Microsoft profits tumble: Big switch tipping point?

Is this the Tipping Point from on-premise software to software as a service? On the same week Microsoft announced a 32% drop in profits Apple reported sky rocketing profits.  Still the Redmond giant has a long way to fall. It makes a cool $1b Nett profit every single day! However, this is a striking contrast in fortunes during a recession. The downturn is acting as a catalyst of change and speeding up the Big Switch to cloud software services. The way we access and use technology applications is changing.

At the heart of Apple’s iPhone success is the App Store and iTunes. Apple is successfully up-ending how music is distributed and how mobile phones are used. Microsoft’s poor financial results also follows the closing down of Microsoft Encarta last month. Microsoft gave up the fight because its traditional software could no longer compete with the likes of Wikipedia. The good and bad news keeps coming thick and fast. Only two months ago the SaaS CRM provider Salesforce.com reported a 34% increased in revenues and broke the philological $1b revenue barrier.

Its far too early to write Microsoft off but can the giant keep up with the increasing rate of change? Microsoft has rarely lead from the front but they have turned around and court up in the past. Microsoft’s response to the Cloud Computing Big Switch is Azure. The challenge for Microsoft will be to move away from its reliance on software licence revenues to a service based model. I’m not entirely sure they will be able to pull this one off..

The future of software: Open source, but where’s the profit?

I’m fascinated by Open source. It’s changing how software is developed, marketed and customised but can commercial Open source firms make healthy profits? They have been grappling with this challenge since the 90’s.  “Keith Curtis, an 11-year veteran of Microsoft, believes deeply that open source is the future of software” as discussed by Paige Finkelman. It seems the old proprietary and open source models are dead and commercial Open source vendors are now evolving into a mixed hybrid model.

Is this the key to a profitable open source model?

This year I met two evangelical CEO’s of commercial Open source firms, Ismael Ghalimi of Intalio and Aaron Fulkerson of Mindtouch. Ismael attempted to commercialise with GPL licencing but had to restart his business twice, racking-up $43m $34m in debt investments. A recent report form The 451 Group entitled “Open source is not a business model” concludes,“There is very little money being made out of open source software that doesn’t involve proprietary software and services.” Stuart Cohen thinks that the Opensource model is broken and “open-source companies that rely on support and service alone are not long for this world.”

Open source firms such as Intalio and Mindtouch are increasing becoming a mixed model supplying both open source community versions and chargeable enterprise editions which are reliant on proprietary code. Whether they will make healthy profits is yet to been seen. We know it can be done. Red Hat is the leading Open source commercial provider with revenues of $400m (2007). Profiteering from an aquision as good as the Sun $1b purchase of MySQL is unlikely to come around again soon because the revenue challenge remains. MySQL makes a mere $60m from support and services. This compares against Oracle’s $22b in licence and service revenues.

Some concider MySQL a growing threat to Oracle. Conspiracy theorists see the Sun deal as trying to stop Open source growing so that the perpetual software vendors such as Oracle can continue to make huge profits. It turns out Sun’s aquision of MySQL is not going well with latest version having major bugs. Ismael believes that “traditional Software is a dead market with propriety software companies no long existing in the future”.

I believe this new hybrid Open source/propriety mix is the future of software. Open source brings firms like Intalio and Mindtouch a huge developer community and a powerful marketing channel.  Customers get cheaper, better software which is much easier to customise and integrate. This market change will spell the end of enormous profits for future software vendors.

However today’s big software vendors ain’t going down without a fight. Microsoft have taken a strong stance against Open source with accusations of patent violations. Some believe this attitude will change at Microsoft in the post Bill era as discussed by Dana Blankenhorn & Paula Rooney of ZDnet. I don’t think so. Does a leopard change his spots? The recession we are now entering is likely to be a long and deep depression. This pressure on budgets could be the catalyst which ushers in a new dominate software model into the market.

Enterprise 2.0 Boston Day 1 – Tuning in to the thoughts of the crowd

How we listen and how we talk to each other is evolving because of Social Media. Face to face conversations remain much the same but group discussions and sharing information is becoming richer with individual expression and involvement.

For example, presentations are no longer a one way street where the presenter talks at the audience with only the brave or loud speaking up to ask questions during the session. The quiet, thoughtful or shy among us, who often hold the most valuable input, have a new voice to express their opinions. Instant Micro blogging platforms such as Twitter enable audience group discussions to be made during presentations under the nose of the speaker. Is this a bad or good thing?

It was in evidence today at the Enterprise 2.0 Conference in Boston (USA) and was even being encouraged by the organisers, TechWeb with their ‘Backchannel’, a Twitter type service. Conference 2.0 with two way communication as I called it out to Steve Wylie. It was like watching a voting system where the speaker and their content was reviewed in real-time. This can go very badly for the speakers as with the well know South-by-Southwest interview with Sarah Lacy or very well as with IBM presentation today I sat in on.

Unfortunately it did not go so well for Lawrence Liu, from Microsoft, who brought in real boxing gloves onto the stage he shared with IBM. It seems he was dealt a KO blow by IBM’s Connection product demo judging by the audiences instant blogging silent but strong conversations.

In fact several of the audience, including Susan Scrupski, said to me that the real-time discussion on instant blogging was the most valuable part of the session. It is interesting how the value is within an shared discussion and not what we are told. Perhaps there are lessons to be learnt for management and in encouraging innovation. Conference presenters hold a lot of power over an audience just as senior management do over organisational discussions. Both conversations need to be unrestricted and even nurtured to bring involvement and realise the power and value of many creative minds.

Unlearning the technology bible to find transformation innovation

Last week I was challenged by a blog reader as over using Geoffrey Moore’s technology innovation curve. In 2006 Crossing the chasm was described by, Tom Byers of Stanford, as “still the bible for entrepreneurial marketing 15 years later” and only last month AIMM produced a  thorough 90 page report that uses the innovation curve categories to track the progress of Enterprise 2.0 technologies:

This report aimed to define Enterprise2.0 and uncover firms perceptions and positions on this emerging technology. Rather than summarize the report you can find views on Niall Cook blog post or CMS Wire ‘Organizations Still Don’t Get Enterprise 2.0’.

Moore’s technology innovation curve acts as a guide to past patterns of innovation and can shed some light of possible future patterns. The innovation curve has become so engrained for such a long period of time, in the timescape of the technology market, the real value is to be drawn from predicting the behaviour and actions of industry groups, who have faith in and play by the rules of a industry standard ‘bible’. I therefore think it is fundamentally important to understand the rules laid down by a gospel of technology innovation, before the patterns generated by these rules can be broken and transformational innovation realised.

By transformational I refer to a changing of the rules of the game as Google has achieved with their run away success ad generating model, much to the annoyance of Microsoft’s Ballmer referring to Google’s as a ‘one trick pony’ in 2007 and Microsoft’s change in strategy the same year, ‘We are ‘hell-bent on succeeding in ads’, Ballmer .   

Ballmer punching air

 

Naturally the ideas from Crossing the Chasm are not without there weaknesses and the book could do with updating as highlighted in an article in 2007 by Alex Iskold of Read Write Web, however it does offer us an platform from which to predict the cause and effect patterns of both customers and industry players. Players such as Microsoft and Oracle who hold the gateway to the convensional route of the mainstream market. My point is that to find truly significant innovative possiblities we need to understand how a market thinks and then unlearn all we have learnt to really innovate. As Einstein put it, “We can’t solve problems by using the same kind of thinking we used when we created them”

The ‘voyeuristic’ pleasure of watching someone else’s thoughts unfold

Having been convinced of the writers addiction to receiving feedback through channels such as blogs and Twitter I turn to focus on why the reader returns to read new blog entries, posts comments or even shares the link with friends. The value to the reader of repeated interactions can include learning new information for social, career or company gain or perhaps it is simply for pleasure.

For many years I have been fascinated by TV programs dedicated to watching others life’s. More recently this has been taken to a new level with Reality TV which I believe was challenged by the Truman Show movie (or reinforced depending on your point of view).

It would seem for many there is a ‘voyeuristic’ pleasure to be gained from watching someone else’s life and the web social media phenomenon maybe tapping into this powerful need and desire. These new technologies give the viewer an opportunity to get even closer to a subject with an instant view into a real, familiar and non-fictional characters life.

Many years ago I was friends with one of the consultants I once worked alongside at an IT consultancy. We both moved to work for Novell at the same time but have not been in touch for many years since he moved to the USA to progress his career. He was very passionate and committed to his work and this is shown on his Novell blog.  Recently he moved from Novell to Microsoft after a conflict over direction, with this highly charged change and emotional fallout played out on his blog. The strange thing is I have rediscovered our friendship through his blog story, although it is only really a one way relationship.

We can now communicate with many close-tie friends, loose-tie contacts and strangers using the new social media technologies with the reader selecting the people who they want to read about whether it be a friend, contact or someone who has interesting or useful things to say.

As a society we have been growing the number of information channels and now the individual can selectively choose the information they wish to receive, be it from a specific TV channel, specialist interest publications or feeds from the Internet. This continuing fragmentation of channels has created a crisis in the media industry and is fundamentally changing how we are being targeted by advertisers. ‘Ad’ based Internet sites such as Facebook and viral marketing campaigns are leading innovation in the marketing industry.

Social media is a developing channel being harnessed by many individuals to market themselves and promote their employers using the ‘Play’ or ‘Act’ of there life to attract an audience. It seems the line between work and home life is continuing to blur with new technology and attitudes changing how we communicate on a personal and business level.

Truman exits one reality into another..