Wind River's Turnaround

Forbes writes:

Wind River Systems may be the rare software company that survives, maybe even thrives, after turmoil that threatened to sweep it downstream.

Wind River makes so-called embedded software, a guiding force behind everything from remote controls to check-out scanners and digital cameras. Other technology connects non-PC devices (think refrigerators, televisions and alarm clocks) to the Internet. It's geeky stuff for most people, but to the companies developing almost anything with a microprocessor in it, it's critical.

The 23-year-old company grew steadily until 2001, when sales began drying up and losses mounted. Since then the company has replaced its chief executive, laid off employees and reorganized. Its new CEO, Kenneth Klein, on the job for six months, says Wind River is perfectly positioned to capitalize on a multibillion-dollar opportunity that is just now starting to materialize.

There are hundreds of thousands of electronic devices--everything besides PCs--that require this type of software. But only a small percentage of their makers buy it. Instead, they choose to spend resources developing it themselves. Klein believes that's a waste of money and engineering talent that could be better spent on other projects.

"It used to be 100,000 lines of code a few years ago and now it's a million lines," says Klein. "It's a buy-versus-build argument, and they must buy."

Klein envisions the kind of transformation that occurred in enterprise applications, when large companies shifted from custom, in-house development to buying ready-made software from companies like Siebel, PeopleSoft and others.

Richard Williams, analyst at Garban Institutional Equities, says the market for embedded software should reach several billion dollars in a few years, up from about $750 million today. Wind River is the largest player, with about a 30% market share, but the market is very fragmented.

Yahoo’s Terry Semel Speaks

Excerpts from a WSJ interview with Yahoo’s CEO:

WSJ: Yahoo today is in much better shape than when you arrived. What was the toughest part of the turnaround?

Mr. Semel: The single biggest set of fires at the beginning really related to people. Unfortunately, there were layoffs. But there was the need, I felt, for even more people in certain core businesses. I didn't want the company to fall behind. At the same time, I had to think about what were the two biggest opportunities on the Internet at that moment and what would they perhaps look like going forward.

I looked at the Yahoo flowchart, and I saw it had 44 business units and realized neither I nor anyone else could ever manage 44 different business units. It had to be much clearer. It turned out to be six business units, which ultimately became four.

Of the two biggest opportunities in the Internet in '01, one was access. Two of our competitors [the America Online unit of Time Warner Inc. and Microsoft's MSN] were doing a terrific job by being Internet service providers. That was a business Yahoo was not in. The opportunity for Yahoo had to come in broadband, and that led early on to the conversations that ultimately became the partnership with SBC. [Yahoo provides co-branded high-speed Internet service with SBC Communications Inc.]

On the other side, Yahoo had and still has great scale, a very large consumer base. That speaks well to an advertising business. We would bring in people who could run a sales company. What we had to do initially was to change the entire experience and the relationship both with our consumers and with advertising agencies and advertisers.

WSJ: What did you de-emphasize?

Mr. Semel: Lots of small things, things like FinanceVision, [which provided business-theme Webcasts]. ... I thought it was a cool idea, but I thought it was ahead of its time, and I didn't see it as an essential. There were many other things like FinanceVision that were not playing to a large portion of Yahoo users. What I kept saying is let's focus on the things people use Yahoo the most for.
When I would think quietly, I would think core strength: scale; big opportunity, not small.

WSJ: What is the future of search?

Mr. Semel: We've probably just finished phase one as an industry. Initially, the great need was to amass all of the information and to provide it in the most efficient and effective way so that users could access that information. What we are going to see, in phase two, will be much more specific. The same information could be presented taking into account your location, so that if you are looking for a plumber or a pizza parlor it doesn't turn out to be 3,000 miles away from where you are searching but rather several miles from your house. In our case, it is also about integrating the very large communities and groups who represent millions of people who have very specific interests and spend a lot of time on Yahoo expressing those interests through chats and through groups and communities. The advantage that Yahoo has is that we are providing a lot of those services outside of search today.

RFID Rollout

The Economist writes that smart tags are indeed happening:

In 2002, the Auto-ID centre, a partnership between academic researchers and business based in Cambridge, Massachusetts, came up with a standard for a new, stripped-down RFID chip that stores just 96 bits of information—enough to give every object in the world a unique number. With tag readers plugged into a computer network, this number can be used to look up detailed information about the object, such as its origin, age and expiry date. At the same time, the Auto-ID centre also challenged manufacturers to produce a five-cent tag. Several start-ups, including Alien Technology and Matrics, said they could do so. Suddenly, there was huge interest and talk of a potential mass market.

Last June, Wal-Mart, the world's biggest retailer, said it would require its 100 top suppliers to put tags on pallets and cases of products for shipment to a cluster of its supercentres in northern Texas. (Those press-ganged suppliers were later joined by 37 “volunteers”.) Tesco, Britain's biggest retailer, also decided to introduce the technology. This year Metro, a German retailer, and Target and Albertsons, two other American ones, announced tag mandates for their suppliers. On June 17th, Wal-Mart said it would extend its RFID roll-out to its top 300 suppliers and to more shops.

The American government is becoming a big user of the new tags, too. Last October, the Pentagon said it would require its suppliers to put tags on cases and pallets shipped to its warehouses. It expects suppliers to have the technology working by January. The Food and Drug Administration wants drug manufacturers, distributors and retailers to adopt the new RFID technology to combat counterfeiting.

Alien Technology says that its current production line can assemble 2m chips a month. By the end of this year, it will have a second-generation line, able to assemble 2 billion chips a year. By 2006, it plans to introduce two third-generation production lines, each able to assemble ten billion chips a year. For orders of 1m, Alien Technology now sells its tags for 20 cents each. When the third-generation arrives, says Tom Pound of Alien Technology, “we believe that our best customers will be able to order finished tags for prices approaching five cents.” Established manufacturers, such as Texas Instruments and Philips, are also entering the market.

So why all the gloom? Much of it stems from suppliers who feel they are being forced to pay for an investment that saves retailers money. Wal-Mart, for instance, is using tags to track goods from when they leave suppliers, through its warehouses, docking doors and supercentre stock rooms, to when they leave the back rooms for the supermarket shelves. Even more gallingly, the only time suppliers are likely to hear from Wal-Mart is when they make mistakes. At least the Pentagon, which last year sent a delegation to Wal-Mart's headquarters in Bentonville, Arkansas, to learn about RFID, plans to pay for its own tags.

Another problem is that the industry does not yet have a single hardware standard. The work of the Auto-ID centre produced two competing tag standards. EPCglobal, one of the successor bodies to the Auto-ID centre, is now working on a single superseding second-generation standard. Within EPCglobal four warring factions of manufacturers recently shrank to two. EPCglobal has promised to deliver the new standard by the end of this month, which should spur investment.

As investment rises, prices should fall further. Meanwhile, many firms hope that item-level tagging will soon make sense, particularly in Europe, where more efficient supply chains mean that there is less scope to reduce costs by other means.

News.com writes about Microsoft's RFID plans.

The Future of Advertising

The Economist writes that “more people are rejecting traditional sales messages, presenting the ad industry with big challenges”:

The advertising industry is passing through one of the most disorienting periods in its history. This is due to a combination of long-term changes, such as the growing diversity of media, and the arrival of new technologies, notably the internet. Consumers have become better informed than ever before, with the result that some of the traditional methods of advertising and marketing simply no longer work.

There are plenty of alternatives to straightforward advertising, including a myriad of marketing and communications services, some of which are called “below-the-line” advertising. They range from public relations to direct mail, consumer promotions (such as coupons), in-store displays, business-to-business promotions (like paying a retailer for shelf-space), telemarketing, exhibitions, sponsoring events, product placements and more.

Separately, AOL bought Advertising.com for $435 million. “Advertising.com accumulates data from Web sites, search providers and e-mail publishers to give advertisers a wide-ranging group of online marketing alternatives. AOL said its advertising inventory, combined with Advertising.com's network, will enable advertisers to appeal to more than 140 million Internet customers and allow AOL to offer advertisers more customized services.”

Microsoft's Starter Windows

Microsoft is going to start offering “Windows XP Starter Editions” in local languages in many Asian countries, according to WSJ.

Ms. Chian said that the Starter Edition software sold in Thailand and Malaysia will be in local languages, and not in English, making it doubtful that the software could compete with products sold in developed markets like the U.S.
The name of the new software -- a product Microsoft officials have previously hinted was in development -- was reported Wednesday on a technology Web site called Neowin.net.

Ms. Chian, in Singapore, declined to offer details about what features the software will include and what it might cost. She also couldn't confirm exactly when the Starter Edition would debut, though Thai Prime Minister Thaksin Shinawatra said in a radio address this month that it would be available in his country in September.

The software could offer fewer features for a lower price.

Microsoft has been experimenting with offering software through cut-rate government programs in places like Malaysia and Thailand, where authorities are also offering cheap Linux machines to their citizens. In Malaysia, consumers can now purchase a Microsoft-loaded PC with a processor from Intel Corp. for about US$300, including a monitor.

That's a significant discount from prices paid by consumers in the U.S., and it raises questions about how Microsoft will be able to maintain its traditional, more uniform pricing structure if it offers selective discounts in some countries, analysts say.

Microsoft has noted that it already offers some discounts to customers like schools and says its price cuts in the developing world are similar.

This can be seen as a response to piracy, growing competition from open-source applications and pressure for more affordable solutions. It is not clear what options will be available in India.

TECH TALK: Tech Trends: 2. IT Commoditisation

Silicon, Storage and Bandwidth are available in plenty. As Duane Northcutt of Silicon Image puts it, the world of computing and communications is being impacted by the three forces of “mega-gates, mega-bytes and mega-bits.” Processing power doubles every 18 months, storage capacity every 9 months and available bandwidth every 12 months. This has been happening for some time now, and is likely to continue for the foreseeable future. The result is there for us to see. Google has built a massive platform with more than 100,000 commodity computers and is in a position to offer free services like email with a storage capacity of 1 GB email. The cost of 1 GB disk space has fallen to just about $1. In countries like Japan and Korea, bandwidth of the order of 30 Mbps is available for about $50.

Technology has become a commodity, leading many to ask if IT really matters. Understanding the key benefits of IT and developing a strategy to use it in business is necessary to extract value from IT. As Hal Varian wrote recently in the New York Times, “It is not information technology itself that matters, but how you use it. Companies cannot afford to ignore information technology, or relegate it to the back burner. Commoditising it does not necessarily mean innovation slows. If anything, it could accelerate as more and more innovators experiment and tinker with those cheap, ubiquitous information technology commodities.”

Global investment in technology continues. PC shipments are likely to rise to more than 175 million units this year, with about 100 million of these being replacements for older computers. Next year will see even higher numbers. There are more than a billion cellphones around the world, with 2004 seeing sales of more than 500 million phones which provide all kinds of functionality ranging from digital cameras, multimedia messaging, FM radio, TV and even some basic computing functions. Even India has wireless data networks (through Reliance Infocomm) in hundreds of cities with connectivity costs of as little as 40 paise (less than 1 cent) per minute. Seemingly, technology is ubiquitous and everywhere. Or is it?

In countries like India, adoption of IT still leaves a lot to be desired. Only the very top of the pyramid uses technology. There are four barriers which need to be overcome for these countries to benefit from the commoditisation of IT: the information barrier, on what technology can really do; the desirabaility barrier, through the availability of relevant and useful software and applications; the manageability barrier, so that IT can be easily deployed and leveraged; the affordabaility barrier, which makes it available at prices that local users can pay.

Next Week: Tech Trends (continued)

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