Daily Archives: May 5, 2008

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.