Sun and Oracle: What End To Vertical Integration?

There will be many pundits discussing this issue over the next few days, so I felt motivated to get something down in print before I read it from someone else!

I was surprised to wake up this morning to hear that an old employer, Sun Microsystems, would be purchased by Oracle. After licking my wounds from dumping my options last year, I tried to imagine what a Sun/Oracle business model would look like. The question that came to mind was "what does massive vertical integration in the computing systems market look like in 2015?"

There are two options. First, an IBM approach where you pick a company of trusted advisers, architects, integrators, service professionals, etc. to take all of the pieces a company has to offer and build out whatever business solution you need. The second, that you build the extreme corporate IT cloud (public/shared or private) and operate it all as service(s).

The first model is well understood. years from now, we may look back at the whole piece part interchangeable OS (MS/Unix/Linux)/Processor(Intel)/application stack(Java/.NET) Server business (specialists) as a blip in history where the pace of innovation outstripped the utility and efficiency of vertical mainframe models, but eventually maybe it was destined to all come from the same company. For as many advancements are made from standards and interoperability, one could argue progress is also slowed by the endless infighting over those standards and the added software, management, integration headaches, and low service levels that come with this approach. Now Oracle can have the ability to deliver a complete optimized solution for many business applications. They can concentrate resources on optimizing around a common stack (down to the kernel), keep a little internal competition around (mySQL) to keep their engineers honest, and invest in service levels, functionality, transaction speed, etc. etc. all of the critical to customer values that they ultimately get paid for. On the surface this sounds like a good logical pendulum swing for the industry.

The second option is far more interesting. If you subscribe to cloud computing as a business model (as opposed to almost any kind of network based computing architecture that also fits under the umbrella of cloud) does this massive reverticalization of the computing industry really just a way to control the costs of the internal bill of material for building a cloud offering? Google has already taken that leap. They knew they couldn't afford to pay hundreds of vendors 50% margins on layers of systems and software just to offer their services. As computing power itelf continues to concentrate into larger more efficient data centers and the process for building and operating these services becomes more "productized" and less "custom" there will be more and more margin pressure on business models across the value chain. In this case, Oracle's move to control systems assets (and an OS) could be seen as a deft defensive move.

In either case early reports seem to indicate that Oracle made a sound financial move regardless of strategic motives. Putting together an accretive deal that better positions you against your strongest competitor is a no brainer. One could argue that Oracle is well positioned to play out either strategy. The only caution is that if you put too much energy into being a products company, can you really make the shift to services? Both Sun and Oracle had/are making attempts, but the acquisition, size, revenue targets and shareholder expectations could make a shift to cloud services that much harder.

VMworld 2008 first posting

Hi All,

We wanted to send out some pictures to give you an update on VMworld 2008.

First, I have to say the road trip was quite good. I left Lafayette at around 6:00 am and we arrived in Las Vegas arounf 6:00pm that night. Luckily there is actually a Starbucks in Barstow, CA. That was likely the highlight of the trip.

I also had to include this image of the world's largest thermometer. We really hoped it might be actually using alcohol or Mercury and were quite disappointed to see that it was digital. Oh well.

Even with 2500 lbs. of marketing crap (err branding materials and collateral) the van handled quite well. We even let Benjamin drive :-)

For all the talk about Nevada being a tourist economy, we found this sign to be an omen of what was to come...

(If the irony to too subtle, I found it funny that the "Welcome Center" was closed.) By far the most common sight between the Nevada state loine and Las Vegas was the Highway Patrol. I think we counted at least 20 cruisers in less than 1 hour. Many times the had multiple cars pulled over at once. Appartently this is the new profit center for Nevada, California drivers.

More importantly, the show has been a great success thus far. The booth setup went smoothly. The giant Pano has really succeeded in helping draw the crowd. People just like shiny things, much like fish lures, if you spin a giant gleaming piece of chrome in front of people, they will come over to try to figure out just what you are trying to show.

On a more serious note, we have spoken to...
1. Lot of partners who say their customers have asked them about Pano, and they want to know more to help sell it.
2. Lot sof current customers who are happy, enthusiastic, and excited to see the 2.5 alpha.
3. Lots of customers in our target demographic who ARE going to deploy VDI and are looking for the right solution.

Thanks again for all the hard work preparing for the show. playing Youtube on the demo stations really does make people ooh and ahh, an indication that they really do understand the limitations of RDP.

We have already distributed an easy 250-350 DVDs to folks who seem excited to go kick the tires, and have the ESX/VC environment to try it out.

We also hosted a partner reception last night after the floor opening gala. It was elbow to elbow in a 1200 square foot suite with lots of new partners we haven't yet met. What makes this even more impressive is that we were competing against the Monday Night Football party in the sportsbook next door. Truly impressive!

The booth is starting to get overrun again, so I better sign off. I'll try to post more tomorrow.

From grass to cheese, a study in differentiation and branding

While on a day trip to Pt. Reyes National Seashore with my wife and daughters to enjoy a day hiking and searching for migrating whales and elephant seals, my curiosity was centered on the numerous historical ranches (called the alphabet ranches, named A-Z) that we drove through between the town of Olema and Pt. Reyes Station and the shore. At the end of the day, we stopped and had dinner at the Olema Farmhouse Inn (highly recommended) and after some outstanding mac n' cheese and a Blue Burger with local Pt.Reyes Original Blue Cheese, I knew I had a good topic to blog about.

The local dairy ranches were clearly old, and each ranch center had a sign displaying the date established, most in the 1860's. The ranger said that the ranches were originally owned by a San Francisco law firm. My thoughts were on a course I took (seems like) long ago from Prof. Gary Larson at the New Mexico Military Institute about Economic Geography, or the economic development of places based on local resources, transportation, and technology.

Upon some reading at the National Park Service Website, in the late 19th century, the majority of the pasture land property extending from the beaches to Mt. Wittenburg where owned by the Law Firm of Shafter, Shafter, Park, and Heydenfeldt of San Francisco (my guess because of their ability to figure out the complex legal issues complicated by the contradictory Mexican and Spanish land grant titles and generally poor documentation). They formed a cooperative dairy splitting up the property into a bunch of different ranches and recruited immigrant farmers from around the world to bring the best practices in dairy production to their land. This is quite an interesting story in itself.

Even though the cool wet climate and natural pasture lands produced by hundreds of years of burning and clearing by the local Mi Wok indians were ideal for dairy production, there was no way to bring fresh milk from Western Marin to the markets in San Francisco, so the farmers had to turn their milk into butter and some cheese. The dairy cooperative was sure that their fresh grass fed cows were producing top quality butter, so they created the Pt. Reyes Brand and symbol and used it on their products signing up the finest restaurants and markets in San Francisco for their premium butter. They may have been the first dairy ever to use a brand to distinguish their products.

Later, technology, poor land management, and even the 1906 earthquake all attributed to a waining local dairy industry. Refrigeration and government regulation made the production of cheese and butter only profitable at large scale reducing most local dairies and coops to commodity milk producers shipping their product off to large regional commercial dairy facilities.

Luckily, 100 years later, local ranchers and business men rediscovered the formula for profitability. Tie the differentiating qualities of your product to a brand and position that brand to command a premium price.

One such example is the Pt. Reyes Farmstead Cheese Company. I only know the company through a fantastic Blue Cheese Burger and their equally fantastic web site (though it seems a crime to compare a website to good food), but their story is compelling. The patriarch, Bob Giacomini, ran a successful dairy on their property since the 1950's. When nearing retirement, the family had a new idea on how to maintain the family business. Instead of selling off their milk as a commodity, they would produce high quality artisan blue cheese. Their brand is built by marketing their unique compeitive differentiators, the grass, the climate, the salty air, and a freshness generated by a process where cows are milked at 2:00 AM and cheese is set to dry only hours later. (I apologize if I am short changing the art of making cheese.)

Today, they are the only California producer of traditional Blue Cheese, and their product is distributed around the world and served in the finest restaurants; very similar to the high quality producers of Pt. Reyes brand butter that introduced branding to the industry over 100 years ago.

Pano Logic takes the "Silver," how appropriate

We (all of us here at my employer, Pano Logic) just heard that the Pano Logic Virtual Desktop System took a silver from the Tech Target Search Virtualization 2007 product awards. While I hate to be positioned as "hardware." We are extremely happy to see that our message of a built from the ground up, integrated, simple, and complete solution for desktop virtualization is resonating in the marketplace! It is certainly working with our customers and we're already off to a fantastic 2008.

Selling Heat

Last week I was challenged by our CTO here at Pano Logic if I had ever heard of selling heat. I assumed immediately he didn't mean selling electricity or gas, but I have never heard of just selling "heat." So I turned to Google, as I was sure this must be a common practice somewhere. Strangely, it wasn't.
I figured someone out there must have sunk a geothermal well and sold off excess capacity (cooling or heating) to their neighbors, but I didn't come across any examples. I soon realized that such an agreement could be very difficult given the lack of a market for "heat energy." How would you put value on it?
Finally, I found this. A shopping mall built in 2001 in an old Telegraph building in Norway.
The designers of the new mall worked out a plan to connect their heat pump system to the data center of a near by Telco facility. During the Winter, the data center heats the mall, and during the cooling season, the mall uses the heat generated by the server room to preheat a local hotel's sanitary (showers, sinks) water system.
What is interesting about this system, is not just the logical efficiency, but that the entity in the best position to profit is the mall that installed the heat pump and exchanger system that allows the system to operate. There are not a great deal of details on the business model or financial relationship between the 3 entities in the story above, but it does get me thinking.
To make these these types of "symbiotic" trade relationships to work at any type of scale, there must be some price put on heat energy, rather than the energy it costs to heat and cool water from systems described above. Rather than the simple logic that the Data Center Operator can save money by shipping off heat rather than cooling it on their own, if the Data Center was instead "selling heat" they could recognise revenue on this very real and valuable bi-product of their primary business. Of course, the value of that heat fluctuates throughout the year. The system would have to get bigger to find more uses as the ambient temperature rises during the summer, and arguably, the value would go negative. But what if another facility decides to drill a series of Geothermal wells around their property. Instead of sizing their wells for the cooling of their property, they drill as much capacity as the space permits, selling that "heat" capacity in a local market of interconnected heat pumps and exchangers?
At the end of the day, it would be easy to imagine urban "heat markets" where interconnected heat exchangers and a control system drives a commodity market for "heat energy." Efficiencies and investments would be driven by the local market, rewarding individual property/business owners for decreasing their consumption of fossil fuel energy while creating a framework for cost/benefit analysis that can guide designers to make balanced systems that go beyond their own facilities.
So what's the opportunity? As in the control center of the mall, it is the control system that could make the market "work." How could a business "build" such a market and extract profits? Worth some thought, but enough for tonight.

How do you rate on the Spicemeter?

Welcome to my new blog. To see my previous posts, go to http://blogs.sun.com/stroh

Spiceworks is one of those new "Systems Management 2.0" companies that provides IT pros a quick to setup, easy to use, powerful and free, (as in beer,) management tool that allows its users to discover hardware in their environment, collect management data, discover new software installed on user's systems, allow users to submit trouble tickets, etc. For a certain size of IT shop, Spiceworks delivers some pretty incredible value. More interesting to me, is how I rate on the Spicemeter!

Their business model is interesting on its own. A free to use ad supported revenue model, now including a "store" function allowing their customers to use the service as an IT procurement / management tool in addition to systems management. Presumably, they have worked out channel/referral agreements with their vendors, leveraging their relationships with purchase- influential staff to build a credible business. I can't help but root for a company like this. Build good product, develop a loyal community and credibly monetize the relationship.

That said, it is a simple little thing called the "Spicemeter" that captured my attention. The Spicemeter is little widget that grades the user according to how much functionality of the Spiceworks product they have explored. This might be thought of as an ego feeding ploy to get people to engage in the product, but on a a simpler level, it is an immediate feedback to the user that they might not know everything the product has to offer.

With a zero-touch - no sales force - go-to-market model, it is critical for the Spiceworks marketers to not just get in front of users, or even get downloads, but ensure that users really understand the full value of a relatively complex tool (and hopefully then promote happy customers.) If users don't actually get the full value, likely out of ignorance, they walk away and Spiceworks goes down in flames. A traditional product might not care how much functionality gets used, as long as they sell the license.

There is so much partial overlap in the systems management space, it is hard to know where one product starts and another ends. What better way to ensure that the full value potential is digested by evaluating IT pros than to grade them on their thoroughness of the evaluation. Cool stuff.