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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: BDR who wrote (36187)	12/11/2000 11:59:50 PM
From: BDR	Read Replies (1) \| Respond to of 54805

The following focuses on Network Appliance v. EMC but also discusses Cisco v. Juniper, Microsoft's difficulty responding to ASPs, and Sun Microsystem v. Cobalt Networks and VA Linux. I read it first in my hardcopy of Global Technology Business, the October edition (!?!), which arrived today. Written, I presume, before EMC's announcement about its NAS product. Appliance Science Utility Computing is Threatening the Business Models of the Vertical Giants gtbusiness.com With links to a two part interview with Warmenhoven at that same site Some excerpts to whet your appetite: "But from the horizontally organized, highly cost-competitive business, a disruptive new model is emerging: application specific computing. Instead of concentrating on building fast, general-purpose computers, companies are building computing devices designed for a single purpose. One example of this is the network attached storage specialist Network Appliance..." "Network Appliance's success therefore seems to have come relatively easily, by building a disruptive product that has slowly become competitive with the offerings of multi-billion dollar companies. The company's filers concentrate on the file rather than the older model of using data blocks, says Kleiman. The result is a system that can store data from any server, application or operating system. Kleiman believes other companies remain "prisoners of their histories". This has meant that for four and a half years the company has quickly been able to dominate a new market. These are the same problems detailed in Harvard professor Clayton Christensen's 1997 book The Innovator's Dilemma. New entrants can build new products, which if they are 'disruptive innovations' can overturn more mature businesses. At a Merrill Lynch conference in May 2000, Christensen argued that EMC was not investing enough in network-attached storage, while technology guru George Gilder was blunter, saying that EMC "didn't have a prayer" of beating Network Appliance. EMC's CEO Mike Ruettgers must feel that this is a ridiculous statement-after all, EMC generated $6.7 billion in sales and $1.0 billion in revenues in 1999, and was the best performing technology stock of the 1990s. But EMC is using the same defense as IBM used against the disruptive RAID technology that EMC bought to market: namely that Network Appliance products do not scale into the data center. This is ironic, considering that EMC is using the same sales strategy of Fortune 1000 data center sales as IBM, and has branded itself an Internet infrastructure company. More than 40% of Network Appliance's products are used to run customer-facing Internet applications. EMC has yet to motivate its corporate-oriented sales force to effectively target key early adopter customers-the Internet and application service providers." Cisco v. Juniper "Scott Kriens, the ex-CEO of Stratacom, founded Juniper Networks in late 1997 after Cisco took over his old company. Within 18 months the company had released its first product. Cisco's core product in its routers has always been the routing software, but Cisco has never redesigned, only added to, the software, which is long overdue for a completely new architecture. Juniper built a new routing operating system and quickly developed products directly competitive to Cisco's highest end and highest margin products. Cisco's problem was that it chose to create software compatibility across its products (under the label Cisco IOS), to promote customer lock-in to its equipment and turn itself into an 'end-to-end supplier'. A start-up company such as Juniper can build a new product that is immediately on a par with Cisco's, while the performance of Cisco's products cannot hope to improve quickly-so Kriens contends. Investors certainly agree. If this works out as expected, Cisco will soon be losing market share in its most important area, routers, to companies headed and owned by people, like Kriens, who already own Cisco shares." MSFT v. ASPs "...Microsoft, is unable to articulate the details of its reaction to the emergence, real or imagined, of application service providers (ASPs). "Microsoft faces the possibility that the packaged software business could just go away," says Rob Enderle, vice president at analyst Giga Information Group. "If Microsoft gives in to the ASP business, it will cannibalize PC revenues. If it doesn't cannibalize them, someone else will. It should be asking how much of this revenue can be saved."" From the Conclusion: "For mature companies there seems only one option: to try to make themselves smaller, and spin out divisions to quasi-independent status."