Monday, March 28, 2005

When Financial Analysts Attack

I don't know why, but I take perverse pleasure in seeing financial analysts outside the tech industry make colossal, sweeping predictions, basing them on incredibly wrong, sometimes borderline-supersititious premises. (I imagine they feel the same way when they see some random geek sounding off on The Motley Fool or Yahoo! Finance.)

Thomas Hazlett of The Financial Times starts off with an interesting question: "Is Microsoft Toast?" He believes that while the anti-trust suits failed to break Microsoft hegemony, Google, Mozilla, and Apple are examples of the rest of the market "chipping away" at the giant.

Wow. Major revelation to anyone who hasn't been online in the past five years.

It gets worse. The article is coated with a glossy sheen of outright errors:

Apple, with its tight, integrated interfaces cinching hardware to software has proven powerfully resistant to viruses and spyware, the poisonous infections of the Internet. Meanwhile, Microsoft users scramble to update their software with the latest patches, frantically downloading anti-viral software, running and re-running spyware disinfectants.

Erm, no. "Cinching hardware to software" has nothing to do with preventing malware infections, at least not until we get into the realm of things like Microsoft's "Trusted Computing" systems. Apple OSs do seem to have less malware issues, but hardware isn't the cause: it's a combination of marketing and software issues. Commercial malware authors wouldn't make enough money from Apple ports of their software to justify the costs, and most noncommercial (i.e., virus) authors don't run Macintoshes, so they can't program for them. Cross-platform languages don't typically lend themselves to the small size and tight OS coupling required for stealthy malware, and Apple's shift to the UNIX-based OS/X means they have a better security model than either their traditional OSs or "home"-targeted Microsoft OSs. (Beside that, I have a hard time taking seriously anyone who thinks I "scramble" when I update, or that I'm "frantically downloading" random software on any of the OSs I run).

Recall that the government’s anti-monopoly solutions focused on gaining access for multi-media software, such as that provided by RealNetworks, to piggyback on the Windows network. Yet the creation of an entirely new web-based gizmo, tied online to Apple’s iTunes, has proven the killer app. And despite the explosion in (legal) online music downloads, RealNetworks has seen its shares rise less than the Nasdaq over the past two years

Mr. Hazlett seems to be confused about who's benefitting from iTunes. This sentence falls at the end of a paragraph talking about how Apple is eating Microsoft's lunch. But then he tosses in RealNetworks. So which "entirely new web-based gizmo" is the "killer app": Apple's iTunes (which is being brutally undercut by other, cheaper services), or RealNetwork's Harmony (which Apple is trying to kill off by making their iPods incompatible with Harmony downloads)? I don't think Mr. Hazlett groks the phrase "killer app".

He also doesn't seem to understand much about Google or thin-client computing:

[T]ake the Google gambit. A company provides a new and improved search engine, splices in a few well-targeted ads, and is now capitalized at $50bn. Microsoft, despite ‘owning’ the software on which the applications run, did not get here first.

The whole idea of thin-client computing (like Google Search) is that the applications run on the server, not on the client. Microsoft doesn't own the software on which the applications run, and that's to their detriment. The software Microsoft owns is the eyepiece, not the telescope.

Apple is today on the upsurge because its personal computing systems have been vacuum-sealed, and because the company has – to the point of fetish – delighted in producing its own devices. While either was a distinct liability a decade ago, when Microsoft blew past by seizing the scale advantages of “open” operating system software, Apple’s obsessions look smarter now.

Perhaps Mr. Hazlett is unaware that the operating system that's powered Apple's comeback (at least on the non-iPod hardware) is itself based around an open-source operating system. Even so, as a developer I'm gobsmacked to hear someone describe Microsoft's operating system software as more open than Apple's. They're really about at the same level of openness for an applications developer, and Apple certainly has a higher level of openness if you're looking at the OS itself (Microsoft's limited and legally-encumbered "Shared Source" program for Windows CE notwithstanding).

And then, one more non-sequitir: a faint-praise swipe at Mozilla and Google themselves:

Yet, Mozilla opens its code to the world, generating robustness on pretty much the strategic polar extreme. Somehow, this seems to work in today’s marketplace, as does the Google business model, which looks a lot like the standard pre-bubble With the exception of the revenues (Google has some).

It works for Mozilla because Mozilla is not a sold product. Financial people seem to have a hard time grasping the idea that people in open source work for non-monetary rewards.

More surprising was that offhand shot at Google. I suppose $3.19 billion qualifies as "some" revenue; in fact, I think Financial Times would be rather happier with those numbers than with its own.

To be honest, Mr. Hazlett's hypothesis actually squares pretty well with what I see from my technological vantage point. It just makes me cringe to see a good-looking house built on questionable timbers.

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