Tuesday, September 25. 2007
I saw an analysis in GigaOM on the EMC acquisition of Mozy. I think I have an idea of what their intentions might be though. Before I start, its easy to see from a bit of looking on this blog, that I used to work for an EMC partner, and currently work for an EMC competitor. I have no inside knowledge, but I have my own views on the storage market that may be biased by this history. Pinch of salt and all that.
Mozy is an Internet based backup service, that lets consumers and business back up files across the net to their data center in Utah. From what I can read on their site, they have gone to a lot of effort to set up a fault tolerant DC to ensure as good an uptime as is possible. The program itself looks like it has some good features, like block level incrementals to conserve bandwidth and strong encryption options (including the ability to manage your own private key). They have received lots of good press (Time for example) but I cannot see a great deal about who their customers are. I am sure they are getting some good penetration from consumers and maybe some small business.
Their press release section is a bit telling, as there are no big success stories. If they were getting any medium or Enterprise customers, they would almost certainly be trumpeting them there. Once the next EMC financials get released we may get a better idea, but for now its safe to assume they are mostly a consumer / SOHO business at the moment. This in itself is not a good match for EMC, they are an Enterprise company and look to solve problems for big business. They are stretching their reach down to smaller companies, but the consumer space is not were they can or should play.
EMC has been on an acquisition frenzy the past few years. Since 2005 they have purchased 11 companies (according to their latest 10K), all of which fit into enterprise scale markets (1 replication, 1 professional services, 2 resource management, 3 content management, 2 virtualisation and 2 security). This does not even cover the Legato and Documentum purchases which were earlier. So from all this we can clearly see that they would not have bought this company without enterprise intent. The fact that they paid a premium for the company also supports the claim they are looking at big business, although EMC are not scared to spend big on what they want (over 1/3 of their asset valuation is goodwill – $6B or other intangible assets, $1B, total $7B of $18B)*
The Mozy service as it stands does not look like it would play well in the enterprise, the key to enterprise backup is recovery time, and you cannot guarantee that with a remote backup service. Also the pipes required to do daily backups for different companies would be immense. EMC has been playing around with hosted storage plays, and the take-up on these has not really been huge as large companies need to control their own data. There is one area of a companies data that most are willing to out-source though, off-site tape storage.
Most companies keep an off-site backup (and the ones that don’t are mad). Often companies out-source the handling of this to logistics or document management companies, who collect and store those tapes for them. As a lot of companies investigate removing tape from their backup regimes, the last bastion of tape is this off-site storage. This then gives the clue as to what EMC might want to do with Mozy.
EMC does not do tape, they do disk. They make money if companies move to disk based backups, but in some companies they cannot remove tape completely and retain off-site backup storage capability. A Mozy environment may be able to offer a virtual off-site tape service over the Internet or private network connection to a data center they manage. This then covers a hole in their complete storage option for some customers. They have other technologies from their CAS, backup and security ranges that could enhance this service too.
I don’t know whether EMC will keep the consumer side as well, if they do I would expect the price to change at least. I do expect that within the next 12 months, EMC is going to start talking about virtual off-site tape.
* – Two notes on intangibles, firstly this includes intangibles for VMWare which has been floated independently since the latest 10K.
Secondly, to explain what this means: Intangible assets are those that have no directly measurable value, but help the company to gain revenue. Examples of this are patents and trademarks. These can only be given a value on the books if they are purchased. When one company buys another, they remove the tangible asset value from the purchase price, then as much intangible value as they think they can justify to the auditors, and whatever is left over is called goodwill. This is essentially how much you have paid over the measurable value of the company. For EMC to have $6B of goodwill of their books means they pay premium for what they want.
Thursday, September 20. 2007
A month ago I posted on the ruling that SCO didn't own the copyrights to Unix, and in fact owe part of the proceeds for their licensing to Novell. While the hearing to even decide what the amount owed to Novell has not even occurred yet, SCO has taken the step of declaring bankruptcy. Subsequent to this, the Nasdaq has acted as I expected they would and moved to de-list them. If you read the article on Groklaw linked to, you will also see that SCO approved raises and bonuses for executives the day before they announced the bankruptcy. It is a good indicator of the type of company we are dealing with here.
The interesting thing about this to me is that SCO is not bankrupt. Their latest 10Q shows that in April they had $18.9M of current assets vs $12.5M of current liabilities. And even in their petition claim they have $14.8M of assets and $7.5M of liabilities. This is not bankrupt, according to my understanding bankrupt is when you cannot pay your debts (see the section on chapter 11 in Wikipedia). That’s why when I saw the values on the petition I immediately went to their latest balance sheets. Even if a company is solvent, they can still be bankrupt if their current assets are not enough to pay the bills. But this is not the case either, at least it wasn’t in April.
Either SCO has been playing funny buggers and moving current assets to foreign subsidiaries (which are not covered by the chapter 11 claim), or they believe that Novell are entitled to more than $7.3M. Unless SCO executives have a hankering for prison food, I think it is more likely the latter. Novell would also agree considering they believe they are owed about $30M.
Unfortunately for SCO though, the money they owe to Novell is not a debt, it is Novell’s money, and therefore not protected by bankruptcy. Pamela Jones of Groklaw explains it very well in the article linked to earlier, “If I rob a bank, I can't then run to bankruptcy court and file for protection so I can keep most of the money. That money was never mine, so I can't offer to pay the bank back at 10 cents on the dollar. I have to pay over whatever I stole, 100% or to the limit of what I have left in real life.” So they are either pre-empting to ensure they have the protection in place before the inevitable, or (as Pamela says only slightly tongue in cheek) they are trying to spend Novell’s money before they can get it.
Realistically they know that the game is lost. The motivation behind this is to limit the damage. While the attempt to get an undeserved Linux windfall would have set the company and shareholders up big time, the gamble didn’t pay off, but SCO still has other product lines that they believe in enough to have launched to market. The law suits are under US jurisdiction, so if they can limit the damage to the US operation they can at least still keep the company around to promote these products. They would probably need to re-incorporate in one of their subsidiary locations, but that would not be too problematic. I am not sure what the implications would be of them re-opening a subsidiary in the US, but their new customers aren’t there anyway.
A look at the SCO press release site tells an interesting story. Generally vendors only create press releases for fairly significant sales. The ‘new customer’ press releases from SCO over the last while are all outside the US, and apart from an OpenServer upgrade deal to a Russian bank, quite small. The customers are not exactly flocking to SCO, and the pace is not likely to accelerate after declaring themselves bankrupt. If the Chapter 11 filing won’t protect them from Novell (which all I have read suggests it won’t) then I would expect a ruling from that which would quickly change the reorganization bankruptcy into a liquidation one. Does anyone want the licensing rights to Unix, going cheap. Is that the sound of the fat lady doing vocal warm ups?
Thursday, September 13. 2007
I posted on GNC today about Sun selling Microsoft Server on their commodity boxes. This is on top of them recently signing with Intel to use their chips as well as the AMD's they have from the past. In thinking about this I wanted to expand a bit on the details of how this will effect both their brand and their ability to compete.
As I said in the GNC article, a lot of what Sun is is due to the vision of Scott McNealy. The Brand image of the company was built around technical snobbery. Engineers that were experts on Sun equipment considered themselves an elite group amongst their peers, and to a lesser extent their peers agreed with this. A lot of the anti-Microsoft stance that the company took was around fostering this elite Brand image. This included McNealy testifying against Microsoft in their anti-trust trial.
The issue that has has faced this decade, is that their core Unix business and platform is a closed technology competing against an open one. An open technology spreads its R&D load across multiple companies, allowing it to develop quicker and cheaper. At some point in 2003, and Intel processor passed the Sparc in chip to chip performance, and has continued to accelerate past. While they were able to hold ground against Microsoft (itself a closed technology), the greater acceptance and reliability of Linux allowed competition from a completely open platform, that is cheaper and better performing. The only reason Sun still have a Unix market at all is a mix of elitism and good service.
Scott McNealy and his team recognised this and tried a number of tactics to change the market (N1, thin client, etc) before giving in to the inevitable and entering the commodity market. They managed to do this while maintaining their elitist Brand image. Firstly they used Linux, then they used the AMD processor only to maintain a Geek cred. Finally their release marketing was squarely aimed at denigrating the leading commodity supplier of the time, Dell.
Sun have been allowing customers to install Windows on their AMD hosts for some time, but officially supporting it, and factory installing it is completely different from a Brand perspective. It goes beyond a tacit acceptance and becomes an endorsement. To continue to hold themselves above a platfomr that they endorse will be viewed by all but the true fanboys to be hypocritical. To consider themselves to be in the commodity server market though, they need to be able to conform to a new market dynamic that they are unsuited for.
The table above gives a look at some select pieces of Sun financials from their latest full year results, compared to those from alternative commodity suppliers. This table shows for each company the gross profit on the product sold, and the cost of selling that product, which results in a net profit. These are across all product lines so there is some uncertainty in direct comparison, but they give a very good indication of what is happening.
While Sun make a large profit on their cost of materials, their cost of sale is huge compared to other players in the market. Wintel servers are a cost game though. He with the lowest costs will win. In terms of hardware costs for an Intel or AMD server, there is not much difference for all the players. We can assume that Sun will drop its profit on the hardware down to the same level as its competitors. The cost entailed by the company to sell those servers though is orders of magnitude above its competitors. The figures for Dell give an indication of what the best cost model in the commodity space looks like. But Dell is a volume player and cannot at this time offer anything like the level of service Sun does.
Even against similar companies though (HP and IBM) which both have large services divisions and renowned support quality, they have double the cost of sale. As Sun start selling more commodity, their existing customers will drag the sales in. It will become increasingly difficult for them to drive these customers to the more expensive products due to competitive pressures and their depleting Brand image. The competitive foils of their competitors will become harder to deflect as they start to look less differentiated. In order to compete they are going to have to cut their costs which will reduce even further their Brand identity.
The new management team look as if they have been doing a good job since Scott McNealy left. They have recovered from $800M loss last year to a $473M profit this one, a turn around of $1.2 Billion (link to financial release). Looking into the details, almost all of this difference can be account for by a reduction in costs from the StorageTek merger and in incentive options (maybe Scott's?). I cannot see any inherent or long term improvements to the fundamentals of their busienss model. This combined with their depletion of thier own Brand value spells not good things for Sun. I wonder who will buy them?
Pseudo legal notice - I'm not a financial advisor, this is not advice for your own finances.
Tuesday, September 11. 2007
CCIA is an open source lobby group the recently sued a number of copyright holders claiming that copyright warnings have been claiming greater rights than the holders are entitled to. Now why this needs to be the subject of a lawsuit I don't know. While he is himself a lobbyist on the opposing side for the Copyright Alliance, Patrick Ross' opinion piece on CNet is right in one (and only one) way. There is no reason that copyright warnings should be public service announcements for fair use, nor is there any benefits to the copyright holders or consumers to do so.
Now if copyright holders were actually suing people for breaching these overstatements, or if they materially prevented people from exercising their fair use rights it would be a different story. But none of this is the case so I cannot see a reason for it beyond propaganda. Given some of the utter tripe that is propagated on the other side of the issue (like the heinously misleading studies sponsored by the aforementioned Copyright Alliance) there is probably some value in providing a balance. This issue did succeed however in reminding me of one of the great annoyances of the modern age, the DVD copyright warning.
It has to be one of the most ridiculous, and potentially counter-productive wastes of money the entertainment industry has seen outside of an award show. The only time I see these warnings is on DVDs I have spent money to obtain. Why lecture me on respecting copyright when I already have! I reached maximum frustration with this when I recently purchased season one of "Dead Like Me", a somewhat quirky TV show that I quite enjoyed but missed most of. 14 episodes in the series and after each and every episode the disc played a copyright warning. Not just a little flash up on the screen but over 5 minutes (no joke) of warnings in what must have been half of the worlds languages. The mind boggles at the insanity of this. I am sure that if I had downloaded the episodes from the Internet I would not have been forced to endure the inconvenience, but because I obtained it legally I must. If I tried that trick with my kids, and lectured them every time they did something right it would not take long to train them not to do so.
And just because inane copyright warnings weren't enough, they now have those "You wouldn't steal a car, so don't steal a movie" ads. THE ONLY REASON I AM SEEING YOUR DAMN PROPAGANDA IS BECAUSE I DIDN'T STEAL YOUR DAMN MOVIE". [deep breathes]. In all seriousness though, my annoyance at this ad has recently turned to amusement. At one point in the ad, it shows a person trying to download a movie from the Internet and the progress bar is flying at a rate indicating no more than a minute for complete download. Now maths tells me this cannot be true. A DVD holds 4GB+ of information, and at my general download speed that would have to take several days to download using fairly good broadband. I can imagine some people viewing this ad and being tempted to try downloading after the ad shows them how convenient it seems to be.
Now there is only one reason why movie and TV companies would annoy people like me so much. They must believe that people that download shows and movies also buy them. From research I have done (and mentioned) previously on music downloading, it would not surprise me if this was true. This emphasises for me the shortsighted nature of the tactics the recording and movie industry have taken to piracy. If pirates are also consumers, then the problem is not one of enforcement, but rather of enticement. If they took the time to understand when and why someone makes the decision to pirate or purchase, then this will reveal new strategies for increasing sales. I have said before that any company that fights its own consumers will, if they survive, greatly reduce their profits. Nothing has happened to change my mind yet.
Thursday, September 6. 2007
This was a re-posting of an article I wrote on GNC. While I intend to post links to those articles here in some form, I posted this as is to test something with trackbacks. I am beginning to think that these are a bit of a joke. It all looks good for a technorati rank, and does let a blogger know who is linking to them, but it appears to be too unreliable and too open to spam to be worth the effort.
Todd has disabled the reception of these on GNC due to the extreme amounts of spam he was receiving, too many to conceivably manage by himself. I am thinking I might take his lead on this.
A group of prominent bloggers have proposed a bill of rights for users of the social web.; It is a very concise and focussed statement that accurately covers the issues most people would have regarding their personal information. I have two uncertainties with this document though.
I admit that the first is slightly pedantic; I have a general issue with the overuse of the concept of ‘fundamental rights’. There is no inherent obligation on web site owners to offer any specific freedoms to their users. There are a set of laws to discourage or punish dishonest and corrupt actions. And there is a set of requirements that their potential users have. The closer they meet those requirements the more users they will attract. The title is pretty catchy though, so I could live with it as long as the statements on entitlement and fundamental rights were removed.
Secondly, without an enforcement method this declaration will change little. In fact its presence could be used by social web companies as a tool to deflect users concerns. By claiming they meet the bill they can fool users who do not research the reality. I think I have a way to address this by actually putting IP law to good use.
It’s not perfect, but it would work well for controlling the large sites. The document as it stands is a first draft and will undoubtedly change as it’s merits get debated. It’s not bad for an opening gambit though.
Tuesday, September 4. 2007
I have been regretting my decision of Serendipity as blog software. When I first created this blog I installed WordPress, but didn't really like the interface. I also found it a bit limited in how I could change the look and feel with my limited knowledge of web programming. With my hosting plan at GoDaddy, I get a wide choise of software included and within the user community there, Serendipity had some good feedback. I tried using Xoops to front end WP, but a CMS platform was beyond my abilities then, and I have previously used Joomla for some posting I did for another site.
After installing Serendipity and playing around with it for a while I found it a great beginners tool. It was easy to use and configure, the plugin structure was easy to understand and use and it was easy to apply some skins to make it look a little different. As I have become a bit more sophisticated though I have run into some limitations
- To start with I can't create bullets, or any other text formatting outside of italics, bold and underline. I am sure if I had some HTML skills it would recognise the formatting commands, but I don't.
- The statistics are a bit limited, and managing comments is difficult. Particularly weeding out the spam posts, I cannot get a good balance between auto-moderation and over protection.
- There is no persistence in the edit window. As I posted about last month, if I navigate away from the entry creation screen, or there is an error in the save, then the post is gone. I am currently editing in notepad, which is not ideal.
- I can't work out how to create a site description Google can read and cannot find any help. This doesn't help people that might find my site in search evaluate quickly whether they follow the link.
- Blogging applications don't interface with it. Todd from GNC recommended an application called Blogjet to me, which is a desktop blogging app to manage posts on multiple sites, and offline. I have used it twice and already love it. It won't connect to this site though [curses]. I also tried to use a remote stats program a couple months ago with similar levels of success.
GNC uses Moveable Type, and I have to say that is a far superior product. It's very easy to use and is supported by many desktop apps and websites. It has given me a taste of what life could be like on BusinessGeek, and I like it. Unfortunately Moveable Type would cost me more money than I would like to spend. There are a number of other applications on my hosting plan I could try though. I might take some time to experiment with a few of them on another domain to see how they compare. I am a bit nervous about moving to a new program and the risk of losing my posts and comments.
Maybe there is wisdom in crowds and I should just go with WordPress. Speaking of which, there is an interesting post in Guardian Unlimited that talks about the wisdom of crowds at Digg turning into mob rule. It is a short one, but potentially valid. It reminded me of an article that I read while researching my piece on monetizing Digg, which I didn't use in the end. It was on blogcritic and talked about social sites in general having strategies that actually disrupted the wisdom of crowds rather than enhancing it. It's worth a read if you are interested.
My latest post on GNC.
I was looking at the web site of a new startup from India called NetAlter, they are creating a secure p2p application that they are touting as a possible new Internet. A quick look to the right on their homepage shows the main reason this will not happen, the patents they hold mean this will be a closed environment. You only need to look at AOL or MSN to see what the fate of a closed Internet is compared to an open one. They will potentially have a market in the corporate sector for information exchange applications, but the idea raises an interesting question.
I am trying to get at least one post a day up there.
Monday, September 3. 2007
I have started contributing to another blog, Geek News Central. My posts there will be a little bit different to here. I will be posting links to interesting articles with a brief comment or two, rather than the longer analysis pieces I will still be posting here.
It may slightly change the style of the posts here though. I will be trying to make the opening paragraph a more complete summary to allow me to more easily cross post to GNC. I will be putting a synopsis there, with a link back here for some of the posts I do here. In the words of the late Big Kev, "I'm excited!"
Link to my first GNC post.
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