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Community Column: Tux the Impaler?

Mar 21, 2001, 06:38 (22 Talkback[s])
(Other stories by Gary Edwards)

Opinions expressed by contributors to Linux Today's 'Community Column' are not necessarily those of LinuxToday's staff or management.

By Gary Edwards

The phone rings. Your Blackberry buzzes wildly. And your wireless Palm Pilot has gathered so much static from the sudden onslaught of messages that nearby paper clips are orbiting the antennae. It's 3:00 AM. You pick up the phone. On the other end, a distraught and panicked Alan Greenspan breathes hard, begging your advice. The future of the free world awaits the measure of your insightful wisdom.

The questions from Alan are direct and to the point.

A. Is Linux and the GNU/GPL destroying America?
B. Is Linux destroying the NASDAQ tech sector?
C. Did Linux liquify the new economy?
D. Will Linux destroy IT and the unawares Dow Blue Chips, still basking in the afterglow of Linux having liquified the new economy?
E. If the Federal Reserve starts paying people to borrow money, will that be enough to stop Linux?
F. And, if all else fails, will the secretly purchased Clinton pardon of Microsoft, now in the hands of the appeals court, be enough to stop that raging beast, Tux the Impaler?

Inquiring minds want to know. Mr. Economy needs to know! You answer still asleep, "yes, a global economy demands an info grid of universal connectivity and collaborative computation where stable, highly integrated operating systems based on open sourced and openly shared technologies are portable across every device and all platforms. Get a clue man, Tux rules!" Exhausted, you drop the phone, clutch tightly your stuffed penguin, and lapse into dreamland.

The urgency of the situation came to mind while reading Linux Today member Gareth Barnard's comments, "Is Linux destroying IT"?

Gareth's question extends to it's natural conclusion the Allchin implication that Linux is un-American and a destroyer of intellectual property. Gareth then goes on to debunk the implications of his own question, concluding that Linux will save IT, and perhaps the economy with it.

The unexpected downturn of the economy has everyone pointing fingers. M$ has the view that competitive under pricing is both un American and destructive. They don't like the "services as software" crowd where competitors, who collaboratively build openly shared freeware, then use it as the basis for delivering fee based services. M$ prefers the "software as a service" approach, where the platform provider can extract a vig from all participants. Salon Magazine politicizes the downturn, blaming old economy campaign contributions to Bush for the collapse of the new "highly productive" economy. And The Economist finds the downturn explanation as a high tech ponzi scheme having run out of suckers.

As American as M$ Pie:
Since the 4th of July is yet a ways away, I had assumed that the timing of the Allchin tearful lament had little to do with an unexpected wave of patriotism sweeping through Redmond on the eve of their appeals hearing. More likely the comments had to do with the more than likely threat that the leaders of the free world might follow the lead of Communist China and trot down the open source path with the dreaded Tux The Impaler leading the way.

But Gareth points something else out. The patriotic pain and anguish of Mr. Allchin was unwittingly unleashed at a time when all of Silicon Valley seemed to be coming clean with the investing public concerning the economic realities of the day. Now, there's something that can bring us all to our knees in despair!

So I wonder with Gareth, what does Linux have to do with the current downturn? Is Tux the Saviour of Silicon Valley, or the dreaded destroyer Mr. Allchin and company fear?

This morning I wasted a few precious minutes on a witless piece of garbage put out by Salon. The article asked and answered the question in its title, "Who needs the new economy? Bush's bias toward industrial dinosaurs is strangling America's high-tech-driven growth."

The Salon claim is that the progressive, "high productivity", new economy entities of Hollywood and Silicon Valley poured their money and efforts into support for Algore. Big Oil, Big Tobacco, and Big Drugs spent billions of their illegal and immoral profits supporting Dubya. The thinking at Salon (ok, I'm being kind) goes like this; now that Dubya is President, Government largesse is flowing into military armaments and every rusting old economy corporate project that can be dusted off. So, with this impeccable logic, the Salonista's claim that crooked campaign financing is why the stock market tanked and world recession looms. The downturn is Presidential payback to mucho bucko Bush supporters whose companies couldn't otherwise compete against the highly productive new economy types!

I'm still waiting to hear what Clinton actually did to pay back his new economy supporters. Eight years where they could more fully express their "high productivity" aspirations and claim that in the new economy, profits are not necessary?

The other economic analysis I caught this morning was published in The Economist, "That falling feeling ....With one profit warning after another, the technology giants are falling to earth. Most blame a short-term downturn, but the truth is more worrying: some of their earlier growth was illusory."

After suffering the mindless drivel of Salon, the mere thought of well researched and considered analysis scorched the paws of my click happy mouse. This excellent piece put forward a number of salient points and contributing factors:

  1. When one tech company in a sector discloses disappointing sales, investors punish the entire sector. This indicates that the market doubts the assessment ability and projections of key tech players across the board.
  2. Technology growth is expected. Moore's Law (which states that chip power doubles every 18 months) has collided with Metcalf's Law (which states that the value of a network increases exponentially with each additional connection. The number of Internet users has doubled every 18 months since the inception of the Web. PC sales (and Microsoft profits) grow at steady 25-40% rates.
  3. Y2K hysteria combined with Internet eCommerce mania to extort corporate tech spending increases of 42% in 1998 and 37% ($822 Billion) in 1999.
    With a noticeable smirk, The Economist says, "This was a natural response to an unprecedented opportunity: technology had created its own business cycle."
  4. Tech infrastructure companies like Intel, Microsoft, Sun, IBM and Cisco heavily invested in the dot-com dogs loudly barking at the old economy. Investors, seeing the blue chip tech names, poured on the biscuits. The infrastructure guys sold lots of hardware and software to the hounds hot on the hunt of a newly christened global economy.
    The investor logic was simple, "When a company as big as Cisco can grow by more than 60% a year, it is hard not to get excited. What could be a safer bet than the continuing growth of Internet traffic and the infrastructure it needed? After all, Cisco was selling real goods, such as routers, not dotcom vapour and banner ads. Surely its growth reflected real demand."
  5. Soon enough the old economy got caught in up in the chase. The Economist puts it succinctly, "Big traditional firms caught the bug too. Spooked by the frantic spending of Nasdaq's darlings, they stepped up their own technology investments to keep pace." Having captured both the old and new economy hunger for essential competitive needs, the tech infrastructure guys were off to the races. Since the rules of competition had been changed to that of technology, regardless of the market sector, the good times looked to last forever.
    "On top of this, technology companies often took equity stakes in their customers, or even took shares and options as payment. As the customers' share prices soared, the big vendors saw their earnings boosted by huge capital gains. Last year, Intel alone had investments in more than 450 firms, which were worth more than $10 billion combined at their peak. The tech-stock boom had another effect. The vendors' own rising share prices allowed them to pay employees with stock options rather than cash, creating payroll savings and further boosting profits."
  6. The feeding frenzy feeds on itself. Blue Techs invest in and sell to dotcom dogs. Investors sink funds into both surging Blue Techs and, their dog investments. A rising stock market pulls in more suckers, especially those investment geniuses not wanting to be the ones who missed out on the boom moment of a lifetime.
    "All this grossly inflated the sales and profits of the technology bellwethers. Between April 1999 and June 2000, the average revenue growth of eight of the largest technology firms almost tripled, from 30% year-on-year to nearly 90%; over the same period, the Nasdaq almost doubled (see chart). This created a temporarily virtuous circle: a rising stock market boosted the profits of big tech firms, creating the impression of higher sustainable growth. In investors' minds, that in turn justified higher multiples for firms across the board, which sent the stock market even higher, and so on."
  7. The highly inflated growth rates of the late 90's are unlikely to return.
    "Cisco estimates that capital spending by new local-access competitors, which were among its best customers in recent years, is down by more than half. Many technology vendors have had to write off their loans; second-hand equipment from bankrupt customers is flooding the market. And bricks-and-mortar companies have turned conservative again. A recent survey by Merrill Lynch found that big corporations planned to increase their tech budgets by only 5-6% this year, half last year's figure."
    "But when some sort of equilibrium returns, the former growth will not. Howard Rubin, an analyst at META Group, predicts that post-bubble growth in tech spending will be around 8-10% a year, compared with around 20% for most of the past decade. That is nothing to sneeze at, to be sure, but it is no new paradigm either."

Okay. So the Clinton economic boom was really a global ponzi scheme. And Silicon Valley entrepreneur's are not the designers of the next new new thing. Nor are they the geniuses behind a new economy killer app. More like they are the masters of the killer chain letter.

The good news is that the politics of old economy vs. new economy died when the barking dotcom dogs chased the "no need for profitability" fox right over the cliff of finally skeptical investors. What remains are the facts of a massive transformation. The old economy has learned some new tricks. They have learned how to use an open platform of universal connectivity and collaborative computation to reinvent themselves and bring on the global economy. They have learned how to embrace customers and trading partners in ways that reduce costs, seek efficiencies, and improve relationships. The dream of "faster, better, cheaper" didn't die with the dotcom dogs. Now it's in the hands of cash savvy, fiscally responsible, and management capable organizations who are using it to reinvent themselves.

The dotcom dogs tried to defy the laws of gravity, claiming that whole businesses could be displaced overnight by universally connective technology. (Unfortunately they didn't last long enough to witness the era of collaborative computation). Maybe it would have happened over time except for one excruciating detail. The value of the Internet is exactly it's open universal nature. There is no barrier to entry except that of fear, ignorance, and arrogance. And the high flying stock market values of the dotcom dogs proved to be the trigger that pushed brick and mortar companies into the transformation breach.

Now that these old economy companies have seen the exponential value of web DNA regeneration, there is no turning back. But neither are there reasons to race forward unawares. The vicious barking of dotcom hounds at your heel no longer echoes through the rust belt chasms. Now the race is with old economy rivals wielding new DNA tools, but tools available to everyone.

The value of the global info grid is in it's openness. The principles of open standards, openly shared methods and technologies, and open means of collaboration dominate the lowest "grid" levels of the Net. It's only natural that these principles will creep up the integrated stack, first infecting operating systems, and then applications. Most importantly, openness will drive the next generation of globally collaborative web services. Where it was okay for tools of personal productivity and personal computation to be platform specific, globally collaborative apps must be based on open principles. Otherwise, there is no way to reach global scales of highly interactive and inclusive use.

Particalization & the beginning of the Virtual Corporation:
There is another fortunate aspect to the failed charge of the dotcom dogs. They barked loud, but they had no teeth. One is left with the lasting impression that the dotcom dogs believed they could gum their prey into submission. They never took on their established prey where it really counted. They didn't get to the bone behind why there are consumers, producers, supply chains, and trading partners actively engaged in any particular market category.

Instead, the dotcom dogs fed entirely on their own technology edge. They went where the connectivity took them, disregarding obvious marketplace rules along the way. They focused on the customer because that's all they had! It wasn't some stroke of evolutionary business genius as some would have us believe. They thought they could use their interactive connectivity to get between customers and providers. Once in that position, they thought they could demand the fabled bookies vig from producers and suppliers alike. Trying to skim the cream, they got much of the technology right and let the dirt and grime of real business pass them by.

What they did was to research, describe and create technologies that would help real producers better service consumers. No doubt a hard lesson to learn, as an open platform of universal connectivity and collaborative computation, the Internet has no barrier to entry. At great cost to investors, the dotcom dogs figured out where real producers of products and services could best apply emerging web technologies. They figured out where the first round of dramatic savings and efficiencies could be had by real companies with real products.

Maybe they should have charged consulting fees. Instead, they probably set back ten years the newly emerging phenom of global investor financing. And I was just beginning to believe that never again would I have to stand in front of a bank loan committee.

Linux and IT:
Personally I don't believe any of this helps IT. Let's face it, IT squandered their funds on Y2K nonsense and useless Windows installations and upgrades. They totally missed the mark with Internet technologies. With 60 day business cycles becoming the norm, why wouldn't savvy CTO's start outsourcing their DNA problems to people who know how to make universally connective and globally distributed things work? The whole idea behind collaborative computation is one of engaging customers, partners, suppliers and whole corporate divisions in ways that harness the vast reaches of computational silicon dust to perfect new and instant trading relationships.

Still, to their credit, no one from the IT community has come forward and blamed Linux for the economic slump. At least not yet.

My guess is that IT is heading in three directions separated by a great webification middle layer of outsourced services. At the low end IT will be over run with "local" maintenance issues for a distributed environment of countless devices trying to connect to who knows whose stack for reasons impossible to track. At the high end, IT will be expected to provide key advice and critical decision making concerning all aspects of the corporation. Hiding behind a wall of tech jargon won't cut it at this level either. The middle webification area is filled with the difficult "referee" task of integrating the corporate stack with layer upon layer of web services begging for code level connectivity to mission critical applications.

Keeping the stack open and having direct access to the infrastructure source code may well be the integration challenge marking the difference between those who erect their own boundaries (build their own cage), and those who ride the wind and cross the globe unimpeded.

The outsourcing of infrastructure and applications isn't the half of it. I predict that entire corporate divisions will be outsourced as highly distributed collaborative computing takes hold. Unless something is a core corporate profit center, why not outsource it? If the software and connective infrastructure can bear the load, why would any corporation want to keep costly operations in house? Sure there was a time when it was critically important to have an accounting division, a human resources division, a marketing division, a legal division, an advertising division, a supply chain management division, etc. But the essence of collaborative computing means that these cost centers can be outsourced through software to efficient experts, without any collaborative loss. This level of collaborative services isn't available today, but it's coming. And when they arrive, corporate resources will come to be more focused than ever on profit centers, while the competitive advantages of cost centers are certain to be reevaluated against these new alternative services.

There is a key difference between "software as a service" (M$) and "services as software" (Sun). M$ misses the whole point of web services. Where they want to sell software, Sun wants to enable the delivery of highly collaborative, outsourced services, through software. One is a leased application, and the other is a valued corporate service where an expert company who does nothing but accounting (for instance), remotely but intimately, handles the job.

At the end of the day the economic downturn will accelerate the shift already under way in IT. Webification has hardly just begun. And the dotcom dogs are already finding their way into the next generation of collaborative computing. For sure some very familiar names are going to show up promising investors the next new new "collaborative" services thing. And one other thing is certain. The incredible value of open standards and openly shared technologies has more than survived the economic downturn. Open Source has become the foundation of the global info grid, and now it is certain to creep up the stack, eroding anything and everything in its way. The new frontier is that of collaborative computation and I would wager that openly shared methods and technologies have already won on that front too. Thankfully that is a rant for another day.

[1] http://www.idg.net/go.cgi?id=437697
by Dan Neel
'Gray market' for used computer gear growing.
"ECONOMIC UNCERTAINTY, AN increase in network complexity, and the demise of many a dot-com is fueling the "gray market" for used servers and other secondhand computer equipment."

[2] http://www.techweb.com/wire/story/TWB20010316S0016
by Meg Walker
"Need Networking Equipment? Try The Auction"
Thanks to failing dot-coms and CLECs, the prices for nearly new networking equipment have never been better, analysts and resellers say.

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