Wonderful Google Quote
October 14, 2008
I collect quotations. One of my favorites is “The right information at the right time is nine tenths of any battle.” That gem is allegedly Napoleon’s. The exact citation I have long since misplaced. I visualize Napoleon making this statement before he heads towards Moscow. The great general’s information was a bit sketchy with regards to mud, cold, and Russia’s ability to let nature take care of most of Napoleon’s troops.
The New York Times’s Web log posting “An Elephant Backs Up Google’s Library” explains that some Google friendly libraries want to set up their own online service for scholars and researchers. The quotation below is attributed to Paul Courant, university librarian and dean of libraries, at the University of Michigan. He said:
‘Google will probably be better than we are at large scale consumer applications.’ But Mr. Courant said that for some services aimed at scholars ‘we’ll be as good or better than them at that.’
A couple of thoughts. First, research means Google to most of the people under 30 whom I have met, surveyed, and interviewed. Institutions can offer an alternative to the Google, but I’m not sure the libraries have the plumbing to deliver. Second, Google is in a position to become the pivot point for scientific, medical, and technical information. This means that Google’s ability to aggregate and provide context will trump the same information without Google’s software value adds. Third, libraries are not exactly at the top of the world’s best endowed institutions. Budgets are tight, and the cash demands of duplicating what Google does may be too great for library overseers.
I want to hang on to Mr. Courant’s statement. In a year or two, we’ll know whether he is correct or like Napoleon before the march to Moscow.
Stephen Arnold, October 14, 2008
GooNews: Google Dooms Some Commercial Database Publishers
September 9, 2008
I have been mired in family business about 90 miles south of Chicago. I was unfortunately unable to add my two cents to the Web wave of comments about Google’s scanning newspapers. Anyone remember University Microfilms, the outfit that put newspapers on–yuck–microfilm? Techmeme and Megite have dozens of posts about Google scanning newspapers, and I doubt that my telling you that Google is supplementing its book scanning activities will add much to your day.
My angle on this announcement by Google here is rotated about six degrees off the Web buzz.
First, you can kiss most commercial database publishers’ as great investments good bye. Customers are tired of paying through the nose for “real” databases. The idea is that Google makes “toy” databases. Wrong. Google is collecting information and making it available with a business model that allows searching for free. Google’s business model is a big earth mover grinding down traditional media. Most traditional media mavens hear crunching but have not connected the noise with the footfalls of the GOOG.
Second, you can ignore those Monday Night Football ads from Thomson Reuters. There were more buzz words about intelligent information and professionals than I could process. Advertising is not going to sell search queries that cost anywhere from $5 to $500 per query. Yes, $500. Fire up Derwent. Hunt for Google patents. Poke around for prior art and let me know how much you pay to search and save your results. Google Patents may not be perfect, but access is free. Ads kon Monday Night Football won’t sell searches on WestLaw–ever.
Third, the yip yap of competitors, advertisers, and Google critics won’t make a single iota of difference to what Google is doing. I have been documenting for clients and for readers of my monographs that Google is a supra national enterprise. So tell me, “Who is going to regulate Google?” One wealthy wizard screamed at me when I hinted that Google could fold its tent and move to another country without much downtime. When I suggested Russia and mentioned Mr. Brin’s interest in going into space, the wealthy wizard foamed at the mouth. I think he threw a pencil at me. If GooNews wipes out companies in the archived news business, to whom does one complain.
In short, GooNews is the start of a new era at Google. I dubbed the company Googzilla in 2005. No one paid much attention. Bet those folks at ProQuest and Newsbank are perking up now. Agree? Disagree? Help me learn. Just bring facts.
Stephen Arnold, September 9, 2008
More on Search ROI
August 8, 2008
I usually agree with Deep Web Technologies’ commentaries. Sol Lederman has written an interesting essay “Measuring Return on Search Investment.” You will want to read his analysis here. The point of his write up is that Judy Luther, president of Informed Strategies, wrote a white paper about ROI for libraries. The good news in Ms. Luther’s analysis, if I read Mr. Lederman’s summary, correctly is that libraries can show a return on investment in an academic library. As a long time library user, I agree that an investment can pay many dividends.
I do want to push back a bit on library ROI. The sticking point is cost analysis. As long as an institution can chop up costs and squirrel them away, it is very difficult to know what an information service of any type costs. Libraries develop a budget. A tiny fraction of that budget goes for books, electronic information, and journals. Most of the money is sucked up from fixed costs like salaries, maintenance, security, and other institutional overheads.
As a result, the “cost” of an information service is almost always the direct cost at a specific point in time for a specific service or product. Costs associated with figuring out what to buy, installing the product, the share of the infrastructure the product requires, and other costs are ignored. As a result, the calculation that shows a specific return is not too useful.
Without a knowledge of the direct and indirect costs, the basic budget analysis is incomplete. Ignoring the “going forward” costs means that when problems occur, the costs can break the back of the library’s budget. Wacky ROI calculations, particularly where digital information and search are concerned, push library’s deeper into the budget swamp. Here in Kentucky, budgets for online information are now cut. The looming problem will be that chopping a direct cost allows the unmonitored and often unknown dependent costs to continue to chew away at the budget.
Libraries face some severe budget pressure from these long ignored costs. These burn like an underground mine fire, and like an underground mine fire, these costs are often very difficult to control.
Stephen Arnold, August 8, 2008
More Burton Group Wisdom about Enterprise Search
July 20, 2008
On July 17, I commented on the first part of an interview conducted by Margie Semilof. Her interview subjects were two consultants attached to the Burton Group. You can read my views and opinions about Part I here.
The second part arrived today with a publication date of July 14, 2008. Like the US snail mail service, express delivery can vary. You can read the full text of the interview with Guy Creese, a content management expert at Burton Group, a Midvale, Utah-based research company here.
I don’t get too excited about content management systems, and I am quick to point out that CMS has created more challenges than CMS has resolved. Software experts in CMS who want to make the leap into enterprise search or a closely allied field remind me of some of the MBAs at Booz, Allen & Hamilton when I worked there 35 years ago. These confident folks figured that with a half hour and some journal articles, no discipline was beyond their ken.
Now to the second part of the interview, which is titled “ABCs of Enterprise Search.” So, my first point is that the poetic convention is abandoned and the interview does not cover the sweep of enterprise search. The interview hits a handful of points, scattering generalizations to dazzle the interviewer.
Several points warrant comment.
First, Mr. Creese, CMS expert, narrows enterprise search to “finding content on your website as well as searching behind the firewall.” Hmmm. In a recent search installation, one of the key requirements was sending queries to a number of public Web sites, concatenating the results, and generating answers. The focus was not finding, but answering questions. Since finding systems have a dismal track record in user satisfaction, I am baffled by this definition.
Second, the interviewer asks a question about tools to normalize content so that a query goes across collections, data types, and sources. The answer given my Mr. Creese is about what’s happening in the market and what Mr. Creese calls segmenting the search market in “a Goldilocks fashion.” I have no idea how transformation and normalization tools relate to the Goldilocks reference. I ask myself, “What the heck is this CMS expert referencing.” Maybe the editor fouled up. Wacky stuff. In his answer, Mr. Creese suggested Microsoft could not develop Fast Search technology itself. I think Microsoft has tried to develop search technology and found that it was not competitive with products from Microsoft Gold partners and tried to buy a Cadillac. Fast is more of a Chevrolet Vega, and I think Microsoft has yet to confront the challenges the acquisition puts on Microsoft’s doorstep.
Third, the interviewer asks, “Who is in charge of enterprise search?” The CMS expert names people who could be in charge. The answer in most organizations is, “No one.” Search is a hot potato and responsibility moves around like a miniature poodle with fleas. I find that more organizations are using procurement teams because the single point responsibility does not work very well.
Fourth, the interviewer wants to know about Microsoft’s acquisition of Fast Search & Transfer. Mr. Creese, if I understand his answer, is that Microsoft wanted a migration strategy and a way to get around the document limit in SharePoint search. My understanding is that Microsoft itself may be confused about why it bought Fast Search & Transfer. The price tag was astounding. The Fast ESP installations require quite a bit of baby sitting to work. Integration so far consists of a Web part. One source in Norway told me that Microsoft is cleaning up the rumors swirling around Fast Search’s financial dealings. In short, the logic is clear in the Microsoft news releases. The reality is a trifle muddy.
Fifth, the interviewer wants to know what one gets with Fast Search & Transfer search technology. In my experience, you get a box of parts. Licensees have to have these assembled to deliver a system that meets specific requirements. As long as the resources are available, Fast ESP–as well as a number of other vendors’ systems–can perform many marvelous functions. When resources aren’t sufficient, well, there’s some trouble in paradise.
My thought is that the answers as published reveal a CMS expert who has not been deeply involved in multiple enterprise system projects. Just like the confident MBAs at Booz, Allen so long ago. It’s easy to talk; harder to be deeply informed.
Agree? Disagree? Help me learn.
Stephen Arnold, July 20, 2008
Sirsi Dynix: Nudging Libraries toward Enterprise Search
June 27, 2008
Sirsi Dynix provides technology solutions to libraries. On June 25, 2008, Sirsi Dynix issued a news release that features a number of new features, including:
- Fuzzy search technology
- Improved search index updating
- Support for forthcoming community/social networking capabilities.
- such as user reviews, rankings and tagging and more in future releases.
One feature puzzled me. Sirsi Dynix asserts that it has a “search widget,” which provides a code snippet that can easily be cut and pasted in order to present an enterprise search box within existing Web pages. When I see the phrase “enterprise search” I do not think of library systems. Sirsi Dynix says that these functions will be available to users of the Sirsi Dynix online public access cataloging systems. Enterprise search systems have been, in my experience, segregated from enterprise search or behind-the-firewall search systems.
My recollection is that Sirsi Dynix uses technology from Brainware. An interview with one of Brainware’s senior managers appeared in ArnoldIT.com Search Wizards Speak series. The description of the Brainware system is interesting because Brainware’s system pivots on pattern matching. You can read the interview here.
A number of search-centric vendors are adding collaboration and social functions, which is standard operating procedure in the search business. Each new trend gets “bolted on” to the basic engine. Some vendors’ systems have become quite complex, and it is not clear how collaborative and social functions will mesh with basic search functions.
Stephen Arnold, June 27, 2008
Civita: The Paradox of Disintermediation
March 19, 2008
In December 2007, Antonio Maccanico, director, Associazione Civita in Rome, Italy, asked me to contribute an essay to a forthcoming publication focused on new information and communications technology. The full essay will not appear in print until later in 2008, but I wanted to highlight several of the points in my essay because each is germane to the tumultuous search and content processing sector. When the Italian language publication becomes available, I will post a link to the full text of my essay “Open Access and Other New Communication Technology Plays: The Temptation and Paradox of Disintermediation Roulette”.
First, the title. One of the issues that arises when a new search or content processing technology becomes available is its usefulness. Few vendors assert that their newest system brings numerous benefits to a licensee, user, or business partner. A positive, optimistic outlook is one of the essentials of mental health. However, I’ve learned to be conservative when it comes to benefits. This essay of Associazione Civita reminds the reader that many new information technologies are powerful disintermediators.
Disintermediation means cutting out the middle man or woman. If it is possible to buy something cheaper direct from manufacturer, many people will. The savings can be a few pennies or orders of magnitude. Information technology disintermediates. In my experience, this is a categorical affirmative. The benefit of information technology — particularly search and content processing — is that it creates new opportunities. We are in the midst of a information discontinuity. Publishers — classic intermediaries between authors and readers — are learning about disintermediation as I keyboard this summary. Libraries continue to struggle with disintermediation as student rely on Google, not reference books for research. The paradox, then, is that dislocation is inevitable. So far, the information revolution has created more opportunities overall. Users are “winners”. Some entrepreneurs are “winners”. Some traditional operations are trying to adapt lest they become “losers”.
Second, the core of my argument in this essay for Associazione Civita boils down to three issues. Let’s look at each briefly. Please, appreciate that I am extracting a segment from a 20 – page essay:
- Web sites, Web services, and Web applications do not guarantee success. In fact, inexperience or bad decisions about what to “Web – ify” can drag an organization down, and, in terms of revenue, plunge the operation into the red. Therefore, significant effort is required to create a browser experience that attracts users and continues to build usage. The costs of development, enhancements, and sales are often far greater than expected. In terms of search and content processing, customers learn (often the hard way) that there is neither money nor appetite for making the system perform as advertised. I see no change in this paradoxical situation. The more you want to do with content, the farther behind you fall.
- Information on its own won’t ensure success. Users are now savvy when it comes to access, interface, ease of use, and clarity. I learned yesterday about a new search system that uses the Apple iPhone “flipping page” metaphor to display search results. A list of relevant results in the view of the venture firm pumping millions into this start up is that interface, not relevance, is as important as clever algorithms. I never thought I would say this, but, “I agree”. A flawed user experience can doom a superior search and content processing system within 30 seconds of a user’s accessing the service.
- Assumptions have to be verified with facts. Echoing in my mind is a catch phrase from someone in either President Reagan’s or President Clinton’s administration. The catch phrase is, “Trust but verify”. One of the twists in the information world is that the snazzier the demonstration, the greater the gullibility factor. A “gullibility factor” is a person’s willingness to accept the demo as reality. Assumptions about what search and content processing can do contribute to most information retrieval project failures. We stop at “trust” and leap frog over “verify”.
What happens when a system works well? What takes place when an entrepreneur “invents” a better mouse trap? What takes place when senior management uses a system and gets useful results quickly and without an engineer standing by to “help out the suit”?
Disintermediation. When systems work, the likelihood of staff reductions or business process modification goes up. The idea is that software can “reduce headcount”.
This issue is particularly sensitive for libraries, museums, academic institutions, and certain citizen – facing services. The more effective a system is, the easier it is to justify marginalizing certain institutions, people, and manual work processes. As we pursue ever more potent search and content processing, keep in mind that the imperative of disintermediation follows closely behind.
Stephen Arnold, March 19, 2008
Requirements for Behind-the-Firewall Search
February 5, 2008
Last fall, I received a request from a client for a “shopping list of requirements for search.” The phrase shopping list threw me. My wife gives me a shopping list and asks me to make sure the tomatoes are the “real Italian kind”. She’s a good cook, but I don’t think she worries about my getting a San Marzano or an American genetically-engineered pomme d’amour.
Equating shopping list with requirements for a behind-the-firewall search / content processing system gave me pause. As I beaver away, gnawing down the tasks remaining for my new study Beyond Search: What to Do When Your Search System Won’t Work”, I had a mini-epiphany; to wit:
Getting the requirements wrong can
undermine a search / content processing system.
In this essay, I want to make some comments about requirements for search and content processing systems. I’m not going to repeat the more detailed discussion in The Enterprise Search Report, 1st, 2nd, and 3rd editions, nor will I recycle the information in Beyond Search. I propose to focus on the tendency of very bright people to see search and content processing requirements like check off items on a house inspection. Then I want to give one example of how a perceptual mismatch on requirements can cause a search and content processing budget to become a multi-year problem. To conclude the essay, I want to offer some candid advice to three constituencies: the customer who licenses a search / content processing solution, the vendor who enters into a deal with a customer, and the consultants who circle like buzzards.
Requirements
To me, a requirement is a clear, specific statement of a function a system should perform; for example, a search system should process the following file types: Lotus Notes, Framemaker, and DB2 tables.
How does one arrive at a requirement and then develop a list of requirements?
Most people develop requirements by combining techniques. Here’s a short list of methods that I have seen used in the last six months:
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Ask users of a search or content processing system what they would like the search system to do
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Look at information from vendors who seem to offer a solution similar to the one the organization thinks it wants
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Ask a consultant, sometimes a specialist in a discipline only tangentially related to search.
The Fly Over
My preferred way of developing requirements is more mundane, takes time, and is resistant to short cuts. The procedure is easy to understand. The number of steps can be expanded when the organization operates in numerous locations around the world, processes content in multiple languages, and has different security procedures in place for different types of work.
But let’s streamline the process and focus on the core steps. When I was younger, I guarded this information closely. I believed knowing the steps was a key ingredient for selling consulting. Now, I have a different view, and I want you to know what I do for the simple reason that you may avoid some mistakes.
First, perform a data gathering sweep. In this step you will be getting a high-level or general view of the organization. Pay particular attention to these key areas. Any one of them can become a search hot spot and burn your budget, schedule, and you with little warning:
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Technical infrastructure. This means looking at how the organization handles enterprise applications now, what the hardware platform is, what the work load on the present technical staff is, how the organization uses contractors and outsourcing, what the present software licensing deals stipulate, and the budget. I gather these data by circulating a data collection form electronically or using a variety of telephonic and in-person meetings. I like to see data centers and hardware. I can tell a lot by looking at how the cables are organized and from various log files which I can peruse on site with the customer’s engineer close at hand to explain a number or entry to me. The key point of the exercise is to understand if the organization is able to work within its existing budget and keep the existing systems alive and well.
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User behavior. To obtain these data, I use two methods. One component is passive; that is, I walk around and observe. The other component is active; that is, I set up brief, informal meetings where people are using systems and ask them to show me what they now do. If I see something interesting, I ask, “What caused you to take that action?” I write down my observations. Note that I try to get lower-level employees input about needs before I talk to too many big wheels. This is an essential step. Without knowing what employees do, it is impossible to listen accurately to what top managers assert.
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Competitive arena. Most organizations don’t know much about what their competitors do. In terms of search, most organizations are willing to provide some basic information. I find that conversations at trade shows are particularly illuminating. But another source of excellent information is search vendors. I admit that I can get executives on the telephone or by email pretty easily, but anyone can do that with some persistence. I ask general questions about what’s happening of interest in law firms or ecommerce companies. I am able to combine that information with data I maintain. From these two sources, I can develop a reasonable sense of what type of system is likely to be needed to keep Company A competitive with Company B.
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Management goals. I try to get a sense of what management wants to accomplish with search and content processing. I like to hear from senior management, although most senior managers are out of touch with the actual information procedures and needs of their colleagues. Nevertheless, I endure discussions with the brass to get a broad calibration. Then I use two techniques to get information about the needs. Once these interviews or discussions are scheduled, I use two techniques to get data from mid-level managers. One technique is a Web survey. I use an online questionnaire and make it available to any employee who wishes to participate. I’m not a fan of long surveys. A few pointed questions delivers the freight of meaning I need. More importantly, survey data can be counted and used as objective data about needs. Second, I use various types of discussions. I like one-on-one meetings; I like small-group meetings; and I like big government-style meetings with 30 people sitting around a chunk of wood big enough to make a yacht. The trick is to have a list of questions and the ability to make everyone comment. What’s said is important but how people react to one another can speak volumes and indicate who really has a knack for expressing a key point for his / her co-workers.
I take this information and data, read it, sort it, and analyze it. The result is the intellectual equipment of a bookcase. The supports are the infrastructure. Each of the shelves consists of the key learnings from the high-level look at the organization. I don’t know how much content the organization has. I don’t know the file types. I don’t have a complete inventory of the enterprise applications into which the search and content processing must integrate. What I do know is whom to call or email for the information. So drilling down to get a specific chunk of data is greatly simplified by the high-level process.
Matching
I take these learnings and the specific data such as the list of enterprise systems to support and begin what I call the “matching sequence.” Here’s how I do it. I maintain a spreadsheet with the requirements from my previous search and content processing jobs. Each of these carries a short comment and a code that identifies the requirement by availability, stability, and practicality. For example, many companies want NLP or natural language processing. I code this requirement as Available, Generally Stable, and Impractical. You may disagree with my assessment of NLP, but in my experience few people use it, and it can add enormous complexity to an otherwise straight forward system. In fact, when I hear or identify jargon in the fly-over process, my warning radar lights up. I’m interested in what people need to do a job or to find on point information. I don’t often hear a person in accounting asking to do a query in the form a complete sentence. People want information in the most direct, least complicated way possible. Writing sentences is neither easy nor speedy for many employees working on a deadline.
What I have after working through my list of requirements and the findings from the high level process is three lists of requirements. I keep definitions or mini-specifications in my spread sheet, so I don’t have to write boiler plate for each job. The three lists with brief comments are:
- Must-have. These are the requirements that the search or content processing system must meet in order to meet the needs of the organization based on my understanding of the data. A vendor unable to meet a must-have requirement, by definition, is excluded from consideration. Let me illustrate. Years ago, a major search procurement stipulated truncation, technically lemmatization. In plain English, the system had to discard inflections, called rearward truncation. One vendor wrote an email saying, “We will not support truncation.” The vendor was disqualified. When the vendor complained about the disqualification, I showed the vendor the email. Silence fell.
- Options. These are requirements that are not mandatory for the deal, but the vendor should be able to demonstrate that these requirements can be implemented if the customers request them. A representative option is support for double-byte languages; e.g., Chinese. The initial deployment does not require double byte, but the vendor should be able to implement double-byte support upon request. A vendor who does not have this capability is on notice that if he / she wins the job, a request for double-byte support may be forthcoming. The wise vendor will make arrangements to support this request. Failure to implement the option may result in a penalty, depending on the specifics of the license agreement.
- Nice-to-have. These are the Star Trek or science fiction requirements that shoot through procurements like fat through a well-marbled steak. A typical Star Trek requirement is that the system deliver 99 percent precision and 99 percent recall or deliver automatic translation with 99 percent accuracy. These are well-intentioned requests but impossible with today’s technology and budgets available to organizations. Even with unlimited money and technology, it’s tough to hit these performance levels.
Creating a Requirements Document
I write a short introduction to the requirements, create a table with the requirements and other data, and provide it to the client for review. After a period of time, it’s traditional to bat the draft back and forth, making changes on each volley. At some point, the changes become trivial, and the document is complete. There may be telephone discussions, face-to-face meetings, or more exotic types of interaction. I’ve participated in a requirements wiki, and I found the experience thrilling for the 20 – somethings at the bank and enervating for me. That’s what 40 years age difference yields — an adrenaline rush for the youngster and a dopamine burst for the geriatrics.
There are different conventions for a requirements document. The US Federal government calls a requirements document “a statement of work”. There are standard disclaimers, required headings for security, an explanation of what the purpose of the system is, the requirements, scoring, and a mind-numbing array of annexes.
For commercial organizations, the requirements document can be an email with the following information:
- Brief description of the organization and what the goal is
- The requirements, a definition, the metrics for performance or a technical specification for the item, and an optional comment
- What the vendor should do with the information; that is, do a dog-and-pony show, set up an online demonstration, make a sales call, etc.
- Whom to call for questions.
Whether you prefer the bureaucratic route or a Roman road builder method, you now have your requirements in hand.
Then What?
That’s is a good question. In go-go organizations, the requirements document is the guts of a request for a proposal. Managing an RFP process is a topic for another post. In government entities, the RFP may be preceded by an RFI or Request for Information. When the vendors provide information, a cross-matching of the RFI information with the requirements document (SOW) may be initiated. The bureaucratic process may take so long that the fiscal year ends, funding lost, and the project is killed. Government work is rewarding in its own way.
Whether you use the requirements to procure a search system or whether you put the project on hold, you have a reasonably accurate representation of what a search / content processing system should deliver.
The fly-over provides the framework. The follow up questions deliver detail and metrics. The requirements emerge from the analysis of these information and data. The requirements are segmented into three groups, with the wild and crazy requirements relegated to the “nice to have” category. The customer can talk about these, but no vendor has to be saddled with delivering something from the future today. The requirements document can be the basis of a procurement.
There are some pitfalls in the process I have described. Let me highlight three:
First, this procedure takes time, expertise, and patience. Most organizations lack adequate amounts of each ingredient. As a result, requirements are off kilter, so the search system can list or sink. How can a licensee blame the vendor when the requirements are wacky.
Second, the analysis of the data and information is a combination of analytic and synthetic investigation. Most organizations prefer to use their existing knowledge and gut instinct. While these may be outstanding resources, in my experience, the person who relies on these techniques is guessing. In today’s business climate, guessing is not just risky. It can severely damage an organization. Think about a well-known pharmaceutical company pushing a drug to trial despite it being known to show negative side effects in the company’s own prior research. That’s one consequence of a lousy behind-the-firewall search / content processing system.
Third, requirements are technical specifications. Today, people involved in search want to talk about the user interface. The user interface manifests what is in the system’s index. The focus, therefore, should not be on the Web 2.0 color and features of the interface. The focus must be kept squarely on the engineering specifications for the system.
You can embellish my procedure. You can jiggle the sequence. You may be able to snip out a step or a sub-process. But if you jump over the hard stuff in the requirements game, you will deploy a lousy system, create headaches for your vendor, annoy, even anger, your users, and maybe lose your job. So, get the requirements right. Search is tough enough without starting off on the wrong foot.
Stephen Arnold, February 6, 2008
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Simple Math = Big Challenge: MSFT & YHOO
February 4, 2008
I have only a few sections of Beyond Search to wrap up. Instead of being able to think about my updating my description of Access Innovations’ MAIstro, I am distracted by jibber jabber about the Microsoft (NSDQ:MSFT) Yahoo (NSDQ:YHOO) tie up.
Where We Are
First, it’s an offer, isn’t it? Maybe a trial balloon? No cash and stock have changed hands as I write this in the wee hours of Monday, February 4, 2008. Yet, many are in a frenzy over a hostile take over. Think about this word “hostile.” It means antagonistic, unfriendly, enemy. The reason for the bold move? Google, a company that has out foxed Microserfs and Yahooligans for almost a decade.
The number of articles in my various alerts, RSS feeds, and emails is remarkable. Worldwide a Microsoft – Yahoo marriage (even it is helped along with a shotgun) ignites folks’ imagination. Neither Microsoft nor Yahoo will be able to recruit tech wizards, one pundit asserts. Innovation in Silicon Valley will be forever changed, posits another. Sigh.
Sorry. I’m not that excited. I’m interested, but I’m too old, too pragmatic, and too familiar with the vagaries of acquisitions to jump up and down.
Judging from some grousing from Yahooligans, some Yahoo professionals aren’t too keen about working for Microsoft. I have had a hint that some Microsoft wizards aren’t too excited about fiddling with Yahoo’s mind-numbing array of products, services, technologies, search systems, partnerships, and research initiatives.
I think the root concern is trying to figure out how to fit two large operations together, a 1 + 1 = 3 problem. For example, there’s Yahoo Mail and Hotmail Live; Yahoo Panama and Microsoft Ad Center; and Yahoo News and Microsoft’s new services, etc., etc. One little-considered consequence is that Microsoft may end up owning more search systems than any other company. That’s a technology can of worms worthy of a separate essay.
I will tell you who is excited, and, please, keep in mind that this is my opinion. And, once I express my view, I want to offer another very simple (probably too simple for an MBA wizard) math problem. I will end this essay with my now familiar observations. Let’s begin.
Who Benefits?
This is an easy question to answer, and you will probably think that I am stating the obvious. Bear with me because the answer explains why some at Microsoft may not be able to get the right prescription for their deal bifocals. Without the right eye glasses, it’s tough to discern some smaller environmental factors obscured in the billion dollar fusillade fired at Yahoo’s board of directors’ meeting.
- Shareholders who can make some money with the Microsoft offer. When there’s money to be made, concerns about technology, culture, and market opportunity are going to finish last. Most shareholders don’t think too much other than the answer to two questions: “How much did I make?” and “What are the tax implications?”
- Investment bankers who earn money three ways on a deal of this magnitude. There are, of course, other ways for those in the financial loop to make money, but I’m going to focus on the ones that keep these professionals in blue suits, not orange jump suits. [a] Commissions. Where the is churn, there is a commission. For many investment advisors, buying and selling equals a bigger payday. [b] Bonuses. The mechanics of an investment banker’s bonus are complex. After all, it is a banker dealing with a fellow banker. Mere mortals should steer clear. The idea is simple. Generate churn or a fee, and you get more bonus money. The first three months of a calendar year is bonus and job hopping time on Wall Street. Anyone who can get a piece of the action for a big deal gets cash. [c] Involvement in a big deal acts like a huge electro magnet for more deals. Once Microsoft “thought” of the acquisition, significant positive input about the upside of the deal pours into the potential acquirer.
- Consultants. Once a big deal is announced, the consultants [delete apostrophe here] leap into action. The buyer needs analyses, advice, and strategic counsel. The buyer’s minions need tactical advice to answer such questions as “How can we maximize our tax benefits?” and “How can we pay for this with cheap money?” The buyer becomes hungry for advisors of every species. Blue-chip outfits like Bain, Booz, Allen & Hamilton, Boston Consulting Group, and McKinsey & Co. drool in eagerness to provide guidance on lofty strategy matters such as answering the question, “How can I maximize my pay-out?” And “What are the tax consequences of my windfall profit?” Tactical advisors from these firms can provide support on human resource issues and real estate leases, among other matters. In short, buyers throw money at “the problem” in order to be prepared to negotiate or find a better deal.
These three constituencies want the deal to go through. If Microsoft is the buyer, that’s fine. If another outfit with cash shows, that’s okay too. The deal now has a life of its own. Money talks. To get the money, these constituencies have no desire to help Microsoft “see” some of the gaps and canyons that must be traversed. Let’s turn to one practical matter and the aforementioned simple math. Testosterone and money — these are two ways to cloud perception and jazz logic.
More Simple Math
Let’s do a thought experiment, what some German philosophers call Gedankenexperiment. I am not talking about the proposed Microsoft – Yahoo deal, gentle attorneys.
Accordingly, We have two companies, Company Alpha and Company Beta; hereinafter, Company A(lpha) and Company B(eta), neither of which is a real company and should not be construed as having any similarity with any company now in existence.
Company Alpha has a dominant position in a market and wants to gain a larger share of a newer, tangential market. Company A has a proven, well-tuned, aging business model. That business model is a variation on selling subscriptions and generating annuity income from renewals. Company A’s business model works this way. Company A offers a product and then, on a periodic basis, Company A makes a change to an existing product, assessing a fee for customers to get the “new” or “enhanced” version of the product (service).
The idea is that once a subscription base is in place, Company A can predict a certain amount of revenue from standing orders and new orders. Company A has an excellent, stable, cash flow based on this well-crafted business model and periodic fee increases. Although there are environmental factors that put pressure on the proven business model, the customer base is large, and the business model continues to work in Company A’s traditional markets. Company A, aware of exogenous factors — for instance, the emergence of cloud computing and other non-subscription business models — has learned through trial and error that its subscription-based business model does not work in certain new markets. These new markets are potentially lucrative, representing “new” revenue and a threat to Company’s existing revenue stream. Company A wants to acquire a company to increase its chances for success in the new and emerging markets. Company A’s goal is to [a] protect its existing revenue, [b] generate new revenue, and [c] prevent other companies from dominating the new market(s).
Company A has performed a rational, market analysis. Company A’s management has determined that one company only — our Company B — represents a mechanism for achieving Company A’s goals. Company A, by definition, has performed its analyses through Company A’s “eye glasses”; that is, Company A’s proven business model and business culture. “Walking in another person’s moccasins” is easy to say and difficult, if not impossible, to do. Everyone views the world through his own experiential frame. Hence, Company A “sees” Company B as having characteristics, attributes, and capabilities that are, despite some acceptable risks, significant benefits to Company A. Having made this decision about the upside from buying Company B, the management of Company A becomes less able to accept alternative inputs, facts, information, perceptions, and opinions. Company A’s reasoning in its decision space is closed. Company A vivifies what William James called “a certain blindness.” The idea is that each person is “blind” in some way to reality that others can perceive.
The implications of “a certain blindness” in this hypothetical acquisition warrant further discussion:
Culture
Company A has a culture built around a business model that allows incremental product enhancements so that subscription revenue is generated. Company B has a business model built around acquisitions. Company A has a more or less homogeneous atmosphere engendered by the business model or what Company A calls the agenda. Company B is more like a loose federation of separate companies — what some MBAs might call a Ling Temco Vought framework. Each entity within Company B retains its own identity, enjoys wide scope of action, and preserves its own culture. “We do our own thing” characterizes these units of Company B. Company A, therefore, has several options to consider:
- Company A can leave Company B as it is. The plus is that not much will change Company B’s operations in the short term. The downside is that the technical problems will not be resolved.
- Company A can impose its culture on Company B. You don’t need me to tell you that this will go over like the former Soviet Union’s intervention in Poland in the late 1950s.
- Company A can try to make changes gradually. (This is a variation of the option in bullet 2 and will simply postpone rebellion. )
Technology
Company A has a different and relatively homogeneous technology base. Company B has a heterogeneous technology base. Maintaining multiple systems is more costly in general than homogeneous systems. Upon inspection, the technical staff needed to maintain these different systems have specialized to deal with particular technical problems in the heterogeneous environment. Technical people can learn new skills, but this takes time and adds cost. Company A has to find a way to streamline technical operations, reduce costs, and not waste time achieving rationalization. There are at least two ways to do this:
- Shift to a single platform, ideally Company A’s
- Retrain existing staff to have broader technical skills. With Company B’s staff able to perform more generalized work, Company A can reduce headcount at Company B, thus streamlining work processes and reducing cost.
Competitive Arena
The desirable new market for Company A has taking on the characteristics of what I call a “natural monopoly.” When I reflect on notable events in American business history, I note monopolistic behavior. Some monopolies were spawned by force of will; for example, JP Morgan and finance (this guy bailed out the US Treasury) and Andrew Carnegie and steel (this fellow thought of libraries for little people after pistol-whipping his competitors and antagonists).
Other monopolies — like Bell Telephone and your local electric company — came into being because some functions are more appropriately delivered by one organization. Water and Internet search / advertising, for instance, are subject to such economies of scale, quality of service, and standardization. In short, these may be “natural monopolies” due to numerous demand and cost force.
In our hypothetical example, Company A wants to enter a market which is coalescing and beginning now, based on my research, appears to be forming into a “natural monopoly”. This nameless competitor seems to be following a trajectory similar to that of the original Bell Telephone – AT&T life cycle.
Company A’s race, then, is against time and money. Untoward delay at any point going forward with regard to leveraging Company B means coming in second, maybe a distant second or losing out on the new market.
Instead of owning Park Place (a desirable property in the Parker Brothers’ game Monopoly), Company A ends up with Baltic and Mediterranean Avenues (really lousy properties in the Parker Brothers’ game). If Company A doesn’t get Company B, Company A is trapped in its old, deteriorating business model.
If Company A does acquire Company B, Company A has to challenge the competitor. Company B already has a five-year track record of being a day late and a dollar short. Company A, therefore, has to do everything in its power to make the Company B deal work, which appears to be an all-or-nothing proposition.
Now the math: Action by Company A = unknown, variable, escalating costs.
I told you math geeks would not like this analysis. Company A is betting the farm against long odds. Here’s why:
First, the cultures are not amenable to staff reductions or technological efficiencies; that is, use software and automation, not people, while increasing revenues. Company A, regardless of the money invested, cannot be certain of success. Company B’s culture – business model duality is investment insensitive. In short, money won’t close this gap. Company A’s resistance to cannibalizing its old, though still functioning, business model will be significant. Company A’s own employees will resist watching their money and jobs sacrificed to a great good.
Second, the competitive space is now being captured by the increasingly monopolistic competitor. Unchallenged for some period of time, the monopolistic competitor enjoys momentum and a significant lead in refining its own business model.
In the lingo of Wall Street, Company A can’t get enough “oxygen”; that is, revenue despite its best efforts to reign in the market leader.
Observations
If we assume a kernel of truth in my hypothetical analysis, we can now apply this hypothetical discussion to the Microsoft – Yahoo deal.
First, Microsoft’s business mode (not its technology) is the company’s strength. The business model is also its Achilles’ heel. Just as IBM’s mainframe-centric view of the world make its executives blind to Microsoft, now Microsoft can’t perceive today’s world from outside the Microsoft business model. The Microsoft business model is perhaps the most efficient subscription-based revenue generator in history. But that business model has not worked in the new markets Microsoft’s covets, so the Yahoo deal becomes the “obvious” play to Microsoft’s management. Its obviousness makes it difficult for Microsoft to see other options.
Second, the Microsoft business model is woven into the company’s culture. Cultures are ethnocentric. Ethnocentricity often manifests itself in conflict. Microsoft will have to make prescient, correct cultural decisions quickly and repeatedly. Microsoft’s culture, however, does not typically evidence excellent, rapid-fire decision-making.
Microsoft seems to be putting the company in a situation guaranteed to spark conflict within its own walls, between itself and Yahoo, and between Microsoft and Google. This is a three-front war. Even those with little exposure to military history can see that the costs and risks of a three-front conflict will be high, open-ended, and difficult to estimate.
The hostile bid itself is suggestive that Microsoft could not catch Google without Google, the notion that Microsoft can catch Google with the acquisition requires tremendous confidence in Microsoft’s management. I think Microsoft can make the deal work, but I think that execution must be flawless and that favorable winds push Microsoft along.
If Google continues to race forward, Microsoft has to spend more money to implement efficiencies more quickly. The calculus of catching a moving target can trigger a cost crisis. If costs go up too quickly, Microsoft must fall back on its proven business model. Taking a step backward when resolving the calculus of catching Google is not a net positive.
As you read this essay, you are wondering, “How can this doom and gloom be real?” The buzz about the deal is mostly positive. If you don’t believe me, call your broker and ask him how much your mutual fund will benefit from the MSFT – YHOO tie up.
I’ve spent some time around money types, and I can tell you making money is akin to blood in the water for sharks.
I’ve also been acquired and done the acquiring. Regardless of being the buyer or being the bought, ties ups are tricky. The larger the stakes, the more tricky the tie ups become. When the tie up is designed to halt the Google juggernaut, the calculus of time – cost is hard.
Please, recall, that I’m not saying that stopping Google is impossible for a Microsoft – Yahoo tie up to deliver. Making the tie up work will be difficult.
Don’t agree? That’s okay. Use the comments to set me straight. I’m willing to listen and learn. Just don’t overlook my core points; namely, business models, cultures, and technologies. One final thought: don’t factor out the Google (NSDQ:GOOG).
Stephen Arnold, February 4, 2008
Library Automation: SirsiDynix and Brainware
January 14, 2008
On January 9, 2008, Marshall Breeding, an industry watcher in the library automation space, posted a story called “Perceptions 2007: an International Survey of Library Automation.” I urge anyone interested in online information retrieval to pay particular attention to the data presented in Mr. Breeding’s article. One finding caught my attention. The products of SirsiDynix, Unicorn and Horizon, received low satisfaction scores from libraries responding to the survey. Unicorn, the company’s flagship ILS performed somewhat better than Horizon. 14% of libraries running Unicorn and about half of those with Horizon indicate interest in migrating to another system–not surprising considering SirsiDynix’s position not to develop that system into the future. Horizon libraries scored high interest in open source ILS alternatives. The comments provided by libraries running Horizon voiced an extremely high level of frustration with SirsiDynix as a company and its decision to discontinue Horizon. Many indicated distrust toward the company. The comments from libraries running Unicorn, the system which SirsiDynix selected as the basis for its flagship Symphony ILS, also ran strongly negative—some because of issues with the software some because of concerns with the company.
SirsiDynix recently announced that it will use an interesting search-and-retrieval system marketed by Brainware, a company located in Northern Virginia, not far from Dulles Airport.
In my forthcoming Beyond Search study, I am profiling the Brainware technology and paying particular attention to the firm’s approach to content processing. SirsiDynix conducted a thorough search for an access technology that would handle diverse content types and deliver fast throughput. The firm selected the Brainware technology to provide its customers with a more powerful information access tool.
Mr. Breeding’s report provides some evidence that SirsiDynix may want to address some customer satisfaction issues. Innovation or lack thereof, seems to be on the top of the list. SirsiDynix’s decision to partner with Brainware for search-and-retrival should go a long way in addressing their customer’s concerns in this important area. This decision is also a testament to the strength of the Brainware solution. Accordingly, Brainware warrants close consideration when intelligent content processing is required.
Most library automation vendors integrate technology in order to deliver a comprehensive solution. The vendors providing these technologies on an OEM or original equipment manufacturing basis are not able to influence in a significant way how their licensees deploy the licensed technology.
In my take on the data in Mr. Breeding’s article, the challenges SirsiDynix faces are not those of Brainware, a company enjoying 50 percent growth in 2007. In Beyond Search, I’m rating Brainware as a “Warrants a Close Look”. I respect the findings in the survey data reported by Mr. Breeding. But let me be clear: don’t mix up SirsiDynix’s business challenges with the Brainware technology. These are separate matters. SirsiDynix, like many library automation companies, face wide set of challenges, and extraordinary demands from library customers. Brainware provides advanced content processing solutions that should address some of those demands.
Stephen E. Arnold, January 15, 2009
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