Windows 7 is not Vista. This is clear. And the Microsoft of 2009 is not the bumbling Microsoft of a few years ago. There are probably internal management reasons for this. Microsoft is beginning to feel vibrant again. AIG and CitiBank may have been too big to fail, but Microsoft never was. It has spent the best part of 8 years in the doldrums, letting the competition nibble away its its monopoly and doing all most nothing to address the twin threats of Apple and Google. Microsoft had stalled.

It took Microsoft the longest time to respond, but Microsoft began to prepare its response a while ago. This year has seen it deliver a good deal of its response. The question now is whether the response will be effective. Here’s my view:

• Windows 7 will be successful within limits. Microsoft squandered a good deal of revenue with the indisputable failure of Vista, but it also created a pent-up and growing demand to get away from Windows XP. Many of Vista’s capabilities were needed even if poorly implemented and the Windows 7 implementations are much better. Roughly speaking, Microsoft is now competitive with Apple, or at least within reach. It’s too late for Microsoft to put the Mac genie back in the bottle, but at least it’s a much fairer fight. The migration to the Mac may slow a little, but for reasons explained later, it will not stop.
• The Microsoft retail push will have some success. Apple has performed retail miracles. Apple’s stores are the greatest retail success story in modern times, with the highest dollar sales per square foot in the US and probably the world. Microsoft is unlikely to equal that or beat it, but I have no doubt that the Microsoft retail push will raise revenues for Microsoft as it expands its retail chain. I don’t think it’s going to be loss-making. Microsoft has sensibly hired some of the people behind Apple’s retail success to guide it. It only needs to do half as well as Apple for its retail push to be a really good business move. However, it will need many shops before it comes anywhere close to Apple.
• Microsoft and Internet Retail – not good: Microsoft’s music revenues are a pale shadow of Apple’s and it’s doubtful whether it will ever be able to compete in media. After all, there’s also Netflix, Amazon, Google and Hulu in this game. It has just started to sell PCs on the Internet and it’s possible that its net store will be profitable – acting as a complement to its retail outlets.
• Microsoft and an App Store – Far too late: As regards the iPhone. The game is pretty much over and Microsoft has only just turned up to take part. The question here is what will be left for RIM, Palm and Nokia after the iPhone saturates the smartphone market and that won’t happen for a few years yet. How Microsoft intends to play is, as yet, unclear but it will be a minor player at best. The iPhone has all the apps.
• Bing is competitive. I use Bing. I don’t use it much, and I don’t expect I’ll ever use it for my major web searching activity. But I use it when I intend to buy something on the web – when I’ll need to visit several sites (for example a camera or air travel). I use it because it is better. I’ve heard other people say the same. However this is a real tough fight for Microsoft. It takes time to get even a 1% change in surfing habits, so Google has lots of time to parry any Microsoft success.
• Microsoft still strong in the corporation. One bright spot over the past 8 years has been Microsoft’s growth in the data center with its business apps, database and Windows on the server. The primary competition here goes by the name of VMware – a company which many now believe is more relevant to the data center than Microsoft, because of its virtualization capability. Microsoft introduced its own virtualization offering this year, bundled with Windows and it has seen good take-up. However VMware still looks strong. There is a battle on, but I don’t see Microsoft losing market share in the business market right now.
• The XBox triumphant. 2008 was the best year ever for the Xbox and 2009 is proving very strong too. Microsoft is beating Sony, although it is still a way behind Nintendo in market share.

This is, like the curate’s egg, “good in parts.” My view is that the real problem for Microsoft goes by the name of iPhone. Microsoft has no response to the iPhone and the iPhone is now dragging customers into using the Mac. Apple is also gradually adding two more dimensions to its competitive position. The “long predicted iTablet” will be here in a few months and it will be a game changer. It will be more of an iPhone than a Mac and it too will have a consumer drag effect. It could easily redefine the laptop market. That sounds like crazy talk right now, but check back in about a year and see if I’m wrong.

Also the recently announced clutch of Macs included a 27 inch Mac that would work fine as a television. Apple is gradually edging into the TV market and it will have its piece of that market, as the consumer gradually gets used to watching television from the web. It’s all heading in that direction.

Apple is defining how markets evolve. Microsoft used to do that and it’s a way away from regaining the position where it can. But at least it has begun to compete again.

First, we have to define criteria for what “bigger” means. Does it mean larger revenues or more valuable as a company? Personally I prefer the second of these measures: market capitalization. That’s the value the stock market puts on the whole company. True, this is not the most perfect measure. Remember a decade ago when all those dot coms were being valued at insane multiples of their minuscule revenues. They had big market caps and nothing in the tank and they ran out of juice accordingly.

But if we choose to compare Apple and Microsoft, we need not be concerned about insane levels of leverage. The revenues of both companies are too large for investor exuberance to unfairly push one value far ahead of the other. They are competitors in many lines of their business: PC OS, apps, music players, phones and Internet download services. Apple’s revenues are somewhere in the region of $40 billion, depending on how you count them. The accounting rules for Apple are being changed and I’ve adjusted up accordingly. Microsoft’s revenues are in the region of $60 billion, depending on how you count them. They’ve taken a big hit in the last 2 quarters due to a decline in Windows revenues, but it may be temporary.

Microsoft is currently bigger in terms of revenue by maybe as much as 50% and in market cap by about a third. Microsoft is the most valued IT company. Currently (in terms of market cap) Apple is second, slightly ahead of Google and IBM. So take a look at the two graphs below.

The first shows the comparative performance in stock values (hence market cap) over the past year and the second shows the past 5 years. It gives us a long term perspective and a medium term perspective. What the long term perspective shows is that Microsoft’s value has been flat for many years. Actually it’s about 8 years. But as the first graph indicates, Microsoft’s value has been growing in the last year or so – and that includes the Wall St collapse, so it’s not a bad performance.

Microsoft’s prospects are looking up in some areas. It is (at last) taking the fight to Apple and Google in a whole series of initiatives, from Microsoft shops to Bing. There is probably a pent-up demand in the corporate world to move off Windows XP and onto Windows 7, as it becomes available and is proven. So Windows revenues may soon be growing again. Microsoft has a cloud strategy with which it hopes to migrate its Office software customers to over time. Microsoft has woken up and is active.

The 10/GUI video below is worth watching if you have any interest in the way that user interfaces are headed. If doen’st explain exactly what such an interface would be like, because it can’t, I guess. No video could. That has to be “Monkey Do, Monkey See” or “Monkey Do, Monkey Confused”.

However, the first time I saw this video I couldn’t help but think “about time”. Something like this is inevitable. It might not be precisely like this, but the concept is broadly right. Once we get the market splurge of tablet PCs that seems about to come crashing down on us, we’ll have a need for a touch interface that goes beyond the iPhone.

I expect Apple will have done something to the interface for the sake of its new device, but it is early days. This video gives you a basis for the idea of having a 10 finger interface. It suggests a final and long overdue merging between the keyboard and the mouse. Let’s hope it happens.

10/GUI from C. Miller on Vimeo.

A loosely collected group of cynical analysts, including me, were waiting for the moment. And of course it came. Twitter has been teetering on the edge of technical disaster for most of its life, to the point where the Fail Whale had become a lovable figure. But because of that, Twitter never really had the ability to become a Cloud Poster Child. It was born suffering from technical malnutrition and we just hope it has received the right vitamins to give it a little strength as it grows

Google almost won the uncoveted Cloud Poster Child award when, in February of this year its Search Engine classified all web sites appearing in its search results as phishing sites. Luckily it recovered within an hour (the error was a simple typo in a script – the kind of error that any company could make, if it didn’t automate its scripts properly – yes, I did say that). Failing abysmally in that attempt, Google pulled all the stops out in September by having Gmail fail twice, once for about 100 minutes.

It had failed a couple of times earlier in the year, but 100 minutes really drew some attention and a certain amount of indignation in the press about those ephemeral “cloud services.” I hate to have to rise up in Google’s defence on this, but if Gmail has only been out for 200 minutes in a whole year, that’s better than 99.96% availability – and that’s pretty impressive for a free service. And that means you, Google, don’t qualify for the Cloud Poster Child award.

But let’s not praise Google for that, let’s praise Yahoo Mail with its 280 million users, whose only service level glitch this year, that I can find any reference to, was to have under 0.5 percent of its users lose the service for less than 20 minutes. That’s above 99.999% availability.

Success Has A Thousand Parents, Failure Is An Orphan

Losing you your the service is not a good thing, but losing you your data is catastrophic. It is in PR terms and if you’re a customer, it is in personal terms. That’s why Sidekick is headline news – and not in a good way. So lets quickly get the facts down here (as reported):

• October 10th: T-Mobile tells all users of its popular Sidekick mobile that all of their centrally held data has been lost.
• It advises Sidekick users not to reset the Sidekick device or let the battery drain completely, unless they want their data to go to data heaven (with no hope of reincarnation).
• It blames a server failure at Microsoft/Danger for the data loss.
• War stories start to hit the press, with users reporting problems since an outage on October 1st, and, inevitably, lots of users have reset their devices and lost their data.
• It wouldn’t have been so bad if users hadn’t been accustomed to resetting their Sidekicks as a means of getting their data back – because the device was BUILT AND PROGRAMMED TO REFRESH FROM THE CLOUD.

That genuinely is a cloud catastrophe, pure and simple.

So, we have out poster child and its name is Danger.

The poor child is an orphan. God knows who gave it a name like Danger. Might as well have been called Snafu or Fubar. Probably it was a nickname bestowed upon it by a marketing poor house in the grimy back streets of East London. Its mother, Microsoft, is furiously denying that any of her real children would behave like Danger. She has a beautiful little baby called Azure right now and she azures us all that Azure is healthy and capable of recovering from any disaster that might befall her.

T-Mobile, rumored to be the father of Danger, has completely disowned him, and is now listing Danger’s much loved Sidekick as “temporarily out of stock.”

Now The Cloud Can Get Serious

Referring to the whole fiasco, one commentator who shall be nameless, reportedly tweeted as follows:

“The T-mobile failure is at a traditional data center – its not running on Force, AWS, or other cloud infrastructure is it? If someone doesn’t back up their data and loses it I don’t call that a cloud failure.”

Really, someone should give the boy a lollipop, and tell him, the next time he gets the urge to tweet, to make a noise like a budgerigar.

Nevertheless this comment is valuable, because it contains all the misperceptions one could wish for:

• First of all T-mobile is a cloud provider, by definition. The telcos are the cloud, there business is cloud and the service levels they traditionally work with are the most onerous. Think 99.99999 and you’re there. Think dial-tone and you’re there. That’s cloud cubed.
• T-mobile should have placed onerous service levels on Danger. No question. Whether they did or not, I don’t know, but I suspect we’ll find out. This is a business disaster for T-mobile.
• Microsoft owns Danger and, no matter how painful it is, it has to take responsibility for the failure. Microsoft is a cloud provider in many areas and now it has much to prove. Even though Danger has nothing to do with Azure, Azure could be tarnished by this.
• Danger was a cloud service by definition. It fed applications on mobile devices from the cloud. It absolutely did not run a traditional data center. Traditional data centers don’t run remote applications to tens of thousands of devices.
• Cloud infrastructure is not defined by Force (which is a development platform for Salesforce.com, implemented on Force.com). Neither is it defined by AWS, which is a web services interface that enables quick deployment of virtual servers. As regards data security against loss, cloud infrastructure is defined by implementing a redundant architecture, so that no single point of failure could lead to data loss. Think RAID devices, SANs, concurrent back-up etc.

So now are we going to get cloud providers starting to provide a high degree of transparency into their architectures?

The answer is yes, because now we have a poster child.

Netsuite, one of the rising SaaS vendors, recently unseated SAP from a subsidiary of Asahi KASEI. The cost savings were huge!

The Asahi KASEI Corporation is not a small company. It’s a fairly large one, with revenues about the same as Sun Microsystems had a year ago; around $15 billion. It is a classic Japanese company, in the sense of having its fingers in more than one or two pies. It has 9 core operating companies which focus on the fields of fibers, chemicals, construction materials, homes, microdevices, e-materials, pharmaceuticals and sophisticated medical equipment.

The eviction of SAP/R3 took place in a subsidiary of Asahi KASEI Fibers in Charleston, S.C.  The company, Dorlastan, had been acquired by AKF in 2005 and produces spandex. It’s not unusual for companies to change suppliers every now and then, and hence the adoption of NetSuite at the expense of SAP might not be that remarkable, were it not for two important points:

1. A cloud ERP SaaS offering (NetSuite) evicted the premier corporate ERP package SAP. David beat Goliath.
2. The cost advantage, as calculated by David Stover, CFO of Asahi KASEI Corp.’s Dorlastan fiber division, was 20 to 1.

The Failure of SAP – The Future’s Cloudy

NetSuite was born as a cloud software company. (For a neat explanation of cloud propositions, read Why The Cloud Protects You From Technology Evolution (and Disruption). As far as a cloud service is concerned, SAP talks the talk, but so far has conspicuously failed to walk the walk. There’s a big difference between these two realities and it is worth examining.

NetSuite, founded in 1998, provides an ERP software suite written for the cloud, with base components of: CRM, order management and fulfillment; inventory management; finance; ecommerce and web site management and employee productivity. It doesn’t end there, because a software ecosystem has now formed around NetSuite, based primarily on NetSuite Business Operating System (NS-BOS) an application development platform that enables ISVs and VARs to add vertical components to the NetSuite base. NetSuite is thus an ecosystem as well as a cloud offering.

SAP AG was founded in 1972, in the mainframe era, and its software has undergone a long evolution. The first version of  SAP, R/1, a financial accounting system. This was superseded by business application software suite, R/2 in the late 1970s. That was the kernel of an ERP suite and it was successful in the 1980s and early 1990s. Then came the major upgrade to R/3, a client server version that came available around 1998. Over the years SAP has added many modules. It has also delivered MySAP, a front-end interface, which can access other systems and use SAP as “the back office.” And there is also the Netweaver platform – a development environment with multiple components.

Is there as SAP cloud offering?

SAP has been long on promises and short on delivery. Over the past 5 years, SAP has been developing a version of SAP that it hopes to be able to sell to the SMB market – a market that it has never penetrated in any significant way. This venture, named Business ByDesign, has not delivered. Seven months after unveiling it (in 2008), SAP began cutting back on development following customer feedback, including complaints of performance problems and bugs.

SAP is still waiting to come to market, while NetSuite is happily making hay. SAP’s problem is one that legacy companies inevitably suffer from with the cloud – and, in this respect, SAP is probably the biggest legacy company of all. If it delivered a compelling cloud offering, it would undoubtedly canabalize its existing revenues – and not in a small way.