Below The Crowd

Installing Microsoft Vista

I've already heard lots of nightmares about Vista incompatibilities. As I have written earlier, it probably won't be worth installing on existing machines expect in the most tightly controlled environments, and even then many of the features won't work well with older machines. I suspect lots of people and companies will hold off until there's a really compelling reason, which for businesses right now there isn't.

This video kind of sums up the upgrade experience as most people I have spoken to have experienced it.

Whose Interests Are Those "IT Analysts" Serving?

In a recent piece on his own blog, Jeff Matthews points out the folly of paying too much attention to various white papers by supposedly neutral IT analysts working for companies like Gartner Inc. (NYSE:IT). I responded based on my own experience, but thought it was worth repeating the discussion here, with a bit of extra material, since it's relevant to the focus of this blog:

I am in the position of having been on both sides of Gartner. As a product manager in the software biz, I was a customer of the consulting services they offer to vendors. As IT management on the "buy side," I am and have been a customer of the consulting, advisory and research services they offer to the business customers of the very same vendors. At present I'm involved in at least one project in which a Gartner consultant is engaged.

My experience with Gartner, Delphi (who they purchased), Forrester, IDC and the others suggests that none of these companies is impartial, and that any "white papers," speeches at conferences or other materials provided by their analysts must be taken with a huge grain of salt.

The thing that you have to keep in mind about all these companies -- and which many IT managers either forget or never really understood in the first place -- is that they sell services to both sides of every IT transaction and do so in a self-serving manner. The vendors who spend the most on "consulting fees" to Gartner and the others tend to be the ones whose products are most often mentioned and recommended in white papers, speeches, articles and other public information generated by those firms. As a result, you see Gartner analysts go against the interests of their top vendor-clients about as often as you see Wall Street's Finest put "sell" ratings on their companies' investment banking clients.

Had I seen this kind of thing only once or twice, I'd be content to write it off as an abberation, but I've seen it consistently, both as a "buy-side" and a "sell-side" guy in IT.

Microsoft Still Clueless

Somehow I managed to get myself onto an online focus group for something Microsoft is calling it's "Work Essentials" online service.

As far as I can tell, the idea is that Microsoft Office users like me would use this online service to get all sorts of extra templates, tips, etc. that would help us do our jobs. And Microsoft is very interested in what kind of stuff we would want out there, and how they could best communicate to us about it.

There are lots of problems with their approach.

Microsoft as a Cash Cow

There's been a lot written about Microsoft (NasdaqNM:MSFT) lately, and the stock has certainly been performing nicely, up from a low just below $24, to a recent high above $28.

But I've begun to sense quite a bit of hyperbole and unrealistic expectations built into much of the recent analysis. Much of this has to do with the impact of the realease of the upcoming "Vista" operating system and the presumed impact on an upgrade cycle.

At the present time, two factors appear to be pushing Microsoft.

1) The excitement over the release of the XBox 360.
2) The excitement over the potential of the upcoming release of Vista on 2006 earnings.

I can't comment much on the XBOX impact, and will leave this to others, but it's clear that this business will always be dominated by profits from the games themselves, not from the consoles which by many accounts are actually sold at a loss.

However, I can comment about the likely impact of Vista, and I think many of the analysts are overstating the likely impact on both Microsoft and on a corporate upgrade cycle in general. Those who have followed my opinions on this realize that this is nothing new. And until Microsoft comes up with something really new themselves, it's likely to remain my take on things.

Current View on Software

A good friend has recently opined that the software business is likely to continue to be spotty. I agree. The nature of the business has changed since the late 90s and is much harder to predict. Thus we get quarters like the last one where Siebel (SEBL) had to warn, while SAP (SAP) continued to do well.

One of the reasons for this change is that the nature of software spending has changed. Four years ago, most software spending decisions still remained with the CIO or VP of IT, perhaps in consultation with business unit managers. Today, even routine upgrades are often a matter of corporate strategy, and often the executive management is unimpressed with the need for pouring more and more money at the stuff. At a recent employer, even regular license upgrades for Microsoft products were put off, because the CFO calculated that the ongoing payments to keep the licenses going were going to cost more than just re-licensing from scratch some years down the road when an upgrade was needed. Of course, many companies are simply choosing to just skip entire upgrade cycles too.

Another real problem is that managing sales has become a lot more difficult in this environment. My friend suggested that the problem was that Siebel's sales force isn’t aware of the new hoops and hurdles to be cleared, and therefore doesn’t push hard enough. While that may be true in any given company and in any given quarter, it’s really not the problem at most companies, especially well-run ones like Siebel.

People Still Don't Understand Tech

In a brief article on today's Realmoney, Jim Cramer begins his thesis with the following incredible statement: Consider the cases of Tibco Software (TIBX:Nasdaq) and Emulex (ELX:NYSE) , two storage software companies...

The argument he was making is somewhat tangential to the sentence above, so we won't critique it. What is remarkable here is that Jim is by any measure an informed and professional investor, who has owned and commented on both of these stocks in the past. Yet it is clear from this one brief comment that he doesn't even know what they do!

For the record. Tibco (who we have had dealings with in a previous life) is primarily in the business of data integration. Certainly that has implications to storage, primarily in that their software generally depends on a robust data management and storage solution being in place. But they are by no means a "storage software company."

Emulex is not even a software company. Yes, they provide lots of storage related hardware items, mostly focused on Storage Area Networks (SANS). But any software offerings are incidental, designed to support their primary hardware business.

Now, we don't want to knock Jim too much. We've made lots of money off him in the past and probably will in the future. But if he doesn't really understand what he's investing in, then how many people really do? And if most people don't even understand what they're investing in, how likely are we to have anything approximating an accurate valuation for the tech companies we follow?

We expect the infrastructure and storage software business will do well over the coming years. But it's tough for us to invest in companies that even five years after the tech crash are still being moved by people who don't understand them or how they fit into the overall technology value chain. So we continue to wait for many opportunities we expect to develop, but remain extremely cautious.

Brief Notes

• Moving to a place that is walking distance from the best pizza in LA could turn out to have been a mistake.
• Cats apparently take longer to adjust to new surroundings than people. The presence of cat hair on the keyboard suggests that the adjustment process has completed.
• My new cable system offers Bloomberg. Not having to listen to the cheerleaders ranting on that other network has done wonders for my blood pressure.
• I am hearing some upbeat comments from friends at smaller software companies both here in the Southland and up in Silicon Valley. While I am somewhat pessimistic about the hardware business I am watching the applications side for opportunities.