Software Licensing & Master Service Agreements : Chicago Software Licensing Lawyer & Attorney : Sam Conforti Law Firm : Master Service Agreements, Negotiations, Outsourcing : Cook County, Illinois

As customers demand more from Web 2.0 applications and software vendors scramble to meet these demands, we should expect to see more mergers.  The assembling of such technologies as “instant messaging, Web conferencing, email, desk phone, mobile phone, blogs, and RSS feeds” has proven to be an overwhelming task.  A way to provide such technologies without losing some of the functionality which makes these technologies so appealing is to merge or purchase smaller niche companies that have the new emerging technologies already in hand.  Larry Barrett in his article in InternetNews.com reports on the most likely scenarios to come in 2008.  The companies to watch will be those with established expertise in data management, business intelligence and analytics and security.  The candidates include Informatica and i2 Technologies.  Regarding this anticipated consolidation, Barrett cites HP’s CEO Mark Hurd:

“I think you'll see continued industry consolidation and see more and more vertical integration.  It could accelerate in the next year or two if the right alignment of players were to occur ... I think potential M&A opportunities will rise to the top.”

And what about the big players in the ERP arena?  Is a purchase of SAP a possibility?  SAP’s co-founder and chief of its supervisory board left the door open a bit when he responded to such an occurrence by the likes of IBM, Microsoft, or Google stating, “If shareholders think that a combination, and not independence, is better, then it will happen.”  Barrett points out some of the key factors involved in any proposed merger with the world’s largest business applications vendor: 

• SAP’s market cap is $63 billion.  Microsoft would be an expected suitor.  It has the money.  The antitrust issues would require Herculean efforts and thus make such a combination unlikely.

• Google could afford it, but the corporate cultures are so divergent that this is a limiting factor.

• IBM seems to be the one.

Barrett cites Peter Goldmacher, an analyst with Cowen & Co.

“As big as SAP is, they're becoming a niche vendor and I think Oracle is hurting them and hurting IBM.  Both of these guys need each other.  And there's not a better fit. You'd have the No. 1 applications company and No. 2 database company competing against Oracle, which is No. 2 in applications and No. 1 in database.”

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The airlines know that long flights are really “down-time” for business travelers. Boeing’s foray into this arena proved to be devastating due to the high cost of the service and the sudden downturn in air travel after 9-11. Instead of building their own satellite based system as Boeing tried, Airlines are opting for air to ground connections. This will enable email and text messaging on laptops and handheld devices. Aircell, a provider of airborne communications, has licensed significant bandwidth and will be offering internet services to airline passengers in 2008. The first flight offering such services will be on American Airlines using 92 ground based cell towers. JetBlue had purchased a smaller spectrum and has been conducting tests across the US utilizing 100 cell towers. International flights over the ocean will not be left out of the mix. Alaska Air will be using Row 44’s satellite based system, which is part of Hughes Communications Satellite Network. Qantas Airlines will take a similar approach with a satellite service from Matsushita’s Panasonic Avionics through Intelsat Ltd. Panasonic will be able to buy smaller capacity and add to it as the need arises as opposed to leasing satellite transponders whether they need the capacity or not. Another alternative would be to use existing cellular phone systems as OnAir is doing with Air France. Their “on board” cell tower does not emit strong enough signals to interfere with the planes navigational equipment. Boeing, who took a $320 Million pretax hit for its efforts, won’t be reentering this market space. Boeing spokesman John Dern stated: 

"There are others out there with different business models, and I don't know anyone who's mounted a successful stand-alone business yet. No doubt there will be firms that try, and I'm sure somebody will figure out a way to do it."

Read the complete story and get a sneak peek at the cost estimates as reported by the Associated Press.

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Faster and more efficient high-speed networks will be yielding more functionality and greater flexibility for handheld devices. As connectivity speeds increase, manufacturers will be developing multimedia devices that look and function like your cell phone. We are on the verge of the fourth generation (“4G”) of this technology. The data that is anticipated to be transmitted necessitates the development of these more powerful networks.

Wailin Wong, Chicago Tribune staff writer, describes in an article our sojourn from 2G which was our ability to make and receive calls as well as share photos and download ringtones, to 3G our present system which allows surfing of the net and accessing data-intensive media, and now the future which is 4G and will allow us to upload personal videos.

Two of the players in the market, Verizon and Sprint, are developing their technology now. Verizon’s technology is called Long Term Evolution and Sprints is WiMax. Ken Dulaney, of the Gartner Group, points out that the handset is key to this market:

“In the cellular world, it’s all about the handsets. If you have a new network and no handsets, who cares?”

Motorola, a late comer to the handset market for 3G technology, is trying to redeem itself against such competitors like Samsung. Motorola makes the WiMax technology for operators as well as consumers and is betting on this new technology to be embedded in numerous consumer devices in the coming year. They will enter the market with WiMax and continue to prepare for development work in Long Term Evolution in the coming years.

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Scientists have figured out a way to cut down delays when internet surfers are trying to access popular sites and as a result have increased revenues by 20% for one web hosting company. In order to improve the internet server response time to changing user demand, scientists modeled the server system after the dance that honey bees do in order to redirect their fellow bees to more plentiful nectar. It’s called the waggle dance and the end result is a way to redirect the hive’s workforce at that moment to a flower patch with a better nectar supply, directing the bees to the type of flower, distance, and direction. For the bees, this “feedback loop” continually identifies the shifts in nectar allocation and works to equalize their retrieval system.

Web-Hosting companies assign certain servers to internet sites. Spikes in user demand flood the designated server for that site thus causing lockouts or delays, while other servers sit idle. Users leave the site in frustration taking the potential for revenue generating activities with them. Researchers have applied the bees idea of feedback to allocate more plentiful supply (in this case server space) to increase efficiency of the server system. The end result is increased revenues.

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There’s no such thing as a free lunch.  Read Sean Michael Kerner’s article about a possible infringement of Busybox’s GPL license. In it he details how four companies (Monsoon Multimedia, High Gain Antennas, Xterasys, and Verizon) have been sued and two of the four have already settled.  Kerner points out that some companies might not even know they are in violation, or worse yet, not take such compliance issues seriously.  The next logical step is to develop tools that can identify these license violations.  Kerner’s article identifies three such vendors, OpenLogic, Black Duck, and Palamida. With the apparent enforcement actions of these types of alleged copyright violations, there should be a boon to law firms' Open Source practice.

As Jason Haislmaier, an attorney with Holme Roberts and Owen LLP representing High-Gain Antennas, states:

"While there are a number of companies that have implemented very robust open source compliance programs, many more have not.  This means not only that these companies are at increased risk of an open source violation, but that the recipients of any of their products containing open source are also at increased risk, many times unknowingly. This is the case in more than one of the BusyBox cases.  If the BusyBox lawsuits have demonstrated one thing it is that remaining ignorant of existing open source software usage and potential open source software license violations can be expensive."

I remember receiving a call in my office from a client a while ago asking me to look at a GNU license that he was given and to let him know if it was OK to sign it.  After a cursory first read through, I was skeptical.  Why would anyone give me free software?  And if I modify it, I have to make those modifications available to others?  What happens to my competitive advantage?  The businessman in me quickly transformed from a skeptic to a cynic.  After regaining my composure and doing a little research, I came to understand the motive.  The idea is to encourage development and evolution of the code and not the profit that could be garnered.  For a good annotated definition of Open Source see the Open Source Initiative web site.  To learn more about the GNU General Public License (GPL) and the Free Software Foundation (FSF) visit the GNU website.

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IBM has revealed that it has approximately 73,000 employees in India. Based on the headcount at the end of 2006 of 355,766 employees and a projected rate of growth equivalent to 2006, IBM now has approximately 20% of its workforce in India. And why not? India offers a skilled workforce without the high cost of labor that usually accompanies such workers in the West. The projected annual revenue from the Indian market for 2007 at $1 billion is yet another reason for IBM to ramp up its workforce in the sub-continent. The BRIC countries (Brazil, Russia, India, and China) are expected to have high growth rates in the coming years and IBM Chairman, Sam Palmisano, wants to direct more of IBM’s investments into these emerging economies. Jesse J. Green Jr., IBM’s Vice President of Financial Management, is optimistic and stated, “we see continuing good stability in the BRIC countries in general and good opportunity for growth in those countries as well.”  (See Associated Press article)

I think that it is commendable that IBM execs are aware of the labor savings and the potential for increased revenues from emerging markets. Many of us have direct investments in IBM or indirect investments through 401K’s and other investment funds. As a public company IBM is acting according to its mandate to increase investor value. However as a good corporate citizen there are other considerations as well, such as social, political, ethical, and religious. How much outsourcing of skilled labor is too much outsourcing? My only cautionary note is not to overdue and abuse the situation. Employee growth in these emerging markets should be, and I am sure that it is, managed growth to meet the needs of the growing market but not at the expense of these other considerations. We all remember the dot.com boom and then the bubble that burst. We are all aware of the real estate boom of recent years and the subsequent subprime mortgage bubble that has panicked much of Wall Street and Western Europe as well as investors from the Middle East and the Pacific Rim. India is a nuclear power and borders Pakistan another nuclear power and its antagonist. Does IBM really want to put all of its eggs in one basket?

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SAP acquired business intelligence (“BI”) software developer, Business Objects, for $6.7 billion.  This is the latest of acquisitions in the BI space.  First there was Oracle’s purchase of Hyperion for $3.3 billion.  This was countered by Business Objects own $300 million purchase of Cartesis S.A.  Business Objects’ software provides the means for companies to analyze their competitors decisions as well as their own.

SAP’s CEO, Henning Kagermann, emphasized during a press conference that the value added to its customers will come through its real-time BI which will strengthen the decision process.

Ovum Research's David Bradshaw and Helena Schwenk commented:

"Another factor is the business growth that SAP can get from the combination. Large suppliers are attracting an ever-larger share of customer spend, as customers try to reduce the number of suppliers to bring some order to their IT buying. In some accounts, the purchase might turn SAP from being an 'also ran' into a strategic supplier."

In addition, they noted, the acquisition "will bring both data extraction capabilities and market-leading front-end query and reporting tools, complementing parts of the NetWeaver BI stack," referring to SAP's cornerstone platform that it recently opened up to developers.

To read the full details of the merger read Larry Barrett's article in Internetnews.com.

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