Monthly Archives: December 2007

Avaya Layoffs this Month?

First there were rumors of Cisco layoffs, and now we’re hearing that Avaya, purveyor of VoIP systems for enterprise customers, might be shedding staff, or about to announce cuts, just before the festive season. Ho, bloody ho!If true, these reports would indicate that enterprise buyers, particularly in the financial-services and retail markets, are slashing IT budgets and sharing their pain with vendors of IT products and services. These reports, if confirmed, also could be portents of revenue and earnings shortfalls this quarter and next for a number of technology bellwethers.

Microsoft and SAP Aren’t Talking M&A

It’s astounding that a rumor, predicated on discussions that took place three years ago, was able to drive up shares of SAP this week.

About three years ago, Microsoft explored the possibility of acquiring SAP. The discussions eventually wound down, with the companies deciding to pursue separate paths. It was the right choice for both companies and their shareholders then, and it would be the right choice today. Culturally, the SAP and Microsoft corporately milieus are starkly different. It would have been a difficult combination, ugly to integrate and on a scale for beyond any merger Microsoft has done.

So, how the rumor of a rumor resurface and move the markets this week? I suppose the power of a well-placed rumor, even one completely divorced from reality, is not to be underestimated.

Facebook’s Problems Congenital, Not Just Bad PR

In his Techland blog, Josh Quittner writes eloquently about Facebook’s increasingly dire troubles. Still, I take issue with his core assertion:

"What’s harming Facebook  — perhaps to a terminal degree  — is enormously bad PR."

It would be insane and irredeemably wrong to argue that Facebook isn’t suffering from terrible public relations. Without a doubt, and certainly with no argument from this quarter, injurious PR is a major problem for the company. The bad PR, however, is a symptom of a bigger disease at Facebook, a fatal malady that derives from defects in its core DNA.

Facebook was congenitally doomed to failure. It’s CEO and much of its callow executive team lacked humility and perspective, though they had no shortage of arrogance and hubris. Vaulting ambition gets a company off the ground, hubris brings its crashing back to earth; there’s a thin line separating the two, but young entrepreneurs, intoxicated with heady success, often fail to draw the distinction.

We not only learn from our failures, we also gain humility from them. Mark Zuckerberg, Facebook’s CEO, hasn’t had many setbacks in his ascent to the Web 2.0 firmament. He’s about to be suffer a big one, though. The question now is whether he will still be the CEO of Facebook when he gets the opportunity to learn from his mistakes and develop the wisdom that comes from experience.

Layoffs at Cisco?

We’re trying to confirm rumors that there have been, or soon will be, layoffs at Cisco Systems.

Uncorroborated and perhaps spurious reports suggest that Cisco is paring some staff in the United States, apparently in response to slowing sales to enterprise customers, especially those in the financial-services industry.

The last time Cisco made news with layoffs was during the dark days after the bursting of the telecommunications bubble. Could the current credit squeeze and subprime debacle be hitting the technology industry in the USA?

JMP Securities Sees Oracle Sailing on Choppy Enterprise Seas

In news that is troubling for Oracle but worse for lesser players, JMP Securities analyst Patrick Walravens says a slowdown in enterprise-software spending is upon us, and that it figures to crimp Oracle’s earnings.

Said Walravens:

While we still believe Oracle will outperform the software industry, our due diligence suggests Oracle’s business is slowing along with enterprise software spending.

Walravens’ opinion isn’t based on a crystal ball or gut feelings. JMP recently conducted a survey of 38 businesses spanning a broad cross section of the economy. Approximately 61 percent of respondents said their enterprise software spending would stay at the same level or decrease in 2008.

Commented Walravens:

This survey result is the worst we have had since 2001 and is similar to the result in May 2003, which marked the beginning of a two- to three-year choppy period for Oracle’s business.

If Oracle is about to sail on stormy seas, so will its rivals and smaller players. Their ships, for the most part, aren’t as big or as sturdy as Oracle’s. If JMP is right, Oracle’s share price might suffer a bit, but the company will be well positioned to pick the scraps of the shipwrecks left behind.

Yahoo’s Changes Seem to Make Sense

At first blush, I’d have to say Yahoo’s personnel shuffling and organizational changes, implemented after a 100-day strategic review commissioned by CEO Jerry Yang, make good sense. The proof, as the New York Times points out, is in the pudding, otherwise known as financial results, so let’s not crown Mr. Yang the Steve Jobs of web-content sites quite yet.

Still, Yahoo seems to be on the right track, intent of putting its worst excesses and craziest ideas behind it.

Sourcefire Precedent Suggests Bain’s 3Com Acquisition Doomed

Yes, I misread the situation. I admit it.

When Bain Capital first made public its move to acquire 3Com, I didn’t realize that Huawei Technologies’ minority stake in the deal might cause the transaction to be denied by the US government.

Yes, Huawei was and is China’s leading network-equipment vendor, with significant ties to the Chinese military. Yes, Huawei was a company charged with alleged acts of corporate espionage and intellectual-property theft against Cisco Systems and others. But Huawei was a minor player in the player in the 3Com acquisition, at arm’s length to the transaction, along for the ride at Bain’s insistence so that 3Com would continue to have market leverage and political clout in the fast-growing Chinese marketplace.

Besides, what did spent old 3Com possess that could possibly be considered of strategic national security to the United States of America? Commodity switches and routers? No, that’s not it. Maybe 3Com’s intrusion-prevention subsidiary, Austin, Texas-based TippingPoint, which was to be spun off in an IPO until the Bain acquisition was announced?

Yes, that was a possibility, if only because TippingPoint’s customers include the Pentagon and other US government departments, and because it is plausible that Huawei, as a minority owner of 3Com, could somehow discern how TippingPoint’s security technology works and use that knowledge as means of eavesdropping on or hacking into customers’ networks.

That scenario seemed a longshot to me. After all, Huawei and 3Com already had a joint venture that might have allowed the former to learn everything it needed to know about 3Com’s and TippingPoint’s products previously. What’s more, couldn’t preventive measures be put in place, either technologically or legislatively, to preclude Huawei from taking nefarious advantage of its presumptive link to TippingPoint? Probably so.

If you cast your mind back, however, you realize there’s a precedent for the US government dissuading, if not formally rejecting, a takeover by a foreign company of a US-based intrusion-prevention vendor.

It involved Israel-based Check Point Software Technologies and its ultimately unsuccessful $225-million bid for Sourcefire, Inc. in 2006. Many of Check Point’s senior executives and technologists served in the Israeli Defense Forces and retained close ties to the Israeli government. Sourcefire, like TippingPoint, had customers in the US federal government.

About a week before the Committee on Foreign Investment in the United States (CFIUS) was to hand down its decision on whether the Check Point acquisition of Sourcefire would be formally approved, Check Point withdrew its offer, evidently after learning that the takeover was about to be blocked on national-security grounds.

There are differences between the Sourcefire situation and the 3Com case. Check Point would have been the sole acquirer of Sourcefire, for instance. In addition, Sourcefire was an open-source provider of intrusion-prevention software, and its acquisition could have had far-reaching consequences if Check Point were to subsequently decide to take the security code proprietary.

Another distinction is that Israel is an ally of the USA whereas China isn’t, at least not in the same sense. Given the precedent of Sourcefire — the apparent decision of CFIUS to discourage an Israeli company from buying a US-based intrusion-prevention firm — can you imagine the uproar on Capitol Hill and elsewhere if the US government were to look the other way and permit a Chinese company to buy and own, if only in a minority sense, the very same technology? Nobody wants to step into that sort of political maelstrom.

Just as with Sourcefire, early indications have been sent that the 3Com acquisition will be strongly discouraged by CFIUS. 3Com shareholders, who welcomed the Bain offer as if it were a godsend, should heed the warning and brace for bad news.

Dell to Consolidate Advertising, Marketing with WPP Group

In conjunction with UK-based WPP Group, Dell will create a new marketing agency that will consolidate advertising and marketing activity worth $4.5 billion during the next three years. The shift to a consolidated marketing approach is a departure for Dell, which has spread its advertising and marketing budgets among 800 agencies and contractors worldwide.

Accordingly, the account win for WPP is a setback for an array of other advertising and marketing firms, most notably Interpublic Group and Omnicom. As reported by the Wall Street Journal, Interpublic was the primary competition against WPP for the Dell account, with the ultimate decision handed down after an intensive seven-month review. Dell stipulated that the winning firm devise an approach to foster collaboration between the people who create ads for TV and print and marketing researchers, product marketers, and web-advertising groups. Apparently WPP did the better job responding to that challenge.

Quoting from the Wall Street Journal:

The three-year contract, which includes all of Dell’s advertising, direct marketing, public relations, media planning and other duties, will generate between $100 million and $150 million in annual revenue for WPP, according to executives familiar with the matter.

That’s quite an enchilada. Now two questions will be asked. Will this model work for Dell? If it does, will it be adopted widely by other major technology vendors, including some of Dell’s competitors?

Of course, advertising and marketing communications, even if brilliantly devised and superbly executed, will not compensate for inferior products, lackluster service, and mismatched sales channels. Dell needs to keep its eye firmly fixed on all aspects of its business if it is to stave off Acer and Lenovo and close ground on PC market leader Hewlett-Packard.

Pressure Builds for Exit at Mitel; Could Nortel Enter the Picture in 2008?

After an aborted IPO bid in 2006 and a continuing inability to climb back to profitability, VoIP-gear vendor Mitel Networks bears watching as the calendar flips to 2008.

With private-equity house Francisco Partners now said to own as much as 51 percent of the company, Mitel will be pressured to be sold or to somehow concoct a compelling story that would allow it to enjoy a reasonably good reception on the public markets. With tepid overall market conditions, and perhaps even a recession, on the cards for the first several months of 2008, an IPO for Mitel now seems improbable. Certainly no conceivable IPO would be worth anywhere near the $150 million that former majority shareholder Terence Matthews wanted.

Coming into Mitel as a result of the latter’s acquisition of Inter-Tel this past summer, Francisco Partners, like many private-equity players, is feeling the effects of deteriorating credit markets in the United States. Unlike Matthews, Francisco Partners is unlikely to take a long view toward its investment in Mitel. Time is money, especially when interest and debt charges are accruing.

So, the likely goal is to package Mitel as a takeover candidate for one of the leading players in the VoIP equipment market.

Cisco wouldn’t even think of biting. Mitel has far too much baggage to draw Cisco’s interest. Avaya has its own problems, and probably would remain on the sidelines.

Nortel is the obvious candidate, especially since Nortel and Mitel would be able to easily integrate their R&D teams in the Ottawa area. The Canadian government, which owns a minority stake in Mitel, might even look favorably upon such a combination, and perhaps provide some benefits that would make the deal easier for Nortel to sell to its investors. Since Nortel’s strengths are in sales to carriers and, to a lesser extent, enterprise markets, there might also be a measure of business logic in acquiring Mitel, which does relatively well selling its gear into small- and medium-size businesses. It also holds its own in many European markets, including the UK.

With winter making its presence felt up in Canada, perhaps the spring thaw also will see a warming in relations between Nortel and Mitel.

Cool Cynics Complain About Facebook Furor

Those who have a stake in pumping up the Web 2.0 bubble are feigning incredulity regarding the growing furor over Facebook’s privacy-eviscerating Beacon advertising system. Their pose is to look like cool cynics, wondering what the rest of us possibly could have expected of a social-networking site whose entire business model rests of making money from advertising.

A good example of the real-world cynical posture is evinced by Paul Kedrosky:

I’m trying really hard to care about this whole Facebook Beacon imbroglio — the social network launched a new advertising-ish service whereby your friends could see what you had recently bought, and then privacy advocates promptly lost their minds — and I can’t seem to find the energy to get worked up.

C’mon, it isn’t surprising Facebook wants to make money on its social network service via your purchase data. If you don’t like the way it wants to do it, don’t use the service. Getting hung up on whether the service was supposed to be opt-in, opt-out, etc., strikes me as largely beside the point: this is the sort of thing you should be expecting from a commercial social network.

Perhaps I’m missing something, but Kedrosky seems to be saying that we should also expect social-networking sites to deceive, dissemble, prevaricate, and betray the trust of their users, too. I’m not sure anybody who signed up for Facebook knew that the site would unveil a service as ethically challenged, socially irresponsible, or morally unconscionable as Beacon, which essentially transforms Facebook’s subscribers into unwitting, unpaid shills for products and services with which they might or might not want to be publicly associated.

I don’t object to the open, straightforward advertising-powered business model of Google. What Google does is convert its search users and other site visitors into a market for advertising, some of which are targeted according to demographics, geography, and other user data Google collects online. What Google has not done, covertly or otherwise, is throw its site visitors’ privacy completely under the bus as Facebook’s Beacon incontrovertibly does. Not to put too fine a point on it, but Facebook commits this offense dishonestly, refusing to come clean with its users (and the business media and trade press) as to whether Beacon is an opt-in or opt-out service.

I’m totally in favor of entrepreneurialism and capitalism. I just don’t think you need to be dishonest with your clientele about how you leverage them in the pursuit of riches. Have we reached a point in the socio-economic sphere where it’s too much to ask our business class not to be complete pricks in the way they exploit consumers?

I hope not. I still think businesses can be accountable, responsible, and at least somewhat ethical in their treatment of the public. What’s more, they owe it to consumers to make the effort.

Facebook’s and Its Apologists Need to Wise Up

It’s taken a while, but the mainstream media has begun to recognize that Facebook is a pernicious manifestation of Web 2.0 hubris, out to deceive and exploit its users in ways that leave them bereft of dignity and privacy.

Facebook’s Beacon advertising system is the ugly underbelly of Web 2.0, a demonstration that at least some web-based communities can be as much about rapacious greed and treacherous dishonesty than about providing users with forums for personal interaction. If there was any innocence associated with Web 2.0, Facebook has killed off the last remnant of it.

Regrettably, Facebook can’t even look it users in the eye and tell the truth about what it’s doing to them. Rather than admitting the obvious, that it’s selling out its users and every last drop of their personal privacy for advertising lucre, Facebook attempts to present the fleecing as some sort of public service — a means of extending the sharing information between users that always has been a hallmark of the site. It’s not the frenzied attempt to cash out that I find appalling; it’s the hypocrisy and condescending cleverness of the whole enterprise.

New York Times reporter Louise Story wrote today about the discrepancy between how Facebook said Beacon would work and how it actually worked:

At Facebook’s Nov. 6 extravaganza to introduce its new social advertising features, I asked the first question after the speech of Mark Zuckerberg, the company’s 23-year-old chief executive. I asked why he thought lots of users would want to have information about their purchases sent to their Facebook friends through the company’s new system called Beacon.

He made it clear that users would be allowed to choose whether to participate, and he implied that the choice would be explicit, or opt-in.

I was surprised then when I saw the first version of Beacon, because it automatically sent your friends information on your purchases on participating sites, unless you acted to prevent it. It was an opt-out program. (Yesterday, Facebook reversed that policy.)

Well, some would say it’s not clear that Facebook has reversed its policy yet. The company is still running some dissembling and misdirection from its playbook of obfuscation. As Henry Blodget suggests, Beacon still appears to be an opt-out rather than an opt-in service, with Facebook evidently concerned that too few users would consent to the latter.

At long last, though, Facebook is getting called to account, by the New York Times, by prospective advertisers (including Coke), and by everybody else who asks only that companies, whether on the web or anywhere else, make their money without resorting to the abuse of the dignity, privacy, and trust of consumers.

Facebook can still grow up and be a responsible corporate presence. But time and advertiser patience appear to be running out, especially if the escapades and legerdemain persist.