Donovan’s views:: Taking care of corporate business, part II

Posted by Dennis Sellers Jan 22, 2008 at 12:36pm

By Gaurang Donovan

More articles on Apple’s extension into the enterprise are appearing. One columnist recently wrote small and medium sized business (SMB) support may now be provided given the cluster of Apple Stores (13 in New York) nearby. Safety in numbers?

While small businesses shoestring budgets may dictate this I don’t think this is possible for the larger operations. Enterprise support is demanding and takes resources. Steve Jobs and some of his NeXT lieutenants know that. I personally saw some of what was required with the 3500 NeXT and OpenStep machines at Swiss Banc Corporation in the mid 1990s. From that experience I believe Apple wisely accepted the reality to stay out on the corporate periphery initially and let stealth intrusions into corporate IT departments. 

Until now. 

But prepare for the effort and do that preparation in a cost efficient manner. I am not calling for a radical expansion of resources in Apple. Just the opposite for now.

Let me pose a question: Just how easy is it for a non-Mac administrator to learn and become confident on how to extend his expertise to actually implement Apple products into his enterprise’s network that he is responsible for maintaining in working order 24/7?

(If you are familiar with the Mac server set-up and demands, you might want to reverse the question – how confident are you in taking up the responsibility for a Windows Server set-up? Exchange server support alone causes me to tremble.)

If the individual has to set-up, administer and support it, they are hardly going to push for an item they have no experience with, no confidence in, and perhaps no fall-back position for in case it does provide them to tremble. 

Apple runs training classes for server administrators, Xserve RAID administrators, Directory administrators and they delve deeper into the subjects more than any material a user manual normally expresses to a reader. The classes tend to run three to five days and cost anywhere between $1,800 to $2,500. They are held in select cities and require further expenditures for travel and housing for those not living nearby. There is also time away from jobs and responsibilities for the participants. As I have attended eight of these classes since 2000, I can see the trouble other participants have had in just attending the class yet alone implementing what they have learned back in their job site.

Yet I have also come to appreciate the same high quality effort Apple extends to creating the training materials and exercises. As I have helped others on set-ups I have wondered why they have not expanded the circle for these materials  and made them more wide spread so more people might learn of these technologies and how to set them up. Many of the writers and contributors have gone off and authored books and chapters on the same subject if you research it. The high cost of classes in terms of fees, attendance hours and overall hours and travel and housing fees has made it difficult for many who have decided to pass up on the training and try themselves.

That single method of training effort is not going to build a greater body of individuals who actually know the ins and outs of their software administration and setups. While the effort to date has been good enough to support in-house continuation of the training class effort as well as the jobs for the people running the program and all the trainers, I question if the objective of growing a base of knowledgeable administrators so server products can be implemented in more organizations has been met. Another direction, perhaps more drastic, should be sought. 

Here are some ideas:

a.) Sell the materials by class, chapter or section at a reasonable price. (DNS, OpenDirectory and Security chapters mandatory minimum. Things go very wrong on a server setup when neglecting these matters and so much trouble can be prevented with their proper use.)

b.)The price of the training is reduced for certain hardware purchases.

c.) Create some kind of multi-media class to be delivered at any hour of the day and integrate iChat follow-ups/question times.

d) Simply pay the same authors (whatever PeachPit and O’Reilly pay) and give it away as a free download. 

(How many books did they sell and how much did the authors make for their writing? Could Apple pay for the writing and turn it loose gaining more people with knowledge of how to go about setting up a server in an enterprise and maybe selling more?)

Historical enterprise software example: WebObjects involvement in the sheer size and success of the online Apple Store and the business it does as well as the largest online music store iTunes draws me to the conclusion that perhaps the most enterprise capable of Apple software failed in the marketplace due to the lack of enterprise support and training classes. Dot Mac uses it too. It is a very complicated piece of software, still technically advanced and simply not used by many others in the marketplace despite the billion of dollars Apple has raked in through its own use of it. It is incredible more management consultants and enterprise analysts have not really picked up on its role in Apple’s online success and the flexibility it has provided for Apple as it extends many online services. In its recent years this diminished support and training has hurt it very badly in the marketplace but it clearly has been one of the best investment Apple has every put into software development at the enterprise level. Others would be wise to take a look at its role in these successes. At one time there were three training class involving 13 days of class room teaching and you were expected to have Java and SQL knowledge and experience before attending. The bill for those classes totaled $7000.  I waited and waited for the second class to be held in Australia or Hong Kong yet it never happened as the required minimum number of people failed to sign up. My other option was to fly to the UK or the US to attend it. 

For those admins without the full confidence for implementation yet, another tool is being created. But not directly by Apple. Virtualization. Don’t pass up a look at what is happening in the server virtualization products by VMware and Parallels. The ability to test and deploy on the same server hardware at the same time will allow confidence that setups are working correctly and as expected.

Options and pay

The Compensation Committee may need to start to think different on what it takes to attract and retain key personnel. I sometimes stop and ask “how much” when I hear of certain management personalities cashing in of stock options or the restricted stock grants. How many millions? Are they really worth that given all the other hands involved in the success of a product or service? Were they that instrumental? Perhaps they were but I think there may be other methods to be considered or developed. The last annual report lists at least two lawsuits still going on over options and they will be news headlines in the future. Some large investment funds holding shares are expressing their dislike of these rewards and management behavior at times. 

These key personnel on the management team collect a large salary and a very good bonus every year. Yet their options/stock grants still make up the majority of their overall compensation – more than 90%. Hmmm. That pattern has been seen by many other companies and has to led to much trouble and complaining by officials and shareholders that maybe Apple could break the mold and try another approach. I understand the need for high pay to attract and retain personnel but I have a problem with the open ended part of the equation. Perhaps it is time to increase the salary and bonus and reduce the compensation in stock. Instead of a $9 million dollar grant of restricted stock grant to go with your salary, how about an approach of raising your $500,000 annual salary to $5 million (or the appropriate attract and retain level)? The bonus is not decided, it will not exceed your annual salary but it could match it. If you want to invest a certain small percentage of your salary in the company’s stock we can sell you a certain fixed percentage of your salary at a reduced price on a monthly basis. For the rest of the shareholdings you will have to go out and buy them in the market just like you buy other company’s shares and just like other shareholders.

Recently a restricted stock grant to the newly hired corporate legal counsel when he joined in November on his first day that was worth $25 million. Since the 133,000 share grant has lost $3.5 million in value since the grant, does that mean he is likely to be searching for a new job or is any less motivated at doing his job? 

By the way with the size of that grant can I ask if there a lawyer shortage in California I have not read about? Please don’t get me started on the jokes about “competent” lawyers. Mr. Cooperman is VERY competent as his record at Oracle and their successful court case outcome with the government shows.

Finally when will we see the news that the members of the key management circle are cashing their options to buy shares as they expire and selling only those necessary to pay the tax owed on the options and then holding the rest of the shares and not selling them because they think they will go up in value? That is exactly what Steve Jobs has done in March 2006, the only time he exercised his options and sold shares since he took over as CEO. Why don’t the others have the same long term outlook and bullish sentiment?

Japan, Australia, France and China

Steve Jobs mentioned in a 2005 London visit that France would have a Apple Store retail store later in 2007. It has not happened and that is a pity. Ron Johnson mentioned late last year in an interview that they would open a store in Beijing at the Olympic Games time. This former resident of Beijing and Hong Kong advises to tread carefully here in China and put the France store on a greater priority. (David Feng of Beimac.com and Macsimiumnnews contributor and others are not going to like to read that remark but hear me out before dismissing the idea). 

Despite the attractions of China’s markets and consumers, few multi-national retail operations have proven profitable in China over the years. Many appear to be involved in the retail market of China as a public relations exercise, simply moving more product and not necessarily at a profit. Others are simply engaged in China to allow a boss to tell his board that they are now in China without revealing that they are not making a cent of profit. I would want to be sure about the Beijing store generating the profits needed to sustain it in the long term (yet alone a basis to expand to other cities). 

Apple products are represented in the market place at present through re-sellers who are bearing all the risks and costs. These four pages in the Chinese language lists plenty of re-seller outlets in addition to the Apple online store telephone number. (http://www.apple.com.cn/store/) Four pages and in some smaller cities so there is representation.

Perhaps the greatest arguments to pull back are the history of post-Olympic host countries economic downturns as well as to avoid paying top dollar in leasing space by simply waiting one more year. I would at least advise a flagship store be sacrificed for smaller and less costly stores and locations just like the re-sellers have done. While a flagship store would easily attract the foot traffic and break any existing record the London Regent St. store holds, it sales may not even make it profitable. It is also arguable that Mac user traits found in a recent survey are more applicable to having the greater China effort and first store located in Shanghai instead of Beijing. They supposedly have always thought differently than the rest of the nation.

More stores, more foot traffic, more sales? Japan has seven stores. The last one opened in mid-2006. Sales in Japan and market expansion/share have been less than satisfactory for many quarters according to Apple management on their financial reporting conference calls and their reported numbers bear the lackluster results out. I am sure these seven stores have contributed to avoiding further lackluster performance in sales and have kept the interest of Japanese consumers. But it proves opening an Apple Store does not mean immediate profit and increased market share for any of the Apple products. And everyone has seen the video of the long line of thousands waiting for the opening of the first Apple Store (if not, you catch it here: www.youtube.com/watch?v=9TyR3fyLO_I ).

The largest Mac reseller in Australia and its 17 store outlets was sold last year to a cellular phone reseller for just over $21 million. Apple was approached by the re-seller before the final sale and told of its intentions. While this purchase price is smaller in size than some recent restricted stock grants for some of the key management and probably not even registering on their radar, I wonder if Apple could have bought it to operate while they develop some into Apple Stores and simply drop the ones in good time. It may not may the same media splash but it is a thought different than the usual Apple path and instantaneously the largest national Apple retail presence.

Part one of this article can be found here.

(Columnist Gaurang Donovan is a “mystery man” who wishes to keep his identify secret for personal and business reasons—Dennis)

The “Macsimum MWSF 2007 Coupon Book” is available for download. You can find it here and print it as a PDF. It has discounts, special offers and promotions in conjunction with the upcoming Macworld Conference & Expo in San Francisco.

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