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Let the cloud wars begin

2012-02-09T18:23:14Z

Oracle's $1.9 billion acquisition of cloud-based talent management software maker Taleo is a shot across the bow to rival SAP.

FORTUNE -- Take that, SAP. Oracle just announced it is buying Taleo, maker of cloud-based talent management software, for $1.9 billion. The move comes just two months after rival SAP said it would acquire HR software provider SuccessFactors for $3.4 billion.

Both tech giants have been buying their way into the cloud. Last October Oracle (ORCL) bought cloud-based customer service provider RightNow Technologies, and now it is rounding out its human services software-as-a-service offerings with Taleo.

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A recent report from JMP Securities analyst Patrick Walravens sums up the strategy well. "We believe that larger enterprise software vendors such as Oracle, SAP and IBM have been losing share to their smaller, faster growing SaaS competitors that are increasingly being accepted in the market. Increasingly, we believe these companies are viewing acquisitions as a way to stem market share losses and position themselves better in the competitive SaaS marketplace."

So-called talent management software (and other tools used to manage employees) are particularly attractive to large players like Oracle and SAP (SAP) . While most enterprise customers won't switch their core financials or supply chain software to the cloud, they're much more willing to make the plunge with HR tools.

Taleo has been around since 1999 -- before people were talking about the cloud, as the company likes to point out. Its software allows HR departments to handle recruitment, performance management, learning management, and compensation. It also has some social collaboration features baked into its software. "Oracle is moving aggressively to offer customers a full range of Cloud Solutions including sales force automation, human resources, talent management, social networking, databases and Java as part of the Oracle Public Cloud," Thomas Kurian, EVP of Oracle Development, said in a release. "RightNow's leading customer service cloud is a very important addition to Oracle's Public Cloud."

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The Taleo acquisition leaves one large, independent player in the human capital management space: Workday. But as attractive as Workday is (it has reportedly turned down multiple acquisition offers), all signs point to the company filing for IPO sometime this year. As for Oracle's acquisition of Taleo, the deal is expected to close mid-year. Let the cloud wars begin.

Filed under: Big Tech

Is Cisco back?

2012-02-09T17:12:50Z

Not yet. But for the first time in a while, it's showing positive signs of a working turnaround.

FORTUNE -- Cisco's turnaround efforts are starting to pay off -- slowly. The networking equipment giant released better-than-expected profits and sales on Wednesday, but it still has a long road ahead.

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First, the numbers: Cisco (CSCO) reported second-quarter profit of $2.2 billion, up from last year's $1.5 billion. Revenue came in at $11.5 billion, compared with $10.4 billion a year ago. The San Jose-based company also reported that it had reached its goal of eliminating $1 billion in expenses a quarter ahead of schedule. "We are executing well on our three-year plan to drive earnings faster than revenue," Cisco CEO John Chambers said in a release issued on Wednesday. "You will continue to see a focused and aggressive Cisco that is helping our customers use intelligent networks to transform their businesses."

Just last year, Cisco was getting its butt kicked by competitors. Margins had significantly deteriorated and its bloated portfolio of products lacked focus. Chambers made some painful but necessary cuts, laying off about 10,000 employees and shutting down distractions like the company's consumer-facing Flip line of camcorders. He also said Cisco would make a more aggressive push against competitors like Juniper Networks (JNPR) and Hewlett-Packard (HPQ), refocus on the company's core switching and routing products and improve margins. So far, it appears Chambers is delivering on his promises. "Innovation, speed, and agility is in," Chambers said in a call with investors on Wednesday. "Cost and complexity is out."

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Cisco's core routing and switching products made up nearly 50% of the company's revenue in this most recent quarter. But several of its smaller business segments are growing fast. Data center revenue, for example, was up 88%. At $333 million, it still makes up a small fraction of Cisco's overall revenue though.

Of course, Cisco isn't out of the woods quite yet. Investors are looking for Cisco to improve -- not just stabilize -- margins. And while Chambers has managed to start turning things around relatively quickly (for a company of Cisco's size), his outlook for the current quarter was conservative: Cisco expects revenue to grow 5% to 7% from the year-ago period. What's more, while competitors like Juniper and HP are dealing with their own problems at the moment, China-based Huawei is making a big push for the North American enterprise market. And that,along with economic uncertainty in Europe and a decrease in government spending, has got to be keeping Chambers up at night.

Filed under: Big Tech

IBM's Watson is changing careers

2012-02-03T16:59:46Z

The Jeopardy-playing supercomputer is interesting in doing more than sparring with Alex Trebek. So it's going into business.

FORTUNE -- Beating lowly humans on Jeopardy was just the beginning. IBM's famed Watson supercomputer will soon be available as a commercialized analytics tool for data-heavy industries like healthcare, telecom and financial services.

It's been one year since Watson followed in the footsteps of its chess-playing predecessor Deep Blue and proved -- just in case anyone had a doubt -- that machines are smarter than people. Now, Watson's first pilot customer, Indianapolis-based insurance company WellPoint (WLP), is getting ready to take the massive analytics engine for a test drive. More beta customers (spanning both healthcare and financial services) will follow in the next few months, according to IBM's (IBM) general manager of Watson Solutions, Manoj Saxena.

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Watson was the result of IBM's years-long quest to build a natural language processing machine that could answer questions with speed and accuracy. The computing cluster, comprised of 90 servers, made its debut on Jeopardy last year. But it wasn't just a game show gimmick. IBM plans to sell Watson as a cloud-based service companies can tap to find answers in disparate data sets. For example, a financial services firm could use it to sift through news reports and market research to find likely acquisition targets. Or a healthcare company could utilize Watson to process medical articles, prior cases and even a patient's own medical history and identify the most likely diagnosis and best course of treatment.

Of course, data analytics is nothing new. But the terabytes upon terabytes of unstructured data in the world (including Tweets, Facebook updates and Amazon (AMZN) reviews) is unprecedented. According to IBM's Saxena, 90% of the world's information was generated in the last two years. Producing data is much easier than making sense of it. That's where Watson and other next-generation analytics tools come in. The supercomputer can process 200 million web pages in three seconds. What's more, it can understand human language. Think of it as the iPhone's Siri, Apple's (AAPL) intelligent personal assistant, on intergalactic steroids. In fact, Saxena says users will someday be able to access Watson from their smartphone or tablet. He also plans to "teach" Watson different languages, including Japanese and French, so it could work for customers abroad.

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But while Watson has game-changing potential as an enterprise product, most companies are just starting to deploy so-called "big data" projects, and aren't ready for a heavy-duty analytics engine like Watson. To that end, IBM is rolling out "Ready for Watson," a program to get companies set up with basic analytics applications.

Analytics is a big part of IBM's long-term strategy. Over the past five years, the company has invested $14 billion in analytics-related acquisitions, including SPSS, Cognos and Netezza. By 2015, IBM expects it will rake in $16 billion from the analytics products it sells, including Watson. In the meantime, IBM competitors like Oracle (ORCL) and SAP (SAP) aren't sitting still and have made their own large-scale acquisitions in this space. And while they may not have a supercomputer of Watson's fame, it's way too early to call it a game.

Filed under: Big Tech

Meet SOPA's evil twin, ACTA

2012-01-26T16:39:55Z

The brouhaha over the American internet piracy bill has died down, giving way to proposed international legislation with many similar elements.

By Dan Mitchell, contributor

FORTUNE -- It's only fitting that a loud, global outcry over ACTA, an international agreement to govern intellectual property, began just after the anti-piracy bills SOPA and PIPA were shelved by the U.S Congress in the face of massive public pressure. If "copyright maximalists" can't get legislation passed, writes TechDirt's Mike Masnick, "they resort to getting these things put into international trade agreements, which get significantly less scrutiny."

Not that the "maximalists" -- including the movie and music industries -- were following such a timeline, exactly. ACTA -- the Anti-Counterfeiting Trade Agreement (PDF) -- is their backup, and they've been working on it for years. It's stirring protests now because Poland, Ireland and the European Union announced they would sign on this week, moving the pact closer to reality.

Like many trade agreements, ACTA is a confusing mess. Even its signatories don't agree on how it's supposed to work. The way it's been pushed forward has also been unruly -- talks have been held in secret, without any kind of legislative oversight or input from citizens or public-interest groups. The public only became aware of it in 2008, a couple of years after discussions began, when Wikileaks published a discussion paper. Since then, drafts of the pact have been released to the public, each successively less onerous to critics. Reportedly, though, big media and pharmaceutical lobbyists have been privy to the talks all along

Not that the critics are appeased. People in Poland are even marching in the streets in protest. The online vandals of Anonymous have attacked governments and businesses around the world.

Part of the confusion, and ire, comes from the fact that ACTA combines counterfeiting and piracy as if they were similar, when in reality, they're very different. Counterfeiting is when a customer is duped into buying, say, a fake iPod or a knockoff Gucci handbag. Piracy is when someone, for instance, distributes an unauthorized copy of a movie or song. Different kinds of laws apply to each, or are supposed to. Copyright holders (movie studios, record labels, etc.) often try to meld anti-piracy measures with those aimed at counterfeiting, which are usually less controversial. SOPA and PIPA were similar to ACTA in this regard.

The whole thing is so muddled that it's not entirely clear what effect it will have on U.S. law or how it's enforced -- though proponents insist that it merely supports current laws by providing a basic legal framework for their enforcement. Critics say it will put Internet service providers in an untenable position, making them potentially liable for their customers' alleged actions and thereby forcing them to comply with requests from copyright holders for user data, with no due process. It's one thing when a judge orders you to hand over data. It's quite another when the order comes from Viacom.

Masnick says the biggest problem with the pact isn't that it will change U.S. law -- it "probably" won't, he writes -- but that it will lock down current law that governs enterprises, like technology and Internet media, that are in constant flux and are driven by innovation. To comply with the agreement, "the US needs to retain certain parts of copyright law that many reformers believe should be changed," he writes.

Critics also say that activities such as non-commercial file-sharing, which are normally handled by civil courts, could be turned into crimes because the agreement is unclear on precisely what "commercial-scale" piracy is. Piracy for commercial gain is covered, but so is "significant willful copyright or related rights infringements that have no direct or indirect motivation of financial gain." It all depends on what the meaning of "significant" is. In other words, if you download a movie -- or maybe it has to be three movies, or 300 -- it's possible that rather than a summons-server knocking on your door, it would be a cop. But again, this isn't entirely clear because the language is so vague and because it's impossible to tell how U.S. enforcement agencies will interpret it.

There are lots of other problematic provisions in ACTA, having to do with seed patents, generic drugs and other matters (watch this space for more), but the loudest criticisms so far have to do with its copyright provisions. In 2010, 75 law professors signed a letter to President Obama urging him not to sign the pact.

They went unheeded. Obama signed the pact -- which was originally developed by the United States and Japan -- last year. Other current signatories include Australia, New Zealand, Canada, Morocco, Singapore, and South Korea.

There are questions as to whether it was even legal for Obama to sign without the consent of Congress. Democratic Sen. Ron Wyden of Oregon thinks it wasn't. In October, he sent a letter to Obama demanding an explanation. Wyden was a vociferous critic of SOPA and PIPA, and has been critical of ACTA as well -- particularly the opacity of its development. In particular, he decried the failure "to give the public a say over issues that so profoundly affect their lives."

Filed under: Big Tech

Google: The thrill is back

2012-01-25T16:29:51Z

Disappointing quarter aside, it's too early to tell whether Google is fundamentally doing better or worse under Larry Page. But the company is more focused, more willing to take risks and -- for the first time in years -- more interesting.

By Kevin Kelleher, contributor

FORTUNE -- It may be unfair to grade a work in progress, but in the case of a closely watched company like Google, it's inevitable. In the nine months that Larry Page has served as Google's CEO, he's shown a bold, decisive style that has won the company unexpected success in social, stirred up a number of controversies and earned Page himself a mix of praise and criticism.

And so, tech pundits can't help but turn their thumbs up or down, based on what's happened. The deeper truth isn't so binary. Page has embarked on a course of management-by-risk familiar to startups but much rarer in companies with 12-digit valuations. The question isn't what has Page done, it's where he's pushing Google (GOOG).

In April 2011, Page took the reins from Eric Schmidt, who had made strategic decisions as part of a triumvirate including Page and co-founder Sergey Brin. By some important measures, Page has already proven himself a strong leader, winning a 97% approval rating from Glassdoor.com (Facebook's Mark Zuckerberg saw his rating fall to 89% from last year's 96%). And for an unprecedented third year, Google was named the best company to work for.

Yet Page may need some more time to win over investors. Last week, after the company delivered an earnings report that fell significantly short of the Street's expectations, the stock dropped as much as 10%. The disappointing quarter followed two previous quarters where earnings were much stronger than expected.

Page, who's famously declared that Google's mission is to organize all the world's information, takes a long-term view of the company's success. But he also understand that getting there means wasting no time in taking dramatic steps to prepare for it. So he launched a swift reorganization of the company to sharpen its focus, made an unorthodox purchase of a mobile-device manufacturer and reorganized many of Google's sprawling sites and features around a brand new product, Google+.

It will take a while to judge clearly whether these moves were smart or rash. But hasn't slowed the dishing out of praise and criticism. Some declared Page CEO of the Year after less than nine months on the job; others scoffed at that premature laurel. Some saw Google+ as proof that Google can compete in social media, others as a bane for investors. And nobody -- maybe not even Page himself--– knew what to make of the $12.5 billion purchase of Motorola Mobility.

Overall, a look at the headlines that Google made during Page's first months show a mix of good news and bad. Among the bad: In June, the company said the Federal Trade Commission was investigating its dominance in the search market. Two months later, it paid $500 million to settle a separate investigation into online-pharmacies buying AdWords. The company fended off a hacking attack directed by China and lost out on the bidding for Nortel's patent portfolio. And relations with movie and music studios grew tense as Google emerged as a vocal opponent of the SOPA bill.

Many of these events are the result of actions that predate Page's reappointment as CEO. Other, more positive developments bear the marks of his leadership: The four-month reorganization aimed at enhancing engineering productivity, the relatively smooth launch of Google+ (which now has 90 million members), the streamlined look of its home page and products like Gmail, the spread of Android -- now running on 250 million devices -- and Chrome with a browser market share, at 26%, that eclipses Firefox.

Given that mix of positives and negatives, it's too early to declare whether Google is better off or worse off under Page. Using the stock as a proxy isn't reliable: It's wavered between $470 and $670 a share, but overall is little changed from Page's first day.

What's clear, however, is Google is different under Page. It's more focused in its overarching strategy, in its slimmed-down offerings and in its managerial voice. It's is more willing to embrace risk, evident in the Motorola deal and the aggressive bets on Google+. Google has always been willing to take some strong stands but these are, on the one hand, increasingly balanced with practical approaches -- like the back-and-forth negotiations with content giants and the quiet push to return to China. Yet on the other hand, its more prone to controversy - like the nym wars surrounding Google+, or the recent introduction of Google+ into search results -- which now looks like a brewing controversy.

The big bets Page is placing may pay off, or they may set Google back. But Google is at least acting as if it understands all too well that it must either take bold chances now or face a slow, endless Yahoo-like (YHOO) death. In the tech world, giants get sidelined by not taking chances. Tech giants that answer to shareholders like to pretend otherwise, but -- just like any startup -- they live or die by risking failure.

In a way, over the past year, Google has started acting more like a startup than it has in years and more like a startup than most companies its size. In that way, Google under Page isn't unlike like Apple (AAPL) under Steve Jobs and Amazon (AMZN) under Jeff Bezos -- two companies that also took big risks when they fit into the strong vision of a smart, intuitive leader.

Will Page's intelligence and intuition keep Google at the vanguard of innovation? Or will his his risk be remembered as bold but unsuccessful bets on where the internet is heading? One thing about the internet, it's always moved in unpredictable ways. No one can say for sure where Google is heading. But under Larry Page, it's going to be an interesting ride.

Filed under: Big Tech, Contributors, Google

Thorsten Heins: Not the right CEO for RIM

2012-01-24T21:36:33Z

The troubled phone maker's new CEO has had a very bad introduction. Here's why he may not be right for RIM right now.

By Kevin Kelleher, contributor

FORTUNE -- If only they hadn't released that video.

The good news, the part that investors had been clamoring for, came first. Mike Lazaridis, who co-founded Research-in-Motion (RIMM) in 1984, and Jim Balsillie, who joined the company in 1992, were stepping down as co-CEOs and co-chairmen of the board. It was at once a more aggressive move than expected, and yet somehow not good enough. Because nobody was quite sure what to make of this new CEO, Thorsten Heins.

The name evoked the long-lost glory days of Krautrock, or a parody of Gilligan's Island, or perhaps a merger of two manufacturers of sandwich condiments. So RIM thoughtfully released a video of Heins proclaiming "I'm absolutely excited" in the soothing tones normally found on a hypnosis recording.

The blogs chuckled. Business Insider watched and declared, "This guy doesn't exactly make you want to run through a wall to smash the competition." Daring Fireball was even less kind: "The good news: we forced out our ineffective co-CEOs. The bad news: we've replaced them with an incoherent crazy person." But at the end of the day, what does charisma matter if he can turn RIM around? After all, Tim Cook lacks the stage presence of Steve Jobs, yet Apple (AAPL) is doing just fine under his management.

It matters, because while RIM and Apple both design and make smartphones, they are two very different companies. Apple is thriving while RIM is in the midst of a turnaround, without any clear plan in sight. And, while some investors were hoping for an outsider to become RIM's CEO, who could see what bold steps RIM needs to take, they got an insider. And not just any insider, one who oversaw the Blackberry portfolio during the past few years, when it declined from the top-selling smartphone to a brand in crisis.

Even more discouraging were words that Heins gave in interviews. He told analysts, "I don't think there is a drastic change needed." He later told Bloomberg that the changes that RIM needs to make have already been made – a year and a half ago. That echoed something Heins said in that comical introductory video: "Sometimes we innovate too much." Those comments might not be out of place at a successful company, but they feel out of touch at a company, like RIM, in crisis.

So RIM is bearing full-steam ahead on the same course that cost its co-CEOs their jobs: try again with a new Playbook tablet, and keep betting the company on a new Blackberry software platform that keeps getting delayed and may not work well with its core email and messaging features.

It's easy to understand why RIM would want to stay that course. It will keep its company, its brand and its platform independent. But it's also the hardest course that RIM could take, because it means executing flawlessly in several areas – on a smartphone and tablet experience that appeals to consumers, on a software platform that is easy for developers to code for, and on the the messaging features that made Blackberry customers loyal in the first place. Further delays will cost the company. But a half-baked software platform will cost it even more.

There are other solutions more likely to turn RIM around, but they are at once more drastic and less appealing to RIM itself – the kind of "seismic change" Heins told analysts he wouldn't engage in. RIM could switch to Android, the fastest growing mobile OS in the world. The move could help RIM compete more aggressively on price, and its email and messaging could distinguish it from other Android manufacturers. But this is exactly what RIM elected not to do 18 months ago.

RIM could sell its platform and its core messaging features to a company – Microsoft (MSFT), Amazon (AMZN) and even Facebook have been mentioned – who could easily afford RIM's current $8 billion market value. On the one hand, Heins' appointment seems to telegraph that no such move is in the cards. On the other, RIM may appeal more to potential buyers now that Lazaridis and Balsillie are gone, replaced with a yes man.

Finally, RIM could compete more aggressively simply by building its brand, especially in North America. It wasn't just the Apple iPhone that stole the Blackberry's thunder, it was also the iPhone commercials, which made the Blackberry experience seem outdated. RIM has been without a marketing chief since March. A strong marketing push would not only prime consumers for the new generation of Blackberries, it could return some allure to RIM in the eyes of carriers and app developers. Without their support, new products will sink.

Whatever bold steps RIM needs to turn around, they need to be taken soon. Corporate turnarounds are especially tough in the competitive areas of tech – and no sector is more competitive than in the mobile space dominated by Apple and Google (GOOG). If Heins pulls it off, his name would be synonymous with the company's resurgence.

But maybe Heins is right. Maybe he doesn't need drastic steps, because everything the company has done up to now is enough to make RIM an innovative leader in smartphones again. But before you bet on that, you might consider that many investors don't share that bet. When Heins was named CEO, RIM's stock dropped 8.5% on a day when the market was unchanged.

If Heins were taking the controls at a company, like Apple, where everything was running smoothly, he'd receive a warm welcome. As it is, given the impression he's made in a single day, that hamfisted video of him is the least of RIM's worries.

Filed under: Big Tech, Contributors

A year of transition for Microsoft and Intel

2012-01-20T15:06:58Z

Intel and Microsoft helped usher in the era of personal computers. Now the two companies are reinventing themselves in an industry where PCs are no longer the primary driver of innovation and growth.

FORTUNE -- Both Microsoft and Intel are still money-making machines--they raked in $20.9 billion and $13.9 billion, respectively, in quarterly earnings announced on Wednesday. But their core businesses are increasingly under threat because they're largely dependent on demand for desktops and laptops. According to recent numbers from research firm Gartner, global PC shipments declined 1.4% in the last quarter of 2011. As more and more people use smartphones and tablets as their primary access to the Internet, that trend isn't likely to change (even after the industry recovers from the effects of the flooding in Thailand and financial shakiness in Europe).

"While economic uncertainty in Western Europe had an effect on consumer PC shipments, expectations of a healthier economic outlook in North America could not stimulate consumer PC demand in that region," Mikako Kitagawa, principal analyst at Gartner, wrote in a recent release. "The healthy professional PC market as well as growth in emerging markets could not compensate for the weaknesses in mature markets, with overall growth still negative."

Of course, Microsoft (MSFT) and Intel (INTC) aren't sitting still. This year, you'll see both companies make an aggressive push into fast-growing businesses like smartphones, tablets and the cloud. Microsoft is expected to launch its tablet-optimized, touch-centric Windows 8 operating system in late February, and will continue to push cloud-based services like Office 365 into the market to compete with the likes of Google (GOOG). As for Intel, earlier this month the chipmaker announced that a phone powered by its Medfield processor would finally come to market in China, and more devices are expected to be unveiled in the coming months.

So will they succeed? Microsoft's Windows 8 is a step in the right direction, and a prototype phone running on Intel's Medfield processor has gotten good performance reviews. But technology prowess alone won't win the game--in the post-PC era, it's all about ecosystems. That means both companies will need to get manufacturers, carriers, developers and ultimately consumers to jump on board.

To be sure, there are also plenty of bright spots in Microsoft and Intel's current businesses. While Microsoft's Windows business was down from last year, its Xbox unit posted sales of $4.24 billion, topping analysts' projection of $4.2 billion. And, largely due to sales in emerging markets, Intel's PC business is still growing--it rose 17% year-over-year.

"Emerging markets now account for two out of every three incremental units of PC demand, a shift that is rewarding Intel and the PC companies that have a long-standing, deep presence in these markets," Intel CEO Paul Otellini said in a press release issued on Wednesday.

But the coming year will be one of major transitions for the powerhouses formerly known as WinTel. Even if we're not living in a post-PC era quite yet, the shift to mobile devices--not to mention the shift from on-premise to cloud-based software--is happening much faster than either company was prepared for. So it's clear that, despite both companies' impressive quarterly numbers, their long-term success relies on their ability to change along with the rest of the industry.

Filed under: Big Tech

Why today's Web blackouts are working

2012-01-18T21:29:27Z

There's no guarantee that the decision by Wikipedia and others to go dark in protest of SOPA and PIPA will stymie the legislation. But the blackouts are dominating media -- and that's the whole idea.

FORTUNE -- I just looked at a Google cache version of a Wikipedia page. It's easy to do that, so today's blackout of the online encyclopedia, in protest of proposed anti-piracy legislation, isn't totally effective in blocking access to the site. But it is effective in making people aware of the legislation and in spurring further protest, which is the whole point.

A week ago, the House's proposed Stop Online Privacy Act (SOPA) and the Senate's proposed Protect IP Act (PIPA) were getting relatively light attention. Today, they're dominating both the traditional and social media. Nothing significant has happened with the legislation itself -- it's simply the blackouts. Wikipedia is just one of a many sites that have gone dark today.

Predictably, the campaign has spurred cynical retorts. "SOPA supporters wont be able to access Moveon.org -- that'll show em," tweeted Rolling Stone political reporter Tim Dickinson. He is far from alone in missing the point entirely. The idea isn't to punish supporters of the bills; it's to inform people of what's in those bills by drawing attention to them. (Fortune's parent company, Time Warner, is a supporter of the legislation.)

This happens whenever there are online protests or awareness campaigns. Would-be world-wise types are sure to weigh in whenever an awareness meme spreads on Facebook, for example. In 2010, people replaced their profile photos with images of their favorite cartoon kids in a child abuse awareness campaign. "Oh, sure," came the above-it-all responses, "posting cartoon pictures on Facebook will definitely end child abuse."

But of course, nobody said it would, just like nobody is saying that today's blackouts by themselves will kill SOPA/PIPA (though, given the reaction today, it really could turn out to be the thing that turns the tide -- because now many, many more people know what's in the bills. And now it appears that some congressional minds are being changed.). If even just a handful of people donated to anti-child-abuse charities, or were simply made more aware of the problem, then the Facebook meme worked.

It could be that Internet-based awareness movements draw criticism simply because they're Internet-based. Since the people taking part in them are sitting at their desks as opposed to marching in the streets, that somehow makes the whole thing seem less serious. But if the idea is to inform people, the Internet is the most powerful tool available. The point isn't to put oneself through as much hardship as possible -- the point is to spread information.

Twitter CEO Dick Costolo was asked why his site didn't shut down today. "[C]losing a global business in reaction to single-issue national politics is foolish," he said. He's right, it would have been foolish for Twitter to do so (just for one thing, Twitter is the main clearinghouse for real-time news and information on the issue), but that doesn't mean it's wrong for others. "Not shutting down a service doesn't equal not taking the proper stance on an issue," he continued. "We've been very clear about our stance."

Twitter has done nothing wrong by opting to stay live. But it's also true that if Twitter (or Facebook or Google) had gone dark, it would have been an even bigger news story today. It probably would also have alienated a lot of the people that the movement is trying to attract. But it would have gotten a lot more attention than "Twitter opposes SOPA."

Filed under: Big Tech

Oracle: Warning of another tech slowdown?

2011-12-22T19:40:02Z

The enterprise giant's stumble may not bode well for the technology sector -- and not just enterprise providers, but all big cap tech companies.

By Kevin Kelleher, contributor

FORTUNE - Oracle missing its earnings guidance is like Mariano Rivera blowing a save opportunity, or Bob Dylan putting out a disappointing record. It happens, but not very often. And when it does, the only real question is: Why?

The answer matters beyond the world of Oracle (ORCL) shareholders. Oracle has long been seen as a kind of proxy for corporate spending on information technology. If Oracle's earnings disappointed because of internal problems, that's not such a big deal outside Oracle. If Oracle didn't do much wrong, however, it points to a possible slowdown in IT spending for next year.

So what happened? The enterprise software giant weighed in earlier this week with revenue of $8.8 billion in the three months ended Nov. 30, up 2% from the same period a year earlier but short of the $9.2 billion analysts were expecting. Similarly, non-GAAP earnings per share came in at 54 cents, below the 57 cents the Street had been looking for.

Oracle hasn't fallen short of estimates for at least three years -- a feat all the more significant given the weak economy. As of Tuesday's close, before the company posted its earnings, Oracle had gained 64% over the past three years, against a 40% rise in the S&P 500.

On Wednesday, the stock tumbled 12%. In the past six weeks, the stock has lost nearly a quarter of its value, equal to roughly $40 billion. The S&P 500 is down only 2% in the period. And other software stocks are being dragged down in Oracle's wake: Salesforce.com (CRM) fell 5% Wednesday, SAP (SAP) dropped 6% and VMWare (VMW) slid 10%.

Even as the financial turmoil in Europe and overheated economies in Asia have raised concerns about another global recession in 2012, the tech world has seemed somewhat immune. Most of the discussion focused on the consumer side of the industry -- the ongoing rivalry between Apple (AAPL) and Google (GOOG), the rise of Amazon's (AMZN) tablet, the fate of Zynga's (ZNGA) IPO. The enterprise side is much less visible and -- frankly -- a little unglamorous, but just as important as the consumer side.

And if companies are putting the brakes on IT spending, it could hurt tech stocks across the board. The relative resilience of Oracle's stock and its ability to consistently trump the Street's estimates gave the company an aura of safety. Here was a tech giant that could weather hard times. And if Oracle is feeling a chill in IT spending, what are other software vendors feeling?

The conventional wisdom is that enterprise software can help companies reduce some long-term operating costs in departments such as human resources and customer relations. Cloud computing, an area that Oracle has been pushing into, can also reduce IT costs by handing over storage and maintenance functions to companies that can run vast networks that benefit from economies of scale.

So if companies are growing stingier about their enterprise software budgets, it could signal they are starting to cut closer to the bone. Oracle CFO Safra Catz said that it's taking some of its clients longer to approve projects. "All of a sudden the CEO had to approve it or something like that, where before it was all set," Catz said. Though, she stressed that she hadn't been told yet that any companies were reducing their IT budgets. "Clearly, this quarter was not as we thought it would be, and we've been taking a look at the deals that really should have closed and that would have closed but for some sort of irregular environment."

On the one hand, it's unrealistic to expect a company like Oracle to offer investors an economic forecast. On the other, it's hard to read a phrase like "some sort of irregular environment" and not wonder what exactly it means. Is it a one-time quirk in Oracle's accounting - an aberration that will be corrected next quarter? Or is it something more serious?

The notion that Oracle's irregular environment was limited to last quarter was undermined when the company offered guidance. The company said the current quarter's revenue would grow between 1% and 5% on year, or to between $8.9 billion and $9.3 billion -- below the analysts' consensus of $9.5 billion -- while earnings per share would be between 56 cents and 59 cents, against the Street's 59 cents.

That left some analysts worried enough that three of them -- Societe Generale, Canaccord Genuity and CLSA Asia-Pacific Markets -- cut their ratings on the stock Wednesday. But Canaccord felt that Oracle's challenges were unique to the company. "Oracle missed because some buyers waited for a new hardware upgrade, and on the software front the firm is behind the curve in cloud applications," wrote analyst Richard Davis. "We expect Oracle to catch up, but it will be through some R&D and a lot of M&A."

But other analysts suggested Oracle may be the canary in an unhealthy coal mine. Bank of America's Kash Rangan wondered if the tighter approval process Catz mentioned "could be a broader trend for software." Deutsche Bank's Tom Ernst said he "saw uncharacteristic weakness across all segments and geographies, which we find a bit puzzling... Outside of the severely contracting macro environment of the last recession, it is rare to see such low growth rates for all geographic regions."

So which is it? Has Oracle hit a speed bump as it transitions to new hardware and cloud computing offerings? Or is it the first warning sign of an unexpected contraction in corporate IT spending in the face of global economic uncertainty?

Other companies will offer more clues. On Wednesday, Tibco (TIBX), a cloud computing company, said it earned 42 cents a share last quarter, above the Street's 35-cent estimate. But the real test will come in mid-January when companies like SAP and IBM (IBM), another strong performer in tech over the past three years, are due report earnings.

If it turns out Oracle was the exception, this week's drop in software shares could prove to be a buying opportunity for bulls. But if Oracle is the first sign of a slowdown, the tech world could be in for a rough start in 2012.

Filed under: Big Tech, Contributors

Is there a cloud bubble?

2011-12-22T11:05:01Z

There are plenty of signs that the cloud computing market is maturing -- including blockbuster acquisitions. But is it starting to froth?

FORTUNE -- People like to talk about bubbles. And the cloud. And, more recently, a potential cloud bubble. But are we really heading in that direction?

Not yet. It's too early to tell whether some of the recent inflated valuations (a la SAP's acquisition of SuccessFactors) are justified. What's clear is that the shift from on-premise to cloud-based software can no longer be dismissed as a passing trend. "We believe that larger enterprise software vendors such as Oracle (ORCL), SAP (SAP), and IBM (IBM) have been losing share to their smaller, faster growing SaaS competitors that are increasingly being accepted in the market," JMP Securities analyst Patrick Walravens wrote in a recent report. "Increasingly, we believe these companies are viewing acquisitions as a way to stem market share losses and position themselves better in the competitive SaaS marketplace."

In the last few months alone, Oracle acquired RightNow Technologies (RNOW), SAP bought SuccessFactors (SFSF) and IBM snapped up DemandTec (DMAN). Large, on-premise enterprise software makers are finally admitting that the way companies buy technology is changing. They're also acknowledging that they don't have the DNA to compete in the cloud, which is why they're acquiring smaller players that have built their business on the software-as-a-service (SaaS) model.

Oracle in particular has been on a big acquisition spree. And it's also feeling the pressure from the shift in how customers buy software. On Tuesday the company announced its quarterly earnings missed expectations:

"We believe this is because every product in Oracle's arsenal is under pressure as customers are increasingly canceling maintenance contracts as they look to cut costs and buy more contemporary technology," Peter Goldmacher, a senior research analyst with Cowen and Company, wrote in a recent note.

So what's next? There are plenty of other acquisitions targets out there, and the smaller cloud players need the larger enterprise vendors to help in sales, distribution and reach. That's why you can expect the feeding frenzy to continue in the coming months. By end of 2012, we should have a better sense of which companies -- small and large -- will become the next big names in this new era of software. We should also have a better sense of whether paying a premium for cloud companies will have paid off.

The success of these newly consolidated on-premise cloud companies in this space will partly depend on how well smaller cloud players are integrated into large enterprise vendors.

In early December, when SAP announced it would buy SuccessFactors (for $3.4 billion, a 52% premium over the average share price in the period immediately before the acquisition) it said it would allow the smaller company to keep running independently. But Lars Dalgaard, CEO of SuccessFactors, will be tasked with running all things cloud at SAP. And the sales teams will need to support each other in order to succeed -- easier said than done since up until now they have competed with one another.

Ultimately, cloud technologies will be 30% to 40% less expensive than legacy products, according to a recent study from Bain & Company. That's a cost advantage IT departments can't afford to ignore, and a reality that will hit all large, on-premise enterprise vendors at some point. Making acquisitions is probably their best weapon against losing out in the cloud game and becoming irrelevant, so it's no wonder they're willing to pay a premium.

"I'm not a big believer in the bubble theory of the cloud because this is truly the third revolution [the first two being the advent of the PC and the Internet]," says Michael Crandell, CEO and founder of cloud management provider RightScale. "But it's inevitable that with movements like this there are some people or companies that get overly enthusiastic. And there will be a shakeout of some players who just don't cut the mustard."

Filed under: Big Tech

Who will win in IT in 2012?

2011-12-16T15:10:45Z

A bigger portion of spending will go to mobile computing, social networking and analytics. That means a new lineup of companies could benefit next year.

FORTUNE -- Worldwide IT spending is expected to hit $1.8 trillion in 2012, according to research firm IDC. An increasing portion of those dollars will be spent on fast-growing technologies like mobile computing, social networking and analytics, which means a new lineup of companies could start to benefit in 2012.

While the traditional enterprise players (think Microsoft (MSFT), IBM (IBM)and Oracle (ORCL)) still rake in billions of dollars from IT departments, relative newcomers like Facebook, Amazon (AMZN) and Google (GOOG) plus smaller cloud-based companies are likely to snag a growing piece of the pie in 2012. Take Amazon Web Services, which is expected to top $1 billion in cloud services revenue by end of next year. Google's enterprise business, meanwhile, is expected to follow within 18 months. "The battle for enterprise platform dominance is just getting underway with established players like IBM, Microsoft, and Oracle facing serious challenges from Amazon, Google, Salesforce.com (CRM), and VMware (VMW)," notes a recent report from IDC.

That's why traditional enterprise players are buying independent software-as-a-service vendors, which also stand to benefit from trends in IT spending in 2012. A handful of them -- like Workday, Taleo (TLEO) and Netsuite (N) -- are likely to get snapped up in the coming year. In the last few months there have already been several large-scale acquisitions in this space. Earlier this month, SAP announced it is buying cloud-based HR management software maker SuccessFactors (SFSF) for $3.4 billion, and last October Oracle acquired online customer service company RightNow Technologies (RNOW) for $1.5 billion. This trend of large enterprise players buying their way into the cloud will likely continue in 2012. That's good news for smaller cloud-based software vendors, at least the ones that get acquired.

And then there's Facebook. The biggest name in social networking has been looking for a way to diversify its revenue stream. To that end, says IDC chief analyst Frank Gens, it could leverage its dominance with consumers into a larger role as an identity management platform for banks and online retailers. "Your Facebook identity could become your online identity everywhere," says Gens. "Facebook is one of the very few companies that has the reach to consumers to actually pull it off."

That's already happening to some extent with Facebook Connect, which allows users to log into websites using their Facebook identity. Linking profiles to payment sites and online retailers could enable users to not only sign in but also make purchases with one click using their Facebook credentials. And that could put Facebook on the path of becoming a bigger and more diversified player in the enterprise market.

But despite the potential for Facebook and other relative newcomers to snag a growing share, the majority of IT dollars will be spread among the usual suspects in 2012. "Even though the IT industry will follow along the same transformational path as it did in 2011, the events, the choices, and the stakes will be very different in 2012," chief analyst Gens said in a recent IDC report. "By the end of 2012, we should be able to see much more clearly which players have successfully positioned themselves in the 'lead pack' of the marathon-like race for industry leadership in the decade ahead."

Filed under: Big Tech

Intel's emergency maneuver in mobile

2011-12-14T15:14:47Z

The chip maker reigns supreme in the PC and server markets, but it's failed to crack mobile. It wants to change that.

FORTUNE -- In an effort to speed up development on tablets and smartphones, Intel is forming a new business unit, the mobile and communications group. The group will be led by Mike Bell and Hermann Eul (two current Intel executives), and is made up of four existing divisions: mobile communications, netbook and tablet, mobile wireless and ultra mobility.

Intel (INTC) issued an internal memo detailing the organizational changes on Wednesday morning. The goal, according to a source close to the company, is to ramp up and improve execution in the fast-growing mobile market. The chip maker reigns supreme in the PC and server markets, but it's failed to crack mobile, despite previous attempts. So is a reorg enough to give Intel the jumpstart it needs to finally compete in smartphones and tablets?

Consolidating four separate groups into one is likely to enable better and more efficient collaboration, but it's not the magic bullet investors are waiting for. What Intel needs, more than a reorg (and more than manufacturing prowess, which it has plenty of), is to prove it has finally developed a power-efficient processor that can compete with chips based on the ARM (ARMH) architecture. Phones featuring Intel chips are expected to hit the market in the first half of 2012. Last September the company announced an alliance with Google (GOOG) to get Intel-based smartphones powered by the Android operating system to market, but it has yet to announce which manufacturers it's signed on or how many Intel-running phones will hit the market in 2012.

Intel still has a shot of building a profitable mobile business, if it gets it right (finally). It's got the resources and the manufacturing capabilities to do it. But even the company's executives have repeatedly admitted it's late to the game.

Wednesday's reorg isn't the first time Intel has changed up its wireless leadership. Last March, the company announced that Anand Chandraskher, former general manager of the now-defunct ultra mobility group, was leaving to "pursue other interests." In his place, Mike Bell and Dave Whalen were appointed co-managers of the division. Now, Bell will lead the newly formed mobile and communications group with Hermann Eul, who came to Intel via its recent acquisition of Infineon Technologies' wireless solutions business. As for Whalen and the other executives who were in charge of the former groups (including Aicha Evens and Doug Davis), they'll be staying on to help with the transition, though it isn't clear what their roles will be going forward.

Filed under: Big Tech

HP's punt on WebOS

2011-12-09T20:10:49Z

The future of the innovative-but-troubled mobile operating system is more or less resolved.

FORTUNE -- WebOS isn't completely dead, at least not yet. Hewlett-Packard today announced that it is taking its struggling mobile operating system open source -- a.k.a. making its code freely available to developers and other hardware manufacturers.

"WebOS is the only platform designed from the ground up to be mobile, cloud-connected and scalable," Meg Whitman, HP's (HPQ) new chief executive officer, said in a release. "By contributing this innovation, HP unleashes the creativity of the open source community to advance a new generation of applications and devices."

HP has flip-flopped on its WebOS strategy several times. After taking the helm last year, former CEO Leo Apotheker had said WebOS would power not only tablets but also HP's PCs and other devices. But in August he announced the company would kill off its TouchPad tablet and the WebOS smartphone line (and possibly spin off its personal computer business). He was fired shortly after.

Since taking over in September, current CEO Whitman has tried to clean up Apotheker's mess. First, she decided to keep the PC business. And now she has finally brought the WebOS question to some resolution.

But going open source doesn't necessarily mean WebOS has a future. Although the operating system, originally developed by Palm, was well reviewed and praised for its user interface and web-centric approach, WebOS devices never took off. (Check out 7 innovative features that couldn't save WebOS.) And to woo developers, companies not only need an attractive platform, they also need attractive devices out in the market. While HP says it will be an active participant and investor in its new open source project, it isn't recommitting itself to developing more WebOS devices.

What's more, Google's (GOOG) Android and Apple's (AAPL) iOS operating systems have already proven success with developers. Microsoft (MSFT) is also hoping its new Windows 8 app store will attract developers. So does WebOS stand a chance at making a comeback? Don't count on it.

As for HP's comeback, it's still too early to tell whether or not Whitman can turn things around. But her first two big decisions as CEO—to keep the PC business and to open source WebOS, were probably the best possible outcomes in a very messy situation. While the new, open source version of WebOS might not make it big, at least it provides HP with some closure.

Filed under: Big Tech

What would a Bill Gates comeback look like?

2011-12-08T19:31:25Z

He's watched the company he founded muddle along for half a decade. What would happen if the successes of peers like Howard Schultz and Steve Jobs finally got to him?

By Alex Konrad, reporter

FORTUNE -- Is Bill Gates mulling a comeback to the iconic company he founded?

It wouldn't be the first time a legendary founder stepped back into the fray to right his faltering company. Perhaps Gates has noticed the success of his Seattle neighbor Howard Schultz, who returned to a badly bruised Starbucks (SBUX) only to help it surge. (Schultz was Fortune's 2011 Businessperson of the Year.) Michael Dell, Steve Jobs and Larry Page all pulled similar maneuvers.

It wouldn't be the first time investors had flirted with the notion, either. Early this year, activist investor David Einhorn of Greenlight Capital publicly called current CEO Steve Ballmer a weight dragging down the company's share price, prompting the rumor that Gates might return. But Gates has been cool to the idea publicly, rebuffing it in 2010 and again this year in June, when he told the Daily Mail his work at the Bill & Melinda Gates Foundation "is my job now." (Einhorn declined to comment for this story.)

One prominent chief executive told Fortune he'd heard from someone close to Gates that he might be considering such a move. Aside from an unexpected and bold final act for Gates, what could Microsoft (MSFT) gain from such a move?

The company's stock price has been a thorn in Ballmer's side for a decade. At the end of 1999, Microsoft's best year for market price, shares were at almost $60. When Ballmer took over as chief executive in January 2000, the stock was still over $50. With the burst of the tech bubble, Microsoft's stock dropped steeply and hovered around $25 area through much of the decade, excepting a short rally above $35 in late-2007 and a dip under $20 during the 2008 financial crisis. Ballmer dumped much of his stock during the decade and Bill Gates gradually left daily operations. (Gates' last full day was in June 2008.) During that time, the stock stayed flat as competitors such as Oracle (ORCL) and Apple (AAPL) saw huge gains in their share price.

Could Gates goose the moribund stock price? Possibly. Any CEO turnover tends to jumpstart improvement in a company's stock price, says Jarrad Harford, finance professor and chair at the University of Washington's Foster School of Business in Seattle. According to Harford, investors anticipate the company's value under new management even before the executive actually takes over. (New CEOs have about a year before his or her imprint needs to be visible to investors.) "There's a lot of frustration among investors with Steve Ballmer," adds Ed Maguire of CLSA Asia-Pacific Markets. "Some is merited, some may not be. But there's certainly a perception that Ballmer is responsible for the under-performance of the stock."

Then there's the effect a founder can have on the troops. Founders are generally free to execute their vision with added "gravitas," Harford argues. He points to Google (GOOG), where co-founder and again-CEO Larry Page is "cutting through the organizational muck" to restore the company's momentum. Ballmer might lack that incisive big-picture vision, says Maguire at CLSA. "You don't have the benevolent dictator," he notes, adding that while Ballmer handles the active management of myriad divisions and thousands of employees well, he's missing some of the messaging of a Jobs or Gates.

Gates' return could help streamline Microsoft's message, but Harford notes that even Steve Jobs at Apple (AAPL) had current CEO Tim Cook at his side to handle the nitty-gritty. It's unclear whether Gates could keep his old right-hand man, Ballmer, or find a replacement. And, it must be noted that, during his tenure, Gates articulated more than one vision that went nowhere.

Analysts say that whoever is in charge at Microsoft will face serious headwinds -- even Gates. Under Ballmer, the company picked itself up after the disastrous Windows Vista, launching Windows 7 successfully. Now, it is preparing Windows 8, which the company hopes will launch it into tablets. But it must draw developers to its platforms and duke it out with with Amazon (AMZN), Apple and Google. "There are very few examples of where returning founders had to come from behind in their certain market," warns Kirk Materne of Evercore Partners, which carries out investment banking services for Microsoft. "Gates was great at Microsoft when Microsoft was the dominant player." Even Gates, Materne warns, would face challenges.

Analysts and Harford agree that Ballmer's position at Microsoft is well established, and he remains a close friend of Gates. It's most probably, they say, that Ballmer stays in charge as the company brings its new products to bear in 2012 and beyond, at least until Ballmer turns 60 in 2016. A Microsoft spokesman noted the company does not have a fixed retirement age and that the company does have a succession plan in place but would not provide details. (He declined to comment on a Gates return to the company.) Insider Steven Sinofsky, who heads up Windows, might be the company's best bet for a high-profile scion -- "he even wears the black turtlenecks," Maguire notes. Harford says that whenever the succession is, it will differ greatly from when Gates unilaterally passed control to his buddy Ballmer, as the board will have a much greater say.

Even if unlikely, Gate's return is a "what if?" that's likely to have life, especially as long as the company's stock price languishes. But if he did return? "I wouldn't hasten to bet against Bill Gates," Materne says. He's probably not the only one.

Filed under: Big Tech, Contributors

Why SAP bought SuccessFactors

2011-12-05T20:54:17Z

The business software giant is shelling out $3.4 billion to buy its way further into the cloud.

FORTUNE -- Over the weekend, SAP announced the $3.4 billion acquisition of human resources management software provider SuccessFactors -- big news by any measure.

The first question (besides why SAP (SAP) chose Saturday morning for the announcement) is whether or not shelling out so much money to buy its way into the cloud makes sense?

SAP's purchase of SuccessFactors was a 52% premium to Friday's closing stock price. But San Mateo, Calif.-based SuccessFactors is valuable -- it's a growing player in a growing market for cloud-based software. The company says it has more than 3,500 customers across 168 countries, and recorded 77% revenue growth year-over-year in the third quarter of 2011. SAP, meanwhile, is the 800-pound gorilla in business software, but not in cloud computing. And while it's making attempts to grow its cloud-based offerings organically as well, it can't afford to miss the opportunity to buy its way into the market simultaneously.

Why? It's now become evident to SAP (and its competitors) that software delivered over the web is not just a passing fad for cash-strapped small businesses. In October, rival Oracle (ORCL) bought another cloud-based software company, RightNow Technologies, for $1.5 billion. And the trend of larger software companies buying their way into the software-as-a-service market won't end anytime soon. There are still quite a few promising acquisition targets out there such as Pleasanton, Calif.-based Workday and plenty of appetite to eat them up.

In the past, SAP wasn't so big on acquisitions. But this is a new era at SAP, where its two newish CEOs Bill McDermott and Jim Hagemann Snabe, are taking bolder steps to get the company into social, mobile and the cloud. "The cloud is a core of SAP's future growth, and the combination of SuccessFactors' leadership team and technology with SAP will create a cloud powerhouse," co-CEO McDermott said in a press release issued on Saturday. "The acquisition will help us address the top priority for CEOs globally – managing people and talent."

In an interview with FORTUNE on Monday, McDermott added that while SAP is unlikely to make any additional, large-scale cloud acquisitions in the near future, the price was just right for SuccessFactors.

"What we try to do is buy 'crown jewel assets' that have attributes that either on their own right or in combination with SAP allow us to lead in a category," McDermott said. "In the case of SuccessFactors it was a one of a kind asset."

Of course, some analysts aren't convinced the strategy -- and the price SAP is paying -- will work. "If SAP's strategic intention with this deal is to sell SaaS into the enterprise, we think the reality in the field will be very different," Peter Goldmacher, a senior research analyst with Cowen and Company, wrote in a note on Monday morning. "It's hard to imagine the company's enterprise sales force successfully delivering a message to its customers when to use on prem [on premise] and when to use SaaS, much less an SAP sales rep selling SFSF [SuccessFactors] for a fraction of what SAP's HR modules sell for."

Filed under: Big Tech

Exclusive: Huawei employees ask U.S. for right to compete

2011-12-02T20:10:26Z

The fast-growing gear maker has been thwarted in the U.S. by national security concerns. Now, employees are rallying on behalf of the company.

FORTUNE -- Earlier this year Fortune chronicled China-based telecom equipment maker Huawei's efforts to win private contracts in the United States. Thus far the fast-growing gear maker, which last year had sales of $27 billion, has been thwarted by national security concerns.

Now FORTUNE has learned that external relations VP William Plummer is asking Huawei's US employees to rally on behalf of the company. In an email obtained by Fortune, with the subject line "Exercising your Rights—Support of Huawei," Plummer asks US employees of the company to consider writing to their Congressional reps.

At issue? A recently-announced U.S. House Intelligence Committee investigation into China-based telecom gear providers. According to Plummer's note to employees, Committee Chairman Mike Rogers, a Michigan Republican, specifically calls out Huawei. ZTE, another gear maker whose shares trade in Hong Kong, is also named in the investigation.

Plummer's email to employees suggests that they encourage their representatives to pursue "an open, full and fact-based consideration of the threats presented by global supply chains, regardless of the integrator or end-solution supplier." (Tranlsation: Couldn't an American company with operations and engineers in China be just as likely a challenge to security as Huawei?)

But Plummer clearly wants to Congress to lay off Huawei. His sample letter (full text below the fold) for employees to forward to their lawmakers, reminds the reader that Huawei is a growing company and a potential job creator. "I wanted to bring to your attention an ongoing Congressional activity that potentially threatens my livelihood and my family's well-being, as well as those of my American and other colleagues," the sample letter says. Huawei has more than 1,500 employees in the U.S., and 120,000 worldwide.

Here's the complete text of the letter Plummer suggests employees personalize and send to their Congressional leaders:

Dear: The Honorable <insert name>

My name is <insert name> and I am writing to you as one of your constituents <or, "as an American," if addressed to an Intelligence Committee Member not from your District> living in <insert hometown.> I wanted to bring to your attention an ongoing Congressional activity that potentially threatens my livelihood and my family's well-being, as well as those of my American and other colleagues.

I work for Huawei Technologies, a $28 billion, 120,000-person multinational telecommunications company based in China which provides information and communications technology solutions to 45 of the world's top 50 telecommunications service providers in over 140 markets across the planet.

While Huawei has made modest inroads in the U.S., due to concerns related to our Chinese heritage, our ability to do business in the U.S. has occasionally been challenged due to unspecified "national security concerns." Such concerns have never been substantiated and Huawei has never had the benefit of due process or to know or understand the charges against it or to otherwise defend itself.

On November 17, 2011, the U.S. House of Representatives Intelligence Committee announced an investigation into whether China-based telecommunications equipment providers supplying solutions to U.S. operators might somehow facilitate espionage or threaten America's critical infrastructure. The Committee Chairman specifically named Huawei as a target of the investigation.

Network security concerns are very real, but, given that all telecommunications solutions from every vendor contain global - including Chinese - inputs and code, the concerns apply to each and every vendor. In this regard, the Intelligence Committee investigation offers a unique opportunity for an open, full and fact-based consideration of the threats presented by global supply chains, regardless of the integrator or end-solution provider. Indeed, such an approach will serve to foster true and non-political solutions to securing American networks, data, and communications service continuity, while preserving competition.

As your constituent <or, "as an American," if addressed to an Intelligence Committee Member not from your District>, I call on you to encourage the Committee to leverage the knowledge of a balanced representation of public and private sector experts on telecommunications, security, competition and trade, and to conduct its review in an impartial and transparent fashion towards a fact-based outcome.

Best regards

<insert name>

Filed under: Big Tech, Mobile, Tech@Work

Rackspace's plan to beat Amazon: "Fanatical support"

2011-12-02T12:00:36Z

The much buzzed about cloud computing provider is planning to take on industry giants not with pure technology, but radical customer service.

FORTUNE -- Rackspace Hosting is one of the most buzzed-about players in cloud computing. The Texas-based company recently hit the $1 billion mark (in annualized run rate revenue), and has signed on more than 160,000 customers. Last year it unveiled OpenStack, an open source cloud platform also backed by NASA.

While giving away your software for free may not sound like the best strategy, Rackspace (RAX) believes it will help accelerate the industry in the long run. The company also believes its dedication to customer support -- not pure technology -- is what gives it an edge over the growing pool of much-larger rivals, which include giants Amazon (AMZN) and Verizon (VZ).

I recently caught up with Graham Weston, chairman and co-founder of Rackspace, to find out how the web-hosting provider has made customer support a core part of its business. Here's an excerpt from our conversation, which took place at the company's new office in San Francisco:

Why did you decide to focus on customer support?
In the original business plan there were very few people involved. But after six months we started to realize that we were getting angry calls from customers. We were getting a lot of customers but piling up angry people in the wake. That's when the turning point happened. We decided to embrace support. The first thing we started to do is answer the telephone. We took the fancy phone system offline and answered every call. That was the beginning of what we call "fanatical support." It took years to build it to what it is today.

How did you make support a core part of the business?
We said we are not a technology company, we are a service company. We see our whole reason for being is for customers to absolutely trust us and rave about our support. We used a customer satisfaction metric called the Net Promoter score. We made helping people who know less than they do the prize for our employees. We made sure everyone would buy into it. It sounds cliché but the key to it is teams -- dedicated support teams for our customers. Support sounds really fluffy until you have a problem. So the question is do things break? Yes, they break all the time. Software breaks. Things go wrong. But when they go wrong, how long does it take to get them fixed? You notice Google never goes down? It's not because of their servers—it's their people.

But is support enough to compete with Amazon and other rivals?
Yes. There are different kinds of cloud computing approaches emerging. Amazon is a flavor that is totally hands off and raw. There's no support involved -- they will not log on to your machine and fix it for you. They are trying to build a computing resource like electricity that needs no interaction with them. We're building a management resource. If you don't want the management and expertise that we give you wouldn't come to us. In the same way that Apple (AAPL) said we're not going to make a commodity laptop, we're an expertise business. That's the right place for us. The question is, is the cloud about a new way to buy servers or a new way to buy a computing service?

Filed under: Big Tech

At HP, Whitman cuts down on drama

2011-11-22T15:33:55Z

Meet the new Hewlett-Packard -- prudent, frugal and, well, kind of boring. That is, of course, if new CEO Meg Whitman has her way.

FORTUNE -- On her first earnings call with investors since taking the helm last September, Whitman repeatedly said HP would get back to "business fundamentals" in 2012. What exactly does that mean? Fewer distractions, for one. It also means no big acquisitions like the $10 billion-plus purchase of enterprise software maker Autonomy.

"We cannot continue to rely on acquisitions alone at HP," Whitman said on Monday's call. "It's just the wrong thing to do. We've got a lot of runway with our own internal R&D capability, if we run it right and invest in it right."

The decision to avoid any big buys in 2012 seems solid enough. HP (HPQ) took a lot of flack when it announced it would buy Autonomy last August. Many investors just didn't feel the hefty price tag was justified. Add to that a profit decline in the most recent quarter (caused in part by charges related to HP's failed WebOS purchase) and a rising debt load and you've got good reason to tighten the purse strings.

Whitman's conservative approach will come as a relief to most investors. But steering clear of big, bold acquisitions could backfire. While she made the right call in opting to keep the company's PC business, HP still needs to bulk up its software portfolio to compete with the likes of IBM (IBM), Oracle (ORCL) and SAP (SAP). Pouring more money into R&D won't give HP the kind of boost it needs in this market, as it will likely take several years to see a return on internal investments. In the meantime, rivals with ample cash could buy themselves even more of a head start in enterprise software. Ousted CEO Leo Apotheker might have done a lousy job communicating his ideas, but he may have had the right idea -- steering the world's largest computer maker towards a more profitable software and services business model.

To be fair, Whitman did say HP would consider making two or three smaller software acquisitions in the coming year, but nothing on the scale of another Autonomy. "If there is a great acquisition in the $1 billion range, maybe we will take a look at it," Whitman said on Monday. "But we've got to be sure that it fills a hole, that we don't pay too much for it and that we are financially disciplined about it."

Regardless of exactly how many acquisitions the tech giant ends up making in 2012, conserving cash is a probably a good starting point for rebuilding HP and making nice with investors. But it's just a starting point. HP has been plagued by boardroom scandals, executive shuffles and a lack of clear leadership. In the fourth quarter, it suffered declines in core businesses like PCs and printers. Even worse, morale at the company has been down for years.

Stability and financial discipline will likely be a good thing for HP. But if its newfound conservatism lets competitors get ahead, the going may get even tougher for Whitman in 2012.

Filed under: Big Tech

Dethroning MS Office: Not that easy

2011-11-15T15:53:57Z

Google has made progress selling its cloud-based suite of office software by bulking it up. But it's still struggling to woo the big businesses that are Microsoft's bread and butter customers.

FORTUNE -- A few years back, many doubted Google's ability to sell enterprise-worthy applications. Today, it's safe to say that Google Apps for Business has become a viable alternative to server-based email and other applications, much like Apple's (AAPL) iPhone is now a viable alternative to BlackBerries (RIM) and other enterprise-grade smartphones.

Just ask the several hundred IT managers currently attending Atmosphere, a two-day gathering for Google's (GOOG) business customers, held at the Googleplex. Since launching Google Apps for Business in 2007, the search company has put a lot of effort into wooing CIOs by making the migration to Gmail, Docs and Calendar as effortless as possible and adding new features and increased support for enterprises. (The latest additions to Google Apps for Business, announced at Atmosphere on Monday, include more mobile device management capabilities and 24/7 phone support for business customers).

These are all just baby steps along the path of getting significant enterprise market share, but Google has made a lot of progress. According to the company, the result of these efforts and the general trend towards cheaper cloud-based offerings, thousands of businesses have switched from Microsoft (MSFT) Exchange to Google Apps in recent years.

Of course, the majority of those customers are still small businesses, not large companies. Getting bigger corporate customers to "go Google" isn't easy -- even when you treat them to a two-day event complete with yurt-like demo booths and free snacks.

Why it proving so difficult? Microsoft's Exchange servers are pricey, but they're also well-entrenched in big businesses. And as Nader Karimi, CIO of fashion house BCBG Max Azria Group, told me at the conference, his company's employees are used to the look and feel of Microsoft's email client, Outlook. In lunch with members of the press at Atmosphere, even Dave Girouard, VP of Google Apps, admitted that moving to the cloud is a big change. And just because there's mounting pressure to move to the cloud doesn't mean it's for everyone (or every application). What's more, Microsoft -- along with other competitors -- has its own cloud-based offering, which could end up not just cannibalizing Exchange but also taking on Google Apps for Business.

Still, it's clear Google is increasingly becoming a bigger threat to Microsoft (one CIO at Atmosphere said he got a call from a Microsoft "Google Compete" team after he notified them he was switching to Google Apps in 2009). As for Microsoft's own cloud-based business software, Office 365, it's still too early to tell how it will fare.

In the meantime, Google is adding more and more functionality to its Google Apps for Business. The company has been talking up its plans to make Gmail more social and to develop an enterprise version of its newish social networking tool, Google+, with more security features. Like many things at Google, the enterprise market is still a work in progress.

Filed under: Big Tech, Google

Cisco promised a turnaround. Is this it?

2011-11-14T22:57:39Z

Cisco has been struggling to find a suitable second act. Now, with its major competitors distracted, the first glimmers of hope may be in sight.

By Kevin Kelleher, contributor

FORTUNE -- Few companies have been as central to the Internet's development as Cisco. ISPs, private companies and public institutions have relied on its switches and routers so much that the San Jose company's name might as well be synonymous with the Net's infrastructure.

But for several years, Cisco (CSCO) has been struggling to find a suitable second act. At the dot-com peak, Cisco was briefly the most valuable company in the world, with a market cap of $500 billion. For most of the past 10 years, it's stock has vacillated in a range of $15 and $30 a share. And in recent years, things have slowed even more: Its quarterly revenue has risen only 8% over the past three years, while net profit declined 44%. More worrisome to investors, its gross margins deteriorated year after year as competitors battled Cisco in the core markets that made it a giant.

So when Cisco, in reporting its earnings for the quarter ended October 29, said that gross margins came in at 62.4%, it caused a stir among analysts and investors. After all, that ratio is below the 64.3% of a year ago and even the 62.7% of the previous quarter. But instead of falling, Cisco's stock rallied 8% over the next two days, reaching its highest level in nine months.

That's because most investors were bracing for even weaker margins -- something closer to 61%. Competitors like Hewlett-Packard (HPQ) and Juniper Networks (JNPR) have been waging a price war in switches and low-end routers, trying to boost volume in the face of a weak global economy. That has put a steady weight on Cisco's gross margins, which were closer to 65% in 2010 and around 70% several years ago.

CEO John Chambers had vowed to stem the decline and shift the company's focus from revenue growth to higher gross margins. It was a cornerstone of a three-year restructuring he had engineered to shore up Cisco's profits. And it looks like the restructuring is finally working -- at least for now.

There were other mildly encouraging signs. Revenue from switches, a third of the total, was flat, but orders increased by 10%. Overall, orders increased 13% in a seasonally weak quarter -- including a 10% increase in orders from the cash-strapped public sector, reversing a 4% decline in the previous quarter. Even orders from the Europe and Middle East rose 13%.

None of these metrics recall the glory days of Cisco's youth in the late-1990s. But they paint a portrait of a middle-aged tech giant in the early stages of a successful turnaround amid a skittish global economy. Turning around a tech giant like Cisco is no mean feat. IBM pulled it off, but it did so by pushing from hardware into services and consulting. That's not an option for a networking equipment maker like Cisco. Only a fifth of its revenue comes from services, largely customer support.

Cisco is also recovering from a couple of costly missteps it made in recent years. As routers and switches became low-cost commodities, Cisco moved into new markets: teleconferences, set-top boxes, the Flip camcorder. But some moves proved ill-advised. The company was also slow to take seriously the competition that HP and others were presenting to its core market.

That changed this year. Cisco sold off set-top box operations, killed the Flip camera and began laying off as many as 10,000 workers. It began getting tough with its competitors, including a snarky web site with videos poking Juniper for its product delays. For the first time, sales teams were paid according to their contributions to gross profit. "We are more aggressive on the competition, we are going to be tough on our competitors, whether they are Juniper or HP and Huawei and Avaya, and it's something that I think, we were a little bit to general on in the past," Chambers said in the earnings conference call.

Meanwhile, Cisco is seeing growth in newer areas. Revenue grew 13% from video systems for ISPs, 12% from collaboration services like video conferencing and enterprise social networks and 107% from the data center division.

In February, after Cisco posted yet another disappointing quarter, Chambers told the street that the pieces were in place to turn the company's financial performance around. Many analysts scoffed, and the stock price sank. But in retrospect, Chambers may have been right. Three analysts upgraded their ratings on Cisco last week, and others lifted their price targets.

Still, some concerns remain. Analysts at Barclays and Merrill Lynch said it was too early to declare Cisco's turnaround a sure thing. HP and Juniper are distracted with their own problems, and once those are sorted out they could wage another price war in switches and routers.

That may be, but Cisco still has an advantage of being the first of these companies to get its house in order. It's made several difficult moves this year and seems serious about doing what is necessary to keep the turnaround going. That might not be the second act Cisco imagined for itself, but it may just be compelling enough to keep investors in their seats.

Filed under: Big Tech, Contributors