The Problem With Anything Called “Name Here”-Killer

John is right, in spades.

That said, I don’t think LinkedIn is vulnerable to any new business network starting up, whether incubated at a newspaper on in-the-wild. LinkedIn is one of what I think of as one of the “three horsemen of the Social Web,” networks that are fundamentally about real identity and real relationships, specifically Facebook, LinkedIn, and Plaxo (where I am employed, as many of you know).

[From Is the Wall Street Journal really building a “LinkedIn killer”? « The Real McCrea]

It’s amusing to read about something rumored to be coming that is labeled as a “such and such killer”. The problem with anything of this ilk is that it only serves to validate the leadership that the targeted service has achieved and fails to recognize that just mimicking or being incrementally better than something which has emerged as a standard is not the way to beat it.

You see this play out in search all the time… a new search engine is measured against Google, which is why none of them succeed against Google. You can’t beat your competitor by just being as good as they are or marginally better… just ask Detroit car companies how that strategy has worked out for them. It’s also why Microsoft has an impossibly tall task with Bing, which by all accounts is a pretty damn good offering. Even though they go to great pains to call it a “decision engine” the fact remains that every analysis and review compares it to Google. Good luck with that.

LinkedIn succeeds not because they have a great user experience, which they don’t, a huge array of partners integrating with them, which they don’t, or any other feature, they succeed because everyone is using them and the social assets they possess cannot be replicated easily by a competitor.

I hope the WSJ succeeds with their rumored project but calling it a LinkedIn killer is really just theatre.

PS- LinkedIn should take these threats seriously and use the heat to change a culture that moves at a speed best described as glacial. If you have ever tried to do business with LinkedIn you can attest to the fact that this is one of the most difficult companies to work with, has enough NIH to cover Silicon Valley an inch thick, and despite protestations to the contrary has not delivered a rich set of tools that companies can use build on top of LinkedIn.

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Discredited CA Complains About Credit Agencies (again)

Bill Lockyer’s office (Treasurer of the state) had this to say about major credit agencies recently downgrading the state of California.

“The lower (California’s) rating is, the more (taxpayers) pay on debt service,” he said. “Every additional dollar they pay to investors is a dollar they cannot spend to educate their kids, protect their communities, clean up their environment, fight fires … all the crucial public services.”

[From California could have $15 billion shortfalls]

If this is the case, and it’s true that a lower credit rating increases borrowing costs, then why the hell haven’t the state politicians been making it a priority? We’ve been running deficits for the entire decade when you look at total spending against revenues (not just general fund expenditures) and have had to borrow more money than any other state… and now Lockyer is throwing out the familiar refrain about “educating kids”. Chutzpa.

Lockyer’s argument is essentially that California is being unfairly penalized by ratings agencies and if they would lay off the state would be in better financial condition, which of course is an argument that is just as absurd as “investors need to stop believing their own lying eyes about CA’s financial condition”. Lockyer seems to suggest that if it were not for ratings agencies the state borrowing costs would be lower.

Lockyer’s office also had this to say:

“There was actually very decent demand for California bonds in the secondary market (in the past month),” he said. “Folks continue to believe that despite the beating our reputation has taken nationally and internationally … California is a pretty sound investment.”

Actually no, investors don’t see California as a “sound investment”. The spreads on CA bonds are about 1.2%, which is double that of AAA rated borrowers and the yield on CA bonds is really high reflecting the low price the market is trading them for… because of the risk CA poses. With tax adjusted yields hitting 5% on short term notes (to put that in perspective, LA County one year notes are yielding 0.5%), CA is paying more than any other muni borrower for money, which certainly helps explain investor interest.

Investor demand is also high because the interest is high and few investors are anticipating that CA will default and if that risk looked real the calculation is that the Federal government would certainly step in. California is about 15% of the entire muni bond market and a default would not only impact every other municipal borrower but also would drive up Treasury yields so the Feds would certainly have to step in and investors know it.

Lockyer has been engaged in a long running complaint session against ratings agencies, on one hand deriding them for optimistic ratings on financial institutions (Calpers is even suing rating agencies for what they call optimistic and unreliable ratings) while at the same time complaining that these same ratings agencies are overly harsh on states and other muni borrowers. While there is much to be said about bond insurance being a hidden tax on muni borrowers, the fact is that municipal agencies do default (e.g. Vallejo, Orange County) and ratings are useful when comparing against other borrowers… in other words, ratings are essentially a measure of relative strength. At any rate, when the states complaining about bond ratings are also the most financially mismanaged states (CA, NY, RI, NJ) you don’t have much of a case.

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California’s Biofuels Policy: Yes, No, or Both

It’s hard to come up with the words to describe how self-destructive the state of California has become… witness our energy policy:

Conserv Fuel’s abandonment of biodiesel grew out of a June decision by the State Water Resources Control Board to begin enforcing laws against storing biodiesel underground. As commercial fueling stations have no economical way to hold fuel in tanks on the surface, the ruling forced most of the state’s retail biodiesel pumps to switch to petroleum or close.

[From California’s Biofuels Policy: Yes, No, or Both |]

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Saving the New York Times, Or Not.

Mike is correct to assert that many U.S. and international newspapers are structurally impaired and should simply disband but the debate in newspapers has shifted away from print vs. digital to one focused on digital monetization. The data is what it is, newspaper websites continue to grow traffic by double digits yet the incremental increases, or more recently seen decreases, simply can’t cover the physical costs of the news gathering operation. Turns out that it’s no different in the blogosphere as well and TechCrunch’s conference revenue is not an exception, it’s the rule for all of the major professionally produce tech blog operations.

So what can those top 50 writers learn from Arrington’s business model? Well, they’d better enjoy throwing conferences. Arrington said only 10 to 20 percent of of TechCrunch’s revenue comes from normal advertising on the website, while 50 percent comes from conferences. (Yes, I know these parts don’t add up to 100 percent.)

[From Michael Arrington’s plan to save The New York Times: The best writers should quit | VentureBeat]

I wrote about the 100 year flood that newspapers are facing and my conclusion, which I believe still holds, is that newspapers have to abandon their category and create something new that combines hyperlocal information services, create new advertising units, aggressively pursue syndication, and move into video as a natural compliment to text.

Pixel Reclamation

I can’t tell you how many times I have looked at an app running on my laptop and thought “are they for real… did anyone test this on something less than a 24″ display before releasing it?”. I think the most egregious violator of laptop display personal space is Microsoft Office… you could enable enough tool bars and palettes to completely obscure any remaining workspace on my 15″ macbook pro.

So when I read this post I realized 1) I am not alone, and 2) someone feels my pain.

The maximize button is my friend. Toolbars are my enemies.

So I’m happy to report that browser makers are paying new attention to the issue. It’s important to me for reading Web sites, but it’s really important to me for the new generation of Web applications. A row of pixels saved once in the browser is returned again with each Web-based application.

[From Thanks for giving my pixels back, browser makers | Webware – CNET]

It also reminded me of a document collaboration product from now defunct Lunarr. One really cool UI innovation that Hideshi and the team developed was putting the menus and toolbars on the document editing screen at the bottom of the app rather than the traditional top row configuration. It took a little getting used to but it actually works really well because it tricks your eye into believing there is more white space for working than their really is.

At any rate, this is clearly something app designers need to focus on because while we all benefit from oversized desktop displays that are increasingly inexpensive, the computing marketing is also moving small with netbooks and mobile devices making up the only growth markets for hardware manufacturers.

SAP’s John Schwarz on Analytics

This is Part 2 in my Fortune Brainstorm Tech series. Part 1 covered a conversation with Vishal Sikka.

Vinnie Mirchandani, Oliver Marks, Dennis Howlett and I sat down with John Schwarz, who recently came to SAP via the Business Objects acquisition and has quickly emerged as the man with the plan. If you have been following SAP’s financial results this year you already know that Business Objects is fueling SAP’s growth as their core ERP business has been hit by the global economic recession and stalled.

That analytics is fueling new business growth is not surprising, SAP’s business has historically been driven by transaction and system of record applications (think of all the large three letter acronym categories) but as those systems mature the demand for upgrades subsides and as a consequence of having been at this for so many years there is simple marketplace saturation and “going downmarket” hasn’t exactly worked out very well because SaaS applications have emerged as preferred solutions for small and mid tier customers.

Fast forward to today and analytics is looking to be a really attractive market for SAP because of the strength of the Business Objects offerings and good integration with SAP’s application products. Competitors include IBM and Oracle but neither of those vendors are particularly well positioned because IBM is selling database oriented solutions and Oracle hasn’t achieved broad integration of the analytics assets they have acquired, so they are selling pieces and parts rather than a solution.

Schwarz is responsible for this group within SAP and I think it’s pretty safe to say that they have integrated the company and their 6k employees, or at least have done the bulk of the integration heavy lifting. The question that now exists is “where are you going to take this thing now that you have the keys and a full tank of gas?”.

The answer is two pronged, the first being that Schwarz makes a tacit acknowledgement that most of what all these companies have been selling in years past is more “reporting” and less “analytics”, and even in that frame customers have not demonstrated great competence at utilization of these capabilities. Another reality is that the best systems have been applied against cubed data (OLAP) systems as opposed to real time operational systems, and by definition has been targeted at specialized use cases (like how your credit card company analyzes potential fraud).

Schwarz’s answer to this is moving the state of the art on two separate axis, the first being “analytics for everyone” by delivering solutions that have a very refined user experience for reporting, ad hoc query, and historical and predictive analytics. The second axis is potentially more disruptive to the market but one that will most certainly present more headwind in the form of mature competition that SAP will have to overcome while on a steep learning curve, and that is unstructured data (free form text).

The first axis, analytics for everyone, has high probability for success because SAP & Business Objects are really well positioned to expand their footprint in customer sites by going direct to the business user, who according to Schwarz is the decision maker for analytics purchases as opposed to IT. Schwarz and Sikka both referred to the “consumerization” trend in enterprise apps and it was refreshing to hear them say it because this has been a central theme in my writing for several years now and it is simply undeniable, business users expect business applications to be like the applications and services they use in the consumer world.

The move into unstructured data is more problematic for SAP on three fronts. First and foremost, SAP doesn’t have any packaged data feed bundles they can sell and relying on partners has proven problematic for other companies in this space. I asked Schwarz if this suggests that SAP will be acquiring wholesale content providers that they can layer on top of applications and he acknowledged that it is currently a “raging debate within the company”.

While I think SAP should acquire a content aggregator and perhaps even someone like Gnip, I doubt they will do it, instead going to companies like Factiva and Thomson Reuters to provide bundled content for SAP customers and in the long run they will come to the conclusion that trying to be a neutral player while bringing together content providers is simply cumbersome and foists upon the customer too many contingencies. However, I will acknowledge that given the state of their progress on this initiative, acquiring a content provider now does not give them a strategic advantage therefore time is on their side.

A second concern I have is that unstructured text analysis is very difficult to do well and even specialist companies that have been at this for years find it difficult, so to suggest that SAP will simply do this because they set their mind to it is optimistic to say the least. Entity extraction, semantic tagging and triple building, sentiment analysis, quality, and content authority are extremely challenging, especially as content feeds shift to activity streams which provide far less context for the content to be analyzed against. To then marry this to structured data analysis is something that has been accomplished in highly specialized fields like government intelligence and applications for financial traders. Don’t get me wrong, all of the things I have just written about are exciting and well worth doing, I simply think you have to be prepared to fail more than you succeed, even if you are as accomplished as Business Objects is.

Lastly, there is one very big obstacle in the way of anyone attempting to capture unstructured data for analytics, office applications. The single greatest store of unstructured data in any enterprise is email, followed closely by documents created by personal productivity applications. Microsoft is certainly well positioned here, their entire Sharepoint roadmap reads like a plan to integrate MS Office data to collaboration and transaction systems but even Microsoft is finding that bringing intelligence to email is a tough rock to push. Similarly, companies like Gist, Xobni, Clear Context, Kwaga, and Postbox have emerged and will certainly develop leadership long before SAP enters the market.

So what can we conclude from all of the above, well I think it’s pretty clear that Business Objects under Schwarz’s leadership is well positioned to execute on the vision he has established, from the standpoint of having a solution, market credibility, and access to a substantial customer base, but it’s also clear that they will have to make some acquisitions to fill gaps and build some durable partnerships with companies that matter.

On the partnership front, we spent quite a bit of time talking about the widely known issues that SAP has with the idea of partnering, and by extension the Palo Alto versus Walldorf mentality that has marked their expansion into Silicon Valley. Schwarz insists that these issues have been resolved but I remain unconvinced for many reasons, but mostly because NIH is such an integral part of SAP’s culture that I don’t think they will ever shed it. Secondly, as accomplished as John Wookey is, I don’t believe he can be the force at SAP that he was at Oracle because to do so would involve a massive realignment of turf that would strip many in Walldorf of their fiefdoms and we all know that at it’s core power in any organization is a function of turf.

Personally I think that SAP should stop having an inferiority complex about partnering and instead just focus on building the best tools for partners to take advantage of. Every company that sells into the enterprise wants to align with SAP at some level (hell even Oracle does to support their database business) so instead of trying to sell everyone on “hey look at us, we’re cool like Google and we want to be your friend”, just go out and build kick ass tools that partners can use to build great solutions and then get the hell out of the way.

On the competitive front Schwarz had some interesting things to say about known competitors IBM and Oracle, but his most insightful comments were saved for Microsoft and Google. On Microsoft, Schwarz confirmed that they are looking at Azure with great caution but generalized Microsoft’s competitive weakness as “trying unsuccessfully to be all things to all people”. It’s hard to disagree with that statement, nor to ignore the fact that Microsoft has not been as successful with applications as they would have predicted so for SAP the truth is the devil you know is better than the one you don’t.

Regarding the devil they don’t know, it’s clear that Google has emerged as a competitor for SAP to be concerned about. Schwarz’s general view seems to be that Google doesn’t have the maturity and product management expertise to be successful in the enterprise, pointing to companies like FAST and Autonomy doing enterprise search far better than Google, despite the fact that search is the crown jewel of the Google empire. From where I sit, the single biggest threat that Google presents is their ability to climb the learning curve very quickly and that the lack of rigid product management has demonstrated to be a remarkably effective quality for quickly iterating products that then gain broad consumer acceptance.

Whether or not that agile process is repeatable in the enterprise is debatable but it’s clear that for all the talk about innovations at SAP, the fact remains that we see very little of it in the product pipeline. This isn’t due, IMO, to the stuff not working but rather the tendency for SAP development groups to set the bar impossibly high for a product to be delivered. While I don’t think Google will present a serious threat to SAP for many years, I do believe that SAP can learn a lot from Google that will make them a better company as a result.

To conclude, I really enjoyed meeting Schwarz and it’s clear that he has a good line of sight on where his business unit needs to be focusing not just for revenue growth but also to protect the flanks as the market continues to evolve. While there is much to like, there is also much to be concerned about but on balance the concerns are more tactical than strategic so I’m willing to give him the benefit of doubt at this point.

Vishal Sikka on SAP’s Challenges, Futures, and Realities

The odds of sitting down with a senior executive of a major technology company and being surprised and enlightened are one in a million because typically they sit down with a prepared agenda and, with the benefit of years and years of media training, religiously stay on message turning every question back to the thing they want to talk about.

On Wednesday Vinnie Mirchandani, Oliver Marks and I sat down with my old friend Vishal Sikka, CTO of SAP at the Fortune Brainstorm Tech event in Pasadena for a discussion that was free wheeling and definitely without the benefit of a script, meaning it was actually interesting. The fact that Vishal is one of the smartest and most level headed people you will ever have the privilege of meeting no doubt played a big part in why our lunch meeting was so engaging.

Vishal has a tough job because he is responsible for charting the technology roadmap for a company that prides itself on being innovative yet is faced with the reality that their customers want stability and continuity. In Vishal’s own words, SAP’s customers want the company to be like a night watchman who ensures that everything is safe and secure when no one else is watching.

At the heart of this night watchman metaphor lies the fundamental criticism levied against the company, and others like them, which is that despite their vigorous pronouncements to the contrary, the fact is that they won’t change, dramatically lower the cost of their solutions, or embrace third party offerings that are better than their own products. I am sure that there is some truth to this but like other mature industries with a small cluster of dominant vendors, I’m not sure it really matters to customers.

The problems that SAP, Oracle and Microsoft are solving are complex and massively consequential; Vishal made the comment that SAP is at the center of more global trade than any other company on earth and I have little reason to doubt that but with that realization comes significant responsibility that goes well beyond the legal dance called compliance.

The financial industry is the ultimate example of a modern industry that exists because of technology, the ability to exploit information latency for profit as a result of massive processing capacity and well honed software algorithms… but with that immense power the ability for the oldest of human motives, greed, to corrupt is exponentially greater than at any time in history and we now live with what feels like ritual boom and bust cycles as a result. Ironically, we now have a new class of financial software applications that act as circuit breakers to essentially slow down automated trading that can wreak havoc in a market on any given day.

When I confronted Vishal with the above observation and applied it to supply chain rather than financial markets he acknowledged the problem and made an interesting that global trade is a great human equalizer and when nations intertwine economically they are inherently less prone to making war with each other. His point is valid, that whatever damage any bad actors can do with technology, the benefits far outweigh the downsides, a fact that is hard to disagree with.

In the years ahead I think I am on solid ground in suggesting that companies like SAP will come under increasing scrutiny to provide not only full compliance offerings and features, but also overarching transparency that exposes more of the underbelly that all organizations have.

The point about transparency is something that Vishal brought up in our conversation, his exact quote was “radical transparency that reinforces clarity of purpose”. The question that prompted this was based on the observation that unlike Oracle, SAP has always been obsessively consensus oriented, which is really difficult to sustain when involving innovations that have the result of reducing the power of individuals who are expected to grant consensus.

In such an environment how do you breed a generation of leaders who balance risk, customer expectations, commitment to excellence, and financial returns against their own personal agendas? I don’t think you do but Vishal made the point that it’s essential to not forget where you come from, which is just another way of saying you have to always keep in the forefront what your core business is and what it is that has made you successful in that over the years. This ties back to the night watchman metaphor because Vishal is right to assert that SAP’s customers don’t want them chasing every new trend that emerges, in the process foisting upon them disruptive and expensive change for benefits that are still largely promises.

What this does mean is that SAP can often be late to the party or resisting of developments that others have pioneered, but that tradeoff doesn’t seem to bother Vishal very much. A potentially more damaging consequence is that because, as has been said before, “when you are SAP every new market is a niche” and that allows oxygen for other companies to develop offerings that shape the market to SAP’s detriment. I don’t think SAP is alone in this regard, the same could be said of Microsoft, but the question must remain at the forefront of Vishal’s thinking as he is responsible for all of the self-described innovation groups at SAP.

It really is a treat to talk with Vishal, there are few people in his stratosphere who bring his smarts, rational perspective on the market, and most of all, a confidence in what he is good at that never crosses over to arrogance.

PS- I have more notes that cover Vishal’s thinking on cloud computing, the analytics market, enterprise 2.0 technologies, and much more. Rather than cover everything in one post, I will follow up with several posts on each topic.

A Billion Here, A Billion There…

The quote famously attributed to the late Sen. Everett Dirksen goes “A billion here, a billion there, and pretty soon you’re talking real money”.

It’s really quite breathtaking to hear public officials and commentators talk about billions as if it were a rounding error, and the reality that Federal government commitments for so called stimulus and bailouts could amount to a staggering $23 trillion is a number so big that it’s hard to even grasp… actually the number is $23.7 trillion but underscoring my point, the .7 isn’t even mentioned because that’s “only 700 billion dollars”.

So how much is 1 trillion dollars?