Monthly Archives: May 2008

Avaya Cuts Another 400 Employees

When Avaya was spun off from Lucent in 2000, it had approximately 34,000 employees. With reports today that another 400 jobs will be eliminated, Avaya will be down to a headcount of about 18,000.

Acquired last year by private-equity firms Silver Lake Partners and TPG for $8.2 billion, Avaya is in aggressive cost-cutting mode. According to an Avaya spokesperson, the latest cuts are additional to a cull of 600 positions that resulted from attrition, layoffs, and retirements since the beginning of 2008.


Second Acts in Enterprise Networking

Am I the only one who finds it funny that Enterasys is rumored to be taking an acquisitive run at Extreme Networks?

Way back when, in the prehistoric 1990s, Cabletron Systems was an enterprise-networking competitor to Cisco Systems and 3Com. Cabletron was a combative east-coast player, led by truculent executives who liked to engage in bodybuilding, employee intimidation, and competitive hardball. They held business meetings standing up, not sitting down, and they hosted militaristic sales meetings at which tanks and swords were not out of place.

Eventually, Cabletron self-destructed, breaking apart into corporate fragments.

Why I am talking about Cabletron? Well, network-industry historians will recall that Enterasys was one of four Cabletron units spun off in 2000. Enterasys was the enterprise-networking piece, and it found sustenance, if not outright success, as a purveyor of network-security gear.

Now, if rumors are to believed, the erstwhile-Cabletron business unit is looking to Extreme Networks, a vendor of high-speed Ethernet enterprise switches. Just like 3Com, Enterasys has chosen to go back to the future. Let’s hope it has better results.

Would Facebook Take Microsoft’s Money and Run?

A few market observers seem to think Facebook’s Mark Zuckerberg and his growing executive coterie have their hearts set on an IPO rather than an exit by acquisition. Maybe that’s true, but I think Zuckerberg and company would not look a gift horse in the mouth, especially if Microsoft came calling with a takeover offer of $10 billion or more.

Why? Well, look not further than this paragraph from a post today at the Silicon Alley Insider:

For the record, we think a Microsoft (MSFT) deal wouldn’t be a terrible idea. But we really don’t think that Zuck has any interest in selling out, yet. He seems gung ho on an IPO, and is beefing up his management team in advance of one. Still has to work on a business model, though.

Still has to work on a business model, eh? I’d say that’s a major omission, one that we shouldn’t be cavalierly disregarding after the bubble carnage of earlier this decade. Have some of us forgotten the inherent investment risks associated with having Internet-based enterprises that lack solid business fundamentals? It would seem so.

You can bet that Zuckerberg and his advisers would think twice before turning down Microsoft’s filthy lucre.

Microsoft + Yahoo Search + Facebook = MS Midlife Crisis

There’s too much blather and ferment about how a Microsoft acquisition of Yahoo’s search business combined with a subsequent Microsoft acquisition of Facebook would result in the “end of the open web.”

In actuality, such a scenario would only involve the transfer of considerable wealth from Microsoft’s shareholders to Yahoo’s shareholders, followed by a similar exchange of wealth from Microsoft’s shareholders to Facebook’s backers.

It wouldn’t result in the “end of the open web.” Instead, I suspect it would represent the beginning of the end for Facebook as a social phenomenon and the absolute end of its prospects as a commercial entity.

As for Microsoft, the company would incur an enormous opportunity cost. Resources that Microsoft could have spent on software-as-service for the enterprise, where it actually has a fighting chance of consolidating gains and making money, would be squandered on web-search and social-networking pipe dreams. It would emerge a relative loser in both markets.

It’s as if Microsoft doesn’t know itself anymore. The company can’t seem to distinguish its strengths from its weaknesses. Surely somebody as savvy as Bill Gates must know the adage about throwing good money after bad, something he has seldom done previously.

Microsoft just seems delusional these days. It’s as if the entire executive team is undergoing a collective midlife crisis. The only difference is, in Microsoft’s misguided bid to remain relevant and vital, it’s neurotically buying companies rather than sports cars.

Tibco Rumors Likely Just Talk

On the Barron’s website today, Eric Savitz writes in Tech Trader Daily that Jefferies analyst Katherine Egbert doesn’t believe the rumors regarding a potential acquisition of Tibco Software. For what it’s worth, neither do I.

Tibco has had many opportunities to be acquired, some of which would have offered greater returns than what the company would fetch in today’s market conditions. Assuming that overtures are being made, Tibco is apt to resist them.

Mind you, as Egbert notes, “management does have incentive to keep the perception of an acquisition alive, as such rumors have steadily boosted the stock price.”

Bogus Cisco Gear: Espionage or Profit?

A story that appeared in today’s edition of the New York Times addresses Operation Cisco Raider, which has led to 15 criminal cases involving counterfeit Cisco gear bought in part by military agencies, military contractors, and electric power companies in the United States.

During the two-year law-enforcement operation, 36 search warrants have been executed, resulting in the discovery of 3,500 counterfeit Cisco network components with an estimated retail value of more than $3.5 million, according to the Federal Bureau of Investigation (FBI).

Cisco, which has investigated the counterfeit networking equipment, claims that the bogus gear contained no electronic back doors or evidence of computer espionage. Cisco’s working assumption is that the counterfeiters were in business solely to make money, not to surreptitiously gather intelligence.

“We did not find any evidence of re-engineering in the manner that was described in the F.B.I. presentation,” said John Noh, a Cisco spokesman. He added that the company believed the counterfeiters were interested in copying high volume products to make a quick profit. “We know what these counterfeiters are about.”

Not everybody is so sanguine.

Several security technologists and intelligence experts contend that proven techniques exist to covertly embed information-gathering and -transmitting circuitry into computer and network hardware. What’s more, a few specialized espionage-related circuits buried within billions of components would be exceptionally difficult to detect.

Cisco is understandably anxious to have this issue recede from the headlines. If counterfeit Cisco gear were found to contain electronic back doors that transmitted confidential information to foreign governments or illicit third parties, major government and private-sector customers might show increased reluctance to buy gear that carries the reputed Cisco brand, if for no other reason than concern about receiving malicious non-Cisco knockoffs in place of the genuine articles.

In all probability, Cisco is right about the bogus routers and switches. They’re probably nothing more than replicas made by for-profit counterfeiters. Nonetheless, it will be intriguing to see whether or how this story evolves.

Does Gates Mean What He Says About Yahoo?

It’s entirely logical to react cynically and skeptically to Microsoft Chairman Bill Gates’ repeated statements that his company no longer retains an interest in pursuing Yahoo.

According to Mr. Gates, on every occasion this week when he has come into contact with the business press, Microsoft will pursue an independent Internet strategy, building and improving its own web-search and online-advertising properties as opposed to purchasing external assets. Gates says Microsoft has great engineers and can achieve market dominance over Google on its own, notwithstanding the historical record and current market realities.

Said Chairman Bill:

“We have always felt we could do very well on our own and now that’s the path we are focused on,” Gates said in an interview with The Associated Press in Jakarta on Friday.

“The standard strategy for us is to just hire great engineers and surprise people at how well we can compete, even with a company that’s got a strong lead.”

Perhaps so, but if Microsoft had been committed strategically to build its own Internet offerings, it would not have pursued the acquisition of Yahoo. So, given this apparent contradiction between Gates’ words and Ballmer’s actions, a few possible explanations present themselves.

First, we can posit that Gates and Ballmer are at cross purposes on Microsoft’s Internet strategy, with the former favoring the go-it-alone build option and the latter preferring to buy the company’s way into greater market prominence. I don’t see it happening. Gates and Ballmer could finish each other’s sentences. If they had an issue at which they were at loggerheads, they’d resolve the argument behind closed doors, not hash it out publicly.

A second scenario suggests that Microsoft has decided belatedly and sincerely that the Yahoo acquisition option is no longer a worthy objective. As such, the company’s executive leadership has chosen to put the onus back on internal development, perhaps dedicating more resources to the effort henceforth. This is entirely possible, but not as likely as the third scenario.

Finally, Gates’ words — and some ambiguous commentary along similar lines from Microsoft Chief Strategy Office Craig Mundie — are just a ruse, a misdirection, to provoke Yahoo CEO Jerry Yang and his board members, through pressure applied by increasingly anxious investors, to reconsider and come groveling back to the bargaining table. Sadly, I think this is what the Microsoft crew is trying to achieve.

Microsoft is trying to achieve this effect not just with statements from its executive heavy hitters, but also with the carefully timed disclosure that Microsoft has released potential proxy board members from their agreements to serve in the event it made a hostile bid for Yahoo.

Again, as I have made abundantly clear, I don’t think Microsoft should be pursuing Yahoo, not at the previous price and not at a moderately smaller valuation. Still, evidence suggests that Microsoft hasn’t given up on the plan.

Kagermann’s Transparent Misdirection Play

When SAP CEO Henning Kagermann was asked earlier today what Microsoft CEO Steve Ballmer should do with $40 or $50 billion of loose change, he actually chose to answer the question.

Here’s what he said:

“I’d encourage him to spend it on Yahoo. For Microsoft, the challenges are more on the side of the consumer space not the enterprise space.”

Well, yes, Microsoft has more challenges on the consumer side of its house. Many of those challenges are so daunting that Microsoft will never solve them.

In fact, Microsoft is constitutionally and genetically incapable of addressing the needs of most consumers. Remember Bob? What about Zune? And, given recent developments, what about Microsoft’s overpriced stake in Facebook and its blunderingly inexpert bid for Yahoo, which has come to an ignominious end for both companies? That whole debacle arose from Microsoft’s muddled Internet strategy, which now, post-Yahoo, reemerges as an ungainly elephant in the room.

For the most part, on a prodigious scale, Microsoft has no idea what it’s doing in consumer markets. It’s only good at selling to consumers when it can treat them as a captive market, as indifferent or even antagonistic buyers of its latest version of Windows or its most recent Office suite. Notably, consumers don’t use those applications for amusement or entertainment, unless you consider the creation of PowerPoint presentations to be a diverting hobby.

Suddenly, though, threats to Microsoft’s biggest franchises can be seen looming on the horizon, at least in the consumer space. How much value will consumers place on Windows in the post-packaged-software era of Internet-based software as services? Moreover, will Office still be a necessity for mom-and-pop businesses, professional consultants, students, and other significant subsegments of the hoi polloi?

Make no mistake, Windows and Office aren’t on the precipice of consumer extinction. They might become endangered species before long, but they’ve still got a few years of money spinning left in them at retail.

Nonetheless, Microsoft is at sea when it comes to divining and fulfilling the interests and needs of online consumers. The Redmond giant, which made its name and fortune in packaged software, remains nonplussed and staggered by Internet-based computing.

All of which makes Kagermann’s comment so puzzling. The SAP CEO is no fool, despite his company’s continuing struggles to redefine itself as a software-as-service enterprise player. He knows that Microsoft has more challenges on the consumer side precisely because that’s also where Microsoft has the fewest answers.

What’s Kagermann’s game, then? I think he’d rather see Microsoft struggle ineffectively in the consumer space than see it strengthen its already considerable heft in the enterprise. Unlike in the consumer space, Microsoft has the mandate and the corporate DNA to triumph commercially as a dominant purveyor of integrated software-as-service solutions.

If Microsoft were to get its head on straight, it might even recognize that SAP could be a better, more logical acquisition target than the likes of Yahoo. Dan Farber, for one, sees through Kagermann’s misdirection play:

In 2004, Microsoft and SAP were in talks to merge but nothing came of it. It could be that Kagermann hopes that Microsoft acquires Yahoo so it will be distracted with the merger and not get any ideas about trespassing on SAP’s enterprise software territory.

Bingo! Farber gets it exactly right.

As for Microsoft, it’s time for the middle-aged software titan to admit that it’s not sexy enough for consumers, even though it remains a reliable, stolid presence in the enterprise. Where’s the shame in that? As SAP knows, there’s still money to be made selling technology to business buyers.

Is HP Keeping or Selling ProCurve?

In providing his overview of last week’s Interop event in Las Vegas, Jon Oltsik of the Enterprise Strategy Group makes an interesting observation:

It was very telling to see HP with a large booth in prime Interop real estate near the show floor entrance. The HP ProCurve networking division has always been the company’s best kept secret. Looks like the cat is out of the bag now–HP could be a candidate to challenge Cisco’s enterprise dominance in the next few years.

I’m not sure what to make of the heightened profile HP has been giving its ProCurve networking division. It could indicate that the company is making a serious investment to ProCurve’s success, or it could signal that ProCurve is for sale again. HP has come close to selling ProCurve in the past, and I’ve heard recent rumblings about ProCurve being on the sales block.

If ProCurve is for sale, which companies would be among prospective buyers? Even though I’m sure they’d make a hash of it, Nortel probably is in the mix, with Juniper also representing a possible buyer. The private-equity players — Francisco Partners had discussions with HP regarding ProCurve once upon a time — are sidelined by currently grim business conditions.

A potentially complicating factor is that Extreme Networks and 3Com appear to be on the market. As much as Cisco might look vulnerable to enterprise competition, it’s sobering to see how many companies have utterly failed in their bids to take market share and sustenance from Cisco in enterprise networking.

Considering the Fallout of Microsoft’s Failed Bid for Yahoo

As Microsoft ends its acquisitive pursuit of Yahoo — for now, anyway — many questions linger. I’ll explore two of them here. The first is, should Microsoft have raised its bid to close the deal? The second is, should Yahoo have accepted Microsoft’s offer?

Let’s deal with the first question up front. I think it’s the most interesting one to address.

Regardless of what one might attach to Yahoo as reasonable valuation, Microsoft’s pursuit of the company never made sense to me. It only illustrated, along with Microsoft’s ridiculously overvalued stake in Facebook, that the Redmond software giant has no coherent strategic plan for Internet computing.

Microsoft made its bones as a major-league purveyor of packaged software, both operating systems and applications. Ever since the Internet came into its commercial prime, Microsoft has made repeated missteps in trying to harness its power. The problem, it seems, is that Microsoft always has viewed the Internet as a subset of its Windows and Office empires, rather than seeing it as a technological juggernaut that subsumes — or will eventually subsume — everything in its path.

Oh, sure, Microsoft executives make the right noises when it comes to talking about the primacy of Internet computing and software-as-services business models. At the end of the day, though, Microsoft owns huge franchises in packaged software, and that’s where the company earns its prodigious fortune.

In big companies, especially public ones, money talks, walks, and dominates all else. Even with firewalls between different business units and divisions, Microsoft’s top executives and its board members will invariably show deference to and favor the Windows and Office money spinners. It’s impossible for them to do otherwise. It would be against the laws of nature.

This explains Microsoft’s conundrum. It wants to milk the Windows and Office cows for as long as possible, but it recognizes the looming competitive threat that Google represents. The trouble is, recognizing the problem and resolving it are not the same thing. Microsoft is trying to time its transition to new platforms and business models, looking to ensure that it only makes the move at a juncture where service-based, web-delivered software will not deliver a premature death blow to its big-margin, shrink-wrapped franchises.

Timing patterns of this sort are difficult to pull off, not least of which because competitors, namely Google, are not under the same constraints. Google will aggressively seek to cannibalize Microsoft’s installed base at every opportunity, as expeditiously as possible, whereas Microsoft will eat its own only when it believes they are long past their best-before date — which, when you think about it, is an inherently unhealthy, not to mention risky, practice.

This explains Microsoft’s desultory, seemingly random forays into Internet computing. The Facebook investment, for example, appears capricious and uncharacteristic in retrospect. Who would have imagined Microsoft would invest so much money for so little tangible business value and equity? It was a roll of the dice, a spin of the wheel, on social networking’s hottest trendsetter; but, as a strategic play, it was madness, the first notable sign of early senility in Redmond.

Then came the acquisitive run at Yahoo. Microsoft has failed repeatedly at the portal game, and it wouldn’t have done anything with Yahoo that Yahoo cannot already do for itself. In fact, Yahoo probably could do better on its own, though its shareholders won’t see the instant financial gratification they would have derived from a Microsoft buyout.

You say, what about search and attendant advertising? Well, what of it? Combined, Microsoft and Yahoo still would have trailed Google by a large margin. Agreed, by getting rid of Yahoo as a search rival, Microsoft would have consolidated share gains, but the simple Yahoo+Microsoft market-share equation wouldn’t have come to pass. It rarely works that way in merger aftermaths, as the history of technology-industry mergers makes abundantly clear. Would Microsoft’s acquisition of Yahoo have been worth $47.5 billion? This isn’t 1999, so think carefully before you answer that question.

What else would Microsoft have gotten from Yahoo? Some market-share gains would have accrued from combining or consolidating instant-messaging and web-based email services. That would have been worth something, I suppose, but I didn’t see anything revolutionary in Microsoft’s post-merger plans that would have unlocked additional hidden value.

So, on the whole, no, I never understood Microsoft’s big-money pursuit of Yahoo. Any acquisition would have demanded that Microsoft spend lots of money (one way or the other) and make considerable effort at organizational assimilation and integration — at potentially great risk to its corporate culture and Yahoo’s — for modest business gains. The risks heavily outweighed the rewards. To think that Microsoft not only considered such a move but made it, well, that tells you all you need to know about how adrift the company is with its Internet strategy.

Microsoft should be grateful that the deal was rebuffed by Yahoo.

As for Yahoo, the story is more complicated. Now that Yahoo has seen off the Microsoft bid, its shareholders will pressure the company’s board and executive team to pursue an alternative that offers at least as much recompense as the Microsoft offer represented. That won’t be easy.

It will look at search advertising deals with Google, it will evaluate tie ups with AOL, and it will look at whether anything can be done with Rupert Murdoch’s News Corp. Now that Microsoft has withdrawn from the picture, however, those parties might be less inclined to cut deals with Yahoo, partly because the latter is no longer in mortal danger and partly because they don’t feel the same sense of urgency that Yahoo has to make a deal.

Who knows? If Yahoo falters, Microsoft might return with the same bid or a lower one. It might even seal the deal next time. I still contend that it would be the wrong move for Microsoft.

What should Microsoft be doing? I’ll deal with that question at a later date.

Litigation as Business Model Backfires

As SCO executives continue to embarrass themselves with outrageous claims in courtrooms, one is reminded of an ageless axiom that applies to all technology companies that swap engineers for lawyers: He who lives by litigation dies by litigation.

Clearly litigation as a business model isn’t ready for mainstream adoption.

The Demise of Broadband Over Power Line

Om Malik today comes not to praise broadband over power-line technology but to bury it.

Writing about the apparent demise of the technology, Om notes that the Federal Communications Commission (FCC), including its former and current chairmen, Michael Powell (yes, Colin’s son) and Kevin Martin, respectively, were enthusiastic proponents of power-line broadband. He also notes that the FCC’s technological cheerleading ran counter to the feasibility and viability assessments of many industry cognoscenti, who continually cited technical and market limitations.

Not to be cynical, but I wonder whether the FCC really believed in the market efficacy of power-line broadband. As it pursued policies that consistently served the interests of telecommunications lobbyists and their corporate masters, it was convenient for the FCC to be able to point to a looming technological competitor to the broadband establishment represented by cable companies and carriers.

Conversely, maybe the FCC was just misinformed. If so, it would be neither the first time nor the last.