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

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

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

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

Happy New Year,

The Tech IT Easy team

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

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

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

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

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

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

Some very interesting examples are mentioned, like:

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

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

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

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

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

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

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

Vincent out

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

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

Dynamics…

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

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

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

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

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

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

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

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

Thoughts?
Vincent

(Picture courtesy of Fisica & Psychica)

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

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

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

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

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

Vincent

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

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

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

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

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

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

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

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

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

Vincent

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

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

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

Thoughts?
Vincent

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

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

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

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

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

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

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

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

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

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

SOA’s value-proposition

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

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

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

SOA’s hurdles

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

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

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

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

Grasping the paradigm-change

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

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

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

The SOA playing field

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

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

Final thoughts

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

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

Vincent

The opinions expressed within this blog are those of the authors alone. ©2011 Tech IT Easy. All Rights Reserved.

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

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

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

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

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

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

• MySQL’s acquisition by Sun Microsystems

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

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

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

• BEA’s acquisition by Oracle

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

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

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5. Lessons from Microsoft's acquisition of ScreenTonic

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

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

Certainly not an exhaustive list, but a good start.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

I think this is all too easy and bullshit.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

- A corporate overview document - 4 pages max.

- A functional product data sheet - 4 pages max.

- A technical product data sheet - 4 pages max.

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

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

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

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

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

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

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

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

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What I found rather innovative here is SalesForce’s notion of “Platform as a Service”, that is getting close to the concept of “Software + Service” (thorough post to come sooner or later) introduced by Microsoft. It seems market players converge on the idea of interaction of ‘solid’ platforms developed and marketed by software market leaders + a number of customized services run by an ecosystem of independent software vendors & software developer communities. In other words, Platform as a Service = Software + Service.

[youtube=http://www.youtube.com/v/EbnCUqAL6UM]

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Splitting parts with the invincible “good or bad?” question, this deal has a number of direct implications on the technology landscape. Here are a few notes in this respect.

• Acknowledgement of the Shai Agassi ‘globalization’ legacy…

Or, put it bluntly, the victory of Silicon Valley guys over the old guard from Walldorf. Shai Agassi, a young computer wizard who had made its way to the job of CTO at SAP AG before leaving the company in March 2007 to start an renewable energy startup in Israel, had worked hard to ‘globalize’ development teams. Many feared the so-so recent results of SAP would urge the Board to centralize R&D. In some ways, the acquisition of global software vendor BO acknowledges the legacy of Shai Agassi. Successfully manage a distributed software company is a very tough challenge (even Microsoft doesn’t do it yet) that I’m sure SAP is prepared enough for.

• Puts SAP on the map of potential acquirors

Some excitement to expect from SAP on the investor side

Fresh air in strategic exit scenarii on the enterprise software market

Good for the enterprise software market as a whole, especially from an emerging software ecosystem view point (venture capitalists + startups)

• SAP – Oracle – Microsoft – IBM now at loggerheads: towards an ‘oligopolization’ of the enterprise market? Maybe not – see next bullet point!

Oracle sells its own databases; Microsoft embeds business intelligence capabilities in its databases; SAP, a long time rival to Oracle, has no database but just acquired a business intelligence company that competes directly with Microsoft. IBM wants to renew its aging DB2 database offer and enter the business intelligence market – maybe through M&A, Cognos maybe? Consequence: strategic relationships @ and cross-selling (eg SAP ERP with Microsoft databases & BI components; or Microsoft ERP with Business Objects BI suite) between these 4 companies are likely to shrink. I think this situation is good for none of the protagonists, including clients. Hope a sense of realpolitik will make software giants look beyond immediate product competition and punctually co-opete on innovative projects rather. My 2 cents on IBM: the more IBM enters the application software market (front end), the more it loses. However, IBM is a great middleware company so it definitely has a role to play (database, etc.) in this consolidation.

• Enterprise software architecture value chain integration implies there is room for independent database vendors & independent innovative business intelligence solution vendors: you always need alternatives

I am to purchase stock of any database (MySQL?) or business intelligence (KXEN?) vendor that goes public. Industry structure and dynamics makes of it a no brainer: in this market, you’re either huge or unsignificant. So there’s room for large specialists of one market.

• M&A as value-creation drivers in the software industry

It’s sad to say because I don’t like making the case for acquisitions rather than building companies to grow and last – but figures don’t lie. I see this acquisition, looking beyond price, as a smart pre-emptive move by SAP against Oracle, and an even smarter move by Bernard Liautaud, Chairman of the Board and cofounder of Business Objects, who had acquired Cartesis as soon as Oracle purchased Hyperion: SAP could then only turn to BO to build an Oracle competitive solution. I’m not quite sure SAP would’ve acquired BO had Business Objects not eaten Cartesis the blitzkrieg way. Hence the drawing for this post…It’s a fish-eat-fish world.

• Deal will damper the French software industry? Not quite…

Anyone saying loosing France’s #2 software vendor is bad for France doesn’t know how it’s been like to work at BO recently. Speak with anyone at Business Objects and you couldn’t avoid talking acquisition by Oracle or SAP or IBM right away, usually the first or second sentence: BO guys couldn’t stand not being acquired yet. Many employees must be relieved: the company is 17 years old so it’s likely most stocks have vested and employees will either join other startups to ‘do it again’ (good for startups), start their own software companies (even better for the economy), or, for the wealthiest, become business angels in the business of software (great, we badly need them). On top of that, all BO developers or consultants I met were crème-de-la-crème people: Business Objects is one of the top software developer schools in the world, and I believe this is why SAP AG agreed to pay a premium to acquire this business intelligence company.

CEGID is likely to be acquired some time soon as well. Again, the decentralized structure of the company will make it likely to foster the birth of many software startups. Which at the end of the day is good for the industry and the economy.

By the way, as far as I’m concerned, since my job consists in spotting the next Dassault Systèmes, CEGID or Business Objects, to enhance its growth through leveraging the MS technology stack, I’m happy to realize I’m not out of a job yet…

Last point: after business intelligence, I see CRM as the number one software consolidation playing field. Don’t ask why.

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Currently working as a Project Manager at Intel, he has 15 years of IT experience working in various roles. He holds an MBA-degree from W.P. Carey Business School of Arizona State University at Tempe, Arizona and an MSc in Engineering Science from University of Toledo, in Ohio.

Raj has joined us to write about his passion, leveraging IT to create, expand, and sustain competitive advantages for corporations. He started his blog, itstrategyblog.com, for a similar purpose, where he writes about IT strategy, emerging technology and globalization. But before we shout “IT Doesn’t Matter!,” as Nicholas Carr so boldly stated in his controversial document, Raj proposes that it does make a big difference, if managed properly and when used in processes that differentiate organisations from their competitors (did I phrase that right, Raj?).

In the spirit of diversity, I’ll just come right out and say that I very much perceive IT as a commodity, a tool, and that the real strength lies in people and applications, but I will enjoy arguing that with Raj through future blogposts and conversations, as I hope you will too.

So, welcome Raj! I look forward to reading your stuff!

For more on Raj’s professional background, please also check his LinkedIn-page.

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Tim O’Reilly has done his best to build upon his original naming of the phenomenon Web 2.0. According to him, Web 2.0 is… well read his paragraph-long definition here, and can be split into following characteristics. To me it still seems very abstract, so let’s discuss the points, one by one.

• First, platform. This means that web-based technology can be used to launch a range new applications, allowing developers to build on top of it and earn money too. This is happening, e.g. Facebook, though monetarily, only in a minority of 2.0 apps.
• Second, data, which means the information created by users and about users, which can be leveraged in applications. Again, happening, though only partially. Users own some data, other data created by them is owned by the site, e.g. Digg.
• Third, participation as a basis for an application. Again happening. eBay has no value without sellers and buyers.
• Fourth, “open source” development. Slowly happening, though there is still no clear business-model and much resistance to it. You could see the blogosphere as a bad example, and Facebook as a good one.
• Fifth, content-based business models. Eh… there’s a lot of content, a lot of noise, very few business models based on it. You could argue that this has been newspapers’ business-model for 100 years and look where they are now.
• Sixth, perpetual development of applications. That means that an application is continuously improving, which is clearly happening across the scale.
• Seventh, software above single devices, the merging of desktop and web, or perhaps leaving behind the desktop all together. So far this has been fairly one-way, from desktop to web. But there are some great examples, particularly in the SAAS-sphere.
• Eight, early adopters. This was perhaps the case in 2004, but I think application-developers are seeing a slow-down as supply is clearly exceeding any possible demand.

The web is fragmented, very much so. We have productivity apps, which can be split into a number of segments, we have the media, we have e-commerce, we have communication, etc. So really, what we are looking at is the evolution of applications, based on various technologies, and which can be segregated into a number of fields: Work 2.0, Media 2.0, Commerce 2.0, and Communication 2.0.

And by separating functions, it becomes easier whether there is true evolution, by which I mean the transition towards a new platform. This, however, also means that it must also be sustainable, an important point to keep in mind.

Work 2.0

What this includes are technological tools which enable humans to increase their productivity. And really, this can again be segmented into fields like word processing 2.0; accounting 2.0; graphics 2.0; etc. The real question is, have we evolved in that domain?

If you look at how people are being productive, the answer is yes and no. Due to the shift of “work” apps from the desktop to the web, you see a number of people shifting their work-area to the web also. However, there is still a barrier between the desktop, which I define as offline-use, and the online web, as there is no ubiquitous internet, nor are there many web-apps which comfortably work on the desktop or other devices either. What we are also seeing is that text-based applications do best in the web-sphere, but anything dependant on CPU or processor-speed (graphics or computation) is still largely restricted to desktop-usage.

Media 2.0

We are clearly seeing a shift here, which started with web-publishing of text, to pictures, to audio, to video. The shift becomes all that much more apparent if you look at the way media 1.0 is dealing with this: Lawsuits and DRM from Hollywood and Record-companies; newspapers shutting down; and many media 1.0 businesses shifting to online business models. And while there clearly is a future for media 2.0, very few “independents” are making any real money from it.

Commerce 2.0

This is clearly the winner, at least in terms of revenue. So much so, that a 3.0 stage is sure to follow soon. It’s not universal, but business models like eBay (which I would define as 2.0) lead to a shift of second-hand goods-trading from off-line to online. Books (Amazon) saw a similar movement. Electronics also. E-commerce as a platform for individuals is doing particularly well.

Where we need an evolution is in terms of interactive goods, i.e. fashion and fresh food, which will require some out of the box thinking, beyond the web-desktop paradigm, but towards the “real world”-web-”real world” paradigm. A great example is the recent announcement of buying songs played in Starbucks through iTunes in real-time; which clearly asks for an expansion to concerts and other environments, as well as similar usage-mechanisms with other types of products.

Communication 2.0

Primarily being designed as a communication platform, the web clearly shines and is growing in this regard. From e-mail to messaging, to voip to video-oip. Facebook is a clear evolution here as well, allowing for a rich environment for people to interact, beyond text, voice, video. Some people would argue Twitter is part of this, I would classify this as rss 3.0 and thus media.

So, can you come up with other segments in which there has been or needs to be an evolutionary leap, and which can be achieved by leveraging the advantages the internet provides?

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The only thing on this framework I am not (yet) really comfortable with is the axis of “how work gets done“. To distinguish between structured processes and ad hoc processes is in itself ok. But being applied on the IT flower I ask myself, if for example blogs or wikis (appearing as “new productivity tools”) only fit for ad hoc processes. And all of us may find some examples in which Microsoft’s Office is used (or misused?) in structured processes (let’s only think of all those MS Access data bases used for regular controlling purposes).

But when we focus more on the horizontal axis of the framework the IT Flower really is a strong tool to make recent shifts in software development visible. Enterprise 2.0, as a term being introduced by Andrew McAfee (and not yet everywhere really accepted), is bringing a totally new dimension to organize work and to improve processes. Its main focus is on collaboration, but there is also a huge influence on established software (and its traditional use). That’s what the IT Flower makes obvious.

But even quoting Eric Schmidt (Google) and drawing an insightful flower about enterprise software can’t hide the fact that knowledge in companies about web 2.0 or enterprise 2.0 still is very low. What do you think?

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I see this opportunity as a perfect way for me to, from time to time, put the spotlight on Startup Zone (rather than Tech IT Easy) on the most promising French software startups innovating on Microsoft server and developer tools that I work with, and provide insights on venture capitalists perception of the Microsoft platform – which is positive at utmost, thanks.

I will allow myself to post brief pointers on Tech IT Easy to MS Startup Zone blog posts that you may find of interest – and vice versa.

Blogging on Microsoft Startup Zone will obviously not change anything to my commitment to making of Tech IT Easy, hand in hand with our crazy crowd of authors, a high tech blog reference.

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The Foleo has of course been met with much scepticism by the (consumer-)media; it’s not quite a laptop and not quite a mobile phone. It was announced around the hype of the iPhone. Palm’s own line of mobiles and handhelds are not meeting the bar for innovation. And there was this whole discussion around the $100-laptop, which was not very well-perceived either (though still more favourable than the Foleo). We are in very turbulent times as far as the mobile platform is concerned, and perhaps it was simply a bad time to launch. It probably also didn’t help that the iPhone outsold every smartphone on the US-market in July and is about to launch in Europe (I won’t go into last night’s shocking announcement of a $200 price-drop!).

Porfolio-management, as outlined in the HBR-issue, works on three horizons, which develop in parallel. The first is the day-to-day management of products; you think in quarters and focus on current competitive factors. The third is the innovative activities of a firm, much lab-development, nothing in commercial income. The second brings it all together. HBR calls this phase the “equivalence of adolescence” in business. Innovations are put in a commercial path and are expected to become self-sufficient product-lines, hopefully sooner than later.

Of course this is not easy. You have to manage horizon 1, make sure that cash-flow happens. And you have to manage horizon 3, make sure that there are innovations in the future. However, what if these two don’t connect? Horizon 1 staff is busy fighting off the competition, and also more motivated by the instant gratification from the market. And horizon 3 is all excited about their lab-work, their Foleo if you will, but can not present a viable business-model for it. So you bring the Foleo into the second horizon, and dedicate staff to launching it. But at the same time the pressure on horizon 1, the market, is increasing. Customers are demanding better Treo’s and the competition is fierce. And on horizon 3, the innovation-platform is far from stable either, as the technology is changing rapidly. And horizon 2 gets neglected, staff perhaps diverted to horizon 1 to help manage the day-to-day, and to horizon 3, to develop new tech. Etc. etc.

I imagine that this is a plausible scenario for Palm’s current fiasco. The question is of course how to do this better? Many companies don’t actually manage this process very well, and that is how disruptive innovation can gain a foothold into a market. An example is VOIP. AT&T had internet-telephony on it’s third horizon for a while, but never actually managed to bring it to horizon 2, until it was too late and competitors like Skype and soon Ooma, (which I’m very excited about) launched.

Some solutions mentioned in the article are:

• Insulate businesses, not products: by turning your horizon 2 product-lines into a complete enterprise, with dedicated management, sales staff, and technology support, you prevent individual leakages to horizon 1. Another way of looking at this is corporate venturing; creating a spin-off dedicated to commercially viable innovations and spinning them back in when they are ready for prime-time.
• Use acquisitions to bridge the periods that there are no horizon 2 products and the horizon 3 “labs” still need time: as Jeremy oulined in his last post, this clearly works for Oracle. By doing this, you again ensure a culture of dedicating resources to long-term growth, not only the short-term.
• Recognise that your portfolio 2 products may be niche for a while: The Foleo is clearly a niche-product, but can grow into a magnificent platform over time. But expecting it to immediately gain mass can be fatal to the limited capabilities of portfolio 2 “start-ups.”
• Dedicate talented leaders to horizon 2: New business developers are a class apart, entrepreneurs with a corporate mindset. Parent-companies can be quite generous with funding, but stingy with putting the right man or woman in charge.
• Blocking resource-migration between horizons: I think this should be carefully evaluated and there will be many adaptions on a per-project basis until this process works well. Nevertheless you cannot expect a horizon 2 product to succeed, if you’re constantly pulling resources away from it to deal with horizon 1 & 3 concerns.

Clearly this represents an interesting paradigm for any company to view their life-cycle in. One implication is that executing well on all three levels can decrease the sole dependance on market-share, which many (large) companies are pushing for, but which also makes them lax in their drive to innovate, and which is also no longer as legally acceptable as it once was.

It is hard to say what exactly happened with Palm’s Foleo. Was it a case of scientific over-excitement, which does not guarantee commercial viability? Was it a result of competitive pressures? Or are there more exciting technologies on the horizon? From their blog-post, they make it appear like the latter is the reason, but of course we’ll never know the entire truth.

I imagine the Foleo II has been pushed back to horizon 3, and hope that they can find synergies between their diverse product-lines. Like Apple is now pushing OSX down to its mobile line-up, Palm should do the same. But of course they need to have a good operating system in the first place to do so, and a somewhat stable hardware-platform to build upon. All in all, I feel a little sorry for Palm but am still rooting for it to succeed, as it is a sympathetic company and more competition hopefully leads to better products all-round.

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Could M&A be more virtuous than organic growth after all? This is a real, tricky question: Oracle mostly grows through a well-thought acquisition strategy whilst SAP has always preached organic growth. Most people, including my humble self, would tend to answer “no” intuitively: organic growth has to be better than external growth. But isn’t the Oracle example proving us wrong?

Large high tech corporations are famous for acquiring technologies, engineers, and intellectual property rather than market share. In other words, disruptive startup acquisitions (CISCO is probably the best example of a company with a real acquisition integration know-how) rather than larger company mergers. With its bullish-at-utmost approach, Oracle has truly turned the tables: Oracle has kept acquiring large enterprise software publishers like JD Edwards, Temposoft, PeopleSoft, Siebel, Hyperion, Agile. Since 2004, Oracle has acquired 35 companies for a total amount of 25 billion US dollars (average price: US$ 700m). Integrating these companies has been and remains a challenge for Oracle: internal wars between people from different acquisitions are still going on here and there. These could be qualified as counter-productive for Oracle. However, why does its stock do so well? How come Oracle provides such a track record of supposedly ‘worse practices’ while at the same time, it has never performed so well in its history 2007 (revenues: close to US$ 20bn; net profit: close to US$ 5bn; current revenue growth: +20%, largely due to acquisitions; earning per share increase: 25% +)

ex-Oracle entrepreneurs: born or made?

The culture of Oracle is said to be extremely tough, result-oriented – which produces highly aggressive and effective executives, but is no pick for people looking for a mild atmosphere at the workplace. As a result, Oracle as a workplace is one of the most controversial places in the high tech world. I believe it shouldn’t: Oracle has produced some of the best entrepreneurs in the software industry. For instance, Bernard Liautaud and Denis Payre, founders of Business Objects, were Sales executives at Oracle before starting up BO; Charles Ferguson, founder of Vermeer Technologies (which produced Frontpage and was later acquired by Microsoft) had worked 6 months at Oracle before returning to his Ph. D. research; Marc Benioff had spent 13 years at Oracle Corporation between 1986 and 1999 upon founding Salesforce; mBED and NetLedger, later renamed NetSuite, were founded by Evan Goldberg who had priorly worked with Larry Ellison for 8 years at Oracle; and I’m not even mentioning the hundreds of Oracle spin offs or startups ran by former Oracle execs…By the way, I may have forgotten some of these. Which other large high tech corporations are famous for producing (or not producing) executives keen on founding great startups?

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In short and broadly speaking, what the subprime lending crunch is all about:

Not-so-professional professional lenders like NovaStar & New Century Financial grant mortgages to low-revenue borrowers; interest rates pick up and so does the debt burden, from a low-revenue borrower view point; so, low-revenue borrowers can’t actually refinance the interests of their debt, which means they have to sell their property. But since a large number of low-revenue borrowers act the same way and the real estate market shows uncertainties, estate prices go down, which urges potential buyers to wait longer, and refrains borrowers to refinance their debt, and so on and so forth. At the end of the day, this year’s subprime credit crunch looks a lot alike what happened in Japan in 1993, although and fortunately at a much lower scale: mortage lenders limited partners (mainly financial institutions: banks or insurance companies) as for a due subprime lenders can’t refinance because their low-revenue borrowers are having a hard time making both ends meet. Henceforth, subprime lenders are stated insolvent and go bust, their assets being redistributed to their lenders, and the remaining to their accounts payable & shareholders. It goes without saying that the last ones to get their money back, namely the shareholders, usually don’t get it all back (this is A)… Meanwhile, financial institutions from all over the world have invested, on behalf of their in subprime securities, supposed to be zero-risk investments. However, it appears these zero-risk investments happen to be very risky (this is B). A + B = generalized lost of confidence in financial markets that central banks try to diminish by printing dollar bills aimed at making sure local financial institutions, which have invested their clients’ money at zero-risk rates, don’t fall; scapegoats nominated: debt / risk rating agencies like S&P, Fitch, Moodies (the usual suspects); increased volatility due to higher sensitiveness to macroeconomic perspectives.

Nothing so bad after all. Everybody knew there would be a downturn at some point. The point is that nobody knew how bad it would turn out to be, and when it would occur.

Impact of subprime crunch on the Software industry:

R&D budget cuts: this is typical everytime there’s a downturn: large corporations cut R&D budgets (which I find dumb since downturns are excellent times for innovation and fostering one’s competitive advantage through information systems; but well, I’m not in charge here). End result: software sales aimed at R&D departments (eg. Dassault Systèmes’ CATIA) are likely to suffer temporarily.

Online Advertising. Well, let’s not beat around the bush: what about Google? My call: any crisis can only be positive for Google; offline commercials are harder to track. Through online advertising, you get to gather scientific ROI metrics, and benefit from increased accountability, flexibility, reactivity. A crisis can only accelerate the shift from offline advertising to online ads. It would be a good time for Microsoft to launch its AdCenter platform. Advertisers are dying to be able to choose between Google (which has become pretty expensive being alone over years) and something else than Yahoo! Overture. By the way, Criteo is soon to release Criteo Ads worldwide (only available in Beta and in French as of today) as an alternative to Google.

US subprime crunch will necessarily benefit independent software vendor SideTrade, a net working capital killer SaaS company (reduced net working capital increases free cash flows and accelerates debt refinancing – which is always a smart move when interest rates go up).

• US subprime crunch will also benefit procurement management software (for cost control reasons obviously).

• The subprime crisis will have no impact on retail (people will still need to eat and buy consumable &/or perishable goods), storage investments, and security solutions.

• Telco-related software technologies potentially driving cost killing (like VoIP systems: remember Skype is software, not telco) will regain interest from corporate buyers and CIO since negotiations are likely to get tougher with mobile and land line fleet vendors.

• CRM and BI / Datamining shouldn’t suffer from the downturn since it is generally agreed that it costs more to acquire a new client than to keep existing customers.

Impact on subprime crunch on IT consulting:

Severe shortcuts are expected in IT consulting, especially in banking / insurance where uncertainties are likely to remain higher for a short period of time (a few months). Such redundancies will have a positive impact on the software industry where finding skilled developers has become nothing less than a nightmare. Last and not least, the subprime crunch is very likely to accelerate the ongoing IT & BPO offshoring trend.

Impact on Venture Capital:

On the one hand, venture capitalists may suffer from limited partners (financial institutions in general + wealthy individuals and families) appearing less eager to increase VC-managed funds. On the other hand, venture capitalists invest in private equity that isn’t correlated with either the fixed income market (high tech startups never raise debt).

So what, is that a draw? Not quite. My call is that the VC market will suffer if stockmarket indexes remain low. The reason I believe so is that IPO opportunities will result dampered for a mid-term time frame.

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This being said, there’s a number of things one should know when it comes to software architecture design applied to an entrepreneurial context. I acknowledge I’m brand new to this domain, but software architecture has been the one thing I’ve been focusing on in the last 4 months: the sun could rise without me having read at least a few pages on the topic. So, here are my 11 non-technical takeaways. There you go:

1. Think strategy, not technology. Strange? Maybe. The goal of software architecture is to embed you strategy into your product. Keep that in mind. And keep strategic analysis informal: week-long brainstorms between founders will perfectly do. Keeping the strategic analysis informal shouldn’t prevent you from going the extra mile digging deep though. Be tough-as-nails, cold-blooded and if necessary, surround yourself with razor-sharp, nit picky colleagues that will pinpoint what deserves to be pinpointed
2. Think intellectual property, especially if you’re small and weak. You don’t want the big guys to steal from you. Ooosh, I was almost forgetting. See this pizza-and-coke Linux guy in your team unwilling to think of patents as anything else than evil? Yeah, I know, he’s smart, nope, very smart and you don’t want to argue with him. But fight him with words until he understands intellectual property is key in a knowledge warfare industry where some countries (like China) are more equal than others when it comes to IP. The guy’s smart so it will take a lot less time than you expect as of now.
3. Think interface and user experience first, also called Think take your time. Don’t start coding from day one. What you should do is draw the screens of your applications. Each screen. With all the buttons, everything. Think of the human – machine interface first. Paradoxically, the longer you’ll wait, the faster you’ll get it done. Procrastinate. Do actually your best in procrastinating. You’d better walk slow in the right direction than run fast in a dead end. Unfortunately, true geeks can’t help coding. So refrain them from doing so by all means – including, if necessary, use violence and blackmail their families.
4. Think world-class engineers, or don’t think – or even think of thinking ever. Pick up the best – and trust me that’s easier to say than do. One smart develop does the work of ten lame programmers so do it, whatever it takes. And give out stock options, be generous about it: startup developers jump from one failed startup to another. Finding for once a good horse to ride is a rare, unique opportunity to make a home run and stop worrying about money for a while. These guys are the ones who deserve it most.
5. Think division of labour. Software architecture helps you parallelize the work load between developers to make all different groups working on all different parts finish on the same date. Believe me, there’s nothing more beautiful than assembling parts of code processed by different brains, clicking on ‘compile’, and see it run. However, do not believe you can then take a nap: the hardest thing in software isn’t to have a program that compiles properly. I would tend to say the hardest bit lies in packaging your software (never did it so I should just stop here). You’ll come up first with a broad drawing of the different software layers depending on the number of floors of your software (eg data / infrastructure; application; presentation – the SOA trend tends to divide the application layer into two, technical and a functional, subcomponents) – which ease work breakdown structuring. For instance, those with some good taste (or the least bad taste) will deal with the interface, others with the client side, the remaining ones will work on the server side. As an example, in CartoReso, Jean-Sébastien dealt with lower layers hacked in C (he was the most knowledgeable in NMap, the open source brick on which we decided to build on), Pierre with the application engine and with integration / build / project management (since he was in charge of the middle layer) and my humble self with the interface. But a broad drawing isn’t enough. You may then decide to fine tune your architecture and delve into the details of each layer. This work is necessary when dealing with large software development teams: regression risk finds itself lowered when everyone knows what it has to do and each method is clearly owned by a lead someone.
6. Think flexibility. Lay the groundwork for future evolutions: you’re not building a software for today or even tomorrow. Think long term. A fashionable way of implementing flexible architectures is to go for modularity – like Dassault Systems does: you don’t acquire one standard piece of software, you just build your own DS software by picking the modules you need in their catalog. Interestingly enough, Dassault Systems‘ pricing catalog follows the way the architecture was thought, hence creating a perfect alignment between marketing and engineering which I believe is an industry best practice. Why? Well, Dassault Systems happens to fulfill the dream of all software vendors: it sells generic software that matches specific needs.
7. Think lock-in. The new release of Firefox sucks: it crashes thrice a day and every time I try to download something. so I’ve decided to drop it for Safari on my Vista Mac at home and IE7 on my Vista laptop at work. But I find it REALLY hard, as I loved these little del.icio.us taggers or icons to subscribe to RSS readers embedded in the URL bar. Firefox has achieved to lock me in (well, not quite, but so far it did): the number of available plug ins prevent me from dropping Firefox until I find a solution (FYI, there exists IE7 plugins on windowsmarketplace.com). Lock-in has long been the one major issue with Google: it is now solved since Google login eases access to other Google web applications via Ajax menus. The powerful lock-in strategy execution usually reflects the value of the underlying platform – and the value of a platform equals the value of its ecosystem.
8. Think proprietary control of a widespread standard Look at Adobe Acrobat’s .pdf format, or Microsoft Office applications (used to be .doc, .ppt and .xls, and now, with Open XML, it’s .docx, .pptx, and .xlsx). Once you’ve set the standard, the value of your software increases dramatically because it takes long for an installed base to migrate to a new standard. This simple phenomenon is called inertia. The hardest bit here is to become the standard. Which can be achievved running faster than everyone and remain in stealth mode (invisible from the big ones) as long as possible. Easier said than done.
9. Think competition. Don’t mess with large corporations. If they are after you before you’ve proved your architecture is hard to replicate, they’ll make an announcement stating they’re soon to release a similar software, which will slower sales for your software, and come up, probably a little late, with something similar and sell at a loss, which will inevitably kill you. If your architecture is strong, elegant and patented, then the big one will realize it costs a lot to replicate (developers, patent breaking risk, time frame, etc.) and will think of acquiring either you or one of your competitors. This is how big corporations now innovate and trust me, software architecture audits aren’t piece of cake. Should they choose to acquire a serious competitor, sell your company before you get to die. Indeed, once the big one has the same product as you do and i) you’re alone, independent and weak; ii) you haven’t set the standard yet, the usual path followed to reap you off the map is that it will sell a similar product to yours for cheap, probably at a loss, if not for free – and the only thing you can do to compete is do the same too. Right? But think twice: your software product is your only cash cow whilst the big one on the other side of the river generates revenues from a large product portfolio. You’ll henceforth die before your large competitor does, no matter how much money you’ve raised.
10. Think first things first: your project needs an architecture too. “Right” order is: 0) idea + slideware demo 1) quirky demo for funding + recruitment purpose that you’ll throw away as soon as you’ll get seed funding + recruitment + strategic analysis 2) seed funding (angels) + software architecture 3) functional specs + user interface design + feasibility + technical requirements + development schedule 4) prototype started all over again from scratch 5) series A + refined proto + then start the marketing machine (road map, channel, trade shows, PR, buzz, and all that jazz), hand it to the CEO and prepare for release crunch time: documentation, support, help, manufacturing, shipping, etc.. Don’t worry though, things never happen as such. Expect the unexpected: the story never ends up as planned in the scenario.
11. Think interoperability: since you can choose, choose the most appealing role of the play: the white knight. In order to play White Knight, you need to look like a honest broker, even though you’re not. Think of Firefox’s ‘we’re gonna free the web from Microsoft’-approach: they run on all major platforms, support a massive number of external applications (like iGraal) as a platform, is translated in a number of languages by a community, etc. and at the end of the day, Mozilla makes 60 million dollars per year, whilst Google makes much, much more (Mozilla runs Google as a default search engine), and locks you in with little apps like del.icio.us tagger. So, to recapitulate Mozilla Firefox’s set of best practices (I should say right here that Microsoft is very good to at implementing such strategies, I can answer questions on this if you like), your product should be multi platform (start with Windows (90% installed base is convincing enough), then move to Mac OS, then move to Linux), be multi language-ready (it’s not so complicated to support Chinese, Japanese, Arabic and Russian unless you think about it afterwards, and then it’s a nightmare), and opened to external developers through a game of APIs: it will generate a buzz, make your company look sexier and hence ease new hires, and last but not least create value on your software by developing what you don’t have time to develop yourself. If you can use freeware code, do it; if you can purchase code for flat fees, do it; don’t pay flat royalties for source code down (eg US$ 15 per product sold), go for pay-per-deployment revenue % royalties instead – ie 1% of unit price; too risky. Make sure you don’t start depending on a partner though: don’t get locked-in yourself. At the end of the day, a good interoperability execution of strategy will strengthen your bargaining position with potential partners who will then realize you have the ability to choose to support them, or not. And then you’re the one calling the shots.
12. Think robustness. Like Criteo, software with crème-de-la-crème architectures never break because of the load (the post, in French, I’m pointing to basically says their full .NET software resisted torture)

Expect a bunch of technical takeaways this time as soon as I feel ready for it.

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