Don Dodge on The Next Big Thing

Dave DeWitt opens Microsoft's Jim Gray Systems Lab

Database pioneer Dave DeWitt has joined Microsoft as a Technical Fellow, and will head a new research lab called the Jim Gray Systems Lab. Jim Gray was a legend in the database world, and was tragically lost at sea in January of 2007.

Ted Kummert, Corp VP at Microsoft said "It’s a great honor to be able to name this lab after Jim Gray.  Jim’s impact on the database and computer systems industry is immeasurable – not just in terms of the ideas and works he created, but as importantly on the people in this industry. Jim was very interested and supportive of education throughout his career.  Having his name on the lab is a way of honoring both his technical contributions to the field as a Turing award winner and his support of education and research."

I knew Jim Gray for more than 20 years. We worked together for many years at Digital Equipment Corp in the Database Systems Group, and again at Microsoft, although in different groups. Jim is the smartest guy I have ever worked with, and also the most friendly and humble. Jim received the Turing Award in 1999, the equivalent of Nobel Prize for computer science. I stopped by to meet with Jim in his San Francisco office 6 months after he won the award. He had a plaque and a picture from the award ceremony sitting on the floor behind a bunch of computer science journals. I asked him about it and he just shrugged and said "Well, my daughter is very proud of me...that is all that matters". The smartest guy I ever met also understood the simple things in life.

The Jim Gray Systems Lab will be in Madison Wisconsin, where Dave DeWitt was a long time professor. DeWitt recently retired as an active professor, and is now Professor Emeritus at the University of Wisconsin-Madison.  His technical contributions have been recognized with election to the National Academy of Engineering and the American Academy of Arts and Sciences. DeWitt’s research program produced numerous technical contributions to the database field as well as educating many students who went on to make major contributions to the database system field. Microsoft’s own Technical Fellows Peter Spiro and Rakesh Agrawal both were students under DeWitt. His PhD graduates are a veritable who’s-who of the database industry – many of those graduates here at Microsoft both in the SQL group and in the database group in Microsoft Research.

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No recession in the technology sector

Technology buyers say they will continue to invest according to a story from The New York Times. Microsoft reported record earnings last week, and Chris Liddell, Microsoft CFO, gave stock analysts strong "guidance" for the coming year, saying “We have not seen any significant spillover for an economic slowdown in the U.S.”

The NYT article cites an IDC study and concludes; "There will surely be belt-tightening, and cuts may be sharp in some industries, especially the financial sector. Overall growth in technology spending may fall from 7 percent last year to 4 percent or less this year, according to estimates by IDC, a research firm."

Erick Schonfeld at TechCrunch predicts that a tight economy will actually benefit Web 2.0 companies and SaaS based software. Erick says

"While a belt-tightening might not be good for the IBMs, Dells, and Oracles of the world, Web 2.0 companies should do fine—even thrive. All of those Enterprise 2.0 startups out there, or even Amazon trying to sell Web-based computing infrastructure, are actually at an advantage. Customers are more likely to try cheap cloud computing when they can no longer afford the alternatives."

What about advertising? A few weeks ago I asked "Will Advertising Revenues Drop In A Recession?"  Marketing and advertising is usually the first thing to get cut when the economy sours. Display advertising will probably feel the pinch, but online Cost Per Click (CPC) ads will look more attractive to advertisers.

With CPC ads you pay nothing unless someone clicks on your advertisement. This is a huge advantage for advertisers who really want to increase sales but can't afford to gamble on a display ad. CPC ads are easily justifiable and trackable. In a recession, with declining sales, there is enormous pressure to do anything possible to get sales moving. CPC advertising, principally on search engines, will be very appealing to advertisers.

Google and Yahoo report earnings this week. Of course these earnings will cover the 4th quarter of last year. What analysts really want to hear is their outlook or "guidance" for the coming year.

Apple reported great earnings last week, but said the future looked soft. Apple stock was crushed by investors. Microsoft stock was up in a very down market. One thing about the stock market...every day is a new day. Last week doesn't matter. The stock market is always looking forward.

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Google vs. Microsoft = Microsoft vs IBM 30 years ago

This battle of the titans has been brewing for 5 years or more. It is inevitable. Not because of animosity between the companies, but because of underlying business and technology trends driven by new customers and technology advances. There are lots of examples of this happening in many different industries. Think Toyota vs. Ford 30 years ago, or Microsoft vs. IBM.

The New York Times has a story today "Google Gets Ready To Rumble With Microsoft". The NYT interviews Google CEO Eric Schmidt, and one quote sums up the Google view that the future of computing is web based applications and services hosted in "the cloud" on the web.

To explain, Mr. Schmidt steps up to a white board. He draws a rectangle and rattles off a list of things that can be done in the Web-based cloud, and he notes that this list is expanding as Internet connection speeds become faster and Internet software improves. In a sliver of the rectangle, about 10 percent, he marks off what can’t be done in the cloud, like high-end graphics processing. So, in Google’s thinking, will 90 percent of computing eventually reside in the cloud?

“In our view, yes,” Mr. Schmidt says. “It’s a 90-10 thing.” Inside the cloud resides “almost everything you do in a company, almost everything a knowledge worker does.”

Jeff Raikes, President of Microsoft's Business Division, responds by saying;

“It’s, of course, totally inaccurate compared with where the market is today and where the market is headed,” says Jeff Raikes, president of Microsoft’s business division, which includes the Office products. TO Mr. Raikes, the company’s third-longest-serving executive, after Mr. Gates and Mr. Ballmer, the Google challenge is an attack on Microsoft that is both misguided and arrogant. “The focus is on competitive self-interest; it’s on trying to undermine Microsoft, rather than what customers want to do,” he says.

Henry Blodget, former Wall Street analyst and currently of Silicon Alley Insider, casts the debate as the classic "Innovators Dilemma", made famous by Harvard's Clayton Christensen. Henry distills the essence of 'The Innovators Dilemma" and the situation between Google and Microsoft in a few short paragraphs;

Disruptive technologies do not destroy existing market leaders overnight. They do not get adopted by the entire market at the same time. They do not initially seem to be "better" products (in fact, in the early going, they are often distinctly "worse.") They are not initially a viable option for mainstream users. They do not win head-to-head feature tests. Initially, they do not even seem to be a threat.

Disruptive technologies begin by providing a cheaper, more convenient, simpler solution that meets the needs of the low-end of the market.  Low-end users don't need all the features in the Incumbent's product, so they rapidly adopt the  simpler solution. Meanwhile, the Incumbent canvasses its mainstream customers, reassures itself that they want the feature-rich products, and dismisses the Disruptor as a niche player in an undesirable market segment.

But then the Disruptor improves its products, adding more features while keeping the convenience and low cost. Now the product appeals to more mainstream users, who adopt it not because it's "better" but because it's simpler and cheaper. Seeing this, the Incumbent continues adding ever more features and functionality to its core product to try to maintain its value proposition for higher end customers. And so on. Eventually, the Incumbent's product overshoots the needs of the mass market, the Disruptor grabs the mainstream customers, and, lo and behold, the technology has been "disrupted."

It is important to remember that Microsoft has played the role of "Disruptor" in the past, and learned a lot along the way. Jeff Raikes and Ray Ozzie totally get it. The people in charge of Office and Live get it. .

Microsoft has a carefully planned strategy to provide customers with the best of both worlds; packaged software for applications that require lots of graphics and computing power, complimented by web based services for easy access and group collaboration. Microsoft calls this "Software plus Services", and it is important because the user experience is seamless and synchronized no matter where you are. Microsoft has invested billions in huge data centers to support this vision.

On the business side there is another delicate balance. Microsoft Office is a $15 Billion dollar business. Balancing that business with advertising supported web services, or monthly subscriptions, will happen gradually over time.

Another important thing to remember is that this isn't a "winner take all" scenario. This is a huge market and there is room for different solutions and business models. Look at IBM. They are still a very large and successful company 30 years after they were "disrupted" by Microsoft.

Ultimately the customers decide who wins. Great companies adapt to changes in the marketplace. Lazy companies cling to their "tried and true" business models in the face of disruptive forces. Microsoft is a great company...so is Google. Both will be successful in their own way...and the customer wins either way. That is the American way!

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Web software makes sexy headlines, enterprise software makes bottom lines

Robert Scoble says the reason bloggers and journalists don't write about enterprise software is because it isn't sexy, and doesn't generate page views...which drives revenues. He is right. Bill Gates says "The business computing market, which is way bigger than the consumer computing market, no one pays attention to it. Even in the Wall Street Journal, and you think, oh, this is the paper they're going to tell me about business computing; no, it's all about consumer computing."

To which I say - Consumer web stuff makes sexy headlines, but enterprise software makes great bottom lines. In business bottom lines matter. Given a choice between fame and fortune...I would take the fortune and leave the headline fame to others. Bill Gates has plenty of both. Maybe it is respect he is looking for. Hey Bill, you have plenty of respect too.

Donna Bogatin at InsideChatter does a great job covering enterprise software. So does Dan Farber at ZDnet.

Must be a slow news day for bloggers. Get a life guys. Hey, the New England Patriots just crushed the Steelers. And I am going to the Patriots - Jets game next week! Now that is living! Have a great weekend!

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Google and Sun release StarOffice in Google Pack

The New York Times shouts "Google goes after Microsoft again" by distributing Sun's StarOffice for free in Google Pack. Mary Jo Foley says "At long last, it looks like Microsoft Office, with its 90+ percent market share,  may get some serious competition."  Dan Farber at ZDNet has a more balanced reaction saying "Over a decade, OpenOffice/StarOffice has not challenged Microsoft’s supremacy, and a free, unsupported version from Google won’t have much impact."

What has changed? Star Office has been around for 8 years and has gained no traction. Sun even made it available for free as open source in the form of OpenOffice. That was 7 years ago. Google will be distributing the same StarOffice that Sun now sells for $70, and OpenOffice distributes for free. Oh, BTW, StarOffice is a 200Mb download...or more depending on your OS.

Microsoft is not standing still. Microsoft Office 2007 is an amazingly powerful product. Microsoft Office is the gold standard for word processing (Word), spreadsheets (Excel), presentations (Powerpoint), and personal databases (Access). The applications work together seamlessly (XML) and the user interfaces are very similar and easy to use. Microsoft Word supports all the popular file formats including save as PDF, OpenXML, and even a plugin for ODF. The new Office 2007 User Interface presents all the features you need in a ribbon format, no more drop down menus.

Microsoft Works is another alternative. It is a fully functional office suite that has shipped on home edition personal computers for years. Works compares favorably with Google Docs or any of the new Web 2.0 office competitors. Microsoft is now experimenting with a free (advertising supported) version of Microsoft Works.

Software + Services - Microsoft has been working hard to leverage the best of client software and web based services into one seamless user experience. Users want to take advantage of the computing power on the desktop for compute intensive tasks like creating large documents and spreadsheets, multimedia presentations, and video editing. There are other times when you want a more lightweight, collaborative, and interactive environment where a web browser is a better choice. Why not create on the desktop and share on the web? Why not collaborate and edit documents on the web and save the changes back to your desktop? Creating a great user experience that is intuitive yet powerful, available online and offline, and synchronized across all domains, is the goal of Software + Services. There is lots of work left to do, but that is the direction.

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Boston VCs gets first look at Y Combinator Demo Day

Y Combinator held its Demo Day in Boston unveiling 19 new startups to VCs and investors. The event was hosted by Paul Graham and Jessica Livingston. The companies covered areas like; video streaming; concert recommendations; enterprise wikis; a music player; an ad network; music games; hosted forums; price search; file synchronization; web promotions; an image editor; music rating; a stock-picking community; video dating; fantasy sports betting; music sharing; hosted applications; universal login, and Wikipedia like biographies.

Prominent VCs from around the country came to Boston for the event including; Fred Wilson (Union Square), David Hornik (August Capital), Jeffrey Bier (North Bridge ), Eric Hjerpe (Atlas), Austin Westerling (Charles River), Rich Levandov (Avalon). There were also people from Highland Capital, General Catalyst, Matrix Partners, Fidelity, Venrock, and others. That is Fred Wilson on the left in the photo.

Most of the companies are two person, very early stage, startups still in stealth mode. We got a good look at all the teams and technology, but I can only mention four of the companies that have actually launched a beta. They are; Adpinion, Anywhere.FM, Fuzzwich, and Versionate.

The companies were much higher quality than I expected. The founders were nearly all coders and hackers but did a surprisingly good job at presenting their idea, target market, and business model, and usually a demo in just 7 minutes. That takes talent. Several VCs said the presentations were better than many they see in their offices.

Like any VC portfolio, the Y Combinator companies will include a couple big winners, a handful of moderate successes, and a large number that will fail to gain traction. However, even those that fail to gain traction will try again and emerge with a new idea. These guys are real entrepreneurs.

Anywhere.FM looks like a (possible) winner. There are several others still in stealth mode that I can't talk about but they are focusing on music, fantasy sports, and photo editing.

Scott Kirsner, Boston Globe writer, was at the event and wrote a blog noting that several of the companies are planning to relocate to Silicon Valley because the VCs are more aggressive and the partnership opportunities are better. Come on Boston VCs! Step up and make the investments.

Next week I will be at TechStars Demo Day where 10 more companies will show their stuff to investors. And later next month I will be at TechCrunch 20 where Michael Arrington and Jason Calacanis will promote their top 20 picks. Fifty hot startups in less than a month. That is my idea of a good geek time.

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Google YouTube copyright infringement filtering system - How will it work?

Google / YouTube was in federal district court in New York on Friday defending a lawsuit brought by Viacom and several other media companies. The New York Times story says "Google hopes technology will be in place in September to stop the posting of copyright-infringing videos on its YouTube site, a company lawyer told a judge presiding over copyright lawsuits yesterday."

This is like Lindsey Lohan saying, OK so I did drive drunk a couple times, and did drive with a suspended license, but I am in rehab now and I won't do it again. So, everything is OK now. Lets just drop this and move on. Hmmm...not so fast.

Lets think about a few questions; How will the filtering system work? How will users subvert the systems? What if the system actually works? Will advertisers be interested in a YouTube without the good stuff? Even if it does work will the advertising economics work? First a little more background, then lets take those questions one at a time.

C/Net News story says "If in fact Google puts this (system) in place, it is obviously way too late," Solomon said. "But we encourage Google to come forward and do what other companies have already done and treat all the content providers fairly. Not just the favorite few who have agreed to share advertising revenue with YouTube."

During the court proceeding, lawyers from both sides estimated that pre-trial discovery could take more than a year. That means there's a chance that YouTube's copyright issues may not be resolved until late next year.

Viacom is suing for $1 Billion for past copyright infringement. What Google/YouTube does in the future is irrelevant to the facts of this case. The laws against copyright infringement are strict and the penalties are stupendously large...$250,000 per instance. Viacom only needs to document 4,000 instances of copyright infringement to collect $1B in damages. YouTube probably does 4,000 streams of "The Daily Show with Jon Stewart" in one day.

How will Google's copyright filtering work? I haven't seen it, but based on what I have read it works by creating a "digital fingerprint" of the original video or music, and comparing it to every file uploaded to YouTube. Music and video uploaded to the Internet is converted to a digital file which is basically a series of ones and zeros. Digital fingerprinting simply records the series of ones and zeroes, then uses pattern matching technology to find instances of matches, even small sequences found in short clips.

What does this mean for music and video producers? It means they must submit to Google an original copy of every piece of content they own. They also must provide proof that they own the copyright. Then they need to trust Google to screen out any offending uploads. The copyright owners will still need to monitor YouTube to make sure the system is working...and serve Google with "take down" notices when it fails.

How will users subvert the system? People who upload music and video are usually pretty tech savvy and take delight in beating any system. They will do the obvious things; change the name of the file, chunk it up into short clips, add characters, sound, or other video to confuse the system, stretch or wave the video to make it appear different, and a bunch or other tricks. Think about the bot filtering technology on blogs and web sites that require you to type in a series of letters to confirm you are a real person. A computer bot can't read the squiggly lines and waves in the letters but humans can easily read them. The same sorts of techniques can be applied to music and video to fool algorithmic filters.

What about "sampling" and "fair use"? The copyright law allow for "sampling" and "excerpts" under the "fair use" provisions. These laws are very imprecise and open to interpretation. No computer generated filter will be able to determine what is "fair use" and what is copyright infringement.

What if the copyright filter system actually works? Will YouTube be interesting if there is no "good" content? How many videos of college kids drinking and dancing will you watch? Will the power users bother to upload music and video if they can't put up the good stuff? Will YouTube viewers care about watching it?

Will advertisers be interested in a YouTube without great content? YouTube is very expensive to operate. The hosting costs, bandwidth, infrastructure, and people cost millions. Advertising is the only real source of revenue. Will advertisers be willing to pay for placement on YouTube? Will they be comfortable displaying their brands next to random, perhaps raunchy, content? Even if they do, will the economics work? Low ad rates against expensive content don't work no matter how you scale it.

There is a great future in Internet video...at some point. YouTube may be the early pioneer that makes all the mistakes and clears the way for a "fast follower" to come in and do it right. Or, YouTube may figure it all out and make the necessary changes fast enough to survive and thrive. There is a long history of early innovators being eclipsed by fast followers. Some of the issues discussed above are reasons why it happens so often. The jury is (literally) still out on YouTube.

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Vista more secure than Linux, Apple OSX, and Windows XP

Jeff Jones, Director of Trustworthy Computing at Microsoft, has released a very detailed report comparing the vulnerabilities reported and fixed, in the first 6 months after release, of each of the major operating systems. Vista is the most secure operating system ever released.

Microsoft took a lot of heat for delaying release of the Vista operating system, but it has paid off in terms of security and defending against hacker vulnerability.

Vista is more secure than Red Hat Linux, Apple OSX, and even Windows XP. The Linux and Apple fans will be sure to rant and object, but not with facts, just opinions. This report is very detailed, includes actual reported facts, and even strips out some bugs associated with Linux add-on software, so there is a fair "apples to apples" comparison. The report is fair and comprehensive.

Vista is more secure than Windows XP. That is the real measure of success. Linux and Apple OSX do not have much market share, so they don't attract hackers as much. Vista is attacked by all the worlds hackers because it is the biggest target. Given that exposure it is even more impressive that Vista is the most secure.

The Linux and Apple OSX fans will never be convinced, so it is irrelevant to them. It is however, nice to see a report based in facts, rather than the fanatical and biased opinions we often hear from the Linux crowd. One bright spot, Jeremy's Blog, a blog written by a Linux and Open Source evangelist, says;

This report indeed does a better job than some from a methodology standpoint. For instance, he didn’t simply compare a default RHEL install, which includes a full Office suite and a whole host of apps not found in a default Windows install, with a default Windows install. He attempted to rip out the packages from the Linux installs that he perceived as being extra functionality when compared to a Windows install. This gives a much better baseline.

Flame wars are likely to erupt, but to be fair, demand equal attention to detail and supporting facts, and ignore the fanatical opinions.

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Dell signs on with Novell and Microsoft

Dell has joined the Novell/Microsoft alliance and has agreed to distribute SUSE Linux on Dell servers.

BusinessWeek reported "On Sunday, Microsoft and Novell said Dell has agreed to buy Suse Linux Enterprise Server certificates from Microsoft and that the computer maker will set up a services and marketing program aimed at getting users of open-source platforms to switch to the new Suse Linux offering."

The Boston Globe has an interesting quote from Rick Becker, vice president of solutions at Dell.

"The Novell-Microsoft deal ensures that users of Novell Linux are safe from Microsoft patent infringement lawsuits. Dell's Becker said that was a key reason his company wanted to join the alliance. "There's many aspects of open source that delight my customers," Becker said, but "they have concerns . . . about software licensing. . . . Those concerns go away when they deploy Microsoft and SLES Linux."

Customers have been using Linux and Windows for years, but typically on separate servers, and for very different tasks. It is now quite common for a customer to choose Windows to run a CRM or production management system, and choose Linux to run a print server, file server, or a rapidly changing environment.

What has changed is that now customers are using virtualization to better utilize their servers, and they now want to run Windows and Linux on the same server. Customers also wanted assurances that they would not be caught in the crossfire of patent infringement lawsuits between  the vendors.

The Dell announcement and the adoption of customers like Wal-Mart, Deutsche Bank and Credit Suisse are further proof that the industry wants Windows and Linux to work together in a way that protects Intellectual Property.

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The softwareless software company

David Hornik of August Capital wrote a fascinating blog "The Softwareless Software Company" which contends that the software business is moving to services, or software delivered as a service.  Jeremy Wagstaff, a Wall Street Journal writer has a similar story "It's not the "death" of Microsoft, it's the "death" of Software". In both cases they mean "software" in the traditional packaged software sense.  I agree. The transition to software as a service has already started.

Jeremy Wagstaff sees the trend but argues it will be a while before web based apps can compare to traditional client based software. He says;

The problem: Most web applications are broken, and if we were paying for them, or Microsoft were making them, we’d be howling. Google Docs’ word processor, for example, quickly breaks down on bigger documents (weird artefacts appear in the text, keyboard shortcuts stop doing what they’re supposed to.) Its spreadsheet program mangles spreadsheets. The functionality in both is extremely limited for anything more than the most basic tasks.

All this takes us to a weird place: We somehow demand less and less from our software, so that we can declare a sort of victory. (for Web 2.0)

Salesforce.com is the usual example. Google is another. Most of their employees are software engineers...but they don't sell software. They both provide software solutions delivered as web based services. Microsoft Live is a move in the same direction. Check out Xbox Live to see the integration of Live Services with packaged games. But read on, it gets much more interesting and complicated.

Listen to what David Hornik says about Microsoft's moves and the ultimate key to the success of software delivered as a service.

Perhaps the best evidence that we are entering this era of Softwareless Software Companies is Microsoft's "Live" push. At a recent VC Summit, numerous Microsoft execs, including Steve Balmer himself, talked about Microsoft's focus on rolling out service offerings under the moniker of "Live." They are now offering LiveDesktop, LiveSearch, OfficeLive, LiveExpo, LiveMeeting, etc. And in support of their massive push into the services space, Microsoft has just opened a new datacenter that will ultimately span just shy of half a million square feet (I hope to write more specifics about this some time soon).

In the era of the Softwareless Software Company, in which value is measured by utility, simplicity and reliability, the greatest asset may ultimately be the near infinitely scaling data center. It will certainly be important that the new computer company deliver great utility through its software-delivered service. But the most significant differentiator may ultimately prove to be the capacity to scale with massive demand. And those companies best situated to deliver that scale will be the winners. Thus, it is no surprise that just up and down the river from Microsoft's new datacenter in Quincy Washington, both Yahoo and Google are contemplating building their own gargantuan datacenters. The Softwareless Software Company may have come full circle from the Computerless Computer Company and be more about hardware and infrastructure than about software after all.

Microsoft has been delivering software as a service for a long time. Windows Live Hotmail has 260 million consumer users. By comparison, Microsoft Outlook has over 500 million business users. Both are valuable businesses for different market segments. Mr. Hornik alluded to five different Live Services above. Expect to see more Live Services announced in the future, perhaps later this month at MIX 07.

David Hornik makes another interesting point that huge data centers may be the key to successfully delivering software as a service.  A year ago I wrote about Microsoft and Google building huge $500M data centers calling it "A Battle of the Titans". There are very few companies in the world that have the vision, capability, and financial resources to build the data centers, infrastructure, and bandwidth necessary. Microsoft is one of those companies.

Paul Graham recently wrote a provocative and off base blog "Microsoft is Dead". I responded with "Since when does growing $4 Billion a year = Dead?" Paul lives in the Web 2.0 world building web based applications for consumers. From his perspective anyone who isn't building web based consumer apps is, well...Dead. Paul failed to see three things.

1. Microsoft is already delivering software as a service with Live Search, Xbox Live, Office Live, Windows Live, Live Meeting, and lots of others.
2. Building the software services is important, but the real important determinant of success is the ability to deliver the services in a scalable, secure, reliable, and cost effective way. This requires big data centers and experience managing web scale services.
3. Microsoft's enterprise customers want their web based services to seamlessly integrate with their server based applications and client PC based productivity tools. Sorry, stand alone web apps don't cut it for business customers. This is where Microsoft is spending tons of time and resources, and will ultimately be the key to success for software delivered as a service.

The transition from packaged software to software as a service has already started. For consumers it happened a long time ago. For business it has started as well, but it will take longer because the problems are more complex and expensive. The existing systems must seamlessly integrate with the new services. This is precisely what we call the Client/Server/Services continuum. It is why we have been working on Live Services, and why we have been busy building huge data centers. The pieces are in place and the picture will become clear for all the world to see very soon.

Microsoft is not dead...or irrelevant. Sorry Paul, I couldn't resist. :-)

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