Marketing Memos

You gotta love loath Larry.

Ellison’s Oracle has been on a buying spree, snapping up enterprise infrastructure and application companies at a rate that makes even aged Silicon Valley watchers blink. Nothing, not even the Federal Trade Commission, could sate Oracle’s acquisition gluttony. Only Microsoft was outside of Ellison’s financial grasp (or perhaps simply dislikes peddling highly defective products).

The array of acquired companies is broad in scope. BEA, Hyperion, Agile, Siebel, PeopleSoft, Innobase … and the list goes on. Two common themes appear in these acquisitions: the acquired products are either essential to the management of IT, or a set of acquired products comprises all the top-tier competitors. Larry has single-handedly consolidated much of the industry and captured most of the server stack above the operating system.

In other words, Larry has the average enterprise CIO by the short-and-curlys.

Throughout Larry’s market-vacuuming process, many competitors and many more customers expressed fears Oracle was showing monopolistic tendencies, with the inevitable outcome being that prices would rise given an artificially shrinking market.

So, it is entirely unsurprising that Oracle is now jacking-up prices 15-20% … without adding any additional value. Polite people would call this robbery. What impolite people call it is not printable.

Marketing lesson #1: When the switching cost for your customers is very high, then you can steal from them … for a while.

WebLogic, a product acquired by Oracle in their recent BEA plunder, has some unique features that make application servicing more effective. Once these features are used, it is expensive (if not impossible) to implement a different application server. This is why Oracle bumped-up WebLogic pricing 47%. Databases are even more fundamental in the server stack, and Oracle’s DBMS prices were lofted 20%.

Such vendor lock-in drives a lot of revenue in the IT technology market, and is the one gripe most often uttered by CIOs and CTOs. Surveys conducted here at Silicon Strategies Marketing indicate that a prime driver behind IT adoption of Open Source is the liberation from lock-in. However, the higher the switching costs the less likely it will ever occur. For example, much of the banking industry’s current technology is the ugly remnants of 1960’s IBM mainframes — billions of lines of COBOL code are just too expensive to migrate.

Marketing lesson #2: Things do change, sometimes slowly.

One of the reasons enterprises love Linux is that they have faced the vendor lock-in problem for decades, and now have tools for avoiding it in the future. As businesses die and are born, the newcomers learn from the suffering of those who came before. Google runs almost entirely on Open Source as does Yahoo and other new millenia firms. Indeed, their business models could not survive if they had been the groom at an Oracle shotgun wedding.

Larry’s larceny will work — his customers simply don’t have a short-term choice. But it does add pressure (especially in these troubled economic times) to investigate alternatives. Existing companies will avoid committing new projects to Oracle, and new companies will run from Oracle faster than a politician runs from campaign promises.

This will accelerate adoption of more Open Source projects, and in the process improve them. These projects will rapidly come to parity with the commercial products, or even surpass them in functionality (anyone looked at Firefox lately). Larry will make a(nother) lode of lucre in the short-term, but …

Marketing lesson #3: Arrogance (and overly aggressive pricing) will aid your competition over the long-run.

Buy Oracle stock, but be prepared to dump it a couple of years from now.

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Well, that didn’t take long.

Assuming that rumors based on odd leaks are at all accurate, Microsoft may have learned that their Vistas are limited, and that certain competitive pressures cannot be ignored.

Microsoft has heard the market concerning XP’s expiration. It would be hard to ignore this considering that the market has been screaming at the top of its collective lungs. Though covering their mistakes in much the same way that cats do, Microsoft has agreed to let XP live on until 2010. Microsoft claims that only XP Home will be available on “low-cost” PCs. The definition of “low-cost” is vague and gives Microsoft both wiggle room for defining which computers are allowed to ship with XP preinstalled. It also allows for some leakage of this preferred OS into the gray markets and to force Vista onto beefy machines and protect what is left of their brand image in the PC OS market (an image that Apple has successfully trashed).

The new 2010 XP expiration date is more than coincidental. Windows 7, the next Microsoft OS, is expected to be released that same year (of course, given the delays in Vista’s arrival, we should assume 2010 is optimistic). Assuming that Microsoft is learning harsh lessons from their blunder (Vista), this timing allows them to extend XP availability and deter defections to Mac and Linux until a better Windows is available. After all, the switching cost to Mac or Linux is non-trivial.

One of the defects of Vista is its lack of modularity. The monolithic, out-sized kernel and the inbred stack keeps Microsoft from reacting quickly to market changes and providing real and valuable new features. Linux has a tiny kernel and since all functionality outside of the kernel is modular, you can add just as much extra capability to Linux as you need. That is why Linux is rapidly finding its way into embedded devices. Macs are based on UNIX and Apple took the same modular approach. We see Apple releasing updates to their OS much more frequently that Microsoft (major earthquakes come slightly more frequently than Microsoft operating system releases, which means there must be some mystic connections between all forms of disasters).

To understand the marketing downside of the non-modular Vista approach, consider two markets: minimal laptops and servers. Vista’s only claim to fame is the new GUI (which a lot of people hate). The GUI requires a lot of overhead and most of it seems to be baked into the kernel. Thus Vista is not good for minimal laptops and forces laptop buyers to purchase a much more powerful and pricey system than they would otherwise. As for server administrators, they don’t need, want, or crave a sleek and consumer focused GUI — they would gladly rip the Windows Presentation Foundation out of the box … if they could.

Contrast the recommended systems requirements between Vista Premium and Linux. 1GHz vs. 0.4GHz processor, 40GB disc vs. 7GB, 1GB vs. 0.25GB memory.

Microsoft evidently is feeling the pressure. Rumors about Windows 7 indicate they are moving toward a more modular architecture, nicknamed MinWin. Some of the rumors indicate the kernel might consume as little as 40MB of memory, which is hefty compared to some competing operating systems, but surprisingly lithe compared to Vista and well within the specification of low-end machines.

More importantly, it allows Windows 7 to swap non-kernel components to meet the specific needs of different users (imaging swapping the entire GUI without a reboot). Recall that Linux is rapidly becoming the OS of choice for embedded systems. Little wonder considering you can make a Linux footprint incredibly tiny and bolt-in only the services and applications necessary. A Vista kernel can’t compete and this forces Microsoft to offer a completely different operating system for the embedded market.

The Windows 7 kernel switch allows one Microsoft OS to be embedded, run without a GUI on servers, on low-powered micro laptops, desktops and high-end game machines … and all on commodity hardware.

But that’s not the god news for Microsoft.

Linux runs on everything. On ARM-based cell phones, x86 boxes, x64 machines, PowerPC servers, and IBM mainframes. Vista runs on WinTel chips. This dichotomy is a tribute to the Linux micro kernel approach.

Could Windows 7 run on a mainframe? On an IBM mini? On a SPARC machine? On an ARM?

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