June 2008

Maybe I am a Prophet, After All

In this month's newsletter, I discuss further developments in the OOXML standards battle that make my previous admission of faulty prophecy look, perhaps, premature. I then turn my attention to the new market phenomenon of netbooks, those small, low-capacity portable computers that are all the rage. What do they imply for the currently dominant player, Microsoft?

Maybe I am a Prophet, After All

A couple of months ago, I wrote about the fact that, despite my prediction that Microsoft's OOXML standards push would go down to defeat, it appeared to have been approved by ISO.

I hung my head in shame, but sagely noted that perhaps Microsoft would find their OOXML effort a Pyrrhic victory, achieved as it was by a combination of menace and unseemly influence. If you're wrong, put a good face on it, is my motto.

Since then four countries have filed protests regarding OOXML: South Africa, Brazil, India, and Denmark. These countries cite various process failures and irregularities; the protests automatically stay final approval of the standard. So Microsoft's victory wasn't Pyrrhic, it was in fact, not a victory, at least not yet.

But the really interesting news then came from Microsoft: It announced that it was going to support ODF in the current Office product (which, by the way, hasn't set the market on fire), but wouldn't support its own standard until a future release of Office. Apparently, the OOXML support in the current product is incompatible with the standard!

"Since then four countries have filed protests regarding OOXML: South Africa, Brazil, India, and Denmark. These countries cite various process failures and irregularities; the protests automatically stay final approval of the standard. So Microsoft's victory wasn't Pyrrhic, it was in fact, not a victory, at least not yet..."

I think they're just taking my advice and putting a brave face on it. (For a good discussion on this, see Andy Updegrove's blog on the recent maneuvering; it's very informative about an increasingly amusing situation.)

What should we take away from this?

One, the sovereignty issues I noted in the earlier newsletter have certainly played out. Three of the four protesting countries are developing nations. Even though their protests center on procedural issues, one can speculate that underlying the protests is a resentment of having to kowtow to a foreign company; this resentment was undoubtedly exacerbated by the roughshod manner Microsoft used to manage the OOXML process.

The fourth protesting nation is a developed country, and perhaps less aroused by sovereignty issues; however, Scandinavian countries are known for supporting transparent governance, and therefore Denmark has probably recoiled at the procedural irregularities that have occurred.

Sovereignty is a coming issue and we'll hear much, much more about it over the next couple of years. The European Union has taken to regular thumpings of Microsoft, figuring it can't hurt, and feels so good (to the EU). Developing nations also are unhappy with Microsoft, and have cost issues as well, so they'll be looking at open source going forward.

The second thing to take away is Microsoft's increasingly feeble responses in a world that is far more threatening, business-wise, than any time in the past twenty years.

The way Microsoft has handled this whole document format debacle is a real dog's breakfast. Only a panicky company would refuse to support an international standard, seeing it as a monopoly-breaking threat. Only a frantic, clueless company with tons of money to shovel at problems would conclude that the way to respond to the world lining up behind a standard is to push another standard – and argue that customers are better served by multiple standards. I don't know how one could even make a statement like that with a straight face. And then to walk away from the entire frantic exercise with a glib statement thrown back over the shoulder. Incredible.

Another example of these feeble responses is the ongoing trainwreck that is Windows. Vista has officially laid a gigantic egg, so much that a funny new definition – vistaster – has been coined to describe this mess. Not only isn't there any useful functionality in the product – meaning, no earthly reason to adopt it – it's a resource pig, too. In the past, the resource issue wasn't a problem; customers were only too happy to buy new hardware because each release of Windows was enough better to warrant hardware investment. But not Vista.

Now Microsoft is reduced to saying that customers should move to Vista because it's a stepping stone to the next release of Windows – and this one will be really, really useful.

Microsoft showed off a preview of this new version with a demo of its touch screen – just like the iPhone! -- ignoring the fact that the last thing I want to do is put my greasy fingers on a screen too large to clean by rubbing it on my sleeve. One financial analyst headlined his discussion of the Windows riot thusly: “Microsoft: Officially Out of Ideas.” And you think I'm cruel.

So, you're a monopolist with two cash cow franchises, each of which seems to have lost its way. Your online business is the opposite of a cash cow, your vision for cloud computing is confusing and fatally flawed by an (inevitable) attempt to shore up existing franchise offerings – let's face, you're a mess.

So what do you do? Try and buy Yahoo! And that ends up a mess, too. I must say, I have a little sympathy for Microsoft in this situation. Clearly the appropriate thing to do, once spurned, would have been to launch a hostile bid (hey, it's worked for Larry Ellison!), but that's not Microsoft's way. Once Yahoo rejected the offer, Microsoft was forced to try and back off, saving face. However, just like Hillary Clinton, they had no Plan B.

But that's all Monday morning quarterbacking about how they handled the offer. The bigger issue is why they wanted to buy Yahoo in the first place. Yahoo seems like a ship without a rudder with a captain who wouldn't know where to steer the ship even if it did have one. Microsoft and Yahoo merging would be like two ugly people getting married; you might smile at their intentions, but you know the baby's going to be grotesque looking!

And the worse part is, it doesn't have to be like this. Adobe is in much the same boat as Microsoft – owning a software category and reaping monopoly margins from it – but facing the potential of having its market undermined by online entrants. Instead of pursuing the same kind of ham-fisted initiatives that Microsoft has, Adobe has put entry-level versions of its products online, figuring, correctly, that if their products are going to be undermined, better it be by Adobe products than someone else's.

Adobe has just released a very innovative free online offering with a word processor, screen sharing capability, acrobat file conversion, file sharing, and online storage – with a strong likelihood of a for-fee commercial-grade offering in the future. I think there's real potential in the offering, and Adobe has a chance to leverage its ubiquitous image, photo, and document tools into a strong business offering. Surely this is more pleasant – and probably more successful – than trying to force-feed mediocre products to unwilling customers?

What the UMPC Parade Means About Innovation

OK, enough Microsoft bashing. Even though I, like the EU, find it emotionally satisfying, a little goes a long way. Now that we've had the fun, I'd like to examine something seriously, although it will, unfortunately, end up critically evaluating Microsoft once more – but at least this section will have a veneer of intellectual respectability surrounding it!

Over the past several months there's been a real parade of ultra-mobile PC (UMPC) devices. Asus kicked off the parade with their Eee PC (clearly, they named this without help from a branding agency) – a notebook form factor, but with a 7 inch screen and solid state memory rather than a hard drive, all sold at around $300. One can speculate that Asus was inspired by the much-troubled XO computer from the One Laptop Per Child initiative, which seems to have developed a revolutionary device but foundered on execution issues like rollout and distribution.

Asus has been selling the Eees like lemonade in the Mojave desert. Released late in 2007, they sold several hundred thousand, and expect to sell several million this year. Consequently, similar products from HP and other manufacturers have been announced, leading to what Wikipedia calls a new product category, netbooks (clearly, someone did get some help from a branding agency).

Asus has been selling the Eees like lemonade in the Mojave desert. Released late in 2007, they sold several hundred thousand, and expect to sell several million this year.

Consequently, similar products from HP and other manufacturers have been announced, leading to what Wikipedia calls a new product category, netbooks (clearly, someone did get some help from a branding agency).

The interesting thing about these devices is, given their limited onboard storage, they are inherently directed toward connected use: a user's documents reside somewhere in the cloud like Google docs, online email like Yahoo mail is used rather than a local mailstore, and apps are not local, but are Web-based. Most people appear to use them as adjunct machines – a traveling companion to be used while out of the office, where another, bigger, machine resides. In other words, netbooks are directed toward a different model of use. So aspects of netbooks that would have been seen as deficiencies in existing notebooks, like small amounts of local storage, are irrelevant to netbook use models.

And guess what? They run Linux!

The reason for this is, I think three-fold:

Linux is finally working on PC hardware: It's always seemed like Linux wouldn't install properly on hardware with device drivers the omnipresent issue. Through hard work by the major Linux distros, the Linux Foundation, and some behind-the-scenes armtwisting by major hardware companies, the component manufacturers have finally started to write Linux device drivers. The netbook companies design the machine and select components that have drivers and deliver the final product with a working Linux pre-installed, with no need for the end user to have to fuss with the details.

Linux deficiencies aren't an issue for netbooks: Even when Linux was properly installed on mainstream PCs, the next issue has always been application availability. Linux boxes don't have Microsoft Office. Or some other third-party application. Frankly, this killed Linux in this market, because selling something as a drop-in replacement that doesn't perfectly drop-in negates a lot of other advantages. So, if you've got 10,000 people running Microsoft Windows and using Microsoft Office, the cost savings on licenses by using Linux and OpenOffice pales in comparison to the human capital costs of getting everyone trained, losing productivity while they get up to speed, getting distracted from whatever the real business of the company is supposed to be, etc., etc. But netbooks don't have that kind of baggage. The whole point

Windows too big and expensive for this form factor: Remember when I said Vista is a resource hog? The Marlon Brando-like bulk of Windows hasn't been too much of a problem for mainstream form factors, since they double in capacity every year. But for netbooks, which are deliberately stripped down, Windows is just too big. And while Microsoft has been making some noise about getting Windows to work on netbooks, I think it's always going to be a compromised experience. Finally, and perhaps most importantly, Windows is too expensive for netbooks. If a machine costs around $1,000, a $50 Windows license is supportable. But at $300, that license fee is a problem. Microsoft has made some noise about getting manufacturers to release Windows-based netbooks (and gotten Asus, at least, to give it a go), I think this is always going to be a compromised experience -- for Microsoft. Offering the kind of pricing necessary for netbooks is unpalatable, but what's worse, from Microsoft's perspective, is the fact that manufacturers are likely to start asking for the same kind of pricing on the big machines that they're getting on the netbooks – and that strikes at the heart of Microsoft's overall revenue stream.

What's fascinating to me about this new netbook phenomenon is how it illustrates the working out of innovation – a motivating factor – in computers – the most rapidly improving field of technology in human history. Microsoft was the perfect company, with the perfect offering, run by the perfect person, and it rode that tri-perfecta to unimagined riches – all in the past twenty years.

And today, it's all under threat.

The netbook saga is a perfect example of Clayton Christensen's “The Innovator's Dilemma.” Microsoft kept improving Windows in response to its customers' requests; meanwhile new market entrants tried to compete with Windows with a functionally deficient offering – Linux. And, as Christensen, predicts, this is a futile effort on the part of the new market entrant. Customers satisfied with the current dominant offering are uninterested in the new one. So, the new entrant finds different, unserved markets that the existing leader can't serve – like the market for secondary, traveling machines used to access Web-based applications and data. Of course, in Christensen's book this plays out with the new product gradually getting better and better and finally supplanting the existing leader, leaving it to a long, slow, helpless descent into irrelevance and obsolescence.

But even more so, it's a perfect illustration of Joseph Schumpeter's theory of Creative Destruction. I mentioned his biography “Prophet of Innovation” last month; I'm still plowing through it and more intrigued by the page. Schumpeter died in 1950, long before the computer revolution took hold. It would be fascinating to hear what he say about the role of technology with regard to his theories, particularly in regard to innovation.

Schumpeter posited that economies, far from being static arrangements, were actually extremely dynamic, driven by the energy and passion of entrepreneurs. Far from being concerned with dominant market players, he viewed their size as a positive, since it allowed for lower cost products due to overhead amortized across larger numbers of units. However, and this is key, he also viewed their dominance – absent government enforcement – as evanescent, to be undone as the underlying economy develops and expands. In other words, with regards to the issues raised by a Microsoft and its market behavior, he took the long view and achieved equanimity via a kind of “why worry, be happy” attitude. He didn't overlook the fact that dominant firms would take any kind of action possible – ethical, unethical, and on the border – to maintain their position. However, to his mind, this was but the eddies of a more powerful current that was irresistible by any company attempting to make things stand still.

So, as a kind of summing up, and drawing together of the two topics of this month's newsletter: In a world where economic and technical innovation is so unrelentingly – and heartlessly – moving forward, it's inevitable that even a position like Microsoft's, which seems omnipotent and unending, will be undermined by developments like the netbook. And in a world of unrelenting and heartless assault by innovation on Microsoft's citadel, it's inevitable that Microsoft will strike back with every weapon in its arsenal, up to and including attempting to subvert standards processes, all in the name of protecting and extending its incumbent power. And, in a Schumpeterian world, it's all hopeless in the long run. Microsoft will be undone, in part, by what it hath wrought.

Open Source in the Enteprise

I'm very pleased and excited to let you know that, in partnership with O'Reilly Radar, I am writing a report on “Open Source in the Enterprise.” The report will be released at next month's OSCON, where I will be presenting and discussing the report's findings. Based on research and interviews, the report will:

• Identify the key drivers for enterprise open source adoption, with case studies illustrating each driver
• Discuss enterprise open source adoption metrics
• Present enterprise open source action plans, targeted based upon an enterprise's open source familiarity

I think this report will generate a lot of attention, as we will have some actual hard numbers on enterprise open source adoption, which previously has been the realm of anecdote and suspect surveys. So look for some interesting news late in July.

Navica News

Speaking Engagements
June 16, 2008: Open Source in Local Government, Bedford, UK.

July 23, 2008: O'Reilly Media OSCON Convention, Portland, OR. See here for more information.

September 3, 2008, 6:00 p.m.: "Open Source Governance", Oakland, CA., East Bay Innovation Group Best Practices SIG. See here for more information

October 13, 2008:"Open Source in the Enteprise", Linux Foundation End User Summit, Desmond Tutu Conference Center, New York, New York. I will be discussing the "Open Source in the Enterprise" Report Findings

If you are interested in having me speak at your organization, contact me directly via email.