From the perspective of any modern corporation, Steve Jobs was a misfit and never should have made it to the top of the world’s largest technology company.  Compared to his peers at AT&T, RIM, Hewlett-Packard, IBM, Samsung, LG, Lucent, Nokia, and even Google, one of these things is not like the others.  These people, while they are for the most part talented managers and/or innovators, are not brave and unconventional visionaries questioning — and challenging — the status quo.  The template of a contemporary CEO simply does not apply to Jobs.. yet it is safe to say that he created more shareholder value during his split tenure at the helm of Apple than all of these combined.

Jobs doesn’t fit as CEO material because, as I wrote a few years ago, the design of corporations systemically weeds out and ultimately purges people like Steve Jobs, tending to favour evolution over revolution; hedgehogs over foxes.  Insodoing these institutions prefer making incremental steps toward that which can be known and quantified versus embracing risk and opportunity to make great leaps forward.  HP or Microsoft would never have brought us the iPod.  Certainly not the iPhone.  And the efforts of Apple’s competitors in the tablet space?  Hmph.

The lesson with the greatest gravitas from Steve Jobs’ famous 2005 Commencement Address is in my opinion the following:

You can’t connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something — your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life.

So what made Steve special is that, having ascended to the top of the technology industry ecosystem, he was seemingly a fluke.  Those dots — The iPod led to the iTunes Music Store and to a flattening of media distribution and to the iPhone and iPad and beyond — all connected back to a single leap where a computer company decided to sell some portable music devices and see what happened.  Jobs made big bets all the way along and knew that the dots would somehow connect down the road, and staked his personal and corporate reputation on quality in every regard.  No focus group or market research could have supported the decision to place these bets, and so no other CEO did.

Many of us think that we have the courage to make big bets.  Far fewer among us are given the resources and leeway to execute these broadly.  Still fewer among those are actually successful in both ideation and execution.  Steve Jobs danced on that razor’s edge and always came away unscathed, teaching us all that it can be done and that the rewards for success await.

Steve Jobs created new markets and made us crave things we didn’t know we would need; he helped us consume information and ideas in ways we never knew we could; he literally tore apart the media business and set forth reshaping it to be more consumer-friendly.  All the while he dazzled us with things which are ‘insanely great’ like a magician entertaining a crowd of transfixed six-year-olds.

The saddest aspect of Steve Jobs’ passing is simply that without him it will be a long time before a similar revolutionary will ascend the treacherous climes of corporataucracy to lead another hugely successful company to create things which dazzle and inspire us.  If ever.

Here’s hoping there’s another Steve in the wings somewhere.  Until then, we’ll likely have to make do with a whole lot less magic in our world.

Lately I have been thinking a lot about the technology that has entered and exited our lives over the past 10 years.  Over the ten-year lifespan of this blog and the mailing list that preceeded it much has changed in the technologies that permeate our daily lives — when we began this journey in 1999, desktops outsold notebooks by 4:1, Apple was a novelty computer maker for uber-geeks, and no one you knew had ever ‘googled’ themselves in public.  I thought I’d run down the most disappointing aspects of our jaunty shuffle into modernity.

What makes a technology disappointing?  Many products fail in obscurity because they try to solve something irrelevant.  What you need to do to make this list, friends, is aim high and fail wildly.   While most of the FAILs described herein are products, I did also find a couple of product categories which have really disappointed.. and one entire industry.  After all, disappointment is invariably the result of a combination of promise (our hopes & goals for the product or service) and the provider’s failure to achieve that promise.  Sometimes the predisposition for failure afflicts not just one company or product team, but an entire industry.  So here we go:

Motorola ROKR

In 2005, the fact that Apple was working on a mobile device to follow-up the iPod was a very poorly-kept secret, but the specifics were the source of much speculation.  And oh, how the fan boys wept when they thought that the sum-total of this effort was the ROKR, an epic piece of crap on which Apple collaborated with Motorola to produce a re-labelled Moto E398 with an iTunes client.  Although the ROKR had 512MB of memory on-board, the device was software-limited to 100 songs — and downloading them was a painful process as the device lacked USB 2.0.  Predictably the product was a #FAIL and Jobs and co. left Zander in the dust with the iPhone, but for those who actually believed that this was Apple’s solitary foray into mobile, there were a few sleepless months.

Satellite Radio

FM radio sucks.  There’s probably a JACK-FM station in your city, where the DeeJays “play what they want”.  Only, they don’t really.. they play exclusively Top 10 hits from the past 20 years regardless of musical genre, the result of which can easily result in a computer-controlled segue from Katrina and the Waves to a Beyonce track.  That the radio business considers this format to be innovative explains why we need alternatives, and satellite radio was supposed to be that alternative.  Sirius and XM radio both got off the ground in 2001, so to speak.  In 2003 I predicted a merger between the two, which was announced February 2007.  And while Satellite radio does permit greater diversity, and thus narrower focus, in channels there are many problems.  Foremost of these is the audio compression technology, called Lucent PAC, which according to studies has lower perceptual quality than even MP3 at the same bitrate; and the rumoured limitation of stream bandwidth to 64Kbps per channel… far worse than the MP3s on your hard drive and light years from the “CD Quality” that Sirius et al used to advertise.  This makes Satellite radio a no-go for audiophiles, but OK for talk radio and sports.  We continue to wait for decent music without wires.

Nokia N-Gage

It’s likely that the N-Gage failed simply because it failed to.. uh.. engage the game development community with much enthusiasm.  Launched in 2004, the device’s total failure was predicted by a string of awful reviews stemming from substantial usability problems, such as the fact that users had to essentially disassemble the device to swap games, or the fact that one couldn’t receive calls while playing a game, or that the device was weighty and uncomfortable and impractical for use as a phone, or the fact that the screen could not display horizontally, or its $299 price tag (substantially higher than the Game Boy Advance).  Developers probably saw the writing on the wall when evaluating early test units of the N-Gage.

The PDA

Remember the iPaq?  Or the early Palm devices?  Today, the notion of a mobile address book device that isn’t coupled to a telephone seems positively stupid.  In November 2000, I asked the market to build me a mobile handheld device that married my email to my phone and tied it together via my address book — all of which synced to my PC.  In my mind at the time, PDAs were gap fillers until we could field broadband wireless IP networks that provided persistent connectivity.  The smartphone — devices like the iPhone and Droid — killed the PDA and for most of us I suspect that is good riddance.  Nobody wants to walk around looking like Batman, their belt burdened by half-a-dozen devices beeping and squawking.  How many people bought these things or received them as gifts, only to abandon them within months?  Still, credit where it’s due — the PDA begat the SmartPhone, and we’re all better for it.

Modo.NET

I’m betting you never heard of Modo.NET because it was launched exclusively in San Francisco, LA and New York in the summer of  2000, but Scout Electromedia, the company that created it, collapsed within 3 months (in fact the device was available in SF for only 1 day before the business folded dramatically).  Like Dodgeball, which launched shortly after Modo’s collapse, Modo was all about the urban hipster lifestyle.  Built around yet another PDA-like device with a hugely innovative design, the Modo leveraged the paging network to update its users with happenings in and around the city… it was like the pager you carried with you when going out on the town on Friday nights.  Two major design compromises crippled the Modo, however… it had no keyboard; and was receive-only.  Also… like Dodgeball, the Modo was an idea ahead of its time: all of Scout’s business and consumer goals are now attainable on smartphones:  no stand-alone device or clunky SMSing necessary.  Today many of these goals are embodied in Foursquare and other services.

Motorola DVR Series

Hello again, Motorola!  Let me make this crystal clear for you, Mr. Zander:  Dude, I just want to be able to watch TV and record things for playback later with a minimum of interference.  In response, Motorola created an underpowered set-top device that frequently overheats, trashes its own hard drive, and has a user interface that is akin to debating Keynesian Economics with a three-year-old.  Perhaps it’s because you have an effective duopoly, along with your buddies from Scientific Atlanta, on the cable set-top-box market even despite the FCC’s insistence on the CableCard standard.  Perhaps you simply lack the kind of employees that have any affinity for user experience design.  What is evident is that you and your cable partners are under no specific motivation to improve this product, as it has now been in circulation for nearly 5 years with zero material improvement.  In fact, your products in this category, including the DCT-6412 with which I am famously saddled (this article is the number one most visited on ianbell.com) are so crappy that the FCC believes they are discouraging people from adopting Cable Television itself.  Be ashamed.  You suck.

The AppleTV

Like Afghanistan, the set top box seems to be a graveyard of empires — so much so that even Silicon Valley’s King Midas, Steve Jobs, has been laid humble before it.  The AppleTV is, like many other set top boxes, underpowered for the task at hand.  More like an iPod than a Mac Mini, the AppleTV fails to meet user expectations as an all-rounder, lacks CODECs for popular formats and wrappers like .MKV and .AVI, and only works effectively when you pay for and download all of your content from the iTunes walled garden.  Set top boxes that do satisfy tend to allow users to get their content from wherever and sync/stream it from a media server elsewhere in the house — this is true of the iPod lineup, and that is a lesson Apple should have carried forward into this product.  Moreover, the AppleTV doesn’t even have an OFF button.

Green Cars

In 2006, when I bought my Jetta GLI, I promised myself that it would be my last gas-guzzler.  I just bought another vanilla car last month, though, after seeking and failing to find a suitable practical alternative in the diesel, hybrid, pure electric, or hydrogen vehicle.  It’s important to understand that gasoline, hydrogen, and batteries are simply storage media for energy.  Where energy is derived from — whether it’s nuclear, solar, wind, coal, crude oil, or whatever else you can come up with — determines the sustainability, not what it burns or farts out the tailpipe.  Moreover for me, like most consumers, a next-generation car needs to fulfill my usual manly requirement for sportiness or (for others) accessibility or safety, with some added convenience — such as not needing to buy gas at stations or being able to drive long distances without a refuel.  The zero tailpipe emissions is a nice benefit, but not a buying feature for most.  As I pointed out last year, mainstream auto manufacturers have consistently failed to figure this out.  And if you live in a region where all of the energy on the grid is derived from coal or natural gas then you are not doing the environment any favours by purchasing a plug-in.

Pet Robots

Since Robbie the Robot did the rounds on TV sitcoms in the 1950s, Americans have fantasized about having a jetsons-style friend rendered in metal and silicon adorning their living room.  With the launch of Sony’s AIBO in late 1999, things were looking up for us.  At a price tag of $2500 though, there was still some room for improvement, and robots began to emerge all up and down the cost and capability matrix.  The most successful by far was iRobot’s Roomba, which fulfills the robot servant role quite nicely but falls flat on the personality index.  In the latter category resides the Pleo, and I will confess I have always wanted one.  Unlike the Aibo, though, the Pleo isn’t really autonomous.  It gets an hour at the most out of its batteries, and cannot return by itself to its charging station.  The Pleo is a great demonstration of how pre-programmed behaviour can trigger emotions — not in the robot itself, but in its owner — but sadly disappoints and is not viable as a “pet” robot.  Maybe next decade, Robbie.

Music Revolution

At the end of the last decade, with the massive growth of Napster, the writing was on the wall.  People clearly voted with their feet in showing how they wanted to use music.  While this had been the case for decades, with mix tapes and pirate radio, the internet as in other industries was a key enabler.  Yet rather than embrace and extend this revolution, as tech industry companies tend to do, the music industry went on the warpath via the RIAA.  Lawyers mobilized, suing 12-year-old kids, single moms, and other obvious villains.  The only accomplishment of the RIAA has been to effectively kill internet radio, which would serve to promote their artists, while music sharing has continued unabated.  Yet, at the end of the decade came one smattering of good news, and further proof of industry executives’ failure to appreciate irony:  a lawsuit revealed that the Canadian music industry has been stealing from artists for 25+ years, and faces a $6Bn liability.  Small justice, I suppose.  So while the technologies (that’s what this post is about after all) that came from the publishers has been an abject failure, the technologies, such as BitTorrent, WebJay, Pandora, et al created by users and lovers of music has flowered.  Imagine what would happen if the innovators actually had the support of that industry?

Thanks for reading, and we’ll see you through the teens.

Press Release SOURCE: Infonetics Research

Next Gen Voice Product Market Hit $233.6M In 2Q02; Strong Growth Expected In Asia Pacific

SAN JOSE, CA–(INTERNET WIRE)–Aug 22, 2002 — Worldwide revenue for next gen voice products totaled $233.6 million in 2Q02, an 18% decline from 1Q02, and is projected to reach $1.1 billion in CY02, according to Infonetics Research’s quarterly worldwide market share and forecast service, Next Gen Voice Products.

“Vendors are focusing on the IOCs and MSOs in the US and incumbent service providers in Asia, as they offer near-term opportunity,” said Kevin Mitchell, Infonetics Research analyst and lead author of the report. “Packet telephony is still undoubtedly the future of voice–we’re still headed toward an all-packet world–but the market is maturing at an inopportune time as service providers continue to cut expenditures or close up shop altogether. On the bright side, there’s enormous opportunity in the Asia Pacific region: in 2Q02, revenue for next gen voice hardware and software totaled $40 million in Asia Pacific, and we project it to hit $237 million in CY02, representing 21% of worldwide revenue totals.”

Media servers are now tracked in this report because they are a crucial part of the softswitch architecture and will play a more important role in the future as service providers deploy next gen services on packet networks. The worldwide softswitch market was fairly robust in 2Q02, growing 14%, and showing strength in EMEA and Asia Pacific. Worldwide revenue for media servers totaled $6.7 million in 2Q02, an 83% increase from 1Q02.

Infonetics Research’s Next Gen Voice service includes quarterly updated forecasts for all regions–worldwide, North America, EMEA, Asia Pacific, and ROW–tracking voice over broadband gateways, broadband loop carriers, RAC VoIP gateways, voice/data switches, media servers, softswitches, and voice application servers. Companies tracked in this service include Alcatel, Broadsoft, Cirpack, Cisco, ComMatch, CommWorks, Convedia, Convergent, General Bandwidth, Integral Access, IPUnity, Italtel, LongBoard, Lucent, MetaSwitch, NexVerse, Nortel, Nuera, Occam Networks, Santera, Siemens, Snowshore, Sonus Networks, Sylantro Systems, tdSoft, Tekelec, Telcordia, Telica, Terayon, UTStarcom, VocalData, Zhone, and others.

For the table of contents of this report, which includes methodology notes, please contact Larry Howard, Vice President, at larry [at] infonetics [dot] com or 408.298.7999 x225.

Infonetics Research (www.infonetics.com) is an international market research and consulting firm covering the networking and telecommunications industries in the US/Canada, Europe, and Asia. We provide objective analysis of end-user and service provider buying plans and product manufacturer market share and market size through in-depth research studies and quarterly market share and forecast services.

🙂

-Ian.

——– http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2001/12/19/BU44717.DTL

COMMUNAL BROADBRAND Neighbors sharing high-speed Internet access via wireless networks is popular and controversial Matthew Yi, Chronicle Staff Writer Wednesday, December 19, 2001 ©2002 San Francisco Chronicle

Sean Berry shares his broadband Internet connection with three neighbors – – including one across the street — but doesn’t have any wires running out of his windows or doors.

And in return, his neighbors sometimes pitch in to help pay the monthly $80 DSL service fee.

“There’s no formal money that changes hands. I’m not looking to make any money on it, but they do chip in every once in a while,” said Berry, a 27-year- old Unix systems engineer who lives in a one-bedroom apartment in Menlo Park. “It’s about the same rate as people chipping in for pizza.”

With the cost of rigging local-area, high-speed wireless networks plunging during the past couple of years, some tech-savvy Bay Area neighbors are finding economies in sharing broadband Internet service.

The movement is rubbing at least one broadband service provider the wrong way.

“We view it the same way as cable theft . . . and that’s against a variety of state and federal laws,” said Andrew Johnson, spokesman for AT&T Broadband, which provides cable modem service to 1.4 million customers across the nation.

The cable company even conducts flyovers in selected areas twice a year looking for any unauthorized “leakages” of cable TV and broadband signals, he said. When found, AT&T said it simply disconnects the customer.

While there may be some who splice and split broadband connections illegally, there are plenty of ways to share bandwidth legally, users say.

And many are finding online groups such as the Bay Area Wireless User Group to swap ideas on how to do it.

The user group, which began a year ago, now has about 1,200 people in its digital ranks. The list of techies who publicize their own wireless networks on the group’s Web site for others to use for free has grown from just a few to more than 20 in a year.

“And that’s just the tip of the iceberg,” said Tim Pozar, co-founder of the user group. He shares his wireless network and DSL connection with his next- door neighbor and a friend two blocks away, using a directional antenna atop his three-story Sunset District home in San Francisco.

The technology that enables this sharing is 802.11, also known as Wi-Fi, which can be found in such consumer products as Apple’s AirPort, Lucent’s Orinoco and Intel’s AnyPoint II Wireless Home Networking Kit.

With a range of little more than 100 feet, the gear is designed to help users wirelessly connect their broadband-linked desktop computer to laptops, PDAs or other peripherals such as printers and scanners.

But if you attach an external antenna, the range can easily go beyond just a couple of hundred feet.

And more importantly, the cost of setting up such networks has dropped substantially, from more than $2,000 two years ago to about $300 to $400 or even lower, depending on the latest closeout sales.

The network typically has one access point device tethered to a desktop computer and uses radio signals to communicate with other computers or devices.

That’s what Berry has done. Using an external antenna to increase the range,

his next-door neighbors, friends who live a floor below and other friends across the street can all tap into his network and the Internet.

“It’s wonderful stuff,” Berry said. “I work in the tech industry, so it’s fun to play with this stuff at home.”

Others have taken ideas off the Internet, such as using a Pringles potato chip can to build a directional antenna with a range that extends for miles.

“Hey, it cost me $6 (for parts) and it works,” said Sameer Verma, assistant processor of information systems at San Francisco State University.

Raines Cohen and 19 other neighbors in their downtown Oakland condo building each pay $4 for their DSL connection by sharing a single $80 DSL line using a combination of traditional Ethernet connections — which the building developer installed before the residents moved in — plus a wireless network.

“It is a backdoor way of saving money,” said Cohen, a 35-year-old software consultant. “All our neighbors (which include nurses, teachers, retirees and architects) now have computers at home and several have laptops using the wireless connection.”

While cable modem carriers such as AT&T may have stringent rules about sharing bandwidth outside the customer’s home, some DSL providers are lax about the issue.

“We don’t think it’s good policy to open up your line to people you’re not responsible for, but it’s not an expressly forbidden policy,” said Hunter Middleton, Covad’s group manager of consumer product marketing.

He said customers need to know there are potential liabilities, such as unauthorized users downloading illegal material like child pornography, and that sharing bandwidth with others may slow the connection speed.

“It seems like a lot of effort for a service that’s fairly low priced,” Middleton said, noting that DSL services can be had for as little as $50 per month.

Pacific Bell also doesn’t specifically forbid the practice, but does discourage customers from doing it, said Shawn Dainas, spokesman for SBC Communications, the utility’s parent company.

“It’s not in the policy, but that’s not the intended use,” he said.

Dave Solomon, systems administrator at an East Bay Internet service provider, Idiom.com, said his company doesn’t mind customers sharing connections.

“The angle most smaller ISPs will take is that this will make our customers happier, and happy customers are what we’re looking for,” he said.

But security is something users need to be aware of because the current encryption standard on Wi-Fi networks — known as Wired Equivalent Privacy, or WEP — has been broken, said Tony Bautts, a security design consultant who currently works for Wells Fargo Bank.

The bottom line is that hacking into a wireless network is “really, really easy,” he said.

An 802.11 industry group plans to announce a fix to the WEP security problems in existing units next month, while continuing to work for a more complete solution in future products.

For now, though, not only can hackers tap into the wireless network bandwidth, they can also look through files in your hard drive — a dangerous proposition, especially if the user keeps such information as bank account and credit card numbers on the computer. There are ways to keep people out of the computer files — such as instructing your OS to not share files — but these are precautionary steps wireless network users must actively pursue, Bautts said.

Despite these possible pitfalls, the benefits do outweigh the downsides, especially if proper precautions are taken, users say.

“You don’t trip over Ethernet cords, I take my laptop to the kitchen to look up recipes, take it outside when the weather’s nice . . . and I have social contact with others using the network,” Berry said.

E-mail Matthew Yi at myi [at] sfchronicle [dot] com.

I’m fairly certain that having “Lucent” on your curriculum vitae and “VP” beside it as your title will just about qualify you for a position as a Barista at Seattle’s Best Coffee[1]. Try for a bigger gig, and perhaps you’re reaching.

In the boom times the notion of meritocracy in American business was often talked about but, due to a shortage of real talent, was also highly superficial. This explains how a number of pudknockers (to quote Panch Barnes [2]) managed to dig themselves out of big, ugly, unsuccessful companies and land cherry jobs with big salaries, private jets, huge bonuses and, of course, stock options packages that at the peak of the market would allow them to purchase medium-sized African republics.

During that time, companies (apparently including Lucent’s Board of Directors) consistently failed to take into account both the track records of the companies from which their prospects were fleeing or the individual success of the executives themselves. Big names like Lucent, AT&T, Nortel, Microsoft were enough to seal the deal when you were looking for a CEO because one was only trying to impress investors and, frankly, investors can’t tell the difference.

When interviewing big names like Fiorina and Russo, apparently nobody bothered to look at Lucent’s track record since its launch and the history of the company that spawned it. HP and Kodak got dazed by the glare, and mistook it for halos encircling the heads of their CEO candidates and look where it has gotten them. HP has gotten a multi-year-long merger which will never work during which time the brightest success that the world’s oldest technology company can laud is making digital cameras mainstream. [3] Kodak got 8 months of floundering attempts to segue their now squandered lead in photography into some reasonable market position in digital cameras. Apparently both have digital photography on the brain.

If you want to look to either of these two for innovative thinking, you’d best look elsewhere. It’s not all their fault, though — their lack of creativity is institutionalized. When Lucent was a shiny ray of hope within AT&T, you didn’t get to be a VP by being an innovative thinker or by taking risks. Leadership within AT&T meant mastery of the groupthink: the unflappable ability to read the winds of whimsy and spew it back to the powers that be. This explains the long relationship between AT&T and McKinsey Consulting [4].

As Trish Russo and Carly Fiorina are discovering, life is a lot more difficult outside of The Borg. Patricia Russo has wisely cut bait and fled back to the constitutional monarchy that is Lucent, while Carly Fiorina (evidently more courageous — or perhaps just deluded) has committed herself to riding the blazing meteor all the way down to earth in a megaproject that would make BC Ferries [5] proud.

Pity, though. In the wake of their experiments outside of The Borg (and other Borg-like objects), execs like these two have left a lot of otherwise intelligent people out of work, out of options (stock options, I mean), and short on opportunities. In the process they have killed some pretty cool companies, thus proving that the challenge of careers which have some ultimate consequence is not something they’re ready for.

After failing to recognize opportunity after opportunity, the battle cries of these supposed technology leaders have amounted to what Percy Bysshe Shelley would call “an ocean of dreams without a sound[6].”

-Ian.

[1] – http://www.seabest.com/site/about/careers/ [2] – http://www.danielc.com/quote.html [3] – http://www.hp.com/hpinfo/newsroom/press/08jan02a.htm [4] – http://www.telecomvisions.com/visions/ [5] – http://www.nsnews.com/issues00/w032000/03150001.html [6] – http://home.westserv.net.au/~alen1/TheSensitivePlant.htm

———-

http://www.theglobeandmail.com/servlet/RTGAMArticleHTMLTemplate/D,D/20020107/wmath07?hub=homeBN&tf=tgam%252Frealtime%252Ffullstory.html&cf=tgam/realtime/config-neutral&vg=BigAdVariableGenerator&slug=wmath07&date 020107&archive=RTGAM&site=Front&ad_page_name=breakingnews

(nice friggin’ URL, guys!)

Ingram: A track record isn’t always a good thing By MATHEW INGRAM

Globe and Mail Update

Monday, January 07 ? Online Edition, Posted at 3:25 PM EST

Here’s a nice welcome: The board of directors of a struggling tech company names you as the new chief executive officer, and the stock falls. Admittedly, shares of networking equipment maker Lucent Technologies only fell by a small amount Monday, after an initial boost of enthusiasm, but it still wasn’t much of a greeting for new CEO Patricia Russo.

The tepid response could be because Ms. Russo is a Lucent veteran ? which means she was around during the former superstar’s fall from glory, a loss of value that would be almost unprecedented if Nortel Networks hadn’t experienced a similar fall from grace. For some investors, her connection to that era means her abilities are already in question.

The lack of an enthusiastic response could also be due to the fact that Lucent has been looking for a new CEO for more than a year, and the expectation was that ? like Nortel ? the company was interested in finding a senior telecom executive from outside the company who could turn things around, rather than someone with a history inside the firm.

“What they’ve got with Pat is another lifer,” one analyst told Reuters. “I view this as a lost opportunity to bring in some new management. For the long-term health of this company they need an infusion of outside views, outside experiences, and frankly Pat does not bring that.” Several senior tech executives were reportedly offered the job and turned it down, which probably doesn’t make Ms. Russo feel any better.

The company, naturally, chose to focus on the fact that as a Lucent employee and executive for more than 20 years ? before she went to Kodak to become president and chief operating officer about eight months ago ? Ms. Russo had an in-depth knowledge of the company, and therefore could “step in as CEO without missing a beat,” to quote a news release.

The problem for some Lucent-watchers, however, is that Ms. Russo was a key members of several different departments at Lucent while the entire company was not just missing a beat, but missing entire technology developments ? and thereby effectively handing control of the telecom and networking equipment game to competitors Nortel and Cisco Systems.

Ms. Russo replaces Henry Schacht, who was CEO of Lucent following its spinoff from AT&T and then returned to the position following the departure of CEO Richard McGinn in October, 2000, and now becomes chairman. Ms. Russo left Lucent two months before Mr. McGinn, who was fired as a result of the company’s lacklustre performance, which included paying about $44-billion (U.S.) to acquire startups with little or no revenue.

Like Hewlett-Packard CEO Carly Fiorina, also a former Lucent executive, Ms. Russo was intimately involved in the spinoff of the company from AT&T in 1995, which at the time was one of the largest initial public offerings in U.S. history and was oversubscribed. After a couple of positive years, however, Lucent made a number of critical errors ? including a decision to delay the introduction of a new series of switches.

Nortel did the opposite, pouring its development and marketing resources into rolling out its version of the new switch, and within a year Nortel had taken so much market share away from Lucent that it had supplanted its formerly much larger competitor as the No. 1 player in the telecom equipment industry. Nortel’s market value also eclipsed Lucent’s, something that would have been unthinkable just a few years earlier.

But Lucent did more than just miss a product cycle: To compound its error, the company took some desperate steps to try and catch up ? including engaging in an orgy of vendor financing, the questionable practice of loaning large customers the money to buy your products. It didn’t work, and Lucent wound up with hundreds of millions in questionable loans on its books just as the entire sector was heading into a sharp downturn.

Since Mr. McGinn left, Lucent has narrowly averted a cash crunch by spinning off a couple of its units ? the Avaya corporate networking business, and the Agere fibre-optic operation ? and has laid off or announced plans to lay off close to half its previous employee base of 106,000. Despite these moves, which led to a loss of $16.2-billion for 2001, the company said it will not meet estimates for the first quarter.

Some of the company’s supporters argue that Lucent needs a quick turnaround, and that having someone who knows the business ? even if they were associated with some of the company’s failures ? will help speed up the process. But it may take time for investors to be convinced that taking someone from Lucent’s past will help it have a brighter future.

Tuesday November 20, 8:15 pm Eastern Time

Press Release SOURCE: Infonetics Research, Inc.

Next Gen Voice Product Market Hits $135 Million in 3Q01

Will Reach $465 Million in 3Q02

SAN JOSE, Calif.–(BUSINESS WIRE)–Nov. 20, 2001–Worldwide revenues for next gen voice products totaled $135 million in 3Q01 — down 6% from last quarter — and are forecasted to hit $465 million in 3Q02, according to Infonetics Research’s quarterly worldwide market share and forecast service, Next Gen Voice Products, released today. Voice/data switches, voice over broadband gateways, VoIP gateways, class 5 packet gateways, and softswitches are tracked and forecasted in this service.

In recent quarters and into the near term, more next gen voice hardware than softswitches are being sold as initial service provider build-outs focus on footprint and tactical cost savings measures such as packet tandem and Internet offload. Softswitches and application servers will make up a larger portion of next gen voice product revenues during later phases of deployment.

“3Q01 was a mixed quarter for this market,” said Infonetics Research analyst Kevin Mitchell. “Hardware revenues declined 15%, but softswitches are up 8% from the previous quarter. Overall, we are bullish on this market for the long term.”

“The softswitch market is still in developmental mode and revenues have been flat the past 3 quarters. This market is experiencing a slow start due to the complexity of the softswitch architecture. We expect it to heat up in the second half of 2002 as service providers look to either augment their existing voice services or start from scratch with service delivery softswitches.”

Companies tracked in this service include Alcatel, Cirpack, Clarent, comMatch, CommWorks, Convergent Networks, CopperCom, General Bandwidth, Integral Access, ipVerse, Jetstream Communications, Lucent, Mockingbird Networks, Nortel, Nuera, Santera, Sonus Networks, Syndeo, tdSoft, Telica, Terayon, Telcordia, TollBridge, Unisphere, VocalTec, Zhone, and others.

Next Gen Voice Products helps companies understand the size of the market, the speed at which it’s growing, how it will grow in the future, and who’s leading in the various segments of the market. The quarterly service, delivered electronically, provides worldwide market share and shipment data, and forecast data divided by North America, EMEA, Asia Pacific, and the rest of the world.

For the table of contents of this report, which includes methodology notes, please contact:

* Larry Howard, Vice President, Western North America larry [at] infonetics [dot] com, 408/298-7999 x225 * Paul Ruggeri, Director of Sales, Eastern North America paul [at] infonetics [dot] com, 401/826-2160 * Gautam Sabharwal, Account Manager, Europe and ROW gautam [at] infonetics [dot] com, +44 (0) 19-2343-8276

Forbes.com Alcatel In Takeover Talks With Lucent By Todd Jatras

News and views from Europe:

* French telecommunications equipment company Alcatel is in negotiations to acquire struggling counterpart Lucent Technologies for more than $40 billion in an all-stock deal, according to The New York Times. Alcatel has previously said it is looking at certain Lucent operations, but denies it is considering a bid for the whole company. If Alcatel’s SergeTchurukSerge Tchuruk succeeded in buying Lucent, it would be one of the biggest gambles yet for the Frenchman of Armenian descent, who has made his name using astute deals to bring companies back from the brink.

http://www.nytimes.com/2001/05/19/technology/19LUCE.html

May 19, 2001

Lucent and Alcatel Said to Re-assess Possible Deal

By SIMON ROMERO and ANDREW ROSS SORKIN

ritical reaction yesterday from investors about Alcatel’s plan to acquire Lucent Technologies prompted the two communications equipment companies to consider re-evaluating the terms of a possible merger, executives close to the talks said.

Alcatel, Europe’s No. 2 maker of telecommunications equipment, had been considering paying more than $40 billion for Lucent but is now unlikely to pay much more than the $34 billion that Lucent is currently worth, the executives said. Alcatel is backpedaling a bit after its stock tumbled 7.2 percent yesterday, falling 2.60 euros, to 33.40 euros ($29.37) after a report about the talks in The New York Times. Shares of Lucent rose 14 cents, to $9.95.

The deal, which both sides have privately said would be billed as a merger of equals, would nonetheless still be an acquisition of Lucent by Alcatel, the executives said. Lucent’s board is expected to meet next week to consider whether to enter into formal negotiations with Alcatel.

Spokesmen for Alcatel and Lucent declined to comment yesterday.

A combination is seen as more palatable to Henry B. Schacht, Lucent’s chairman and chief executive, if it puts Lucent on an equal footing with Alcatel, people close to the companies said yesterday.

After all, Lucent, based in Murray Hill, N.J., was the world’s largest maker of communications equipment until recently. Only in the last couple of years has Alcatel of France ‹ retooled by its chairman and chief executive, Serge Tchuruk, with an emphasis on selling a new generation of communications products ‹ come to be viewed as a serious competitor of Lucent and Nortel Networks of Canada.

Mr. Schacht, Lucent’s first chief executive when it was spun off from AT&T in 1996, returned last October to head its restructuring effort. He is known to value strengthening Lucent’s businesses more than selling them. But it is not entirely clear with whom and how control would rest if Lucent were to merge with Alcatel.

Risks from a possible deal for Alcatel also became apparent yesterday. In addition to the drop in its share price, Alcatel’s debt rating was put on review for a possible downgrade by Standard & Poor’s. Earlier this week, Moody’s Investors Service gave Alcatel a negative outlook. If those agencies lower their ratings, that could translate into increased borrowing costs for Alcatel.

There is also concern over the cash Alcatel would need to buy Lucent’s optical business, for which it has submitted a bid, and over resources Alcatel would have to commit to reduce Lucent’s debt if a merger occurred.

National security questions were raised yesterday about the prospects that Bell Labs, Lucent’s research arm, with 30,000 scientists, could be absorbed into a foreign company. An aide for Senator Robert G. Torricelli, Democrat of New Jersey, the state where Lucent is based, said that the senator had expressed his concern to Lucent officials.

Anyway, the Airwave guys pitched me their plan when they were first starting last summer. I wasn’t under anybody’s NDA so I can tell you all about ’em.

Airwave is basing their business plan upon the growth of 802.11/DSSS wireless LANs. These are devices like Apple’s Airport or Lucent’s ORINOCO or Cisco’s WaveLAN. Airwave wants to eventually build a seamless network covering every city in North America using these devices and to act as a service provider.

No shit. One problem: the range of most DSSS transceivers (the hub that sits in the middle of the network) is a 200-300 foot radius. Hmm…

So they start with a simple plan of trying to attract Starbucks and other public spaces (like hotels) by convincing them to buy these transceivers and wire their premises. Then, with Airwave acting as the service provider, the hotel/restaurant shares in revenues from customers that “roam” onto their network.

Ultimately they want households and consumers to become service providers on this network, too.

Sounds great. But why should I share any revenue with Airwave after I deploy and support all of the hardware? I just spent $5000.00 to add all the hardware to my franchise and you’re telling me you’ll be giving me pennies per month per user? Why should I?

Even I had a better business plan than that when I used to share ISDN with my neighbours and charge them ISP fees.

Anyway, they were morons. But I’m glad I met ’em because they convinced me to put a wireless LAN in my home.

-Ian.

—— Idealab! Won’t Launch More in Palo Alto, May Cut Staff   PASADENA, Calif. (VENTUREWIRE) — Idealab!, an Internet company incubator, said it will not develop any new companies in its Palo Alto, Calif., office and will consolidate most of its activities to its Pasadena, Calif., headquarters. The firm said it will keep its Palo Alto office open to support the three companies that currently operate out of that office: Airwave, eLease, and Mybiz. In a prepared statement, idealab! said it will scale back its personnel over the next few months, and where possible, will attempt to transfer members of the 33-person Palo Alto staff to positions at one of the firm’s operating companies. The company would not comment on whether or not the Palo Alto office would eventually shut down.

Cisco’s been reeling since this came out yesterday. It’s a brutal slamming of Cisco’s print-your-own-money acquisition strategy. There’s a Silicon Valley saying that if Cisco’s stock ever drops below %20 they’ll be killing each other trying to get out of the parking lots along Tasman Drive.

I have personal experience with the “House of Cards”, and for me the place was so miserable that even the prospect of lifelong wealth didn’t at all encourage me to stay. Imagine what happens when the stock collapses?

Cisco hasn’t done a good job of integrating recent acquisitions. The TDM guys just don’t get along with the IP guys, the switching guys hate the routing guys, and the business units are all trying to eat each others’ lunch. Also, 80% of Cisco’s revenues still come from less than 20% of its product line — curiously the same stuff they’ve been selling for the last 6 years.

Is Cisco a good investment? Who knows anymore. But it’s clear that the blush is gone and now they’re going to have to prove to the Street that they can make some of these new acquisitions stick, and retain their employees.

-Ian.

>From: “McColl, Matthew”
>To: “Ian Bell (E-mail)”
>Subject: FW: DJN BARRON’S: Cisco’s Bids: Its Growth By Acquisition Will Po
> se P roblems
>Date: Mon, 8 May 2000 19:06:42 -0600
>X-Mailer: Internet Mail Service (5.5.2650.21)
>
>
>Have you seen this article? What are your thoughts?
>
>
> DJN BARRON’S: Cisco’s Bids: Its Growth By Acquisition Will Pose
> Problems
>
>Symbol: CSCO
>Industry: CMT TEL
>Subject: BRN DJN DJWI ANL CAC FNC PRO STK WEI
>Market Sector: MMR TEC TPX
>Geographic Region: CA NME PRM US USW
>Product/Service: DAR DTE
>
> By Thomas G. Donlan
> Is it possible not to love Cisco Systems? The most successful company in
>the hottest sector of the Internet economy, it provides routers, switches and
>thousands of other products that power the communications revolution. The
>San Jose-based company enjoys revenue growth of more than 50% every year. At
>the peak of its share price, it boasted the greatest market value in the
>history of Wall Street — nearly a half-trillion dollars, almost all of
>that wealth created in the past five years. At the moment Cisco is second
>only to
>General Electric in market value.
> How does Cisco do it? It is a great engineering company, brilliantly
>managed and technologically astute. But for the full story of Cisco’s
>success,
>it’s
>important to realize that Cisco is a great financial-engineering company as
>well, and therein lies a host of dangers.Growth is at the center of both
>engineering stories.
>More than any other successful high-tech company, Cisco has grown by
>acquiring
>other companies.
>How it chooses those companies defines its corporate strategy. How it
>integrates
>them into the
>Cisco empire defines its corporate politics. How it retains the people
>acquired
>with the companies
>defines its corporate culture.
>Cisco is a modern house of cards, in which the cards are Cisco stock and
>the companies acquired for Cisco stock. Indeed, Cisco stock has all the
>trading
>power that a boy in the 1950s would have had if he could print his own
>Mickey Mantle rookie cards. Beyond routers, switches, software and services,
>that’s
>what Cisco does for a living: It prints its own trading cards.
> After a recent split, there were about 7.0 billion Cisco shares
>outstanding,last week worth more than $67 3/4 each.
> At 67, Cisco shares sell for 190 times the company’s 35-cent-a-share
>earnings in the fiscal year that ended July 31, 1999. The price is 130 times
>Street estimates of 52 cents a share for this fiscal year, and 100 times the
>estimate of 67 cents for fiscal 2001.
> Cisco earnings, by the way, are remarkably predictable: The company has
>beaten the Street estimate by a penny per share for eight consecutive
>quarters. Cisco attributes its accuracy to its high-tech accounting system,
>not to any legerdemain. Its next quarterly report is scheduled for release
>on Tuesday.
> Such enormous P/E ratios make for powerful trading cards, and Cisco has
>used its stock to make acquisitions valued at more than $30 billion.
> Though questions have arisen about both the price and the earnings side of
>Cisco’s P/E ratio, the prices Cisco pays for other companies validate the
>prices of its previous takeovers and its own still-sky-high price, despite a
>recent tumble. The latest example is Cisco’s acquisition of the “intelligent
>Web switching” company ArrowPoint Communications, announced on Friday. Cisco
>paid about 90 million of its Mickey Mantle cards, shares valued at about
>$5.7 billion, for a company whose market cap a week earlier was $3.67
>billion
>and
>which went public March 31 at a price that valued the company at about $1
>billion.
> Cisco has accelerated its acquisition budget every year, just as its
>revenues have shot up and its stock has done the same. The three things are
>so intertwined, in fact, that if any one of them falters, as the share price
>has been doing, the other two are likely to stumble as well.
> Typically, Cisco acquires a company developing a new technology a year or
>so before its first product goes on the market. Cisco uses the year to
>incorporate the acquired company’s product into its own product line. Then,
>instead of being the product of an unknown startup, it carries the full
>faith and credit of the leading company in the industry, one that dominates
>at
>least 15 market segments and sells 80% of the gear that runs the Internet. A
>successful takeover goes from negligible revenues as a private company in
>the year before joining Cisco to sales of several hundred million dollars
>two
>years later.
> Interestingly, Cisco’s success and market share have not attracted the
>trust-busting interest that Microsoft’s did. For one thing, Cisco sells no
>consumer products and is therefore almost invisible, politically. For
>another,where Microsoft’s Bill Gates is hyper-competitive, Cisco’s CEO John
>Chambers
>is famously ingratiating. Where Microsoft might demand that a little company
>sell out or be squashed, Cisco would keep bidding until the target falls
>happily in love.
> Cisco’s story began in 1984, when two computer specialists employed by
>Stanford University, Sandy Lerner and Len Bosack, decided to do something
>about the inability of computers at the business school to communicate
>directly with computers at the engineering school. They cobbled together
>existing network hardware called routers, modified existing software, and
>used existing Internet protocols to create a cheap, easy-to-use solution for
>their communication problem, which would become a solution for the world’s
>communication problems.
> In 1984, there were about 1,000 host computers connected to the Internet,
>and 99.9% of the world’s people did not know they had a communications
>problem. Those who did beat a path to Lerner and Bosack’s door.
> The two married and began making customized routers in their home. They
>raised capital on their credit cards and were profitable from the start,
>eventually hooking up with a venture-capital firm before, in 1990, bringing
>the company public at $18 a share. A short time later they were forced out
>by the management their backers had hired, and they divorced soon after.
> In 1993, Cisco was a one-product company, making nothing but routers. But
>that year one of Cisco’s big customers, Boeing, said it was going to build
>local area networks that would use not routers but switches, a type of
>communications computer different from anything Cisco made, and buy them
>from Crescendo Systems.
> CEO John Morgridge and John Chambers, a sales executive he was grooming
>for the top job, concluded that if the customer wanted switches, not
>routers,
>and wanted them right then, it would be necessary for Cisco to be a network
>company, not a router company. Cisco bought Crescendo for $95 million in
>stock.
> Over the next three years, Cisco would buy six more switching companies,
>including the $4.0 billion acquisition of StrataCom in 1996, which was then
>the largest purchase in the history of Silicon Valley.
> Counting the six networking companies, Cisco acquired one company in 1993,
>three companies in 1994, four companies in 1995, and seven in 1996. It
>picked
>up six more companies in 1997, nine in 1998, 18 in 1999 and has bought 10 so
>far this year, for a total of 58 acquisitions. Says Ammar Hanafi, Cisco’s
>director of business development: “Doing acquisitions is now wired into the
>DNA of the company.”
> Cisco is also a major venture-capital investor, pumping about $200 million
>into startups last year. Its portfolio of investments in companies that are
>still independent is worth about $3 billion on a cost of $400 million, he
>says.
> Beyond routers and switchers, Cisco also has acquired software and modem
>companies. It has picked up companies with software and other technology for
>IBM network equipment. Beginning in 1997, Cisco’s takeover emphasis shifted
>to the telephone network and the range of new gear for digital subscriber
>lines.
>No longer just a network company, Cisco reconceived itself as a
>communications infrastructure company.
>
> From there, Cisco acquired more advanced Internet technology and optical
>switching technology, maintaining its dominance in Internet gear. Last
>year’s $6.9 billion acquisition of Cerent Corp. underscored its
>determination to
>have the latest and best data transmission equipment, even in the face of
>competition from newer rivals such as Juniper Networks and Foundry Networks.
> Last year and this year, Cisco has extended its acquisition emphasis
>again.
>Its latest targets are telephony over the Internet, data over cable TV
>lines,wireless data networks and, for the first time, the specialized
>computer
>chips that make all the routers, switches, networks and phone systems fast
>and
>powerful.
> For a hint of how important acquisitions are to Cisco, consider these
>numbers: In the past three fiscal years, Cisco spent $3.3 billion on
>research and development internally and recorded an additional $1.5 billion
>in
>purchased research and development.
> Unfortunately for Cisco, the success bred by its acquisitions carries with
>it the seeds of self-destruction. As the company bids higher and higher for
>its targets, it drives up the market for all telecommunications-equipment
>companies — including Cisco itself. Acquisitions come harder and higher.
> Once upon a time, takeover artists looked for companies with shares
>trading far below the value of total corporate assets. Today’s takeover
>artists
>at
>Cisco and other such companies can’t do that. They are not buying assets,
>they are not buying products. They are not buying profits and they are not
>even
>buying revenues. They are buying people and half-formed technology that the
>people may someday turn into products generating revenues, profits and
>assets.
> Cisco’s takeover specialists run a risk: They must buy the right
>companies, with the right people, developing the right products for a market
>that may
>not exist for years after the deal is done.
> How well does Cisco do with its acquisitions? Very well, it says. One
>target company that had $10 million in revenues at the time of acquisition
>provided
>Cisco with technology that now generates more than $1 billion of revenues.
>But not all acquisitions are so successful, and for most of them, it’s hard
>for
>an outsider to gauge success.
> But Cisco does make it clear how high its hurdles are. The company has
>said it expects eight out of 10 investments to be successful.
> Until recently, Cisco accounted for most of its acquisitions through
>simple purchase accounting. More recently, however, it has made several
>acquisitions for prices that are astronomical even in this era of infinite
>price-earnings
>multiples, and accounted for them by the pooling-of-interest method. If
>these companies had been acquired for those prices with purchase accounting
>and
>entries for purchased R&D, Cisco’s reported earnings probably would have
>vanished in 1999.
> Pooling distorts earnings by failing to reduce them with amortization of
>goodwill and similar adjustments. And pooling can dilute the interest of
>shareholders. If Cisco issues 100 million shares of stock (before a recent
>2-for-1 split) worth about $6.9 billion to take over Cerent, a private
>company with $10 million of sales, stockholders ought to ask if the acquired
>outfit
>will be worth giving its owners roughly 3% of Cisco. It’s hard for anyone to
>imagine anything Cerent could do for the company to justify the dilution
>inherent in Cisco’s pooling-of-interest acquisition.
> Even with Cisco’s market cap of 39 times revenues, Cerent ought to have
>$176 million of revenues to join the Cisco family on a basis that’s
>equitable to
>Cisco’s existing shareholders. And if Cisco’s price should ever fall from
>here, the disparity would be worse.
> Friday’s acquisition of ArrowPoint should leave investors asking the same
>question. Cisco is issuing about 90 million post-split shares, with a market
>value of $5.7 billion, to acquire a company that had negative book value,
>has never earned a profit and had sales running at an annual rate of $40
>million.
>Applying Cisco’s revenue ratio, ArrowPoint ought to have sales approaching
>$146 billion.
> The Financial Accounting Standards Board has proposed doing away with
>pooling-of-interest accounting. FASB says investors can be confused if two
>equally sanctioned accounting methods produce vastly different valuations.
>Last week Congress held a hearing on the proposed ban, and Cisco officials
>joined executives of other high-tech companies in opposing it. They said it
>would make it more difficult to do mergers that apply the capital of
>established firms to the technology of new companies.
> Cisco fans seem anything but confused by Cisco’s reported earnings. They
>have awarded Cisco a share price that’s about 190 times reported fiscal 1999
>earnings. Yet there are serious questions about the quality of earnings at
>Cisco and other communications-equipment vendors.
> In order to close their deals, they are giving generous financing packages
>to their customers — sometimes to customers whose ability to pay ought to
>be more closely explored. Cisco failed to return calls on the question
>before
>press time, but it acknowledged in a footnote to its most recent quarterly
>report that it is experiencing increased demand for vendor financing, and
>has taken on increased risk as a result. The company does not fully disclose
>the
>extent of its vendor financing. A close reading of footnotes in the annual
>report shows that “net investment in leases,” a form of vendor financing,
>rose from $190 million in fiscal 1998 to $500 million in fiscal 1999, but
>fell
>again to $212 million at the end of the second quarter of fiscal 2000.
>Deferred revenues, which include accounting for deliveries where collection
>is questionable as well as other less problematic items, rose to $724
>million
>in fiscal 1999 from $339 million in fiscal 1998, and were not broken out in
>the
>quarterly statement.
> The company’s P/E alone should give investors pause, even though analysts
>strain to justify it. No established company has ever traded at such a high
>multiple and failed to come a cropper in the end — especialy not an
>established company with such predictable earnings.
> If Cisco sold at the multiples of its competitors, investors would be
>shocked. If the market valued $1 of Cisco’s earnings the way it values $1 of
>Nortel’s earnings, at a multiple of 100, Cisco stock would be selling for
>$35 a share. If it could command Lucent’s multiple of 46, Cisco’s share
>price
>would be around $16.
>
> How much does a company have to earn over the next 10 years to warrant a
>multiple of 190? By the old-fashioned one-to-one rule of thumb, matching the
>growth rate with the P/E ratio, earnings would have to grow 190% a year.
> Even bullish analysts do not believe that Cisco’s profits will even double
>from fiscal 1999’s $2.5 billion, much less that they will do so every year
>for more than a decade. If they did, the analysts would have to believe that
>Cisco’s existing businesses will produce profits of $2.5 trillion in 2010.
>If they believe that, then they should consider selling every other company
>in
>their portfolios, because a company that earns $2.5 trillion in 2010 will
>have taken over half the world. Of course, a company that successful will
>probably sport a P/E ratio way above a mere 190 times earnings, and it will
>be
>able
>to take over half the world for stock.
> Another question worth asking produces a different answer: If a
>hypothetical long-term investor buying Cisco at 67 3/4 at the end of last
>week
>were
>seeking what some bullish analysts expect, about 35% a year in price
>appreciation,
>what would the stock be selling at in 2010?
> Answer: $1,300 a share. At a multiple of 190 times earnings, Cisco would
>be making around $6.80 a share, or about $47 billion. That’s hefty, but a
>far
>cry from $2.5 trillion, the kind of earnings the P/E ratio implies.
> The absurdity of such speculation points up the ultimate impossibility of
>Cisco’s acquisition binge: It can’t go on forever. It also points up Cisco’s
>utter dependence on continuing an everincreasing string of successful
>acquisitions.
> —
>SHAREHOLDER DATA
>
>Market Value $495.6 bil.
>Shares Outstanding 6.94 bil.
>Insider Net Buys
>(shrs. Latest 6 mos.) 1.16 mil.
>Average Daily Volume 44.5 mil.
>Institutional Holdings 57%
>
>DIVIDENDS
>
>Current Rate None
>Current Yield None
>
>KEY DATA
>
>Profit Margin 17.1%
>Return on Common Equity 15.5%
>Return on Total Assets 14.2%
>Revenues to Assets 70%
>Debt to Equity 0%
>Current Ratio 2.0
>Business: Communications technology
>Headquarters: San Jose, California
>Recent Stock Price: 67 1/2
> —
>SNAPSHOT
>
> 1999 1998 1997 1996
>
>EARNINGS* $0.38 0.30 0.23 0.16
>(Per share)
>
>REVENUES $12.2 8.5 6.5 4.1
>(billions)
>
>NET INCOME* $2,096 1,355 1,051 913
>(millions)
>
>BOOK VALUE $1.78 1.14 1.06 0.48
>(Per Share)
> (END) DOW JONES NEWS 05-06-00
> 01:51 AM
>End of News

But amid all of this hoopla there’s a disturbing trend underway in the consumer electronics industry — everybody seems to be afraid of the customer. Sun, Cisco, Intel, even Oracle routinely are bringing to the forefront new technologies which they CLAIM will propagate internet and web-enabled technologies to every home product from the blender to the vaporizer.

Yet read their press releases carefully, and you’ll see a common thread. It’s a subtle line that reads something like “Although Cisco/Intel/CompanyX will not be selling these products directly to consumers, they will be offering them to the Service Providers and Telecommunications Companies that make the devices work.”

This implies three things:

1) That telephone companies (and their emulators) are better at building businesses that support and educate customers. 2) That telephone companies see this kind of high-touch customer relationship as their long term future. 3) That telephone companies et al are excellent marketers who can drive these technologies into our homes, our refrigerators, our freezers.

Uh… Hello? What part of history have I been missing out on? Let’s address my experience vs. those assumptions in order:

1) TelCos are now swamped with so many products and services that effectively communicating how each of them can help improve our lives is difficult — I call this “Brand Saturation”. 2) When I last worked at a TelCo (two years ago) the entire focus was reducing the level of touch between provider and customer because: a) the margin wasn’t there, b) the union employees made the costs too high, and c) it simply didn’t scale. 3) Telecom carriers are relative newbies to the marketing game. My former employer still refers to their customers in some documentation as “applicants”.

Silicon Valley these days, however, is a culture that likes to have an answer to everything. As NASDAQ’s performance during 1999 illustrates, it doesn’t particularly matter if it’s the right answer, or even a good answer, it just matters that the empty void is filled with some sort of foggy idea. So if the question was: “Given that you don’t have any existing channels to the consumer market, how do you plan to propagate these technologies?” the answer becomes: “Oh, well… we’ll just use the telcos.” Again, I’m not sure who thought this was a Good Idea(tm).

So while The Valley starts backing their 18-Wheelers into the loading docks of the embattled, unsuspecting telecom companies; let’s just assume that because of their propensity for slick, open, hot ideas that it really will be better product: interactive, interoperable, extensible, and fully buzzword-compliant.

Enter SONY. Sony likes consumers. Sony has embraced the consumer market and has done very well at it. With a Market Cap of 86,784,810,000 (Cisco is at 342,122,200,000) they’d have to. SONY is also entering the Highly-Connected Consumer Electronics market (duh..) and in fact their components have been talking to each other for two years. They’ve already got a PC interface to their 100-Disc Plus CD Jukeboxes, as just one example. Throughout their line of products – Digital Cameras, CCD Video Cameras, MiniDiscs, Televisions, etc. – there is one common theme: integration.

The PlayStation 2 is coming out soon and it will be an end run around, well… everything. SONY has a concept that the Valley should wake up to: They will put it in STORES. Contrary to popular belief, most people still make their major consumer electronics purchases after seeing, touching, hearing, and using the object of their grandest desire. SONY was impatient and didn’t wait around for things like JINI and JAVA and HomePNA. They charged ahead into the unknown with proprietary standards and protocols that got the job done.

Someday soon the faithful will wake up to realize that the SONY VCR they bought two years ago at Fry’s already can receive downloaded slide shows from their new SONY digital camera. Yes — SONY’s stuff is nearly (except for FireWire) all proprietary, and will probably stay that way. So what? They already dominate in most of the Consumer Electronics markets. Look at Microsoft: Market Dominance = Desktop Standard.

SONY are also poised to wrench the PC from its position as the single-most important piece of processing power in the household with the PlayStation2, which will signal a major shift in the battle for who-owns-the-integration-point. Behold a Brave Statement: I think that the PlayStation2 will outsell PCs for home use in 2001. Don’t sue me if I’m wrong.

So SONY’s strategy is a submarine approach. Make CE products that are so cool that everyone wants them. Then, after they’ve all bought them, remind them that they can all work together. Use that interoperability to sell them more goodies. That approaches genius. IMHO very few companies could do this successfully.

So the moral to this story? Let’s say you’re a big successful data networking company who needs to make sure that they have a strategic position in the explosion of personal networking, but you don’t want to sell your goodies in stores because people are just SOOOO painfully messy.

If you were out there looking for someone to propagate your technology and make money by furthering the encroachment of IP into our daily lives, would you pick service providers? Or would you pick arguably the most successful marketers of consumer electronics devices in business today? You wanna partner with someone? Partner with SONY.

I don’t understand why nobody has figured this out.

-Ian.

At 01:18 PM 06/01/00 -0800, Gregory Alan Bolcer wrote:>Intel looking to expand their wings.
>
>http://www.infobeat.com/stories/cgi/story_schwab.cgi?id%63054024-a55
>
>”There will be little ones and big ones, but there will
>be a lot of them.” Claude Leglise, vice president of
> Intel’s architecture business group and head of its home
> products group
>
>Intel is working with Lucent, for example, on a so-called
> unified message mailbox that would deliver both voice- and
> e-mail in one device. “By offering these services as options
> and integrating them into our platform, then we can help our
> customers create more consumer services,” Leglise said.
>
>
>Greg Bolcer
>email: gbolcer [at] endtech [dot] com
>web: http://www.endtech.com
>work: 714.505.4970
>cell: 714.928.5476
>fax: 603.994.0516