Business Blog: Hoover’s Business Insight Zone

My colleague Russ Somers pointed me to an item from Michael Arrington, who discusses the extreme ease with which Amazon’s new Kindle e-book reader can be used to read e-books in formats other than the proprietary one sold by Amazon.

Stealing Books For The Kindle Is Trivially Easy

So since the Kindle makes for such an easy open-format e-book receptacle, surely it’s helping move the book world toward a day when e-books will flow over the ‘Net as readily as song files do today. For context on what I’m talking about, see this post from 19 November:

A BitTorrent for e-books?

As Arrington points out in his post, e-books are already on BitTorrent. The only missing link for wide-scale e-book piracy, working from the model I proposed a couple of weeks ago, is this:

A workable system for translating large numbers of printed books into digital files. This could include all sorts of approaches:

• optical scans, with or without character-recognition, image smoothing, and so on;
• system hacks of publisher/compositor computer networks that would enable direct piracy of typesetting files;
• Project Gutenberg-style keyboarding ventures. It seems clear that a technologically-driven solution based on scanning would be infinitely preferable to relying upon individuals (haphazard volunteers, paid employees, whoever) to keyboard very much material.

Mind you, it seems clear that the Kindle still needs some Apple-style design TLC. (Watch this Robert Scoble video on same if you’re in the mood to hear a rant.) But, at a minimum, it’s compatible with the scenario I laid out earlier.

If it needs saying, I don’t endorse violation of anyone’s copyright. I’m a writer myself, after all, and I’d rather make a living from what I write than not make a living from it. But if, say, you wanted to download a free novel from Project Gutenberg or Cory Doctorow or Charles Stross or Baen Books or . . . you get the idea.

Ed Zander’s not really out, he’s just kicked upstairs to the chairman role while MOT long-timer executive* Greg Brown takes over the CEO duties. Two quick thoughts:

1. Yes, given my previous diatribes on this point, I’m pleased that the Motorola board believed that there was someone in the house — someone whose record sure looks like a future CEO’s record — to take over the reins. According to the company’s press release, Brown has “headed four different businesses at Motorola. He also led the $3.9 billion acquisition of Symbol Technologies” — on top of serving as president and COO until this promotion.
2. Ed Zander came into Motorola with a stellar record compiled at Sun Microsystems and as a venture capitalist. So here’s the question: is it that Zander just didn’t have the right answers for what ails Motorola . . . or is it that Motorola is now operating in a telecom market environment so different from before that the answers aren’t there?

Time will tell how Brown does. I’ll be watching with interest.

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* UPDATE: What with all the puffery in the press release, I misremembered Brown’s history with the company.  As this post points out, he’s been with MOT only since 2003.  Still, it’s better to have a medium-term insider take over the CEO reins than to have to turn to an outsider.

Who will come up with the system for transforming the world’s giant backlog of printed books into e-books? I assume it will be done. The question is, by whom?

The blogosphere (including us) is awash in talk about Amazon’s new Kindle e-book reader, and Steven Levy’s big Newsweek cover story about it. Sample reactions:

• Kevin Kelly thinks the Kindle is headed in the right direction, but doesn’t yet attain what he wants: “that one Cloudbook device still to come” that will integrate everything: books, video, Web, e-mail, phone, whatever — all in one place.
• Rex Hammock is in line with Kelly (and me, by the way): even last year, before the iPhone or the iPod Touch ever came out, he was calling for a book-sized, iPhone-like device that would let you read e-books and do all these other functions.
• John Scalzi is happy to have one of his own novels among the Kindle’s debut titles, but he doesn’t see shelling out $400 for a reader and no books when you could buy 50 printed books for the price.
• Robert Scoble thinks that the Kindle itself will probably fail, but could be important for opening the gateway to e-book readers that really work.
• Peter Kafka disputes the notion that the Kindle will, or even can, be the e-book equivalent of the iPod, simply “because the books you own, the ones you borrow from the library, and every book you buy for the forseeable future, are stubbornly locked in paper format. If you want to read a book on your Kindle, you’ll have to buy a digital copy.” This is very much unlike the current iPod model, in which you can load your whole CD collection — or songs you find online etc. — onto the device with minimal friction.

Which leads me back to my original question. In fuller form: Who will come up with the BitTorrent- or early-Napster-style system for jumping the analog-to-digital hurdle, to transform printed books into e-books?

Let’s do some amateur reverse-engineering to figure out what would be needed:

1. A workable system for translating large numbers of printed books into digital files. This could all sorts of approaches:

• optical scans, with or without character-recognition, image smoothing, and so on;
• system hacks of publisher/compositor computer networks that would enable direct piracy of typesetting files;*
• Project Gutenberg-style keyboarding ventures. It seems clear that a technologically-driven solution based on scanning would be infinitely preferable to relying upon individuals (haphazard volunteers, paid employees, whoever) to keyboard very much material.

2. For distribution of newly created digital files: BitTorrent and its existing analogues. In other words, at this point, the challenge becomes trivial, because it relies on technology already in place.

As far as I can tell, that’s all you would need. Fairly simple project, once you jump the analog/digital divide.

As for who would do this . . . I don’t know. Step #1 is potentially far more labor-intensive than the sort of coding at the root of BitTorrent or the original Napster. Then again, it might be just the sort of challenge that would inspire some in the MAKE crowd to get creative.

What do you think?

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* Let me be explicit in saying that I would never advocate breaking the law this way. I’m just observing that it could be done.

Even when I disagree with him or find some of his ideas wildly impractical, I like Seth Godin because he is so willing to challenge the conventional non-wisdom that afflicts so very, very many industries.*

Now he talks about what he wants Amazon to do on the e-book reader front.

You won’t find me on Amazon’s new book reader

. . . I’ve been hyperventilating about Amazon becoming a book publisher since at least 1998. . . . Lots of room there for Amazon to integrate the process, to find long tail successes, to match hidden needs with authors needing promotion.

. . . My thought was to use it, at least for a few years, as a promotion device. Give the books for free to anyone who buys the $400 machine. (Maybe you can have 1,000 books of your choice, so there’s not a lot of ‘waste’.) You’ll sell more machines that way, that’s for sure. And the people willing to buy the device are exactly the sort of people that an author like me wants to reach. No harm, no foul, all three of us win. If there were a million of these machines out there and an author had a chance to have her next book show up automatically on all of them, few among us would say, “no thanks to that exposure.”

This is an idea worth pursuing. I’ve expressed my own doubts about the utility of e-book readers. My hunch is that, at least while e-book readers sit at such an enormously high price point, they have very little future as a standalone device. People will read books on electronic devices, but my guess is that these will be smartphones or iTouch-type devices rather than expensive single-function toys made for rabid early adopters.

Godin’s idea would help e-book readers expand beyond the early-adopter market — but so far no one’s biting. My guess is that Apple or Nokia will solve this issue before Sony will. In other words, the solution will come in the form of an integrated communications device rather than an electronic entertainment gizmo. When the time comes, Jeff Bezos will figure out how Amazon can make money from the phenomenon — but that still looks to be a ways off.

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* You and I shouldn’t sit here feeling so smug. I can guarantee you that I’m locked into many kinds of conventional unwisdom in my own approach to business, and I’ll bet you are, too. Am I wrong?

Xerox has declared its first quarterly dividend since the dark days of 2001.

Most of us Hoover’s editors can’t help but develop some favorites among the companies we cover. Xerox is one of mine, because it embodies several things that I find compelling:

• It’s proof-positive that a big, legacy-burdened company with a broken business model can sometimes be fixed. (This is something that Alan Mulally at Ford seems to grasp — and a good thing, too.)
• Instead of reaching outside the company for an overcompensated big-name CEO to play savior, the Xerox board tapped an insider — Anne Mulcahy — who already knew the Xerox culture inside and out, but who also had the guts to change what needed changing.
• As we’ve discussed before, Mulcahy and the Xerox board have set up a clear succession plan so that, when Mulcahy is done, Ursula Burns is fully prepared to take over.
• The company’s recovery from near-disaster several years ago has, in many ways, been resolutely un-sexy. It’s been mostly about building methodical advantages over time.

Many other companies in trouble could take a lesson here.

So why only two-and-a-half cheers? Because I’m going to save the full three cheers for the day — not to far from now, I’d bet — when Xerox is on such a good course that any talk about its restructuring dwindles away into the mists of history.

This follows up on an item we ran last week: GPS device maker Garmin has withdrawn its $3.3 billion bid to buy digital map database maker Tele Atlas, which ends Garmin’s bidding war with rival location-device maker TomTom.

The key influence on Garmin’s move seems to be the supply agreement it worked out with its current map supplier NAVTEQ (and by extension with NAVTEQ’s purchaser, Nokia) to supply Garmin with digital maps for many years to come. Apparently in this case Garmin decided that it was cheaper and better to strike a long-term deal with its current supplier rather than try to buy mapmaking capacity for itself.

But long-term issues remain, especially this one: if I’m going to own a smartphone anyway, and if that smartphone has GPS and mapping capabilities embedded into it . . . why would I need a separate GPS device from Garmin or TomTom? For more on this angle of the story, check out our post from last week, as well as this Bloomberg story (which was written before Garmin dropped out of the bidding war). The Bloomberg piece raises the specter that Garmin may suffer the same fate as Palm as more consumers move to smartphones that integrate many functions.

When we were discussing AOL’s layoffs a couple of weeks ago, a commenter named Jay said this:

One of the weird things about regular layoffs is that it creates a perverse incentive: Don’t fire your poor performers.

If you know that, within 12 months, you’re going to be asked to trim 20% of your team no matter how critical their work is, wouldn’t it make sense to keep a few people on your team that you can safely let go?

Exercise for the reader: Does this, in turn, foster the likelihood that the company will *need* to have another layoff?

Today’s news is full of stories on Alcatel-Lucent’s plans to lay off 4,000 employees. Worse than the news is how little surprise it provoked: the company has already announced layoffs of 12,500 people this year, it just reported yet another sizeable loss (and on declining sales — yikes), it’s still restructuring in the wake of last year’s merger, and various indicators suggest that the restructuring effort must become more radical, not less. Oh, and the market is shifting out from under the company, too.

As we’ve discussed before, the separate companies of Alcatel and Lucent needed serious cutting to rationalize operations before they merged. Given the inevitable redundancies in central-office staff, overlapping product groups, and the like, it’s no surprise that so many people have gotten the ax this year. It’s also little surprise to find out that there has been major infighting within the combined company as the French and American sides of it dig in their heels when it comes to deciding which are the redundant parts. (Who on earth could have seen that coming?)

Alcatel-Lucent’s case is and isn’t like AOL’s. The major difference is that the telecom equipment company completed its ill-advised merger in 2006, whereas the Internet company completed its ill-advised merger (into Time Warner, in case you’ve spent this decade on a desert isle) in 2000. What this means is that the bleeding at Alcatel-Lucent is urgent — it comes in obvious spurts. At AOL, the wounds are deeper, somewhat hidden, and they throb silently most of the time. The online company isn’t hemorrhaging, just slipping steadily into decline.

That steady decline underlies AOL’s habit — alluded to in Jay’s comment above — of cutting its staff year after year. Like the telecom equipment market, the space in which AOL plays is evolving, rapidly in some respects, more slowly in others. Like Alcatel-Lucent, AOL has been slow in admitting the severity of the issues it must confront. Possibly AOL’s leadership is just slow in admitting these things to themselves, as Alcatel-Lucent’s CEO Patricia Russo has been slow to admit (or to grasp) the magnitude of the problems that her company faces. The big difference is that Alcatel-Lucent’s dismal results have now forced a more urgent shakeup in how the company is organized and managed; AOL’s slow decline allows it to fall into the bad habit of self-inflicted death by a thousand cuts.

To its credit, Alcatel-Lucent is changing things from the top on down, cutting the size of its executive committee by two-thirds and simplifying its geographical structure. That simplification must accelerate if the company is to compete with the highly capable rivals (Cisco, Ericsson, Nokia Siemens) who have been feasting on its disarray. Likely it will mean more layoffs in the long run. (This story cites a telecom industry analyst who says that the company would have to cut a total of 30,000 workers — as against the 16,500 job cuts already announced — to be as efficient as Ericsson.)

Unlike AOL, Alcatel-Lucent does not seem to be stage-managing its layoffs — and let’s hope they never start to. Rather, they’re responding to pressing needs which, though they probably should have been obvious enough to act upon six months ago, at least are being acknowledged as essential now. With habitual layoffers like AOL, you’re justified in thinking that tending to p.r. has become more important to them than improving operations.

The best companies restructure every day. They build the whole business over, build it better, through every business cycle. Layoffs should happen all the time, too: person by person and team by team as performance and the needs of the company dictate. You only get into Alcatel-Lucent’s predicament through years of deferred decisions about the hard choices facing the business, a habit that is often tied to a company culture of ignoring reality.

Let’s hope that Alcatel-Lucent is finally facing up to reality. Layoffs are hard medicine, but they’re not as bad as collapse, which seems to be the alternative.

Today’s Company of the Day is Alcatel-Lucent.

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Question: What do you get when you merge two bloated, not-very-efficient companies (Alcatel and Lucent) that operate in a chaotic sector (telecommunications equipment) and lag far behind the industry leader (Cisco Systems)?

Answer: A bigger, more bloated, and still not-very-efficient company that lags far behind the industry leader.

Alcatel-Lucent took its current form in late 2006, when Alcatel plunked down $11.6 billion to buy Lucent in a merger that has not, shall we say, elicited cries of delight from both sides of the Atlantic. While advocates of the merger touted all kinds of advantages that would come from the combination of the two companies’ customer bases and technology portfolios, the unstated subtext — one that the principals behind the deal likely wouldn’t admit — was that misery loves company.

Despite the stoic efforts of CEO Patricia Russo and her team, the misery hasn’t gotten better since the two companies joined forces. While Cisco Systems keeps pacing the field in terms of both technology and financial health, Alcatel-Lucent has lowered its 2007 sales forecast three times. (One is tempted to add “so far.”) What’s holding up progress? Besides the usual tumult in the telecom equipment market — which, like semiconductors or biotechnology, constantly sees new technologies supercede old ones — Alcatel-Lucent must also deal with the overlong legacies of its predecessor firms, which could hardly help but inherit some of the bloat and bureaucracy of their old-style telephone company ancestors. Then, just for a garnish, you can factor in some trans-Atlantic cultural friction, too. Even if Lucent had been perfectly organized on its own (it wasn’t) and if Alcatel had been perfectly organized on its own (ditto), the combination of the two companies couldn’t help but be tricky. Layer the legacy problems on top of the cultural ones and the technological ones, and you arrive at the mess that Alcatel-Lucent faces now.

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Today’s Company of the Day is Research in Motion.

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“Put the Blackberry down and back away!” Okay, we’re not quite to the point of armed intervention, but plenty of people do feel an obsessive connection to their BlackBerries. That’s just fine by Research In Motion, the Canada-based maker of the wireless e-mailing devices. The company was in the news again last week for all the right reasons when it announced boffo earnings and robust projections for the upcoming quarter. Considering that RIM’s revenues, profits, and profit margins have already risen steadily across this decade, that’s good news indeed. While RIM’s traditional stronghold has been among business users, an increasing part of its success is coming from the consumer side of the business; in the past quarter, for the first time in the company’s history, consumer subscriptions to the BlackBerry service grew even faster than business subscriptions.

While the BlackBerry was ahead of its time in delivering e-mail to mobile devices, RIM now faces stiffer competition from new generations of smartphones. To keep up its momentum in the face of these challengers, RIM is planning to introduce new software that will allow BlackBerry users to share calendars and other electronic files (including images and music as well as documents) while they’re on the go. This comes on top of RIM’s recent acquisitions of Ascendent Systems (voice mail and mobile telephony software) in 2006 and SlipStream Data (data compression and acceleration) earlier this year. BlackBerries also work in more places than ever, since RIM has expanded the geographic footprint of its services by partnering with wireless service providers across Asia, Europe, and the Americas. It’s a sign of the device’s broad success that many companies have now instituted “No BlackBerry” rules for meetings. Without rules like these, many BlackBerry users find that they just can’t tear themselves away from their electronic lifelines.

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Last week I talked a bit about Dell in a post that drew the attention of Dell’s own blogger. (See the comments section for that post.)

Today I came across this tidbit from ZDnet, which breaks down the latest UBS poll of CIOs in the US and Europe. While it’s not as though Dell is hemorrhaging, the report reflects chunks of bad news for the erstwhile king of the computing mountain, especially when it compares Dell to archrival Hewlett-Packard.

A key tidbit:

The UBS survey also reveals some early vendor specific concerns. For instance, more CIOs indicated that they planned to spend less on Dell desktops compared to March. According to UBS only 9 percent said they expected to increase spending with Dell in the second half of 2007 compared to 23 percent in March. Twelve percent of respondents plan to decrease spending on Dell desktops. HP appears to be the beneficiary with 16 percent of CIOs expecting to increase spending on HP desktops with 11 percent reducing spending.

The whole piece is worth reading if you’re interested in trends for corporate spending on computing equipment. Among other things, the piece includes some information on trends in uptake of server virtualization, the business pioneered by VMware (discussed further in this August 15 post).