set records in fundraising for future investments - $11.2 billion.

VCs delivered first-time financing to 282 companies for a total of $1.2 billion in the quarter. That's the most in five years.

And what are they funding? Yup, Web 2.0. PricewaterhouseCoopers just compiled a list of Q1 funding to W2s (.xls file) and it comes in at $870m, up from $786 in 2005's Q4. But Ajay Sanghani at ITVidya.com notes that the list is a little funky, as it includes such back-end companies as Riverbed and Netli

So Bubble 2.0? Ajay talked to Tracy Lefteroff, the global managing partner of PwC's venture capital practice. "People are trying to contrast this with the Internet bubble, and want to know if we're getting in the same risk category we saw developing in late 1999, early 2000.You always run that risk, but I still don't see the frenzy to invest in these companies that we saw in the late 1990s."

Seven of the top W2 deals in the first quarter were in Silicon Valley, it's Seattle that's grabbing headlines this week. Jobster, a Web 2.0 approach to head-hunting is now valued at $100m, the Merc's Matt Marshall reported last week.

And yesterday, Zillow.com, which provides value estimates on homes, landed a $25m round and has now raised $57m.

All of which leaves Jason Wood in a cold sweat. He commented: "Seeing some of these new rounds is absolutely sending a chill down my spine as a public investor. Where's the exit strategy? I would love to know the post money valuation Zillow got for this round. Wow."

July 24, 2006

AMD/ATI merger: Two companies facing the same problem

By Tom Foremski for Silicon Valley Watcher

Advanced Micro Devices bid to acquire Canadian based ATI Technologies is a risky strategy because both companies are facing the same issue: big, pricey, client-side chips in PCs and other devices are becoming less important than server-side chips.

Wyse Technology, for example, maker of thin computing systems, has demonstrated an inexpensive six-core ARM processor with graphics, video, sound capabilities capable of handling 32-video streams simultaneously. A chip like that can be embedded inside a monitor, a keyboard, anywhere.

And with thin computing systems, you don't need local hard drives, DRAM or Flash memory. It becomes a highly sophisticated computing platform with very inexpensive clients.

This is the trend in today's world, where there is less and less need for a big general purpose X86 microprocessor plus a highly sophisticated graphics co-processor, sitting inside a PC. Wyse's solution is much, much, cheaper and can provide the same user experience as a fully loaded Windows XP PC. The applications are run on a server and the client device renders the graphics, video, and sound.

And as we move inexorably closer to an always-connected world, the thin computing model that Wyse and others advocate, becomes more practical and more cost effective. In addition, a thin computing architecture provides much more protection against viruses, spyware, and other nastyware, because the user experience is completely controlled from a central location.

Intel (an SVW sponsor) has already begun moving away from the client side of devices with its recent sale of part of its communications chip business. Intel knows that the money is in the server, that's the sweet spot. And yes, the PC market won't change overnight into a thin computing model but that is definitely where the world is heading, especially in fast growing developing regions.

And as for Nvidia, ATI's largest competitor, staying independent might be the best strategy. Nvidia can move into the thin computing markets without the need for a microprocessor partner because client-side thin computing doesn't require an X86 processor.

The AMD/ATI merger doesn't do much to address this trend towards thin computing, it is more to do with two companies facing the same issue while neither has a clear solution.

The new "media release" - a podcast and teleseminar

By Tom Foremski for Silicon Valley Watcher

I recently participated in a podcast with Todd Defren from Shift Communications, where we discuss the new media release format, also in the discussion was Chris Heuer, who is coordinating the project, and master podcaster Shel Holtz.

The project is moving along nicely. We've also been chatting about what to call the new format. I'm not a big fan of the use of the word "social" in this context, I prefer a more neutral term. And "new media" is in danger of being overused somewhat, while "press" refers to a printing press.

A plainer and more accurate term might be simply, "media release." Then others can qualify the term if they want, depending on its use.
What's important is that the tags/labels that are used, are standard.
But the format, the way companies present their media release, is where distinctions can be made. And of course, in the content.

You can hear the podcast here. And you can subscribe to the new media release podcast RSS feed here.

I'll be discussing the format during my Ragan teleseminar tomorrow: What's in store for the future of PR?

Story of the Day: AMD buys GPU maker ATI. What now for Nvidia?

By Richard Koman for SiliconValleyWatcher

AMD made a major push towards parity with Intel today with a $5.4 billion acquisition of ATI Technologies - a major manufacturer of graphics chips, chipsets and the semiconductors used in cellphones and HDTVs. The move, says AMD CEO Hector Ruiz, will enable AMD to offer more integrated platforms by integrating microprocessors with other types of components.

ZDNet's David Berlind has a podcast of the press announcement of the deal, in which Ruiz and ATI pres Dave Orton describe "a future where graphics technologies are integrated into the microprocessor silicon much the same way that AMD already integrates memory controller technology into the same dies as its CPUs."

At The Register, Guy Kewney points out that concerns that AMD paid a premium (as much as 25%) simply miss the point. The world is moving to GPUs - you just can't cram all the processing power required for HDTV and fast-response gaming. Throw in the exploding market for video iPod devices and the convergence of media and voice that is finally happening in cellphones and, Kewney writes:

AMD feels that it has to move, now, before it becomes part of Intel, rather than part of a generic processor platform. If it is right, then the question of "how much did you pay for ATI?" is irrelevant. It may be a question of "How can you expect to survive, without ATI?"

Now Valley wags are turning their attention to Nvidia, the Santa Clara-based graphics chip maker who has been AMD's main supplier of such chips. Does the deal leave Nvidia out in the cold for supplying the NForce Pro chipset to AMD's Opterons? Will Intel now buy Nvidia?

July 20, 2006

London woos Silicon Valley firms with its multi-cultural tech community and markets

By Tom Foremski for Silicon Valley Watcher

The city of London wants Silicon Valley tech companies. It wants their European headquarters as part of a push to create at least 2500 new jobs this year in emerging technology sectors; and further boost the city's multi-cultural tech community.

I spoke with David Riches, Director of North America for Think London, a semi-private organisation representing the Mayor of London and local businesses. It has the resources to enable companies to set up business operations in London in as little as six weeks.

"California companies are by far the largest US investors in London. It's because we already have a large tech community of developers, with strong ties to our universities. It is a much larger tech and research community than Oxford or Cambridge. Plus we have a great market that is young, urban, and tech savvy," says Mr Riches. In other words, lots of hipsters and first adopters.

Mr Riches says that his team will help companies quickly find offices, places to live, set up the basic infrastructure of bank accounts, etc. Introduce lawyers, accountants, help in recruitment, and introductions into the local business community. He laughed when I asked if an old school tie comes with the package.

Paris is London's largest competitor for European HQs, however, French employment laws raise business costs, says Mr Riches. It should be noted that London based companies have to comply with far stricter employment laws than in the US.

London is expensive, he admits, but then again, so is Silicon Valley. What you get for your money in London is a gateway into Europe, a business culture that is more American than in other countries; and access to a talent pool that is attracting tech firms from around the world, including our own giants, Google, Yahoo, and EBay.

Mr Riches also said that there are large Indian tech firms setting up in London, and tech firms from other countries too.

This might seem like a type of cultural technology melting pot being created by the newly arriving companies--but it is more the other way around. London already has a large, culturally diverse pot on the stove and, unlike in the US, the burners are full on.

The arriving companies become part of one of the world's most ethnically and culturally diverse cities in the world. It is estimated that more than 300 languages are spoken by sizable populations in London. This means unique access to a multi-lingual/multi-cultural workforce; some companies are already using that workforce for multi-lingual call centers.

I can see how there could be many other ways to benefit from such a diverse talent pool. That's because businesses exist within a society, which means that their cultural interface is very important otherwise they, and their products/services, won't be successful. They won't hit their mark.

If you don't understand your communities you will not succeed as a business. That's why Silicon Valley Watcher reports on the business and culture of Silicon Valley. And London potentially offers businesses an understanding of many cultures in one place.

London certainly looks appealing as a business center. And its ambitions to replace its hard hit financial services sector with more enduring and rapidly growing industries is a smart move. What will determine its success will be if it can become a development center that spawns great companies. Right now, its most obvious advantage is as a marketing/sales center for tech companies.

For London to attract Silicon Valley tech companies, the Think London organisation needs to do more work with the venture capital community and stress speed to market. The VCs are the ones that are pushing the startups to outsource as much as they can, and to speed to market by globalising operations as quickly as possible.

For London to attract the emerging Silicon Valley companies, however, there also needs to be more of business environment that doesn't punish success.

For example, a year ago I met with Rob Hull, business development manager at BT, the giant British telecom group. BT is investing about $16 bn in a next generation Internet infrastructure, and it dominates the telco market. BT will help web services companies, provide billing services, etc, and split the revenues giving them 80 percent and BT keeps 20 percent.

However, there's a catch... From SVW: Silicon Valley startups told: Come to London ... BT wants your business

...should your wireless service become hugely popular, BT reserves the right to "port" the service to its machines and reverse a 20 percent / 80 percent revenue split in its favor(!)
Mr Hull says that this provision is rarely implemented. But then why have it? Seems a discouragement to me...

I cannot see how such a business arrangement would be attractive to Silicon Valley's Web 2.0 companies, net neutrality issues pale in comparison. Think London might do well to ask BT to think again on that provision.

- - -
Please also see: Why is there no British Google? A top British politician asks...

Also: Think London case studies.

July 19, 2006

Earn some good karma on Wednesday evening

By Tom Foremski for Silicon Valley Watcher

BrainJams, a project of my friends/colleagues Chris Heuer and Kristie Wells is trying out a good karma evening today (Wednesday July 19), called "Rent an Expert" at the offices of Cnet Networks downtown in San Francisco.

The idea is neat, it is to turn up in a room and offer 15 minutes or 30 minutes of your expertise, for free. And if you offer something of value, and also find something of value, then that is immediate karma.

But even if you give your time, and don't get what you want . . . you'll always get what you need.

Hope to see you there. Here is Kristie's pitch:

We believe in karma. Help others and good things will come back to you three fold. Sharing your knowledge helps make the community as a whole stronger. We are not asking that you give away trade secrets - just share a few nuggets of your geniusness to make the lives of others a little bit easier. It might even generate a fan base.
Or maybe open up additional projects for you. Who knows? That is the beauty of this little experiment. We are testing that thing called karma. If this moves you, sign up as an expert at http://rentanexpert.pbwiki.com/Offer%20your%20expertise.

Is there something you are dying to learn? Let us know. We believe it doesn't matter how many people are in the room - the odds are good someone has the information you need (or at least knows how to get it). Add your request to the list at http://rentanexpert.pbwiki.com/request%20expertise and we will do our best to find an expert for you.

The event starts (Wednesday July 19) at 5:30pm and will be at CNET's headquarters: 235 Second Street - between Howard and Folsom. There will be drinks and snacks.

Want to know more? General info can be found at http://rentanexpert.pbwiki.com/.

Also, if you ARE coming, we would like you to register at http://rentanexpert.pbwiki.com/RegisterOnWiki.

July 18, 2006

Intel pushes ahead with new 64-bit Itanium microprocessors

By Tom Foremski for Silicon Valley Watcher

Intel, (an SVW sponsor) today introduced its latest Itanium microprocessors as it continues to fight for market share against IBM's Power and Sun Microsystems Sparc 64-bit microprocessors.

Intel said:

Previously codenamed "Montecito," the new processors are designed for the most sophisticated high-end computing platforms in the world. They double the performance and lower energy requirements, improving performance per watt by 2.5 times compared to existing, single-core versions.

The Itanium family is used in high-end computing platforms that do a lot of number crunching, such as modelling weather systems, product design, and drug discovery. The chips have impressive performance for such applications and Intel says the new versions continue to lead in industry benchmark tests.

The Itanium chip designs are very different from server or PC microprocessors because they have to deal with moving and processing large amounts of numeric data. This high-end computing market requires very large and complex chips. The latest Itanium chips are Intel's most complex with more than 1.7bn transistors.

Pat Gelsinger, senior VP, introduced the chips at a press event in San Francisco. He announced new customers and said that 70 of the world's 100 largest companies now use Itanium systems.

Intel has had to invest a lot of resources in creating the infrastructure of applications, developers, and tools needed to support the chip. These are different from the rest of Intel's microprocessors which are based on X86 technologies.

It is the increase in applications specially designed for Itanium systems that is key to boosting Itanium system sales. Intel says more Itanium applications were added in the first six months of 2006 than were available in 2003.

Itanium was developed with partner Hewlett-Packard, which provided Intel with designs and technologies developed for large IT systems. Itanium gradually replaced HP's PA RISC microprocessor based systems. HP continues to be Itanium's largest customer and it says it has strong orders for the systems based on the chi[p

Intel has come under criticism from Wall Street analysts and investors about its Itanium business because it has been slow to build markets. But Intel says it is committed to the chip and it has a roadmap that stretches beyond 2010 to assure potential customers that it won't pull the plug on the product family.

The Itanium group has also been spared from cuts in Intel's operations as the world's largest chipmaker seeks to cut costs by $1bn. This is part of a reorganization of Intel that focuses the company on its core microprocessor business.

The Itanium grew out of Intel's strategy to apply the economics of the PC industry to the corporate data center. By using standard components, Itanium systems should be less expensive than high-end systems from IBM and Sun.

But cost of hardware is less important than the cost of porting applications to Itanium, and the cost of operating the systems. With more Itanium applications now available and lower operating costs through features such as Intel's virtualization technology, Itanium systems should now be in their best position to attack competing Power and Sparc system markets.
...
Please see SVW: Intel + HP 's data center push - saving power and saving labor

More info on Itanium.

Yahoo Finance revolt . . . and user interface fatigue

By Tom Foremski for Silicon Valley Watcher

Yahoo Finance has been changed for the better says Yahoo, but many users disagree. Mark Coker tells me the message boards are teeming with complaints.

Here is a sample of what I saw:

There is big risk in a redesign of a popular web site because people are creatures of habit and nobody wants to have to learn a new user interface.

There are already too many user interfaces to learn, too many new "web 2.0" apps to learn, too many new digital gadgets to learn how to use. Every time I change my cell phone I have a different user interface to learn, there seems to be very little continuity.

All remote controls for consumer electronics products seem designed to each have unique user interfaces, even within the same company and the same product families. Even when it comes to positioning the power-on switch--there are many forms of expressing what must be the single most common user interface element.

I've noticed my kids always pick up user interfaces a lot more quickly than older generations. They can figure things out more intuitively. Clearly this is a skill that can be learned: quickly learning new user interfaces. But why should we need that skill?

What puzzles me is why isn't there a best practices user interface for nearly every type of electronic gadget? Surely there must be agreement on placement of keys and controls? Our typewriters have a standard interface, and our cars, why so little else?

It used to be that companies would sue others for copying the "look and feel" of their product, such as a spreadsheet program,