Monthly Archives: September 2009

Nortel’s LTE Patents Could be Auctioned by End of Year; Nothing Set

As most keen observers of the situation know, Nortel has yet to sell its LTE patents.

During the next 15 years, Nortel’s LTE patents could be worth from $915 million to $2.9 billion, according to calculations from JP MorganChase analyst Ehud Gelblum. (The estimate varies depending on the royalty rate ascribed to the patents.)

Even at the lower end of that range, the patents would have considerable strategic and financial value, which is why they are eagerly sought by RIM, Ericsson, and perhaps a few other players that have yet to declare their intentions. It’s also why so many interested and disinterested observers want to know how and when Nortel will dispose of them.

Earlier today, I asked Jay Barta, a Nortel spokesman, whether he could specify a date by which Nortel will auction off its LTE patent portfolio.

His first reply to me was surprising, because he didn’t explicit state that an auction would occur. Instead, he wrote the following:

“I can’t speculate. We’ve said that we are looking for buyers, but I can’t speculate beyond that. When/if we have a buyer we will announce via press release.”

That’s odd, I thought. Given the interest that’s been expressed in the patents from more than one quarter, not to mention the value attributed to them, one would assume Nortel would auction them off. After all, that’s the course it has followed in selling its other major business assets.

I asked Barta to confirm that the patents would be sold at auction. I also asked when we might expect the sale to take place. He replied that the patents would likely be sold at auction, though there’s no guarantee “it will play out that way.”

He also said Nortel doesn’t have an announced sales date, auction process, or staking-horse bid for the LTE patents. He said an announcement will be made when more is known and the plans are set.

The Ottawa Citizen’s James Bagnall, who has provided exemplary coverage throughout the Nortel saga, informed me via email that Lazard, Nortel’s investment banker, has told prospective bidders the patents could be sold by yearend. Bagnall cautioned that the timetable could slip.

For those of you interested in new developments related to the LTE patents, that’s all I can offer for now.

Considering Chrapaty’s Move from Microsoft to Cisco

A senior Microsoft executive left for Cisco Systems earlier this week, setting off speculation about what the move signified.

Debra Chrapaty was Microsoft’s VP for Global Foundation Services, responsible for the company’s physical infrastructure, security, and global delivery operations. She would have been involved with data-center rollouts of Microsoft’s Azure, a cloud platform designed for intra-enterprise or Internet-delivered application services. She also would have been involved with the delivery of the online version of Microsoft Office.

It’s the connection to Office Web Apps that is particularly interesting about her move to Cisco, where she will become the senior vice president of Cisco’s collaboration software group (CSG). The group was previously run by Doug Dennerline, who left Cisco to become SalesForce.com’s executive vice president of sales for the Americas.

A few months back, Dennerline said Cisco might compete with Microsoft and Google in offering office applications, such as documents, spreadsheets, and presentation packages. He said Cisco was “thinking about it, but (is) not there today.”

What Cisco already has, of course, is WebEx, the web-based conferencing and collaboration service it bought for $3.2 billion in 2007. Cisco also competes against Microsoft and others in premise-based unified communications. It also is adding its telepresence to its collaborative portfolio.

Earlier this year, Cisco CEO John Chambers talked about “Cisco’s collaboration imperative,” terming it one of Cisco’s “market adjacencies.” Said Chambers:

“We believe that we are very well positioned in the industry from a vision, differentiated strategy, and execution perspective. We believe we are entering the next phase of the Internet as growth and productivity will center on collaboration enabled by networked Web 2.0 technologies. We are going to attempt to execute a strategy over the next decade that is similar to what we did in the early 90s and as we’ve said before, it powered our growth for the next decade.”

One could argue Cisco is on the brink of imperial overstretch, taking itself in too many ambitious directions at once. One could also argue that while Cisco has a sound collaboration strategy, and strong underlying products that show well against competitive offerings, it might be folly for Cisco to add online document, spreadsheet, and presentation packages to its roster. Are they something Cisco really needs? Is that it a battle it wants to fight?

Maybe the answers are yes, maybe they’re no. Nonetheless, Cisco plans to play a leading role in hosted collaboration, and it has a solid foundation on which to work.

Irrespective of why and how Chrapaty made her way to her new corporate home, Cisco attaches considerable strategic importance to the group that she’ll run.

Ballmer Throws Windows Mobile Team Under Bus, Backs Over Them for Good Measure

When Microsoft first accosted the world with Windows Mobile, the plan was to extend the company’s desktop hegemony to mobile devices, including smartphones.

Now, as that desktop hegemony looks less assured than ever before, Microsoft concedes that Windows Mobile hasn’t lived up to expectations.

That’s an understatement. Many would say Windows Mobile has been a chronic underachiever, continually lagging well behind its main competitors in features and functionality. Not surprisingly, its market share has declined steadily.

As the release date for Windows Mobile 7 slips further into the future (perhaps as late as the fourth quarter of 2010), Microsoft CEO Steve Ballmer wants the world to know it won’t happen again — which probably means it will.

Speaking at a venture-capital summit, Ballmer admitted that WIndows Mobile 7 is late, something we already knew. He said it won’t happen again, noting that the company “has pumped in some new talent,” implying that he’s done away with the “old talent” or relegated them to Microsoft’s version of purgatory . . . or hell.

There’s nothing like delegating blame, if not authority. Lately, some Microsoft executives have taken to falling on their swords, admitting mistakes with the “less-good” Windows Vista. But Ballmer favors pointing the sword somewhere else, making shish-kebabs of Microsoft minions.

It’s good to be king, even if the kingdom isn’t quite as impregnable as it was in years past.

As for Windows Mobile 7, it will be the last chance for Microsoft to redeem itself as a platform purveyor for smartphones and mobile devices. Then again, it’s probably already too late.

Microsoft and Electronic Arts: A Ludicrous Rumor Somehow Takes Flight

Most people are endowed with analytical and critical faculties. They ought to exercise them when they’re confronted by acquisition rumors.

One rumor that should have been scrutinized and summarily rejected as preposterous involved a mooted acquisition of Electronic Arts (EA) by Microsoft. Instead, the rumor whipped up market traders and people who should know better.

Microsoft was forced to refute the nonsense, briefly restoring sanity to proceedings. It won’t be long before the next nonsensical rumor sparks a subsequent onset of mass delirium.

There are good reasons why Microsoft should not and would not acquire Electronic Arts. Others have ably presented the arguments against the rumored acquisition, and I don’t feel compelled to cover the same ground here.

Suffice it to say, think critically when you hear these reports. It doesn’t matter whether you hear a rumor from a broker, a pundit, or a market analyst — or if you read one right here in this forum — please consult your own judgment and do a bit research before you bite the apple.

Not to make you more cynical and jaundiced than you might be, but some people cannot be trusted, either because they are dishonest or because they have been duped by those with ulterior motives.

Look carefully, and with a critical eye, before you leap. A little skepticism can save you from embarrassment, if not a worse fate.

To Win Nortel, Avaya May Need to Make Concessions to Canada

Despite the ulterior motives and attempted misdirection of RIM, the Canadian government had no valid objection to Ericsson’s successful $1.13-billion bid for insolvent Nortel’s wireless assets.

In the case of Avaya’s $900-million bid for Nortel’s enterprise business, the situation is different. One could credibly argue, as Andrew Willis of the Globe and Mail has done, that Canada’s net benefit from Avaya’s acquisition of Nortel’s enterprise business is significantly less than what would have accrued from a successful bid by Siemens Enterprise Communications.

It isn’t surprising, then, that Canada’s federal government will review the Avaya purchase under the country’s foreign investment legislation, known as the Investment Canada Act.

Industry Minister Tony Clement explained that the review was automatically triggered because of the size of the deal. Under Canadian law, the government can review a sale to a foreign company if it considers it a threat to national security or if the transaction value exceeds C$312 million (US$287 million).

In this case, the deal is being reviewed strictly on valuation. The Canadian government chose not to review the Ericsson deal because the book value of the wireless unit was below the review threshold and because Ericsson’s ownership of the assets did not pose a national-security threat. Even if that transaction had fallen within the review threshold, Clement explained, it would have been approved because it was deemed to have offered sufficient net benefit to Canada.

Avaya, though, has reason for concern. Clement mentioned that Siemens intends to hire Canadians and expand wireless operations in Canada. Under Avaya, Canadian jobs will be less secure, and Avaya has made no firm commitment to expand wireless operations in Canada. Under Siemens Enterprise Communications, a worldwide headquarters would have been established in Toronto. Avaya has no intention of moving its headquarters from New Jersey to Canada, regardless of whether it obtains Nortel’s enterprise assets.

Fewer Nortel products are likely to survive under Avaya than under Siemens. That will result in fewer Nortel jobs, in Canada and elsewhere.

In light of the benefits offered by Siemens, Canadian opposition parties have objected vociferously to the Avaya bid. Canada is under a minority government, with an election possible at practically any time. The dissolution of Nortel, with the resultant loss of relatively high-value technology jobs, could figure into political calculations.

Clement has said Canada must send a signal to foreign bidders that it will review takeover deals on an impartial basis. He says the government will consistently apply the same standards when scrutinizing purchases of Canadian companies.

That may be so, but politicians being politicians, electoral calculations will figure, too.

At the very least, Avaya should expect to make some concessions to the Canadian government, perhaps in the form of binding commitments to jobs and R&D in Canada.

Volpi’s Joost Tenure Key to Understanding Skype Saga

Perhaps the key to understanding the increasingly bitter battle for Skype can be found in what transpired during Michael Volpi’s tenure as the CEO of Joost, the video-sharing startup founded by Niklas Zennstrom and Janus Friis.

In the current context, what’s important about Volpi’s reign at Joost is that it coincided with an architectural change in how the company delivered video over the Internet.

I was reminded of Joost’s architectural overhaul by Julian Cain, an engineer who worked on Kazaa and is familiar with Joltid, bluemoon, and Skype. Cain, as you’ll recall, was a source for an earlier post I wrote on the deepening antagonisms between Skype’s founders and its current and would-be owners.

Zennstom and Friis originally set up Joost with the p2p architecture that formed the technological basis for companies the pair had founded previously, including Kazaa and Skype. In 2007, Michael Volpi became Joost’s CEO. Under his leadership, and evidently as part of a project he led, Joost slowly began an architectural transition away from its p2p roots. As Cain explained in a email message last night:

In case you don’t know how the Joost migration worked, well, it simply began to use p2p less and the long-tail providers more. Killing the Joost client for an ActiveX/NPAPI plugin with a p2p runner application for p2p services, and then removing the Joost plugin from download, is what abolished the p2p network for good. If the website could not load the Joost plugin, then it used Adobe Flash. It was seamless;, however, they didn’t have to deal with paid services and such a large user-base and other factors. Of course, look what Joost is now.

That architectural change looms as a central issue in the lawsuit Joltid, the company owned by Zennstrom and Friis, filed against Volpi and his colleagues at Index Ventures last week. That, of course, was the latest in a series of legal dustups between Zennstrom and Friis on one side and Skype and eBay on the other.

At the time of the architectural shift at Joost, Volpi claimed plausible reasons for the change. The justifications were commercial and technical. Other video-sharing sites, namely YouTube and Hulu, had proven far more popular. Meanwhile, some Joost users had complained that videos were slow to load.

Nevertheless, Cain contends those weren’t necessarily the only reasons Volpi pushed for the architectural overhaul.

Volpi’s move from p2p to Adobe Flash while at Joost wasn’t in any way to do with the lack of gain at that time. If they wanted to (do so), they would have been pushing HD content (both live and prerecorded) over p2p with long-tail back-off by now without any real competition . . . . . Volpi broke that into myths and theories based on what he wanted to do, not technical facts, trends, statistics or analytical data.

Still, Volpi had successfully transitioned Joost from the Joltid p2p foundation on which it was based. He’d moved it onto a server-based architecture that used Flash-based clients at the end points. He’s done it once. There’s no reason to think he couldn’t do it again, this time at Skype.

If the conflict plays out the way Cain believes it will, Zennstrom and Friis will not back down and neither will Volpi and his confederates.

In my last post on this topic, I suggested a settlement might be possible. Cain believes that isn’t in the cards. Both sides are playing to win, and neither is in the mood for accommodation. One way or the other, it will be settled in court.

I also said in my last post that eBay and Skype’s new majority owners would have to rebuild Skype from the ground up to obviate the lawsuit Joltid has filed regarding the disputed “Global Index (GI)” software, the patent for which became active early this year. While it remains true that Skype would have to be reconstituted from scratch, the reconstruction effort could be completed earlier than I anticipated.

A means of getting there faster is represented by technologies offered by Adobe. Henry Sinnreich and a team of SIP experts have worked for Adobe for a long time now, and Cain reminded me that Adobe Flash supports SIP p2p with NAT traversal. He explained as follows:

Don’t forget Adobe Flash has SIP and p2p with NAT traversal as well. This would be very easy to offload the client without much interruption; however you can kiss the desktop client and p2p network goodbye.

Om Malik wrote a post in 2008 that foresaw the implications of Adobe’s work in this area. Commenting on the advent of Flash p2p, Malik wrote:

The reason we should pay attention to this product is Adobe’s distribution strength. The company can easily upgrade its Flash clients and instantly become owner of one of the largest p2p services. What that means is that now anyone can contemplate a Joost-like service that works within a browser. Using AIR to extend those p2p abilities to the desktop would be fairly easy as well.

So, the move to a new client architecture could be achieved with relatively minor disruption to Skype’s operations. Meanwhile, the service’s registration index would have to be transferred to a centralized server-based model.

It appears Volpi and company have a solid plan in place, and one can assume they’re well on their way to executing it. Not for the first time — and certainly not for the last – I stand corrected.

Investor Activist Pushing for Changes at Yahoo

If you thought Michael Arrington took Carol Bartz to task earlier today, you should check out the verbal drubbing she received earlier this month from investor activist Eric Jackson.

His blistering attack on Bartz at TheStreet.com is unsparing. Jackson builds a meticulous and merciless case against Bartz and her enablers on the Yahoo board of directors, a group that seems to have an inveterate predilection for approving outsize compensation packages for the company’s senior executives. I suppose the board members figure it’s only shareholders’ money, not theirs.

Jackson’s assault on Yahoo’s largesse toward its executive team is just the latest salvo in his fusillade against the company’s board members.

What Jackson finds particularly galling is that the executives’ stratospheric remuneration largely has been disconnected from the company’s performance. As he says at one point, he could countenance high-value executive compensation for high-value returns to investors; but that’s not what Yahoo shareholders have been getting. At the end of each quarter, they’ve been more likely to get a lump of coal than a shimmering diamond.

Adding insult to shareholders’ financial injury, Yahoo insiders have been selling their shares with alarming regularity. In Jackson’s words:

Insiders have bought $67 million in Yahoo! stock in the past two years. However, of this amount, the vast majority was bought by Carl Icahn for his hedge fund, which he has already sold (and more — $189 million) in the last two weeks. A small amount of stock was purchased by Michael Murray, Yahoo!’s chief accounting officer, who announced last week that he’s leaving the company. Not including Icahn’s and Murray’s stock purchases, Yahoo! insiders have collectively bought only $103,700 in stock in the past two years.

Over the same period, Yahoo! insiders have cashed out $233 million in stock.

While Bartz should not be held accountable for what transpired before her arrival at Yahoo, she should be held to account for her own actions and excesses. Bartz has been with Yahoo since January, but she’s already dumped shares valued at $2 million to cover her personal tax bill, according to Jackson.

After pressing his argument, Jackson kindly proffers suggestions as to how Yahoo can “fix this mess.” One of his proposals is that Yahoo’s compensation committee resign from the board of directors. Another is that the well-remunerated Bartz (she’ll collect more than $187 million over four years, presuming she hits her performance targets) should buy stock in Yahoo amounting to a significant chunk of her net worth.

Actually, all of his suggestions are worth reading, particularly if you’re a Yahoo shareholder.

Why Settlement with Joltid Appears Best Option for Skype’s Backers

Even as Skype continues to plot and execute what could be a lucrative enterprise strategy involving interoperability with SIP-based PBXes, a cloud hangs over it.

In the battle between Skype’s founders and its current owner and would-be investors, the sphere of engagement is not limited to the courtroom. There are unsettled technology issues, too.

Representatives of Skype and eBay have told the media that a technical “workaround” is being explored that would extricate them, and their prospective new investors, from the ongoing legal entanglements with Joltid and Skype’s original founders, Niklas Zennstrom and Janus Friis.

I have no question that Skype is assessing technical alternatives to the current Skype architecture, which is predicated and dependent on underlying peer-to-peer software licensed from Joltid. That software, which eBay had neglected to procure from Joltid when it bought Skype for $2.6 billion in 2005, is now the focus of a legal dispute between the parties.

The trouble for Skype is that a “workaround” does not seem technically possible. Instead, eBay and Skype’s new owners would have to recreate the service from the ground up, essentially starting all over again with a brand-new architecture. In this context, it is important to recognize that what is called Skype for SIP is just a server-to-server mechanism that provides interoperability between SIP PBXes and Skye, not a potential replacement for the Skype service.

Whatever emerges as a substitute might be called Skype, but it would be something else entirely, probably based on the industry-standard Session Initiation Protocol (SIP), which was mentioned above and has been widely adopted by wireless operators, telecommunications carriers, and enterprises of all sizes.

The current incarnation of Skype is based on Joltid’s proprietary P2P code. In its early days, the software did not play well with the evolving SIP standard, which was designed to facilitate and support not only voice communication but also videoconferencing and instant messaging. Skype supports voice, video, and IM, too.

For a long time, SIP and Skype developed on parallel tracks, providing similar functionality but not talking to each other, figuratively and literally. Skype got the market jump on SIP for a variety of reasons, some having to do with telco-versus-Internet political battles that encumbered and retarded SIP’s development in the IETF and other standards bodies.

Another major difference was that Skype, with its peer-to-peer architecture and its promiscuous approach to establishing communications sessions, was built to circumvent firewalls and network-address-translation (NAT) gateways.

From a technical standpoint, Skype’s facility for firewall and NAT traversal made it effective and easy to use. From a business perspective, the fact that it was free made it popular. That’s why Skype got off to such a great start, and why it has more than 480.5 million registered users.

If one’s strength also is one’s weakness, then Skye’s initial asset, its NAT-traversing peer-to-peer architecture, has developed into a potential liability, both legally and technically. With a key piece of the peer-to-peer architecture in Joltid’s hands, Skype and its current and aspiring owners must win the litigation or develop a technological solution that obviates the legal threat.

Unfortunately for Skype, as has been explained in this forum previously, a simple workaround – in the form of a patch or a software adjunct – doesn’t appear feasible. That means Skype and its backers must hope they prevail in the legal battle, or that they can build, from scratch, an entirely new service that will assume the Skype name.

Skype and its future owners won’t put all their eggs in one basket. They won’t sit back and count on winning in the courtroom. In fact, they’re exploring how to reconstitute Skype in a different form. The latter will take a lot of time, and presumably a lot of money. The cost, seemingly prohibitive, would have to be factored into any calculation of risk and reward.

There is one other possibility.

That third option involves a settlement with Zennstrom and Friis and their corporate vehicle, Joltid. Given the scenario I’ve just laid out, I think this alternative will be thoroughly investigated. There’s a good chance Joltid would drop the litigation if it were given an ownership position in Skype. Relevant questions then would be: How much do Zennstrom and Friis want, and how much would eBay and its new investors be willing to concede?

Regardless of how it ends, the story will be interesting to follow.

Yahoo’s Bartz Should Stop the Blame Game

I’m just not seeing how Carol Bartz and her executive team have set Yahoo on a bold strategic course that breaks with the past and takes the company into a bright future.

Not everything in Michael Arrington’s denunciation of Yahoo under Bartz is on target, but his criticisms put lots of checks in the right boxes. Like Arrington, I haven’t seen anything strikingly new from Yahoo since Bartz’ ascension. If anything, the company seems to be practicing the risky alchemy of addition by subtraction: abandoning search in exchange for Microsoft advertising lucre, slashing staff, dumping properties that don’t readily fit the consumer-portal mold.

It’s true that Yahoo was unfocused, and that it needed a narrower, sharper mandate.

What’s more, some of those expenditure reductions and were necessary, especially in a harsh downturn that has taken a jagged bite out of advertising revenue. That said, costs reductions only take a company so far. They help burnish an embattled bottom line, but they do nothing to grow the business.

Ultimately, Bartz’s challenge is to grow Yahoo’s business, to boost the top line. Does she have a coherent strategic plan to get it done? At this point, I’m not seeing it.

Under Bartz, Yahoo is precisely what it was before – a web portal for consumers – but without search. She admits that Yahoo’s natural competitor, the rival that looks more like Yahoo than any other company out there, is AOL. That’s true, but it can’t be comforting news for Yahoo’s stakeholders. AOL, after all, is another portal company looking to redefine itself, squeezed on one side by search and on the other by social networking.

Bartz needs to explain what Yahoo will do that will make it different, make it unique, separate it from the pack. She needs to articulate how it will continue to drive consumers to its virtual front doors and attract the advertising revenue that follows them.

At the same time, she has to stop attacking forces she cannot control and that, frankly, do not control her. Why does she waste so much time berating press and pundits? Every time she does it, I wince. It’s a waste of energy, a waste of time; and time, as the hackneyed adage goes, is money.

The fact is, Bartz will always have critics, Yahoo will always have critics. Then again, every CEO and every company has its critics. CEOs must have thick skin. They have to be able to withstand external criticisms, to be driven by the courage of their convictions and the certitude that they’re blazing the right trail. Bartz needs to stop trying to deflect blame for Yahoo’s struggles toward its external detractors. The critics beyond Yahoo’s walls don’t control the fate of the company. She does.

Something else she needs to stop doing is blaming the past regime for the Yahoo problems she hasn’t imputed to the media. There’s no upside to continuing a jeremiad against a defunct regime. She should be looking forward, not backward. Jerry Yang and his lieutenants might have bequeathed problems to Bartz and her team, but that’s why they’re there – to solve those problems. The new team has been brought aboard to boldly and confidently chart a new course, not to endlessly bemoan the baggage they’ve inherited.

Besides being pointless, her excoriations of the past regime are culturally poisonous. In attacking Yang and the Yahoo of old, she implicitly assails those Yahoo managers and employees who were left behind and remain with the company. Rather than rallying the troops under all-encompassing banner, she risks instigating an us-against-them dynamic, whereby the new members of the company are arrayed against the holdovers.

I’ve seen this dynamic play it out in a few companies, and the results are rarely salutary. The new additions, taking their cues from a new leader who is disdainful of the former executive leadership, suppose that the vast majority of those who preceded them at the company – including the teams they’re now managing – are part of a problem rather than potential allies in a solution. The new team often treats the veterans with barely concealed condescension. At the same time, the long-time employees resent the arrogance and superiority of their new bosses. Understandably, they begin to feel that their new leaders aren’t interested in their ideas and opinions.

Bartz likes to attack the “cynicism” of her media detractors. She should consult a dictionary because he’s not using the right word. Her critics are skeptical, not cynical. Given what she’s shown us heretofore, skepticism seems the proper stance.

Google News was Down?

Apparently Google News went offline for about two hours earlier today. Here’s what Google had to say about it:

“Today, from about 12:25 p.m. to 2:20 p.m. PDT, many users experienced difficulties accessing Google News. We know how important Google News is to our users, and we take issues like this very seriously. This issue has now been resolved. We apologize for the inconvenience.”

I personally didn’t experience the outage, and I am sure that I used Google News during the period in question. It must have been a geographically limited outage.

In the interests of full disclosure and customer service, Google ought to provide further detail on what happened, why they believe the problem occurred, and what is being done to prevent a recurrence.

Oracle Gearing Up for Battle in Converged Datacenter

I just commented on Larry Ellison’s public remarks at a Churchill Club event held in San Jose last night.

In that post, though, I neglected to draw notice to a particularly interesting comment that was attributed to Ellison by Fortune’s Jon Fortt:

Ellison, 65, said that even after 32 years at the helm of Oracle, he doesn’t see retiring anytime soon. He intends to develop Oracle into a technology powerhouse that provides not just software, but computing, storage and networking gear. The company recently started mapping out its five-year plan, and he intends to continue at the helm at least long enough to execute it.

Let me play part of that back again: “He intends to develop Oracle into a technology powerhouse that provides not just software, but computing, storage, and networking gear.”

It would be interesting to hear Ellison expound further on that idea. On the surface, it sounds a lot like the converged datacenter strategies being pursued by Cisco and HP.

In the meantime, while waiting for Ellison to clarify what he meant, we might gain some insight into where he’s heading by perusing a blog post written earlier this year by Jonathan Schwartz, Sun’s CEO and president.

Here’s a key excerpt:

As I’ve said before, general purpose microprocessors and operating systems are now fast enough to eliminate the need for special purpose devices. That means you can build a router out of a server — notice you cannot build a server out of a router, try as hard as you like. The same applies to storage devices.

To demonstrate this point, we now build our entire line of storage systems from general purpose server parts, including Solaris and ZFS, our open source file system. This allows us to innovate in software, where others have to build custom silicon or add cost. We are planning a similar line of networking platforms, based around the silicon and software you can already find in our portfolio.

We believe both the storage and networking industry’s proprietary approach, and their gross profit streams, are now open to those us with general purpose platforms. That’s good news for customers, and for Sun.

At the heart of this convergence is Solaris – enabled by technologies such as ZFS (around which we’re building our entire storage line), and Crossbow (around which you’ll see us build some very compelling networking products).

From what Schwartz wrote and the diagram (see below) included in his blog post, one wouldn’t be making an unreasonable leap of logic to conclude that the Sun blueprint for datacenter systems convergence would have put it on a collision course with Cisco and HP, both of which have similar plans for datacenter domination.

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If Oracle adopts Sun’s manifesto and jumps into the ring against Cisco and HP, it will be hoping that its own software and Sun’s open-source Solaris will represent the “secret sauce” that confers sustainable competitive edge over its rivals. What’s fascinating is that each of the three will have come from a different jurisdiction of the datacenter — Cisco from networking, HP from computing, Oracle from enterprise software — all working feverishly to buy or build the parts that complement and complete the whole.

IBM is in the competitive mix, too, though it is taking an integrator’s approach to datacenter convergence, not relying on owning all the hardware, perhaps reasoning that it is heading toward commoditization anyway. For IBM, software and professional services are the keys to the datacenter kingdom.

Oracle could contend that, on paper, its acquisition of Sun’s hardware and open-source software gives it a clear advantage in putting together cost-effective, converged datacenter solutions for enterprise customers.

But the market isn’t a piece of paper. Plenty can go wrong on the road to execution.

The Oracle of Oracle Speaks

Larry Ellison is the oracle or Oracle. He makes public pronouncements less frequently than he once did, and that’s a shame.

Thankfully, as reported at the Fortune website, he broke his self-imposed vow of public reticence at a Churchill Club event in San Jose last night. It’s always good to be able to parse the master’s words.

And why not? Can a cat not look at a queen? Can a beggar not question a prince? Can a dog — yes, I would be that mangy mutt — not have his day?

Without further ado, then, I will present selected quotes from Chairman Larry, interposing my own remarks after each one.

On the economy:

“The American consumer is so deeply in debt, this is not going to come back, certainly for five years. I believe we’re going through some fundamental changes.”

It’s refreshing to see such candor from somebody in a position of wealth and influence. If there’s self-interest in this remark, I’m struggling to detect it.

Unlike the talking heads on CNN and CNBC, Ellison is giving us the straight goods. As I’ve said before, the American consumer is tapped out, the halcyon days of endless IPOs and gold-plated stock options will not return, and whatever recovery we experience will be muted and tepid.

Ellison also begged to differ with economists and pundits who predict a “V” or “W” shaped recovery. What letter does Larry think will most closely represent the shape of the economic recovery? The letter “L.” Look closely at the letter “L.” It will become evident that Ellison is forecasting a recovery not worthy of the designation.

Again, he’s right. For the last while, the American economy repeatedly has called on its consumers to lift it out of the doldrums. George W. Bush even told people to go shopping after the terrorist attacks of 9/11. But the frenzied shopping has come to an end. What worked for the US economy before won’t (and can’t) work now. It’s time for a new playbook.

On Sun’s value to Oracle, Ellison said:

“If, just for one dollar, if we could buy IBM, HP, Sun or any of these tech companies, I’m not sure we wouldn’t pick Sun.”

That’s disingenuous. Where did the candor go?

As Jon Fortt of Fortune points out, Sun is losing $100 million a month, while IBM makes a couple billion dollars a month. Ellison didn’t get to where he is today by picking losers.

On Oracle’s ultimate intentions for MySQL:

“No, we’re not going to spin [MySQL] . We are keeping everything. We’re keeping tape. We’re keeping storage. We’re keeping x86 and SPARC. And we’re going to increase investment in all of them.”

This is a problem, but it isn’t insurmountable. The European Commission clearly has concerns about what Oracle, as the pending owner and custodian of MySQL, will ultimately do with it. That’s the reason the EC held up Oracle’s acquisition of Sun, subjecting it to an extending review that will last into early 2010.

On whether the European regulators will approve the acquisition:

“The US took their time and deliberations and cleared it. The Europeans have to do their job, but I think once they do their job, they’ll come to the same conclusion.”

I think he’s right. That said, you’d never want to bet the house on a decision being mulled by European regulators.

On the consequences of the acquisition’s delayed approval:

“The longer this takes, the more money Sun is going to lose, and that’s not good for anybody.”

Well, the delay isn’t good for anybody affiliated with Oracle or Sun, but I don’t see HP or IBM, or even Microsoft and SAP, shedding anxious tears or rending clothes in anguish. To the contrary, those companies are eagerly rubbing their hands together and hoping the delay continues indefinitely.

On cloud computing:

“Cloud? Clouds are water vapor. My objection to cloud computing is the fact that cloud computing is not only the future of computing, it is the present and the entire past. Google’s now cloud computing. Everybody’s cloud computing. … All it is, is a computer attached to a network. What are you talking about? What do you think Google runs on? It’s databases and operating systems and memory and processors! What are you talking about?”

Regardless of whether you think cloud computing means “a computer attached to a network” or “never having to buy another server again” (because your applications are served up remotely), the definition of cloud computing should be readily understood by everybody. Right now, that’s not the case. That’s because cloud computing has become a marketing buzzword, an intentionally ambiguous phraseology meant to create an impression of fuzzy warmth in those that hear and see it.

Score another one for Larry. I wish he’d speak publicly more often.