Competitive Intelligence

iWin: Apple's Blogger Trade Secret Judgment Skirts Question of Bloggers-As-Journalists

Yesterday a judge in California ordered three online "reporters" to reveal their sources to Apple Computer after the company brought a lawsuit against the bloggers demanding they reveal who leaked information to them about new music software the company planned to introduce that Apple considers a trade secret.

This was particularly disappointing for most onlookers to the case who had wanted to see what it would mean for online reporters and bloggers in the future, especially in a state like California with a so-called "sheild law" that protects journalists from revealing the identities of their confidential sources. An initial ruling about whether bloggers and other part-time, amateur or hobbyist writers are in fact bona fide members of the Fourth Estate would have surely brought about much consternation throughout the rest of the journalistic enterprise... instead, the judge skirted the issue by equating the release of proprietary information to stealing:

The ruling came in the three-month-old lawsuit brought by Apple against the unnamed individuals, presumably Apple employees, who reportedly leaked information about new music software, code-named Asteroid, which the company said constituted a trade secret. Under California law, divulging trade secrets is subject to civil and criminal penalties.

That information was published on three Apple enthusiast Web sites, Apple Insider, Think Secret and PowerPage. The Web sites were not named in the suit.

In the course of discovery, Apple served a subpoena on Nfox.com, the e-mail service provider for PowerPage, seeking information and documents that might identify the source of the disclosure of Apple's new product. The Web sites sought to block that subpoena.

The case has been closely watched for its potential impact on the publishers of Web sites and bloggers, who say the privilege of reporters to protect their confidential sources should extend to online writers.

But Judge Kleinberg wrote that assuming Apple's accusations are true, the information is "stolen property, just as any physical item, such as a laptop computer containing the same information on its hard drive (or not) would be."

He went on to say that "the right to keep and maintain proprietary information as such is a right which the California Legislature and courts have long affirmed and which is essential to the future of technology and innovation."

As for Jason O'Grady, the publisher of PowerPage, and his claim to a journalist's privilege to protect confidential sources, the ruling said, "whether he fits the definition of a journalist, reporter, blogger or anything else need not be decided at this juncture for this fundamental reason: there is no license conferred on anyone to violate valid criminal laws."

Judge Kleinberg also said: "Defining what is a 'journalist' has become more complicated as the variety of media has expanded. But even if the movants are journalists, this is not the equivalent of a free pass."

The Electronic Frontier Foundation, the civil liberties organization that represented the Web sites, called the ruling a blow to "constitutional rights," and said it would appeal. The organization argued that authors of Web sites were protected by California's shield law, which protects journalists who refuse to divulge sources.

Kurt Opsahl, staff lawyer with the foundation, said the ruling could have serious consequences on the rights of all journalists, not only those who write for Web sites.

"I had hoped the court would see it was important to protect the confidentiality of sources," he said. "It's very easy for a company to contend that any piece of information is a trade secret."

The organization has seven days to file an appeal with the California Court of Appeals, after which Apple would have 10 days to respond, Mr. Opsahl said. If the appellate court rules for Apple, he said, Electronic Frontier will try to have the case heard by the California Supreme Court. "Given the constitutional nature of the case, I would hope the California Supreme Court would decide this is important," Mr. Opsahl said.

Apple declined to comment on the ruling, except to repeat Judge Kleinberg's opinion that the publishing of Apple's confidential information was illegal. "The judge ruled that there is no license conferred on anyone to violate valid criminal laws," said Steve Dowling, a spokesman for Apple.

But to many technology industry experts, the prospect of Apple fighting the bloggers is peculiar.

"Apple suing its most enthusiastic fans is like the Grateful Dead suing its concert bootleg tape makers," said Paul Saffo, director of the Institute for the Future in Palo Alto, Calif. Fan recordings have fueled that band's popularity over the years. Mr. Saffo said the rumor mill had only helped Apple in the last 20 years.

Well... okay. Despite the failure to address the issue of bloggers as journalists (or not) it will surely engender great speculation on the future of the issue... one that, in an era where jailing "real" journalists like Judith Miller and Matthew Cooper in the Valerie Plame case (related to violation of the Intelligence Identities Protection Act of 1982) could take place if they don't reveal their sources. I agree with BusinessWeek's recent op-ed on the matter:

...the imminent jailing of two journalists from Time magazine and The New York Times for protecting what is widely said to be a Bush Administration source who leaked the name of a CIA agent requires action. Some 31 states have shield laws for journalists. It's now time for a federal shield law as well.

America grants legal exemptions to its citizens reluctantly, but it does grant them. Lawyer-client, clergy-laity, doctor-patient, and husband-wife relationships are all protected under the law, with limits on what testimony prosecutors can compel. Journalists claim the same treatment for their relationship with sources under the First Amendment, arguing that a greater good for society comes from their freedom to investigate matters in the public interest.

The Supreme Court has never recognized a First Amendment privilege, but Justice Dept. guidelines do instruct prosecutors not to go after reporters except under extreme circumstances. That's precisely the nature of the state shield laws. The severity of the crime and the availability of other sources determine whether journalists must testify. The privileges under state shield laws are not absolute.

This reasonable balance test of the public interest should now be extended to the federal level. It may very well be that even under a federal shield law, Time magazine writer Matthew Cooper and Times reporter Judith Miller could be called to testify before a grand jury if someone's life had been placed in jeopardy. But this appears not to be the case. It's not even clear that a crime was committed. The prosecution of Cooper and Miller fails to meet the balance test.

A "Federal Shield Law" that includes the class of bloggers that covered the national political conventions could make the whole question moot.

- Arik

Dan Rather Steps Down from CBS Evening News Presenting Opportunity for Media Innovation

Dan Rather's last night as anchor of the CBS Evening News, leaving 24 years to the day after taking over from predecessor (and only the second anchor in the history of the broadcast) Walter Cronkite, came and went with a touch of drama and sadness, despite the fact I've never considered him much of a "news man". Here's hoping, as he wished himself in an interview, that his best days are indeed ahead of him.

The larger question now is, wither the CBS Evening News? In an era when the whole genre is encountering shrinking viewership and increasing dependence on the wrong demographics, this presents some startlingly interesting opportunities for CBS to effect change - and, with it, competitive advantage - in revamping the medium for the modern era. Slate.com's media critic, Jack Shafer, offered up some cool ideas:

CBS should worry less about who anchors its evening news ship than what the ship looks like. Any of the current CBS doofuses will do as an anchor. It's not like Brian Williams and Peter Jennings light my charisma candle. CBS could steal a march on NBC and ABC and the cable networks by designing a program that reflects changing viewer habits. It needs to break the code of why viewers have turned off the news.

First, CBS should target serious news consumers, the sort of devotees who follow breaking news all day through news radio, cable, and the Web. Dedicate the program to breakingest of breaking news and ditch the news-you-can-use and heart-warming features unless they're stupendous. Produce a program that's worldly and doesn't waste time. The BBC World News, which airs on many PBS affiliates, is a good model, even if it is excessively chatty for my tastes.

Next, reduce the number of commercials. Right now, about eight of the 30 minutes of an evening news slot are ads, which makes the program too short and too frequently interrupted to be compelling. The Journalism.org study asserts that one reason the network's morning "news" programs have gained viewers steadily since 1998 is that viewers have realized that they often program big blocks—up to 20 minutes—free of commercial interruption. Advertise the CBS Evening News as the program that gives hardcore news consumers two minutes more news per half hour. Cutting ads will reduce revenue, of course, but it will build audience, which is the longterm problem the program faces.

Swing a deal with CNN to rebroadcast a refreshed version of the CBS Evening News in the 10 p.m. slot. One reason behind the evening news fade is that it's still scheduled for an era when moms stayed at home and cooked for dad, who didn't have a long commute. How many 30-year-olds do you know who would watch the evening news at 6:30 p.m. or 7 p.m. if you paid them? The network's morning shows have benefited by giving busy viewers a two-hour window through which to watch. Nobody expects them to watch the whole thing. A 10 p.m. cable slot for the CBS Evening News would similarly appeal to busy people. Sharing news resources with CNN, which has been on the table before, would be an excellent idea to add quality and scope to CBS's coverage.

Next, CBS News should partner with a premier daily newspaper—the New York Times, the Washington Post, the Los Angeles Times, or the Wall Street Journal—to give viewers a taste of tomorrow's news tonight. The networks already use the morning New York Times as a cheat sheet for the evening program. Why not use it as a preview of tomorrow's news? The New York Times already does a two-minute show based on this idea for the Discovery Times cable channel at 10 p.m., so W. 43rd Street might not be keen on partnering. What's in it for the newspaper to partner? The Web sites for both the Post and the Los Angeles Times already draw more readers nationally than they do locally. CBS News could steer additional eyes to those Web pages.

Next, hire a brainy and thoughtful commentator. Eric Severeid (good), Bill Moyers (bad), and Bill Bradley (uneven) once delivered interesting commentaries on CBS Evening News. In our increasingly opinionated world, CBS would seem futuristic by going retro and including a video columnist.

TiVo and other technologies have destroyed the concept of "appointment viewing." CBS should respond by putting the goddamn broadcast on the Web. Computers and television aren't converging—they've converged—and I want to watch the news 1) when I want to watch it and 2) on whatever monitor I'm looking at. CBS could start by streaming the program onto the Web at the same time it broadcasts the show. Then it should video-podcast it. Other time-shifting opportunities await. Monetize the evening program by putting it on the various cable video-on-demand services. Do the same with the CBS News archives. Wired Editor Chris Anderson's "long tail" thesis implies that there's money in all of those old documentaries, news magazines, and news casts. Thomas W. Hazlett of the Manhattan Institute urges CBS to allow viewers to personalize the Web version of the news and suggests that it be the first network to bring television news video to capable cell phones.

George Washington University professor of journalism Mark Feldstein thinks a network should abandon the traditional evening news time slot and program an hourlong news show starting at 8 p.m. Producing a money-making news program in prime time will become economically feasible if network entertainment ratings continue to decline. Ceding the 6:30 p.m. or 7 p.m. slot back to the affiliates would make them very happy (because it will make them money).

Arizona State University professor of journalism Craig Allen, author of News Is People: The Rise of Local TV News and the Fall of News From New York, suggests that one of the networks will eventually euthanize the program. Eliminating an early evening program from a network line-up was one of Rupert Murdoch's bright ideas when he started Fox. Instead of battling the other networks for profits in an overpopulated news slot, Murdoch programmed entertainment at the local level and put his energies into producing an hourlong local program at 10 p.m. for the various Fox affiliates that he owned.

The woolly mammoth was far too specialized—and too dumb—a beast to adapt to its changing environment. The producers at CBS News may be specialized, but they're not stupid. But if they continue to play by the current set of evening news rules, they're destined to to lose. Unless they want future news archaeologists to find them frozen alive in pack ice, they need to stop thinking about who is going to be their next anchor and start changing the news environment. Without subscribing to his news values, they need to ask themselves, What would Rupert Murdoch do?

Indeed! Murdoch might have objectionable politics for some, but he seems to know how to appeal to the marketplace with exactly what people want to watch. Taking a page from his competitive strategy seems like the best idea CBS has gotten in... oh, I dunno... about 24 years.

- Arik

Gates Gets His Groove On: Fulfilling Upgrade Value-Prop Strategy for Longhorn & Office in 2006

Fresh from his recent knighthood with the Queen, this morning's announcement that Microsoft would acquire Ray Ozzie's Groove Networks was viewed with broad optimism by most as the father of Lotus Notes, Microsoft Exchange's biggest competitor and, later on, an ultimate victim of Redmond's unrelenting competitive strategy, is set to become Chief Technology Officer at Microsoft in the process. Here's a good summary of what went down:

Terms of the deal weren't disclosed. Groove will continue to be run out of its Beverly, Mass., headquarters and will become part of Microsoft's Information Worker Business. Ozzie will report directly to Microsoft Chairman and Chief Software Architect Bill Gates.

Founded in 1997, Groove develops peer-to-peer software called Virtual Office that enables ad hoc workgroups to collaborate seamlessly in realtime.

Groove's software complements Microsoft's SharePoint Services and SharePoint Portal Server. Groove has worked closely with Microsoft on its collaboration technologies since its founding. In October, Microsoft invested $51 million in Groove, acquiring a 20 percent stake in the ISV. Redmond, Wash.-based Microsoft later was part of $38 million investment in Groove after the company had layoffs and a restructuring. Overall, Groove has received $155 million in financing since its founding.

Ozzie is best known for his creation of Lotus Notes. He left Lotus after the company was acquired by IBM and launched Groove as a dedicated Microsoft ISV. Lotus Notes competes directly with Microsoft Exchange. But in 1994, Microsoft named Ozzie a "Windows Pioneer," a rank given to only seven people, Microsoft said.

However, this wasn't all that surprising... Here's a summary of the technology and business implications:

Industry observers have long predicted that the two companies would combine forces because of Microsoft's substantial investment in Groove and the latter's innovative offline, peer-to-peer (P2P) and authentication capabilities, which enable ad hoc workgroups across firms to collaborate with outside partners, suppliers and customers.

Gates formally announced the agreement to acquire Groove on Thursday, saying that the Beverly, Mass.-based company's technology would be tightly integrated with Microsoft's next generation of Windows, code-named Longhorn, and Microsoft Office 12, including SharePoint. Other company executives said the "trifecta" of Office/SharePoint, Microsoft's Live Communications Server 2005 realtime platform and Groove's Virtual Office will extend Microsoft's lead in the collaboration space. They also hinted that Groove's technology would be integrated with Microsoft Business Solutions (MBS) offerings that support customer business processes.

"The way people work across locations and different organizations requires new technologies, and the Groove product has fantastic and unique features we want to fit into the Office system," Gates said in a conference call Thursday from Microsoft's Redmond, Wash., headquarters. "The P2P and authentication capabilities Groove built into their apps, we want to take the equivalent things we've been incubating at Microsoft and bring them in to strengthen the platform. One big thing about Longhorn will be its peer-to-peer capabilities."

Microsoft has long struggled with P2P technology and had invested in a Windows XP P2P development kit, but little became of that effort. Besides giving Microsoft's collaboration strategy a boost, Gates said the company's deal to buy Groove also fulfills a longtime dream of hiring Lotus Notes creator Ray Ozzie, the chairman, CEO and founder of Groove. Ozzie will serve as one of Microsoft's three CTOs, reporting directly Gates.

Ozzie's contributions as one of the early application developers on DOS and Windows and later on Lotus Notes and Groove's Virtual Office make him an ideal candidate for Microsoft's senior leadership team, according to Gates. "For me, I've thought about hiring Ray and his team for a long time. It's a big day for me that is finally taking place," he said.

The Groove acquisition will accelerate Microsoft's ambitions in the collaboration space, especially against rival IBM, said David Via, CEO of Wolcott Systems Group, a Fairlawn, Ohio-based solution provider. "It's a huge coup for Microsoft. Ray [Ozzie] is one of the most respected figures in the industry," Via said. "It could be to Groove what IBM's acquisition of Lotus was back in '95, a huge accelerator."

Other Microsoft partners also expressed enthusiasm, noting that Groove's software fills a big hole in Microsoft's collaboration lineup. The deal is plus for all partners in Microsoft's Information Worker division, noted Ted Dinsmore, president of Conchango, a New York-based solution provider.

"This fills in a hole in the office to back-office position for Microsoft. The offline feature is the hole, and Groove's peer-to-peer [software] allows better fits between Windows SharePoint Services and SharePoint Portal Server [SPS]," Dinsmore said. "With this acquisition, there are no competitors that have this depth, a full suite of collaborative [applications]. The question then becomes, what will IBM do now?"

Another Microsoft partner agreed. "We love it," said Ken Winell, managing executive at Vis.align, a West Chester, Pa.-based solution provider that recently acquired collaboration services provider Econium. "[The Groove deal] gives Microsoft the ability to tackle the offline and mobility piece of collaboration that has been missing in their stack. One of the key issues that enterprises encounter with SharePoint is the ability to move and work on documents while not connected. Users can check documents out; however, the extra steps required are not as intuitive as the Groove Mobility workspace for SPS. It allows me to select which documents and folders I want to bring with me, and then when I connect it seamlessly syncs."

Groove's technology also will integrate with and leverage Microsoft's instant-messaging and realtime communication platforms, Winell added.

Gates said the ability for Microsoft customers to immediately build on their current investment in SharePoint with Virtual Office--and enhance that later--made Groove a compelling buy for Microsoft. Groove's file-sharing technology, for example, lets users insert sharing, synchronization and conversation icons directly into Windows Explorer. That enables every Windows folder to have an attached Groove button that can turn the folder into a SharePoint workspace, allowing users to share the folder with people inside or outside the company and have chats and conversations within that folder. Groove's Virtual Office 3 upgrade, announced last summer, for the first time targeted the company's software at small and midsize businesses, extending the vendor's traditional base of enterprise and government customers.

Michael Cocanower, president of ITSynergy, a Phoenix-based SMB solution provider, said he currently doesn't deploy Groove software but held a seminar this week about SharePoint's value to lower-midmarket customers. The integration of Groove's technology and Microsoft's collaboration platform and SharePoint Workspaces can only be a good thing for the SMB space, he said.

"It seems to me that their product/feature set will ultimately become integrated in the SharePoint platform," Cocanower said. "This [acquisition] announcement seems to only enforce that making an investment in SharePoint is a good investment for the future."

Yet one Groove competitor in the SMB space disagreed. "By announcing its acquisition of Groove Networks, Microsoft has made a move but still finds itself with a complicated, peer-to-peer collaboration technology that does not address the massive SMB space," Rick Faulk, CEO of Intranets.com, said in a statement. "Unlike Groove's technology, we believe that professionally managed and hosted Web-based solutions--available from anywhere with an Internet connection--are the best way to serve this market.

Ozzie and Microsoft Information Worker Group Vice President Jeff Raikes also participated in the acquisition announcement from Groove's Beverly headquarters. "[Groove's software] will influence how collaborative technology can be broadly used across Microsoft applications and business proceses," Raikes said.

The integration of the two companies' platforms and peer-to-peer distributed capabilities will enable Microsoft to extend its lead in Office and SharePoint collaboration outside the firewall, Ozzie said. With the deal, Ozzie said he will "set up a life in Redmond" but also retain his home in the Boston area. "I'll be spending a lot of time on planes," he quipped. As a Microsoft CTO, Ozzie will serve alongside Craig Mundie, senior vice president and CTO of advanced strategies and policy, and David Vaskevitch, senior vice president and CTO of Microsoft's business platform.

After the announcement, Groove President and COO David Scult said there are no plans for any layoffs at Groove, which employs 200. He declined to comment on financial aspects of the deal, terms of which weren't disclosed. Microsoft already owns roughly 40 percent of privately held Groove in the wake of several investments since the collaboration software vendor's founding in 1997, including an initial $51 million funding in 2001.

The Groove operation will continue to be run out of Groove's Beverly headquarters, according to Microsoft. Though Ozzie will serve as a Microsoft CTO, he and Scult will continue to oversee the Groove operation, a Groove spokesman confirmed.

Groove runs a consulting services arm as a nonprofit support center for enterprise customers, and recently the company began developing a partner channel for the Virtual Office 3 upgrade, Scult said. The consulting unit serves as a "trusted adviser" to customers, Scult said. He declined to say if Groove's consultants will be folded into Microsoft Consulting Services or if Groove's handful of channel partners will be inducted into Microsoft's partner program.

News of the Groove acquisition comes on the heels of Microsoft's Convergence 2005 conference for the MBS division. At the event, Microsoft took the wraps off its next-gen, realtime collaboration suite, including the Office Communicator 2005 client--formerly code-named Istanbul--and Microsoft Office Live Communications Server 2005 Service Pack, as well as Microsoft Office Live Meeting 2005. Also this week, Groove announced the Virtual Office 3.1 update.

Of course, for a company who's biggest competitor seems lately to be itself, with its installed base of software users already on Office and Windows witnessing diminishing returns from the upgrade path coming up in 2006, the Groove acquisition provides a good reason to consider the upgrade, especially in the enterprise:

The deal poses some interesting questions for how both companies will weave in Groove's collaboration software with two critical releases expected from Microsoft in 2006, namely the long-awaited next version of Windows, code-named Longhorn, as well as the next version of Office designed to fully exploit Longhorn.

"Microsoft has two big releases coming next year in Longhorn and Office 12, which are radically different from their predecessors. They both have millions of lines of code, hundreds of developers, and programming teams well into their development phases. It is going to be hard to take a step back and stitch new technology and strategies into those products," said Nate Root, a vice president with Forrester Research, in Cambridge Mass.

Root and other analysts said they had been expecting the acquisition for some time, and generally think it makes strategic sense.

"Microsoft and Groove have been outstanding partners. Microsoft has been able to kick a lot of business Groove's way because Groove fills in a gap that Microsoft does not have any technology in, the off-line collaboration market. It is a smart move," Root said. "The one downside is, it might be a smart move that is happening a little later than what would have been ideal," he added.

The fact Microsoft is making Ozzie CTO is sending signals to some observers that the latter's role will be more than one of just shepherding the deal through to completion. Some believe Ozzie will play an integral role in shaping Microsoft's overall collaboration strategies with new products.

"It looks like they want Ray to be around for the long haul to make some other paradigm changing inventions like Notes and Groove. You can imagine some pretty far out conversation over a cup of coffee or a beet between those two," Root said.

In a prepared statement Microsoft group vice president in charge of the company's Information Worker Business unit, said the deal makes sense because the companies have a shared vision for collaboration. He said Groove complements Microsoft's collaboration products "by helping us better serve businesses with mobile workers and remote offices and will assist Microsoft in being able to offer both small and large companies more integrated collaboration software and services.

Currently Microsoft has Office SharePoint Portal Server and Windows SharePoint Services that allow IT shops to create and manage shared spaces for groups of information workers within an IT-based network. Just this past week the company introduced Office Live Communications Server and Microsoft Office Live Meeting that together reportedly offer a unified communications infrastructure for information workers.

One thing's for sure - whether you think Ozzie crossed over to the Dark Side or not, the powerful collaborative tools that can come out of the combination will help ensure Microsoft's continued dominance in the OS and Productivity sides of the software marketplace at least through the next release of Windows.

That's something everyone from Apple to the Linux community, and a good many other competing platform ISVs with stakes in either market, wish would've been a tad harder as Microsoft would've likely spent the rest of 2005 and 2006 convincing enterprise customers the upgrade was worth the time, expense and attention-span.

- Arik

Oracle vs. SAP: The Battle for Retek & Retail's Supply Chain Infrastructure

Larry's playing spoiler again and defending his territory, going after SAP's latest acquisition target, Retek, an acquisition by SAP originally designed specifically to tweak Oracle's nose in its retail-industry stronghold:

“Acquiring Retek brings a whole new level of industry focus and technical ability to SAP’s product lineup,” says Scott Langdoc, analyst for AMR Research Inc., adding that SAP appears willing to acquire additional retail industry software application vendors.

SAP gains strong capabilities in web-based demand forecasting, demand-driven replenishment and retail planning, and will be able to offer multi-channel capability in order management, Langdoc says. Retek also brings clients like Gap Inc., A&P and Nordstrom Inc., who could benefit from SAP’s strength in enterprise software implementations, he adds.

Minneapolis-based Retek provides an integrated suite of retail software applications and serves more than 200 companies in 20 countries. It posted $174.2 million in revenue last year. Under the terms of the acquisition agreement, Retek will merge with SAP’s U.S. unit, SAP America Inc., and the two companies will decide over the next several weeks whether to keep the Retek name and other brands, a spokeswoman says. The $496 million price is based on an all-cash offering of $8.50 per share of Retek, representing a 42% premium for Retek shareholders.

Henning Kagermann, CEO of SAP, said the Retek acquisition enables SAP to offer a comprehensive set of applications extending from POS systems to supply chain management applications as it seeks to expand in the retail market. “The global retail industry represents a significant growth opportunity for SAP,” he said.

SAP also faces challenges in capturing more of the retail software market with Retek, analysts say. Several existing SAP and Retek applications, including financial planning and supply chain management, directly compete with each other in the retail industry, and SAP will have to decide which of these it will support over the long term, says Paula Rosenblum, director of retail research at AberdeenGroup Inc.

Until now, Oracle Corp. has been the source of the preferred back-end financial software integrated with the Retek suite, but retailers may now be expected to migrate from Oracle to SAP, a move many retailers are unlikely to accept willingly, Rosenblum says. “Retailers are as unlikely to want to take the time and resources to move from Oracle to SAP as they are to move from PeopleSoft to Oracle,” she says. “A different financial package will not help any retailer win the hearts and minds of consumers.”

Rosenblum adds that SAP will also have to address the difficulties retailers have faced in upgrading Retek applications as well as in installing SAP applications. She adds that retailers’ demand for quick returns on investment from software implementations may favor, at least in the short term, niche players like merchandise optimization software vendor ProfitLogic and supply chain software providers Logility Inc. and New Generation Computing Inc.

In making the original acquisition announcement, SAP said the retail industry is entering a new phase of packaged software adoption, as retailers start considering IT a strategic weapon to drive competitive differentiation and business growth.

"SAP has been much more successful moving from one manufacturing industry to another manufacturing industry because there are many more common core set of attributes there," says Mike Dominy, a senior analyst with the Yankee Group. "This is a good acquisition for SAP, because it gives them a significant increase in market share and represents a renewed interest in being a major player in that industry."

AMR Research analysts Scott Langdoc, Robert Garf and Jim Shepherd predict, in an Alert Highlight "the combination of SAP and Retek will become a very difficult competitive challenge for existing enterprise retail software players. For nearly a year, it has been rumored that Oracle was interested in Retek as a way of heading off the growing competitive threat in retail from SAP. Oracle will need to push its relationship with Tomax as a way of offering industry applications beyond the core Oracle capabilities. JDA Software, in the midst of delivering its long-delayed .NET integrated retail systems, loses a longstanding competitor but will struggle even more mightily against the resources and abilities of the Retek-infused SAP."

And, Oracle's just sweetened the pot for Retek shareholders to reconsider the SAP offer:

In a blocking move against application rival SAP, Oracle will make a bid Wednesday morning to acquire Retek Inc., a leading supplier of retail-management applications, for $9 a share.

Oracle's move comes just one week after SAP said its North American subsidiary, SAP America Inc., had signed a definitive agreement to acquire Retek for $8.50 per share, or approximately $496 million.

"We have the largest application business in North America, with about 23,000 customers, and [we] intend to defend the No. 1 position," Oracle CEO Larry Ellison said in a conference call Tuesday.

An SAP spokesman declined to comment on Oracle's bid until SAP has had a chance to review the Oracle offer.

On Monday and Tuesday, Oracle purchased 5.5 million shares of Retek common stock, representing about 10% of its total shares outstanding, according to Oracle. Oracle spokesmen said Tuesday that the company planned to follow up that move Wednesday with a tender offer to purchase all outstanding shares at $9 a share.

Oracle delivered a letter to the Retek board of directors Tuesday that said Oracle could finance the purchase from its existing cash balances, and its offer "is not subject to any financing conditions."

In the letter, Ellison claimed Oracle was matching the terms and conditions of the SAP offer "but at a higher price." During the conference call, he said Oracle began considering making a bid for Retek in September.

Can SAP afford to let Retek go? And the bigger question, can Oracle? While this won't be another PeopleSoft fight to the finish, I wouldn't be surprised if it's at least a bloody-enough battle for all three companies... regardless, the real winners in this horse race are likely to be Retek's shareholders.

- Arik

Witty Anti-Smoking Ads Strike at the Heart of Teen Status

Boring, preachy anti-smoking ads have always seemed to fall on deaf ears when teens contemplate lighting up. But, the new ad campaign from Truth and the American Legacy Foundation, called "Fair Enough" (which you've GOT to see, if you haven't yet) matches wits with teens and shows tobacco companies as fundamentally evil, out to make fools of them by suckering them into getting hooked on tobacco using shady marketing tactics.

Memos and planning documents are highlighted alongside the online versions of a fictionalized sit-com in which Big Tobacco execs brainstorm product marketing ideas to get more teens to smoke. A "gumball" form factor of chewing tobacco?! Now that would require a level of either immaturity or idiocy (both mortal sins in teendom) as cornerstone customer demographics in order to introduce for the first time... but, as the slogan of the campaign says, "it might be funnier if it wasn't true".

In my view, it's a surprisingly effective message, as Seth Stevenson points out in his Slate.com review of the ads, it appeals to teens' insecurities to apply pressure in getting them to steer clear of tobacco in all its forms:

What's most interesting about these spots is their underlying strategy. The ads aren't saying: "Hey kids, don't smoke! It gives you cancer, it makes your breath stink, and you'll have to talk through that buzzy voice-box thing because you'll have no larynx." (Such were the constant messages of my day—along with tips on resisting peer pressure.)

Instead, these new ads seem to say: "Hey kids, tobacco companies are evil! And you're a tool if you get duped by their manipulative marketing techniques. Do you want to be a tool, kids?"

This tack feels right to me. For, in the end, what does the teen fear most? Is it bad breath? Is it dying? No. (And dying's further down the list than bad breath.)

In fact, the ultimate adolescent nightmare is to appear in any way unsavvy—like an out-of-it rookie who doesn't know the score. These "Fair Enough" ads isolate and prey on that insecurity, and they do a great job. With a dead-on, rerun sitcom parody (jumpy establishing shot; upbeat horn-section theme song ending on a slightly unresolved note; three-wall, two-camera set; canned laugh track), the ads first establish their own savvy, knowing coolness before inviting us to join them in ridiculing big tobacco's schemes. The spots are darkly comic, just the way teens like it. And rather than serving up yet more boring evidence that smoking is deadly (something that all teens, including the ones who smoke, already know) the ads move on to the far more satisfying step: kicking big tobacco in the groin.

Here the campaign preys on another ingrained teen trait—defying authority. The ads construct this logic: Big tobacco is the man; now tell the man to go suck it. An early set of "Truth" ads made this theme even clearer, as kids attacked tobacco company headquarters with bullhorns and protests and street stunts. These looked like outtakes from a Michael Moore movie.

Will teenagers find it more rebellious not to smoke than they ever did to light up in the first place? We'll see... but to be made a fool of is about the least appealing thing teens could ever suffer... and if peer pressure can take this to the next level - getting other teens to buy into the idea and using it as a way to ridicule those suckers who fall for the marketing schemes - then permanent damage may have been done to the tobacco industry.

The last bastion of smoking's coolness will have been neutralized... and with it, their (domestic, at least) customer pipeline. The real trick will be taking that messaging to Asia, where tobacco use is actually on the rise.

- Arik

Sony Shakeup: Sacking Idei, Appoints Welshman Successor

One of these things is not like the other...

The picture above presents a much happier collection of Sony execs as Idei (second from right) today gave way to a somewhat surprising Western successor in Sir Howard Stringer (guess who...) as the Japanese company's next Chairman and CEO.

In an emergency board meeting, Sony's current CEO, Nobuyuki Idei, stepped down a year earlier than his planned retirement (next year is Sony's 60th birthday) after a series of setbacks for the company and a general lagging performance in the consumer electronics business. The new CEO, Howard Stringer, who was once a producer at CBS News and is currently the head of Sony Corporation of America, is considered an unorthodox choice because he doesn't have an engineering background nor can he speak Japanese.

It seems Stringer's rise to the top and Sony's quest for reinvention have intersected at a point where the former television news journalist, who revived Sony's struggling music and movie businesses, takes the helm of a company badly in need of competitive differentiation as continued lost ground to stalwart rivals ranging from Chinese and South Korean electronics companies as well as rebounding American competitors like Apple damages Sony's long term ability to compete in an increasingly commoditized global consumer electronics market place.

NYTimes.com has a good summing-up:

It is also a recognition of the turnaround in Sony's entertainment businesses, which are among the most profitable parts of the company, riding blockbuster movies like "Spider-Man." And it underscores the changes that are sweeping Japan, once ascendant in the world economy, but suffering through a decade of little or no growth.

In a statement issued from Sony's Tokyo headquarters, Sir Howard hinted at future efforts to integrate the entertainment and electronics focuses of the company. "We look forward to joining our twin pillars of engineering and technology with our commanding presence in entertainment and content creation to deliver the most advanced devices and forms of entertainment to the consumer," Sir Howard said.

Sir Howard, a charismatic 63-year-old who does not speak Japanese, was born in Cardiff, Wales, and is an American citizen who splits his time between New York and his family's home in London. Before joining Sony in 1997, he worked for 30 years as a journalist, at CBS, at one point as a producer for Dan Rather at CBS, and ultimately went on to run that network.

Sir Howard was knighted by Queen Elizabeth in 1999 and has become known for being a likeable consensus builder, comfortable negotiating with both Hollywood divas as well as eccentric engineers and managers in Japan.

"Forgive the awful pun, but he has kind of oriented himself to his Japanese colleagues," said Peter G. Peterson, chairman and co-founder of The Blackstone Group and a former board member at Sony who helped recruit Sir Howard to the company. "It's a great achievement. They trust him. He's a harmonizer."

Mr. Idei, 67, was the first nonengineer to run Sony, and his departure will come two years into his three-year plan to overhaul the company. During his 10-year tenure, Mr. Idei used his background in marketing to reshape Sony into a more media-focused company.

Sir Howard, of course, is hardly an engineer himself. But in recent years he has taken an increasing interest in Sony's electronics business, particularly in areas that relate to music and movies. Sir Howard, who is also vice chairman of Sony's board, has tried to break through the bureaucratic logjams that have kept Sony - the company that invented the Walkman - from competing effectively against Apple's iPod, the dominant digital music player. And he has taken a key role in negotiating with other Hollywood studios to get support for the new Blu-Ray disk format, which Sony supports.

More recently, Sir Howard has been increasingly outspoken within Sony that the company has to break down its balkanized structure in order to move much more quickly in the marketplace. In a provocative speech to Sony managers in January he declared that "the business of Sony has become management not product design."

Sir Howard joins a small club of foreign executives who have taken the helm of major Japanese companies. This includes Carlos Ghosn of Nissan and Rolf Eckrodt, a German who led a failed effort to turn around Mitsubishi Motors.

Sir Howard does not keep a home in Tokyo, but he is expected to spend more time in Japan, a Sony executive said.

Still, he has shown that he can build bridges to all sides of that company.

"Howard is the ultimate diplomat," said Vic Pacor, the former head of Sony's television and home audio division in the United States. "He is even handed and will bring the kind of stability that the company needs," said Mr. Pacor, who is now president of D&M Holdings, a Japanese-American electronics company.

Allowing a foreigner to take over the reins of Sony would be one of the boldest moves a Japanese company could make. Most Japanese boards and executive ranks are filled with lifetime employees who win those spots more through their loyalty than through their creativity.

Yet in appointing a foreigner to its top spot, Sony's management appears to be completing a course originally set out in the 1950's by its co-founder, Akio Morita.

He recognized then that Sony had the potential to become a global powerhouse if it not only sold products overseas, but incorporated foreign thinking in its products, its brand and even its management.

We'll see whether Stringer can sharpen Sony's pencil enough to be competitive again - change can't hurt, after the Idei era, maneuvering a global powerhouse like Sony is no mean feat.

- Arik