Outside the Lines

Guest post: Jean-Louis Gassée explains how Microsoft's future business model will borrow from both Apple and Google to compete with the free world of software. The essay was originally posted on Monday Note.

How do you compete with free? That's the question Steve Ballmer, Microsoft's CEO, is trying to answer every morning when he goes to work. On the server software side, Windows Server is doing well, especially with the Exchange e-mail server and the unheralded but very good collaboration server, SharePoint. These products have matured, they're relatively easy to set up and manage by IT organizations. The Exchange component is a spectacular success: it manages e-mail, contacts, calendars for hundreds of thousands of organizations all over the world. Even Apple finally embraced Exchange: the iPhone now syncs well with Microsoft's server and the next version of OS X promises "native" Exchange support. In plainer English: Apple's Mail, Address Book and iCal programs, for example, will sync with Exchange "out-of-the-box" just like the iPhone does. (This will be a relief to suffering Entourage users. Entourage is Microsoft's own Outlook sibling on the Mac, but it is a poor relative and lacks Windows' Outlook depth and polish.) Seeing that Windows Server generated more than $20 billion last year, one is tempted to think everything is going swimmingly.

Unix is the problem or, rather, the free Open Source implementations of its function set called Linux and FreeBSD, to name the best-known variants. While Windows Server and Exchange still reign for many Enterprise applications, tens of millions of Web sites run on Linux of FreeBSD software. Further, the Open Source nature of such software encourages sophisticated users to modify the operating system to fit their specific hardware configurations or applications requirements. For example, Google designs and manufactures (!) its own servers and customizes the Open Source OS they run. There's even a rumor they "roll their own" 10-gigabit Ethernet switches but I don't know vouch for that one. In any event, imagine how much the Google account would be worth to Microsoft if the Mountain View company used Windows Server? Knowledgeable readers will immediately object: Google running Windows Server isn't realistic. Not for price reasons but because Microsoft's server software isn't technically suitable for large "server farms" such as Google's. True. It'll be interesting to look at what Microsoft uses for its own Live cloud. In the past, Microsoft has had to resort to "other" server software for applications such as Hotmail. But, "scalability issues" (the ability to grow to serve very large server farms) aside, Microsoft is losing against free server software for the millions of simpler Web servers sprouting all over the world. And, as Linux and its cousins mature, they will inevitably make inroads in Enterprise applications where Microsoft still leads. Open Source competitors to Exchange do exist, they're not yet a strong threat but, if they keep improving, they will erode Microsoft very juicy server business.

On the desktop, Linux is trouble again, but much less so than in server farms. For consumers, as opposed to technically versed sysadmins, ease of use is still a strong plus for Windows. I bought two identical Asus EeePC netbooks, one running Windows, the other a Linux distribution. Windows is still much easier to use and update, Linux is still a little rough on normal humans. One example out of many glitches: the version I used didn't remember Wi-Fi access points and passwords. I had to re-enter everything each time I turned the machine on. This type of problem has prevented Linux from gaining much ground on the desktop.

But this could change: the success of netbooks, their large unit volumes could encourage a manufacturer such as Asus, Acer or Lenovo to invest in the needed polish to make a Linux-based netbook as easy to use as a PC or Mac -- or close enough at a much lower price. And the name, netbook, reminds us it might not need today's (or is it yesterday's?) full suite of robust desktop applications to succeed--it will run applications on/from the Cloud. Imagine a Google netbook.

Lastly, smartphones. Ballmer tries to change the subject by suggesting Apple ought to license its iPhone OS as opposed to keeping it all to itself. Let's skip over Microsoft's proprietary Xbox and Zune software and, perhaps, the upcoming Danger smartphone. Danger, the maker of the Sidekick PDA, is the company Microsoft bought earlier this year,. Microsoft has been selling Windows Mobile licenses for close to eight years now. In the licensing business, the iPhone isn't the real competition, Android is. How do you compete with a free smartphone OS, and a good one at that, which is supported by Google Cloud applications?

My guess is Steve Ballmer is working on a combined answer, one that is sketched before our very eyes already. Microsoft's Live services are but a rehearsal for a much bigger act, Microsoft's Cloud OS, sometimes called Strata. And, based on Microsoft's own Cloud services, we'll see a Danger-based smartphone, as proprietary as the Xbox and the iPod competitor Zune. Put another way, Microsoft's future business model will borrow from Apple and Google, it will have two components: proprietary devices and "universal" Cloud services. And like its models, it will attempt to extract extra profits by nicely tying both components together. For example: iPods are tied to the iTunes service, Android phones might (we don't know yet) better enjoy Google applications.

Interesting times ahead.

Jean-Louis Gassée is a general partner at Allegis Capital. Prior to his venture capital career he founded Be, Inc., which was sold to Palm in 2001. Gassée also held several positions at Apple Computer. He started Apple France in 1981, and in 1985 became president of the Apple Products Division. Earlier in his career Gassée as worked at Data General, Exxon Office Systems and Hewlett-Packard.

In this week's EIC Squared podcast, ZDNet's Larry Dignan and I talk about how the economic crisis will impact the tech sector. Both the House and Senate have passed the bailout package, but the legislation doesn't mean that tech or any other industry sector will reverse the downward spiral. Tech companies and financial analysts are rapidly cutting estimates to prepare for a potential nuclear winter in the global economy.

We also discuss Microsoft's forthcoming moves into cloud computing and the state of citizen journalism following the fake Steve Jobs heart attack story that showed up on CNN.

Microsoft is applying its tried and true formula of creating software platforms that can attract millions of users and developers to the hosted applications world. It will be the next major frontier for Microsoft to conquer, competing with companies such as Amazon.com, EMC, Google, IBM, and others. And it's safe to bet that Microsoft becomes one of the major players in the cloud. More to come at Microsoft's PDC event later this month.

Finally, a technology executive willing to tell the truth about cloud computing. Speaking at Oracle OpenWorld, Larry Ellison said that the computer industry is more fashion-driven than women's fashion and cloud computing is simply the latest fashion. The Wall Street Journal quoted the Oracle CEO's remarks:

"The interesting thing about cloud computing is that we've redefined cloud computing to include everything that we already do. I can't think of anything that isn't cloud computing with all of these announcements. The computer industry is the only industry that is more fashion-driven than women's fashion. Maybe I'm an idiot, but I have no idea what anyone is talking about. What is it? It's complete gibberish. It's insane. When is this idiocy going to stop?

"We'll make cloud computing announcements. I'm not going to fight this thing. But I don't understand what we would do differently in the light of cloud."

I led a panel at the MIT Emerging Technology Conference earlier this week on cloud computing with some of the leaders in the field: David P. Anderson, research scientist, University of California at Berkeley; Matthew Glotzbach, product management director, Google; Parker Harris, EVP, Technology, Salesforce.com; Mendel Rosenblum, chief scientist and co-founder, VMware; and Werner Vogels, VP and CTO, Amazon.com. The group generally agreed that cloud computing involves software running off premises, but that there are different workloads and kinds of scenarios.

The problem is that every tech company now wants to be associated with cloud computing, no matter if their products and services meet the basic criteria. At least Ellison isn't afraid to address the hijacking of the phrase by marketers, including Oracle's.

Frank Gillett of Forrester speaks about the cloud envy of various companies who jump on the cloud computing bandwagon by rebranding existing services in this interview with Beet.TV.

Google is publishing a series of brief articles during September by 10 of its top scientists on how the Internet will evolve in the next 10 years. In the first article, Alfred Spector, a vice president of engineering, and research scientist Franz Och, outline how Google's search engine will evolve over the next decade.

Traditionally, systems that solve complicated problems and queries have been called "intelligent", but compared to earlier approaches in the field of 'artificial intelligence', the path that we foresee has important new elements. First of all, this system will operate on an enormous scale with an unprecedented computational power of millions of computers. It will be used by billions of people and learn from an aggregate of potentially trillions of meaningful interactions per day. It will be engineered iteratively, based on a feedback loop of quick changes, evaluation, and adjustments. And it will be built based on the needs of solving and improving concrete and useful tasks such as finding information, answering questions, performing spoken dialogue, translating text and speech, understanding images and videos, and other tasks as yet undefined. When combined with the creativity, knowledge, and drive inherent in people, this "intelligent cloud" will generate many surprising and significant benefits to mankind.

It appears that Google will stay on the same path that it is on today, taking advantage of Moore's Law in terms of faster and cheaper systems, as well as faster and cheaper storage and networks, and moving from hundreds of thousands of servers to millions working in parallel to deliver more relevant and media rich answers to queries.

Google isn't betting on pure artificial intelligence, replicating all the functions of the human brain, as the way to put more intelligence in the network. The army of Google software engineers will continue to focus on machine-learning and human-engineered relevancy algorithms to unpack trillions of data bits collected from Web crawling and user inputs.

At this point in time Google performs somewhere around 71 percent of Internet searches in the U.S. Google appears destined to increase that share over the next decade unless Microsoft or some company just hatching can come up with a substantially superior search experience.

On this week's EIC Squared podcast, ZDNet's Larry Dignan and I discuss the legal tussle between Apple and the Mac cloner, Psystar.

This week, Psystar sued Apple on antitrust grounds. Psystar execs said they just want to make the Mac OS "more accessible" by offering it on cheaper hardware than what Apple provides. It's hard not to imagine Apple fighting this one to the bitter end and Psystar getting crushed in a lengthy litigation.

Another battle is brewing with Cisco Systems adding e-mail and calendaring to its on-demand, collaborative software platform with the acquisition of PostPath. This might speed up Microsoft's delivery of an on-demand software suite. If Cisco wants to push its suite further, Zoho would be an acquisition target.

Larry and I also discuss the coverage of the Democratic National Convention. And I share my thoughts on Dell's cloud computing efforts, which means selling bare-bones servers optimized for cost, operational efficiency, and energy conservation.

SAN FRANCISCO--Standing 52 stories in the air at the upscale Carnelian Room in the Bank of America building here, executives from Dell, Facebook, and Salesforce.com discussed the meaning and use of the latest technology buzzword, cloud computing.

The sky was blue and cloudless, but it didn't adversely impact the atmosphere of what turned out to be a Dell marketing event. It was pitched as an announcement about a partnership that involves "the next generation of cloud computing."

You might recall that Dell is the company that owns the URL Cloudcomputing.com, and made a failed attempt to trademark the phrase. Earlier this month, the United States Patent and Trademark Office rejected the company's application. Dell marketing head Andy Rhodes wasn't willing to comment on whether Dell would appeal the USPTO decision.

Despite the cloudless sky, the speakers offered genuine insights into cloud computing, an umbrella term for "hyperscale" computing that covers everything from delivering compute services like a power utility delivers electricity, to simply hosting applications off-premises (see also software-as-a-service and on-demand computing).

Event host Forrest Norrod, vice president and general manager of data center solutions at Dell, defined cloud computing as an economic enabler for applications, not just for single applications but for platforms-as-a-service, such as Salesforce.com. He emphasized the economies of scale advantage that cloud computing has over client/server and previous generations of infrastructure deployment.

Dell is currently a cloud computing arms supplier to companies such as Facebook and Salesforce.com. "Dell is focused on early adopters and large customers, about 50 worldwide, to provide optimized servers, storage, and data center infrastructure," he said. "Cloud computing is still an emerging market, with standards across the framework and software stack still emerging. We are trying to promote an ecosystem to build the software stack on top of the infrastructure. You will gradually and judiciously see us add capabilities up and down the stack.

Norrod pointed to recent Dell acquisitions--Message One, Silverback Technologies, and Everdream--as examples of Dell's focus on software, not just the hardware piece. Increasingly, both Dell and HP are building out their software stacks to compete with Sun and IBM for providing highly automated data centers running commodity hardware optimized for cloud computing.

Jonathan Heiliger, Facebook's vice president of technical operations, had some praise for Dell. "Dell is doing the most aggressive things possible to optimize for cloud computing," he said. "We think Dell is perhaps the furthest along and we see them as a thought leader." Facebook has more than 10,000 servers, Heiliger said, and it's safe to assume any of them come from Dell.

He noted the price of hardware is not the biggest issue. Vendors can even sell hardware at a loss or at a fixed margin cost to get the initial business. "What we have seen in the landscape is that most server providers are trying to provide Lexus quality products at a Toyota price. We are looking for Scion products at a Scion price," Heiliger explained. "(Vendors) have to be creative around power and airflow optimization. The cost of operating the hardware is key; you have to take down the operating cost, not just the server cost."

For Heiliger that means bare-bones servers. "We don't need fancy graphics chips and PCI cards," he said. We need one USB port and optimized power and airflow. Give me one CPU, a little memory and one power supply. If it fails, I don't care. We are solving the redundancy problem in software." Blade servers are not ideal, he said, because of the higher cost and proprietary lock-in that come with the lack of a standard chassis.

Check out the video interview I conducted with Heiliger about managing infrastructure hypergrowth as Facebook adds 250,000 users per day.

Claus Moldt, vice president of technical operations at Salesforce.com, offered similar comments to the previous speakers. The company is phasing out Sun equipment and standardizing on Dell servers (Dell is a customer of Salesforce.com). Salesforce.com has two data centers in the U.S. and one due to go online in Singapore later this year. Moldt said his biggest challenge is capacity planning, making sure that as customer usage patterns change, the Salesforce infrastructure can adapt instantly.

Dell is betting big on cloud computing to boost its enterprise footprint. At this point, Dell doesn't have plans to build its own cloud to provide hosting for external applications, Norrod said. But, there may come a time when being an arms supplier won't be enough for Dell to be competitive. In addition, selling bare-bones servers can't be much of a high margin business, which is why Dell is moving more into software and services. Norrod said Dell's cloud computing efforts have been a large component of Dell's recent market share growth. Dell's second quarter earnings due tomorrow should give a more precise indication of the impact of the cloud on company's business.

It's not clear why anyone should be surprised that Gmail, Amazon.com's cloud services, Salesforce.com, MobileMe, or Netflix have periods of instability or downtime. These services are not promising five-nines of uptime, and they are dependent on complex code and a vast network "tubes," as the beleaguered Sen. Ted Stevens has said, to deliver bits to users. Services such as Twitter have set a new standard for unreliability, making the other cloud-based services look good in comparison despite their outages.

The much-ballyhooed cloud from which Web services emanate is inherently unstable and prone to odd behavior from any number of causes. At the same time, the Internet overall is incredibly robust and redundant. You just don't want to be caught at the intersection of some errant configuration change or badly behaving router. In the case of a Gmail outage, you need to have alternative e-mail services that capture messages from multiple sources to stay afloat.

Over time, the complex network systems underlying the Internet will become more reliable, but don't count on the Internet of 2008 or even 2015 to be operationally flawless. If you are not careful and proactive, the cloud will rain on you without warning.

After attending GigaOM's Structure 08, I came away with a cloud-computing hangover. Just trying to define cloud computing is daunting given all the hype and companies thunderclapping.

Today the research firm Gartner has jumped on the cloud computing bandwagon, proclaiming that it "heralds an evolution of business that is no less influential than e-business," and defining it as massively scalable IT-related capabilities provided as a service using Internet technologies to multiple external customers.

Yahoo just announced a Cloud Computing & Data Infrastructure Group, which will develop computing infrastructure that balances scalability with cost effectiveness. What was Yahoo doing before it created this group?

I prefer the way Sun Chairman Scott McNealy talks about cloud computing. Ten years ago he was calling it the "big freakin' Webtone switch." Following is how he described it in December 2001:

That is the server, the storage, the operating system, the monitoring software, the clustering, the alternate pathing, multiple domaining, dynamic reconfiguration--and then it has a mail tone, a calendar tone, a news tone, an app server tone, and a directory tone. It has all of the different features of a big freaking WebTone switch and allows you to create this big jukebox. You can buy that all complete. Or you have one throat to choke and you can buy it all through a service provider that is SunTone certified. Or you can do what many IT directors do and they go out and buy the telephone switch by buying the chip from Intel, the operating system from Microsoft, the disk drive from EMC, the Compaq power supply, the Oracle database, the Novell directory, the BEA app server, the SAP, ERP, and CRM from here, blah-blah-blah, this, that, and the other thing, a SoundBlaster card from somebody else, the anti-virus uninstaller from Norton, and then go bring in IBM Global Services to try to make the whole thing work. Buy the big freaking WebTone switch.

At that time McNealy was talking about how enterprises provision their data centers and user services. Now we are seeing Amazon, Google and others take their data center expertise and make it available to developers and companies. Enterprises will be slower to move to the cloud, but they will eventually get there. Software-as-a-service providers are flourishing, and increasingly enterprises are considering off-premises, hosted solutions.

In essence, we are at the beginning of the age of planetary computing. Billions of people will be wirelessly interconnected, and the only way to achieve that kind of massive scale usage is by massive scale, brutally efficient cloud-based infrastructure.

More on cloud computing and Structure 08

SAN FRANCISCO--Speaking at the Structure 08 conference here, Sun Microsystems CTO Greg Papadopoulos predicted that by the beginning of 2010 the majority of systems sold would be for Web, high performance computing and software-as-a-service applications. "We are going through this phase change in computing in a big way," he said. He made a similar prediction last year.

Papadopoulos also advocated a free market in which all interfaces and formats are based on open standards; customers own their data, relationships, and metadata; and customers can extract, synchronize or purge their data unilaterally. This echoes recent efforts to promote openness and data portability.

Papadopoulos acknowledged that the nirvana of every customer or user in charge of their own data that lives in the cloud has challenges. Today, users cede control of their data to service providers like Google, Facebook, Microsoft, Yahoo, and others. It's not as easy for users to manage and move their data as it should be, which means users are generally stuck with the user experience and monetization schemes of the host sites. "It's proprietary systems all over again," Papadopoulos said. Over the last several years Sun has differentiated itself proprietary vendors, focusing on free open-source software and open standards.

Further out into the future, Papadopoulos expects that the technology infrastructure industry will be similar to the energy industry. In past presentations, he has called this transition the Red Shift.

Papadopoulos has predicted a "neutron star collapse of data centers," meaning at some juncture it won't make sense for businesses to build their own data centers. Instead they will contract for computing resources from hosting providers who bring "brutal efficiency" for utilization, power, security, service levels, and idea-to-deploy time.

There will be a grid of a half dozen very large cloud infrastructure providers and a hundred or so regional providers, Papadopoulos said. It will also look more like the banking world, he continued, with customers willing to trust the service providers with their private data as they do banks with their money. It's a question of when, not if, this scenario will occur.

Papadopoulos also laid out a map (see below) of the current universe of cloud computing in terms of increasing virtualization and consolidation across various categories: processor, operating system, language, and application services. Over time, the categories will fill out more especially as more languages and applications services or platforms rise up. Papadopoulos pointed to two Sun projects, Dark Star and Project Caroline. Dark Star is about software infrastructure designed to simplify the creation massively scalable online games, virtual worlds and social networking applications. Project Caroline is a hosting platform for developing and delivering Internet-based services. It's not clear why the Sun research projects are positioned at the far right on the chart, and players such as Google, Joyent, and Rackable are missing.

Click here to see more stories from the Structure 08 conference and on cloud computing generally.

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