Larry Augustin's Weblog

My New Role at SugarCRM

I have been lucky enough to be involved with SugarCRM as a board member since February of 2005, just over four years now.  Yesterday, I stepped into the role of interim CEO at the company.  I have an immense amount of respect for the founding CEO, John Roberts.   Few people have taken a company from concept to major growth the way John did at Sugar.

Like any big idea, Sugar encountered many doubters when John, Clint and Jacob first started the company.  Many people were skeptical of open source at the applications level.  I knew John, Clint and Jacob were on to something and have argued for years that open source made as much sense for applications as for infrastructure.  John, Clint and Jacob also found some great investors in DFJ, NEA and Walden International who recognized something special in the founding team and are incredibly supportive of the company.  The company proceeded to break new ground in business model (commercial open source), development (www.sugarforge.org), licensing (one of the first company’s to adopt the GPL v3) and cloud computing (see their announcement from last week on the Sugar Open Cloud).

 

Today SugarCRM is a thriving commercial open source business with award-winning products, a large customer base, strong financials and a thriving open source project.

My goals for the next 30 days at SugarCRM are fairly simple: get to know the team, customers and partners.  I am looking forward to helping them to continue to execute and take the company to the next level.

IBM's Response to Oracle + Sun: Buy SAP?

In my previous post I speculated that Oracle will sell off most of Sun's hardware businesses allowing them to keep Sun's software businesses effectively for free.  I still think that's the right strategy for Oracle.  It would allow them to cement relationships with partners like HP, Dell, Fujitsu, EMC, NEC, etc. while further isolating IBM.  If Oracle remains in the hardware business they are, like IBM, competing with everyone on that list.  This only serves to strengthen the Microsoft relationship with companies like HP and Dell and isolates Oracle.

But let's assume for the moment that Oracle does stay in the hardware business.  How does IBM respond?  IBM has traditionally positioned itself as an infrastructure and services company, drawing the dividing line in its businesses at applications.  IBM provides the infrastructure (hardware and software) and services; its partners provide the applications.  This has worked well in the past.  It has encouraged application developers to partner with IBM, building on IBM infrastructure and turning IBM into the leading application platform vendor.

Oracle, in contrast, started as a software infrastructure vendor and many years ago decided to compete with it's partners by moving into the applications business. As Oracle has gobbled up applications vendors, IBM has seen it's software partners shrink. With the acquisition of Sun, Oracle now competes squarely with IBM in infrastructure in both the hardware and software spaces. Add to this Oracle's already strong presence in applications and it presents a problem for IBM.

The downside to being in the infrastructure business is that you depend on the application to pull demand for the infrrastructure. That is, business people decide first what applications they need and second what platform they need for those applications, not the other way around. So if your applications portfolio (either directly or through partners) is strong, infrastructure does very well. If not, it's a very difficult business. Oracle today owns a healthy applications business that can pull its infrastructure. IBM does not.

Further, IBM's dividing line of applications was drawn at a time when there were more applications vendors who needed its infrastructure.  Today the landscape has thinned.  Companies that used to be infrastructure like Oracle and Microsoft have entered the applications business.  Microsoft, arguably IBM's largest competitor as a platform vendor, is in the applications business.  Finally, in another trend worthy of a separate discussion applications themselves are beginning to look more like infrastructure as they become platforms for third party extensions.   All of this leaves IBM looking lonelier and lonelier without applications as part of its portfolio.

Enter SAP. Given the competitive landscape an IBM acquisition of SAP no longer looks as threatening to the applications market as it once did.  Now it just looks like IBM trying to stay competitive with the likes of Oracle and Microsoft.  Further, SAP finds itself isolated as the infrastructure partners it needs (e.g. Oracle and Microsoft) increasingly compete for its business with their own offerings.  By acquiring SAP IBM solves its gap at the applications tier in the stack and remains competitive with Oracle and Microsoft.  By combining with IBM SAP gains the rest of the stack it needs to stay competitive in the middleware space.  It's a win-win for both parties.

Oracle Buys Java and MySQL for Free

Glyn Moody and Matt Asay have already written good articles on what Oracle + Sun means for Open Source.  What I think is brilliant about Oracle's move is that they get incredibly important technologies like Java and MySQL for free.

My prediction: Oracle will sell the hardware parts of Sun's business (storage, servers and SPARC) to some combination of Hitachi, EMC, Fujitsu and HP and more than return what they paid for Sun.  In the end they will get some great software assets from Sun for free.

Patience has proven the right strategy for Oracle.  Rumor is that Oracle offered as much as $850M for MySQL.  Oracle refused to bid up the price against Sun and Sun ended up paying $1B for MySQL.  But in the end Oracle gets the last laugh. By being patient they have managed to get MySQL, plus all of Sun's other software assets, for free.  Let's run some rough numbers and see how that math works.

$7.4B	Total purchase price
-$1.8B	Net cash at Sun
------
$5.6B	Cost after using Sun's cash

So we have to raise $5.6B to cover the cost of the acquisition.  For the fiscal year ended June 30, 2008 Sun reported $13.9B in revenues.  The fact that Sun had an Enterprise value of only 40% of revenue is an artifact of people not believing in the business.  It doesn't necessarily reflect the true value of those assets.  This is where Oracle gets a bargain.  In fiscal 2008 storage products represented 17% of revenue, or $2.4B.  Natural acquirers for that business include Hitachi, EMC and HP.  Using HP as an example, the company is trading at 1.4x revenue.  (Yes I know we should more accurately be looking at earnings as a better proxy for valuation, but these are rough numbers and detailed earnings numbers for Sun's business segments are not publicly available.) Sun's storage bushiness should net somewhere between 1x and 2x revenues.  Assuming the low end of 1x that leaves us with $3.2B.

Next, lets look at Sun's systems business.  According to SEC filings sun did $6.2B in computer systems products revenue in fiscal 2008.  Sun does not disclose software revenue separate from systems revenue, but industry analysts estimate about 15% of total revenue comes from software. Let's take the conservative approach and assume more of |sun's revenue is due to software, lowering the potential value of their hardware business.  At 20% of total revenue that's $2.78B, leaving $3.42B for the server and Sparc parts of Sun's business.  Again, taking a conservative 1x multiple of revenue we have:

$7.4B	Total purchase price
-$1.8B	Net cash at Sun
------
$5.6B	Cost after using Sun's cash
-$2.4B	Storage
-$3.4B	Servers and SPARC
------
-$0.2B	Profit for Oracle

So Oracle gets Java, MySQL, Solaris and Sun's other software assets for free.  Seems like a pretty good deal to me.

So what's next for Oracle?  The on-again, off-again rumor has been that Oracle will acquire Red Hat. Recall that Red Hat acquired JBoss for $350M.  Could Oracle get a bargain on JBoss by being patient yet again and letting Red Hat make that acquisition as well?  RHT is trading for $17.36/share with a market cap of $3.3B as of today.  When Red Hat acquired JBoss they were trading at $29.85 per share.  By being patient Oracle could be getting Red Hat and JBoss at a 43% discount.  Not bad.  Patience can be a virtue.

Dave Rosenberg Shows Off His Broken Thumb at OSGR

John Robb, Matt Asay and Lonn Johnston at OSGR

Linux, Microsoft and Patents: It's Time to Get the FAT Out

Have you ever been to a McDonald's and noticed someone complaining about their weight?  Ever notice that same 300lb person ordering two big Macs, french fries and what must be a liter Coke?  But what's even worse is when they blame McDonald's?  Sorry people; you have to take responsibility for what you eat.  If McDonald's makes you fat don't eat there.

I can't help but feel a similar reaction to some of the response to Microsoft's recent lawsuit against TomTom.  I've previously taken Microsoft to task for spreading FUD and failing to disclose what patents, if any, they claim Linux infringes.  Set aside for the moment the real and serious questions of software patents and the extent to which our existing patent system is broken.  Those questions are orthogonal to the point I'd like to make today: the computer industry as a whole has to accept some responsibility for the situation we are in today with respect to usage of Microsoft's's FAT filesystem.  We have to accept some responsibility, stop whining, and do something about it.  It's time that we "Get the FAT Out."

One of my first system programming jobs was building a network file system interface based on the filesystem in MS-DOS: Microsoft's File Allocation Table or FAT filesystem.  Unfortunately, those of us who have PhDs in computer disciplines and have studied operating systems and file systems, don't see anything particularly innovative in FAT or it's extension to support longer file names, FAT32.  (The original FAT only supported a fixed 11 characters for the file name.  FAT32 extended that to support long file names.)

I say unfortunately because the industry has treated FAT and FAT32 as open, industry standard formats.  We all share some culpability in this; including Microsoft.  But Microsoft, like McDonald's, has little incentive to disabuse us of our self delusion.  It appears that FAT32 is covered by Microsoft patents #5,579,517 and #5,758,352 on techniques for implementing a "common name space for long and short filenames." Thus FAT32 is not an open and unencumbered technology.

Again, I think many of us in the industry would vigorously disagree that the techniques covered are truly patentable.  Unfortunately that's not our choice to make.  In early 2006 the USPTO upheld the validity of Microsoft's patents on elements of the FAT filesystem. Eben Moglen has been warning us for some time that this could be a problem for the industry.

Yet in spite of this the industry has continued down a path where FAT has become the default filesystem of choice in much digital media. Amazon Kindle uses FAT.  Google Android uses FAT.  Virtually every digital camera uses FAT.

Rather than continue to delude ourselves that this technology is open and unencumbered it's time for the industry to "Get the FAT Out" and aggressively move to a truly open and unencumbered industry standard filesystem format.  There are several to choose from: pick your favorite Linux filesystem such as ext2 for example.  Ext2 is arguably technically superior to FAT as well.  Plus it's open source.  The software is already available under an open source license.

In 1989 Unisys "discovered" a patent that it held on LZW compression that was applicable to the popular GIF graphic format.  What the industry had thought was a free an open specification suddenly was encumbered.  The industry responded with "Burn All GIFs", an effort to encourage the industry to  switch to a truly open and unencumbered format such as PNG.  It's time we did the same with FAT.  It's time we stopped eating at McDonald's.  It time for us to "Get the FAT Out".

Appcelerator Titanium Preview Release 2 (PR2)

I've written before about the convergence of Web and desktop applications as native clients once again seem to be on the rise.  With the ability to develop a desktop/mobile client and a Web client using the same technologies I expect many applications to offer both choices of client.

That's why I'm excited to see Appcelerator announce the second preview release (PR2) of their Titanium Open Source platform for building desktop applications using Web technologies.  This release adds:

• Linux support (in addition to OSX and Win32)

• Support for application scripts written in Ruby and Python (Python and ruby support via the HTML script tag)

• Module API for extensibility - allowing developers to write modules in C/C++, Python, Ruby and Javascript

• Seamless interoperability between C++, JavaScript, Ruby and Python

Titanium PR2 is freely available for download at http://titaniumapp.com/download and is licensed under the Apache Public License v2.

In addition to Linux support the module API is probably the most exciting thing about this release.  It gives developers the ability to extend Titanium in whatever technologies they choose.  For example, Titanium also supports applications built using Adobe Flash or Microsoft Silverlight as well as any third-party AJAX libraries such as jQuery or Dojo.  With this release most of the APIs are in place and the effort around Titanium shifts to stabilizing the platform for a future beta release.

Spring 2009 Open Source ThinkTank One Week Away

This coming Sunday (March 1) through Tuesday (March 3) is the annual Open Source ThinkTank in Napa.  As always it looks to be a great event for networking and brainstorming on commercial Open Source.

If you will be attending and would like to spend some time 1-on-1 please drop me an email and we can set aside some time.  If you are active in commercial Open Source and interested in attending drop me an email.

If you have not attended an Open Source ThinkTank previously, the format of the event is designed to maximize interaction among the attendees.  Topics are business oriented and all participants work together to share ideas and develop potential solutions to the business challenges facing commercial open source.  All participants are expected to actively contribute.

The agenda includes:

• Group Sessions with business-oriented topics

• Brainstorming Meetings, where the groups are structured to represent across-section of the industry, a particular topic form the general session is discussed and group presents their findings back to the full conference

• Interactive audience voting, throughout the event, where questions will be posed to the audience for immediate response and tabulation

• Panels representing a cross-section of commercial open source companies and customers discussing what is most important to them about open source software

• Organized Networking and social activities 

The conference allows experienced participants to work together to share ideas and develop
potential solutions to the business challenges facing the future of commercial open source.

I look forward to seeing everyone there.

The Return of the Native Client

Has anyone else noticed that native clients are back in vogue?  For several years now the conventional wisdom has been to move applications to a Web browser interface.  Whenever I talked about native clients people would scoff, even though native clients still provide a richer experience than a Web browser interface.

Don't misunderstand me.  I see huge value in building applications as Web services and offering a rich Web-browser-based interface to those applications.  But for a long time I've disagreed with the conventional wisdom that one day all applications would only be available via a browser interface.  (Much as I disagree that all software will be sold as SaaS, but that's a topic for another time.)

Just as browser based applications have advantages and make sense in many cases, so do native clients.  Both will continue to exist. The world is not going to be only accessible through the Web. I don't have an iPhone, but my wife does.  Notice something about the iPhone?  It has native clients for Facebook, Twitter, Google, Youtube, EBay, and many others.  Aren't those supposed to be Web applications?  But Web application now means more than just a Web browser interface. They have Web services APIs (as they should).  Although they are often accessed through a Web interface, the interface that works best and makes the most sense on the iPhone is a native client.  My Blackberry is loaded with native clients for Twitter, Typepad, Google and many others.  There's nothing wrong with that.  It's the best way to build an interface for those applications on those devices.

Think about one of the most popular "Web 2.0" applications: Twitter.  How many people use Twitter via a native client versus a Web interface?  More than half.  A Web browser isn't always the best interface to an application.  At Medsphere we built a cross-platform client in C#/Mono that runs on Linux, OSX and Windows.  Cross platform clients used to be hard because every client was custom.  Today it's much easier to develop once and run anywhere.

I predict that more native clients will proliferate.  Developing native clients is just getting easier.  And given the choice, what application wouldn't prefer to be running in a native client and deliver seamless integration with the user's desktop?

Until recently the native client and Web interfaces were built in completely different technologies.  So even when we developed a native client we needed a completely different development effort for a Web client.  That too is now changing.  With Appcelerator's recent release of Titanium we can write once for both native and the Web.  (Disclaimer: I'm an investor in Appcelerator.)  That means there's no excuse for not doing both a native client and a Web client for every application.

So if you thought the Web browser was going to kill the native client, think again.  We're going to have both for a long time to come.

Start Working on Your "I'm Linux" videos now

The Linux Foundation is running a contest for the best video ad for Linux. Think of this as the Linux response to Apple's ubiquitous "I'm a Mac" or Microsoft's "I'm a PC" commercials. The contest winner will receive a free trip to Tokyo, Japan to participate in the Linux Foundation Japan Linux Symposium in October 2009. The winning video will also be unveiled at the Linux Foundation's Collaboration Summit in San Francisco on April 8, 2009.

A panel of judges, including yours truly, will select the winner. I'll be looking for the video that best captures the spirit of Linux. Think about why we use Linux; how has it inspired you and how it is fundamentally different than the proprietary approaches of Apple of Microsoft? I encourage people to have fun with this. One thing that is true of Linux users is that we don't take ourselves too seriously.

Although you can't submit entries until the contest officially opens on January 26 you can start working on entries now. You can also submit multiple entries. See the contest Web page for details. Good luck!