Friday, September 23, 2005

eBay's Skype buy: Not Just a Recipe for Hype....

Does this deal signal the next logical step in the evolution of ecommerce?

Even as the dust settles on eBay's purchase of Skype, there is considerable befuddlement among analysts and observers as to the strategic motivation behind the buy. The consternation arises not only from what people see as an apparent lack of synergy between online auctions and IP telephony, but also from the seemingly exorbitant price paid - upto $4.1 Billion. Some may be tempted to wonder whether eBay hasn't landed itself with a winner's curse!*.

Surprising as the deal initially appeared, a semblance of rationale is beginning to emerge. For one thing, this deal is entirely consistent with eBay's aspirations of being one of the internet honchos, along with Amazon, Yahoo and Google.

More fundamentally, it may be the logical next step in the evolution of ecommerce. How?

- By allowing buyers and sellers to communicate instantly, an integrated eBay-Skype platform could smoothen buyer-seller interaction which is a critical component for ecommerce.

- By allowing real-time, synchronous online auctions – these would be just like regular auctions where aspiring buyers attempt to outbid each other, with one difference – the bidders may be sitting in different continents and bidding via telephones / videoconferencing equipment. Achieving this using conventional telephony is prohibitively expensive, but costs virtually nothing using VoIP.

eBay hasn't said this is in the roadmap, but it appears likely.

* defined by the wikipedia as a phenomenon that occurs in auctions, where the person who bids the highest frequently ends up paying a price that is more than the "true" value (or at least worries that he has done so). People have researched the winner's curse phenomenon in eBay auctions.

Monday, September 19, 2005

An Enlightening Initiative from IBM

IBM's program to help science education is an object lesson to the tech industry at large, but perhaps conceals an inadvertent irony.

Many have decried the declining trend of math and science education, and have sounded dire warnings that the technology industry will grind to a halt if something is not done about it. Luckily, some are now putting their money where their mouths are.

IBM has this week begun a program that supports its employees in the US who want to transition into science teaching. The new program, says MSNBC, "reflects tech industry fears that U.S. students are falling behind peers from Bangalore to Beijing in the sciences". Of course, IBM is not the first to act. Microsoft has an "Innovative Teachers" professional development program, which includes $50 million in software grants for educational institutions.

Not surprisingly, these two companies also rank at the top of the most favored places to work in the tech industry. Perhaps it just goes to show that comapanies that take an enlightened approach to their role in society take an enlightened approach to their employees as well. Stanley Litow, head of the IBM Foundation, says that many other companies are watching keenly and may follow suit.

Such programs are particularly valuable as the US tech industry is clearly down from its halcyon days of untrammeled growth - starting salaries for college graduates have shown marked declines between 2001-05, the biggest decline being in Electrical and Computer Science & Engineering.

But where's the irony? Litow's comment that "Over a quarter-million math and science teachers are needed, and it's hard to tell where the pipeline is", got me thinking. Perhaps the pipeline is precisely in those locations which the US is concerned about being overtaken by!

Think about it. It is now possible for students in the US being taught online by tutors sitting in Bangalore or Manila. And it's already happening. And given the obvious pecuniary advantages, it is not unlikely that teachers in these countries would gravitate to such an occupation in larger numbers.

The irony is that, it is not inconceivable that in the near future, outsourcing destinations for tech jobs such as India may find their growth stifled by a scarcity of high quality tech graduates. This scarcity will be caused in good measure by good science teachers being preoccupied with training students overseas. And what will allow the teachers to thus divert their skills? The same technology and forces of globalization that drove the offshoring of jobs from the West, and created demand for tech jobs in India in the first place! Now, why do I have the feeling that this is not the last irony that this new, globablized world is going to serve up?

Friday, September 16, 2005

Oracle's Strategy: Shrink-SAPped Software?

Oracle's acquisition binge sets up a two-horse race in the packaged software business

As I noted in an earlier post, mergers are happening at a breakneck pace, particularly in the technology space, where the coffers are overflowing. Oracle's Siebel buyout is the latest big-ticket deal. As with the PeopleSoft buy, this deal marks a home-coming of sorts (both PeopleSoft and Siebel were started by ex-Oracle execs).

With this string of acquisitions, Oracle has emerged as a behemoth in the business, and is increasingly positioned to combat Germany's SAP, the industry leader. This business is thus increasingly turning into a two-horse race (IBM does not play in this space, while Microsoft appears content to be a bit player (although it considered acquiring SAP at one time).

For its part, SAP appears unruffled for now. SAP CEO Henning Kagermann says in Business Week that this as a desperate (and futile) catch-up strategy by Larry Ellison. And he mayhave a point. Oracle has just bought up a complex set of offerings, with conflicting and overlapping features and technologies. It has a big challenge on its hands figuring out how to integrate them, and may not necessarily get them all to work well together. In the meanwhile, unless Oracle provides clarity on what its future porfolio is going to look like (something it hasn't yet done), existing and potential customers are going to be jittery, wondering if what they have bought, or are planning to buy, will be discontinued. Strategically too, Oracle will be preoccupied for a while with its internal integration issues. SAP, on the other hand, has a better chance of being seen as consistent and coherent in its strategy.

Consolidation in the enterprise packaged software business has been driven primarily by - apart from overflowing money bins - the fact that customers are tiring of the "best of breed" (often euphemism for a mongrel!) approach, and expect a single vendor to take full responsibility for their entire IT applications portfolio. Another driver is the big players' hunger for revenue growth. A notable irony is that during the 1990s the packaged enterprise software business (then called ERP), was widely expected to replace custom, or bespoke application development. The acquisitions suggest the opposite - they seem to bear out Peter Drucker's classic observation that acquisitions are a sign of an industry in search of growth.

The IT landscape thus continues to churn, and not just with acquisitions. China is making its presence felt (the IBM - Lenovo deal), and so is India, with its offshore powerhouses. Neither are all the acquisitions blockbusters - there are smaller, less noticed ones too, such as Seagate's buyout of Mirra.

There may be a pattern to all the churn. The entire IT industry appears headed towards what The Economist referred to sometime back as the platform wars. As customers increasingly look for vendors who can take responsibility for the entire IT portfolio, they choose to rally round big players — interestingly, this seems a bit like a return to the old days of proprietary, closed computing platforms, albeit with a different reason - the need for fewer integration headaches.

In this great end-game, four big industry players - IBM, Microsoft, Oracle and SAP - seem destined to be the stars, with everyone else assigned bit roles. Will it really pan out this way, and who will win?

Thursday, September 08, 2005

Apple of our iPods

I am not normally inclined to write about the achievements of individuals - less so in eulogizing terms, and even less so when they are alive. Neither am I particularly enamoured of the Apple breed of computers or the iPod, having hardly used either.

However, there comes a time when exceptions to general rules must be made, and this is such a time. Beyond a doubt, one of the most amazing - and inspiring - tales in the annals of the technology industry is that of Steve Jobs. Let me hasten to add that I know almost nothing of him as a person - for all I know, he may be cold, aloof and unfriendly (and perhaps he even snores!). However, I do not care about those things - based on the public record of his achievements alone, he is clearly one of the most incredible role models for anyone with more than a passing interest in technology.

Let's count the ways. He pioneered an entire industry (Personal Computers), started a very successful company (Apple), actually managed to get thrown out of the very company he started (surely a feat achieved by the rarest few!), and then started another pioneering company (Pixar). He then proceeded to make a comeback to Apple more than a decade later, battled and defeated cancer, and then refashioned Apple, which many had written off, all over again into a powerhouse of innovation. Business Week reports that today, "Apple makes wildly imaginative products with a consistency few companies rival".

My favorite part of this story is of course, the history of how Apple started. Steve Wozniak and Jobs's garage-to-riches story is now the stuff of legend. These guys had, between them, the foresight to realize that there would indeed be a market for low-cost personal computers (virtually unknown at the time), the technical wizardry to create a working PC, and the business acumen to build an industry. Along the way, they pioneered some of the most well-known concepts in personal computing.

A window into his life which is both poignant and revealing is this year's commencement address he gave at Stanford University - Stay Hungry, Stay Foolish. Reading the transcript, we realize why getting evicted from the company he founded didn't faze him one bit, as none other than his own mother had rejected him (and even before he was born, to boot!). We see the beginnings of his business acumen, in that he managed to survive with virtually no income after dropping out of college. We note his incredible ability to live the hard life - he used to get one good meal a week, and only by walking 7 miles to the Hare Krishna temple. He even talks about the lessons that getting fired from his own company taught him! His near-death brush with cancer is recounted.

As with many other people who were legends in their lifetime, we see an ability to compress many lifetimes into one.

Thursday, September 01, 2005

An Informed Technology Consumer Be

What is the link between Information Technology and productivity?

Information Technology's beneficial effects on business are myriad. It has not only enabled mightily successful businesses such as ebay, Amazon and Yahoo!, but has allowed us to discover and take advantage of amazing phenomena such as the "Long Tail", first posited by Chris Andersen of Wired magazine.

However, let's focus on a pointed question: how much, if at all, has information technology (IT) contributed to the productivity of businesses? Productivity is the efficiency with which output is produced by a given set of inputs - so, for example, if the productivity of a bus factory is increasing, it means the factory is able to crank out more buses per worker (or per hour or per dollar). IT's effect on productivity has been a matter of considerable debate, both academic and popular.

Before answering this question, let us ask, What is technology?* The most general definition is, "the sum total of knowledge, skills, techniques and tools available to humankind". Defined in this way, it is hardly surprising that technology should boost productivity - that is merely another way of saying that better knowledge, skill and so forth improves our ability to squeeze more output from whatever we put in. In fact, this has been true since the stone age (if not earlier)!

Of course, here we are restricting ourselves to Information Technology, which we may define (specializing the above) as, "the application of knowledge, skills, techniques and tools to create, store and use information". By common understanding, IT includes computing, networking and communication technologies. Let's examine some evidence.

A paper by the Research and Market Analysis group of the New York Federal Reserve finds that productivity did increase across US industries during 1995-99** in comparison to the previous 5 years, and while the entire gain in productivity could not be attributed to techology, there was a "robust link" between the two (these US Fed folks have a wonderful penchant for using the right word - I am a great admirer of the language they use!).

Business Week's Michael Mandel sees the unmistakable hand of technology in the strong growth of US multifactor productivity in the last two years. A study by the McKinsey Global Institute is more circumspect, concluding that IT boosts productivity, but only when tailored to an organization's business processes. It also discovers that innovation is a strong driver of productivity growth, and IT boosts productivity to the extent that it enables this innovation. MIT Sloan School's Professor Erik Brynjolfsson finds that the amount of IT used in a company correlates well with it's overall productivity, and notes an emerging agreement among economists that "IT has been the biggest single factor driving the productivity resurgence, although debate continues about the exact magnitude of its contribution". He cautions that IT helps only when combined with judicious, complementary investments. Christopher Koch of CIO magazine echoes this cautious sentiment.

Taking another tack, outsourcing, which has enabled companies to achieve the same output with fewer inputs (of labor, primarily), is itself strongly facilitated by IT - both because automated business processes are more amenable to being done remotely, and because the outsourcing itself is carried out using networking and communication technologies. Here too, the experience is replete with admonitions to the effect that outsourcing realises its avowed benefits only when done judiciously, with a strategic perspective.

So, the answer to our question is: IT has certainly been a strong (if not the strongest) driver of productivity growth in business. However (and such conclusions usually include a 'however'!), IT really delivers benefits only when integrated well into the organization's business context and processes. As with anything else, it helps to be an informed buyer.

* In keeping with the "horse sense" tradition, we revisit the basics.

** Given the amount of data such studies need to ferret out and crunch, detailed analyses of productivity gains tend to come only with a lag of a few years.