Silicon Valley Watcher - at the intersection of technology and media

SAP's new co-CEOs today promised faster software innovation and better execution on a hybrid enterprise software model that includes cloud computing and traditional enterprise software.

SAP, which describes itself as the world's largest business software company, recently reshuffled its top management replacing CEO Léo Apotheker with Bill McDermott, who was head of field organization, and Jim Hagemann Snabe, who was head of product development.

Their appearance at the SAP Silicon Valley center was their first joint press/analyst conference since the announcement of their appointment in early February.

Here are some notes from the press conference:

- Business by Design, the cloud computing offering, has been slow getting off the ground but has been successful in terms of software quality. The development team has been using agile software techniques which has reduced development team size by one-third and produced higher quality software than expected.

- SAP continues to believe a hybrid strategy is best, combining the traditional enterprise software business model with cloud computing/on-demand software as a service.

- SAP intends to become the number one on-demand software company in the world. It sees huge opportunities in the Chinese market.

- This summer there will be a major new release of the Business by Design software service and will be followed regular improvements every five weeks.

- Oracle was criticized for not being innovative. It's acquisition strategy is not providing any benefits to customers, unlike SAP, which has been investing hundreds of thousands of man-years in innovation, such as enabling customers to take advantage of new features without having to upgrade their systems.

- The new co-CEOs will try to move the company at a faster "clock-rate" than the former CEO. The basic strategy will remain the same but the execution will be faster.

- SAP wants its employees to be excited about coming to work. It is also impressed by its developer community, which is coming up with lots of interesting ideas.

- SAP is not going to follow Oracle's strategy of tying applications to specific hardware, as through its acquisition of Sun Microsystems. But it does want to eliminate the conversation about stacks and focus on solutions.

- Best of breed solutions were criticized, the problem is that "they don't breed well."

- The acquisition of Business Objects was important in broadening SAP's view of the software world. It sees the future as enabling customers to work with many different companies and allowing their corporate systems to easily interact with their business partners.

- SAP justified the maintenance fees being paid by customers because the company is innovating across industry sectors.

- Innovation was a frequently used word during the Q&A but it wasn't clear what this meant or what it would look like.

It's been a long time coming but it looks like corporations have boosted their spending on their data centers.

TechEYE reports that the latest figures from IDC, for X86 server sales, surged in the fourth quarter of 2009.

X86 server market shows sales surge | Business news | TechEye - All the technology news unfit for print

Volume server sales rose by 9.9 percent year on year, while midrange servers showed a year on year decline of 5.3 percent.

IDC said that this was the first increase since Q3 2008 that showed all three sever segments gaining sales.

IBM holds the number one share worldwide with 35.4 percent share in Q4 2009. Demand for X86 servers increased while the System Z mainframe system declined.

HP has 30.5 percent share, Dell had 11.5 percent share, Sun Microsystems had eight percent market share and Fujitsu 4.6 percent share.

Windows server revenues in Q4 amounted to $5.4 billion, the highest figure for two years. Linux also grew with revenues of $1.9 billion. Unix server revenues were $3.9 billion for the quarter, down 18.1 percent year on year.

Last year, Gary Budzinski, senior VP at Hewlett-Packard's Services Group, told me that if companies didn't start replacing aging IT systems, they would start to break down in large numbers.

The coming "big crunch" - IT systems will start failing on a large scale

Things tend to break after a while...There's a big crunch coming," says Mr Budzinski. Companies will start to experience ever greater IT failures unless they start buying new hardware.

Mr Budzinski's group is paid to make sure client systems continue to run. As those systems age, the maintenance costs rise, until they reach a point where new systems are less expensive than trying to keep the old systems running.

Larry Ellison, the founder and CEO of Oracle, has executed well on a brilliant strategy to 'roll-up' the enterprise software market. Through a series of multi-billion dollar acquisitions, such as Peoplesoft, Siebel Systems, and more, he has managed to build a dominant position in enterprise software.

What he was after was their maintenance revenues. Selling a software license for an enterprise software application is but an entry into a much more lucrative revenue stream that comes from maintenance and support revenues -- these typically account for about 20 per cent of the license cost, and they are paid annually.

Oracle has operated more like a private equity fund, acquiring software companies, and aggregating a torrent of maintenance revenues. It's a brilliant strategy.

However, maintenance costs have become a large burden for companies.

Forrester Research, an IT market research firm, just released its 2010 report on "The State Of Enterprise Software And Emerging Trends." It found that the majority of enterprise software budgets is spent on maintenance and support for legacy enterprise software applications.

Larry Dignan, on ZDNet, writes:

Software represents 34 percent of enterprise technology spending, but nearly 55 percent of the applications budget is consumed by maintenance and supporting ongoing operations...

Add it up and all the talk about enterprise 2.0 and innovative corporate applications just doesn't compute. You're spending too much money on the legacy stuff.

The more that corporations spend on maintenance, the less money they have to buy innovative software. And the less innovation there is, the fewer challengers to established companies such as Oracle.

One way forward for software companies is to adopt the strategy used by Salesforce.com. It offers 'software as a service,' (SaaS). Companies can sign up for just a few seats for very little money and this relationship can later be expanded.

However, Salesforce.com is similar to Oracle, in that it has managed to dominate its sector. It recently raised $500 million in a bid to shore up that position and expand its catalog.

Software startups are caught between a rock (Oracle), and a hard place (Salesforce.com).

It will be interesting to see how this situation affects VC funding in this sector.

- - -

Please see: Salesforce $500m war chest - likely target is social media | Tom Foremski: IMHO | ZDNet.com

Did you know that IBM is the world's second largest software company?

It's been about 6 years since I spoke with Steve Mills, head of IBM's Software Group - the most profitable business at IBM.

Mr Mills was in town Monday evening to meet with a handful of media and chat about IBM's green initiatives around municipal infrastructure.

I had a chance to go off topic and ask him about SAP and the changes at the world's largest business software company.
[Please see: SAP Replaces CEO With 2 Co-CEOs - SVW]

Mr Mills said that he welcomed the changes and that it would not impact IBM's SAP related business.

SAP business is a big business at IBM. The company makes money on consulting services and hardware related to SAP implementations. For every dollar that SAP receives in license revenues, IBM and other systems integrators, make about $9 in services and other revenues.

SAP has tried to tap into the revenues that systems integrators make on its installations. But the economic slump has slowed new licenses and maintenance revenues. In the most recent financial quarter profits fell 12% and revenues were 9% below year ago results.

SAP, the world's largest business software company, said Léo Apotheker has been replaced as CEO.

The SAP Executive Board, in agreement with the SAP Supervisory Board, has appointed two Co-CEOs: Bill McDermott, head of field organization and Jim Hagemann Snabe, head of product development, both already members of the SAP Executive Board.

Dennis Howlett, on ZDNet, writes that Mr Apotheker's departure wasn't unexpected. But it was surprising that the company acted so soon.

The choice of new leaders should not be surprising but hardly imaginative. In effect, SAP has chosen 'last men standing' rather than taking what some of us thought might be a bold move by appointing an outsider.

SAP is headquartered in Germany and has a large presence in Silicon Valley. The company beat analyst estimates for Q4 but profits fell 12% and revenues were down 9% from a year ago.

UPDATE:

Vinnie Mirchandani in Deal Architect writes: Enterprise software is entirely bereft of soul

...the reality is the customer has been forgotten in enterprise software, not just at SAP. It's about squeezing as much out of old technology as possible. As I wrote earlier in the week. "I wish the other bigger vendors had the cajones to acknowledge they similarly mostly live off profits from software 15- 20 years old, from consultants which implement that old software and provide services from data centers which were designed during the Cold War."
Leo was expected to do more of the same in his new role as CEO. So, he did - unbelievably pushing maintenance price hikes in the middle of the deep recession. For all his talk about taking on the partners who have piled 5 to 10X costs on top of SAP's own expensive solutions, he really could not - they were part of the "field" he created.

Intel this morning announced it had made about 100 "futuristic" microprocessors containing 48 processor cores.

Each chip has about 1.3 billion transistors and offers "a single-chip cloud computer."

The chips will be distributed to universities and research labs to help test a variety of technologies that can then be used in future IT systems and personal computers such as notebooks.

Intel and Advanced Micro Devices are building microprocessors with multiple cores but their performance is limited because of software applications that are designed for single-core microprocessors.

The chip technologies are running several years ahead of software technologies. In order to take advantage of the performance benefits from multi-core microprocessors, software applications have to be re-written, or re-compiled with parallel computing features.

This requires a large array of software technologies in order to take advantage of multi-core chips. But writing software applications for multi-core chips requires a new generation of developers. Intel hopes that by distributing its experimental microprocessor today, it will help push researchers into developing and testing software technologies for future systems.

Intel says that future systems with 48 core processors could be capable of: vision in the same way humans see motion.

Imagine, for example, someday interacting with a computer for a virtual dance lesson or on-line shopping that uses a future laptop's 3-D camera and display to show you a "mirror" of yourself wearing the clothes you are interested in. Twirl and turn and watch how the fabric drapes and how the color complements your skin tone.

This kind of interaction could eliminate the need of keyboards, remote controls or joysticks for gaming. Some researchers believe computers may even be able to read brain waves, so simply thinking about a command, such as dictating words, would happen without speaking.

The chip was developed by Intel teams working in India, Oregon, and Germany.

Here is a video of Intel chip products made by Connected Social Media:

I recently had a chance to catch up with one of my favorite Silicon Valley serial entrepreneurs Gauruv Dhillon. I first met Mr Dhillon when I was at the FT and he was CEO of Informatica, one of the top software companies in Silicon Valley.

These days he is founder, chairman, and CEO of SnapLogic, a startup that has built a technology platform that creates data "connectors" between different systems. For example, you could take Twitter data and run it through your business intelligence system, or connect your security system data with your HR system.

There are millions of permutations in connecting different systems and today that figure continues to rise as new APIs are published and as new web applications are developed that integrated multiple flows of data.

If you have the right connector, or "snaps" as the company calls them, you can connect any system and any application.

"When I started Informatica in 1992 we were on the cusp of the client server revolution. Today I feel the same tingle of excitement because there is another software epoch beginning," says Mr Dhillon.

"Whenever there is disruption in a market there is the opportunity to succeed provided you are on the right side," says Mr Dhillon.

He doesn't like to use the term "cloud computing" because it is over used. "It seems cloud computing jumped the shark very quickly and now it is applied very broadly. I prefer to use the term that Marc Andreessen uses "business computing."

Marc Andreessen, one of SIlicon Valley's top VCs and Internet pioneers, is one of the investors in SnapLogic, which last month raised $2.3m for its Series A.

Flying upside down . . .

Mr Dhillon has never been one to follow fashionable trends. "You need to have a true north to guide your business. In Silicon Valley we like to fly upside down sometimes and that's why you need a compass to move your business beyond what's fashionable."

The timing for SnapLogic seems to be very good. There is an explosion of web based application development, and there are huge numbers of legacy IT systems, and integration continues to be an expensive business -- about $10bn a year.

SnapLogic believes that it can make integration a lot easier, quicker, and cheaper -- especially if it can convince developers and consultants to create "snaps" and then sell them through its recently launched "SnapStore," which shares the revenues, with 70% going to the developer.

SnapLogic's revenues also come from licensing its snap building technology for use internally or as a hosted service.

One key challenge will be to convince developers and consultants to create snaps for sale. They already have much of the technology and it would be a simple port to the SnapLogic platform but they make a good living in custom integration projects. Why should they make available the tools of their trade?

"Developers and consultants will create snaps because they will earn a good income and it will also likely lead to new clients that discover them through our SnapStore."

That's the carrot. The stick is that if they don't create snaps for their particular area of expertise, others might do it instead and that will threaten their business.

It'll be interesting to see if SnapLogic can succeed in helping to disrupt the lucrative systems integration business.

Forrester, the US market research firm, says that the decline in US IT markets will be much worse than it predicted just three months ago.

In June, Forrester estimated US tech markets to drop by 5.1 per cent in 2009. In the latest forecast released today, the decline is expected to be 9.3 per cent.

Forrester analyst Andrew Bartels says this is due to two reasons:

First, cutbacks in capital investment, which had earlier been confined to computer and communications equipment, spread in the first half of 2009 to licensed software, causing big declines in this category of tech purchases. Second, upward revisions to US IT investment data in 2007 and 2008 by the US Department of Commerce raised the base periods for measuring 2009 growth, making the 2009 declines even greater than before.

The good news is that the worst of the decline is likely over, and fourth quarter demand should be positive. And US tech companies will report decent financial results in the third quarter because of the decline in the value of the US dollar.

Forrester says that 2010 should be a strong year for US tech markets.

WIll the lack of IT spending provide a boost to cloud computing companies this coming holiday season? It would seem so.

Retailers and many other companies have to have sufficient computing resources to handle the busiest season of their year. But with many companies cutting back on their IT expenditures over the past year, the strain on their IT infrastructure could turn into a big problem.

Companies will be looking for ways to deal with massive demands on their computing resources. This should be an excellent opportunity for cloud computing services companies, such as Amazon, Terremark, and others.

Terremark, for example, offers cloudburst solutions that allow clients to off-load peak computing loads. But this might be a little too risky for some companies. After all, if it doesn't work quite right, lots of customers will be affected at one of the most important times of the year.

However, off-loading less important applications during the holiday season to cloud services is a less risky proposition. It frees up computing resources for peak loads while at the same time, it provides IT departments with experience with integrating cloud computing into their infrastructure.

If it all works out, this will create confidence in bringing in more cloud computing into IT strategies and planning.

That's why the performance of cloud computing services this coming holiday season could open the way to a lot more business in 2010. Low levels of IT spending in 2009 could be very good for cloud computing in 2009 and beyond.

A year ago, IT spending fell off a cliff. The key question is will it make a comeback in this quarter?

There's a lot at stake. Hardware and software companies are hoping that IT spending will make a strong comeback this quarter because of all the pent up demand and because there's a lot of aging IT gear out there.

In mid-June I met with Gary Budzinski, senior VP at Hewlett-Packard's Services group. Mr Budzinski said that a lot of companies delayed upgrading their software and hardware because of the financial collapse last September.

"Things tend to break after a while," says Mr Budzinski.

Many companies extended their maintenance contracts, but, at some point, that won't be enough and IT systems will start failing on a larger scale.

The huge VMWorld trade show and conference is in San Francisco this week and judging by the number of swank parties I've been invited to there's a ton of money in virtual IT.

Tuesday night I popped into the Wyse Technology party at the Old Mint, one of the best party destinations in SF. Last time I was there, about a year ago, MySpace was hosting a Lionel Ritchie concert and it was by far the most fun event of 2008.

This time Wyse hosted a Flamenco themed evening. But strangely, fire codes greatly limited the number of people allowed inside and it looked semi-empty. For the MySpace party last year it was full to the rafters.

There are more swank parties later this week. Interestingly, all that Microsoft could muster was beers at the Thirsty Bear, a pleasant little tapas pub. Does this mean that all is not kosher with its virtualization software business? Are parties a barometer for a healthy business? Generally, that's the way they seem to be.

(Photo: By Jemima Gibbons.)

Ross Mayfield is the co-founder of SocialText, a Silicon Valley startup that has been pioneering the use of social network tools within the world of enterprise IT.

It might seem that "social" and "business" don't mix well. But that's because those are phrases loaded with social meanings -- an ironic obstacle to what could be a much better way of running a business.

In a recent post, The C.R.M Iceberg and Social Software Mr Mayfield does a good job in spelling out the lessons of social software and the benefits that can be brought into the enterprise.

One key lesson learned from the success of Wilikipedia, opensource projects, and even Twitter, is the idea of "shared control." This creates great value but it's a concept that most businesses have little experience with, and considerable reservations.

...the tools to share are becoming broadly available and those that use them are at an advantage compared to those that hoard. We see this as a generational shift as the Net Generation comes to work, the biggest global demographic shift in history.

...With Social Software, users can freely share knowledge through private tweets (Signals), activity streams, blog posts, file and media sharing and wiki contributions. The tool is simple, without the constraints of predefined structure and socially rewarding. But of greater import, sharing knowledge happens as a byproduct of getting work done. In-the-flow of daily work, where collaboration is a goal.

Mr Mayfield points out that this was once the goal of knowledge management systems, whose purpose was to extract the knowledge of employees. But knowledge management systems never fulfilled their promise. However, social software can because it works within the flow of a business process.

He speaks of "people as a platform," which is an excellent way to describe the central value of employees.In effect, he is talking about social software enabling businesses to transform their people into a platform.

People are the platform, and when you empower them, great things flow between them. While their abilities can be augmented by automating low level tasks, it is they who best provide the intelligence. Either as individuals or even as collective.

Mr Mayfield says he first saw this happen during the Howard Dean presidential campaign.

In a private wiki, they invited 300 part time volunteers, divided up who would read what and had them share news clippings. A core editor scanned through these clippings, and the conversations that emphasized what was important, and prepared a briefing book. At first the book went out electronically to staff members daily, later twice a day. More efficient and more effective by all accounts, but what I found transformative was how the sourced more, tapped into a collective wisdom, and enabled the editor to do his core job -- analysis.

The key problem for any businesses is changing its culture so that it can use social software within its ranks. Changing culture is one of the most difficult things to do. Once a business has its processes in place, it is as if it is on a train track, and it requires considerable effort to change tracks.

However, competition is a great motivator. If companies start to fall behind because they haven't been able to master the latest social business technologies, then that will provide an excellent tipping point - into the garbage of history or towards a bright future.

Real-time performance for business applications is increasingly important but difficult to build. That's what Groovy Corporation, an Australian startup hopes to change.

Groovy today released the results of tests that show its SQL Switch performed 105 times faster than the fastest available relational database, a highly tuned version of MySQL. The tests were performed on the Dell DVD Store Database Test Suite, which mimics an online retailer.

I met with Margaret Lewis, she is director of commercial solutions and software at Advanced Micro Devices. She spends a lot of time talking with data center managers about their needs and the transition to cloud computing.

Here are some notes from our conversation:

- AMD is creating microprocessors with many cores because clock-speed alone cannot increase the performance of IT systems. With several cores on a processor, servers can be virtualized and that means applications can be provisioned dynamically, which results in better utilization of IT resources.

David Greenfield over at ZDNet, asks: "Why Does IT Hate Facebook and Twitter?"

With as much as the media might talk about the “new enterprise” and “social media” you’d think that IT would be in lock-step with the rest of the business when it came to social networking. But as my recent work with Michael Osterman shows, there’s a big difference between applications that are allowed by organizations and the ones IT professionals consider to be legitimate.

Osterman Research surveyed IT organizations of all sizes from across a wide range of industry. While half of the responding organizations allowed Facebook (Figure 1), only 28 percent of respondents thought the application to be legitimate (Figure 2). The same goes for Twitter, which was allowed by 49.2 percent of the organizations and yet viewed as illegitimate by just 28.3 percent of respondents.

He included these charts:

I'm looking forward to interviewing Leo Apotheker, the CEO of SAP, the world's largest business software company, live on stage at a Churchill Club event on June 24.

I'll be trawling for some questions from readers closer to the event. I hope you can join me.

Here is a Charlie Rose interview with Leo Apotheker from earlier this year:

[Intel is a sponsor of SVW]

Intel today revealed impressive benchmarks for its new Nehalem Xeon 5500 server microprocessor, calling it "transformational" in terms of it's expected effect on customer's applications.

The new chip represents a large jump in performance when used in data center applications due to integrated support for IT technologies such as virtualization and from Intel's ability to pack more transistors onto the chip using its latest 45nm manufacturing technology. It also reduces power consumption.

"This is the big one," said Pat Geslinger, senior VP at Intel. He demonstrated one Xeon 5500 based server out performing nine servers. Intel expects that the large cost savings data centers can achieve through consolidating servers and also from lower administration costs, lower power bills, represents a compelling reason for data centers to retire their old gear.

The performance and total cost of ownership numbers certainly do point towards a massive reboot by data centers installing Xeon 5500 servers, especially since current economic conditions are creating enormous pressure to aggressively reduce business costs. However, IT managers are very conservative and it can take many months for them to qualify a system and make sure it works with all applications. To help speed this process, IT vendors have already seeded Nehalem based systems with large customers months ahead of today's official launch.

Dell, HP, IBM, Cisco Systems, and many other IT vendors today announced Xeon 5500 based servers.

The high performance provided by the Nehalem microprocessor architecture makes the chip more competitive with RISC based microprocessors such as Sun Microsystems SPARC and IBM's POWER microprocessors. Nearly half of the server market is RISC based. This represents a massive market opportunity.

It is this threat to the RISC server market that could be behind reports that Sun has been actively seeking a buyer for the past few months. It is very expensive to maintain a roadmap for SPARC that keeps pace with Intel's performance improvements in its server family.

- - -

Please see:

Nattering nabobs of negativity nixed by Nehalem

- Upcoming Intel Chip Launch Could Spark Massive Wave Of IT System Disruption

- Dell Makes Big Bet On Enterprise IT In Bid To Boost Profits

Intel promises faster, greener, cheaper computing with Xeon 5500 | Between the Lines | ZDNet.com

Intel highlighted some performance benchmarks, looked at specific servers, compared the performance against the previous generation chip, and found performance benchmarks that increased by more than 150 percent in some cases.

The company also pointed to enhancements in the memory subsystem, as well as the I/O subsystems. And it made note of the improvements that will enhance virtualization benchmarks.

IBM revamps server lineup based on Intel's Nehalem | Between the Lines | ZDNet.com

Two years ago I suggested Google should build its data centers in Iceland because of all the nearly-free green geothermal energy. Plus, it's a great location, midway between North America and Europe, with access to high speed submarine data cables (illustration above).

But it's not just Google that is building large data centers. There is growing demand for cloud computing services and that means companies will need to build lots more data centers, and operating costs will play a large role in determining success. Since electric power costs are one of the largest expenses for a data center, Iceland starts to look very attractive as a cloud computing site for many companies.

The attraction is even greater these days. Iceland's economy isn't doing too well following the collapse of its largest banks last year. And its economy continues to worsen with unemployment expected to reach nearly 10 percent in March from 1 percent a year ago.

The economic crisis means that land and labor costs are cheaper than ever. And the government is keen to encourage investment by foreign companies, which means tax breaks and other incentives. Plus the government is investing in programs that would aid the business environment such as its plans for "4000 man-years of job creation." This includes:

. . . supporting an innovation centre in Reykjavík, utilising specialists currently unemployed to assist start-ups, improving the competitive position of start-ups and innovative companies. . .

Part of the government's stimulus efforts include building more hydro-electric and geothermal power plants because only about one-quarter of the green power potential of Iceland has been tapped.

However, generating more electric power isn't very useful because you can't export it. You can't run a power line half-way across the Atlantic.

That means you have to convert the electric power into something that can be exported. Aluminum production requires a lot of electric power and so this has become the main method for Iceland to monetize its abundant green energy.

The irony is that aluminum smelters are anything but green, they pollute the environment and have been linked to increases in the number of birth defects and cases of cancer in local populations. And they don't provide much local employment. This is leading to growing criticism of the government's plans to expand aluminum production and the role of energy executives in selling cheap power to the smelters.

The web site Saving Iceland reports that earlier this month:

...three black dressed individuals, masked with aluminium foil, threw green Skyr (traditional Icelandic dairy product) on representatives of Icelandic energy companies during a greenwash presentation in the University of Iceland.

Skyr Thrown on Greenwashing PR Managers

[Throwing Skyr is a traditional way for Icelanders to communicate disrespect and disapproval.]

Converting power electrons into data electrons would be a much better use of Iceland's green energy. Cloud computing data centers would provide high quality jobs, and could help transition Iceland's dependence on polluting aluminum smelters.

The Invest in Iceland Agency has put together a few web pages and a pdf to try and drum up interest in data centers [Please see Iceland: The coolest location for data centers.] Not much luck so far. It probably requires a more direct approach by Iceland's government.

Maybe Google could step in and buy Iceland, which would about double its GDP. It could then relocate the entire Googleplex and many of its data centers. Google would be able to have its own banks, it could rename the Krona currency the Gollar, Googlers could enjoy an amazing number of outdoor activities, cheap housing, long summer days, and surprisingly mild weather. It could end Icelandic whaling, kick-out the polluting aluminum smelters, . . . and be out of reach of any pesky anti-trust lawsuits.

- - -

Please see:

Saving Iceland » More power plants may cause more economic instability

Saving Iceland » The Hall of Shame

Google Invests in Geothermal Energy « Data Center Knowledge

Invest in Iceland Agency - Information centre for foreign investors investing in Iceland

Dell, Wednesday morning launched an early salvo in what is shaping up to be a massive battle for server markets as data centers look to cut costs by using servers based on an advanced Intel microprocessor due out on Monday.

Dell announced what it called its broadest ever family of servers, and storage systems, just days ahead of similar announcements expected from rivals Hewlett-Packard, Sun Microsystems, IBM, Cisco, and others, as Intel officially introduces a major upgrade to its Xeon server microprocessor.

The move is a key strategy of founder Michael Dell's, who returned as CEO more than two years ago to try to reinvigorate the company and move it beyond PCs and expand it's enterprise IT business.

The server market has almost ground to a standstill in recent months as customers await the first servers based on Intel's latest microprocessor architecture design, Nehalem. Intel has set expectations very high, promising breakthrough performance, while at the same time significantly reducing power consumption. Many data centers are unable to expand because they have drained their power capacity.

Dell is making a big bet on Nehalem, which is used in it's new Dell PowerEdge server family and includes several features Dell says are unique.

"We believe our design, based on industry standards and unique features, such as the industry's first built-in management software, will offer customers the lowest total cost of ownership," said Stephen Schuckenbrock, head of Dell's Large Enterprise group.

Dell said it would release pricing and benchmark results on Monday, the official launch of Nehalem. It claimed excellent performance from its Nehalem based servers, saying that each one could replace 9 servers and as many as 18 servers if customers use virtualization technologies.

Dell also introduced data storage and IT management software.

Brad Anderson, senior VP, claimed that Dell can produce better performing server and storage systems than its larger rivals because it doesn't have to support proprietary technologies, especially in the area of management software. And it offers unique capabilities.

For example, it worked closely with Symantec to create the Dell Management Console (DMC), which replaces as many as nine separate management consoles with a single interface. DMC also works with many types of non-Dell hardware and management software, allowing customers to save on labor costs in administration, which can be as much as 70 per cent of total data center costs.

[For more details please see: Dell Unveils Efficient Enterprise Computing Portfolio, Freeing Customers from Costly and Proprietary Technology]

Foremski's Take:

Dell has a lot riding on this launch because it is seeking higher margin markets. However, it is up against well-entrenched competitors such as HP, IBM, and Sun, that have considerable experience in building data systems. It must show potential customers that it is not just a PC company, assembling standard components, and that it can design high performance IT systems with unique features.

It must show that it understands the issues facing data center managers as they try to deal with their largest headaches: administration costs, server consolidation, and power consumption.

The launch is also a test of Dell's Services business because enterprise customers are motivated to buy solutions rather than boxes.

Dell has invested more than two years on developing this family of IT systems, working closely with Intel, Symantec, VMware, and large IT users to make sure it had the best overall design and performance across 15 different IT applications. Dell also said that its services group was involved from the beginning to make sure services capabilities were closely integrated into its systems.

Dell's aggressive bid to expand its enterprise IT business comes at an opportune time because of the availability of Intel's Nehalem.

Intel claims that the extraordinary performance of Nehalem based servers means customers can recoup their costs within as little as 8 months. If this is true, it will create a tsunami of demand from data centers that are already under tremendous pressure from the economic downturn to cut operating costs.

Although a rising tide will lift all boats, Dell clearly hopes its long preparation will not only lift its boats higher, but establish it as a major vendor of IT systems (. . . especially if IBM acquires Sun.)

- - -

Please see Dell Blogs:

• Dell Introduces Six New Service Offerings and New Optimized Solutions
• Bringing Sexy Back to the Data Center -- New 11th Generation PowerEdge Servers
• 11G solutions increase reliability and productivity, drive down costs

Cisco Systems this morning launched an aggressive strategy to gain market share in global IT markets with a data center product family that combines virtualization software, server, data storage, and network capabilities in one system.

The Cisco Unified Computing System has room for 8 blades consisting of servers, data storage systems, and network systems. It is designed for large IT data centers seeking to reduce their costs and also the amount of energy they consume. Cisco says its saves about 20 per cent on hardware costs, and about 30 per cent on operational costs because of lower administration requirements.

The move pits Cisco against large server companies such as Hewlett-Packard, Sun Microsystems, IBM and Dell, and also data storage companies such as EMC.

In a Business Week article, Kevin Johnson, CEO of Juniper Networks, said:"They are clearly crossing the Rubicon, and they are now in direct competition with these other large tech companies."

The Cisco Unified Computing System is designed to use virtualization software from VMware or Microsoft. This enables it to be more productive in running IT applications because of more efficient use of its server and data storage capabilities. Many servers and data storage systems are running at as low as 15 per cent utilization because of the complexity in switching between applications.

The Cisco system will also use the next generation Xeon server microprocessors from Intel (Intel is a sponsor of SVW).

Foremski's Take:

This is an aggressive move by Cisco to break into new IT markets and to take advantage of two key IT trends: blade servers and virtualization technology. It will also likely trigger a price war in the IT market as IT vendors battle for smaller IT budgets.

Blade servers allow data centers to consolidate their computing power into smaller numbers of boxes potentially save energy because of more efficient components and cooling systems. Virtualization software allows data centers to become far more efficient and flexible in terms of their computing capabilities.

Blade servers and virtualization software are becoming commodities. Cisco's move will accelerate this trend and thus pressure pricing on blade servers from HP [HPQ], Sun [JAVA], IBM [IBM] and Dell [DELL], and also on data storage blades, while maintaining premium pricing on its network technology.

The response from its rivals will be to try to undermine Cisco's network business by offering lower prices on network gear in IT contracts in a bid to protect server margins. This could lead to a war of attrition as the IT vendors try to accelerate the commoditization of their rivals' businesses.

IBM will likely be the least affected by such competition because most of its revenues come from IT services. IBM has a large hardware business but it also acts as the largest reseller of servers and network systems for the IT vendors.

Cisco can has two ways it can survive a price war and resist commoditization of its network business. Cisco has about $30 billion in cash. And it's management software provides a data center user interface that acts like a data center operating system enabling customers to save on labor costs through more efficient management of resources.

- - -

Please see:

At Cisco, 'Downturn' Screams Long-Term Opportunity - BusinessWeek

. . . I do believe very strongly that while this is the most challenging time in our careers, as business leaders, customers, and as countries, it also offers potentially the most opportunity. When you face challenges of this magnitude, with the tremendous disruption it creates for businesses, for jobs, for families, you get a willingness [from people] to change with speed you do not get in normal times. So out of this tremendous pain as a country and as a world, I believe we should focus on tremendous gain.

. . . We're going to be extremely aggressive during this downturn. As a company, we can come out of this with a stretch goal of being the leader not just in communications, but in IT on a global basis.

Julius Caesar Crosses the Rubicon, 49 BC

The crossing of a small stream in northern Italy became one of ancient history's most pivotal events. From it sprang the Roman Empire and the genesis of modern European culture.

M.R. Rangaswami has done an excellent job with his Software 2000 series of conferences in helping Software As A Service become a mainstream technology. Now he has turned his attentions to Cloud Computing.

I caught up with M.R. during lunch at Cloud Summit, a new annual conference looking at the business opportunities in Cloud Computing for users, developers, and investors.

I had an interesting conversation this morning with Liz Miller, VP of the Chief Marketing Officer Council. This organization has been studying the disconnect between sales and marketing within large corporations.

"Our studies have shown that within companies around the world, the sales and marketing departments are separate and don't work well together. They are often adversarial and hoard customer data," says Ms Miller.

The CMO Council has surveyed companies around the world and says this problem is found everywhere. "Companies aren't able to create a 360 degree view of the customer which means they can't up-sell or cross-sell, they are losing out on a lot of additional sales," she says.

The two organizations often operate completely independently of each other and although they use the same language, the words they use can have completely different meanings.

"We found that even a simple word such as 'lead' is understood differently by sales and marketing departments," says Ms Miller. "And the two departments have different calendars that don't match up with sales cycles or promotional programs."

The CMO Council has been conducting workshops to try and bridge the divide. And it is also recommending using social software within organizations. "If people can view each others blogs and share customer data then that helps to bring the two functions closer together and aligned to the same goals." Oracle is one of the companies that offers a social CRM component.

Social media sites, external to companies, provides sales and marketing teams with a lot of customer data but there is a need to identify the right type of data. "Companies get very excited because they can mine a lot of data from the Internet but that's not as good as finding the right data, and targeting the key influencers. Too often marketing just wants to make a big advertising buy in the hope of getting the attention of the right people but this doesn't work anymore. Customers are savvier and they rely more on peer recommendations."

Foremski's Take:

Company culture can be a big obstacle to removing the mismatch between sales and marketing departments. And sales tends to focus on individuals while marketing tends to deal with large groups of people, demographics , etc.

The promise of the Internet is to be able to market to individuals but that means a big change in the way marketing is done today. It also means marketing has to work a lot harder and understand data from many sources and buy multiple types of advertising to target smaller groups of people. That's a lot more work for marketing departments, which won't sit well with marketers.

More work from marketing to get more sales for the sales department. That's unlikely to bring the two groups closer together. But it'll be interesting to see if the CMO Council can help the two groups work better together. Maybe social software within the enterprise can go a long way in achieving those goals.

- - -

CMO COUNCIL :: Scenarios and Solutions: Mapping the Traps and Sales Effectiveness Gaps

The best part of visiting HP Labs late last week was the presentation by Hewlett-Packard's chief strategist. If you want to know where HP is heading and why, watch or listen to these 9 minutes of Shane Robison explaining the trends and strategy of HP.

This is one of the most lucid accounts of HP's strategy that I've come across.

http://www.youtube.com/watch?v=k2bFUkocthY

Also please see: HP Labs Reboot

http://www.youtube.com/watch?v=lVGdklaASIU

Additional Information on Shane Robison:

I'm hearing from a reliable source that Salesforce.com has approached Oracle to gauge if there is any interest in a sale at $75 a share. That would be almost a 50 per cent premium over Friday's close of $50.87.

The deal would make sense:

-It would provide Oracle with a strong brand in online apps and a strong transition road map to cloud computing and a software as a service business model.

-Salesforce would benefit from Oracle's dominant position in enterprise IT markets, which would help in convincing corporations that Salesforce is a scalable and viable enterprise solution.

-Marc Benioff, CEO of Salesforce would make a good successor to replace 63 year old Larry Ellison, CEO of Oracle, when he retires says Matthew Greeley, CEO of BrightIdea.com. Mr Benioff is used to work at Oracle. When he left Oracle in 1999, Mr Ellison provided seed funding for Salesforce and also served on its board of directors.

-Mr Benioff needs a new challenge, he appears to be losing interest in Salesforce, or at least reducing his financial interest in his company at a rapid daily rate. He has been selling 10,000 Salesforce shares every single day since 21 August 2007. Before then, he sold 20,000 shares every day since 14 November 2006. Prior to that date, Mr Benioff sold thousands of shares every day in variable amounts since 31 July 2006.

[Please see: Insider Trades - Marc Benioff - Yahoo! Finance.]

-An Oracle acquisition of Salesforce would strengthen its strategic position against SAP, the top enterprise application software company. SAP has been slow in figuring out its online strategy, even naming its initiative has been challenging to the company.

UPDATED: Larry Ellison will have to buy Salesforce at some point anyway. Netsuite cannot be scaled to the size of Salesforce in this decade, maybe in the next. The two businesses could be easily integrated, that's the beauty of online software, it's all standards based.

Buying CRM now at a 50 per cent premium would be a good deal for ORCL. MSFT is going to have to cough up much more than the 62 per cent premium it initially offered for YHOO...

And Salesforce is to Oracle, as Yahoo is to Microsoft, in terms of future direction and strategic positioning.

Sunday evening I'm at the Four Seasons in San Francisco for the Sand Hill Group's Holiday dinner as a guest of the tireless M.R Rangaswami, "the swami of enterprise software" as I called him because of his excellent Software conferences.

I used to think enterprise software was dead and boring but M.R convincingly changed my opinion through his conferences and a great online magazine Sandhill.com. [Check out Peter Sobiloff's article: Ready for a Downturn?]

Sunday evening felt the same as a year ago at Sand Hill's holiday celebrations, it seemed as if I was here just a month ago. Again, I'm sitting next to Eric Faurot, who is always good company.

Mr Faurot is a senior executive at CMP, which purchased M.R's Software conference. [CMP buys Sand Hill Group's Software conference for up to $9m] BTW, look out for another acquisition to be announced soon.

The Software 2008 conference is moving from Silicon Valley to Las Vegas which marks a turning point for what has been a quintessential Silicon Valley conference with great turnout from local VCs, startups and top software executives. The conference will be a lot different in Las Vegas but then again the software as a service market, which had been a prime source of content for the conference, has now gone mainstream, so the conference can potentially attract a larger, more mainstream audience too.

It is good to see other familiar faces: Terry Garnett of Garnett & Helfrich Capital--the venture buyout firm; Shannon Latta, partner in the Horn Group [Please see the latest post on Horn Group blog: Evolving PR-Ryan Block, Marshall Kirkpatrick and Tom Foremski on Social Media and PR]. Also, Carleen Hawn, editor of FoundRead from GigaOmniMedia.

It was a very pleasant evening but I wish it hadn't come around so soon. The experience of time in Silicon Valley is definitely accelerating (and it's not just me!)

- - -

Please see 2006:

Sand Hill Group celebrates a good year

Lunch with the Swami of the enterprise software sector...

Technorati Tags: sand hill group

Autonomy said Tuesday that it had integrated its recent acquisition of Zantaz into its product line. The move strengthens

Autonomy's position in the enterprise search market against Google, FAST Search and Transfer, and other companies offering ways to structure large amounts of corporate documents and emails.

Zantaz, based in California, was acquired in July 2007 for $375m. It's technology helps companies administer document policies and comply with legal and regulatory requests for documents. Legal cases can sometimes require companies to find and turn over millions of documents. Earlier this year Intel ran into a problem complying with a deadline to turn over millions of documents as part of a lawsuit brought by Advanced Micro Devices.

The Zantaz technology can also identify potential legal risks in a company's operations, offering a proactive benefit. This field is known as Information Risk Management.

Autonomy has combined its technology with that of Zantaz. "It's now on steroids," said Chief Marketing Officer Nicole Eagan.

Zantaz gives Autonomy an important beachhead in the US with its large customer base. It can leverage that community through offering a family of search products including the ability to search and index video data.

The Autonomy technology can search for the meaning within documents based on a Bayesian approach which uses statistical analysis. This allows it to work with any language because "meaning" is defined by the statistical similarity of text within documents. The system has to be trained but once that is done it can quickly process large numbers of documents.

- - -

Autonomy Zantaz announcements.

Please also see: Autonomy Says Tags Don't Work

Technorati Tags: Autonomy, Zantaz

I popped into the recent LinuxWorld:

Linux Increasingly Mobile

Motorola is moving towards widespread deployment of its mobile Linux on its cell phones. It is moving the OS further and further up the stack towards enterprise class handsets.

I spoke with Christy Wyatt, VP of Ecosystem and Market Development at Motorola, about recruiting developers to Motorola's Linux platform.

Mobile Software Giant

Access is one of the largest software companies that nobody has heard of, is how Diedier Diaz, senior vp of product strategy at Access describes the company.

It is a leader in mobile applications, and virtually everyone with a cell phone has used one of the company's apps. This is especially true since the acquisition of PalmSource in late 2005, the developer of the Palm OS.

Enterprise Open Source Applications

Combining open source software to create powerful enterprise-class applications suites is what SpikeSource does. But how do you make sure dozens of constantly changing open source software components will work together, and not break each other?

Kim Polese is the CEO of SpikeSource and the former chief evangelist for Java. She says the secret is in the automated testing of the suites of open source software.