Why the F22 Crashed and the iPad Took Off

In the 20th century the majority of innovation started as evil nations wanted to destroy other nations.

As a result, the evil (and peaceful) nations devoted large chunks of their tax money to the defense budget.

The flow of research money was the following:

Public (taxes) -> Government -> Defense Agencies -> Universities -> Private Companies (implementation)

Research Budget Flow

Many of the most important contributions to technology and science were created or commercialized through this path: the internet, GPS, atomic energy , satellites and plenty more.

The innovation flowed from the government to enterprises and only then into consumers.

Space and Aviation -> Military ->  Large Enterprises -> Civilian Government -> Small Enterprises -> Consumers

The early experiments or products were extremely  expensive  and sold in small quantities and required public financing.

In the 21st century the flow of innovation and new technology has reversed.

innovation Flow in a Consumer World

The recent launch of an iPhone into space with GPS tracking by civilians, is one amazing example.

The following stock chart provides more evidence. It plots the iShares Dow Jones U.S. Aerospace & Defense Index Fund compared to some major consumer oriented companies like Google, Sony, Amazon.

Chart of Defense Index Vs Consumer Companies 2006-2011

The new innovations are derived from consumer demand and consumer services or products : cellular phones, smart Phones, social networks,cloud computing, personal computers and online advertisement.

I believe this is the reason the Intel, Apple and Google are now the largest companies in the world, displacing companies like SUN, Nortel, Lucent, HP , IBM and similar companies more focused on enterprise and governmental markets. While IBM, Microsoft and Intel are still leading the patent table, one can claim it implies more on the inflation of patents , rather than true  innovation.

Top 10 Companies Patents ROI from MSN

The reversal of innovation can be explained by multiple theories:

Moral – the global society has become more civilian and democratic. Individuals have more civil rights, more control of the public spend and therefore there are fewer wars, less dictators  and less weapons. Unfortunately , I’m not sure all of the facts support this theory. I have found some evidence. For example, from 1988 to 2009 the global military spending share of GDP has dropped by 34% from 3.5% to 2.4% , global average. The number of conflicts decreased by 40% from 1992 to 2009.

Share of Military Expenditure as Percentage of Gross Domestic Product 1988 2099

Armed Conflicts by Region 1946-2009

Economics – In the end of the day we are all consumers and individuals. Economics are driven by numbers and since there are about 1 Billion consumers with a high standard of living, it is the largest market for almost any product. Selling a $300 product to every consumer translates to $300 billion market, this is equal to the global IT market spend. Selling $30 of advertisement to one Billion people …. you can do the math on your own.  Compare that with the cost of design and manufacturing of a new stealth plane.

The R&D alone would cost Billions  of dollars, and each airplane would cost $336M million dollars , if it the project is not aborted during the 20 years of development. Programming an amazing computer vision system for smart missiles would only be relevant to 20-40 customers. Delivering an amazing face recognition for  facebook generates access to 750 Million customers. The OCR domain is one example I already bogged about.

Sociological  – Open source software has allowed sharing of innovation and technology with zero cost of patents, licensing and removing many anti-competitive habits , either explicit or hidden that were common in past years. It also allows sharing of development costs across organizations. Younger generations are used to great user experience, and would not “go back” when entering Enterprise office. Cloud computing is also helping to build start-ups in 50 dollars.

The fact that Google and Amazon are hosting funding challenged public database of bioinformatics, that used to be funded by the government is rather  provocative.

To summarize, while there are still huge budgets in defense and commercial enterprises, there is strong trend driving innovation from the individual. Do you believe the trend is real?

Is the new CEO a Chief Product Manager?

If you can be a product manager, you can acquire the experience of acting as a CEO. The skills gained in product roadmapping, prioritizing tasks, interoffice communications, customer understanding, and product marketing are absolute necessities for being an effective enterprise lead.
Mark Pincus(video on Product Management as CEO Training), CEO and Founder of Zynga,

Is the new successful Hi-Tech CEO actually a chief product manager?

While this may be an over simplistic view, I do believe we are seeing a trend in the industry.

Google recently decided to appoint its president of products as the new CEO. Steve Jobs is known to design Apple’s product features down to the smallest detail. But maybe he is just a Chief Product Manager ?

Looking at ten leading CEOs background, this might be a a sign of a new trend.

	Company	Name	Previous Title	Formal Education
1	Apple	Steve Jobs	GM Macintosh Division	None
2	Google	Larry Page	President Products	Ms. in Computer Sc.
3	NetFlix	Reed Hastings	CTO	Ms. in Computer Sc.
4	Oracle	Larry Ellison	?	None
5	Twitter	Dick Costolo	Group Product Manager	BSc Computer Sc.
6	Microsoft	Steve Ballmer	Assistant product manager (P&G)	BA in Math and Economics
7	VMWARE	Paul Maritz	VP  of the Platform Strategy and Developer Group	Math and Computer Sc.
8	Cisco	John Chambers	Senior VP,Worldwide Sales and Operations	MBA
9	NetApp	Tom Georgens	VP Product Operations	MBA and Computer Sc.
10	DataDomain	Frank Slootman	Senior VP of Products(Borland)	Economics

In the past, CEOs came from a legal or a financial background. Later on they came from a scientific or engineering technical background.

Promoting the sales executive was  the key trend in the 90′s and in many more modern organizations the marketing leaders were “moved” upward.

Image via Wikipedia

But some of the 20th century reasoning and basic  assumptions are no longer valid, at least in the technology sector.

Lets assume that the new tech and consumer markets are frictionless and all information is publicly available.

As a result we can observe that:

• Sales people are less important  since products are sold directly of the web and personal relationships are less relevant
• Finance is less critical as the standard financing options are pretty well understood and commoditized
• Marketing is still important, but traditional outbound “tricks are less important. The “Gartner” marketing that does not say anything about the product, is much less effective. Product marketing, pricing  and daily analytics are much more critical. If everyone loves your product, marketing is easy, channel management is easy and awareness is easy. Nowadays the customers can try the product immediately and they are the ones who create most content about it.
• Technical innovation is still relevant, but in many cases the big companies are not the ones inventing algorithms or new chips. Ask yourself who invented the iPAD battery,GPS or screen or compass and what’s their stock quote.

In these markets, the best product has a good chance to win everything. There are plenty of examples how a great product makes the rest of the company functions much easier and successful. Of course, there is no first degree in “Product management” and a strong technological  is definitely an advantage. However, it does seem that great product leaders, are able to drive few of the most successful  companies in the world (even, in some cases,  with a lack of great people skills:) ).

Commodity Clouds? You must be kidding

A commodity is a good for which there is demand, but which is supplied without qualitative differentiation across a market. Commodities are substances that come out of the earth and maintain roughly a universal price. Wikipedia

I find it hilarious when some people describe clouds or the IaaS market as a “commodity”, or even worse – “legacy”.

It is a common mistake that I see again and again by people who don’t have a clue in what they are talking about or just ignore the little details.

These are the little details you might call “reality”.

The first point I want to make is that “Commodity” is often misinterpreted as “Easy to Produce” or “Low Margin,Bad Business”.

Take a look at oil production. While the end product does not have qualitative differentiation,its production requires some of the most sophisticated technology available. Drilling oil from the bottom of the sea necessitates huge investments, great science and an amazing technology.

Moreover,  six of the ten biggest companies of the world are in the oil production sector, so maybe it is not such a bad business to be in.

Another example would be X86 chips. The X86 architecture is more-or-less the same as it was 30 years ago. It is available universally and there is no qualitative differentiation between different items. However, building a new FAB costs around $2B and Intel is one of the most successful companies on earth. No one would argue that there is no intellectual property in chip design.

The second important point is that vision is nice, but reality is nicer. My friend  told me that in the late 90′s the technologists in Check Point thought that Intrusion Detection technology is an erroneous direction to follow. They thought that comparing signatures of attacks is reactive and it does not help the customer  to passively monitor the attacks.

While they were right  in their long-term vision, ISS sold hundreds of millions in IDS software ,in the meantime. Moreover, when the market shifted to IPS ( Intrusion Prevention systems) , ISS had good solid technology to start from, which took Check Point  five more years to accomplish. As my father, the CFO, used to say, “The markets fix themselves in the long run, but in the long run we all die”. Technology adoption cycles are longer than they seem.

Some analysts are looking too far ahead. For example, two years ago everyone talked about hyper-visors as being commoditized. Microsoft and Citrix will give it it for free, KVN is for free anyway and VMWARE would have to follow. Surprisingly, in the last 12 months VMWARE sold more than $2B worth of , guess what, hypervisors.

Why are 200,000 customers being so silly and paying so much money when the analysts say differently?

For one reason, because Microsoft Hyper-V does not support NFS, yet, which is probably used by 40% of customers. Because Hyper-V can not handle memory over-commit, which means you’ll get about 30% less capacity from the same hardware. Because VMWARE Virtual Center is two generations ahead of Microsoft’s management server, and there is not much use for a hyper-visor that can’t be managed. See a nice post from 2008 about it.

So are the analysts the stupid ones?

Of course not. But they have not installed a hypervisor in the last five years. Furthermore , they are probably right in the long run. In three years from now (five years from 2008:) ) hypervisors might become a commodity. But it is much slower pace than it seems at first.

Remember how in 2000 Broadband Internet was just around the corner ? We’re in 2010 and only South Korea has upload and download speeds above 20Mbps . More on the commodity subject and especially in clouds in my  next post.

Related Articles

• VMware Has More Of The Market Than IDC Figures Show (informationweek.com)

Microsoft Sold in Gas Station, Apple Sold Out

My gas station started selling Microsoft Wireless keyboards. Apple has people standing inline for days to get a new iPad.

Make me think …

BTW, Apple just published great results and the share is up 30% since iPad announcement.

Microsoft Wireless Keyboard Hardware Sold in Gas Stations (Click for Larger Image)

Apple Store San Francisco iPad Launch Line

Making Money from LinkedIn – the Corporate Phonebook and the Wall Street Analyst

LinkedIn is finally starting to use the ton of information it is holding. A new cool feature called “Company Profile”, allows anyone to see “hidden”, “private”, companies’ data that was never available before. I believe this data can be much more informative than expensive Wall Street analysts’ reports or boring, half fabricated financial reports.

You just type in a name of a company and get the following information:

• New promotions
• New hires
• Which universities they hire from
• Which companies do people leave to
• Median age of employees
• Recent title changes
• Gender distribution

The information can be used in numerous ways. For example, the turnover rate of employees can be a superb indicator for  business success. This number is usually not reported by either public or private companies. With the help of LinkedIn such information can now be obtained with high levels of confidence.

One can also see what the trends among employees are. Assuming that employees have the best internal information on how the business is doing, watching their decisions can be quite remarkable.

Looking above we can see Microsoft employees are moving to Google, Amazon and Yahoo! (last one might become a funny move). Some Google employees are moving to FaceBook. Off course, there is lot of data still missing to get accurate conclusions. For example, it is quite possible that in absolute numbers a lot less people are leaving Google than joining.

The most common titles are also fascinating. Microsoft’s top title is Program Manager; While Google’s top title is Software Engineer. This tells you a lot about the culture and strategy each one is taking.

We can also note Google has younger employees (29 Vs 33 for Microsoft) and a lot more Women (38% vs. 30% for Microsoft).

All this data reminds me of an argument I had with an MIS manager in a large enterprise. He insisted that the internal phonebook would not avialble be in a downloadable format (EXCEL, Text, Outlook) . He wanted the phone book to be available in online web only version. When I claimed it makes the sales people life very difficult, he said that “we don’t want our employee contact information moving around the globe”.  

Not only LinkedIn provides all this information, it actually follows past and future employees. The funniest part is the information LinkedIn provides is more complete, more updated and easier to find with internal MIS applications, which are cumbersome and contain multiple errors.

All in all,IMO, more information brings better decision making for the ones who are fast enough to adopt the new tools for their usage.

 

Microsoft “secret” Telecom Product Group

Microsoft has not had a lot of success in the telecom world in the past. It is now building a new group in Israel which aims to change that. They are recruiting some of the top telecom\communications experts from companies like Comverse, Amdocs, Juniper, Check Point, Verint and Nice. It seems they already have around 100 employees with ambition to grow much bigger. Rumors claim Microsoft is building a new building in Herzelia just for this group.

Although it is quite public ,  there does not seem to be a lot of web reference to this activity or its exact purpose.

Sample quotes:

The Microsoft ILDC (Israeli Development Center) Telecom team is paving the way for mobile operators to offer the next generation of innovative services. Services that will reshape the way we communicate and interact with our family, friends and co-workers. We have a great vision, powerful technology, a world-class team, and an aggressive schedule to get the first version shipped.

Our product provides solutions mobile operator’ communication services enabling seamless inter-working across different networks such as fixed & mobile legacy , as well as future IP & IMS. This is a carrier-grade solution, designed for mobile operators, with 24/7, 99.999% reliability requirements, huge scale (100s of millions of concurrent users) and performance requirements.

The Microsoft optimistic view is:

Microsoft grabs the brightest people from the legacy telecom software players. They are tired of Cobol, RMS, HPUX, Solaris and organizations which block innovation. These companies are full of politics and competing SMS\WAP\CRM\Unified projects. These experts build a new, modern, C#, .Net, Internet like architecture which revolutionizes the entire industry. With tons of money and a powerful ecosystem Microsoft is going to win this one as well. It will do it with cheap solutions that provide ten times the benefit. The big operators of the world would be glad to stop paying millions of dollars to their current suppliers.

The Microsoft pessimistic view is:

Microsoft is going to fail again like it did in the past. Its whole culture and process are not geared towards the telecom world. The telecom world is conservative, values the operator control and hates passing the value to someone else. Why would an operator switch to Microsoft when it is actually competing with them as one of the biggest content provider in the world?

No one is going to replace an excellent operational billing system with a new, unproven, ASP.NET based solution.  If anything, Microsoft should base its new offering on Linux.

Small disclaimer:

This is not really my exact domain of expertise, so take it for what it’s worth. Seems it would be interesting to watch how it turns out.