Editors' note: This is a guest column. See Larry Downes' bio below.
Wednesday's announcement that the Federal Trade Commission had filed a complaint against chipmaker Intel came as quite a surprise.
Not because of the allegations themselves, which focus on illegal tactics the company allegedly uses to maintain its dominance in the market for PC and server CPUs. Nearly all of them have already been cited in regulatory actions in the United States and abroad.
Earlier this year, the European Union fined Intel nearly $1.5 billion for conduct similar to that alleged in the FTC complaint (an appeal is pending). New York State Attorney General Andrew Cuomo, likewise, filed an antitrust case against the company in November. Private antitrust suits, notably by competitor Advanced Micro Devices, have been ongoing since 2005. Japan and South Korea have already concluded their own actions against the company.
Rather, what is surprising about the FTC complaint is its timing. Given the range of both public and private litigation against Intel, it's hard to see what the FTC hopes to achieve by jumping in so late in the game. Indeed, the commission had been investigating the chipmaker since June 2008, before the EU reached its decision and before a landmark settlement between Intel and AMD was reached in the private lawsuit just last month, in which Intel agreed to pay AMD $1.25 billion and cross-license various patents.
According to Intel's statement Wednesday morning, the company and the commission had been close to a settlement "of all outstanding issues with the FTC" when the commission instead decided to issue its complaint.
The real deal
So what's going on here? Let's start by looking at a few key differences between the FTC action and those brought by other litigants. First, the FTC complaint broadens the charges against Intel. In early December, sources reported that the FTC had widened its investigation beyond CPUs to include anticompetitive behavior in graphics processing units, in which Intel is alleged to control about half the market.
Nvidia, one of Intel's main competitors for GPUs and itself a party in still another lawsuit, confirmed that the FTC had contacted the company about its investigation. (In a Wednesday statement, Intel argued that the GPU claims have not been fully investigated by the commission and are therefore premature. It appears that the addition of these new issues derailed the settlement talks, leading to Wednesday's action.)
Second, the FTC's complaint alleges multiple violations of the Federal Trade Commission Act, which only the commission has the authority to enforce. Under section 5 of the act, the commission may use its power to remedy practices that have not yet reached the threshold of harm necessary under either the Sherman Act or the Clayton Act, the more general antitrust statutes. As the U.S. Supreme Court put it in a 1953 case, the commission quotes from in the first sentence of its complaint, section 5 gives the FTC power to "stop in their incipiency acts and practices which, when full blown, would violate" the Sherman or Clayton acts.
Third, and perhaps most disturbing, the FTC's proposed remedies are much broader than those sought in any of the other litigation. Rather than seeking fines, penalties, or money damages, the commission intends to enforce wide-ranging changes to how Intel operates.
For starters, the FTC wants to limit Intel's use of bundled prices, quantity discounts, minimum purchase guarantees from original equipment manufacturers, pricing products below cost and other long-standing industry practices. Moreover, the commission intends to require Intel to license its technology to "others" on terms and conditions "as the commission may order" and to require Intel to preclear any future acquisitions, including purchases of intellectual property such as patents and copyrights.
These and many other restrictions on Intel's conduct would be overseen by an independent monitor appointed by the FTC. Intel would also be required to submit "periodic compliance reports" with the commission.
In short, if the FTC goes forward with its complaint, and Intel is ultimately found to have violated the FTCA, the company would find itself closely regulated for an undetermined period of time by the commission and its outside monitors. Even advertising and promotional materials would need to be reviewable on demand by the government.
Notable timing
None of these differences, however, add up to a justification for the FTC's decision to insert itself into a complicated matrix of ongoing litigation, just as the other actions are or are close to reaching resolution.
For starters, if the GPU claims are as strong as the commission says they are, then they could easily have formed the basis of a separate complaint, filed once the FTC had had a full opportunity to investigate them.
As for the FTCA, the FTC undermines its own argument that the special powers of section 5 are necessary to repair the semiconductor market. The commission notes throughout the complaint that Intel's monopolies and the behaviors it is seeking to remedy, with the exception of the GPU-related violations, have been ongoing since 1999--the year in which Intel and the commission settled an earlier section 5 complaint. Given that so many other lawsuits are already years in progress, it's unlikely that any "incipient" behavior is involved here; whatever Intel has done, it has done for years.
The FTCA is a red herring, in any case. As leading antitrust scholar Richard A. Posner noted in 2005, expansion of the Sherman and Clayton Acts over the years has left no real difference between the more general antitrust laws and the FTC's special powers under section 5. Private enforcement or lawsuits brought by the Department of Justice or state attorneys general now cover all the behavior that may have been subject only to what was once the broader powers of the agency.
The FTC's belated decision to pursue Intel brings Posner's longstanding critique of the commission into sharp focus. Posner, who has questioned the effectiveness of the commission since 1969, concluded in 2005 that the agency's continued existence might be justified, not for its enforcement of antitrust laws, but rather on the basis of its unique role in protecting consumers against fraud. The Department of Justice is a "powerful and highly regarded" federal agency tasked with enforcing antitrust law, Posner wrote, "but there is no counterpart federal agency that tries to protect consumers against fraud and oppression--unless it is the Federal Trade Commission."
And while the FTC complaint duly invokes "harm to consumers" 31 times in its complaint, evidence of any real damage will be hard to come by. Thanks to Moore's Law--Intel founder Gordon Moore's promise that semiconductors will continue to get faster, smaller, and cheaper every 12 to 18 months--the price of raw computing power has fallen dramatically and consistently since Intel was founded. Consumers are not being tricked or misled into buying computers with Intel processors.
Protecting consumers?
The commission can blow all the smoke it wants to about ensuring "freedom of choice" for consumers, but for better or worse, this litigation and all the rest of it is being brought for the benefit of Intel's competitors. Which is not to say that Intel hasn't violated anticompetition laws and that those violations, if left unremedied, "will have an adverse effect on competition and hence consumers," as the FTC delicately puts it.
Perhaps they will. But there is another, greater danger here, and that is the harm to the entire semiconductor industry that will result from regulators stepping in to resolve what are, in essence, private fights between Intel, its competitors, and some of its biggest customers.
The commission, along with its counterparts abroad and judges fashioning remedies in the public and private antitrust cases, might somehow get it right and fix the semiconductor market--or at least make it more efficient than it is under Intel's dominance. On the other hand, they might make things much worse.
The worst-case scenario seems increasingly likely. The FTC, in any event, is weighing in far too late on Intel's battles with AMD, and too soon in its fight with Nvidia and other GPU manufacturers. The remedies it intends to visit are breathtaking in their expansiveness and would leave Intel unable to compete, let alone compete fairly. The only beneficiaries of this latest chapter in the antitrust saga would be Intel's competitors, not consumers.
As Posner noted with characteristic understatement, an FTC untethered from its role of protecting consumers is little more than a tool for unhappy competitors. "If the competitor files a lawsuit, he must bear the expense of the suit," Posner wrote, "but if he can get the FTC to proceed against the seller, he incurs no cost. This opens up the possibility of using the FTC as a weapon against competition."
Even worse, it's a weapon that has the unfortunate habit of regularly backfiring on those who employ it.
The FTC wants Intel to grow up and start acting like a responsible company.
At least that's the goal behind the agency's lawsuit against the chipmaker. Filed on Wednesday, the FTC's suit charges Intel with a host of offenses, including using threats and rewards to convince PC makers not to buy chips from the competition, altering its compiler to weaken the performance of rival chips like those made by AMD, and preserving its CPU monopoly by stifling the market for GPUs (graphics processing units) made by Nvidia and other manufacturers.
On Wednesday, the FTC held a press conference in Washington in which it discussed why it launched the lawsuit now and what it hopes to gain.
Fielding questions from reporters, Richard Feinstein, director of the FTC's Bureau of Competition, explained that the allegations against Intel have been bubbling for the past 10 years. During that time, at each point in which Intel perceived a threat to its dominance, the company responded not by competing aggressively on its own merits but by behaving in a way that was exclusionary and detrimental to the competition and ultimately detrimental to consumers, said the FTC.
Federal officials said they chose now to file the suit in part because the allegations have continued and evolved over time, and also because many of the charges are fairly recent, such as Intel's perceived attacks on the GPU market.
Unlike other complainants against Intel, the FTC is not imposing any fines or financial penalties. Instead, the agency simply wants the company to try a little behavior modification. The government said it is looking for changes in Intel's conduct to help restore market competition.
In its complaint, the FTC provided a laundry list of remedies that it plans to impose on Intel if the company is found to have violated any laws.
The full list of 26 different dos and don'ts can be found in the FTC's complaint, but to name just a few:
- Intel can't directly or indirectly require customers to purchase only its CPUs or GPUs.
- Intel can't require a customer to buy a minimum or fixed number of processors from Intel.
- Intel can't withhold payments or other compensation to OEMs (original equipment manufacturers) just because the companies are not exclusively doing business with Intel.
- Intel can't directly price its processors so its customers pay below cost just to thwart the competition.
- Intel can't make hardware or software designed to inhibit processors made by competing companies.
- For customers who bought "defective" compilers, Intel must provide them with a working compiler at no cost and compensate them for the cost of recompiling their software using the new compiler.
- Intel can't coerce benchmarking organizations to adopt benchmarks that are deceptive or misleading.
- Intel must file periodic compliance reports with the FTC and for a period of time make available any advertisements, tests, reports, studies, and other documents that relate to the charges against it.
In charging Intel, Feinstein said that the FTC is relying on principles from Section 2 of the Sherman Act, which deals with monopolies, and Section 5 of the Federal Trade Commission Act, which covers deceptive or anticompetitive actions that affect consumers.
Section 5 also specifies that the outcome of the FTC's case can't be used to establish liability on Intel's part in any other antitrust actions. That may work in Intel's favor as its lawyers have certainly been putting in overtime dealing with the barrage of lawsuits against the company.
Intel recently closed the books on a 2004 antitrust lawsuit filed against it by AMD. As part of the settlement, the company agreed to pay its rival chipmaker $1.25 billion and promised to refrain from offering incentives to customers to keep them from doing business with AMD.
Intel is still appealing the record $1.45 billion fine imposed on it in May by the European Commission after the company was found guilty of violating European antitrust laws.
And in November, New York Attorney General Andrew Cuomo filed a federal lawsuit against Intel, accusing it of paying off computer makers like Dell with rebates to retain its monopoly and shove AMD out of the marketplace. Though this case is separate and distinct from the FTC's suit, Feinstein did acknowledge that he spoke to and compared notes with the state attorney general.
With Intel already facing severe financial penalties from these other lawsuits, Feinstein said he didn't feel another fine was essential for the FTC's case. But he said that in theory the FTC can go into federal court and seek financial penalties if necessary.
Last-minute allegations
In response to the FTC's action, Intel held its own conference call Wednesday in which the company discussed the allegations in greater detail..
Intel spokesperson Chuck Mulloy told CNET that substantial common ground had been reached in the discussions between the company and the FTC, especially after Intel settled its suit with AMD. But negotiations broke down because the commission raised certain last-minute allegations, such as the benchmarking issue and the GPU matter, and because Intel felt some of the suggested remedies were over the top.
Mulloy said that the benchmarking and GPU concerns had never been addressed in the two years that the FTC had been investigating Intel, both formally and informally, and were added a few weeks prior to the lawsuit being filed. He said the commission issued a subpoena to Intel requesting information on the GPU issue on December 8, about a week before the suit was launched, and did not wait for a response from Intel.
The chipmaker was also unhappy with a couple of the remedies proposed by the FTC. One sticking point in particular was the notion of compulsory licensing, in which the commission would have required Intel to license its x86 architecture to other companies, which includes those trying to make their own chips compatible with Intel processors. But Intel objected because it considers the technology to be its own intellectual property worth tens of billions of dollars.
Mulloy also said that talks broke down because Intel felt the FTC was trying to micromanage the company's pricing schemes--dictating how and under what circumstances it could offer discounts to certain customers. He added that Intel did make some proposals to the commission on discounting schemes, but this issue was never resolved.
Intel's view is that this is overreach on the part of the FTC, said Mulloy. He feels Intel was on track to settle and was disappointed that it couldn't get it done.
To move the case along quickly, the FTC decided to have it heard before an administrative judge rather than a slower federal court. The speedier process of the administrative court will begin with a trial in September, which Feinstein believes will conclude by the end of the year. Depending on the outcome, there may or may not be further proceedings before the FTC. But ultimately, the case would be reviewed by the FTC for a final decision. If the judge rules against Intel and the company appeals, that could take the case to the middle of 2011.
Ultimately, Feinstein believes that Intel's actions have deprived the marketplace of the vigorous competition it needs, affecting innovation, prices, and consumer choice. Despite the gains in the microprocessor market, Feinstein said he believes it's hard to know what the market might have done over the past 10 years had it not been for Intel's conduct.
Updated December 18, 5:45 a.m. PST with response from Intel
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Neelie Kroes
(Credit: EC)Competition commissioner Neelie Kroes and telecommunications commissioner Viviane Reding will take on new duties under a European Commission lineup announced Friday.
Kroes is designated as the digital agenda commissioner, with oversight of the European Network and Information Security Agency (Enisa) and the Information Society Directorate General, which supports IT activities. As such, she is responsible for increasing online access to content and for the digital economy. She has also been named a vice president of the European College, the group of all the commissioners.
At the start of her five years as competition commissioner, Kroes handled the EU's antitrust investigation into Microsoft, which ended in a 497 million euro fine for the software giant.
Read more of "EC reshuffle bumps Kroes out of antitrust seat" at ZDNet UK.
The European Commission must be feeling a bit silly right about now. Despite insisting that Oracle has not responded to its requests for comment and concessions in its planned acquisition of Sun Microsystems (and the open-source database MySQL), Amazon.com recently offered the EC all the proof it needs that MySQL competition remains alive and well.
Competition at pennies an hour.
(Credit: Amazon)For those who missed it, Amazon announced last week a fork of the popular MySQL database, called RDS (Relational Database Service). RDS is essentially a hosted version of MySQL, one that developers can write to at the minuscule cost of pennies per hour.
Oracle hasn't even started with MySQL yet, and it already faces significant competition, not to mention the other MySQL forks (e.g., Drizzle).
As Redmonk analyst Stephen O'Grady writes:
From here, it seems fairly clear that while RDS will not be the best option for every MySQL user, it will find a more than adequate market of customers who are willing to trade money for time, as (former MySQL CEO) Marten Mickos might put it. Assuming that Amazon can realize its typical economies of scale by amortizing the management and administration costs of the service over a wide array of machines, the product should more than pay for itself simply by widening the addressable market.
How much wider will it make the addressable market? At a minimum, it will lower the barriers to entry for customers with relational needs (read: most customers) and a lack of cloud expertise. It will be fascinating to see, however, if Amazon has far grander ambitions in mind.
Interesting, and somewhat unfair to Oracle. Presumably Amazon's entrance into the MySQL market is A-OK because Amazon isn't currently a database company, but it is a significant and growing infrastructure provider. Why should it get to own a complete stack, but Oracle can't?
That, after all, is what Oracle is attempting to accomplish with the Sun/MySQL acquisition. Sun gives it hardware, while MySQL gives it a strong entry into the Web database market and an effective hedge against Microsoft in lower-end enterprise needs.
Oracle's bid for Sun/MySQL, in other words, isn't about squelching competition, but rather about enhancing it. Amazon's RDS proves that strong, viable competitors to MySQL can arise from within the MySQL community, which disproves the EC's argument that Oracle's control of MySQL will somehow crush competition.
And if the deal doesn't hurt competition, as Amazon RDS all-but-proves it doesn't, then the EC's opposition is hollow and should be shelved, as The 451 Group's Matt Aslett argues.
It's time for the EC to acknowledge it was wrong, and move on. Amazon surely has. But until the EC makes a final decision, Oracle (and MySQL) can't.
Mårten Mickos
As the European Commission continues to evaluate the potentially deleterious effects of Oracle's proposed acquisition of Sun Microsystems and its open-source MySQL database, concern is rising that delay will harm MySQL without helping competition.
One who shares this concern is former MySQL CEO Mårten Mickos. On Thursday, Mickos sent a letter to Neelie Kroes, the European Union's competition commissioner, urging that the deal be approved for the good of the market and MySQL. He also spoke with CNET News' Stephen Shankland on Thursday.
Below is the edited full text of the letter.
Helsinki 8 Oct 2009
Mrs. Neelie Kroes
Commissioner for Competition
European Commission, J70
B-1049 Brussels/Brussel
BELGIQUE/BELGIE
Dear Commissioner Kroes,
I am writing to you regarding your review of Oracle's pending acquisition of Sun Microsystems. As I understand it, the EU Commission is concerned about a risk of undue concentration of power in the database market. Having been the CEO of MySQL from 2001 to 2009, and built a business that was serving a new market unmet by Oracle and others, I can agree with the questions posed, but I do not share the concerns that have been expressed. In the following, I will explain why.
In brief, my reasoning is as follows:
- Oracle has as many compelling business reasons to continue the ramp-up of the MySQL business as Sun Microsystems and MySQL previously did, or even more.
- Even if Oracle, for whatever reason, would have malicious or ignorant intent regarding MySQL (not that I think so), the positive and massive influence MySQL has on the DBMS market cannot be controlled by a single entity--not even by the owner of the MySQL assets. The users of MySQL exert a more powerful influence in the market than the owner does.
Many expected Oracle to harm MySQL as far back as 2005, when they acquired the InnoDB storage engine that plays a crucial role for many MySQL customers. And yet Oracle increased their investment in InnoDB since that time, making MySQL a stronger player in the market.
For further detail on my views on Oracle's intent, please see this interview with me in Forbes Magazine in April 2009.
It may at first blush seem counterintuitive that control of the MySQL assets does not automatically bestow control of the MySQL installed base. But the free installed base of MySQL--enormous on a planetary scale--is voluntarily but not mandatorily coupled to the commercial market of MySQL. It produces huge benefits to the MySQL business, but it is not controlled by it.
Background
The impetus to write this letter comes from my concern with the talented teams of the MySQL business unit and of Sun Microsystems in general. I am also troubled by certain factual distortions about a subject matter that I am intimately familiar with: MySQL and its business model. Open-source business models are complicated and quite different, and it took many years to fully understand and shape the one of MySQL.
A Finnish citizen, I served as chief executive officer of MySQL from early 2001 to February 2008, when Sun acquired MySQL. After that, I served as senior vice president of the database group at Sun until the end of March 2009. Being the only person to have served as the CEO of MySQL and to have attended every board meeting ever held, I believe I have unique insights into these matters.
To be clear, I resigned from my position in March 2009, and I presently have no commercial or financial interests in the MySQL ecosystem, Sun, or Oracle (or any other vendor in the DBMS market, for that matter), other than my loyalty to Sun employees in general and the MySQL team in particular.
MySQL's Markets and Installed Base
MySQL is the world's most popular open-source relational database, and potentially the most popular relational database of all. It has an enormous influence and impact on the usage and the buying patterns of relational databases (also known as RDBMSs), in particular for Web applications. One might even state that the Internet would not be what it is today, were it not for MySQL. Staffed by a highly talented team of passionate employees, the Swedish company MySQL grew the MySQL business from a small one in 2001 to a massive one in 2008.
"MySQL" refers to two things. On the one hand, there is the huge (community) phenomenon MySQL...On the other hand, there is the business of MySQL...Those two meanings of the term "MySQL" stand in a close mutually beneficial interaction with each other. But most importantly, this interaction is voluntary and cannot be directly controlled by the vendor.
In this discussion, the term "MySQL" refers to two things. On the one hand, there is the huge phenomenon MySQL--an estimated 12 million active installations under a free and open-source software license, millions, if not tens of millions, of skilled users and developers, and tens of thousands of corporations who use MySQL one way or the other.
On the other hand, there is the business of MySQL, which is growing rapidly, thus rewarding the owners of the assets (currently Sun Microsystems).
Those two meanings of the term "MySQL" stand in a close mutually beneficial interaction with each other. But most importantly, this interaction is voluntary and cannot be directly controlled by the vendor.
What I mean is that the vast and free installed base of MySQL is using it of their own free choice, unencumbered by the vendor and under no obligation or restraint. That is the nature of open source. And conversely, the MySQL business is supporting the free installed base of MySQL (by improving the product) voluntarily and in the hope of deriving benefit from the installed base.
This is the paradox of an open-source business, and it took me a long time to truly understand how powerful a force it is. It is unlike any traditional business. The key point is that both the users and the vendors of open source are engaged in a powerful free-market dynamic that cannot be contained by any single entity.
It is in everybody's interest that the two sides of MySQL produce benefit for and derive benefit from each other. But neither group can mandate or control the other one. This is a core philosophy of open-source software and more generally of the "architecture of participation" (as defined by Tim O'Reilly). There is a mutually beneficial voluntary relationship, but there is no control by one group over the other. In more colloquial terms: the owners of MySQL cannot force MySQL users to pay up, and the nonpaying users cannot force the business to subsidize them.
Anyone acquiring the MySQL assets will therefore acquire an ability to control the business aspect, i.e., meaning how MySQL is licensed commercially, but only an opportunity (and no free reign) to derive benefit from the free user base.
This explains how the MySQL business can be valued highly in the market ($1 billion, when acquired by Sun in February 2008) while at the same time providing no way of controlling its installed base. This unusual relationship between market share and installed base is at the core of the topic. The market share is small but controllable, to some degree. The installed base is enormous but not controllable. The installed base is, and can be, hugely beneficial to the owner of MySQL, but only to the extent and for as long as this owner of MySQL enjoys the trust of the installed base.
To put it in numbers, it may be useful to see the usage of MySQL, as divided into three categories:
... Read more
Neelie Kroes
(Credit: European Commission)IBM and Hewlett-Packard could not have planned it any better.
The European Union has launched an in-depth investigation into Oracle's acquisition of Sun, potentially delaying the merger by several more months. In doing so, the EU is actually guaranteeing the demise of Sun's hardware business and gifting it to Sun's competitors by misunderstanding the deal's impact on open source, generally, and on MySQL, specifically.
If you haven't been paying attention, the delay on the merger due to U.S. and EU scrutiny has already resulted in two shockingly bad quarters from Sun. Many enterprise customers are already moving to competitors like IBM because of the uncertainty surrounding the future of Sun products, The Wall Street Journal reports.
Further delay will only compound the problem.
Unlike the U.S., which approved the deal, the EU's Competition Commissioner Neelie Kroes is concerned that Oracle's takeover of Sun will end up diminishing competition:
Systems (like MySQL) based on open-source software are increasingly emerging as viable alternatives to proprietary solutions. The Commission has to ensure that such alternatives would continue to be available.
The Commission doesn't have to. MySQL's open-source license already does. It's open source: even Oracle can't put the open-source genie back in the bottle once it has been released, as MySQL has, under the GNU General Public License.
Consider: some of the folks cheering loudest for the EU to clamp down on the proposed merger, like representatives from Monty Program, have already demonstrated Oracle's (and Sun's) lack of control over MySQL. Monty Program has created a significant fork, or derivative, of the MySQL database, and stands to gain much by the EU's obstructionism.
In delaying the merger, the EU isn't helping MySQL. It's helping its competitors, including Drizzle, OurDelta, MariaDB (Monty Program's fork), Percona, etc.
Competition within and around MySQL is alive and well, regardless of Oracle. After all, as former MySQL CEO Marten Mickos has been saying for years, MySQL has never really competed with Oracle, anyway. MySQL serves (and has helped to create) a very different market: the Web database market.
When asked in April if Oracle's bid for Sun would end up hurting MySQL, Mickos responded: "MySQL works for Web-based applications. Oracle is for older, legacy applications." The vast majority of Oracle's revenue comes from enterprise IT. The vast majority of MySQL's revenue comes from Web companies like Facebook, Google, etc.
MySQL and Oracle don't really compete. They live in two very different markets.
So, if anything, Oracle's acquisition of Sun helps it leverage MySQL into a market--the growing Web database market--that its own technology is ill-equipped to manage. It also gets a lower-cost product with which to bludgeon its real enemy, Microsoft, coupled with a greater footprint in the rising open-source developer community.
Open source is not the enemy in this deal. Microsoft is.
The EU, however, has made itself an enemy to Oracle, Sun, and MySQL by holding up the merger, a situation that will only get worse due to its glacial pace, as CIO.co.uk's editor Martin Veitch suggests. Customers are not the beneficiaries of its intervention: Sun's server competitors like IBM are.
Though the EU purports to be in tune with open source, its meddlesome muddling reveals a surprising ignorance of open source, and shows a complete disregard for MySQL's true market opportunity.
UPDATE @ 6:59 Pacific on 9/4/09: I solicited comment from Gartner vice president and Distinguished Analyst, Donald Feinberg, who had this to say:
The EU does not understand open source. This is clear by using DBMS (MySQL) to extend the deadline. It also is clear that this is an attempt to use MySQL as a cover-up to a political agenda. It is protectionism at its worst.
The EU is entering deep water here, water that it clearly does not adequately understand.
Follow me on Twitter @mjasay.
As Cisco Systems adds more functionality to its online WebEx conferencing service, it's ratcheting up the competitive pressure against partner and rival, Microsoft.
Cisco held a press event Tuesday to discuss how it plans to add more to its WebEx service. As the company includes more software into the conferencing service, it is competing more intensively and directly with one of its major partners, Microsoft.
"As Cisco expands this business, the co-opetition between Cisco and Microsoft will only increase," said Zeus Kerravala, an analyst with Yankee Group. "Microsoft is strong on the desktop and Cisco is taking a lot of these software functions into the cloud."
WebEx is a leading Web conferencing service that Cisco bought in 2007. This was Cisco's first foray into offering a service. And the product has been very successful. As a result, the company has used the service as the foundation for its emerging big business collaboration tools. Cisco has also recently bought two other companies that it plans to feed into the service.
Primarily, Cisco is adding more unified communications functionality to the service it calls WebEx Connect. This is an extension of the Web-based video conferencing service that also includes instant messaging and presence. Using technology from Jabber Cisco will add even more presence functionality. And through the acquisition of PostPath, it will add e-mail into the mix.
Cisco already competes with Microsoft in the unified communications market. In fact, the two companies are strong rivals here. But Microsoft has had an advantage over Cisco with its strong presence on the desktop.
Now Cisco is taking these services into the "cloud," where the company can leverage its existing expertise with WebEx to provide a virtual solution for its corporate customers.
But Cisco isn't just stopping with unified communications. The company is also in the early stages of offering document, spread sheet, and presentation creation and sharing as part of WebEx. These are very clearly areas where Microsoft has a strong foothold and a very strong business. The company's Office suite, which includes Word, Excel, and PowerPoint, is part of its business productivity portfolio. And Microsoft makes a lot of money from this software, about $60 billion of its sales during last fiscal year came from these products.
But Alex Hadden-Boyd, director of marketing for the collaboration software group at Cisco says that Cisco has no intention of going after Microsoft's core Office business. Instead, she said that Cisco is more interested in providing collaboration tools online that groups can use to create and share documents, spreadsheets, and presentations.
"If you look at WebEx Connect today, we already have the beginnings of this," she said. "We have team spaces with shared files and wikis. So we are already well on our way down that road. But we are not focusing on productivity applications or individuals such as re-creating Excel or PowerPoint."
"We are using our existing resources and we have no intention of creating the next Word application for individuals," she added. "We simply are trying to make it easier for work groups to share documents in a team space."
Yankee Group's Kerravala agrees that it doesn't make much sense for Cisco to try to compete against Microsoft's Office products at the desktop level.
"Cisco is not going to take on Microsoft head-to-head on the desktop," he said. "And the reason is simple. They know they'd lose. But Cisco has invested in the cloud and service technology that allows them to approach it differently."
That said, Hadden-Boyd said she does see competition increasing between Cisco and Microsoft in the overall collaboration market. She said the two companies will continue to compete aggressively in collaboration software such as IM and conferencing. Microsoft already offers IM and conferencing and is working on Web-enabling its Office applications.
But Cisco could some day compete head-to-head with Microsoft's email Exchange platform with its new e-mail service from PostPath.
"We could see that as a possibility," Hadden-Boyd said. "We could see businesses using PostPath for e-mail instead of Exchange."
As for the online collaboration market, Cisco and Microsoft aren't the only ones developing solutions. Google also offers document creation and sharing online. But so far those services haven't gotten much appeal outside of the individual consumer market. And it has yet to take shape in the enterprise market.
"Google is the wild card here," Kerravala said. "People are expecting Google to get into the enterprise market. And I see it possibly taking off with a younger kind of worker. But Google has never monetized anything outside its advertising revenue. So it will be interesting to see."
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