But if Apple made no discernible improvements to an iPhone or iPod, it would still have its army of loyal fans singing their praises from the rooftops, such is the blind loyalty that they feel for the Apple brand.

To call them, as many do, ‘Apple fanboys’ might be something of a generalisation (and rather sexist) but there is no doubt that when it comes to Apple, buyers of its products are often more than mere customers. They are usually brand ambassadors too: talking passionately about their latest gadget or gizmo to anyone who will listen, or flooding the Internet with positive blogs and comments about Apple and its products. Such is the success of Apple’s marketing.

CBR has interviewed the co-CEO of rival Research in Motion three times in recent years, as well as the CEO of Palm. Despite asking, Apple has not opened a single channel of communication with CBR: it believes it has no reason to explain its strategy to the press, and annoyingly, it’s probably right.

But it is also the behaviour of an arrogant company. One which genuinely believes its products are always the best, its strategy always spot on, its rivals fools. That strategy has worked for the company in recent years, with only a few bumps in the road to give it pause for thought.

A while back it was forced to settle federal charges in the US that it broke its promise to offer customers free technical support. It was found by the Federal Trade Commission to have been charging customers $35 each time they needed help, despite having promised those customers guaranteed free access to technical support staff for as long as they owned their products. Apple declined to comment on the settlement: surprise surprise.

Apple again showed just how much it valued the loyalty of its customers, this time iPhone early adopters, when it dropped the price of the iPhone from $599 to $399 within weeks of it going on sale.

Those who had paid the $599 price tag were understandably livid about the fact they appeared to have paid the price of simply being first in line to buy the device. Apple eventually did a major U-turn, offering rebates to many of those customers but even then only offering a $100 credit to many, which had to be spent in an Apple Store on Apple Online Store.

In an open letter to customers, CEO Steve Jobs apologised, but found it hard to do so unconditionally. He told disgruntled early adopters they would realise if they had been “in technology for 30+ years” like him, that the “technology road is bumpy”. “This is life in the technology lane,” he told them. How humble.

It’s been acting in a similarly discourteous manner over faulty power adapters, too. It was forced to settle a class action in May 2008 which alleged that Apple had covered up wide-spread problems with MacBook and MacBookPro adapters, and thereby forced yet more disgruntled users to have to buy replacements at the full cost of between $25 and $79. A similar suit, again related to faulty power adapters, was brought in May this year in Federal Court in California and is ongoing.

It’s a shame that consumers must turn to the courts for their concerns to be recognised. It makes it even more surprising that the firm’s loyal followers appear to remain just as loyal despite its apparent disregard for customers who feel they have a genuine complaint.

But such is Apple’s iconic image that it appears able to turn seasoned commentators into cogs in the Apple marketing machine. Take the usually accurate CNet blogger Matt Asay’s article in July last year. “The Mac owns the US. Windows owns the world…” read his headline, for a story about desktop market share stats.

The facts? Gartner had said that in Q2 2008 Apple had 8.5% market share in the US, compared to Dell with 31.9% and HP with 25.3%.

Apple grew market share in the US by 31.8% that quarter, it’s true, but you don’t need a degree in mathematics to know that the smaller the number you are growing from, the bigger the percentage rise. Rivals grew units well but from far larger installed bases, so the percentages were far smaller than for Apple.

As Asay also pointed out, globally Windows growth was 16%, while Apple only managed 3.2% growth outside the US. Perhaps Asay’s closing remarks give some suggestion of why he led with the Apple good news, and perhaps over-egged it in their favour a little: “Good products continue to make headway… Does Apple reflect the US' consumer-spending binge? I'd hate to think my beloved Mac is making its gains at the expense of sound fiscal conservativism,” he wrote. “On the other hand, is Windows the new cheapskate strategy? Do people only buy it if they're looking for something cheap and ‘good enough’?”

If people buy Windows because it is a “cheapskate strategy”, that makes 91.5% of the US market cheapskates, according to Gartner’s Q2 2008 figures, and an even higher percentage if you look at worldwide figures.

Just yesterday, another seasoned hack succumbed to the Apple hype. The Daily Telegraph’s technology correspondent Matt Warman, discussing the launch of the iPhone 3G S in an article that was actually fairly damning of the new version, still wrote: “That’s the problem with Apple - it just keeps on pretending it always knows best. It’s fine while the iPod remains the world’s best MP3 player, but in the age of Google and its Android operating system, all phones are becoming computers. That may be an idea Apple invented, but the collective wisdom of the millions of people who use and develop applications for Google technology means that a battle is now on.”

To suggest that Apple invented the idea of a phone that has computing capability is a mistake, but unsurprising given the hype that surrounds any Apple pronouncement.

Although there is no industry standard definition of a ‘smartphone’, IBM and Bellsouth launched a phone with computing abilities back in 1994, called Simon. It featured a mobile phone, a pager, a PDA, and a fax machine. It included a calendar, address book, world clock, calculator, note pad, email, and games.

IBM Simon: preceded Apple iPhone by 13 years, although it did resemble a brick.

It had no physical buttons to dial with. Instead customers used a touch-screen to select phone numbers with a finger or create facsimiles and memos with an optional stylus. Text was entered with either what was then a unique on-screen ‘predictive’ keyboard or QWERTY keyboard. Sound familiar?

The Simon was followed by similar ‘smartphones’ from Motorola, Sony and others. Fast-forward 13 years to 2007, and Apple launched the iPhone.

It’s inarguable that the first iPhone ushered in major advances in usability over its smartphone predecessors, in a form factor that still attracts admiring glances. As Apple’s British designer Jonathan Ives said at the launch with uncharacteristic modesty for an Apple employee, “It's not too shabby, is it?” Pleasing design has always been one of Apple’s greatest strengths.

Yet in other areas it still trails the competition. Its operating system is not multi-threaded, limiting users to accessing only one application at a time. Palm, Research in Motion and even Windows Mobile devices have the edge here.

As the Telegraph’s Matt Warman argues, the iPhone 3G S did not move the game forward dramatically. But thanks to the passion of Apple users for the Apple experience, the iPhone is unlikely to be anything other than a continued success for Apple. It's one of those inexplicable truisms of the IT industry that whatever Apple throws at its customers, they come back even more evangelical than before.

Recommended independent reading on the Apple iPhone:

Tony Cripps, Senior Analyst and Service Manager of Ovum's Wireless Software advisory service. "The iPhone’s real beauty is its ability to refresh itself."

Peter White, CEO of Rethink Research on Google Android versus iPhone's 'sideloading' via iTunes.

Please follow me on Twitter: www.twitter.com/jasonstamper.

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In the below podcast, I asked him about that deal, about the potential overlaps between the content management portfolios of Open Text and Vignette, and also why he believes Vignette was having a tough time finding consistent financial performance.

I also asked him whether Autonomy's acquisition of Interwoven earlier this year presents a greater threat to Open Text and its Vignette business.

Here's Part 1, and here's Part 2. They're both MP3s.

John Shackleton, Open Text CEO.

Please follow me on Twitter: www.twitter.com/jasonstamper

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We also touch on the role of social networking -- Twitter, LinkedIn and so forth -- in the enteprise today, and whether it is right for some companies to be banning the use of such tools.

You can listen to it here. It's in Windows Media format.

IBM's UK and Ireland CEO Brendon Riley: head of one of IBM's largest business units.

Previously, based in Vienna, Riley served as Managing Director of IBM in Central and Eastern Europe, Russia/CIS, Middle East, Africa, Austria and Switzerland, where he was responsible for one of the corporation’s fastest-growing portfolios worldwide.

Prior to this position, Brendon was based in Sydney, in his native Australia, where he was the Managing Director & Chief Executive of IBM Global Services Australia (GSA), an IBM, Telstra and Lend Lease joint venture company.

Please follow me on Twitter: www.twitter.com/jasonstamper

Thanks to Rodrigo Galindez on Flickr for the pic (CC licence).

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Rackable bought SGI for $25m in cash in April this year. A month later as it completed the acquisition, Rackable announced that it is changing its own name to Silicon Graphics International Corp, or SGI.

[click continue reading for more]

"Silicon Graphics is viewed as an iconic brand. Everyone knows who they are and though some will also know they have been in trouble recently that's as opposed to not knowing the brand at all," he added.

SGI's George Skaff.

Skaff said, “This is our first major acquisition. This is much bigger and more complementary than when we took the storage line from Terrascale.”

Rackable bought Terrascale in April 2007, but things didn’t exactly go to plan – in August last year Rackable announced it was selling the RapidScale product line it garnered from Terrascale, after disappointing forecasts for RapidScale sales. Rackable shortly thereafter announced a partnership with NetApp to replace the RapidScale capabilities.

Announcing that deal, Rackable said, “Under terms of the agreement, Rackable Systems is joining NetApp’s Embedded Systems Vendor Program and will integrate NetApp storage into [our]… Eco-Logical data centre server and infrastructure offerings.”

But Skaff said the SGI acquisition is not comparable with its botched Terrascale buy: “The services side [of SGI], geographic coverage and portfolio made this a great buy for Rackable,” he said.

Asked about the fact that analysts point out that most technology acquisitions fail, Skaff said: "It's certainly easy to say that most acquisitions fail but some get the integration done very effectively."

"I can't tell you with 100% certainty that it will work but we have confidence that the executive team -- for instance our CEO was at CA and did many acquisitions, day in and day out -- as well as using advisors who have done it before and made it work, gives us confidence we will get it right," he said.

As for the competition to the new SGI, Skaff said, "We are more of a threat to Dell now thanks to our size and global presence and offering. We are becoming a large company with a large service portfolio."

"With Sun out of the picture," he said, with reference to the fact that Sun has been bought by Oracle, "and since it is yet to be determined if the Sun product will survive or not -- margins are quite different [between Oracle's software business and the Sun hardware business] – we have a great opportunity."

"We think by 2010 we can be making $500m, that's the guidance. Our mission remains to solve companies' most demanding IT infrastructure challenges," Skaff said.

In its first quarter ending April 9, Rackable announced sales of $44.4m, up from $38.8m in the year-ago period.

GAAP net loss per share from continuing operations was ($0.46) for the first quarter of 2009, compared to GAAP net loss per share of ($0.61) for the fourth quarter of 2008 and GAAP net income per share of $0.09 in the first quarter of 2008.

Non-GAAP net loss per share from continuing operations was ($0.24) in the first quarter of 2009, compared to non-GAAP net loss per share of ($0.17) for the fourth quarter of 2008 and non-GAAP net income per share of $0.12 in the first quarter of 2008.

"I am pleased with our revenue and working capital progress quarter over quarter, but I am not satisfied with the overall results," said Mark J. Barrenechea, president and CEO of Rackable Systems (now SGI) at the time of the results announcement. "Although the economic turmoil will remain a challenge in 2009, we are focused on accelerating innovative products to market, controlling expenses and completing the acquisition of Silicon Graphics' assets, enabling us to achieve better gross margins and customer diversification."

Rackable Systems ended the first quarter of 2009 with $181.2m in cash, cash equivalents, long-term and short-term investments, compared to $180.6m at the end of the year-ago quarter.

Please follow me on Twitter: www.twitter.com/jasonstamper

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If you've flicked through the digital radio channels in the UK you may well have come across Birdsong Radio, a rather bizarre channel featuring birds singing in someone's back garden, and nothing else. No chat, no bands, no adverts: just some little feathered friends tweeting their hearts out.

The recording of birdsong, which was made 20 years ago by radio station chief exec Quentin Howard in his back garden in Wiltshire, was designed as a temporary filler after the DAB OneWord station closed. But in the 18 months it has been broadcasting it attracted millions of listeners.

The Birdsong channel will be replaced by a new radio station -- Amazing Radio -- which will play a mix of indie, urban, rock and jazz music by unsigned artists. To get airplay on the new channel bands need to upload their tracks to amazingtunes.co.uk.

All tweeted out: birds must seek new vocations as Birdsong Radio closes its doors.

Rackable Systems has bought Silicon Graphics (SGI) out of bankruptcy for $25m, and announced today it would change its own name to SGI, with Rackable becoming just a product line.

More on the reasons for SGI's troubles, and the Rackable buy, here.

Thanks to vaxomatic (Flickr, CC licence) for the pic.

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SGI's future has been in some doubt for several years now. I wrote a fairly critical piece back in the Summer of 2006, shortly after SGI had declared bankruptcy protection (not for the last time, it turned out) asking whether SGI would, as I put it, "Become the Next Data General?"

The piece was based on an extensive interview with the incoming CEO, Dennis McKenna, and I think it serves fairly well as a quick overview of why SGI found itself treading water, when once it had been a real powerhouse in the graphics-intensive server and workstation markets (click continue reading to see that piece if you can't already).

Will SGI Become the Next Data General?

Remember Data General (DG), the server and storage vendor that, despite some great technology, ultimately failed to capitalize on it and was sold off to EMC back in 1999? Well SGI's new CEO Dennis McKenna was adamant in an interview with me that, despite the company recently filing for Chapter 11 bankruptcy protection in the US, his company is not now simply looking for an exit strategy as DG once did.

SGI's then CEO, Dennis McKenna.

As I noted in a recent blog, SGI's McKenna was in London last month meeting some key customers and a few hacks. It perhaps says a lot about the current enthusiasm for SGI -- or rather the lack of it -- that despite the fact SGI had just weeks earlier announced its bankruptcy, not to mention the offer of free champagne and canapés in a trendy London venue, only three journalists turned up to hear what he had to say for himself.

The question in my mind was whether the game is up for SGI. Founded in 1982 as a maker of graphics display terminals, SGI has largely failed to capitalize on its technology heritage, and lost focus in the nineties when it made a series of -- ultimately botched -- acquisitions.

BOTCHED M&A STRATEGY

In 1995, it bought Alias Research and Wavefront Technologies and merged the companies into AliasWavefront. In February 1996 it bought supercomputer manufacturer Cray Research for $740m, and in September 2000 it acquired the Zx10 series of Windows workstations and servers from Intergraph Computer Systems. Since then Alias and Cray have been sold off again, and the Zx10s discontinued.

More problems ensued in the late nineties as the company transitioned from its own MIPS processors to the Intel Itanium, which was severely delayed. Despite having ported its clustering technology from its Origin Unix servers to Linux-based servers based on Itanium for its Altix servers since then, it has still failed to regain momentum. It's also faced stiffer competition from PC-based 3D engines and commodity open source clustering technologies.

It all adds up to a perceived technology obsolescence that rightly or wrongly saw the demise of DG, Digital Equipment Corp (or DEC, which was sold to Compaq) and Sequent (which was sold to IBM). All of those companies, like SGI, had at least some good technology. But they also relied on that heritage too much, and did not move with the times fast enough to stay viable - let alone attractive to new customers.

Things came to a head for SGI in early May when it was forced to file for bankruptcy protection in the US. While the company had not posted an annual profit since 1997, its third quarter results saw a net loss of $43m, on revenue of $108m, down 32% from the year-ago quarter. It was left with $54.3m in cash, $40.6m in short-term restricted investments, and crippling debts.

ALL OVER?

So is it all over for SGI? Not according to McKenna. Asked whether he had any idea that things had become quite so bad financially at SGI before he took the reins in January this year, McKenna said: "Hell no," and added, "They don’t train you for this kind of thing."

But he told me that the filing of Chapter 11 bankruptcy protection in early May should be seen as a "positive event".

"Before the Chapter 11 there was a high level of uncertainty around SGI," he said. "Customers were saying that we could have the best strategy but how were we going to deal with all of this debt?"

While McKenna conceded that employees and customers might find the filing of Chapter 11 bankruptcy protection "unsettling", he was adamant that, "As we have explained what we are doing and what this all means, we have gone from uncertainty to certainty."

Since then the company has been focused on cutting costs, renegotiating its debt agreements and raising cash from divestitures where it can. It filed a Joint Plan of Reorganization, and announced that the court had approved a real estate settlement that saw Google paying SGI $319m to buy SGI's headquarters property and another building in Mountain View, California, which Google had already been leasing.

The real-estate settlement will reduce its facilities-related cash obligations by $15m to $20m annually. Combined with a new financing facility, this provides it with approximately $19m of additional liquidity, the company said.

MR. TURNAROUND

McKenna said that he has helped to turn companies around in the past during his 25-year career in electronic components, semiconductors, and semiconductor capital equipment industries, and that apart from the Chapter 11 process, this turnaround is not so very different.

He said the company is looking to raise additional money either from enforcing some of its numerous patents, or from divestitures. For instance he confirmed that the OpenGL application programming interface for the development of 2D and 3D graphics applications is "considered non-core" to SGI and that he is "open to selling it".

He said though that the intention when spinning off technologies will be to retain a stake in the company in order to recoup some of the profits that technology could deliver in the future: "We sold off technologies in the past too easily for a one-time fee," he said.

As for the company's troubled past, McKenna has this to say: "My analysis is that we made three acquisitions and ended up selling them. We had six transactions in a relatively short time frame and that was disruptive. More to the point, we bought high and sold low."

But McKenna is also looking to the future - a future in which SGI not only makes more of its existing technology but evolves with the times, something it hasn't been particularly good at in the past.

In the past, SGI tried to make a go of it selling non uniform memory access (NUMA) based supercomputer clusters based on Intel's Itanium architecture and the Linux operating system.

But even before McKenna joined the company in January this year SGI had decided that in order to address a larger market it would look downstream at x86 chips, specifically x64 processors which are a 64-bit version of that architecture.

LOOKING DOWNSTREAM

Sure enough at the end of last month the company duly launched its first Xeon-based machines, which use Intel's new 'Woodcrest' implementation of the low-power Core architecture. There are two models in the new Altix XE line: the Altix XE210 is a 1U server that has two processor sockets while the Altix XE240 is a 2U rack-mounted server that uses a more scalable Blackford motherboard.

But isn't looking downstream at the lower end of the high performance computing market an anathema for SGI, with its heritage in higher-end supercomputers and clustering technology?

According to McKenna, it's all about expanding its addressable market. "We've been island hopping," he told me, "but now we are going to chase entire continents."

McKenna argues that it can compete with rival open source or commodity clustering technologies by offering pre-bundled, clustered systems: "People don’t want to have to buy their own servers and configure them to try and get the performance they need," he said. "Our x86 clusters will now address their capacity needs at a lower price point than our higher end Altix [Linux on Itanium] supercomputers."

"There are different price bands in the [high performance computing] market," McKenna continued. "We are bringing bundled cluster solutions that are already tuned and benchmarked, and then we put our middleware piece of magic on top of that."

Since so much of the action in the supercomputer space has been going on in the x86 market -- with no offerings from SGI to address that space until last month -- it begs the question of whether one day the company would take the decision to put all of its efforts into the x86 space and migrate away from Itanium, not least because its financial performance of late has been so dismal.

"We are going down both paths," said McKenna, "developing technologies on the hardware side and the chip side, and we think between the high end and midrange Intel architectures these levels can continue to be differentiated. We have a roadmap for both architectures out to 2010. But we will of course have to see what takes place in a couple of years."

REORGANISATION PLANS

A couple of weeks back SGI announced that its plan of reorganization is going to plan and that it hopes to exit Chapter 11 by the end of September. McKenna says that by that time it won't have any debt, and that its x86 sales should be ramping up. With a number of divestitures likely the company should be better focused, and McKenna looks like he will be able to shed the less profitable parts of SGI without getting hung up by an affection for what are indubitably some innovative technologies.

But is the plan simply to get SGI healthy enough to be sold off altogether? Not if you believe McKenna: "Of course if you are successful you will attract attention from potential bidders," he said. "But it is our firm belief that we can make SGI a successful standalone company once more. I wouldn't be here if I didn't think that too."

SGI has more challenges ahead, and I still find it hard to believe that after all of the chances it has had to run a profitable server and visualization business in the past it can miraculously do so now, selling lower-end boxes on even slimmer margins. But I'm hoping that the Chapter 11 has provided the necessary wake-up call for the company to get really lean really fast, because only from a more stable financial footing does it have any hope of fighting its way back onto new technology buyers' wish-lists. It is a real shame when companies with such a great technology heritage ultimately fail to capitalize on it, so I'm still hopeful that SGI will not become the next Data General.

This article first appeared in CBR, July 2006.

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Thanks to peephole on Flickr for the pic (CC licence).

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In January this year, I reiterated my opinion that Vignette was not long for this world, in this blog: 'Interwoven bought, now surely Vignette will be next'.

Click continue reading if you'd like to read my Vignette profile of July last year, in which I outline the reasons that I didn't believe Vignette would make it as a standalone player.

Seeking Equilibrium

A darling of the dot-com hype, web content management specialist Vignette has seen its fair share of ups and downs. But is it out of the woods even now? Jason Stamper investigates.

Vignette has had a torrid old time since its IPO in 1999. Once the poster child of the dot-com era, specialising as it does in Web content management, it lost its momentum in recent years and looked like only an acquisition was the likely fate for the firm. But as the company brought in a new management team including president and CEO Mike Aviles, its fortunes turned again as he appeared to be getting the firm back on an even keel in the early part of 2007.

Sadly, there has not been consistently good news for the company or its shareholders in the latter part of 2007 and the first quarter of 2008, and once again the firm's future as an independent entity is in question.

Vignette's CEO Mike Aviles.

Vignette’s early history is a story in itself. It was founded by Ross Garber and Neil Webber in 1995. They were looking for ways to personalise Web pages for each individual user, and make Web publishing easy enough for business users instead of just techies. But although they made some progress with their own technology they couldn’t quite get it right.

Garber called Jonathan Rosenberg, an executive at CNET, a San Francisco-based new media company. CNET had a similar technology which allowed even technophobes to publish web pages: Prism. In a stroke of luck, CNET wanted to commercialize the product, and handed it over to Vignette in return for a stake in Vignette; Vignette merged Prism with its own technology and released Story Server.

Within three years Vignette had signed up 130 major customers, nearly all in online publishing like CNET -- thanks in part to CNET introductions. It raised $27.8m through VC firms like Austin Ventures, Charles River and Adobe Ventures. Then in early 1999, it IPO'd, and saw its share price rise from $19 per share to $42 per share on its first day of trading.

But after the dot-com crash Vignette came down to earth with a thump, finding itself facing stiff competition in the content management space and struggling with sporadic revenue and quarterly losses. The board brought in Mike Aviles as president and CEO in February 2006. Aviles concedes Vignette has had an "interesting and unique" history.

"It's been a roller coaster ride," he says in a recent exclusive interview with CBR. "The first five years was crazy. We were riding the web content craze and irrational exuberance which gave us a market cap of $20bn. After the dot-com bust we were in freefall. If you look at the evolution of ECM, those that survived through this were the ones that had a balance sheet and lots of cash behind them. So the financing we raised allowed us to withstand the instability.

"The first challenge I saw was to turn it into a real company,” says Aviles. “It was a dot-com high flier, but had not had a big infrastructure. To be a serious company you have serious responsibility: you've got to get your house in order, address things like the stability of your margins.

"In fact my very first action was to bring in a new CFO and replace pretty much the entire management team. It's an all new management team, a new head of R&D, new heads of customer care, services, sales and so on."

Initially, it looked as if Aviles had effected a Midas touch: the first few quarters under his watch showed improvements to revenue and profitability, of which Aviles is still proud today: "Over the past two years, operational profitability has gone up 35%; '07 versus '06 was up another 24%. We generated $67- to $70m in cash flow over that time, and we bought back over $100m in stock.

"We've gotten the company into a better position in terms of technology and customers. The move from V6 to V7 was a major upgrade, and has made the platform much more stable."

The root of Vignette's challenges before Aviles was parachuted into the hot-seat? "Before I got here, Vignette had not participated to the extent I think it should have in new Web 2.0-style technologies," says Aviles. "It had been going through a lot of change since it acquired Tower Technology in 2004: that acquisition consumed a lot of management time, energy and attention."

The acquisition of Tower was a bold move by the former management team.

Having built its reputation on Web content management, Tower gave it imaging, document and records management and workflow, and together enabled it to claim a seat at the enterprise content management top table.

But things didn't exactly go to plan, not helped by Tower's HQ location in Sydney -- Vignette is based in Austin, Texas.

But before Aviles worried about the ongoing integration and strategy formulation, he had to get Vignette back onto a solid plane: "So my plan has been financials; management team; products and customer base," he says. "I think we have made great progress. And I think the recognition of that that we are getting from our customers is a sign of that progress.

"So it's a better place in terms of financials, leadership, products. Now we need to execute better and stronger. We turned over a lot of the salesforce -- some intentionally, some unintentionally.
"When you bring in a new management team it shakes the tree, and some of the leaves start to fall off. Unfortunately a lot of rival companies understand the talent that Vignette has. It's tough to affect change in a way that people are completely comfortable with. We had salespeople that were compensated three or even four times for the same deal. I told them: we could have kept things the same if we weren't interested in making any money.”

In the first few quarters under Aviles' watch, things were looking up. But then in the third quarter things took a turn for the worse. "We hit a bit of a wall in Q3. There were two things: internal and external," Aviles says. "Externally the whole sub-prime mess happened, and we do a fair amount of our business in financial services. Internally we were going through some changes of leadership in sales, with a new head of sales and services for the US market. From a revenue standpoint we had a flat quarter."

If that 'flat quarter' disappointed investors, worse was yet to come in the first quarter of 2008. While the fourth quarter saw slight sales growth and a healthy growth in profitability, the first quarter was a disappointment. Revenue, at $44.8m, was down 6%. It posted a net loss of $0.8m, versus a profit of $4.8m a year earlier. On the plus side, it still generated $10.1m cash in the quarter.

But as far as investors were concerned, it was something of a return to the bad old days. So what went wrong? “Going into the quarter we had seen some uncertainty,” says Aviles. “We had the option of rapidly curtailing our own investment or trying to plough on through. We tried to plough on through.

"We saw the need to get new products in the market - we consciously made the decision not to curtail investment. We actually had a very good quarter outside of the US.”

Does Aviles think the company is too reliant on US revenue? "60% of our revenue is from the US," he says. "Any revenue is good revenue, and I'd rather see a higher total dollar number than a higher mix of revenue from outside the US.

Towering Inferno?

At least some of Vignette's difficulties before Aviles came on board are down to the acquisition of Tower. Does Aviles think the Tower acquisition was over-ambitious -- that perhaps it would have been better to remain laser focused on web content management? "It's easy to say with hindsight that at that time yes, it probably would have been better to focus on the core business of web content management," he says. "And with Tower running out of Sydney, it's not like the geography was easy, either. But now that we do own it, it's clear that it is key to the business and key to the future of ECM [enterprise content management].

"We're definitely seeing convergence of the different kinds of content management. It's clear in my mind that Vignette is better with imaging and workflow than without. This is a big market, a growing market, a competitive market. We need a comprehensive, integrated suite.”

Speaking of which, does he believe Vignette now has the right product portfolio? " Our focus is on the web experience: we've now added various Web 2.0 features such as personalisation, multi-device delivery, collaboration, and so on. The telecoms, media and entertainment markets have pretty demanding expectations and we're meeting those," Aviles says.

Nevertheless, with at times disappointing quarterly results there must have been times when the board has discussed whether other strategic options - corporate speak for looking for a buyer? “Vignette is a very attractive company,” says Aviles. “It was attractive when I came in and it is even more attractive today. If we do our job well we will be attractive, if we don't do our job well we will be attractive, for different reasons - i.e. we would command a different value.

"Let's say the quarter to quarter march is not getting any easier. A lot of investors today, you can tell they are having 90-day discussions because of the kind of questions they are asking. It really varies across the board."

So while any CEO would like a company's stock to do well, does Aviles believe that the market places a fair value on Vignette today? “I don't think the market has been particularly kind to us,” he says. “At the height of the dot-com bubble it was like we had to tell them, 'perhaps we're not quite this good', and now we're maybe telling them 'we're not this bad'.”

Vignette announces its second quarter results after CBR goes to press. But regardless of those results, isn't it the case that given its sporadic results it remains a likely acquisition target? "Since the day I walked in there has been speculation that the company is a takeover target. I'm not trying to sell the business, I'm trying to grow the business," Aviles says. "But of course, life could change tomorrow. I think though it [a takeover offer] would have to be something compelling, and would have to have the support of the board."

What about the future of Vignette's technology? Where does Aviles see the next big growth opportunity? “I think video is very exciting,” says Aviles. “Companies are starting to become 'video-centric', if you will. It's the fastest growing content by far. The first stage of the Internet was information delivery, now it's about user-generated content: content is coming from everywhere.

“For example while he was staying there, a customer made a video of his experience of a Marriott resort. He ended up selling it back to Marriott, who used it on their website, and gave him a free stay in return. More and more companies need to capture and manage this type of content.”

Vignette bought video content management player Vidavee for $6.6m in April this year in support of this new opportunity. Vidavee uses heat maps to help organizations analyze viewer interaction and enable these companies to improve impressions and drive additional revenues, according to Vignette, by taking the most popular sections of a video stream and dynamically inserting advertising and other rich content.

Additional video tagging capabilities allow users to identify sections of interest from a video and share the content to increase views and attract additional users, the firm says.

"Video and user-generated content are a top priority for organizations wanting to improve their Web experience, and Vidavee has assembled one of the strongest video management offerings in the industry," Aviles says.

So when will there be integration between the Vidavee technology and Vignette's Web Content Management technology? “There will be meaningful integration this quarter,” says Aviles, though he says deeper integration will be ongoing as the Vignette platform evolves.

Will acquisitions continue to play a strong part in Vignette's strategy going forward? “I think if anything acquisitions will play an even more meaningful part [of our strategy], says Aviles. “Vignette has always had more of a buy culture than build culture. But our mentality is buy it, build it, or partner it. In each case we look at all three, depending on the cost, whether we can integrate it quickly, or whether a partner model would work better.”

CBR wonders about the logic behind Vignette's long-term agreement signed with Autonomy for enterprise and web search: with search such a hot topic, especially in the web content management space, wouldn't it have been a good area to go and acquire technology of its own instead of always bringing Autonomy into those kinds of deals? Especially considering that Autonomy sees itself as offering much more than search these days in the whole information management arena?

“Our alliance with Autonomy is strictly around search,” says Aviles. “It was done before I came to Vignette - they decided to partner for search. It's a multi-year agreement and actually we renewed it last year. They bring us in on deals for web content management too, so it does work both ways.”

So in which areas might Aviles and his executive team look at possible acquisitions? There are so many adjacent areas,” Aviles says. “If you consider things like personalisation, social computing, analytics, e-commerce, e-marketing - it goes on and on. When I joined the company I said acquisitions were off the table for 12 months while we got the house in order. In September, I said we were in a position to start looking. We have a better infrastructure and now perhaps we're ready to buy not just technologies but also revenue and customers.”

What about the Vignette brand? Is it still strong today, and does it still effectively stand for the broader enterprise content management message that Vignette spreads today? “I think it's less about how we position ourselves and more about how customers use our technology and act like ambassadors for us,” Aviles says. “There are plenty of sexy things in our space but for us it's what customers are saying, not just following the hype.

“We had NASA stand up at a conference and say that Vignette was helping take them to Mars.”

Apparently Vignette's content management software is helping NASA engineers and scientists connect and share information online, as the federal agency designs its next generation of space vehicles for the Constellation Program. The Constellation Program is responsible for developing crew exploration and launch vehicles that will send humans back to the moon and then, if all goes well, to Mars.

NASA is using Vignette to provide the communication and collaboration workflow for its Review Item Discrepancy (RID) process. RID is the process by which thousands of users inside NASA identify and track technical issues and actions and map the solutions back to a set of requirements. NASA is using the revised requirements documents as the baseline for early designs on spacecrafts, launch vehicles, and life support systems, programs, and processes.

CBR Opinion

Vignette is poised to announce its second quarter results as we go to press: Aviles will be under a lot of pressure to show that the firm is executing “better and stronger”, as he puts it. With a market cap today of just $307m, yet with sales in 2007 of just shy of $200m, Vignette must look like a bargain to any potential buyers, even if its recent performance has been a little ‘lumpy’. Which would be a shame, because few doubt that Vignette has brilliant Web content management technology and a credible story in enterprise content management too. It’s a challenging time to be a public company with revenue under $200m, given the high cost of compliance and the heavy toll constant analyst briefings take on senior management. We would like to think Vignette can grow more strongly and steadily, but we have to concede that, on balance, we doubt Vignette will be around in its current form this time next year. We would love to be proven wrong.

This article first appeared in the print version of CBR.

Related reading: Interwoven bought, now surely Vignette will be next. Vignette was acquired by Open Text yesterday.

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Waterloo, ON and Austin, TX, – May 06, 2009 – Open Text™ Corporation (NASDAQ:OTEX) (TSX: OTC), a global leader in Enterprise Content Management (ECM) software, and Vignette Corporation (NASDAQ:VIGN), the company that the world's leading brands rely on for innovative and dynamic web experiences, today announced that they have entered into a definitive agreement pursuant to which Vignette will become a wholly owned subsidiary of Open Text.

Vignette shareholders will receive US $8.00 in cash plus 0.1447 of an Open Text common share for every Vignette common share which equates to approximately US $12.70 at close of market on May 5, 2009. This represents a premium of approximately 74% above the 30 trading day average closing price of Vignette’s shares and approximately 41% above the most recent closing price. This values the transaction at approximately US $310 million.

John Shackleton, President and Chief Executive Officer of Open Text, stated “The combination of Vignette with Open Text will extend the breadth of our offerings and further Open Text’s positioning as the leading independent ECM vendor in the marketplace.”

“Vignette’s customers represent some of the world's most powerful online brands and we are excited about the opportunity to expand the relationship with these customers and partners,” said Shackleton.

“After a thorough evaluation of strategic and financial alternatives, the Vignette Board of Directors believes that today’s announcement provides attractive value for our shareholders,” said Mike Aviles, President and Chief Executive Officer of Vignette. “Our shareholders, customers, partners and employees will all benefit as Vignette combines with Open Text.”

“Joining Open Text builds on our commitment to deliver the most innovative solutions for our customers and partners. Vignette has an enviable customer base, deep expertise in Web Content Management (WCM) and global distribution capabilities. Vignette customers will benefit from Open Text’s expanded ECM solutions portfolio as well as their Vignette products being supported by the world’s largest independent ECM solutions provider,” said Aviles.

Vignette is based in Austin, Texas, and has approximately 700 employees. The transaction is expected to close in the second half of calendar 2009 and is subject to customary closing conditions, including approval by Vignette’s shareholders, Hart-Scott-Rodino anti-trust clearance, Securities and Exchange Commission clearance and stock exchange approvals.

The British firm is also buying Compuware's testing and automated software quality business for $80m. Micro Focus said that these products, along with those of Borland and Micro Focus’ existing product portfolio, will help to establish the company as a major player in the application testing and application software quality market, which it says is worth an estimated £2 billion globally.

The acquisition price for Borland represents a premium of 25% to the closing price of US$0.80 per Borland share on 5 May 2009, and a premium of approximately 67% over the average thirty trading day closing price of US$0.60.

The acquisition will be funded from existing Micro Focus cash resources supplemented by a new three year revolving credit facility of US$175 million provided through a syndicated loan consortium comprising Barclays, HSBC, Lloyds and RBS.

Borland’s loss before tax for the 2008 financial year was US$204 million on a US GAAP basis. This included impairment of goodwill of US$185 million. Borland’s gross assets at 31 December 2008 were US$253 million.

Commenting on the proposed acquisition, Stephen Kelly, Micro Focus CEO said: "Micro Focus’ proposed acquisition of Borland represents the next logical stage in Micro Focus’ growth journey. Our organic performance remains strong as reflected in our trading statement also released today, and this transaction will add new scale and breadth to further develop our customer proposition, in an attractive adjacent market to our existing business. I am confident that our successful track record in effectively integrating acquisitions over the last three years equips us well to deliver value to shareholders from this transaction.”

Meanwhile Compuware’s Testing and ASQ Business is said to automate quality processes within the software development function to control, measure and manage the delivery of results and to ensure process consistency and continuous improvement through workflow capabilities.

These products are said to be highly complementary to Micro Focus’ core solutions as they address a logically adjacent portion of the software development and deployment value chain.

“Micro Focus sees significant value for customers and shareholders in this proposed transaction," said Kelly. "Acquiring the Compuware Testing and ASQ business is a logical extension to our existing application management proposition, and we see strong growth potential in this market. Our successful track record of five effective integrations during the past three years equips us well to rapidly harness the benefits of this proposed acquisition.”

[It was rumoured today that Apple might buy Twitter for up to $700m.]

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Valleywag is reporting the rumour that Apple is close to sealing a deal to buy social networking site Twitter, for up to $700m. It seems far-fetched, truth be told.

“We hear it's Apple that's closest to sealing a deal, possibly for as much as $700 million,” the site reported. “A source who's plugged into the Valley's deal scene and has been recruited by Apple for a senior position says Apple and Twitter are in serious negotiations, with the goal of unveiling a deal by June 8, when Apple's annual Worldwide Developers Conference launches in San Jose.”

Why far-fetched? Because everyone who has ever had a conversation in 140 chracters or less knows that Twitter is worth, like, 10 times that amount. Sure, it may not have any meaningful revenue just yet, but neither did WebVan or Boo.com, right?

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The report by McKinsey, published in mid-April, said that cloud services will not return cost savings to large enterprises. After comparing the use of a platform-as-a-service option such as Amazon’s EC2 against the cost of providing similar services out of a typical enterprise data centre, the consultants said: “Large enterprises can achieve server utilisation rates similar to those cloud providers are achieving from their platforms.”

McKinsey calculated that the total cost of assets for a typical enterprise data centre runs to around $45/month for a CPU equivalent, which it says is significantly cheaper than a comparable cloud service. “Most EC2 options are more costly than TCO for a typical data centre,” McKinsey said.

But speaking to CBR in London yesterday, Amazon’s Jassy, who is also in charge of Amazon Payments, said: “We were very surprised and disappointed by the McKinsey report – we don’t believe it is an accurate reflection of the truth. A lot of the analysis seemed only to be skin deep at best, and quite frankly there were a lot of facts that are just plain wrong.”

“The McKinsey research was at best skin deep and at worst factually wrong in numerous places,” Jassy added.

Jassy: not best pleased by McKinsey report.

Amazon’s cloud services include the Amazon Simple Storage Service (Amazon S3), the Amazon Elastic Compute Cloud (Amazon EC2), the Amazon Simple Queue Service (Amazon SQS), Amazon SimpleDB and the Amazon Flexible Payments Service (Amazon FPS).

Jassy noted that Amazon S3 currently stores 52 billion objects such as graphics files and other unstructured data, and at its peak is receiving 80,000 access requests per second from both Amazon’s own online retail activities and its external S3 customers. In the middle of 2007, Amazon’s own retail operations’ traffic on the Amazon infrastructure was eclipsed by traffic from external customers accessing Amazon Web Services.

But in its ‘Clearing the Air on Cloud Computing’ report, McKinsey & Co argued that cloud computing can divert IT departments’ attention from technologies that can deliver sizeable benefits -- most notably virtualisation. “Most of the gains are achievable through standard virtualisation,” the analysts said.

McKinsey said that a true cloud service has to comply with three key requirements. It has to abstract the underlying hardware from the buyer, be elastic in scaling to demand and bill buyers on a pay-per-use basis. The view was that cloud offerings are today most attractive to small and medium-sized enterprises “Clouds are very cost effective for SMEs,” McKinsey said.

But for large enterprises there are significant hurdles to the adoption of cloud services, that cover the full range from financial and technical, to operational and organisational. McKinsey recommended that enterprise CIOs and CTOs should form a council to advise the industry which should, “Continue to drive down prices through scale/innovation to increase potential market.”

But Jassy said that Amazon built its Web Services platform on a core set of principles: “That services should be super reliable; able to scale up and also scale back down again; offer very low latency; and be simple and cost effective.”

“You only pay for what you use – it’s a ‘pay by the drink model’,” Jassy said. “We have three main businesses: a consumer business [doing the well-known Amazon.com retail]; a seller business which enables other retailers to sell on Amazon.com and a developer business, which is where Amazon Web Services comes in. We believe Amazon Web Services will continue to be a very large, very cash-flow generative business.”

Jassy maintained that for companies of all sizes, Amazon Web Services provide a platform that enables any developer or business to reach the scale of major Internet players like Amazon.com without the up-front investment that would be required to build such a large IT infrastructure.

+ In related news today, Amazon Web Services announced AWS in Education, a set of programs that enable the academic community to leverage the benefits of Amazon Web Services for teaching and research. With AWS in Education, educators, academic researchers, and students worldwide can obtain free usage credits to tap into the on-demand infrastructure of Amazon Web Services to teach advanced courses, tackle research endeavours and explore new projects – tasks that previously would have required expensive investments in infrastructure, according to the firm. More here.

CBR's initial story on the McKinsey report is here.

Annrai O'Toole at Workday has a nice rebuttal of the McKinsey report here.

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