Executive Summary: New Wind River
(Apollo suggested that I summarize my project hunt report, kindly reminding me that I might be just a tad long-winded. I apologize to all of you who felt frustrated, stressed, or annoyed by the report's length or style.)
WRS is difficult to understand because the ubiquitous computing of embedded systems disappears into the infrastructure. The growth of the Internet and its smart devices, the increased pace of introducing new semiconductors, and increasing consumer demands for more and better communication everywhere creates COMPLEXITY. WRS Chairman Jerry Fiddler believes that solving this problem requires either the co-creation of software-hardware or pre-integration of software and hardware. The WRS strategic vision emphasizes collaboration with semiconductor manufacturers to ensure optimized performance through pre-integration of hardware and software, an upgraded, high availability, and memory protected RTOS, that works with integrated development environments targeted to facilitate deeper penetration into the Internet's infrastructure (Tornado for Managed Switches) and to spread through its periphery of smart devices (Tornado for Internet Appliances).
WIND's customers, who develop products that perform specific functions that must operate predictably, reliably, and without failure in a real time environment, are a Who's Who of high technology, from Sony with its new Net Walkman to Texas Instruments with its IP phone processor. By maintaining a focus on their core value add in developing products and outsourcing anything that is not necessary to sustain their competitive advantage, product developers can differentiate their products without re-inventing the wheel. Product developers decrease their time-to-market and reduce their total cost of ownership by having WRS provide the basic building blocks that serve as a foundation for their core value add.
Offering a complete solution, WRS provides five layers of enabling software solutions: (a) semiconductor-RTOS integration, (b) VxWorks RTOS, (c) Tornado Tools that help the developer design his application by providing visual tools, simulations, scaling wizards, debugging, and more, (d) specialized development environments focus on switches, internet appliances, intelligent input-output, Internet exchange architecture, auto controls, and soon, DSL, cable modems, and set-top boxes, and (e) middleware, providing over 40 communication protocols, stacks, drivers, management systems, firewalls, encryption, and more. At WRS, 250 engineers provide service, while 500 more improve and extend WIND's basic building blocks. The 500 WindLink partners offer still more specialized software tools for broadband.
Two factors account for WIND's inevitable dominance of embedded software solutions. First, because it is the leader in embedded software innovation, engineering scale, and market share, its value chain includes collaborative Centers of Excellence with Intel, Hitachi, and MIPS, along with 30 other VARS, who include WRS's products as part of their reference designs for OEMs who are developing specific products. These complementor relationships provide strong and growing compatibility network effects. Second, the RTOS is the only universal module that will appear in billions of products, collecting run-time royalties from multiple cascades of network effects in tornado markets. Increasing returns and demand-side economies of scale may yet produce a natural monopoly.
Does the new WRS meet Gorilla criteria?
Discontinuous Innovation. Its founders abstracted the software processes that permitted their RTOS and integrated tools to be easily applied to any embedded microprocessor, creating building blocks that made in-house RTOSs anachronistic and relatively limited in scope by creating a COTS solution that has gone to Mars and will pervade the Earth's Internet.
Open Proprietary Architecture. WIND's architecture is an organized set of parts and functions across five enabling layers of software that is open to continual innovation through R&D and acquisition. It is open to 500 WindLink partners and ported to about 35 microprocessors, which is unmatched in its industry. It is proprietary knowledge that is preserved by copyrights, patents, over 200 years of engineering coded knowledge, and he intellectual capital of engineering know-how.
High Barriers to Entry. Any new competitor facing the complexity of duplicating WRS's broad and deep products in the face of the increasing rate of new microprocessor introductions would find the complexity barrier insurmountable as they tried to work around WIND's copyrights, patents, and 200 years engineering years of coded knowledge. Not only that but its unduplicated value chain prospers by standardizing on a single software solution that increases indirect network effects.
High Switching Costs. Switching costs are equal to the value lost when forced to choose the next best alternative, usually the offering of the closest competitor. The costs would include R&D to duplicate products and the marketing power of the value chain, lost time to market, total cost of ownerships, and competitive advantages gained by competitors who have chosen WRS. Modularity is a basic principle in technology advance, and only when offers such powerfully abstracted embedded software building blocks The Internet's requirements for connectivity up the odds that no company can remain committed to home-grown RTOSs for long. Switching costs are the inverse of WIND's competitive.
Strong Value Chain Formation. Tremendous value is generated by WIND's collaborative relationship with microprocessor firms in its three CoE and in the reference designs of its 30 VARs. When WRS moved "upstream" in its value chain, its partner became customers who sold to OEM product developers who sold to mass market customers. Not only does this expand market share as it drives down costs but it also creates a demand-side economy of scale that increases returns in a virtuous cycle of lowered costs that increase demand further.
Tornado Market Extant or Foreseeable. WRS will participate at ever-higher ASP's in an increasing number and widening share of several mass markets. It will be the recipient of cascades of adoption within several anticipated market tornados. An exploitable gap exists for knowledgeable investors because its nonlinear growth is not widely anticipated.
For anyone who is interested the full length report is available at:
Message 14427142
Message 14427193
Message 14427223
I hope this helps.
Don |
