Taking the Measure of a Curious Tech Summer

This piece was written by Jean-Louis Gassée, a Silicon Valley veteran and currently general partner for the venture capital firm Allegis Capital in Palo Alto. It originally appeared at  Monday Note

Nothing much happens in August, we thought. Wrong. Our three-week break has been filled with a number of "interesting" events.

Let's start with Mark Hurd's exit from HP after five years of great financial performance as CEO. If you missed the fireworks, you can get a refresher in this Business Insider post by Henry Blodget, or this excellent NYT piece by ace columnist Joe Nocera.

In twitter terms, it looks like this: A "marketing contractor" claims Hurd sexually harassed her; an inquiry fails to substantiate sexual harassment but finds "an inappropriate close relationship"; the investigation also reveals that expense reports were fudged in order to conceal a tête-à-tête with the female. Mistakes were made, Hurd is fired. End of story.

Not quite.

When a CEO gets the boot, a modicum of decorum is usually observed . Not this time. From HP's General Counsel we hear that "Mark demonstrated a profound lack of judgment that seriously undermined his credibility and damaged his effectiveness in leading HP". And that's on the record.

In her memo to the troops, Cathy Lesjak, HP's CFO and now interim CEO, accuses Hurd of "misusing corporate assets," referring to the illegitimate expense reports and alleged payments to the erstwhile soft-porn actress for work not performed.

But forget the salacious details; there's always Google for that. What puzzles most of us is the exit package story. HP maligns Hurd, accuses him of what lay people call fraud... and then grants him an exit package worth tens of millions of dollars, $35M according to unverified estimates. Attorneys, less puzzled than supercilious, sue HP's Board on behalf of despoiled shareholders.

In the next few weeks we're certain to get a clearer picture of the inside animosity directed at the cost-cutting, Wall Street-pleasing CEO. His alleged misconduct may turn out to have been nothing more than a convenient pretext, a word that resonates in HP's history.

This one's harder to explain: Intel's acquisition of McAfee. If you own a Windows PC with Intel Inside, there's a good chance your computer came with bundled anti-virus/anti-spam/anti-spyware software from companies such as Symantec or McAfee. Microsoft entered the fray a few years ago and provides what they call Security Essentials--for free (Microsoft also offers a free safety scan here). PC Tools, AVG, Kaspersky Labs and many others provide the now customary combination of free and paid-for software security products.

In short, this is an active, thriving scene: Symantec's revenues are at the top of the $5B range and McAfee's are close to $2B, despite the competition with "free" products from Microsoft and others.

So what possessed Intel's CEO Paul Otellini to risk his reputation--and more than $7B of his shareholders' cash--by wading into such a complex, competitive sector? Seasoned Valley observers such as the WSJ's Don Clark are politely puzzled (see here and here). Otellini intones a new mantra: Security Is Job One. This marks "Intel's move from a PC company to a computing company". Sonorous words, certainly, but without a story of higher revenue and profit for the combined companies, there's not much to back them up.

If Intel's efforts to provide more secure hardware are to succeed, Microsoft will have to cooperate--but Microsoft has remained silent. If Windows could be secured through the mere addition of a software layer right above "the metal", the microprocessor, Microsoft would have done it, or acquired it.

I checked with OS and hardware experts. None of them think Intel's story makes sense. Unless...perhaps today's PC isn't the target. Perhaps Intel wants to surf the next computing wave of mobility and smartphones.

Surely, Intel wants a piece of the smartphone billions. There's a rumor they'll soon buy Infineon's wireless hardware business, and they have this MeeGo (née Moblin, as in Mobile Linux) thing going with Nokia. Still, there's nothing there to explain how Intel would make money in a smartphone world dominated by Marvell (which acquired Intel's ARM business in 2006...), Qualcomm (the wireless hardware/firmware giant), Google's Android, and Apple's iOS. The smartphone conjecture doesn't answer the $7.6B question.

Is there another explanation?

Intel has squandered billions in unsuccessful attempts to shed the Wintel yoke: server farms, toys (I'm not kidding, see here), modems and networking gear, software...all to no avail. The yoke can be appreciated through this thought experiment: Take two processors, same computing power, cost, technology, die size, heat dissipation; they're equal in everything but software support. One runs Windows, the other doesn't. Which one will fetch the higher price?

Intel execs hate the Wintel tag because it conveys the unpleasant truth of their dependence on Microsoft. They keep looking for a different life, either by finding ways to assume control of the Microsoft relationship, or by hacking a path towards a Microsoft-free business model.

Lastly, we have the formerly Don't Be Evil Google becoming more and more Orwellian. Late last year, Google CEO Eric Schmidt made waves (no insider pun) when he told us we have no privacy: "If you have something that you don't want anyone to know, maybe you shouldn't be doing it in the first place." That sally earned him some choice retorts (see here). Earlier this month, Schmidt caught more flak for suggesting that young people might someday be entitled to change their names in order to escape their web-cached past. John Gruber, a noted blogger, calls Schmidt Google's "Creep Executive Officer".

And now we see Google, in an alliance with Verizon, trying to neuter network neutrality. (An attitude that was promptly applauded by AT&T.) In true freedom is slavery language, Google pledges its undying commitment to neutrality for one and all...with the notable exceptions of future managed services and wireless networks.

How much of this is part of Google's special relationship with Verizon to promote Android, and of Verizon's efforts to gain the upper hand in their negotiations with Apple, we can only speculate.

But Verizon shouldn't rejoice too quickly: Google Voice just became available through Gmail. This might sound innocuous until one realizes that this could be the beginning of the end for phone numbers, one more step in the disintermediation of carriers, in their reduction to bit pipes. We call people, not numbers; a Gmail address will do just fine, thanks.

More on this in future Monday Notes, this last topic is much more important than HP shenanigans or Intel existential pains.