This is shaping up to be quite a winter of discontent. Mass layoffs at home and mass demonstrations abroad have combined to foster a seething desperation around the world that would have warmed the cockles of Dickens' Madame Defarge.
But shouting "off with their heads" only gets you so far. Whether we like it or not, the deterioration of the global economy has forced companies everywhere to take hard looks at how well they generate value. Especially in the Internet age, where your competitor may only be a mouse click away.
Infosys co-chairman: Nandan Nilekani
We Americans were first to figure this stuff out. But that was a fleeting moment in history. The rest of the world has since caught up-and in many cases surpassed us. Case in point: the success of the overseas entrepreneurs who have built multi-billion dollar outsourcing operations that have since become so integrated with the United States' technology industry.
The New York Times' Tom Friedman was spot on in his 2005 book "The World is Flat" when he argued that inexpensive and ubiquitous telecommunications have helped to foster international competition. So it is that in the aftermath of the dot-com bubble burst, companies like Infosys have been able to grow exponentially. (One should note that Infosys derives over half of its revenue from on-site and near-shore assignments in India.)
But this is more than just a low-cost game. When I spoke earlier this week with the company's co-founder and current co-chairman, Nandan Nilekani offered a piece of advice that every U.S. company would have heeded-had they had the opportunity for a do-over.
"All of this global growth the past few years gave us a pass on making fundamental reforms," he said. The boom times, he continued, essentially papered over the cracks in the system "that should have been addressed."
Nilekani advocates a back-to-basics approach where companies invest in their most precious asset: their human capital. How's that for a role reversal? But Infosys has taken the lessons of America's great success in high-tech to heart and spends millions of dollars annually on corporate education programs that ultimately produce a better trained cohort of employees.
Infosys spent about $400 million to build its campus in Mysore, India, where it teaches around 13,500 company "students." The follow-up course work includes yearly refresher courses. It's a coveted place to work. Infosys received 1 million applicants last year for 25,000 job postings.
Infosys may be a proverbial one-off. In a deep recession that sometimes appears close to slipping into a depression, you won't find many companies, big or small, eager to invest big bucks on education and training. Not when budgets are getting slashed and the visibility about what the next quarter may bring is opaque.
But one day--and I can't predict when--all of this will end. One wager, though, I will make: when the economic miasma lifts, watch companies that had the means and the will to invest in the best trained workforce money could buy. They're going to be ready to kick butts and take names.
When Ted Murphy started PayPerPost (now called Izea) in 2007, he immediately raised hackles by proposing that companies pay bloggers to post items about their businesses.
Izea CEO Ted Murphy
(Credit: Izea)ReadWriteWeb's Marshall Kirkpatrick described Izea as a "Search Engine Optimization scam that threatens to torpedo the reputation of the already widely questioned blogosphere. It may also be a perfectly fair way for small time bloggers to make a living, depending on who you ask."
"None of us are pure and there are few firm lines established regarding what is and is not acceptable when you're trying to make money blogging (I called a paid review service brilliant just last post) - but disclosure of payment is one of the most basic requirements for paid blogging to be ok. Even with disclosure, PPP is a sketchy operation; the disclosure story at PPP has always been a little murky."
Truth be told, that was among the milder critiques of Murphy's business, which critics attacked for blurring the separation between advertising and original opinion.
So it's been a while since PPP, or Izea, was heard from. More recently, however, it was back in the news when it facilitated a Kmart-sponsored free shopping spree in December for bloggers who wrote about the experience. Here's the transcript of a recent conversation I had with Murphy, who counts a roster of 265,000 bloggers ready for future assignments.
Q: Why did you change your company's name from PayPerPost?
Murphy: When we originally launched, we were just PayPerPost, but now we have a variety of different properties, like SocialSpark and Bloggers Choice, so we wanted more of a corporate umbrella to house our different operations.
When was that?
Murphy: In November 2007
It's a recession out there, obviously. How's the company doing?
Murphy: This down economy has really been a good thing for us. A large number of bloggers are looking to make some additional money and supplement their incomes. Advertisers are looking for alternatives to more expensive media. So, it's a bit of a perfect storm.
What was the genesis of the idea for starting your company?
Murphy: I started an interactive agency prior to Izea in 1999. In 2004, I started doing some blogger outreach programs, things like giving away movie tickets and gift cards. And I quickly realized that while it was great and people would blog about our clients, it was also incredibly resource-intensive and really impossible to scale those efforts. Depending on the client, it was hard to find the right bloggers. The base of bloggers would constantly have to change. Just because we found a blogger who blogged on entertainment, our next client might not be in the entertainment business so we'd have to start from scratch.
I looked at what Google was doing with all those self-service ad tools. and thought it would be great to create a marketplace where all those bloggers and advertisers can find each other.
Describe how this works in practice. Let's say that Charlie Cooper Enterprises makes thumb widgets and they come to you and want to contract with Izea. What happens?
Murphy: You would create an opportunity in one of our marketplaces and you would say, "I'm Charlie Cooper enterprises. We've got this thumb widget and here are its features as well as a link to the Web site. We'd like you to check it out and tell us what you think and then link back to the site." The people who are part of our network would browse through the opportunities and if it would be a good fit for them and their audience, they'd post it on their blog and submit the URL back to us, which we would provide to you.
How do you handle payments?
Murphy: It's an electronic payment to us and then we pay the blogger through PayPal.
Why do you think that the practice of companies compensating bloggers in this way is not any longer considered taboo?
Murphy: I think a lot of it has to do with the frameworks that have been put in place. It's not just us, but the PR folks as well as other governing bodies to make sure that there's a certain level of transparency and disclosure happening with these transactions. And the freedom of voice with the person writing these posts being protected. When people first heard about the concept, they thought it was all about shilling. But when you're shilling, you're trying to kind of hide that relationship. We try to be totally open with readers and give bloggers a sense of protection so that they can say something they don't like about the product and still get paid.
So a blogger can a slam a company and its product?
Murphy: They could do that. Typically, a blogger's not going to slam a product or service. They're typically going to shy away from those if they don't like the product or a service, but it's not going to all be roses...
Every once in awhile, we will get someone who slams a product or service. But more usually, it's a case of being balanced. You have to take the good with the bad.
And what are their marching orders when they receive the assignment?
Murphy: Typically, we just point them in a high-level direction: Here's the Web site, here's what we think is important...share your experience. These mostly are Web sites or existing products that people may have. It works particularly well for Web sites because anybody can do it.
And how are they compensated?
Murphy: You're going to get paid on a per-post basis, depending on how big of a blogger you are or how well known you are. It's a sliding scale. We track the clicks and the advertiser gets to see that information back in real time. When you sign up for SocialSpark, we give you a piece of code to put on the site to give you a rank against other bloggers on network based on their traffic.
Do you require them to note high up on their blog posts that they are essentially hired hands?
Murphy: Every single post has to be disclosed and we give them a disclosure badge. That's a little piece of code they embed in their posts that lets readers know it's a sponsored post.
The argument you hear against the idea of "compensated conversation" is that if marketers pay bloggers to write about their experience with a brand, that sends a buyer beware signal to people reading the blogosphere for insight.
Murphy: I think at the end of day it comes down to the bond between blogger and the reader. Any site that I happen to stumble upon, I don't automatically give that a high level of trust. But the Web sites I go back to on a daily basis, as long as that blogger is being transparent and disclosing those relationships, I feel comfortable that they're telling it like it is. People in our network are compensated on connecting to their audience...so it's very much in the bloggers' interest to be true to the audience and share their experiences.
For more than two decades, personal computing has been anything but inexpensive. To be sure, prices for the average computer have dropped substantially since the 1980s. But with the exception of the occasional bargain or bare-bones configuration, the price of a good computer system still takes quite a bite out of the family budget.
That iron calculation no longer applies and shoppers can now find low-end systems in the $300 range running Celeron or Sempron processors. But the more intriguing development is the emergence of Intel's Atom chip and what it might suggest about the Netbook's ability to one day replace a traditional desktop or notebook as a family's primary personal computer.
By itself, the Atom (as well the expected arrival of a similar chip from Advanced Micro Devices one of these days) probably won't be enough to compel a huge change in consumer behavior. (Though since the Eee PC's debut in late 2007, about 12 million low-cost Netbooks have been sold.)
The Atom's fortune is to arrive at a particular juncture in the history of technology and the global economy as several trends are working simultaneously to its benefit, as pointed out recently in a convincing paper by Bernstein Research's reliably excellent Toni Sacconaghi.
• The recession: Stimulus or no stimulus, the global economy is going to need months to repair itself. Against the backdrop of growing joblessness on the rise and financial insecurity, families are looking twice and three times at discretionary purchases, like a PC.
• Free software: Microsoft long ago lost the perception fight around open-source software. Now with the emergence of Ubuntu, the idea of Linux on the desktop isn't the pipedream it was at the start of the decade.
• Cloud computing: Not everything will reside in the cloud but Web-based computing increasingly dominates what we do in front of the terminal. If all you need is a good data connection, there's less rationale for paying top dollar to buy a fancy computer. You don't need a top of the line machine to access YouTube.
• Fresh technology and the "cool" factor: Admit it, we're all fashion whores when it comes to tech toys and Netbooks are a hip item these days, especially compared with the frumpy Celeron and Sempron boxes they compete against.
Ubuntu man: Mark Shuttleworth
(Credit: Mark Shuttleworth)I can hear the objections already. What about gamers or advanced photo editing or video encoding? Fair enough, but that still doesn't account for more than half the population of consumers for whom Atom-based systems are more than enough. Sacconaghi points to a Pew Internet & America Life Project in December, which found that "38% of adults (roughly 75% of the gaming population) reported using their desktop or notebook PCs for gaming." And while it's true that high-end hardware offers richer capabilities, the fact is that most people don't do heavy-duty photo editing or video encoding.
The wild card here is Canonical, the company which puts out Ubuntu. Until Ubuntu, there was little to the argument that mainstream computer users would load Linux onto their machines. On paper, it sounded great but it never worked out in practice. Simply put, people have lives to live and don't have the time or the inclination to immerse themselves in learning a new operating system.
But I like what Mark Shuttleworth, has done with Ubuntu since he founded Canonical in 2004. Not only is it relatively easy to use but Ubuntu is compatible with Microsoft Office. Unless I'm terribly mistaken, more developers will pick up on that over the next year. Especially if this recession-depression drags on.
On a day when IBM's reportedly mulling a buyout of Sun Microsystems, Uncle Ben Bernanke decides to print another $300 billion or so, and Congress gets a chance to throw spitballs at the weasels at AIG, there are better things to do than mock NBC's Jeff Zucker as an empty suit.
But after reading the synopsis of Zucker's remarks Wednesday criticizing Jon Stewart for eviscerating the goofs who predominate on CNBC, it's not even fair. How can one resist?
I don't want to prejudice you (just yet) so here's how BusinessWeek reported the story:
Jeff Zucker, the chief executive of NBC Universal, is calling comedian Jon Stewart's attacks on business network CNBC "incredibly unfair." At a media conference Wednesday in New York, Zucker said "The Daily Show" host's recent rips on CNBC, its "Mad Money" host Jim Cramer and business media in general were "completely out of line."
Zucker went on to say that while "everyone wants to find a scapegoat," he defended the home team. The suggestion that the business media or CNBC was responsible for the economic meltdown, he said, was "absurd."
On the yuckster scale, that one is off the charts. I realize that Zucker can't come out in public and say, "Well, the truth is that Jim Cramer is a clueless clown" or that "Dennis Kneale doesn't have enough sense to tie his shoes, let alone offer financial advice." (The truth is that Zucker wouldn't find an awful lot of people jumping ugly if he did. Maybe one day.)
I monitor CNBC each day as part of my job. And after watching the channel's coverage nearly every day since the late 1990s, I can tell you that Zucker is full of malarkey. He claims that CNBC has "distinguished itself" in its coverage of the crisis and the economy over the last two years. Now that's a comedic touch that even Stewart would applaud.
Distinguished? The only personalities at CNBC who don't seem to be smoking the funny stuff before going on air are Mark Haynes, Steve Liesman, and David Faber. That's it. The rest of the forgettable bunch over there take dictation from Wall Street. Did CNBC cause the crash? Of course not. But the track record of empty-headed prognosticating and cynical sniping at anyone daring to take a more critical look at the economy speaks for itself. Until everything came unglued last fall, the economists Robert Shiller, who called the housing bubble, and Nouriel Roubini, who called the stock collapse, often served as pinatas for sundry CNBC cheerleaders trying to pump up the noise.
Stewart, who has had a lot of fun at CNBC's expense the last couple of weeks, obviously struck a nerve with his lampooning. The subject clearly wasn't to Zucker's liking, but the bigger question is why it takes a fake newsman to point out the channel's litany of screw-ups.
Instead of circling the wagons, Zucker and his management team should take a long look at the content CNBC puts out. A public skewering was long overdue, though I'm sure that CNBC will survive (and probably thrive) this episode. Will it improve? One can only hope. Meanwhile, this one is another asterisk in the lengthening bill of particulars against the quality of U.S. journalism. Note to the Zuck-meister: The fact that you don't get what Stewart's talking about is yet one more reason to worry about the future of the mainstream media.
(Credit:
CNET News)
"The Internet represents freedom, but not everywhere."
So begins the annual "Internet Enemies" report by Reporters Without Borders--and that's probably the cheeriest line in the entire 39-page document. It goes down from there.
For the uninitiated, Reporters Without Borders is an anti-censorship watchdog organization. As blogs and news Web sites have grown in popularity, the group's focus has similarly migrated to the Internet. Unfortunately, the report again paints a grim picture of Internet freedoms in parts of the world where it says the authorities regularly chuck bloggers in jail for online posts that displease the regime.
Here's the all-star team:
• Burma: Its Internet users rank among the "most threatened," according to Reporters Without Borders. A 1996 law outlaws the import or use of a modem without first receiving government permission. Violators face 15 years in jail for "damaging state security, national unity, culture, the national economy and law and order."
• China: The Chinese government leads all others on this list as far as repression of the Internet. Each day about 40,000 state employees monitor what gets sent over the transom. All blogs that use China's biggest blogging platform must be hosted inside the country. And the country's information ministry is always watching and filtering out information it doesn't like. "With the world's largest number of Internet users, its censorship mechanisms are among the world's most blatant," the report states. At last count, 49 cyberdissidents and bloggers were jailed--the majority for "revealing state secrets abroad."
• Cuba: You can surf the Internet at a tourist hotel, but it's expensive. What's more, Cuba's Supervision and Control Agency will be watching. There's also a national network, but it limits connections to government Web sites. The penalty for posting "counter-revolutionary" articles on a foreign-hosted Web site is 20 years. You get 5 years in the stir for connecting illegally to the international network.
• Egypt: Citing terrorism concerns, the government monitors what gets sent over the Internet. If you want to connect to a Wi-Fi network, the state requires a cell phone number as well as some other piece of identifying information. The police arrested 100 bloggers last year for "damaging national security." Two remain in jail.
• Iran: Has the worst record for Internet repression in the Middle East, according to Reporters Without Borders. News Web sites critical of the Ahmadinejad government routinely get shut down. Political bloggers risk jail time for publicizing incidents deemed harmful to the regime. Esmail Jafari, who edits the blog Rah Mardom, was sentenced to five months in prison last December for posting information about a demonstration in front of the equivalent of city hall in the southwestern Iranian city of Bushehr.
• North Korea: What can I say--it's Kim Jong Il. This is a country that only offered its first mobile phones in 2002--but quickly backtracked, saying only top military commanders could use them. Reporters Without Borders sums it up this way: "North Korea is a model of control of news and information in a country where all forms of communication are at the service of the regime." North Korea has been online since 2000, but "it operates like an Intranet" with a handful of pre-selected news sites that meet government approval.
• Saudi Arabia: The country has a major issue with pornography--along with defamation and "violation of religious values." Of course, there's lots of wiggle room in interpreting what exactly that means. Suffice it to say that the regime has little tolerance for anything deemed counter to the prevailing Wahhabi ideology. "Posting a comment on a Web site deemed "immoral" by the authorities can lead to arrest. This is all the easier since the kingdom does not have a written criminal code."
• Syria: Bashir al-Assad helped introduce Syria to the Internet in 2001. Yet Reporters Without Borders ranks Syria in third place behind China and Vietnam as "one of the world's most repressive countries towards Internet users." Forget about using Google's Blogspot to set up a blog; it's inaccessible. The government has blocked user access to 160 Web sites deemed critical of the regime on what's called the Syrian Web; at last count, five cyberdissidents remained in jail. Skype is censored, and YouTube, Amazon, and Facebook are banned on the Syrian Web.
• Tunisia: Mixed bag. There now exist more than 20 ISPs, and Tunesia ranks as one of the most Web-connected nations in North Africa. Still, the government enforces a strict policy of Internet filtering. The upshot: Lots of self-censorship. Last November, Tunisian bloggers held a one-day protest against blog censorship as 2008 marked a bad year for Internet freedom of expression in the country. By law, ATI, which manages Tunisia's e-mail system, can intercept e-mail that "threatens public order and national security."
• Turkmenistan: Come on, admit it. How many of you even thought Turkmenistan was hooked up to the Internet? But it's there. This is a country that has banned satellite dishes and so the Internet has become the default source of information about what's going on in the outside world. You can get a private connection from a single access provider, Turkmen Telekom. (Wi-Fi arrived last year through a Russian access provider.) Unfortunately, Turkmen Telekom ultimately answers to the country's interior ministry, which blocks sites and snoops on messaging services.
• Uzbekistan: From the counter-intuitive files, until 2006, more people in Uzbekistan had Internet access than had mobile phones. But restrictions on what Uzbeks can read and say on the Internet occasionally lead to sites being banned for no apparent reason. The government acknowledges keeping a secret list of offending Web sites that provide "destructive news" and threaten "security of information."
• Vietnam: With blog use flourishing, the government has established a cyber-police force to keep an eye on "subversive" content. This will be interesting to watch because Vietnam's youthful population can't get enough of this Internet thing. But last month, Vietnam's Minister for Information and Communications offered this thinly disguised warning: "A blog is a personal news page. If a blogger uses it for general news like the press, he is breaking the law and will be punished." Authorities have arrested and sentenced eight people to jail since mid-2006 for because of what they posted online.
The report also makes (dishonorable) mention of nations that are either considering Internet censorship statutes or have been stepping up control over their citizens' use of the Web. These include: Australia, Bahrain, Belarus, Eritrea, Malaysia, South Korea, Sri Lanka, Thailand, United Arab Emirates, Yemen, and Zimbabwe. You can read more about this at the Reporters Without Borders Web site.
Updated at 3 p.m. PST: An earlier version of this report misidentified Sam Hopkins' position at the company. He is chief technology officer and a co-founder.
Earlier this weekend, I pointed to a report that a Pittsburgh area Internet security firm had discovered a file containing government blueprints and avionics for President Obama's helicopter on an IP address in Tehran.
During a traffic analysis, the company, Tiversa, headquartered in Cranberry Township, found that one particular file was actively being shared via a P2P protocol. On Sunday, I spoke by phone with the company's co-founder and chief technology officer, Sam Hopkins. Here's what he had to say.
Question: What tipped your team off to the possibility of classified information being leaked to outsiders?
Hopkins: Let me first back up and offer some perspective. There are millions of people who in the last couple years have installed P2P software to share their hard drives...You may go to a hospital and give me your Social Security number and your name and address. That hospital may have the best information protections in the universe, but then they give that information to a billing company and that company accidentally leaks it. This happens all the time. In this case, we weren't actively looking for this, but (the information) came back to our data center and matched one of our signatures which we then analyzed.
Q: Talk about the chronology. When did your team first pick up on the leak?
Hopkins: Around the October to November (2008) time frame. We get about 100,000 or 200,000 confidential files that we bring back and if we find something really bad, we will contact that company and say that your information is out there on a peer-to-peer network. In this case, it was over in Iran, where they were actively trolling for information. We notified the defense contractor and they went through their steps to notify the Department of Defense.
Q: And it was a P2P connection that led to the leak?
Hopkins: It was on the Gnutella network. Someone installed it and it may have been a buggy client. All it takes is for someone to say, "Hey, do you have anything on this client?" and it gets downloaded. We see 50 of those a day. There was a large publicly traded company which accidentally just disclosed all their forecasts and M&A plans throughout 2009. A person leaked all his files and all his internal e-mail conversations as well as his calendar and all his contact information.
Q: In this case your company is reporting, what information was breached?
Hopkins: The entire avionics system of the president's helicopter, and various upgrades by contractors.
Q: So your team concluded that the materials fell into the hands of Iran. Is it possible that other actors also are trying to take advantage of similar openings in the system?
Hopkins: Heck yeah. Every nation does that. We see information flying out there to Iran, China, Syria, Qatar--you name it. There's so much out there that sometimes we can't keep up with it.
Q: I would have assumed military contractors would use more secure networks to communicate.
Hopkins: Everybody uses (P2P). Everybody. We see classified information leaking all the time. When the Iraq war got started, we knew what U.S. troops were doing because G.I.'s who wanted to listen to music would install software on secure computers and it got compromised.
Q: This is what your company specializes in, obviously, but what's your professional opinion about the extent of this sort of thing?
Hopkins: This is the biggest security problem of all time. Coming from me, it sounds biased. But you can get 40,000 Social Security numbers out there at the drop of a hat. We've had people come into our data center and we've shown them things that are out there on P2P and they go away with their minds blown.
Hewlett Packard and Sun did their best to put everyone on Wednesday's conference call to sleep. (Do these guys try to sound like Lurch from the Addams Family when they run through their prepared remarks? Just asking.) Still, the news will be of especial interest if you are either a Solaris or ProLiant customer.
The deal gives HP the right to distribute software for Sun's Solaris 10 Operating System on the HP ProLiant server and blade system platforms. HP also will shoulder responsibility for technical support. It's a one-stop shop arrangement that the companies hope will help answer lingering questions from customers about where they can turn when glitches arise. That's likely going to go down well with IT managers who understandably want to know whose throat to choke when there are technical issues to resolve.
Under the terms of the new original equipment manufacturers and support agreement, Sun becomes a strategic HP ProLiant OS distribution partner and Solaris is now elevated to the lineup of key operating environments for the HP ProLiant(2) platform. The new deal sets a course for the companies to work together to expand demand for both Solaris and OpenSolaris on both HP ProLiant servers and server blades into new markets.
By providing a single point of purchase, contact and accountability for Solaris on HP ProLiant, HP and Sun are improving the overall customer experience. To further reduce operational costs, the companies will collaborate on integration of Solaris 10 and HP Insight software on HP ProLiant servers to deliver usability and management enhancements.
HP and Sun also suggested at closer sales collaboration. The idea is that this will help them reach markets where one or the other companies might not enjoy strong representation.
Until now, Craig McCaw was most famous for starting the eponymous cellular company that he sold to AT&T in 1994 for $12.6 billion.
This serial entrepreneur wasn't as fortunate with his next venture: the construction of a satellite-based broadband communications system. Before it flopped, though, McCaw received financial backing from Bill Gates and a bunch of other well-heeled backers, who invested more than $292 million into the venture.
Craig McCaw
(Credit: Stephen Shankland, CNET News)After the dot-com bust, McCaw set out to offer portable wireless high-speed Internet service. His company, Clearwire, clearly qualified as one of those BIG IDEAS: WiMax is said to allow for wireless Internet service that's five times faster than 3G networks.
So far, Intel, Google, Comcast, Time Warner Cable, and Bright House Networks have ponied up $3.2 billion in Clearwire and its operating subsidiary (for about 22 percent of the company.) Each of those investors has an obvious interest in facilitating a wireless Internet outside of the phone companies, which are adopting Long Term Evolution format, a rival technology expected to become available in 2010.
But now, McCaw and Clearwire face a potentially huge headache. Bloomberg is quoting Clearwire CEO Ben Wolff acknowledging the impact of the recession on credit (and investors.) The upshot: Clearwire may be forced to put its network expansion plans on hold if it can't raise another $2 billion.
Wolff declined to say whether Clearwire would have to delay the project, but he nonetheless did acknowledge the obvious:
"It's clear that capital markets are closed for either borrowers or companies that are trying to raise capital, regardless of what kind of company it is," Wolff said. "We've seen challenges across the board."
That's putting it mildly. In the last year, Clearwire's investors have watched their shares lose more than 75 percent of their value. Clearwire's management needs to sell its partners on sticking around, let alone putting more money into the pot. McCaw knows how to sell an idea-but even he's running into a brick wall called the recession.
So it was that a senior Intel executive today shot down any suggestion it was planning to bail out Clearwire.
"They've got enough money to keep going for quite a while," Sean Maloney, the company's sales and marketing head, said during a conference call. "They've got a pretty fat piece of capital to go out and build the network."
That's not the news Clearwire wanted to hear. But given current events, where so many companies are pushing the reset button, Intel's message only restates what's now obvious to everyone. It really is a new world order.
(Credit:
IBM)
The question now is whether the company can manage itself successfully past what the wags now commonly refer to as the "econolypse." For the time being, at least, IBM's response is a measured yes.
The slump in corporate technology spending has pressured companies throughout the IT world, and IBM is no exception. The company anticipates hardware revenue will be down through the first three quarters of the year, but with 90 percent of IBM's profit deriving from software, services and financing, Chief Financial Officer Mark Loughridge said, "we do think we can manage through that quite successfully."
IBM posted fourth-quarter net income of $4.4 billion, up 12 percent from the same period one year earlier. Revenue fell 6 percent to $27 billion. After adjusting for currency, IBM said that revenue decreased 1 percent.
Gross profit margins rose to 47.9 percent from 44.9 percent, a reflection both of IBM's cost cutting focus as well as the mix of revenues, which featured more higher margin services and software contracts.
Wall Street's initial reaction was positive. After selling off during Tuesday's regular session, shares of IBM rallied about 4 percent in after-hours trading.
With the Obama administration planning a major stimulus package, many companies are banking on increased demand in the second half of the year. Similarly, Loughridge said that IBM expected greater levels of investment to result in an improved second half of 2009.
IBM is projecting full-year earnings of at least $9.20 a share. That should please investors as Wall Street was looking for $8.75 a share. But the company does not expect accelerating revenue growth from its traditional bread-and-butter businesses. Rather, IBM is counting on reaching its goal through margin expansion and better cost containment.
Starting in the Lou Gerstner era, IBM reshaped its business to feature software, services, and financing. That's been a good bet as those are the businesses that are holding up better than Big Blue's computer hardware business, which fell 20 percent in the fourth quarter of last year.
During the course of a conference call with analysts on Tuesday afternoon, Loughridge said IBM planned on taking "cost initiatives" throughout the course of the next 12 months, but did not get more detailed.
Still, he added that IBM had "a very good hand to play in 2009."
Corporate fixes are notoriously hard. Parachuting into the equivalent of a war zone, with potential landmines at every turn, requires a special gene. And no small amount of brass.
So it is that after a year of corporate upheaval and a slumping stock price, Yahoo announced a brilliant appointment. I don't know if Carol Bartz will turn out to be the messiah-like figure the Yahoo crowd has been praying for. This company is up against the wall. But the new CEO is an old-school technology executive who has thrived in crises that would have overwhelmed most of the good old boys she's competed against since the 1970s.
Over the years, I've had a few occasions to interview Bartz. She's smart and tough and every bit the straight shooter that she claims to be. Bartz weathered a personal struggle with cancer and crushed a rebellion of prima donnas at Autodesk. When the Internet revolution happened, Bartz famously tweaked stock analysts pestering her with the quip: "You'd be happier if we were selling plastic-wrapped fruit baskets over the Internet?" When she finally resigned as CEO in 2006, Bartz had reinvented Autodesk as one of the more successful companies in the software world.
She may not be a "media person" that some thought Yahoo needed, but let's get real. Over the years, the gobbledygook served up by sundry Yahoo execs who grew up in the media world led this company from one disaster to the next. Finally, Yahoo's board woke up and selected someone with coveted business and technology credentials, hoping she is a quick study.
They won't have to wait long to find out. Chairman Roy Bostock stumbled over his prepared remarks and referred to Yahoo's new hire as "Carl" before correcting himself. Not a problem for Bartz. Bostock will soon discover that she'll easily become one of the boys -- only a lot smarter than most of them.
