Competitive Intelligence

SCO Against the World, Microsoft Lends a Hand in Hopes of Squashing Linux

I've been watching the developing SCO vs. The World situation with interest lately - especially with LinuxWorld in full swing this past week and Microsoft's (rumored $50 million) license of SCO's UnixWare (purportedly to fund SCO's legal assault on the Linux community). But, I'm mostly left shaking my head as reading the latest on who's suing whom and why. If you haven't clued in to the story yet, here's a dozen background links on the subject - these should provide a good primer and I'll refer back here for future posts:

Fighting SCO Fear and Loathing at LinuxWorld

What SCO Wants, SCO Gets

The Battle Over UNIX

Linux Users Reject SCO Offer

New Tool Roots Out SCO Code

Red Hat files suit against SCO

SCO sets Linux licensing prices

Forbes Person Tearsheet - Darl McBride

Red Hat Chief Rallies Linux Troops

Analyst finds SCO's "proof" credible

SCO Returns IBM Fire over Unix Rights

Red Hat to SCO: "You talkin' to me?"

In the end, Linux and open source software more generally face a challenge that's more paper tiger than real threat. I think it's a shakedown and a scam by SCO to harvest some blackmail money from a cheap IP acquisition made a few years ago. SCO's puppetmasters (see links above from Forbes) have something of a history of this sort of thing.

What's more, if SCO would simply show the world the Linux kernal code they claim is theirs - something they've still refused to do except for a few in the analyst community, as mentioned in the links above - some say it would take all of two hours to get it rewritten... problem solved. But, then SCO doesn't get paid, right?

SCO's approach makes me think they took a page from the RIAA's playbook of public relations. Charging a few hundred bucks on average for every box running Linux worldwide would certainly raise some cash - but more importantly, from Microsoft's perspective, it would virtually eliminate the Linux price advantage over Windows.

However, I don't think, when the evidence of the infringing IP is finally revealed, that - as Red Hat is suing to have done ASAP - SCO will be able to prevent wholesale rewrites in avoidance of those recently announced licensing fees; and, only a fool would actually pay SCO anything at this point, without any guarantee of a refund when SCO's proven wrong.

- Arik

BuyMusic Copycats iTunes Ads to Beat Weak Apple Product Strategy to Windows Users

There was a good Slate article today that looked at the ads you've been seeing lately from BuyMusic that look like flat-out copies of Apple's iTunes ads. They're trying to make hay while the sun shines - since iTunes is Mac-only (for the moment), BuyMusic is attempting an undercut and outmanuever strategy to beat Apple to Windows users with cheaper downloads and similar service (though, one cannot burn a mix-CD of songs as with iTunes, I'm told).

iTunes has been a big hit with fans and presents a real challenge to many artists - check out the good story at BusinessWeek on the subject.

Despite my personal dislike for knockoff marketing tactics, it might just work - and, shame on Apple for apparently trying to restrict the iTunes business as mere leverage to sell more Macs - a mistake that panned out with iPod. Apple dropped the ball when it didn't see iTunes as a business independent from the Mac platform, and by ignoring Windows users altogether, they effectively created tremendous opportunity for competitors. In that respect, BuyMusic deserves to win.

Still, the reason Apple's been so successful in the music business the past few months has nothing to do with price or marketing, and everything to do with Apple's new core competence. That is, Apple makes products people find cool enough that they can set trends and drive style among the coolest-of-the-cool hipsters that create pop culture. That unique position is what led the music industry to partner up with Apple on iTunes in the face of profligate MP3 piracy - if Apple can make it cool to honor copyrights, that culture shift bodes well for a music industry that's otherwise on its way to an early grave.

- Arik

The Jobless Recovery: Do Productivity Gains, Forced by Cost-Cutting, Mean the Rules Governing the U.S. Economy have Changed?

Three articles in yesterday's newspapers got me thinking about the U.S. economy and the apparently jobless recovery we're moving towards in the latter half of '03. Read them here:

From the New York Times http://www.nytimes.com/2003/08/02/business/02ECON.html?pagewanted=print&position=

From the Washington Post

http://www.washingtonpost.com/ac2/wp-dyn/A13503-2003Aug1?language=printer

From the LA Times

http://www.latimes.com/templates/misc/printstory.jsp?slug=la-fi-jobs2aug02001424§ion=/printstory

I also noticed a couple of left-of-center pieces from AlterNet that I thought were interesting:

Transgenerational Financial Terrorism

Take This Jobless Recovery and Shove It

Jobless Recovery

While the recession officially ended in November 2001, it doesn't appear that hiring is following past recovery trends by kicking in to drag us back to growth. So the question is: what if higher unemployment and slower wage growth are signs of a fundamental change that might be permanent?

In the up years of the economic cycle, firms produce a just a little more product than the market and customers will want to buy. This excess builds up in inventory until the firm realizes it doesn't need to make so much and lays off a few workers to meet real demand, at which point the stockpile shrinks and workers are eventually rehired to produce more again. Now, to get an economy going, government can do just a few things to get consumers and businesses spending again and putting people back to work - that is, cutting interest rates, reducing taxes and just buying more itself - which the Feds have been doing to little apparent effect.

Consumers have kept the economy stumbling along with low interest rates that have allowed them to extract money from their homes through mortgage refinancing; but, rates have started rising and people are getting more worried about their financial security, so this lending has slowed lately. Therefore, a decent recovery won't start until businesses start spending again, delayed because of the current overcapacity and modernization that had been done in the late 1990's when it was relatively easy to raise capital to invest in production modernization by selling new stock. So, companies aren't spending because they just don't need to.

When will firms start spending again? For many, never. They've moved production offshore to cheaper markets, where any increase in consumer demand in the U.S., will be met with hiring, not of American workers, but of foreign ones! We can blame the end of the Cold War and the globalization that followed as market economics took over in former command economies around the world, that brought back the rules of "Comparative Advantage" with a vengeance. It used to be, we wouldn't trade with many countries because they were political competitors; today, economic competitors are the source of dramatic disinflation in production costs, the chief benefit of which is cheap goods for American consumers. On the home front, the effect has been to increase interest rates, which could cause home values to start dropping since people won't be able to afford as much house as they could a couple of months ago.

With earnings season in full-swing, corporate profits have been fairly robust of late, but companies aren't seeking to hire new workers. Instead, they're trying to find ways to squeeze fixed-overhead costs (read, "people") out of their business through productivity enhancements - which is exactly what statistics are showing. Rising productivity has been the source of these new profits - and the rise in the stock market that has accompanied them - demonstrating that companies can stretch current workforce to meet their needs. In other words, growing top-line revenue, without growing middle-line expenses, leads to greater bottom-line profits.

And, finally, there's the recent trend of white-collar overseas outsourcing - especially in IT. The complaints of steel and auto workers of the 1980's are taking on new meaning among accountants and programmers who find themselves competing with sophisticated and creative knowledge workers in places like India, Israel, South Africa, Eastern Europe and the Philippines where costs of skilled labor are a fraction of what they are in the U.S., and competition for such jobs is so high among a relatively new and well-educated workforce that outsourcing companies can't sign companies up quickly enough to send U.S. jobs abroad. By some estimates, more than a million jobs have moved abroad in recent years. The devastation in the high-technology (computers and software) sector has left no one untouched by layoffs among friends and family, causing even greater devastation among economies in states like California.

And, this is the paradox (and price) of becoming the dominant economy in an increasingly globalized world. The more prosperous we are, relative to the rest of the world, the less secure that prosperity becomes. In the end, the only way to prevent exporting jobs is to select one of two choices: reduce our own living standards so that we can be competitive in the global marketplace; or, help raise the standard of living everywhere else to the point they have no unique comparative advantage based on commodity factors (like cost of doing business) alone.

- Arik