Marketing Memos

One problem with Linux is that nobody really knows how big it is. Like any other virus, you have no idea exactly how many bodies it has infected.

Ignore the sales numbers from Novell and Red Hat. They tell only part of the story, namely the demand by larger institutions who must ensure success and have support. These sales figures do not even come close gauging unsupported replications of subscribed distributions, hosted Linux (which often is self maintained), departmental servers, all the OpenSuse and Fedora installs, and the occasional renegade Linux laptop.

And those are the small markets.

I’ve been watching the embedded space more and more. Silicon Strategies Marketing has clients in the mobile phone business, the Linux business, and now in the embedded Linux space. We have been mapping where embedded Linux is finding traction, and some of the issues within that market.

The question is “where is embedded Linux not being used?”

• A relative of mine who works on Defense Department and “spook” contracts notes that Linux is the favorite platform for all military and intelligence embedded applications. As he phrased it “We can’t afford to reboot a spy satellite every few hours.”
• Linux is used in routers from a lot of different manufactures. Networking is a core Linux strength and with an embedded web server, it is easy to create user friendly interfaces.  And now everything needs to be network savvy.
• Phones are just starting to use Linux, but the open nature of the devices and the ability to plop new native applications on them is a strong differentiators. This is part of the reason Google went with Linux for G-phones.

Devices need to be smarter than in the past. This means they must have logic. It is far better to use an embedded operating system that has broad support. That really means Linux or Windows.

Linux wins mainly for two reasons:

1. It is more stable. Google wouldn’t run their entire product on Linux if it weren’t.
2. It is modular and tiny.

It is that last point that is perhaps most important. Much has been made of Window’s lack of modularity. WE (Windows Embedded) is considered by many to be a poor hack of XP, where fragility was induced by wholesale ripping apart of the operating system. I cannot comment directly, but this is the growing reputation. Some acquaintances of mine at Circuit City’s HQ said a WE deployment on cash registers was abandoned due to endless problems, which supposedly were induced by removing pieces of XP and seeing interwoven parts of the OS die.

Linux is by design module from top to tail. Much of Linux’s success has come by its ability to upgrade (or roll-back) discreet parts of the total package without disrupting other parts. This also means you can remove big chunks of unneeded functionality without much work or fear, creating custom versions of the OS.

This is why Linux will own the embedded space. When whittled down, the Linux kernel can be nearly 10oKB small, which is tiny. Total RAM requirements can be less than 4 MB. This makes putting Linux into nearly any device possible. Add the ability to customize all upper-level packages to operate well within small-device space, and you have something with which Microsoft cannot compete and simultaneously chase dreams of acquiring/integrating Yahoo.

Here’s the kicker: more smart devices are hitting the market all the time. Your dashboard (which soon will have integrated GPS navigation DVD player, Bluetooth interfaces, and more) is embedded. Your cell phone is embedded. Your home network is built on embedded devices. Your oven might require embedded logic to keep you from burning dinner … again. MP3 players need embedded OSs.

The list is endless and growing. The question then is “How do I profit from this?” That’s my secret for now.

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When Gartner insinuated that Microsoft was doomed, you heard the loudest sound from a mass of penguins since the release of Happy Feet (had to plug that movie since my step-brother did the motion capture for it, as well as Lord of the Rings, Polar Express, and other great films).

The death of Windows has been greatly predicted, and equally exaggerated, but nothing lives forever and Microsoft may well accelerate necrosis with Vista (does anyone like Vista?). Bill Gates abandoned ship with suspiciously good timing … after all, rats are the first to jump a sinking ship.

Gartner’s maintains that Microsoft has not listened to the market. This is not news per se. Microsoft has always worn a hearing aid, and often it needs to be rebooted. Vista may be the terminal manifestation of this malady. Vista provides nothing of significant new value while crippling system performance and breaking certain peripherals. Giving up a little performance might be acceptable when significant new functionality is part of the bargain.  But what Vista doesn’t giveth, Vista does taketh away while smiting your peripherals.

The timing for Vista’s vultures could not be worse. Competition is perpetual, a lesson that Microsoft has unlearned. Vista and its nothing-for-something value proposition arrives while Linux continues its accent. Linux is becoming ever more user friendly while maintaining ruthless internal efficiency. Since Linux can be had for zilch (providing you bootstrap your own support), it provides unbeatable value.

Especially in comparison to Vista.

Gartner gurus also note that Vista carries decades of legacy code in a highly non-modular package. Thus any change in core or subsidiary functionality is difficult and time consuming, as witnessed by the five years it took to give whelp the product. New millenium markets move much faster, and both Mac and Linux OSs — being new, UNIX based, and highly modular — will evolve faster than Windows can hope to.

Windows may be the new CPM.

Microsoft’s tin ear continues to be their downfall. Many customers, especially corporate types, want to stay on XP. Yet Microsoft has announced that after June this will not be possible — no OEM or shrink-wrapped copies of XP will be permitted. In other words the market has spoken and Balmer said “tough.”

Back home we call that “stupid.”

However, Linux may not be the scariest of Balmer’s nightmares. Commoditized broadband has given birth to competition from Software as a Service (SaaS). The pit bull of SaaS is SalesForce.com, who from the start said their goal was to eliminate software as we know it. Google started pecking at Microsoft’s highly profitable application suite by giving away word processors, spreadsheets, shared calendars and other goodies (or should we call these Googlies).

Now SalesForce and Google are tag-teaming Microsoft while Gates skates away across his lake of greenbacks.

SalesForce CRM data can now be called from Google applications. This is the first and best integration of significant and popular independent SaaS offerings, and one that adds real functionalist. Small companies who have grown dependant upon SalesForce, and would like to dump Microsoft, now have a means for doing so while adding new capabilities.

That’s a good value proposition, unlike Vista’s inverse value prop.

Recall what I said at the top of this missive about Vista delivering nothing new or valuable. SalesForce and Google are, and attacking Microsoft’s strengths in one breath.

Rumor’s of Windows death may be exaggerated … or they may have been a tiny bit premature.

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For varied and unrelated reasons, I have been involved with many firms either in the collaboration field (VA Software cum CollabNet, Open-Xchange, Novell and their GroupWise offering) or for whom collaboration is an essential part of the product (Mobile Compete). This accumulated history led to me being the Collaboration Solutions judge for this year’s CODiE award.

When it comes to collaboration most vendors don’t get it.

Collaboration is not about technology, it is about people. Specifically it is about people sharing information in a manner that achieves one of several possible goals:

1. Reduce miscommunication
2. Ensure the appropriate information is available for making good decisions
3. Reduce the time to acquire that important information

So, the “it” that vendors don’t “get” is the multipart question of collaboration, those parts being:

• Who needs to collaborate
• What kind of information do they need to share
• How do they prefer to share it

Let’s take Mobile Complete as the first example. Their DeviceAnywhere product allows mobile application developers to remotely use real handsets to test their applications. Mobile Compete added several collaboration tools within their service. Answering the questions above:

• Who: Mobile application developers, Q&A and tech support teams.
• What: How a mobile application is behaving on a specific handset with a specific carrier.
• How: Either in real-time (while everyone is connected to the Internet) or asynchronously using replays of a session with a handset.

In their approach, Mobile Complete (without knowing it) answered these basic questions and provides very specific tools for their target market. From my discussions with Mobile Complete customers, the solutions are wildly successful.

Open-Xchange was a more generic, info-work type of collaboration suite (email, document management, calendars, project task lists, list management, etc.). What they did better than everyone else was integrating and linking (how) the data from these various information types (what) so that anyone using Open-Xchange could very easily hunt or search for important data (how).

This is a wide open opportunity in many software markets today. Collaboration if the very essence of any organization bigger than one person. People need to work with (collaborate) with other people. Looked at in a perverse light, CRM is one big collaboration suite dedicated to a specific set of users (sales , marketing, etc.).

If you are looking to differentiate in your markets/segments, ask yourself these three questions and see if there is a recurring need for your end-users to collaborate using the data you manipulate. If so, and if your competitors are not offering collaboration features, you may have a decisive wedge.

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In the all business, and especially in technology, there are three ways to grow: you can innovate product, you can change the rules of the game (marketing), or you can buy your way up (cash).

When I see a hyper-competitive company like Microsoft making a multi-billion dollar plays to buy their way up a market, then I know they failed to innovate or market. And that is the condition in which we find Balmer and Company with their mega bid for Yahoo.

We’ll call the merged company-to-be Micro-hoo?

Microsoft — despite making the Internet a consumer product by bolting a TCP/IP stack into Windows long ago — was slow to see that former Sun CEO Scott McNealy was right when he said “The network is the computer.” The Internet is the only infrastructure bigger than what Microsoft had already created. As such it is a glorious place to make some money. But Microsoft was late to the dance, made many of the same mistakes that predecessors made, and never earned the top tier.

Microsoft’s bid to buy Yahoo for a hefty premium shows they still don’t get it.

Let’s stipulate a few things about the Internet before continuing.

• It’s big. “Really big. You just won’t believe how vastly, hugely, mind-bogglingly big it is,” as the late Doug Adams said about a different universe.
• It is changing faster than any company can create, map, or contain it.
• The real money comes not from trying to create content, but by selling advertising on and around it.

Which brings me to Yahoo, MSN, and AOL. Each has in turn tried to be both an Internet search engine and a content aggregation portal, centralizing a set of content and features with the goal of making their portal the first stop and home page for users.

And the users have largely ignored them.

But they have not ignored Google because Google understands the situation. Instead of trying to corral ever-growing content, Google simply helps users navigate it, and make a buck as a byproduct of that basic service. When content is exploding beyond anybody’s control, there is money to be made merely bring some semblance of order from chaos.

Thus, Microsoft’s move is understandable, confounding, and I believe ultimately regrettable.

It is understandable because when you have vaults full of cash, have struggled to achieve a meager third-place in the search business, and risk having the world’s largest money generator (the Internet) default to someone else’s domain, buying your way out of the mess is quick and relatively painless … at least in the sort term. But it is confounding because Yahoo, for all the nifty things they do, are not innovating the basic function of search — and thus the core source of revenue within the Internet as we know it. Google has maintained this focus, and thus has a 57% share of all searches, while Microsoft has a paltry 14% (which is still a damn sight better than Ask, who had to fire their butler after scrapping up a meager 2% of the market).

Google has added non-search entities to their empire, but not with the goal of becoming a content provider, a strategic mistake made by AOL … and we see where that got them. Even in buying YouTube for a seemingly ridiculous price, Google sought not to centralize it within a walled garden of content, but to make its separately branded content searchable and to drive advertising through-and-around it.

Which brings us back to Micro-hoo? and their goals, which are poorly articulated in public. In their press release, Microsoft was clear that advertising dollars were driving the decision, along with the typical mega-merger drivel about economies of scale (that sure worked well for Carly Fiorina right after the Compaq merger, eh?). Microsoft’s purchases last year of advertising exchange and distribution technology companies (AdECN, aQuantive, ScreenTonic) indicates they have a slightly more thought-out scheme than merely merging MSN and Yahoo, and firing redundant staff.

Yet even if we assume that Micro-hoo? loses none of their respective search traffic in the post-merge melee, their total reach would be around 31% of all searches. This will undoubtedly decline as Micro-hoo? attempts to sew together their Frankenstein monster using left over body parts from Yahoo, MSN, and all the recently purchased trafficking and analytics appendages. The merger will disrupt existing services, annoy users who will be told to vacate one of the other mail/IM/portal services, and yet create nothing new. In short, Micro-hoo? adds zero, and all for a mere $41 billion bucks.

Quite a price to pay in order to be the Avis of the Internet.

What will be more interesting perhaps is merger mania among the bottom feeders. AOL and Ask, both struggling to maintain relevance, may just merge in a last-gasp at life (though combined they currently don’t rack-up even 7% of searches). If they do it will be as ugly as a NASCAR pile-up or a presidential election. Hmmmm, maybe we should put all the presidential candidates into high-powered race cars and ….

Is their a marketing lesson in all this? Of course, and that is that you must have product in order to market something thinker than air. Google has product (search) which they constantly enhance and improve, and reap huge stacks of lucre for their efforts. Micro-hoo? won’t have innovation or a superior product, and thus will have nothing exceptional to sell. If your products are weak, then your first strategic marketing task is to determine what better product needs to be created, and then how to get engineering to build it.

Of course, the company that brought us Vista cannot comprehend a lesson this basic.

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I have written often about how the technology industry is commoditizing itself. I have also written about how consolidation is an inevitable process in every industry.

Now we see how the two work together and create what some might view as the End of Days (of course those same people had apocalyptic visions when Microsoft announced NT).

The big news of the day, week, month, and thus far the entire year is that Sun Micro (of all people) is buying MySQL for a cool billion dollars. So much for Mister Mickos growing rich slowly. This takes the world’s most popular DBMS (in terms of number of installations) and gives it a global sales and support team. Not bad for a hardware company.

(The wisdom of forfeitting 8% of Sun’s current market capitalization is suspect however — you can buy a lot of offshore programmer time for a bill)

MySQL, like Linux, is Open Source and a force for commoditization of the IT infrastructure. Vendors who waited too long to realize that their markets were being commoditized (like Sun and their UNIX servers) get clobbered. So Sun is shifting and grabbing strong players in the commodity technology business.

Sun’s CEO Jonathan Schwartz seems to understand the mechanics of commodities, something his glib predecessor McNealy did not. Schwartz recently noted:

“Exxon just reached a half a trillion dollar market cap based on a commodity. Commodities are where it’s at.”

This is a mighty switch for Sun. In the past they retreated to high-end servers and software in order to escape the forces of commoditization, and found themselves selling to fewer and fewer customers. Wealthy customers they were, but the higher up the technology curve Sun drove, the less total revenue they made.

Now Sun is submitting and planning on profiting in the volume business that is commodity technology.

“MySQL is by far the most popular platform on which modern developers are creating network services … The adoption of MySQL across the globe is nothing short of breathtaking. They are the root stock from which an enormous portion of the web economy springs.”

If I were Larry Ellison, I’d be tempted to take Scwartz’s scalp … or at least that ratty looking ponytail. Oracle is on its own buying spree in an attempt to escape the commoditization of their piece of the IT infrastructure. Oracle is buying and building applications and middleware (mainly for high-end customers), and added to their portfolio by purchasing BEA.

Anyone else see what I’m seeing?

Oracle is running away from commoditization the same way Sun once did. Sure, Oracle now owns most of the popular commercial CRM packages, but that doesn’t bother SalesForce.com or SugarCRM, who are taking different paths to commoditizing that application segment. From a recent consultation I had with Oracle’s middleware group, I know they are feeling the heat of commoditization in the developer tools category as Eclipse, JBoss, and other software take all recognizable market mind-share. Internally at Oracle, the two forces have been reconciled.

Larry Ellison makes very few mistakes, and if his charge up the stack is a mistake, it will take a few years to see cracks in his castle wall. But over a five year span, I would not bet on Oracle’s strategy.

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