Steve? Darl? All of the Above?

Which of the software CEO's below expressed the following general sentiments, either directly or via their counsel:

“Linux clearly violates our intellectual property rights”

“We choose not to disclose the exact nature of the violations at this time”

“Someone is going to pay us for using our intellectual property without our permission”

a. Steve Ballmer of Microsoft?

b. Darl McBride of SCO?

c. All of the above?

If you chose option c, you would be right. Albert Einstein supposedly defined insanity as repeating the same procedure over and over again and expecting a different result. Perhaps the folks in Redmond have temporarily lost their marbles, because this tactic of claiming intellectual property violations without disclosing the nature of the violations is doomed to fail. It failed miserably for SCO, and it will likewise fail for Microsoft.

My best guess on the rationale behind this strategy is that it is so very similar to a strategy that has worked very well for Microsoft in the past. When faced with a competitive product that poses a threat, Microsoft will pre-announce a new product that addresses the threat in order to slow adoption of the competing product while they scramble to catch up. The market, faced with uncertainty, freezes for a time, thereby allowing Microsoft an opportunity to respond. Microsoft is using this same tactic with allegations of intellectual property abuse directed at the competitive threat of Linux and open source. The weakness with this approach as it relates to Linux and open source is that the timescale and the nature of the competitive forces are dramatically different. Microsoft may achieve a short reprieve in a few accounts, but the fuse has now been lit on the bomb that will change the industry.

The timescale and competitive forces for Linux and open source are very different than the timescale and competitive forces for a proprietary threat to Microsoft because the popularity of the open source works are not achieved through corporate profit motive. Given that profit motive did not drive adoption, Microsoft cannot easily "cut off the oxygen supply" by attacking issues that are related to corporate profit motive (i.e. the expense of a lawsuit).

The timescale of the corporate world is a fiscal quarter or two (perhaps a fiscal year at most), and the nature of competition is measured in revenue, bookings, gross margin, and net earnings. The timescale of a piece of community property is a function of the utility that the collective users of the property receive relative to the utility they receive from alternate property. The only way to “choke” a community property is to provide a more useful alternative (note that I did not say “free” alternative, as the value relative to the payment must simply be in the correct proportion). For many application workloads and for many types of users, Microsoft has failed to respond to the utility challenge presented by many open source alternatives. I do not believe that the current intellectual property threats will stem the tide of that failure to innovate.

By throwing down the gauntlet with allegations of IP violations, Microsoft will now be hounded by all interested parties to disclose the nature of the alleged violations in order to “clear the air.” I suspect that Microsoft might even be compelled to disclose the nature of their complaints if an interested party (such as the Free Software Foundation or Sun or IBM or Red Hat) determines to sue Microsoft under the Lanham Act and under other deceptive trade practices acts. Or Microsoft might be compelled to disclose the nature of the alleged violations to avoid losing their rights to collect rents through non-enforcement (i.e. thereby granting some sort of implicit license). In any case, the fuse has been lit and the bomb will blow. I do not believe Microsoft will like the nature of the collateral damage.

It's Amazing . . . It's Ridiculous

Earlier this week I attended the Sandhill.com Software 2007 trade show, and I was delighted to hear Marc Benioff make the following proclamation during his keynote address:

“It's amazing the amount of money we spent to be able to deliver the salesforce application in a SaaS model. In fact, it's ridiculous the amount of money we spent.”

Marc is a consummate salesman, and the point he was driving home was that application providers shouldn't think about building all of the infrastructure for SaaS on their own because it is just too expensive. Instead, they should leverage the infrastructure investments that salesforce.com has already made . . . and pay Marc to run their applications on Apex. Marc has moved beyond selling the salesforce.com CRM applications to selling the Apex SaaS platform. I think this is a smart strategy for salesforce.com, but I also believe there is a cheaper and better way to deliver SaaS value that will ultimately make the Apex approach a difficult one to swallow for the application vendors.

Marc raves about the importance of multi-tenancy so often that you would think this is a feature that customers actually care about. Well, they don't. Providers care about it because it gives them a cost effective way to deliver an on-demand application. Multi-tenancy allows sharing of hardware resources across the customer base, and it also enables a scalable system management model that is cost effective in terms of the administration labor required to maintain the software (i.e. one maintenance process serves all customers). But, as Marc points out, the engineering investment to design such a capability for any given set of applications is very expensive. Also, the first investment in the underlying infrastructure to make such an architecture robust and redundant is very steep. Fortunately, there is an alternative to Marc's very expensive design for SaaS: virtual appliances.

With a virtual appliance architecture, an application provider can use their current, single-tenant application architecture while gaining the benefit of high system utilization by running multiple customer instances of the application on the same system. Virtualization is a poor man's approach to multi-tenancy which provides all of the utilization and redundancy benefits without the “ridiculous” expense of re-engineering the application for salesforce.com style multi-tenancy. In addition to being a cheap way to enable multi-tenancy, virtual appliances offer the following additional advantages over a typical SaaS architecture:

portability – a virtual appliance can run on any machine in any location, without expensive configuration and maintenance procedures. The application can run locally on the customer's network in the event that data, latency, or security issues are important.

flexibility – if an important customer requires a unique feature, it is easy to provide that feature to one customer without forcing all customers to receive the feature also. This flexibility avoids the one-size-fits-all mentality that ultimately limits the markets that can be served with the application.

I am a big fan of salesforce.com for blazing a trail to a world where software value is delivered without the technical headaches of the legacy software approach. However, I also believe that salesforce.com's architecture is a first generation approach to the problem of software complexity, and innovations in the area of virtualization and virtual appliances are going to trump the Apex architecture for other software vendors to deliver the value of SaaS to their customers. Pay close attention to what is happening with Amazon's EC2 service, the growth of VMware, and the software appliance experience being pioneered by my company, rPath. The salesforce.com approach to SaaS is just the beginning of a wave of innovations that will transform the legacy application delivery model.