Software, Interrupted

I was somewhat shocked by the stellar results Oracle recently reported, considering the sorry state of the economy. I even called an analyst friend to find out if maybe there was some house of cards ala Computer Associated that explained the consistent rise in revenue and margin. But I was reminded of two simple facts explaining why Oracle remains dominant:

1. Applications drive database sales
2. Oracle owns pretty much everything

Oracle's acquisition streak has given the company an enormous breadth of offerings (say what you will about quality of the software) and the attempt at offering it's own Linux variant gives it an OS that's passable if not meaningful. But, I don't know that owning the operating system is important to the growth of sales in applications or databases. (Note: Matt Asay wrote a very good post about why Ubuntu should be Oracle's Linux of choice.)

Oracle applications and databases have to run on an operating system, but the operating system doesn't necessarily drive software sales, or sell databases. The OS may be a point of influence, but doesn't drive the dollar values that you get from software.

Meanwhile, Oracle has amassed such a wealth of software that it can not only drive it's own database sales through upgrades and replacements (JD Edwards or Siebel running on DB2 seems unlikely) but it can up-sell databases to customers of BEA or any of the other myriad applications it now owns.

Add MySQL into the equation and Oracle can sell you a database pretty much anytime for any purpose, to support any application (which you can probably buy from them too.)

This leads into some questions regarding Cisco's strategy, based on the idea that hardware should sell applications, as well as IBM's strategy, where services have often sold software and hardware. The future is of course a mix of all of these strategies, but it's not clear that another company is as well positioned as Oracle.

While certainly not unstoppable, Oracle's execution has been very impressive, especially in a down economy.

Follow me on Twitter @daveofdoom.

Many are concerned about cell phone networks getting overwhelmed on Tuesday during the U.S. presidential inauguration.

Cell phone networks are built to be oversubscribed, using statistical analysis to bet against a certain of users flooding a network all at the same time. While it's never been a fool-proof strategy, it's worked reasonably well until recently when smartphones and bandwidth-intensive applications have moved to mobile devices.

But cell networks aren't the only networks starting to get overwhelmed. Cisco Systems says that in 2012, Internet video traffic alone will be 400 times the traffic carried by the U.S. Internet backbone in 2000. Video-on-demand, IPTV, peer-to-peer video, and Internet video are forecast to account for nearly 90 percent of all consumer IP traffic in 2012.

"Cisco VNI projections indicate that IP traffic will increase at a combined annual growth rate (CAGR) of 46 percent from 2007 to 2012, nearly doubling every two years. This will result in an annual bandwidth demand on the world's IP networks of approximately 522 exabytes2, or more than half a zettabyte."

With this and the continued growth of converged networks within enterprise environments, the thought of the simple data network is no more. Networks have become highly complex and distributed, tasking companies with the need to scale to monitor and analyze all aspects of the voice, video and IPTV.

The network that has become overwhelmed in 2008 will become incredibly burdened in 2009 and beyond if companies do not manage their bandwidth.

I wrote previously about Cisco potentially becoming "the great open-source consolidator," and I continue to believe that Cisco has much to gain from open source.

But in looking through its collaboration offerings today, it's clear that Cisco needs to quickly fill a big hole in its product portfolio, open source or not: content management.

Why? Because Cisco is playing the collaboration game against companies that are rich in content management and seem to be getting the communications part down.

On Monday, IBM launched the beta of its "Bluehouse" product, designed to be a Cisco WebEx killer. IBM already has e-mail, instant messaging, content management (internally developed and through its FileNet acquisition), and more.

Oracle recently launched Beehive, an "open-standards based platform which aims to integrate team workspaces, calendar, instant messaging, and e-mail. All these utilities come with tightly tracked date stamped logging."

And then there's Microsoft, which continues to see rampant growth with SharePoint while simultaneously building out (and integrating) its Unified Communications Suite.

Cisco may view it as a competitive advantage to come at collaboration from the communications angle, and this is certainly a way of building from its traditional strength on the networking side. However, even after the relatively recent acquisitions of Jabber, WebEx, IronPort, Securent, and PostPath, Cisco is still missing in action on the core element to all of this collaboration: content.

Ultimately, enterprises collaborate around documents, and Cisco appears to have little to no strategy on managing that content. It has lots of ways to talk about it but seemingly lacks a central repository for storing, managing, auditing, and building workflows around that critical content.

Acquiring a company like Jive Software, while a great strategic move in some respects, would provide another way to chat about content but no clear way to store/manage/audit/etc. Or Cisco could acquire one of the last few remaining independent ECM vendors like OpenText, but its architecture and code are old, making integration painful.

Perhaps the most interesting play would be a move for Alfresco. Alfresco will do less than $100 million in sales this year, so it's not going to give Cisco a sales bounce. But at $39 billion in sales in 2008, very few companies are going to move the needle on Cisco's sales. What Alfresco brings to the table is leadership on emerging standards as well as a track record of being an OEM's choice for ECM.

Regardless of whether Cisco partners with Alfresco, buys OpenText, or takes a different road, it needs to plug the hole in its collaboration strategy. By buying PostPath, a Microsoft Exchange clone, Cisco has sent a signal that it intends to play hard with Microsoft et al. But without a central ECM strategy, its bigger strategy is a bit hollow.

Cisco Systems has always been a highly aggressive acquisition machine, and today's announcement that the company has acquired Jabber makes sense in light of the push toward enterprise collaboration that started with the acquisition of WebEx.

While Cisco made no mention of the fact that Jabber was largely open source, I would assume that's because open source is "accepted" at Cisco. A number of products contain open-source components, and despite some GPL issues in the past, Cisco has contributed to open-source projects.

So, is Cisco the company to consolidate open source, or to just consolidate software in general? I would be willing to wager yes, provided it can generate even slightly more revenue from the assets it acquires.

Typically, Cisco looks for acquisitions that would bring in $300 million or more of revenue (anything less isn't very material to the bottom line) and open-source companies are nowhere near that. However, with Cisco's massive brand power and ability to put pretty much anything into a box, they could easily monetize all kinds of open-source projects.

Several of the leading open-source companies fit right into the Cisco business: Hyperic (systems management, including virtualization), Funambol (mobile) and don't forget the world of SOA and system infrastructure, including XML acceleration.

Minus a few product like databases and CRM there are few open-source products that Cisco couldn't make money from. At the moment there isn't much appetite for open-source acquisitions at the obvious places (Sun, Red Hat, IBM, Oracle). Maybe Cisco will jump ahead of the traditional software players and consolidate the open-source ecosystem.

Cisco announced a new protocol called Etch, designed to take the place of SOAP in the Cisco Unified Application Environment (CUAE).

SOAP is a lightweight protocol for exchange of information in a decentralized, distributed environment. For many use cases, for example, very high-volume transaction flow, it's not always the right answer.

While SOAP relies on a very complicated WSDL file to define the interface between the client and server, Etch uses a file in Cisco's own interface definition language that shares many similarities to a Java interface file.

In addition to a simplified configuration, Etch also promises less overhead over the wire, compared to SOAP. In a testbed environment where SOAP was managing around 900 calls a second, Etch generated more than 50,000 messages in a one-way mode, and 15,000 transactions with a full round-trip, company officials stated.

Etch is slated to go into beta release this summer and will be released under an open source license TBD.

The WSJ reports on a (supposedly) growing trend of people looking for more stable (call them old-school) companies as opposed to start-ups.

The story cites the fact that IPOs are down and that getting to a public offering is taking much longer than it did in the 2000-era where you could basically get an office and file to go public. But that was never scalable and in fact contributed to serious economic confusion--especially here in the valley.

I believe that today's startups are much better managed than the companies that were being built in early 2000 or so. The era of irrational exuberance is clearly over (unless you are Facebook) and your chance of hitting the jackpot at a BigCo are pretty much zero.

I am sure there are many people who live in the Bay Area that are looking for security and stability and there are certainly many companies that offer those things. Yet, these safe companies like Intuit and Cisco are likely to weather the upcoming economic storm through massive layoffs just as startups are likely to flame out. Either way you end up without a job.

This weekend's NY Times article "Maybe Microsoft Should Stalk Different Prey" raises the point that perhaps Microsoft should reconsider the Yahoo acquisition to focus on what it knows, which is enterprise software.

New CNET Editor-in-Chief Dan Farber raises a different point in a post today--that there is still time for an internet land-grab and Microsoft should take this opportunity to nab Yahoo before it's too late.

Overall, I don't see the Yahoo acquisition paying immediate dividends. In fact, it's hard to see when it would pay off. Microsoft doesn't have the machine in place that would allow for a smooth transition with quick gains. There are a few companies, Oracle and Cisco, notably who are fantastic at acquisitions, but Microsoft hasn't yet built an effective acquisition engine.

There is another argument that says that internet is really not Microsoft's ball of wax, and instead the company should try to acquire SAP in more of an Oracle-style of leveraging assets across the same customer base. Unfortunately, that argument doesn't fly as it seems that Microsoft has finally realized there is a very real danger of losing the corporate desktop as it moves online.