All Things Digital

Hewlett-Packard (HPQ) has wrapped up its acquisition of technology services giant Electronic Data Systems Corp. (EDS), the company’s largest purchase since the $20 billion merger former HP CEO Carly Fiorina orchestrated with Compaq Computers six years ago.

Thankfully, it wasn’t nearly so rancorous.

Valued at $13.9 billion when it was first announced, the deal will more than double the size of HP’s consulting and outsourcing business. It will likely do the same to the $16.6 billion in revenue from services the company made in 2007.

When the dust has settled around the merger, HP will be the second-largest provider of consulting and outsourcing services, behind IBM (IBM). But it will take some doing to get there. “It’s a very significant combination,” Gartner’s (IT) Ben Pring said when the deal was announced back in May. “[But] people who are skeptical of big integrations will have a field day around this. It’s putting together two large businesses with two different heritages. It’s going to be a big culture clash.”

And if HP manages to pull it off? Well, as Fiorina would likely tell you, bigger is better if you can do it right.

“It’s somewhat amusing because we’ve seen this play before. I think this is sort of further evidence that HP really does see value at scale basically, at size,” Illuminata analyst Gordon Haff said in May. “One of the things we’ve seen very clearly over the last couple years is that Carly really had the right idea, she just couldn’t execute on it. She wasn’t wrong for saying HP needed to be bigger, effectively,” said Haff. “If (the merger) does go through we’re going to end up with an HP that looks a lot like Carly wanted it to look.”

Slapped with a class-action lawsuit alleging it illegally deprived some 32,000 employees of overtime pay, IBM (IBM) conceived of a novel solution: It settled the suit for $65 million. And then it slashed the base pay of the employees who filed it by 15 percent.

Something to ponder in light of a lawsuit filed this week that claims Apple routinely requires some employees to work more than 40 hours a week without overtime pay. Brought by former Apple network engineer David Walsh, the suit accuses Apple (AAPL) of purposely misclassifying Walsh and others like him as “management” in order to exempt them from federal overtime pay and then working them into the ground. “After working an entire workday on the Friday of the rotation, [Walsh] was required to remain on call 24 hours a day from Friday evening until Monday morning when he would report to the employer’s work site for his ‘regular’ workday, without compensation,” the complaint alleges. “The technical support calls often came in past 11 o’clock at night.” And those calls, it seems, interfered with Walsh’s sleep. And for that he is seeking unspecified damages from Apple.

Lucky for him, Walsh doesn’t work in a Chinese iPod factory. …

Apparently, the folks who write AT&T’s mind-numbing service disclosures are the same ones who pen its press releases. How else to explain this unwieldy description of the company’s new Synaptic Hosting offering? “AT&T Inc. today announced the global launch of AT&T Synaptic Hosting, its next-generation utility computing service with managed networking, security and storage for businesses.”

Which is really just a grotesquely long-winded way of saying that AT&T is joining the burgeoning market of cloud-computing service providers. Like Google (GOOG), IBM (IBM), and Amazon.com (AMZN) before it, the company is offering computer networking and storage delivered over the Internet, on demand. But with one important advantage: AT&T (T) runs the backbone network that will connect its customers to those services. Presumably, that means one fewer potential failure point–a compelling proposition, especially for businesses that have suffered through Amazon’s Simple Storage Service outages.

It’s likely a challenge to program and a bitch to debug, but IBM’s (IBM) new Roadrunner supercomputer is the most powerful in the world. With 12,240 cell processors typically found in Sony’s (SNE) PlayStation 3 console and another 6,562 dual-core AMD (AMD) Opteron chips, Roadrunner has been benchmarked at 1.026 petaflops (1.026 quadrillion calculations per second). And that places it atop the latest Top500 supercomputing ranking as the most powerful computer in the world.

The first computer ever to pass the petaflop milestone, Roadrunner is more than twice as fast as the top-ranked computer in the previous Top500 ranking. It’s also one of the most energy efficient systems on the Top500. But you wouldn’t know from looking at it. It’s housed in the Los Alamos National Laboratory and will be used principally for nuclear weapons simulations.

Gaming piracy is as antiquarian a concept as PONG. So says Atari (ATAR) founder Nolan Bushnell. And who are we to disagree with the man who invented the world’s first (or second) video-arcade game?

In remarks at the Wedbush Morgan Securities annual Management Access Conference this week, Bushnell heralded the Trusted Platform Module as the gaming industry’s long-awaited solution to piracy. “There is a stealth encryption chip called a TPM that is going on the motherboards of most of the computers that are coming out now,” claimed Bushnell. “What that says is that in the games business we will be able to encrypt with an absolutely verifiable private key in the encryption world–which is uncrackable by people on the Internet and by giving away passwords–which will allow for a huge market to develop in some of the areas where piracy has been a real problem. … The TPM will, in fact, absolutely stop piracy of gameplay. … As soon as the installed base of the TPM hardware chip gets large enough, we will start to see revenues coming from Asia and India at a time when before it didn’t make sense.”

Thing is TPM is not exactly a “stealth” chip. It’s been around for years. Conceived by The Trusted Computing Group–whose members include Microsoft (MSFT), IBM (IBM), Intel (INTC), HP (HPQ) and AMD (AMD)–TPM’s purpose is to secure commercial software at the hardware level. As Ross Anderson, Professor of Security Engineering at Cambridge University’s Computer Laboratory explains, it essentially “transfers the ultimate control of your PC from you to whoever wrote the software it happens to be running.”

At least it does in theory.

Anyway, point is, TPM is a relatively well-known technology that’s been shipping in machines from Dell (DELL), HP, IBM, Toshiba, et al. for years. So presumably the “installed base” to which Bushnell refers is already quite large. Yet, we’re not exactly seeing those increased revenues from abroad. In fact, we’re seeing increased losses. Software piracy cost global businesses $47.8 billion in lost revenue last year, up 20% from 2006.

So what’s Bushnell going on about?

Who knows. But it might have something to do with this: In addition to being the inventor of Pong, and founder of Atari and Chuck E. Cheese Pizza Time restaurants, Bushnell also serves on the board of directors of Wave Systems (WAVX). And Wave Systems is a leading–but apparently struggling, provider of hardware-based digital security based around–you guessed it–the Trusted Platform Module.

Coming as it does after news of Microsoft’s plan to bribe consumers to use its search engine, reports of Google’s (GOOG) continued dominance in search aren’t all that surprising. Google’s share of the U.S. search market in April grew to 61.6%, up from 59.8% in March, comScore announced today. And it grew at the expense of rivals Yahoo (YHOO), Microsoft (MSFT), AOL (TWX) and Ask.com (IACI). Yahoo’s share dropped 0.9 percentage points to 20.4%, Microsoft dropped 0.3 to 9.1%, AOL dropped 0.2 to 4.6% and Ask dropped 0.4 to 4.3%.

A pretty dismal showing for the other four “major” search engines, which apparently bleed and sweat search market share. As noted here last week, the IT industry used to say that IBM (IBM) wasn’t the competition; it was the environment in which you compete. Today the adage seems equally applicable to Google, which dominates the search market just as IBM once dominated the computer industry.

We see little to stop Google from reaching 70% market share eventually; the question, really, comes down to, ‘How long could it take?’ ”

–RBC Capital Markets analyst Jordan Rohan, March 2006

Not long at all, really.

They’re not the competition; they’re the environment in which you compete. The IT industry used to say that about IBM, but today the adage seems equally applicable to Google (GOOG), which dominates the search market just as IBM (IBM) once dominated the computer industry.

According to new metrics from Hitwise, Google’s share of the U.S. Internet search market grew to 67.9%–a 4% increase year-over-year. Google’s growth apparently came at the expense of rivals Yahoo and Microsoft. Though it claimed the second-largest share of the search market, Yahoo (YHOO) slipped to 20.28% from the 20.73% share it held a year ago. Microsoft’s (MSFT) Live Search, ranked third behind Yahoo, fell to 6.26% from 7.77% in that same period.

Seems the two companies’ recent efforts to differentiate their search offerings from Google’s haven’t done much to boost their respective market shares. Nor will they ever if the Google juggernaut continues as it has. As Credit Suisse analyst Heath Terry once noted, search is a natural monopoly business and there’s a decent chance that over time, Google will continue to gain share until it’s claimed most of the market.

And that may happen sooner than we think. Google’s closing in on 70% market share already. “By this time next year,” Silicon Alley Insider’s Henry Blodget writes, “Google’s search business will be larger and more profitable than the most profitable and legendary monopoly in history–Microsoft Windows.”

Salesforce.com will be acquired in 2007. We believe the growing importance of online delivery of software and business services will make Salesforce.com (and particularly its AppExchange hub) a very tempting target to both large players (like IBM, SAP, Oracle, Microsoft) still struggling to scale down and move online, and consumer-heavy players (like Google, Yahoo, AOL) trying to ’scale up’ to the business market as a way to further monetize their online presence.”

–IDC Predictions 2007

Salesforce.com CEO Marc Benioff (photo, right) wasn’t kidding when he said in May of 2007, “We’re the Google of business.” The customer-relationship software pioneer this morning announced an alliance with Google (GOOG) that will see it integrating Google’s online services into the Salesforce.com (CRM) platform.

Christened Salesforce for Google Apps, the offering embeds Gmail, Google Calendar, Google Talk and Google Docs directly into Salesforce.com’s core sales force automation, marketing and customer-service applications.

The partnership is quite an endorsement of business-workspace applications delivered from the cloud. It’s also an aggressive move against Microsoft’s (MSFT) Dynamics Live CRM, Redmond’s customer relationship management software, which is integrated with its Office suite.

Together Google and Salesforce.com are clearly seeking to challenge Microsoft’s multibillion-dollar Office franchise. As Marc Benioff, CEO of Salesforce.com, told the New York Times, “The enemy of my enemy is my friend, so that makes Google my best friend.” And perhaps even a potential acquirer.

Make the right impression. Your avatar’s appearance should be reasonable and fitting for the activities in which you engage (especially if conducting IBM business). If you are engaged in a virtual world primarily for IBM business purposes, we strongly encourage you to identify your avatar as affiliated with IBM. If you are engaged primarily for personal uses, consider using a different avatar.

- IBM Virtual World Guidelines

A pioneer, that IBM (IBM). A trend-setter. It was the first company to publish a code of conduct for workers enamoured of virtual environments. And soon it will be the first to create a virtual world of its own in Second Life. This morning, Big Blue announced a partnership with Second Life producer Linden Lab to create a secure, enterprise-class version of the popular Internet-based virtual world. By running a Second Life installation on servers inside IBM’s firewall, the two will homestead a sort of corporate gated community for security-conscious companies–one in which companies can conduct business without being set upon by a horde of animated flying phalli. A savvy way to drive adoption of virtual worlds in enterprise. And if all goes as planned, a host of other companies will be running Second Life inside their own firewalls by year’s end. “There has been so much hype and puffery around virtual worlds,” Ginsu Yoon, Linden’s vice president of business affairs told The Wall Street Journal. “It’s really important to Linden Lab to be able to demonstrate that it is able and willing to meet the requirements of companies like IBM.”

It’s no April Fools’ joke. Microsoft (MSFT) has indeed won an international standards designation for Open XML, its open-document format. This morning, The International Organization for Standardization (ISO) confirmed that Open XML had won the two-thirds approval it needed to pass. The announcement marks the end of Microsoft’s long and, how shall I put this, aggressive campaign to have the format recognized as an international standard for electronic documents. It also reverses the loss Microsoft suffered in first-round voting, thanks to some intense lobbying by IBM (IBM) and Sun (SUNW) who, together, developed the rival Open Document Format. But for how long? This latest vote is already mired in controversy, with tales of delegates being manipulated into voting against their will, votes of ‘No’ suddenly changed to ‘Abstain’ or ‘Yes‘ and an assortment of protests and complaints being made against the entire process. And beyond that, there is the issue of the Open XML standard itself, which, as some observers have noted, needs a bit of work. “No one can actually implement this standard–not even Microsoft,” said Groklaw’s Pamela Jones. “… The format references proprietary stuff from the past. Stuff that is patented, no doubt, but mainly just unknown and unknowable.”

In a May 1995 memo entitled “The Internet Tidal Wave,” Microsoft (MSFT) founder Bill Gates declared that the Internet was the “most important single development” since the IBM PC, one that was fast becoming a global communications and computing medium. “I have gone through several stages of increasing my views of its importance,” he wrote. “Now, I assign the Internet the highest level.”

Ten years later, he penned another memo–titled simply “Internet Software Services“–in which he warned of a “services wave of applications and experiences available instantly over the internet” that would reshape the traditional software business. “This coming ’services wave’ will be very disruptive,” Gates wrote.

And lucrative for those who were quick enough catch it. Salesforce.com (CRM), for example. Google (GOOG) and Amazon (AMZN), as well. Not Microsoft, though. Fearful of undercutting its fantastically lucrative packaged-software business, the company has been slow to enter the “software-as-a-service,” or cloud computing, market. Methodical, but still slow.

Now, with Google’s business-level hosted applications (Google Apps) gaining traction, Microsoft is moving a bit more quickly. The company dropped the 5,000 worker minimum on its Microsoft Online Services offering today, expanding the availability of Exchange Online, SharePoint Online, and Office Communications Server Online to businesses of all sizes. Especially, the smaller ones for whom Google Apps had previously been the only option …