Earlier this week, I noted that book publishers and authors had, so far, been largely protected from the mass copying that has helped to undermine the music recording industry's profits. The reason is simple. You can't copy dead-tree books for minimal effort and cost the way you can CDs or MP3s. But, with e-books finally seemingly establishing a bona fide foothold with Amazon's Kindle, that's going to start changing.
New York Times Op-Ed columnist Paul Krugman notes this trend in "Bits, Bands and Books" together with a corollary that Esther Dyson predicted in 1994:
”that the ease with which digital content can be copied and disseminated would eventually force businesses to sell the results of creative activity cheaply, or even give it away. Whatever the product--software, books, music, movies — the cost of creation would have to be recouped indirectly: businesses would have to--distribute intellectual property free in order to sell services and relationships.”
This, of course, is what a lot of folks--whether as a way to justify music piracy or otherwise--have been saying for years about the business model for music. It's (supposedly) OK if you can't sell a lot of CDs (or iTunes downloads) any longer. Krugman notes that, according to a recent Rolling Stone article: "Downloads are steadily undermining record sales--but today's rock bands, the magazine reports, are finding other sources of income. Even if record sales are modest, bands can convert airplay and YouTube views into financial success indirectly, making money through 'publishing, touring, merchandising and licensing'."
I'm a bit skeptical that selling tchotchkes, tickets, and "extras" in one form or another is really a practical substitute for selling the music itself in the general case. But let's leave that go for the time being. It's been endlessly debated and isn't going to be resolved here. What seems to me even more problematic is the suggestion that there has to be viable alternative models for creative content that becomes de facto free in the general case. For example, Krugman goes on to write:
Indeed, if e-books become the norm, the publishing industry as we know it may wither away. Books may end up serving mainly as promotional material for authors’ other activities, such as live readings with paid admission. Well, if it was good enough for Charles Dickens, I guess it’s good enough for me.
And here, I'm deeply, deeply skeptical. At least with music, there are a variety of revenue-generating activities that are a natural outgrowth of the primary creative product. Most musicians do live performances in any case. The only question is how much money they can make by doing so.
But writers? Sure, some well-known authors make engaging speakers. Geoffrey Moore (author of Crossing the Chasm and Dealing with Darwin) is one I've heard fairly recently. J.K. Rowling just spoke at Harvard's commencement. But just because someone is a writer--even a best-selling one--doesn't make them a good speaker. Indeed, some of the best writers are reclusive and would shudder at the thought of having to make a living by public speaking.
Yes, business models are changing. And all of us will have to adapt in various ways. But let's not kid ourselves that advertising, live performances, or magic money trees are going to automagically pay the bills for creative content that we want to consume but don't want to pay for.
Over the weekend, I enjoyed reading a New York Times article by Randall Stross titled "The Computer Industry Comes With Built-in Term Limits." It focuses on Microsoft and Google and how:
two successive Microsoft chief executives have long tried, and failed, to refute what we might call the Single-Era Conjecture, the invisible law that makes it impossible for a company in the computer business to enjoy pre-eminence that spans two technological eras. Good luck to Steven A. Ballmer, the company's chief executive since 2000, as he tries to sustain in the Internet era what his company had attained in the personal computing era.
This observation that companies dominant in one phase of a market rarely enjoy the same success through major transitions is hardly unique to the computer industry.
One common explanation is offered by Theodore Levitt's famous 1960 Harvard Business Review article, "Marketing Myopia," which popularized the idea that companies should define themselves in terms of markets and customer needs, rather than products. A common marketing class illustration is how the railroads thought of themselves as running trains rather than providing transportation--with the result that they were marginalized in many respects as transportation technology changed.
There's doubtless a lot of truth to this contention, but, as I discussed in the context of the photo business previously, shifting an entire product foundation is enormously challenging and past skill sets and ecosystem don't necessarily travel well from one generation to another. In the earlier transportation example, what particular expertise or competitive example would Penn Central have brought to running an airline? Very little.
In the case of Microsoft, the technology gap is perhaps less yawning between the type of software on which it made its fortune and that which is widely consumed over the network today. (That said, there are many differences in development model, adoption process, community building, and so forth.)
However, I don't see the issues faced by Microsoft as so much about marketing myopia. As the article notes:
In a 1995 internal memo, "The Internet Tidal Wave," Mr. Gates alerted company employees to the Internet’s potential to be a disruptive force. This was two years before Clayton M. Christensen, the Harvard Business School professor, published "The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail" (1997). The professor presented what would become a widely noted framework to explain how seemingly well-managed companies could do most everything to prepare for the arrival of disruptive new technology but still lose market leadership.
Thus, the meme that Microsoft is "dead" (in theory) is based less on an argument that Microsoft is blind to what's going on with network computing than on the observation that it hasn't really effected any major changes in response.
There's a reason for this. It's easy, if only relatively so, to spot major transitions. (Although, to be sure, harder to spot them before they're obvious to everyone and harder still to discern their precise impact and timing.)
But it tends to be really, really hard for cultural and organizational reasons to do what needs to be done about them. And, perhaps even harder and at times impossible, to make the necessary business changes.
I call it the "tyranny of the installed base." I saw plenty of it when I worked at minicomputer Data General in the 1990s. Customers want bug fixes and enhancements to their existing products--even if it's some legacy database that fewer and fewer people used with each passing year. The result is that lots of resources get sucked into supporting the "old stuff," leaving that much less energy, money, etc. for the "new stuff."
But the real issue here is more insidious. A company, especially a public company, can't really "Just Say No" to that installed base and tell them to take their business elsewhere. Imagine if you would this scenario: Ballmer wakes up next Monday morning after having an epiphany over the weekend. He walks into Redmond, tosses a few chairs for emphasis, and announces that Microsoft is going to immediately discontinue selling and developing its Windows operating system and Office products because they're mired in the past and have become too much a distraction from what's really important--its online services business.
I think we know what comes next. Microsoft's stock price falls through the floor and Microsoft's board of directors send the men in the white coats to take Mr. Ballmer somewhere he can get some extended rest. While such a scenario would doubtless cause considerable delight in some quarters, I think most of us can agree it's neither practical nor a particularly good idea.
It's hugely challenging to jump from one wave to the next even when you see it coming with perfect clarity. The next wave may even be bigger in terms of customers, revenues, and everything else. But there's a trough in between.
Pirates caused the software industry to lose nearly $48 billion in sales last year, even as most countries experienced declines in their piracy rates, according to the latest annual study commissioned by the Business Software Alliance.
The fifth annual report, released on Wednesday, determined that from 2006 to 2007, overall losses grew by $8 billion and worldwide piracy rates increased by 3 percentage points to 38 percent. At the same time, piracy rates dipped in 67 of 108 countries included in the report. (About half of the increased dollar losses are attributable to the declining value of the dollar, BSA said.)
"What that means is in countries in many of the emerging markets where there is an extraordinary growth of PC sales per year, the sales of legitimate software are lagging dramatically behind that," BSA President Robert Holleyman said in a telephone interview, adding that he doesn't see the trend toward overall increased piracy losses reversing itself in the near future.
The study found, for instance, that so-called "emerging markets"--namely Brazil, Russia, China, and India--accounted for 46 percent of all new PC shipments last year but only 17 percent of new software shipments, Holleyman said.
Piracy rates rose in only eight countries, with Armenia, Bangladesh, Azerbaijan, Moldova, and Zimbabwe holding the top five spots for highest piracy rates. The United States, Luxembourg, New Zealand, Japan, and Austria were the countries with the top five lowest piracy rates.
One mildly encouraging spot was Russia, which has experienced a one-year piracy reduction of 7 percentage points, to 73 percent, and 14-point drop over the last five years, thanks in part to stricter government enforcement efforts, the group noted.
The methodology used by BSA and its analysts, IDC, for these reports has attracted a fair share of controversy in the past, with some claiming it overstates the piracy problem.
"They dubiously presume that each piece of software pirated equals a direct loss of revenue to software firms," said a 2005 piece in The Economist, echoing concerns voiced by two pro-fair use trade groups, the Computer & Communications Association and the Consumer Electronics Association.
To derive its figures, the group says (PDF) it considers analyst expectations of how much software was installed on PCs in a particular year versus how much software was paid for or "legally acquired" in the same year. The difference between the amount of pirated and legally acquired software is then used to calculate a country's piracy rate, and that rate is multiplied by the revenue from legitimate sales to arrive at the estimated losses.
Holleyman, for his part, argued the studies actually provide a "conservative" estimate of his industry's losses, in part because it doesn't assume every piece of software downloaded through the Internet is pirated and thus represents a sales loss.
"It's certainly true that not every piece of pirated software would be replaced immediately with licensed software if piracy rates went down," Holleyman told News.com, "but we do believe...that the evidence is that all of the pirated software will be replaced with legitimate software over time because people need good software."
Clarification: This story was updated at 3:24 p.m. PDT to clarify details of the SAP Enterprise Support plan for new customers.
SAP said on Tuesday that it plans to release a pair of tools that could ease the process of customizing how business software works.
The company launched the tools, NetWeaver Business Process Management and NetWeaver Business Rules Management, at its Sapphire conference taking place this week in Orlando, Fla.
Combined, the tools make it possible to alter and modify business process rules, which determine how SAP's financial, human resources, and accounting software works. "In SAP, we have delivered a business process model. But users cannot change models," said Peter Graf, SAP's executive vice president of global marketing.
Henning Kagermann, SAP co-CEO
(Credit: SAP)Graf said that traditionally, to change business process rules, IT and businesspeople would meet and "IT would go away for two months and build something, and then it would not be what business wanted."
"(With this announcement) we have introduced a level of abstraction, a repository of Web services, defined so customers can use them, and then can combine them to put together a new business process," Graf said. "This is a way for IT and businesspeople to look at the same visuals and decide on a process and make it work."
Graf said that the tools can be used by both IT developers and business process analysts and do not require hand coding. "They are more universal in nature," he said.
The tools are currently in beta testing and will be available later this year, SAP said.
Separately, the company announced a new service plan intended to provide support for SAP's software and the composite processes, built atop a service-oriented architecture, that work with other software.
For new customers, the SAP Enterprise Support plan replaces standard support contracts, and costs 22 percent of a customer's software license fee annually, Graf said. Enterprise software is traditionally sold with a maintenance plan, which can cost up to 25 percent or more of the overall licensing fee for the software alone. SAP's standard support costs 17 percent of a customer's software licensing fee annually, Graf said.
SAP announced that its on demand enterprise suite Business ByDesign roll out is moving slower than previously expected.
The company said that it would take 12 to 18 months longer than the original target of 2010 to reach $1 billion in revenue and touch 10,000 customers in the mid-market globally. For 2008, SAP expects to have less than 1,000 customers across six countries.
SAP wants to make sure it doesn't flub Business ByDesign, which represents the future of the company. The company pioneered client/server ERP software, but has been slow to enter the rapidly growing on demand arena. SAP has said that it has deployed 2,500 engineers over the last four or five years to create Business ByDesign, which the company touts as the most complete on-demand suite across applications and industries.
(Credit:
SAP)
SAP's plan is to provide 2,100 service interfaces in Business ByDesign, which will mesh with each other but will not be customizable, according SAP founder Hasso Plattner.
NetSuite has been working on its on-demand suite for ten years, coming out with new versions yearly. And, salesforce.com is expanding its platform to include ERP capabilities, such as CODA's financial applications built on the Force.com platform.
Plattner differentiates Business ByDesign from salesforce.com by virtue of the completeness of the SAP suite. For SAP, software is about serving larger businesses with a complete, integrated suite of applications with "wall-to-wall functionality," Plattner said.
At a recent debate, salesforce.com CEO Marc Benioff challenged SAP founder Hasso Plattner.
Plattner was asked by Benioff if he would consider buying Salesforce.com. "It always makes sense to look into something. If the Apex platform (the Salesforce.com platform) is really as good a he thinks it is, we should look even more," he said.
Plattner also had some advice for Benioff. "We have many things in common. Let me give you some advice, but you might not take it because you are younger: don't overestimate your platform."
Perhaps SAP has been overestimating its ability to deliver an on-demand solution. JMP Securities analyst Patrick Walravens contends that Business ByDesign doesn't have a single data model, but instead different workstations in silos, and is now working to rectify that situation. So far, SAP isn't talking.
SAP has stumbled in earlier attempts to move its business applications online. The company's initial foray into hosted applications was marked by shifting product plans and murky delivery schedules. SAP eventually launched a hybrid approach with CRM, with a product designed to work the same, whether used on-demand or on-premise.
In the meantime, Microsoft, Salesforce.com and others have evolved their on demand applications. Salesforce, in particular, is moving ahead aggressively in the market with plans for an on demand platform service, in addition to expanding its business applications lineup.
See also:
Larry Dignan's coverage of SAP's quarterly results.
HP dc5850 can be configured with Phenom triple-core and quad-core processors
(Credit: Hewlett-Packard)The Phenom processor is ready for business. On Monday, Dell and Hewlett-Packard refreshed their business desktop lineups with triple- and quad-core processors from Advanced Micro Devices, which is launching a small and medium-size business initiative.
Called "Business Class," the initiative pairs the new 780v chipset with triple-core Phenom X3, quad-core Phenom X4, or dual-core Athlon X2 processors.
Dell is refreshing its Optiplex 740 line of desktops while HP is adding two new models: the dc5850 and dx2450.
The platform supports security and manageability standards such as the Trusted Computing Group (TCG) module, which helps to lock out rogue software, and the Desktop and mobile Architecture for System Hardware (DASH) manageability standard, a suite of specifications for standards-based Web services.
Previously known by the codename "Hardcastle," Business Class taps into both AMD processor and ATI graphics technology. "One of the reasons we acquired ATI was to get the chipset and the graphics to deliver a complete commercial client platform--desktop and notebook," said Hal Speed, an AMD marketing architect.
Speed also reiterated what other AMD executives have said: That AMD has "under-penetrated" the commercial market. The Business Class strategy targets small and medium-sized business in particular, he said.
Initially, systems will not be offered with AMD's 8X50 and 9X50 series of processors that fix the outstanding "TLB" bus in silicon. (The 8450 and 9550 will, for example, replace the 8400 and 9500).
"Our customers want stability and longevity," said Speed. "They've said to us, 'I could care less about the model number. Don't break my BIOS, don't break my client image,' " Speed said, referring to difficult-to-modify corporate PC configuration settings.
AMD Business Class launch overview
(Credit: AMD)The notebook component, codenamed Puma, will be coming later this quarter, Speed said.
Puma, in fact, will likely be the more interesting platform as more notebooks replace desktops. Puma is based on the RS780M mobile chipset and the dual-core Griffin processor--now called the Turion Ultra.
Updated at 10:10 p.m. PDT
AMD is planning to make a big push into the small business sector, according to ZDNet and The Wall Street Journal (subscription required).
The chipmaker is set to announce on Monday an initiative called AMD Business Class, formerly code-named Hardcastle, that is geared toward making it easier for PC makers to build computers that better suit the needs of small businesses, according to the reports.
The initiative is built around AMD's multicore Athlon and Phenom processors and ATI graphics technology.
AMD is touting the longevity of the new line. PC manufacturers will maintain AMD's Business Class systems for two years to ensure that systems aren't phased out before they are deployed, and warranties will be for three years instead of one, according to Larry Dignan over at ZDNet.
AMD's Web site also says the new technology comes with energy-efficient features for reduced power consumption. (The site links to a Business Class section in several places, but that page itself is not yet live.)
Hewlett-Packard, Dell, Fujitsu Siemens, Lenovo, and Acer are all expected to unveil new PCs based around AMD's Business Class technology, the articles said. HP will make its HP Compaq dc5850 Business PC available Monday, and Dell will use AMD's business class chips in its Optiplex 740 systems, Dignan said.
Updated 6:42 AM PDT with details from SAP's announcement.
Leo Apotheker
(Credit: SAP)The supervisory board of software maker SAP on Wednesday approved the appointment of Leo Apotheker, the company's top sales executive, to co-CEO.
Starting now, Apotheker will share the top executive position with current CEO Henning Kagermann, who is set to retire next year.
The move also points to Apotheker taking over as sole chief executive. "In my view, facing (upcoming business and technology) challenges together with the new executive team, Leo Apotheker is an ideal CEO and thus my preferred successor for Henning Kagermann," Hasso Plattner, SAP co-founder, said in a statement.
The supervisory board also appointed three new members to the SAP executive board, effective July 1: corporate officers Erwin Gunst, Bill McDermott, and Jim Hagemann Snabe.
Henning Kagermann
(Credit: SAP)The move comes as no surprise. Apotheker, a 19-year SAP veteran who runs the company's sales and marketing operations, currently holds the title of deputy CEO. He has been seen as the logical successor to Kagermann since the departure of Shai Agassi one year ago.
Agassi, who had been seen as a front runner to replace Kagermann, left the company last March to pursue alternative energy and green technology ventures.
How do we value technology companies? Ingenuity and invention, quality of service, brand loyalty, manufacturing muscle, operating efficiency, supply-chain management, price, great place to work. There are lots of metrics.
For those unfamiliar with the wily ways of Wall Street, the stock market has its own way of expressing what it thinks of companies. It's called market capitalization or market cap for short. ... Read more
Maybe you are of a sufficient vintage to remember the game show Let's Make a Deal. But have you ever thought about the similarities between that show and the U.S. patent system?
In the game show, contestants would have to pay a price (a wallet containing $500) to see what was behind door No. 3 (maybe a live goat; maybe a brand new faux wood-paneled station wagon). Similarly, in the U.S. Patent and Trademark Office, the government pays a price (allowing a unique brand of monopoly) to see what is in envelope No. 3 (your invention). The analogy may seem far-fetched, but the basic premise is the same: that is, paying a price to see what is otherwise concealed. And even in the realm of patent law, sometimes the government ends up with...a goat.
Fortunately, unlike the game show, there are several ways the USPTO can get out of the deal even after the envelope is opened and the invention disclosed. To be worthy of a patent, the invention must be new, useful, and non-obvious. While the "new" and "non-obvious" requirements normally get most of the attention, the USPTO and the U.S. Court of Appeals for patent cases (the Federal Circuit) have taken a somewhat surprising approach in the past couple of months to back out of deals with potential patentees--rejecting patent applications on the basis of usefulness. In other words, the Federal Circuit has been deciding that certain classes of inventions just aren't patentable.
What is really creating a buzz in the patent world is that the USPTO and the Federal Circuit have recently addressed an almost decade-old class of patents that has developed a reputation as the runt of the litter as far as patents go--business method patents. Love them or hate them, the Federal Circuit's 1998 decision in the State Street Bank case has been widely interpreted to allow for the patenting of new and novel business methods. Since that case, the USPTO has been inundated with business method patent applications and, more specifically, software applications. The question is, will this trend continue?
... Read more
