Monday, March 26, 2012

To innovate like Apple, you need the common touch

Wall Street analyst Henry Blodget has a fascinating post comparing the alumni networks at Apple and Google. In Blodget’s view, Apple uses technology to make useful products while Google is run by brilliant technologists. He sees this as a function of their hiring decisions:

More specifically, Google, which is led by founders and executives who posted amazing grades at the country's top universities, is legendary for hiring only the smartest people it can find--with Google's definition of "smart" being based on the applicant's GPA at a top university and the applicant's ability to handle interview questions that would flummox the vast majority of human beings.

Like most people who work at Google, Steve Jobs was brilliant, but he likely never would have been able to get hired at Google. The Google hiring algorithm would have taken one look at his flaky educational background and concluded that he would never have amounted to anything.
He then quotes charts (built from LinkedIn) that show that Stanford and Cal are the most common alma mater at Google, while San Jose State is most common at Apple. (All three colleges account for 3% of their respective employers). Blodget concludes:
I'm going to guess that Google does not employ all that many people who went to San Jose State. And I'm going to further guess that Google does not employ them because Google does not consider them smart enough or accomplished enough to work at Google.

But it seems safe to say that most mass-market consumers--the folks Google hopes will one day love its products as much as they love Apple products--are less like people who went to MIT (Googlers) than they are like people who went to San Jose State.

So I'm going to suggest, respectfully, that if Google wants to design products that are as beloved by normal people as Apple's products are, it might want to hire a college dropout or two. Or at least a few more folks who went to universities like San Jose State.
As someone who taught at SJSU for nine years — including in the honors and MBA programs — I know our best students were very good. I had not thought to think that a company founded by a college dropout might be more focused on results than academic credentials.

Sunday, March 25, 2012

Free is not open, and open is not free

When talking to computer users and buyers over more than a decade, I was struck by how much a desire for things “open” was less about freedom and more about free. Sorry, Richard, but the reality is that people want free beer more than free speech. I saw this at SJSU, when IT buyers wanted “open” standards without knowing what open meant. I’ve remarked on this repeatedly in my research, including a 2007 chapter on open standards and a 2008 chapter on open source ideology.

Next month, I’ll be talking about the principles of open source software with a new type of audience, KGI graduate students trained in molecular biology who are preparing to work at leading biotech companies. So I thought I’d find examples of both “open source biology” (which is hard to do) and open source software being used for biology.

The best known public domain package for molecular biology is BLAST, which as Wikipedia helpfully notes, dates to a 1990 article in the Journal of Molecular Biology. The “Basic Local Alignment Search Tool” can be used to match a DNA sequence to a library of known sequences to find similar patterns. This is a very computationally intensive process — I recall that Apple made a special effort to support BLAST in its servers after Art Levinson (then Genentech CEO) joined the Apple board of directors. (Levinson succeeded Steve Jobs as Apple board chair after the latter’s untimely death.)

There seem to be two variants of BLAST out there: NCBI BLAST and mpiBLAST. The latter proclaims itself as “a freely available, open-source, parallel implementation of NCBI BLAST.” It seems to be supported by contributors from Virginia Tech, several national labs, IBM and a research group in Taiwan. However, the developer and user mailing lists have no postings since August 2011.

The gold standard is the original BLAST from the National Center for Biotechnology Information. The NCBI BLAST is delivered as a hosted service (what we now call SaaS), altthough the code and database of BLAST+ can be downloaded from a NIH website. However, it appears as the flow of technology is one way — from the government out to users — reminding me a lot of the VistA healthcare IT system that prompted my original interest in open source communities.

In other words, BLAST is free, but it isn’t really open. The government is fine with releasing technology in the public domain — which often is required under basic principles — but not in sharing control or authority.

Sure enough, I found an August 2011 posting by Peter Cock, a UK blogger (and software developer) blasting at BLAST and its lack of transparency:

Now as a USA government funded project, NCBI BLAST is released to the public domain … That's great, it's free and open source, and means BLAST can be modified and re-distributed. This is perfect for inclusion in Linux distributions like Debian which take licence freedom issues very seriously (see packages blast2 for NCBI "legacy" BLAST, and ncbi-blast+ for NCBI BLAST+, the re-write in C++).

However, in other terms the NCBI BLAST project is far from open. Looking at the BLAST Developer Information there is nothing about participating in BLAST development, and no sign of a developers mailing list.

NCBI BLAST doesn't have a public source code repository. … Update (21 October 2011) Not sure how long its been there, but there is (now) a read only public SVN for BLAST+ etc,

NCBI BLAST doesn't have a public bug tracker. Instead individuals must contact the NCBI by email, at blast-help (at), which gets you in touch with the front line support team that then pass proper bug reports on to the actual developer team. The only way to track an issue is by follow up email, referencing the original report by date and email subject -- if there is an internal bug tracking number I've never been told it, and I have asked about this specifically.
Actually Peter has set his sights somewhat low. As Sibohan O’Mahony and I found in our research, transparency is the de minimis level of openness that can be provided to outsiders by an open source community. The truly open projects offer permeability, or the ability of outsiders to influence the direction of a project to make it suitable for a broader range of needs than is conceived by the original authors.

This permeability consists not just of the code, but also the direction and governance of the effort. If you can add changes but not influence the priorities or direction, then a project isn’t really open.

Alas, only a handful of projects meet this standard: Apache and Eclipse are the gold standard. Instead, fishbowl type single-firm communities use open source as a distribution mechanism rather than as a way of harnessing distributed innovation; MySQL was once an exemplar, but nowadays it’s Android. But then for any corporate sponsor, letting go is hard to do.

In the truly open communities, the ability to participate attracts participation and builds a real sense of community and shared governance. When I started researching open source 12 years ago, we assumed we would see more example of such communities forming, but they still seem few and far between.

Of course, for many of these tightly-controlled open source projects, the “free” beer isn’t really free but instead is more like a free puppy (cheap up front, not in the long run). In this case, you have neither open nor free.

Wednesday, March 7, 2012

Microsoft gains powerful Windragon ally

Once the co-owner of the powerful “Wintel” monpoly, in the past decade, Microsoft has been suffering an increasing slide towards irrelevance. The onetime brash PC pioneer has looked more and more like a legacy software company protecting an installed base.

Nowhere is this trend more painful than in the mobile world. Since 2006, it has never held more than 15% of the global smartphone market and in fact — under the twin onslaught of iPhone and Android — its market share has been in a freefall, giving up more than three-fourths of that share. To add insult to injury, 2011 was the year when more smartphones shipped than PCs, a trend that’s only going in one direction.

To save its mobile strategy, Microsoft’s put all its money on its Nokia alliance in hopes that would save Windows Phone 7 from the same ignominy as its predecessors. Given that Nokia’s share has also been in freefall, this has the potential of extending Gary Hamel’s “two drunks” analogy from acquisitions to joint ventures.

On Tuesday, Microsoft landed a public endorsement from one of the mobile industry’s most powerful players: Qualcomm. To me, this has the potential to be the most powerful ally that Microsoft could attract, as a net positive for both firms and a negative for their respective rivals, Apple and Intel (and to some degree, Google).

At the company’s annual shareholders’ meeting, Qualcomm CEO Paul Jacobs bragged a little about the company’s successful shift of its semiconductor business from radio modems (“basebad processors”) to its Snapdragon all-in-one process — which include an ARM-compatible CPU, radio, graphics, multimedia and other features. Based on its Snapdragon success, Qualcomm has continued to gain market share, passing TI last year to become the leading supplier of cellphone CPUs (“application processors”), according to Strategy Analytics.

(By not making its own cellphones or infrastructure, Qualcomm also had a unique position in the mobile phone value chain. Instead, it devotes its $3 billion/year R&D budget to developing components and basic technologies that it sells to all comers among the various handset and platform providers).

Qualcomm has two reasons to throw its weight behind Microsoft. First — unlike Android — it’s only game in town, as the sole CPU supplier for WIndows Phone products thus far. Secondly, Qualcomm sees Windows-on-ARM as opening a whole new market — allowing it (and other ARM licensees) to take CPU market share away from Intel in the PC and tablet space.

In Jacobs’ view, the Windows-on-Snapdragon (or — as I put it, “Windragon”) combination will merge the office productivity options of Windows with the mobility, power saving and performance of the Snapdragon CPU line. Part of the shareholder meeting was devoted to demonstrating the Snapdragon S4 processor designed for the Windragon market.

This sort of tight alliance would seem to me to accelerate the estrangement of Apple and Qualcomm in the handset world. A shareholder asked when (or why) Qualcomm can’t provide more chips to Apple, which appears to be limited to its baseband processor (in the iPhone 4 and iPhone 4S) to complement Apple’s own A5 ARM cpu. If Qualcomm is going to help Microsoft gain share against the iPhone, iPad and perhaps reverse the OS X gains against Windows, then the Apple of Steve Jobs (and perhaps Tim Cook) is not likely to be too friendly or dependent on the San Diego chip giant.

Certainly success of Windragon would accelerate the shift from Mac to iPad sales and Apple’s expected phase-out of OS X.

The other interesting implication is what it does to Intel. There’s no love lost between the firms, particularly in the WiMax vs. LTE 4G wars (that Jacobs alluded to Tuesday). At the same time, Intel is suffering from the same shift away from PCs that threatens Microsoft.

Will Intel make ARM-compatible CPUs, as it once did? Will it try to more aggressively win Android allies to counter the Microsoft-Nokia-Qualcomm alliance?

Tuesday, March 6, 2012

Qualcomm joins chorus for MNC tax reform

At Tuesday’s Qualcomm shareholder’s meeting, the company’s executives joined the chorus of Fortune 500 leaders who called for reducing taxation of multinational US companies when they repatriate foreign income that’s already been taxed offshore.

The list of proponents is heavily skewed towards high-margin IT companies, including Apple, Google, Microsoft and Oracle, as well as more traditional market leaders like GE and Pfizer. Bloomberg estimated that 70 US companies hold $1.2 trillion offshore.

In response to a shareholder question, CFO William Keitel said that of Qualcomm’s more than $20 billion in cash, about 60% of that is offshore. CEO Paul Jacobs said that 75% of employees are onshore, but that 90% of revenues are generated offshore because that’s where companies build products. That money “has a little note attached to it: don’t spend me in the United States,” Jacobs said. He also said he was leaving Tuesday for a meeting Wednesday by proponents of the change.

As I see it, there are three issues here:

  • Economics. Clearly encouraging bringing that money back would encourage more capital investment and hiring in the United States.
  • Budget Deficit. Reducing taxes would theoretically widen the deficit. In practical terms, if firms don’t repatriate their money — and thus don’t pay any repatriation tax — then there’s no loss. There’s also the issue of whether economic growth (e.g. increase in jobs) would increase other tax receipts, but that’s hard to measure.
  • Politics. In an election year, it will be difficult for either side to openly support big business. Democrats are attacking big business (although in the past they’ve been closely aligned with big NYC Wall Street financiers). Republicans are already wary of being too aligned with business interests: Romney is wary of being seen as more of a plutocrat than he already is, while his two main rivals have more of a Main Street than Wall Street bias.
If either side wins a clear mandate, it’s possible there will be a settlement next year (or during the lame duck session). However, given the recent rhetoric, I can’t see how a Democratic Congress would support such an effort, so to me the only way it would pass is if both houses are decidedly GOP (give or take a few centrist Democrats) to work with whatever initiative next year’s president proposes.

Sunday, March 4, 2012

Yelp IPO proves frothy days are here again!

Yelp’s 64% opening day bounce on its IPO and the resulting $1.4 billion market cap for the unprofitable Web 2.0 site remind me a lot of the bad-old-days. And I’m apparently not the only one.

Opening at $15 and closing at $22 was a shock to one analyst quoted by the Merc, who focused on the plethora of local advertising competitor:

Morningstar analyst Rick Summer, who pegged Yelp's value at $9 a share in a pre-IPO report, said in an interview Friday that he was "shocked" at the stock's rise, saying, "We have entered into a little bit of Crazytown, U.S.A."

"There's other ways for businesses to put their best foot forward with Groupon, LivingSocial, Foursquare, Google, Facebook and more," he said. "It's not clear that Yelp has a hold on that slice of the market."
As with Web 1.0 companies, the social media companies hope to attract eyeballs and stickiness to build network effects to keep out potential competitors. Much as it was 15 years ago, the goal is to grow fast (despite the obvious risks) or die trying.

The problem — as noted by many analysts — is the idea of a point-product web offering seems a bit passé. Facebook and LinkedIn and Google and Foursquare and Groupon and others are all trying to crowd each other’s market — with mixed results. Nonetheless, a plan of using market share and IPO wealth to keep out startup rivals doesn’t work so well when faced with a Google (or soon-to-be-public Facebook).

One recent trend is the tendency to use a small float and thus artificial scarcity of stock to create a sense of urgency among investors and thus support the stock price. As the Wall Street Journal reported:
A total of 17.5 million Yelp shares changed hands on Friday, more than double its float. That IPO float represented just 12% of the company's outstanding shares, which is considered on the slender side. Lower float deals can witness bigger daily fluctuations in price but also provide a bigger first-day pop. Groupon and other Web companies also went public with small floats last year.
Don’t get me wrong. I love Yelp, find it invaluable for finding a restaurant in a strange location, and wish it nothing but the best.

However, it’s beyond me how it can sustain a billion-plus market cap with a -19% profit margin and such a bevy of powerful competitors.