|
In response to my last blog piece, "The Art of Blowing the Deal," Bill Reid wrote:
"Most of the 'blunders' Mike mentions are more on the order of old school meanderings. Take IBM—I think they did the right thing with SUN. Time will tell, but SUN 'was' relevant—no longer true. As for PARC—a brilliant lab—they didn't have a clue on how to monetize what they developed and get it into the mainstream and never would have. Their parent Xerox— always had myopia on trends and look where they are today—an almost totally irrelevant firm. IBM was/is a brilliant company and I don't see how it can be portrayed to have 'blown it.' Looking at their balance sheet—they aren't doing badly I'd say. People bash MSFT for missing the early Internet—their balance sheet isn't half bad today. Most of the noted blunders were actually good for pushing technology forward at a faster pace."
I'll respond to Bill and use his commentary as a jumping off point to examine the dynamics of competition in the computer industry.
My first observation is that Bill draws conclusions that do not necessarily follow from the cause-and-effect arguments he poses.
For example, he says: "IBM was/is a brilliant company and I don't see how it can be portrayed to have 'blown it.' Looking at their balance sheet—they aren't doing badly I'd say."
Just because IBM has enjoyed market success in certain areas does not mean its missed opportunities are irrelevant. For example, IBM's general success does not lessen the significance, or the competitive ramifications, of having missed the opportunity to own the PC operating system. I don't think anyone can deny that IBM would dearly love to own the PC operating system, and would dearly love to have prevented Microsoft from owning it.
Microsoft, on the basis of owning the PC operating system, has become one of IBM's fiercest competitors and strongest threats. Without Microsoft establishing its dominance in the PC arena, there would be no Windows, Office, .NET, Exchange, or SharePoint for IBM to contend with. As a former competitive strategist in the IBM Software Group, I know how seriously Microsoft and IBM take their competition. I'm sure that if IBM could go back in time and have a re-do, it would prefer things to have turned out differently.
Likewise, while IBM originally may have failed to recognize the significance of allowing Microsoft to gain ownership of the PC operating system, it later sought to rectify this oversight--and gain what it saw as its rightful share of dominance in the second generation of the PC operating system--by sharing the development and ownership of OS/2 with Microsoft. But again IBM was outfoxed by Microsoft, which developed and marketed Windows in parallel.
There are IBMers who still harbor resentment over what they see as IBM's mishandling of OS/2, which they feel was a superior product. Again, if IBM could go back in time and have a re-do, I'm sure it would jump at the chance to deal with Microsoft and market OS/2 differently.
Regarding the Sun deal, in failing to acquire Sun, not only did IBM miss an opportunity to leverage Sun's assets, it allowed Oracle, a major competitor, to improve its position as an arms provider to the data center. I think IBM would like a re-do on this one too.
Ditto the RDBMS opportunity with Oracle.
As The New York Times reported:
"I.B.M. was doing pioneering research on the subject, but doubted relational databases were commercially viable. Ellison put together a prototype and made his first sale to the C.I.A." [1]
"I.B.M. was wrong, and Ellison was right. Relational databases were the future, and Ellison's company, which by now had the forward-looking name Oracle, was on the cutting edge."
Next point: "People bash MSFT for missing the early Internet -- their balance sheet isn't half bad today."
As with IBM above, Microsoft's general market success does not make missing particular opportunities irrelevant. Microsoft's missing the Internet had significant ramifications on Microsoft and the industry, particularly Microsoft's deadly response to Netscape's browser and Sun's Java. The fact that Microsoft held an Internet Day in December 1995 and launched a full-scale Internet initiative shows how fearful Microsoft was of having missed the Internet, and of Netscape and Java in particular--and rightfully so. Java and the Netscape browser were seen by analysts, the media, and Microsoft as serious threats to Microsoft's existence.
It must be noted that every major vendor initially missed the Internet. Microsoft's Internet Day spin included both a denial that it had missed the Internet and an admission that it had missed the Internet, along with a vow to devote its energies to becoming an Internet technology leader. Microsoft did become an Internet technology leader, albeit via a number of ruthless anticompetitive practices vs. Netscape and Sun for which it was tried and found guilty by a U.S. federal court.
In addition, the European Commission fined Microsoft €497 million (approximately $610 million), the largest fine ever imposed by the Commission for antitrust infringements. Microsoft also was required to remove its media player from the operating system, among other restrictions.
Among its findings, the U.S. court found that Microsoft used its monopoly power in the PC operating systems market to exclude rivals, harm competitors, impede innovation, and harm consumers. The original penalty split Microsoft into two companies and imposed severe business conduct restrictions. While this penalty was later revised on appeal, Microsoft ultimately paid hundreds of millions to settle lawsuits, and restrictions imposed by the court are still in effect. The net result of Microsoft's Internet initiative for Netscape was its demise.
The trial lifted the lid to expose the dark heart of a business culture beneath the cheery, earnest façade Microsoft presented to the public. The presiding judge, Thomas Penfield Jackson, later asserted that:
Microsoft executives had "proved, time and time again, to be inaccurate, misleading, evasive, and transparently false. ... Microsoft is a company with an institutional disdain for both the truth and for rules of law that lesser entities must respect. It is also a company whose senior management is not averse to offering specious testimony to support spurious defenses to claims of its wrongdoing."
Why did Judge Jackson so harshly impugn Microsoft's honor? One reason was the testimony of Bill Gates in his deposition, in which, as the Wikipedia describes it:
"Microsoft Chairman Bill Gates was called "evasive and nonresponsive" by a source present at a session in which Gates was questioned on his deposition. He argued over the definitions of words such as "compete," "concerned," "ask," and "we." BusinessWeek reported, "Early rounds of his deposition show him offering obfuscatory answers and saying 'I don't recall' so many times that even the presiding judge had to chuckle. Worse, many of the technology chief's denials and pleas of ignorance have been directly refuted by prosecutors with snippets of E-mail Gates both sent and received.'"
Microsoft's executive team also produced doctored videotapes that were shown in court. When the government attorneys showed a tape that revealed that a large piece of the installation process had been left out of Microsoft's tape showing how Netscape installed on AOL, "Brad Chase, a Microsoft vice president, verified the government's tape and conceded that Microsoft's own tape was falsified."
Microsoft conjured up a defense that its attempts to "innovate" were being attacked by rival companies jealous of its success. However, Intel vice president Steven McGeady testified that Microsoft senior vice president Paul Maritz had said in a meeting that Microsoft intended to "extinguish" and "smother" Netscape and to "cut off Netscape's air supply" by giving away a Microsoft browser for free. Netscape CEO Jim Barksdale also testified about a meeting between Netscape and Microsoft in which Microsoft executives proposed that Netscape and Microsoft illegally divide the browser market, while threatening to "kill" Netscape if it refused. Marc Andreessen's notes of the meeting corroborated Barksdale's testimony.
Microsoft also was out to kill Apple's new QuickTime streaming technology, which was seen as yet another threat to Microsoft's desktop franchise. Microsoft's Christopher Phillips is famously quoted as telling Apple's QuickTime manager Peter Hoddie, "we want you to knife the baby."[2]
"In the Microsoft monopoly trial, Apple's Avie Tevanian, Phil Schiller and Tim Schaaff all testified that Microsoft had approached them repeatedly, offering to allow Apple to keep QuickTime authoring if the company agreed to pull out of the media player market."
After Apple repeatedly refused to drop QuickTime for Windows, Microsoft made it clear that if Apple did not hand over media playback to Microsoft, the company would throw its weight into developing its own authoring tools and simply obliterate Apple."[3]
RealNetworks also was placed in Microsoft's crosshairs. "Microsoft followed the same strategy against Real that it used against Netscape: give away free client software tied to Windows, then use that installed base of users to sell proprietary server software that only worked on Windows servers."[4]
Getting back to missed Internet opportunities, another instance that can be added to the list is Microsoft's failure to see the significance of the threat of Google and the Internet search engine, the effect of which we're seeing unfold before our eyes. Hence, Microsoft's thwarted $45 billion attempted acquisition of Yahoo, and recently, the launch of Bing.
Next point: "Take IBM -- I think they did the right thing with SUN. Time will tell, but SUN 'was' relevant -- no longer true."
It doesn't figure that IBM repeatedly bid $7 billion, and Oracle agreed to pay $7 billion, for a company that is no longer relevant.
So what makes Sun worth buying?
As The New York Times reported, "Analysts say there is more to Sun than servers, which are used in corporate data centers. They say its strengths in software, systems design and research make it an attractive target."[5]
Gartner analyst David M. Smith opined that, "The technologies of greatest interest to I.B.M. are Java and Solaris, and those are notably not hardware technologies."[6]
Similarly, The Statesman reported, "Analysts said the deal would give IBM access to some of Sun's technology jewels, including a large software base and an ecosystem of several thousand software companies that support Sun's version of Unix, which is known as Solaris."[7]
And lo and behold, Larry Ellison in a conference call the day that Oracle's acquisition of Sun was announced, said that "Java and Solaris were the main attractions." Ellison added that Java was "the single most important software asset we have ever acquired."
Describing the appeal of Solaris, Ellison said that, "The Sun Solaris operating system is the leading platform for the Oracle database, Oracle's largest business, and has been for a long time. With the acquisition of Sun, Oracle can optimize the Oracle database for some of the unique, high-end features of Solaris."
Om Malik, in his analysis of the Oracle-Sun deal on GigaOm, noted that "Oracle touts the advantages of owning Java and Solaris...but mentions nothing of the real jewel in the crown: MySQL." [8]
He wrote further:
"MySQL is clearly a big prize for Oracle. Oracle's products find no room in most of the new web companies - most preferring either MySQL or other open-source offerings. On the high end as well, Oracle has been competing with the MySQL Cluster offering. In addition, several startups have started to develop a new kind of data-store ecosystem based on MySQL, which is competitive with Oracle's database offerings. In short, Oracle has taken out its No. 1 threat by buying Sun."[9]
By acquiring Sun, IBM would have kept MySQL out of Oracle's hands. And we learn that IBM's own DB2 group thought MySQL was a valuable asset. As Steven J. Vaughan-Nichols reported in Computerworld, although Sun made some missteps in managing MySQL, "With the right management, say IBM's DB2 division, though, MySQL should still be a star. MySQL is the DBMS (database management system) of Web 2.0 businesses such as Twitter, Facebook, and WordPress." [10]
As Vaughan-Nichols pointed out, "There's a lot of good stuff inside of Sun, which would work hand-in-glove with IBM's existing projects."[11]
RedMonk analyst Stephen O'Grady listed a host of technologies of potential value to IBM, including Java, MySQL, ZFS, Drizzle (a cloud database), DTrace (leading tracing software), OpenOffice.org, NetBeans, System V Unix license, server virtualization (xVM) and desktop virtualization (VirtualBox) software, Glassfish (Java middleware), Fishworks (sophisticated storage systems), and x86 server and storage (Thumper) lines.[12]
It also wouldn't have hurt that, in acquiring Sun, IBM would have boosted its share of the Unix server market from 37% to a commanding 65%. And as analysts noted, buying Sun "would bring thousands of new customers to IBM, especially among financial companies and telecom companies where it was a major supplier."
According to IDC, IBM sold $6.4 billion worth of Unix servers in 2008, for a 37.2% market share, while Sun's sales amounted to $4.8 billion, for a 28.1% share. "Sun deal could make IBM unbeatable in Unix server market," Computerworld's headline blared, and "would give IBM nearly two-thirds share of the Unix systems business."[13]
Add to this a combined 100% share of the high-end tape drive market, an aspect of the deal, as Don Clark of The Wall Street Journal pointed out, didn't get as much notice. [14] According to IDC estimates, IBM controls about 65% of the market for enterprise tape drives, and Sun the remaining 35%. For tape automation systems, jukebox devices that retrieve tape cartridges in seconds, IBM has about 55% of the market to 45% for Sun.
As Clark pointed out, there are reasons the tape business is attractive. One of them is follow-on sales of cartridges. Companies may have years of records on one vendor's tape cartridges, and as Gartner analyst Robert Passmore explained, switching from one supplier to another "is painful" because each vendor's cartridges only work with each company's tape drives.
Another lucrative aspect of the tape drive business is the long-term service and support contracts to keep the storage systems running. "It's all about the annuity," said Robert Amatruda, who tracks the tape drive market for IDC.[15]
All in all, nothing to sniff at.
Next point: "As for PARC -- a brilliant lab -- they didn't have a clue on how to monetize what they developed and get it into the mainstream and never would have. Their parent Xerox - always had myopia on trends and look where they are today - an almost totally irrelevant firm."
Xerox did have a clue. It just didn't have the market savvy to capitalize on its clue. Xerox was not blind to the promise of the graphical user interface (GUI) technology in its PARC lab. It developed a PC called the Alto based on its innovative GUI technology in 1973, but chose not to market it because it would have carried a price tag of $40,000. The Alto was the forerunner of today's PCs, with the first laser printer and Ethernet network. Eight years later, in 1981, Xerox created the $16,000 Xerox Star, which was also too expensive to compete with the $2,495 Apple machines and $1,595 IBM PCs.
Thus, Apple's and Microsoft's success was tied to their bringing the technology to market at an affordable price, while Xerox failed in this regard. That Xerox failed to successfully monetize its research is the point of Xerox being on the list.
As Eric Steven Raymond relates:
"Apple did not squander its opportunity. Part of what made the first Macintosh a pivotal event was that Apple did not merely copy the PARC pattern; they reinvented and improved it. The development took five years, an eon by industry standards, and involved deeper investigation of interface psychology and design than anyone had ever attempted before."[16]
In the case of Xerox's decline, it was outmaneuvered in its core copier business by Japanese competitors:
"In the early to mid-1980s, Xerox was hardly a name associated with quality. Like many U.S. companies in the 1970s, Xerox watched its market share steadily decline as an influx of foreign-made copiers landed on U.S. shores. Disciplined and determined Japanese companies were operating so efficiently that they were able to sell some small copiers for what it cost Xerox to make similar models." [17]
Analysts also attributed Xerox's decline to complacence and missing opportunities:
"BLOAT. It happens to the best of companies whenthey swell into sluggish, asleep-at-the-switch bureaucracies. Xerox Corp., Stamford, CT, suffered from a particularly virulent case of bloat from the 1980s to the early 1990s. It was remiss especially about exploiting new opportunities. One particularly pathological example: Xerox completely missed the booming small- and mid-sized business copier market." [18]
Unlike Xerox, which is still standing and is credited with turning itself around, Sun has joined the ranks of once high-flying companies (DEC, Wang, et al.) that rose to great heights on the basis of highly successful products they could not sustain, extend, or follow up on.
Next: "Most of the noted blunders were actually good for pushing technology forward at a faster pace."
It is certainly true that the companies that successfully commercialized new technologies like the graphical user interface (GUI), relational database management system (RDBMS), and customer relationship management (CRM) system accelerated their development. The commercialization of each of these technologies had a profound effect on computing , the business world, and the world at large. However, as discussed above, missing opportunities had a significant effect on the companies on the losing end, while greatly advantaging the companies on the winning end. This is the main point of the list.
Finally: "Most of the 'blunders' Mike mentions are more on the order of old school meanderings."
I think this means that the cases I cited are like old wives tales and not really important blunders. However, the significance of each of the opportunities as described above—and how seizing or missing a key opportunity affected the fortunes of the parties involved, as well as the industry at large—dispels this notion.
For the players involved, these opportunities are serious business.
For example, Microsoft's and Apple's legal squabbles over the exploitation of the windowing system and graphical user interface reflect the importance each company recognized would ensue from ownership of this key technology. In the case of Microsoft and Apple, former CEO Sculley has admitted that Apple blundered in formulating the legal terms of its contract that allowed Microsoft to license its windowing technology. Apple filed a lawsuit that eventually was dismissed because of the terms granted to Microsoft in its contract. Subsequent lawsuits were filed and Microsoft eventually settled by paying Apple millions of dollars.
Part of the lore surrounding Apple, Microsoft, and the GUI is that Steve Jobs was bamboozled by Bill Gates when Gates told Jobs he would not steal Apple's windowing system and emulate it on the PC, and then secretly did it behind Jobs' back. Gates apparently was confronted by Jobs when he discovered that Gates had been developing the windowing system in Japan. There is a famous quote attributed to Gates, which was published in Mac Week in January 1990: "Hey, Steve, just because you broke into Xerox's store before I did and took the TV doesn't mean I can't go in later and steal the stereo."[19]
We see that business could get personal.
In this regard, the personal animosity between Larry Ellison and Tom Siebel spilled over into the public in August 1999. "A Nasty Little War Unfolds in Silicon Valley," read the headline of the San Francisco Chronicle.[20] "Oracle CEO Larry Ellison, Siebel CEO Tom Siebel taking potshots at each other."
In his book "Softwar," Matthew Symonds describes meeting Tom Siebel in 1999, with Siebel "launching a bitter attack on Ellison and what he calls his ‘pathological lying.' "
"It is critical to me that Siebel Systems never develops yet another pathological Silicon Valley corporate culture," Siebel told "Softwar" author Matthew Symonds. Siebel told Symonds he left Oracle because of the company's "unethical standards."
"I got tired of the win-at-all-cost attitude," he said in Fast Company . "I was tired of wrestling the company for commitments to customer satisfaction. I had given just about everything."
Said Jeff Henley, Oracle chief financial officer in 1991, "The whole company had built up so much pressure on themselves that you had people cracking and doing dumb things, and unethical things." [21]
In her book on Ellison, ''Everyone Else Must Fail,'' Karen Southwick reports that Ellison at one meeting displayed a photograph of a rival company's headquarters and told his sales staff: ''We're going to run them out of business and buy that building, which we're going to bulldoze. After that, we'll salt the earth. Then we'll go after their families.''
Oracle's revenues and stock tanked in the early 1990's, The New York Times informs us, in large part because Oracle "acquired a reputation for selling software not yet ready for use, and for blaming customers when things went wrong." [22]
Symonds relates a meeting in New York between Ellison and some top corporate CEOs in which Ellison performs verbal gymnastics as he tries to justify new advice he is giving the CEOs that contradicts the advice his Oracle consulting group had given them previously, which had cost them hundreds of millions of dollars.
"Ellison was, according to his own CFO Jeff Henley, running slightly ahead of reality. But for customers, including some of the ones around the table on Broadway, what might be galling was the fact that, until very recently, Oracle had enthusiastically been selling the very approach, namely customized best-of-breed solutions, that Ellison was now describing as madness." [23]
When he was competing with Siebel Systems, Larry Ellison claimed that Siebel's sales force automation software was a collection of unintegrated pieces that were not architected for the Internet. "Their stuff is too expensive to install, integrate, and operate," said Ellison. However, after Oracle bought Siebel Systems in 2005, Ellison said that "Siebel will be the centerpiece of our CRM strategy going forward. We will continue to sell PeopleSoft CRM, Oracle CRM, but Siebel will be the centerpiece." [24]
And in the End...
What lessons do we learn from all this? One thing these cases show, again and again, is the strategic importance of acquiring and successfully exploiting key technologies while keeping them out of the hands of competitors. Another is the extent to which vendors will go to do so.
The stakes are high, and mistakes can be costly.
"...the Sun purchase was a critical matter of survival for Oracle. IBM and MS were both very foolish to let this deal get away," said PierreRT, commenting on BusinessWeek.com.[1]
"The main reason for the purchase was because of MySQL, Larry Ellison could not afford to let IBM have it," said Robert Espinoza on BusinessWeek.com.
"IBM's offer may have put a scare into Oracle," said Stuart Williams, an analyst at Technology Business Research. "Oracle has standardized its software stack on Java; it cannot afford to have one of its competitors own this crucial software building block."[26]
All the famous cases of missed opportunities I cited involved either a) blindness, the failure to perceive the merit of a technology, or b) being outmaneuvered or outfoxed.
However, it is difficult to read the technology tea leaves, and the magnitude of any missed opportunity is often only known in retrospect.
As I said previously, we won't know the answer to the magnitude of Oracle buying Sun, and of IBM not buying Sun, until we see to what extent Oracle can leverage Sun's technologies to its advantage, and at IBM's expense.
Meanwhile, as Ars Technica noted, "The addition of Sun to Oracle's roster will have far-reaching implications and a profound impact on the technology industry."[27]
Michael Neubarth is a Contributing Editor to CIOZone.com and Director/Principal at eMatrix Media Consulting.
[1] The New York Times, 'Softwar' and 'Everyone Else Must Fail': Speak, Oracle," Adam Cohen, February 15, 2004.
http://www.nytimes.com/2004/02/15/books/review/15COHENT.html?pagewanted=all
[2] MSN City, "Microsoft's Plot to Kill QuickTime, March 13, 2007. http://www.roughlydrafted.com/RD/RDM.Tech.Q1.07/5F0C866C-6DDF-4A9A-9515-531B0CA0C29C.html
[3] Ibid.
[4] Ibid.
[5] The New York Times, "I.B.M., Looking to Buy Sun, Sets Up a Software Strategy," Steve Lohr, Ashlee Vance, March 19, 2009.
[6] Ibid.
[7] ":Reports: IBM in talks to buy rival Sun Microsystems," Kirk Ladendorf, March 19, 2009.
[8] Om Malik, "Our Full Analysis of the $7.4B Oracle-Sun Deal, " April 20, 2009.
[9] Ibid.
[10] Computerworld.com, "The Rise of the Blue Sun: IBM and Sun," Steven J. Vaughan-Nichols, March 18, 2009.
[11] Ibid.
[12]"IBM Plus Sun Equals What?" Stephen O'Grady, March 25, 2009.
[13] Computerworld, "Sun deal could make IBM unbeatable in Unix server market," Patrick Thibodeau, March 20, 2009.
[14] The Wall Street Journal, "An IBM-Sun Deal Could Make Tape Drives Interesting," March, 20, 2009.
[15] Ibid.
[16] The First GUIs
[17] Purchasing, "How Xerox Made Its Comeback," Kate Evans-Correia, January 17, 1991.
[18] Electronic Business, "The Road to Wellville," Gina Fraone, November 1998.
[19] MacWeek, January 9, 1990, p. 23.[20] San Francisco Chronicle, Tom Stein, August 9, 1999.
[21] "Softwar," Matthew Symonds, Simon & Schuster, 2004.
[22] The New York Times, February 15, 2004.
[23] "Softwar," Matthew Symonds, Simon & Schuster, 2004..
[24] ZDnet, "Oracle to Swallow Siebel for $5.8 Billion," Margaret Kane, September 12, 2005.
[25] BusinessWeek, "Oracle Buys Sun: Who Are the Winners and Losers," Peter Burrows, April 21, 2009. http://www.businessweek.com/the_thread/techbeat/archives/2009/04/oracle_buys_sun.html
[26] InformationWeek, "IBM's Hardware Slump Bodes Ill For Sun-Oracle," Paul McDougall, April 21, 2009.
[27] "Oracle buys Sun: understanding the impact on open source"
Only registered users can write comments.
Please login or register. |
