SafeNet Raises Hand, Concedes “Likely” Improper Accounting of Stock Options

Information-security vendor SafeNet has completed at least part of its internal investigation into stock-option backdating at the company, disclosing that it will restate 2002 earnings because stock options assigned to directors, officers, and employees were "likely" improperly documented.

According to a Reuters report, the company says a special committee investigating the matter has retained independent counsel and forensic accountants to assist the probe.

There could be more fallout from this matter, and it has the potential to seriously affect SafeNet’s heretofore aggressive acquisition strategy.

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Washington Post Reviews Sad State of IM Interoperability

Perhaps a reminder of the wretched state of instant-messaging interoperability wasn’t necessary, but Rob Pegoraro of the Washington Post does a good job providing an update in light of the move by Microsoft and Yahoo to allow their respective subscribers to talk to each other from their otherwise closed and propriety IM networks.

IM is the backward, toothless cousin of Internet services, held back by atavistic parental genes and bad governance. In that regard, Pegoraro notes the following:

With most other kinds of communication — phone calls, e-mail or cellphone text messages — the ability to contact somebody who uses a different provider than you isn’t considered a feature worth advertising.

But not instant messaging, which remains behind left behind, a victim — along with all its users — of companies that seek to lock their customers into proprietary straitjackets rather than competing on the basis of creativity and innovation. Even interoperability, or what passes for it between Yahoo and Microsoft, isn’t all it’s cracked up to be, as Pegoraro explains.

It’s a good column — it first appeared online yesterday — and it’s well worth reading if you haven’t had an opportunity to get to it.

EMC Making Acquisition Bid for F5 Networks?

Rumors made the rounds a few weeks ago about Cisco and Microsoft having acquisitive interest in F5 Networks. I dismissed those rumors, primarily because I’d heard them many times before, but also because they seemed illogical from the buyer’s and seller’s perspective.

Today, though, a rumor has surfaced suggesting EMC might acquire F5 Networks. This one is harder to dismiss; it could even be true.

EMC, as witnessed by its growing array of acquisitions, including its recent $2.1-billion purchase of RSA Security, has strategic designs on becoming a major player in the management and secure storage of content.

With that in mind, perhaps it would also want to own a market-leading position in the secure delivery and optimization of content across networks, including those dedicated to data-center virtualization. That’s one of the areas where F5 could prove valuable, both in generating new revenue streams and in helping to differentiate EMC from its primary competitors.

In recent years, through acquisitions, EMC has bolstered its product arsenal with email archiving, content management, server virtualization, and network- and application-infrastructure management, as well as the encryption technology it just received via its acquisition of RSA.

A buy into the fast-growing application-delivery and -optimization market would be a defensible, an entirely logical move for EMC. It could reasonably be argued, in fact, that EMC should have acquired F5 Networks before it bought, or instead of buying, RSA.

A couple factors that might discourage such an acquisition are EMC’s relationship with Cisco Systems, which competes against F5, and the unresolved stock-option backdating questions at F5. Then again, the Cisco-EMC relationship has seen better days, and the stock-option backdating issue would be a smaller distraction in a company EMC’s size than it will be within an independent F5.

Meanwhile, EMC CEO Joseph Tucci still has to make good on his promise to grow five of EMC’s businesses — VMware, storage virtualization, content management, resource management, and security — into revenue-generating engines of $1-billion each during the next two to five years.

If you look at F5, whose revenue still is growing in the range of 40 percent on a year-to-year basis, it could help EMC and Tucci reach their objectives in a few of those categories.

Arrington Complains of Investigation Into TechCrunch

On his CrunchNotes site, TechCrunch impresario Michael Arrington is alleging that industry-gossip site Valleywag.com is looking into the nature of his relationships with the startup Web 2.0 companies he covers on his blog.

Personally, I see nothing wrong with such journalistic inquiries, undertaken by Valleywag or by anybody else. If Arrington has no investment stakes in the companies that he extols — or if he has provided full and proper disclosure regarding the relationships that do exist — he has no reason to worry. No matter how much investigation Valleywag does, it won’t find incriminating evidence of ethical or legal impropriety in Arrington’s business dealings.

What’s more, if it tries to publish something without factual foundation, something that is defamatory and slanderous, Arrington will have legal recourse to seek reparations.

On CrunchNotes, Arrington charges that Valleywag is engaging in “dirt digging.” Isn’t “dirt digging” just a dysphemism for “investigative journalism,” which is what all journalists should be doing?

If you ask me, the technology industry could use a lot more critical reporting and a lot less unquestioning cribbing from press releases.

Speculation Rife Regarding Cisco Shift to Software-Based Pricing

Nobody knows precisely how Cisco will implement a software-based pricing model across most of its product offerings during the next three to five years, but some of the scenarios mentioned in an InformationWeek feature article seem far-fetched.

Not many details have been forthcoming from Cisco, which probably still is getting its collective head around the concept, so it’s understandable that we’re seeing free-ranging conjecture and speculation on the subject. Still, InformationWeek seems to go into the weeds occasionally in exploring a potential and sweeping decoupling between hardware and software at Cisco.

I don’t see that happening. Why would Cisco do that? Where’s the value to Cisco — or to its channel partners, or even to its customers (if you really think about it) — in having Cisco routing and routing code sold purely as software and run by the buyer on any server it chooses for the task? For some Cisco products, the software and hardware are fused architecturally, with the hardware specially designed to accelerate the performance of sophisticated software functionality.

Besides, the pure-software sales model (selling only software and letting the customer fend for himself in finding the hardware on which to run it) is one from which even open-source router vendor Vyatta is having to migrate, moving instead to an appliance-based approach.

An appliance-based approach is where I believe most of Cisco’s product portfolio will ultimately transition. There will be some network-management offerings that will be sold exclusively as software, for the customer to choose whether he or she wants to install and run it on the hardware of his or her choice, but generally I foresee Cisco closely coupling hardware and software for architectural, business, and design reasons.

What will be different from the past, though, is that Cisco, wherever appropriate, will call attention to the value of its software in its pricing model by implementing subscription charges for updates to the code. These charges will be separate from existing maintenance and support charges. This model probably will span much of Cisco’s product line, encompassing routers, switching, security, and VoIP-related offerings such as its CallManager IP PBX.

What Gibson Saga Reveals About Internet-Era News Coverage

I watched with some fascination as the sordid story of Mel Gibson’s latest entanglement with police played itself out on the Internet this weekend.

What interesting is not so much what Gibson is alleged to have said and done after being arrested for drunk driving along the Pacific Coast Highway near Malibu — though that is a very interesting story — but how the initial coverage of the affair by the mainstream news media quickly was superseded by blog-news media, which uncovered a bigger story, including an anti-Semitic tirade unleashed by Gibson at the time of his arrest and what might have been a coverup by the Malibu Sheriff’s department.

At the time of his arrest, Gibson was said to have issued a torrent of expletives at the attending officers, saying that he "owned Malibu" and that the officer involved in his apprehension would suffer gravely for daring to charge the celebrity with a crime. Back in the day before Internet news and muckraking online news coverage, Gibson probably would have been right. All we would have known was what was published in the initial newswire reports and the carefully redacted coverage in such august publishing organs as the Los Angeles Times and the New York Times. Mel Gibson’s public image, and his resulting brand, would not have suffered.

Now, though, it’s a different world, one that the old-guard news media still doesn’t fully comprehend. It’s not so much that they’re slow — actually, in this instance, the newswire reports of Gibson’s arrest surfaced quite quickly — but that they’re still playing by old rules, allowing the authorities and spinmeisters to filter and control what the public reads rather than giving us the unexpurgated truth. They don’t yet realize that the public, as individual consumers of news, is more in control now that it has ever been, and that news junkies — who, typically, want to get the real story as opposed the "official" story — no longer will be satisfied with partial or self-censored content.

The established order of the news media must do more than just shift its business model increasingly to web-based approach. It also must be more truthful with its readership than it has ever been previously.

Ellison’s Irresponsible Hold on Oracle

Mercurial and borderline-psychotic company founders throughout Silicon Valley are envious of the iron-clad grip that Larry Ellison has on Oracle, the company he co-founded back in the 1970s, when men were men and trousers were ridiculously flared.

Ellison is Oracle’s largest single shareholder, controlling more than 23 percent of the company’s stock, and he has assembled a board of directors whose group photograph could serve as an illustration for servility and obsequiousness. Ellison likes to believe he is indispensable, irreplaceable — and it doesn’t help when he surrounds himself with executives and board members who encourage those delusions. Pre-Inca civilizations indulged in less hagiography than does the Cult of Larry.

The question is not whether Oracle has enjoyed success under Ellison. He was the driving force that built the company into a database-software giant and later, belatedly, pushed it aggressively into enterprise-application software, though with miscalculations and missteps along the way. He hired talented senior lieutenants, for the most part, subsequently forcing them out of the company as their accomplishments and ambitions grew.

What’s at issue is whether Oracle is being run responsibly, from the standpoint of corporate governance, by kool-aid drinking board members and the fawning executives who exacerbate Ellison’s worst tendencies. Well, no, it isn’t being run responsibly. In fact, shareholders whose names aren’t Larry Ellison should be mad as hell and unwilling to take it anymore.

As a recent Forbes article attests, there’s more complacency at Oracle than there ought to be, and that complacency is most glaringly obvious in Ellison’s and the board’s complete lack of a succession plan for the Database Deity. While Oracle’s 62-year-old CEO, who no longer has an office at the Redwood Shores-based company’s headquarters, jets around the world racing yachts and overseeing the construction of a 40-acre Japanese-style village estate in Woodside, CA., the company’s strategic direction is being left, by default, to a group of executives who seem unprepared and ill-equipped for the task.

It’s Ellison’s prerogative to do what he wants with his money, but, as an active CEO, he owes Oracle and its shareholders something more than web surfing from a yacht and occasional phone calls back to home base. That is especially true when his current lieutenants, co-presidents Safra Katz and Charles Phillips, are an efficiency-minded technocrat and a glorified sales VP, respectively.

Where’s the succession planning at Oracle? There is none — and the company’s board and its senior executives admit as much.

Says Jeffrey Henley, the board chairman:

“There is no successor to Larry, no heir apparent. We discuss the subject, but there is no perfect plan. Larry still wants total control.”

And, of course, the board just gives it to him! Am I the only one astounded by attitude?

Maybe Katz or Phillips recognizes the problem. Umm, no.

Says Katz:

“Without him, Oracle wouldn’t be the same.”

Says Phillips:

“Larry will be here forever. We don’t discuss succession. That’s not my job.”

It would seem to be nobody’s job. Not the board’s, not Ellison’s, nobody’s.

It’s up to Oracle’s shareholders, individually and collectively, to make succession and corporate governance two issues that Oracle’s board cannot ignore. If I were an institutional investor, mutual fund, or individual punter with an investment in Oracle — which, thankfully, I am not — I would organize fellow shareholders to raise these matters persistently and vehemently until they are addressed satisfactorily. Make life a living hell for Ellison and his board until they acknowledge shareholder concerns.

Phillips might think Ellison will be at Oracle forever — and perhaps Ellison believes he’s an immortal, too — but board members and shareholders should know better.

Microsoft Security Expert Bolts to Amazon.com

In a move that will see him relocate his place of work from one Seattle-area company to another, Jesper Johansson, the well-regarded senior security strategist in Microsoft’s Security Technology Unit, will start a new job at Amazon.com in September.

The move is reported on Johansson’s security-related blog as well as by eWeek. Officially, Johansson will cease working at Microsoft on September 1 and will start his new job at Amazon on September 5. He announced his resignation to his Microsoft colleagues in an internal email message yesterday.

Johansson, who had been with Microsoft for five years, will serve Amazon as its principal security program manager.

As a regular presence at security conferences and at Microsoft’s own security-related events and seminars, Johansson is considered an expert in the effective protection of Windows installations. He is the co-author of  "Protect Your Windows Network" — a book that he promotes on his blog — considered an essential security guide for system administrators responsible for Windows application environments.

Johansson’s is the latest in a string of high-profile defections from Microsoft.

During a period in which Microsoft increasingly has recognized the integral importance of security to its products strategy and its corporate reputation, Johansson’s departure will be carefully analyzed by those inside and outside the company. It comes just as Microsoft has begun a wave of security-related product and service launches, and months in advance of the commercial release of the reputedly security-conscious Vista iteration of the Windows operating system.

Microsoft: Still the Kingpin of Old-Guard Software Establishment

Microsoft held its annual Financial Analyst Meeting (FAM) this past week in Redmond. All its top executives — with the exception of Bill Gates, the company’s chairman, who was on vacation in Africa — were trotted out to persuade the analyst community and business journalists that Microsoft has a coherent strategic plan that will ensure long-term growth.

The problem is, when you strip away all the superficial sloganeering and vacuous oratory, nothing much has changed. Microsoft’s strategy remains all about putting Windows everywhere — on servers, on devices, as a mechanism for delivering Internet-based content and services, ad infinitum.

The problem is, Microsoft needs the Internet more than the Internet needs Microsoft. The company still doesn’t recognize that fact, thinking it retains the unprecedented power and influence it possessed when it possessed hegemonic control over the PC-era of computing.

Times have changed, though. Microsoft is still a powerful player in the constellation of networked computing, but it isn’t the only player that matters. In an new era of Internet-based services and software on demand, other players, recognizing that services aren’t tied to specific operating systems or client-based application suites, have embraced a standards-based paradigm that rewards relentless creativity, ingenuity, and innovation.

Microsoft, as evidenced by the more than five-year gap between the release of the last iteration of Windows and the forthcoming (eventually) Windows Vista, hasn’t been built on those foundations, and it’s doubtful it can ever metamorphose convincingly into that sort of company.

Owning established market franchises in operating systems and office-productivity suites has been great for Microsoft. Those cash cows continue to generate torrential rives of revenue to this day and beyond. The problem is, the old formula "embrace and extend" — typically through proprietary adjuncts and mutually reinforcing leverage from the monopoly power of earlier products — has greatly diminished influence in today’s world of Internet-based services, in which YouTube, Google, Yahoo, MySpace, and nearly every other popular web-based service is just as available on a Mac or a Linux-based PC as on a Windows-based computer — and where the fat-client Office suite has limited influence.

So, despite the news this week out of Redmond, it’s still the same old Microsoft, singing the same song with a few more notes added to the songsheet.

When you boil it to its essence, Microsoft’s goal is the ultimate walled garden, which is perhaps why they spent a good deal of time this week talking about mobile computing, which has been balkanized, bastardized, and hopelessly fragmented by mutually exclusive and ineffably rapacious wireless operators.

At the end of the day, Microsoft still is a software company, not a services company. It is looking for Windows to permeate all devices — mobiles, persona computers, gaming consoles, servers — and to have Windows-based applications and services running across all the them. Microsoft’s embrace of Internet services can never be unconditional, because that would mean putting OS-agnostic services first and Windows second.

That’s never going to happen, not as long as Windows, despite Steve Ballmer’s protestations to the contrary, remains the true core of Microsoft’s business empire.

Upgraded Google Talk Irrationally Assailed

Google has upgraded its instant-messaging client, Google Talk, adding features such as file transfer, voicemail, and music status.

The file-transfer feature allows users to send unlimited files and folders to their correspondents, while the voicemail capabilities allow messages to be left for offline parties, who can retrieve them later as email attachments. The music-status capability, the appeal of which utterly escapes me, allows a user to apprise online friends (those on his or buddy list) of the music he or she might be enjoying at any given moment. Hmm, I sense a cross-selling ploy on the horizon.

Still, the file-transfer and voicemail features are solid additions to Google Talk, a standards-based (XMPP) IM client that deserves more success in the market than it has garnered so far. While Microsoft and Yahoo facilitate interoperability between their proprietary IM fiefdoms, Google, perhaps as a result of circumstance as much as choice, has wholeheartedly embraced industry-standard protocols. Regardless of why Google has done so, it should be applauded for that decision.

Instead, however, Google gets bashed, which seems to be the trendy thing to do these days in Silicon Valley. TechCrunch impresario Michael Arrington mocks Google Talk’s minuscule IM market share and lack of a Mac client. Meanwhile, In a surprisingly scathing entry, Charlie White of Gizmodo provides similarly derisive commentary.

There is some balanced coverage of Google Talk’s new features, however, with Garett Rogers of ZDNet noting that the file-transfer feature, in particular, could help draw more users into Google Talk’s orbit. Some thoughtful commentary also is available at Cybernet News, where questions about whether file-transfer capabilities will expose users to viruses and whether the new features will be integrated into the web-based chat functionality of Gmail are explored.

Just to be clear, I, too, would like to see a Google Talk Mac client. Even though third-party XMPP clients such as Adium, Gaim, and Apple’s own iChat work seamlessly with Google Talk and are available today, I think Google should provide its own Mac client as a courtesy to the user community. The cost would not be prohibitive, and the gesture would be appreciated.

That said, how many years (yes, years) pass before Yahoo and Microsoft refresh their Mac IM clients? Yet there was not a peep from Arrington today on that matter, neither in his post regarding Google Talk’s new features nor in an earlier post he made regarding the release of Yahoo Messenger Version 8 for Windows.

Finally, as noted above, Google has espoused and implemented industry-standard IM protocols, open to any and all similarly standards-based services that wish to interoperate with it, whereas Microsoft and Yahoo have retreated behind walled gardens, with a subterranean tunnel used to connect their two fortresses. That, it seems to me, is an issue more deserving of censure and condemnation than the alleged sins of modest market share and lack of a Mac client.

TheStreet’s Cramer, Analysts Speculate on Tech-Takeover Targets

Two news articles have surfaced recently, one from Dow Jones Newswires and another from TheStreet.com’s Jim Cramer, regarding technology companies that are candidates for acquisition.

The articles have different themes and are based on different sets of assumptions, so it’s no surprise the listed companies diverge. 

Dow Jones’ piece, which appeared in the Wall Street Journal (subscription required), examines whether and how HP’s acquisition of Mercury Interactive for $4.5 billion might trigger further takeovers in the software sector.

The writer of the piece correctly posits that the software realm currently is amenable to mergers because it is one of the few high-margin sectors remaining in a technology world that is becoming increasingly commoditized. The author also notes that some of these companies are facing slowing growth in maturing markets, while still others have been weakened by sector- or company-specific problems, such as the recent pandemic of firms whose valuation have been driven down by stock-option backdating irregularities.

Among the companies cited in the article as acquisition candidates are Quest Software, Comverse Technology, Borland Software, BEA Systems Akamai Technologies, McAfee, and Internet Security Systems.

While it appears ISS is a near-term acquisition target, most probably of IBM, some of the others on this list either aren’t for sale or are unlikely to attract buyers at current valuations.

In that regard, McAfee leaps readily to mind. While Microsoft was said to have pondered an acquisition of McAfee two years ago, that was then and this is now.

Who would buy McAfee now? I don’t think IBM wants to get into the antivirus game, definitely not at the price an acquisition of McAfee would entail. Yes, McAfee has other products, but not many of those, with the exception of its IntruShield network-based IPS products, are considered market leaders. I just don’t see McAfee being acquired, at least in the near term, though it will be an active acquirer, in areas such as instant-messaging security and data-leakage prevention (DLP), in the months ahead.

Cisco was rumored to be considering an acquisition of an antivirus company, though it was leaning more toward close partner Trend Micro than toward McAfee, but computer-networking giant is said to have carefully reconsidered that option in light of the increasing obsolescence and decreasing effectiveness of antivirus software as a defensive shield against malware. Also, Cisco was reputed to be dissuaded from making such a move by its reliance on anti-malware vendors as partners in its Network Admission Control (NAC) architecture.

In light of the HP acquisition of Mercury Interactive, Quest Software definitely ranks as a probably takeover candidate, as does Borland, to a lesser extent. Both Sun Microsystems and IBM might take close looks at Quest, and BEA also is a potential target for either company. Oracle also might give BEA more than a passing glance.

Cramer’s list of takeover candidates, as noted above, includes an entirely different roster of names from those mentioned in the Dow Jones article. That’s because Cramer and his staff at TheStreet.com compiled it by looking for companies that are profitable, but whose market capitalizations have been beaten down lately.

Names on his list include Broadcom, Western Digital, Palm, ActiveIdentity, WindRiver Systems, BEA Systems (well, that’s one company on both lists), Tibco, WebSense, FileNet, and Avid Technology.

I don’t see an obvious Daddy Warbucks taking any of these companies home, with the exception of BEA. Sometimes, Cramer, stock prices are down for good reasons, and even acquirers don’t want to try catching falling knives.

YouTube’s Hurley Talks, Says Nothing

Professional athletes aren’t the only ones who deliver interviews crammed with mind-numbing cliches and platitudes. Technology CEOs are equally adept at talking to the media while saying nothing of substance.

In an interview with MarketWatch, YouTube CEO Chad Hurley, who has been thrust into the media spotlight in recent weeks, was a master of the obvious and a betrayer of no secrets.

Hurley refused to say whether his company had been approached by would-be acquirers, said the company "has no plans" to sell itself, earnestly reaffirmed that YouTube’s resolute focus was on "providing the best user experience possible," and, with regard to a potential IPO, said, if the company had an opportunity to go public, the experience would be "very exciting."

It’s like David Beckham saying he’s looking forward to another season with Real Madrid or Bill Belichick saying his New England Patriots take the season one game at a time, never looking beyond their next opponent. It’s verbal anodyne.

In summary, Hurley either said nothing he hasn’t said before, said things that were self-evident, or minced his words so finely that it was impossible to discern meaningful intent. His PR and IR minders must be elated, because he’s following the prescribed script for these situations perfectly.

The only interesting tidbit to emerge is that he dismissed reports that YouTube’s valuation soared from $600 million to $1 billion after his recent star turn at Allen & Co.’s annual media-industry shindig in Sun Valley, Idaho. If you will recall, the New York Post — owned by News Corp., which is run by old-cum-new-media titan Rupert Murdoch — published a gossipy piece last week in which it was alleged that "Hurley and his backers have their sights set on $1 billion for the video-swapping site."

Was that a bit of disinformation injected into the media maelstrom by a mischievous Murdoch, or was it just the columnist’s honest reporting of scuttlebutt he’d heard from others who’d made the rounds at Sun Valley?